AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 10, 1998
REGISTRATION NO. 333-47101
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
USI, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 3998 22-3568449
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
Incorporation or Organization) Classification Number) Number)
101 WOOD AVENUE SOUTH
P.O. BOX 169
ISELIN, NEW JERSEY 08830-0169
(732) 767-0700
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
------------------------------
GEORGE H. MACLEAN, ESQ.
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
U.S. INDUSTRIES, INC.
101 WOOD AVENUE SOUTH
P.O. BOX 169
ISELIN, NEW JERSEY 08830-0169
(732) 767-0700
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
------------------------------
COPIES TO:
MARK E. BETZEN, ESQ.
ELLEN J. ODONER, ESQ. JONES, DAY, REAVIS & POGUE
WEIL, GOTSHAL & MANGES LLP 2300 TRAMMELL CROW CENTER
767 FIFTH AVENUE 2001 ROSS AVENUE
NEW YORK, NEW YORK 10153 DALLAS, TEXAS 75201-2958
(212) 310-8000 (214) 220-3939
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effectiveness of this Registration Statement and the
effective time ("Effective Time") of the mergers (the "Mergers") of one
subsidiary of USI, Inc. ("New USI") with and into U.S. Industries, Inc. ("USI")
and of another subsidiary of New USI with and into Zurn Industries, Inc.
("Zurn") as described in the Agreement and Plan of Merger, dated as of February
16, 1998, among USI, New USI, Blue Merger Corp., Zoro Merger Corp. and Zurn.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) FEE
Common Stock, par value $.01 per share 103,320,244 $26.74 $2,763,660,708 $815,280(3)
(1) Consists of (i) 77,060,407 and 20,396,074 shares, respectively, of New USI
Common Stock, to be issuable upon the conversion, pursuant to the Mergers,
of currently outstanding shares of USI Common Stock and Zurn Common Stock,
(ii) up to 3,749,163 and 2,061,400 shares, respectively, of New USI Common
Stock issuable upon the exercise of USI and Zurn options that are
outstanding and unexercised at the Effective Time and that, pursuant to the
Mergers, will be assumed by New USI and converted into options to purchase
shares of New USI Common Stock, and (iii) 40,000 shares of New USI Common
Stock to be issuable upon the conversion of outstanding shares of Zurn
Common Stock which may be issued pursuant to certain employee benefit
obligations of Zurn and 10,000 shares of New USI Common Stock to be issuable
upon the conversion of outstanding shares of USI Common Stock which may be
issued pursuant to certain employee benefit obligations of USI.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) and Rule 457(c), based on the sum of (i) the
product of (a) $26.79 (the average of the high and low prices of USI Common
Stock on February 24, 1998 on the New York Stock Exchange Composite Tape)
times (b) 80,809,570 (the number of shares of USI Common Stock outstanding
reserved for issuance upon the exercise of outstanding options to purchase
USI Common Stock on February 26, 1998 and which may be issued pursuant to
certain employee benefit obligations of USI) and (ii) the product of (a)
$42.50 (the average of the high and low prices of Zurn Common Stock on
February 24, 1998 on the New York Stock Exchange Composite Tape) times (b)
14,037,883 (the number of shares of Zurn Common Stock outstanding reserved
for issuance upon the exercise of outstanding options to purchase Zurn
Common Stock and the conversion of outstanding Zurn Preferred Stock on
February 26, 1998 and which may be issued pursuant to certain employee
benefit obligations of Zurn).
(3) $814,642 of this registration fee has been paid in the previous filing of
this Registration Statement. The registration fee relating to the
registration of the additional 50,000 shares of New USI Common Stock to be
held in reserve (as described in footnote (1) clause (iii) above) was
calculated based on the average high and low prices of USI Common Stock and
Zurn Common Stock on April 9, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(A), MAY DETERMINE.
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[LOGO]
April , 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders (the
"USI Meeting") of U.S. Industries, Inc. ("USI") to be held on May [20], 1998, at
9:00 a.m., local time, at The Brunswick Hilton and Towers, Three Tower Center
Boulevard at Tower Center, at Exit 9, New Jersey Turnpike, East Brunswick, New
Jersey 08816.
At the USI Meeting, you will be asked to approve and adopt (i) an Agreement
and Plan of Merger, dated as of February 16, 1998, as amended (the "Merger
Agreement"), that provides for the combination of USI and Zurn Industries, Inc.
("Zurn") and (ii) an amendment to the U.S. Industries, Inc. 1997 Restricted
Stock Plan (the "Amendment"). The Amendment will only become effective if it is
approved by the stockholders of USI and the transactions contemplated by the
Merger Agreement (collectively, the "Transaction") are consummated.
Upon completion of the Transaction:
- USI and Zurn will each become a wholly owned subsidiary of a new holding
company named "USI, Inc." (to be renamed "U.S. Industries, Inc." following
the consummation of the Transaction and hereinafter referred to as "New
USI");
- each outstanding share of USI Common Stock, par value $.01 per share, will
be converted into one share of New USI Common Stock, par value $.01 per
share ("New USI Common Stock"); and
- each outstanding share of Zurn Common Stock, par value $.50 per share,
will be converted into the right to receive 1.6 shares of New USI Common
Stock.
Detailed descriptions of the Merger Agreement, the Transaction and the
Amendment are set forth in the accompanying Joint Proxy Statement/Prospectus,
which you should read carefully.
Your Board of Directors has determined that the Transaction and the
Amendment are in the best interests of the stockholders of USI. Accordingly, the
Board has unanimously approved the Merger Agreement and the Amendment and
recommends that all USI stockholders vote FOR the approval and adoption of the
Merger Agreement and the Amendment.
YOUR VOTE IS IMPORTANT. Approval of the Transaction requires the affirmative
vote of the holders of a majority of the then outstanding shares of USI Common
Stock entitled to vote thereon. Failure to vote or to return your proxy card
will have the same effect as a vote against the Transaction. Approval of the
Amendment requires the affirmative vote of the holders of a majority in voting
power of the shares of USI Common Stock present in person or by proxy at the USI
Meeting. Therefore, whether or not you plan to attend the USI Meeting in person
and regardless of the number of shares you own, I urge you to complete, sign and
date the enclosed proxy card or voting instruction card and return it in the
enclosed prepaid envelope as soon as possible. As a holder of record, you may,
of course, attend the USI Meeting and vote in person, even if you previously
returned your proxy card.
Sincerely yours,
[LOGO]
David H. Clarke
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
YOUR VOTE IS IMPORTANT.
PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY.
U.S. INDUSTRIES, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY [20], 1998
------------------------
A Special Meeting of Stockholders (the "USI Meeting") of U.S. Industries,
Inc., a Delaware corporation ("USI"), will be held starting at 9:00 a.m., local
time, on May [20], 1998, at The Brunswick Hilton and Towers, Three Tower Center
Boulevard at Tower Center, at Exit 9, New Jersey Turnpike, East Brunswick, New
Jersey 08816. Attendance at the USI Meeting will be limited to stockholders of
record on April 2, 1998, or their proxies, beneficial owners having evidence of
ownership on that date and invited guests of USI.
The purposes of the USI Meeting are:
1. To consider and vote upon a proposal (the "Merger Proposal") to
approve and adopt an Agreement and Plan of Merger, dated as of February 16,
1998, as amended (the "Merger Agreement"), among USI, USI, Inc., a Delaware
corporation and currently a wholly owned subsidiary of USI ("New USI"), Blue
Merger Corp., a Delaware corporation and a wholly owned subsidiary of New
USI ("Blue Merger Corp."), Zoro Merger Corp., a Pennsylvania corporation and
a wholly owned subsidiary of New USI ("Zoro Merger Corp."), and Zurn
Industries, Inc., a Pennsylvania corporation ("Zurn"); and
2. To consider and vote upon a proposal (the "Plan Proposal") to approve
and adopt an amendment to the U.S. Industries, Inc. 1997 Restricted Stock
Plan (the "Amendment").
The Merger Agreement contemplates, among other things, that Blue Merger
Corp. will be merged into USI (the "USI Merger") and Zoro Merger Corp. will be
merged into Zurn (the "Zurn Merger" and, together with the USI Merger, the
"Mergers"), with the result that (a) USI and Zurn will each become a wholly
owned subsidiary of New USI, (b) each outstanding share of USI Common Stock, par
value $.01 per share ("USI Common Stock"), other than shares held in the
treasury of USI, will be converted into one share of New USI Common Stock, par
value $.01 per share ("New USI Common Stock"), and (c) each outstanding share of
Zurn Common Stock, par value $.50 per share ("Zurn Common Stock"), other than
shares held in the treasury of Zurn, will be converted into the right to receive
1.6 shares of New USI Common Stock. The transactions contemplated by the Merger
Agreement are collectively referred to herein as the "Transaction." Upon
consummation of the Transaction, New USI will be renamed "U.S. Industries, Inc."
The Amendment provides, among other things, for (a) an increase of 350,000
in the number of shares of USI Common Stock available for awards and (b) a
pre-established alternative schedule for the vesting of restricted stock awarded
under the plan (3, 5 and 7 years after the award). The Amendment will only
become effective if it is approved by the stockholders of USI and the
Transaction is consummated.
The terms of the Merger Agreement, the New USI Common Stock to be issued in
connection therewith and the Amendment are described in detail in the
accompanying Joint Proxy Statement/ Prospectus.
To ensure that your vote will be counted, please complete, sign and date the
enclosed proxy card or voting instruction and return it promptly in the enclosed
postage paid envelope, whether or not you plan to attend the USI Meeting. You
may revoke your proxy in the manner described in the accompanying Joint Proxy
Statement/Prospectus at any time before it is voted at the USI Meeting.
All stockholders of record of USI at the close of business on April 2, 1998,
the record date for the USI Meeting, are entitled to notice of the USI Meeting,
and all holders of record of shares of USI Common Stock at the close of business
on the record date, are entitled to vote at the USI Meeting or at any
postponement or adjournment thereof.
By Order of the Board of Directors,
[LOGO]
George H. MacLean
SECRETARY
Iselin, New Jersey
April , 1998
IMPORTANT
Whether or not you plan to attend the USI Meeting in person, please
complete, sign, date and return the enclosed proxy card or voting instruction
card as soon as possible. A return envelope is provided for your convenience.
You may revoke your proxy at any time before it is voted by delivering to the
Secretary of USI at 101 Wood Avenue South, P.O. Box 169, Iselin, New Jersey
08830, Attention: Secretary, a signed notice of revocation or a later dated
signed proxy card or by attending the USI Meeting and voting in person.
Attendance at the meeting, in and of itself, will not constitute a revocation of
a previously given proxy. No stockholder of record may appoint more than three
persons to act as his or her proxy at the USI Meeting.
DO NOT SEND IN ANY STOCK CERTIFICATES WITH YOUR PROXY CARD.
2
[LOGO]
14801 Quorum Drive
Dallas, Texas 75240-7584
April , 1998
Dear Shareholders:
You are invited to attend the Special Meeting of Shareholders of Zurn
Industries, Inc. ("Zurn") to be held on May [20], 1998, at 9:00 a.m., local
time, at the Addison Conference and Theatre Centre, 15650 Addison Road, Addison,
Texas 75248 (including any postponement or adjournment thereof, the "Zurn
Meeting").
At the Zurn Meeting, you will be asked to consider and vote upon a proposal
to approve an Agreement and Plan of Merger, dated as of February 16, 1998, as
amended, among Zurn, U.S. Industries, Inc. ("USI"), USI, Inc., a newly organized
subsidiary of USI ("New USI"), and certain newly organized subsidiaries of New
USI (the "Merger Agreement").
The Merger Agreement contemplates, among other things, that each of Zurn and
USI will be merged with a separate subsidiary of New USI (the merger involving
Zurn being referred to as the "Zurn Merger," and the Zurn Merger and the merger
involving USI being collectively referred to as the "Mergers"). As a result of
the Mergers, (i) each of Zurn and USI will become a wholly owned subsidiary of
New USI, (ii) each outstanding share of Common Stock, par value $0.50 per share,
of Zurn ("Zurn Common Stock"), other than shares held in the treasury of Zurn,
will be converted into the right to receive 1.6 shares of Common Stock, par
value $0.01 per share, of New USI (the "Zurn Merger Consideration"), and (iii)
each outstanding share of Common Stock, par value $0.01 per share, of USI, other
than shares held in the treasury of USI, will be converted into one share of New
USI Common Stock.
Zurn's Board of Directors has determined that the Zurn Merger and the other
transactions contemplated by the Merger Agreement are in the best interests of
Zurn and has unanimously approved the Merger Agreement. At the request of Zurn,
on February 14, 1998, BT Wolfensohn, Zurn's financial advisor, delivered to the
Board of Directors of Zurn a written opinion to the effect that, as of such date
and based upon and subject to the matters set forth therein, the Zurn Merger
Consideration was fair, from a financial point of view, to the holders of Zurn
Common Stock.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF ZURN
VOTE "FOR" THE APPROVAL OF THE MERGER AGREEMENT.
Please read carefully the accompanying Notice of Special Meeting of
Shareholders and Joint Proxy Statement/Prospectus for additional information
regarding the Mergers. Whether or not you plan to attend the Zurn Meeting in
person, please complete, sign, date and return the enclosed proxy card or voting
instruction card as soon as possible. A return envelope is provided for your
convenience. You may revoke your proxy at any time before it is voted by
delivering to the Secretary of Zurn at 14801 Quorum Drive, Dallas, Texas
75240-7584 (or, if by mail, P.O. Box 709001, Dallas, Texas 75370-9001),
Attention: Secretary, a signed notice of revocation or a later dated and signed
proxy card or by attending the Zurn Meeting and voting in person.
Sincerely,
[LOGO]
Robert R. Womack
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
DO NOT SEND ANY STOCK CERTIFICATES WITH YOUR PROXY CARD.
ZURN INDUSTRIES, INC.
14801 QUORUM DRIVE
DALLAS, TEXAS 75240-7584
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY [20], 1998
------------------------
To the Shareholders:
Notice is hereby given that a Special Meeting of Shareholders of Zurn
Industries, Inc. ("Zurn") is to be held on May [20], 1998, at 9:00 a.m., local
time, at the Addison Conference and Theatre Center, 15650 Addison Road, Addison,
Texas 75248 (including any postponement or adjournment thereof, the "Zurn
Meeting") for the following purpose:
To consider and vote upon a proposal to approve an Agreement and Plan of
Merger, dated as of February 16, 1998, as amended, among Zurn, U.S.
Industries, Inc. ("USI"), a newly organized subsidiary of USI ("New USI"),
and certain newly organized subsidiaries of New USI (the "Merger
Agreement").
Please read the accompanying Joint Proxy Statement/Prospectus carefully. The
Joint Proxy Statement/ Prospectus and the Appendices thereto form a part of this
Notice.
The Merger Agreement contemplates, among other things, that each of Zurn and
USI will be merged with a separate subsidiary of New USI (the merger involving
Zurn being referred to as the "Zurn Merger," and the Zurn Merger and the merger
involving USI being collectively referred to as the "Mergers"). As a result of
the Mergers, (i) each of Zurn and USI will become a wholly owned subsidiary of
New USI, (ii) each outstanding share of Common Stock, par value $0.50 per share,
of Zurn, other than shares held in the treasury of Zurn, will be converted into
the right to receive 1.6 shares of Common Stock, par value $0.01 per share, of
New USI ("New USI Common Stock"), and (iii) each outstanding share of Common
Stock, par value $0.01 per share, of USI, other than shares held in the treasury
of USI, will be converted into one share of New USI Common Stock.
Upon consummation of the Mergers, New USI will be renamed "U.S. Industries,
Inc." The terms of the Merger Agreement and the New USI Common Stock to be
issued in connection therewith are described in detail in the accompanying Joint
Proxy Statement/Prospectus.
Only shareholders of record at the close of business on April 2, 1998 are
entitled to notice of and to vote at the Zurn Meeting.
Whether or not you plan to attend the Zurn Meeting in person, please
complete, sign, date and return the enclosed proxy card or voting instruction
card as soon as possible. A return envelope is provided for your convenience.
You may revoke your proxy at any time before it is voted by delivering to
the Secretary of Zurn at 14801 Quorum Drive, Dallas, Texas 75240-7584 (or, if by
mail, P.O. Box 709001, Dallas, Texas 75370-9001), Attention: Secretary, a signed
notice of revocation or a later dated signed proxy card or by attending the Zurn
Meeting and voting in person.
By Order of the Board of Directors
[LOGO]
George W. Hanthorn
VICE PRESIDENT, GENERAL
COUNSEL AND SECRETARY
Dallas, Texas
April , 1998
DO NOT SEND ANY STOCK CERTIFICATES WITH YOUR PROXY CARD.
2
[LOGO] [LOGO]
JOINT PROXY STATEMENT
FOR A SPECIAL MEETING OF FOR A SPECIAL MEETING OF
STOCKHOLDERS OF U.S. INDUSTRIES, INC. AND SHAREHOLDERS OF ZURN INDUSTRIES, INC.
TO BE HELD ON MAY [20], 1998 TO BE HELD ON MAY [20], 1998
USI, INC.
(TO BE RENAMED "U.S. INDUSTRIES, INC." UPON CONSUMMATION OF THE TRANSACTIONS
DESCRIBED HEREIN)
PROSPECTUS
---------------------
This Joint Proxy Statement/Prospectus is being furnished to holders of
Common Stock, par value $.01 per share ("USI Common Stock"), of U.S. Industries,
Inc., a Delaware corporation ("USI"), and to holders of Common Stock, par value
$.50 per share ("Zurn Common Stock"), of Zurn Industries, Inc., a Pennsylvania
corporation ("Zurn"), in connection with the solicitation of proxies by the
respective Boards of Directors of USI (the "USI Board") and Zurn (the "Zurn
Board") for use at their respective special meetings of stockholders, and at any
adjournment or postponement thereof (each, a "Special Meeting" and collectively,
the "Special Meetings").
The Special Meeting of USI's stockholders (the "USI Meeting") has been
called to consider and vote upon (i) a proposal (the "Merger Proposal") to
approve and adopt an Agreement and Plan of Merger, dated as of February 16,
1998, as amended (the "Merger Agreement"), among USI, Zurn, USI, Inc., a
Delaware corporation and currently a wholly owned subsidiary of USI ("New USI"),
Blue Merger Corp., a Delaware corporation and a wholly owned subsidiary of New
USI ("Blue Merger Corp."), and Zoro Merger Corp., a Pennsylvania corporation and
a wholly owned subsidiary of New USI ("Zoro Merger Corp.") and (ii) a proposal
(the "Plan Proposal") to approve Amendment Number One to the U.S. Industries,
Inc. 1997 Restricted Stock Plan (the "Amendment"). The Special Meeting of Zurn's
shareholders (the "Zurn Meeting") has been called to consider and vote upon the
Merger Proposal.
This Joint Proxy Statement/Prospectus constitutes the prospectus of New USI
with respect to the offering of approximately 103 million shares of Common
Stock, par value $.01 per share ("New USI Common Stock"), in connection with the
Transaction, as described below.
Pursuant to the Merger Agreement, Blue Merger Corp. will be merged with and
into USI (the "USI Merger") and Zoro Merger Corp. will be merged with and into
Zurn (the "Zurn Merger" and, together with the USI Merger, the "Mergers"). In
the USI Merger, each outstanding share of USI Common Stock, other than shares
held in the treasury of USI, will be converted into one share of New USI Common
Stock, and in the Zurn Merger, each outstanding share of Zurn Common Stock,
other than shares held in the treasury of Zurn, will be converted into the right
to receive 1.6 shares of New USI Common Stock (the "Zurn Merger Consideration").
The transactions contemplated by the Merger Agreement, including the USI Merger
and the Zurn Merger, are collectively referred to herein as the "Transaction."
As a result of the Transaction, (i) USI and Zurn will each become a wholly
owned subsidiary of New USI and (ii) former stockholders of USI and former
shareholders of Zurn will become stockholders of New USI. Upon consummation of
the Transaction, New USI will be renamed "U.S. Industries, Inc."
SEE "RISK FACTORS" BEGINNING ON PAGE 22 OF THIS JOINT PROXY
STATEMENT/PROSPECTUS FOR A DISCUSSION OF CERTAIN MATTERS WHICH SHOULD BE
CAREFULLY CONSIDERED BY HOLDERS OF ZURN COMMON STOCK AND HOLDERS OF USI COMMON
STOCK IN DETERMINING HOW TO VOTE WITH RESPECT TO THE MERGER PROPOSAL.
THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY
STATEMENT/PROSPECTUS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Joint Proxy Statement/Prospectus and accompanying forms of proxy and
voting instructions are first being mailed to the stockholders of USI and the
shareholders of Zurn on or about April [21], 1998.
The date of this Joint Proxy Statement/Prospectus is April , 1998.
AVAILABLE INFORMATION
USI and Zurn are each subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed with the Commission can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at the
following Regional Offices of the Commission: 7 World Trade Center, Suite 1300,
New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549 at prescribed rates. The Commission also maintains
a Website, located at http://www.sec.gov, that contains reports, proxy
statements and other information regarding registrants that file electronically
with the Commission. The USI Common Stock is listed on the New York Stock
Exchange, Inc. (the "NYSE"), and such materials relating to USI may also be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005.
The Zurn Common Stock is listed on the NYSE and the Pacific Exchange, Inc. (the
"PSE"), and such material relating to Zurn may also be inspected at the offices
of the NYSE and at the offices of the PSE, 115 Sansome Street, 2nd Floor, San
Francisco, California 94104. After consummation of the Transaction, USI and Zurn
are not expected to file reports, proxy statements or other information with the
Commission. Instead, such information will be provided, to the extent required,
in filings made by New USI, the common stock of which has been approved for
listing on the NYSE, subject to official notice of issuance.
New USI has filed with the Commission a registration statement on Form S-4
(together with all amendments, exhibits and schedules thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the shares of New USI Common Stock that will be issued to former
holders of USI Common Stock and former holders of Zurn Common Stock upon
consummation of the Transaction. See "The Merger Agreement--Conversion of USI
Common Stock" and "--Conversion of Zurn Common Stock." This Joint Proxy
Statement/Prospectus does not contain all of the information set forth in the
Registration Statement, certain portions of which are omitted in accordance with
the rules and regulations of the Commission. Such additional information is
available for inspection and copying at the offices of the Commission.
Statements contained in this Joint Proxy Statement/ Prospectus or in any
document incorporated into this Joint Proxy Statement/Prospectus by reference as
to the contents of any contract or other document referred to herein or therein
are not necessarily complete, and in each instance reference is made to the copy
of such contract or other document filed or incorporated by reference as an
exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION NOT CONTAINED IN OR INCORPORATED BY REFERENCE INTO THIS JOINT
PROXY STATEMENT/PROSPECTUS AND, IF SO GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS JOINT
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS NOR THE SALE OF ANY SECURITIES HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF USI OR ZURN SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by USI with the Commission under
the Exchange Act are incorporated herein by reference:
(a) USI's Annual Report on Form 10-K for the year ended September 30,
1997, as amended by a Form 10-K/A (Amendment No. 1) dated April , 1998
(the "USI Form 10-K");
(b) USI's Quarterly Report on Form 10-Q for the quarter ended December
31, 1997, as amended by a Form 10-Q/A (Amendment No. 1) dated April , 1998
(the "USI Form 10-Q"); and
(c) USI's Current Reports on Form 8-K dated December 18, 1997 and
February 18, 1998 (the "USI Form 8-Ks" and, collectively with the USI Form
10-K and the USI Form 10-Q, the "USI Reports").
The following documents previously filed by Zurn with the Commission under
the Exchange Act are incorporated herein by reference:
(a) Zurn's Annual Report on Form 10-K for the year ended March 31, 1997
(the "Zurn Form 10-K");
(b) Zurn's Quarterly Reports on Form 10-Q for the quarters ended June
30, 1997, September 30, 1997 and December 31, 1997 (the "Zurn Form 10-Qs");
and
(c) Zurn's Current Reports on Form 8-K/A dated April 7, 1997, and on
Form 8-K dated January 30, 1998 and February 16, 1998 (the "Zurn Form 8-Ks"
and, collectively with the Zurn Form 10-K and the Zurn Form 10-Q, the "Zurn
Reports").
All documents filed by USI or Zurn pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Joint Proxy
Statement/Prospectus and prior to the Special Meetings shall be deemed to be
incorporated by reference into this Joint Proxy Statement/Prospectus and to be a
part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document that is or is deemed to be incorporated by
reference herein) modifies or supersedes such previous statement. Any statement
so modified or superseded shall not be deemed to constitute a part hereof except
as so modified or superseded.
All information contained or incorporated by reference in this Joint Proxy
Statement/Prospectus relating to USI, New USI, Blue Merger Corp. and Zoro Merger
Corp. has been supplied by USI and all such information relating to Zurn has
been supplied by Zurn.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
BY REFERENCE HEREIN) ARE AVAILABLE, WITHOUT CHARGE, UPON ORAL OR WRITTEN REQUEST
BY ANY PERSON TO WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS HAS BEEN DELIVERED,
IN THE CASE OF DOCUMENTS RELATING TO USI, FROM U.S. INDUSTRIES, INC., 101 WOOD
AVENUE SOUTH, P.O. BOX 169, ISELIN, NEW JERSEY 08830-0169, ATTENTION: INVESTOR
RELATIONS; TELEPHONE NUMBER (732) 767-2254, AND IN THE CASE OF DOCUMENTS
RELATING TO ZURN, FROM ZURN INDUSTRIES, INC., 14801 QUORUM DRIVE, DALLAS, TEXAS
75240 (OR, IF BY MAIL, P.O. BOX 709001, DALLAS, TEXAS 75370-9001), ATTENTION:
INVESTOR RELATIONS; TELEPHONE NUMBER (972) 560-2000. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY SUCH REQUEST SHOULD BE MADE BY MAY 1, 1998.
3
TABLE OF CONTENTS
PAGE
-----
AVAILABLE INFORMATION...................................................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................ 3
TABLE OF CONTENTS.......................................................................................... 4
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS............................................................ 5
SUMMARY.................................................................................................... 6
RISK FACTORS............................................................................................... 21
THE SPECIAL MEETINGS....................................................................................... 23
Times and Places; Purposes............................................................................... 23
Voting Rights; Votes Required for Approval............................................................... 23
Proxies.................................................................................................. 24
THE TRANSACTION............................................................................................ 26
General.................................................................................................. 26
Background............................................................................................... 26
Recommendation of the USI Board;
USI's Reasons for the Transaction...................................................................... 28
Recommendation of the Zurn Board;
Zurn's Reasons for the Transaction..................................................................... 29
Opinion of USI's Financial Advisor....................................................................... 31
Opinion of Zurn's Financial Advisor...................................................................... 35
Purpose and Certain Effects of the Transaction........................................................... 40
Interests of Certain Persons in the Transaction.......................................................... 40
United States Federal Income Tax Consequences............................................................ 44
Accounting Treatment..................................................................................... 46
Certain Fees and Expenses................................................................................ 46
Regulatory Approvals..................................................................................... 46
Stock Exchange Listing................................................................................... 47
Federal Securities Laws Consequences..................................................................... 47
Absence of Appraisal and Dissenters' Rights.............................................................. 48
THE MERGER AGREEMENT....................................................................................... 49
The Mergers.............................................................................................. 49
Conversion of USI Common Stock........................................................................... 49
Conversion of Zurn Common Stock.......................................................................... 49
Treatment of Options..................................................................................... 50
Representations and Warranties........................................................................... 50
Certain Covenants........................................................................................ 50
Conditions to the Mergers................................................................................ 54
Termination of the Merger Agreement...................................................................... 54
Effects of Termination................................................................................... 55
THE STOCK OPTION AGREEMENT................................................................................. 56
AMENDMENT NUMBER ONE TO THE U.S. INDUSTRIES, INC. 1997 RESTRICTED STOCK PLAN............................... 58
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS.......................................................... 59
BUSINESS OF USI, ZURN AND NEW USI.......................................................................... 68
USI......................................................................................................
Zurn.....................................................................................................
New USI..................................................................................................
