AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 6, 1999
FILE NO. 1-15313
WASHINGTON, D.C. 20549
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR (G) OF
THE SECURITIES EXCHANGE ACT OF 1934
AMENDMENT NO. 4
DELAWARE 43-0334550
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
LAKEVIEW CENTER, SUITE 400
14500 SOUTH OUTER FORTY ROAD
CHESTERFIELD, MISSOURI 63017
(Address of principal executive offices) (Zip Code)
(314) 216-2600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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Securities to be registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
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Common Stock, par value $.01 per share New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
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Securities to be registered pursuant to Section 12(g) of the Act:
NONE
(Title of class)
CRANE (R)
CRANE CO. 100 FIRST STAMFORD PLACE, STAMFORD, CONNECTICUT 06902
December 6, 1999
Dear Shareholder:
The enclosed Information Statement sets forth information regarding Huttig Building Products, Inc., the spin-off of Huttig common stock to Crane shareholders on a tax-free basis and the acquisition by Huttig of Rugby USA, Inc. immediately after the spin-off. With the spin-off, Huttig will become a separate public company listed on the New York Stock Exchange. If you are a holder of Crane common stock on December 8, 1999, the record date for the spin-off, you will receive one share of Huttig common stock for every 4.5 shares of Crane common stock you own on that date. On December 16, 1999, a certificate for the number of whole shares of Huttig common stock that you receive in the spin-off will be mailed to you.
Huttig's business is wholesale distribution of doors, windows, millwork and other building products, which is substantially different from Crane's manufacturing businesses. The separation of this distribution business from Crane's manufacturing businesses should produce added value for Crane shareholders because the market will be better able to see the strength of our manufacturing businesses. Rugby USA is also a distributor of building products, and the combination of Huttig and Rugby USA will produce a more effective participant in the consolidation currently taking place in the building products distribution industry.
The attached Information Statement contains important information about Huttig's organization, business and strategies, including financial information, as well as business and financial information concerning Rugby USA. We urge you to read it carefully and to keep it for future reference.
You are not required to take any action to participate in the spin-off. We are not soliciting your proxy, because shareholder approval of the spin-off is not required.
Sincerely,
/s/ R. S. Evans R. S. Evans Chairman and Chief Executive Officer |
INFORMATION STATEMENT
CRANE CO.'S SPIN-OFF
OF
HUTTIG BUILDING PRODUCTS, INC.
You are being furnished with this Information Statement in connection with the tax-free spin-off by Crane Co. of all of the outstanding common stock of Huttig Building Products, Inc. to stockholders of Crane and the subsequent acquisition by Huttig of Rugby USA, Inc. Huttig is in the business of distributing and manufacturing building products and comprises the substantial majority of Crane's Wholesale Distribution segment. Rugby USA, a U.S. subsidiary of The Rugby Group PLC, a U.K. company, is also a distributor of building products.
Crane will accomplish the spin-off by distributing all issued and outstanding shares of Huttig common stock to holders of Crane common stock. Crane will distribute one share of Huttig common stock for every 4.5 Crane shares held as of the close of business on December 8, 1999. The actual number of Huttig shares to be distributed will depend on the number of Crane shares outstanding on that date. Assuming that Huttig completes the acquisition of Rugby USA immediately following the spin-off, Rugby would then hold approximately 32% of the combined company's common stock and the former stockholders of Crane would hold approximately 68% of the combined company's stock.
OWNING SHARES OF HUTTIG COMMON STOCK WILL ENTAIL RISKS. PLEASE READ "RISK
FACTORS" BEGINNING ON PAGE 9.
NO VOTE OF CRANE STOCKHOLDERS IS REQUIRED IN CONNECTION WITH THE SPIN-OFF OR THE ACQUISITION. YOU ARE NOT BEING ASKED FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND HUTTIG OR CRANE A PROXY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS INFORMATION STATEMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
The date of this Information Statement is December 6, 1999.
TABLE OF CONTENTS
PAGE
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SUMMARY ................................................................................ 3
RISK FACTORS ........................................................................... 9
CAUTIONARY STATEMENT ................................................................... 13
BUSINESS OF COMBINED COMPANY ........................................................... 13
BUSINESS OF HUTTIG ..................................................................... 13
Overview ............................................................................ 13
Industry Trends ..................................................................... 14
Strategy ............................................................................ 15
Products ............................................................................ 16
Purchasing .......................................................................... 17
Sales and Marketing ................................................................. 17
Customers ........................................................................... 17
Competition ......................................................................... 18
Facilities .......................................................................... 18
Tradenames .......................................................................... 18
Employees ........................................................................... 19
Seasonality ......................................................................... 19
Backlog ............................................................................. 19
Legal Proceedings ................................................................... 19
Environmental ....................................................................... 19
BUSINESS OF RUGBY USA .................................................................. 19
HUTTIG HISTORICAL SELECTED FINANCIAL DATA .............................................. 21
HUTTIG MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION ................................................................... 22
HUTTIG UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION .................... 26
CREDIT FACILITES ....................................................................... 33
Bank Revolving Credit Facility ...................................................... 33
Senior Notes ........................................................................ 34
THE SPIN-OFF ........................................................................... 34
Reasons for the Spin-Off ............................................................. 34
Manner of Effecting the Spin-Off ..................................................... 35
Results of the Spin-Off .............................................................. 36
Certain Federal Income Tax Consequences of the Spin-Off .............................. 36
Listing and Trading of Huttig Common Stock ........................................... 37
ARRANGEMENTS WITH CRANE RELATING TO THE SPIN-OFF ....................................... 38
Distribution Agreement ............................................................... 38
Employee Matters Agreement ........................................................... 40
Tax Allocation Agreement ............................................................. 41
THE ACQUISITION TRANSACTIONS ........................................................... 42
Share Exchange Agreement ............................................................ 42
The Registration Rights Agreement ................................................... 45
Transition Services Agreement ....................................................... 47
MANAGEMENT ............................................................................. 49
Directors ............................................................................ 49
Committees of the Board of Directors ................................................. 51
Compensation of Directors ............................................................ 51
Executive Officers ................................................................... 52
BENEFICIAL OWNERSHIP OF HUTTIG COMMON STOCK BY DIRECTORS AND MANAGEMENT ................ 53
PRINCIPAL STOCKHOLDERS OF HUTTIG ....................................................... 54
COMPENSATION OF EXECUTIVE OFFICERS ..................................................... 55
Summary Compensation Table ........................................................... 55
Option Grants In Last Fiscal Year .................................................... 56
Aggregate Option Exercises In Last Fiscal Year and Fiscal Year-End Option Values ..... 57
Retirement Benefits .................................................................. 57
Other Agreements and Information ..................................................... 59
DESCRIPTION OF HUTTIG CAPITAL STOCK .................................................... 59
Common Stock ......................................................................... 59
Preferred Stock ...................................................................... 60
Rights Plan .......................................................................... 60
Certain Provisions of Huttig's Governing Documents ................................... 62
Anti-takeover Legislation ............................................................ 63
Transfer Agent and Registrar ......................................................... 63
LIABILITY AND INDEMNIFICATION OF HUTTIG OFFICERS AND DIRECTORS ......................... 63
Elimination of Liability ............................................................. 63
Indemnification of Officers and Directors ............................................ 64
WHERE YOU CAN FIND MORE INFORMATION .................................................... 64
INDEX TO FINANCIAL STATEMENTS .......................................................... F-1
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SUMMARY
This summary highlights selected information from this document, but does not contain all the details concerning the spin-off or the acquisition, including information that may be important to you. To better understand Huttig, Rugby USA, the spin-off and the acquisition, you should carefully review this entire Information Statement and the documents it refers to. See "Where You Can Find More Information" on page 64.
OVERVIEW OF THE TRANSACTIONS AND THE COMPANIES
In this Information Statement:
o Crane Co. and its subsidiaries and divisions are referred to as "Crane"
o Huttig Building Products, Inc. and its subsidiaries and divisions are referred to as "Huttig"
o The Rugby Group PLC and its subsidiaries and divisions are referred to as "Rugby"
o Rugby USA, Inc. and its subsidiaries and divisions are referred to as "Rugby USA"
o The company formed by the combination of Huttig and Rugby USA is referred to as the "combined company"
Huttig is being spun off to Crane's stockholders as a new public company that will be known as "Huttig Building Products, Inc." after the spin-off. Subject to certain conditions, Huttig would then acquire Rugby USA from Rugby in exchange for shares of Huttig common stock. See "The Spin-Off" and "The Acquisition Transactions" beginning on pages 34 and 42, respectively, for further information on these transactions.
Huttig is a distributor of building materials used principally in new residential construction and in home improvement, remodeling and repair work. Its products are distributed through 45 distribution centers serving 41 states principally to building materials dealers (who, in turn, supply the end-user), directly to professional builders and large contractors, and to home centers, national buying groups and industrial and manufactured housing builders. Huttig's American Pine Products manufacturing facility, located in Prineville, Oregon, produces softwood moldings. Approximately 20% of its sales are to Huttig's distribution centers.
Huttig's growth strategy is to provide the residential construction business with differentiated building products and excellent service and to enhance Huttig's profitability through increased efficiencies. Huttig plans to execute this strategy through acquisitions that allow it to expand geographically, consolidate in existing markets or broaden its customer base, and by focusing on customer service, capitalizing on the size of its distribution center network and reducing its transaction costs.
Rugby USA is also a distributor of building materials to the new residential construction and home improvement markets, selling principally to building materials dealers, home centers and national buying groups. At the time of the exchange, Rugby USA will have 31 distribution centers serving 34 states. Rugby USA's strategy is to operate a streamlined, effective and highly responsive distribution business, based on efficient processes at the branch level combined with strong centralized support.
For further information on Huttig and Rugby USA, see "Business of Huttig" beginning on page 13 and "Business of Rugby USA" beginning on page 19.
Following these transactions, Huttig will:
o be a separate public company, initially owned approximately 68% by former Crane stockholders and approximately 32% by Rugby;
o own and operate the business of Huttig and the acquired distribution centers of Rugby USA; and
o have total assets of approximately $340.3 million and initial long-term debt of approximately $101.2 million (on a pro forma basis assuming the spin-off and acquisition occurred on September 30, 1999).
The combined company will be one of the largest domestic distributors of building materials. Through its combination with Rugby USA, Huttig expects to enhance its ability to leverage its size to achieve economies of scale in administrative functions, to negotiate beneficial purchasing terms and to improve its systems. These benefits are expected to be further leveraged through the consolidation of overlapping distribution centers in certain geographic areas. Also, in addition to expanding Huttig's presence in Eastern United States markets generally, Rugby USA would add significantly to Huttig's markets in the Midwest, particularly in Indiana and Missouri.
QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS
Why is Huttig being spun off by o Huttig is being spun off for the following reasons:
Crane?
o The spin-off is necessary to effect Huttig's
acquisition of Rugby USA and should allow Huttig to
pursue more effectively its acquisition strategy by,
among other things, providing it the flexibility to use
its stock as currency to purchase other potential
acquisition targets.
o The growth and management strategies of Huttig's
distribution business are not fully aligned with the
other businesses of Crane. Separation of its business
from Crane will allow Huttig to better position its own
strategic objectives in its area of expertise, which
should result in enhanced growth.
o The spin-off will enable Huttig to have direct access
to capital markets. Depending upon market
conditions, Huttig may raise equity capital to retire
some or all of its outstanding debt. With certain
exceptions, the Registration Rights Agreement with
Rugby prohibits Huttig from publicly offering any
newly issued shares of common stock until the
earlier of the date on which Rugby disposes of 50
percent of the Huttig common stock received in the
exchange and two years after the completion of the
exchange.
o The spin-off will allow Huttig to recruit, retain and
motivate key employees by providing them with
stock-based compensation incentives directly tied to
the success of Huttig's business.
Will Crane complete the spin-off even if o Yes. The spin-off will occur on December 16, 1999. After
the acquisition of Rugby USA cannot be the spin-off, Huttig will complete the acquisition of
completed? Rugby USA if all of the pre-conditions in the Share
Exchange Agreement with Rugby have been satisfied.
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When will the acquisition of Rugby USA o Huttig expects the acquisition to occur immediately
take place? after the spin-off is completed. However, Huttig and
Rugby generally have until January 31, 2000 to
complete the acquisition under the Share Exchange
Agreement.
What will I receive in the spin-off? o Crane will distribute one share of Huttig common
stock together with an accompanying preferred share
purchase right for every 4.5 shares of Crane common
stock owned as of December 8, 1999. As soon as
practicable after the spin-off, the distribution agent
will mail to you a certificate representing the whole
shares of Huttig common stock and preferred share
purchase rights that you receive in the spin-off. You
will continue to own your Crane common stock.
How will you treat fractional shares? o If you are otherwise entitled to receive a fractional
share of Huttig common stock you will receive cash
instead of the fractional share. Fractional shares will
be aggregated and sold by the distribution agent,
which will distribute to you your portion of the cash
proceeds promptly after the spin-off. No interest will
be paid on any cash distributed instead of fractional
shares.
What do I have to do to participate in o Nothing. No Crane stockholder vote is required for
the spin-off? the spin-off.
How many Huttig shares will be o When the spin-off and acquisition are completed,
outstanding after the spin-off and the Huttig expects that there will be approximately 20.5
acquisition of Rugby USA? million Huttig shares outstanding, approximately 68%
of which will be held by former Crane stockholders
and approximately 32% of which will be held by
Rugby.
What is Huttig's dividend policy? o Huttig currently anticipates that no cash dividends
will be paid on Huttig common stock in the
foreseeable future in order to conserve cash for use in
Huttig's business, for possible future acquisitions and
for debt reduction. It is expected that Huttig will
periodically re-evaluate this dividend policy taking
into account its operating results, capital needs and
other factors.
How will Huttig common stock trade? o Huttig common stock has been approved for listing
on the New York Stock Exchange under the symbol
"HBP". Huttig expects that regular trading will begin
on December 17, 1999. A temporary form of interim
trading called "when-issued trading" may occur for
Huttig common stock on or about December 8, 1999
and continue through December 16, 1999. A
when-issued listing can be identified by the "wi"
letters next to Huttig common stock on the New York
Stock Exchange Composite Tape.
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If when-issued trading develops, you may buy or sell
Huttig common stock in advance of the December 16,
1999 spin-off. When-issued trading occurs in order to
develop an orderly market and trading price for
Huttig common stock after the spin-off.
o Crane common stock will continue to trade on a
regular basis and may also trade on a when-issued
basis, reflecting an assumed post-spin-off value for
Crane common stock. When-issued trading in Crane
common stock, if available, could last from on or
about December 8, 1999 through December 16, 1999.
If this occurs, an additional listing for Crane common
stock, followed by the "wi" letters, will appear on the
New York Stock Exchange Composite Tape.
Is the spin-off taxable for United States o No. Crane has received a tax ruling from the Internal
federal income tax purposes? Revenue Service stating in principle that the spin-off
will be tax-free to Crane and to Crane's stockholders.
See "Risk Factors" and "The Spin-Off -- Certain
Federal Income Tax Consequences of the Spin-Off."
Can you explain the purposes and effects o The preferred share purchase rights that will
of the rights plan? accompany each share of Huttig common stock are
designed to assure that all Huttig stockholders receive
fair and equal treatment in the event of any
unsolicited proposal to acquire control of Huttig and
to guard against takeover tactics that are not in the
best interests of all stockholders. The rights will be
exercisable only if a person or group (other than
Huttig, any employee benefit plan of Huttig, certain
Crane charitable funds, including The Crane Fund,
and Rugby, within certain limits) acquires 20% or
more of Huttig's outstanding common stock (an
"acquiring person") or announces a tender offer the
consummation of which would result in ownership by
a person or group of 20% or more of the outstanding
Huttig common stock. Each right will entitle holders
of Huttig common stock to buy one one-hundredth of
a share of Huttig junior participating preferred stock
at an exercise price of $27.50 per share. In specified
circumstances after the rights become exercisable,
however, the rights will entitle stockholders other than
the acquiring person to receive upon exercise shares
of Huttig common stock having a market value of two
times the exercise price of the right. Accordingly, the
rights could make the acquisition of control of Huttig
in a transaction not approved by Huttig's board of
directors more difficult.
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Will Huttig be related to Crane in any o The board of directors of Huttig consists of six
way after the spin-off? directors, five of whom currently serve as directors of
Crane. Mr. R. S. Evans, Chairman and Chief Executive
Officer of Crane, is the Chairman of Huttig. After
completion of the acquisition of Rugby USA, individuals
serving as directors of Crane would constitute five of
the nine directors of Huttig.
o Crane's largest stockholder, The Crane Fund, will also
be Huttig's largest stockholder immediately after the
spin-off, holding approximately 12.4% of Huttig's
outstanding common stock. The current trustees of
The Crane Fund are officers of Crane. After the
acquisition of Rugby USA, Rugby would be Huttig's
largest stockholder and The Crane Fund would hold
only approximately 8.4% of Huttig's outstanding
common stock. See "Principal Stockholders of
Huttig."
o Huttig and Crane have entered into the following
agreements described under "Arrangements with
Crane Relating to the Spin-Off":
o A Distribution Agreement, which provides for the
actions required to separate Huttig's businesses
from other businesses of Crane and governs various
relationships and circumstances that may arise
between Huttig and Crane after the spin-off.
o An Employee Matters Agreement, which addresses
issues between Crane and Huttig about employees,
pension and other employee benefit plans and other
compensation arrangements for current and former
employees of Huttig.
o A Tax Allocation Agreement dividing certain U.S.
federal, state, local and non-U.S. tax liabilities
between Crane and Huttig.
o Crane will not own any Huttig common stock after
the spin-off.
Are there any risks entailed in owning o Yes. Stockholders should consider carefully the
Huttig common stock? matters discussed in the section of this Information
Statement called "Risk Factors."
Who will serve on the Huttig Board of o The Huttig board of directors consists of the following
Directors? individuals, all of whom are currently directors of
Crane other than Mr. Kulpa: Mr. E. Thayer Bigelow,
Jr., Mr. R. S. Evans, Mr. Richard S. Forte, Mr. Dorsey
R. Gardner, Mr. Barry J. Kulpa, and Mr. James L. L.
Tullis. Upon completion of the acquisition, the board
of directors would be expanded to nine members and
three designees of Rugby would become members of
the board. See "Management -- Directors."
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Who will run Huttig? o It is expected that Huttig senior management after
the spin-off will be the same persons who are
currently serving as executive officers of Huttig,
except that upon completion of the acquisition of
Rugby USA, Mr. Stephen C. Brown, currently the
President of Rugby USA, would be appointed as
Chief Operating Officer of Huttig. Mr. R.S. Evans,
Chairman and Chief Executive Officer of Crane, will
continue to be the Chairman of Huttig. "See
Management -- Executive Officers."
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WHO CAN HELP ANSWER YOUR QUESTIONS
Stockholders of Crane with questions relating to the spin-off should contact:
Beacon Hill Partners, Inc. 90 Broad Street
New York, New York 10004 (800) 967-7635
The distribution agent for Huttig common stock in the spin-off and the transfer agent and registrar for Huttig common stock after the spin-off is:
ChaseMellon Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield, New Jersey 07660
(201) 296-4000
RISK FACTORS
o IF HUTTIG ACQUIRES RUGBY USA, POTENTIAL DIFFICULTIES IN COMBINING THE OPERATIONS OF THE COMPANIES COULD HAVE A MATERIAL ADVERSE EFFECT ON HUTTIG'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Huttig and Rugby USA have previously operated separately. The proposed management team of the combined company does not have experience with the combined business of Huttig and Rugby USA. The combined company may not be able to integrate the operations of Huttig and Rugby USA without a loss of key employees, customers or suppliers; loss of revenues; increase in operating or other costs; or other difficulties. In addition, the combined company may not be able to realize the operating efficiencies and other benefits sought from the spin-off and the acquisition.
o CYCLICALITY AND SEASONALITY IN THE NEW RESIDENTIAL CONSTRUCTION AND HOME IMPROVEMENT INDUSTRY COULD HAVE A MATERIAL ADVERSE EFFECT ON HUTTIG'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Huttig's and Rugby USA's sales depend heavily on the strength of the national and local new residential construction and home improvement and remodeling markets. The strength of these markets depends on new housing starts and residential renovation projects, which are a function of many factors beyond Huttig's control, including interest rates, employment levels, availability of credit, prices of commodity wood products and consumer confidence.
Future downturns in the markets that Huttig and, if the Rugby USA acquisition is completed, the combined company, serves could have a material adverse effect on Huttig's operating results or financial condition. In addition, because these markets are sensitive to cyclical changes in the economy in general, future downturns in the economy could have a material adverse effect on Huttig's financial condition and results of operations.
Huttig's first quarter and, to a lesser extent, its fourth quarter, are typically adversely affected by winter construction cycles and weather patterns in colder climates as the level of activity in the new construction and home improvement markets decreases. Because much of Huttig's overhead and expense remains relatively fixed throughout the year, its profits also tend to be lower during the first and fourth quarters. Rugby USA's sales and profits are subject to similar seasonal fluctuation. The effects of winter weather patterns on Huttig's business are offset somewhat by the increase in residential construction activity during the same period in the deep South, Southwest and Southern California markets in which Huttig participates. It is expected that these seasonal variations will continue in the future.
o COMPETITION IN THE BUILDING PRODUCTS DISTRIBUTION INDUSTRY COULD RESULT IN LOWER SALES AND PRICES, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON HUTTIG'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The building products distribution industry is highly competitive. The principal competitive factors in this industry are:
o availability of product;
o service and delivery capabilities;
o ability to assist with problem-solving;
o relationships with customers; and
o breadth of product offerings.
Also, financial stability and geographic coverage are important to manufacturers in choosing distributors for their products.
Huttig's competition varies by product line, customer classification and geographic market. It competes with many local, regional and, in certain markets and product categories, national building products distributors and dealers. Huttig also competes with major product manufacturers with national distribution capability. To a limited extent in certain markets, Huttig competes with the large home center chains for the business of smaller contractors. There can be no assurance that competition from these large home center chains will not, in the future, include competition for the business of larger contractors. Rugby USA's competitors and competitive environment are similar to Huttig's, except that Rugby USA generally does not compete with home centers or otherwise in the market for direct sales to builders and contractors.
Some of Huttig's competitors have greater financial and other resources. This will continue to be the case after the acquisition of Rugby USA. Because they have greater resources, they may be able to withstand sales or price decreases better than Huttig can. There can be no assurance that Huttig will be able to respond effectively to the competitive pressures in its industry.
o HUTTIG'S PLANNED PURSUIT OF ACQUISITIONS INVOLVES RISKS THAT MAY HAVE AN ADVERSE EFFECT ON HUTTIG'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
As part of its growth strategy, Huttig plans to pursue additional acquisitions. Other than the acquisition of Rugby USA, Huttig has no present intention to make any specific acquisitions. If Huttig is not correct when it assesses the value, strengths, weaknesses, liabilities and potential profitability of acquisition candidates or it is not successful in integrating the operations of the acquired businesses, it could have a material adverse effect on Huttig's financial condition and results of operation. Huttig also may not be successful finding desirable acquisition candidates or completing acquisitions with candidates that it identifies. Depending upon the size of a particular transaction or the magnitude of Huttig's acquisition activity in the aggregate, future acquisitions could require additional equity capital, further borrowings and/or the consent of Huttig's lenders. Future acquisitions that Huttig finances through issuing equity securities could be dilutive to then current stockholders. There can be no assurances that Huttig's lenders will consent to any capital raising or acquisition transactions.
o HAVING NO OPERATING HISTORY AS A STAND-ALONE COMPANY MAKES IT IMPOSSIBLE TO PREDICT HUTTIG'S PROFITABILITY AFTER THE SPIN-OFF.
Huttig has historically relied on Crane for certain financial and administrative services, such as treasury, legal, tax, insurance and employee benefit plan administration. Following the spin-off, Huttig will incur the additional costs of performing these functions itself, as well as the additional expenses associated with the management of a public company. While Huttig has been profitable as part of Crane, there can be no assurance that, as a stand-alone company, its future profits will be comparable to historical results before the spin-off. See "Huttig Unaudited Pro Forma Condensed Combined Financial Information."
o IF HUTTIG CANNOT ATTRACT AND RETAIN KEY PERSONNEL IT COULD HAVE A MATERIAL ADVERSE EFFECT ON ITS FUTURE SUCCESS.
Huttig's future success depends to a significant extent upon the continued service of its executive officers and other key management and technical personnel and on its ability to continue to attract, retain and motivate qualified personnel. The combined company's future success will also depend in significant part upon its ability to retain key management and employees of Rugby USA. The loss of the services of one or more key employees or Huttig's failure to attract, retain and motivate qualified personnel could have a material adverse effect on Huttig's financial condition and results of operations.
o ANY INABILITY TO OBTAIN THE PRODUCTS THAT HUTTIG DISTRIBUTES COULD HAVE A MATERIAL ADVERSE EFFECT ON ITS FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Huttig distributes building products that are manufactured by a number of major suppliers. As is customary in this industry, Huttig's contracts with its suppliers are terminable without cause on short notice. Although Huttig believes that its relationships with its suppliers are strong and that it would have access to similar products from competing suppliers, any disruption in its sources of supply, particularly of the most commonly sold items, could have a material adverse effect on its financial condition and results of operations. Rugby USA also does not have long-term contracts with its suppliers. Supply shortages may occur as a result of unanticipated demand or production difficulties. When shortages occur, building material suppliers often allocate products among distributors. Future shortages may occur from time to time and may have a short-term material adverse effect on Huttig's or the combined company's financial condition and results of operations.
o HUTTIG'S FINANCIAL PERFORMANCE IS INFLUENCED BY THE FLUCTUATION IN PRICES OF COMMODITY WOOD PRODUCTS THAT HUTTIG BUYS AND THEN RESELLS.
In parts of Huttig's business, such as the softwood molding manufacturing operation and certain of its distribution centers, Huttig is subject to periodic fluctuations in the prices of wood commodities. Huttig's profitability is influenced by these fluctuations due to the change in wood commodity prices between the time it buys them and the time it resells them. The profitability of certain of Rugby USA's distribution centers is also affected by these fluctuations. There can be no assurance that an inability to manage these fluctuations would not have a material adverse effect on Huttig's or the combined company's financial condition and results of operations.
o BECAUSE THERE HAS BEEN NO PRIOR MARKET FOR HUTTIG'S COMMON STOCK, IT IS IMPOSSIBLE TO PREDICT THE PRICES AT WHICH HUTTIG COMMON STOCK WILL TRADE IN THE OPEN MARKET.
There has been no prior trading market for Huttig's common stock, and there can be no guarantee as to the prices at which it will trade after completion of the spin-off. Until Huttig common stock is fully distributed and an orderly market develops, the trading prices for it may fluctuate significantly. The prices at which shares of Huttig common stock trade will be determined by the marketplace and may be influenced by many factors, including, among other things, the following factors:
o the depth and liquidity of the market for Huttig common stock;
o investor perceptions of Huttig, its business and the industries in which it operates and of the combined company if the acquisition of Rugby USA is completed;
o Huttig's dividend policy;
o Huttig's or the combined company's financial results; and
o general economic and market conditions.
o IF SUBSTANTIAL VOLUMES OF THE HUTTIG COMMON STOCK RECEIVED IN THE SPIN-OFF ARE RE-SOLD SOON AFTER THE SPIN-OFF, IT COULD CAUSE A DECREASE IN THE MARKET PRICE OF HUTTIG COMMON STOCK.
Substantially all of the shares of Huttig common stock distributed in the spin-off will be eligible for immediate resale in the public market. In transactions similar to the spin-off, it is not unusual for a significant redistribution of shares to occur during the first few weeks or even months following completion of the transaction because of the differing objectives and strategies of investors.
It can not be predicted whether substantial amounts of Huttig common stock will be sold in the open market following the spin-off or what effect such sales might have. A large volume of sales in the public market during this period, or the perception that any redistribution has not been completed, could have a material adverse effect on the market price of Huttig common stock.
o THE AVAILABILITY OF THE HUTTIG COMMON STOCK ACQUIRED BY RUGBY FOR FUTURE SALE COULD HAVE A DAMPENING EFFECT ON THE MARKET PRICE OF HUTTIG'S COMMON STOCK.
The market price of the Huttig common stock could be adversely affected by the availability for public sale by Rugby of all of its shares of Huttig common stock, which it may require Huttig to include in a registration statement filed under the Securities Act of 1933 not later than four months after the exchange. Thereafter, Rugby may require Huttig to include in additional registration statements shares that were not sold in the initial registration. See "Description of the Acquisition Transactions -- The Registration Rights Agreement."
o FAILURE OF REPRESENTATIONS AND ASSUMPTIONS UNDERLYING THE IRS TAX RULING COULD CAUSE THE SPIN-OFF NOT TO BE TAX-FREE TO CRANE OR TO CRANE'S STOCKHOLDERS AND MAY GIVE RISE TO INDEMNIFICATION OBLIGATIONS ON HUTTIG'S PART.
While a tax ruling relating to the qualification of a spin-off as a tax-free distribution within the meaning of Section 355 of the Internal Revenue Code generally is binding on the IRS, the continuing validity of a tax ruling is subject to certain factual representations and assumptions. Neither Crane nor Huttig is aware of any facts or circumstances that would cause the representations and assumptions contained in the tax ruling request made by Crane to be untrue.
If the spin-off were not to qualify as a tax-free distribution within the meaning of Section 355 of the Code, Crane would recognize taxable gain equal to the excess of the fair market value of the Huttig common stock distributed to Crane's stockholders over Crane's tax basis in the Huttig common stock. In addition, each Crane stockholder who receives the Huttig common stock in the spin-off would generally be treated as receiving a taxable distribution in an amount equal to the fair market value of the Huttig common stock.
If the spin-off qualified under Section 355 of the Code but was disqualified as tax-free to Crane because of certain post-spin-off circumstances, such as an acquisition of Huttig within two years after the spin-off that, together with the spin-off, is treated as pursuant to a single plan, Crane would recognize taxable gain but the spin-off would generally remain tax-free to each Crane stockholder.
The Tax Allocation Agreement provides that Huttig will be responsible for any taxes imposed on Crane that would not have been payable but for the breach by Huttig of any representation, warranty or obligation under the Tax Allocation Agreement, the tax ruling request or the Distribution Agreement. For example, under the Tax Allocation Agreement, unless Huttig receives an opinion of counsel reasonably satisfactory to Crane or a new IRS ruling to the effect that the action will not disqualify the spin-off from tax-free treatment, Huttig may not for two years after the spin-off, among other things, be acquired by a third party or repurchase more than 20% of the outstanding Huttig common stock. If any of the taxes described above were to become payable by Huttig because it breached one of these or its other representations or obligations, that payment would have a material adverse effect on Huttig's financial position, results of operations and cash flow and could exceed its net worth by a substantial amount. See "Arrangements with Crane Relating to the Spin-Off-- Tax Allocation Agreement." If, on the other hand, Huttig did not have sufficient financial resources to pay some or all of the taxes imposed on Crane as a result of a breach, the payment of some or all of the taxes by Crane could have a material adverse effect on Crane's financial position, results of operations and cash flow.
o IF HUTTIG OR THE COMBINED COMPANY IS NOT SUCCESSFUL IN MANAGING ITS YEAR 2000 TRANSITION IT COULD HAVE A MATERIAL ADVERSE EFFECT ON ITS FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Crane and Huttig are in the process of implementing plans to address issues related to the impact of the Year 2000 on Huttig's business systems, infrastructure and suppliers. The estimated costs associated with these efforts continue to be evaluated based on actual experience.
While Huttig and Rugby USA each believes, based on available information, that it will be able to manage its total Year 2000 transition without any material adverse effect on its business, financial condition and results of operations, there can be no assurance that this will be the case. In addition, Huttig and Rugby USA's businesses may be adversely affected by the failure of suppliers, customers and federal, state, local and foreign governments to address Year 2000 issues affecting their systems.
See "Huttig Management's Discussion and Analysis of Results of Operations and Financial Condition -- Year 2000."
o PROVISIONS OF HUTTIG'S GOVERNING DOCUMENTS, APPLICABLE LAW AND THE TAX ALLOCATION AGREEMENT COULD HAVE THE EFFECT OF DELAYING OR PREVENTING A CHANGE IN CONTROL OF HUTTIG, OR LIMITING CERTAIN OTHER ACTIONS OF HUTTIG, WHICH MAY HAVE AN ADVERSE EFFECT ON THE MARKET PRICE OF HUTTIG'S COMMON STOCK.
Huttig's Restated Certificate of Incorporation, Restated Bylaws and Rights Agreement, and the General Corporation Law of the State of Delaware (the "DGCL"), contain provisions that could make the acquisition of control of Huttig in a transaction not approved by Huttig's board of directors more difficult. See "Description of Huttig Capital Stock -- Rights Plan," "-- Certain Provisions of Huttig's Governing Documents," and "-- Anti-takeover Legislation." Certain tax consequences described above may also discourage an acquisition of control of Huttig for some period of time.
Huttig will be limited under the Tax Allocation Agreement in its ability to engage in certain transactions during the two-year period after the spin-off. The Tax Allocation
Agreement provides that during that two-year period, Huttig cannot liquidate, merge or consolidate with any other person without Crane's consent and that Huttig will not enter into any transaction or make any change in its equity structure that may adversely affect the tax-free nature of the spin-off. See "Arrangements with Crane Relating to the Spin-Off -- Tax Allocation Agreement."
o COMPLIANCE WITH INCREASING ENVIRONMENTAL REGULATIONS AND THE EFFECTS OF POTENTIAL ENVIRONMENTAL LIABILITIES COULD HAVE A MATERIAL ADVERSE EFFECT ON HUTTIG'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Huttig and Rugby USA are subject to federal, state and local environmental laws and regulations. Huttig has been identified as a potentially responsible party in connection with the clean up of contamination at two sites. In addition, some of Huttig's distribution centers are located in areas of current or former industrial activity where environmental contamination may have occurred, and for which Huttig, among others, could be held responsible. Huttig does not believe that its contribution to the clean up of the two sites will be material or that there are any material environmental liabilities at any of its distribution center locations. Huttig and Rugby USA each believes that it is in compliance with applicable laws and regulations regulating the discharge of hazardous substances into the environment. However, there can be no assurance that environmental liabilities of Huttig or the combined company will not have a material adverse effect on Huttig's financial condition or results of operations.
CAUTIONARY STATEMENT
You are cautioned that this document contains disclosures that are forward-looking statements. All statements regarding Huttig's and the combined company's expected future financial position, results of operations, cash flows, dividends, financing plans, business strategy, budgets, projected costs or cost savings, capital expenditures, competitive positions, growth opportunities, plans and objectives of management for future operations and markets for stock are forward-looking statements. In addition, forward-looking statements include statements in which words such as "expect," "believe," "anticipate," "intend," "plans," "should," "opportunity" or similar expressions are used. Although it is believed that the expectations reflected in such forward-looking statements are based on reasonable assumptions, no assurance can be given that such expectations will prove to have been correct, and actual results may differ materially from those reflected in the forward-looking statements.
Factors that could cause Huttig's actual results to differ from the expectations reflected in the forward-looking statements in this document include those set forth in "Risk Factors" as well as those risks relating to leverage and debt service requirements (including sensitivity to fluctuations in interest rates) and general business and economic conditions.
Neither Huttig nor Crane has any intention of or obligation to update forward-looking statements, even if new information, future events or other circumstances make them incorrect or misleading.
BUSINESS OF THE COMBINED COMPANY
The combined company will be one of the largest domestic distributors of building materials. Through its combination with Rugby USA, Huttig expects to enhance its ability to leverage its size to achieve economies of scale in administrative functions, to negotiate beneficial purchasing terms and to improve its systems. These benefits are expected to be further leveraged through the consolidation of overlapping distribution centers in certain geographic areas. Also, in addition to expanding Huttig's presence in Eastern United States markets generally, Rugby USA would add significantly to Huttig's markets in the Midwest, particularly in Indiana and Missouri.
BUSINESS OF HUTTIG
OVERVIEW
Huttig is a distributor of building materials used principally in new residential construction and in home improvement, remodeling and repair work. Its products are distributed through 45 distribution centers serving 41 states, principally to building materials dealers (who, in turn, supply the end-user), directly to professional builders and large contractors, and to home centers, national buying groups and
industrial and manufactured housing builders. Huttig's American Pine Products manufacturing facility, located in Prineville, Oregon, produces softwood moldings. Approximately 20% of its sales are to Huttig's distribution centers.
Huttig's growth strategy is to provide the residential construction business with differentiated building products and excellent service and to enhance its profitability through increased efficiencies. Huttig plans to execute this strategy through acquisitions that allow it to expand geographically, consolidate in existing markets or broaden its customer base, and by focusing on customer service, capitalizing on the size of its distribution center network and reducing its transaction costs.
Huttig's products include doors, windows, moldings, specialty building materials such as housewrap, stair parts and engineered wood products, and lumber and other commodity building products. Products carried by a particular distribution center vary by location. Many of Huttig's products, such as pre-hung doors, pre-assembled windows, cut-to-length molding and lumber are customized to customer specifications, resulting in higher margin value-added business. In order to improve customer service, Huttig is focused on increasing its product offerings with a greater depth of similar products and a broader range of complementary products such as wall panels, trusses and engineered floor systems.
To varying degrees in different markets, Huttig offers a number of services to its customers, including assistance with project design and product specifications, installation of products and coordination of job-site delivery with whole house packages staged for delivery as needed by the contractor. Huttig sells on open account terms to pre-approved customers at all locations.
Each distribution center is focused on meeting local market needs and offering competitive prices. Inventory levels, merchandising and pricing are tailored to local markets. Huttig's information system provides each distribution center manager with real-time pricing, inventory availability and margin analysis to facilitate this strategy. Huttig also supports its distribution centers with centralized product management, credit and financial controls, training and marketing programs and human resources expertise.
Huttig seeks to closely align its employee compensation structure with its shareholders' interests. A significant part of the compensation of most of Huttig's employees is based on the performance of individual distribution centers. Huttig's management incentive compensation programs, in which all executive officers and building center managers participate, are based on increasing the after-tax rate of return on the assets employed in its business. In addition, Huttig's stock-based compensation plans are designed to ensure that key employees are focused on actions and strategies intended to increase shareholder value.
INDUSTRY TRENDS
The building materials distribution industry is characterized by its substantial size, highly fragmented ownership structure and dependence on the cyclical and seasonal home building industry.
New housing starts in the U.S. in 1998 approximated 1.7 million based on data from F.W. Dodge, including 1.3 million single family residences. Approximately 64% of single family new construction in 1998 occurred in markets served by Huttig's distribution centers. According to the U.S. Department of Commerce, total spending on U.S. new residential construction in 1998 was $214.0 billion and aggregate expenditures for residential repair and remodeling were an additional $120.0 billion. Huttig believes that sales of windows, doors and other millwork accounted for approximately $12.0 billion in 1998.
Prior to the 1970's, building materials were sold in both rural and metropolitan markets largely by local dealers, such as lumberyards and hardware stores. These dealers, who generally purchased their products from wholesale distributors, sold building products directly to homeowners, contractors and homebuilders. In the late 1970's and 1980's, the advent of home center chains such as The Home Depot and Lowe's began to alter this distribution channel, particularly in metropolitan markets, as these retailers started to displace some local dealers. These mass merchandisers market a broad range of competitively priced building materials to the homeowner and small home improvement contractor. Also during this period, some building materials manufacturers
such as Georgia Pacific and Weyerhauser began selling their products directly to home center chains and to local dealers as well. Accordingly, most wholesale distributors have been diversifying their businesses by seeking to sell directly to large contractors and homebuilders in selected markets and by providing home centers with fill-in and specialty products. Also, as large homebuilding companies seek to streamline the new residential construction process, building materials distributors have increasing opportunities to provide higher margin turnkey products and services.
The increasingly competitive environment faced by dealers also has prompted a trend toward industry consolidation that Huttig believes offers significant opportunities. Many distributors in the building materials industry are small, privately-held companies that generally lack the purchasing power of a larger entity and may also lack the broad lines of products and sophisticated inventory management and control systems typically needed to operate a multi-branch distribution network. These characteristics are also driving the consolidation trend in favor of companies like Huttig that operate nationally and have significant infrastructure in place.
STRATEGY
Huttig's strategy is to grow its business by providing the residential construction industry with differentiated building products and excellent service, and to enhance its profitability through increased efficiencies. To execute this strategy, Huttig is focusing on four goals:
o Expansion through acquisition;
o Enhancing customer service;
o Leveraging its size; and
o Lowering transaction costs.
Expansion Through Acquisition. Huttig's acquisition strategy is to target leading traditional regional building materials distributors whose acquisition will allow Huttig to:
o enter new geographic markets;
o consolidate its presence in existing markets through
o increasing economies of scale in terms of delivery capabilities and purchasing, or
o broadening its product offerings, including those that will enhance its reputation as a value-added distributor of name-brand products; or
o broaden its customer base, including by increasing direct sales to builders and contractors.
Although Huttig has locations across most of the U.S., it does not have distribution centers in Texas or the Rocky Mountain or Great Lakes regions. Huttig also sees opportunity for greater market penetration in some of the mid-Atlantic states. Value-added service capabilities, such as project design assistance, installation of products and the ability to provide and co-ordinate delivery of building materials for whole house construction, also influence the selection of acquisition targets.
Enhancing Customer Service. Huttig is seeking to increase sales and profitability through enhancing customer service in the following ways:
o Increasing the breadth of its product lines to provide more "one-stop-shop" capabilities.
o Positioning itself to provide efficient outsourcing of value-added services.
o Optimizing ease and responsiveness in the order-taking and delivery process.
Leveraging Its Size. Huttig has established a centralized approach to product management and administrative functions in order to capitalize on the size of its U.S. distribution center network.
o Inventory levels, merchandising and pricing are tailored to local markets, but vendor selection and purchase cost are negotiated nationally from Huttig's headquarters. Huttig seeks to be a major customer of its suppliers, enabling it to obtain beneficial pricing and purchasing terms, ensure timely delivery of products and maintain appropriate inventory availability. Management believes that further opportunities to
realize purchasing economies exist, which will be further enhanced by the acquisition of Rugby USA, and Huttig intends to pursue such opportunities.
o Huttig centralizes many administrative functions such as accounting and finance, information technology, employee benefits, insurance, human resources, legal and national account sales efforts, both to achieve economies of scale and to permit distribution center managers to focus on sales, service and profitability.
o The benefits of centralization are being further leveraged through the consolidation of distribution centers with overlapping service areas. Huttig plans to continue consolidation of locations in tandem with its acquisition strategy.
Lowering Transaction Costs. Huttig is organizing to reduce transaction costs through increased operating efficiencies. Utilization of Six Sigma, a statistical and analytic process improvement technique to reduce inefficiencies, has been employed beneficially in this effort.
o Huttig's centralization of product management and administrative functions, and the consolidation of overlapping locations, are an integral part of its efforts to increase operating efficiencies. Huttig is also working to centralize logistics and transportation functions.
o Another key effort Huttig is undertaking is the standardization of processes and procedures at its distribution centers, which Huttig believes will further enhance the ability of its managers to focus on sales, service and profitability.
o Assisted by recent investment in technology through installation of a wide area network and upgrades to its computer systems, Huttig can provide administrative support to multiple distribution centers from another center or to all centers from headquarters. Huttig's information system provides its distribution center managers with real-time pricing, inventory availability and margin analysis.
PRODUCTS
Each distribution center carries a variety of products that vary by location. Huttig's principal products are doors, windows, moldings, specialty building materials such as housewrap, stair parts and engineered wood products, and lumber and other commodity building products.
The following table sets forth information regarding the percentage of net sales represented by the specified categories of total products sold by Huttig's distribution centers during each of the last two fiscal years. While it is believed that the percentages included in the table generally indicate the mix of Huttig's sales by category of product, the specific percentages are affected year-to-year by changes in the prices of commodity wood products, as well as changes in unit volumes sold.
1998 1997
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Doors ................. 37% 37%
Specialty Building
Materials .......... 20 21
Windows ............... 19 21
Moldings .............. 12 15
Lumber and Other
Commodity
Products ........... 12 6
|
Huttig's sales of doors were approximately $260.0 million in 1998 and included both interior and exterior doors and pre-hung door units. Huttig sells wood, steel and composite doors from various branded manufacturers such as Therma-Tru (Registered Trademark) , Jeld-Wen (Registered Trademark) , Florida Made, and Premdor (Registered Trademark) , as well as providing value-priced unbranded products. The pre-hanging of a door within its frame is a value-added service that Huttig provides, allowing an installer to quickly place the unit in the house opening. Coupled with pre-hanging, Huttig also assembles many exterior doors with added sidelites and transoms, also value-added services and products. To meet the increasing demand for pre-hung doors, Huttig invested $3.0 million in state-of-the-art equipment during 1999, which allowed it to increase its capacity by approximately 20%.
Sales of specialty building materials were $141.0 million in 1998. Included in this category are products differentiated through branding or value-added characteristics. Branded products include Tyvek (Registered Trademark) housewrap, L. J. Smith Stair
Systems and Simpson Strong-Tie (Registered Trademark) connectors. Also included in specialty sales are trusses, wall panels and engineered wood products such as floor systems assembled in Huttig's recently acquired facility in Topeka, Kansas serving the eastern Kansas and western Missouri markets.
Window sales amounted to $133.0 million in 1998 and included shipments of wood, vinyl-clad, vinyl and aluminum windows from branded manufacturers such as Andersen (Registered Trademark) , Weather Shield and Marvin, as well as unbranded products. Andersen (Registered Trademark) trademarked products, sold to dealers through 13 of Huttig's distribution centers, accounted for a significant majority of Huttig's 1998 sales of windows. Huttig is working to expand the depth of its offerings of windows to include a wider range of quality and price as part of the strategy to better serve the customer.
Molding sales, including door jams, door and window frames, and decorative ceiling, chair and floor molding, were $89.0 million in 1998. The vast majority of these sales were made by American Pine Products. Profitability of this highly competitive, commodity-priced product depends upon efficient plant operations, rapid inventory turnover and quick reaction to changing market conditions. Moldings are a necessary complementary product line to doors and windows as part of a house's millwork package.
Sales of lumber and other commodity building products were $85.0 million in 1998. Growth of Huttig's lumber sales has resulted primarily from its acquisition of Mallco Lumber Company in Phoenix in 1997 and Huttig's acquisition of certain assets of and assumption of certain liabilities of Consolidated Lumber Company, Inc. in Kansas City in 1998. These acquisitions reflect Huttig's strategy to provide builders with the capability to purchase a house's framing and millwork package of products from one source and have each component delivered when needed. Other commodity building products include dry wall, metal vents, siding, nails and other miscellaneous hardware.
PURCHASING
Huttig generally negotiates with its major vendors on a company-wide basis to obtain favorable pricing, volume discounts and other beneficial purchase terms. A majority of Huttig's purchases are made from suppliers offering payment, discount and volume purchase programs. Distribution center managers are responsible for inventory selection and ordering on terms negotiated centrally. This approach allows Huttig's distribution centers to remain responsive to local market demand, while still maximizing purchasing leverage through volume orders. Distribution center managers are also responsible for inventory management at their respective locations.
Huttig is a party to distribution agreements with certain vendors, including Andersen (Registered Trademark) , on an exclusive or non-exclusive basis, depending on the product and the territory involved. Huttig's distributorships generally are terminable at any time by either party, in some cases without notice, and otherwise on notice ranging up to 60 days.
SALES AND MARKETING
Each of Huttig's distribution centers tailors its product and service mix to the local market and operates as a separate profit center. Huttig's marketing programs center on fostering strong customer relationships and providing superior service. This strategy is furthered by the high level of technical knowledge and expertise of Huttig's personnel. Huttig focuses its marketing efforts on the residential new housing and remodeling segments, with efforts directed toward the commercial and industrial segments limited to a small portion of its business. Certain of Huttig's suppliers advertise to the trade and directly to the individual consumer through nationwide print and other media.
Huttig's distribution center sales organization consists of outside field sales personnel serving the customer on-site who report directly to their local distribution center manager. They are supported by inside customer service representatives at each branch. This sales force is compensated by commissions determined on the basis of return on sales or total margin on sales.
CUSTOMERS
Huttig distributes products to a large number and variety of building materials dealers, professional builders, large contractors, home centers, national buying groups and others.
Building materials dealers represent Huttig's single largest customer group. Despite the advent of the home center chains and the trends toward consolidation of dealers and increased direct participation in wholesale distribution by some building materials manufacturers, Huttig believes that the wholesale distribution business continues to provide opportunities for increased sales. Huttig is targeting home centers for sales of fill-in and specialty products. In addition, some manufacturers are seeking to outsource the marketing function for their products, a role that Huttig, as a large, financially stable distributor, is well-positioned to fill. Opportunities also exist for large distributors with the necessary capabilities to perform increasing amounts of services such as pre-hanging doors, thereby enabling Huttig to enhance the value-added component of its business.
The percentage of Huttig's 1998 revenue attributable to various categories of customers are as follows:
Dealers .......................... 62% Home Centers and Buying Groups 15 Builders and Contractors ......... 13 Industrial and Manufactured Housing ....................... 10 |
COMPETITION
Huttig's competition varies by product line, customer classification and geographic market. Huttig competes with many local and regional building product distributors, and, in certain markets and product categories, with national building product distributors and dealers. Huttig also competes with major corporations with national distribution capability, such as Georgia-Pacific, Weyerhaeuser and other product manufacturers that engage in direct sales; however, it also acts as a distributor for certain products of these manufacturers. Huttig sells products to large home center chains such as The Home Depot and Lowe's and, to a limited extent in certain markets, competes with them for business from smaller contractors. Competition from such large home center chains may, in the future, include more competition for the business of larger contractors.
Huttig believes that competition in the wholesale distribution business is largely on the basis of product availability, service and delivery capabilities and breadth of product offerings. Also, financial stability and geographic coverage are important to manufacturers in choosing distributors for their products. In the builder support business, Huttig's target customers generally select building products distributors on the basis of service and delivery, ability to assist with problem-solving, relationships and breadth of product offerings. Huttig's relative size and financial position are advantageous in obtaining and retaining distributorships for important products. Huttig's relative size also permits it to attract experienced sales and service personnel and gives it the resources to provide company-wide sales, product and service training programs. By working closely with its customers and utilizing its information technology, Huttig's branches are able to maintain appropriate inventory levels and are well-positioned to deliver completed orders on time.
Huttig's American Pine Products softwood molding manufacturing business competes on the basis of relative length of lead times to produce and deliver product, service and geographic coverage.
FACILITIES
Huttig's headquarters are in Chesterfield, Missouri, in leased facilities. Its manufacturing facility for softwood moldings is a 280,000-square foot facility owned by Huttig and located in Prineville, Oregon. Approximately 53% of Huttig's 45 distribution centers are leased and the remainder are owned. Warehouse space at Huttig's distribution centers aggregates approximately 2.7 million square feet. The types of facilities at these centers vary by location, from traditional wholesale distribution warehouses that may have particular value-added service capabilities such as pre-hung door operations, to classic lumber yards, and to builder support facilities with broad product offerings and capabilities for a wide range of value-added services. Huttig believes that its locations are well maintained and generally adequate for their purposes.
TRADENAMES
Historically, Huttig has operated under various tradenames in the markets it serves,
retaining the name of an acquired business to preserve local identification. To capitalize on its increasing national presence, Huttig has converted most branch operations to the primary tradename "Huttig Building Products." Some local branches continue to use historical tradenames as secondary tradenames to maintain goodwill.
EMPLOYEES
At December 31, 1998, Huttig employed 2,328 persons, of which approximately 300 were represented by unions. Two of Huttig's collective bargaining agreements expire in the next six months. Management expects to reach new agreements without a work stoppage. Huttig has not experienced any strikes or other work interruptions in recent years and has maintained generally favorable relations with its employees. The following table shows the approximate breakdown by job function of Huttig's employees:
Distribution centers ......... 1,574 Manufacturing ................ 443 Field sales .................. 234 Officers and corporate administrative ............ 77 |
SEASONALITY
Huttig's first quarter and, to a lesser extent, its fourth quarter, are typically adversely affected by winter construction cycles and weather patterns in colder climates as the level of activity in both the new construction and home improvement markets decreases. The effects of winter weather patterns on Huttig's business are offset somewhat by the increase in residential construction activity during the same period in the deep South, Southwest and Southern California markets in which Huttig participates. Huttig also closely monitors operating expenses and inventory levels during seasonally affected periods and, to the extent possible, controls variable operating costs to minimize seasonal effects on profitability.
BACKLOG
Huttig's customers generally order products on an as-needed basis. As a result, virtually all product shipments in a given fiscal quarter result from orders received in that quarter. Consequently, order backlog represents only a very small percentage of the product sales that Huttig anticipates in a given quarter and is not indicative of its actual sales for any future period.
LEGAL PROCEEDINGS
Huttig is involved in various lawsuits, claims and proceedings arising in the ordinary course of its business. While the outcome of any lawsuits, claims or proceedings cannot be predicted, Huttig does not believe that the disposition of any pending matters will have a material adverse effect on its financial condition, results of operations or liquidity.
ENVIRONMENTAL
Huttig is subject to federal, state and local environmental laws and regulations. Huttig has been identified as a potentially responsible party in connection with the clean up of contamination at two sites. In addition, some of Huttig's distribution centers are located in areas of current or former industrial activity where environmental contamination may have occurred, and for which Huttig, among others, could be held responsible. Huttig does not believe that its contribution to the clean up of the two sites will be material or that there are any material environmental liabilities at any of its distribution center locations. Huttig also believes that it is in compliance with applicable laws and regulations regulating the discharge of hazardous substances into the environment.
BUSINESS OF RUGBY USA
Rugby USA, like Huttig, is a distributor of building materials to the new residential construction and home improvement markets, selling principally to building materials dealers, home centers and national buying groups. At the time of the exchange, Rugby USA will have 31 distribution centers serving 34 states. Rugby USA's strategy is to operate a streamlined, effective and responsive distribution business, based on efficient processes at the branch level combined with strong centralized support.
Rugby USA's products include doors, windows, moldings, roofing, insulation, lumber, kitchen cabinets and other products. Products vary by location. Rugby USA actively seeks to provide value-added services to its customers, such as pre-hanging doors. The following table
sets forth information regarding the percentage of net sales represented by the specified categories of total products sold by the Rugby USA distribution centers being acquired by Huttig during each of the last two fiscal years:
1998 1997
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Doors ................................. 20% 19%
Specialty Building Materials .......... 37 39
Windows ............................... 10 10
Moldings .............................. 8 7
Lumber and Other Commodity
Products ........................... 25 25
|
Rugby USA's sales of doors at the 31 distribution centers were $95 million in 1998, including branded doors from manufacturers, principally Premdor (Registered Trademark) , as well as unbranded products. Sales of specialty building materials were $168 million in 1998. These included branded products such as Simpson Strong-Tie (Registered Trademark) connectors, Typar (Registered Trademark) housewrap, and Owens Corning (Registered Trademark) roofing and insulation. Also included in specialty sales are various kitchen cabinets, vinyl siding, decking, ventilation and fencing. Window sales were $45 million in 1998 and included branded windows such as Andersen (Registered Trademark) and Caradco (Registered Trademark) , as well as unbranded products. Molding sales were $36 million in 1998. Sales of lumber and other commodity building products such as hardwood plywood, MDF, particle board and LAUAN were $115 million in 1998.
The percentage of 1998 revenue attributable to various categories of customers for the 31 Rugby USA distribution centers is as follows:
Dealers ................................. 81% Home Centers and Buying Groups .......... 15 Industrial/Manufactured Housing ......... 4 |
Similar to Huttig, Rugby USA has established centralized purchasing and administrative services, and has concentrated inventory selection and management at the branch level. Rugby USA's marketing programs focus on customer service and value-added services.
Rugby USA's competitors and competitive environment are similar to Huttig's, except that Rugby USA generally does not compete with home centers or otherwise in the market for direct sales to builders and contractors. Rugby USA's business is also affected by seasonal variations similar to Huttig's.
Rugby USA is headquartered in Alpharetta, Georgia in leased facilities. Approximately 50% of the 31 Rugby USA distribution centers Huttig will acquire are leased, and the remainder are owned. All 31 of these facilities are traditional wholesale distribution warehouses, some of which have value-added capabilities such as pre-hanging doors. As of December 31, 1998, Rugby USA employed 1,090 persons in the distribution centers being acquired as follows:
Distribution centers ............. 834 Field sales ...................... 191 Corporate administrative ......... 65 |
HUTTIG HISTORICAL SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data of Huttig. The Statement of Income Data set forth below for each of the three years in the period ended December 31, 1998 and the Balance Sheet Data at December 31, 1998 and 1997 are derived from the audited consolidated financial statements and notes thereto included elsewhere in this Information Statement. The Statement of Income Data set forth below for each of the two years in the period ended December 31, 1995 and the Balance Sheet Data at December 31, 1996, 1995 and 1994 are derived from audited consolidated financial statements of Huttig not included in this Information Statement. The Statement of Income Data set forth below for the nine month periods ended September 30, 1999 and 1998 and the Balance Sheet Data at September 30, 1999 are derived from the unaudited condensed financial statements included elsewhere in this Information Statement. The Balance Sheet Data at September 30, 1998 is derived from unaudited condensed financial statements not included in this Information Statement. The historical selected financial data may not necessarily be indicative of Huttig's past or future performance as a separate, stand-alone company. Such historical data should be read in conjunction with "Huttig Management's Discussion and Analysis of Results of Operations and Financial Condition" and Huttig's financial statements and notes thereto included elsewhere in this Information Statement.