MANAGEMENT OF NEW USI...................................................................................... 68
Directors................................................................................................ 68
Compensation of Directors................................................................................ 70
Executive Officers....................................................................................... 71
Compensation of Executive Officers....................................................................... 72
DESCRIPTION OF NEW USI CAPITAL STOCK....................................................................... 73
Authorized Capital Stock................................................................................. 73
New USI Common Stock..................................................................................... 73
4
PAGE
-----
New USI Preferred Stock.................................................................................. 73
OWNERSHIP OF NEW USI COMMON STOCK.......................................................................... 73
Security Ownership of Directors and Executive Officers................................................... 73
Security Ownership of Certain Beneficial Owners.......................................................... 75
COMPARISON OF RIGHTS OF STOCKHOLDERS OF NEW USI AND USI.................................................... 76
COMPARISON OF RIGHTS OF STOCKHOLDERS OF NEW USI AND SHAREHOLDERS OF ZURN................................... 76
Dividend Rights.......................................................................................... 76
Directors and Officers................................................................................... 77
Fiduciary Duties of Directors............................................................................ 77
Liability of Directors................................................................................... 78
Indemnification of Directors and Officers................................................................ 78
Annual Meetings.......................................................................................... 79
Special Meetings......................................................................................... 79
Action of Shareholders Without a Meeting................................................................. 79
Shareholders' Proposals.................................................................................. 79
Charter Amendments....................................................................................... 80
Amendments to By-Laws.................................................................................... 80
Mergers and Major Transactions........................................................................... 81
Dissenters' Rights of Appraisal.......................................................................... 81
Anti-Takeover Provisions................................................................................. 82
Dissolution.............................................................................................. 84
LEGAL MATTERS.............................................................................................. 84
EXPERTS.................................................................................................... 84
STOCKHOLDER PROPOSALS...................................................................................... 85
Appendix A-1 -- Merger Agreement
Appendix A-2 -- Stock Option Agreement
Appendix B-1 -- Amended and Restated Certificate of Incorporation of New USI
Appendix B-2 --Amended and Restated By-Laws of New USI
Appendix C-1 -- Opinion of Credit Suisse First Boston Corporation
Appendix C-2 -- Opinion of BT Wolfensohn
Appendix D-1 -- Financial Statements of USI, Inc.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
ALL STATEMENTS, OTHER THAN STATEMENTS OF HISTORICAL FACT, INCLUDED IN THIS
JOINT PROXY STATEMENT/PROSPECTUS ARE, OR MAY DEEMED TO BE, FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND
SECTION 21E OF THE SECURITIES ACT OF 1934. VARIOUS ECONOMIC AND COMPETITIVE
FACTORS COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE DISCUSSED IN
SUCH FORWARD-LOOKING STATEMENTS, INCLUDING FACTORS WHICH ARE OUTSIDE THE CONTROL
OF USI, ZURN AND NEW USI, SUCH AS INTEREST RATES, FOREIGN CURRENCY EXCHANGE
RATES, CONSUMER SPENDING PATTERNS, AVAILABILITY OF CONSUMER CREDIT, LEVELS OF
RESIDENTIAL AND COMMERCIAL CONSTRUCTION, LEVELS OF AUTOMOTIVE PRODUCTION AND
CHANGES IN RAW MATERIAL COSTS, ALONG WITH THE OTHER FACTORS NOTED IN "RISK
FACTORS" BELOW AND IN THE USI REPORTS AND THE ZURN REPORTS WITH RESPECT TO EACH
COMPANY'S RESPECTIVE BUSINESSES.
5
SUMMARY
THE FOLLOWING SUMMARY IS INTENDED TO HIGHLIGHT CERTAIN INFORMATION CONTAINED
ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS. THIS SUMMARY IS NOT INTENDED
TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
CONTAINED ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS, THE APPENDICES
HERETO AND THE DOCUMENTS INCORPORATED BY REFERENCE OR OTHERWISE REFERRED TO
HEREIN. STOCKHOLDERS OF USI AND SHAREHOLDERS OF ZURN ARE URGED TO REVIEW THIS
ENTIRE JOINT PROXY STATEMENT/PROSPECTUS CAREFULLY, INCLUDING SUCH APPENDICES AND
SUCH OTHER DOCUMENTS.
INTRODUCTION AND OVERVIEW OF THE TRANSACTION
PURPOSE AND EFFECT OF THE TRANSACTION. The purpose of the Transaction is to
combine USI and Zurn. As a result of the Transaction (i) USI and Zurn will each
become a wholly owned subsidiary of New USI and (ii) former stockholders of USI
collectively will hold approximately 79% (approximately 78% on a fully diluted
basis and treating option holders as former stockholders) and former
shareholders of Zurn collectively will hold approximately 21% (approximately 22%
on a fully diluted basis and treating option holders as former shareholders) of
the issued and outstanding shares of New USI Common Stock. Upon consummation of
the Transaction, New USI will be renamed "U.S. Industries, Inc."
CONSIDERATION TO BE RECEIVED IN THE MERGERS. In the Mergers, (i) each
outstanding share of USI Common Stock, other than shares held in the treasury of
USI, will be converted into one share of New USI Common Stock and (ii) each
outstanding share of Zurn Common Stock, other than shares held in the treasury
of Zurn, will be converted into the right to receive the Zurn Merger
Consideration. For a description of the New USI Common Stock, see "Description
of New USI Common Stock." For a summary of the principal differences between the
rights of holders of Zurn Common Stock and holders of New USI Common Stock, see
"Comparison of Rights of Stockholders of New USI and Shareholders of Zurn."
APPROVAL OF THE MERGERS BY STOCKHOLDERS OF USI AND SHAREHOLDERS OF
ZURN. Under the Amended and Restated Certificate of Incorporation of USI (the
"USI Charter") and the Delaware General Corporation Law (the "DGCL"), the USI
Merger must be approved by the affirmative vote of the holders of a majority of
the then outstanding shares of USI Common Stock entitled to vote thereon. Under
the Articles of Incorporation of Zurn (the "Zurn Charter") and the Pennsylvania
Business Corporation Law (the "PBCL"), the Merger Proposal must be approved by
the affirmative vote of a majority of the votes cast by holders of Zurn Common
Stock entitled to vote thereon at the Zurn Meeting.
USI OPTION. Upon the occurrence of the events that trigger the payment by
Zurn of a termination fee to USI (see "The Merger Agreement--Effects of
Termination"), an option to purchase up to a number of shares of Zurn Common
Stock that equals 10.1% of the issued and outstanding shares of Zurn Common
Stock, granted to USI by Zurn, will become exercisable by USI. See "The Stock
Option Agreement."
STOCKHOLDERS OF USI AND SHAREHOLDERS OF ZURN ARE URGED TO REVIEW CAREFULLY
THE DESCRIPTIONS OF THE MERGER AGREEMENT AND THE STOCK OPTION AGREEMENT SET
FORTH UNDER "THE MERGER AGREEMENT" AND "THE STOCK OPTION AGREEMENT." Copies of
the Merger Agreement and the Stock Option Agreement are attached hereto as
Appendices A-1 and A-2, respectively, and are incorporated herein by reference.
6
The diagrams set forth below illustrate the ownership of New USI, USI and
Zurn both before and after consummation of the Transaction.
OWNERSHIP BEFORE THE TRANSACTION
[LOGO]
OWNERSHIP AFTER THE TRANSACTION
[LOGO]
THE PLAN PROPOSAL
The Amendment provides, among other things, for (i) an increase of 350,000
in the number of shares of USI Common Stock available for awards under the U.S.
Industries, Inc. 1997 Restricted Stock Plan (the "USI Restricted Stock Plan")
and (ii) a pre-established alternative schedule for the vesting of restricted
stock awarded under the plan (3, 5 and 7 years after the award). The Amendment
will only become effective if it is approved by the stockholders of USI and the
Transaction is consummated. Upon consummation of the Transaction, New USI will
assume sponsorship of the plan, as amended. The primary purpose of the increase
in the number of shares available for awards under the plan is to allow for
grants of restricted New USI Common Stock to key Zurn executives following
consummation of the Transaction. See "The Plan Proposal."
7
THE COMPANIES
U.S. Industries, Inc....... USI is a diversified industrial management corporation with
101 Wood Avenue South fiscal 1997 revenues of approximately $2.3 billion. Its
P.O. Box 169 companies include such well-known businesses as Jacuzzi,
Iselin, New Jersey Ames garden tools, Ertl toys, Rexair vacuum cleaners,
08830-0169 Lighting Corporation of America, EJ Footwear and Garden
(732) 767-2254 State Tanning. USI has been an independent, publicly owned
company since May 31, 1995, when Hanson PLC ("Hanson"), to
effect the demerger (i.e., spin-off) of USI (the
"Demerger"), paid a dividend to its shareholders
consisting of all of the then outstanding shares of USI
Common Stock.
Zurn Industries, Inc....... Zurn is an industry leader in manufacturing and marketing
14801 Quorum Drive plumbing and, through its wholly owned subsidiary Eljer
Dallas, Texas 75240-7584 Industries, Inc. ("Eljer"), bath products. Zurn also
(972) 560-2000 produces heating, ventilating and air conditioning (HVAC)
products and fire protection systems, and provides water
resource construction services.
USI, Inc................... New USI is currently a wholly owned subsidiary of USI that
101 Wood Avenue South has not conducted any business activities except in
P.O. Box 169 connection with the Transaction. As a result of the
Iselin, New Jersey Transaction, USI and Zurn will each become a wholly owned
08830-0169 subsidiary of New USI. Accordingly, the business of New
(732) 767-2254 USI will be the businesses currently conducted by USI and
Zurn. Upon consummation of the Transaction, New USI will
be renamed "U.S. Industries, Inc."
THE USI MEETING
Time, Place and Date....... The USI Meeting will be held at The Brunswick Hilton and
Towers, Three Tower Center Boulevard at Tower Center, at
Exit 9, New Jersey Turnpike, East Brunswick, New Jersey
08816 on May [20], 1998, starting at 9:00 a.m., local
time.
Record Date, Shares
Entitled to Vote......... Holders of record of shares of USI Common Stock, at the
close of business on April 2, 1998 (the "USI Record Date"),
are entitled to notice of and to vote at the USI Meeting.
At the close of business on the USI Record Date, there
were 77,095,584 shares of USI Common Stock outstanding and
entitled to vote. Each share of USI Common Stock is
entitled to one vote at the USI Meeting.
Approval of the Merger
Proposal................. Under the USI Charter and the DGCL, the affirmative vote of
the holders of a majority of the then outstanding shares of
USI Common Stock entitled to vote thereon is required to
approve the Merger Proposal.
Approval of the Plan
Proposal................. Under the USI Charter and the DGCL, the affirmative vote of
the holders of a majority of the then outstanding shares of
USI Common Stock entitled to vote thereon which are
present in person or represented by proxy at the USI
Meeting is required to approve the Plan Proposal.
Recommendations of the USI
Board.................... The USI Board has unanimously approved the Merger Agreement
and the Stock Option Agreement and determined that the USI
Merger and the other transactions contemplated by the
Merger
8
Agreement are in the best interests of the stockholders of
USI. The USI Board has unanimously approved the adoption
of the Amendment, subject to the approval of the
stockholders of USI and consummation of the Transaction.
The USI Board unanimously recommends that stockholders of
USI vote FOR the Merger Proposal and FOR the Plan
Proposal. See "The Transaction-- Recommendation of the USI
Board; USI's Reasons for the Transaction" and "The Plan
Proposal."
Opinion of Financial
Advisor to USI........... USI has received the written opinion, dated February 14,
1998, (the "CSFB Opinion"), of Credit Suisse First Boston
Corporation ("CSFB"), USI's financial advisor, that, as of
such date and based upon and subject to the matters set
forth therein, the ratio contemplated by the Merger
Agreement for the exchange of New USI Common Stock for
Zurn Common Stock (the "Zurn Exchange Ratio") was fair to
USI from a financial point of view. The full text of the
CSFB Opinion is attached hereto as Appendix C-1 and should
be read carefully in its entirety by USI stockholders. The
CSFB Opinion is directed only to the matters set forth
therein and does not constitute a recommendation to any
USI stockholder as to whether such USI stockholder should
vote to approve the Merger Proposal. USI has agreed to pay
a fee to CSFB for its services in connection with the
Transaction, a significant portion of which is contingent
upon consummation of the Transaction. For information on
the procedures followed, assumptions made, matters
considered and limitations on the review undertaken by
CSFB, see "The Transaction--Opinion of USI's Financial
Advisor."
THE ZURN MEETING
Time, Place and Date....... The Zurn Meeting will be held at the Addison Conference and
Theatre Centre, 15650 Addison Road, Addison, Texas 75248
on May [20], 1998, starting at 9:00 a.m., local time.
Record Date, Shares
Entitled to Vote......... Holders of record of Zurn Common Stock at the close of
business on April 2, 1998 (the "Zurn Record Date"), are
entitled to notice of and to vote at the Zurn Meeting. At
the close of business on the Zurn Record Date, there were
12,747,546 shares of Zurn Common Stock outstanding and
entitled to vote. Each share of Zurn Common Stock is
entitled to one vote at the Zurn Meeting.
Approval of the Merger
Proposal................. Under the Zurn Charter and the PBCL, the affirmative vote of
a majority of the votes cast by holders of Zurn Common Stock
entitled to vote thereon at the Zurn Meeting is required
to approve the Merger Proposal.
Recommendation of the Zurn
Board.................... The Zurn Board has unanimously approved the Merger Agreement
and the Stock Option Agreement and determined that the
Zurn Merger and the other transactions contemplated by the
Merger Agreement are in the best interests of Zurn. The
Zurn Board unanimously recommends that shareholders of
Zurn vote FOR the Merger Proposal. See "The
Transaction--Background" and
9
"--Recommendation of the Zurn Board; Zurn's Reasons for
the Transaction."
Opinion of Financial
Advisor to Zurn.......... The Zurn Board has received the written opinion, dated
February 14, 1998, of BT Wolfensohn, Zurn's financial
advisor, to the effect that, as of such date and based
upon and subject to the assumptions and other matters set
forth therein, the Zurn Merger Consideration was fair from
a financial point of view to holders of Zurn Common Stock
(the "BT Wolfensohn Opinion"). The full text of the BT
Wolfensohn Opinion, which sets forth the assumptions made
and matters considered, is attached hereto as Appendix C-2
and should be read carefully in its entirety by Zurn
shareholders. The BT Wolfensohn Opinion was provided to
assist the Zurn Board in connection with its consideration
of the Transaction and does not constitute a
recommendation to any holder of Zurn Common Stock as to
how to vote with respect to the Merger Proposal. Zurn has
agreed to pay a fee to BT Wolfensohn for its services in
connection with the Transaction, a significant portion of
which is contingent upon consummation of the Transaction.
For information on the assumptions made, matters
considered and limits of the review undertaken by BT
Wolfensohn, see "The Transaction--Opinion of Zurn's
Financial Advisor."
THE TRANSACTION
Purpose.................... The purpose of the Transaction is to combine USI and Zurn.
Upon consummation of the Transaction, New USI intends to
combine USI's Jacuzzi bath products operations with Zurn's
plumbing and bath products operations to form a new
division, USI Plumbing and Bath Products Company. The new
division is expected to be one of the leading plumbing
products companies in North America, with annual revenues
of approximately $1.1 billion. See "Business of New USI."
Effect Upon USI............ Upon consummation of the Mergers, Blue Merger Corp. will be
merged into USI and, at the time at which each of the
Mergers has become effective (the "Effective Time"), (a)
each outstanding share of USI Common Stock, other than
shares held in the treasury of USI, will be converted into
one share of New USI Common Stock, and upon such
conversion all such shares of USI Common Stock will be
canceled and retired and will cease to exist, (b) shares
of USI Common Stock held in the treasury of USI will be
canceled and retired and will cease to exist without
payment of any consideration therefor, (c) each
outstanding share of common stock, par value $.01 per
share, of Blue Merger Corp. will cease to exist and be
converted into one share of common stock of USI, par value
$.01 per share, and (d) all outstanding shares of common
stock of New USI held by USI will be canceled and retired
and will cease to exist, and all consideration paid in
respect thereof shall be returned. As a result of the
Transaction, USI will become a wholly owned subsidiary of
New USI.
Effect Upon Zurn........... Upon consummation of the Mergers, Zoro Merger Corp. will be
merged into Zurn and, at the Effective Time, (a) each
outstanding
10
share of Zurn Common Stock, other than shares held in the
treasury of Zurn, will be converted into the right to
receive the Zurn Merger Consideration, and upon such
conversion all such shares of Zurn Common Stock will be
canceled and retired and will cease to exist, (b) all
shares of Zurn Common Stock held in the treasury of Zurn
will be canceled and retired and will cease to exist
without payment of any consideration therefor and (c) each
outstanding share of common stock, par value $.01 per
share, of Zoro Merger Corp. will cease to exist and be
converted into one share of common stock of Zurn, par
value $.50 per share. As a result of the Transaction, Zurn
will become a wholly owned subsidiary of New USI.
Treatment of Options....... Upon consummation of the Mergers (a) New USI will assume all
Zurn stock option plans and (b) each outstanding option to
purchase shares of Zurn Common Stock will be assumed by
New USI and converted into an option to purchase shares of
New USI Common Stock. Based on the number of such options
outstanding as of April 2, 1998, such options will be
exercisable in the aggregate for approximately 2,061,400
shares of New USI Common Stock. Following the consummation
of the Mergers, each such option to purchase New USI
Common Stock will have, and will be subject to, terms and
conditions as similar as practicable to those in effect
immediately prior to the Effective Time, except that (a)
each such option will be exercisable for that number of
shares of New USI Common Stock equal to the product of the
number of shares of Zurn Common Stock for which such
option was exercisable immediately prior to the Effective
Time and the Zurn Exchange Ratio and (b) the exercise
price per share subject to such option will be equal to
the exercise price per share of such option immediately
prior to the Effective Time divided by the Zurn Exchange
Ratio. Upon the approval by Zurn's shareholders of the
Merger Proposal, all such options will become vested.
In addition, upon consummation of the Mergers, (a) New USI
will assume the Amended U.S. Industries, Inc. Stock Option
Plan and the USI Restricted Stock Plan, as amended, and
(b) each option to purchase shares of USI Common Stock
will be assumed by New USI and converted into an option to
purchase shares of New USI Common Stock on terms and
conditions as similar as practicable to those in effect
immediately prior to the Effective Time. In addition, the
U.S. Industries, Inc. Annual Performance Incentive Plan
will be assumed by New USI. See "The Merger
Agreement--Treatment of Options."
Interests of Certain In considering the recommendation of the Zurn Board with
Persons.................. respect to the Merger Proposal, Zurn shareholders should be
aware that certain directors and executive officers of
Zurn have interests in the Transaction that are in
addition to the interests of other holders of Zurn Common
Stock. The directors and executive officers of Zurn will
receive change in control payments of approximately $6.9
million in the aggregate in connection with the
Transaction. In addition, the estimated value of Zurn
options held by directors and
11
executive officers of Zurn that have vested or will vest
as a result of Zurn shareholder approval of the Merger
Proposal is approximately $13.6 million in the aggregate,
based on the closing price of the Zurn Common Stock on the
NYSE on April 2, 1998. See "The Transaction-- Interests of
Certain Persons in the Transaction."
Messrs. Robert R. Womack, Chairman and Chief Executive
Officer of Zurn, Frank E. Sheeder, Group Vice President of
Zurn, and John R. Mellett, Senior Vice President-Chief
Financial Officer of Zurn, have agreements relating to
employment with Zurn which are effective only in the event
of a change in control of Zurn (as defined in the
agreements). The agreements provide, in general, that if
employment is terminated following a Change in Control of
Zurn (as defined in the agreement) (other than a
termination due to death, Disability (as defined),
Retirement (as defined), by Zurn for Cause (as defined) or
by the Executive for other than Good Reason (as defined)),
Zurn shall pay a severance payment equal to three times
current annual salary and average incentive compensation
paid in the last three years of employment. Mr. Womack
also has an employment agreement with Zurn that provides,
among other things, a severance payment upon a termination
by Zurn without Cause (as defined in the agreement) equal
to one year's salary in the event he does not receive the
severance payment under his agreement relating to a Change
in Control of Zurn. Messrs. Womack, Sheeder and Mellett
have entered into new employment agreements to serve in
similar capacities as officers of USI Plumbing and Bath
Products Company and Zurn. The new employment agreements
provide, among other things, that (i)(a) Mr. Womack
generally will receive severance equal to three times base
salary and three times highest annual bonus for the
previous three completed fiscal years (in addition to
various other benefits) in the event of a termination by
New USI without Cause or by the Executive with Good Reason
and in the event of a termiantion by Mr. Womack with or
without Good Reason within 2 years after a Change in
Control of New USI (as defined in the agreement) and (b)
Messrs. Sheeder and Mellett generally will receive
severance equal to two times base salary and two times
highest annual bonus for the previous two completed fiscal
years (in addition to various other benefits) in the event
of a termination by New USI without Cause, a termination
by the Executive for Good Reason or a nonextension of the
employment term by New USI; (ii) New USI will cause the
New USI Compensation Committee to grant, within 30 days
after the Effective Time: (a) Messrs. Womack, Sheeder and
Mellett awards of restricted New USI Common Stock with a
value of $2 million, $1 million and $1 million,
respectively, and (b) Messrs. Sheeder and Mellett stock
options to purchase the number of shares of New USI Common
Stock equal to $250,000 divided by the fair market value
of New USI Common Stock on the date of grant; and (iii)
Messrs. Womack, Sheeder and Mellett will receive lump sum
payments of approximately $3 million, $1.5 million and
$1.3 million, respectively, within 10 days after the
Effective Time in lieu of equivalent change
12
in control payments under their current agreements
relating to employment with Zurn. The new employment
agreements for Messrs. Sheeder and Mellett provide for a
base salary level which is less than each such officer
currently receives from Zurn. See "The
Transaction--Interests of Certain Persons in the
Transaction."
Certain United States
Federal Income Tax
Consequences............. The Transaction has been structured to qualify as a
non-taxable transaction under the Internal Revenue Code of
1986, as amended (the "Code"). It is a condition to the
obligations of each of USI and Zurn under the Merger
Agreement that USI shall have received an opinion from
Weil, Gotshal & Manges LLP, counsel to USI, and that Zurn
shall have received an opinion from Jones, Day, Reavis &
Pogue ("Jones Day"), counsel to Zurn, to the effect that
no gain or loss will be recognized by USI or Zurn, as the
case may be, or their respective holders of common stock
in connection with the Mergers, except with respect to
cash received in lieu of fractional shares by holders of
Zurn Common Stock. See "The Transaction-- United States
Federal Income Tax Consequences."
Accounting Treatment....... The Transaction is expected to be accounted for by New USI
under the pooling of interests method of accounting for
business combinations. It is a condition to the
consummation of the Transaction that each of New USI and
Zurn shall have received a letter from Ernst & Young LLP
("Ernst & Young"), stating in substance that each of the
Mergers will qualify as a pooling of interests transaction
under Accounting Principles Board Opinion No. 16 ("APB No.
16") and the applicable rules and regulations of the
Commission. See "The Transaction--Accounting Treatment."
Conditions to the In addition to the approval of the stockholders of USI and
Transaction.............. the shareholders of Zurn, the consummation of the
Transaction is subject to various other conditions. See
"The Merger Agreement-- Conditions to the Mergers."
NYSE Listing............... New USI intends to apply for listing of the New USI Common
Stock on the NYSE and anticipates that its shares will trade
on the NYSE, upon official notice of issuance, under the
symbol "USI".
Absence of Appraisal and
Dissenters' Rights....... Neither holders of USI Common Stock nor holders of Zurn
Common Stock will be entitled to appraisal or dissenters'
rights in connection with the Transaction. See "The
Transaction--Absence of Appraisal and Dissenters' Rights."
Termination of the Merger
Agreement; Termination
Fee and Stock Option
Agreement................ The Merger Agreement may be terminated prior to the
Effective Time (a) by mutual written consent of USI and
Zurn, (b) by either USI or Zurn under certain
circumstances, including (i) if the Mergers are not
consummated on or before July 31, 1998, (ii) for breach of
a material representation, warranty or covenant by the
non-terminating party if such breach has not been cured
within 15 days of notice thereof (in the case of a breach
of covenant) or cannot be cured by July 31, 1998 (in the
case of a breach of
13
representation or warranty), (iii) if the Merger Proposal
is not approved at either of the Special Meetings and (iv)
if a governmental authority shall have taken action to
prohibit the Transaction, (c) by USI, if the Zurn Board
shall have (i) withdrawn or modified its approval of the
Merger Agreement in a manner adverse to USI, or
recommended or publicly proposed to recommend to Zurn
shareholders any other Acquisition Proposal (as defined in
the Merger Agreement) or (ii) failed to hold the Zurn
Meeting under certain circumstances or (d) by Zurn in
contemplation of it entering into an agreement with
respect to a Superior Proposal (as defined in the Merger
Agreement), provided that Zurn has provided USI with the
required written notice and pays a termination fee as
described under "The Merger Agreement--Effects of
Termination."
Under certain circumstances, the Merger Agreement obligates
Zurn to pay to USI a fee of $10 million if the Merger
Agreement is terminated. In addition, upon the occurrence
of the events that trigger the payment by Zurn of the
termination fee to USI, an option to purchase up to a
number of shares of Zurn Common Stock that equals 10.1% of
the issued and outstanding shares of Zurn Common Stock,
granted to USI by Zurn, will become exercisable by USI.
See "The Stock Option Agreement."
Certain Related The Merger Agreement obligates USI to obtain financing to
Financing................ pay all of the outstanding principal of and accrued interest
on Zurn's existing bank credit facility at the Effective
Time, anticipated to be approximately $210 million. New
USI has agreed to repay, or cause to be repaid, this
indebtedness prior to or concurrently with the
consummation of the Transaction and intends to do so using
availability under the existing credit facility (the
"Credit Facility") of USI's wholly owned subsidiary, USI
American Holdings, Inc. ("USIAH"). New USI presently
expects to refinance a portion of its borrowings under the
Credit Facility with a portion of the proceeds of an
offering of from $300 million to $500 million in aggregate
principal amount of debt securities to qualified
institutional buyers in a transaction exempt from the
registration requirements of the Securities Act. Such
offering is presently expected to occur in the second
calendar quarter of 1998 and the amount of such offering
will depend on market conditions at such time.
Risk Factors............... See "Risk Factors" beginning on page 22 of this Joint Proxy
Statement/Prospectus for a discussion of certain matters
which should be carefully considered by holders of Zurn
Common Stock and holders of USI Common Stock in
determining how to vote with respect to the Merger
Proposal, including (i) the fixed ratios provided by the
Merger Agreement for the exchange of shares of Zurn Common
Stock and USI Common Stock for New USI Common Stock, (ii)
the risk of nonrealization of synergies and other
benefits, (iii) credit availability, (iv) the interests of
directors and executive officers of Zurn that are in
addition to the interests of other holders of Zurn Common
Stock and (v) factors which may influence the future
operating results of USI, Zurn and New USI.
14
USI SELECTED HISTORICAL FINANCIAL INFORMATION
The selected historical information of USI set forth below has been derived
from and should be read in conjunction with the consolidated financial
statements and other financial information of USI contained in the USI Form 10-K
and with the unaudited consolidated financial statements and other financial
information of USI contained in the USI Form 10-Q, which are incorporated herein
by reference. See "Available Information" and "Incorporation of Certain
Documents by Reference."
THREE MONTHS
ENDED
DECEMBER 31, YEAR ENDED SEPTEMBER 30,
-------------------- ------------------------------------------
1997 1996 1997 1996 1995(1) 1994
--------- --------- --------- --------- --------- ---------
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Net sales................................................ $ 596 $ 512 $ 2,282 $ 2,011 $ 1,896 $ 1,846
Operating income......................................... 50 50 241 206 77 176
Income (loss) from continuing operations................. 24 21 113 82 (64) 34
Net income (loss)........................................ 24 21 236 133 (89) 78
Income from continuing operations per share (2)
Basic.................................................. .33 .29 1.55 1.09 -- --
Diluted................................................ .32 .28 1.50 1.06 -- --
Net income per share (2)
Basic.................................................. .33 .29 3.24 1.76 -- --
Diluted................................................ .32 .28 3.12 1.72 -- --
DIVIDEND DATA:
Cash dividend declared per share......................... $ .05 -- $ .05 -- -- --
1993
---------
STATEMENT OF OPERATIONS DATA:
Net sales................................................ $ 1,690
Operating income......................................... 134
Income (loss) from continuing operations................. 12
Net income (loss)........................................ 61
Income from continuing operations per share (2)
Basic.................................................. --
Diluted................................................ --
Net income per share (2)
Basic.................................................. --
Diluted................................................ --
DIVIDEND DATA:
Cash dividend declared per share......................... --
DECEMBER 31, SEPTEMBER 30,
-------------------- ------------------------------------------
1997 1996 1997 1996 1995(1) 1994
--------- --------- --------- --------- --------- ---------
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 50 $ 42 $ 56 $ 45 $ 51 $ 28
Working capital......................................... 588 432 510 588 547 1,003
Net assets held for disposition......................... -- 131 10 131 297 543
Total assets............................................ 2,066 1,762 1,831 1,776 1,837 2,193
Long-term debt (3)...................................... 674 592 551 717 832 985
Stockholders' equity/Invested capital................... 798 526 705 527 412 803
1993
---------
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 27
Working capital......................................... 1,149
Net assets held for disposition......................... 728
Total assets............................................ 2,261
Long-term debt (3)...................................... 985
Stockholders' equity/Invested capital................... 902
- ------------------------
(1) USI changed its accounting policy for evaluating goodwill impairment in
fiscal 1995, resulting in a charge of $98 million, which affects
comparability between fiscal 1995 and previous fiscal years. Prior periods
have not been restated. Fiscal 1995 operating income includes charges of $2
million to close certain underutilized facilities of the lighting products
operations. See Notes 11 and 12 to the Consolidated (Combined) Financial
Statements contained in the USI Form 10-K, which is incorporated herein by
reference.
(2) Prior to fiscal 1996, earnings per share information is not presented, as
the capital structure for those periods of the businesses that comprised USI
prior to the Demerger was not indicative of USI's capital structure
following the Demerger.
(3) Amounts in fiscal 1994 and 1993 primarily represent intercompany notes
payable to Hanson.
15
ZURN SELECTED HISTORICAL FINANCIAL INFORMATION
The selected historical financial information of Zurn set forth below has
been derived from and should be read in conjunction with the consolidated
financial statements and other financial information of Zurn contained in the
Zurn Form 10-K and with the unaudited consolidated financial statements and
other financial information of Zurn contained in the Zurn Form 10-Q for the
quarter ended December 31, 1997, which are incorporated herein by reference. See
"Available Information" and "Incorporation of Certain Documents by Reference."
NINE MONTHS
ENDED
DECEMBER 31, YEAR ENDED MARCH 31,
---------------------- --------------------------------------------
1997(1) 1996 1997(1) 1996 1995 1994
----------- --------- ----------- --------- --------- ---------
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Net sales................................................. $ 475 $ 229 $ 353 $ 285 $ 234 $ 247
Operating income.......................................... 54 23 33 28 21 20
Income from continuing operations......................... 22 17 22 22 19 13
Net income (loss)......................................... 22 11 5 17 9 (14)
Income from continuing operations per share:
Basic................................................... 1.74 1.37 1.78 1.74 1.52 1.08
Diluted................................................. 1.72 1.37 1.78 1.74 1.52 1.07
Net income (loss) per share:
Basic................................................... 1.74 .85 .43 1.35 .75 (1.12)
Diluted................................................. 1.72 .85 .43 1.35 .75 (1.11)
DIVIDEND DATA:
Cash dividend declared per share.......................... $ .30 $ .30 $ .40 $ .40 $ .88 $ .88
1993
---------
STATEMENT OF OPERATIONS DATA:
Net sales................................................. $ 244
Operating income.......................................... 23
Income from continuing operations......................... 20
Net income (loss)......................................... 27
Income from continuing operations per share:
Basic................................................... 1.64
Diluted................................................. 1.63
Net income (loss) per share:
Basic................................................... 2.21
Diluted................................................. 2.19
DIVIDEND DATA:
Cash dividend declared per share.......................... $ .88
DECEMBER 31, MARCH 31,
---------------------- --------------------------------------------
1997(1) 1996 1997(1) 1996 1995 1994
----------- --------- ----------- --------- --------- ---------
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 11 $ 50 $ 12 $ 16 $ 6 $ 4
Working capital........................................... 99 188 108 174 156 161
Total assets.............................................. 703 345 726 395 415 448
Long-term debt............................................ 130 6 161 7 10 11
Shareholders' equity...................................... 256 238 231 231 219 222
1993
---------
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 25
Working capital........................................... 184
Total assets.............................................. 490
Long-term debt............................................ 19
Shareholders' equity...................................... 249
- ------------------------
(1) Includes Eljer following its acquisition by Zurn in January 1997.
16
NEW USI SELECTED PRO FORMA FINANCIAL INFORMATION
The unaudited selected pro forma combined financial data for each year in
the three-year period ended September 30, 1997 and for the three months ended
December 31, 1997 and 1996 gives effect to the Transaction under the pooling of
interests method of accounting and reflects certain assumptions described in the
notes to the unaudited pro forma combined financial statements included
elsewhere herein. Pro forma basic (and diluted) per share amounts reflect pro
forma weighted average shares of common stock (and equivalents) assuming the
conversion of each outstanding share of Zurn Common Stock (and each Zurn Common
Stock equivalent) into 1.6 shares of New USI Common Stock (and New USI Common
Stock equivalents). The selected pro forma information set forth below is
qualified in its entirety by, and should be read in conjunction with, the
Unaudited Pro Forma Combined Financial Statements included herein and the
historical financial information of USI and Zurn included or incorporated by
reference herein. See "--USI Selected Historical Financial Information," "--Zurn
Selected Historical Financial Information," "Available Information,"
"Incorporation of Certain Documents by Reference" and "Unaudited Pro Forma
Combined Financial Statements."
The selected pro forma information is presented for informational purposes
only and is not necessarily indicative of the financial position or operating
results that would have occurred if the Transaction had been consummated as of
the dates indicated, nor is it necessarily indicative of future financial
conditions or operating results. See "Unaudited Pro Forma Combined Financial
Statements."
THREE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------------- --------------------
1997 1996 1995 1997 1996
--------- --------- --------- --------- ---------
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Net sales.......................................................... $ 2,794 $ 2,364 $ 2,181 $ 749 $ 578
Operating income................................................... 288 239 105 68 56
Income (loss) from continuing operations........................... 137 104 (42) 31 26
Income from continuing operations per share:
Basic............................................................ 1.48 1.09 -- .33 .28
Diluted.......................................................... 1.43 1.07 -- .32 .27
Cash dividend declared per share................................... .05 -- -- .05 --
DECEMBER 31,
1997
-------------------------------
BALANCE SHEET DATA:
Cash and cash equivalents........................................................................... $ 61
Working capital..................................................................................... 669
Total assets........................................................................................ 2,769
Long-term debt...................................................................................... 804
Stockholders' equity................................................................................ 1,036
a) Zurn's historical income statement and balance sheet have been reclassified
to be consistent with the presentation of USI's statement of operations and
balance sheet.
b) Zurn has a March 31 fiscal year end. Fiscal 1997 includes the Zurn
historical income information for the twelve-month period ended September
30, 1997 combined with the historical information of USI for the year then
ended. Fiscal 1996 and 1995 include the historical information of USI for
the years ended September 30, 1996 and 1995 combined with the historical
information of Zurn for the years ended March 31, 1997 and 1996,
respectively. For this reason, the unaudited pro forma combined
17
income information for fiscal 1997 includes the following amounts
attributable to Zurn that were also included in the unaudited pro forma
combined statement of operations information for fiscal 1996:
Net sales............................................................ $190
Operating income..................................................... 17
Income from continuing operations.................................... 10
The unaudited selected pro forma information as of and for the three months
ended December 31, 1997 and 1996 represent the combined historical
information of USI and Zurn for such periods after taking into account the
adjustments noted in the Unaudited Pro Forma Combined Financial Statements
included elsewhere herein.
c) The cash dividends declared per share represents USI's historical cash
dividends declared.
d) The statement of operations data presented in the table exclude (i)
potential operating synergies and cost savings which may be achieved upon
combining the companies, (ii) investment banking, legal, accounting and
miscellaneous transaction costs of the Transaction, currently estimated to
be $10 million on an after-tax basis, (iii) costs associated with the
change-in-control benefits of certain employees, currently estimated to be
$8 million on an after-tax basis and (iv) costs associated with the
integration and consolidation of the companies, which are not presently
estimable.
e) The balance sheet data include the $18 million impact of the costs described
above in (c)(ii) and (c)(iii).
f) The following table sets forth for the period shown below the pro forma
results of USI and Zurn combined operations giving effect to the acquisition
of Eljer by Zurn in January 1997, in a transaction accounted for as a
purchase, as if it had occurred as of the beginning of the fiscal year ended
September 30, 1997. The pro forma results for the three month period ended
December 31, 1997 are the same as the actual results of New USI for that
period.
YEAR ENDED
SEPTEMBER 30,
-------------
1997
-------------
(IN MILLIONS,
EXCEPT PER
SHARE DATA)
Net sales...................................................................... $ 2,914
Operating income............................................................... 295
Income from continuing operations.............................................. 135
Income from continuing operations per share:
Basic.................................................................. $ 1.46
Diluted................................................................ 1.41
18
COMPARATIVE PER SHARE DATA
Set forth below are historical earnings per share (basic and diluted), cash
dividends declared and book value per share data of USI and Zurn, unaudited pro
forma combined per share data of New USI and equivalent pro forma per share data
of Zurn. The New USI unaudited pro forma combined data were derived by combining
the historical financial information of USI and Zurn, after giving effect to the
Transaction under the pooling of interests method of accounting. The unaudited
equivalent Zurn pro forma per share data was calculated by multiplying the New
USI unaudited pro forma combined data by the Zurn Exchange Ratio. The data set
forth below should be read in conjunction with the USI and Zurn audited
consolidated financial statements and unaudited interim consolidated financial
statements, including the notes thereto, which are incorporated by reference in
this Joint Proxy Statement/Prospectus. See "Available Information" and
"Incorporation of Certain Documents by Reference." The data should also be read
in conjunction with the unaudited pro forma consolidated financial information
included elsewhere herein. See "Unaudited Pro Forma Combined Financial
Statements."
U.S. INDUSTRIES, INC. AND ZURN INDUSTRIES, INC.
COMPARATIVE PER SHARE DATA
YEAR THREE MONTHS
ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------------- --------------------
1997 1996 1995(1) 1997 1996
--------- --------- --------- --------- ---------
USI HISTORICAL PER COMMON SHARE FROM CONTINUING OPERATIONS:
Basic Earnings................................................. $ 1.55 $ 1.09 $ -- $ .33 $ .29
Diluted Earnings............................................... 1.50 1.06 -- .32 .28
Cash dividend declared........................................... .05 -- -- .05 --
Book value (end of period)....................................... 9.45 6.84 5.12 10.28 6.93
NEW USI PRO FORMA (UNAUDITED) COMBINED PER COMMON SHARE FROM
CONTINUING OPERATIONS:
Basic Earnings................................................. $ 1.48 $ 1.09 $ -- $ .33 $ .28
Diluted Earnings............................................... 1.43 1.07 -- .32 .27
Cash dividend declared (2)....................................... .05 -- -- .05 --
Book value (end of period)....................................... 9.86 7.64 6.45 10.60 7.80
ZURN HISTORICAL PER COMMON SHARE FROM CONTINUING OPERATIONS:
Basic Earnings................................................. $ 1.95 $ 1.78 $ 1.74 $ .60 $ .39
Diluted Earnings............................................... 1.93 1.78 1.74 .59 .39
Cash dividend declared........................................... 0.40 0.40 0.40 .10 .10
Book value (end of period)....................................... 19.68 18.67 18.71 20.43 19.23
EQUIVALENT ZURN PRO FORMA (UNAUDITED) PER SHARE DATA FROM
CONTINUING OPERATIONS:
Basic Earnings................................................. $ 2.37 $ 1.74 $ -- $ .53 $ .45
Diluted Earnings............................................... 2.29 1.71 -- .51 .43
Cash dividend declared........................................... .08 -- -- .08 --
Book value (end of period)....................................... 15.78 12.22 10.32 16.97 12.48
- ------------------------
(1) Prior to fiscal 1996, earnings per share information is not presented, as
the capital structure of the businesses that comprised USI prior to the
Demerger was not indicative of USI's capital structure following the
Demerger.
(2) The cash dividends declared per share represents USI's historical cash
dividend declared.
19
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
The USI Common Stock is listed on the NYSE under the symbol "USI."
The Zurn Common Stock is listed on the NYSE and PSE under the symbol "ZRN."
The table below sets forth, for the calendar quarters indicated, the
reported high and low sales prices of USI Common Stock and the Zurn Common Stock
on the NYSE Composite Tape, in each case based on published financial sources,
and the cash dividends declared on such stock, listed for the quarter in which
such dividend were declared. The price information for USI Common Stock has been
adjusted to give effect to a 3-for-2 stock dividend paid on September 23, 1997.
USI COMMON STOCK ZURN COMMON STOCK
----------------------------------- -----------------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
--------- --------- ------------- --------- --------- -------------
(IN DOLLARS)
CALENDAR 1996
First Quarter.................................. $ 13.83 $ 11.58 -- $ 23.25 $ 19.38 $ .10
Second Quarter................................. 16.33 13.58 -- 21.63 19.50 .10
Third Quarter.................................. 18.17 14.50 -- 22.50 18.50 .10
Fourth Quarter................................. 22.42 17.50 -- 29.00 22.13 .10
CALENDAR 1997
First Quarter.................................. 26.17 21.17 -- 26.25 23.38 .10
Second Quarter................................. 25.50 21.42 -- 30.00 23.75 .10
Third Quarter.................................. 28.00 23.71 $ .05 34.63 28.06 .10
Fourth Quarter................................. 30.56 25.38 .05 37.44 30.88 .10
CALENDAR 1998
First Quarter.................................. 30.75 26.38 .05 47.88 30.44 .10
On February 13, 1998, the last full trading day preceding the joint public
announcement by USI and Zurn of the execution of the Merger Agreement, the
closing prices of USI Common Stock and Zurn Common Stock on the NYSE Composite
Tape were $27.69 and $37.06 per share, respectively. On April , 1998, the
latest practicable date prior to the printing of this Joint Proxy
Statement/Prospectus, the closing prices of USI Common Stock and Zurn Common
Stock on the NYSE Composite Tape were $ and $ per share, respectively.
HOLDERS OF USI COMMON STOCK AND ZURN COMMON STOCK ARE URGED TO OBTAIN CURRENT
MARKET QUOTATIONS PRIOR TO MAKING ANY DECISION WITH RESPECT TO THE MERGER
PROPOSAL.
New USI intends to apply for listing of the New USI Common Stock on the NYSE
and anticipates that its shares will trade on the NYSE, upon official notice of
issuance, under the symbol "USI." New USI is expected to maintain the same
quarterly dividend policy as USI.
20
RISK FACTORS
FIXED EXCHANGE RATIO
Pursuant to the terms of the Merger Agreement, at the Effective Time, each
outstanding share of Zurn Common Stock, other than shares held in the treasury
of Zurn, will be converted into the right to receive the Zurn Merger
Consideration and each outstanding share of USI Common Stock, other than shares
held in the treasury of USI, will be converted into one share of New USI Common
Stock. The Merger Agreement does not provide for any adjustment of the number of
shares of New USI Common Stock issuable for each share of Zurn Common Stock or
USI Common Stock based upon fluctuations in the price of USI Common Stock or
Zurn Common Stock. Accordingly, the value of the stock consideration to be
received by holders of Zurn Common Stock upon the consummation of the
Transaction, and the corresponding dilution, if any, to holders of USI Common
Stock, are not presently ascertainable and will depend upon the market price of
New USI Common Stock at the Effective Time, which in turn will be affected by
the market price of USI Common Stock at such time. On February 13, 1998, the
last trading day prior to the public announcement of the execution of the Merger
Agreement, the closing price of USI Common Stock on the NYSE Composite Tape was
$27.92 per share and the closing price of Zurn Common Stock on the NYSE was
$37.06 per share. On April , 1998 (the latest practicable date prior to the
printing of this Joint Proxy Statement/Prospectus), the closing price of USI
Common Stock on the NYSE Composite Tape was $ per share and the closing price
of Zurn Common Stock on the NYSE was $ per share. Holders of USI Common Stock
and holders of Zurn Common Stock are urged to obtain current market quotations
prior to making any decisions with respect to the Merger Proposal. The Merger
Agreement does not provide USI or Zurn the right to terminate the agreement
based upon fluctuations in the price of USI Common Stock or Zurn Common Stock.
RISK OF NONREALIZATION OF SYNERGIES AND OTHER BENEFITS
The Transaction involves the integration of two companies that have
previously operated independently. Among the factors considered by the USI Board
and the Zurn Board in connection with their respective approvals of the Merger
Agreement was the potential for cost savings and synergies that could result
from the Transaction. Certain of the individual analyses performed by CSFB in
connection with its fairness opinion, which in certain cases assumed that such
cost savings and synergies were not achieved, produced ranges of implied
exchange ratios which were, in whole or in part, less than the Zurn Exchange
Ratio. See "The Transaction--Recommendation of the USI Board; USI's Reasons for
the Transaction" and "--Opinion of USI's Financial Advisor." There can be no
assurance that New USI will not encounter difficulties in integrating the
respective operations of USI and Zurn or that the benefits expected from such
integration will be realized. In addition, the costs of such integration, which
are not presently estimable, could be material. The incurrence of material costs
or delays in connection with the integration of the respective operations of USI
and Zurn could have an adverse effect on the business, operating results or
financial condition of New USI.
CREDIT AVAILABILITY
Upon the approval of the Merger Proposal by Zurn's shareholders, Zurn's
existing indebtedness of approximately $210 million will become due and payable.
New USI has agreed pursuant to the Merger Agreement to repay, or cause to be
repaid, this indebtedness prior to or concurrently with the consummation of the
Transaction and intends to do so using availability under the Credit Facility of
USIAH. Subsequent to this repayment, New USI will have approximately $100
million available under the Credit Facility for additional borrowing. New USI
presently expects to refinance a portion of its borrowings under the Credit
Facility with a portion of the proceeds of an offering of from $300 million to
$500 million in aggregate principal amount of debt securities to qualified
institutional buyers in a transaction exempt from the registration requirements
of the Securities Act. Such offering is presently expected to occur in the
second calendar quarter of 1998 and the amount of such offering will depend on
market conditions at such time. In anticipation of this offering, USI has
entered into interest rate protection agreements in the aggregate notional
amount of $300 million, which may be less than or greater than the principal
amount of notes offered. There can be no assurance that the markets for debt
securities will be accessible in the future or at costs currently available to
USIAH.
21
The Credit Facility places restrictions on, among other things, mergers.
USIAH is currently in the process of soliciting approval for the Transaction
from its lenders and anticipates receiving approval shortly.
INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS OF ZURN IN THE TRANSACTION
Certain directors and executive officers of Zurn have interests in the
Transaction that are in addition to the interests of other holders of Zurn
Common Stock. The directors and executive officers of Zurn will receive change
in control payments of approximately $6.9 million in the aggregate in connection
with the Transaction. In addition, the estimated value of Zurn options held by
directors and executive officers of Zurn that have vested or will vest as a
result of Zurn shareholder approval of the Merger Proposal is approximately
$13.6 million in the aggregate, based on the closing price of the Zurn Common
Stock on the NYSE on April 2, 1998. For more information regarding these
payments and the valuation of such options, see "The Transaction--Interests of
Certain Persons in the Transaction."
Messrs. Womack, Chairman and Chief Executive Officer of Zurn, Sheeder, Group
Vice President of Zurn, and Mellett, Senior Vice President--Chief Financial
Officer of Zurn, have agreements relating to employment with Zurn which are
effective only in the event of a change in control of Zurn (as defined in the
agreements). The agreements provide, in general, that if employment is
terminated following a Change in Control of Zurn (as defined in the agreement)
(other than a termination due to death, Disability (as defined), Retirement (as
defined), by Zurn for Cause (as defined) or by the Executive for other than Good
Reason (as defined)), Zurn shall pay a severance payment equal to three times
current annual salary and average incentive compensation paid in the last three
years of employment. Mr. Womack also has an employment agreement with Zurn that
provides, among other things, a severance payment upon a termination by Zurn
without Cause (as defined in the agreement) equal to one year's salary in the
event he does not receive the severance payment under his agreement relating to
a Change in Control of Zurn. Messrs. Womack, Sheeder and Mellett have entered
into new employment agreements to serve in similar capacities as officers of USI
Plumbing and Bath Products Company and Zurn. The new employment agreements
provide, among other things, that (i) (a) Mr. Womack generally will receive
severance equal to three times base salary and three times highest annual bonus
for the previous three completed fiscal years (in addition to various other
benefits) in the event of a termination by New USI without Cause or by the
Executive with Good Reason and in the event of a termination by Mr. Womack with
or without Good Reason within 2 years after a Change in Control of New USI (as
defined in the agreement) and (b) Messrs. Sheeder and Mellett generally will
receive severance equal to two times base salary and two times highest annual
bonus for the previous two completed fiscal years (in addition to various other
benefits) in the event of a termination by New USI without Cause, a termination
by the Executive for Good Reason or a nonextension of the employment term by New
USI; (ii) New USI will cause the New USI Compensation Committee to grant, within
30 days after the Effective Time: (a) Messrs. Womack, Sheeder and Mellett awards
of restricted New USI Common Stock with a value of $2 million, $1 million and $1
million, respectively, and (b) Messrs. Sheeder and Mellett stock options to
purchase the number of shares of New USI Common Stock equal to $250,000 divided
by the fair market value of New USI Common Stock on the date of grant; and (iii)
Messrs. Womack, Sheeder and Mellett will receive lump sum payments of
approximately $3 million, $1.5 million and $1.3 million, respectively, within 10
days after the Effective Time in lieu of equivalent change in control payments
under their current agreements relating to employment with Zurn. The new
employment agreements for Messrs. Sheeder and Mellett provide for a base salary
level which is less than each such officer currently receives from Zurn. See
"The Transaction-- Interests of Certain Persons in the Transaction."
Directors and executive officers of USI will not receive any change in
control payments or other benefits in connection with the Mergers.
FACTORS WHICH MAY INFLUENCE FUTURE OPERATING RESULTS
Various economic and competitive factors could cause actual results of USI,
Zurn and New USI to differ materially from those discussed in this Joint Proxy
Statement/Prospectus, including factors which are outside the control of USI,
Zurn and New USI, such as interest rates, foreign currency exchange rates,
consumer spending patterns, availability of consumer credit, levels of
residential and commercial construction, levels of automotive production and
changes in raw material costs, along with the other factors noted in the USI
Reports and the Zurn Reports with respect to each company's respective
businesses. See "Disclosure Regarding Forward-Looking Statements."
22
THE SPECIAL MEETINGS
This Joint Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies (i) from the holders of USI Common Stock by the USI
Board for use at the USI Meeting and (ii) from the holders of Zurn Common Stock
by the Zurn Board for use at the Zurn Meeting.
TIMES AND PLACES; PURPOSES
The USI Meeting is scheduled to be held at The Brunswick Hilton and Towers,
Three Tower Center Boulevard at Tower Center, at Exit 9, New Jersey Turnpike,
East Brunswick, New Jersey 08816, on May [20], 1998, starting at 9:00 a.m.,
local time. At the USI Meeting, the stockholders of USI will be asked to
consider and vote on the Merger Proposal, the Plan Proposal and such other
matters as may properly come before the USI Meeting.
The Zurn Meeting is scheduled to be held at the Addison Conference and
Theatre Centre, 15650 Addison Road, Addison, Texas 75248, on May [20], 1998,
starting at 9:00 a.m., local time. At the Zurn Meeting, the shareholders of Zurn
will be asked to consider and vote on the Merger Proposal and such other matters
as may properly come before the Zurn Meeting.
VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL
USI
The USI Board has fixed April 2, 1998, as the USI Record Date. Only holders
of record of shares of USI Common Stock at the close of business on the USI
Record Date are entitled to vote at the USI Meeting. At the close of business on
the USI Record Date, there were 77,095,584 shares of USI Common Stock
outstanding and entitled to vote at the USI Meeting held by approximately 34,661
stockholders of record.
Each share of USI Common Stock entitles the holder thereof on the USI Record
Date to one vote. The presence, in person or by proxy, of the holders of a
majority of the votes entitled to be cast by the stockholders entitled to vote
generally is necessary to constitute a quorum at the USI Meeting. Approval of
the Merger Proposal (the "USI Merger Approval") requires the affirmative vote,
in person or by proxy, of the holders of a majority of the then outstanding
shares of USI Common Stock entitled to vote thereon and approval of the Plan
Proposal requires the affirmative vote of the holders of a majority of the then
outstanding shares of USI Common Stock entitled to vote thereon which are
present in person or by proxy at the USI Meeting. Shares represented by
abstentions and broker non-votes will be counted for purposes of determining
whether there is a quorum at the USI Meeting, but will have the effect of votes
against the Merger Proposal.
Holders of USI Common Stock are not entitled to appraisal or dissenters'
rights in connection with the USI Merger. See "The Transaction--Absence of
Appraisal and Dissenters' Rights."
As of the USI Record Date, USI's directors, executive officers and their
affiliates, as a group, were entitled to vote 4,268,438 shares of USI Common
Stock, or approximately 5.5% of the total number of votes entitled to be cast at
the USI Meeting.
ZURN
The Zurn Board has fixed April 2, 1998, as the Zurn Record Date. Only
holders of record of shares of Zurn Common Stock at the close of business on the
Zurn Record Date will be entitled to notice of and to vote at the Zurn Meeting.
At the close of business on the Zurn Record Date, there were 12,747,546 shares
of Zurn Common Stock outstanding and entitled to vote at the Zurn Meeting held
by approximately 4,559 shareholders of record.
23
Each share of Zurn Common Stock entitles the holder thereof to one vote. At
the Zurn Meeting, the presence, in person or by proxy, of the holders of a
majority of the outstanding shares of Zurn Common Stock is necessary to
constitute a quorum. Approval of the Merger Proposal (the "Zurn Merger
Approval") by holders of Zurn Common Stock requires the affirmative vote of a
majority of the votes cast by such holders entitled to vote thereon at the Zurn
Meeting. Shares represented by abstentions and broker non-votes will be counted
for purposes of determining whether there is a quorum at the Zurn Meeting, but
will have no impact on the outcome of the vote on the Merger Proposal.
Holders of Zurn Common Stock are not entitled to appraisal or dissenters'
rights in connection with the Zurn Merger. See "The Transaction--Absence of
Appraisal and Dissenters' Rights."
As of the Zurn Record Date, Zurn's directors, executive officers and their
affiliates, as a group, were entitled to vote 142,793 shares of Zurn Common
Stock, or approximately 1.1% of the total number of votes entitled to be cast at
the Zurn Meeting.
PROXIES
USI
All shares of USI Common Stock represented at the USI Meeting by properly
executed proxies received prior to or at the USI Meeting, and not revoked, will
be voted in accordance with the instructions indicated on such proxies. If no
instructions are indicated, such proxies will be voted FOR the Merger Proposal
and FOR the Plan Proposal. No stockholder of record may appoint more than three
persons to act as his or her proxy at the USI Meeting. Any proxy marked AGAINST
the Merger Proposal or the Plan Proposal will not be voted on any proposal to
adjourn the USI Meeting.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (a) filing
with the Secretary of USI, at or before the taking of the vote at the USI
Meeting, a written notice of revocation bearing a later date than the proxy, (b)
duly executing a later dated proxy relating to the same shares and delivering it
to the Secretary of USI before the taking of the vote at the USI Meeting or (c)
attending the USI Meeting and voting in person (although attendance at the USI
Meeting will not in and of itself constitute a revocation of a proxy). Any
written notice of revocation or subsequent proxy should be sent and delivered to
U.S. Industries, Inc., 101 Wood Avenue South, P.O. Box 169, Iselin, New Jersey
08830-0169, Attention: Secretary, or hand delivered to the Secretary of USI at
or before the taking of the vote at the USI Meeting.
All expenses of solicitation of proxies from USI stockholders will be borne
by USI. USI will solicit proxies by mail, and USI's directors, officers and
employees may also solicit proxies by telephone, telegram, facsimile or personal
interview. These persons will receive no additional compensation for these
services but may be reimbursed for reasonable out-of-pocket expenses in
connection with such solicitation. In addition, USI has retained Georgeson &
Company Inc., at an estimated cost of $6,500, plus reimbursement of expenses, to
assist in USI's solicitation of proxies from brokers, nominees, institutions and
individuals. Continuing arrangements also will be made with custodians, nominees
and fiduciaries for the forwarding of proxy solicitation materials to beneficial
owners of shares held of record by such custodians, nominees and fiduciaries,
and USI will reimburse such custodians, nominees and fiduciaries for reasonable
expenses incurred in connection therewith.
HOLDERS OF USI COMMON STOCK SHOULD NOT SEND ANY CERTIFICATES REPRESENTING
SHARES OF USI COMMON STOCK WITH THE ENCLOSED PROXY CARD. IF THE USI MERGER IS
CONSUMMATED, CERTIFICATES THAT, PRIOR TO CONSUMMATION OF THE USI MERGER,
REPRESENTED SHARES OF USI COMMON STOCK WILL, FOLLOWING CONSUMMATION OF THE USI
MERGER, REPRESENT SHARES OF NEW USI COMMON STOCK WITH NO ACTION REQUIRED ON THE
PART OF THE HOLDERS OF USI COMMON STOCK.