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------- -------------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
Statement of Income
Data:
Net sales ................ $594,914 $521,849 $707,450 $625,503 $595,089 $570,856 $598,665
Depreciation and
amortization ........... 4,860 3,925 5,586 4,409 4,929 5,228 5,234
Operating profit ......... 19,541 18,960 26,971 19,842 22,105 18,889 19,500
Interest expense,
net .................... 5,789 4,892 6,870 4,467 200 352 402
Income before
taxes .................. 13,528 14,103 21,851 14,814 20,757 20,094 20,082
Provision for
income taxes ........... 5,075 5,159 8,255 5,759 8,469 8,243 8,225
Net income ............... 8,453 8,944 13,596 9,055 12,288 11,851 11,857
Net income per
share(basic and
diluted) ............... 8,453 8,944 13,596 9,055 12,288 11,851 11,857
Balance Sheet Data
(at end of period):
Assets ................... 217,720 204,559 218,462 153,950 206,430 191,535 185,527
Long-term debt:
Note Payable--
Parent ................ 92,182 93,940 93,940 67,100 -- -- --
Other long-term
debt .................. 1,189 1,449 1,379 1,715 2,074 2,540 4,911
|
HUTTIG MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
GENERAL
The building products industry and Huttig are affected by various factors including general economic conditions, the level of new residential building and home improvement activity, weather conditions, interest rates, employment levels, and the availability of credit. See "Risk Factors."
Huttig has experienced improvement in its results of operations since 1994, with revenue growing from $598.7 million in 1994 to $707.5 million in 1998. $107.7 million of this revenue growth has been accomplished due to acquisitions completed since 1993. Additionally, Huttig's operating profit has increased from $19.5 million in 1994 to $27.0 million in 1998, a compounded annual growth rate of 8.4%.
These trends are reflected in a 6.2% compounded annual growth rate in gross margin, which resulted from the $11.7 million contribution of acquired businesses and $8.8 million from the sales of higher margin products at existing branches. Gross profit as a percentage of revenue has grown from 13.2% in 1994 to 14.2% in 1998. Operating profit as a percentage of revenue has increased from 3.3% in 1994 to 3.8% in 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
Revenue increased 14.0% from $521.8 million in the first nine months of 1998 to $594.9 million in the comparable period of 1999. $47.1 million of this increase was due to the 1998 mid-year acquisitions of Consolidated Lumber Company and Number One Supply and the balance to same-branch sales growth of 5.2%.
Gross profit grew $6.3 million to $78.8 million in the first nine months of 1999. $4.3 million resulted from the acquisitions discussed above and $2.0 million from the increase in same-branch sales. Gross profit as a percentage of sales on a same-branch basis declined 0.3% over the 1998 period.
Selling, general and administrative expense increased $4.8 million, or 9.7%, from the comparable prior period, to $54.4 million, primarily as a result of acquisitions (a $3.7 million increase). On a same-branch basis, excluding acquisitions, these expenses increased only 2.4%, and therefore in the first nine months of 1999 were 9.3% of sales compared to 9.5% in the same period last year.
As a result of the contribution from the acquisitions, operating profit in the first nine months of 1999 was $19.5 million, or $.6 million higher than the same period last year.
Interest expense increased $0.9 million as the result of higher borrowings.
Net income decreased $0.5 million for the first nine months of 1999 compared to the same period in 1998, with the operating profit gain being offset by higher borrowing costs.
FISCAL 1998 COMPARED TO FISCAL 1997
Revenue increased 13.1% from $625.5 million in 1997 to $707.5 million in 1998. $32.5 million of this increase was due to the mid-1997 acquisition of MALLCO Lumber Co. and $43.0 million was due to the mid-1998 acquisitions of Number One Supply and of certain assets and assumption of certain liabilities of Consolidated Lumber Company, Inc. Same-branch sales grew $6.5 million, or 1.1%, in 1998.
Gross profit in 1998 grew $18.1 million, or 21.9%, from the prior year and gross profit margins improved to 14.2% from 13.2%. Total gross profit increased $9.4 million as a result of the acquisitions, and $8.7 million from same store sales increases as margins increased due to an improved product mix, including a greater percentage of value-added products, primarily an increase in pre-hung doors.
Selling, general and administrative expenses increased $9.7 million, or 16.8%, to $67.9 million in 1998 from $58.2 million in 1997. This was primarily because of the $5.0 million effect of acquisitions, but also due to an increase in compensation expense. This caused these expenses as a percentage of sales to increase from 9.3% in 1997 to 9.6% in 1998.
Because the gross profit margin increase was greater than the related increase in expenses,
operating profit margins increased as a percentage of sales to 3.8% in 1998 from 3.2% in 1997. Operating profit totaled $27.0 million in 1998, a 35.9% increase from $19.8 million in 1997.
Interest expense increased $2.4 million in 1998 compared to 1997 as result of higher borrowings.
Net income increased 50.1% from $9.1 million in 1997 to $13.6 million in 1998 and net income as a percentage of sales increased from 1.4% in 1997 to 1.9% in 1998.
FISCAL 1997 COMPARED TO FISCAL 1996
Revenue increased 5.1% from $595.1 million in 1996 to $625.5 million in 1997 due to the benefit of the sales contribution of the MALLCO Lumber acquisition in July 1997.
Gross profit declined $0.8 million, or 1.0%, in 1997 compared to 1996 because of an increase in raw materials costs for Huttig's molding manufacturing operations and the inability to increase selling prices due to competition from importers.
Selling, general and administrative expense increased $2.0 million, or 3.5%, from $56.2 million in 1996 to $58.2 million in 1997, due to $1.1 million from the acquisition noted above and expenses for repair of several older facilities. As a percentage of sales, these expenses decreased marginally to 9.3% in 1997 from 9.4% in the prior period. Operating income decreased 10.2% from $22.1 million in 1996 to $19.8 million in 1997.
Interest expense increased $4.3 million in 1997 compared to 1996 as result of higher borrowings.
Net income decreased 26.3% from $12.3 million in 1996 to $9.1 million in 1997, and net income as a percentage of sales decreased from 2.1% in 1996 to 1.4% in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Huttig has depended primarily on the cash generated from its own operations to finance its needs. The combination of income from operations and cash generation from improved working capital management has been used to finance capital expenditures and seasonal working capital needs. Huttig's working capital requirements are generally greatest in the first eight months of the year and Huttig generates cash from working capital reductions in the last four months of the year. A continuing management focus to improve inventory turnover and accounts receivable and accounts payable days outstanding resulted in reduced working capital needs. Inventory turns increased to 10.1 in 1998 from 8.1 in 1997 and 7.3 in 1996 resulting in a positive effect on cash flow of $12.4 million over the two years. To the extent internal funds generated were insufficient, Huttig borrowed from Crane Co. and to the extent cash generated by Huttig was greater than current requirements, the cash was returned to Crane. In particular, Huttig historically has borrowed from Crane to finance acquisitions, but has typically been able to generate cash sufficient to finance all other needs. In 1998, capital expenditures of $5.8 million and acquisition costs aggregating $44.9 million were financed through $34.2 million in cash generated from operations, with the remainder through borrowings from Crane.
At September 30, 1999, Huttig had commitments for approximately $2.9 million of capital improvements. No single commitment exceeded $260,000. The commitments are primarily for machinery for productivity improvements, transportation equipment replacement and equipment related to information systems improvements.
In the future, Huttig expects to continue to finance seasonal working capital requirements and acquisitions through cash from operations and finance acquisitions through a credit facility. $100 million of the proceeds from the credit facility is expected to be used to repay indebtedness to Crane and Rugby in connection with the spin-off and the exchange.
EFFECTS OF INFLATION
In 1997, raw material price increases had a negative impact on Huttig's results of operations as it was unable to pass along these added costs to customers through sales price increases due to increased competition from imports. However, as Huttig continues to grow, its manufacturing operations decrease as a percentage of its overall business and any impact of inflation is lessened. Furthermore, management believes that, to the extent
inflation affects its costs in the future and competitive conditions permit, Huttig can offset these increased costs by increasing sales prices.
YEAR 2000
The Year 2000 issue relates to most computer software programs using two digits, rather than four, to define the applicable year for dates. Any of Huttig's information technology (IT) and non-information technology (non-IT) systems may recognize a date using "00" as the year 1900, rather than the year 2000. This could result in system failures or miscalculations, causing disruptions in operations, including the inability to process transactions and engage in similar normal business activities within Huttig and with third parties.
Huttig has implemented a Year 2000 program for its IT and non-IT systems consisting of four phases: 1) awareness, formation, planning and management; 2) inventory, analysis, compliance testing, prioritization and planning; 3) implementation and validation; and 4) Year 2000 compliance. Huttig's senior management receive regular updates on the status of Huttig's Year 2000 program.
Huttig's Year 2000 program was initiated in 1997. As of this date, all mission-critical systems, including IT and non-IT systems, have been evaluated, tested and validated. Both internal and independent external resources, including hardware and software suppliers, have been used in this effort, and Huttig has relied significantly upon information from other third-party providers. To the extent that these efforts can affect compliance, Huttig believes that all such systems are now compliant.
In addition to mission-critical systems, Huttig has identified twenty significant third parties, including customers and suppliers, who could have a material effect on Huttig's operations should those parties fail to remediate their own Year 2000 issues. Based upon the information provided by all of these third parties, no problems have been identified. However, Huttig continues to collect and update information on a daily basis. Huttig plans to continue to track third-party activities through the end of 1999. There can be no absolute assurance that any third party systems or products are Year 2000 compliant or that such third parties will not have a material adverse effect on Huttig.
Year 2000 costs incurred to date are approximately $1.4 million, of which $0.6 million was expensed and approximately $0.8 million was capitalized for various software and hardware expenditures in connection with replacing non-compliant systems. No future costs are anticipated for completion of the Year 2000 program. Year 2000 funding has been provided by normal operating cash flows of the business. No other information technology projects have been or are being delayed by this program.
Thorough validation of Year 2000 compliance of mission-critical systems was performed by internal staff with the assistance of the providers of the hardware and software systems. A testing and validation protocol was utilized to fully confirm compliance. The protocol was composed of a variety of test scenarios including setting system dates ahead, performing routine procedures and carefully reviewing results to validate proper functioning of the systems. In all cases Huttig believes mission-critical systems are Year 2000 ready.
Huttig believes that completed modifications and conversions of its software and hardware systems and its efforts to verify the readiness and compliance of material third parties will allow it to have a smooth transition into the Year 2000. To further ensure a smooth transition, a contingency plan is under development to monitor all year-end activities. The plan encompasses internal systems as well as key suppliers and will include specific actions to be taken to identify and resolve issues should any occur.
Overall, the success of the Year 2000 compliance program depends on the work done by a number of technical experts, successful software modifications performed by third parties, and other factors. A deficiency with respect to any of these factors could cause a failure in Huttig's Year 2000 program, in whole or in part. The failure to correct a material Year 2000 problem could result in an interruption in, or a failure of, certain normal business activities or operations, which could have a material adverse effect on Huttig's results of operations, liquidity or financial condition. Due to the inherent uncertainty in the Year 2000 problem, particularly in regard to third party vendor and customer Year 2000 readiness, Huttig is unable
to determine at this time whether the consequences of any Year 2000 disruptions or failures will have a material adverse effect on Huttig's results of operations, liquidity or financial condition. However, based on current information, the most reasonably likely worst case scenario would involve the temporary disruption of Huttig's ability to fulfill customer orders and no material adverse effect on Huttig's financial condition is expected from this specific scenario.
MARKET RISK DISCLOSURE
Huttig currently has no floating rate indebtedness, holds no derivative instruments and does not generate significant income from non-U.S. sources. Accordingly, changes in interest rates and currency exchange rates do not generally have a direct effect on Huttig's financial position. Huttig is subject to periodic fluctuations in the price of wood commodities. Profitability is influenced by these fluctuations as prices change between the time Huttig buys and sells the wood. In addition, to the extent changes in interest rates affect the housing and remodeling market, Huttig would be affected by such changes.
HUTTIG UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Combined Financial Information has been prepared to reflect the spin-off, gives effect to Huttig's acquisition of certain assets and assumption of certain liabilities of Consolidated Lumber Company, Inc. and the pending acquisition of Rugby USA by Huttig. This pro forma financial information is based on the historical financial statements of Huttig, Rugby USA and Consolidated Lumber Company, Inc. included elsewhere in this Information Statement, giving effect to such acquisitions under the purchase method of accounting and the assumptions and adjustments (which management believes are reasonable) described in the accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information. The pro forma adjustments set forth in the following Unaudited Pro Forma Condensed Combined Financial Information are estimated and may differ from the actual adjustments when they become known, however, no material differences are anticipated. The Unaudited Pro Forma Condensed Combined Financial Information should be read in conjunction with the notes thereto, "Huttig Management's Discussion and Analysis of Results of Operations and Financial Condition" and the audited consolidated financial statements of Huttig, Rugby USA and Consolidated Lumber Company, Inc. included elsewhere in this Information Statement.
The Huttig unaudited pro forma condensed combined statements of income have been prepared on the basis that the spin-off and the acquisition of Rugby USA by Huttig, including the initial borrowings under the Huttig credit facility and the application of a portion of the proceeds of said borrowings to repay certain indebtedness to Crane and Rugby, and the acquisition of certain assets and assumption of certain liabilities of Consolidated Lumber Company, Inc., had occurred at January 1, 1998. The Huttig unaudited pro forma condensed combined balance sheet has been prepared on the basis that the spin-off, Rugby USA acquisition and the borrowings had occurred on September 30, 1999. The pro forma adjustments as described in the Notes to Unaudited Pro Forma Condensed Combined Financial Information are based on currently available information and contain adjustments that management believes are reasonable. The pro forma adjustments do not reflect any operating efficiencies and cost savings that may be achieved with respect to the combined companies, nor do they reflect any additional expenses that Huttig may incur as a separate, stand-alone public company after the spin-off. This pro forma information is provided for comparative purposes only and does not necessarily represent what the financial position or results of operations would have actually been if the transactions had in fact occurred on such date or at the beginning of such period or to be indicative of the financial results or results of operations for any future date or period. Additionally, the value of the equity used to acquire Rugby USA and the purchase accounting adjustments made in connection with the development of the pro forma condensed combined financial information are preliminary and have been made solely for purposes of developing such pro forma condensed combined financial information. The value of the equity used to acquire Rugby USA, which will comprise 32% of the outstanding shares of the combined entity (exclusive of the shares of restricted stock issued to Huttig's Chief Executive Officer), was based upon trading multiples of comparable publicly traded companies and resulted in an estimated market capitalization of $140 million. Huttig expects the acquisition to occur immediately after the spin-off is completed. When the spin-off and acquisition are completed, approximately 32% of the Huttig shares will be held by Rugby. The value of the equity used to acquire Rugby USA, $44.8 million, which was estimated for purposes of this condensed combined consolidated financial information, will be adjusted to reflect the market price of the Huttig common stock when trading commences. There can be no assurance that the acquisition of Rugby USA will be completed or that the value of the equity used to acquire Rugby USA will not change significantly.
HUTTIG UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
HISTORICAL
-----------------------------------
CONSOLIDATED
LUMBER RUGBY PRO FORMA PRO
HUTTIG COMPANY (a) USA ADJUSTMENTS FORMA
----------- ------------- ----------- -------------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales .............................. $707,450 $31,253 $600,209 $ (144,279)(c) $1,194,633
Cost of sales .......................... 606,993 22,850 475,456 (104,447)(c) 1,000,852
Selling, general and administrative 67,900 6,664 103,436 (33,838)(c) 144,162
Depreciation and amortization .......... 5,586 239 5,189 (4,823)(b) 6,191
-------- ------- -------- ----------- ----------
Operating profit ....................... 26,971 1,500 16,128 (1,171) 43,428
Interest expense, net .................. 6,870 -- 9,787 (7,790)(d) 8,867
Miscellaneous income, net .............. 1,750 73 -- -- 1,823
-------- ------- -------- ----------- ----------
Income before taxes .................... 21,851 1,573 6,341 6,619 36,384
Provision for income taxes ............. 8,255 594 2,885 2,515 (e) 14,249
-------- ------- -------- ----------- ----------
Income from continuing
operations ............................ $ 13,596 $ 979 $ 3,456 $ 4,104 $ 22,135
======== ======= ======== =========== ==========
Basic and diluted income from
continuing operations per share ....... $ 13,596 $ 1.08
Average basic and diluted shares
outstanding ........................... 1 20,500 (f)
|
See Notes to Unaudited Pro Forma Condensed Combined Financial Information.
HUTTIG UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
HISTORICAL
-------------------------- PRO FORMA
HUTTIG RUGBY USA ADJUSTMENTS PRO FORMA
------------ ----------- -------------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales ................................... $ 594,914 $474,763 $ (128,687)(c) $ 940,990
Cost of sales ............................... 516,085 381,558 (99,704)(c) 797,939
Selling, general and administrative ......... 54,428 73,794 (23,688)(c) 104,534
Depreciation and amortization ............... 4,860 4,469 (4,907)(b) 4,422
--------- -------- ----------- ---------
Operating profit ............................ 19,541 14,942 (388) 34,095
Interest expense, net ....................... 5,789 1,113 (279)(d) 6,623
Miscellaneous expense, net .................. 224 224
--------- ---------
Income before taxes ......................... 13,528 13,829 (109) 27,248
Provision for income taxes .................. 5,075 5,887 (42)(e) 10,920
--------- -------- ----------- ---------
Income from continuing operations ........... $ 8,453 $ 7,942 $ (67) $ 16,328
========= ======== =========== =========
Basic and diluted income from continuing
operations per share ....................... $ 8,453 $ .80
Average basic and diluted shares
outstanding ................................ 1 20,500 (f)
|
See Notes to Unaudited Pro Forma Condensed Combined Financial Information.
HUTTIG UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1999
HISTORICAL
------------------------
PRO FORMA
HUTTIG RUGBY USA ADJUSTMENTS PRO FORMA
---------- ----------- ------------------- ----------
(in thousands)
Assets
Current Assets:
Cash ........................................ $ 4,003 $ 8,285 $ (12,288)(g) $ --
Accounts receivable (net) ................... 78,459 60,296 (2,949)(m) 135,806
Inventories ................................. 52,720 55,134 -- 107,854
Other current assets ........................ 612 40,885 (35,054)(c) 6,443
-------- -------- ----------- --------
Total current assets ...................... 135,794 164,600 (50,291) 250,103
Other assets ................................. 42,738 7,605 (6,605)(h) 43,738
Deferred taxes ............................... -- -- 7,284 (p) 7,284
Property, plant and equipment -- net ......... 39,188 24,178 (24,178)(i) 39,188
-------- -------- ----------- --------
Total assets .............................. $217,720 $196,383 $ (73,790) $340,313
======== ======== =========== ========
Liabilities and Equity
Current Liabilities:
Loans and current maturities of
long-term debt ............................ $ 255 $ -- -- $ 255
Accounts payable ............................ 50,396 30,080 1,000 (o) 81,476
Payable to parent ........................... 13,382 -- (13,382)(j) --
Accrued liabilities ......................... 15,913 31,778 (21,251)(n) 26,440
-------- -------- ----------- --------
Total current liabilities ................. 79,946 61,858 (33,633) 108,171
Deferred taxes ............................... 563 1,565 (2,128)(p) --
Long-term debt ............................... 1,189 -- 100,000 (k) 101,189
Note payable to parent ....................... 92,182 -- (92,182)(j) --
Postretirement benefits ...................... 7,657 -- -- 7,657
Deferred credit .............................. -- -- 8,752 (q) 8,752
Equity ....................................... 36,183 132,960 (54,599)(l) 114,544
-------- -------- ----------- --------
Total liabilities and equity .............. $217,720 $196,383 $ (73,790) $340,313
======== ======== =========== ========
|
See Notes to Unaudited Pro Forma Condensed Combined Financial Information.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(DOLLAR AMOUNTS IN THOUSANDS)
(a) This column reflects the historical results of operations related to the net assets acquired from Consolidated Lumber Company, Inc. prior to the July 1, 1998 acquisition date.
(b) This adjustment reflects the amortization of goodwill resulting from the Consolidated Lumber Company, Inc. acquisition, reduction in depreciation and amortization related to Rugby USA assets not acquired (see Note (c) below), and the reduction in depreciation and amortization expense resulting from the negative goodwill related to the Rugby USA proposed acquisition as follows:
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
------------------- -------------------
Amortization of Consolidated Lumber Company, Inc.
goodwill ............................................. $ 949 $ --
Amortization of Rugby USA deferred credit (see
Note (i)) ............................................ (583) (438)
Rugby USA depreciation and amortization of assets
not acquired (see Note (c) below) .................... (1,095) (821)
Rugby USA depreciation and amortization ............... (4,094) (3,648)
-------- --------
Net decrease in depreciation and amortization ......... $ (4,823) $ (4,907)
======== ========
|
(c) Certain assets of Rugby USA will be distributed to its shareholder prior to the acquisition by Huttig. These adjustments reflect the reductions of assets from the September 30, 1999 pro forma condensed combined balance sheet and the elimination of the income associated with these assets from the pro forma condensed combined statements of income for the year ended December 31, 1998 and the nine months ended September 30, 1999.
(d) Huttig expects to incur $100,000 of borrowings, the proceeds of which will be used to pay off $68,000 of indebtedness to Crane and $32,000 of indebtedness to Rugby. This adjustment reflects the receipt of the debt proceeds, the payments of the parent company indebtedness, debt acquisition costs of $1,000 and the reduction of interest expense. Interest was assumed to be 8.5% per annum. An increase of 1/8 of a percentage point in the interest rate would result in an increase of interest expense of $125. The adjustment to interest expense is computed as follows:
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
------------------- -------------------
Interest on $100 million of borrowings ......... $ 8,500 $ 6,375
Amortization of debt acquisition costs ......... 200 150
Huttig interest to Crane ....................... (6,703) (5,691)
Rugby USA interest to Rugby .................... (9,787) (1,113)
-------- --------
Net decrease in interest expense ............... $ (7,790) $ (279)
======== ========
|
(e) This adjustment reflects the tax effect of the pro forma adjustments. The tax effect was determined using an effective tax rate of 38% which approximates the statutory federal rate adjusted for state taxes.
(f) Reflects 13.9 million shares to effect the spin-off and 6.6 million shares for the Rugby USA acquisition.
(g) This adjustment reflects the net decrease in Cash due to:
Proceeds from assumed borrowings ............................. $ 100,000
Repayment of indebtedness to Crane ........................... (68,000)
Repayment of indebtedness to Rugby ........................... (32,000)
Remittance of Huttig cash balance at the
spin-off date to Crane ...................................... (4,003)
Remittance of Rugby USA cash balance at the
acquisition date to Rugby ................................... (8,285)
---------
Net decrease in Cash ......................................... $ (12,288)
=========
|
(h) Reflects the net decrease in Other assets due to:
Elimination of Rugby USA intangible assets ................... $ (7,605)
Capitalization of debt acquisition costs
related to the new borrowings ............................... 1,000
--------
Net decrease in Other assets ................................. $ (6,605)
=========
|
(i) Reflects the net decrease to Property, plant and equipment due to the application of negative goodwill from the Rugby USA acquisition. The estimated fair value of the Rugby USA net assets acquired and the derivation of negative goodwill is shown below:
Estimated fair value of Rugby USA net assets acquired ........ $ 77,730
Estimated value of Huttig shares issued to acquire
Rugby USA ................................................... 44,800
----------
Excess of net assets acquired over value of Huttig
shares issued ............................................... 32,930
Deferred credit .............................................. 8,752
----------
Application of negative goodwill from the Rugby USA
acquisition ................................................. $ 24,178
==========
|
The purchase price of the Rugby USA net assets was estimated for the purpose of preparing the pro forma condensed combined financial information because the Huttig shares to be issued in the transaction do not yet have a market value. The purchase price is estimated to be $44.8 million. This is derived by multiplying the Huttig shares to be issued in the transaction (32% of the total Huttig shares) by the estimated total Huttig value of $140 million. The estimate of the value of Huttig used for this purpose was based upon trading multiples of comparable publicly traded companies, with consideration also given to the debt to equity ratio of those companies compared to the pro forma debt to equity ratio of Huttig.
The Rugby USA assets acquired, which consist principally of property, plant and equipment, accounts receivable and inventories, net of liabilities assumed, have been reflected in the accompanying pro forma condensed combined balance sheet at fair value. However because the Rugby USA net assets are being acquired at a purchase price less than their fair value, the fair value of the property, plant and equipment has been reduced to zero. The remainder of the difference between the purchase price and the fair value of the net assets has been reflected as a deferred credit in accordance with APB 16.
The accounting for the purchase price will be adjusted, if necessary, to reflect the actual market price of the Huttig shares issued when trading commences in Huttig common stock. If the actual purchase price is lower than the estimate, the deferred credit will increase by an equivalent amount. If the actual purchase price is higher than the estimate, the deferred credit would decrease first and then, if necessary, the value of the property, plant and equipment will increase.
The deferred credit is being amortized over 15 years. Each $1 million decrease in the purchase price and each $1 million increase in the purchase price (up to $8.8 million) would affect the deferred credit by the same amount and the resulting annual amortization by $70 thousand. An
increase in the purchase price of greater than $8.8 million would result in an allocation of purchase price to property, plant and equipment, which would be amortized over an estimated life of seven years, and each such increase of $1 million would increase depreciation by $140 thousand.
(j) Reflects the remittance of the Huttig cash balance at the spin-off date to Crane and elimination of $105,564 (Payable to parent -- $13,382 and Note payable to parent -- $92,182) to be effected as follows:
Repayment of indebtedness to Crane ....................................... $ 68,000
Capital contribution by Crane ............................................ 33,561
Remittance of the Huttig cash balance at the spin-off date to Crane....... 4,003
--------
Total .................................................................... $105,564
========
|
In addition, Rugby USA will establish a note payable to Rugby through a dividend. After the acquisition this note will be paid off with proceeds from the assumed borrowing.
(k) Represents $100,000 in assumed borrowings.
(l) Represents the net change in Equity due to:
Capital contribution by Crane .............................................. $ 33,561
Assumed value of equity issued to acquire Rugby USA (see Note (i) above) ... 44,800
Elimination of Rugby USA historical equity ................................. (132,960)
----------
Net change in Equity ....................................................... $(54,599)
==========
|
The pro forma book equity consists of the following:
Capital contribution by Crane .............................................. $ 33,561
Assumed value of equity issued to acquire Rugby USA ........................ 44,800
Huttig historical equity ................................................... 36,183
--------
$114,544
========
|
(m) Reflects elimination of Rugby USA receivable of $2,949 from Rugby.
(n) Reflects the Rugby USA tax liabilities that by agreement will be retained by Rugby.
(o) Reflects the payable arising from debt acquisition costs related to the assumed borrowings.
(p) Reflects the net increase in deferred taxes due to:
Deferred tax asset arising from the difference between the assigned values and
the tax bases of the assets and liabilities of Rugby USA ..................... $ 9,412
Reclassification of existing deferred tax liabilities ........................ (2,128)
-------
Increase in net deferred tax asset ........................................... $ 7,284
=======
|
(q) Reflects negative goodwill resulting from the Rugby USA acquisition (See Note (i) above).
CREDIT FACILITIES
BANK REVOLVING CREDIT FACILITY
Huttig has received a commitment letter dated November 9, 1999 with respect to, and expects to enter into, a bank credit facility with Bank One, NA, as agent for a group of lenders (the "Credit Facility"). The following is a summary of the material provisions of the term sheet included with the commitment letter and that are expected to be contained in the Credit Facility. This summary does not purport to be complete and is subject to, and is qualified in its entirety by reference to, final documentation which will evidence the Credit Facility.
The Credit Facility is expected to provide for unsecured revolving credit loans in an aggregate principal amount not to exceed $125 million, with all outstanding indebtedness thereunder repayable on the fifth anniversary of the closing of the Credit Facility. It is expected that Huttig will use certain of the proceeds of the Credit Facility to fund the debt repayments to Crane and Rugby and for other purposes relating to the acquisition of Rugby USA by Huttig as provided in the Exchange Agreement, for general corporate purposes, and to finance possible future negotiated acquisitions by Huttig. If Rugby USA is not acquired by Huttig, the aggregate available principal amount would be reduced to $93 million.
It is expected that amounts borrowed under the Credit Facility may be repaid and reborrowed so long as Huttig is not in default of any conditions to each loan, including, among others, compliance with specified financial covenants, an absence of any material litigation and an absence of any event which, with the passage of time or giving of notice, could become a default under the terms and conditions of the Credit Facility.
In addition, the Credit Facility is expected to provide for mandatory prepayments equal to the net proceeds of certain extraordinary asset dispositions by Huttig or any of its subsidiaries, and such prepayments would permanently reduce availability under the Credit Facility by an equivalent amount.
Upon the establishment of the Credit Facility, it is expected that Huttig's obligations thereunder will be guaranteed by each of Huttig's present and future subsidiaries but will otherwise be unsecured.
The obligations under the Credit Facility are expected to rank pari passu in right of payment with the other unsecured indebtedness of Huttig, including the Notes issued pursuant to the Note Purchase Agreement described below.
Huttig is expected to have certain interest rate options on borrowings under the Credit Facility. The applicable interest rate on loans under the Credit Facility is expected to be based generally upon either (i) the Eurodollar Rate plus 75-150 basis points per annum depending upon the leverage ratio of Huttig, or (ii) the highest of (A) the corporate base rate or prime rate of interest as announced by Bank One from time to time, (B) the Federal Funds Effective Rate plus 50 basis points per annum and, until December 31, 2000, (C) the sum of the Federal Reserve Board Open Market Committee target Federal Funds Rate for such day plus 150 basis points per annum plus the Applicable Eurodollar Margin plus, in each of (A), (B) and (C), as much as an additional 50 basis points per annum depending upon the leverage ratio of Huttig.
The Credit Facility is expected to include customary covenants that, among other things, may restrict Huttig's ability (i) to pay dividends and repurchase or retire its common stock in the absence of compliance with pro forma financial covenants, (ii) to merge or consolidate with or into other entities or enter into joint ventures, (iii) to dispose of assets, (iv) to grant liens and encumbrances, (v) to make investments, loans, guaranties and advances, including acquisitions, (vi) to enter into transactions with its affiliates and (vii) to sell its accounts receivable. Additionally, the Credit Facility is expected to contain financial covenants that will require Huttig to maintain specified debt, net worth and other financial ratios. Huttig management does not expect that the foregoing covenants will materially impact the ability of Huttig and its subsidiaries to operate their respective businesses.
It is expected that the Credit Facility will contain customary default provisions, including the failure to make payments under the facility when due, the breach of any representations and warranties, default in any covenant or agreement that is not cured within any applicable grace period, cross default to any
occurrence of default under any certain other indebtedness of Huttig or its subsidiaries, bankruptcy, certain ERISA defaults, the occurrence of one or more material judgments against Huttig and certain change of control events.
SENIOR NOTES
Huttig expects to complete the offering of $75 million in unsecured notes (the "Notes") pursuant to a Note Purchase Agreement among Huttig and various note purchasers expected to be entered into in early January 2000 (the "Note Purchase Agreement"). Upon completion of the offering of the Notes, Huttig expects to apply the net proceeds to repay outstanding borrowings under the Credit Facility. The following is a summary of the material provisions expected to be contained in the Note Purchase Agreement. This summary does not purport to be complete and is subject to, and is qualified in its entirety by reference to, final documentation which will evidence the Note Purchase Agreement and Notes.
The Notes are expected to have a final maturity ten years after the date of issuance, with six annual equal payments of principal commencing on the fifth anniversary of the issuance. The Notes are expected to bear interest at a rate to be determined at the time of issuance based on a spread over the yield of the U.S. Treasury Note yield maturing closest to the average life of the Notes, with interest payable semiannually.
It is expected that Huttig will be permitted to prepay the Notes at any time subject to a make-whole premium based on the difference between (i) the remaining outstanding principal of the Notes and (ii) the present value of the remaining principal of and interest on the Notes discounted at a rate equal to the sum of 50 basis points plus the yield on U.S. Treasury Notes corresponding to the then remaining average life of the Notes. Upon a change of control, it is expected that each holder of the Notes will have the right to require Huttig to repurchase all or part of such holder's Notes at par value. For purposes of the foregoing, a change of control would be deemed to occur if one person or affiliated group acquires more than 50% of the voting stock of Huttig.
The obligations under the Notes are expected to rank pari passu in right of payment with Huttig's other unsecured indebtedness, including the Credit Facility described above.
Obligations of Huttig with respect to the Notes will be guaranteed by each subsidiary of Huttig but will otherwise be unsecured.
The Note Purchase Agreement is expected to contain covenants that, among other things, restrict the ability of Huttig and its subsidiaries to change the nature of their businesses, consolidate or merge with or into other businesses, incur indebtedness, make or retain investments, grant liens, mortgages or other encumbrances, sell a material portion of its assets, enter into transactions with affiliates, except on an arms-length basis, and otherwise restrict certain corporate activities. In addition, it is expected that the Note Purchase Agreement will require compliance with certain financial covenants, including requiring Huttig and its subsidiaries to maintain a minimum consolidated net worth and to satisfy a minimum fixed charge coverage ratio test. Huttig does not expect that such covenants will materially impact the ability of Huttig and its subsidiaries to operate their respective businesses.
The Note Purchase Agreement is not expected to contain limitations on the ability of the subsidiaries of Huttig to make distributions to Huttig.
The Note Purchase Agreement is expected to contain customary events of default, including the failure to pay principal when due or any interest or other amount that becomes due within five days after the due date thereof, any representation or warranty being made by Huttig that is false or incorrect in any material respect on or as of the date made, a default in the performance of any negative covenants, a default in the performance of certain other covenants or agreements for a period of thirty days, default in or acceleration of certain other indebtedness, certain insolvency events, judgments against Huttig in specified amounts and failure to satisfy such judgments within specified periods.
THE SPIN-OFF
REASONS FOR THE SPIN-OFF
On December 6, 1999, Crane's board of directors approved the spin-off of Huttig. The
Crane board of directors believes that the spin-off is in the best interest of Crane's stockholders.
Huttig is being spun-off for the following reasons:
o The spin-off is necessary to effect the acquisition of Rugby USA and should allow Huttig to pursue more effectively its acquisition strategy by, among other things, providing it the flexibility to use its stock as currency to purchase other potential acquisition targets.
o The growth and management strategies of Huttig's distribution business are not fully aligned with the other businesses of Crane. Separation of Huttig's business from Crane will allow Huttig to better position its own strategic objectives in its area of expertise, which should result in enhanced growth.
o The spin-off will enable Huttig to have direct access to capital markets. Depending upon market conditions, Huttig may raise equity capital to retire some or all of its outstanding debt. With certain exceptions, the Registration Rights Agreement with Rugby prohibits Huttig from publicly offering any newly issued shares of common stock until the earlier of the date on which Rugby disposed of 50 percent of the Huttig common stock received in the exchange and two years after the completion of the exchange. See "The Acquisition Transactions -- The Registration Rights Agreement."
o The spin-off will allow Huttig to recruit, retain and motivate key employees by providing them with stock-based compensation incentives directly tied to the success of Huttig's business.
MANNER OF EFFECTING THE SPIN-OFF
Crane will effect the spin-off by distributing all issued and outstanding shares of Huttig common stock, together with accompanying preferred share purchase rights, to holders of record of Crane common stock as of the close of business on December 8, 1999. The spin-off will be made on the basis of one share of Huttig common stock for every 4.5 shares of Crane common stock held as of the close of business on December 8, 1999.
Prior to the spin-off, Crane will deliver all outstanding shares of Huttig common stock to the distribution agent for distribution. As promptly as practicable after the spin-off, the distribution agent will mail certificates for whole shares of Huttig common stock to Crane stockholders of record on December 8, 1999.
If a stockholder owns fewer than 4.5 shares of Crane common stock or is otherwise entitled to receive a fractional share of Huttig common stock, that stockholder will receive cash instead of a fractional share of Huttig common stock. The distribution agent will, promptly after the date of the spin-off, aggregate all such fractional share interests in Huttig common stock with those of other similarly situated stockholders and sell such fractional share interests in Huttig common stock at then-prevailing prices. The distribution agent will distribute the cash proceeds to stockholders entitled to such proceeds pro rata based upon their fractional interests in Huttig common stock. No interest will be paid on any cash distributed in lieu of fractional shares.
If you hold your shares of Crane common stock through a stockbroker, bank or other nominee, you are not likely to be a stockholder of record. Therefore, your receipt of Huttig common stock distributed in the spin-off will depend on the arrangements between you and the nominee that is the record owner and holder of your shares of Crane common stock. It is anticipated that stockbrokers and banks will generally credit their customers' accounts with Huttig common stock on or about December 16, 1999. You should check directly with your stockbroker, bank or other nominee to confirm the particular arrangements relating to your account.
No owner of Crane common stock will be required to pay any cash or other consideration for shares of Huttig common stock received in the spin-off or to surrender or exchange any shares of Crane common stock to receive shares of Huttig common stock. The shares of Huttig common stock distributed in the spin-off will be fully paid and nonassessable. The shares of Huttig common stock will not be entitled to preemptive rights. See "Description of Huttig Capital Stock."
Participants in the Crane Dividend Reinvestment and Stock Purchase Plan will be
credited with the number of shares (including fractional shares) of Huttig common stock distributed in the spin-off in respect of the Crane common stock held in their dividend reinvestment accounts. Shares of Huttig common stock credited as a result of the spin-off to a participant in the Crane Dividend Reinvestment and Stock Purchase Plan in respect of the Crane common stock held in that participant's dividend reinvestment account will be aggregated with shares of Huttig common stock distributed in the spin-off in respect of Crane common stock held by that participant outside such account and the distribution agent will mail, as promptly as practicable after the spin-off, a certificate for the aggregage number of whole shares attributable to such stockholder.
NO CONSIDERATION WILL BE PAID BY STOCKHOLDERS OF CRANE FOR THE SHARES OF HUTTIG COMMON STOCK TO BE RECEIVED BY THEM IN THE SPIN-OFF, NOR WILL THEY BE REQUIRED TO SURRENDER OR EXCHANGE SHARES OF CRANE COMMON STOCK OR TAKE ANY OTHER ACTION IN ORDER TO RECEIVE HUTTIG COMMON STOCK.
RESULTS OF THE SPIN-OFF
After the spin-off, Huttig will be a separate public company. The number and identity of its stockholders immediately after the spin-off will be the same as the number and identity of Crane's stockholders at the close of business on December 8, 1999. Immediately after the spin-off, it is expected that Huttig will have approximately 5,100 holders of record of its common stock and approximately 13.9 million shares of its common stock outstanding, based on the number of record stockholders and issued and outstanding shares of Crane common stock at the close of business on November 30, 1999 and on the distribution ratio of one share of Huttig common stock for every 4.5 shares of Crane common stock owned by a Crane stockholder at that time. After completion of the acquisition of Rugby USA, it is expected that Huttig will have approximately 20.5 million shares of common stock outstanding, approximately 68% of which will be held by former Crane stockholders and approximately 32% of which will be held by Rugby.
The spin-off will not affect the number of outstanding shares of Crane common stock or the rights attendant to those shares.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE SPIN-OFF
The following is a summary of the material U.S. federal income tax consequences of the spin-off. It is not intended to address the tax consequences for every stockholder. In particular, this summary does not cover state, local or non-U.S. income and other tax consequences. Accordingly, stockholders are strongly encouraged to consult their individual tax advisors for information on the tax consequences applicable to their individual situations. In addition, stockholders residing outside of the United States are encouraged to seek tax advice regarding the tax implications of the spin-off.
Crane has received a tax ruling from the IRS stating in principle that,
among other things, the spin-off will qualify as a tax-free distribution under
Section 355 of the Internal Revenue Code. In accordance with this tax ruling:
o No gain or loss will be recognized by Crane upon the spin-off of Huttig common stock to Crane's stockholders.
o No gain or loss will be recognized by Crane's stockholders as a result of their receipt of Huttig common stock in the spin-off except to the extent that a stockholder receives cash in lieu of any fractional share.
o A Crane stockholder who receives cash as a result of the sale of a fractional share of Huttig common stock by the distribution agent on behalf of such stockholder will be treated as having received the fractional share in the spin-off and then having sold the fractional share. Accordingly, the stockholder will recognize gain or loss equal to the difference between the cash received and the amount of tax basis allocable (as described below) to the fractional share. Such gain or loss will be capital gain or loss if the fractional share would have been held by the stockholder as a capital asset.
o A stockholder's tax basis in Crane common stock will be apportioned between Crane common stock and
Huttig common stock received in the spin-off on the basis of the relative fair market values of the shares at the time of the spin-off.
o The holding period of Huttig common stock received in the spin-off will be the same as the holding period of Crane common stock with respect to which Huttig common stock will be distributed, provided that the stockholder holds the Crane common stock as a capital asset on the date of the spin-off.
A tax ruling relating to the qualification of a spin-off as a tax-free distribution within the meaning of Section 355 of the Internal Revenue Code generally is binding on the IRS. However, the continuing validity of a tax ruling is subject to certain factual representations and assumptions. Crane and Huttig are not aware of any facts or circumstances that would cause the representations and assumptions contained in the tax ruling request made by Crane to be untrue.
If the spin-off were not to qualify as a tax-free distribution within the meaning of Section 355 of the Code, Crane would recognize taxable gain equal to the excess of the fair market value of the Huttig common stock distributed to Crane's stockholders over Crane's tax basis in the Huttig common stock. In addition, each Crane stockholder who receives Huttig common stock in the spin-off would generally be treated as receiving a taxable distribution in an amount equal to the fair market value of Huttig common stock. If the spin-off qualified under Section 355 of the Code but was disqualified as tax-free to Crane because of certain post-spin-off circumstances, such as an acquisition of Huttig within two years after the spin-off that, together with the spin-off, is treated as pursuant to a single plan, Crane would recognize taxable gain but the spin-off would generally remain tax-free to each Crane stockholder. See "Risk Factors."
Promptly following the spin-off, Crane will send a letter to the holders of Crane common stock who receive Huttig common stock in the spin-off that will explain the allocation of tax basis between Crane common stock and Huttig common stock.
THE FOREGOING IS ONLY A SUMMARY OF THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE SPIN-OFF UNDER CURRENT LAW AND IS INTENDED FOR GENERAL INFORMATION ONLY. EACH CRANE STOCKHOLDER SHOULD CONSULT HIS OR HER TAX ADVISOR AS TO THE PARTICULAR CONSEQUENCES OF THE SPIN-OFF TO SUCH STOCKHOLDER, INCLUDING THE APPLICATION OF STATE, LOCAL AND NON-U.S. TAX LAWS, AND AS TO POSSIBLE CHANGES IN TAX LAW THAT MAY AFFECT THE TAX CONSEQUENCES DESCRIBED ABOVE.
The Tax Allocation Agreement provides that Huttig will be responsible for any taxes imposed on Crane that would not have been payable but for the breach by Huttig of any representation, warranty or obligation under the Tax Allocation Agreement, the tax ruling request or the Distribution Agreement. See "Arrangements with Crane Relating to the Spin-Off -- Tax Allocation Agreement."
LISTING AND TRADING OF HUTTIG COMMON STOCK
Currently, there is no public market for Huttig common stock. Huttig has applied to have its common stock approved for listing on the New York Stock Exchange under the trading symbol "HBP". A when-issued trading market for Huttig common stock may develop on or about December 8, 1999. The prices at which Huttig common stock may trade on a when-issued basis cannot be predicted. On or after December 8, 1999, Crane common stock may be traded either "ex-distribution -- when issued" or "regular way" (with due bills attached). Crane common stock traded "ex-distribution -- when issued" will entitle the buyer to receive only the underlying shares of Crane common stock. Crane common stock traded "regular way" (with due bills attached) will have due bills attached entitling the buyer to receive and requiring the seller to deliver the shares of Huttig common stock to be issued in the spin-off as well as the underlying shares of Crane common stock.
Beginning on the first New York Stock Exchange trading day after the date of the spin-off, it is expected that trading of Crane common stock "ex-distribution -- when issued" or "regular way" (with due bills attached) will no longer be permitted and Crane common stock will trade "regular way" only, entitling the buyer to receive only Crane common stock.
Until Huttig common stock is fully distributed and an orderly market develops, the prices at which trading in Huttig common stock occurs may fluctuate significantly and may be lower or higher than the price that would be expected for a fully-distributed issue. The prices at which Huttig common stock will trade following the spin-off will be determined by the marketplace and may be influenced by many factors, including:
o the depth and liquidity of the market for Huttig common stock;
o investor perceptions of Huttig, its business and the industries in which it operates and of the combined company if the acquisition of Rugby USA is completed;
o Huttig's dividend policy;
o Huttig's or the combined company's financial results; and
o general economic and market conditions.
Substantially all of the shares of Huttig common stock distributed in the spin-off will be eligible for immediate resale in the public market. In transactions similar to the spin-off, it is not unusual for a significant redistribution of shares to occur during the first few weeks or even months following completion of the transaction. Huttig is not able to predict whether substantial amounts of Huttig common stock will be sold in the open market following the spin-off or what effect these sales may have on prices at which Huttig common stock may trade. Sales of substantial amounts of Huttig common stock in the public market during this period, or the perception that any redistribution has not been completed, could materially adversely affect the market price of Huttig common stock.
Generally, Huttig common stock distributed in the spin-off will be freely transferable, except for securities received by persons deemed to be Huttig "affiliates" under the Securities Act of 1933. Persons who may be deemed to be Huttig affiliates after the spin-off generally include individuals or entities that control, are controlled by, or are under common control with Huttig, including Huttig directors and executive officers. Persons who are Huttig affiliates will be permitted to sell their shares of Huttig common stock received in the spin-off only pursuant to an effective registration statement under the Securities Act or an exemption from the registration requirements of the Securities Act, such as in accordance with the requirements of Rule 144 under the Securities Act.
ARRANGEMENTS WITH CRANE RELATING TO THE SPIN-OFF
For the purpose of governing certain of the relationships between Crane and Huttig relating to the spin-off and to provide for an orderly transition and for other matters, Crane and Huttig have entered into the agreements described below, copies of which have been filed as exhibits to the Registration Statement of which this Information Statement is a part. The following summaries of the material terms of these agreements are qualified by reference to the agreements as so filed.
DISTRIBUTION AGREEMENT
Huttig and Crane have entered into a Distribution Agreement that provides for the actions required to effect the spin-off.
The Distribution Agreement provides that on or prior to the effectiveness of the spin-off, Crane will deliver to the distribution agent a certificate or certificates representing all of the outstanding shares of Huttig common stock. Crane will instruct the distribution agent to distribute on the date of the spin-off or as soon thereafter as practicable one share of Huttig common stock for every 4.5 shares of Crane common stock held by holders of record of Crane common stock as of December 8, 1999. As promptly as practicable after the spin-off, the distribution agent will mail certificates for whole shares of Huttig common stock to Crane stockholders of record on December 8, 1999.
If a stockholder owns fewer than 4.5 shares of Crane common stock or is otherwise entitled to receive a fractional share of Huttig common stock, that stockholder will receive cash instead of a fractional share of Huttig common stock. The distribution agent will, promptly after the date of the spin-off, aggregate all such fractional share interests in Huttig common stock with those of other similarly situated stockholders and sell such fractional share interests in Huttig
common stock at then-prevailing prices. The distribution agent will distribute the cash proceeds to stockholders entitled to such proceeds pro rata based upon their fractional interests in Huttig common stock. No interest will be paid on any cash distributed in lieu of fractional shares.
The Distribution Agreement also provides that, after the spin-off, Crane will continue to have all rights in and to the name "Crane" and all related corporate symbols and logos and Huttig will have all rights in and to the name "Huttig" and all related corporate symbols and logos.
The Distribution Agreement provides generally that all assets and liabilities of Huttig and the building products business conducted by Huttig will be vested solely in Huttig after the spin-off. Crane will have no interest in the assets of the building products business and will have no obligation with respect to the liabilities of the building products business after the spin-off. Similarly, Huttig will have no interest in the assets of Crane's other businesses and will have no obligation with respect to the liabilities of Crane's other businesses after the spin-off.
The Distribution Agreement provides that, prior to the spin-off, Huttig will pay to Crane from time to time, and specifically on the day prior to the spin-off, Huttig's net cash balances on hand in reduction of intercompany indebtedness. Also prior to the spin-off, Huttig will arrange for the Credit Facility, and on the day prior to the spin-off will issue a note to Crane in a principal amount, expected to be $68 million, equal to 68% of the funds available to be borrowed by Huttig under the Credit Facility to repay debt to Crane and Rugby. The Distribution Agreement also provides that if Crane advances funds to Huttig to fund acquisitions, Huttig will from time to time prior to the spin-off issue notes in the principal amount of such advances up to $15 million in the aggregate. Any such notes will be repaid with proceeds from the Credit Facility.
The Distribution Agreement also provides that at the time of the spin-off:
o intercompany receivables, payables and other balances between Huttig and Crane and/or an affiliate of Crane will be settled and eliminated, except for the indebtedness evidenced by the notes referred to in the preceding paragraph, and with other limited exceptions related to the spin-off;
o agreements, arrangements, commitments or understandings between Huttig and Crane and/or an affiliate of Crane, other than ordinary course business arrangements, generally will be terminated, except spin-off related arrangements and agreements with third parties; and
o Huttig will be responsible for obtaining and maintaining its own insurance coverage and will no longer be an insured party under Crane's insurance policies after the spin-off, except that Huttig will have the continued right to (i) assert claims for insured incidents occurring on or prior to the date of the spin-off under Crane's "occurrence basis" policies with third-party insurers and (ii) prosecute claims properly asserted with the insurance carrier prior to the date of the spin-off under Crane's "claims made" basis policies for insured incidents occurring on or prior to the date of the spin-off.
The Distribution Agreement provides generally that all costs and expenses incurred through the time of the spin-off in connection with the spin-off, the preparation, execution and delivery of the agreements described in this section and the consummation of the contemplated transactions will be charged to and paid by Crane, other than (i) costs and expenses of the Credit Facility and Notes and (ii) costs and expenses to the extent attributable to the operation of Huttig's business, which will be paid by Huttig. Except as otherwise expressly provided in any agreement, all costs and expenses incurred subsequent to the spin-off and in connection with implementation of the spin-off agreements will be paid by the party for whose benefit the expenses are incurred. Any subsequent expenses that cannot be allocated on that basis will be split equally between Huttig and Crane.
The Distribution Agreement provides that the spin-off will not occur until all of the following conditions are satisfied or waived by the Crane board of directors:
o receipt of the tax ruling from the IRS;
o expiration or termination of all applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvement Acts of 1976 with respect to the Rugby USA acquisition;
o receipt of financing commitments for Huttig's credit facility in form and substance satisfactory to Crane;
o receipt of all material governmental consents required for the spin-off and the exchange;
o the Form 10 registration statement having become effective under the Exchange Act;
o Huttig common stock having been approved for listing on the NYSE;
o approval of the exchange by Rugby's shareholders; and
o no order having been entered and in effect that would prohibit or make illegal the spin-off or the exchange.
Huttig is not aware of any required material consents except those otherwise listed above as separate conditions. The tax ruling, the financing commitment, the approval for listing on the New York Stock Exchange of the Huttig common stock and the approval of the exchange by Rugby's shareholders have been received. The waiting period has expired under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
EMPLOYEE MATTERS AGREEMENT
Huttig and Crane will enter into an Employee Matters Agreement concerning Huttig's employee benefits obligations, including both compensation and benefits, with respect to its employees in connection with the spin-off. Under the Employee Matters Agreement, Huttig assumes certain liabilities for pension, welfare and other employee benefits with respect to its employees and certain former employees who remain covered under one or more of its benefit plans and arrangements and agrees to establish certain benefit plans for such individuals. The Employee Matters Agreement does not alter or affect any employee benefit plan currently sponsored or maintained by Huttig exclusively for the benefit of its employees.
The Employee Matters Agreement does not preclude Huttig from discontinuing or changing such plans, or establishing any new plans, at any time after the spin-off. In addition, the Employee Matters Agreement represents an agreement between Crane and Huttig and does not create or establish any contract with, or other right or interest in, any employee of Crane or Huttig or any other party with respect to employee benefits.
Retirement Plans. Effective prior to or immediately after the spin-off, Huttig will establish its own qualified and non-qualified employee benefit plans, which generally will be the same as Crane's plans as in effect at that time, except that Huttig will not establish or maintain any qualified defined benefit pension plan for its salaried or hourly employees. Benefits accrued by Huttig salaried and hourly employees under the applicable Crane pension plans will be frozen, and Huttig will have no liability, and Crane will have no obligation to transfer assets, with respect to such benefits. Crane will retain responsibility for funding and paying when due retirement benefits accrued by Huttig employees under any Crane pension plan prior to the spin-off.
Huttig employees who have accrued benefits under a Crane pension plan will be fully vested in those benefits. In addition, both salaried and hourly employees who have accrued benefits under a Crane pension plan will continue to receive service credit for retirement benefit eligibility purposes under the Crane pension plan for service with Huttig after the spin-off. However, Huttig employees will accrue no further benefits under the Crane pension plan after the spin-off.
Huttig will establish a new qualified defined contribution plan for its employees that will be substantially similar to the Crane 401(k) plan and also will incorporate a discretionary profit sharing contribution feature. Huttig also intends to continue its 401(k) Target Plan for former bargaining employees of Palmer G. Lewis Company, its American Pine Products 401(k) Profit Sharing Plan and its Whittier-Ruhle Savings and Investment Plan. All of the account balances of Huttig employees under the Crane 401(k) plan will be fully vested and a corresponding amount of assets will be
transferred from the Crane 401(k) plan to one or more of the qualified defined contribution plans maintained by Huttig.
Stock and Incentive Compensation Plans. In addition to the tax-qualified retirement plans discussed above, Huttig will establish certain nonqualified stock and incentive compensation plans and arrangements similar to those currently offered by Crane. These plans and arrangements include the EVA Incentive Compensation Plan, a Stock Incentive Plan providing for stock options and awards of restricted stock and a Restricted Stock Plan for Non-Employee Directors of Huttig. Huttig will assume liability for the account balances of its employees under Crane's EVA Incentive Compensation Plan. The treatment of awards or grants to Huttig employees under Crane's stock-based plans is described below. Huttig further intends to establish an employee stock purchase plan for its employees that will allow them to invest in Huttig's future growth by purchasing Huttig stock at market prices.
Crane Stock Plans. Pursuant to the Employee Matters Agreement, each outstanding stock option for Crane Common Stock granted under the Crane Stock Option Plan as of the close of business on the date of the spin-off will be adjusted to reflect the spin-off as described below. The number of shares of Crane common stock subject to the option as of the date of the spin-off will be multiplied by the Option Ratio (as defined below) and then rounded to the nearest whole share. The per-share exercise price of the Crane option as of the spin-off will be divided by the Option Ratio.
For purposes of the adjustments described above, the "Option Ratio" means the amount obtained by dividing (a) the average of the high and low sales prices of the Crane common stock, regular way, as listed on the NYSE on the trading day immediately prior to the date of the spin-off by (b) the average of the high and low sales prices of the Crane common stock, ex-distribution -- when issued, on the date of the spin-off.
Crane stock options held by Huttig employees will continue to vest in accordance with their terms and will remain exercisable for 90 days after the date of the spin-off. All unexercised Crane stock options held by Huttig employees after such date will be forfeited.
Crane and Huttig have agreed with Mr. Barry J. Kulpa, President and Chief Executive Officer of Huttig, that his shares of Crane restricted stock will be treated in the following manner in connection with the spin-off. His shares of time-based Crane restricted stock will be converted into an economically equivalent number of shares of time-based Huttig restricted stock, and the vesting schedule for both time-based grants will remain unchanged. Mr. Kulpa's shares of performance-based Crane restricted stock will be canceled. For information about the Crane restricted stock held by Mr. Kulpa, see the Summary Compensation Table under "Compensation of Executive Officers."
Health and Welfare Plans. As of the spin-off, Huttig generally will assume all liabilities and responsibilities for providing health and welfare benefits to its employees and retirees. However, during a transitional period, Crane and Huttig may jointly participate in certain contracts, policies and other administrative or indemnity arrangements with third parties to provide health and welfare benefits applicable to their respective employees and retirees.
With respect to postretirement medical and life insurance benefits, Huttig presently intends to continue to pay 50% of any premium or cost of such coverage for its current retirees between the ages of 55 and 65. For active employees who began working with Huttig prior to 1992, Huttig intends to continue to offer the same postretirement medical and life insurance benefits as are currently offered, but Huttig will not pay any of the premium or cost of such coverage. For active employees who began working with Huttig in 1992 or later, Huttig does not intend to offer group postretirement medical and life insurance benefits.