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ZURN
Shares of Zurn Common Stock entitled to voted at the Zurn Meeting (including
any adjournment or postponement thereof) and which are represented by properly
executed proxies in the form enclosed with this Joint Proxy Statement/Prospectus
will, unless such proxies have previously been revoked, be voted in accordance
with the instructions indicated in such proxies. To the extent instructions are
not indicated, shares will be voted FOR the Merger Proposal. A Zurn shareholder
who has given a proxy may revoke it at any time prior to its being voted at the
Zurn Meeting by delivering a new duly executed proxy with a later date or by
delivering a written notice of revocation to the Secretary of Zurn prior to the
taking of the vote at the Zurn Meeting or by appearing and voting in person at
the Zurn Meeting (although attendance at the Zurn Meeting will not in and of
itself constitute a revocation of a proxy). Any written notice of revocation or
subsequent proxy should be sent or delivered to Zurn Industries, Inc., 14801
Quorum Drive, Dallas, Texas 75240-7584 (or, if by mail, P.O. Box 709001, Dallas,
Texas 75370-9001), Attention: Secretary, or hand delivered to the Secretary of
Zurn prior to the taking of the vote at the Zurn Meeting.
In addition to mailing this material to Zurn shareholders, Zurn has asked
custodians, nominees and fiduciaries to forward copies to persons for whom they
hold shares of Zurn Common Stock and to request authority for execution of
proxies. Zurn will reimburse such custodians, nominees and fiduciaries for their
reasonable out-of-pocket expenses in doing so. Officers and employees of Zurn
may, without being additionally compensated, solicit proxies by mail, telephone,
telegram or personal contact. Zurn will pay all of its expenses in connection
with the solicitation of proxies for the Zurn Meeting. In addition, Zurn has
retained Morrow & Co. Inc., at an estimated cost of $7,500, plus reimbursement
of expenses, to assist in Zurn's solicitation of proxies from brokers, nominees,
institutions and individuals.
HOLDERS OF ZURN COMMON STOCK SHOULD NOT SEND ANY CERTIFICATES REPRESENTING
SHARES OF ZURN COMMON STOCK WITH THE ENCLOSED PROXY CARD. IF THE ZURN MERGER IS
CONSUMMATED, A LETTER OF TRANSMITTAL WILL BE MAILED TO EACH PERSON WHO WAS A
HOLDER OF OUTSTANDING SHARES OF ZURN COMMON STOCK IMMEDIATELY PRIOR TO THE
CONSUMMATION OF THE ZURN MERGER. ZURN SHAREHOLDERS SHOULD SEND CERTIFICATES
REPRESENTING ZURN COMMON STOCK TO THE EXCHANGE AGENT ONLY AFTER THEY RECEIVE,
AND IN ACCORDANCE WITH THE INSTRUCTIONS CONTAINED IN, THE LETTER OF TRANSMITTAL.
25
THE TRANSACTION
GENERAL
The Merger Agreement provides for a business combination between USI and
Zurn in which, subject to the satisfaction of the conditions set forth therein,
Blue Merger Corp. will be merged with and into USI and Zoro Merger Corp. will be
merged with and into Zurn, with USI and Zurn continuing as the surviving
corporations of the Mergers. At the Effective Time, each outstanding share of
USI Common Stock will be converted into one share of New USI Common Stock and
each outstanding share of Zurn Common Stock will be converted into the right to
receive the Zurn Merger Consideration. As a result of the Mergers, the former
holders of USI Common Stock collectively will hold approximately 79%
(approximately 78% on a fully diluted basis and treating option holders as
former stockholders) of the issued and outstanding shares of New USI Common
Stock and the former holders of Zurn Common Stock collectively will hold
approximately 21% (approximately 22% on a fully diluted basis and treating
option holders as former shareholders) of the issued and outstanding shares of
New USI Common Stock.
BACKGROUND
On May 31, 1995, USI was demerged from Hanson and became an independent
publicly owned company listed on the NYSE. During the fall of 1996, USI explored
the possibility of acquiring Eljer, then an independent publicly owned company,
but did not pursue the transaction as bidding progressed. In January 1997, Eljer
was acquired by Zurn for $171.7 million in cash, plus the assumption of $303.2
million of liabilities.
In August 1997, John G. Raos, the President and Chief Operating Officer of
USI, contacted Scott Arbuckle, the retired Chairman and Chief Executive Officer
of Eljer and a Director of Zurn, to ask him to arrange an introduction to Robert
R. Womack, the Chairman and Chief Executive Officer of Zurn. On August 18,
Messrs. Raos and Womack met and discussed areas of mutual interest in the bath
products industry and the possibility of USI and Zurn engaging in commercial
relationships with one another. On September 15, 1997, Messrs. Raos and Womack
met and again discussed the possibility of engaging in such commercial
relationships. During the course of such meeting, Mr. Raos suggested that it
might be desirable for Mr. Womack to meet with David H. Clarke, the Chairman and
Chief Executive Officer of USI. On September 18, 1997, Messrs. Clarke and Womack
met and discussed, among other things, the strategic fit of USI's Jacuzzi
business and the Zurn and Eljer businesses and the possibility of combining USI
and Zurn in a stock for stock merger. On September 25, Messrs. Raos and Womack
and John R. Mellett, Senior Vice President and Chief Financial Officer of Zurn,
held further discussions regarding a possible combination of USI and Zurn and
exchanged drafts of a confidentiality and standstill agreement.
On October 10, Mr. Womack briefed the Executive Committee of the Zurn Board
with respect to USI's expression of interest in a stock for stock merger with
Zurn.
On October 13, USI and Zurn entered into a confidentiality and standstill
agreement.
On October 27, a regularly scheduled meeting of the Zurn Board was held, at
which meeting Mr. Womack briefed the Zurn Board with respect to USI's expression
of interest in a stock for stock merger with Zurn. In connection with such
briefing and related presentations made to the Zurn Board by BT Wolfensohn and
Jones Day, various strategic, financial, legal and accounting matters were
reviewed with and discussed by the Zurn Board. Following discussion of the
foregoing matters, the Zurn Board determined that further discussions regarding
a business combination with USI were not warranted. Mr. Womack subsequently
communicated the Zurn Board's determination to Mr. Clarke.
On January 6, 1998, Mr. Raos called Mr. Womack to arrange a meeting among
Messrs. Clarke, Raos and Womack.
On January 7, Messrs. Clarke and Raos met with Mr. Womack and proposed a
merger transaction involving USI and Zurn in which each share of Zurn Common
Stock would be exchanged for 1.6 shares of
26
common stock of the combined company, subject to the satisfactory completion of
USI's due diligence review and the negotiation, board approval, execution and
delivery of a definitive merger agreement. On the same date, USI and Zurn
amended their confidentiality and standstill agreement to extend the date on
which either party could demand the return of diligence materials provided by it
to the other.
On January 12, representatives of Zurn and BT Wolfensohn met with
representatives of USI and CSFB to exchange and review business overviews and
financial data and budgets of Zurn and USI prepared by the respective
managements of Zurn and USI.
On January 14, Zurn confirmed its previous engagement of BT Wolfensohn as
Zurn's financial advisor pursuant to an engagement letter dated as of such date.
On January 14, USI's and Zurn's respective audit teams commenced their due
diligence procedures.
On January 19, at a regularly scheduled meeting of the Zurn Board, Mr.
Womack reviewed with the Zurn Board its prior consideration of certain
information relating to a possible combination of USI and Zurn and reported to
the Zurn Board that USI was interested in pursuing such a combination on the
terms proposed by Messrs. Clarke and Raos to Mr. Womack on January 7. In
connection with such report, BT Wolfensohn reviewed updated information as to
various strategic and financial matters pertaining to a possible combination of
USI and Zurn. Following discussion of the foregoing matters, the Zurn Board
determined that, although Zurn was not for sale, it would be appropriate for
Zurn to continue discussions with USI.
On January 23, Messrs. Clarke, Raos and Womack met to discuss further the
terms of the proposed combination of USI and Zurn, including USI's proposal
that, in addition to Zurn being required in certain circumstances to pay a
termination fee equal to approximately 3% of the aggregate merger consideration
to be paid to holders of Zurn Common Stock, Zurn grant to USI an option that
would be exercisable in certain circumstances to purchase a number of shares of
Zurn Common Stock equal to 19.9% of the issued and outstanding shares of Zurn
Common Stock.
On January 26, BT Wolfensohn conducted a due diligence review at USI's
executive headquarters and, on January 29, made a presentation to Messrs. Womack
and Mellett with respect to the results of such review and BT Wolfensohn's
financial analysis of the proposed transaction. On that date, USI executed an
engagement letter confirming its previous retention of CSFB as its exclusive
financial advisor in connection with the proposed transaction.
On January 30, Mr. Womack and William E. Butler, a Director of Zurn, met
with Messrs. Clarke and Raos to further discuss the terms of the proposed
transaction, but were unable to reach agreement with respect to USI's requested
termination fee and stock option and certain other matters relating to the
proposed merger agreement (primarily involving employee compensation and
benefits matters).
From January 29 to February 3, negotiations took place among representatives
of USI and its counsel Weil, Gotshal & Manges LLP, and Zurn and its counsel
Jones Day, concerning the terms of the proposed merger agreement and related
issues. On February 3, Mr. Womack and Mr. Raos and George H. MacLean, USI's
Senior Vice President and General Counsel, met to finalize the terms of the Zurn
senior management team's employment with the combined company.
On February 3, a special meeting of the Zurn Board was held for the purpose
of further considering the merger transaction proposed by USI. At such meeting,
(i) Mr. Womack reviewed the Zurn Board's previous consideration of the proposed
transaction and briefed the Zurn Board as to the current state of the
negotiations relating thereto, (ii) BT Wolfensohn reviewed various strategic and
financial matters pertaining to the proposed transaction, including BT
Wolfensohn's views as to the fairness, from a financial point of view, of the
proposed merger consideration to the holders of Zurn Common Stock, and (iii)
Jones Day reviewed certain legal matters, including the fiduciary duties of the
Zurn Board in considering the proposed transaction, together with provisions of
the proposed merger agreement. During the course of such meeting, the Zurn Board
was advised that USI had been informed that certain aspects of its proposal,
including its continued request for an option to purchase a number of shares of
Zurn Common Stock equal
27
to 19.9% of the issued and outstanding shares of Zurn Common Stock, were
unacceptable to Zurn. Following discussion of the foregoing matters, the Zurn
Board determined to consider the proposed transaction further, but to defer any
action with respect thereto.
On February 4, the USI Board met in London to discuss the draft merger
agreement and the progress of the proposed transaction. Representatives of CSFB
made a presentation to the USI Board regarding the valuation analyses performed
by it in connection with the proposed transaction. The USI Board unanimously
approved the Transaction, subject to (i) the delivery of CSFB's fairness opinion
and (ii) USI obtaining an option to purchase a substantial percentage of Zurn
Common Stock if Zurn terminated the merger agreement in connection with an
alternative proposal. The appropriate officers of USI were authorized to
continue to negotiate and execute the definitive merger agreement and related
agreements.
Messrs. Clarke, Raos and Womack spoke on February 5 to discuss the
respective meetings of the USI Board and the Zurn Board. It was noted that the
parties were not in agreement with respect to termination fee arrangements and
Mr. Clarke advised Mr. Womack that USI would not proceed without a stock option.
From February 5 to February 12, discussions took place among representatives
of USI and Zurn with respect to outstanding issues, including USI's insistence
on obtaining a stock option. As a result of these discussions, such
representatives reached tentative agreement on the terms that were ultimately
reflected in the Merger Agreement and the Stock Option Agreement, and Zurn's
representatives agreed to submit such terms to the Zurn Board for approval.
On February 12, CSFB delivered to USI supplemental materials relating to its
valuation analyses and, on February 14, CSFB delivered the CSFB Opinion. See
"--Opinion of USI's Financial Advisor."
On February 14, a special meeting of the Zurn Board was held for the purpose
of considering and acting upon the Transaction on the terms that were ultimately
reflected in the Merger Agreement and the Stock Option Agreement. At Mr.
Womack's request, (i) BT Wolfensohn reviewed updated information as to various
strategic and financial matters pertaining to the proposed transaction and
delivered BT Wolfensohn's written opinion to the effect that the Zurn Merger
Consideration was fair, from a financial point of view, to the holders of Zurn
Common Stock and (ii) Jones Day reviewed certain legal matters, including the
principal changes in the terms of the proposed transaction documents that had
been negotiated subsequent to the February 3, meeting of the Zurn Board.
Following a discussion of the foregoing, and based upon its review of such
factors as it deemed relevant to its decision, including those identified below
under "Recommendation of the Zurn Board--Zurn's Reasons for the Transaction,"
the Zurn Board unanimously approved the Merger Agreement, the Stock Option
Agreement and the Zurn Merger.
On February 16, the parties executed the Merger Agreement and the Stock
Option Agreement. A joint press release announcing the Transaction was issued on
February 17.
RECOMMENDATION OF THE USI BOARD; USI'S REASONS FOR THE TRANSACTION
At its meeting on February 4, 1998, the USI Board unanimously approved the
Merger Agreement, the Stock Option Agreement and the Transaction, and determined
that the Transaction was in the best interests of the stockholders of USI. THE
USI BOARD UNANIMOUSLY RECOMMENDS THAT HOLDERS OF USI COMMON STOCK VOTE FOR THE
MERGER PROPOSAL.
In reaching its determination to approve the Transaction, the USI Board
considered a number of factors, including, without limitation, the factors
listed below.
- The USI Board's belief that the Transaction would represent a significant
step forward in achieving USI's strategy to develop each of its major core
businesses into a world class supplier by creating USI Plumbing and Bath
Products Company, which is expected to be a leading bath and plumbing
company in North America.
28
- The potential for marketing synergies, domestic and international growth
opportunities and cost savings arising from the significant scale that USI
Plumbing and Bath Products Company would have. USI management's estimated
potential synergies and cost savings at $3.0 million in fiscal 1998, $9.3
million in fiscal 1999 and $16.7 million in fiscal 2000. (USI's management
updated its estimate as of February 12, 1998 to $1.5 million in fiscal
1998, $14.2 million in fiscal 1999 and $22.1 million in fiscal 2000.)
- The fact that, before Transaction-related charges, the Transaction is
expected to be only marginally dilutive to EPS in the second half of the
fiscal year ending September 30, 1998 and is expected to be accretive to
EPS in the fiscal year ending September 30, 1999.
- The ability to consummate the Mergers on a tax-free basis for federal
income tax purposes (other than with respect to cash received in lieu of
fractional shares) and to account for the Mergers as a "pooling of
interests" transaction.
- The analyses presented to the USI Board by representatives of CSFB and the
fact that the USI Board's approval of the Transaction was conditioned upon
its subsequent receipt of a written opinion of CSFB to the USI Board to
the effect that, as of the date of such opinion and based upon and subject
to the matters set forth therein, the Zurn Exchange Ratio was fair to USI
from a financial point of view. See "--Opinion of USI's Financial
Advisor."
- Information concerning the financial performance and condition, business
operations, capital levels, asset quality and prospects of Zurn, and the
projected future financial performance of USI as a separate entity and of
USI and Zurn on a combined basis.
- The current and historical trading prices and values of Zurn Common Stock
and USI Common Stock and the current historical trading multiples of other
comparable companies.
- Current industry, economic and market conditions and trends.
- The challenges of combining the businesses of two major corporations, the
risk of not achieving synergies or cost savings (as discussed in "Risk
Factors--Risk of Nonrealization of Synergies and Other Benefits") and of
diverting management focus and resources from other strategic
opportunities and operational matters and the fact that certain of the
individual analyses performed by CSFB in connection with its financial
presentation, which in certain cases assumed that estimated synergies and
cost savings were not achieved, produced ranges of implied exchange ratios
which were, in whole or in part, less than the Zurn Exchange Ratio (as
described in more detail under "-- Opinion of USI's Financial Advisor").
In view of the number and wide variety of factors considered in connection
with its evaluation of the Transaction, the USI Board did not consider it
practicable to, nor did it attempt to, quantify or otherwise assign relative
weights to the specific factors considered in reaching its determination. In
addition, the USI Board did not undertake to make any specific determination as
to whether any particular factor (or any aspect of any particular factor) was
favorable or unfavorable to its ultimate determination. Rather it reached a
general consensus that the Transaction was in the best interests of USI and its
stockholders. In considering the factors described above, individual members of
the USI Board may have given different weight to different factors.
RECOMMENDATION OF THE ZURN BOARD; ZURN'S REASONS FOR THE TRANSACTION
At Zurn Board meetings held on February 3, 1998 and February 14, 1998, the
Zurn Board received and considered the presentations of the management of Zurn
and its legal and financial advisors regarding the proposed Merger Agreement. On
February 14, 1998, the Zurn Board unanimously approved the terms of the Merger
Agreement and the Stock Option Agreement and determined that the Zurn Merger and
the other transactions contemplated by the Merger Agreement are in the best
interests of Zurn. See "--Background" above. THE ZURN BOARD HAS DETERMINED THAT
THE TRANSACTION IS IN
29
THE BEST INTERESTS OF ZURN AND RECOMMENDS THAT THE SHAREHOLDERS OF ZURN VOTE FOR
THE MERGER PROPOSAL.
In reaching its determination to approve the Transaction, the Zurn Board
considered a number of factors, including, without limitation, the factors
listed below.
- The historical market prices of Zurn Common Stock and USI Common Stock and
the fact that, throughout the 12-month period preceding February 4, 1998,
the market value of 1.6 shares of USI Common Stock represented a
substantial premium (ranging from a high of 42.0% to a low of 19.5%) over
the market value of one share of Zurn Common Stock.
- The financial condition, results of operations and business of each of
Zurn and USI, on both a historical and prospective basis, together with
current industry, economic and market conditions.
- Strategic opportunities in the bath and plumbing products industry, and
the limitations on Zurn's ability to take advantage of such opportunities
due to its present size and capital resources.
- The size and anticipated financial strength of New USI following the
Mergers, and its enhanced ability to pursue growth opportunities in the
bath and plumbing products industry.
- The synergies expected to result from the Zurn Merger and the combination
of USI's Jacuzzi line of bath products with Zurn's extensive line of
bathroom and plumbing products and fixtures, including enhanced
operational and marketing efficiencies. The potential revenue and cost
synergies estimated by Zurn management for the 1998, 1999 and 2000 fiscal
years were $2.8 million, $14.6 million and $22.5 million, respectively.
- The opportunity for holders of Zurn Common Stock to hold New USI Common
Stock following the Mergers and, consequently, to benefit from the
synergies expected to result from the combination of Zurn and USI and the
greater liquidity and investment research coverage expected to be
associated with New USI Common Stock.
- The Zurn Board's belief that the Mergers would be accomplished on a
tax-free basis for federal income tax purposes (other than with respect to
cash received in lieu of fractional shares) and be accounted for as a
"pooling of interests" transaction.
- The written opinion of BT Wolfensohn, dated February 14, 1998, to the
effect that, as of such date and based upon and subject to the matters set
forth therein, the Zurn Merger Consideration was fair, from a financial
point of view, to the holders of Zurn Common Stock.
- The anticipated effects of the Zurn Merger on other persons and groups,
together with the provisions of the Merger Agreement relating to the
redemption of the $1.00 Zurn Cumulative Convertible Preferred Stock (the
"Zurn Preferred Stock") (which continued to be convertible into Zurn
Common Stock until the fifth day prior to the date of such redemption),
the repayment of borrowings under Zurn's credit facility, the compensation
and benefits to be provided to continuing employees of Zurn following the
Zurn Merger and the location of Zurn's executive headquarters following
the Zurn Merger.
- The fact that Zurn had not actively solicited indications of interest from
other potential acquirors prior to entering into the Merger Agreement,
together with Zurn's ability under the terms of the Merger Agreement
(subject to the limitations described in "The Merger Agreement--Certain
Covenants--Solicitation of Acquisition Proposals") to receive unsolicited
proposals for alternative transactions, to provide information and
negotiate with persons submitting such unsolicited proposals and, upon the
payment of the termination fee described in "The Merger Agreement--Effects
of Termination," to terminate the Merger Agreement in order to accept any
such proposal determined by the Zurn Board to be more favorable from a
financial point of view to Zurn's shareholders and otherwise in the best
interests of Zurn.
30
- The circumstances in which Zurn would be required to pay a termination fee
to, and reimburse certain expenses of, USI and the magnitude of such fee
and reimbursement obligations.
- USI's insistence on being granted an option to purchase shares of Zurn
Common Stock, the circumstance in which the option contemplated by the
Stock Option Agreement would be exercisable, the magnitude of such option
and the limitation on the amount of profit that USI could derive
therefrom.
- The effect that such option, together with the termination fee and expense
reimbursement provisions of the Merger Agreement, could have on the
willingness of other potential acquirors to submit proposals for
alternative transactions and on the terms of any such proposals.
- The interests of certain persons, including directors and officers of
Zurn, in the Transaction, as described in "The Transaction--Interests of
Certain Persons in the Transaction."
In view of the number and wide variety of factors considered in connection
with its evaluation of the Transaction, the Zurn Board did not consider it
practicable to, nor did it attempt to, quantify or otherwise assign relative
weights to the specific factors considered in reaching its determination.
OPINION OF USI'S FINANCIAL ADVISOR
CSFB has acted as exclusive financial advisor to USI in connection with the
Mergers. CSFB was selected by USI based on CSFB's experience, expertise and
familiarity with USI and its business. CSFB is an internationally recognized
investment banking firm and is regularly engaged in the valuation of businesses
and securities in connection with mergers and acquisitions, leveraged buyouts,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes.
At the meeting of the USI Board on February 4, 1998, representatives of CSFB
made a presentation regarding the valuation analyses performed by it in
connection with the Transaction. CSFB subsequently delivered its written opinion
dated February 14, 1998 that, as of such date and based upon and subject to the
matters set forth therein, the Zurn Exchange Ratio was fair to USI from a
financial point of view. CSFB has consented to the inclusion of the CSFB Opinion
as Appendix C-1 to this Joint Proxy Statement/ Prospectus.
THE FULL TEXT OF THE CSFB OPINION, WHICH SETS FORTH THE PROCEDURES FOLLOWED,
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN,
IS ATTACHED AS APPENDIX C-1 TO THIS JOINT PROXY STATEMENT/PROSPECTUS. USI
STOCKHOLDERS ARE URGED TO READ THE CSFB OPINION CAREFULLY IN ITS ENTIRETY. THE
CSFB OPINION IS DIRECTED TO THE USI BOARD AND RELATES ONLY TO THE FAIRNESS OF
THE ZURN EXCHANGE RATIO TO USI FROM A FINANCIAL POINT OF VIEW, DOES NOT ADDRESS
ANY OTHER ASPECT OF THE MERGERS OR THE TRANSACTION AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY USI STOCKHOLDER AS TO WHETHER SUCH USI STOCKHOLDER SHOULD
APPROVE THE MERGER PROPOSAL. THE SUMMARY OF THE CSFB OPINION IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT THEREOF.
In arriving at its opinion, CSFB reviewed certain publicly available
business and financial information relating to USI and Zurn as well as a draft,
dated February 12, 1998, of the Merger Agreement. CSFB also reviewed certain
other information, including financial forecasts, provided to it by USI and
Zurn, and met with the managements of USI and Zurn to discuss the business and
prospects of USI and Zurn, as well as the business, operational and strategic
benefits and implications of the Mergers and the synergistic values and
operating cost savings expected by the managements of USI and Zurn to be
achieved through the combination of the operations of USI and Zurn.
31
CSFB also considered certain financial and stock market data of USI and Zurn
and compared that data with similar data for other publicly held companies in
businesses similar to that of USI and Zurn and considered the financial terms of
certain other business combinations and other transactions that have recently
been effected. CSFB also considered such other information, financial studies,
analyses, and investigations and financial, economic, and market criteria as
CSFB deemed relevant.
In connection with its review, CSFB did not assume any responsibility for
independent verification of any of the foregoing information and relied on such
information being complete and accurate in all material respects. With respect
to the financial forecasts, CSFB assumed that they had been reasonably prepared
on bases reflecting the best currently available estimates and judgments of the
managements of USI and Zurn as to the future financial performance of their
respective companies and the synergistic values and operating cost savings
expected to be achieved through the combination of the operations of USI and
Zurn. In addition, CSFB did not make an independent evaluation or appraisal of
the assets or liabilities (contingent or otherwise) of USI or Zurn, nor was CSFB
furnished with any such evaluations or appraisals. CSFB did not express any
opinion as to what the value of shares of New USI Common Stock actually will be
when issued to stockholders of USI pursuant to the Mergers or the prices at
which such shares of New USI Common Stock will trade subsequent to the Mergers.
The CSFB Opinion was necessarily based upon financial, economic, market and
other conditions as they existed and could be evaluated on the date of its
opinion.
In preparing its opinion, CSFB performed a variety of financial and
comparative analyses. The summary of CSFB's analyses set forth below does not
purport to be a complete description of the analyses underlying the CSFB
Opinion. The preparation of a fairness opinion is a complex analytical process
involving various determinations as to the most appropriate and relevant methods
of financial analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. In arriving at its opinion, CSFB made qualitative judgments
as to the significance and relevance of each analysis and factor considered by
it. Accordingly, CSFB believes that its analyses must be considered as a whole
and that selecting portions of its analyses and factors, without considering all
analyses and factors, could create a misleading or incomplete view of the
processes underlying such analyses and the CSFB Opinion. In its analyses, CSFB
made numerous assumptions with respect to USI, Zurn, industry performance,
regulatory, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of USI and Zurn. No company,
transaction or business used in such analyses as a comparison is identical to
USI or Zurn or the proposed Mergers, nor is an evaluation of the results of such
analyses entirely mathematical; rather, such analyses involve complex
considerations and judgments concerning financial and operating characteristics
and other factors that could affect the acquisition, public trading or other
values of the companies, business segments or transactions being analyzed. The
estimates contained in such analyses and the ranges of valuations and implied
exchange ratios resulting from any particular analysis are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than those suggested by such analyses.
In addition, analyses relating to the value of businesses or securities do not
purport to be appraisals or to reflect the prices at which businesses or
securities actually may be sold. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty. CSFB's financial analyses were
only one of many factors considered by the USI Board in its evaluation of the
proposed Mergers and should not be viewed as determinative of the views of the
USI Board or management with respect to the merger consideration or the proposed
Mergers.
The following is a summary of the analyses performed by CSFB in connection
with the CSFB Opinion.
DISCOUNTED CASH FLOW ANALYSIS
USI DISCOUNTED CASH FLOW ANALYSIS. CSFB's discounted cash flow analysis
("DCF") was based on a scenario derived from USI management's views of future
operating and financial performance (the "USI Management Case"). The USI
Management Case is based on USI management's projections for the years 1998
through 2007. The USI Management Case assumed a 7.0% compound average revenue
growth and
32
an improvement in the margin for earnings before interest, taxes, depreciation
and amortization ("EBITDA") from 13.0% in 1997 to 13.8% in 2007. Using discount
rates ranging from 9.5% to 14.0%, based on the weighted average cost of capital
for industry segments, and EBITDA multiples ranging from 5.5x to 9.0x, based on
selected companies and transactions, CSFB calculated the present values of a
ten-year stream of unlevered free cash flows and a year 2007 terminal value for
the USI business segments, yielding an enterprise reference range for USI of
approximately $2.763 billion to $3.257 billion and an implied equity reference
range of approximately $2.195 billion to $2.689 billion. This analysis resulted
in a reference range of $27.82 to $34.08 per share of USI Common Stock. All
references above are for the USI fiscal year which ends on September 30th.