TAX ALLOCATION AGREEMENT
Through the date of the spin-off, Huttig's results of operations have been and will be included in Crane's consolidated U.S. federal income tax returns. As a part of the spin-off, Huttig and Crane will enter into a Tax Allocation Agreement that provides, among other things, for the allocation between Crane and Huttig of federal, state, local and non-U.S. tax liabilities relating to Huttig's business.
The terms of the Tax Allocation Agreement provide that Huttig will pay its allocable share of any taxes due with respect to consolidated tax returns that Huttig files with Crane for all periods that commence prior to the spin-off. Each of Huttig and Crane will be separately responsible for the filing of tax returns and payment of all taxes for periods beginning after the date of the spin-off. Under the Tax Allocation Agreement, Huttig is responsible for any taxes imposed on Crane that would not have been payable but for the breach by Huttig of any representation, warranty or obligation under the Tax Allocation Agreement, the tax ruling request or the Distribution Agreement. These representations, warranties and obligations relate to Huttig's continuing satisfaction of certain statutory and judicial requirements necessary for the spin-off to be tax-free to Huttig, Crane and its stockholders. In particular, Huttig has represented generally that (1) during the two-year period following the spin-off, Huttig will not enter into any transaction or make any change in its equity structure that may cause the spin-off to be treated as part of a plan pursuant to which one or more persons acquire Huttig stock representing a 50-percent or greater equity interest in Huttig, (2) it will not repurchase outstanding Huttig common stock after the spin-off representing 20 percent or more of the outstanding Huttig common stock, and (3) following the spin-off, it will continue the active conduct of its businesses. Other representations and obligations of Huttig in the Tax Allocation Agreement, ruling request and Distribution Agreement are either unrelated to the tax-free status of the spin-off or constitute statements of fact as to which there is no uncertainty.
The Tax Allocation Agreement provides that for a period of two years after the spin-off, Huttig will not liquidate, merge or consolidate with any other person without Crane's prior written consent. The Tax Allocation Agreement also provides that, during the same period, Huttig will not enter into any transaction or make any change in its equity structure that may cause the spin-off to be treated as part of a plan pursuant to which one or more persons acquire Huttig stock representing a 50-percent or greater equity interst in Huttig.
Although the Tax Allocation Agreement is binding between Crane and Huttig, it is not binding on the Internal Revenue Service and does not affect the liability of Huttig or its subsidiaries, or the liability of Crane and its subsidiaries, to the IRS for all federal taxes of the consolidated group relating to periods through the date of the spin-off.
THE ACQUISITION TRANSACTIONS
SHARE EXCHANGE AGREEMENT
Crane, Huttig and Rugby have entered into a Share Exchange Agreement that provides that, as soon as practicable after the spin-off occurs, Rugby will transfer to Huttig all of the outstanding capital stock of Rugby USA in exchange for newly issued shares of Huttig common stock. As a result of this exchange, Rugby USA will become a wholly owned subsidiary of Huttig. The number of shares to be issued to Rugby will equal 32% of the Huttig common stock outstanding, excluding, for purposes of calculating the 32%, the shares of Huttig restricted stock that will be held by Mr. Kulpa. Following the closing, Huttig will have the royalty-free exclusive right, when used in relation to Huttig's lines of business as currently conducted, to operate in the United States under the name "Rugby Building Products" for a period of two years.
Certain Preliminary Actions
The Exchange Agreement provides that, prior to the exchange, Rugby USA will dispose of a number of locations currently operated by Rugby USA. If those assets have not been sold to a third party, Rugby USA will transfer them to a subsidiary of Rugby immediately prior to the exchange. Rugby has agreed to indemnify Huttig and Crane against any losses that either may incur that are related to the transferred assets.
The Exchange Agreement provides that on the day prior to completion of the spin-off, Huttig will pay to Crane, in reduction of outstanding indebtedness, Huttig's net cash balance on hand at the close of business on that day. On the day prior to the closing of the exchange, Rugby USA will distribute to Rugby its net cash balance on hand at the close of business on that day, less any amount then owing by Rugby USA under its existing working
capital line of credit, and will repay all outstanding indebtedness under that line of credit.
Prior to the exchange, Rugby will also eliminate a Rugby USA receivable from Rugby of up to $9 million in respect of the proceeds of a prior disposition by Rugby USA, without affecting the net cash balances of Rugby USA.
The Exchange Agreement provides that Huttig will use its best efforts to arrange financing to provide at closing:
o a working capital facility of $30 million or such other amount as Huttig's board may determine;
o an acquisitions facility of $20 million or such other amount as Huttig's board may determine; and
o a credit facility to fund the repayment of outstanding debt owed by Huttig to Crane and by Rugby USA to Rugby in the maximum amount that, taken together with the working capital and acquisitions facilities, would be consistent with an NAIC-2 rating for Huttig's indebtedness. The National Association of Insurance Commissioners (NAIC) assigns a rating to every corporate security held by an insurance company. An NAIC-2 rating is an investment grade rating equivalent to a Standard & Poors rating of BBB+ to BBB-. This repayment facility is expected to aggregate $100 million.
Transactions Simultaneous with the Exchange
The Exchange Agreement provides that, at the closing of the exchange, Huttig will repay from the acquisitions facility any advances made by Crane to fund asset acquisitions by Huttig from the date of the Exchange Agreement through the closing of the exchange, but not more than $15 million in the aggregate. At the closing of the exchange, Huttig will pay 68% of the proceeds of the debt repayment facility to Crane and 32% of the proceeds of that facility to Rugby. These debt repayments will satisfy all indebtedness between Huttig and Crane, on the one hand, and Rugby USA and Rugby, on the other.
Representations, Warranties and Covenants of the Parties
The Exchange Agreement contains customary representations and warranties of the parties, including without limitation:
o as to the due organization, qualification and capitalization of the respective parties;
o that each party has the necessary corporate power and authority to execute, deliver, and perform each party's obligations under the Exchange Agreement and other agreements between the parties;
o that the execution, delivery and performance of each party's obligations under the Exchange Agreement and other agreements will not conflict with or violate any party's governing documents, applicable laws, contracts or other agreements in a materially adverse manner to that party;
o that no material governmental consents, approvals or permits are required by each party for the execution, delivery and performance of the Exchange Agreement, Registration Rights Agreement and Transition Services Agreement, except those identified in the Exchange Agreement;
o that each of Huttig and Rugby USA are in possession of all material permits necessary to operate their businesses and are not in violation of any applicable law except where it could not reasonably have a material adverse effect on that party;
o as to the financial statements of Huttig and Rugby USA included in the Form 10;
o regarding certain of each party's assets, liabilities and obligations; and
o that since September 30, 1999, there has not been any material adverse effect on each of Huttig and Rugby USA, and that the businesses of Huttig and Rugby USA have been conducted in the ordinary course and in a manner consistent with past practices.
Huttig and Crane have also represented their compliance with federal securities laws regarding any filings required in connection with the spin-off, including the Form 10.
The Exchange Agreement also contains covenants of the parties, including, without limitation, covenants that the businesses of Huttig and Rugby USA will be conducted in the ordinary course consistent with past practice until the closing of the exchange, including management of working capital. The Exchange Agreement contains other covenants, including, without limitation, a covenant by Rugby to convene a meeting of its shareholders for purposes of voting on the exchange.
Rugby has also agreed that prior to the closing of the exchange, either Rugby or Rugby USA shall pay Rugby USA's estimated U.S. federal and state income taxes for the period beginning January 1, 1999 and ending on the date of closing of the exchange. Rugby is required to pay to Huttig after the exchange the amount, if any, by which the actual federal and state income taxes due by Rugby USA for this period exceed the estimated tax payments made by Rugby or Rugby USA prior to the closing of the exchange.
In the Exchange Agreement, Crane has agreed not to, and to cause Huttig not to, directly or indirectly:
o encourage inquiries or proposals regarding a sale of Huttig or a material portion of its assets;
o engage in negotiations concerning, or provide non-public information to a third party relating to, a sale of Huttig or a material portion of its assets; or
o agree to or approve a sale of Huttig or a material portion of its assets.
These restrictions do not apply to an unsolicited proposal for a sale of Huttig or a material portion of its assets that Crane's board of directors determines is more favorable from a financial point of view to Crane and its stockholders than the spin-off and the exchange.
Rugby has agreed to provisions with respect to Rugby USA that are identical to those discussed in the preceding paragraph, except that the restrictions also do not apply to the extent fiduciary obligations of the board of directors of Rugby under applicable law require Rugby to take actions otherwise restricted by the Exchange Agreement. In addition, Rugby is permitted to disclose to its shareholders any information that is required to be disclosed under applicable law.
Conditions to Closing
The obligations of the parties to the Exchange Agreement to effect the spin-off and the exchange are subject to the satisfaction or waiver of certain conditions, including, without limitation, receipt of the tax ruling from the IRS, the SEC having declared the registration statement effective, Huttig's common stock having been approved for listing on the NYSE, expiration or termination of all applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvement Acts of 1976, receipt of commitments for the financing described above and approval of Rugby's shareholders.
The tax ruling, the financing commitment, the approval for listing on the New York Stock Exchange of the Huttig common stock and the approval of the exchange by Rugby's shareholders have been received. The waiting period has expired under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
Termination
The Exchange Agreement may be terminated:
1. by the mutual written consent of (i) Crane and Rugby at any time prior to the spin-off and (ii) Huttig and Rugby at any time prior to the Exchange;
2. by any party to the Exchange Agreement if a final order restraining or preventing the consummation of the transactions has been entered by a competent governmental authority;
3. by any party to the Exchange Agreement if the exchange has not occurred by January 31, 2000; provided, that a party may not terminate the Exchange Agreement under this provision if the failure of the exchange to have occurred results primarily from that party's breach of its representations, warranties or covenants in the Exchange Agreement; and provided further that no party may
terminate the Exchange Agreement solely pursuant to this provision if the spin-off has been declared by the Crane board of directors;
4. by any party if the required vote in favor of the exchange by Rugby's shareholders is not obtained;
5. by any party if any condition to that party's obligations becomes incapable of being fulfilled before January 31, 2000 despite that party's exercise of its reasonable best efforts to cause the condition to be fulfilled;
6. by Crane or Huttig if (i) the Rugby board of directors withdraws or changes, or resolves to withdraw or change, its approval or recommendation of the Exchange Agreement or the exchange in a manner adverse to Crane or Huttig, (ii) the Rugby board of directors recommends, or resolves to recommend, to the shareholders of Rugby a sale to a third party of Rugby USA or a material portion of its assets that it has determined is more favorable to Rugby and its shareholders from a financial point of view, or (iii) Rugby has entered into an agreement to consummate a transaction described in clause (ii) of this sentence;
7. by Rugby, if the Rugby board of directors determines, based on written advice of independent legal counsel, that failure to terminate the Exchange Agreement would cause the Rugby board of directors to breach its fiduciary duties or if an unsolicited financially superior proposal for an acquisition of Rugby USA has been made and Rugby or Rugby USA enters into an agreement to consummate that acquisition;
8. by Crane or Huttig if (i) the Crane board of directors determines not to consummate the spin-off, (ii) an unsolicited financially superior proposal for an acquisition of Huttig has been made and (iii) Crane or Huttig enters into an agreement to consummate that acquisition; or
9. by Rugby, if (i) the Crane board of directors resolves not to consummate the spin-off or (ii) Crane or Huttig enters into an agreement to consummate a financially superior acquisition of Huttig.
Expenses Following Certain Termination Events
Upon a termination of the Exchange Agreement, Crane will be obligated to pay Rugby $5 million if:
o Crane or Huttig terminates the Exchange Agreement on the basis provided in paragraph 8, above; or
o Rugby terminates the Exchange Agreement on a basis provided in paragraph 9, above.
Upon a termination of the Exchange Agreement, Rugby will be obligated to pay Crane $5 million if
o Crane or Huttig terminates the Exchange Agreement on a basis provided in paragraph 6, above;
o Rugby terminates the Exchange Agreement on a basis provided in paragraph 7, above; or
o Crane, Huttig or Rugby terminates the Exchange Agreement on the basis provided in paragraph 4, above, and within six months of termination for this reason Rugby shall have entered into an agreement relating to a financially superior acquisition of Rugby USA or a material portion of its assets.
THE REGISTRATION RIGHTS AGREEMENT
At the closing of the exchange, Huttig and Rugby will enter into a Registration Rights Agreement that provides, among other things, that so long as the Huttig common stock owned by Rugby and received in the exchange constitutes at least 30%, 20% and 10% of the outstanding Huttig common stock, Rugby will be entitled to designate for nomination by the Huttig board three, two or one director(s), respectively. So long as the Huttig common stock owned by Rugby and received in the exchange constitutes 10% or more of the outstanding Huttig common stock, Rugby is required to be present at all meetings of the stockholders of Huttig and to vote its shares of Huttig common stock in favor of the Huttig board's nominees for election to the Huttig board.
At the time the Exchange Agreement was executed, the Crane Fund agreed with Rugby that, so long as the Huttig common stock owned by Rugby and received in the exchange constitutes 10% or more of the outstanding Huttig common stock, the Crane Fund would (i) be present at all meetings of the stockholders of Huttig and (ii) vote its shares of Huttig common stock for the nominees designated by Rugby as provided in the Registration Rights Agreement.
In the Registration Rights Agreement, Huttig has agreed not to grant registration rights to any person that become exercisable before the second anniversary of the date of the exchange or, if earlier, the date on which the shares owned by Rugby and received in the exchange constitute less than 10% of the outstanding common stock on the date of the exchange.
Initial Offering Rights
Under the Registration Rights Agreement, Rugby has the right to require Huttig to file, no later than four months after the Exchange, a registration statement on Form S-1 covering either the sale, in an underwritten offering, of at least 50% of the shares of Huttig common stock received in the exchange, or the distribution of all of the shares so received in exchange for debt securities of Rugby.
If Rugby does not sell all the shares registered in the initial underwritten offering, and provided that the unsold shares constitute more than 2% of the outstanding Huttig common stock as of the date of the exchange, Rugby has the right to require Huttig to file an additional registration statement on Form S-1 covering the sale by Rugby in an underwritten offering of at least the shares of Huttig common stock not sold in the initial offering. Huttig has the right to postpone the filing of this second registration statement for up to 120 days.
During the first two years after the exchange, or, if earlier, until the date Rugby sells 50% of the Huttig common stock it received in the exchange, Huttig may not publicly offer or sell any newly issued shares of Huttig common stock. Notwithstanding the foregoing, Huttig may make public offers or sales during the restriction period described in the preceding sentence (i) solely to employees or directors of Huttig, (ii) pursuant to a dividend reinvestment plan and (iii) in business combination transactions, none of which individually exceeds $15 million, that would otherwise qualify as private placements and are issued pursuant to a shelf registration statement on Form S-4.
During the first nine months after the exchange, or, if earlier, until the date the initial underwritten offering described above is completed, Huttig may not offer or sell in a private offering or pursuant to an acquisition shelf registration in connection with a business transaction any newly issued shares of Huttig common stock.
Shelf Registration Right
Pursuant to the Registration Rights Agreement, at any time after the twelfth full calendar month after the exchange, Rugby has the right to require Huttig to effect a shelf registration with respect to the Huttig common stock owned by Rugby and received in the exchange. Huttig would be required to keep that registration statement effective until the Huttig common stock owned by Rugby and received in the exchange constitutes less than 10% of the outstanding Huttig common stock. Rugby will be entitled to two underwritten offerings and/or debt exchangeable for common stock offerings under the shelf registration statement unless Rugby required Huttig to effect an additional underwritten offering on Form S-1 as provided above; in that case, Rugby will be entitled to only one underwritten offering or debt exchangeable for common stock offering under the shelf registration statement. Any sale of Huttig common stock by Rugby pursuant to the shelf registration in other than an underwritten offering may be made only by or through an investment banking firm or firms as may be reasonably acceptable to Rugby and Huttig.
Notwithstanding the foregoing, Huttig will not be required to effect an underwritten offering or debt exchangeable for common stock offering under the shelf registration statement:
o unless Rugby proposes to offer or sell a number of shares having a market value of at least $20 million;
o if (A) Huttig has effected (i) an underwritten offering or debt exchangeable for common stock offering
within the prior four month period or (ii) three underwritten offerings and/or debt exchangeable for common stock offerings on behalf of Rugby or (B) Rugby has withdrawn a prior request for an underwritten offering or debt exchangeable for common stock offering within the prior four month period;
o during the period starting with the date 60 days prior to the filing of, and ending on a date 90 days following the effective date of, a registration statement filed by Huttig, other than (i) a registration statement relating to a business combination transaction, (ii) an offering solely to employees or directors or (iii) pursuant to a dividend reinvestment plan; or
o for a period of up to 30 days if Huttig's board of directors determines that a delay would be in the best interests of Huttig and its stockholders; provided that no such delay shall occur more than once within any twelve month period.
Huttig and its other stockholders have the right to participate in any underwritten offering effected under the shelf registration statement described above; provided, however, that shares requested to be registered by Rugby shall have priority over other shares, if, in the opinion of the lead managing underwriter, the amount of common stock to be included in the offering exceeds the amount which can be sold without adversely affecting the distribution of the shares being offered.
Incidental Registration Rights
During the five year period starting on the date of the exchange, Rugby has the right to include shares of Huttig common stock that it received in the exchange in any underwritten offering made by Huttig for its own account or for the account of other stockholders exercising their demand registration rights. This right does not apply to a registration relating to a business combination transaction, an offering solely to employees or directors or pursuant to a dividend reinvestment plan. Rugby's rights as described in this paragraph would continue after the fifth anniversary of the exchange for so long as Rugby is not eligible to sell shares pursuant to Rule 144(k) under the Securities Act.
If, in an underwritten offering in which Rugby participates by virtue of its exercise of the rights described in the preceding paragraph, the managing underwriter determines that the number of shares requested to be included exceeds the number of shares that can be sold without adversely affecting the distribution of the offered shares, Rugby has certain preferential rights over other stockholders before the second anniversary of the exchange or, if earlier, the date on which the shares owned by Rugby and received in the exchange constitute less than 10% of the outstanding common stock on the date of the exchange.
Expenses
Huttig is required to pay all registration expenses, except for duplicative filing fees, which will be paid by Rugby, incurred in connection with registrations pursuant to the Registration Rights Agreement. Rugby is required to pay only its underwriting discounts, selling commissions, stock transfer taxes and the fees and expenses of its legal counsel.
TRANSITION SERVICES AGREEMENT
At the closing of the exchange, Huttig and Rugby will enter into a Transition Services Agreement under which Huttig will provide designated services to Rugby USA's industrial businesses, which Rugby has agreed Rugby USA will sell to a third party or transfer to Rugby prior to the exchange.
The Transition Services
Huttig will provide, or cause to be provided, any or all of the following categories of transition services to Rugby USA's industrial businesses for a term of six months from the completion of the exchange:
o general accounting;
o cash management;
o tax;
o payroll;
o human resources;
o information technology;
o transportation; and
o various miscellaneous services.
The aggregate fee for these services will be up to approximately $50,000 per month for the first three months after the exchange and up to approximately $100,000 per month thereafter.
Termination and Assignability
Rugby may terminate any or all of the services provided under the Transition Services Agreement by giving Huttig fifteen days prior written notice and payment for any unpaid services previously rendered by Huttig. The Transition Services Agreement is freely assignable by Rugby in connection with any transaction in which it disposes of all or substantially all of the industrial business assets to a third party.
MANAGEMENT
DIRECTORS
The Restated Certificate of Incorporation of Huttig provides for three classes of directors whose initial terms of office will expire at the annual meeting of stockholders to be held in 2000, 2001 and 2002, respectively. Huttig expects to hold its first annual meeting of stockholders in April of 2000. Successors to any directors whose terms have expired are elected to three-year terms and hold office until their successors are elected and qualified.
The Huttig board of directors consists of the individuals named below. The age, business experience during the past five years, directorships in other companies and expected ownership of Huttig common stock (based on holdings of Crane common stock as of November 30, 1999 and the terms of the spin-off) for each of the directors are also set forth below.
HUTTIG COMMON STOCK
EXPECTED TO BE
BENEFICIALLY OWNED (1)
-----------------------
DIRECTORS WHOSE TERMS WILL EXPIRE IN 2000
Dorsey R. Gardner .................................................................. 1,762
Age 57; President, Kelso Management Company, Inc., Boston, MA (investment
management). Other directorships: Crane Co., Filene's Basement Corp., Security
First Technologies, Inc.
James L. L. Tullis ................................................................. 444
Age 52; Chairman and Chief Executive Officer, Tullis-Dickerson & Co., Inc.,
Greenwich, CT (venture capital investments in the health care industry) since 1986.
Other directorships: Crane Co., PSS Worldmed, Inc.
DIRECTORS WHOSE TERMS WILL EXPIRE IN 2001
E. Thayer Bigelow, Jr. ............................................................. 5,467
Age 58; Senior Advisor, Time Warner, Inc., New York, NY (a media and
entertainment company) since October 1998. Chief Executive Officer, Court TV,
New York, NY, an affiliate of Time Warner Entertainment LP (cable television
program services) March 1997 to October 1998. President and Chief Executive
Officer, Time Warner Cable Programming, Inc., Stamford, CT, a subsidiary of Time
Warner Entertainment LP (cable television program services), 1991 to 1997. Other
directorships: Crane Co., Lord Abbett & Co. Mutual Funds
Richard S. Forte ................................................................... 3,677
Age 55; President, Dawson Forte Cashmere Company, South Natick, MA (importer)
since January 1997. Chairman since January 1997 and, prior thereto, President,
Forte Cashmere Company, Inc. (importer and manufacturer). Other directorships:
Crane Co.
DIRECTORS WHOSE TERMS WILL EXPIRE IN 2002
R. S. Evans ........................................................................ 457,507
Age 55; Chairman and Chief Executive Officer of Crane. Other directorships: Crane
Co., Fansteel, Inc., HBD Industries, Inc., Hexcel Corporation, Southdown
Corporation.
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HUTTIG COMMON STOCK
EXPECTED TO BE
BENEFICIALLY OWNED (1)
-----------------------
Barry J. Kulpa ........................................................................ 88(2)
Age 51; President, Huttig Sash & Door Company since October 1997. Senior Vice
President and Chief Operating Officer of Dal-Tile International (manufacturer and
distributor of ceramic tile), 1994 to 1997. Vice President and Chief Financial Officer
of David Weekley Homes (regional homebuilder), 1992 to 1994.
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(1) As determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934. No director except Mr. R. S. Evans is expected to own more than 1% of the outstanding shares of Huttig common stock. See "Beneficial Ownership of Huttig Common Stock by Directors and Management."
(2) In addition, Mr. Kulpa owns 30,000 shares of Crane restricted stock, 15,000 performance-based shares of which will be canceled and 15,000 time-based shares of which will be converted into shares of Huttig restricted stock. See "Arrangements with Crane Relating to the Spin-Off -- Employee Matters Agreement."
Upon completion of the acquisition of Rugby USA, the Huttig board of directors would be expanded to nine members, three of whom will be designees of Rugby. Rugby's nominees are named below. The age, business experience during the past five years, directorships in other companies and expected ownership of Huttig common stock for each of Rugby's nominees are also set forth below.
HUTTIG COMMON STOCK
EXPECTED TO BE
BENEFICIALLY OWNED (1)
-----------------------
DIRECTOR WHOSE TERM WILL EXPIRE IN 2000
R. Mike Sharp ..................................................................... None
Age 55; Corporate Development Director of The Rugby Group PLC since 1998.
Group Finance Director of The Rugby Group PLC from 1995 to 1998. Chief
Executive of The Rugby Group PLC's joinery division from 1992-1995. Other
directorships: The Rugby Group PLC
DIRECTOR WHOSE TERM WILL EXPIRE IN 2001
David A. Harding .................................................................. None
Age 52; Group Finance Director of The Rugby Group PLC since October 1998.
Finance Director of T&N PLC (International automotive engineering group) from
1995 to 1998. Finance Director of Dairy Crest (food processing company) from
1993 to 1995. Senior financial posts (including Deputy Group Finance Director) at
TI Group PLC (international engineering company) from 1980 to 1993. Other
directorships; The Rugby Group PLC, Coventry Building Society (UK) and
Adelaide Brighton Limited (Australia)
DIRECTOR WHOSE TERM WILL EXPIRE IN 2002
James Jordan ...................................................................... None
Age 38; A solicitor of the English Supreme Court. Group Legal Manager of The
Rugby Group PLC since October 1999. Previously, General Counsel Europe/Pacific
for English China Clays plc (a major industrial minerals and specialty chemicals
company) from 1989 to 1999 and a director of ECC Overseas Investments Limited
(a mineral holding company for non-UK mining operations) from 1992 to 1999.
Senior solicitor with the City of Plymouth (a public authority) between 1987-1989
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(1) As determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934. Excludes 6,558,293 shares of Huttig common stock expected to be owned by Rugby, which may be
deemed to be beneficially owned by the nominees named herein, each of whom is a director or executive officer of Rugby. Each nominee expressly disclaims beneficial ownership of the shares of Huttig common stock owned by Rugby. No Rugby nominee is expected to own more than 1% of the outstanding shares of Huttig common stock. See "Beneficial Ownership of Huttig Common Stock by Directors and Management."
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors has established an Audit Committee, an Organization and Compensation Committee and an Executive Committee.
Executive Committee. The Executive Committee is empowered to act in lieu of the full board of directors at any meeting at which it is not feasible for a quorum of the full board of directors to meet. The Executive Committee can take any action that could be taken by the board of directors except, among other things, electing or removing officers of Huttig, amending the Restated Certificate of Incorporation or Bylaws or approving a merger, consolidation or sale of substantially all of Huttig's assets.
Audit Committee. The principal functions of the Audit Committee include:
o Reviewing with the board of directors and the independent accountants matters relating to the quality of financial reporting and internal accounting controls.
o Maintaining communication between the internal and external auditors and the board of directors.
o Reviewing and communicating to the board of directors the nature, extent and results of the internal and external audit functions.
Organization and Compensation Committee. The Organization and Compensation Committee will:
o Make recommendations to the board of directors concerning approval of the compensation of officers and other key employees.
o Make recommendations to the board of directors concerning director compensation.
o Administer Huttig's incentive compensation plans, including the EVA Incentive Compensation Plan and Stock Incentive Plan and approval of significant changes or additions to Huttig's compensation policies and practices.
The memberships of committees are as follows: Executive Committee: R. S. Evans, B. J. Kulpa and J. L. L. Tullis; Audit Committee: E.T. Bigelow, Jr., R. S. Forte and D. R. Gardner; Organization and Compensation Committee: E.T. Bigelow, Jr. (Chairman), D. R. Gardner and J. L. L. Tullis.
COMPENSATION OF DIRECTORS
The standard retainer payable to each non-employee director is $10,000 per year. Mr. R. S. Evans will receive an annual fee of $100,000 for his services as Chairman of the Board of Huttig. Pursuant to the Non-Employee Director Restricted Stock Plan, non-employee directors, except the designees of Rugby, will receive, in lieu of cash, shares of Huttig common stock with a market value equal to that portion of the standard annual retainer which exceeds $5,000. All directors who are not full-time employees of Huttig participate in the plan. The shares will be issued each year after Huttig's annual meeting, will be forfeitable if the director ceases to remain a director until Huttig's next annual meeting, except in the case of death, disability or change in control, and may not be sold for a period of five years or such earlier date as the director leaves the board.
Directors also receive $500 for each board meeting attended. Non-employee members of the Executive Committee receive an annual retainer of $2,000. Members of other committees receive $500 and chairmen receive $750 for each committee meeting attended.
Each Huttig director who will be designated by Rugby upon completion of Huttig's acquisition of Rugby USA will agree with Rugby to transfer to Rugby all compensation payable to him for his services as a non-employee director of Huttig.
EXECUTIVE OFFICERS
Set forth below are the name, age, position and office to be held with Huttig, and principal occupations and employment during the past five years of those individuals who are expected to serve as Huttig's executive officers immediately following the spin-off. Huttig's executive officers will be elected to serve until they resign or are removed, or are otherwise disqualified to serve, or until their successors are elected and qualified.
BARRY J. KULPA, age 51, has served as Huttig's President and Chief Executive Officer since October of 1997. Prior to joining Huttig, Mr. Kulpa served as Senior Vice President and Chief Operating Officer of Dal-Tile International (manufacturer and distributor of ceramic tile) from 1994 to 1997. From 1992 to 1994, he was Vice President and Chief Financial Officer of David Weekley Homes (regional homebuilder).
GREGORY D. LAMBERT, age 48, has served as Chief Financial Officer and Vice President, Administration since January of 1999. Prior to joining Huttig, Mr. Lambert served as Senior Vice President and Treasurer of Ames Department Store (discount retailer) from 1996 to 1998. From 1994 to 1996, he was Vice President of Strategic Planning for Homart Development, a shopping center developer. From 1980 to 1994, Mr. Lambert was the Director of Strategic Planning for May Department Stores (retailer).
DAVID DEAN, age 56, has served as Controller of Huttig since August of 1992.
DAVID A. GIFFIN, age 50, has served as Regional Vice President since September of 1998. Prior to that, Mr. Giffin was Vice President of Human Resources for Huttig from 1991 to 1998.
HOWARD L. HATFIELD, age 55, became a Regional Vice President upon Huttig's acquisition of Consolidated Lumber Company in July of 1998. Prior to joining Huttig, he was President, Chief Executive Officer and owner of Consolidated Lumber Company, Inc. from 1980 to 1998.
CARL A. LILIEQUIST, age 45, became a Regional Vice President upon Huttig's acquisition of PGL Building Products in July of 1988.
STOKES R. RITCHIE, age 48, has been a Regional Vice President since August of 1998. Prior to joining Huttig, Mr. Ritchie was Vice President of Sales and Marketing of the Westex Division of LYDALL, Inc. (OEM automotive products manufacturer) from 1996 to 1998. From 1994 to 1996, Mr. Ritchie was Vice President, Sales and Marketing for American Woodmark Corporation.
If Huttig completes its acquisition of Rugby USA, the following individual would be appointed by the Huttig board of directors as Chief Operating Officer of Huttig:
STEPHEN C. BROWN, age 53, has served as the President and Chief Executive Officer of Rugby Building Products, Inc. since April of 1997. Prior to joining Rugby Building Products, Inc., Mr. Brown was President of Armor Bond (a manufacturer and distributor of vinyl siding and accessories) from 1995 to 1997. From 1984 to 1995, Mr. Brown was President of MacMillan Bloedel Building Materials, U.S. (a national wholesale distributor).
BENEFICIAL OWNERSHIP OF HUTTIG COMMON STOCK BY DIRECTORS AND MANAGEMENT
To focus management attention on growth in shareholder value, Huttig believes that officers and key employees should have a significant equity stake in the Company. Huttig therefore plans to encourage its officers and key employees to increase their ownership of and to hold common stock through the Stock Incentive, Employee Stock Purchase and Savings and Investment Plans. With the exception of the directors designated by Rugby, each of whom will receive his entire retainer in cash and remit the same directly to Rugby, non-employee directors will also receive 50% of their annual retainer in restricted stock issued under the Non-Employee Director Restricted Stock Plan. The following table sets forth the number of shares of Huttig common stock expected to be beneficially owned, directly or indirectly, by the non-employee directors as a group, the executive officers named in the Summary Compensation Table, all of Huttig's directors and executive officers as a group and Huttig's other key employees as a group, based on holdings as of November 30, 1999, but giving effect to the spin-off and assuming that Huttig completes its acquisition of Rugby USA as of November 30, 1999.
SHARES
UNDER SHARES IN
RESTRICTED STOCK OPTIONS COMPANY
SHARES STOCK EXERCISABLE SAVINGS PLAN
OWNED PLANS(1) WITHIN 60 DAYS (401(K))
--------- ------------ ---------------- --------------
Non-Employee
Directors as a
Group (8
persons) (3) 466,879 560 -- 1,978
Barry J. Kulpa ........ -- --(4) -- 88
Carl A. Liliequist..... -- -- -- 1,576
David A. Giffin ....... 17 -- -- 427
David Dean ............ -- -- -- 233
Other Executive
Officers (4
persons) ............. -- -- -- 116
Sub-total --
Directors and
Executive
Officers as a
Group (16
persons) ............. 466,896 560(4) -- 4,418
Key Employees
(6 persons) .......... 183 -- -- 1,835
Total ................. 467,079 560(4) -- 6,253
% OF SHARES
OUTSTANDING AS OF (2)
----------------------------------------
TOTAL SHARES
BENEFICIALLY IMMEDIATELY AFTER ASSUMING COMPLETION
OWNED(2) THE SPIN-OFF OF THE ACQUISITION
-------------- ------------------- --------------------
Non-Employee
Directors as a
Group (8
persons) (3) 469,417 3.4% 2.3%
Barry J. Kulpa ........ 88 * *
Carl A. Liliequist..... 1,576 * *
David A. Giffin ....... 444 * *
David Dean ............ 233 * *
Other Executive
Officers (4
persons) ............. 116 * *
Sub-total --
Directors and
Executive
Officers as a
Group (16
persons) ............. 471,874 3.4% 2.3%
Key Employees
(6 persons) .......... 2,018 * *
Total ................. 473,892 3.4% 2.3%
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(1) Subject to forfeiture if established performance and/or service conditions are not met.
(2) As determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934.
(3) Excludes 6,558,293 shares of Huttig common stock expected to be owned by Rugby, which may be deemed to be beneficially owned by each of Messrs. Harding, Jordan and Sharp, each of whom is a director or executive officer of Rugby. Each of the foregoing expressly disclaims beneficial ownership of the shares of Huttig common stock owned by Rugby.
(4) Mr. Kulpa owns 30,000 shares of Crane restricted stock, consisting of 15,000 performance-based shares which will be canceled and 15,000 time-based shares which will be converted into shares of Huttig restricted stock. See "Arrangements with Crane Relating to the Spin-Off -- Employee Matters Agreement."
PRINCIPAL STOCKHOLDERS OF HUTTIG
The following table sets forth the ownership of Huttig common stock by each person expected to beneficially own more than 5% of Huttig common stock, based on holdings as of November 30, 1999, but giving effect to the spin-off and assuming that Huttig completes its acquisition of Rugby USA.
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT
TITLE OF CLASS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
---------------- ------------------------- ------------------ ---------------
Common Stock The Rugby Group PLC (1) 6,558,293 32.0%
Crown House
Rugby CV21 2DT
England
Common Stock The Crane Fund(2) 1,728,537 8.4%(3)
100 First Stamford Place
Stamford, CT 06902
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(2) The Crane Fund is a charitable trust managed by trustees appointed by the
board of directors of Crane Co. The incumbent trustees are: G.A. Dickoff,
A.I. duPont, J.R. Packard, M.L. Raithel and D.S. Smith, all of whom are
executive officers of Crane. Pursuant to the trust instrument, the shares
held by the trust shall be voted by the trustees as directed by the board
of directors of Crane, the distribution of the income of the trust for its
charitable purposes is subject to the control of the board of directors of
Crane and the shares may be sold by the trustees only upon the direction of
the board of directors of Crane. None of the directors or the trustees has
any direct beneficial interest in, and all disclaim beneficial ownership
of, shares held by The Crane Fund.
(3) If Huttig does not complete the acquisition of Rugby USA, the shares of Huttig common stock beneficially owned by The Crane Fund would constitute 12.4% of the outstanding Huttig common stock.
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
Shown below is information concerning the annual and long-term compensation for services rendered in all capacities to Huttig and its subsidiaries for the year ended December 31, 1998 for Barry J. Kulpa, Huttig's Chief Executive Officer, and the other three most highly compensated individuals who serve as executive officers of Huttig and received at least $100,000 in cash compensation for services to Huttig for the year 1998. The compensation described in this table was paid by Huttig or an affiliate of Huttig.
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------------------------- -------------------------------------------------
OTHER RESTRICTED SECURITIES ALL (3)
ANNUAL STOCK UNDERLYING LTIP(2) OTHER
NAME AND BONUS (1) COMPENSATION AWARD (2) OPTIONS/ PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) ($) ($) ($) SARS (#) ($) ($)
---------------------------- ------ ------------ ----------- -------------- ------------ ------------ --------- -------------
Barry J. Kulpa ............. 1998 250,000 130,671 7,625 272,813 36,000 -- 2,498
President and
Chief Executive
Officer
Carl A. Liliequist ......... 1998 147,188 166,031 -- -- 2,250 -- 5,339
Regional Vice
President
David A. Giffin ............ 1998 115,753 37,608 -- -- 750 -- 5,184
Regional Vice
President
David Dean ................. 1998 98,600 23,259 -- -- -- -- 3,912
Controller
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RESTRICTED STOCK AWARD PLAN
-----------------------------
RESTRICTED AGGREGATE
STOCK HELD LTIP RESTRICTED AGGREGATE
# OF SHARES # OF SHARES SHARES HELD VALUE
------------- ------------- ------------- ----------
Barry J. Kulpa ............. 7,500 15,000 22,500 $679,219
Carl A. Liliequist ......... -- -- -- --
David A. Giffin ............ -- -- -- --
David Dean ................. -- -- -- --
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The shares of restricted stock which are performance-based, listed under the heading "LTIP", may lapse upon failure to achieve the performance criteria and so the value presented above for such shares remains at-risk to the executive. Dividends are paid on all restricted stock at the same rate as other shares of Common Stock and are reported in the column Other Annual Compensation of the Summary Compensation Table. Under the Employee Matters Agreement,
Huttig has agreed with Mr. Kulpa that his shares of time-based Crane restricted stock will be converted into an economically equivalent number of shares of time-based Huttig restricted stock and his shares of performance-based Crane restricted stock will be canceled. There are an aggregate of 15,000 such time-based shares, consisting of the 7,500 shares reported above and an additional 7,500 shares granted in 1999.
(3) Amounts include Crane's matching contribution for eligible employees for the purchase of common stock in Crane's Saving & Investment Plan (401(k)) and premiums for life insurance.
OPTION GRANTS IN LAST FISCAL YEAR
Shown below is information on grants to the named executive officers of options to purchase shares of Crane common stock pursuant to the Crane Stock Option Plan during the year ended December 31, 1998, which are reflected in the Summary Compensation Table above. See "Arrangements with Crane Relating to the Spin-Off -- Employee Matters Agreement."
NUMBER OF % OF
SECURITIES TOTAL/OPTIONS/
UNDERLYING SARS
OPTIONS/ GRANTED TO EXERCISE OR GRANT DATE
SARS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED (1) FISCAL YEAR (1) $/SHARE (2) DATE VALUE ($) (3)
---------------------------- ------------- ----------------- ------------- ------------ --------------
Barry J. Kulpa ............. 36,000 75% $ 36.37 04/20/2008 $396,360
Carl A. Liliequist ......... 2,250 5 36.37 04/20/2008 24,773
David A. Giffin ............ 750 2 36.37 04/20/2008 8,258
David Dean ................. -- -- -- -- --
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(2) The exercise price of options granted under Crane's Stock Option Plan were not and may not be less than 100% of the fair market value of the shares on the date of grant. Options granted become exercisable 50% one year, 75% two years and 100% three years after grant and expire, unless exercised, 10 years after grant. If employment terminates, the optionee generally may exercise the option only to the extent it could have been exercised on the date his employment terminated and must be exercised within three months thereof. In the event employment terminates by reason of retirement, permanent disability or change in control, options become fully exercisable. The exercise price may be paid by delivery of shares owned for more than six months and income tax obligations related to exercise may be satisfied by surrender of shares received upon exercise, subject to certain conditions. Under the Employee Matters Agreement, Crane stock options held by Huttig employees will be adjusted to reflect the spin-off, will continue to vest in accordance with their terms and will remain exercisable for 90 days after the date of the spin-off. All unexercised Crane stock options beld by Huttig employees after such date will be forfeited. See "Arrangements with Crane Relating to the Spin-Off -- Employee Matters Agreement."
(3) The amounts shown were calculated using a Black-Scholes option pricing model which derives a value of $11.01 per share for each option granted. The estimated values assume a risk-free rate of return of 5.60% based upon the 100-year Treasury (adjusted for constant maturities) from the Federal Reserve Statistical Release H.15(519), stock price volatility of 24.22%, a dividend payout ratio of .92% and an option duration of 5.29 years. The actual value, if any, that an executive may realize will depend upon the excess of the stock price over the exercise price on the date the option is exercised, and so the value realized by an executive may be more or less than the value estimated by the Black-Scholes model.
AGGREGATE OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS(1) AT OPTIONS/SARS (1) AT
FISCAL YEAR-END (#) FISCAL YEAR-END ($)(2)
----------------------------- ----------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---------------------------- -------------- -------------- ------------- --------------- ------------- --------------
Barry J. Kulpa ............. -- -- 11,250 47,250 24,159 24,159
Carl A. Liliequist ......... -- -- 18,000 4,500 268,099 21,403
David A. Giffin ............ -- -- 15,749 1,876 252,339 10,711
David Dean ................. -- -- 750 750 5,608 5,608
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(2) Computed based upon the difference between aggregate fair market value at December 31, 1998 and aggregate exercise price.
RETIREMENT BENEFITS
All of Huttig's officers, including the individuals identified in the Summary Compensation Table, are participants in Crane's pension plan for non-bargaining employees. Directors who are not employees do not participate in the plan. Following the spin-off, Huttig's executives will participate in retirement plans maintained by Huttig. See "Arrangements with Crane Relating to the Spin-Off -- Employee Matters Agreement." Under the Crane pension plan, eligibility for retirement benefits is subject to certain vesting requirements, which include completion of five years of service where employment is terminated prior to normal or other retirement or death, as determined by applicable law and the plan. Benefit accruals continue for years of service after age 65.
The annual pension benefits payable under the pension plan are equal to 12/3% per year of service of the participant's average annual compensation during the five highest consecutive compensation years of the 10 years of service immediately preceding retirement less 12/3% per years of service of the participant's Social Security benefit. Compensation for purposes of the pension plan is defined as total W-2 compensation less (i) the imputed income value of group life insurance and auto allowance, (ii), income derived from participation in Crane's Restricted Stock Award Plan and (iii) on or after January 1, 1993, income derived from Crane's Stock Option Plan and a former Crane's stock appreciation rights plan. In general, such covered compensation for any year would be equivalent to the sum of the salary set forth in the Summary Compensation Table for such years plus the bonus shown in the Table for the immediately preceding year.
The table below sets forth the estimated annual benefit payable on retirement at normal retirement age (age 65) under Crane's pension plan based on benefit accruals through December 31, 1998 for specified salary and years of service classifications, and assumes benefits to be paid in the form of a single life annuity. The amounts have not been reduced by the Social Security offset referred to above. Huttig's employees will not accrue any additional pension benefits under the Crane pension plan after the spin-off. See "Arrangements with Crane Relating to the Spin-Off -- Employee Matters Agreement."
YEARS OF SERVICE
AVERAGE ANNUAL
COMPENSATION 10 20 25 30 35
-------------------- ---------- ---------- ---------- ---------- -------------
$150,000............ $25,005 $50,010 $ 62,513 $ 75,015 $ 87,518
$175,000............ 29,173 58,345 72,931 87,518 102,104
$200,000............ 33,340 66,680 83,350 100,020 116,690
$225,000............ 37,508 75,015 93,769 112,523 131,276*
$235,000............ 39,175 78,349 97,936 117,524 136,111*
$250,000** ......... 41,675 83,350 104,188 125,025 145,863*
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** Between January 1, 1989 and December 31, 1993, for the purpose of determining benefit accruals and benefit limitations under the pension plan for all plan years beginning in 1989, a participant's compensation is deemed to be limited to $200,000 indexed for inflation ($235,840 for 1993) ("Limitation"). However, in no event will the Limitation reduce any participant's accrued benefit below his accrued benefit as of December 31, 1988. Commencing January 1, 1994, the compensation limit was further reduced to $150,000 indexed for inflation in future years ("OBRA '93 Limitation"). As a result of the OBRA '93 limitation, the covered compensation under Crane's pension plan for the foregoing individuals for the years 1994 through 1996 was limited to $150,000, and was increased to $160,000 for 1997, 1998 and 1999. In no event will the OBRA '93 Limitation reduce any participant's accrued benefit as of December 31, 1993.
OTHER AGREEMENTS AND INFORMATION
Huttig has entered into indemnification agreements with Barry J. Kulpa, Gregory D. Lambert and each non-employee director of Huttig. The Indemnification Agreements require Huttig to indemnify the officers or directors to the full extent permitted by law against any and all expenses (including advances thereof), judgments, fines, penalties and amounts paid in settlement incurred in connection with any claim against such person arising out of the fact that he was a director, officer, employee, trustee, agent or fiduciary of Huttig or was serving as such for another entity at Huttig's request, and to maintain directors and officers liability insurance coverage or to the full extent permitted by law to indemnify such person for the lack of insurance coverage. It is expected that similar indemnification agreements will be entered into after the exchange with the directors to be designated by Rugby.
Barry J. Kulpa has an agreement which, in the event of a change in control
of Huttig, provides for the continuation of his then current base salary,
incentive compensation and benefits for the three year period following the
change in control. Upon termination within three years after a change in
control, by Huttig without cause or by him with "Good Reason" (as defined in the
agreement), Mr. Kulpa is immediately entitled to a proportionate amount of the
greater of the last year's bonus or the average bonus paid in the last three
years, three times the sum of his annual salary and the average of the last
three years' bonuses, and all accrued deferred compensation and vacation pay.
Employee benefits, medical coverage and other welfare benefits also continue
until the end of the three year period. "Good Reason" under the agreement
includes, among other things, any action by Huttig which results in a diminution
of his position, authority, duties or responsibilities. The agreement also
provides that Mr. Kulpa may terminate his employment for any reason during the
30 day period immediately following the first year after the change of control,
which shall be deemed "Good Reason" under the agreement. If it is determined
that any economic benefit or payment or distribution by Huttig to Mr. Kulpa
pursuant to the agreement or otherwise (including, but not limited to, any
economic benefit received by him by reason of the acceleration of rights under
Huttig's incentive plan) ("Payment"), is subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code, the agreement provides that Huttig
shall make additional cash payments to Mr. Kulpa such that after payment of all
taxes including any excise tax imposed on such payments, he will retain an
amount equal to the excise tax on all the Payments. The agreement is for a
three-year period, but is automatically renewed annually for a three-year period
unless Huttig gives notice that the period will not be extended.
DESCRIPTION OF HUTTIG CAPITAL STOCK
Huttig's Restated Certificate of Incorporation provides that its authorized capital stock consists of (i) 50,000,000 shares of common stock, $.01 par value, of which (based on the number of shares of Crane common stock outstanding as of November 30, 1999) 13,936,372 shares will be issued to stockholders of Crane in the spin-off and approximately 6,558,293 shares will be issued to Rugby in the exchange, and (ii) 5,000,000 shares of preferred stock, par value $.01 per share, of which 250,000 shares will be designated as Series A Junior Participating Preferred Stock for issuance in connection with the exercise of rights. See "-- Rights Plan."
COMMON STOCK
Each share of Huttig common stock will entitle its holder of record to one vote in the election of directors and on all other matters to be voted on by the stockholders. Holders of Huttig common stock will not have cumulative voting rights. As a result, the holders of a majority of the shares of Huttig common stock voting for the election of directors may elect all nominees standing for election as directors.
Subject to the rights of holders of preferred stock, holders of Huttig common stock will be entitled to receive such dividends, if any, as may be declared from time to time by the board of directors in its discretion from funds legally available for that use. It is currently anticipated that no cash dividends will be paid on Huttig common stock in the foreseeable future in order to conserve cash for use in Huttig's business, possible future acquisitions and debt reduction. Huttig's board of directors expects to periodically re-evaluate this dividend policy taking into account Huttig's operating results, capital needs and other factors.
Subject to the rights of holders of preferred stock, holders of Huttig common stock will be
entitled to share on a pro rata basis in any distribution to stockholders upon the liquidation, dissolution or winding up of Huttig. No holder of Huttig common stock will have any preemptive right to subscribe for any Huttig common stock or other security.
PREFERRED STOCK
Huttig's board of directors, without further action by the stockholders, may from time to time authorize the issuance of shares of preferred stock in one or more series and, within certain limitations, fix the powers, preferences and rights and the qualifications, limitations or restrictions thereof and the number of shares constituting any series or designations of such series. Satisfaction of any dividend preferences of outstanding preferred stock would reduce the amount of funds available for the payment of dividends on Huttig common stock. Holders of preferred stock would normally be entitled to receive a preference payment in the event of the liquidation, dissolution or winding up of Huttig before any payment is made to the holders of Huttig common stock.
Under certain circumstances, the issuance of preferred stock may render more difficult or tend to discourage a change in control of Huttig. Although Huttig currently has no plans to issue shares of preferred stock, the board of directors, without stockholder approval, may issue preferred stock that could adversely affect the rights of holders of shares of Huttig common stock. For a description of the terms of the Series A Junior Participating Preferred Stock, see "-- Rights Plan."
RIGHTS PLAN
Huttig will issue one preferred share purchase right for each share of Huttig common stock distributed in the spin-off.
The rights are designed to assure that all of Huttig's stockholders receive fair and equal treatment in the event of any unsolicited proposal to acquire control of Huttig and to guard against takeover tactics that are not in the best interests of all stockholders. The rights could make the acquisition of control of Huttig in a transaction not approved by Huttig's board of directors more difficult.
Each right will entitle the registered holder to purchase from Huttig one one-hundredth of a share of Series A Junior Participating Preferred Stock at a price of $27.50 per one one-hundredth of a Preferred Share, subject to adjustment. The description and terms of the rights are set forth in a Rights Agreement dated as of December 6, 1999 between Huttig and ChaseMellon Shareholder Services, L.L.C., as Rights Agent.
Until the earlier to occur of:
o 10 days following a public announcement that a person or group of affiliated or associated persons have acquired beneficial ownership of 20% or more of Huttig's outstanding common stock (an "Acquiring Person"); or
o 10 business days (or such later date as may be determined by Huttig's board of directors before any person becomes an Acquiring Person) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer the consummation of which would result in any person becoming an Acquiring Person (the "Distribution Date"),
the rights will be evidenced by the Huttig common stock certificates.
The Rights Agreement excludes from the definition of "Acquiring Person" the Company, any employee benefit plan of the Company, Crane, Crane's subsidiaries, certain Crane charitable funds and Rugby. The exception for Rugby will be effective only for so long as Rugby and affiliated and associated persons beneficially own no Huttig common stock other than the Huttig common stock acquired pursuant to the Share Exchange Agreement, except for shares received as a dividend or otherwise in respect of the shares so acquired, and except that Rugby may acquire an additional 1% of the outstanding shares. The exception for Crane and its subsidiaries will be effective only until the effective date of the spin-off.
The Rights Agreement provides that, until the Distribution Date (or earlier redemption or expiration of the rights), the rights will be transferred only with Huttig common stock. Until the Distribution Date (or earlier redemption or expiration of the rights), new certificates for Huttig common stock issued upon transfer or new issuance will contain a notation incorporating the Rights Agreement by reference.
Until the Distribution Date (or earlier redemption or expiration of the rights), the surrender for transfer of any certificates for Huttig common stock, even without such notation, will also constitute the transfer of the rights associated with Huttig common stock represented by that certificate. As soon as practicable following the Distribution Date, separate certificates evidencing the rights will be mailed to holders of record of Huttig common stock as of the close of business on the Distribution Date and those separate certificates alone will evidence the rights.
The rights will not be exercisable until the Distribution Date. The rights will expire at the close of business on December 6, 2009, unless this date is extended or unless Huttig earlier redeems or exchanges the rights, in each case, as described below.
The purchase price payable, and the number of series A preferred shares or other securities or property issuable, upon exercise of the rights will be subject to adjustment from time to time to prevent dilution:
o in the event of a stock dividend on, or a subdivision, combination or reclassification of, the series A preferred shares;
o upon the grant to holders of the series A preferred shares of certain rights or warrants to subscribe for or purchase series A preferred shares at a price, or securities convertible into series A preferred shares with a conversion price, less than the then-current market price of the series A preferred shares; or
o upon the distribution to holders of the series A preferred shares of evidence of indebtedness or assets (excluding regular periodic cash dividends paid out of earnings or retained earnings or dividends payable in series A preferred shares) or of subscription rights or warrants (other than those referred to above).
The number of outstanding rights and the number of one one-hundredths of a series A preferred share issuable upon exercise of each right are also subject to adjustment in the event of a split of Huttig common stock or a dividend on Huttig common stock payable in shares of Huttig common stock or subdivisions, consolidations or combinations of Huttig common stock occurring, in any such case, prior to the Distribution Date.
Series A preferred shares purchasable upon exercise of the rights will not be redeemable. Each series A preferred share will be entitled to a minimum preferential quarterly dividend payment of $1.00 per share but will be entitled to an aggregate dividend of 100 times the dividend declared per share of Huttig common stock. If Huttig is liquidated, the holders of the series A preferred shares will be entitled to a minimum preferential liquidation payment of $100.00 per share but will be entitled to an aggregate payment of 100 times the payment made per share of Huttig common stock. Each series A preferred share will have 100 votes, voting together with Huttig common stock. Finally, if Huttig engages in a merger, consolidation, or any other transaction in which shares of Huttig common stock are exchanged, each series A preferred share will be entitled to receive 100 times the amount received per share of Huttig common stock. These rights are protected by customary antidilution provisions.
Because of the nature of the series A preferred shares' dividend, liquidation and voting rights, the value of the one one-hundredth interest in a series A preferred share purchasable upon exercise of each right should approximate the value of one share of Huttig common stock.
If any person or group of affiliated or associated persons becomes an Acquiring Person, proper provision shall be made so that each holder of a right, other than rights beneficially owned by the Acquiring Person (which will thereafter be void), will thereafter have the right to receive upon exercise that number of shares of Huttig common stock having a market value of two times the exercise price of the right.
At any time after any person or group becomes an Acquiring Person and prior to the acquisition by that person or group of 50% or more of the outstanding shares of Huttig common stock, the board of directors may exchange the rights (other than rights owned by such person or group which will have become void), in whole or in part, at an exchange ratio of one share of Huttig common stock, or one one-hundredth of a series A preferred share, per right.
If Huttig is acquired in a merger or other business combination transaction or 50% or more of Huttig's consolidated assets or earning power are sold after a person or group has become an Acquiring Person, proper provision will be made so that each holder of a right (other than rights that have become void) will thereafter have the right to receive, upon the exercise of a right at the then current exercise price of the right, that number of shares of common stock of the acquiring company which at the time of that transaction will have a market value of two times the exercise price of the right.
With certain exceptions, no adjustment in the purchase price will be required until cumulative adjustments require an adjustment of at least 1% in the purchase price. No fractional series A preferred shares will be issued (other than fractions which are integral multiples of one one-hundredth of a series A preferred share, which may, at Huttig's election, be evidenced by depository receipts) and, in lieu thereof, an adjustment in cash will be made based on the market price of the series A preferred shares on the last trading day prior to the date of exercise.
At any time before a person or group of affiliated or associated persons becomes an Acquiring Person, the board of directors may redeem the rights in whole, but not in part, at a price of $.01 per right. The redemption of the rights may be made effective at such time, on such basis and with such conditions as the board of directors in its sole discretion may establish. Immediately upon any redemption of the rights, the right to exercise the rights will terminate and the only rights of the holders of the rights will be to receive the redemption price.
The terms of the rights may be amended by the board of directors without the consent of the holders of the rights, except that from and after the time that any person or group of affiliated or associated persons becomes an Acquiring Person, no amendment may adversely affect the interests of the holders of the rights.
Until a right is exercised, the holder of the right will have no rights as a stockholder, including, without limitation, the right to vote or to receive dividends.
CERTAIN PROVISIONS OF HUTTIG'S GOVERNING DOCUMENTS
The following is a description of certain provisions of Huttig's Restated Certificate of Incorporation and Bylaws. The description is qualified in its entirety by reference to the full texts of those documents. Certain provisions of Huttig's Certificate and Bylaws could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of Huttig, without the approval of Huttig's board of directors.
Classification of Directors. The Certificate and Bylaws provide that the board of directors will consist of three classes of directors. The initial members of the board of directors will be divided into three classes to serve as follows: one class will initially hold office for a term to expire at the first annual meeting of stockholders after their initial election; another class will initially hold office for a term to expire at the second annual meeting of stockholders after their initial election; and the third class will initially hold office for a term to expire at the third annual meeting of stockholders after their initial election. At each annual meeting of Huttig's stockholders, only the election of directors of the class whose term is expiring will be voted upon, and upon election each director will serve a three-year term. See "Management -- Directors."
Right to Call a Special Meeting. The Certificate provides that special meetings of the stockholders may only be called by the Chairman or by the board pursuant to a resolution approved by a majority of the entire board. Accordingly, stockholders will not have the right to call a special meeting of the stockholders.
No Action by Consent. The Certificate provides that any action required to be taken by stockholders must be effected at a duly called annual or special meeting of stockholders and may not be effected by the written consent of stockholders.