ZURN DISCOUNTED CASH FLOW ANALYSIS. CSFB's discounted cash flow analysis
for Zurn was based on two forecast scenarios; a scenario derived from Zurn
management's views of future operating and financial performance (the "Zurn
Management Case") and a sensitivity case derived from the Zurn Management Case,
assuming, among other things, lower revenue growth and margin improvements (the
"Zurn Sensitivity Case"). The Zurn Management Case was based on Zurn
management's projections for the years 1998 through 2001 and an extension of
such forecasts through 2008 based on discussions with the managements of USI and
Zurn and reviewed by USI management. The Zurn Management Case assumed compound
average revenue growth of 5.6% from 1998 through 2008, and EBITDA margins
ranging from 13.3% in 1998 to 13.7% in 2008. The Zurn Sensitivity Case assumed
compound average revenue growth of 4.6% from 1998 through 2008, as well as an
EBITDA margin ranging from 13.3% in 1998 to 13.6% in 2008. CSFB calculated a
reference range for Zurn based upon the present value of Zurn's ten-year stream
of unlevered free cash flows and year 2008 terminal value. The year 2008
terminal value of Zurn was calculated by applying to Zurn's fiscal year 2008
EBITDA multiples ranging from 7.0x to 8.0x based on selected companies and
transactions. Unlevered free cash flows and terminal value estimates were then
discounted to the present using discount rates of 10.5% to 11.5%, based on
Zurn's estimated weighted average cost of capital, yielding an enterprise
reference range for Zurn of approximately $675 million to $779 million under the
Zurn Management Case and approximately $624 million to $718 million under the
Zurn Sensitivity Case and an implied equity reference range of approximately
$510 million to $615 million under the Zurn Management Case and approximately
$459 million to $553 million under the Zurn Sensitivity Case. This analysis
resulted in a reference range of $36.02 to $43.37 per share of Zurn Common Stock
and an implied exchange ratio of 1.06x to 1.56x under the Zurn Management Case
and a reference range of $32.40 to $39.04 per share of Zurn Common Stock and an
implied exchange ratio of 0.95x to 1.40x under the Zurn Sensitivity Case. All
references in this description of CSFB's DCF analysis of Zurn are for the Zurn
fiscal year which ends on March 31st.
In addition, CSFB considered the impact of synergies and cost savings
expected to be achieved by the managements of USI and Zurn in connection with
the Transaction. CSFB analyzed two synergy forecast scenarios: (1) synergy
forecasts for the years 1998 through 2001 provided by and discussed with the
managements of USI and Zurn as to the future operating and financial performance
of the combined company and extended through 2008 based on discussions with USI
management (the "Synergies Scenario") and (2) synergy forecasts for the years
1998 through 2008 derived from the Synergies analysis but also assuming
continued market penetration (the "Growth Synergies Scenario"). An analysis of
the Zurn Management Case, after consideration of the Synergies Scenario, yielded
a reference range per share of Zurn Common Stock of $41.94 to $50.22 and an
implied exchange ratio of 1.23x to 1.81x, while an analysis of the Zurn
Management Case, after consideration of the Growth Synergies Scenario, yielded a
reference range per share of Zurn Common Stock of $45.24 to $54.04 and an
implied exchange ratio of 1.33x to 1.94x. An analysis of the Zurn Sensitivity
Case, after consideration of the Synergies Scenario, yielded a reference range
per share of Zurn Common Stock of $38.32 to $45.89 and an implied exchange ratio
of 1.12x to 1.65x, while an analysis of the Zurn Sensitivity Case, after
consideration of the Growth Synergies Scenario, yielded a reference range per
share of Zurn Common Stock of $41.62 to $49.71 and an implied exchange ratio of
1.22x to 1.78x.
33
SELECTED COMPANIES ANALYSIS
USI SELECTED COMPANIES ANALYSIS. CSFB compared certain financial
information for USI businesses to that of selected public companies
(collectively, the "USI Selected Companies") in the following industry segments:
Hardware/Tools, Housewares, Collectibles/Toys, Footwear/Textiles, Bath/Outdoor,
Lighting Fixtures, Automotive and Aviation, all of which CSFB considered to be
reasonably comparable to the respective USI business segments. CSFB compared the
enterprise value of the USI Selected Companies as multiples of estimated fiscal
1998 revenues, EBITDA and earnings before interest and taxes ("EBIT"). Estimated
financial data for the USI Selected Companies was based on estimates of equity
research analysts. Applying a range of these multiples for the USI Selected
Companies of 1998 revenues, EBITDA and EBIT to corresponding financial data for
USI's business segments resulted in an enterprise reference range of
approximately $2.456 billion to $2.983 billion and an implied equity reference
range of approximately $1.888 billion to $2.415 billion, yielding a reference
range of $23.93 to $30.61 per share of USI Common Stock.
ZURN SELECTED COMPANIES ANALYSIS. CSFB compared certain financial
information of Zurn to corresponding data of the following selected plumbing and
bathroom fixtures companies: American Standard Companies Inc., Friedrich Grohe
A.G., Masco Corporation, N.V. Koninklijke Sphinx Gustavsberg and Watts
Industries, Inc. (collectively, the "Zurn Selected Companies"). CSFB compared
the enterprise value of the Zurn Selected Companies as multiples of estimated
fiscal 1998 revenues, EBITDA and EBIT. Estimated financial data for the Zurn
Selected Companies was based on estimates of equity research analysts. Applying
a range of selected multiples for the Zurn Selected Companies of estimated 1998
revenues, EBITDA and EBIT of 0.8x to 1.0x, 6.5x to 7.5x and 8.0x to 9.5x,
respectively, to corresponding financial data of Zurn resulted in an enterprise
reference range of approximately $600 million to $710 million and an implied
equity reference range of approximately $419 million to $529 million, yielding a
reference range of $31.22 to $39.41 per share of Zurn Common Stock. This
analysis implied an exchange ratio range of 1.02x to 1.65x.
SELECTED TRANSACTIONS ANALYSIS
USI SELECTED TRANSACTIONS ANALYSIS. CSFB analyzed the purchase prices and
implied transaction multiples paid or proposed to be paid in selected merger and
acquisition transactions (the "USI Selected Transactions") in the following
industry segments: Hardware/Tools, Housewares, Collectibles/Toys,
Footwear/Textiles, Bath/Outdoor, Lighting Fixtures, Automotive and Aviation, all
of which CSFB considered to be reasonably comparable to the respective USI
business segments. CSFB compared enterprise values for the USI Selected
Transactions as multiples of revenues, EBITDA and EBIT, in each case for the
latest 12 months. All multiples were based on historical financial information
available at the time of announcement of the USI Selected Transaction. Applying
a range of selected multiples for the USI Selected Transactions of revenues,
EBITDA and EBIT, respectively, to corresponding financial data for USI's
business segments resulted in an enterprise reference range of approximately
$2.760 billion to $3.380 billion and an implied equity reference range of
approximately $2.234 billion to $2.854 billion, yielding a reference range of
$27.45 to $35.07 per share of USI Common Stock.
ZURN SELECTED TRANSACTIONS ANALYSIS. CSFB analyzed the purchase prices and
implied transaction multiples paid or proposed to be paid in the following
transactions involving companies in the plumbing and bathroom fixtures sector:
the acquisition of Falcon Building Products by Investcorp International, the
acquisition of Ply-Gem Industries, Inc. by Nortek, Inc., the acquisition of
American Standard Companies Inc. by Tyco International Ltd., the acquisition of
Eljer by Zurn and the acquisition of Amtrol Inc. by Cypress Group LLC
(collectively, the "Zurn Selected Transactions"). CSFB compared enterprise
values for the Zurn Selected Transactions as multiples of revenues, EBITDA and
EBIT, in each case for the latest 12 months. All multiples were based on
historical financial information available at the time of announcement of the
Zurn Selected Transaction. Applying a range of selected multiples for the Zurn
Selected Transactions of revenues, EBITDA and EBIT, respectively, to
corresponding financial data of Zurn
34
resulted in an enterprise reference range of approximately $680 million to $820
million and an implied equity reference range of approximately $515 million to
$655 million, yielding a reference range of $36.37 to $46.25 per share of Zurn
Common Stock. This resulted in an implied exchange ratio range for the selected
transaction analysis of 1.04x to 1.69x.
PRO FORMA MERGER ANALYSIS
CSFB analyzed the potential pro forma effect of the Mergers on USI's
earnings per share ("EPS") for the fiscal years 1998 through 2000, based on (1)
the USI Management Case and the Zurn Management Case and (2) estimates published
by First Call for USI and the Zurn Management Case, and, in each case, assumed,
among other things, that certain synergies contemplated by the Synergies
Scenario would be achieved. Both analyses indicated that the Mergers would be
marginally dilutive to USI's EPS in fiscal year 1998 and accretive to USI's EPS
in fiscal years 1999 and 2000. The actual results achieved by the combined
company may vary from projected results and the variations may be material.
RELATIVE CONTRIBUTION ANALYSIS
CSFB analyzed the relative contributions of USI and Zurn to the estimated
fiscal 1998 and 1999 revenues, EBITDA, EBIT and net income of the pro forma
combined company. This analysis indicated that under the Zurn Management Case
and without consideration of either the Synergies Scenario or the Growth
Synergies Scenario USI would contribute (1) in fiscal 1998 approximately 81%,
80%, 80% and 81% of estimated combined revenues, EBITDA, EBIT and net income,
implying an exchange ratio of 1.25x, 1.38x, 1.39x and 1.38x, respectively, and
(2) in fiscal 1999 approximately 81%, 81%, 81% and 82% of estimated combined
revenues, EBITDA, EBIT and net income, implying an exchange ratio of 1.20x,
1.29x, 1.28x and 1.37x, respectively. Applying the synergies contemplated by the
Synergies Scenario on a pro forma basis, such analysis indicated that under the
Zurn Management Case USI would contribute (1) in fiscal 1998 approximately 80%,
77%, 75% and 76% of estimated combined revenues, EBITDA, EBIT and net income,
implying an exchange ratio of 1.40x, 1.78x, 1.93x and 1.89x, respectively, and
(2) in fiscal 1999 approximately 80%, 78%, 77% and 77% of estimated combined
revenues, EBITDA, EBIT and net income, implying an exchange ratio of 1.33x,
1.64x, 1.71x and 1.78x, respectively. USI's relative contribution based on
combined equity value was approximately 83%, indicating an implied exchange
ratio of 1.23x, and USI's relative contribution based on combined enterprise
value was approximately 81%, indicating an implied exchange ratio of 1.23x.
MISCELLANEOUS
Pursuant to the terms of CSFB's engagement, USI agreed to pay CSFB a fee of
$4,000,000, $250,000 of which was payable upon delivery of the CSFB Opinion,
$750,000 of which was payable upon announcement of the Transaction and the
remaining $3,000,000 of which will be payable upon consummation of the Mergers.
In addition, USI granted CSFB a right of first refusal to act as co-lead manager
for an offering of debt securities of USI or New USI in connection with the
Transaction. USI will also reimburse CSFB for certain out-of-pocket expenses
incurred in connection with its services to USI, including fees and expenses of
legal counsel and any other advisor retained by CSFB. In addition, USI also
agreed to indemnify CSFB, its affiliates, the respective directors, officers,
partners, agents and employees of CSFB and its affiliates, and each person, if
any, controlling CSFB or any of its affiliates, against certain liabilities,
including liabilities under the Federal securities laws.
CSFB has in the past performed certain investment banking services for USI,
for which CSFB has received customary fees. In the ordinary course of its
business, CSFB and its affiliates may actively trade the debt and equity
securities of USI and Zurn for their own accounts and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
35
OPINION OF ZURN'S FINANCIAL ADVISOR
BT Wolfensohn has acted as financial advisor to Zurn in connection with the
Transaction. At the February 14, 1998 meeting of the Zurn Board, BT Wolfensohn
delivered its opinion to the Zurn Board to the effect that, as of the date of
such opinion, based upon and subject to the assumptions made, matters considered
and limits on the review undertaken by BT Wolfensohn, the Zurn Merger
Consideration was fair, from a financial point of view, to the holders of Zurn
Common Stock. BT Wolfensohn has consented to the inclusion of its opinion as
Appendix C-2 to this Joint Proxy Statement/Prospectus.
THE FULL TEXT OF THE BT WOLFENSOHN OPINION, WHICH SETS FORTH, AMONG OTHER
THINGS, THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW
UNDERTAKEN BY BT WOLFENSOHN IN CONNECTION WITH THE OPINION, IS ATTACHED AS
APPENDIX C-2 TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN
BY REFERENCE. ZURN SHAREHOLDERS ARE URGED TO READ THE BT WOLFENSOHN OPINION IN
ITS ENTIRETY. THE SUMMARY OF THE BT WOLFENSOHN OPINION SET FORTH IN THIS JOINT
PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF THE BT WOLFENSOHN OPINION.
In connection with BT Wolfensohn's role as financial advisor to Zurn, and in
arriving at its opinion, BT Wolfensohn has, among other things, reviewed certain
publicly available financial information and other information concerning Zurn
and USI and certain internal analyses and other information furnished to it by
Zurn and USI. BT Wolfensohn also held discussions with the members of the senior
managements of Zurn and USI regarding the businesses and prospects of their
respective companies and the joint prospects of a combined enterprise. In
addition, BT Wolfensohn (i) reviewed the reported prices and trading activity
for the common stock of both Zurn and USI, (ii) compared certain financial and
stock market information for Zurn and USI with similar information for selected
companies whose securities are publicly traded, (iii) reviewed the financial
terms of selected recent business combinations which it deemed comparable in
whole or in part, (iv) reviewed the terms of the Merger Agreement, and (v)
performed such other studies and analyses and considered such other factors as
it deemed appropriate.
In preparing its opinion, BT Wolfensohn did not assume responsibility for
the independent verification of, and did not independently verify, any
information, whether publicly available or furnished to it, concerning Zurn or
USI, including, without limitation, any financial information, forecasts or
projections, considered in connection with the rendering of its opinion.
Accordingly, for purposes of its opinion, BT Wolfensohn assumed and relied upon
the accuracy and completeness of all such information. BT Wolfensohn did not
conduct a physical inspection of any of the properties or assets, and did not
prepare or obtain any independent evaluation or appraisal of any of the assets
or liabilities of Zurn or USI. With respect to the financial forecasts and
projections made available to BT Wolfensohn and used in its analysis, including
analyses and forecasts of certain cost savings, operating efficiencies, revenue
effects and financial synergies (collectively, the "Synergies") expected by Zurn
and USI to be achieved as a result of the Transaction, BT Wolfensohn assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the management of Zurn or USI as to the
matters covered thereby. In rendering its opinion, BT Wolfensohn expressed no
view as to the reasonableness of such forecasts and projections, including the
Synergies, or the assumptions on which they are based. The BT Wolfensohn Opinion
was necessarily based upon economic, market and other conditions as in effect
on, and the information made available to BT Wolfensohn as of, the date of such
opinion. In addition, BT Wolfensohn expressed no opinion as to prices at which
shares of New USI will trade following the Transaction.
For purposes of rendering its opinion, BT Wolfensohn assumed that, in all
respects material to its analysis, the representations and warranties of Zurn
and USI contained in the Merger Agreement are true and correct, that Zurn and
USI will each perform all of the covenants and agreements to be performed by it
under the Merger Agreement and all conditions to the obligation of each of Zurn
and USI to
36
consummate the Transaction will be satisfied without any waiver thereof. BT
Wolfensohn also assumed that all material governmental, regulatory or other
approvals and consents required in connection with the consummation of the
transactions contemplated by the Merger Agreement will be obtained and that in
connection with obtaining any necessary governmental, regulatory or other
approvals and consents, or any amendments, modifications or waivers to any
agreements, instruments or orders to which either Zurn or USI is a party or
subject or by which it is bound, no limitations, restrictions or conditions will
be imposed or amendments, modifications or waivers made that would have a
material adverse effect on Zurn or USI or materially reduce the contemplated
benefits of the Transaction to Zurn. In addition, BT Wolfensohn was advised by
Zurn that it is intended, and accordingly assumed for purposes of its opinion,
that the Transaction will be tax-free to each of Zurn and USI and their
respective stockholders and that the Transaction will be accounted for as a
pooling of interests.
In connection with BT Wolfensohn's role as financial advisor to Zurn and in
arriving at its opinion, BT Wolfensohn was not authorized to solicit, and did
not solicit, indications of interest from any other person with respect to the
acquisition of Zurn or any of its assets, nor did BT Wolfensohn review with Zurn
or the Zurn Board any potential transactions in lieu of the Transaction.
Set forth below is a brief summary of the financial analyses performed by BT
Wolfensohn in connection with its opinion and discussed with the Zurn Board at
its meetings on February 3, 1998 and February 14, 1998.
HISTORICAL STOCK PERFORMANCE. BT Wolfensohn reviewed and analyzed recent
and historical market prices for USI Common Stock and Zurn Common Stock. Based
on the closing sale price of USI Common Stock on the NYSE Composite Tape on
February 13, 1998, the last trading day before the meeting at which the Zurn
Board approved the Merger Agreement, the implied value of the Zurn Merger
Consideration was $44.30 per share of Zurn Common Stock. See
"Summary--Comparative per Share Market Price and Dividend Information" for
information regarding historical market prices for USI Common Stock and Zurn
Common Stock.
ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES. BT Wolfensohn compared
certain financial information and commonly used valuation measurements for Zurn
to corresponding information and measurements for a group of eight publicly
traded building products companies (consisting of ABT Building Products,
American Standard, Crane Co., Elcor Corp., Masco, TJ International, Triangle
Pacific Corp. and Watts Industries (collectively, the "Selected Companies")).
Such financial information and valuation measurements included, among other
things, (i) common equity market valuation; (ii) capitalization ratios; (iii)
operating performance; (iv) ratios of common equity market value as adjusted for
debt and cash ("Enterprise Value") to revenues, earnings before interest
expense, income taxes and depreciation and amortization ("EBITDA"), and earnings
before interest expense and income taxes ("EBIT"); and (v) ratios of common
equity market prices per share ("Equity Value") to earnings per share ("EPS").
To calculate the trading multiples for Zurn and the Selected Companies, BT
Wolfensohn used publicly available information concerning historical and
projected financial performance, including published historical financial
information and earnings estimates reported by the Institutional Brokers
Estimate System ("IBES"). IBES is a data service that monitors and publishes
compilations of earnings estimate by selected research analysts regarding
companies of interest to institutional investors. This analysis indicated (a)
ranges of Enterprise Value as a multiple of latest 12 months ("LTM") revenues of
0.9x to 3.1x with a median of 1.1x, LTM EBITDA of 4.9x to 13.8x with a median of
8.1x, and LTM EBIT of 6.4x to 15.9x with a median of 10.3x, and (b) ranges of
Equity Value as a multiple of LTM Net Income of 6.4x to 23.4x with a median of
16.3x, calendar year 1998 EPS of 8.1x to 19.2x with a median of 15.0x. In
comparison, Zurn had (x) an Enterprise Value as a multiple of LTM revenues of
1.1x, as a multiple of LTM EBITDA of 8.3x and as a multiple of LTM EBIT of 10.7x
and (y) an Equity Value as a multiple of LTM net income of 17.8x and as a
multiple of 1998 EPS of 14.2x. Applying a range of selected multiples for the
Selected Companies of LTM EBITDA and estimated 1998 EPS of 7.5x to 8.5x and
13.0x to 15.0x, respectively, to corresponding
37
financial data of Zurn resulted in a reference range of approximately $33 to $40
per share of Zurn Common Stock.
None of the companies utilized as a comparison were identical to Zurn.
Accordingly, BT Wolfensohn believes the analysis of publicly traded comparable
companies is not simply mathematical. Rather, it involves complex considerations
and qualitative judgments, reflected in BT Wolfensohn's opinion, concerning
differences in financial and operating characteristics of the comparable
companies and other factors that could affect the public trading value of the
comparable companies.
ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS. BT Wolfensohn reviewed the
financial terms, to the extent publicly available, of eight proposed, pending or
completed mergers and acquisition transactions since January 1, 1996 involving
companies in the building products industry (the "Selected Transactions"). BT
Wolfensohn calculated various financial multiples based on certain publicly
available information for each of the Selected Transactions and compared them to
corresponding financial multiples for the Zurn Merger, based on the Zurn Merger
Consideration. The transactions reviewed were (target/acquiror (date
announced)): Ply-Gem Industries/Nortek (July 1997), Fibreboard/Owens Corning
(May 1997), Falcon Building Products/Investcorp (March 1997), Thermal
Industries/HIG Investment Group (January 1997), Eljer Industries/Zurn Industries
(December 1996), Omega Cabinets/Butler Capital (December 1996), Atrium
Companies/Hicks Muse Tate & Furst (November 1996), and Amtrol/Cypress Group
(August 1996). This analysis indicated (a) ranges of Enterprise Value as a
multiple of LTM revenues of 0.5x to 1.7x with a median of 1.0x, LTM EBITDA of
3.7x to 11.3x with a median of 9.3x, and LTM EBIT of 5.5x to 15.6x with a median
of 10.4x, and (b) ranges of Equity Value as a multiple of LTM Net Income of
11.4x to 25.2x with a median of 21.5x. The Zurn Merger, based on the closing
sale price of USI Common Stock on the NYSE Composite Tape on February 13, 1998,
represented the following implied financial multiplies: (a) an Enterprise Value
as a multiple of LTM revenues of 1.3x, as a multiple of LTM EBITDA of 9.7x and
as a multiple of LTM EBIT of 12.6x and (b) an Equity Value as a multiple of LTM
net income of 22.3x. These implied financial multiples for the Zurn Merger were
generally at least as high as the median financial multiples in the Selected
Transactions. Applying a range of selected multiples for the companies involved
in the Selected Transactions, on a pro forma combined basis, of LTM EBITDA and
LTM EPS of 8.0x to 10.0x and 20.0x to 22.0x, respectively, to corresponding
financial data of Zurn resulted in a reference range of approximately $36 to $48
per share of Zurn Common Stock. BT Wolfensohn compared the implied financial
multiples of the Zurn Merger to the corresponding multiples for the Selected
Transactions. All multiples for the Selected Transactions were based on public
information available at the time of announcement of such transaction, without
taking into account differing market and other conditions during the two-year
period during which the Selected Transactions occurred.
Because the reasons for, and circumstances surrounding, each of the Selected
Transactions analyzed were diverse, and due to the inherent differences between
the operations and financial conditions of USI and Zurn and the companies
involved in the Selected Transactions, BT Wolfensohn believes that a comparable
transaction analysis is not simply mathematical. Rather, it involves complex
considerations and qualitative judgments, reflected in BT Wolfensohn's opinion,
concerning differences between the characteristics of these transactions and the
Transaction that could affect the value of the subject companies and businesses
and USI and Zurn.
HISTORICAL MERGER CONSIDERATION ANALYSIS. BT Wolfensohn reviewed the
historical ratio of the daily per share market closing prices of Zurn Common
Stock divided by the corresponding prices of USI Common Stock over the two-year,
one-year, 180-day and 90-day periods prior to February 11, 1998 and as of
February 13, 1998 (the last business day prior to announcement of the Mergers).
The median exchange ratios for these time periods and as of such date were
1.227, 1.127, 1.205, 1.170 and 1.339, respectively. BT Wolfensohn then
calculated the respective premiums over such average daily exchange ratios
represented by the Zurn Merger Consideration, which for the same time periods
and as of such date were 30.4%, 42.0%, 32.8%, 36.8% and 19.5%, respectively.
38
CONTRIBUTION ANALYSIS. BT Wolfensohn analyzed the relative contributions of
USI and Zurn to the pro forma income statement of New USI, based on managements'
projections for their respective companies. This analysis showed that on a pro
forma combined basis excluding (i) the effect of any synergies that may be
realized as a result of the Mergers, and (ii) non-recurring expenses relating to
the Mergers, based on the twelve months ending December 31, 1997 for USI and the
twelve months period ending December 31, 1997 for Zurn, USI and Zurn would
account for approximately 79% and 21%, respectively, of New USI's pro forma
revenue and approximately 81% and 19%, respectively, of New USI's pro forma net
income.
DISCOUNTED CASH FLOW ANALYSIS. BT Wolfensohn performed a discounted cash
flow analysis for Zurn. BT Wolfensohn calculated the discounted cash flow values
for Zurn as the sum of the net present values of (i) the estimated future cash
flow that Zurn will generate for the years 1998 through 2002, plus (ii) the
value of Zurn at the end of such period. The estimated future cash flows were
based on the financial projections for Zurn for the years 1998 through 2002
prepared by Zurn's management. The terminal value of Zurn was calculated based
on projected EBITDA for 2002 and at a range of multiples of 7x to 8x. BT
Wolfensohn used discount rates ranging from 10% to 12%. BT Wolfensohn used such
discount rates based on its judgment of the estimated weighted average cost of
capital of Zurn, and used such multiples based on its review of the trading
characteristics of the common stock of the Selected Companies. The discounted
cash flow analysis resulted in a reference range of $39 to $44 per share of Zurn
Common Stock.
PRO FORMA COMBINED EARNINGS ANALYSIS. BT Wolfensohn analyzed certain pro
forma effects of the Transaction. Based on such analysis, BT Wolfensohn computed
the resulting dilution/accretion to New USI's estimated EPS for the fiscal years
ending 1998 and 1999, before and after taking into account any potential cost
savings and other synergies identified by management that USI and Zurn could
achieve if the Transaction was consummated and before non-recurring costs
relating to the Transaction. BT Wolfensohn noted that before taking into account
such potential cost savings and other synergies and before such non-recurring
costs, the Transaction would be modestly dilutive to New USI's EPS for the
fiscal years ending 1998 and 1999, respectively. BT Wolfensohn also noted that
after taking into account such potential cost savings and other synergies and
before such non-recurring costs, the Transaction would be slightly accretive to
New USI's EPS for the fiscal year ending 1999.
The foregoing summary describes the analyses and factors that BT Wolfensohn
deemed material in its presentation to the Zurn Board, but is not a
comprehensive description of all analyses performed and factors considered by BT
Wolfensohn in connection with preparing its opinion. The preparation of a
fairness opinion is a complex process involving the application of subjective
business judgment in determining the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances and, therefore, is not readily susceptible to summary description.
BT Wolfensohn believes that its analyses must be considered as a whole and that
considering any portion of such analyses and of the factors considered without
considering all analyses and factors could create a misleading view of the
process underlying the opinion. In arriving at its fairness determination, BT
Wolfensohn did not assign specific weights to any particular analyses.
In conducting its analyses and arriving at its opinions, BT Wolfensohn
utilized a variety of generally accepted valuation methods. The analyses were
prepared solely for the purpose of enabling BT Wolfensohn to provide its opinion
to the Zurn Board as to the fairness to the holders of Zurn Common Stock of the
Zurn Merger Consideration and do not purport to be appraisals or necessarily
reflect the prices at which businesses or securities actually may be sold, which
are inherently subject to uncertainty. In connection with its analyses, BT
Wolfensohn made, and was provided by Zurn management with, numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond Zurn's or USI's control. Analyses
based on estimates or forecasts of future results are not necessarily indicative
of actual past or future values or results, which may be significantly more or
less favorable than suggested by such analyses. Because such analyses are
inherently subject to uncertainty, being based upon numerous factors or events
beyond the control of Zurn, USI or their respective advisors, neither Zurn nor
BT Wolfensohn nor any other person assumes responsibility if future results or
actual values are materially different from these forecasts or assumptions.
39
The terms of the Transaction were determined through negotiations between
Zurn and USI and were approved by the Zurn Board. Although BT Wolfensohn
provided advice to Zurn during the course of these negotiations, the decision to
enter into the Transaction was solely that of the Zurn Board. As described
above, the opinion and presentation of BT Wolfensohn to the Zurn Board were
among a number of factors taken into consideration by the Zurn Board in making
its determination to approve the Transaction. BT Wolfensohn's opinion was
provided to the Zurn Board to assist it in connection with its consideration of
the Transaction and does not constitute a recommendation to any holder of Zurn
Common Stock as to how to vote with respect to the Merger Proposal.
Zurn selected BT Wolfensohn as financial advisor in connection with the
Transaction based on BT Wolfensohn's qualifications, expertise, reputation and
experience in mergers and acquisitions. BT Wolfensohn is engaged in the merger
and acquisition and client advisory business of Bankers Trust (together with its
affiliates the "BT Group") and, for legal and regulatory purposes, is a division
of BT Alex. Brown Incorporated, a registered broker dealer and member of the New
York Stock Exchange. Zurn has retained BT Wolfensohn pursuant to a letter
agreement dated January 14, 1998 (the "Engagement Letter"). As compensation for
BT Wolfensohn's services in connection with the Transaction, Zurn has paid BT
Wolfensohn cash fees of $1,000,000 in the aggregate and has agreed to pay an
additional cash fee of $3,000,000 if the Transaction is consummated. Regardless
of whether the Transaction is consummated, Zurn has agreed to reimburse BT
Wolfensohn for reasonable fees and disbursements of BT Wolfensohn's counsel and
all of BT Wolfensohn's reasonable travel and other out-of-pocket expenses
incurred in connection with the Transaction or otherwise arising out of the
retention of BT Wolfensohn under the Engagement Letter. Zurn has also agreed to
indemnify BT Wolfensohn and certain related persons to the full extent lawful
against certain liabilities, including certain liabilities under the federal
securities laws arising out of its engagement or the Transaction.
BT Wolfensohn is an internationally recognized investment banking firm
experienced in providing advice in connection with mergers and acquisitions and
related transactions. One or more members of the BT Group have, from time to
time, provided investment banking, commercial banking (including extension of
credit) and other financial services to Zurn or its affiliates for which it has
received compensation. A member of the BT Group is the lead administrative agent
for Zurn's $270 million bank facility and was the administrative agent for
Zurn's $250 million bank facility that was replaced by Zurn's current bank
facility. BT Wolfensohn and its affiliates may actively trade securities of Zurn
or USI for their own account or the account of their customers and, accordingly,
may from time to time hold a long or short position in such securities.
PURPOSE AND CERTAIN EFFECTS OF THE TRANSACTION
The purpose of the Transaction is to combine USI and Zurn. As a result of
the Transaction, USI and Zurn will each become a wholly owned subsidiary of New
USI, New USI will derive the sole benefit of Zurn's net earnings and net book
value, and former holders of Zurn Common Stock will no longer have any direct
interest in Zurn or be able to vote with respect to the future affairs of Zurn.
Although former holders of Zurn Common Stock will no longer enjoy the
possibility of a direct interest in any future appreciation in their equity
interest in Zurn, after the Transaction such former holders will enjoy the
possibility of future appreciation in their equity interest in New USI, which
will include Zurn.
Registration of the Zurn Common Stock under the Exchange Act may be
terminated upon application of Zurn to the Commission if the Zurn Common Stock
is neither listed on a national securities exchange nor held by more than 300
holders of record. Following consummation of the Mergers, Zurn will be a wholly
owned subsidiary of New USI and the Zurn Common Stock will be delisted from the
NYSE and the PSE and will no longer trade publicly. Zurn expects that the Zurn
Common Stock will continue to be listed and traded on the NYSE and the PSE until
the consummation of the Mergers.
40
Following consummation of the Transaction, New USI intends to assume or
guarantee unconditionally the outstanding debt securities of USIAH. As a result
(subject to confirmation from the Commission), USI does not expect to continue
to file financial information or other reports under the Exchange Act; however,
New USI intends to include financial information regarding USI and USIAH in its
financial statements, to the extent required by the rules of the Commission.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
In considering the recommendations of the Zurn Board with respect to the
Merger Proposal, shareholders of Zurn should be aware that certain members of
the Zurn Board and management of Zurn have certain interests in the Transaction
that may be in addition to the interests of shareholders of Zurn generally. The
Zurn Board was aware of these interests and considered them, among other
factors, in approving the Transaction. These interests are summarized below.
NEW EMPLOYMENT AGREEMENTS
The following is a summary of the employment agreements that Robert R.
Womack, Frank E. Sheeder and John R. Mellett will have with New USI after
consummation of the Mergers.
Mr. Womack's employment agreement provides for Mr. Womack to serve,
commencing at the Effective Time, as the Chief Executive Officer of the New USI
Plumbing and Bath Products Company, and, while Zurn is a subsidiary of New USI,
as Chairman and Chief Executive Officer of Zurn. The term of the employment
agreement will expire on the third anniversary of the Effective Time, unless
terminated earlier as discussed below.
Mr. Womack's employment agreement provides that he will be paid an annual
base salary at a rate of not less than $460,000. Commencing after the Effective
Time, Mr. Womack will be eligible to receive an annual cash bonus with a target
potential equal to at least 60% of his base salary, pursuant to an annual bonus
plan of Zurn or New USI, as determined by New USI. In addition, Mr. Womack's
employment agreement provides that with respect to the Zurn Industries, Inc.
Executive Incentive Plan (the "Zurn Incentive Plan") and the Zurn Industries,
Inc. Long-Term Incentive Plan (the "Zurn LTIP"), as generally provided in the
Merger Agreement for all participants of such plans, New USI will cause Zurn to
take such actions as may be necessary to provide that for purposes of
determining awards thereunder that are to be determined with reference to Zurn's
performance for its fiscal year ending March 31, 1998, the effects of all
transaction costs and non-recurring charges associated with or taken in
contemplation of the Mergers shall be disregarded. In the event the Effective
Time is later than April 1, 1998, New USI will cause Zurn to pay Mr. Womack a
pro rata portion of his annual target bonus under the Zurn Incentive Plan for
the fiscal year beginning on April 1, 1998. Furthermore, New USI has agreed to
cause its Compensation Committee to grant to Mr. Womack within 30 days after the
Effective Time a number of shares of New USI restricted stock equal to
$2,000,000 divided by the closing price of New USI Common Stock on the NYSE on
the day the Effective Time occurs or, if the stock is not traded on such date,
the first day thereafter that such stock is traded on the NYSE. The shares of
restricted stock will vest on the third anniversary of the date of grant,
subject to acceleration upon a Change in Control (as defined below) and certain
other circumstances.
Mr. Womack's employment agreement provides a fully vested minimum annual
retirement benefit which is equal to $250,000, reduced by .5% for each month
that Mr. Womack's commencement of benefits precedes his attaining age 65 (the
"Minimum Retirement Benefit"). The Minimum Retirement Benefit will be offset by
any benefits payable to Mr. Womack under the Zurn Industries Retirement Plan (or
any replacement thereof), the Supplemental Executive Retirement Plan of Zurn
Industries, Inc. and any defined benefit plan of New USI, Zurn or their
affiliates. Mr. Womack's surviving spouse will be entitled to receive 60% of the
foregoing retirement benefit for her life.
41
Mr. Womack's employment agreement provides him and his surviving spouse with
retiree medical benefits upon retirement (which shall be coordinated with
Medicare and other government programs as reasonably determined by New USI) on a
substantially similar basis as those provided to senior executives of New USI at
the time of their retirement or, if no retiree medical benefits are then
provided to senior executives of New USI, those benefits provided to senior
executives of New USI at the time such benefits ceased (the "Retiree Medical
Benefits"). Mr. Womack also will be entitled to participate in all pension,
retirement, savings, welfare and other employee benefit plans and arrangements
and fringe benefits and perquisites maintained by Zurn from time to time for
senior executives generally, provided that such benefits, in the aggregate, must
be comparable to those generally provided to senior management of New USI.
Mr. Womack's employment agreement provides that if Mr. Womack's employment
with New USI is terminated by reason of death or disability, Mr. Womack or his
legal representative will receive, in addition to accrued compensation, his
prorated target annual bonus for the fiscal year of his death or disability,
full accelerated vesting under all equity-based and long-term incentive plans,
payment on a monthly basis of 12 months of base salary, the Minimum Retirement
and Retiree Medical Benefits as described above (each for the surviving spouse
on Mr. Womack's death), and payment of spouses' and dependents' COBRA coverage
premiums for no more than three years, with the monthly payments of base salary
subject in the case of disability to offset by the amount he would receive under
any long-term disability program maintained by Zurn.
Mr. Womack's employment agreement also provides that if his employment with
New USI is terminated (i) by New USI other than for cause (which is limited to
Mr. Womack's willful misconduct or breach of fiduciary duty which has a material
adverse effect on New USI or Zurn, refusal to follow the proper written
direction of the Zurn Board, the Board of Directors of New USI (the "New USI
Board") or the Chief Executive Officer or Chief Operating Officer of New USI,
conviction for a felony (subject to certain exceptions) or material fraud with
regard to New USI or Zurn), (ii) by Mr. Womack for good reason (which includes a
material reduction in his positions, duties and responsibilities as of the
Effective Time; assignment of duties inconsistent with his position; removal
from, or the failure of him to be re-elected to, his position as Chief Executive
Officer of the New USI Plumbing and Bath Products Company; relocation of his
office outside a designated area; after a Change in Control (as defined below),
failure to continue Mr. Womack as a participant in, or to continue, any bonus
program in which he is entitled to participate on or after the Effective Time
(or certain substitutes therefor); any material breach by New USI of any
provision of the employment agreement; failure by any successor to assume the
employment agreement; or a failure of the Compensation Committee of the New USI
Board to grant Mr. Womack the restricted stock referred to above); (iii) by Mr.
Womack for any or no reason within two years after a Change in Control (defined
as (i) a sale of all or substantially all of the assets of the New USI Plumbing
and Bath Products Company in the aggregate, whether pursuant to a single
transaction or pursuant to a series of transactions and whether through an asset
sale or a stock sale other than (x) to a parent or a subsidiary of New USI or
(y) in connection with a sale of all or substantially all of the then operating
company stock or assets of New USI, (ii) any person (subject to certain
exceptions) becoming the "beneficial owner" (within the meaning of Rule 13d-3
under the Exchange Act) of securities of New USI representing 25% or more of the
combined voting power of New USI's outstanding securities, (iii) certain changes
in the composition of the New USI Board within two years or (iv) approval by New
USI's stockholders of certain mergers, consolidations, plans of complete
liquidation or agreements for the sale of all or substantially all of New USI's
assets), then Mr. Womack shall be entitled to receive, among other things (a) a
lump-sum within five days after such event equal to (i) three times base salary
and (ii) three times the highest annual bonus paid or payable to him under the
agreement for any of the previous three completed fiscal years commencing
subsequent to the Effective Time (provided that, for purposes of any termination
prior to the close of the first full fiscal year commencing after the Effective
Time, his highest annual bonus shall be deemed to be $460,000), (b) accelerated
full vesting under all outstanding equity-based and long-term incentive plans
and a pro rata payment under any long term incentive plans, (c) the
42
Minimum Retirement and Retiree Medical Benefits, as described above, (d) three
years of additional service and compensation credit for pension purposes, (e)
three years of the maximum employer contributions under any type of qualified or
nonqualified 401(k) plan and (f) payment of premiums for Mr. Womack and his
dependents' health coverage for three years (all such payments being
collectively referred to as the "Severance Payment"). In addition, if the
Severance Payment to executive under the employment agreement, together with
other amounts paid to him, exceeds certain threshold amounts and results from a
change in ownership as defined in Section 280G(b)(2) of the Code, the agreement
provides that Mr. Womack will receive an additional amount to cover the federal
excise tax and any interest or penalties with respect thereto on a "grossed up"
basis. If Mr. Womack is terminated for cause or voluntarily resigns (which right
he has on 60 days notice), he will receive only accrued compensation and
benefits as provided in benefit plans and the Minimum Retirement and Retiree
Medical Benefits, as described above (except he will not be entitled to Retiree
Medical Benefits if he is terminated for cause).
In addition to the agreement with Mr. Womack described above, New USI will
have employment agreements with Messrs. Sheeder and Mellett governing their
service commencing at the Effective Time. Upon consummation of the Mergers, Mr.
Sheeder will be employed as the Senior Vice President of Operations of the New
USI Plumbing and Bath Products Company and, while Zurn is a subsidiary of New
USI, Senior Vice President of Operations of Zurn and Mr. Mellett will hold the
positions of Chief Financial Officer of the New USI Plumbing and Bath Products
Company and, while Zurn is a subsidiary of New USI, Chief Financial Officer of
Zurn. These agreements are substantially similar to the employment agreement for
Mr. Womack, except that (i) the term of employment for Messrs. Sheeder and
Mellett will expire on the second anniversary of the Effective Time subject to
automatic extension for additional two year periods on each applicable
anniversary unless either party gives 90 days' prior written notice; (ii) the
base salary of Messrs. Sheeder and Mellett is $260,000 and $230,000,
respectively, and the percentage thereof the executives are entitled to receive
as bonus is equal to a minimum of 40% of base salary; (iii) the number of shares
of restricted stock to be initially granted to them will be at lower levels and
vest in three equal installments on the third, fifth and seventh anniversaries
of the date of grant; (iv) the employment agreements of Messrs. Sheeder and
Mellett provide for an initial grant of stock options to purchase a number of
shares of New USI Common Stock equal to $250,000 divided by the fair market
value of New USI Common Stock at the time of grant; (v) Messrs. Sheeder and
Mellett will not be provided Minimum Retirement or Retiree Medical Benefits;
(vi) severance (which in the case of Messrs. Sheeder and Mellett will also be
payable as a result of New USI giving a notice of nonextension at the end of any
two year term) will be based on a two-times rather than a three-times multiple
and there will be more limited vesting of restricted stock; and (vii) payments
of base salary on death or termination due to disability will be for six months
rather than 12 months. In addition to the foregoing, as compared to the
definitions in Mr. Womack's agreement, the definition of "cause" affords New USI
broader rights to terminate each executive for "cause" and the definition of
"good reason" diminishes each executive's ability to terminate employment for
"good reason". For each executive, "cause" is defined as willful misconduct with
regard to New USI or Zurn or either of their businesses; refusal to follow the
proper written direction of the boards of Zurn or New USI or the chief executive
officers of Zurn or the New USI Plumbing and Bath Products Company; substantial
and continuing willful refusal to attempt to perform the executive's duties
(other than failure resulting from incapacity due to physical or mental
illness); conviction of a felony (other than a felony involving a traffic
violation); breach of any material fiduciary duty owed to New USI, Zurn or their
affiliates; or dishonesty, misappropriation or fraud with regard to New USI,
Zurn or their affiliates. For each executive "good reason" is defined as a
material reduction in the executive's positions, duties and responsibilities as
of the Effective Time; relocation of the executive's office outside a designated
area; after a Change in Control, failure to continue the executive as
participant in, or to continue, any bonus program in which he is entitled to
participate on or after the Effective Time (or certain substitutes therefor);
any material breach by New USI of any provision of the employment agreement;
failure by any successor to assume the employment agreement; or a failure of the
Compensation Committee of the New USI Board to grant to the executive the
restricted stock and stock options referred to above.
43
Furthermore, the rights of the executives upon a Change in Control will be
less than that of Mr. Womack in that Messrs. Sheeder and Mellett do not have the
right to terminate without good reason and receive severance payments following
such Change in Control. In the case of Messrs. Sheeder and Mellett, upon a
Change in Control, the definition of "good reason," as described in the prior
paragraph, is expanded as indicated in the prior paragraph and restricted stock
and options referred to above immediately vest, but there are no other changes
in the executive's rights and entitlements under their respective agreements.
The executives are entitled the same "gross up" as described above with regard
to Mr. Womack in the case of a change in ownership as defined in Section
280G(b)(2) of the Code.
The employment agreements for Messrs. Womack, Sheeder and Mellett provide
for a lump-sum payment within 10 days after the Effective Time in lieu of any
payments which would otherwise have been payable pursuant to certain change in
control provisions in the executives' prior agreements with Zurn relating to
employment. The amount of the payments to Mr. Womack, Mr. Sheeder and Mr.
Mellett, respectively, are $3,036,000, $1,458,000 and $1,296,000. If such
lump-sum payment exceeds certain threshold amounts set forth in Section 280G of
the Code, the prior agreements with Zurn provide for payment of an additional
amount to cover the federal excise tax and any interest or penalties with
respect thereto on a "grossed up" basis.
The employment agreements also provide that (i) during the employment term
and for 18 months thereafter, Messrs. Womack, Sheeder and Mellett will not
participate or engage in, either directly or indirectly, a business in
competition with any business conducted by the New USI Plumbing and Bath
Products Company and (ii) for a period of three years following a termination of
employment, engage in the solicitation or recruitment of any nonclerical
employees of New USI or Zurn to terminate their employment with New USI or Zurn
or their affiliates. The agreements further provide that during the employment
term and thereafter, Messrs. Womack, Sheeder and Mellett shall not disclose any
confidential information of New USI or Zurn.
The employment agreements also provide for indemnification for actions in
their corporate capacity, directors and officers liability insurance and, in the
case of Mr. Womack, in most instances for legal fees, incurred in enforcing his
rights under his agreement.
EXISTING ZURN PLANS AND ARRANGEMENTS
STOCK OPTION PLANS. Under the Zurn Industries, Inc. 1986 Stock Option Plan,
the Zurn Industries, Inc. 1989 Directors Stock Option Plan, the Zurn Industries,
Inc. 1991 Stock Option Plan, the Zurn Industries, Inc. 1995 Directors Stock
Option Plan (the "Zurn 1995 Directors Plan") and the Zurn Industries, Inc. 1996
Employee Stock Option Plan, Zurn has granted options to purchase Zurn Common
Stock to selected directors, officers and employees. All outstanding options
granted under such plans will become vested upon a "change in control" event.
The Zurn Merger Approval will constitute such an event. As a result of the
foregoing, upon the occurrence of the Zurn Merger Approval outstanding options
to purchase the number of shares of Zurn Common Stock indicated will become
vested for each executive officer of Zurn listed in the summary compensation
table included in Zurn's proxy statement relating to its 1997 Annual Meeting of
Shareholders, except one such executive officer who is no longer employed by
Zurn (the "Named Officers"), as follows: Robert R. Womack, 175,000 shares; Frank
E. Sheeder, 50,000 shares; John R. Mellett, 50,000 shares; and Dennis Haines,
38,750 shares. As of the date of this Joint Proxy Statement/Prospectus, no
directors of Zurn hold unvested options to purchase shares of Zurn Common Stock.
As described under "The Merger Agreement--Treatment of Stock Options" below,
outstanding options to purchase Zurn Common Stock will be converted into options
to purchase New USI Common Stock. The following table sets forth, with respect
to each of the Named Officers, each director of Zurn and the executive officers
and directors of Zurn as a group: (i) the number of shares of Zurn Common Stock
subject to stock options held by such persons as of April 2, 1998 that are
vested or will vest as a result of the Transaction, (ii) the weighted average
exercise price for such Zurn stock options held by such
44
persons and (iii) the estimated aggregate value of such stock options (before
deduction for applicable withholding taxes), based on the price of Zurn Common
Stock at the close of business on April 2, 1998 of $46.94 and determined by
subtracting the aggregate exercise price from the total value of the shares
subject to such stock options.
WEIGHTED
AVERAGE ESTIMATED
NUMBER OF EXERCISE AGGREGATE
SHARES PRICE PER SHARE VALUE
----------- --------------- -------------
Robert R. Womack...................................................... 206,000 $ 21.193 $ 5,303,367
Frank E. Sheeder...................................................... 75,000 21.533 1,905,338
John R. Mellett....................................................... 72,000 21.337 1,843,236
Dennis Haines......................................................... 92,000 25.001 2,018,158
Scott G. Arbuckle..................................................... 2,000 28.125 37,625
Zoe Baird............................................................. 7,000 24.679 155,810
Michael K. Brown...................................................... 4,000 24.438 89,998
William E. Butler..................................................... 7,000 24.679 155,810
Edward J. Campbell.................................................... 11,000 29.875 187,688
Robert D. Neary....................................................... 6,000 23.333 141,627
John M. Sergey........................................................ 2,000 28.125 37,625
All executive officers and directors as a group....................... 565,500 22.943 13,568,733
Pursuant to the Zurn Directors Option Plan, Zurn has also granted restricted
shares of Zurn Common Stock to non-employee directors. All restrictions on
restricted shares of Zurn Common Stock granted under the Zurn Directors Option
Plan will lapse upon a "change in control" event. The Zurn Merger Approval would
constitute such an event. As a result of the foregoing, upon the occurrence of
the Zurn Merger Approval all restrictions on the number of restricted shares of
Zurn Common Stock indicated will lapse for each of the non-employee directors of
Zurn as follows: Scott G. Arbuckle, 500 shares; Zoe Baird, 1,194 shares; Michael
K. Brown, 1,148 shares; Robert D. Neary, 1,278 shares; and John M. Sergey, 500
shares. As of the date of this Joint Proxy Statement/Prospectus, none of the
Named Officers holds restricted shares of Zurn Common Stock.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. Under the Zurn Industries, Inc.
Supplemental Executive Retirement Plan, Zurn has granted retirement benefits to
certain executive employees. The plan provides that upon a "change in control"
event each participant will immediately receive a lump-sum payment equal to the
present value of such participant's benefits under the plan. The Zurn Merger
Approval would constitute such an event. As of the date of this Joint Proxy
Statement/Prospectus, none of the Named Officers other than Robert R. Womack
participates in such plan. Mr. Womack has waived his right to receive a lump-sum
payment in the amount of $318,086 under such plan upon the occurrence of the
Zurn Merger Approval. Accordingly, his benefits under such plan will be paid
pursuant to the terms thereof as if the Zurn Merger Approval would not
constitute a "change in control" event.
RETIREMENT PLANS FOR OUTSIDE DIRECTORS. Under the Zurn Industries, Inc.
1982 Retirement Plan for Outside Directors and the Zurn Industries, Inc. 1996
Retirement Plan for Outside Directors, non-employee directors who have certain
amounts of service on the Zurn Board become eligible for accrued benefits
thereunder upon retirement. Each such plan provides that upon a "change in
control" event each participant eligible to receive benefits under such plan
will immediately receive a lump-sum payment equal to the present value of such
participant's vested benefit. The Zurn Merger Approval will constitute such an
event. As of the date of this Joint Proxy Statement/Prospectus, none of the
non-employee directors other than Edward J. Campbell participates in such plan.
Upon the occurrence of the Zurn Merger Approval, Mr. Campbell will be entitled
to receive a lump-sum payment under such plan in the amount of $70,195.
45
DEFERRED COMPENSATION PLANS. Under the Zurn Industries, Inc. Deferred
Compensation Plan for Non-Employee Directors, the Zurn Industries, Inc. Deferred
Compensation Plan for Salaried Employees and the Zurn Industries, Inc. Optional
Deferment Plan for Incentive Compensation Plan Participants, Zurn has granted to
non-employee directors and certain employees, as applicable, the right to
participate in certain deferred compensation arrangements. Each such plan
provides that upon a "change in control" event each participant will receive all
amounts credited to the account of such participant under such plan in a
lump-sum single payment. The Zurn Merger Approval will constitute such an event.
As of the date of the Joint Proxy Statement/Prospectus, none of the non-employee
directors or Named Officers other than Edward J. Campbell and Robert R. Womack
participates in such plan. It is presently estimated that upon the occurrence of
the Zurn Merger Approval, Mr. Campbell will be entitled to receive a lump-sum
payment under such plan in the amount of $427,502 and Mr. Womack will be
entitled to receive a lump-sum payment under such plan in the amount of $96,510
(computed, in part, based on the price per share of Zurn Common Stock at the
close of business on April 2, 1998 of $46.94).
SUPPLEMENTAL PENSION PLAN. Under the Zurn Industries, Inc. Supplemental
Pension Plan, Zurn has granted pension benefits to certain employees. Such plan
provides that upon a "change in control" event each participant will be entitled
to an immediate lump-sum payment equal to the present value of benefits payable
to such participant under such plan. The Zurn Merger Approval would constitute
such an event. Upon the occurrence of the Zurn Merger Approval, the Named
Officers will be entitled to receive lump-sum payments under such plan as
follows: Robert R. Womack, $87,511; Frank E. Sheeder, $27,448; John R. Mellett,
$20,491; and Dennis Haines, $3,029. Mr. Womack has waived his right to receive a
lump-sum payment of $87,511 under such plan upon the occurrence of the Zurn
Merger Approval. Accordingly, his benefits under such plan will be paid pursuant
to the terms thereof as if the Zurn Merger Approval would not constitute a
"change in control" event.
EXECUTIVE INCENTIVE PLAN. Under the Zurn Incentive Plan, Zurn has granted
to certain employees the opportunity to receive incentive compensation based on
Zurn's profitability. Such plan provides generally that for one year following a
"change in control" event, if the participant is terminated without "cause" or
the participant terminates for "good reason" (including a material adverse
change in the nature or scope of the participant's responsibilities,
authorities, duties or position or the failure of Zurn to provide substantially
similar benefits in the aggregate), then the participant will receive a prorated
incentive award. The Zurn Merger Approval would constitute a "change in control"
event under such plan. Therefore, for one year following the Zurn Merger
Approval, if any participant were terminated without cause or terminated for
good reason then such participant would receive a prorated incentive award. It
is not anticipated that any such prorated incentive awards will become payable
in connection with the Transaction. See "The Merger Agreement--Certain
Covenants--Benefit Matters" for a description of certain actions taken by the
Zurn Board in respect of such plan.
LONG-TERM INCENTIVE PLAN. Under the Zurn LTIP, Zurn has granted to certain
employees the opportunity to receive incentive compensation based on Zurn's
profitability. Such plan provides that upon a "change in control" event each
participant will receive a prorated incentive award. The Zurn Merger Approval
would constitute such an event. See "The Merger Agreement--Certain
Covenants--Benefit Matters" for a description of certain actions taken by the
Zurn Board in respect of such plan. It is presently estimated that upon the
occurrence of the Zurn Merger Approval, the Named Officers will be entitled to
receive lump-sum payments under such plan as follows: Robert R. Womack,
$247,090; Frank E. Sheeder, $59,719; John R. Mellett, $53,083; and Dennis
Haines, $38,707.
EMPLOYMENT AND SEVERANCE AGREEMENTS. Zurn has employment and severance
agreements with the following persons: William J. Durbin, Dennis Haines, George
W. Hanthorn, James A. Harris, Alex P. Marini, John R. Mellett, John E. Rutzler,
III, Frank E. Sheeder, Brooks F. Sherman, Robert R. Womack, and James A. Zurn.
Such agreements provide generally that for three years following a "change in
control" event, if the employee is terminated without "cause" or the employee
terminates for "good reason"
46
(including a material adverse change in the nature or scope of the employee's
responsibilities, authorities, duties or position or the failure to provide
substantially similar benefits in the aggregate), the employee will receive
certain severance payments. It is not anticipated that any such severance
payments will become payable in connection with the Transaction, except that the
employment agreements described under "The Transaction--Interests of Certain
Persons in the Transaction--New Employment Agreements" provide that such
payments will be made in the cases of Messrs. Womack, Sheeder and Mellett as
follows: Mr. Womack, $3,036,000; Mr. Sheeder, $1,458,000 and Mr. Mellet,
$1,296,000.
For a discussion of provisions of the Merger Agreement relating to the
employee benefit arrangements described above, see "The Merger
Agreement--Certain Covenants."
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a general summary of the material federal income
tax consequences of the Transaction and is based on the Code, the final,
proposed and temporary Treasury Regulations promulgated thereunder,
administrative rulings and interpretations, and judicial decisions, in each case
as in effect as of the date hereof. All of the foregoing are subject to change
at any time, possibly with retroactive effect. The discussion set forth below
does not address all aspects of federal income taxation that may be relevant to
a stockholder or shareholder in light of such stockholder's or shareholder's
particular circumstances or to stockholders or shareholders subject to special
rules under the federal income tax laws, such as non-United States persons,
financial institutions, tax-exempt organizations, insurance companies, dealers
in securities or stockholders or shareholders who acquired their USI or Zurn
shares pursuant to the exercise of employee stock options or otherwise as
compensation, nor any consequences arising under the laws of any state, locality
or foreign jurisdiction. This discussion assumes that holders of USI Common
Stock and holders of Zurn Common Stock hold their respective shares of stock as
capital assets within the meaning of Section 1221 of the Code.
None of USI, Zurn or New USI intends to secure a ruling from the Internal
Revenue Service with respect to the tax consequences of the Transaction. It is a
condition to the obligation of USI to consummate the Transaction that USI shall
have received an opinion, dated as of the Closing Date (as defined below), from
Weil, Gotshal & Manges LLP to the effect that no gain or loss will be recognized
by New USI, USI or Blue Merger Corp. as a result of the USI Merger and that no
gain or loss will be recognized by holders of USI Common Stock as a result of
the USI Merger. It is a condition to the obligation of Zurn to consummate the
Transaction that Zurn shall have received an opinion, dated as of the Closing
Date, from Jones Day to the effect that no gain or loss will be recognized by
New USI, Zurn or Zoro Merger Corp. as a result of the Zurn Merger and no gain or
loss will be recognized by holders of Zurn Common Stock as a result of the Zurn
Merger, except gain or loss may be recognized with respect to the cash received
in lieu of fractional shares. The opinions of Weil, Gotshal & Manges and Jones
Day referred to in this section will be based on facts existing at the date
hereof and at the Closing Date. In rendering the opinions of counsel referred to
in this section, Weil, Gotshal & Manges LLP and Jones Day may assume the absence
of changes in existing facts and will rely on representations and covenants made
by New USI, USI, Zurn and others.
TAX IMPLICATIONS TO USI STOCKHOLDERS. The opinion of Weil, Gotshal & Manges
LLP referred to above will be to the effect that no gain or loss will be
recognized for federal income tax purposes by holders of USI Common Stock whose
USI Common Stock is converted into New USI Common Stock pursuant to the USI
Merger.
Further, in the opinion of Weil, Gotshal & Manges LLP, the aggregate tax
basis of New USI Common Stock received as a result of the USI Merger will be the
same as the stockholder's aggregate tax basis in the USI Common Stock which was
converted pursuant to the USI Merger. The holding period of the New USI Common
Stock held by former holders of USI Common Stock as a result of the conversion
pursuant to the
47
USI Merger will include the period during which such stockholders held the USI
Common Stock exchanged.
TAX IMPLICATIONS TO ZURN SHAREHOLDERS. The opinion of Jones Day referred to
above will be to the effect that no gain or loss will be recognized for federal
income tax purposes by holders of Zurn Common Stock as a result of the Zurn
Merger, except gain or loss may be recognized with respect to cash received in
lieu of fractional shares as discussed below.