Fiduciary Duties of Directors. As permitted by the DGCL, Huttig's Certificate includes a provision eliminating the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director except for liability:
o for any breach of the director's duty of loyalty to the corporation or its stockholders;
o for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
o for unlawful payment of a dividend or an unlawful stock purchase or redemption; or
o for any transaction from which the director derives an improper personal benefit.
The Certificate further provides that, if the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of directors shall be eliminated or limited to the fullest extent so permitted. The Certificate also specifies that no amendment to or repeal of the provisions shall apply to or have any effect on the liability or alleged liability of any of Huttig's directors for or with respect to any acts or omissions of such director occurring prior to the amendment or repeal.
ANTI-TAKEOVER LEGISLATION
Because neither the Certificate nor the Bylaws contain a provision expressly electing not to be covered by Section 203 of the DGCL, Huttig is subject to this statutory anti-takeover provision. Section 203 provides that any person who acquires 15% or more of a corporation's voting stock (thereby becoming an "interested stockholder") may not engage in a "business combination" with the corporation for a period of three years following the time the person became an interested stockholder, unless:
o the board of directors of the corporation approved, prior to such time, either the business combination or the transaction that resulted in the person becoming an interested stockholder;
o upon consummation of the transaction that resulted in that person becoming an interested stockholder, that person owns at least 85% of the corporation's voting stock outstanding at the time the transaction commenced (excluding shares owned by persons who are directors and officers of that corporation and shares owned by employee stock plans in which participants do not have the right to determine confidentially whether shares will be tendered in a tender or exchange offer); or
o the business combination is approved by the board of directors and authorized by the affirmative vote (at an annual or special meeting and not by written consent) of at least 662/3% of the outstanding shares of voting stock not owned by the interested stockholder.
In determining whether a stockholder is the "owner" of 15% or more of a corporation's voting stock for purposes of Section 203, ownership is defined to include the right, directly or indirectly, to acquire stock or to control the voting or disposition of stock. A "business combination" is defined to include:
o mergers or consolidations of a corporation with an interested stockholder;
o sales or other dispositions of ten percent or more of the assets of a corporation with or to an interested stockholder;
o certain transactions resulting in the issuance or transfer to an interested stockholder of any stock of a corporation or its subsidiaries;
o certain transactions which would result in increasing the proportionate share of the stock of a corporation or its subsidiaries owned by an interested stockholder, and
o receipt by an interested stockholder of the benefit (except proportionately as a stockholder) of any loans, advances, guarantees, pledges or other financial benefits from, by or to a corporation or any of its majority-owned subsidiaries.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for Huttig common stock will be ChaseMellon Shareholder Services, L.L.C.
LIABILITY AND INDEMNIFICATION OF HUTTIG OFFICERS AND DIRECTORS
ELIMINATION OF LIABILITY
As described above under "Description of Huttig Capital Stock -- Certain Provisions of Huttig's Governing Documents -- Fiduciary Duties of Directors," Huttig's Restated Certificate of Incorporation eliminates, subject to certain statutory limitations, the liability of its directors to the corporation or its stockholders for monetary damages for breaches of fiduciary duty.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under Section 145 of the DGCL, a corporation has the power to indemnify directors and officers under certain prescribed circumstances and subject to certain limitations against certain costs and expenses, including attorney's fees actually and reasonably incurred in connection with any action, suit or proceeding, whether civil, criminal, administrative or investigative, to which any of them is a party by reason of his or her being a director or officer of the corporation, if it is determined that he or she acted in accordance with the applicable standard of conduct set forth in such statutory provision.
The Huttig bylaws provide for mandatory indemnification to its directors and officers and to persons serving at the Company's request in a similar capacity with another corporation or other enterprise generally as provided in the DGCL.
Huttig's bylaws also require the Company to indemnify or advance expenses within 60 days of receipt of the written request for such indemnification or advance from the director or officer. The costs and expenses associated with the successful establishment in a court proceeding of the director's or officer's right to indemnification or advancement of expenses is also required to be indemnified by Huttig under its bylaws. The bylaws further require Huttig to purchase and maintain directors' and officers' liability insurance, provided that such insurance is available under terms which are deemed acceptable by a majority vote of Huttig's board of directors.
Huttig also has entered into indemnification agreements with its directors and certain executive officers. See "Compensation of Executive Officers -- Other Agreements and Information."
Huttig also maintains insurance on behalf of any person who is or was a Huttig director or officer, or is or was serving at Huttig's request as a director, officer, employee or agent of another entity against any liability asserted against such person and incurred by such person in any such capacity or arising out of his or her status as such, whether or not Huttig would have the power to indemnify such person against such liability under the DGCL. In addition, Crane has agreed in the Distribution Agreement to use its reasonable best efforts to cover for a period of six years from the spin-off under Crane's officers' and directors' liability insurance policies current officers and directors of Crane who will be or become directors or officers of Huttig with respect to claims arising from facts or events prior to the spin-off.
WHERE YOU CAN FIND MORE INFORMATION
Huttig has filed a Registration Statement on Form 10 with the SEC with respect to Huttig common stock. The Registration Statement and the exhibits to it contain some information not appearing in this Information Statement. This Information Statement provides a summary of the material terms of all of the agreements and contracts appearing as exhibits to the Registration Statement. You are encouraged to review the exhibits to the Registration Statement for a more complete description of the contracts and agreements summarized in this Information Statement.
You may access and read the Registration Statement and all of the exhibits to it through the SEC's Internet site at www.sec.gov. This site contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. You may also read and copy any document Huttig files at the SEC's public reference room located at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Huttig's SEC filings will also be available after the spin-off at the offices of the New York Stock Exchange.
After the spin-off, Huttig will be required to file annual, quarterly and special reports and other information with the SEC. Huttig will also be subject to proxy solicitation requirements. Once filed, you can access this information from the SEC in the manner set forth in the preceding paragraph.
INDEX TO FINANCIAL STATEMENTS
PAGE
-----
Huttig Financial Statements
Independent Auditors' Report ...................................................... F-2
Consolidated Balance Sheets at December 31, 1998 and 1997 and unaudited
Consolidated Balance Sheets at September 30, 1999 ............................... F-3
Consolidated Statements of Income and Retained Earnings for the Years Ended
December 31, 1998, 1997 and 1996 and unaudited Consolidated Statements
of Income and Retained Earnings for the Nine Months Ended September 30,
1999 and 1998 ................................................................... F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998,
1997 and 1996 and unaudited Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1999 and 1998 ................................... F-5
Notes to Consolidated Financial Statements ........................................ F-6
Rugby USA Financial Statements
Report of Independent Accountants ................................................. F-15
Consolidated Balance Sheets at December 31, 1998 and 1997 and unaudited
Consolidated Balance Sheet at September 30, 1999 ................................ F-16
Consolidated Statements of Operations and Retained Earnings/Accumulated Deficit
for the Years Ended December 31, 1998, 1997 and 1996 and unaudited
Consolidated Statements of Operations and Retained Earnings/Accumulated
Deficit for the Nine Months Ended September 30, 1999 and 1998 ................... F-17
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998
and 1997 and unaudited Consolidated Statements of Cash Flow for the Nine
Months Ended September 30, 1999 and 1998 ........................................ F-18
Notes to Consolidated Financial Statements ........................................ F-19
Consolidated Lumber Company, Inc. Financial Statements
Report of Independent Auditors .................................................... F-29
Statement of Assets Acquired and Liabilities Assumed at December 31, 1997 ......... F-30
Statement of Revenues and Expenses Associated with Operations Acquired for the
Year Ended December 31, 1997 and unaudited Statement of Revenues and
Expenses Associated with Operations Acquired for the Six Months Ended June
30, 1998 and 1997 ............................................................... F-31
Notes to Financial Statements ..................................................... F-32
|
INDEPENDENT AUDITORS' REPORT
To the Shareholder of
Huttig Building Products, Inc.:
We have audited the accompanying consolidated balance sheets of Huttig Building Products, Inc. (formerly Huttig Sash & Door Company) (an indirect wholly owned subsidiary of Crane Co. through Crane International Holdings, a direct subsidiary of Crane Co.) and its subsidiaries (the "Company") as of December 31, 1998 and 1997, and the related consolidated statements of income and retained earnings and cash flows for each of the three years in the period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 1998 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP St. Louis, Missouri January 20, 1999 (June 21, 1999 as to Note 10) |
HUTTIG BUILDING PRODUCTS, INC.
(FORMERLY HUTTIG SASH & DOOR COMPANY)
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
DECEMBER 31, SEPTEMBER 30,
--------------------------- --------------
1998 1997 1999
------------ ------------ --------------
ASSETS
CURRENT ASSETS:
Cash ........................................................ $ 9,423 $ 2,210 $ 4,003
Accounts receivable, net .................................... 67,028 54,404 78,459
Receivable -- Parent ........................................ 17,098 5,624 --
Inventories ................................................. 43,130 36,406 52,720
Prepaid expenses ............................................ 585 575 612
--------- --------- --------
Total current assets ...................................... 137,264 99,219 135,794
--------- --------- --------
PROPERTY, PLANT AND EQUIPMENT -- At cost:
Land ........................................................ 7,335 7,678 7,324
Buildings and improvements .................................. 39,081 42,708 36,517
Machinery and equipment ..................................... 24,638 20,501 27,944
--------- --------- --------
Gross property, plant and equipment ....................... 71,054 70,887 71,785
Less accumulated depreciation ............................... 33,746 35,492 32,597
--------- --------- --------
Property, plant and equipment, net ........................ 37,308 35,395 39,188
--------- --------- --------
OTHER ASSETS:
Cost in excess of assets acquired, net ...................... 42,109 16,840 40,809
Other ....................................................... 1,677 1,609 1,929
Deferred income taxes ....................................... 104 887 --
--------- --------- --------
Total other assets ........................................ 43,890 19,336 42,738
--------- --------- --------
TOTAL ....................................................... $ 218,462 $ 153,950 $217,720
========= ========= ========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ........................ $ 319 $ 359 $ 255
Accounts payable -- trade and collections as agents ......... 54,424 33,815 50,396
Accrued payrolls ............................................ 11,109 9,900 10,092
Accrued liabilities ......................................... 8,533 6,452 5,821
Payable -- Parent ........................................... -- -- 13,382
--------- --------- --------
Total current liabilities ................................. 74,385 50,526 79,946
--------- --------- --------
LONG-TERM DEBT:
Notes payable -- Parent ..................................... 93,940 67,100 92,182
Other long-term debt ........................................ 1,379 1,715 1,189
--------- --------- --------
Total long-term debt ...................................... 95,319 68,815 93,371
--------- --------- --------
ACCRUED POSTRETIREMENT BENEFITS .............................. 7,303 6,750 7,657
--------- --------- --------
DEFERRED INCOME TAXES ........................................ -- -- 563
COMMITMENTS AND CONTINGENCIES (Note 6) .......................
SHAREHOLDER'S EQUITY:
Common stock -- No par value -- authorized, 3,000
shares; issued and outstanding, 1,000 shares .............. 10 10 10
Retained earnings ........................................... 41,445 27,849 36,173
--------- --------- --------
Total shareholder's equity ................................ 41,455 27,859 36,183
--------- --------- --------
TOTAL ........................................................ $ 218,462 $ 153,950 $217,720
========= ========= ========
|
See notes to consolidated financial statements.
HUTTIG BUILDING PRODUCTS, INC.
(FORMERLY HUTTIG SASH & DOOR COMPANY)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ -------------------------
1998 1997 1996 1999 1998
------------ ------------ ------------ ----------- -----------
NET SALES .............................. $ 707,450 $ 625,503 $ 595,089 $594,914 $521,849
--------- --------- --------- -------- --------
OPERATING COSTS AND
EXPENSES:
Cost of sales ......................... 606,993 543,097 511,892 516,085 449,334
Selling, general and administrative 67,900 58,155 56,163 54,428 49,630
Depreciation and amortization ......... 5,586 4,409 4,929 4,860 3,925
--------- --------- --------- -------- --------
Total operating costs and
expenses ........................... 680,479 605,661 572,984 575,373 502,889
--------- --------- --------- -------- --------
OPERATING PROFIT ....................... 26,971 19,842 22,105 19,541 18,960
--------- --------- --------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense -- Parent ............ (6,703) (4,285) -- (5,691) (4,761)
Interest expense -- net of interest
income of $3 and $18 in 1997
and 1996, respectively .............. (167) (182) (200) (98) (131)
Other miscellaneous, net .............. 1,750 (561) (1,148) (224) 35
--------- --------- --------- -------- --------
Total other expense, net ............ (5,120) (5,028) (1,348) (6,013) (4,857)
--------- --------- --------- -------- --------
INCOME BEFORE TAXES .................... 21,851 14,814 20,757 13,528 14,103
PROVISION FOR INCOME
TAXES ................................. 8,255 5,759 8,469 5,075 5,159
--------- --------- --------- -------- --------
NET INCOME ............................. 13,596 9,055 12,288 8,453 8,944
RETAINED EARNINGS,
BEGINNING OF YEAR ..................... 27,849 148,734 136,446 41,445 27,849
DIVIDENDS PAID TO PARENT ............... -- 129,940 -- 13,725 --
--------- --------- --------- -------- --------
RETAINED EARNINGS, END OF
YEAR .................................. $ 41,445 $ 27,849 $ 148,734 $ 36,173 $ 36,793
========= ========= ========= ======== ========
NET INCOME PER SHARE
(basic and diluted) ................... $ 13,596 $ 9,055 $ 12,288 $ 8,453 $ 8,944
========= ========= ========= ======== ========
DIVIDENDS PER SHARE .................... $ -- $ 129,940 $ -- $ 13,725 $ --
========= ========= ========= ======== ========
|
See notes to consolidated financial statements.
HUTTIG BUILDING PRODUCTS, INC.
(FORMERLY HUTTIG SASH & DOOR COMPANY)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------- ---------------------------
1998 1997 1996 1999 1998
----------- --------------- ----------- ------------ ------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income ................................. $ 13,596 $ 9,055 $ 12,288 $ 8,453 $ 8,944
Loss (gain) on disposal of capital
assets ................................... (1,661) -- -- 224 --
Depreciation ............................... 3,540 3,372 3,642 2,631 2,607
Amortization ............................... 2,046 1,037 1,287 2,229 1,318
Deferred taxes ............................. (102) (202) (282) 667 94
Accrued postretirement benefits ............ 553 500 436 354 428
Changes in operating assets and
liabilities (exclusive of acquisitions):
Accounts receivable ...................... (1,864) (1,742) (1,731) (10,783) (10,860)
Inventories .............................. 2,081 10,297 (973) (8,969) 3,568
Other current assets ..................... 324 265 (149) (27) 136
Accounts payable ......................... 16,629 494 191 (4,028) 10,633
Accrued liabilities ...................... 2,812 (165) 2,494 (4,235) 1,301
Other .................................... (3,720) 175 189 (124) 131
--------- ----------- --------- --------- ---------
Total cash from operating activities ..... 34,234 23,086 17,392 (13,608) 18,300
--------- ----------- --------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures ....................... (5,765) (3,338) (2,515) (7,030) (3,199)
Cash used for acquisitions ................. (44,861) (12,050) (1,891) (45,096)
Proceeds from disposition of capital
assets ................................... 7,730 388 201 2,366 44
--------- ----------- --------- --------- ---------
Total cash from investing activities ..... (42,896) (15,000) (2,314) (6,555) (48,251)
--------- ----------- --------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Cash dividend paid to Parent ............... -- (62,840) -- (13,725) --
Repayment of long-term debt ................ (376) (386) (514) (254) (281)
Proceeds from (payments to) Parent ......... 16,251 55,672 (15,670) 28,722 30,984
--------- ----------- --------- --------- ---------
Total cash from financing activities ..... 15,875 (7,554) (16,184) 14,743 30,703
--------- ----------- --------- --------- ---------
INCREASE (DECREASE) IN CASH ................. 7,213 532 (1,106) (5,420) 752
CASH, BEGINNING OF YEAR ..................... 2,210 1,678 2,784 9,423 2,210
--------- ----------- --------- --------- ---------
CASH, END OF YEAR ........................... $ 9,423 $ 2,210 $ 1,678 $ 4,003 $ 2,962
========= =========== ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Interest paid .............................. $ 6,860 $ 4,471 $ 220 $ 5,746 $ 4,281
========= =========== ========= ========= =========
Income taxes paid .......................... $ 4,466 $ 6,099 $ 10,009 $ 3,048 $ 2,614
========= =========== ========= ========= =========
NON-CASH FINANCING ACTIVITY:
Dividends paid to Parent ................... -- $ (129,940) -- (13,725) --
Issuance of note payable to Parent ......... -- 67,100 -- -- --
----------- ---------
Cash dividends paid to Parent ............ $ -- $ (62,840) $ -- (13,725) $ --
========= =========== ========= ========= =========
Liabilities assumed in connection with
asset acquisitions ....................... $ 4,224 $ 864 $ -- 506 4,224
========= =========== ========= ========= =========
|
See notes to consolidated financial statements.
HUTTIG BUILDING PRODUCTS, INC.
(FORMERLY HUTTIG SASH & DOOR COMPANY)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
1. ACCOUNTING POLICIES AND PROCEDURES
ORGANIZATION -- Huttig Building Products, Inc. (formerly Huttig Sash & Door Company), an indirect wholly owned subsidiary of Crane Co. through Crane International Holdings, a direct subsidiary of Crane Co. (the "Parent" or "Crane"), and its subsidiaries (the "Company") is one of the largest nationwide distributors of doors, windows, molding, trim and related building products in the United States, and operates one finished lumber production plant. The Company primarily sells its products for new residential construction and renovation.
PRINCIPLES OF CONSOLIDATION -- The financial statements include the accounts of Huttig Building Products, Inc. and its wholly owned subsidiaries, CIPCO, Inc., which was formed January 2, 1997 and Rondel's, Inc., which was acquired on March 31, 1993. All intercompany accounts and transactions have been eliminated.
REVENUE RECOGNITION -- Revenues are recorded when title passes to the customer, which occurs upon delivery of product, or when services are rendered.
USE OF ESTIMATES -- The preparation of the Company's financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates.
INVENTORIES -- Inventories are stated at the lower of cost or market. Approximately 68% and 83% of inventories were determined by using the LIFO (last in, first out) method of inventory valuation as of December 31, 1998 and 1997, respectively; the remainder was determined by the FIFO (first in, first out) method. Had the Company used the FIFO method of inventory valuation for all inventories, net income would have been decreased by $2,632, $1,956 and $735 in 1998, 1997 and 1996, respectively. During 1998, 1997, and 1996 LIFO inventory quantities were reduced, resulting in a partial liquidation of the LIFO bases, the effect of which increased net earnings by $1,922, $2,377, and $1,605, respectively. The replacement cost would be higher than the LIFO valuation by $15,368 in 1998 and $19,599 in 1997.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are stated at cost. Depreciation was computed primarily by the straight-line method over the estimated useful lives of the respective assets which range from three to twenty-five years. Amortization expense on property under capital leases is included in depreciation expense.
OTHER ASSETS -- Goodwill is being amortized on a straight-line basis over fifteen to forty years. Other intangible assets are being amortized on a straight-line basis over their estimated useful lives which range from two to five years.
VALUATION OF LONG-LIVED ASSETS -- The Company periodically evaluates the carrying value of long-lived assets, including goodwill and other intangible assets, when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved.
PARENT COMPANY SERVICES -- Crane supplies the Company certain shared services including insurance, legal, tax and treasury functions. The costs associated with these services are charged through the intercompany account to the Company based upon specific identification.
HUTTIG BUILDING PRODUCTS, INC.
(FORMERLY HUTTIG SASH & DOOR COMPANY)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INCOME TAXES -- The Company is included in the federal income tax return of its Parent. The Company is charged its proportionate share of federal income taxes determined as if it filed a separate federal income tax return. Income tax payments represent payments of intercompany balances. Income tax expense is based on reported earnings before income taxes. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes using currently enacted tax rates.
RECENT ACCOUNTING PRONOUNCEMENTS -- During 1998, the Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS 130"), Reporting Comprehensive Income, and Statement of Financial Accounting Standards No. 131 ("SFAS 131"), Disclosures about Segments of an Enterprise and Related Information.
SFAS 130 established standards for reporting and display of comprehensive income in a full set of financial statements. In addition to displaying an amount for net income (loss), the Company is now required to display other comprehensive income (loss), which includes other changes in equity (deficit). SFAS 130 had no effect on the Company's financial statements for the years ended December 31, 1996, 1997 and 1998.
SFAS 131 established standards for the way that public business enterprises report information about operating segments in annual financial statements and also established standards for related disclosures about products and services, geographic areas, and major customers. Management has considered the requirements of SFAS 131 and, as discussed in Note 8, believes the Company operates in one business segment.
In June 1998, Statement of Financial Accounting Standards No. 133 ("SFAS 133"), Accounting for Derivative Instruments and Hedging Activities, was released. SFAS 133, as amended by SFAS 137, is effective for all fiscal years beginning after June 15, 2000. The Company has historically made no use of derivative instruments and financial hedges and believes there will be no impact of the new accounting pronouncement on the financial statements.
RECLASSIFICATIONS -- Certain prior year amounts have been reclassified to conform to the current year presentation.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- The unaudited interim consolidated financial statements as of September 30, 1999 and for the nine-month periods then ended were prepared in condensed format, in accordance with the SEC rules and regulations for interim financial statements. In the opinion of management, the interim financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation. The accounting principles applied in preparation of the interim financial statements are consistent with those applied in the annual financial statements. Results of operations for the nine-month period ended September 30, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999.
2. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
The Company has defined benefit pension plans covering substantially all salaried and hourly employees not covered by collective bargaining agreements. The plans generally provide benefit payments using a formula based on length of service and final average compensation, except for some hourly employees for whom the benefits are a fixed amount per year of service. The Company's policy is to fund at least the minimum amount required by the applicable regulations.
The Company's defined benefit plans for hourly and salaried employees are part of the Parent's defined benefit plans. The liabilities of the Company for such plans are recorded through the receivable-Parent balance. As a result, the Company is charged its proportionate share of the total
HUTTIG BUILDING PRODUCTS, INC.
(FORMERLY HUTTIG SASH & DOOR COMPANY)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
expense for the plans. Pension expense related to the Company's defined benefit pension plans was $1,224, $1,013 and $970 in 1998, 1997 and 1996, respectively. The Company also participates in several multi-employer pension plans which provide benefits to certain employees under collective bargaining agreements. Total contributions to these plans were $468 in 1998, $454 in 1997 and $480 in 1996.
In addition to providing pension benefits, certain health care and life insurance benefits are provided for a majority of employees. Employees hired before January 1, 1992 become eligible for these benefits if they meet minimum age and service requirements. The Company does not prefund those benefits and has the right to modify or terminate benefits.
The following table sets forth the amounts recognized in the Company's balance sheet at December 31, for company sponsored post-retirement benefits:
1998 1997 1996
------------ ------------ ----------
Change in benefit obligation:
Benefit obligation at beginning of year ......... $ 6,750 $ 6,250
Service cost .................................... 248 236
Interest cost ................................... 500 447
Actuarial gain .................................. (12) (52)
Benefits paid ................................... (183) (131)
-------- --------
Benefit obligation at end of year ............. $ 7,303 $ 6,750
======== ========
Funded status .................................... $ (7,303) $ (6,750)
Unrecognized actuarial loss ...................... 242 667
-------- --------
Accrued benefit cost .......................... $ (7,061) $ (6,083)
======== ========
Discount rate .................................... 6.75% 7.25% 7.50%
Components of net periodic benefit cost:
Service cost .................................... $ 248 $ 236 $ 214
Interest cost ................................. 500 447 497
Recognized actuarial gain ....................... (12) (52) (124)
-------- -------- -------
Net periodic benefit cost ..................... $ 736 $ 631 $ 587
======== ======== =======
|
The cost of covered healthcare benefits was assumed to increase 8.5% for 1998, and then to decrease gradually to 4.75% by 2005 and remain at that level thereafter. In 1997, the cost of covered healthcare benefits was assumed to increase 9.4%, and then to decrease gradually to 5% by 2007 and remain at that level thereafter.
1 PERCENTAGE 1 PERCENTAGE
POINT INCREASE POINT DECREASE
---------------- ---------------
Effect on total of service and interest cost components ......... $120 $104
Effect on postretirement benefit obligation ..................... 375 329
|
HUTTIG BUILDING PRODUCTS, INC.
(FORMERLY HUTTIG SASH & DOOR COMPANY)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACCOUNTS RECEIVABLE
Receivables are carried at net realizable value.
A summary of the allowance for doubtful accounts, cash discounts, returns and allowances activity at December 31 follows:
1998 1997 1996
--------- --------- ---------
Balance at beginning of year $1,459 $1,912 $1,946
Provisions 1,171 847 920
Deductions 1,098 1,300 954
------ ------ ------
Balance at end of year $1,532 $1,459 $1,912
====== ====== ======
|
4. LONG-TERM DEBT
1998 1997
---------- ----------
Notes payable -- Parent ........................... $93,940 $67,100
Industrial revenue bond ........................... 429 588
Capital lease obligations (see Note 6) ............ 1,269 1,486
------- -------
Total long-term debt ........................... 95,638 69,174
Less current portion .............................. 319 359
------- -------
Long-term debt -- net of current portion .......... $95,319 $68,815
======= =======
|
The notes payable -- Parent bears interest at a weighted average rate of 8.09%. Interest payments are due quarterly through June 30, 2003. Accrued intercompany interest of $1,941 and $1,434 at December 31, 1998 and 1997, respectively, is included in receivable-Parent.
The industrial revenue bond bears interest at a rate of 6.46%, based on 63% of the Bank's preferred lending rate which was 10.25% at December 31, 1997 and principal payments of $39 are made quarterly until 2001. The bond is collateralized by property with a net book value of $1,908 and $1,988 at December 31, 1998 and 1997, respectively.
At December 31, 1998, the principal amounts of long-term debt repayments required for future years were $319 in 1999, $263 in 2000, $228 in 2001, $67,221 in 2002, and $26,962 in 2003.
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of investments and short-term debt approximates the fair value. Long-term debt rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value for debt issues that are not quoted on an exchange. The estimated fair value of long-term debt at December 31, 1998 approximates the carrying value of $95,638.
HUTTIG BUILDING PRODUCTS, INC.
(FORMERLY HUTTIG SASH & DOOR COMPANY)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES
The Company leases certain of its vehicles, equipment and warehouse and manufacturing facilities under capital and operating leases with various terms. Certain leases contain renewal or purchase options. Future minimum payments, by year, and in the aggregate, under these leases with initial or remaining terms of one year or more consisted of the following at December 31, 1998:
MINIMUM
CAPITAL OPERATING SUBLEASE
LEASES LEASES INCOME NET
--------- ----------- --------- ----------
1999 .................................... $ 216 $ 5,373 $ 1,360 $ 4,229
2000 .................................... 204 4,595 966 3,833
2001 .................................... 204 3,961 652 3,513
2002 .................................... 204 2,907 599 2,512
2003 .................................... 161 1,546 457 1,250
Thereafter .............................. 554 844 17 1,381
------- -------- ------- --------
Total minimum lease payments ......... $ 1,543 $ 19,226 $ 4,051 $ 16,718
======== ======= ========
Interest ................................ 274
-------
Present value ........................... $ 1,269
=======
|
The present value of the $1,269 above includes $161 due within one year.
The weighted average interest rate for capital leases is 9.2%. These obligations mature in varying amounts through 2007. Rental expense for all operating leases was $6,672, $5,778, and $5,572 for 1998, 1997 and 1996, respectively.
The cost of assets capitalized under leases is as follows at December 31:
1998 1997
---------- ----------
Land, buildings and improvements .......... $ 3,966 $ 3,966
Machinery and equipment ................... -- 126
------- -------
Cost of leased assets .................. 3,966 4,092
Less accumulated depreciation ............. 2,696 2,582
------- -------
Cost of leased assets -- net ........... $ 1,270 $ 1,510
======= =======
|
LITIGATION -- As of December 31, 1998, the Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material effect on the Company's financial condition and results of operations. The Company is involved in two remediation actions to clean up hazardous wastes as required by federal and state laws. Estimated future environmental remediation costs of $500 at December 31, 1998 and $143 at December 31, 1997 were fully accrued.
The Company, through its Parent, has established insurance programs to cover product and general liability losses. These programs have deductible amounts before coverage begins. The Company does not deem its deductible exposure to be material.
HUTTIG BUILDING PRODUCTS, INC.
(FORMERLY HUTTIG SASH & DOOR COMPANY)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES
A reconciliation between income taxes based on the application of the statutory federal income tax rate to income taxes as set forth in the consolidated statements of income and retained earnings follows:
1998 1997 1996
------------- ------------- -------------
Income before taxes ................................. $ 21,851 $ 14,814 $ 20,757
========= ========= =========
Statutory federal tax at 35% ........................ $ 7,648 $ 5,185 $ 7,265
Increase resulting from:
State and local income taxes ....................... 411 280 943
Nondeductible goodwill and other expenses .......... 196 294 261
--------- --------- ---------
Provision for income taxes .......................... $ 8,255 $ 5,759 $ 8,469
========= ========= =========
Percentage of income before taxes ................... 37.8% 38.9% 40.8%
========= ========= =========
|
Deferred income taxes at December 31 are comprised of the following:
1998 1997
-------------------------- -------------------------
ASSETS LIABILITIES ASSETS LIABILITIES
---------- ------------- ---------- ------------
Depreciation .................................. $ -- $ 698 $ -- $ 646
Difference between book and tax basis ......... -- 838 -- 865
Inventory related ............................. -- 273 -- 372
Insurance related ............................. 1,301 -- 1,203 --
Employee benefits related ..................... 3,113 -- 4,039 --
Other ......................................... 1,552 -- 696 --
------- ------- ------- -------
Total ...................................... $ 5,966 $ 1,809 $ 5,938 $ 1,883
======= ======= ======= =======
|
At December 31, 1998 and 1997, net current deferred tax assets of $4,053 and $3,168, respectively, were included in receivable-Parent. Net non-current deferred tax assets of $104 and $887 at December 31, 1998 and 1997, respectively, were included in deferred income taxes. The provision for income taxes is composed of the following:
1998 1997 1996
--------- --------- ---------
Current:
U.S. Federal tax ............ $7,708 $5,499 $7,256
State and local tax ......... 649 464 1,495
------ ------ ------
Total current ............. 8,357 5,961 8,751
------ ------ ------
Deferred:
U.S. Federal tax ............ (86) (170) (238)
State and local tax ......... (16) (32) (44)
------ ------ ------
Total deferred ............ (102) (202) (282)
------ ------ ------
Total income tax ............ $8,255 $5,759 $8,469
====== ====== ======
|
HUTTIG BUILDING PRODUCTS, INC.
(FORMERLY HUTTIG SASH & DOOR COMPANY)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. SALES BY PRODUCT
The Company operates in one business segment, the distribution of building materials used principally in new residential construction and in home improvement, remodeling and repair work. The Company derives substantially all of its revenues from domestic customers. The following table presents, for the periods indicated, the Company's sales by product.
1998 1997 1996
----------- ----------- -----------
Doors ........................................ $259,943 $232,502 $214,957
Specialty Building Materials ................. 140,871 133,746 128,169
Windows ...................................... 132,991 128,195 128,126
Moldings ..................................... 88,641 93,907 102,159
Lumber and Other Commodity Products .......... 85,004 37,152 21,678
-------- -------- --------
Total sales ................................. $707,450 $625,503 $595,089
======== ======== ========
|
9. ACQUISITIONS
Costs in excess of net assets acquired at December 31, 1998 and 1997 consists of the following:
1998 1997
Costs in excess of net assets acquired $48,412 $21,629
Accumulated amortization 6,303 4,789
------- -------
Total - net $42,109 $16,840
======= =======
|
During 1998, the Company completed two acquisitions. In June, the Company acquired Number One Supply, a building products distribution business based in Baltimore, Maryland and Raleigh, North Carolina, for a total cost of $4,900. In July, the Company acquired certain net assets of Consolidated Lumber Company, Inc., a wholesale distributor of lumber and millwork products in the greater Kansas City, Missouri area for a total cost of approximately $40,000. In connection with the acquisition of Consolidated Lumber Company, Inc., the Company recorded $26,200 of goodwill which will be amortized using the straight-line basis over 15 years.
During July 1997, the Company completed one acquisition at a total cost of $12,100. The Company acquired MALLCO Lumber & Building Materials Inc., a leading wholesale distributor of lumber, doors and engineered wood products serving Arizona and the surrounding region.
All acquisitions were accounted for by the purchase method. The results of operations for all acquisitions have been included in the financial statements from their respective dates of purchase. The following unaudited pro forma financial information presents the combined results of operations of the Company and Number One Supply and Consolidated Lumber, Inc. as if the acquisitions had taken place at the beginning of 1998. The pro forma amounts give effect to certain adjustments including the amortization of goodwill and intangibles, decreased interest expense and income tax effects. This pro forma information does not necessarily reflect the results of operations as it would have been if the businesses had been managed by the Company during these periods and is not indicative of results that may be obtained in the future. Pro forma 1998 results are as follows: net sales of $744,658 and net income of $14,682. Pro Forma 1997 results are as follows: net sales of $706,993 and net income of $12,751.
10. PARENT COMPANY
On April 15, 1999, the Company issued dividends of $13,725. On June 21, 1999, Crane's Board of Directors authorized management to develop a plan for the possible spin-off of the Company to Crane shareholders on a tax-free basis.
HUTTIG BUILDING PRODUCTS, INC.
(FORMERLY HUTTIG SASH & DOOR COMPANY)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SUBSEQUENT EVENTS (UNAUDITED)
On October 18, 1999, the Company's Board of Directors approved the acquisition of Rugby USA, Inc. The acquisition will be accomplished as follows:
The Company plans to obtain financing commitments adequate to provide for a working capital facility of approximately $30 million, an acquisition facility of approximately $20 million and a debt repayment facility for intercompany debt expected to be $100 million. After Crane declares the dividend of the Company stock to its shareholders, and one day prior to the date on which the spin-off is consummated, the Company will pay all cash balances to Crane for the reduction of all intercompany debt except for the Note Payable to Crane. Crane will contribute capital adequate to reduce the Note Payable to Crane to 68% of the actual amount of the debt repayment facility of the Company and Rugby USA, Inc. combined, plus any amounts (up to $15 million) that Crane has advanced to the Company between the date of the Share Exchange Agreement and the day prior to the date the spin-off is consummated. As soon as practicable after the spin-off of the Company, the following actions will take place simultaneously. The Company will issue new stock, which will constitute 32% of the Company's stock (exclusive of the restricted shares issued to the Company's Chief Executive Officer), in exchange for 100% of the stock of Rugby USA, Inc. The Company shall pay 68% of the debt repayment facility to Crane and 32% to The Rugby Group PLC for the repayment of debt owed by the Company to Crane and Rugby USA, Inc. to its parent company.
As part of the spin-off, the Company will establish its own pension and other post-retirement plans with equivalent benefits to the plans in which its employees currently participate, except that there will be no defined benefit pension plan for salaried or hourly employees. Benefits accrued by Company employees will be frozen, and the Company will have no liability and Crane will have no obligation to transfer assets with respect to those benefits. Crane will maintain responsibility for funding and paying when due retirement benefits accrued by Company employees prior to the spin-off. In addition, several of the Company's officers participate in the Stock Option Plan and in the Restricted Stock Award Plan of Crane. The Company has established a stock incentive plan with similar features to the two Crane plans. The Company has also established a Non-employee Director Restricted Stock Plan similar to Crane's where non-employee directors receive a portion of their retainer in stock with certain restrictions. The Company also plans to establish an employee stock purchase plan that will allow employees to purchase Company stock at market prices.
HUTTIG BUILDING PRODUCTS, INC.
(FORMERLY HUTTIG SASH & DOOR COMPANY)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth selected consolidated financial information of Huttig on a quarterly basis for the first three quarters of 1999 and each quarter of 1998 and 1997. Huttig's business is seasonal and particularly sensitive to weather conditions. Interim amounts are therefore subject to significant fluctuations.
NET COST OF DEPRECIATION AND OPERATING NET
QUARTER SALES SALES AMORTIZATION PROFIT INCOME
(IN THOUSANDS)
1999
First $174,775 $153,887 $1,623 $ 3,987 $ 1,232
Second 205,979 176,436 1,649 7,810 3,288
Third 214,160 185,762 1,588 7,744 3,933
-------- -------- ------ ------- -------
$594,914 $516,085 $4,860 $19,541 $ 8,453
======== ======== ====== ======= =======
1998
First $146,858 $127,575 $1,129 $ 2,953 $ 966
Second 172,782 150,148 1,097 5,581 2,612
Third 202,209 171,484 1,699 10,638 5,312
Fourth 185,601 157,786 1,661 7,799 4,706
-------- -------- ------ ------- -------
$707,450 $606,993 $5,586 $26,971 $13,596
======== ======== ====== ======= =======
1997
First $133,657 $116,999 $1,073 $ 1,944 $ 1,000
Second 153,140 133,093 1,053 4,760 1,838
Third 176,045 152,419 1,140 7,213 3,487
Fourth 162,661 140,586 1,143 5,925 2,730
-------- -------- ------ ------- -------
$625,503 $543,097 $4,409 $19,842 $ 9,055
======== ======== ====== ======= =======
|
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholder of Rugby USA, Inc.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and retained earnings/accumulated deficit and of cash flows present fairly, in all material respects, the financial position of Rugby USA, Inc. (the "Company"), a wholly-owned subsidiary of The Rugby Group Plc, and its subsidiaries at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 13, the Company sold Pioneer Plastics and adopted a plan to distribute and sell certain other identified net assets. Further, the plan provides for all of the equity shares in the Company to be exchanged for equity shares in a newly-registered company as soon as practicable following the public distribution of its shares by its parent.
/s/ PricewaterhouseCoopers LLP ------------------------------ PricewaterhouseCoopers LLP Atlanta, Georgia |
January 31, 1999, except for Note 13, as to which the date is October 19, 1999
RUGBY USA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE RUGBY GROUP PLC)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, DECEMBER 31,
1999 1998 1997
-------------- ----------- ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash ...................................................... $ 8,285 $ 15,355 $ 7,431
Accounts receivable, net .................................. 57,347 44,654 35,804
Receivable from parent .................................... 2,949 -- --
Inventories ............................................... 55,134 47,726 47,834
Prepaid income taxes ...................................... -- 3,486 849
Deferred income taxes ..................................... 703 703 1,005
Other assets .............................................. 5,128 984 7,002
Net assets held for sale and distribution ................. 35,054 107,240 106,670
--------- --------- ---------
Total current assets .................................... 164,600 220,148 206,595
Deferred income taxes ..................................... -- -- 516
Property and equipment, net ............................... 24,178 25,948 27,026
Intangible assets ......................................... 7,605 8,007 8,566
--------- --------- ---------
Total assets ............................................ $ 196,383 $ 254,103 $ 242,703
========= ========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current portion of long-term debt ......................... $ -- $ 6,073 $ 308
Accounts payable .......................................... 30,080 24,902 20,252
Accrued liabilities ....................................... 10,527 8,450 8,865
Income tax payable ........................................ 21,251 -- --
--------- --------- ---------
Total current liabilities ............................... 61,858 39,425 29,425
Long-term debt ............................................. -- 121,527 137,534
Deferred income taxes ...................................... 1,565 1,565 --
--------- --------- ---------
Total liabilities ....................................... 63,423 162,517 166,959
--------- --------- ---------
Commitments and contingencies
Stockholder's equity
Common stock, Class A, $50 par value, authorized 1 million
shares; 10 shares issued and outstanding ................ 1 1 1
Common stock, Class B, $50 par value, authorized 10 million
shares; 500,000 shares issued and outstanding ........... 25,000 25,000 25,000
Common stock, Class C, $50 par value, authorized 10 million
shares; 625,000 shares issued and outstanding ........... 31,250 31,250 31,250
Additional paid-in-capital ................................ 20,250 20,250 20,250
Retained earnings (accumulated deficit) ................... 56,459 15,085 (757)
--------- --------- ---------
Total stockholder's equity .............................. 132,960 91,586 75,744
--------- --------- ---------
Total liabilities and stockholder's equity .............. $ 196,383 $ 254,103 $ 242,703
========= ========= =========
|
The accompanying notes are an integral part of these consolidated financial statements.
RUGBY USA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE RUGBY GROUP PLC)
CONSOLIDATED STATEMENTS OF OPERATIONS AND
RETAINED EARNINGS/ACCUMULATED DEFICIT
(IN THOUSANDS)
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
----------------------- -------------------------------------
1999 1998 1998 1997 1996
----------- ----------- ----------- ----------- -------------
(UNAUDITED)
Net sales ........................................ $474,763 $441,809 $600,209 $ 622,762 $ 630,965
Cost of goods sold ............................... 381,558 351,870 475,456 507,785 512,828
-------- -------- -------- --------- ---------
Gross profit .................................. 93,205 89,939 124,753 114,977 118,137
Operating expenses ............................... 78,263 81,195 108,625 117,073 125,051
-------- -------- -------- --------- ---------
Income (loss) from operations ................. 14,942 8,744 16,128 (2,096) (6,914)
Interest expense, net ............................ 1,113 7,304 9,787 10,114 10,452
-------- -------- -------- --------- ---------
Income (loss) before income taxes ............. 13,829 1,440 6,341 (12,210) (17,366)
(Expense) benefit for income taxes ............... (5,887) (655) (2,885) 4,345 6,414
-------- -------- -------- --------- ---------
Income (loss) before discontinued
operations ................................... 7,942 785 3,456 (7,865) (10,952)
Discontinued operations
Income from discontinued operations less
applicable income taxes of $320, $6,504,
$8,551, $8,413 and $5,256 respectively......... 481 9,639 12,386 12,173 7,384
Gain on sale, less applicable income taxes of
$24,550........................................ 32,951 -- -- -- --
-------- -------- -------- --------- ---------
Net income (loss) ................................ 41,374 10,424 15,842 4,308 (3,568)
Retained earnings (accumulated deficit) at
beginning of year ............................... 15,085 (757) (757) (5,065) (1,497)
-------- -------- -------- --------- ---------
Retained earnings (accumulated deficit) at end
of year ......................................... $ 56,459 $ 9,667 $ 15,085 $ (757) $ (5,065)
======== ======== ======== ========= =========
|
The accompanying notes are an integral part of these consolidated financial statements.
RUGBY USA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE RUGBY GROUP PLC)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------- -------------------------------------
1999 1998 1998 1997 1996
------------ ------------ ------------ ----------- ------------
(UNAUDITED)
Operating activities ...............................
Net income (loss) ................................. $ 41,374 $ 10,424 $ 15,842 $ 4,308 $ (3,568)
Adjustments to reconcile net income to net
cash (used in) provided by operating
activities
Depreciation and amortization ................ 4,469 10,745 10,249 11,356 12,348
Loss (gain) on sale of property and
equipment ................................... 154 (52) (183) 132 5,463
Gain on sale of discontinued operations (57,501) -- -- -- --
Provision for bad debt ....................... 300 530 253 964 1,288
Provision for inventory ...................... 100 15 141 1,436 2,875
Changes in operating assets and liabilities
Accounts receivable ............................ (9,644) (23,439) (9,103) 5,041 (8,088)
Accounts receivable, affilliate ................ (2,949) -- -- -- --
Inventories .................................... (7,508) (1,938) 525 (253) (8,730)
Prepaid and other assets ....................... (4,007) (1,866) 3,381 (3,242) (72)
Assets held for distribution and sale .......... (13,580) (5,174) (7,283) (4,488) 9,445
Accounts payable and accrued liabilities ....... 28,506 5,026 4,235 (4,014) (4,896)
Deferred income taxes .......................... -- 95 2,383 2,732 (4,391)
Other .......................................... -- -- -- (506) --
---------- --------- --------- -------- --------
Net cash (used in) provided by
operating activities ...................... (20,286) (5,634) 20,440 13,466 1,674
---------- --------- --------- -------- --------
Investing activities
Purchase of property, plant and equipment ......... (3,525) (2,677) (5,079) (4,334) (6,214)
Proceeds from sale of property, plant and
equipment ....................................... 1,895 820 2,805 1,661 3,339
Proceeds from disposal of a business .............. 142,446 -- -- -- --
---------- --------- --------- -------- --------
Net cash provided by (used in)
investing activities ...................... 140,816 (1,857) (2,274) (2,673) (2,875)
---------- --------- --------- -------- --------
Financing activities
Repayment of debt ................................. (127,600) 131 (10,242) (8,707) 6,546
---------- --------- --------- -------- --------
Net cash (used in) provided by
financing activities ...................... (127,600) 131 (10,242) (8,707) 6,546
---------- --------- --------- -------- --------
Net (decrease) increase in cash .................... (7,070) (7,360) 7,924 2,086 5,345
Cash at the beginning of the year .................. 15,355 7,431 7,431 5,345 --
---------- --------- --------- -------- --------
Cash at the end of the year ........................ $ 8,285 $ 71 $ 15,355 $ 7,431 $ 5,345
========== ========= ========= ======== ========
Cash paid during the year for
Interest .......................................... $ 1,339 $ 7,508 $ 12,940 $ 13,431 $ 14,035
Federal and state income taxes, net of refunds..... 8,162 7,776 9,457 3,762 961
|
The accompanying notes are an integral part of these consolidated financial statements.
RUGBY USA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE RUGBY GROUP PLC)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(DOLLAR AMOUNTS IN THOUSANDS)
1. DESCRIPTION OF BUSINESS
Rugby USA, Inc. ("RUSA" or "the Company"), a Georgia Corporation, is a wholly-owned subsidiary of The Rugby Group PLC ("Rugby" or "Parent"), a United Kingdom corporation and through its wholly-owned subsidiary, Rubgy Building Products, Inc. ("RBP"), is principally in the building supply distribution business.
RUSA, through its Pioneer Plastics Corporation subsidiary ("Pioneer"), manufactured high and low pressure laminates, saturated papers and specialty resins and distributed these laminates to customers, which include RBP. As discussed in Note 13, Pioneer was sold on February 18, 1999.
2. SIGNIFICANT ACCOUNTING PRINCIPLES AND POLICIES
PRINCIPLES OF CONSOLIDATION -- The accompanying consolidated financial statements include the accounts of RUSA and its wholly-owned subsidiaries RBP, Pioneer, and Paramount Manufacturing, Inc. (whose operations ceased in November 1996 and assets were subsequently sold in September 1997). All significant intercompany accounts and transactions have been eliminated in consolidation.
CASH -- Cash and cash equivalents consist of deposits with banks and financial institutions which are unrestricted as to withdrawal or use, and which have original maturities of three months or less.
REVENUE RECOGNITION -- Revenue is recorded at the time title to products is passed to customers, which occurs when products are shipped to customers. Provisions are made on a regular basis to establish reserves for returns, discounts and rebates using historical and current data. All trade receivables are unsecured.
INVENTORIES -- Inventories are stated at the lower of cost or market. Substantially all of the Company's inventory cost is determined using the last-in, first-out ("LIFO") method of valuing inventory.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost. Depreciation and amortization are provided over the estimated useful lives of the assets using primarily the straight-line method for financial statement purposes and accelerated methods for income tax purposes.
Estimated useful lives for property and equipment are as follows:
YEARS
-------------------------
Buildings ........................ 20 - 40
Machinery and equipment .......... 3 - 10
Leasehold improvements ........... The shorter of 10 or the
remainder of the lease.
|
INTANGIBLE ASSETS -- Intangible assets include a non-compete agreement and goodwill which are amortized on a straight-line basis over periods ranging from 3 to 15 years.
IMPAIRMENT OF LONG-LIVED ASSETS -- Management periodically reviews long-lived assets for impairment. When assets are determined to be impaired, an evaluation of recoverability is performed, using the estimated future undiscounted cash flows associated with the asset, compared to the asset's carrying amount. Based on the Company's estimate of future undiscounted cash flows, the Company has determined no such evaluation is required in 1998.
RUGBY USA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE RUGBY GROUP PLC)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(DOLLAR AMOUNTS IN THOUSANDS)
INCOME TAXES -- The Company accounts for income taxes using an asset and liability approach, which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and tax bases of other assets and liabilities.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The carrying values of cash, accounts receivable, accounts payable and accrued liabilities approximate fair value due to the short-term nature of these assets and liabilities. The carrying value of long-term debt approximates fair value which is estimated based on discounted expected cash flows at rates currently offered to the Company for similar debt, as advised by the Company's banks.
MANAGEMENT ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
RATIONALIZATION EXPENSES -- The Company records costs associated with the rationalization of its operations in accordance with the guidance set forth in the consensus reached by the FASB's Emerging Issues Task Force in their abstract issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity" and related pronouncements.
Expenses of $6,539, $9,646, and $0 for December 31, 1998, 1997 and 1996, respectively, have been recorded in the accompanying financial statements as they meet the criteria for recognition contained in the pronouncements cited above. No accruals were recorded at December 31, 1998, 1997 and 1996 as the rationalization expenses incurred did not qualify for liability recognition.
CAPITALIZATION OF SOFTWARE COSTS -- In 1998, the Company adopted SOP 98-1, "Accounting for the Costs of Computer Software Developed and Obtained for Internal Use." SOP 98-1 requires computer software costs that are incurred in the preliminary project stage to be expensed as incurred. After the preliminary project stage, certain costs are to be capitalized, which include external costs of materials and services consumed in developing, modifying or obtaining internal-use computer software and payroll and payroll related costs for employees who are directly associated with and who devote time to the internal-use computer software project. Certain costs are to be expensed as incurred, which include training costs and certain data conversion costs. The capitalized costs will be amortized on a straight-line basis, over a period not to exceed 5 years. In 1998, the Company capitalized $5,728 in connection with the adoption of SOP 98-1, of which $4,648 was capitalized by Pioneer.
VALUATION OF LONG-LIVED ASETS -- The Company periodically evaluates the carrying value of long-lived assets, including goodwill and other intangible assets, when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved.
REPORTING COMPREHENSIVE INCOME -- In 1998, the Company adopted FAS 130, "Reporting Comprehensive Income." This statement establishes rules for the reporting of comprehensive income and its components which includes, among other items, net income and foreign currency translation adjustments. The Company does not have any components of comprehensive income other than net income.
RUGBY USA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE RUGBY GROUP PLC)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(DOLLAR AMOUNTS IN THOUSANDS)
SEGMENT REPORTING -- In fiscal 1998, Rugby adopted Statement of Financial Accounting Standard FAS 131, "Disclosures about Segments of an Enterprise and Related Information." FAS 131 supercedes FAS 14, "Financial Reporting for Segments of a Business Enterprise," replacing the "industry segment" approach with the "management" approach. The management approach reports segment information based on how the internal organization makes operating decisions and assesses performance. FAS 131 also requires disclosure about products and services, geographic areas of business and major customers. During 1998, 1997 and 1996, the Company was comprised of two operating segments, building supply distribution through its subsidiary RBP and high and low pressure laminates manufacturing through its subsidiary Pioneer. As discussed in Note 13, Pioneer was sold on February 18, 1999. Therefore, in accordance with FAS 131, only the building supply distribution segment is disclosed for 1998, 1997 and 1996.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- The unaudited interim consolidated financial statements as of September 30, 1999 and for the nine-month periods then ended were prepared in accordance with the SEC rules and regulations for interim financial statements. In the opinion of management, the interim financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation. The accounting principles applied in preparation of the interim financial statements are consistent with those applied in the annual financial statements. Results of operations for the nine-month period ended September 30, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31,1999.
3. ACCOUNTS RECEIVABLE
Accounts receivable are summarized as follows:
DECEMBER 31,
-----------------------
1998 1997
---------- ----------
Accounts receivable ..................... $ 46,891 $ 37,987
Allowance for doubtful accounts ......... (2,237) (2,183)
-------- --------
$ 44,654 $ 35,804
======== ========
|
4. INVENTORIES
Inventories consist of the following:
DECEMBER 31,
-----------------------
1998 1997
---------- ----------
Finished goods ........................... $ 58,324 $ 60,457
Obsolescence and shrink reserves ......... (3,083) (4,307)
-------- --------
55,241 56,150
LIFO reserve ............................. (7,515) (8,316)
-------- --------
$ 47,726 $ 47,834
======== ========
|
The replacement value of inventory determined on a weighted average FIFO basis at December 31, 1998 and 1997 is $55,241 and $56,150, respectively.
The liquidation of certain LIFO layers decreased cost of goods sold by $831, $77 and $0 in 1998, 1997 and 1996, respectively.
RUGBY USA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE RUGBY GROUP PLC)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(DOLLAR AMOUNTS IN THOUSANDS)
5. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
DECEMBER 31,
---------------------------
1998 1997
------------ ------------
Land and buildings ....................... $ 26,146 $ 26,604
Machinery and equipment .................. 25,578 28,757
--------- ---------
51,724 55,361
Less -- accumulated depreciation ......... (25,776) (28,335)
--------- ---------
$ 25,948 $ 27,026
========= =========
|
Depreciation expense for the assets listed above is $3,537, $3,471 and $3,986 has been recorded for 1998, 1997 and 1996, respectively.
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
DECEMBER 31,
--------------------
1998 1997
-------- ---------
Accrued operating costs .......................... $ 193 $ 773
Accrued payroll and other employee costs ......... 7,110 5,168
Accrued taxes other than income .................. 687 831
Other ............................................ 460 2,093
------ ------
$8,450 $8,865
====== ======
|
7. INTANGIBLE ASSETS
Intangible assets are comprised of the following amounts:
DECEMBER 31,
-------------------------
1998 1997
------------ ----------
Goodwill ................................. $ 12,428 $ 12,428
Non-compete agreement .................... 6,093 6,093
--------- --------
18,521 18,521
Less -- accumulated amortization ......... (10,514) (9,955)
--------- --------
$ 8,007 $ 8,566
========= ========
|
Amortization expense for the assets listed above is $557, $2,595 and $3,265 has been recorded for 1998, 1997 and 1996, respectively.
RUGBY USA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE RUGBY GROUP PLC)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(DOLLAR AMOUNTS IN THOUSANDS)
8. LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31,
--------------------------
1998 1997
----------- ------------
Unsecured line of credit ............................ $ 6,000 $ 16,000
Mortgage notes at various interest rates ranging from
6.8% to 9% due in monthly principal and interest
instalments, maturing in 1998 to 2000 .............. 105 320
Subordinated loan notes due to Rugby and its
affiliates ......................................... 121,495 121,495
Capital lease obligations ........................... -- 27
Less -- current portion of long-term debt ........... (6,073) (308)
-------- --------
$121,527 $137,534
======== ========
|
The Company has a $40,000 unsecured line of credit with a bank which expires on July 25, 2000 at which time the outstanding principal is due. The borrowings bear interest at adjustable rates based on the London InterBank Offered Rate ("LIBOR"). The rates prevailing at December 31, 1998 and 1997 were 5.2% and 6.0%, respectively. At December 31, 1998 and 1997, the Company had borrowed $6,000 and $16,000, respectively, on this line of credit.
Additionally, the Company has demand lines of credit totaling $25,000 from a certain lending institution. Interest on borrowings under the line is based upon the federal funds rate in effect at the date of the borrowing plus .35% (6.10% at December 31, 1998). At December 31, 1998 there were no borrowings under this facility.
Property and equipment with a net book value of $1,015 has been pledged to collateralize the mortgage notes.
Subordinated loan notes due to Rugby and its affiliates consist of three notes of $71,000, $42,495 and $8,000 bearing interest at a fixed rate of 9.5% per annum. The note for $71,000 is due in 2000. The remaining notes are due in 2004.
Minimum future principal payments on lines of credit, mortgage notes, subordinated notes and capital lease obligations at December 31, 1998 are as follows:
1999 .................... $ 6,073
2000 .................... 71,032
2001 .................... --
2002 .................... --
2003 .................... --
Thereafter .............. 50,495
--------
$127,600
========
|
RUGBY USA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE RUGBY GROUP PLC)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(DOLLAR AMOUNTS IN THOUSANDS)
9. INCOME TAXES
The expense (benefit) for income taxes for the years ended December 31, 1998, 1997 and 1996 is as follows:
1998 1997 1996
--------- ------------ ------------
Current tax expense (benefit)
Federal ........................ $1,523 $ (4,957) $ (2,934)
State .......................... (734) (1,025) (924)
Deferred tax expense
Federal ........................ 1,841 1,144 (2,096)
State .......................... 255 493 (460)
------ -------- --------
Total expense (benefit) ......... $2,885 $ (4,345) $ (6,414)
====== ======== ========
|
The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory income tax rate to pretax income, as a result of the following differences:
1998 1997 1996
--------- ------------ ------------
Tax at U.S. statutory rate .......... $2,219 $ (4,274) $ (5,905)
State income taxes .................. 317 (611) (1,030)
Other permanent items, net .......... 349 540 521
------ -------- --------
Total expense (benefit) ............. $2,885 $ (4,345) $ (6,414)
====== ======== ========
|
A summary of the components of deferred tax assets and liabilities, which include deferred tax assets and liabilities of Pioneer, at December 31 are as follows:
1998 1997
----------- ---------
Deferred tax assets
Accounts receivable reserves .................. $ 2,033 $ 2,432
Inventory reserves ............................ 1,587 1,913
Inventory capitalization ...................... 1,797 1,825
Accrued liabilities ........................... 2,569 2,866
Non-compete amortization ...................... 2,233 2,442
Alternative minimum tax credits ............... 370 2,246
Other ......................................... -- 177
-------- -------
10,589 13,901
Deferred tax liabilities
Mark-to-market adjustment ..................... 1,881 2,505
Inventory purchase accounting step-up ......... 3,873 4,008
Depreciation .................................. 4,484 4,512
Other ......................................... 843 985
-------- -------
11,081 12,010
Deferred tax asset valuation allowance ......... (370) (370)
-------- -------
Net deferred tax assets (liabilities) .......... (862) 1,521
-------- -------
Current ....................................... 703 1,005
Long-term ..................................... (1,565) 516
-------- -------
$ (862) $ 1,521
======== =======
|
RUGBY USA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE RUGBY GROUP PLC)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(DOLLAR AMOUNTS IN THOUSANDS)
10. LEASE COMMITMENTS
The Company leases certain real properties and equipment under noncancelable lease agreements which expire at various dates through 2020. Total rental expense under these leases was approximately $6,593, $6,259 and $6,760 in 1998, 1997 and 1996 respectively.