Cash received in lieu of fractional share interests will be treated as
received in exchange for a fractional share of New USI Common Stock. Gain or
loss recognized on such exchange will be measured by the difference between the
amount of cash received and the portion of the tax basis in the shares of the
Zurn Common Stock surrendered that is allocable to such fractional share. Such
gain or loss will be capital gain or loss and, in the case of a shareholder that
is an individual or a non-corporate entity, if such deemed exchanged fractional
share of New USI Common Stock is considered to have been held for more than 18
months at the Effective Time, any gain will be adjusted net capital gain taxed
at a maximum rate of 20 percent. If such deemed exchanged fractional share of
New USI Common Stock is considered to have been held for more than one year but
not more than 18 months at the Effective Time, any gain, in the case of a
shareholder that is an individual or a non-corporate entity, will be "mid-term
gain," taxed at a maximum rate of 28 percent.
Further, Jones Day has advised Zurn that the aggregate tax basis of New USI
Common Stock to be received by shareholders of Zurn as a result of the Zurn
Merger will be the same as the shareholder's aggregate tax basis in the Zurn
Common Stock surrendered in the exchange, decreased by the basis allocable to
fractional shares for which cash is received in the Zurn Merger, and increased
by the amount of gain recognized on the exchange. The holding period of the New
USI Common Stock held by former holders of Zurn Common Stock as a result of the
exchange will include the period during which such shareholders held the Zurn
Common Stock exchanged.
HOLDERS OF USI COMMON STOCK OR ZURN COMMON STOCK SHOULD CONSULT THEIR OWN
TAX ADVISORS WITH RESPECT TO PERSONAL TAX CONSEQUENCES OF THE TRANSACTION, WHICH
MAY VARY FOR HOLDERS IN DIFFERENT TAX SITUATIONS, INCLUDING THE APPLICABILITY
AND EFFECT OF FOREIGN, STATE, LOCAL AND OTHER TAX LAWS AND THE EFFECT OF ANY
PROPOSED CHANGES IN THE TAX LAWS.
ACCOUNTING TREATMENT
The Transaction is expected to be accounted for by New USI under the pooling
method of accounting for business combinations. See "Unaudited Pro Forma
Consolidated Condensed Financial Statements."
CERTAIN FEES AND EXPENSES
Zurn has retained BT Wolfensohn pursuant to the Engagement Letter. As
compensation for BT Wolfensohn's services in connection with the Transaction,
Zurn has paid BT Wolfensohn cash fees of $1,000,000 in the aggregate and has
agreed to pay an additional cash fee of $3,000,000 if the Transaction is
consummated. Regardless of whether the Transaction is consummated, Zurn has
agreed to reimburse BT Wolfensohn for reasonable fees and disbursements of BT
Wolfensohn's counsel and all of BT Wolfensohn's reasonable travel and other
out-of-pocket expenses incurred in connection with the Transaction or otherwise
arising out of the retention of BT Wolfensohn under the Engagement Letter. Zurn
has also agreed to indemnify BT Wolfensohn and certain related persons to the
full extent lawful against certain liabilities, including certain liabilities
under the Federal securities laws arising out of its engagement or the
Transaction.
USI retained CSFB, pursuant to the terms of a letter agreement (the "USI
Engagement Letter"), as its financial advisor to provide financial analyses and
advice and to render an opinion to the USI Board as
48
to the fairness of the Zurn Exchange Ratio to USI from a financial point of
view. USI agreed to pay CSFB, as compensation for its services under the USI
Engagement Letter, a fee of $4,000,000, $250,000 of which was payable upon
delivery of the CSFB Opinion, $750,000 of which was payable upon announcement of
the Transaction and the remaining $3,000,000 of which will be payable upon
consummation of the Mergers. In addition, USI granted CSFB a right of first
offer to act as co-lead manager for an offering of debt securities of USI or New
USI in connection with the Transaction. USI will also reimburse CSFB for certain
out-of-pocket expenses incurred in connection with its services to USI,
including fees and expenses of legal counsel and any other advisor retained by
CSFB. In addition, USI also agreed to indemnify CSFB, its affiliates, the
respective directors, officers, partners, agents and employees of CSFB and its
affiliates, and each person, if any, controlling CSFB or any of its affiliates,
against certain liabilities, including liabilities under the Federal securities
laws.
REGULATORY APPROVALS
HSR ACT
Under the HSR Act and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), transactions such as the Transaction may not be
consummated until notifications have been given and certain information has been
furnished to the Antitrust Division of the United States Department of Justice
and the FTC and specified waiting period requirements have been satisfied. USI
and Zurn have filed all appropriate Notification and Report Forms with the
Antitrust Division and the FTC with respect to the Transaction, and the waiting
period with respect to such filings was terminated on March 27, 1998.
Shareholders of Zurn who, following the Transaction, will hold in excess of
$15 million of voting securities of New USI and who meet certain requirements
set forth in the HSR Act may be required prior to their acquisition of New USI
Common Stock to file a Notification and Report form with the Federal Trade
Commission and the Antitrust Division of the Department of Justice as required
under the HSR Act, unless an applicable exemption under the HSR Act and
accompanying rules applies.
OTHER ANTITRUST
Other antitrust authorities may also bring legal action under state or
federal antitrust laws. Such action could include seeking to enjoin the
consummation of the Transaction or seeking divestiture of certain assets of USI
or Zurn. Private parties may also seek to take legal action under the antitrust
laws under certain circumstances. There can be no assurance that a challenge to
the Transaction on antitrust grounds will not be made or, if such a challenge is
made, with respect to the result thereof.
STATUS OF REGULATORY APPROVALS AND OTHER INFORMATION
USI and Zurn have filed applications with all applicable domestic regulatory
agencies and have taken, or will take, other appropriate action with respect to
any requisite approvals or other action of any court, administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, whose consent, approval, order or authorization, or with whom
registration, declaration or filing of the Merger Agreement is required to
consummate the Transaction, subject to the provisions of the Merger Agreement.
The Merger Agreement provides that the obligation of each of USI and Zurn to
consummate the Transaction is conditioned upon, among other things, the
termination or expiration of any applicable waiting period under the HSR Act,
and the absence of any statute, rule, regulation, executive order, decree,
ruling or injunction prohibiting consummation of the Transaction. There can be
no assurance that any governmental agency will approve or take any other
required action with respect to the Transaction, and, if approvals are received
or action is taken, that such approvals or action will not be conditioned upon
matters that would cause the parties to abandon the Transaction. In addition,
there can be no assurance
49
that an action will not be brought challenging such approvals or action, or, if
such challenge is made, with respect to the result thereof.
USI and Zurn are not aware of any material governmental approvals or actions
that may be required for consummation of the Transaction other than as described
above. Should any other approval or action be required, it is presently
contemplated that such approval or action would be sought. There can be no
assurance, however, that any such approval or action, if needed, could be
obtained and would not be conditioned in a manner that would cause the parties
to abandon the Transaction.
STOCK EXCHANGE LISTING
New USI intends to apply for listing of the New USI Common Stock on the NYSE
and anticipates that its shares will trade on the NYSE, upon official notice of
issuance, under the symbol "USI."
FEDERAL SECURITIES LAWS CONSEQUENCES
All shares of New USI Common Stock received by USI stockholders and Zurn
shareholders in the Mergers will be freely transferable under the Federal
securities laws, except that shares of New USI Common Stock received by persons
who are deemed to be "affiliates" (as such term is defined under the Securities
Act) of USI or Zurn prior to the consummation of the Mergers may be resold by
them only in transactions permitted by the resale provisions of Rule 145
promulgated under the Securities Act (or Rule 144 in the case of such persons
who become affiliates of New USI) or as otherwise permitted under the Securities
Act. Persons who may be deemed to be affiliates of USI, Zurn or New USI
generally include individuals or entities that control, are controlled by, or
are under common control with, such party and may include certain officers and
directors of such party as well as principal stockholders of such party.
ABSENCE OF APPRAISAL AND DISSENTERS' RIGHTS
USI
Under the DGCL, holders of USI Common Stock are not entitled to appraisal or
dissenters' rights in connection with the USI Merger because the USI Common
Stock is listed on the NYSE and the consideration which such holders will be
entitled to receive in the USI Merger will consist solely of New USI Common
Stock, which is expected to be listed on the NYSE, upon official notice of
issuance, and cash in lieu of fractional shares.
ZURN
Under the PBCL, holders of Zurn Common Stock are not entitled to appraisal
or dissenters' rights in connection with the Zurn Merger because the
consideration which such holders will be entitled to receive in the Zurn Merger
will consist solely of New USI Common Stock, which is expected to be listed on
the NYSE, upon official notice of issuance, and cash in lieu of fractional
shares.
50
THE MERGER AGREEMENT
The following is a summary of the material terms of the Merger Agreement.
The following summary is not a complete description of the terms and conditions
of the Merger Agreement and is qualified in its entirety by reference to the
full text of the Merger Agreement, which is attached hereto as Appendix A-1 and
incorporated herein by reference.
THE MERGERS
Pursuant to the Merger Agreement and on the terms and subject to the
conditions set forth in the Merger Agreement, (i) Blue Merger Corp. will be
merged with and into USI in accordance with the DGCL and USI will continue as
the surviving corporation and (ii) Zoro Merger Corp. will be merged with and
into Zurn in accordance with the PBCL and Zurn will continue as the surviving
corporation. Following the Mergers, USI and Zurn will each be a wholly owned
subsidiary of New USI.
The closing of the Mergers (the "Closing") will take place on a date to be
specified by the parties, which shall be the first business day on which all of
the conditions set forth in the Merger Agreement have been satisfied or waived
(the "Closing Date"). See "--Conditions to the Mergers." The parties will cause
the Mergers to be consummated concurrently by (i) filing a certificate of merger
with the Secretary of State of the State of Delaware with respect to the USI
Merger and (ii) filing articles of merger with the Secretary of State of the
Commonwealth of Pennsylvania with respect to the Zurn Merger. The time at which
both filings have been made is referred to as the Effective Time.
CONVERSION OF USI COMMON STOCK
At the Effective Time, on the terms and subject to the conditions set forth
in the Merger Agreement, (a) each issued and outstanding share of USI Common
Stock, other than shares held in the treasury of USI, will cease to exist and
will be converted into one share of New USI Common Stock, and (b) all shares of
USI Common Stock held in the treasury of USI will be canceled and retired
without any payment or other consideration therefor.
HOLDERS OF USI COMMON STOCK SHOULD NOT SEND ANY CERTIFICATES REPRESENTING
SHARES OF USI COMMON STOCK WITH THE ENCLOSED PROXY CARD. IF THE USI MERGER IS
CONSUMMATED, CERTIFICATES THAT, PRIOR TO CONSUMMATION OF THE USI MERGER,
REPRESENTED SHARES OF USI COMMON STOCK WILL, FOLLOWING CONSUMMATION OF THE USI
MERGER, REPRESENT SHARES OF NEW USI COMMON STOCK WITH NO ACTION REQUIRED ON THE
PART OF THE HOLDERS OF USI COMMON STOCK.
CONVERSION OF ZURN COMMON STOCK
At the Effective Time, on the terms and subject to the conditions set forth
in the Merger Agreement, (a) each issued and outstanding share of Zurn Common
Stock, other than shares held in the treasury of Zurn, will cease to exist and
be converted into the right to receive the Zurn Merger Consideration upon
surrender of the certificate theretofore representing such share and (b) all
shares of Zurn Common Stock held in the treasury of Zurn will be canceled and
retired without any payment or other consideration therefor.
HOLDERS OF ZURN COMMON STOCK SHOULD NOT SEND ANY CERTIFICATES REPRESENTING
SHARES OF ZURN COMMON STOCK WITH THE ENCLOSED PROXY CARD. IF THE TRANSACTION IS
APPROVED, A LETTER OF TRANSMITTAL WILL BE MAILED AFTER THE EFFECTIVE TIME OF THE
MERGERS TO EACH PERSON WHO WAS A HOLDER OF OUTSTANDING SHARES OF ZURN COMMON
STOCK IMMEDIATELY PRIOR TO THE EFFECTIVE TIME. ZURN SHAREHOLDERS SHOULD SEND
CERTIFICATES REPRESENTING ZURN COMMON
51
STOCK TO THE EXCHANGE AGENT ONLY AFTER THEY RECEIVE, AND IN ACCORDANCE WITH THE
INSTRUCTIONS CONTAINED IN, THE LETTER OF TRANSMITTAL.
TREATMENT OF OPTIONS
At the Effective Time, on the terms and subject to the conditions set forth
in the Merger Agreement, each outstanding option to purchase shares of USI
Common Stock and each outstanding option to purchase shares of Zurn Common Stock
will be assumed by New USI and converted into an option to purchase shares of
New USI Common Stock. Following the Effective Time, each such option to purchase
shares of New USI Common Stock will have the same terms and conditions as nearly
as practicable as are in effect immediately prior to the Effective Time,
including the following: (i) each option to purchase shares of USI Common Stock
will be exercisable for that number of shares of New USI Common Stock equal to
the number of shares of USI Common Stock for which such option was exercisable
immediately prior to the Effective Time of the Mergers, and the exercise price
per share under each option to purchase shares of USI Comon Stock will be equal
to the exercise price per share of such option immediately prior to the
Effective Time, and (ii) each option to purchase shares of Zurn Common Stock
will be exercisable for that number of shares of New USI Common Stock equal to
the product of the number of shares of Zurn Common Stock for which such option
was exercisable immediately prior to the Effective Time and the Zurn Exchange
Ratio, and the exercise price per share under each option to purchase shares of
Zurn Common Stock will be equal to the exercise price per share of such option
immediately prior to the Effective Time divided by the Zurn Exchange Ratio. Upon
the Zurn Merger Approval, all options to purchase Zurn Common Stock will become
vested. In addition, at the Effective Time, (i) New USI will assume all Zurn
stock option plans and (ii) New USI will assume the Amended U.S. Industries,
Inc. Stock Option Plan and the USI Restricted Stock Plan, as amended.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties by
both USI and Zurn (as applicable) as to, among other things, (i) due
organization, good standing and absence of violations of constitutive documents,
(ii) capital structure, (iii) requisite corporate power and authority to enter
into the Merger Agreement and to consummate the transactions contemplated by the
Merger Agreement, due authorization, execution and delivery of the Merger
Agreement, validity and enforceability of the Merger Agreement and the
compliance of the Mergers with constitutive documents, agreements and applicable
laws, (iv) required filings, consents and approvals, (v) disclosure contained in
documents filed with the Commission and absence of certain undisclosed
liabilities, (vi) absence of certain material changes or events, (vii) absence
of certain litigation, (viii) compliance with laws, (ix) employee benefit plans,
(x) compliance with laws applicable to employee benefit plans, (xi)
environmental matters, (xii) tax matters, (xiii) receipt of fairness opinions,
(xiv) accounting matters, (xv) absence of default under and disclosure of
material contracts and (xvi) status of the bankruptcy proceeding of United
States Brass Corporation ("U.S. Brass"), a wholly owned subsidiary of Zurn.
CERTAIN COVENANTS
CONDUCT OF BUSINESS PENDING THE MERGERS
USI and Zurn have agreed that, except as contemplated by the Merger
Agreement, prior to the Effective Time, USI and Zurn will, and will cause their
respective subsidiaries to, conduct their respective operations in the ordinary
course of business consistent with past practice. Specifically, except as
contemplated by the Merger Agreement and subject to various other exceptions,
prior to the Effective Time, USI and Zurn have agreed not to, and not to permit
their respective subsidiaries to, (i) amend their respective charter or by-laws,
(ii) authorize for issuance, issue, sell or deliver any stock of any class,
(iii) split, combine or reclassify any shares of capital stock or declare, set
aside or pay any dividends or make any other
52
distributions in respect of any USI Common Stock, Zurn Common Stock or Zurn
Preferred Stock, other than regular quarterly cash dividends, (iv) adopt any
plan of liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization, (v) alter through merger, liquidation,
reorganization, restructuring or in any other fashion the corporate structure or
the ownership of any subsidiary, (vi) in the case of Zurn only, (A) incur any
indebtedness for borrowed money, except for borrowings under lines of credit
existing as of the date of the Merger Agreement or in the ordinary course of
business not in excess of $20 million in the aggregate, (B) assume, guarantee,
endorse or otherwise become responsible for obligations of any other person,
except for obligations incurred in the ordinary course of business consistent
with past practice not in excess of $20 million, (C) make any loans, advances or
capital contributions to, or investments in, any other person (as required under
existing agreements), (D) pledge shares of capital stock of Zurn or its
subsidiaries or (E) mortgage or pledge any material assets, (vii) in the case of
Zurn only (except for normal increases in the ordinary course of business or as
required under existing agreements), (A) increase the compensation or fringe
benefits of its executive officers or employees, (B) grant any severance or
termination pay to, or enter into any employment or severance arrangement with,
any director, executive officer or employee or (C) establish, adopt, enter into
or amend in any material respect any rights or benefits under any employee
benefit plan, (viii) in the case of Zurn only, acquire or dispose of any assets,
subject to certain exceptions including acquisitions of raw material in the
ordinary course of business or of assets with a fair market value of less than
$25 million in the aggregate, (ix) in the case of Zurn only, change any
accounting principles, (x) in the case of Zurn only, make or revoke any material
tax election or settle or compromise any material tax liability or refund, (xi)
in the case of Zurn only, settle or compromise any pending or threatened suit,
action or claim relating to the Transactions, (xii) in the case of Zurn only,
take any material action with respect to the U.S. Brass bankruptcy proceeding
not contemplated by the Fourth Amended Plan of Reorganization of U.S. Brass or
(xiii) take or agree to take any of the foregoing actions.
SOLICITATION OF ACQUISITION PROPOSALS
Zurn has agreed that it will not, nor will it authorize or permit any of its
subsidiaries to, nor any of its or its subsidiaries' officers, directors,
employees, representatives, agents or affiliates (including, without limitation,
any investment banker, financial advisor, attorney, accountant or other
representative or advisor of Zurn) to, directly or indirectly, initiate, solicit
or knowingly encourage, or take any other action to facilitate, any inquiries or
the making of any proposal that constitutes, or may reasonably be expected to
lead to, an Acquisition Proposal (as defined below). Zurn may, however, upon a
good faith determination by the Zurn Board based upon the advice of outside
legal counsel that such action is necessary for the Zurn Board to comply with
its fiduciary duties, in response to a bona fide, written Acquisition Proposal
made after the date of the Merger Agreement, (i) after providing reasonable
prior notice to USI, furnish information to any person pursuant to a
confidentiality agreement on terms no less favorable to Zurn than those
contained in the confidentiality agreement between Zurn and USI dated October
13, 1997, and (ii) participate in discussions, investigations and/or
negotiations regarding the Acquisition Proposal. Zurn has also agreed to advise
USI promptly of any Acquisition Proposal. For the purposes of the Merger
Agreement, the term "Acquisition Proposal" means any inquiry, proposal or offer
relating to any of the following (other than the transactions contemplated by
the Merger Agreement) involving Zurn or any of its subsidiaries: (i) any merger,
consolidation, share exchange, recapitalization, business combination or other
similar transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition of 20% or more of the assets of Zurn and its subsidiaries,
taken as a whole, in a single transaction or series of related transactions;
(iii) any tender offer or exchange offer that, if consummated, would result in
any person beneficially owning more than 20% of the outstanding shares of Zurn
Common Stock or the filing of a registration statement under the Securities Act
in connection therewith; or (iv) any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of the
foregoing.
53
The Zurn Board may not, except as described in the following sentence, (i)
withdraw or modify, or publicly propose to withdraw or modify, in a manner
adverse to USI, its approval and recommendation of the Zurn Merger and the
Merger Agreement, (ii) approve or recommend, or publicly propose to approve or
recommend, any Acquisition Proposal or (iii) cause Zurn to enter into any
agreement (other than a confidentiality agreement) with respect to any
Acquisition Proposal. Notwithstanding the foregoing, if the Zurn Board
determines in good faith, based on the advice of outside legal counsel, that it
is necessary to take any of the foregoing actions, Zurn may take such action,
provided that it first gives written notice to USI advising USI that the Zurn
Board has received a Superior Proposal (as defined below), specifying the terms
and conditions of, and identifying the person making, such Superior Proposal and
then waits five business days prior to taking such action. For the purposes of
the Merger Agreement, the term "Superior Proposal" means any Acquisition
Proposal that the Zurn Board determines (x) in its good faith judgment (based on
the advice of a financial advisor of nationally recognized reputation) to be
more favorable from a financial point of view to Zurn's shareholders than the
Zurn Merger and (y) in the manner contemplated by Subchapter B of Chapter 17 of
the PBCL, to be otherwise in the best interests of Zurn.
ACCESS TO INFORMATION
Each of USI and Zurn has agreed to afford to the other and its authorized
representatives reasonable access to its employees, plants, offices, warehouses
and other facilities and to all books and records of itself and its subsidiaries
prior to the Effective Time. Except as required by law, each of Zurn and USI has
agreed to hold any non-public information in confidence to the extent required
by the confidentiality agreement entered into by such parties.
OTHER ACTIONS
In general, each party has agreed to use its reasonable best efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Mergers and the other transactions contemplated by the
Merger Agreement.
INDEMNIFICATION AND INSURANCE
From and after the Effective Time, New USI has agreed, to the fullest extent
permitted by applicable law, to indemnify directors, officers and employees of
the parties to the Merger Agreement against all losses, expenses, claims,
damages, liabilities and (subject to New USI's approval of amounts paid in
settlement) for acts or omissions occurring prior to the Effective Time, based
on the fact that such person is or was a director, officer or employee of a
party to the Merger Agreement, or based on the transactions contemplated by the
Merger Agreement. New USI has agreed to cause to be maintained in effect for a
period of not less than six years after the Effective Time the directors' and
officers' liability insurance maintained by Zurn for the benefit of those
persons covered by such policies at the Effective Time to the extent such
insurance can be maintained for an annual premium not in excess of 200 percent
of the premium for the current Zurn directors' and officers' insurance (the
"Maximum Premium"). If such insurance cannot be obtained or maintained at such
cost, then USI will maintain or obtain as much of such insurance coverage as can
be obtained at a cost equal to the Maximum Premium.
BENEFIT MATTERS
The Merger Agreement provides generally that New USI will (i) honor and
provide for payment of all obligations and benefits under all Zurn employee
benefit plans in accordance with their terms on the date of the Merger Agreement
and as amended in accordance with the provisions of the Merger Agreement, (ii)
honor and provide for the payment of all obligations and benefits under all
employment or severance agreements between Zurn and any employee or former
employee who is or had been an employee of Zurn or any of its subsidiaries on or
before the Effective Time in accordance with their terms on the date of the
54
Merger Agreement and as amended in accordance with the provisions of the Merger
Agreement, (iii) provide from and after the Effective Time until the second
anniversary of the Effective Time, employee benefits which are at least
substantially comparable in the aggregate to the level of employee benefits
provided by Zurn and its subsidiaries under the employee benefit plans in effect
as of the Effective Time for the benefit of employees, and (iv) provide until
the first anniversary of the Effective Time for the benefit of employees who
remain in the employ of Zurn as a surviving corporation or New USI or any of its
affiliates employee compensation plans that are in the aggregate at a level at
least substantially comparable to the employee compensation plans provided by
Zurn and its subsidiaries under the compensation arrangements in effect as of
the Effective Time.
The Merger Agreement also provides that if employees are included in any
benefit plan of New USI or its subsidiaries, such employees will receive credit
as employees of New USI and its subsidiaries for service prior to the Effective
Time with Zurn and its subsidiaries to the same extent such service was counted
under similar Zurn employee benefit plans for purposes of eligibility, vesting
and eligibility for retirement and, in addition, that with respect to vacation,
disability and severance, such service will also be counted for benefit accrual.
If employees are included in any medical, dental or health plan other than the
plan or plans they participated in at the Effective Time, New USI has agreed
that any such plans will not include pre-existing condition exclusions, except
to the extent such exclusions were applicable under the similar Zurn employee
benefit plan at the Effective Time, and will provide credit for any deductibles
and co-payments applied or made with respect to each employee in the calendar
year of the change.
Pursuant to the Merger Agreement, the Zurn Board has taken action in respect
of the Zurn Incentive Plan and the Zurn LTIP to provide that for the purposes of
determining all awards thereunder that are to be determined with reference to
Zurn's performance for its fiscal year ending March 31, 1998, the effects of all
transaction costs and non-recurring charges associated with or taken in
contemplation of the Zurn Merger will be disregarded.
At the Effective Time, New USI will assume sponsorship of all stock option
and/or restricted stock plans sponsored by each of Zurn and USI. In addition,
New USI will assume the U.S. Industries, Inc. Annual Performance Incentive Plan.
In the Merger Agreement, the parties thereto acknowledge that nothing
contained therein will be deemed to be a commitment on the part of New USI or
Zurn, as a surviving corporation, to provide employment to any person for any
period of time and, except as otherwise provided in the Merger Agreement,
nothing contained therein will be deemed to prevent New USI or Zurn, as a
surviving corporation, from amending or terminating any employee benefit plan in
accordance with its terms.
REDEMPTION OF ZURN PREFERRED STOCK
The Merger Agreement required Zurn to take certain specified actions to
redeem the Zurn Preferred Stock. On April 6, 1998, all outstanding shares of
Zurn Preferred Stock were redeemed for $40.00 per share, plus accrued and unpaid
dividends up to and including such date.
CERTAIN OTHER COVENANTS
The Merger Agreement also contains customary covenants applicable to
transactions like the Mergers, including covenants relating to (i) delivery of
letters of accountants relating to financial information included in this Joint
Proxy Statement/Prospectus, (ii) each party's antitrust filing obligations,
(iii) consultation prior to the issuance of any press release or other public
statement, (iv) each party's obligation to pay its own fees and expenses
(subject to the provisions described in "--Effect of Termination"), (v) the
listing on the NYSE of the shares of New USI Common Stock to be issued in the
Mergers and (vi) execution and delivery of closing documentation.
55
CONDITIONS TO THE MERGERS
The obligations of each party to the Merger Agreement to effect the Mergers
are subject to certain conditions, including the following: (i) the Zurn Merger
Approval and the USI Merger Approval shall have been obtained; (ii) no statute,
rule, regulation, executive order, decree, ruling or injunction prohibiting the
consummation of the Merger shall have been enacted, entered, promulgated or
enforced by a governmental authority; (iii) the waiting period applicable to the
transactions contemplated by the Merger Agreement under the HSR Act shall have
terminated or expired (which condition has been satisfied as a result of the
early termination of the waiting period as of March 27, 1998); (iv) the
Registration Statement shall have become effective under the Securities Act and
shall not be the subject of any stop order or proceedings seeking a stop order;
(v) each of USI and Zurn shall have received a letter dated as of the Effective
Time from Ernst & Young stating in substance that each of the Mergers will
qualify as a pooling of interests transaction under APB No. 16 and the
applicable rules and regulations of the Commission; and (vi) the New USI Common
Stock issuable in the Mergers shall have been authorized for listing on the NYSE
upon official notice of issuance.
The obligations of USI to consummate the USI Merger are also subject to
certain additional conditions, including the following: (i) the accuracy in all
material respects of the representations and warranties of Zurn set forth in the
Merger Agreement; (ii) Zurn having performed in all material respects all
obligations required to be performed by Zurn under the Merger Agreement at or
prior to the Closing; (iii) receipt by USI and Zurn of satisfactory opinions of
their respective counsel regarding certain tax matters; and (iv) evidence that
the Zurn Preferred Stock shall have been redeemed by Zurn.
The obligations of Zurn to consummate the Zurn Merger are also subject to
certain additional conditions, including the following: (i) the accuracy in all
material respects of the representations and warranties of USI, New USI, Blue
Merger Corp. and Zoro Merger Corp. set forth in the Merger Agreement; (ii) USI,
New USI, Blue Merger Corp. and Zoro Merger Corp. having performed in all
material respects all obligations required to be performed by them under the
Merger Agreement at or prior to the Closing; (iii) the New USI Board consisting
of the USI Board, together with Mr. Butler and Mr. Womack; and (iv) receipt by
Zurn and USI of satisfactory opinions of their respective counsel regarding
certain tax matters.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Effective
Time (i) by mutual written consent of USI and Zurn, (ii) by USI or Zurn if the
Mergers shall not have been consummated on or before July 31, 1998, unless the
failure to consummate the Mergers is the result of the failure to fulfill any
obligations under the Merger Agreement by the party seeking to terminate the
Merger Agreement, (iii) by USI or Zurn if at the Zurn Meeting the Zurn Merger
Approval is not obtained, (iv) by USI or Zurn if at the USI Meeting the USI
Merger Approval is not obtained, or (v) by USI or Zurn if a court of competent
jurisdiction or other governmental entity shall have issued an order, decree or
ruling or taken any other action permanently enjoining or otherwise prohibiting
the Mergers. The Merger Agreement may also be terminated by either USI or Zurn
if there shall have been a material breach of representation or warranty, or
material breach of covenants or agreements, by Zurn (in the case of a
termination by USI) or by USI, New USI, Blue Merger Corp. or Zoro Merger Corp.