Minimum future payments for all non-cancelable leases of more than one year are as follows for assets not held for sale or distribution:
1999 ......................... $ 6,457
2000 ......................... 5,729
2001 ......................... 4,017
2002 ......................... 2,742
2003 ......................... 2,140
2004 and later years ......... 2,182
-------
$23,267
=======
|
11. RETIREMENT PLANS
The Company sponsors defined contribution retirement plans covering certain employees who meet specific service requirements. Contributions are determined at the discretion of the Board of Directors. Amounts charged to expense were $1,363, $1,179, and $1,985 in 1998, 1997 and 1996, respectively. In addition, the Company sponsored a defined benefit pension plan for certain of its employees. This defined benefit plan was terminated effective December 31, 1994. Benefits were distributed following the receipt of the determination letter from the Internal Revenue Service, dated July 3, 1997, confirming the tax qualified status of the terminated plan. Original estimated expenses of $350 related to the plan termination were accrued in 1994. Additional expenses of $837 related to the plan termination were recorded during 1997.
12. CONTINGENCIES
From time to time, the Company has had claims asserted against it by regulatory agencies or private parties for environmental matters relating to the generation or handling of hazardous substances by the Company or its predecessor and has incurred obligations for investigations or remedial actions with respect to certain of such matters. While the Company does not believe that any such claims asserted or obligations incurred to date will result in a material adverse effect upon the Company's financial position, results of operations or liquidity, additional investigation will be, and remedial action will or may be, required. There can be no assurance that activities at any facility owned or operated by the Company or future facilities may not result in additional environmental claims being asserted against the Company or additional investigations or remedial actions being required.
Although there are certain unasserted possible claims and assessments, under the Company's accounting policy, amounts will usually be accrued when 1) both litigation has commenced or a claim or an assessment has been asserted, or, based on available information, commencement of litigation or assertion of a claim or an assessment is probable and 2) based on available information, it is probable that the outcome of such litigation, claim, or assessment will be unfavorable. In 1994, Pioneer entered into a Settlement Agreement with Pioneer's predecessor ("Predecessor"), whereby the Predecessor agreed to retain unlimited liability with respect to investigating and remediating environmental sites
RUGBY USA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE RUGBY GROUP PLC)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(DOLLAR AMOUNTS IN THOUSANDS)
where environmental claims have been identified, except for those sites discussed below. In the event that the Predecessor is unable to meet the financial obligations of remediating the sites, there is a possibility that Pioneer will be required to assume the Predecessor's obligation of remediation. No amounts, other than noted below, have been recorded for this potential obligation in the financial statements.
A portion of the land in Auburn, Maine, acquired from the Predecessor is subject to a Compliance Order by Consent ("COC") dated May 5, 1993, issued by the State of Maine Department of Environmental Protection ("DEP") with regard to unauthorized discharges of hazardous substances into the environment. The Company and the Predecessor, named in the COC, are required to investigate and, as necessary, remediate the environmental contamination at the site. Because the unauthorized discharges occurred during the time that the Predecessor owned the land, the Predecessor has agreed to be responsible for compliance with the COC. The Predecessor has completed and submitted to the State for its review, a risk assessment. The nature and extent of remediation has not yet been determined. The financial obligation of the Predecessor to investigate/remediate is unlimited except with regard to a portion of the land at Pioneer's Auburn, Maine facility, which is capped at $10,000. Pioneer has recorded a reserve of $1,000 at December 31, 1998 and 1997, being Pioneer's best estimate of its liability for site remediation costs in excess of costs agreed to be assumed by the Predecessor. Pioneer could incur additional obligations in excess of its reserve. It is possible that Pioneer's recorded estimate of $1,000 may change over time. However, the Company does not believe the amount of possible loss related to this matter will exceed the amount of accrual recorded. Further, it is unknown at what point in the future the recorded accrual will be paid.
The Company is involved in certain litigation arising in the ordinary course of business, but management believes that none will have a material effect on the Company's business or financial position. The Company's management intends to defend all such matters.
13. SUBSEQUENT EVENTS, ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS
On February 18, 1999, Panolam Industries, Inc. ("Buyer") purchased all of the outstanding stock of Pioneer Plastics Corporation. The Buyer assumed substantially all of Pioneer's assets and liabilities. Pursuant to the Stock Purchase Agreement, the Buyer paid approximately $159,000 to the Company which included $10,000 for a non-compete agreement with Rugby plus additional consideration contingent upon the Buyer's financial performance during the fiscal years 1999 through 2003.
On October 8, 1999, the Company entered into amendment to the sales contract with Panolam. The amendment provided for settlement of all outstanding claims between the parties for purchase price adjustments and additional consideration contingent upon the buyer's financial performance during fiscal years 1999 - 2003 provided for in the original agreement. As a result of the amendment the Company is to receive $5,000.
In connection with the sale of Pioneer, the Company guarantees to the buyer of Pioneer the due performance of the Predecessor of its obligations to Pioneer with respect to the environmental matters discussed in Note 12. This guarantee expires on February 18, 2009.
In February 1999, in connection with sale of Pioneer, the Company paid approximately $4,497 to key employees of Pioneer for certain sale-related liabilities.
Pioneer's gross sales were $185,018, $179,331 and $155,739 for the years ended December 31, 1998, 1997 and 1996, respectively. Included in these gross sales are to RBP of $34,821, $34,427 and $34,064 for the years ended December 31, 1998, 1997 and 1996, respectively. The results of operations for the years ended December 31, 1998, 1997 and 1996 are reported as discontinued operations.
RUGBY USA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE RUGBY GROUP PLC)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(DOLLAR AMOUNTS IN THOUSANDS)
On October 19, 1999 Rugby adopted a plan to exchange all of its equity shares in the Company for shares in an entity that is to be created by a spin-off from a Securities and Exchange Commission registrant. The spin-off company, upon completion of the necessary filings, shareholder approval and Internal Revenue Service approval, will become a registrant with the Securities and Exchange Commission. The Rugby plan requires its shareholders approval and is subject to filings with regulatory authorities in the United Kingdom. As part of this plan the Company adopted a plan to distribute certain assets to a wholly-owned subsidiary of Rugby, to sell certain other assets and to declare a dividend of $32,000 payable by note. In addition, the Company will declare a cash dividend of all cash on hand at the date of the closing and eliminate all intercompany indebtedness. The proceeds of the assets to be sold are also to be declared as a dividend should they be sold prior to the closing of the share exchange described above. The distribution of these certain assets to the wholly-owned subsidiary will be a taxable transaction for United States income tax purposes. The transaction is expected to take place by the end of 1999. The company has reflected the assets and liabilities identified in the plan as net assets held for sale.
The following table is a summary of the assets and liabilities included in the plan and a summary of revenue and expense related thereto.
1998 1997
----------- -----------
Net assets to be sold and distributed:
Current assets ......................................... $ 2,590 $ 1,629
Property, plant and equipment, net ..................... 398 250
Current liabilities .................................... (1,177) (643)
--------- ---------
Net assets to be sold and distributed ................ $ 1,811 $ 1,236
--------- ---------
Net assets to be distributed:
Current assets ......................................... $ 37,484 $ 39,315
Property, plant and equipment, net ..................... 1,934 2,709
Other assets ........................................... 1,487 1,628
Current liabilities .................................... (12,606) (7,920)
--------- ---------
Net assets to be distributed ......................... $ 28,299 $ 35,732
--------- ---------
Pioneer net assets held for sale:
Current assets ......................................... $ 41,756 $ 41,103
Property, plant and equipment, net ..................... 47,363 40,877
Other assets ........................................... 4,039 3,718
Current liabilities .................................... (16,028) (15,996)
--------- ---------
Pioneer net assets held for sale ..................... $ 77,130 $ 69,702
--------- ---------
Total net assets held for sale and distribution ......... $ 107,240 $ 106,670
========= =========
|
DECEMBER 31,
---------------------------------------------
1998 1997 1996
------------- ------------- -------------
Revenue .................... $ 144,279 $ 147,624 $ 151,711
Cost of goods sold ......... (104,447) (109,174) (114,095)
Operating expenses ......... (34,933) (38,282) (39,702)
---------- ---------- ----------
Operating profit ........... $ 4,899 $ 168 $ (2,086)
========== ========== ==========
|
RUGBY USA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE RUGBY GROUP PLC)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(DOLLAR AMOUNTS IN THOUSANDS)
Net assets to be sold and distributed consist of the net assets of the Augusta distribution center.
Net assets to be sold and distributed include the net assets of Indianapolis-BMS, Chicago, Columbus, Dallas, Denver, Hawaii, Houston, Las Vegas, Northern California (Hayward and Sacramento), Phoenix , Tempe (Industrial -- Corporate), Atlanta-Pioneer, Boston (Avon), Miami, Moonachie, New York (Maspeth), Tampa, West Palm, San Antonio, Seattle, and Southern California (Pomona and San Diego).
Lease commitments for assets to be distributed and sold:
ASSETS TO BE ASSETS TO
DISTRIBUTED BE SOLD
-------------- ----------
1999 ......................... $ 3,377 $ 3
2000 ......................... 2,260 --
2001 ......................... 1,234 --
2002 ......................... 718 --
2003 ......................... 145 --
2004 and later years ......... 84 --
------- ---
$ 7,818 $ 3
======= ===
|
During 1999, the Company lost two major suppliers. One supplier's product line was pulled from the Company in June, 1999. This decision was based upon the negotiations by Rugby to sell certain distribution centers to one of this supplier's major competitors which was eventually not sold to the competitor. Another supplier decided to change its product distribution model to smaller distributors that primarily market its product.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Consolidated Lumber Company, Inc.
We have audited the accompanying statement of assets acquired and liabilities assumed of Consolidated Lumber Company, Inc. (the Company) as of December 31, 1997, and the related statement of revenues and expenses associated with operations acquired (as described in Note 1) for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
As described in Note 1, the financial statements referred to above have been prepared in consideration of the terms of the Asset Purchase Agreement between Consolidated Lumber Company, Inc. and Huttig Sash & Door Company (Huttig) for the sale of certain assets, liabilities and business operations to Huttig and is not intended to be a complete presentation of the Company's assets, liabilities and results of operations.
In our opinion, the financial statements referred to above present fairly, in all material respects, the assets acquired and liabilities assumed of Consolidated Lumber Company, Inc. at December 31, 1997, and the revenues and expenses associated with the operations acquired for the year then ended, pursuant to the terms of the Asset Purchase Agreement described in Note 1, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Kansas City, Missouri
March 2, 1998, except Notes 1
and 2, as to which the date is
August 20, 1999
|
CONSOLIDATED LUMBER COMPANY, INC.
STATEMENT OF ASSETS ACQUIRED AND LIABILITIES ASSUMED
DECEMBER 31, 1997
ASSETS ACQUIRED (NOTE 2)
Current assets:
Accounts receivable ...................... $ 7,051,563
Inventories .............................. 7,809,052
Prepaid expenses ......................... 106,658
-----------
Total current assets ...................... 14,967,273
Property, plant and equipment, at cost:
Leasehold improvements ................... 334,387
Vehicles ................................. 1,717,382
Office and computer equipment ............ 487,021
Machinery and equipment .................. 465,473
-----------
3,004,263
Accumulated depreciation ................. 1,692,865
-----------
Net property, plant and equipment ......... 1,311,398
-----------
Total assets acquired ..................... 16,278,671
LIABILITIES ASSUMED (NOTE 2)
Current liabilities:
Accounts payable ......................... 2,661,224
Accrued expenses ......................... 1,098,679
-----------
Total current liabilities assumed ......... 3,759,903
-----------
Net assets acquired ....................... $12,518,768
===========
|
See accompanying notes.
CONSOLIDATED LUMBER COMPANY, INC.
STATEMENTS OF REVENUES AND EXPENSES
ASSOCIATED WITH OPERATIONS ACQUIRED
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30
YEAR ENDED -------------------------------
DECEMBER 31, 1997 1998 1997
------------------ -------------- --------------
Net sales ............................................ $69,243,169 $31,253,000 $34,318,000
Cost of sales ........................................ 51,737,222 22,850,000 25,826,000
----------- ----------- -----------
Gross profit ......................................... 17,505,947 8,403,000 8,492,000
Selling, general and administrative expenses ......... 11,671,107 6,903,000 6,248,000
----------- ----------- -----------
Operating income ..................................... 5,834,840 1,500,000 2,244,000
Other income ......................................... 153,667 73,000 (76,000)
----------- ----------- -----------
Excess of revenues over expenses of operations
acquired ............................................ $ 5,988,507 $ 1,573,000 $ 2,168,000
=========== =========== ===========
|
See accompanying notes.
CONSOLIDATED LUMBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Effective July 1, 1998, Huttig Sash & Door Company (a subsidiary of Crane Co.) acquired certain assets and assumed certain liabilities of Consolidated Lumber Company, Inc. (the Company), a Kansas corporation. In the planned spin off of Huttig Sash & Door Company (Huttig) from Crane Co., the financial statements of the Company as of and for the year ended December 31, 1997, as described below, are required for Huttig's filing of a registration statement on Form 10 with the Securities and Exchange Commission.
The accompanying financial statements have been prepared from the books and records of the Company and present the assets acquired and liabilities assumed in the acquisition and the related revenues and expenses associated with the operations acquired. The expenses include all costs directly involved in revenue-producing activities of the assets acquired.
NATURE OF BUSINESS
The operations of the Company, acquired by Huttig, primarily consist of the wholesale distribution of building materials to professional contractors building in the single-family home market. The Company also sells value-added items including prehung doors, fabricated roof trusses and preassembled windows. The corporate office is in Merriam, Kansas with four lumber yards and a millwork center located in Kansas and Missouri.
ACCOUNTS RECEIVABLE
The Company grants credit to certain customers who meet the Company's preestablished credit requirements. Generally, the Company does not require security when trade credit is granted to customers. Credit losses have consistently been within management's expectations.
INVENTORIES
Inventories are carried at the lower of cost, determined using the average cost method which approximates the first-in, first-out method, or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost. When retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and the resulting gains or losses are taken into income. Additions, improvements, renewals and expenditures which materially increase the life of the property are capitalized. Maintenance and repairs are charged to expense as incurred.
Depreciation is computed using the straight-line method over the estimated useful lives of the assets which range from five to 39 years.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
UNAUDITED INTERIM STATEMENTS
The unaudited interim statements of revenues and expenses associated with operations acquired for the six-month period ended June 30, 1998 and 1997 were prepared in condensed format, in accordance
CONSOLIDATED LUMBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
with the SEC rules and regulations for interim financial statements. In the opinion of management, the interim financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation. The accounting principles applied in preparation of the interim financial statements are consistent with those applied in the annual financial statements.
2. SALE TRANSACTION
On July 1, 1998, certain assets, liabilities and operations of the Company, specifically excluding the lumber and millwork business operations and related assets and liabilities located in Tucson, Arizona, were sold to Huttig for approximately $40 million. In connection with the sale, all assets used in the Company's business of manufacturing and selling lumber and millwork products at its four facilities located in Kansas and Missouri, unless otherwise excluded, and the current liabilities related thereto, excluding any line of credit debt, notes payable or other long-term debt, were transferred to Huttig.
3. COMMITMENTS
The Company leases certain vehicles, office space and plant facilities under long-term, noncancelable operating leases which expire on varying dates through 2002, certain facilities of which are leased from stockholders. Certain vehicle lease agreements provide the Company with the option to purchase the related vehicle upon expiration of the lease. Future minimum lease rentals under these noncancelable operating leases are as follows:
YEAR ENDED DECEMBER 31 AMOUNT
---------------------- -----------
1998 $ 614,597
1999 539,940
2000 467,212
2001 193,935
2002 13,445
----------
Total minimum lease payments $1,829,129
==========
|
Rental expense for all operating leases was $668,456 for the year ended December 31, 1997. In most cases, management expects that in the normal course of business existing leases will be renewed or replaced by other leases.
Three of the operating leases, with aggregate annual rentals for the year ended December 31, 1997 of approximately $390,000, are with companies controlled by stockholders of the Company.
4. INCOME TAXES
The Company has elected to be treated as an S corporation for tax purposes. Consequently, any income from the acquired business operations is included in the income tax returns of the Company's stockholders, and no income taxes have been provided herein.
5. CASH FLOWS
Cash flows provided by operating activities of the acquired operations for the year ended December 31, 1997 were generated primarily by earnings. Cash flows used in investing activities related primarily to capital expenditures for the year. Because the operations acquired participated in shared resources with those operations not acquired, it was not practicable to present a statement of cash flows.
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
HUTTIG BUILDING PRODUCTS, INC.
(Registrant)
Date: December 6, 1999 By: /s/ Barry J. Kulpa
-----------------------------------
Name: Barry J. Kulpa
Title: President and Chief
Executive Officer
|
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
2.1 Distribution Agreement between Crane Co. and Huttig Building Products, Inc. (filed herewith).
2.2 Share Exchange Agreement among The Rugby Group PLC, Crane Co. and Huttig Building Products,
Inc. (previously filed).
3.1 Restated Certificate of Incorporation of Huttig Sash & Door Company (previously filed).
3.2 By-laws of Huttig Building Products, Inc. (filed herewith).
4.1 Specimen certificate for Common Stock of Huttig Building Products, Inc. (previously filed).
4.2 Form of Rights Agreement between Huttig Building Products, Inc. and the rights agent named
therein (previously filed).
10.1 Form of Tax Allocation Agreement between Crane Co. and Huttig Building Products, Inc.
(previously filed).
10.2 Form of Employee Matters Agreement between Crane Co. and Huttig Building Products, Inc.
(filed herewith).
10.3 EVA Incentive Compensation Plan of Huttig Building Products, Inc. (filed herewith).
10.4 Non-Employee Director Restricted Stock Plan (filed herewith).
10.5 Stock Incentive Plan (filed herewith).
10.6 Form of Indemnification Agreement for Executive Officers and Directors (previously filed).
10.7 Employment/Severance Agreement between Huttig Building Products, Inc. and Barry J. Kulpa dated
October 18, 1999 (previously filed).
10.8 Form of Registration Rights Agreement between The Rugby Group PLC and Huttig Building
Products, Inc. (previously filed).
10.9 Form of Transition Services Agreement between Huttig Building Products, Inc. and The Rugby
Group PLC (previously filed).
10.10 The Crane Fund Letter Agreement between the Crane Fund and the Rugby Group PLC (previously
filed).
21.1 Subsidiaries of Huttig Building Products, Inc. (previously filed).
27.1 Financial Data Schedule for the year ended December 31, 1998 (previously filed).
27.2 Financial Data Schedule for the nine months ended September 30, 1999 (previously filed).
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[* Certain exhibits and schedules to the Exhibits attached hereto have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted exhibit or schedule will be furnished to the commission upon request.]
EXECUTION COPY
DISTRIBUTION AGREEMENT
by and between
CRANE CO.
AND
HUTTIG BUILDING PRODUCTS, INC.
December 6, 1999
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS...............................................................1
ARTICLE II THE DISTRIBUTION........................................................10
Section 2.1 The Distribution.....................................................10
Section 2.2 Cooperation Prior to the Distribution................................11
Section 2.3 Crane Board Action; Conditions to the Declaration....................11
Section 2.4 Waiver of Conditions.................................................12
Section 2.5 Disclosure...........................................................12
ARTICLE III TRANSACTIONS RELATING TO THE DISTRIBUTION..............................12
Section 3.1 Intercorporate Transfers.............................................12
Section 3.2 Crane Group Obligations Relating to the Building Products
Business............................................................14
Section 3.3 Company Group Obligations Relating to the Crane Group................14
Section 3.4 Intercompany Accounts and Arrangements...............................15
Section 3.5 Cash Management......................................................16
Section 3.6 The Company Board....................................................17
Section 3.7 Resignations; Transfer of Stock Held as Nominee......................17
Section 3.8 Rights Plan..........................................................17
Section 3.9 Insurance............................................................17
Section 3.10 Use of Names, Trademarks, etc.......................................20
Section 3.11 Consents............................................................21
ARTICLE IV MUTUAL RELEASE; INDEMNIFICATION.........................................22
Section 4.1 Mutual Release.......................................................22
Section 4.2 Indemnification by Crane.............................................23
Section 4.3 Indemnification by the Company.......................................24
Section 4.4 Limitations on Indemnification Obligations...........................24
Section 4.5 Procedures Relating to Indemnification...............................25
-i-
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Section 4.6 Remedies Cumulative..................................................27 Section 4.7 Survival of Indemnities..............................................27 Section 4.8 Exclusivity of Tax Allocation Agreement..............................28 ARTICLE V ACCESS TO INFORMATION....................................................28 Section 5.1 Access to Information................................................28 Section 5.2 Production of Witnesses..............................................29 Section 5.3 Retention of Records.................................................29 Section 5.4 Confidentiality......................................................30 ARTICLE VI MISCELLANEOUS...........................................................30 Section 6.1 Entire Agreement; Construction.......................................30 Section 6.2 Survival of Agreements...............................................31 Section 6.3 Expenses.............................................................31 Section 6.4 Governing Law........................................................31 Section 6.5 Notices..............................................................31 Section 6.6 Dispute Resolution...................................................32 Section 6.7 Amendments...........................................................34 Section 6.8 Assignment...........................................................34 Section 6.9 Captions; Currency...................................................34 Section 6.10 Severability........................................................35 Section 6.11 Parties in Interest.................................................35 Section 6.12 Schedules...........................................................35 Section 6.13 Termination.........................................................35 Section 6.14 Waivers; Remedies...................................................35 Section 6.15 Further Assurances..................................................36 Section 6.16 Counterparts........................................................36 Section 6.17 Performance.........................................................36 |
ANNEXES
Annex A - Employee Matters Agreement
Annex B - Tax Allocation Agreement
SCHEDULES
Schedule 1.1(b) - Company Subsidiaries Schedule 1.1(c) - Huttig Bank Accounts Schedule 1.1(d) - Huttig Financial Instruments Schedule 1.1(e) - Huttig Litigation Schedule 3.4(a)(i) - Intercompany Accounts Schedule 3.4(b)(ii) - Intercompany Agreements Schedule 3.7 - Continuing Directors and Officers Schedule 4.2 - Certain Form 10 Sections |
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT (this "Agreement"), dated as of December 6, 1999, by and between CRANE CO., a Delaware corporation ("Crane"), and HUTTIG BUILDING PRODUCTS, INC., a Delaware corporation and, as of the date hereof, an indirect wholly owned subsidiary of Crane (the "Company").
WHEREAS, the Crane Board (as defined herein) has determined that it is appropriate and desirable to distribute all outstanding shares of Huttig Common Stock (as defined herein) on a pro rata basis to the holders of Crane Common Stock (as defined herein); and
WHEREAS, Crane and the Company have determined that it is appropriate and desirable to set forth the principal corporate transactions required to effect such distribution and certain other agreements that will govern certain matters relating to such distribution;
NOW, THEREFORE, in consideration of the premises and of the respective agreements and covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):
"Acquisition Notes" shall have the meaning ascribed thereto in Section 3.1(b).
"Actions" means, with respect to any Person, any actual, threatened or future action, suit, arbitration, inquiry, proceeding or investigation by or before any Governmental Entity or any claims or other legal matters that have been or may be asserted by or against, or otherwise affect, such Person.
"Affiliate" means, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified Person; provided, however, that for purposes of this Agreement, following the Time of Distribution no member of either Group shall be deemed to be an Affiliate of any member of the other Group. For purposes of the immediately preceding sentence, the term "control" (including, with correlating meanings, the terms "controlled by" and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities, by contract or otherwise.
"Agreement" shall have the meaning ascribed thereto in the preamble.
"Ancillary Agreements" means, together, the Employee Matters Agreement and the Tax Allocation Agreement.
"Assets" means any and all assets, properties and rights, whether tangible or intangible, real, personal or mixed, fixed, contingent or otherwise, and wherever located (other than ownership interests in Subsidiaries).
"Assigning Party" shall have the meaning ascribed thereto in Section 3.11.
"Building Products Business" means (i) the business engaged in at all times prior to the Time of Distribution by the Company Group of distribution and manufacturing of doors, windows, millwork and other building products and activities related thereto, and (ii) Former Businesses managed or operated with any of the foregoing or operationally or otherwise related to any of the foregoing.
"Cash" means all cash, cash on hand, cash in transit, cash equivalents, funds, certificates of deposit, similar instruments and other short-term investments held by Crane and its Subsidiaries and Affiliates (including, without limitation, members of the Company Group) at the Time of Distribution (it being understood that cash equivalents do not include intercompany cash management balances which will be eliminated as of the Time of Distribution pursuant to Section 3.4(a)).
"Change in Control" means, with respect to any party, any of the following events or circumstances: (a) the first purchase of shares pursuant to a tender offer or exchange offer for all or part of that party's common stock or any securities convertible into such common stock, (b) the receipt by that party of a Schedule 13D or other advice indicating that a Person is the "beneficial owner" (as that term is defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of 20% or more of that party's common stock calculated as provided in paragraph (d) of said Rule 13d-3, (c) the date of approval by stockholders of that party of an agreement providing for any consolidation or merger of that party in which that party will not be the continuing or surviving corporation or pursuant to which shares of common stock of that party would be converted into cash, securities or other property, other than a merger of that party in which the holders of its common stock immediately prior to the merger would have the same proportion of ownership of common stock of the surviving corporation immediately after the merger, (d) the date of the approval by stockholders of that party of any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of that party, (e) the adoption of any plan or proposal for the liquidation (but not a partial liquidation) or dissolution of that party, or (f) the date on which Continuing Directors cease for any reason to constitute at least a majority of the board of directors of that party.
"Claim" shall have the meaning ascribed thereto in Section 6.6.
"Claimant" shall have the meaning ascribed thereto in Section 6.6.
"Claims Administration" means the processing of claims made under the Policies, including, without limitation, the reporting of claims to the insurance carrier, management and defense of claims, and providing for appropriate releases upon settlement of claims.
"Claims Made Policies" shall have the meaning ascribed thereto in Section 3.9(a).
"Code" means the Internal Revenue Code of 1986, as amended, or any successor legislation.
"Commission" means the Securities and Exchange Commission.
"Company" shall have the meaning ascribed thereto in the preamble.
"Company Board" means the Board of Directors of the Company.
"Company Group" means the Company and the Company Subsidiaries.
"Company Subsidiary" means each Person listed on Schedule 1.1(b) which is a direct or indirect Subsidiary of the Company as of the Time of Distribution.
"Consents" means consents, approvals, waivers, clearances, exemptions, allowances, novations, authorizations, filings, registrations and notifications.
"Continuing Director" means, with respect to either party, any member of such party's board of directors who either (i) is a member of such board as of the Time of Distribution or (ii) is thereafter elected to such board, or nominated for election by stockholders, by a vote of at least three-quarters of the directors who are Continuing Directors at the time of such vote.
"Contracts" means agreements, leases, contracts, memoranda of understanding, letters of intent, sales orders, purchase orders, open bids and other commitments and all rights therein and Liabilities thereunder, including, without limitation, in each case, all amendments, modifications and supplements thereto and waivers and consents thereunder.
"Crane" shall have the meaning ascribed thereto in the preamble.
"Crane Assets" means, collectively, all Assets which immediately prior to the Time of Distribution are owned by Crane or any of its Subsidiaries (including, without limitation, members of the Company Group), other than the Huttig Assets. Anything contained herein to the contrary notwithstanding, Crane Retained Assets shall be included in Crane Assets.
"Crane Board" means the Board of Directors of Crane or a duly authorized committee thereof.
"Crane Common Stock" means the Common Stock, par value $1.00 per share, of Crane.
"Crane Financial Instruments" means all credit facilities, guaranties, foreign currency forward exchange contracts, comfort letters, letters of credit and similar instruments related to the Crane Group obligations under which any member of the Company Group has any primary, secondary, contingent, joint, several and other liability.
"Crane Group" means Crane and its Affiliates, whether now or hereafter existing, other than members of the Company Group.
"Crane Indemnitees" means Crane, each Affiliate of Crane, including the Crane Subsidiaries, each of their respective Representatives and each of the heirs, executors, successors and assigns of any of the foregoing.
"Crane International" means Crane International Holdings, Inc., a Delaware corporation and a wholly-owned subsidiary of Crane.
"Crane Retained Accounts" means all bank accounts of Crane and its Subsidiaries and Affiliates (including, without limitation, members of the Company Group), other than Huttig Bank Accounts.
"Crane Retained Assets" means the following:
(i) all (A) Crane Retained Accounts and (B) Cash, including, without limitation, all Cash contained in the Crane Retained Accounts;
(ii) all Policies and all rights therein and related thereto, other than the benefits of Occurrence Basis Policies and Claims Made Policies to the extent described in Section 3.9(a);
(iii) all rights in and use of the name, trademark, trade name and service mark "Crane" and all corporate symbols and logos related thereto and all names, trademarks, trade names and service marks which include the word "Crane" or any derivative thereof (other than as provided for in Section 3.10);
(iv) all assets with respect to defined benefit pension plans of Crane and its Subsidiaries (including, without limitation, members of the Company Group);
(v) all assets that are used by Crane and its Subsidiaries and Affiliates in providing corporate, insurance and administrative services to Subsidiaries, divisions or operating units of the Crane Group not included in the Building Products Business (whether or not the same or similar services are provided to the Building Products Business); and
(vi) all rights, choses in action, causes of action and claims arising out of any asset described in clauses (i) through (v) above.
"Crane Subsidiary" means any Subsidiary of Crane other than the Company or any Company Subsidiary.
"Declaration" means the declaration of the Distribution by the Crane Board.
"Debt Financing" means (i) a working capital facility of $30 million or such other amount as the Company Board shall determine to be necessary or desirable for the Company, (ii) an acquisitions facility of $20 million or such other amount as the Company Board shall determine to be necessary or desirable for the Company and (iii) a credit facility or other credit arrangement to lend such additional amount as shall be consistent with a rating of not less than NAIC-2 for the Company's indebtedness.
"Demand for Arbitration" shall have the meaning ascribed thereto in Section 6.6.
"Dispute" shall have the meaning ascribed thereto in Section 6.6.
"Distribution" means the distribution, on the basis provided for in Section 2.1, to holders of Crane Common Stock of the shares of Huttig Common Stock owned by Crane on the Distribution Date.
"Distribution Agent" means ChaseMellon Shareholder Services, L.L.C. in its capacity as the agent selected by Crane to distribute Huttig Common Stock in connection with the Distribution.
"Distribution Date" means the date determined by the Crane Board as the date on which the Distribution will be effected.
"Employee Matters Agreement" means the Employee Matters Agreement between Crane and the Company, substantially in the form attached hereto as Annex A, with such changes as are permitted under the terms of the Exchange Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Agreement" means the Share Exchange Agreement dated as of October 19, 1999 among Crane, the Company and Rugby pursuant to which, following the Distribution, Rugby will contribute to the Company all of the issued and outstanding capital stock of Rugby USA in exchange for a number of new shares of Huttig Common Stock.
"Form 10" means the registration statement on Form 10 filed by the Company with the Commission to effect the registration of the Huttig Common Stock pursuant to the Exchange Act, including, without limitation, all amendments thereto filed by the Company with the Commission prior to the Time of Distribution.
"Former Business" means any corporation, partnership, entity, division,
business unit, business, assets, plants, product line, operations or contract
(including, without limitation, any assets and liabilities comprising the same)
that has been sold, conveyed, assigned, transferred or otherwise disposed of or
divested (in whole or in part) by any member of the Pre-Distribution Group or
the operations, activities or production of which has been discontinued,
abandoned, completed or otherwise terminated (in whole or in part) by any member
of the Pre-Distribution Group.
"Governmental Entity" means any government or any court, arbitral tribunal, administrative agency or commission or other governmental or regulatory authority or agency, whether Federal, state, local, domestic, foreign or international.
"Group" means the Crane Group or the Company Group, as the context requires.
"Hearing" shall have the meaning ascribed thereto in Section 6.6.
"Huttig Assets" means, collectively, all Assets (other than Crane Retained Assets) which immediately prior to the Time of Distribution are owned by Crane or any of its Subsidiaries (including, without limitation, members of the Company Group) and which are used primarily in or relate primarily to the Building Products Business, as the same shall exist as of such time, including, without limitation, (except as otherwise provided pursuant to any Transaction Agreement) all assets reflected in the Huttig Balance Sheet, as such assets may have been added to or sold or otherwise changed since the date thereof.
"Huttig Balance Sheet" means the balance sheet of the Company as of September 30, 1999 contained in the Form 10.
"Huttig Bank Accounts" means all bank accounts set forth on Schedule 1.1(c).
"Huttig Common Stock" means, collectively, the Common Stock, par value $.01 per share, of the Company and the related Rights.
"Huttig Financial Instruments" means all credit facilities, guaranties, foreign currency forward exchange contracts, comfort letters, letters of credit and similar instruments related to the Building Products Business under which any member of the Crane Group has any primary, secondary, contingent, joint, several or other Liability, including, without limitation, those set forth on Schedule 1.1(d).
"Huttig Indemnitees" means the Company, each Affiliate of the Company, including the Company Subsidiaries, each of their respective Representatives and each of the heirs, executors, successors and assigns of any of the foregoing.
"Huttig Liabilities" means (i) all Liabilities of any member of the Company Group under any Transaction Agreement to which it is or becomes a party, (ii) all Liabilities for which any member of the Company Group is made responsible pursuant to any Transaction Agreement and (iii) all Liabilities based upon, arising out of, relating to or otherwise in connection with the Huttig Assets or the Building Products Business, whether based upon, arising out of, relating to or otherwise in connection with events, actions, occurrences, omissions, circumstances or conditions occurring, existing or asserted before, at or after the Time of Distribution, including, without limitation: (A) all Liabilities reflected (or of the type reflected) on the Huttig Balance Sheet or described (or of the type described) in the notes thereto (as such Liabilities may have been reduced or added to or otherwise changed since the date thereof), (B) all Liabilities in respect of checks outstanding as of the Time of Distribution relating to the Building Products Business, (C) all Liabilities in respect of workers' compensation, automobile, general liability, products liability, intellectual property liability and other claims and matters (whether direct or by indemnification of any Person or otherwise) relating to the Building Products Business, (D) all Liabilities in respect of all Actions relating to the Building Products Business, including, without limitation, those Actions set forth on Schedule 1.1(e), (E) all Liabilities in respect of salary, bonuses, incentive payments, severance payments and other compensation payments for current or former employees of the Building Products Business and all Taxes and withholdings related thereto, (F) except for those Liabilities expressly assumed by the Crane Group pursuant to the Employee Matters Agreement, all Liabilities in respect of employee welfare and fringe
benefits relating to the Building Products Business (including, without limitation, claims for medical and disability benefits), (G) all Liabilities for environmental matters based upon, arising out of, relating to or otherwise in connection with the Building Products Business, including, without limitation, Liabilities in respect of any facility to the extent relating to the Building Products Business presently or formerly owned or operated by any member of the Pre-Distribution Group, (H) all Liabilities based upon, arising out of, relating to or otherwise in connection with Contracts related to the Building Products Business, including, without limitation, Liabilities to make payments or otherwise in connection with the termination thereof as a result of the transactions contemplated hereby or otherwise, and (I) all Liabilities relating to the credit facilities and other debt instruments to which any member of the Company Group is a party at the Time of Distribution, including, without limitation, all indebtedness outstanding thereunder and interest and fees payable with respect thereto.
"Indemnifiable Losses" means, subject to Section 4.4, any and all losses, Liabilities, claims, damages, deficiencies, obligations, fines, payments, Taxes, Liens, costs and expenses, matured or unmatured, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, known or unknown, whenever arising and whether or not resulting from Third Party Claims (including, without limitation, the costs and expenses of any and all Actions; all amounts paid in connection with any demands, assessments, judgments, settlements and compromises relating thereto; interest and penalties recovered by a third party with respect thereto; out-of-pocket expenses and reasonable attorneys', accountants' and other experts' fees and expenses reasonably incurred in investigating, preparing or defending against any such Actions or in asserting, preserving or enforcing an Indemnitee's rights hereunder; and any losses that may result from the granting of injunctive relief as a result of any such Actions).
"Indemnifying Party" shall have the meaning ascribed thereto in Section 4.4.
"Indemnitee" means any of the Crane Indemnitees or the Huttig Indemnitees who or which may seek indemnification under this Agreement.
"Indemnity Reduction Amounts" shall have the meaning ascribed thereto in
Section 4.4(a).
"Information" means all records, books, contracts, instruments, computer data and other data and information (in each case, in whatever form or medium, including, without limitation, electronic media).
"Information Statement" means the information statement sent to the holders of Crane Common Stock in connection with the Distribution.
"Initial Submission" shall have the meaning ascribed thereto in Section 6.6.
"Insurance Proceeds" means monies (a) received by an insured from an
insurance carrier, (b) paid by an insurance carrier on behalf of an insured or
(c) received from any third party in the nature of insurance, contribution or
indemnification in respect of any Liability.
"IRS" means the Internal Revenue Service.
"Liabilities" means any and all claims, debts, liabilities, commitments and obligations of whatever nature, whether fixed, contingent or absolute, matured or unmatured, liquidated or unliquidated, accrued or not accrued, known or unknown, due or to become due, whenever or however arising (including, without limitation, those arising out of any contract or tort, whether based on negligence, strict liability or otherwise) and whether or not the same would be required by generally accepted accounting principles to be reflected as a liability in financial statements or disclosed in the notes thereto, including, without limitation, all costs and expenses relating thereto and those claims, debts, liabilities, commitments and obligations arising under any law, rule, regulation, Action, order or consent decree of any Governmental Entity or any award of any arbitrator of any kind, and those arising under any Contract.
"Licenses" means licenses, permits, authorizations, consents, certificates, registrations, variances, franchises and other approvals from any Governmental Entity, including, without limitation, those relating to environmental matters.
"Lien" means any lien, security interest, pledge, mortgage, charge, restriction, claim, retention of title agreement or other encumbrance of whatever nature.
"NYSE" means the New York Stock Exchange, Inc.
"Occurrence Basis Policies" shall have the meaning ascribed thereto in
Section 3.9(a).
"Ordinary Course Intercompany Arrangements" shall have the meaning ascribed thereto in Section 3.4(b)(ii).
"Parent Note" shall have the meaning ascribed thereto in Section 3.1(b).
"Person" means any individual, partnership, joint venture, corporation, limited liability entity, trust, unincorporated organization or other entity (including, without limitation, a Governmental Entity).
"Policies" means all insurance policies and insurance contracts of any kind of the Pre-Distribution Group which include the Company, the Company Subsidiaries and/or the Building Products Business within the definition of the named insured and which were or are in effect at any time at or prior to the Time of Distribution, including, without limitation, primary, excess and umbrella policies, commercial general liability policies, fiduciary liability, product liability, automobile, aircraft, property and casualty, directors and officers liability, workers' compensation and employee dishonesty insurance policies, bonds and captive insurance company arrangements, together with all rights, benefits and privileges thereunder.
"Pre-Distribution Group" means (i) each of Crane, the Crane Subsidiaries
existing immediately prior to the Time of Distribution (including, without
limitation, members of the Company Group) and the former Crane Subsidiaries,
(ii) each of the predecessors of each of the
foregoing and (iii) each of the present and former Subsidiaries and other Affiliates of each of the foregoing, and their predecessors.
"Privileged Information" means, with respect to either Group, Information regarding a member of such Group, or any of its operations, employees, assets or Liabilities (whether in documents or stored in any other form or known to its employees or agents) that is or may be protected from disclosure pursuant to the attorney-client privilege, the work product doctrine or other applicable privileges, that a member of the other Group may come into possession of or obtain access to pursuant to this Agreement or otherwise.
"Recipient Party" shall have the meaning ascribed thereto in Section 3.11.
"Record Date" means the close of business on the date determined by the Crane Board as the record date for the Distribution.
"Reply Submission" shall have the meaning ascribed thereto in Section 6.6.
"Representative" means, with respect to any Person, any of such Person's directors, officers, employees, agents, consultants, advisors, accountants, attorneys and representatives.
"Respondent" shall have the meaning ascribed thereto in Section 6.6.
"Rights" means the Rights to be issued pursuant to the Rights Plan.
"Rights Plan" means the rights agreement entered into on or prior to the Distribution Date between the Company and ChaseMellon Shareholder Services, L.L.C., as rights agent, substantially in the form filed as an exhibit to the Form 10.
"Rugby" means The Rugby Group PLC, a company registered in England and Wales under company number 206971.
"Rugby USA" means Rugby USA, Inc., a Georgia corporation and a wholly owned subsidiary of Rugby.
"Securities Act" means the Securities Act of 1933, as amended.
"Share Exchange" means the exchange by Rugby of all of the issued and outstanding capital stock of Rugby USA for, among other things, a number of new shares of Huttig Common Stock, as contemplated by the Exchange Agreement.
"Subsidiary" means, with respect to any Person, any corporation or other organization, whether incorporated or unincorporated, of which such Person or any Subsidiaries of such Person controls or owns, directly or indirectly, more than 50% of the stock or other equity interest, or more than 50% of the voting power entitled to vote on the election of members to the board of directors or similar governing body; provided, however, that for purposes of this Agreement neither the Company nor any Company Subsidiary shall be deemed to be a Crane Subsidiary (as defined herein).
"Tax" shall have the meaning ascribed thereto in the Tax Allocation Agreement.
"Tax Allocation Agreement" means the Tax Allocation Agreement between Crane and the Company, substantially in the form attached hereto as Annex B, with such changes as are permitted under the terms of the Exchange Agreement.
"Tax Ruling" means a private letter ruling issued by the IRS in form and substance satisfactory to Crane (in its sole discretion) indicating that the Distribution will qualify as a tax-free spin-off to the stockholders of Crane for federal income tax purposes under Section 355 of the Code.
"Third Party Claim" shall have the meaning ascribed thereto in Section 4.5(a).
"Time of Distribution" means 12:01 a.m., New York City time, on the Distribution Date.
"Transaction Agreements" means, collectively, this Agreement and each Ancillary Agreement.
ARTICLE II
THE DISTRIBUTION
Section 2.1 The Distribution.
(a) Subject to Section 2.3, on or prior to the Distribution Date, Crane will deliver to the Distribution Agent, for the benefit of holders of record of Crane Common Stock as of the Record Date, a certificate or certificates, endorsed by Crane in blank, representing all of the then outstanding shares of Huttig Common Stock (excluding treasury shares held by Crane), and will instruct the Distribution Agent to distribute on the Distribution Date or as soon thereafter as practicable one share of Huttig Common Stock in respect of every 4.5 shares of Crane Common Stock held by holders of record of Crane Common Stock as of the Record Date. The Distribution will be effective as of the Time of Distribution. Crane and the Company will each provide to the Distribution Agent all information and share certificates, in each case, as may be required in order to complete the Distribution on the basis of one share of Huttig Common Stock for every 4.5 shares of Crane Common Stock issued and outstanding as of the Record Date (excluding treasury shares held by Crane).
(b) No certificates or scrip representing fractional shares of Huttig Common Stock will be distributed to holders of Crane Common Stock in the Distribution. The Distribution Agent will, as soon as practicable after the Distribution Date, (i) determine the number of whole shares and fractional shares of Huttig Common Stock allocable to each holder of record of Crane Common Stock as of the Record Date, (ii) aggregate all fractional shares held by such holders, and (iii) sell the whole shares attributable to the aggregate of such fractional shares, in open market transactions, in each case at the then prevailing trading price, and cause to be distributed to each such holder, in lieu of any fractional share, without interest, such holder's
ratable share of the proceeds of such sale, after making appropriate deductions of the amount required, if any, to be withheld for U.S. federal income tax purposes.
Section 2.2 Cooperation Prior to the Distribution. Prior to the Distribution:
(a) Crane and the Company will prepare, and Crane will mail to the holders of Crane Common Stock, the Information Statement, which will set forth appropriate disclosures concerning the Company, the Distribution, Rugby USA, the Share Exchange and such other matters as Crane and the Company may determine. Crane and the Company will prepare, and the Company will file with the Commission, the Form 10, which will include or incorporate by reference the Information Statement. The Company will use its reasonable best efforts to cause the Form 10 to become effective under the Exchange Act as soon as practicable following the filing thereof.
(b) Crane and the Company will cooperate in preparing, filing with the Commission and causing to become effective any registration statements or amendments thereof which are required to reflect the establishment of, or amendments to, any employee benefit and other plans contemplated by the Employee Matters Agreement.
(c) Crane and the Company will take all such action as may be necessary or appropriate under the securities or "blue sky" laws of the states or other political subdivisions of the United States and the securities laws of any applicable foreign countries or other political subdivisions thereof in connection with the transactions contemplated by this Agreement.
(d) Crane and the Company will cause to be prepared, and the Company will file and use its reasonable best efforts to have approved, an application for listing on the NYSE the Huttig Common Stock to be distributed in the Distribution.
Section 2.3 Crane Board Action; Conditions to the Declaration. The Crane Board will, in its discretion and, if applicable, consistent with the Exchange Agreement, establish the Record Date and make the Declaration and establish all appropriate procedures in connection with the Distribution, but in no event will the Declaration occur prior to such time as each of the following conditions shall have been satisfied or shall have been waived by the Crane Board in accordance with Section 2.4:
(a) Crane shall have received the Tax Ruling and the Tax Ruling shall be in full force and effect;
(b) All applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, shall have been terminated or expired;
(c) Crane shall have received copies of commitments for the Debt Financing in form and substance satisfactory to Crane;
(d) all material Consents of Governmental Entities that are required to effect the Distribution, if applicable, and the Share Exchange shall have been obtained, where the
failure to obtain such Consents, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect on the Company (within the meaning of the Exchange Agreement) or a Material Adverse Effect on Rugby USA (within the meaning of the Exchange Agreement);
(e) the Form 10 shall have become effective under the Exchange Act and no stop order suspending the effectiveness of the Form 10 shall have been issued, and no proceedings for that purpose shall have been initiated or threatened by the Commission;
(f) the Huttig Common Stock shall have been approved for listing on the NYSE, subject to official notice of issuance;
(g) the Requisite Rugby Vote (within the meaning of the Exchange Agreement) shall have been obtained; and
(h) no order shall have been entered and shall have remained in effect in any action or proceeding before any Governmental Entity that would prohibit or make illegal the Distribution or the Exchange;
provided that the satisfaction of such conditions will not create any obligation on the part of Crane pursuant to this Agreement to effect or seek to effect the Distribution or in any way limit Crane's right to terminate this Agreement as set forth in Section 6.13 or alter the consequences of any such termination from those specified in such Section.
Section 2.4 Waiver of Conditions. Any or all of the conditions set forth in Section 2.3 may be waived, in whole or in part, in the sole discretion of the Crane Board.
Section 2.5 Disclosure. If at any time after the date hereof either of the parties shall become aware of any circumstances that will or may prevent any or all of the conditions contained in Section 2.3 from being satisfied, it will promptly give to the other party written notice of those circumstances.
ARTICLE III
TRANSACTIONS RELATING TO THE DISTRIBUTION
Section 3.1 Intercorporate Transfers.
(a) Prior to the Distribution Date, Crane and the Company will take all actions necessary to cause all of the outstanding shares of Huttig Common Stock to be distributed by Crane International to Crane and to increase the outstanding shares of Huttig Common Stock so that, immediately prior to the Distribution, Crane will hold a number of shares of Huttig Common Stock (rounded up to the nearest whole share) equal to the number of shares of Crane Common Stock issued and outstanding as of the Record Date (excluding treasury shares held by Crane) divided by 4.5.
(b) Prior to the Time of Distribution, the Company will (i)
arrange the Debt Financing, (ii) pay to Crane (from time to time and on the day
prior to the Distribution Date) in reduction of intercompany indebtedness the
Company's net cash balances on hand, (iii) on the day prior to the Distribution
Date, issue to Crane a Note (the "Parent Note") in a principal amount equal to
the Parent Cash Amount (as defined in the Exchange Agreement) in exchange for a
like principal amount of existing indebtedness and (iv) from time to time upon
advances by Crane to fund acquisitions, issue notes in the principal amount
(not to exceed an aggregate of $15 million) of such advances (the "Acquisition
Notes"). On the day prior to the Distribution Date, subsequent to effecting
(iv) above, Crane will contribute or cause to be contributed to the capital of
the Company or otherwise settle or eliminate as provided in Section 3.4(a) all
indebtedness of the Company to Crane, other than the Parent Note and the
Acquisition Notes.
(c) The parties acknowledge that the Company Group currently is conducting the Building Products Business and that all or substantially all of the Huttig Assets and Huttig Liabilities are owned or are obligations of members of the Company Group. Pursuant to the Distribution, the Huttig Assets and Huttig Liabilities are intended to be allocated entirely to the Company Group and the Crane Assets and Liabilities of Crane, and any Crane subsidiary are intended to be allocated entirely to the Crane Group. Accordingly, in the event that at any time or from time to time (whether prior to or after the Time of Distribution) either party (or any member of such party's respective Group) shall receive or otherwise possess any Asset that is allocated to any other Person pursuant to this Agreement or any Ancillary Agreement, such party will promptly transfer, or cause to be transferred, such Asset to the Person so entitled thereto. Prior to any such transfer, the Person receiving or possessing such Asset will hold such Asset in trust for the benefit of the Person entitled thereto (at the expense of the Person entitled thereto). If at any time or from time to time (whether prior to or after the Time of Distribution) either Crane or the Company determines that the other party (or any member of such other party's respective Group) shall not have unconditionally assumed any Liabilities that are allocated to such other party (or a member of such other party's respective Group) pursuant to this Agreement or any Ancillary Agreement, such other party will promptly execute and deliver, or cause to be executed and delivered, all such documents and instruments and will take, or cause to be taken, all such actions as the requesting party may reasonably request to unconditionally assume, or cause to be unconditionally assumed, such Liabilities.
(d) Each of Crane (on behalf of itself and each member of the Crane Group) and the Company (on behalf of itself and each member of the Company Group) understands and agrees that, except as expressly set forth in the Exchange Agreement or any Transaction Agreement, no party to any Transaction Agreement or any other agreement or document contemplated by any Transaction Agreement either has represented or warranted, or is representing or warranting in any way, in such agreement or otherwise, (i) as to the Assets, Subsidiaries, businesses or Liabilities owned at the date hereof by such party or retained, transferred or assumed as contemplated hereby or thereby, (ii) as to any consents or approvals required in connection with the transactions contemplated by the Transaction Agreements, (iii) as to the value or freedom from any Lien of, or any other matter concerning, any Assets or Subsidiaries of either party, or (iv) as to the absence of any defenses or rights of setoff or freedom from counterclaim with respect to any claim or other Assets or Subsidiaries of either
party. Except as may expressly be set forth in any Transaction Agreement, all Assets and Subsidiaries owned at the date hereof or being transferred or retained as contemplated by any Transaction Agreement or any other agreement or document contemplated by any Transaction Agreement are held, or are being transferred or retained, on an "as is", "where is" basis and the respective owners or transferees shall bear the economic and legal risks that the title to any Asset or Subsidiary shall be other than good and marketable and free and clear of any Lien.
Section 3.2 Crane Group Obligations Relating to the Building Products Business.
(a) The Company will, at its expense, take or cause to be taken all commercially reasonable actions and enter into (or cause its Subsidiaries to enter into) such agreements and arrangements as shall be necessary to effect the release of and substitution for each member of the Crane Group, effective as of the Time of Distribution, from all primary, secondary, contingent, joint, several and other Liabilities in respect of Huttig Financial Instruments (it being understood that all Liabilities in respect of Huttig Financial Instruments are Huttig Liabilities). The Company will reimburse Crane for any reimbursements made by Crane pursuant to any Huttig Financial Instruments and that remain outstanding at the Distribution Date.
(b) The Company will, at its expense, use its reasonable best efforts to take or cause to be taken all actions and to enter into (or cause its Subsidiaries to enter into) such agreements and arrangements as shall be necessary to effect the release of and substitution for each member of the Crane Group, effective as of the Time of Distribution, from all primary, secondary, contingent, joint, several and other Liabilities in respect of bonds, indemnities, assurances and Contracts (other than the Exchange Agreement and Huttig Financial Instruments, which are covered by paragraph (a) above) under which any member of the Crane Group has any primary, secondary, contingent, joint, several or other Liability arising out of or relating to the Building Products Business which by their terms will be outstanding or in effect as of or at any time following the Time of Distribution; provided, however, that the Company shall not be obligated to pay any consideration therefor to any third party (it being understood that all Liabilities in respect of such bonds, indemnities, assurances and Contracts are Huttig Liabilities).
(c) The Company's obligations under this Section 3.2 will continue to be applicable to all Huttig Financial Instruments, bonds, indemnities, assurances and Contracts identified at any time by Crane, whether before, at or after the Time of Distribution.
Section 3.3 Company Group Obligations Relating to the Crane Group.
(a) Crane will, at its expense, take or cause to be taken all commercially reasonable actions and enter into (or cause its Subsidiaries to enter into) such agreements and arrangements as shall be necessary to effect the release of and substitution for each member of the Company Group, effective as of the Time of Distribution, from all primary, secondary, contingent, joint, several and other Liabilities in respect of Crane Financial Instruments (it being understood that all Liabilities in respect of Crane Financial Instruments are Liabilities of Crane or its Subsidiaries).
(b) Crane will, at its expense, use its reasonable best efforts to take or cause to be taken all actions and to enter into (or cause its Subsidiaries to enter into) such agreements and arrangements as shall be necessary to effect the release of and substitution for each member of the Company Group, effective as of the Time of Distribution, from all primary, secondary, contingent, joint, several and other Liabilities in respect of bonds, indemnities, assurances and Contracts (other than the Exchange Agreement and Crane Financial Instruments, which are covered by paragraph (a) above) under which any member of the Company Group has any primary, secondary, contingent, joint, several or other Liability arising out of or relating to businesses of the Pre-Distribution Group other than the Building Products Business which by their terms will be outstanding or in effect as of or at any time following the Time of Distribution; provided, however, that Crane shall not be obligated to pay any consideration therefor to any third party (it being understood that all Liabilities in respect of such bonds, indemnities, assurances and Contracts are Liabilities of Crane or its Subsidiaries).
(c) Crane's obligations under this Section 3.3 will continue to be applicable to all Crane Financial Instruments, bonds, indemnities, assurances and Contracts identified at any time by the Company, whether before, at or after the Time of Distribution.
Section 3.4 Intercompany Accounts and Arrangements.
(a) Elimination of Intercompany Accounts.
(i) Except as set forth in Section 3.4(a)(ii) or on Schedule 3.4(a)(i) and except for the Parent Note and the Acquisition Notes, the Company, on behalf of itself and each other member of the Company Group, on the one hand, and Crane, on behalf of itself and each other member of the Crane Group, on the other hand, hereby agree to settle and eliminate, by cancellation or transfer to a member of the other Group (whether to cancel or transfer and the manner thereof will be determined by Crane), effective immediately prior to the Time of Distribution, all intercompany receivables, payables and other balances (including, without limitation, intercompany loans and cash management balances) between the Company and/or any Company Subsidiary, on the one hand, and Crane and/or any Crane Subsidiary, on the other hand.
(ii) The provisions of Section 3.4(a)(i) will not apply to any intercompany receivables, payables and other balances incurred in connection with the payment by any party of any expenses which are required to be paid by the other party pursuant to Section 6.3.
(b) Intercompany Agreements.
(i) Except as set forth in Section 3.4(b)(ii), in furtherance of the releases and other provisions of Section 4.1, the Company, on behalf of itself and each other member of the Company Group, on the one hand, and Crane, on behalf of itself and each other member of the Crane Group, on the other hand, hereby terminate any and all agreements, arrangements, commitments or understandings in existence as of the Time of Distribution, whether or not in writing, between or among the Company and/or any Company Subsidiary, on
the one hand, and Crane and/or any Crane Subsidiary, on the other hand, effective as of the Time of Distribution. No such terminated agreement, arrangement, commitment or understanding (including, without limitation, any provision thereof which purports to survive termination) shall be of any further force or effect after the Time of Distribution.
(ii) The provisions of Section 3.4(b)(i) will not apply to any of the following agreements, arrangements, commitments or understandings (or to any of the provisions thereof): (A) the Transaction Agreements (and each other agreement, instrument or document expressly contemplated by any Transaction Agreement to be entered into by any of the parties hereto or any of the members of their respective Group); (B) any agreement, arrangement, commitment or understanding relating to any matter described in Section 3.4(a)(ii); (C) any agreements, arrangements, commitments or understandings listed or described on Schedule 3.4(b)(ii); (D) any agreements, arrangements, commitments or understandings to which any Person other than the parties hereto and their respective Affiliates is a party; (E) any other agreements, arrangements, commitments or understandings that any of the Transaction Agreements expressly contemplates will survive the Time of Distribution; (F) the Exchange Agreement; and (G) any agreements, arrangements, commitments or understandings between the Company and/or any Company Subsidiary, on the one hand, and Crane and/or any Crane Subsidiary, on the other hand, for the purchase or sale of goods or services of a type which the provider thereof provides to unaffiliated third parties in the ordinary course of business ("Ordinary Course Intercompany Arrangements"); provided, however, that in the event any such Ordinary Course Intercompany Arrangements do not, as of the Time of Distribution, contain commercially reasonable arm's-length terms of a type to which unaffiliated parties would reasonably agree or do not include terms which would normally appear in such arrangements between unaffiliated parties, Crane and the Company will cause such Ordinary Course Intercompany Arrangements to be amended so that they will contain terms which are, as of the Time of Distribution, commercially reasonable arm's-length terms of a type to which unaffiliated parties would reasonably agree.
Section 3.5 Cash Management.
(a) Bank Accounts. All Huttig Bank Accounts will constitute Huttig Assets and all Crane Retained Accounts will constitute Crane Assets.
(b) Crane Customer Payments. The Company will, and will cause its Subsidiaries and Affiliates to, forward promptly to Crane (for the account of Crane or its applicable Subsidiary) any customer payments in respect of accounts receivable owed to any member of the Crane Group received by the Company or any of its Subsidiaries or Affiliates after the Time of Distribution, whether received in lock boxes, via wire transfer or otherwise. Such amounts will be forwarded by wire transfer (to Crane's bank account at Bank One, N.A., Chicago, Illinois, ABA # 071000013, Account No. 51-53786) in the case of customer payments received within thirty days after the Distribution Date and by check in the case of customer payments received thereafter.
(c) Company Customer Payments. Crane will, and will cause its Subsidiaries and Affiliates to, forward promptly to the Company (for the account of the Company or its applicable Subsidiary) any customer payments in respect of accounts receivable owed to any member of the Company Group received by Crane or any of its Subsidiaries or Affiliates after the Time of Distribution, whether received in lock boxes, via wire transfer or otherwise. Such amounts will be forwarded by wire transfer in the case of customer payments received within thirty days after the Distribution Date and by check in the case of customer payments received thereafter.
Section 3.6 The Company Board. The Company and Crane will take all actions which may be required to elect or otherwise appoint as directors of the Company, prior to the Time of Distribution, the persons named in the Form 10 to constitute the Company Board at the Time of Distribution.
Section 3.7 Resignations; Transfer of Stock Held as Nominee.
(a) Crane will cause all of its employees and directors and all of the employees and directors of each other member of the Crane Group to resign, not later than the Time of Distribution, from all boards of directors or similar governing bodies of the Company or any other member of the Company Group on which they serve, and from all positions as officers of the Company or any other member of the Company Group in which they serve, except as otherwise specified on Schedule 3.7. The Company will cause all of its employees and directors and all of the employees and directors of each other member of the Company Group to resign, not later than the Time of Distribution, from all boards of directors or similar governing bodies of Crane or any other member of the Crane Group on which they serve, and from all positions as officers of Crane or any other member of the Crane Group in which they serve, except as otherwise specified on Schedule 3.7.
(b) Crane will cause each of its employees and each of the employees of the other members of the Crane Group to revoke or withdraw their express written authority, if any, to act on behalf of any Company Group entity as an agent or representative therefor after the Time of Distribution. The Company will cause each of its employees and each of the employees of the other members of the Company Group to revoke or withdraw their express written authority, if any, to act on behalf of any Crane Group entity as an agent or representative therefor after the Time of Distribution.
Section 3.8 Rights Plan. Prior to the Time of Distribution, the Company Board will adopt the Rights Plan and declare a dividend of the Rights so that each share of Huttig Common Stock issued and outstanding as of the Time of Distribution will initially have one Right attached thereto.
Section 3.9 Insurance.
(a) Coverage. Coverage of the Company and the Company Subsidiaries under all Policies shall cease as of the Time of Distribution. From and after
the Time of Distribution, the Company and the Company Subsidiaries will be responsible for obtaining and maintaining all insurance coverages in their own right. All Policies will constitute Crane Retained Assets and will be retained by Crane and the Crane Subsidiaries (with Crane and the Crane Subsidiaries being the only named insureds thereunder), together with all rights, benefits and privileges thereunder (including, without limitation, the right to receive any and all return premiums with respect thereto). The Company and the Company Subsidiaries will have no rights with respect to any Policies, except that (i) the Company will have the right to assert claims (and Crane will use reasonable best efforts to assist the Company in asserting claims) for any loss, liability or damage with respect to Huttig Assets under Policies with third-party insurers which are "occurrence basis" Policies ("Occurrence Basis Policies") arising out of insured incidents occurring from the date coverage thereunder first commenced until the Time of Distribution to the extent that the terms and conditions of any such Occurrence Basis Policies and agreements relating thereto so allow and (ii) the Company will have the right to continue to prosecute claims properly asserted with the insurance carrier prior to the Time of Distribution (and Crane will use reasonable best efforts to assist the Company in connection therewith) under Policies with third-party insurers which are Policies written on a "claims made" basis ("Claims Made Policies") arising out of insured incidents occurring from the date coverage thereunder first commenced until the Time of Distribution to the extent that the terms and conditions of any such Claims Made Policies and agreements relating thereto so allow, provided that, in the case of both clauses (i) and (ii) above, (A) all of Crane's and each Crane Subsidiary's reasonable costs and expenses incurred in connection with the foregoing are promptly paid by the Company, (B) Crane and the Crane Subsidiaries may, at any time, without liability or obligation to the Company or any Company Subsidiary (other than as set forth in Section 3.9(b)), amend, commute, terminate, buy-out, extinguish liability under or otherwise modify any Occurrence Basis Policies or Claims Made Policies (and such claims shall be subject to any such amendments, commutations, terminations, buy-outs, extinguishments and modifications), (C) such claims will be subject to (and recovery thereon will be reduced by the amount of) any applicable deductibles, retentions, self-insurance provisions or any payment or reimbursement obligations of Crane, any Crane Subsidiary or any Affiliate of Crane or any Crane Subsidiary in respect thereof and (D) such claims will be subject to exhaustion of aggregate limits. Crane's obligation to use reasonable best efforts to assist the Company in asserting claims under Occurrence Basis Policies will include using reasonable best efforts in assisting the Company to establish its right to coverage under Occurrence Basis Policies (so long as all of Crane's costs and expenses in connection therewith are promptly paid by the Company). None of Crane or the Crane Subsidiaries will bear any Liability for the failure of an insurance carrier to pay any claim under any Occurrence Basis Policy or Claims Made Policy. It is understood that any Claims Made Policies will not provide any coverage to the Company and the Company Subsidiaries for any incident occurring prior to the Time of Distribution but as to which a Claim is asserted with the insurance carrier after the Time of Distribution, except and to the extent that coverage is provided under discovery coverage purchased by the Company (at the Company's expense) with respect to Crane's excess general liability Claims Made Policies.
(b) Crane Actions. If Crane or any Crane Subsidiary proposes to amend, commute, terminate, buy-out, extinguish liability under or otherwise modify any Occurrence Basis Policies or Claims Made Policies under which the Company has rights to assert claims pursuant to Section 3.9(a) in a manner that would adversely affect any such rights of the Company, (i) Crane will give the Company prior notice thereof and consult with the Company with respect to such action (it being understood that the decision to take any such action will be in the sole discretion of Crane) and (ii) Crane will pay to the Company its equitable share (based on the amount of premiums paid by or allocated to the Company in respect of the applicable Policy) of any net proceeds actually received by Crane from the insurance carrier of the applicable Policy as a result of such action by Crane (after deducting Crane's reasonable costs and expenses incurred in connection with such action).
(c) Administration. From and after the Time of Distribution:
(i) Crane will be responsible for the Claims Administration with respect to claims of Crane and the Crane Subsidiaries under Occurrence Basis Policies and Claims Made Policies; and
(ii) The Company or a Company Subsidiary, as appropriate, will be responsible for the Claims Administration with respect to the claims of the Company and the Company Subsidiaries under Occurrence Basis Policies and Claims Made Policies.
(d) Insurance Premiums.
(i) Crane will pay all premiums (retrospectively-rated or otherwise) as required under the terms and conditions of the respective Policies in respect of periods prior to the Time of Distribution, whereupon the Company will upon receipt of evidence thereof, forthwith reimburse Crane for that portion of such premiums paid by Crane as are attributable to the Company.
(ii) In addition, Huttig will reimburse Crane for claims and related expenses (paid by insurance carriers which are reimbursed by Crane) for claims against Huttig arising out of an occurrence prior to the time of Distribution.
(e) Agreement for Waiver of Conflict and Shared Defense. In the event that an Occurrence Basis Policy or Claims Made Policy provides coverage for both Crane and/or a Crane Subsidiary, on the one hand, and the Company and/or a Company Subsidiary, on the other hand, relating to the same occurrence, Crane and the Company agree to defend jointly and to waive any conflict of interest necessary to the conduct of that joint defense. Nothing in this Section 3.9(e) will be construed to limit or otherwise alter in any way the indemnity obligations of the parties to this Agreement, including, without limitation, those created by this Agreement, by operation of law or otherwise.
(f) Directors' and Officers' Insurance. Crane will use its reasonable best efforts to cause the persons currently serving as directors and/or officers of Crane or any Subsidiary of Crane who will be or become, effective as of the Time of Distribution, directors
and/or officers of the Company or any Company Subsidiary to be covered for a period of six years from the Time of Distribution with respect to claims arising from facts or events that occurred prior to the Time of Distribution by the directors' and officers' liability insurance policies maintained by Crane during such six-year period following the Time of Distribution for all persons who served as directors and/or officers of Crane or any Crane Subsidiary prior to the Time of Distribution.
Section 3.10 Use of Names, Trademarks, etc.
(a) From and after the Time of Distribution, Crane will have all rights in and use of the name "Crane" and all corporate symbols and logos related thereto and all derivatives thereof and the Company will have all rights in and use of the name "Huttig" and all corporate symbols and logos related thereto and all derivatives thereof. Prior to or promptly after the Time of Distribution (but in no event later than 90 days after the Distribution Date in the case of United States Persons and 180 days after the Distribution Date in the case of non-United States Persons), the Company will change the name of any Subsidiary or other Person under its control to eliminate therefrom the name "Crane" and all derivatives thereof and Crane will change the name of any Subsidiary or other Person under its control to eliminate therefrom the name "Huttig" and all derivatives thereof.
(b) From and after the Time of Distribution, the Company Group will not use or have any rights to the name "Crane" or any derivatives thereof or any other trademark, trade name, service mark or logo of the Crane Group constituting Crane Assets, or any corporate symbol or logo related thereto or to any thereof or any name or mark which includes the words "Crane" or any derivative thereof or name or mark confusingly similar thereto, or any special script, type font, form, style, logo, design, device, trade dress or symbol used or possessed by the Crane Group before or after the Time of Distribution which contains the trademark, trade name or service mark "Crane" or any derivative thereof or any name or mark confusingly similar thereto and the Company Group will not hold itself out as having any affiliation with the Crane Group.
(c) From and after the Time of Distribution, the Crane Group will not use or have any rights to the name "Huttig" or any derivatives thereof or any other trademark, trade name, service mark or logo of the Company Group constituting Huttig Assets, or any corporate symbol or logo related thereto or to any thereof or any name or mark which includes the words "Huttig" or any derivative thereof or name or mark confusingly similar thereto, or any special script, type font, form, style, logo, design, device, trade dress or symbol used or possessed by the Company Group before or after the Time of Distribution which contains the trademark, trade name or service mark "Huttig" or any derivative thereof or any name or mark confusingly similar thereto and the Crane Group will not hold itself out as having any affiliation with the Company Group.
(d) The Company will not, and will cause each other member of the Company Group not to, challenge or contest the validity of the trademarks, trade names, corporate symbols
or logos described in Section 3.10(b), the registration thereof or the ownership thereof by the Crane Group. The Company will not, and will cause each other member of the Company Group not to, apply anywhere at any time for any registration as owner or exclusive licensee of such trademarks, trade names, corporate symbols or logos. If, notwithstanding the foregoing, any title or interest in or to the use of any such trademarks, trade names, corporate symbols or logos in any jurisdiction, or any goodwill incident thereto, the Company will, upon the request of Crane, and for a nominal consideration of one dollar, assign or cause to be assigned to Crane or any designee of Crane, all right, title and interest in and to the use of such trademarks, trade names, corporate symbols or logos in any and all jurisdictions, together with any goodwill incident thereto.
(e) Crane will not, and will cause each other member of the Crane Group not to, challenge or contest the validity of the trademarks, trade names, corporate symbols or logos described in Section 3.10(c), the registration thereof or the ownership thereof by the Company Group. Crane will not, and will cause each other member of the Crane Group not to, apply anywhere at any time for any registration as owner or exclusive licensee of such trademarks, trade names, corporate symbols or logos. If, notwithstanding the foregoing, any member of the Crane Group develops, adopts or acquires, directly or indirectly, any right, title or interest in or to the use of any such trademarks, trade names, corporate symbols or logos in any jurisdiction, or any goodwill incident thereto, Crane will, upon the request of the Company, and for a nominal consideration of one dollar, assign or cause to be assigned to the Company or any designee of the Company, all right, title and interest in and to the use of such trademarks, trade names, corporate symbols or logos in any and all jurisdictions, together with any goodwill incident thereto.
(f) The Company will cause each member of the Company Group to
comply with the provisions of this Section 3.10 and Crane will cause such
member of the Crane Group to comply with the provisions of this Section 3.10.
Nothing in this Section 3.10 will prevent any member of the Crane Group from
enforcing the provisions of this Section 3.10 against any member of the Company
Group or any member of the Company Group from enforcing the provisions of this
Section 3.10 against any member of the Crane Group.
Section 3.11 Consents. Prior to and after the Distribution Date, Crane and the Company will, and will cause their respective Subsidiaries to, use their reasonable best efforts (as requested by the other party) to obtain, or to cause to be obtained, all Consents and to resolve any impracticalities of assignments or transfers necessary for the transfer of all Assets, Subsidiaries and Liabilities contemplated to be transferred pursuant to this Article III; provided, however, that none of Crane or the Company or their respective Subsidiaries shall be obligated to pay any consideration or offer or grant any financial accommodation in connection therewith. Anything contained herein to the contrary notwithstanding, this Agreement shall not constitute an agreement to assign any Contract, License or Asset if an assignment or attempted assignment of the same without the Consent of any other party or parties thereto or other required Consent would constitute a breach thereof or of any applicable law or in any way impair the rights of any member of the Crane Group or the Company Group thereunder. If any such Consent is not obtained or if an attempted assignment would be ineffective or would impair any member of either Group's rights under any such Contract, License or Asset so that the contemplated
assignee hereunder (the "Recipient Party") would not receive all such rights, then (x) the party contemplated hereunder to assign such Contract, License or Asset (the "Assigning Party") will use reasonable best efforts (it being understood that such efforts shall not include any requirement of the Assigning Party to pay any consideration or offer or grant any financial accommodation) to provide or cause to be provided to the Recipient Party, to the extent permitted by law, the benefits of any such Contract, License or Asset and the Assigning Party will promptly pay or cause to be paid to the Recipient Party when received all moneys and properties received by the Assigning Party with respect to any such Contract, License or Asset and (y) the Recipient Party will pay, perform and discharge on behalf of the Assigning Party all of the Assigning Party's Liabilities thereunder in a timely manner and in accordance with the terms thereof. In addition, the Assigning Party will take such other actions (at the Recipient Party's expense) as may reasonably be requested by the Recipient Party in order to place the Recipient Party, insofar as reasonably possible, in the same position as if such Contract, License or Asset had been transferred as contemplated hereby and so all the benefits and burdens relating thereto, including, without limitation, possession, use, risk of loss, potential for gain and dominion, control and command, shall inure to the Recipient Party. If and when such Consents are obtained, the transfer of the applicable Contract, License or Asset shall be effected as promptly following the Time of Distribution as shall be practicable in accordance with the terms of this Agreement. To the extent that any transfers and assumptions contemplated by this Article III shall not have been consummated on or prior to the Time of Distribution, the parties shall cooperate to effect such transfers as promptly following the Time of Distribution as shall be practicable, it nonetheless being agreed and understood by the parties that neither party shall be liable in any manner to the other party for any failure of any of the transfers contemplated by this Article III to be consummated prior to the Time of Distribution.
ARTICLE IV
MUTUAL RELEASE; INDEMNIFICATION
Section 4.1 Mutual Release. Effective as of the Time of Distribution and except as otherwise specifically set forth in the Transaction Agreements, each of Crane, on the one hand, and the Company, on the other hand, on its own behalf and on behalf of each of its respective Subsidiaries, hereby releases and forever discharges the other and its Subsidiaries, and its and their respective officers, directors, agents, Affiliates, record and beneficial security holders (including, without limitation, trustees and beneficiaries of trusts holding such securities), advisors and Representatives (in their respective capacities as such) and their respective heirs, executors, administrators, successors and assigns, of and from all debts, demands, actions, causes of action, suits, accounts, covenants, contracts, agreements, damages, claims and Liabilities whatsoever of every name and nature, both in law and in equity, that the releasing party has or ever had, that arise out of or relate to events, circumstances or actions taken by such other party or any conditions existing at or prior to the Time of Distribution; provided, however, that the foregoing general release shall not apply to (i) any Liabilities (including, without limitation,
Liabilities with respect to indemnification or contribution) under the Transaction Agreements or assumed, transferred, assigned, allocated or arising under any of the Transaction Agreements (including, without limitation, any Liability that the parties may have with respect to indemnification or contribution pursuant to any Transaction Agreement for claims brought against the parties by third Persons) and will not affect any party's right to enforce the Transaction Agreements in accordance with their terms, (ii) any Liability arising from or relating to any agreement, arrangement, commitment or undertaking described in Section 3.4(b)(ii) (including, without limitation, Ordinary Course Intercompany Arrangements) or (iii) any Liability the release of which would result in the release of any Person other than a Person released pursuant to this Section 4.1 (provided that the parties agree not to bring suit or permit any of their Subsidiaries to bring suit against any Person with respect to any Liability to the extent such Person would be released with respect to such Liabilities by this Section 4.1 but for this clause (iii)).
Section 4.2 Indemnification by Crane. Except as otherwise specifically provided in any Transaction Agreement and subject to the provisions of this Article IV, Crane shall indemnify, defend and hold harmless the Huttig Indemnitees from and against, and pay or reimburse, as the case may be, the Huttig Indemnitees for, all Indemnifiable Losses, as incurred or suffered by any Huttig Indemnitee based upon, arising out of, relating to or otherwise in connection with:
(a) businesses of Crane, the Crane Subsidiaries and their respective predecessors (other than the Building Products Business) engaged in at or prior to the Time of Distribution, the Crane Assets or Liabilities of Crane or any Crane Subsidiary as of the Time of Distribution which are not Huttig Liabilities (including, without limitation, the failure by Crane or any other member of the Crane Group to pay, perform or otherwise discharge such Liabilities in accordance with their terms), whether such Indemnifiable Losses are based upon, arise out of or relate to or are otherwise in connection with events, occurrences, actions, omissions, facts, circumstances or conditions occurring, existing or asserted before, at or after the Time of Distribution;
(b) any untrue statement or alleged untrue statement of a material fact contained in the sections of the Form 10 listed on Schedule 4.2, or any omission or alleged omission to state in such sections a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; but only in each case with respect to information relating to the Crane Group provided by Crane expressly for use in the sections of the Form 10 listed on Schedule 4.2;
(c) the breach by any member of the Crane Group of any agreement or covenant contained in a Transaction Agreement which does not by its express terms expire at the Time of Distribution; or
(d) the enforcement by the Huttig Indemnitees of their rights to be indemnified, defended and held harmless under this Agreement.
Section 4.3 Indemnification by the Company. Except as otherwise specifically provided in any Transaction Agreement and subject to the provisions of this Article IV, the Company and the Company Subsidiaries shall indemnify, defend and hold harmless the Crane Indemnitees from and against, and pay or reimburse, as the case may be, the Crane Indemnitees for, all Indemnifiable Losses, as incurred, suffered by any Crane Indemnitee based upon, arising out of, relating to or otherwise in connection with:
(a) the Building Products Business, the Huttig Assets or the Huttig Liabilities (including, without limitation, (i) any guarantees or obligations to assure performance or perform given or made by, or other Liabilities of, Crane or any Crane Subsidiary with respect to the Building Products Business, and (ii) the failure by the Company or any other member of the Company Group to pay, perform or otherwise discharge Huttig Liabilities in accordance with their terms) whether such Indemnifiable Losses are based upon, arise out of or relate to or are otherwise in connection with events, occurrences, actions, omissions, facts, circumstances or conditions occurring, existing or asserted before, at or after the Time of Distribution;
(b) any untrue statement or alleged untrue statement of a material fact contained in the Form 10, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except in each case with respect to information relating to the Crane Group provided by Crane expressly for use in the sections of the Form 10 listed on Schedule 4.2;
(c) the breach by any member of the Company Group of any agreement or covenant contained in a Transaction Agreement which does not by its express terms expire at the Time of Distribution;
(d) any Action or other claim alleging that any Liability was improperly allocated to the Company Group or that any Asset was improperly withheld from the Company Group, in each case pursuant to any of the Transaction Agreements; or
(e) the enforcement by the Crane Indemnitees of their rights to be indemnified, defended and held harmless under this Agreement.
Section 4.4 Limitations on Indemnification Obligations.
(a) The amount that any party (an "Indemnifying Party") is or may be required to pay to an Indemnitee in respect of Indemnifiable Losses or other Liability for which indemnification is provided under this Agreement shall be reduced by any amounts actually received (including, without limitation, Insurance Proceeds actually received) by or on behalf of such Indemnitee (net of increased insurance premiums and charges related directly and solely to the related Indemnifiable Losses and costs and expenses (including, without limitation, reasonable legal fees and expenses) incurred by such Indemnitee in connection with seeking to collect and collecting such amounts) in respect of such Indemnifiable Losses or other Liability (such net amounts are referred to herein as "Indemnity Reduction Amounts"). If any Indemnitee receives any Indemnity Reduction
Amounts in respect of an Indemnifiable Loss for which indemnification is provided under this Agreement after the full amount of such Indemnifiable Loss has been paid by an Indemnifying Party or after an Indemnifying Party has made a partial payment of such Indemnifiable Loss and such Indemnity Reduction Amounts exceed the remaining unpaid balance of such Indemnifiable Loss, then the Indemnitee shall promptly remit to the Indemnifying Party an amount equal to the excess (if any) of (A) the amount theretofore paid by the Indemnifying Party in respect of such Indemnifiable Loss, less (B) the amount of the indemnity payment that would have been due if such Indemnity Reduction Amounts in respect thereof had been received before the indemnity payment was made. An insurer or other third party who would otherwise be obligated to pay any claim shall not be relieved of the responsibility with respect thereto or, solely by virtue of the indemnification provisions hereof, have any subrogation rights with respect thereto, it being expressly understood and agreed that no insurer or any other third party shall be entitled to any benefit they would not be entitled to receive in the absence of the indemnification provisions by virtue of the indemnification provisions hereof.
(b) In determining the amount of any Indemnifiable Losses, such amount shall be (i) reduced to take into account any net Tax benefit realized by the Indemnitee arising from the incurrence or payment by the Indemnitee of such Indemnifiable Losses and (ii) increased to take into account any net Tax cost incurred by the Indemnitee as a result of the receipt or accrual of payments hereunder (grossed-up for such increase), in each case determined by treating the Indemnitee as recognizing all other items of income, gain, loss, deduction or credit before recognizing any item arising from such Indemnifiable Losses.
Section 4.5 Procedures Relating to Indemnification.
(a) If a claim or demand is made against an Indemnitee, or an Indemnitee shall otherwise learn of an assertion, by any Person who is not a party to this Agreement (or an Affiliate thereof) as to which an Indemnifying Party may be obligated to provide indemnification pursuant to this Agreement (a "Third Party Claim"), such Indemnitee will notify the Indemnifying Party in writing, and in reasonable detail, of the Third Party Claim reasonably promptly (and in any event within 20 business days) after becoming aware of such Third Party Claim; provided, however, that failure to give such notification will not affect the indemnification provided hereunder except to the extent the Indemnifying Party shall have been actually prejudiced as a result of such failure (except that the Indemnifying Party will not be liable for any expenses incurred during the period in which the Indemnitee failed to give such notice). Thereafter, the Indemnitee will deliver to the Indemnifying Party, promptly after the Indemnitee's receipt thereof, copies of all notices and documents (including, without limitation, court papers) received or transmitted by the Indemnitee relating to the Third Party Claim.
(b) If a Third Party Claim is made against an Indemnitee, the Indemnifying Party will be entitled to participate in or to assume the defense thereof (in either case, at the expense of the Indemnifying Party) with counsel selected by the Indemnifying Party and reasonably satisfactory to the Indemnitee. Should the Indemnifying Party so elect to assume the
defense of a Third Party Claim, the Indemnifying Party will not be liable to the Indemnitee for any legal or other expenses subsequently incurred by the Indemnitee in connection with the defense thereof; provided that, if in the Indemnitee's reasonable judgment a conflict of interest exists in respect of such claim or if the Indemnifying Party shall have assumed responsibility for such claim with any reservations or exceptions, such Indemnitee will have the right to employ separate counsel reasonably satisfactory to the Indemnifying Party to represent such Indemnitee and in that event the reasonable fees and expenses of such separate counsel (but not more than one separate counsel for all Indemnitees similarly situated) shall be paid by such Indemnifying Party. If the Indemnifying Party assumes the defense of any Third Party Claim, the Indemnitee will have the right to participate in the defense thereof and to employ counsel, at its own expense, separate from the counsel employed by the Indemnifying Party, it being understood that the Indemnifying Party will control such defense. The Indemnifying Party will be liable for the fees and expenses of counsel employed by the Indemnitee for any period during which the Indemnifying Party has failed to assume the defense thereof (other than during any period in which the Indemnitee shall have failed to give notice of the Third Party Claim as provided above). If the Indemnifying Party assumes the defense of any Third Party Claim, the Indemnifying Party will promptly supply to the Indemnitee copies of all correspondence and documents relating to or in connection with such Third Party Claim and keep the Indemnitee fully informed of all developments relating to or in connection with such Third Party Claim (including, without limitation, providing to the Indemnitee on request updates and summaries as to the status thereof). If the Indemnifying Party chooses to defend a Third Party Claim, the parties hereto will cooperate in the defense thereof (such cooperation to be at the expense, including, without limitation, reasonable legal fees and expenses, of the Indemnifying Party), which cooperation shall include the retention in accordance with this Agreement and (upon the Indemnifying Party's request) the provision to the Indemnifying Party of records and information that are reasonably relevant to such Third Party Claim, and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder.
(c) No Indemnifying Party will consent to any settlement, compromise or discharge (including the consent to entry of any judgment) of any Third Party Claim without the Indemnitee's prior written consent (which consent will not be unreasonably withheld); provided, that if the Indemnifying Party assumes the defense of any Third Party Claim, the Indemnitee will agree to any settlement, compromise or discharge of such Third Party Claim that the Indemnifying Party may recommend and that by its terms obligates the Indemnifying Party to pay the full amount of Indemnifiable Losses in connection with such Third Party Claim and unconditionally and irrevocably releases the Indemnitee completely from all Liability in connection with such Third Party Claim; provided, however, that the Indemnitee may refuse to agree to any such settlement, compromise or discharge (x) that provides for injunctive or other nonmonetary relief affecting the Indemnitee or (y) that, in the reasonable opinion of the Indemnitee, would otherwise materially adversely affect the Indemnitee. Whether or not the Indemnifying Party shall have assumed the defense of a Third Party Claim, the Indemnitee will not (unless required by law) admit any liability with respect to, or settle, compromise or discharge, such Third Party Claim without the Indemnifying Party's prior written consent (which consent will not be unreasonably withheld).
(d) Any claim on account of Indemnifiable Losses that does not involve a Third Party Claim will be asserted by reasonably prompt written notice given by the Indemnitee to the Indemnifying Party from whom such indemnification is sought. The failure by any Indemnitee so to notify the Indemnifying Party will not relieve the Indemnifying Party from any liability that it may have to such Indemnitee under this Agreement, except to the extent that the Indemnifying Party shall have been actually prejudiced by such failure. Any notice pursuant to this Section 4.5(d) will contain a statement, in prominent and conspicuous type, that if the Indemnifying Party does not dispute its liability to the Indemnitee with respect to the claim made in such notice by notice to the Indemnitee prior to the expiration of a 30-calendar-day period following the Indemnifying Party's receipt of the second notice of such claim, the claim shall be conclusively deemed a liability of the Indemnifying Party. If the Indemnitee has provided the Indemnifying Party two such notices not less than 30 days apart and the Indemnifying Party does not notify the Indemnitee prior to the expiration of a 30-calendar-day period following its receipt of the second such notice that the Indemnifying Party disputes its liability to the Indemnitee under this Agreement, such claim specified by the Indemnitee in such notice will be conclusively deemed a liability of the Indemnifying Party under this Agreement and the Indemnifying Party will pay the amount of such liability to the Indemnitee on demand or, in the case of any notice in which the amount of the claim (or any portion thereof) is estimated, on such later date when the amount of such claim (or such portion thereof) becomes finally determined. If the Indemnifying Party has timely disputed its liability with respect to such claim, as provided above, the Indemnifying Party and the Indemnitee will proceed in good faith to negotiate a resolution of such dispute and, if not resolved through negotiations by the 120th day after notice of such claim was given to the Indemnifying Party, the Indemnifying Party and the Indemnitee will be free to pursue such remedies as may be available to such parties under this Agreement or under applicable law.
(e) In the event of payment in full by an Indemnifying Party to any Indemnitee in connection with any Third Party Claim, such Indemnifying Party will be subrogated to and shall stand in the place of such Indemnitee as to any events or circumstances in respect of which such Indemnitee may have any right or claim relating to such Third Party Claim against any claimant or plaintiff asserting such Third Party Claim or against any other Person. Such Indemnitee will cooperate with such Indemnifying Party in a reasonable manner, and at the cost and expense of such Indemnifying Party, in prosecuting any subrogated right or claim.
Section 4.6 Remedies Cumulative. The remedies provided in this Article IV shall be cumulative and shall not preclude assertion by any Indemnitee of any other rights or the seeking of any and all other remedies against any Indemnifying Party.
Section 4.7 Survival of Indemnities. The obligations of each of Crane and the Company under this Article IV will not terminate at any time and will survive the sale or other transfer by any party of any assets or businesses or the assignment by any party of any Liabilities with respect to any Indemnifiable Losses of the other related to such assets, businesses or Liabilities.
Section 4.8 Exclusivity of Tax Allocation Agreement. Notwithstanding anything in this Agreement to the contrary and except as provided in the Exchange Agreement, the Tax Allocation Agreement will be the exclusive agreement among the parties with respect to all Tax matters, including, without limitation, indemnification in respect of Tax matters.
ARTICLE V
ACCESS TO INFORMATION
Section 5.1 Access to Information. From and after the Time of Distribution, Crane will, and will cause each Crane Subsidiary to, afford to the Company and its Representatives (at the Company's expense) reasonable access and duplicating rights during normal business hours and upon reasonable advance notice to all Information within Crane's possession or control or in the possession or control of a Crane Subsidiary relating to the Company, any Company Subsidiary or the Building Products Business, insofar as such access is reasonably required by the Company or any Company Subsidiary, subject to the provisions below regarding Privileged Information. From and after the Time of Distribution, the Company will, and will cause each Company Subsidiary to, afford to Crane and its Representatives (at Crane's expense) reasonable access and duplicating rights during normal business hours and upon reasonable advance notice to all Information within the Company's possession or control or in the possession or control of a Company Subsidiary relating to Crane, any Crane Subsidiary or the businesses of the Pre-Distribution Group, insofar as such access is reasonably required by Crane or any Crane Subsidiary, subject to the provisions below regarding Privileged Information. Without limiting the foregoing, Information may be requested under this Article V for audit, accounting, claims, litigation, insurance, environmental and safety and tax purposes, as well as for purposes of fulfilling disclosure and reporting obligations and for performing this Agreement and the transactions contemplated hereby.
In furtherance of the foregoing:
(a) Each party acknowledges that (i) each of Crane and the Company (and the members of the Crane Group and the Company Group, respectively) has or may obtain Privileged Information; (ii) there are a number of Actions affecting one or more of the members of the Crane Group and the Company Group; (iii) the parties may have a common legal interest in Actions, in the Privileged Information, and in the preservation of the confidential status of the Privileged Information, in each case relating to the business of the Crane Group or the Company Group; and (iv) both Crane and the Company intend that the transactions contemplated by the Transaction Agreements and any transfer of Privileged Information in connection therewith shall not operate as a waiver of any potentially applicable privilege.
(b) Each of Crane and the Company agrees, on behalf of itself and each member of the Group of which it is a member, not to disclose or otherwise waive any privilege attaching to any Privileged Information relating to the business of the Company Group or the Crane Group, respectively, without providing prompt written notice to and obtaining the prior written consent of the other, which consent will not be unreasonably withheld. In the event of a
disagreement between any member of the Crane Group and any member of the Company Group concerning the reasonableness of withholding such consent, no disclosure will be made prior to a final, nonappealable resolution of such disagreement.
(c) Upon any member of the Crane Group or any member of the Company Group receiving any subpoena or other compulsory disclosure notice from a court, other Governmental Entity or otherwise that requests disclosure of Privileged Information, in each case relating to the business of the Company Group or the Crane Group, respectively, the recipient of the notice will promptly provide to the other party (following the notice provisions set forth herein) a copy of such notice, the intended response, and all materials or information relating to the other Group that might be disclosed. In the event of a disagreement as to the intended response or disclosure, unless and until the disagreement is resolved, the parties will cooperate to assert all defenses to disclosure claimed by either Group, at the cost and expense of the Group claiming such defense to disclosure, and shall not disclose any disputed documents or information until all legal defenses and claims of privilege have been finally determined.
Section 5.2 Production of Witnesses. Subject to Section 5.1, after the Time of Distribution, each of Crane and the Company will, and will cause each member of the Crane Group and the Company Group, respectively, to, make available to the other party and its Subsidiaries, upon written request and at the cost and expense of the party so requesting, its officers, employees and agents as witnesses to the extent that any such Person may reasonably be required (giving consideration to business demands of such Representatives) in connection with any Actions or other proceedings in which the requesting party may from time to time be involved, provided that the same shall not unreasonably interfere with the conduct of business by the Group of which the request is made.
Section 5.3 Retention of Records. Except as otherwise required by law or agreed to in writing, if any Information relating to the business, assets or Liabilities of a member of a Group is retained by a member of the other Group, each of Crane and the Company will, and will cause the members of the Group of which it is a member to, retain for the period required by the applicable Crane records retention policy in effect immediately prior to the Time of Distribution all such Information in such Group's possession or under its control. In addition, after the expiration of such required retention period, if any member of either Group wishes to destroy or dispose of any such Information, prior to destroying or disposing of any of such Information, (1) Crane or the Company, on behalf of the member of its Group that is proposing to dispose of or destroy any such Information, will provide no less than 30 days' prior written notice to the other party, specifying in reasonable detail the Information proposed to be destroyed or disposed of, and (2) if, prior to the scheduled date for such destruction or disposal, the recipient of such notice requests in writing that any of the Information proposed to be destroyed or disposed of be delivered to such requesting party, the party whose Group is proposing to dispose of or destroy such Information promptly will arrange for the delivery of the requested Information to a location specified by, and at the expense of, the requesting party.
Section 5.4 Confidentiality. Subject to Section 5.1, which shall govern Privileged Information, from and after the Time of Distribution, each of Crane and the Company shall hold, and shall use reasonable efforts to cause its Affiliates and Representatives to hold, in strict confidence all Information concerning the other party's Group in its possession or control or furnished to it by such other party's Group pursuant to the Transaction Agreements or the transactions contemplated thereby and will not release or disclose such Information to any other Person, except its Affiliates and Representatives, who will be bound by the provisions of this Section 5.4; provided, however, that any member of the Crane Group or the Company Group may disclose such Information to the extent that (a) disclosure is compelled by judicial or administrative process or, in the opinion of such Person's counsel, by other requirements of law (in which case the party required to make such disclosure will notify the other party as soon as practicable of such obligation or requirement and cooperate with the other party to limit the Information required to be disclosed and to obtain a protective order or other appropriate remedy with respect to the Information ultimately disclosed), or (b) such Person can show that such Information was (i) available to such Person on a nonconfidential basis (other than from a member of the other party's Group) prior to its disclosure by such Person, (ii) in the public domain through no fault of such Person or (iii) lawfully acquired by such Person from another source after the time that it was furnished to such Person by the other party's Group, and not acquired from such source subject to any confidentiality obligation on the part of such source known to the acquirer, or on the part of the acquirer. Each party acknowledges that it will be liable for any breach of this Section 5.4 by its Representatives to whom such Information is disclosed by such party. Notwithstanding the foregoing, each of Crane and the Company will be deemed to have satisfied its obligations under this Section 5.4 with respect to any Information (other than Privileged Information) if it exercises the same care with regard to such Information as it takes to preserve confidentiality for its own similar Information.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Entire Agreement; Construction. This Agreement, the Ancillary Agreements and the Exchange Agreement, including, without limitation, any annexes, schedules and exhibits hereto or thereto, and other agreements and documents referred to herein and therein, will together constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and will supersede all prior negotiations, agreements and understandings of the parties of any nature, whether oral or written, with respect to such subject matter. Notwithstanding any other provisions in the Transaction Agreements to the contrary, in the event and to the extent that there is a conflict between the provisions of this Agreement and the provisions of the Employee Matters Agreement or the Tax Allocation Agreement, the provisions of the Employee Matters Agreement or the Tax Allocation Agreement, as appropriate, will control.
Section 6.2 Survival of Agreements. Except as otherwise contemplated by the Transaction Agreements, all covenants and agreements of the parties contained in the Transaction Agreements will remain in full force and effect and survive the Time of Distribution.
Section 6.3 Expenses. Except as otherwise set forth in any Transaction Agreement and the Exchange Agreement, all costs and expenses incurred through the Time of Distribution in connection with the Distribution, the preparation, execution and delivery of the Transaction Agreements and the consummation of the transactions contemplated thereby will be charged to and paid by Crane (other than (i) the costs and expenses of the Company's credit facilities and other financings and (ii) costs and expenses to the extent the same relate to operations of the Building Products Business (whether the costs and expenses described in clauses (i) or (ii) are incurred and/or paid before, at or after the Time of Distribution), which costs and expenses described in clauses (i) and (ii) will be charged to and paid by the Company). Except as otherwise set forth in any Transaction Agreement or the Exchange Agreement, all costs and expenses incurred following the Time of Distribution in connection with implementation of the transactions contemplated by the Transaction Agreements will be charged to and paid by the party for whose benefit the expenses are incurred, with any expenses that cannot be allocated on such basis to be split equally between the parties.
Section 6.4 Governing Law. This Agreement will be governed by and construed in accordance with the internal laws of the State of Delaware applicable to contracts made and to be performed entirely within such State, without regard to the conflicts of law principles of such State.
Section 6.5 Notices. All notices, requests, claims, demands and other communications required or permitted to be given hereunder will be in writing and will be delivered by hand or telecopied or sent, postage prepaid, by registered, certified or express mail or reputable overnight courier service and will be deemed given when so delivered by hand or telecopied, or three business days after being so mailed (one business day in the case of express mail or overnight courier service). All such notices, requests, claims, demands and other communications will be addressed as set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice:
(a) If to Crane:
Crane Co.
100 First Stamford Place
Stamford, CT 06902
Attention: Corporate Secretary
Telecopy: (203) 363-7350
(b) If to the Company:
Huttig Building Products, Inc.
14500 South Outer Forty Road
Suite 400
Chesterfield, MO 63017
Attention: President
Telecopy: (314) 216-2601
Section 6.6 Dispute Resolution.
(a) Any disagreement, dispute or controversy after the Time of Distribution arising out of or relating to the subject matter of this Agreement or any Ancillary Agreement or the interpretation hereof or thereof or any arrangements relating hereto or thereto or contemplated herein or therein or the breach or termination hereof or thereof (each, individually, a "Dispute") shall be resolved and settled exclusively and finally pursuant to the terms of this Section 6.6. It is intended by the parties that any equitable relief granted by an arbitrator shall be specifically enforced by any court of competent jurisdiction.
(b) In the event of a Dispute between the parties, either party (the "Claimant") may initiate the Dispute resolution procedures of this Section by submitting to the other party (the "Respondent") a claim (a "Claim") relating to such Dispute. To the extent practicable, any documentation relevant to the Dispute, whether favorable or unfavorable, shall be included with said Claim. Within thirty (30) days after receiving the Claim, Respondent shall respond in writing by stating its position and setting forth a proposed resolution of the Dispute. To the extent practicable, any documentation relevant to the Respondent's response, whether favorable or unfavorable, shall be included with such response. If the parties are not able to resolve the Dispute within thirty (30) days after the date of receipt by the Claimant of the Respondent's response, then the parties shall proceed in accordance with the remainder of this Section 6.6.
(c) If the parties are unable to resolve the Dispute pursuant to
Section 6.6(b), then either party may initiate arbitration of the Dispute
pursuant to this Section 6.6(c) by notifying the other party in writing that
arbitration of the Dispute under this Section 6.6(c) is demanded (the "Demand
for Arbitration"). The parties agree to be bound by the results of the
arbitration, and judgment upon the award so rendered may be entered and
enforced in any court of competent jurisdiction. The arbitrator(s) shall have
the power and authority to render equitable relief, including the issuance of
an injunction. THE FORUM OF SUCH ARBITRATION SHALL BE NEW YORK, NEW YORK TO THE
EXCLUSION OF ALL OTHER JURISDICTIONS. THE PARTIES FURTHER AGREE AND CONSENT TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK FOR THE PURPOSE OF
CONFIRMING AN AWARD AND ENTERING JUDGMENT UPON SAID AWARD, AND THE PARTIES
FURTHER WAIVE ALL OBJECTIONS TO THE JURISDICTION OF SUCH COURTS AND TO VENUE IN
ANY SUCH COURTS.
(i) If the amount in controversy is less than $250,000, then the parties shall, within twenty (20) days after the date of the Demand for Arbitration, select from a list of potential arbitrators provided by the American Arbitration Association in New York, New York
an arbitrator to hear and determine the Dispute. If the parties cannot agree upon the selection of a single arbitrator, the parties agree that the American Arbitration Association in New York, New York will select an independent commercial litigation attorney with at least ten (10) years experience in commercial litigation to serve as arbitrator. The arbitrator shall decide the dispute or controversy in accordance with the following procedures:
(A) Within ten (10) days of the selection of the arbitrator, each party shall submit to the arbitrator and the other party its written position, which shall be double-spaced and shall not exceed fifteen (15) pages (the "Initial Submission"), together with such documentary evidence as the party deems necessary.
(B) Within ten (10) days of the delivery of the Initial Submission, each party may submit to the arbitrator and the other party a reply memorandum, which shall be double-spaced and shall not exceed ten (10) pages (the "Reply Submission"), together with such documentary evidence as the party deems necessary.
(C) Within ten (10) days of the expiration of the period
for the delivery of the Reply Submission, the arbitrator may, in the
arbitrator's sole discretion, call a hearing (a "Hearing"). The Hearing may be
conducted by conference telephone at the option of the arbitrator. At the
Hearing, the arbitrator may ask representatives and counsel for the parties
questions with respect to the issue to be decided and positions of the parties.
No party shall be entitled to conduct any discovery or to depose any person
prior to the Hearing conducted pursuant to this Section 6.6(c)(i). Unless
otherwise agreed to by the parties, the Hearing conducted pursuant to this
Section 6.6(c)(i) shall not exceed three (3) hours in duration.
(D) Within ten (10) days after the later to occur of the Hearing, if any, and the expiration of the period for the delivery of the Reply Submission, the arbitrator shall render a decision and/or award. The arbitrator shall promptly notify the parties in writing of the decision and/or award. The decision and/or award shall not contain an explanation of the decision and/or award.
(ii) If the amount in controversy is $250,000 or more, the parties shall, within twenty (20) days after the filing of the Demand for Arbitration, select from a list of potential arbitrators provided by the American Arbitration Association in New York, New York a panel of three (3) arbitrators to hear and determine the Dispute. If the parties cannot agree upon three (3) arbitrators, the parties agree that the American Arbitration Association in New York, New York will select as arbitrators that number of independent commercial litigation attorneys, each having at least ten (10) years experience in commercial litigation, as is necessary to constitute a panel of three (3) arbitrators after giving effect to the selection of arbitrators agreed to by the parties. Any arbitration pursuant to this Section 6.6(c)(ii) shall be conducted in accordance with the following procedures:
(A) Within ten (10) days of the selection of the arbitrators, each party shall submit to the arbitrators and the other party its Initial Submission, together with such documentary evidence as the party deems necessary.
(B) Within ten (10) days of the delivery of the Initial Submission, each party may submit to the arbitrator and the other party a Reply Submission, together with such documentary evidence as the party deems necessary.
(C) The arbitrators shall call a Hearing to be held within sixty (60) days after the expiration of the period for the delivery of the Reply Submission (but not earlier than forty five (45) days after the expiration of such period unless agreed to by the parties). The Hearing may be conducted by conference telephone at the option of the arbitrators. Prior to the Hearing pursuant to this Section 6.6(c)(ii), the parties shall be entitled to engage in limited discovery for the sole purpose of establishing the facts necessary to prove the parties' claims or defenses. Specifically, each party shall be permitted to take no more than five (5) depositions, each of which shall last no more than eight (8) hours. The parties may also request to have all relevant documents produced for inspection and copying. At least ten (10) days prior to the Hearing, the parties shall exchange all documents that they may introduce into evidence at the Hearing. The failure of a party to exchange a particular document automatically shall preclude that party from presenting that document into evidence. The parties further agree that each party shall have up to a maximum of twenty (20) hours to present its claims, defenses and rebuttal. Unless otherwise agreed by the parties, the Hearing shall not exceed forty (40) hours in duration. The arbitrators shall render a decision and/or award (which shall be determined by a majority vote of the arbitrators), without explanation, within thirty (30) days after the conclusion of the Hearing.
(d) Any fees for the arbitration and the arbitrator(s) shall be borne equally by the parties. Each party shall pay the fees and expenses of its counsel.
(e) If arbitration of a Dispute proceeds pursuant to Section 6.6(c), then the only issues that Claimant may raise in the arbitration proceedings are those that were described in detail in a Claim. Failure to set forth a claim which arises out of the claim or the facts underlying such claim described in a Claim within the time limits described in Section 6.6(b) constitutes a waiver of that claim and precludes the Claimant from raising such claim in any arbitration proceeding or otherwise.
Section 6.7 Amendments. This Agreement cannot be amended, modified or supplemented except by a written agreement executed by Crane and the Company.
Section 6.8 Assignment. Neither party to this Agreement will convey, assign or otherwise transfer any of its rights or obligations under this Agreement without the prior written consent of the other party in its sole and absolute discretion, except that other than as expressly provided herein any party may (without obtaining any consent) assign any of its rights hereunder to a successor to all or substantially all of its business. Any such conveyance, assignment or transfer requiring the prior written consent of another party which is made without such consent will be void ab initio. No assignment of this Agreement will relieve the assigning party of its obligations hereunder.
Section 6.9 Captions; Currency. The article, section and paragraph captions herein and the table of contents hereto are for convenience of reference only, do not
constitute part of this Agreement and will not be deemed to limit or otherwise affect any of the provisions hereof. Unless otherwise specified, all references herein to numbered articles or sections are to articles and sections of this Agreement and all references herein to annexes or schedules are to annexes and schedules to this Agreement. Unless otherwise specified, all references contained in this Agreement, in any annex or schedule referred to herein or in any instrument or document delivered pursuant hereto to dollars or "$" shall mean United States Dollars.
Section 6.10 Severability. If any provision of this Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to Persons or circumstances other than those as to which it has been held invalid or unenforceable, will remain in full force and effect and will in no way be affected, impaired or invalidated thereby. If the economic or legal substance of the transactions contemplated hereby is affected in any manner adverse to any party as a result thereof, the parties will negotiate in good faith in an effort to agree upon a suitable and equitable substitute provision to effect the original intent of the parties.
Section 6.11 Parties in Interest. This Agreement is binding upon and is for the benefit of the parties hereto and their respective successors and permitted assigns. This Agreement is not made for the benefit of any Person not a party hereto, and no Person other than the parties hereto or their respective successors and permitted assigns will acquire or have any benefit, right, remedy or claim under or by reason of this Agreement, except that the provisions of Sections 4.2 and 4.3 hereof shall inure to the benefit of the Persons referred to therein.
Section 6.12 Schedules. All annexes and schedules attached hereto are hereby incorporated in and made a part of this Agreement as if set forth in full herein. Capitalized terms used in the schedules hereto but not otherwise defined therein will have the respective meanings assigned to such terms in this Agreement.
Section 6.13 Termination. Subject to the provisions of the Exchange Agreement, this Agreement may be terminated and the Distribution abandoned at any time prior to the Time of Distribution by and in the sole discretion of the Crane Board without the approval of the Company or of Crane's stockholders. In the event of such termination, no party will have any liability of any kind to any other party on account of such termination other than as provided in the Exchange Agreement.
Section 6.14 Waivers; Remedies. The conditions to Crane's obligation to consummate the Distribution are for the sole benefit of Crane and may be waived in writing by Crane in whole or in part in Crane's sole discretion. No failure or delay on the part of either Crane or the Company in exercising any right, power or privilege hereunder will operate as a waiver thereof, nor will any waiver on the part of either Crane or the Company of any right, power or privilege hereunder operate as a waiver of any other right, power or privilege hereunder, nor will any single or partial exercise of any right,
power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. The rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies which the parties may otherwise have at law or in equity.
Section 6.15 Further Assurances. From time to time after the Distribution, as and when requested by either party hereto, the other party shall execute and deliver, or cause to be executed and delivered, all such documents and instruments and shall take, or cause to be taken, all such actions as the requesting party may reasonably request to consummate the transactions contemplated by the Transaction Agreements.
Section 6.16 Counterparts. This Agreement may be executed in separate counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts will together constitute the same agreement.
Section 6.17 Performance. Each party will cause to be performed and hereby guarantees the performance of all actions, agreements and obligations set forth herein to be performed by any Subsidiary or Affiliate of such party.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officers of the parties as of the date first above written.
CRANE CO.
By: /s/ R. S. Evans
------------------------------
Name: R. S. Evans
Title: Chairman and Chief Executive
Officer
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HUTTIG BUILDING PRODUCTS, INC.
By: /s/ Barry J. Kulpa
------------------------------
Name: Barry J. Kulpa
Title: President and Chief Executive
Officer
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HUTTIG BUILDING PRODUCTS, INC.
BY-LAWS
TABLE OF CONTENTS
PAGE
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ARTICLE I....................................................................1
Section 1. Definitions...................................................1
Section 2. Principal Office..............................................1
Section 3. Other Offices.................................................1
Section 4. Registered Office.............................................1
ARTICLE II...................................................................1
Section 1. Annual Meeting................................................1
Section 2. Special Meetings..............................................2
Section 3. Nomination of Directors.......................................3
Section 4. Stockholder Action............................................4
Section 5. Place of Meetings.............................................4
Section 6. Notice of Meetings............................................4
Section 7. Record Dates..................................................4
Section 8. Voting Lists..................................................5
Section 9. Quorum........................................................5
Section 10. Voting and Proxies...........................................5
Section 11. Voting of Shares by Certain Holders..........................6
Section 12. Inspectors...................................................7
ARTICLE III..................................................................7
Section 1. Number........................................................7
Section 2. Election and Terms............................................7
Section 3. Newly Created Directorships and Vacancies.....................7
Section 4. Removal.......................................................7
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TABLE OF CONTENTS
PAGE
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Section 5. Regular Meetings..............................................8
Section 6. Special Meetings..............................................8
Section 7. Notice of Special Meetings....................................8
Section 8. Quorum........................................................8
Section 9. Action without a Meeting......................................9
Section 10. Organization.................................................9
Section 11. Compensation.................................................9
Section 12. Presence at Meeting..........................................9
Section 13. Executive Committee..........................................9
Section 14. Committees of the Board.....................................10
ARTICLE IV..................................................................10
Section 1. Officers'Number..............................................10
Section 2. Election, Term of Office, and Qualifications.................10
Section 3. Subordinate Officers.........................................10
Section 4. Resignations.................................................11
Section 5. Removal......................................................11
Section 6. Vacancies....................................................11
Section 7. The Chairman of the Board....................................11
Section 8. The President................................................11
Section 9 The Chief Operating Officer..................................12
Section 10. Vice Presidents.............................................12
Section 11. Treasurer...................................................12
Section 12. Secretary...................................................13
Section 13. Controller..................................................13
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PAGE
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Section 14. Assistant Treasurers........................................14
Section 15. Assistant Secretaries.......................................14
Section 16. Compensation................................................14
ARTICLE V...................................................................14
Section 1. Certificates of Stock........................................14
Section 2. Lost, Stolen or Destroyed Certificates.......................15
Section 3. Transfer of Shares...........................................15
Section 4. Regulations..................................................15
ARTICLE VI..................................................................15
ARTICLE VII.................................................................16
ARTICLE VIII................................................................16
Section 1. Dividends....................................................16
Section 2. Fiscal Year..................................................16
Section 3. Stock in other Corporations..................................16
ARTICLE IX..................................................................16
Section 1. Actions, Suits or Proceedings other than by or
in the Right of the Corporation.........................................16
Section 2. Actions or Suits by or in the Right of
the Corporation.........................................................17
Section 3. Indemnification for Costs, Charges and
Expenses of Successful Party............................................17
Section 4. Determination of Right to Indemnification....................17
Section 5. Advance of Costs, Charges and Expenses.......................18
Section 6. Procedure for Indemnification................................18
Section 7. Other Rights; Continuation of Right to Indemnification.......18
Section 8. Insurance....................................................19
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PAGE
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Section 9. Savings Clause...............................................19
ARTICLE X...................................................................19
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HUTTIG BUILDING PRODUCTS, INC.
BY-LAWS
ARTICLE I
DEFINITIONS; OFFICES
Section 1. Definitions. When used herein, "Board" shall mean the Board of Directors of the Corporation, "Chairman" shall mean the Chairman of the Board and "Corporation" shall mean this Corporation.
Section 2. Principal Office. The principal office of the Corporation shall be located in the City of Chesterfield, State of Missouri.
Section 3. Other Offices. The Corporation may have and maintain such other business office or offices, either within or without the State of Missouri, as the Board of Directors may from time to time determine.
Section 4. Registered Office. The registered office of the corporation shall be at such address as from time to time the Board of Directors may determine.
ARTICLE II
STOCKHOLDERS
Section 1. Annual Meeting. The annual meeting of the stockholders of the Corporation shall be held at the hour of ten o'clock a.m. on the fourth Monday of April in each year beginning in 2000, unless the Board shall fix a different date and time, for the election of Directors and for the transaction of such other business as may properly come before the meeting. If the day fixed for the annual meeting shall be a legal holiday, such meeting shall be held on the next succeeding business day. If the election of Directors shall not be held on the day designated herein for the annual meeting, or at any adjournment thereof, the Board of Directors shall cause the election to be held at a special meeting of the stockholders as soon thereafter as such meeting can conveniently be convened and held.
No business may be transacted at an annual meeting of stockholders, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (c) otherwise properly brought before the annual meeting by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section and on the record date for the
determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section.
In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than sixty (60) days nor more than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that (i) if the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date or (ii) with respect to the annual meeting of stockholders of the Corporation to be held in the year 2000, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary
must set forth as to each matter such stockholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and record address of such stockholder, (iii) the
class or series and number of shares of capital stock of the Corporation that
are owned by such stockholder, (iv) a description of all arrangements or
understandings between such stockholder and any other person or persons
(including their names) in connection with the proposal of such business by such
stockholder and any material interest of such stockholder in such business and
(v) a representation that such stockholder intends to appear in person or by
proxy at the annual meeting to bring such business before the meeting.
No business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting in accordance with the procedures set forth in this Section; provided, however, that once business has been properly brought before the annual meeting in accordance with such procedures, nothing in this Section shall be deemed to preclude discussion by any stockholder of any such business. If the chairman of the annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted.
Section 2. Special Meetings. Special meetings of stockholders of the Corporation may be called only by the Chairman of the Board of Directors or by the Board of Directors pursuant to a resolution approved by a majority of the Board of Directors. A call for a special meeting of stockholders shall be in writing, filed with the Secretary, and shall specify the time and place of holding such meeting and the purpose or purposes for which it is called. At a special meeting of the stockholders, only such business shall be conducted as shall be specified in the notice of meeting (or any supplement thereto).
Section 3. Nomination of Directors. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation, except as may be otherwise provided in the Certificate of Incorporation of the Corporation with respect to the right of holders of preferred stock of the Corporation to nominate and elect a specified number of directors in certain circumstances. Nominations of persons for election to the Board of Directors may be made at any annual meeting of stockholders, or at any special meeting of stockholders called for the purpose of electing directors, (a) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (b) by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section and on the record date for the determination of stockholders entitled to vote at such meeting and (ii) who complies with the notice procedures set forth in this Section.
In addition to any other applicable requirements, for a nomination to
be made by a stockholder, such stockholder must have given timely notice thereof
in proper written form to the Secretary of the Corporation. To be timely, a
stockholder's notice to the Secretary must be delivered to or mailed and
received at the principal executive offices of the Corporation (a) in the case
of an annual meeting, not less than sixty (60) days nor more than ninety (90)
days prior to the anniversary date of the immediately preceding annual meeting
of stockholders; provided, however, that (i) if the annual meeting is called for
a date that is not within thirty (30) days before or after such anniversary date
or (ii) with respect to the annual meeting of stockholders of the Corporation to
be held in the year 2000, notice by the stockholder in order to be timely must
be so received not later than the close of business on the tenth (10th) day
following the day on which notice of the date of the annual meeting was mailed
or public disclosure of the date of the annual meeting was made, whichever first
occurs; and (b) in the case of a special meeting of stockholders called for the
purpose of electing directors, not later than the close of business on the tenth
(10th) day following the day on which notice of the date of the special meeting
was mailed or public disclosure of the date of the special meeting was made,
whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary must set forth (a) as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of such person, (iii) the class or series and number of shares of capital stock of the Corporation that are owned beneficially or of record by such person and (iv) any other information relating to such person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the Corporation that are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the person named in its notice and (v) any other information relating to such
stockholder that would be required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected.
No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section. If the chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded.
Section 4. Stockholder Action. Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders.
Section 5. Place of Meetings. The annual meeting of stockholders and all special meetings of stockholders for the election of directors shall be held either at the principal office of the Corporation or at such other place suitable for the holding of a stockholders' meeting as shall be designated in the notice thereof. Special meetings of stockholders for a purpose or purposes other than the election of directors may be held at such place, either within or without the State of Missouri, as shall be specified or fixed in the call for such meeting and the notice thereof as the place for the holding of a special meeting for any purpose or purposes.
Section 6. Notice of Meetings. Except as otherwise provided by statute, written or printed notice stating the place, day and hour of the meeting and, in case of a special meeting, stating the purpose or purposes for which the meeting is called, shall be delivered not less than 10 nor more than 60 days before the date of the meeting, either personally or by mail, by or at the direction of the Secretary, to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail in a sealed envelope addressed to the stockholder at his last known post office address as it appears on the stock record books of the Corporation, with postage thereon prepaid.
Attendance of a person at a meeting of stockholders, in person or by proxy, constitutes a waiver of notice of the meeting, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.
Section 7. Record Dates. The Board may fix in advance a date, not more than 60 nor fewer than 10 days prior to the date of any meeting of stockholders, nor more than 60 days prior to the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change conversion or exchange of capital stock shall go into effect, as a record for the determination of the stockholders entitled to notice of, and to vote at, any such meeting and any adjournment thereof, or entitled to receive
payment of any such dividend, or to any such allotment of rights, or to exercise rights in respect of any such change, conversion or exchange of capital stock, and in such case such stockholders and only such stockholders as shall be entitled to such notice of, and to vote at, such meeting and any adjournment thereof, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise rights, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any such record date fixed as aforesaid.
Section 8. Voting Lists. The officer or agent having charge of the transfer book for shares of the Corporation shall prepare and make, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder present. The original share or stock ledger or transfer book or a duplicate thereof, shall be the only evidence as to who are the stockholders entitled to examine such list or share ledger or transfer book or to vote at any meeting of stockholders.
Section 9. Quorum. At any meeting of stockholders the holders of a majority of the shares of the capital stock of the Corporation issued and outstanding and entitled to vote, present in person or represented by proxy, shall constitute a quorum of the stockholders for all purposes unless a greater or lesser quorum shall be provided by law or by the Certificate of Incorporation and in such case the representation of the number so required shall constitute a quorum. The stockholders present in person or by proxy at a meeting at which a quorum is present may continue to do business until adjournment, notwithstanding withdrawal of enough stockholders to leave less than a quorum.
Whether or not a quorum is present the meeting may be adjourned from time to time by a vote of the holders of a majority of the shares present. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting if held at the time specified in the notice thereof.
Section 10. Voting and Proxies. Each holder of Common Stock shall be entitled to one vote per share held of record upon each matter on which stockholders generally are entitled to vote.
At all meetings of stockholders, a stockholder entitled to vote may vote in person or by a proxy executed in writing by the stockholder or by his duly authorized attorney-in-fact. Such proxy shall be filed with the Secretary of the Corporation before or at the time of the meeting. Unless otherwise provided by law, all questions touching the validity or sufficiency of the proxies shall be decided by the Secretary. Without limiting the manner in which a stockholder may authorize another person or persons to act for him or her as proxy, either of the following shall constitute a valid means by which a stockholder may grant such authority:
(a) A stockholder may execute a writing authorizing another person or persons to act for him or her as proxy. Execution may be accomplished by the stockholder or his or her authorized officer, director, employee or agent signing such writing or causing his or her signature to be affixed to such writing by any reasonable means, including, but not limited to, by facsimile signature.
(b) A stockholder may authorize another person or persons to act for him or her as proxy by transmitting or authorizing the transmission of a telegram or other means of electronic transmission to the person who will be the holder of the proxy to receive such transmission, provided that any such telegram or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram or other electronic transmission was authorized by the stockholder.
Directors shall be elected by a plurality of the votes cast at an election.
All other action (unless a greater plurality is required by law or by the Certificate of Incorporation or by these By-laws) shall be authorized by a majority of the votes cast by the holders of shares entitled to vote thereon, present in person or represented by proxy, and where a separate vote by class is required, by a majority of the votes cast by stockholders of such class, present in person or represented by proxy.
Section 11. Voting of Shares by Certain Holders.
(a) Shares standing in the name of another corporation, domestic or foreign, may be voted by such officer, agent or proxy as the By-laws of such corporation may prescribe, or, in the absence of such provision, as the Board of Directors of such corporation may determine.
(b) Shares standing in the name of a deceased person may be voted by his administrator or his executor either in person or by proxy.
(c) Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name, if authority so to do be contained in an appropriate order of the court by which such receiver was appointed, and a certified copy of such order is filed with the Secretary of the Corporation before or at the time of the meeting.
(d) A stockholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred.
(e) Shares of the Corporation belonging to it shall not be voted, directly or indirectly, at any meeting, and shall not be counted in determining the total number of outstanding shares at any given time, but shares of the Corporation held by it in a fiduciary capacity may be voted and shall be counted in determining the number of outstanding shares at any given time.
Section 12. Inspectors. At each meeting of stockholders, the chairman of the meeting may appoint one or more inspectors of voting whose duty it shall be to receive and count the ballots and make a written report showing the results of the balloting.
ARTICLE III
DIRECTORS
Section 1. Number. The business and affairs of the Corporation shall be managed under the direction of the Board which shall consist of not less than three nor more than fifteen persons. The exact number of directors within the minimum and maximum limitations specified in the preceding sentence shall be fixed from time to time by the Board pursuant to a resolution adopted by a majority of the entire Board.
Section 2. Election and Terms. The directors shall be divided into three classes, as nearly equal in number as reasonably possible, with the term of office of the first class to expire at the 2000 annual meeting of stockholders, the term of office of the second class to expire at the 2001 annual meeting of stockholders and the term of office of the third class to expire at the 2002 annual meeting of stockholders. At each annual meeting of stockholders, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election.
Section 3. Newly Created Directorships and Vacancies. Newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board resulting from death, resignation, retirement, disqualification, removal from office or other cause shall be filled only by a majority vote of the directors then in office, and directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of the class to which they have been elected expires. No decrease in the number of directors constituting the Board shall shorten the term of any incumbent director.
Section 4. Removal. Any director, or the entire Board, may be removed from office at any time, but only for cause and only by the
affirmative vote of the holders of at least two-thirds of the voting power of the shares of the Corporation then entitled to vote at an election of directors, voting together as a single class.
Section 5. Regular Meetings. The regular annual meeting of the Board shall be held at such time and place as the Board may by resolution determine from time to time without other notice than as set forth in such resolution.
The regular monthly meetings of the Board shall be held at such time and place as the Board may by resolution determine from time to time.
The Board may by resolution change the times and places, either within or without the State of Missouri, for the holding of such regular monthly meetings, and such times and places for the holding of other regular meetings without notice other than such resolution.
Section 6. Special Meetings. Special meetings of the Board may be held at any time on the call of the Chairman or at the request in writing of a majority of the directors. Special meetings of the Board may be held at such place, either within or without the State of Missouri, as shall be specified or fixed in the call for such meeting or notice thereof.
Section 7. Notice of Special Meetings. Notice of each special meeting shall be deposited in the United States mail by or at the direction of the Secretary to each director addressed to him at his residence or usual place of business at least seventy-two (72) hours before the day on which the meeting is to be held, or shall be sent to him by telegram, be delivered personally, or be given orally at least twenty-four (24) hours before the day on which the meeting is to be held. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail in a sealed envelope so addressed, with postage thereon prepaid. If notice be given by telegraph, such notice shall be deemed to be delivered when the same is delivered to the telegraph company. If the Secretary shall fail or refuse to give any such notice, then notice may be given by the officer or any one of the directors making the call.
Notice may be waived in writing by any director, either before or after the meeting. Any meeting of the Board of Directors shall be a legal meeting without any notice thereof having been given if all directors shall be present thereat, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened.
Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting, and any and all business may be transacted thereat.
Section 8. Quorum. A majority of the members of the Board then in office, or of a committee thereof, shall constitute a quorum for the transaction of business, except that the presence of the Chairman of the Board shall be
necessary to constitute a quorum of the Executive Committee of the Board, and the vote of a majority of the members present at a meeting at which a quorum is present shall be the act of the Board or of the Committee thereof, except for the amendment of the By-laws which shall require the vote of not less than a majority of the members of the Board then in office.
Section 9. Action Without a Meeting. Action required or permitted to be taken pursuant to authorization voted at a meeting of the Board, or a committee thereof, may be taken without a meeting if, before or after the action, all members of the Board or of the Committee consent thereto in writing. The written consents shall be filed with the minutes of the proceedings of the Board or Committee. The consent shall have the same effect as a vote of the Board or Committee thereof for all purposes.
Section 10. Organization. At all meetings of the Board, the Chairman, the Vice Chairman of the Board, if any, or in their absence a member of the Board to be selected by the members present, shall preside as Chairman of the meeting. The Secretary or an Assistant Secretary of the Corporation shall act as Secretary of all meetings of the Board, except that in their absence the Chairman of the meeting may designate any other person to act as secretary.
At meetings of the Board business shall be transacted in such order as from time to time the Board may determine.
Section 11. Compensation. In the discretion of the Board, the directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary, or such other compensation as the Board of directors shall from time to time determine. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings.
Section 12. Presence at Meeting. A member of the Board or of a Committee designated by the Board may participate in a meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in this manner constitutes presence in person at the meeting.
Section 13. Executive Committee. The Board, by resolution adopted by a majority of the entire board, may designate two or more directors to constitute an Executive Committee, which committee, to the extent provided in such resolution or in these By-laws, shall have and exercise all of the authority of the Board in the management of the Corporation provided such Committee shall not have the authority of the Board in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation involving the corporation, recommending to the stockholders the sale, lease, or exchange of all or substantially all of the property and assets of the Corporation, recommending to the stockholders a dissolution of the Corporation or a
revocation thereof, filling vacancies on the Board or on any committee of the Board (including the Executive Committee), amending, altering or repealing any By-laws of the Corporation, electing or removing officers of the Corporation, fixing the compensation of any member of the Executive Committee or amending, altering or repealing any resolution of the Board which by its terms provides that it shall not be amended, altered or repealed by the Executive Committee.
Section 14. Committees of the Board. The Board may designate one or more other committees, each consisting of one or more directors of the Corporation as members and one or more directors as alternate members, with such power and authority as prescribed by the By-laws or as provided in a resolution adopted by a majority of the Board. Each Committee, and each member thereof, shall serve at the pleasure of the Board.
ARTICLE IV
OFFICERS
Section 1. Officers' Number. The officers of the Corporation shall be a Chairman of the Board, a President, one or more Vice Presidents, a Treasurer, a Controller, and such other officers as the Board may determine from time to time, including such other subordinate corporate or divisional officers as may be elected or appointed in accordance with the provisions of Section 3 of this Article IV. The Board may designate a variation in the title of any officer. Any two or more offices may be held by the same person except the offices of President and Secretary.
Section 2. Election, Term of Office, and Qualifications. The officers
of the Corporation shall be elected annually by the Board at the first meeting
of the Board held after the annual meeting of stockholders. If the election of
officers shall not be held at such meeting, such election shall be held as soon
thereafter as the same can conveniently be held. Each officer, except such
officers as may be elected or appointed in accordance with the provisions of
Section 3 of this Article IV, shall hold his office until his successor shall
have been duly elected and shall have qualified or until his death, resignation
or removal.
Section 3. Subordinate Officers.
(a) Subordinate Corporate Officers. The Board may annually appoint one or more Assistant Controllers, Assistant Vice Presidents, one or more Assistant Secretaries, Assistant Treasurers, Auditors or Assistant Auditors, and such other subordinate corporate officers and agents as the Board may determine, to hold office as subordinate corporate officers for such period and with such authority and to perform such duties as may be prescribed by these By-laws or as the Board may from time to time determine. The Board may, by resolution, empower the Chairman of the Board to appoint any such subordinate corporate officers or agents to hold office for such period and to perform such duties as may be prescribed in said resolution.
In its discretion the Board may leave unfilled, for any such period as it may fix by resolution, any corporate office, except those of President, Secretary and Treasurer.
(b) Divisional Officers. The Board, the Chairman of the Board or the President may from time to time appoint employees of the Company divisional officers who shall have such operating and divisional responsibilities as may be designated by the President. Such divisional officers shall not be corporate officers and shall serve at the discretion of, under the direction of, and subject to removal by, the President.
Section 4. Resignations. Any officer may resign at any time by giving written notice to the Board or to the Chairman of the Board or Secretary of the Corporation. Any such resignation shall take effect at the time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
Section 5. Removal. Any of the officers designated in Section 1 of this Article IV may be removed by the Board, whenever in its judgment the best interests of the Corporation will be served thereby, by the vote of a majority of the total number of directors then in office. Any subordinate corporate officer appointed in accordance with Section 3 of this Article IV may be removed by the Board for like reason by a majority vote of the directors present at any meeting, a quorum being present, or by any superior officer upon whom such power of removal has been conferred by resolution of the Board. Any divisional officer appointed in accordance with Section 3 of this Article IV may be removed by the Chairman of the Board at any time and at his sole discretion or by any superior officer upon whom the power of removal has been conferred by the Chairman of the Board. The removal of any officer, subordinate officer or agent shall be without prejudice to the contract rights, if any, of the person so removed.
Section 6. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or otherwise may be filled for the unexpired portion of the term in the same manner in which an officer to fill said office may be chosen pursuant to Section 2 or 3 of this Article IV, as the case may be.
Section 7. The Chairman of the Board. The Board shall elect a Chairman who shall be chosen from among the directors. The Chairman shall preside at all meetings of the stockholders and the Board at which he is present. The Chairman shall consult with and render advice to the President of the Corporation as may be appropriate in the Chairman's discretion from time to time, and shall perform all other duties as are properly required of him by the Board of Directors from time to time.
Section 8. The President. The Board shall elect a President who shall be the Chief Executive Officer of the Corporation. The President shall have general and active management of the business of the Corporation and shall see that all orders and resolutions of the Board are carried into effect, subject, however, to the right of the Board to delegate any specific powers, except such as may be by law exclusively
conferred upon the President, to any officer or officers of the Corporation. All papers, documents, deeds, and other instruments required to be executed by the Corporation shall be signed and executed for the Corporation by the President when directed by, and in the manner prescribed by, the Board. The President shall have the general powers and duties of supervision and management which are usually vested in the Chief Executive Officer of a Corporation. If the Board has not appointed a Chief Operating Officer of the Corporation, then the President also shall have the powers and perform the duties of the Chief Operating Officer.
Section 9. The Chief Operating Officer The President of the Corporation shall perform the duties of the Chief Operating Officer of the Corporation unless the Board shall at any time specify by resolution that another officer shall be the Chief Operating Officer. The Chief Operating Officer shall have general and active management and supervision of such operations and properties of the Corporation as the Chairman or President may designate and shall perform such other duties as the Board may designate or as may be assigned by the President.
Section 10. Vice Presidents. Vice Presidents shall have supervision over all such matters, other officers of the Company and other employees as may be designated or assigned to them by the President or Chairman of the Board, and shall perform such duties as the Board of Directors may designate or as may be assigned to them by the President or the Chief Operating Officer or by the Chairman of the Board in the event of absence or disability of the President and the Chief Operating Officer.
Section 11. Treasurer. The Treasurer shall:
(a) Subject to the supervision and direction of the Vice President - Finance, have the custody of all moneys, notes, bonds, securities and other evidences of indebtedness belonging to the Corporation, and shall keep full and accurate accounts of all moneys and securities received and of all moneys paid by him on account of the Corporation. He shall daily deposit all moneys, checks and drafts received to the credit and in the name of the Corporation, in such banks or other depositories as shall from time to time be authorized, approved or directed by the President, the Vice President - Finance, or the Board, and shall, on behalf of the Corporation, endorse for deposit or collection, checks, notes, drafts and other obligations, provided, however, that checks of the United States Government or of any state or municipal government, which may be received by any branch house of the Corporation, may be endorsed for deposit by the local manager of the house receiving the check, and provided further, however, that checks, warrants, drafts, notes and other negotiable instruments, which may be received by any branch house of the Corporation, may be endorsed by the local manager in the name of the Corporation for collection or deposit by or in the local bank authorized to carry the local accounts.
(b) Furnish to the Board, to the President and to such other officers as the Board may designate, at such times as may be required, an account of all his transactions as Treasurer.
(c) Perform such other duties pertaining to the business of the Corporation as shall be directed or required by the President, the Vice President - Finance, or the Board and, subject to the control of the Vice President - Finance, the Board and these By-laws, perform all acts incident to the office of the Treasurer.
(d) Give such bond of the faithful discharge of his duties as the Board may require.
The books and papers of the Treasurer shall at all times be open to the inspection of the President and each member of the Board.
Section 12. Secretary. The Secretary shall:
(a) Attend all meetings of the stockholders and keep the minutes of such meetings in one or more books provided for that purpose.
(b) See that all notices are duly given in accordance with the provisions of these By-laws, or as required by law.
(c) Be custodian of the corporate records and of the seal of the Corporation and see that the seal of the Corporation or a facsimile thereof is affixed to or impressed on all certificates for shares prior to the issue thereof, and all documents, the execution of which on behalf of the Corporation under its seal, is duly authorized.
(d) Sign with the President or a Vice President certificates for shares of the Corporation, the issue of which shall have been authorized by resolution of the Board.
(e) See that the reports, statements, certificates and all other documents and records required by law are properly made, kept and filed.
(f) In general, perform all other duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the President or the Board.
Section 13. Controller. The Controller shall:
(a) Maintain adequate records of all assets, liabilities, and transactions of this Corporation; see that adequate audits thereof are currently and regularly made; and in conjunction with other officers and department heads initiate and enforce measures and procedures whereby the business of the Corporation shall be conducted with the maximum safety, efficiency, and economy. His duties and powers shall extend to all subsidiary corporations and to all affiliated corporations.
(b) Prepare and furnish such reports and financial statements covering results of operations of the Corporation as shall be required of him by the President or the Board.
Prepare and furnish such reports and statements showing the financial condition of the Corporation as shall be required of him by the President or the Board, and have the primary responsibility for the preparation of financial reports to the stockholders.
(c) Perform such other duties pertaining to the business of the Corporation as shall be directed or required by the President or the Board and, subject to the control of the President, the Board and these By-laws, perform all acts incident to the office of the Controller.
The books, records and papers of the Controller shall at all times be open to the inspection of the President and each member of the Board.
Section 14. Assistant Treasurers. If one or more Assistant Treasurers shall be elected or appointed pursuant to the provisions of Section 3 of this Article IV, then in the absence or disability of the Treasurer, the Assistant Treasurers shall perform all the duties of the Treasurer, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the Treasurer, except that they shall have no power to sign in the name of the Corporation contracts as described in Article VII, unless specifically authorized by the Board. Any such Assistant Treasurer shall perform such other duties as from time to time may be assigned to him by the Board or any superior officer.
Section 15. Assistant Secretaries. If one or more Assistant Secretaries shall be elected or appointed pursuant to the provisions of Section 3 of this Article IV, then in the absence or disability of the Secretary, the Assistant Secretaries shall perform the duties of the Secretary, and when so acting shall have all the powers of, and be subject to all the restrictions imposed upon, the Secretary. Any such Assistant Secretary shall perform such other duties as from time to time may be assigned to him by the Board or any superior officer.
Section 16. Compensation. The compensation of the officers shall be fixed from time to time by the Board; provided that the Board may authorize any officer or Committee to fix the compensation of officers and employees. No officer shall be prevented from receiving such compensation by reason of the fact that he is also a director of the Corporation.
ARTICLE V
CAPITAL STOCK
Section 1. Certificates of Stock. The certificates for shares of the capital stock of the Corporation shall be in such form as shall be approved by the Board. The certificates shall be signed by the Chairman of the Board, the President, a Vice President and also by the Treasurer or the Secretary, and may be sealed with the seal of the Corporation, or a facsimile thereof.
The signatures of the aforesaid officers may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar other than the Corporation or its
employee. The validity of any stock certificate of the Corporation signed and executed by or in the name of duly qualified officers of the Corporation shall not be affected by the subsequent death, resignation, or the ceasing for any other reason of any such officer to hold such office, whether before or after the date borne by or the actual delivery of such certificate.
The name of the person owning the shares represented thereby, with the number of such shares and the date of issue, shall be entered on the Corporation's capital stock records.
All certificates surrendered to the Corporation shall be canceled, and no new certificates shall be issued until the former certificate for the same number of shares shall have been surrendered and canceled except in case of a lost or destroyed certificate.
The Corporation may treat the holder of record of any share or shares of stock as the holder in fact thereof, and shall not be bound to recognize any equitable or other claim to interest in any such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, save as expressly provided by law.
Section 2. Lost, Stolen or Destroyed Certificates. The Corporation may issue a new certificate for shares in place of a certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Board may require the owner of the lost or destroyed certificate, or his legal representative, to give the Corporation a bond in form satisfactory to the Corporation sufficient to indemnify the Corporation, its transfer agents and registrars against any claim that may be made against them on account of the alleged lost or destroyed certificate or the issuance of such a new certificate.
Section 3. Transfer of Shares. Shares of the capital stock of the Corporation shall be transferable by the owner thereof in person or by duly authorized attorney, upon surrender of the certificates therefor properly endorsed. The Board, at its option, may appoint a transfer agent and registrar, or one or more transfer agents and one or more registrars, or either, for the stock of the Corporation.
Section 4. Regulations. The Board shall have power and authority to make all such rules and regulations as they may deem expedient concerning the issue, transfer and registration of certificates for shares of the capital stock of the Corporation.
ARTICLE VI
EXECUTION OF INSTRUMENTS ON BEHALF OF THE CORPORATION
The President, the Chief Operating Officer or any Vice President, and any other officer or officers, agent or agents of the Corporation that the Board may from time to time designate, may enter into any contract or execute any instrument in the name of and on behalf of the Corporation; with respect to the President, the Chief Operating Officer and any Vice President, such authority shall be general and with respect to any other officer or agent, such authority may be general or confined to specific instances. Unless so authorized or ratified by the
Board or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
ARTICLE VII
CORPORATE SEAL
The corporate seal of the Corporation shall have inscribed thereon the name of the Corporation and the words "Corporate Seal-____-Delaware." Said seal may be used by causing it or a facsimile or equivalent thereof to be impressed or affixed or reproduced, and shall be in the custody of the Secretary. If and when so directed by the Board, a duplicate of the seal may be kept and used by the Treasurer, or by any Assistant Treasurer or Assistant Secretary.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 1. Dividends. Dividends upon the outstanding shares of the Corporation may be paid from any source permitted by law. Dividends may be declared at any regular or special meeting of the Board and may be paid in cash or other property or in the form of a stock dividend.
Section 2. Fiscal Year. The fiscal year of the Corporation shall end on the 31st day of December each year, unless otherwise provided by resolution of the Board.
Section 3. Stock in other Corporations. Any shares of stock in any other corporation which may from time to time be held by the Corporation may be represented and voted at any meeting of stockholders of such corporation by the Chairman or the President of the Corporation or by any other person or persons thereunto authorized by the Board, or by any proxy designated by written instrument of appointment executed in the name of the Corporation either by the Chairman, the President, or a Vice President, and attested by the Secretary or an Assistant Secretary.
ARTICLE IX
INDEMNIFICATION
Section 1. Actions, Suits or Proceedings other than by or in the Right of the Corporation. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was or has agreed to become a director or officer of the Corporation, or is or was serving or has agreed to serve at the request of the Corporation as a director or officer or trustee of another corporation, partnership, joint
venture, trust or other enterprise, or by reason of any action alleged to have been taken or omitted in such capacity against costs, charges, expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such action, suit or proceeding or any appeal therefrom, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 2. Actions or Suits by or in the Right of the Corporation. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was or has agreed to become a director or officer of the Corporation, or is or was serving or has agreed to serve at the request of the Corporation as a director or officer or trustee of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action alleged to have been taken or omitted in such capacity, against costs, charges and expenses (including attorneys' fees) actually and reasonably incurred by him or on his behalf in connection with the defense or settlement of such action or suit and any appeal therefrom, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the Corporation unless and only to the extent that the court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of such liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such costs, charges and expenses which the Court of Chancery or such other court shall deem proper.
Section 3. Indemnification for Costs, Charges and Expenses of Successful Party. Notwithstanding the other provisions of this Article, to the extent that a director or officer of the Corporation has been successful on the merits or otherwise, including, without limitation, the dismissal of an action without prejudice, in defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article, or in defense of any claim, issue or matter therein, he shall be indemnified against all costs, charges and expenses (including attorneys' fees) actually and reasonably incurred by him or on his behalf in connection therewith.
Section 4. Determination of Right to Indemnification. Any indemnification under Sections 1 and 2 of this Article (unless ordered by a court) shall be paid by the corporation unless a determination is made (1) by the Board of Directors by a majority vote of the directors who are
not parties to such action, suit or proceeding, even though less than a quorum, or (2) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (3) by the stockholders, that indemnification of the director or officer is not proper in the circumstances because he has not met the applicable standard of conduct set forth in Sections 1 and 2 of this Article.
Section 5. Advance of Costs, Charges and Expenses. Costs, charges and expenses (including attorneys' fees) incurred by a person referred to in Sections 1 and 2 of this Article in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding; provided, however, that the payment of such costs, charges and expenses incurred by a director or officer in his capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer) in advance of the final disposition of such action, suit or proceeding shall be made only upon receipt of an undertaking by or on behalf of the director or officer to repay all amounts so advanced in the event that it shall ultimately be determined that such director or officer is not entitled to be indemnified by the corporation as authorized in this Article. The Board of Directors may, in the manner set forth above, and upon approval of such director or officer of the Corporation, authorize the Corporation's counsel to represent such person, in any action, suit or proceeding, whether or not the Corporation is a party to such action, suit or proceeding.
Section 6. Procedure for Indemnification. Any indemnification under Sections 1, 2 and 3, or advance of costs, charges and expenses under Section 5 of this Article, shall be made promptly, and in any event within 60 days, upon the written request of the director or officer. The right to indemnification or advances as granted by this Article shall be enforceable by the director or officer in any court of competent jurisdiction, if the Corporation denies such request, in whole or in part, or if no disposition thereof is made within 60 days. Such persons' costs and expenses incurred in connection with successfully establishing right to indemnification, in whole or in part, in any such action shall also be indemnified by the Corporation. It shall be a defense to any such action (other than an action brought to enforce a claim for the advance of costs, charges and expenses under Section 5 of this Article where the required undertaking, if any, has been received by the Corporation) that the claimant has not met the standard of conduct set forth in Sections 1 or 2 of this Article, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, its independent legal counsel, and its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in Sections 1 or 2 of this Article, nor the fact that there has been an actual determination by the Corporation (including its Board of Directors, its independent legal counsel, and its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.
Section 7. Other Rights; Continuation of Right to Indemnification. The
indemnification provided by this Article shall not be deemed exclusive of any other rights to which a person seeking indemnification may be entitled under any law (common or statutory), agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office or while employed by or acting as agent for the Corporation, and shall continue as to a person who has ceased to be a director or officer, and shall inure to the benefit of the estate, heirs, executors and administrators of such person. All rights to indemnification under this Article shall be deemed to be a contract between the Corporation and each director or officer of the Corporation who serves or served in such capacity at any time while this Article is in effect. Any repeal or modification of this Article or any repeal or modification of relevant provisions of the Delaware General Corporation Law or any other applicable laws shall not in any way diminish any rights to indemnification of such director or officer or the obligations of the Corporation arising hereunder.
Section 8. Insurance. The Corporation shall purchase and maintain insurance on behalf of any person who is or was or has agreed to become a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him or on his behalf in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article, provided that such insurance is available on acceptable terms, which determination shall be made by a vote of a majority of the entire Board of Directors.
Section 9. Savings Clause. If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, any portion of this Article so invalidated shall be severable and such invalidity shall not by itself render any other portion of this Article invalid, and the Corporation shall nevertheless indemnify each director or officer of the Corporation as to costs, charges and expenses (including attorneys' fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Corporation, to the full extent permitted by any applicable portion of this Article that shall not have been invalidated and to the full extent permitted by applicable law.
ARTICLE X
AMENDMENTS
Except as otherwise required by law or the Certificate of Incorporation, these By-laws may be amended or repealed, and new By-laws may be adopted, either by the affirmative vote of two-thirds of the shares of stock outstanding and entitled to vote thereon, voting together as a single class, or by the affirmative vote of a majority of the Board then in office.
EMPLOYEE MATTERS AGREEMENT
BETWEEN
CRANE CO.
AND
HUTTIG BUILDING PRODUCTS, INC.
DATED AS OF _______________, 1999
TABLE OF CONTENTS
ARTICLE I DEFINITIONS.............................................................................................1 1.1 Adverse Change.............................................................................................1 1.2 Affected Pension Plan Participants.........................................................................1 1.3 Agreement..................................................................................................1 1.4 ASO Contract...............................................................................................1 1.5 Award .....................................................................................................2 1.6 Benefit Liabilities........................................................................................2 1.7 Close of the Distribution Date.............................................................................2 1.8 COBRA .....................................................................................................2 1.9 Code ......................................................................................................2 1.10 Crane Entity..............................................................................................2 1.11 Crane Hourly Pension Plan.................................................................................2 1.12 Crane Restricted Stock Plan...............................................................................2 1.13 Crane Salaried Pension Plan...............................................................................2 1.14 Crane Savings Plan........................................................................................2 1.15 Crane Stock Option Plan...................................................................................2 1.16 Crane Stock Value.........................................................................................2 1.17 Distribution Agreement....................................................................................3 1.18 ERISA ....................................................................................................3 1.19 EVA Plan..................................................................................................3 1.20 Group Insurance Policies..................................................................................3 1.21 Group Life Program........................................................................................3 1.22 Health and Welfare Plans..................................................................................3 1.23 Huttig Employee Stock Purchase Plan.......................................................................3 1.24 Huttig Entity.............................................................................................3 1.25 Huttig Individual.........................................................................................3 1.26 Huttig Savings & Profit Sharing Plan......................................................................3 1.28 Huttig Stock Incentive Plan...............................................................................4 1.29 Huttig Stock Value........................................................................................4 1.30 Immediately After the Distribution Date...................................................................4 1.31 IRS ......................................................................................................4 1.32 Option ...................................................................................................4 1.32 Option Ratio..............................................................................................4 1.33 Plan .....................................................................................................4 1.34 Ratio ....................................................................................................4 ARTICLE II GENERAL PRINCIPLES.....................................................................................4 2.1 Assumption of Liabilities..................................................................................4 2.2 Establishment of Huttig Plans and Related Trusts...........................................................5 |
2.3 Terms of Participation by Huttig Individuals in Huttig Plans...............................................5
ARTICLE III DEFINED BENEFIT PLANS.................................................................................5
3.1 Freezing of Pension Plan Benefits..........................................................................5
3.2 Vesting and Crediting Service Under Crane's Pension Plans..................................................6
ARTICLE IV DEFINED CONTRIBUTION PLANS.............................................................................6
4.1 Savings and Profit Sharing Plan............................................................................6
4.2 Other Defined Contribution Plans...........................................................................7
ARTICLE V HEALTH AND WELFARE PLANS................................................................................7
5.1 General Provisions.........................................................................................7
5.2 Vendor Contracts...........................................................................................8
5.3 Procedures for Amendments to Plans, Plan Designs, Administrative Practices, and Vendor
Contracts.........................................................................................9
5.4 COBRA ....................................................................................................10
5.5 Post-Distribution-Transitional Arrangements...............................................................10
ARTICLE VI STOCK AND INCENTIVE COMPENSATION BENEFITS AND EXECUTIVE BENEFITS......................................11
6.1 Crane Stock-Based Plans...................................................................................11
6.2 Crane EVA Plan............................................................................................12
6.3 Employee Stock Purchase Plan..............................................................................12
ARTICLE VII GENERAL AND ADMINISTRATIVE...........................................................................12
7.1 Non-Termination of Employment, No Third-Party Beneficiaries...............................................12
7.2 Beneficiary Designations..................................................................................13
7.3 Collective Bargaining.....................................................................................13
7.4 Consent of Third Parties..................................................................................13
7.5 Sharing of Participant Information........................................................................13
ARTICLE VIII MISCELLANEOUS.......................................................................................13
8.1 Effect if Distribution Does Not Occur.....................................................................13
8.2 Relationship of Parties...................................................................................13
8.3 Affiliates................................................................................................14
8.4 Governing Law.............................................................................................14
8.5 Entire Agreement, Construction............................................................................14
8.6 Expenses..................................................................................................14
8.7 Notices ..................................................................................................14
8.8 Consent to Jurisdiction...................................................................................15
8.9 Amendments................................................................................................15
-ii-
|
8.10 Assignment...............................................................................................15 8.11 Captions.................................................................................................16 8.12 Severability.............................................................................................16 8.13 Parties in Interest......................................................................................16 8.14 Schedules................................................................................................16 8.15 Waivers; Remedies........................................................................................16 8.16 Further Assurances.......................................................................................16 8.17 Counterparts.............................................................................................17 |
EMPLOYEE MATTERS AGREEMENT
___________________, 1999
The parties to this Employee Matters Agreement, dated as of the date written above, are Crane Co., a Delaware corporation ("Crane"), and Huttig Building Products, Inc., a Delaware corporation and, as of the date hereof, an indirect wholly-owned subsidiary of Crane ("Huttig"). Capitalized terms used herein and not otherwise defined shall have the respective meanings assigned to them in Article I hereof or as assigned to them in the Distribution Agreement (as defined below).
WHEREAS, the Board of Directors of Crane has determined that it is in the best interests of Crane and its stockholders to separate Crane and its subsidiary, Huttig, such that Huttig will be an independent business entity;
WHEREAS, in furtherance of the foregoing, Crane and Huttig have entered into a Distribution Agreement, dated as of the date hereof (the "Distribution Agreement"), and certain other agreements that will govern certain matters relating to the Distribution and the relationship of Crane and Huttig, and their respective Subsidiaries following the Distribution; and
WHEREAS, pursuant to the Distribution Agreement, Crane and Huttig have agreed to enter into this agreement allocating between them the assets, liabilities and responsibilities with respect to certain employee compensation and benefit plans and programs.
NOW, THEREFORE, the parties, intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement the following terms shall have the following meanings:
1.1 Adverse Change is defined in Section 5.3(a).
1.2 Affected Pension Plan Participants is defined in Section 3.1.
1.3 Agreement means this Employee Matters Agreement, including all the Schedules hereto.
1.4 ASO Contract is defined in Section 5.2(a)(i).
1.5 Award means an award under the Crane Stock Option Plan, the Crane Restricted Stock Plan, the EVA Plan or the Huttig Stock Incentive Plan. When immediately preceded by "Crane," the term Award means an award under the applicable Plan described in this Section 1.5 as established or maintained by Crane. When immediately preceded by "Huttig," the term Award means an award under the applicable Plan established or maintained by Huttig.
1.6 Benefit Liabilities means any Liabilities (as defined in the Distribution Agreement) relating to any contributions, compensation or other benefits accrued or payable under any profit sharing, pension, savings, deferred compensation, fringe benefit, insurance, medical, medical reimbursement, life, disability, accident, post-retirement health or welfare benefit, stock option, stock purchase, sick pay, vacation, employment, severance, termination or other compensation or benefit plan, agreement, contract, policy, trust fund or arrangement.
1.7 Close of the Distribution Date means 11:59:59 P.M., Eastern Standard Time or Eastern Daylight Time (whichever shall then be in effect), on the Distribution Date.
1.8 COBRA means the continuation coverage requirements for "group health plans" under Title X of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and as codified in Code Section 4980B and ERISA Sections 601 through 608.
1.9 Code means the Internal Revenue Code of 1986, as amended, or any successor federal income tax law. Reference to a specific Code provision also includes any proposed, temporary, or final regulation in force under that provision.
1.10 Crane Entity means any entity that is, at the relevant time, an Affiliate of Crane, except that, for periods beginning Immediately After the Distribution Date, the term "Crane Entity" shall not include Huttig or a Huttig Entity.
1.11 Crane Hourly Pension Plan means the Crane Co. Master Pension Plan for Hourly and Certain Non-Bargaining Employees (Plan C), effective December 31, 1987, as amended further effective January 1, 1994.
1.12 Crane Restricted Stock Plan means the Crane Co. Restricted Stock Award Plan.
1.13 Crane Salaried Pension Plan means the Crane Co. Pension Plan for Non-Bargaining Employees, effective December 31, 1987, as amended further effective January 1, 1994.
1.14 Crane Savings Plan means the Crane Co. Savings and Investment Plan, effective January 1, 1989, as amended further effective June 1, 1997.
1.15 Crane Stock Option Plan means the Crane Co. Stock Option Plan.
1.16 Crane Stock Value means the average of the high and low per-share prices of the Crane Common Stock, regular way, as reported on the New York Stock Exchange - Composite Transactions Tape on the trading day immediately prior to the Distribution Date.
1.17 Distribution Agreement is defined in the third paragraph of the preamble of this Agreement.
1.18 ERISA means the Employee Retirement Income Security Act of 1974, as amended. Reference to a specific provision of ERISA also includes any proposed, temporary, or final regulation in force under that provision.
1.19 EVA Plan, when immediately preceded by "Crane," means the Crane Co. Economic Value Added Incentive Compensation Plan for Executive Officers. When immediately preceded by "Huttig," EVA Plan means the Economic Value Added Incentive Compensation Plan to be established by Huttig pursuant to Section 2.2.
1.20 Group Insurance Policies is defined in Section 5.2(b)(i).
1.21 Group Life Program, when immediately preceded by "Crane," means the Crane Co. group life programs, policies and arrangements. When immediately preceded by "Huttig," Group Life Program means the life insurance programs, policies and arrangements to be established by Huttig pursuant to Section 2.2 that correspond to the respective Crane Group Life Programs.
1.22 Health and Welfare Plans, when immediately preceded by "Crane," means the health and welfare plans listed on Schedule 1.22 established and maintained by Crane for the benefit of employees and retirees of Crane and certain Crane Entities, and such other welfare plans or programs as may apply to such employees and retirees as of the Distribution Date. When immediately preceded by "Huttig," Health and Welfare Plans means the health and welfare plans to be established by Huttig pursuant to Section 2.2 that correspond to the respective Crane Health and Welfare Plans.
1.23 Huttig Employee Stock Purchase Plan means the employee stock purchase plan to be established by Huttig pursuant to Section 2.2.
1.24 Huttig Entity means any Person that is, at the relevant time, a Subsidiary of Huttig or is otherwise controlled, directly or indirectly, by Huttig.
1.25 Huttig Individual means any individual (i) who, Immediately After the Distribution Date, is either actively employed by or on leave of absence from Huttig or a Huttig Entity, or (ii) whose last employment within the Pre-Distribution Group (as defined in the Distribution Agreement) was with Huttig or a Huttig Entity.
1.26 Huttig Savings & Profit Sharing Plan means the defined contribution plan established by Huttig pursuant to Section 2.2 and Article IV.
1.27 Huttig Stock Incentive Plan means the plan or program established by Huttig pursuant to Section 2.2 consisting of a stock option plan that corresponds to the Crane Stock Option Plan and a restricted stock award plan that corresponds to the Crane Restricted Stock Plan.
1.28 Huttig Stock Value means the average of the high and low per-share prices of the Huttig Common Stock as reported on the New York Stock Exchange on the first trading day after the Distribution Date.
1.29 Immediately After the Distribution Date means 12:00 A.M., Eastern Standard Time or Eastern Daylight Time (whichever shall then be in effect), on the day after the Distribution Date.
1.30 IRS means the Internal Revenue Service.
1.31 Option, when immediately preceded by "Crane," means an option to purchase Crane Common Stock pursuant to the Crane Stock Option Plan. When immediately preceded by "Huttig," Option means an option to purchase Huttig Common Stock pursuant to the Huttig Stock Incentive Plan.
1.32 Option Ratio means the amount obtained by dividing the Crane Stock Value by the average of the high and low sales prices of the Crane Common Stock on the first trading day after the Distribution Date.
1.33 Plan, when immediately preceded by "Crane" or "Huttig," means any plan, policy, program, payroll practice, on-going arrangement, contract, trust, insurance policy or other agreement or funding vehicle providing benefits to employees or former employees of Crane or a Crane Entity, or Huttig or a Huttig Entity, as applicable.
1.34 Ratio means the amount obtained by dividing the Crane Stock Value by the Huttig Stock Value.
ARTICLE II
GENERAL PRINCIPLES
2.1 Assumption of Liabilities. Except as otherwise expressly provided in Article III, Huttig hereby assumes and agrees to pay, perform, fulfill and discharge, in accordance with their respective terms, all of the following (regardless of when or where such Benefit Liabilities arose or arise or were or are incurred): (i) all Benefit Liabilities to or relating to Huttig Individuals, and their respective dependents and beneficiaries, in each case relating to, arising out of or resulting from employment by Crane, a Crane Entity, Huttig or a Huttig Entity before the Distribution Date (including Benefit Liabilities under Crane Plans and Huttig Plans); (ii) all other Benefit Liabilities to or relating to Huttig Individuals, and their respective dependents and beneficiaries, to the extent relating to, arising out of or resulting from future, present or former employment
with Huttig or a Huttig Entity (including Benefit Liabilities under Crane Plans and Huttig Plans);
(iii) all Benefit Liabilities relating to, arising out of or resulting from any
other actual or alleged employment relationship with Huttig or a Huttig Entity;
(iv) all Benefit Liabilities relating to, arising out of or resulting from the
imposition of withdrawal liability under Subtitle E of Title IV of ERISA as a
result of a complete or partial withdrawal of any Crane Entity from a
"multiemployer plan" within the meaning of ERISA Section 4021 which occurs
solely as a result of the Distribution; and (v) all other Benefit Liabilities
relating to, arising out of or resulting from obligations, liabilities and
responsibilities expressly assumed or retained by Huttig, a Huttig Entity, or a
Huttig Plan pursuant to this Agreement.
2.2 Establishment of Huttig Plans and Related Trusts. Effective prior
to or Immediately After the Distribution Date, Huttig shall adopt, or cause to
be adopted, the Huttig Savings and Profit Sharing Plan and its related trust,
the Huttig Employee Stock Purchase Plan, the Huttig Stock Incentive Plan, the
Huttig EVA Plan and the Huttig Health and Welfare Plans for the benefit of the
Huttig Individuals and other current and future employees of Huttig and the
Huttig Entities. Subject to the provisions of Section 4.1 regarding the Huttig
Savings and Profit Sharing Plan, Section 6.2 regarding the Huttig EVA Plan,
Section 6.3 regarding the Huttig Employee Stock Purchase Plan and Section 5.1(b)
regarding the Huttig Health and Welfare Plans, the foregoing Huttig Plans as in
effect Immediately After the Distribution Date shall be substantially identical
in all material respects to the corresponding Crane Plans as in effect as of the
Distribution Date.
2.3 Terms of Participation by Huttig Individuals in Huttig Plans. The Huttig Plans shall be, with respect to Huttig Individuals, in all respects the successors in interest to, and shall not provide benefits that duplicate benefits provided by, the corresponding Crane Plans. Crane and Huttig shall agree on methods and procedures, including amending the respective Plan documents and/or requesting approvals or consents of Huttig Individuals where the parties deem appropriate, to prevent Huttig Individuals from receiving duplicative benefits from the Crane Plans and the Huttig Plans. With respect to Huttig Individuals, each Huttig Plan shall provide that all service, all compensation and all other benefit-affecting determinations that, as of the Close of the Distribution Date, were recognized under the corresponding Crane Plan shall, as of Immediately After the Distribution Date, receive full recognition, credit, and validity and be taken into account under such Huttig Plan to the same extent as if such items occurred under such Huttig Plan, except to the extent that duplication of benefits would result.
ARTICLE III
DEFINED BENEFIT PLANS
3.1 Freezing of Pension Plan Benefits. Effective Immediately After the Distribution Date, the accrued benefits with respect to Huttig Individuals who, as of the Distribution Date, were participants under the Crane Salaried Pension Plan or the Crane Hourly Pension Plan (collectively, the "Affected Pension Plan Participants") shall be frozen and the Affected Pension Plan Participants shall not accrue any additional benefits from and after the Distribution Date
under the Crane Salaried Pension Plan or the Crane Hourly Pension Plan, as the case may be. The assets and Benefit Liabilities with respect to the Affected Pension Plan Participants, determined as of the Distribution Date, shall be retained by the applicable Crane Plan and its related trust and paid therefrom when due under the terms of the applicable Crane Plan.
3.2 Vesting and Crediting Service Under Crane's Pension Plans. Effective Immediately After the Distribution Date, notwithstanding anything contained in the Crane Salaried Pension Plan or the Crane Hourly Pension Plan to the contrary, the Affected Pension Plan Participants shall be fully vested in their respective accrued benefits under the Crane Salaried Pension Plan or the Crane Hourly Pension Plan, as the case may be. Affected Pension Plan Participants shall continue to receive service credit for retirement benefit eligibility purposes under the applicable Crane Plan for service with Huttig after the Distribution Date.
ARTICLE IV
DEFINED CONTRIBUTION PLANS
4.1 Savings and Profit Sharing Plan.
(a) Establishment of Savings and Profit Sharing Plan and Trust. The
Huttig Savings and Profit Sharing Plan, established by Huttig pursuant to
Section 2.2, (i) shall be a qualified defined contribution plan within the
meaning of Code Section 401(a), (ii) except as provided under Section 4.1(c),
shall contain provisions, terms and conditions substantially similar to the
provisions, terms and conditions of the Crane Savings Plan, and (iii) shall
provide coverage from and after the Distribution Date with respect to Huttig
Individuals. The trust related to the Huttig Savings and Profit Sharing Plan,
established by Huttig pursuant to Section 2.2, shall be exempt from taxation
under Code Section 501(a).
(b) Assumption of Liabilities and Transfer of Assets.
(i) Effective Immediately After the Distribution Date:
(A) the Huttig Savings and Profit Sharing Plan shall assume and be solely
responsible for all Benefit Liabilities to or relating to Huttig Individuals
under the Crane Savings Plan, and (B) Crane shall cause an amount equal to the
aggregate account balances of the Huttig Individuals participating under the
Crane Savings Plan, whether such amounts are vested or unvested under the terms
of the Crane Savings Plan, which are held by the related trust as of the Close
of the Distribution Date to be transferred to the Huttig Savings and Profit
Sharing Plan, and its related trust, or such other qualified plan and trust
designated by Huttig, and Huttig shall cause such transferred accounts to be
accepted by such plan and trust. In Crane's sole and absolute discretion, the
amount so transferred may be in cash or in kind or a combination thereof;
provided, however, that the following shall be transferred in kind: (A) shares
of Crane Common Stock and shares of Huttig Common Stock allocated to
participants' accounts as a result of the Distribution; and (B) all promissory
notes reflecting participant loans to Huttig Individuals under the Crane Savings
Plan outstanding as of the Distribution Date.
(ii) If any benefit with respect to a Huttig Individual under the Crane Savings Plan is subject to a qualified domestic relations order at the time of transfer, all documentation concerning such qualified domestic relations order shall be assigned to the Huttig Savings and Profit Sharing Plan.
(c) Retirement Benefit Feature of Savings and Profit Sharing Plan. The Huttig Savings and Profit Sharing Plan shall contain provisions regarding employer profit sharing contributions that, in the sole discretion of Huttig, are appropriate retirement benefit provisions with respect to Huttig Individuals.
(d) Vesting. Effective Immediately After the Distribution Date, participants in the Huttig Savings and Profit Sharing Plan shall be fully vested in any amounts transferred with respect to such participants from the Crane Savings Plan and its related trust under Section 4.1(b).
4.2 Other Defined Contribution Plans. Effective Immediately After the
Distribution Date, Huttig shall retain sole responsibility for sponsorship and
administration of the Huttig Sash & Door Company Compensation and Investment
Plan (formerly known as the Palmer G. Lewis 401(k) Plan) (the "Lewis 401(k)
Plan"), the Huttig Sash & Door Company Tax-Sheltered Investment Plan (formerly
known as the American Pine Products 401(k) Profit Sharing Plan) (the "Prineville
401(k) Plan") and the Whittier-Ruhle Millwork Company's Employees' Savings and
Investment Plan (the "Whittier-Ruhle Plan"), including all Benefit Liabilities
arising under those plans prior to or after the Distribution Date, and Crane
shall have no responsibility or liability with respect to the Lewis 401(k) Plan,
the Prineville 401(k) Plan or the Whittier-Ruhle Plan.
ARTICLE V
HEALTH AND WELFARE PLANS
5.1 General Provisions.
(a) Assumption of Health and Welfare Plan Liabilities. Immediately After the Distribution Date, all Benefit Liabilities to or relating to Huttig Individuals under the Crane Health and Welfare Plans shall cease to be Benefit Liabilities of the Crane Health and Welfare Plans and shall be assumed by the corresponding Huttig Health and Welfare Plans.
(b) Postretirement Medical and Life Insurance Benefits.
(i) Effective Immediately After the Distribution Date, Huttig may, but shall not be required to, alter or amend the postretirement medical and life insurance benefits offered, or the manner in which such benefits are offered, to Huttig Individuals as follows (subject to all terms and conditions of the applicable Huttig Plan): (A) Huttig shall continue to contribute 50% of the applicable premium or cost of coverage for postretirement medical benefits for Huttig Individuals who are currently retired and participating in such coverage as of the Distribution Date, such contribution to continue in each case only until such Huttig Individual attains age 65;
(B) Huttig shall make no contribution regarding the premium or other cost of coverage for postretirement life insurance benefits for Huttig Individuals who are currently retired and participating in such coverage as of the Distribution Date; (C) Huttig shall make no contribution regarding the premium or other cost of coverage for postretirement medical or life insurance benefits for Huttig Individuals who are active employees of Huttig or a Huttig Entity Immediately After the Distribution Date and who commenced employment with Huttig or a Huttig Entity prior to 1992; and (C) Huttig shall not offer postretirement medical or life insurance benefits to Huttig Individuals who are active employees of Huttig or a Huttig Entity Immediately After the Distribution Date and who commenced employment with Huttig or a Huttig Entity after 1991.
(ii) Crane agrees and acknowledges that any alteration or
amendment by Huttig of the postretirement medical and life insurance benefits
offered under one or more of the Huttig Health and Welfare Plans as described in
Section 5.1(b)(i) shall not be considered or otherwise deemed to be an Adverse
Change as defined under Section 5.3(a). Notwithstanding the foregoing, Huttig
acknowledges that any decision or action with respect to postretirement medical
or life insurance benefits offered under any Huttig Plan after the Distribution
Date shall be in the sole discretion of Huttig and Huttig shall be solely
responsible for such decision or action. Furthermore, Huttig acknowledges that
Crane shall in no way be considered or deemed to have consented to, agreed to or
otherwise to have been involved in, such decision or action of Huttig.
5.2 Vendor Contracts.
(a) Third-Party ASO Contracts.
(i) Crane shall use its reasonable efforts to amend each administrative services only contract with a third-party administrator that relates to any of the Crane Health and Welfare Plans (an "ASO Contract") in existence as of the date of this Agreement to permit Huttig to participate in the terms and conditions of such ASO Contract from Immediately After the Distribution Date until the expiration of the financial fee guarantees in effect under such ASO Contract as of the Close of the Distribution Date. Crane shall use its reasonable efforts to cause all ASO Contracts into which Crane enters after the date of this Agreement but before the Close of the Distribution Date to allow Huttig to participate in the terms and conditions thereof effective Immediately After the Distribution Date on the same basis as Crane.
(ii) Crane shall have the right to determine, and shall promptly notify Huttig of, the manner in which Huttig's participation in the terms and conditions of ASO Contracts as set forth above shall be effectuated. The permissible ways in which Huttig's participation may be effectuated include automatically making Huttig a party to the ASO Contracts or obligating the third party to enter into a separate ASO Contract with Huttig providing for the same terms and conditions as are contained in the ASO Contracts to which Crane is a party. Such terms and conditions shall include the financial and termination provisions, performance standards, methodology, auditing policies, quality measures, reporting requirements and target claims. Huttig hereby authorizes Crane to act on its behalf to extend to Huttig the terms and conditions of the ASO Contracts. Huttig shall fully cooperate with Crane in such efforts, and Huttig shall
not perform any act, including discussing any alternative arrangements with any third party, that would prejudice Crane's efforts.
(b) Group Insurance Policies.
(i) This Section 5.2(b) applies to group insurance policies not subject to allocation or transfer pursuant to the foregoing provisions of this Article V ("Group Insurance Policies").
(ii) Crane shall use its reasonable efforts to amend each Group Insurance Policy in existence as of the date of this Agreement for the provision or administration of benefits under the Crane Health and Welfare Plans to permit Huttig to participate in the terms and conditions of such policy from Immediately After the Distribution Date until the expiration of the financial fee and rate guarantees in effect under such Group Insurance Policy as of the Close of the Distribution Date. Crane shall use its reasonable efforts to cause all Group Insurance Policies into which Crane enters or which Crane renews after the date of this Agreement but before the Close of the Distribution Date to allow Huttig to participate in the terms and conditions thereof effective Immediately After the Distribution Date on the same basis as Crane.
(iii) Huttig's participation in the terms and conditions of each such Group Insurance Policy shall be effectuated by obligating the insurance company that issued such insurance policy to Crane to issue one or more separate policies to Huttig. Such terms and conditions shall include the financial and termination provisions, performance standards and target claims. Huttig hereby unconditionally and irrevocably authorizes Crane to act on its behalf to extend to Huttig the terms and conditions of such Group Insurance Policies. Huttig shall fully cooperate with Crane in such efforts, and Huttig shall not perform any act, including discussing any alternative arrangements with third parties, that would prejudice Crane's efforts.
(c) Effect of Change in Rates. Crane and Huttig shall use their reasonable efforts to cause each of the insurance companies, point-of-service vendors and third-party administrators providing services and benefits under the Crane Health and Welfare Plans and the Huttig Health and Welfare Plans to maintain the premium and/or administrative rates based on the aggregate number of participants in both the Crane Health and Welfare Plans and the Huttig Health and Welfare Plans through the expiration of the financial fee or rate guarantees in effect as of the Close of the Distribution Date under the respective ASO Contracts and Group Insurance Policies. To the extent they are not successful in such efforts, Crane and Huttig shall each bear the revised premium or administrative rates attributable to the individuals covered by their respective Health and Welfare Plans.
5.3 Procedures for Amendments to Plans, Plan Designs, Administrative Practices, and Vendor Contracts.
(a) Changes in Vendor Contracts, Group Insurance Policies, Plan Design, and Administration Practices and Procedures. From Immediately After the Distribution Date through the expiration of the respective financial fee or rate guarantees in effect as of the Close of the
Distribution Date under the applicable ASO Contract or Group Insurance Policy, any party must comply with Section 5.3(b) if that party seeks to materially amend, modify, alter or take other action which would have a material effect on, any of the following items that, in the reasonable opinion of the other party, shall have a material adverse impact on one or more of the other party's Health and Welfare Plans (each such modification, an "Adverse Change"): (i) the termination date, administration, or operation of (A) an ASO contract between Crane or Huttig and a third-party administrator, or (B) a Group Insurance Policy issued to Crane or Huttig, in each case, the material terms and conditions of which contracts and policies are extended to Huttig or to which Huttig becomes a party pursuant to Section 5.2; (ii) the design of either a Crane Health and Welfare Plan or a Huttig Health and Welfare Plan; or (iii) the financing, operation, administration or delivery of benefits under either a Crane Health and Welfare Plan or a Huttig Health and Welfare Plan.
(b) Procedure for Implementing Changes. Unless the other party consents in writing, neither Crane nor Huttig shall make any Adverse Change unless the party intending to make the Adverse Change has: (i) given the other party written notice of the intention to make the Adverse Change, accompanied by a written description of the Adverse Change, at least 30 days in advance of the proposed effective date of the Adverse Change; (ii) agreed to bear all of the costs of implementing the Adverse Change which are incurred by all third-party administrators, insurance companies and other vendors and passed through to one or both of the parties; and (iii) certified to the other party, and provided to the other party the written concurrence of each third-party administrator, insurance company or other vendor associated with or performing services in connection with the Health and Welfare Plan affected by the Adverse Change, that (after taking into account the effect of clause (ii)) the proposed Adverse Change will have no material adverse impact (financial, administrative or otherwise) on the corresponding Health and Welfare Plan sponsored by the other party.
5.4 COBRA. Effective Immediately After the Distribution Date, Huttig shall solely be responsible for administering compliance with the health care continuation coverage requirements of COBRA with respect to Huttig Individuals under the Huttig Health and Welfare Plans.
5.5 Post-Distribution-Transitional Arrangements.
(a) Continuance of Elections, Co-Payments and Maximum Benefits.
(i) Huttig shall cause the Huttig Health and Welfare Plans to recognize and maintain all coverage and contribution elections made by Huttig Individuals under the Crane Health and Welfare Plans and apply such elections under the Huttig Health and Welfare Plans for the remainder of the period or periods for which such elections are by their terms applicable. The transfer or other movement of employment from Crane to Huttig at any time before the Close of the Distribution Date shall neither constitute nor be treated as a "status change" under the Crane Health and Welfare Plans or the Huttig Health and Welfare Plans.
(ii) Huttig shall cause the Huttig Health and Welfare Plans to recognize and give credit for (A) all amounts applied to deductibles, out-of-pocket maximums, and other
applicable benefit coverage limits with respect to which such expenses have been incurred by Huttig Individuals under the Crane Health and Welfare Plans for the remainder of the year in which the Distribution occurs, and (B) all benefits paid to Huttig Individuals under the CraneHealth and Welfare Plans for purposes of determining when such persons have reached their lifetime maximum benefits under the Huttig Health and Welfare Plans.
(iii) Huttig shall use reasonable efforts to (A) provide coverage to Huttig Individuals under the Huttig Group Life Program without the need to undergo a physical examination or otherwise provide evidence of insurability, and (B) recognize and maintain all irrevocable assignments and accelerated benefit option elections made by Huttig Individuals under the Crane Group Life Program.
(b) Health and Welfare Plans Subrogation Recovery. After the Close of the Distribution Date, Crane shall pay to Huttig any amounts Crane recovers from time to time through subrogation or otherwise for claims incurred by or reimbursed to any Huttig Individual. If Huttig recovers any amounts through subrogation or otherwise for claims incurred by or reimbursed to employees and former employees of Crane or a Crane Entity and their respective beneficiaries and dependents (other than Huttig Individuals), Huttig shall pay such amounts to Crane.
ARTICLE VI
STOCK AND INCENTIVE COMPENSATION BENEFITS
AND EXECUTIVE BENEFITS
6.1 Crane Stock-Based Plans.
(a) Stock Options. Effective as soon as practicable after the Distribution Date, Crane shall cause each Crane Option that is outstanding as of the Close of the Distribution Date and is held by a Huttig Individual to be adjusted to reflect the effect of the Distribution (each such Option shall be called an "Adjusted Option"). Each Adjusted Option shall provide for the option to purchase a number of shares of Crane Common Stock equal to the number of shares of Crane Common Stock subject to the original Crane Option as of the Close of the Distribution Date, multiplied by the Option Ratio, and then rounded to the nearest whole share. The per-share exercise price of such Adjusted Option shall equal the per-share exercise price of the original Crane Option as of the Close of the Distribution Date divided by the Option Ratio. Each Adjusted Option shall otherwise have the same terms and conditions as were applicable to the original Crane Option as of the Close of the Distribution Date. Solely for purposes of this Section 6.1(a), any Huttig Individual holding a Crane Option (or an Adjusted Option) shall be considered to have incurred a termination of employment with Crane for a reason other than (i) retirement, death or disability or (ii) after a change in control for purposes of the Crane Stock Option Plan and any option agreement or other contract evidencing the grant or award of a Crane Option to such Individual. Such Crane Option (or Adjusted Option) shall be exercisable and subject to termination as provided in such agreement or contract.
(b) Restricted Stock. Effective as soon as administratively practicable after the Distribution Date, Huttig shall cause the Restricted Stock Award held by Mr. Barry Kulpa under the Crane Restricted Stock Plan as of the Distribution Date, to the extent that vesting of shares granted under that Award is not dependent upon any performance or market value criteria (i.e. time-based restrictions), to be converted to a Restricted Stock Award under the Huttig Stock Incentive Plan by multiplying the number of shares of Crane Restricted Stock by the Ratio, and then rounding the product to the nearest whole share. Such Huttig Restricted Stock Award shall have the same terms and conditions as were applicable to the corresponding Crane Restricted Stock Award. Crane shall use reasonable efforts to cancel any certificate in Mr. Kulpa's name with respect to restricted shares of Crane Common Stock. To the extent that Mr. Kulpa's Restricted Stock Award is not subject to conversion under the prior provisions of this Section 6.1(b) (i.e. performance-based restrictions), such Restricted Stock Award shall be canceled.
6.2 Crane EVA Plan. Effective Immediately After the Distribution Date, Huttig shall assume all Benefit Liabilities to or relating to Huttig Individuals under the Crane EVA Plan. The Huttig EVA Plan shall reflect appropriate adjustments, as determined by Huttig in its sole discretion, of the cost of capital and other factors that shall be applicable to the benefits under the Huttig EVA Plan after the Distribution Date.
6.3 Employee Stock Purchase Plan. The Huttig Employee Stock Purchase Plan, established pursuant to Section 2.2, shall provide employees of Huttig or a Huttig Entity after the Distribution Date with an opportunity to purchase Huttig Common Stock at current market prices.
ARTICLE VII
GENERAL AND ADMINISTRATIVE
7.1 Non-Termination of Employment, No Third-Party Beneficiaries. No provision of this Agreement or the Distribution Agreement shall be construed to create any right, or accelerate entitlement, to any compensation or benefit whatsoever on the part of any Huttig Individual or other future, present or former employee of Crane, a Crane Entity, Huttig, or a Huttig Entity under any Crane Plan or Huttig Plan or otherwise. Without limiting the generality of the foregoing: (i) except as expressly provided in Section 6.1(a), the Distribution shall not cause any employee to be deemed to have incurred a termination of employment which entitles such individual to the commencement of benefits under any of the Crane Plans, any of the Huttig Plans, or any individual agreements; and (ii) except as expressly provided in this Agreement, nothing in this Agreement shall preclude Huttig, at any time after the Close of the Distribution Date, from amending, merging, modifying, terminating, eliminating, reducing, or otherwise altering in any respect any Huttig Plan, any
benefit under any Plan or any trust, insurance policy or funding vehicle related to any Huttig Plan.
7.2 Beneficiary Designations. All beneficiary designations made by Huttig Individuals for Crane Plans shall be transferred to and be in full force and effect under the corresponding Huttig Plans until such beneficiary designations are replaced or revoked by the Huttig Individual who made the beneficiary designation.
7.3 Collective Bargaining. To the extent any provision of this Agreement is contrary to the provisions of any collective bargaining agreement to which Crane or any Affiliate of Crane is a party, the terms of such collective bargaining agreement shall prevail. Should any provisions of this Agreement be deemed to relate to a topic determined by an appropriate authority to be a mandatory subject of collective bargaining, Crane or Huttig may be obligated to bargain with the union representing affected employees concerning those subjects.
7.4 Consent of Third Parties. If any provision of this Agreement is dependent on the consent of any third party (such as a vendor or a union) and such consent is withheld, Crane and Huttig shall use their reasonable efforts to implement the applicable provisions of this Agreement to the full extent practicable. If any provision of this Agreement cannot be implemented due to the failure of such third party to consent, Crane and Huttig shall negotiate in good faith to implement the provision in a mutually satisfactory manner. The phrase "reasonable efforts" as used herein shall not be construed to require the incurrence of any non-routine or unreasonable expense or liability or the waiver of any right.
7.5 Sharing of Participant Information. Crane and Huttig shall share, Crane shall cause each applicable Crane Entity to share, and Huttig shall cause each applicable Huttig Entity to share, with each other and their respective agents and vendors (without obtaining releases) all participant information necessary for the efficient and accurate administration of each of the Crane Plans and the Huttig Plans. Crane and Huttig and their respective authorized agents shall, subject to applicable laws on confidentiality, be given reasonable and timely access to, and may make copies of, all information relating to the subjects of this Agreement in the custody of the other party, to the extent necessary for such administration. Until December 31, 2000, or such other date as the parties may mutually agree, all participant information shall be provided in a manner and medium that is compatible with the data processing systems of Crane as in effect on the Close of the Distribution Date, unless otherwise agreed to by Crane and Huttig.
ARTICLE VIII
MISCELLANEOUS
8.1 Effect if Distribution Does Not Occur. If the Distribution does not occur, then all actions and events that are, under this Agreement, to be taken or occur effective as of the Close of the Distribution Date, Immediately After the Distribution Date, or otherwise in connection with the Distribution, shall not be taken or occur except to the extent specifically agreed by Huttig and Crane.
8.2 Relationship of Parties. Nothing in this Agreement shall be deemed or construed by the parties or any third party as creating the relationship of principal and agent, partnership or joint venture between the parties, it being understood and agreed that no provision contained herein, and no act of the parties, shall be deemed to create any relationship between the parties other than the relationship set forth herein.
8.3 Affiliates. Each of Crane and Huttig shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth in this Agreement to be performed by a Crane Entity or a Huttig Entity, respectively.
8.4 Governing Law. To the extent not preempted by applicable federal law, this Agreement shall be governed by, construed and interpreted in accordance with the laws of the State of Delaware, irrespective of the choice of laws principles of the state of Delaware, as to all matters, including matters of validity, construction, effect, performance and remedies.
8.5 Entire Agreement, Construction. This Agreement and the Ancillary Agreements, including, without limitation, any annexes, schedules and exhibits hereto or thereto, and other agreements and documents referred to herein and therein, will together constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and will supersede all prior negotiations, agreements and understandings of the parties of any nature, whether oral or written, with respect to such subject matter. In the event and to the extent that there is a conflict between the provisions of this Agreement and the provisions of the Distribution Agreement, the Transition Services Agreement or the Tax Allocation Agreement, the provisions of this Agreement shall control.
8.6 Expenses. Except as expressly set forth in this Agreement, all costs and expenses incurred through the Close of the Distribution Date with respect to any employee matters described herein shall be charged to and paid by Crane. Except as otherwise set forth in this Agreement, all costs and expenses incurred following the Distribution Date with respect to any employee matters described herein shall be charged to and paid by the party for whose benefit the expenses are incurred, with any expenses that cannot be allocated on such basis to be split equally between the parties.
8.7 Notices. All notices, requests, claims, demands and other communications required or permitted to be given hereunder will be in writing and will be delivered by hand or telecopied or sent, postage prepaid, by registered, certified or express mail or reputable overnight courier service and will be deemed given when so delivered by hand or telecopied, or three business days after being so mailed (one business day in the case of express mail or overnight courier service). All such notices, requests, claims, demands and other communications will be addressed as set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice:
(a) If to Crane:
Crane Co.
100 First Stamford Place
Stamford, CT 06902 Attention: Augustus I. duPont Telecopy: (203) 363-7350 with a copy to: Kirkpatrick & Lockhart LLP 1500 Oliver Building Pittsburgh, PA 15222-2312 Attention: Janice C. Hartman Telecopy: (412) 355-6501 |
(b) If to Huttig:
Huttig Building Products, Inc.
14500 South Outer Forty Road
Suite 400
Chesterfield, MO 63017
Attention:
Telecopy: (314) 216-2601
8.8 Consent to Jurisdiction. Each of Crane and Huttig irrevocably submits to the exclusive jurisdiction of (i) the Court of Chancery in and for the State of Delaware and the Superior Court in and for the State of Delaware and (ii) the United States District Court for the District of Delaware, for the purposes of any suit, action or other proceeding arising out of this Agreement or any transaction contemplated thereby (and agrees not to commence any action, suit or proceeding relating thereto except in such courts). Each of Crane and Huttig further agrees that service of any process, summons, notice or document hand delivered or sent by U.S. registered mail to such party's respective address set forth in Section 8.6 will be effective service of process for any action, suit or proceeding in Delaware with respect to any matters to which it has submitted to jurisdiction as set forth in the immediately preceding sentence. Each of Crane and Huttig irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement in (i) the Court of Chancery in and for the State of Delaware and the Superior Court in and for the State of Delaware or (ii) the United States District Court for the District of Delaware, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.
8.9 Amendments. This Agreement cannot be amended, modified or supplemented except by a written agreement executed by Crane and Huttig.
8.10 Assignment. Neither party to this Agreement will convey, assign or otherwise transfer any of its rights or obligations under this Agreement without the prior written consent of the other party in its sole and absolute discretion, except that other than as expressly provided herein any party may (without obtaining any consent) assign any of its rights hereunder to a
successor to all or any part of its business. Any such conveyance, assignment or transfer requiring the prior written consent of another party which is made without such consent will be void ab initio. No assignment of this Agreement will relieve the assigning party of its obligations hereunder.
8.11 Captions. The article, section and paragraph captions herein and the table of contents hereto are for convenience of reference only, do not constitute part of this Agreement and will not be deemed to limit or otherwise affect any of the provisions hereof. Unless otherwise specified, all references herein to numbered articles or sections are to articles and sections of this Agreement and all references herein to annexes or schedules are to annexes and schedules to this Agreement.
8.12 Severability. If any provision of this Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to Persons or circumstances other than those as to which it has been held invalid or unenforceable, will remain in full force and effect and will in no way be affected, impaired or invalidated thereby. If the economic or legal substance of the matters contemplated hereby is affected in any manner adverse to any party as a result thereof, the parties will negotiate in good faith in an effort to agree upon a suitable and equitable substitute provision to effect the original intent of the parties.
8.13 Parties in Interest. This Agreement is binding upon and is for the benefit of the parties hereto and their respective successors and permitted assigns. This Agreement is not made for the benefit of any Person not a party hereto, and no Person other than the parties hereto or their respective successors and permitted assigns will acquire or have any benefit, right, remedy or claim under or by reason of this Agreement.
8.14 Schedules. All annexes and schedules attached hereto are hereby incorporated in and made a part of this Agreement as if set forth in full herein. Capitalized terms used in the schedules hereto but not otherwise defined therein will have the respective meanings assigned to such terms in this Agreement.
8.15 Waivers; Remedies. No failure or delay on the part of either Crane or Huttig in exercising any right, power or privilege hereunder will operate as a waiver thereof, nor will any waiver on the part of either Crane or Huttig of any right, power or privilege hereunder operate as a waiver of any other right, power or privilege hereunder, nor will any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. The rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies which the parties may otherwise have at law or in equity.
8.16 Further Assurances. As and when requested by either party hereto, the other party shall execute and deliver, or cause to be executed and delivered, all such documents and instruments and shall take, or cause to be taken, all such actions as the requesting party may reasonably request with respect to the matters described herein.
8.17 Counterparts. This Agreement may be executed in separate counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts will together constitute the same agreement.
IN WITNESS WHEREOF, the parties have caused this Employee Matters Agreement to be duly executed as of the day and year first above written.
CRANE CO.
HUTTIG BUILDING PRODUCTS, INC.
HUTTIG BUILDING PRODUCTS, INC.
EVA INCENTIVE COMPENSATION PLAN
Huttig Building Products, Inc., a Delaware corporation (the "Company") has adopted an annual incentive compensation program based on the principles of Economic Value Added ("EVA") throughout the Company. The purpose of the EVA approach is to maximize stockholder value by aligning management's interests with those of stockholders and rewarding management for sustainable and continuous improvement in the business being managed.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), places limits on the deductibility of the compensation paid to the executive officers who may be named in the compensation table of the Company's proxy statement ("Named Executive Officers") to the extent such compensation exceeds $1 million per calendar year for an individual unless the compensation meets requirements set forth in Section 162(m) and the regulations issued thereunder. This limit on deductibility does not apply to compensation paid to any other executive officer, business unit president, key business unit executive or other participant in the Company's incentive compensation programs.
In order to preserve the deductibility of incentive compensation paid to
Named Executive Officers in the future, the Company has created this EVA
Incentive Compensation Plan (the "Plan") for the Company's executive officers
and for any other employees who may become Named Executive Officers by reason of
the executive compensation disclosure rules under the Securities Exchange Act of
1934, as amended. The Plan is intended to satisfy the specific requirements of
Section 162(m) of the Code, as outlined in regulations issued by the Internal
Revenue Service. This Plan shall become effective upon the date of distribution
of the Company's Common Stock to the stockholders of Crane Co. (the "Effective
Date"). This Plan is intended to be, and shall be operated as, a successor to
Crane Co.'s EVA Incentive Compensation Plan with respect to the participation of
employees of the Company who were participating in such plan of Crane Co.
immediately prior to the Effective Date.
The Plan will be administered by the Organization and Compensation Committee of the Board of Directors (the "Committee"). The Committee's decisions in the administration of the Plan shall be final and binding on all parties.
EVA is defined as the difference between the return on total capital invested in the business and the cost of capital, multiplied by total capital employed ("EVA Calculation"). The Plan will be formula driven. The primary EVA formula shall be for the Company as a whole but particular EVA formulas may be tailored by the Committee to the size and unique characteristics of the business unit or units for which a specific executive is responsible. The key elements of the EVA formula applicable to any executive will be the Cost of Capital (generally the cost of capital to the Company), the Return on Capital, the Amount of Capital employed in the business unit, the net operating profit of the unit after tax, and the prior year's EVA. Awards will be calculated on the basis of year-end results.
Formulas may utilize both a percentage of the change in the EVA of the Company or a business unit from the prior year, whether positive or negative, plus a percentage of the positive EVA, if any, in the current year; the EVA award may be calculated for the entire Company or an entire business unit and an executive may receive a percentage of a unit's EVA award. When an executive is responsible for more than one business unit, a formula may be based on a percentage of the aggregate EVA, positive or negative, of the units reporting to the executive or unit. The Committee has the discretion and authority to develop other EVA based formulae or goals for utilization pursuant to this Plan in future years. In any instance in which an executive participates in a unit EVA award in which a group of employees participates, the executive's percentage of the unit's EVA award will be specified.
Before the beginning of each fiscal year, the Committee will establish and set forth in writing the EVA formula applicable to each executive and each potential Named Executive Officer of the Company for that year (including the percentage of any business unit EVA award in which he may participate). The Committee will retain discretion to revise formulas or an executive's percentage participation in any unit EVA award if the Committee deems it appropriate as circumstances develop during the year; provided, however, in the case of a Named Executive Officer, such revision may only have a negative effect on the amount of the Named Executive Officer's award for the year. As soon as is reasonably practicable after the year ends the Committee will review the EVA calculation, calculate the EVA award for each executive pursuant to the formula established at the beginning of the year (revised downward if the Committee so determines), and certify the EVA incentive compensation award for each executive to the Board of Directors.
After the EVA award for a particular executive has been determined, it will be credited whether positive or negative to the executive's account. The executive will then
be paid, if the account remains positive, a specified percentage of the account balance in cash. The remainder of the account balance will represent that individual's "equity" in the account for future years. If EVA awards are or have been negative, an account balance may be negative. In such case, the executive will receive no incentive compensation until the aggregate of subsequent EVA awards results in a positive account balance. Each year, the Company will add interest to a positive balance or charge interest on a negative balance at an appropriate money market rate. In the event an executive leaves the Company by reason of termination or resignation, his or her account balance will be treated as follows:
EVENT DISPOSITION OF ACCOUNT BALANCE
----- ------------------------------
- Terminate/quit Lose account balance
- Removed from plan/demotion Account balance paid out in two
equal installments on the second
and third succeeding EVA payout
dates
- Unit sold by Huttig Receive account balance in cash
- Retirement(1)/death/disability Receive account balance in cash
- Unit spun off No payout; account balance
continued with spun off company
- Huttig acquired Receive account balance in cash
- Transfer to another business unit Account balance transfers with
executive
|
The entire account balance will become payable upon normal retirement (age 65), death, or disability, or a change-in-control. (The Committee will retain the discretion to pay the entire account balance upon early retirement.) For purposes of the Plan, the term "change in control" means (i) the first purchase of shares pursuant to a tender offer or exchange offer (other than a tender offer or exchange offer by the Company) for all or part of the Company's Common Stock or any securities convertible into such Common Stock, (ii) the receipt by the Company of a Schedule 13D or other advice indicating that a person is the "beneficial owner" (as that term is defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of 20% or more of the Company's Common Stock calculated as provided in paragraph (d) of said Rule 13d-3, (iii) the date of approval by stockholders of the Company of an agreement providing for any consolidation or merger of the Company in which the Company will not be the continuing or surviving corporation or pursuant to which shares of Common Stock of the
Company would be converted into cash, securities or other property, other than a
merger of the Company in which the holders of Common Stock of the Company
immediately prior to the merger would have the same proportion of ownership of
Common Stock of the surviving corporation immediately after the merger, (iv) the
date of the approval by stockholders of the Company of any sale, lease, exchange
or other transfer (in one transaction or a series of related transactions) of
all or substantially all the assets of the Company or (v) the adoption of any
plan or proposal for the liquidation (but not a partial liquidation) or
dissolution of the Company or (vi) individuals who, as of the Effective Date,
constituted the Board of Directors of the Company (the "Board") generally and as
of the date hereof (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board, provided that any person becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board (other than an election or nomination
of an individual whose initial assumption of office is in connection with an
actual or threatened election contest relating to the election of the Directors
of Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) shall be, for purposes of this Plan, considered as
though such person were a member of the Incumbent Board. If it is determined
that any payment of an account by the Company to an executive or Named Executive
Officer by reason of a change-in-control is subject to the excise tax imposed by
Section 4999 of the Code, the Company shall make additional cash payments to the
employee such that after payment of all taxes including any excise tax imposed
on such payments, the employee will retain an amount equal to the excise tax on
all the payments.
The Board of Directors may modify, suspend or terminate the Plan at any time.
HUTTIG BUILDING PRODUCTS, INC.
1999 NON-EMPLOYEE DIRECTOR
RESTRICTED STOCK PLAN
1. Purpose.
The purposes of the Huttig Building Products, Inc. 1999 Non-Employee Director Restricted Stock Plan (the "Plan") are to attract and retain well-qualified persons for service as directors of Huttig Building Products, Inc. (the "Company"), to provide directors through the payment of a portion of directors fees in shares of the Company's Common Stock, par value $.01 per share ("Common Stock"), with the opportunity to increase their proprietary interest in the Company and thereby to increase their personal interest in the Company's continued success.
2. Administration.
Responsibility and authority to administer and interpret the provisions of this Plan shall be conferred upon a committee of at least three persons (all of whom shall be persons not eligible to participate in this Plan) having full authority to act (the "Committee"). The members of the Committee shall be the President and Chief Executive Officer, the Vice President-Finance of the Company, and at least one additional disinterested person to be elected by the Chairman. The Committee shall record its proceedings under this Plan. The Committee may employ attorneys, consultants, accountants or other persons, and the Committee, the Company and its officers and directors shall be entitled to rely upon the advice, opinions or valuations of any such persons. All usual and reasonable expenses of the Committee shall be paid by the Company. No member shall receive compensation with respect to his services for the Committee except as may be authorized by the Board of Directors. All actions taken and all interpretations and determinations made by the Committee in good faith shall be final and binding upon all directors who have received awards, the Company and other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretations taken or made in good faith with respect to this Plan or awards made hereunder, and all members of the Committee shall be fully indemnified and protected by the Company in respect of any such action, determination or interpretation.
3. Eligibility.
All directors of the Company who are not full-time employees of the Company shall be participants in this Plan.
4. Awards.
Each non-employee director shall be paid an annual director's fee, in an amount fixed from time to time by the Board of Directors, which is not dependent upon attendance at meetings (the "Base Fee"). The Base Fee shall be payable in stock and cash as provided hereunder; provided,
however, that the Base Fee of any non-employee director who serves on the Board as a designee of The Rugby Group PLC shall be paid entirely in cash and the following provisions of this Plan regarding the award of shares of Common Stock shall not apply to such a director. The stock portion of the Base Fee shall be determined pursuant to this Section 4. At the Company's Annual Meeting each calendar year, each eligible non-employee director shall be awarded the number of full shares of Common Stock of the Company (rounded to the nearest ten shares) determined by dividing (i) the dollar amount equal to the excess of (a) the Base Fee then in effect over (b) $5,000 by (ii) the average of the high and low prices of a share of Common Stock on the New York Stock Exchange-Composite Transactions Tape on the 10 consecutive trading days ending on the day preceding the award date, or, if no sale of Common Stock has been recorded on such date, then on the next preceding date on which a sale was so made (the "Fair Market Value"). Each such award shall be evidenced by a written agreement, executed by the non-employee director and the Company, containing such restrictions, terms and conditions as the Committee may require. A non-employee director who becomes a member of the Board of Directors after the Annual Meeting in any year shall be awarded a prorated number of full shares of Common Stock based on the number of full months of service for that year. The price of Common Stock to be used in determining the number of shares of Common Stock to which such non-employee director shall be entitled for such year shall be the Fair Market Value of a share of Common Stock, on the day next preceding the date of the non-employee director's election to the Board of Directors.
5. Vesting.
(a) An award of Common Stock is forfeitable if the non-employee director ceases to remain a member of the Board of Directors until the Annual Meeting of the year following the year of the award, except in the case of death or disability (as determined by the Committee), which disability renders the director unable to continue to serve the Company or upon a change of control of the Company as set forth in Paragraph 5(b) hereof. In the event of death or disability, an allocated portion of the award for the year of death or disability, based on the number of full months of service, shall become non-forfeitable and distributable as of the date of such death or disability. Shares which are forfeited may be regranted.
(b) Notwithstanding anything else herein, all restrictions on any Common Stock that may have been awarded to a non-employee director hereunder shall lapse in the event of a "change in control." For purposes of this Plan, the term "change in control" shall mean (i) the first purchase of shares pursuant to a tender offer or exchange offer (other than a tender offer or exchange offer by the Company) for all or part of the outstanding shares of the Company's Common Stock or any securities convertible into such Common Stock, (ii) the receipt by the Company of a Schedule 13D or other advice indicating that a person is the "beneficial owner" (as that term is defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of 20% or more of the outstanding shares of the Company's Common Stock calculated as provided in paragraph (d) of said Rule 13d-3, (iii) the date of approval by stockholders of the Company of an agreement providing for any consolidation or merger of the Company in which the Company will not be the continuing or surviving corporation or pursuant to which shares of Common Stock of the Company would be converted into cash, securities or other property, other
than a merger of the Company in which the holders of Common Stock of the Company immediately prior to the merger would have the same proportion of ownership of common stock of the surviving corporation immediately after the merger, (iv) the date of the approval by stockholders of the Company of any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Company, (v) the adoption of any plan or proposal for the liquidation (but not a partial liquidation) or dissolution of the Company or (vi) the date upon which individuals who constitute the Board of Directors of the Company (the "Board") as of December 16, 1999 (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a non-employee director subsequent to such date whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of directors of the Company, as such terms are used in Rule 14a-11 or Regulation 14A promulgated under the Exchange Act) shall be, for purposes of this Plan, considered as though such person were a member of the Incumbent Board.
6. Terms and Conditions.
(a) The difference between the Base Fee and the portion of such Base Fee awarded under this Plan in Common Stock (valued at Fair Market Value) shall be paid to non-employee directors in cash installments on a monthly basis.
(b) Until such time as the risk of forfeiture lapses or the shares awarded are forfeited, a non-employee director has the right to vote and to receive dividends on and other distributions with respect to the shares awarded.
(c) At such time as the risk of forfeiture lapses, a non-employee director's Common Stock awarded under this Plan will have all the rights of any other Common Stock. No payment will be required from the non-employee director upon the issuance or delivery of any restricted stock, except that any amount necessary to satisfy applicable federal, state or local tax requirements shall be withheld or paid promptly upon notification of the amount due and prior to or concurrently with the issuance or delivery of a certificate representing such stock, provided that anything contained herein to the contrary notwithstanding, the Committee may accept stock received in connection with the award being taxed or otherwise previously acquired in satisfaction of withholding requirements.
(d) No shares may be sold or transferred (including, without limitation,
transfer by gift or donation) prior to the fifth anniversary of the date of the
award or the departure or resignation of the non-employee director from the
Board, whichever is earlier; except with regard to shares which vest as a result
of death or disability or upon a change of control of the Company (as defined in
Section 5(b) hereof), at which time all restrictions on transfer shall lapse.
(e) Up to 100,000 shares of Common Stock may be issued pursuant to this Plan. Shares of Common Stock issued pursuant to this Plan may be drawn from authorized but unissued shares or from treasury, as determined by the Board of Directors.
(f) Certificates for shares issued under this Plan shall be registered in the name of the non-employee director, and shall bear an appropriate legend referring to the terms, conditions and restrictions applicable to such award substantially in the following form:
The transferability of this certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) of the Huttig Building Products, Inc. 1999 Non-Employee Director Restricted Stock Plan. A copy of such Plan is on file in the offices of Huttig Building Products, Inc., Lakeview Center, Suite 400, 14500 South Outer Forty Road, Chesterfield, Missouri 63017.
(g) Prior to termination of the restrictions on sale and transfer provided herein, the certificates for the shares awarded pursuant to this Plan will be held by the Company's Treasurer in custody for the non-employee director.
(h) The Committee shall appropriately adjust the number of shares for which awards may be granted pursuant to this Plan in the event of any stock dividend, stock split, recapitalization or other similar event.
7. Amendment or Discontinuance.
The Board of Directors of the Company may at any time amend, rescind or terminate this Plan, as it shall deem advisable; provided, however, that (i) no change may be made in awards theretofore granted under this Plan which would impair participants' rights without their consent, and (ii) no amendment to this Plan shall be made without approval of the Company's stockholders if the effect of such amendment would be to (a) increase the number of shares reserved for issuance hereunder; (b) materially increase the benefits accruing to participants under this Plan; (c) materially change the requirements for eligibility under Section 3 hereof; or (d) materially modify the method for determining the number of shares awarded under Section 4 hereof; except that any such increase or modification that results from adjustment authorized by Section 6(h) hereof shall not require such approval.
8. Effective Date and Term of Plan.
This Plan shall become effective on December 16, 1999. No shares shall be awarded under this Plan after the tenth anniversary of the effective date.
9. Governing Law.
This Plan and all determinations made and actions taken pursuant hereto shall be governed by the laws of the State of Delaware, other than the conflict of law provisions thereof.
HUTTIG BUILDING PRODUCTS, INC.
1999 STOCK INCENTIVE PLAN
1. PURPOSE AND ADOPTION OF THE PLAN
The purpose of the Huttig Buildings Products, Inc. 1999 Stock Incentive
Plan (as the same may be amended from time to time, the "Plan") is (i) to
attract and retain key employees of Huttig Building Products, Inc., a Delaware
corporation (the "Company"), and its Subsidiaries (as defined below) who are and
will be contributing to the success of the business; (ii) to motivate and reward
key employees who have made significant contributions to the success of the
Company and encourage them to continue to give their best efforts to its future
success; (iii) to provide competitive incentive compensation opportunities; and
(iv) to further opportunities for stock ownership by such key employees in order
to increase their proprietary interest in the Company and their personal
interest in its continued success.
The Plan has been approved by the Board of Directors of the Company (the "Board") and the stockholders of the Company to be effective as of the effective date of the distribution by Crane Co. to its stockholders of the Company's Common Stock (the "Effective Date"). The Plan shall remain in effect until terminated by action of the Board; provided, however, that no Incentive Stock Option (as defined below) may be granted hereunder after the tenth anniversary of the Effective Date.
2. DEFINITIONS
For the purposes of this Plan, capitalized terms shall have the following meanings:
(a) "Award" means any grant to a Participant of one or a combination of Non-Qualified Stock Options or Incentive Stock Options described in Section 6 and Restricted Shares described in Section 8.
(b) "Award Agreement" means a written agreement between the Company and a Participant or a written notice from the Company to a Participant specifically setting forth the terms and conditions of an Award granted under the Plan.
(c) "Beneficiary" means an individual, trust or estate who or which, by a written designation of the Participant filed with the Company or by operation of law, succeeds to the rights and obligations of the Participant under the Plan and an Award Agreement upon the Participant's death.
(d) "Board" shall have the meaning given to such term in Section 1(b).
(e) "Change in Control" means the first to occur of the following events after the Effective Date: (i) the first purchase of shares pursuant to a tender offer or exchange offer (other than a tender offer or exchange offer by the Company) for all or part of the Company's Common Stock or any securities convertible into such Common Stock, (ii) the receipt by the Company of a Schedule 13D or other advice indicating that a person is the "beneficial owner" (as that term is defined in Rule 13d-3 under the Exchange Act) of 20% or more of the Company's Common Stock calculated as provided in paragraph (d) of said Rule 13d-3, (iii) the date of approval by the stockholders of the Company of an agreement providing for any Merger of the Company in which the Company will not be the continuing or surviving corporation or pursuant to which shares of Common Stock of the Company would be converted into cash, securities or other property, other than a Merger of the Company in which the holders of Common Stock of the Company immediately prior to the Merger would have the same proportion of ownership of common stock of the surviving corporation immediately after the Merger, (iv) the date of the approval by the stockholders of the Company of any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Company, (v) the adoption of any plan or proposal for the liquidation (but not a partial liquidation) or dissolution of the Company, (vi) the date upon which the individuals who constitute the Board as of the Effective Date (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to such date whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the Directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall, for purposes of this Plan, be considered as though such person were a member of the Incumbent Board.
(f) "Code" means the Internal Revenue Code of 1986, as amended. References to a section of the Code include that section and any comparable section or sections of any future legislation that amends, supplements or supersedes said section.
(g) "Committee" means the Organization and Compensation Committee of the Board or such other committee composed of at least three members of the Board as may be designated by the Board from time to time.
(h) "Company" shall have the meaning given to such term in Section 1.
(i) "Common Stock" means Common Stock, par value $.01 per share, of the Company.
(j) "Date of Grant" means the date as of which the Committee grants an Award. If the Committee contemplates an immediate grant to a Participant, the Date of Grant shall be the date of the Committee's action. If the Committee contemplates a date on which the grant is to be made other than the date of the Committee's action, the Date of Grant shall be the date so contemplated
and set forth in or determinable from the records of action of the Committee; provided, however, that the Date of Grant shall not precede the date of the Committee's action.
(k) "Effective Date" shall have the meaning given to such term in
Section 1.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(m) "Fair Market Value" means, as of any applicable date, for all purposes in this Plan, the average of the high and low sales prices of the Common Stock on the New York Stock Exchange-Composite Transactions Tape on the ten (10) consecutive trading days ending on that day, or if no sale of stock has been recorded on such day, then on the next preceding day on which a sale was so made. In the event the Common Stock is not admitted to trade on a securities exchange, the Fair Market Value as of any given date shall be as determined in good faith by the Committee.
(n) "Incentive Stock Option" means a stock option within the meaning of
Section 422 of the Code.
(o) "Merger" means any merger, reorganization, consolidation, share exchange, transfer of assets or other transaction having similar effect involving the Company.
(p) "Non-Qualified Stock Option" means a stock option which is not an Incentive Stock Option.
(q) "Options" means all Non-Qualified Stock Options and Incentive Stock Options granted at any time under the Plan.
(r) "Participant" means a person designated to receive an Award under the Plan in accordance with Section 5.
(s) "Permanent Disability" means a physical or mental disability or infirmity that prevents the performance of a Participant's services for the Company and its Subsidiaries lasting (or likely to last, based on competent medical evidence presented to the Committee) for a period of six months or longer. The Committee's reasoned and good faith judgment of Permanent Disability shall be final and shall be based on such competent medical evidence as shall be presented to it by such Participant or by any physician or group of physicians or other competent medical expert employed by the Participant or the Company to advise the Committee.
(t) "Plan" shall have the meaning given to such term in Section 1(a).
(u) "Purchase Price," with respect to Options, shall have the meaning set forth in Section 6(b).
(v) "Restricted Shares" means Common Stock subject to restrictions imposed in connection with Awards granted under Section 8.
(w) "Retirement" means a Participant's retirement at or after age 65.
(x) "Subsidiary" means a subsidiary of the Company within the meaning of
Section 424(f) of the Code.
3. ADMINISTRATION
(a) This Plan shall be administered by the Committee; provided, however, if any member of the Committee does not meet the qualifications for an "outside director" established from time to time by Section 162(m) of the Code, and any proposed or future regulations thereunder, or the qualifications for a "non-employee director" established from time to time by rules or regulations of the Securities and Exchange Commission under Section 16 of the Exchange Act, the remaining members of the Committee (but not less than two) shall administer the Plan. The Committee shall have the sole discretionary authority to interpret the Plan, to establish and modify administrative rules for the Plan, to impose such conditions and restrictions on Awards as it determines appropriate, and to take such steps in connection with the Plan and Awards granted hereunder as it may deem necessary or advisable. No member of the Committee shall be eligible to participate in, and no person shall become a member of the Committee if within one year prior thereto he or she shall have been eligible to participate in this Plan or any other plan of the Company or its Subsidiaries (other than the Huttig Building Products, Inc. 1999 Non-Employee Director Restricted Stock Plan) entitling the participants therein to acquire stock, stock options, stock appreciation rights or restricted stock of the Company or its Subsidiaries. Decisions of the Committee in connection with the administration of the Plan shall be final, conclusive and binding upon all parties, including the Company, its stockholders and the Participants.
(b) The Committee may employ attorneys, consultants, accountants or other persons and the Committee and the Company and its officers and directors shall be entitled to rely upon the advice, opinions or valuations of any such persons. All usual and reasonable expenses of the Committee shall be paid by the Company. No Committee member shall receive compensation with respect to his or her services for the Committee except as may be authorized by the Board. All actions taken and all interpretations and determinations made by the Committee in good faith shall be final and binding upon all employees who have received awards, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretations taken or made in good faith with respect to this Plan or Awards made hereunder, and all members of the Committee shall be fully indemnified and protected by the Company in respect of any such action, determination or interpretation.
4. SHARES
(a) The total number of shares of Common Stock authorized to be issued under the Plan shall not exceed in the aggregate 7% of the issued and outstanding shares of Common Stock immediately following the Effective Date; provided that, if the number of issued and outstanding
shares of Common Stock is increased after the Effective Date, the maximum number of shares of Common Stock for which Awards may be granted under the Plan shall be increased by 7% of such increase. Notwithstanding the foregoing provisions of this Section 4(a), the maximum number of shares of Common Stock that may be issued as Incentive Stock Options under the Plan shall be 2,000,000 shares. The number of shares available for issuance under the Plan shall be subject to adjustment in accordance with Section 9. The shares to be offered under the Plan shall be authorized and unissued shares of Common Stock, or issued shares of Common Stock which will have been reacquired by the Company, including shares purchased in the open market.
(b) Subject to the provisions of Section 6(d), any shares subject to an Option granted under this Plan that expires or is terminated for any reason without having been exercised in full, shares of Common Stock forfeited as provided in Section 8(h) and shares of Common Stock subject to any Award that are otherwise surrendered by a Participant or terminated shall continue to be available for future grants under this Plan. If any shares of Common Stock are withheld from those otherwise issuable or are tendered to the Company, by attestation or otherwise, in connection with the exercise of an Option, only the net number of shares of Common Stock issued as a result of such exercise shall be deemed delivered for purposes of determining the maximum number of shares available for delivery under the Plan.
5. PARTICIPATION
Participants in the Plan shall be such key employees of the Company and its Subsidiaries as the Committee, in its sole discretion, may designate from time to time. For purposes of the Plan, "key employees" shall mean officers as well as other employees (including officers and other employees who are also directors of the Company or any Subsidiary) designated by the Committee in its discretion upon the recommendation of management, but shall not include any employee who, assuming the full exercise of such Option, would own more than 10% of the combined voting power of all classes of stock of the Company or any Subsidiary. Subject to adjustment in accordance with Section 9, the maximum number of shares for which Awards may be granted under this Plan to any single individual in any calendar year shall not exceed 1% of the total number of outstanding shares of Common Stock as of the Date of Grant. Options under the Plan may be Incentive Stock Options within the meaning of Section 422 of the Code or Non-Qualified Stock Options. Awards granted hereunder shall be evidenced by Award Agreements in such form as the Committee shall approve, which Agreements shall comply with and be subject to the terms and conditions of this Plan.
6. GRANT AND EXERCISE OF STOCK OPTIONS
(a) The purchase price of each share of Common Stock upon exercise of any Options granted under the Plan shall not be less than 100% of the Fair Market Value of the stock on the date the Options are granted (the "Purchase Price").
(b) Each Option granted under this Plan shall be exercisable in whole or in part (in lots of ten shares or any multiple thereof) from time to time beginning from the date the Option is granted, subject to the provision that an Option may not be exercised by the Participant, except as provided in Section 7, (i) more than 90 days after the termination of the Participant's employment by the Company or a Subsidiary or more than 10 years from the Date of Grant, whichever period is shorter, or (ii) prior to the expiration of one year from the Date of Grant; provided further, that, unless otherwise determined by the Committee, the Option may not be exercised in excess of 50% of the total shares subject to such Option during the second year after the Date of Grant, 75% during the third year, and 100% thereafter.
(c) The Purchase Price of the shares purchased upon the exercise of an Option shall be paid in full at the time of exercise in cash or, in whole or in part, by tendering (either actually or by attestation) shares of Common Stock. The value of each share of Common Stock delivered in payment of all or part of the Purchase Price upon the exercise of an Option shall be the Fair Market Value of the Common Stock on the date the Option is exercised. Exercise of Options shall also be permitted, if approved by the Committee, in accordance with a cashless exercise program under which, if so instructed by a Participant, shares of Common Stock may be issued directly to the Participant's broker or dealer upon receipt of an irrevocable written notice of exercise from the Participant.
(d) The Committee, upon such terms and conditions as it shall deem appropriate, may (but shall not be obligated to) authorize on behalf of the Company the acceptance of the surrender of the right to exercise an Option or a portion thereof (but only to the extent and in the amounts that such Option shall then be exercisable) and the payment by the Company therefor of an amount equal to the excess of the Fair Market Value on the date of surrender of the shares of Common Stock covered by such Option or portion thereof over the aggregate option price of such shares. Such payment shall be made in shares of Common Stock (valued at such Fair Market Value) or in cash, or partly in cash and partly in shares of Common Stock, as the Committee shall determine. The shares of Common Stock covered by any Option or portion thereof, as to which the right to exercise shall have been so surrendered, shall not again be available for the purposes of this Plan.
(e) Each Option granted under this Plan shall not be transferable by the Participant otherwise than by will or the laws of descent and distribution, and shall be exercisable, during the Participant's lifetime, only by the Participant. Notwithstanding the foregoing, Non-Qualified Stock Options may be transferable, without payment of consideration, to immediate family members of the Participant or to trusts or partnerships for the benefit of such family members.
(f) No Participant may be granted Incentive Stock Options under the Plan (or any other plans of the Company and its Subsidiaries) that would result in shares with an aggregate Fair Market Value (measured on the Date of Grant) of more than $100,000 first becoming exercisable in any one calendar year.
(g) The Company shall have the right to require a Participant to pay to the Company the cash amount of any taxes which the Company is required to withhold upon the exercise of an
Option granted hereunder, provided that anything contained herein to the contrary notwithstanding, the Committee may, in accordance with such rules as it may adopt, accept shares of Common Stock received in connection with the exercise of the Option being taxed or otherwise previously acquired in satisfaction of any withholding requirements or up to the entire tax liability arising from the exercise of such Option.
(h) The Committee, in its sole discretion, shall have the right (but shall not in any case be obligated), exercisable at any time after the Date of Grant, to permit the exercise of any Option prior to the time such Option would otherwise become exercisable under the terms of the Award Agreement.
(i) The Committee shall have the authority to specify, either at the time
of grant of an Option or at a later date, that upon exercise of all or a portion
of that Option (the "Original Option") a reload stock option ("Reload Option")
shall be granted under specified conditions. A Reload Option shall entitle the
Participant to purchase a number of shares equal to the shares delivered in
payment of all or part of the exercise price of the Original Option pursuant to
Section 6(c) plus the shares delivered or withheld to satisfy the tax liability
associated with such exercise pursuant to Section 6(g). The specific terms and
conditions applicable for Reload Options shall be determined by the Committee
and shall be set forth in rules adopted by the Committee or in agreements or
other documentation evidencing such Reload Options; provided, however, that (i)
the exercise price of the Reload Option shall be the Fair Market Value of the
Common Stock at the Date of Grant, (ii) the Reload Option shall not be
exercisable, except as provided in Section 7, earlier than six months after its
Date of Grant, and (iii) the expiration date of the Reload Option shall not be
later than the expiration date of the Original Option.
7. EXERCISE OF OPTIONS UPON TERMINATION OF EMPLOYMENT
(a) If a Participant shall retire or shall cease to be employed by the Company or by a Subsidiary by reason of Permanent Disability or after a Change in Control, all Options theretofore granted to such Participant, whether or not previously exercisable, may be exercised in whole or in part, and/or the Committee may authorize the acceptance of the surrender of the right to exercise such Options or any portion thereof as provided in Section 6(d), at any time within 90 days after such Retirement, termination by reason of Permanent Disability, or termination after a Change in Control, but not after the expiration of the term of the Option.
(b) If a Participant shall die while employed by the Company or by a Subsidiary or within 90 days of the cessation or termination of such employment under circumstances described in Section 7(a), all Options theretofore granted to such Participant, whether or not previously exercisable, may be exercised in whole or in part, and/or the Committee may authorize the acceptance of the surrender of the right to exercise such Options or any portion thereof as provided in Section 6(d), by the estate of such Participant (or by a person who shall have acquired the right to exercise such Option by bequest or inheritance), at any time within one year after the death of such Participant but not after the expiration of the term of the Option.
(c) If a Participant's employment is terminated for any reason other than death, disability or retirement or after a Change in Control, such Participant may exercise any Option in whole or in part, at any time within 90 days after such termination of employment, but only to the extent such Option is exercisable at the date of termination in accordance with Section 6(b). In no event may any Option be exercised after the expiration of the term of the Option.
8. GRANT OF RESTRICTED SHARES
(a) The Committee may grant to any Participant an Award of such number of shares of Common Stock on such terms, conditions and restrictions, whether based on performance standards, periods of service, retention by the Participant of ownership of specified shares of Common Stock or other criteria, as the Committee shall establish. With respect to performance-based Awards of Restricted Shares intended to qualify for deductibility under the "performance-based" compensation exception contained in Section 162(m) of the Code, performance targets will include specified levels of one or more of the following (in absolute terms or relative to one or more other companies or indices): revenues, free cash flow, return on assets, operating income, return on investment, economic value added, return on stockholders' equity, stock price appreciation, total share return, earnings before interest, taxes, depreciation and amortization, earnings per share and/or growth in earnings per share. The terms of any Restricted Share Award granted under this Plan shall be set forth in an Award Agreement which shall contain provisions determined by the Committee and not inconsistent with this Plan.
(b) As soon as practicable after the Date of Grant of a Restricted Share
Award by the Committee, the Company shall cause to be transferred on the books
of the Company or its agent, shares of Common Stock, registered on behalf of the
Participant, evidencing the Restricted Shares covered by the Award, subject to
forfeiture to the Company as of the Date of Grant if an Award Agreement with
respect to the Restricted Shares covered by the Award is not duly executed by
the Participant and timely returned to the Company. All shares of Common Stock
covered by Awards under this Section 8 shall be subject to the restrictions,
terms and conditions contained in the Plan and the applicable Award Agreements
entered into by the appropriate Participants. Until the lapse or release of all
restrictions applicable to an Award of Restricted Shares the share certificates
representing such Restricted Shares may be held in custody by the Company, its
designee, or, if the certificates bear a restrictive legend, by the Participant.
Upon the lapse or release of all restrictions with respect to an Award as
described in Section 8(e), one or more share certificates, registered in the
name of the Participant, for an appropriate number of shares as provided in
Section 8(e), free of any restrictions set forth in the Plan and the related
Award Agreement shall be delivered to the Participant.
(c) Beginning on the Date of Grant of a Restricted Share Award and subject to execution of the related Award Agreement as provided in Section 8(b), and except as otherwise provided in such Award Agreement, the Participant shall become a stockholder of the Company with respect to all shares subject to the Award Agreement and shall have all of the rights of a stockholder, including, but not limited to, the right to vote such shares and the right to receive dividends; provided, however, that any shares of Common Stock or other securities distributed as a dividend
or otherwise with respect to any Restricted Shares as to which the restrictions have not yet lapsed, shall be subject to the same restrictions as such Restricted Shares and held or restricted as provided in Section 8(b).
(d) None of the Restricted Shares may be assigned or transferred (other than by will or the laws of descent and distribution or to an inter vivos trust with respect to which the Participant is treated as the owner under Sections 671 through 677 of the Code), pledged or sold prior to the lapse of the restrictions applicable thereto.
(e) Upon expiration or earlier termination of the forfeiture period without a forfeiture and the satisfaction of or release from any other conditions prescribed by the Committee, or at such earlier time as provided under the provisions of Section 8(i), the restrictions applicable to the Restricted Shares shall lapse. As promptly as administratively feasible thereafter, subject to the requirements of Section 8(k), the Company shall deliver to the Participant or, in case of the Participant's death, to the Participant's Beneficiary, one or more share certificates for the appropriate number of shares of Common Stock, free of all such restrictions, except for any restrictions that may be imposed by law.
(f) A Participant's Restricted Share Award shall not be contingent on any payment by or consideration from the Participant other than the rendering of services.
(g) The Committee will have the discretion, as to any Restricted Share Award, to award a separate cash amount, payable to the Participant at the time when the forfeiture restrictions on the Restricted Shares lapse or at such earlier time as the Participant may elect to be taxed with respect to such Restricted Shares equal to (i) the federal income tax and the Section 4999 golden parachute excise tax, if any, payable with respect to the lapse of such restrictions or with respect to such election, divided by (ii) one (1) minus the total effective federal income and excise tax rate applicable as a result of the lapse of such restrictions or a result of such election.
(h) Subject to Sections 8(i) and 8(j), Restricted Shares shall be forfeited and returned to the Company and all rights of the Participant with respect to such Restricted Shares shall terminate unless the Participant continues in the service of the Company or a Subsidiary until the expiration of the forfeiture period for such Restricted Shares and satisfies any and all other conditions set forth in the Award Agreement. The Committee shall determine the forfeiture period (which may, but need not, lapse in installments) and any other terms and conditions applicable with respect to any Restricted Share Award.
(i) Notwithstanding anything contained in this Section 8 to the contrary, the Committee may, in its sole discretion, waive the forfeiture period and any other conditions set forth in any Award Agreement under appropriate circumstances (including the death, disability or Retirement of the Participant or a material change in circumstances arising after the date of an Award) and subject to such terms and conditions (including forfeiture of a proportionate number of the Restricted Shares) as the Committee shall deem appropriate.
(j) Unless otherwise provided by the Committee in the applicable Award Agreement, in the event of a Change in Control, all restrictions applicable to the Restricted Share Award shall terminate fully and the Participant shall immediately have the right to the delivery of share certificates for such shares in accordance with Section 8(e).
(k) The Company shall have the right to require a Participant to pay to the Company the cash amount of any taxes which the Company is required to withhold with respect to any amount payable and/or shares issuable under such Participant's Award. The Company may defer payment of cash or issuance of shares upon exercise or vesting of an Award unless indemnified to its satisfaction against any liability for any such tax. The amount of such withholding or tax payment shall be determined by the Committee and shall be payable by the Participant at such time as the Committee determines.
9. ADJUSTMENTS TO REFLECT CAPITAL CHANGES
In the event that there is an increase in the number of issued shares of the Common Stock by reason of any stock dividend, stock split, recapitalization or other similar event, the total number of shares available for Awards under the Plan, the maximum number of shares for which Options may be granted to any single individual in any calendar year and the number of shares remaining subject to purchase under each outstanding Option shall be increased and the price per share of such outstanding Options shall be decreased, in proportion to such increase in issued shares. Conversely, in case the issued shares of Common Stock shall be combined into a smaller number of shares, the total number of shares available for Awards under the Plan, the maximum number of shares for which Options may be granted to any single individual in any calendar year and the number of shares remaining subject to purchase under each outstanding Option shall be decreased and the price per share of such outstanding Options shall be increased, in proportion to such decrease in issued shares. In the event of any Merger, the Committee may make such adjustment in the shares available for Awards under the Plan, the maximum number of shares for which Options may be granted to any single individual in any calendar year and the shares subject to outstanding Awards and the price thereof, if applicable, as the Committee, in its sole discretion, deems appropriate. In the event of an exchange of Common Stock, or other securities of the Company convertible into Common Stock, for the stock or securities of another corporation, the Committee may, in its sole discretion, equitably substitute such new stock or securities for a portion or all of the shares of Common Stock subject to outstanding Awards.
10. AMENDMENT AND TERMINATION
This Plan may be amended or terminated at any time by the Board except with respect to any Awards then outstanding, and any Award granted under this Plan may be terminated at any time with the consent of the Participant. The Board may make such changes in and additions to this Plan as it may deem proper and in the best interest of the Company; provided, however, that no such action shall, without the consent of the Participant, materially impair any Award theretofore granted under this Plan; and provided, further, that without the approval of the
stockholders of the Company (i) the total number of shares that may be issued under this Plan shall not be increased, and (ii) the minimum purchase price shall not be changed. Notwithstanding the foregoing, the Board may amend or revise this Plan to comply with applicable laws or governmental regulations.
11. GENERAL PROVISIONS
(a) Each Option granted under this Plan shall be evidenced by a written Award Agreement containing such terms and conditions as the Committee may require, and no person shall have any rights under any Award granted under this Plan unless and until such agreement has been executed and delivered by the Participant and the Company.
(b) In the event of any conflict between the terms of this Plan and any provision of any Option agreement, the terms of this Plan shall be controlling.
(c) No Participant or other person shall have any claim of right to be granted an Award under the Plan. Neither the Plan nor any action taken hereunder shall be construed as giving any Participant any right to be retained in the employ of the Company or any of its Subsidiaries. Unless otherwise agreed by contract, the Company reserves the right to terminate its employment relationship with any person at any time and for any reason.
(d) Income realized as a result of a grant or an exercise of any Award under this Plan shall not be included in the Participant's earnings for the purpose of any benefit plan in which the Participant may be enrolled or for which the Participant may become eligible unless otherwise specifically provided for in such plan.
(e) The obligation of the Company to sell and deliver shares of Common Stock with respect to any Award granted hereunder shall be subject to, as deemed necessary or appropriate by counsel for the Company, (i) all applicable laws, rules and regulations and such approvals by any governmental agencies as may be required, including, without limitation, the effectiveness of a registration statement under the Securities Act of 1933, and (ii) the condition that such shares shall have been duly listed on such stock exchanges as the Common Stock is then listed.
(f) Anything in this Plan to the contrary notwithstanding, it is expressly agreed and understood that if any one or more provisions of this Plan shall be illegal or invalid such illegality or invalidity shall not invalidate this Plan or any other provisions thereof, but this Plan shall be effective in all respects as though the illegal or invalid provisions had not been included.
(g) All determinations made and actions taken pursuant to the Plan shall be governed by the laws of the State of Delaware, other than the conflict of laws provisions thereof, and construed in accordance therewith.
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