(in the case of a termination by Zurn) which has not been cured within 15 days
of notice thereof (in the case of a breach of covenant) or cannot be cured by
July 31, 1998 (in the case of a breach of representation or warranty).
The Merger Agreement may also be terminated by Zurn if Zurn concurrently or
immediately following such termination enters into an agreement providing for
the consummation of transactions contemplated by a Superior Proposal after
complying with the provisions of the Merger Agreement described in the second
paragraph under "--Certain Covenants--Soliciation of Acquisition Proposals,"
including the expiration of the five-business day period described therein. The
Merger Agreement may
56
also be terminated by USI if the Zurn Board shall have withdrawn or modified, or
shall have publicly proposed to withdraw or modify, its approval or
recommendation of the Merger Agreement or the Zurn Merger, or shall have
recommended, or shall have publicly proposed to recommend, to Zurn shareholders
any Acquisition Proposal (other than the Zurn Merger), or Zurn shall have
publicly proposed to enter into an agreement providing for the consummation of
the transactions contemplated by a Superior Proposal, or the Zurn Board,
following the commencement, public proposal, public disclosure or communication
to Zurn of any Acquisition Proposal, shall have failed to call, give notice of,
convene or hold a shareholders meeting to vote upon the Zurn Merger in breach of
its obligations under the Merger Agreement.
EFFECTS OF TERMINATION
Zurn would be obligated to pay to USI a fee of $10 million plus expenses of
USI up to $2 million if the Merger Agreement were terminated under any of the
following circumstances: (i) by USI or Zurn because Zurn shall have convened a
shareholder meeting and failed to obtain the Zurn Merger Approval thereat where
prior to or on the date of such meeting there shall have been commenced,
publicly disclosed or publicly proposed any transaction (other than the Zurn
Merger) that, if consummated, would constitute an Acquisition Proposal and,
within 12 months after the termination of the Merger Agreement, Zurn consummates
the transaction contemplated by (A) any Acquisition Proposal (other than the
Zurn Merger) which shall have been commenced, publicly disclosed or publicly
proposed prior to or on the date of such meeting or (B) any Acquisition Proposal
(other than the Zurn Merger) which contemplates the acquisition of more than 50%
of the assets of Zurn and its subsidiaries, taken as a whole, or the outstanding
Zurn Common Stock, (ii) by USI because the Zurn Board, following the
commencement, public proposal, public disclosure or communication to Zurn of any
Acquisition Proposal, shall have failed to call, give notice of, convene or hold
a shareholders meeting to vote upon the Zurn Merger in breach of its obligations
under the Merger Agreement and, within 12 months after the date on which the
Zurn Board so failed to call, give notice of, convene or hold such a
shareholders meeting, Zurn consummates the transaction contemplated by (A) any
Acquisition Proposal (other than the Zurn Merger) which shall have been
commenced, publicly disclosed or publicly proposed prior to or on the date on
which the Zurn Board shall have failed to call, give notice of, convene or hold
such a shareholder meeting or (B) any Acquisition Proposal (other than the Zurn
Merger) which contemplates the acquisition of more than 50% of the assets of
Zurn and its subsidiaries, taken as a whole, or the outstanding Zurn Common
Stock, (iii) by Zurn if concurrently with or immediately following such
termination Zurn enters into an agreement providing for the consummation of the
transactions contemplated by a Superior Proposal or (iv) by USI because (A) the
Zurn Board shall have withdrawn or modified, or publicly proposed to withdraw or
modify, in a manner adverse to USI, its approval or recommendation of the Merger
Agreement or the Zurn Merger, (B) the Zurn Board shall have recommended, or
publicly proposed to recommend, to Zurn shareholders any Acquisition Proposal
(other than the Zurn Merger), or (C) Zurn shall have publicly proposed to enter
into an agreement providing for the consummation of the transaction contemplated
by a Superior Proposal.
In the event of termination of the Merger Agreement, the Merger Agreement
shall forthwith become void and have no effect, without any liability or
obligation on the part of USI or Zurn, other than (a) liability with respect to
termination payments and reimbursement of fees and expenses as described above,
(b) each party's obligation to pay its own fees and expenses (except as set
forth with respect to reimbursement of fees and expenses), (c) certain
obligations of confidentiality and (d) liability resulting from any willful or
intentional breach by any party to the Merger Agreement. Upon payment of the
fees and expenses described in the immediately preceding paragraph, Zurn will be
fully released and discharged from any liability or obligation under or
resulting from the Merger Agreement.
57
THE STOCK OPTION AGREEMENT
The following is a summary of the material terms of the Stock Option
Agreement. The following summary is not a complete description of the terms and
conditions of the Stock Option Agreement and is qualified in its entirety by
reference to the full text of the Stock Option Agreement, which is attached
hereto as Appendix A-2 and incorporated herein by reference. Capitalized terms
not otherwise defined herein or in the following summary shall have the meaning
set forth in the Stock Option Agreement.
GRANT OF OPTION. The Stock Option Agreement provides for the grant by Zurn
to USI of an irrevocable option (the "Stock Option") to purchase up to 1,291,559
shares of Zurn Common Stock, or such other number of shares of Zurn Common Stock
as equals 10.1% of the issued and outstanding shares Zurn Common Stock at the
time of exercise of the Stock Option, at a price of $44.30 per share (the
"Exercise Price"), payable in cash in accordance with the terms of the Stock
Option Agreement.
EXERCISE OF OPTION. The Stock Option Agreement provides that the Stock
Option may be exercised by USI, in whole or in part, at any time or from time to
time prior to its termination and (x) after the termination of the Merger
Agreement as described in clause (iii) or (iv) of the first paragraph under "The
Merger Agreement--Effects of Termination" or (y) after the date on which Zurn
delivers to USI a Transaction Notice (as defined below) (each of the events
described in clauses (x) and (y) being a "Trigger Event"). Pursuant to the Stock
Option Agreement, Zurn has agreed not to consummate any transaction if the
consummation thereof would result in a fee being payable to USI as described in
clause (i) or (ii) of the first paragraph under "The Merger Agreement--Effects
of Termination" unless Zurn shall have delivered to USI, at least 15 business
days prior to the consummation of any such transaction, a written notice (a
"Transaction Notice").
The Stock Option Agreement provides that the Stock Option will terminate
upon the earliest of: (i) the Effective Time; (ii) the termination of the Merger
Agreement pursuant to the termination provisions thereof, other than a
termination that could result in Zurn being obligated to pay a fee and certain
expenses as described in the first paragraph under "The Merger
Agreement--Effects of Termination;" (iii) 120 days following any termination of
the Merger Agreement as a result of the occurrence of a Trigger Event described
in clause (x) of the preceding paragraph (or if, at the expiration of such 120
day period, the Stock Option cannot be exercised by reason of any applicable
judgment, decree, order, law or regulation, or because the applicable waiting
period under the HSR Act has not expired or been terminated, 10 business days
after such impediment to exercise has been removed or has become final and not
subject to appeal, but in no event later than 210 days after the date of the
Trigger Event); (iv) the fifteenth business day following the delivery to USI of
a Transaction Notice; and (v) 365 days following the termination of the Merger
Agreement. The Stock Option Agreement further provides that the Stock Option may
not be exercised if USI or, in the case of the Merger Agreement, USI, New USI,
Blue Merger Corp. or Zoro Merger Corp., is (or, at the time of the termination
of the Merger Agreement, was) in material breach of any of its respective
representations, warranties, covenants or agreements contained in the Stock
Option Agreement or in the Merger Agreement.
CERTAIN REPURCHASES. The Stock Option Agreement provides that, at the
request of USI at any time during which the Stock Option is exercisable (the
"Repurchase Period"), Zurn will repurchase from USI the Stock Option, or any
portion thereof, for a price equal to the amount by which the Market/Tender
Offer Price (as defined below) for shares of Zurn Common Stock as of the date
USI gives notice of its intent to exercise its right to cause Zurn to repurchase
the Stock Option exceeds the Exercise Price, multiplied by the number of shares
of Zurn Common Stock purchasable pursuant to the Stock Option (or portion
thereof with respect to which USI is exercising its rights to cause Zurn to
repurchase the Stock Option). For purposes of the Stock Option Agreement,
"Market/Tender Offer Price" means the higher of (A) the highest price per share
of Zurn Common Stock paid as of such date pursuant to any tender or exchange
offer or other Acquisition Proposal or (B) the average of the closing sale
prices of shares of Zurn Common Stock on the NYSE for the 10 trading days
immediately preceding such date.
58
REGISTRATION RIGHTS. The Stock Option Agreement provides that in the event
that USI desires to sell any of the shares of Zurn Common Stock purchased
pursuant to the Stock Option within three years after a Trigger Event, and such
sale requires, in the opinion of counsel to USI (which opinion shall be
reasonably satisfactory to Zurn and its counsel), registration of such shares
under the Securities Act, USI may, by written notice (the "Registration Notice")
to Zurn, request Zurn to register under the Securities Act all or any part of
the shares of Zurn Common Stock purchased pursuant to the Stock Option
("Restricted Shares") beneficially owned by USI (the "Registrable Securities")
pursuant to a bona fide firm commitment underwritten public offering in which
USI and the underwriters will effect as wide a distribution of such Registrable
Securities as is reasonably practicable and will use their best efforts to
prevent any person and its affiliates from purchasing through such offering
Restricted Shares representing more than 2% of the outstanding shares of Zurn
Common Stock on a fully diluted basis (a "Permitted Offering"). Zurn (and/or any
person designated by Zurn) will have the option, exercisable by written notice
delivered to USI within 10 business days after the receipt of the Registration
Notice, to purchase all or any part of the Registrable Securities for cash at a
price (the "Option Price") equal to the product of (i) the number of Registrable
Securities and (ii) the Fair Market Value (as defined in the Stock Option
Agreement) of such Registrable Securities. USI is entitled to request an
aggregate of two effective registration statements under the terms of the Stock
Option Agreement.
PROFIT LIMITATION. The Stock Option Agreement provides that in no event
will USI's Total Profit (as defined below) exceed $5 million and, if it
otherwise would exceed such amount USI, at its sole election, will either (a)
deliver to Zurn for cancellation shares of Zurn Common Stock previously
purchased by USI, (b) pay cash or other consideration to Zurn or (c) undertake
any combination thereof, so that USI's Total Profit will not exceed $5 million
after taking into account the foregoing actions. Further, the Stock Option may
not be exercised for a number of shares of Zurn Common Stock as would, as of the
date of the Exercise Notice, result in a Notional Total Profit (as defined
below) of more than $5 million, and, if exercise of the Stock Option otherwise
would exceed such amount, USI, at its discretion, may increase the Exercise
Price for that number of shares of Zurn Common Stock set forth in the Exercise
Notice, so that the Notional Total Profit will not exceed $5 million. For
purposes of the Stock Option Agreement, (x) the term "Total Profit" means the
aggregate amount (before taxes) of the following: (i) the amount received by USI
pursuant to any repurchase by Zurn of the Stock Option pursuant to the terms of
the Stock Option Agreement, and (ii) (A) the net cash amounts received by USI
pursuant to the sale of Restricted Shares (or any other securities into which
such shares are converted or exchanged) to any unaffiliated party, less (B)
USI's purchase price for such shares; and (y) the term "Notional Total Profit"
with respect to any number of Restricted Shares as to which USI proposes to
exercise the Stock Option will be the Total Profit determined as of the date of
the Exercise Notice assuming that this Stock Option were exercised on such date
for such number of Restricted Shares and assuming that such Restricted Shares,
together with all other Restricted Shares held by USI and its affiliates as of
such date, were sold for cash at the closing market price for shares of Zurn
Common Stock as of the close of business on the preceding trading day (less
customary brokerage commissions).
ADJUSTMENT UPON CHANGES IN CAPITALIZATION. The Stock Option Agreement
provides that in the event of any change in shares of Zurn Common Stock by
reason of stock dividends, stock splits, mergers (other than the Mergers),
recapitalizations, combinations, exchange of shares or the like, the type and
number of shares or securities subject to the Stock Option, and the Exercise
Price per share, will be adjusted appropriately.
59
AMENDMENT NUMBER ONE TO THE U.S. INDUSTRIES, INC.
1997 RESTRICTED STOCK PLAN
The USI Board and the stockholders of USI previously approved the USI
Restricted Stock Plan. On February 4, 1998, the USI Board approved the
Amendment, subject to stockholder approval in accordance with the requirements
of the State of Delaware and effective at the Effective Time, which provides
among other things, for a change in the name of the plan to delete the reference
to 1997, for an increase in the number of shares of USI Common Stock available
for the granting of awards of restricted shares of USI Common Stock (the "USI
Restricted Stock") under the plan and provides a pre-established alternative
vesting schedule for the vesting of USI Restricted Stock awarded under the plan.
The USI Restricted Stock Plan will be assumed by New USI in connection with the
Transaction and after the Effective Time, restricted shares of New USI Common
Stock will be awarded under the Plan (the reference to "USI Restricted Stock"
includes, after the Effective Time, restricted shares of New USI Common Stock).
See "The Transaction--Interests of Certain Persons in the Transaction."
The primary purpose of the increase in the number of shares of USI Common
Stock that may be subject to an award under the USI Restricted Stock Plan is to
enable the Compensation Committee of the New USI Board to grant USI Restricted
Stock to key executives of Zurn after the Effective Time to help align such
executives' interests with the interests of the stockholders of New USI through
the grant of USI Restricted Stock. It is contemplated that the increased number
of shares available may also be used to grant USI Restricted Stock awards to key
executives in other special situations, such as in connection with future
acquisitions, new hiring or promotions. The alternative pre-established vesting
schedule providing for one-third vesting on each of the third, fifth or seventh
anniversaries of the date of grant provides ownership of USI Common Stock within
a foreseeable period after grant and is substantially similar to a vesting
schedule used for the restricted stock previously granted under the Amended U.S.
Industries, Inc. Stock Option Plan.
The Amendment revises the USI Restricted Stock Plan to increase the maximum
number of shares of Common Stock which may be issued with respect to an award of
USI Restricted Stock pursuant to the USI Restricted Stock Plan by 350,000 shares
of USI Common Stock. Following approval of the Amendment by holders of USI
Common Stock, consummation of the Transaction and assumption of the plan by New
USI, 875,000 shares of New USI Common Stock will be authorized under the USI
Restricted Stock Plan. As of the date of this proxy statement, 253,056 shares of
USI Restricted Stock have been granted under this plan. Notwithstanding the
foregoing, the USI Restricted Stock Plan provides for a percentage limitation
(based on the number of outstanding shares) on the number of shares that may be
granted under the plan which will continue to apply.
The Amendment also revises the USI Restricted Stock Plan to add an
alternative pre-established vesting schedule if a different vesting schedule is
not specified at the date of grant or thereafter in limited circumstances. Upon
effectiveness of the Amendment, unless otherwise specified by the Compensation
Committee of the USI Board at the time of grant, each grant of USI Restricted
Stock will vest either (x) based on a seven-year cliff vesting schedule, subject
to the possible acceleration of vesting (with Compensation Committee discretion)
of one-seventh of such shares each year based on both the achievement of
objective performance goals established by the Compensation Committee and such
committee's discretionary acceleration of vesting, or (y) (i) one-third on the
third anniversary of the date of grant, (ii) one-third on the fifth anniversary
of the date of grant and (iii) one-third on the seventh anniversary of the date
of grant; provided that, if a recipient of a grant of USI Restricted Stock
subject to the vesting schedule set forth in the foregoing clause (y) incurs a
voluntary retirement or an involuntary termination of employment (other than for
cause) on or after attaining age 62 with at least three continuous years of
service following the date of grant, vesting of all unvested shares of USI
Restricted Stock subject to such grant will be fully accelerated. The Amendment
also limits to specific types of events (such as a termination of employment)
the Compensation Committee's ability to accelerate a vesting of a USI Restricted
Stock award after the grant of such award.
THE USI BOARD RECOMMENDS THAT USI STOCKHOLDERS VOTE "FOR" APPROVAL OF THE
PLAN PROPOSAL.
60
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The unaudited pro forma combined balance sheet of New USI as of December 31,
1997 gives effect to the Transaction as if it had been consummated on such date.
The pro forma combined statements of operations of New USI for the three months
ended December 31, 1997 and 1996 and each of the three years in the period ended
September 30, 1997 give effect to the Transaction, as if it had occurred at
October 1, 1994 (i.e., the first day of fiscal 1995). The unaudited pro forma
combined financial statements should be read in conjunction with (a) the
historical financial statements of USI including the notes thereto, which are
contained in the USI Form 10-Q for the quarter ended December 31, 1997 and the
USI Form 10-K and (b) the historical financial statements of Zurn, including the
notes thereto, which are contained in the Zurn Form 10-Q for the quarter ended
December 31, 1997 and the Zurn Form 10-K. See "Available Information" and
"Incorporation of Certain Documents by Reference."
The unaudited pro forma combined financial statements are presented for
informational purposes only and are not necessarily indicative of the actual
financial position or operating results of New USI that would have been achieved
if the transactions had been consummated as of the dates indicated, nor are they
necessarily indicative of New USI's future financial condition or operating
results.
61
NEW USI
PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1997
(UNAUDITED)
HISTORICAL PRO FORMA
-------------------- --------------------------
USI ZURN ADJUSTMENTS COMBINED
--------- --------- ------------- -----------
(IN MILLIONS)
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 50 $ 11 $ 61
Marketable securities.............................................. 6 6
Trade receivables, net............................................. 398 109 507
Inventories........................................................ 474 121 595
Deferred income taxes.............................................. 49 62 111
Other current assets............................................... 41 22 63
--------- --------- -----------
Total current assets............................................. 1,012 331 1,343
Property, plant and equipment, net................................... 430 101 531
Deferred income taxes................................................ 4 4
Other assets......................................................... 138 82 220
Goodwill, net........................................................ 482 189 671
--------- --------- -----------
$ 2,066 $ 703 $ 2,769
--------- --------- -----------
--------- --------- -----------
LIABILITIES
Current liabilities:
Notes payable...................................................... $ 6 $ 4 $ 10
Current maturities of long-term debt............................... 2 23 25
Trade accounts payable............................................. 157 29 186
Accrued expenses and other liabilities............................. 217 143 $ 25 385
Income taxes payable............................................... 42 33 (7) 68
--------- --------- ------ -----------
Total current liabilities........................................ 424 232 18 674
Long-term debt....................................................... 674 130 804
Retirement obligations............................................... 58 69 127
Other liabilities.................................................... 112 16 128
--------- --------- ------ -----------
Total liabilities.................................................. 1,268 447 18 1,733
Commitments and contingencies
Stockholders' equity:
Common stock....................................................... 1 6 (6) 1
Paid in capital.................................................... 664 40 (74) 630
Retained earnings.................................................. 281 216 (18) 479
Unearned restricted stock.......................................... (15) (3) (18)
Other equity....................................................... (8) (1) (9)
Treasury stock, at cost............................................ (125) (5) (83) (47)
--------- --------- ------ -----------
Total stockholders' equity....................................... 798 256 (18) 1,036
--------- --------- ------ -----------
$ 2,066 $ 703 $ -- $ 2,769
--------- --------- ------ -----------
--------- --------- ------ -----------
62
NEW USI
PRO FORMA COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
HISTORICAL
-------------------- PRO FORMA
USI ZURN COMBINED
--------- --------- -----------
(IN MILLIONS, EXCEPT PER SHARE
DATA)
Net sales................................................................... $ 596 $ 153 $ 749
Operating costs & expenses:
Cost of products sold..................................................... 410 105 515
Selling, general & administrative expenses................................ 136 30 166
--------- --------- -----
Operating income........................................................ 50 18 68
Interest expense............................................................ 11 5 16
Interest income............................................................. (1) (1) (2)
Other (income) expense, net................................................. (1) 1 --
--------- --------- -----
Income before income taxes.................................................. 41 13 54
Provision for income taxes.................................................. 17 6 23
--------- --------- -----
Income from continuing operations......................................... $ 24 $ 7 $ 31
--------- --------- -----
--------- --------- -----
Earnings per share from continuing operations:
Basic..................................................................... $ .33 $ .60 $ .33
Diluted................................................................... .32 .59 .32
Weighted average shares outstanding:
Basic..................................................................... 73.0 12.5 93.0
Diluted................................................................... 75.7 12.7 96.0
63
NEW USI
PRO FORMA COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED)
HISTORICAL
-------------------- PRO FORMA
USI ZURN COMBINED
--------- --------- -----------
(IN MILLIONS, EXCEPT PER SHARE
DATA)
Net sales................................................................... $ 512 $ 66 $ 578
Operating costs & expenses:
Cost of products sold..................................................... 347 46 393
Selling, general & administrative expenses................................ 115 14 129
--------- --------- -----
Operating income........................................................ 50 6 56
Interest expense............................................................ 12 -- 12
Interest income............................................................. (1) (1) (2)
Other expense (income), net................................................. 1 (1) 0
--------- --------- -----
Income before income taxes, discontinued operations & extraordinary
losses.................................................................... 38 8 46
Provision for income taxes.................................................. 17 3 20
--------- --------- -----
Income from continuing operations......................................... $ 21 $ 5 $ 26
--------- --------- -----
--------- --------- -----
Earnings per share from continuing operations:
Basic..................................................................... $ .29 $ .39 $ .28
Diluted................................................................... .28 .39 .27
Weighted average shares outstanding:
Basic..................................................................... 73.4 12.3 93.1
Diluted................................................................... 76.1 12.4 96.0
64
NEW USI
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1997
(UNAUDITED)
HISTORICAL
---------------------- PRO FORMA
USI ZURN(A) COMBINED
--------- ----------- -----------
(IN MILLIONS, EXCEPT PER SHARE
DATA)
Net sales................................................................... $ 2,282 $ 512 $ 2,794
Operating costs & expenses:
Cost of products sold..................................................... 1,565 360 1,925
Selling, general & administrative expenses................................ 476 105 581
--------- ----- -----------
Operating income........................................................ 241 47 288
Interest expense............................................................ 46 13 59
Interest income............................................................. (4) (3) (7)
Other (income) expense, net................................................. 1 (4) (3)
--------- ----- -----------
Income before income taxes, discontinued operations & extraordinary
losses.................................................................... 198 41 239
Provision for income taxes.................................................. 85 17 102
--------- ----- -----------
Income from continuing operations......................................... $ 113 $ 24 $ 137
--------- ----- -----------
--------- ----- -----------
Earnings per share from continuing operations:
Basic..................................................................... $ 1.55 $ 1.95 $ 1.48
Diluted................................................................... 1.50 1.93 1.43
Weighted average shares outstanding:
Basic..................................................................... 72.8 12.4 92.6
Diluted................................................................... 75.5 12.5 95.5
- ------------------------
(a) Represents Zurn's operating results for the twelve-month period ended
September 30, 1997, including the operating results of Eljer following its
acquisition by Zurn in January 1997.
65
NEW USI
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996
(UNAUDITED)
HISTORICAL
---------------------- PRO FORMA
USI ZURN(A) COMBINED
--------- ----------- -----------
(IN MILLIONS, EXCEPT PER SHARE
DATA)
Net sales................................................................... $ 2,011 $ 353 $ 2,364
Operating costs & expenses:
Cost of products sold..................................................... 1,363 250 1,613
Selling, general & administrative expenses................................ 442 70 512
--------- ----- -----------
Operating income........................................................ 206 33 239
Interest expense............................................................ 60 4 64
Interest income............................................................. (8) (3) (11)
Other expense (income), net................................................. 3 (3) --
--------- ----- -----------
Income before income taxes, discontinued operations & extraordinary
losses.................................................................... 151 35 186
Provision for income taxes.................................................. 69 13 82
--------- ----- -----------
Income from continuing operations......................................... $ 82 $ 22 $ 104
--------- ----- -----------
--------- ----- -----------
Per share continuing operations:
Basic..................................................................... $ 1.09 $ 1.78 $ 1.09
Diluted................................................................... 1.06 1.78 1.07
Weighted average shares outstanding:
Basic..................................................................... 75.5 12.3 95.2
Diluted................................................................... 77.3 12.4 97.1
- ------------------------
(a) Represents Zurn's operating results for the year ended March 31, 1997,
including the operating results of Eljer following its acquisition by Zurn
in January 1997.
66
NEW USI
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1995
(UNAUDITED)
HISTORICAL
---------------------- PRO FORMA
USI ZURN(A) COMBINED
--------- ----------- -----------
(IN MILLIONS, EXCEPT PER SHARE
DATA)
Net sales................................................................... $ 1,896 $ 285 $ 2,181
Operating costs & expenses:
Cost of products sold..................................................... 1,289 205 1,494
Selling, general & administrative expenses................................ 430 52 482
Goodwill impairment and non-recurring charges............................. 100 -- 100
--------- ----- -----------
Operating income........................................................ 77 28 105
Interest expense............................................................ 101 1 102
Interest income............................................................. (8) (3) (11)
Other expense (income), net................................................. 6 (4) 2
--------- ----- -----------
Income (loss) before income taxes, discontinued operations & extraordinary
losses.................................................................... (22) 34 12
Provision for income taxes.................................................. 42 12 54
--------- ----- -----------
Income (loss) from continuing operations.................................. $ (64) $ 22 $ (42)
--------- ----- -----------
--------- ----- -----------
- ------------------------
(a) Represents Zurn's operating results for the year ended March 31, 1996.
67
NEW USI
NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited pro forma combined financial statements give effect to the
Transaction under the pooling of interests method of accounting. These pro forma
combined financial statements have been prepared utilizing the historical
financial statements of USI and Zurn (with the historical information of Zurn
including information of Eljer from its date of acquisition in January 1997) and
should be read in conjunction with such historical financial statements and
accompanying notes. The Zurn historical statement of operations and balance
sheet have been reclassified to be consistent with the presentation used by USI.
In accordance with the Commission's reporting rules, the pro forma combined
statements of operations and historical statements from which they are derived
present only income from continuing operations and, therefore, do not include
combined income (loss) attributable to USI's and Zurn's combined discontinued
operations and extraordinary items of $115 million, $34 million, $(30) million
and $2 million in fiscal 1997, 1996 and 1995 and in the three months ended
December 31, 1996, respectively.
USI's fiscal year ends on September 30 and Zurn's fiscal year ends on March
31. Fiscal 1997 pro forma results of New USI include Zurn's operating results
for the twelve-month period ended September 30, 1997. Fiscal 1996 and 1995 pro
forma results of New USI include the historical results of USI for the years
ended September 30, 1996 and 1995 combined with the historical results of Zurn
for the years ended March 31, 1997 and 1996, respectively. For this reason, the
pro forma results of New USI for fiscal 1997 includes the following Zurn amounts
that were also included in the pro forma results for fiscal 1996:
Net sales............................................................ $ 190
Operating income..................................................... 17
Income from continuing operations.................................... 10
For the three months ended December 31, 1997 and 1996, operating results
include the historical operating results of USI and Zurn for the quarters ended
December 31, 1997 and 1996.
The pro forma combined statements of operations do not reflect any (i)
potential operating synergies and cost savings which may be achieved upon
combining the companies, (ii) investment banking, legal, accounting and
miscellaneous transaction costs of the Transaction, currently estimated to be
$10 million on an after-tax basis, (iii) costs associated with change-in-control
benefits of certain employees, currently estimated to be $8 million on an after
tax basis and (iv) costs associated with the integration and consolidation of
the companies which are not presently estimable. The accounting policies
utilized by USI and Zurn are currently being studied from a conformity
perspective; however, the impact of any potential adjustment is not presently
estimated to be material.
The pro forma combined balance sheet as of December 31, 1997 includes, in
accordance with the Commission's reporting rules, the impact of all
transactions, whether of a recurring or non-recurring nature, that can be
reasonably estimated and should be reflected as of that date. Therefore, the pro
forma combined balance sheet reflects a pro forma adjustment, net of related
taxes, of $18 million for the current estimated amounts of transaction and
change-in-control benefits related to the Transaction, as discussed in clauses
(ii) and (iii) above.
2. PRO FORMA ADJUSTMENTS
STOCKHOLDER'S EQUITY
Stockholder's equity as of December 31, 1997 has been adjusted to reflect
the following:
68
NEW USI
NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. PRO FORMA ADJUSTMENTS (CONTINUED)
New USI Common Stock is adjusted for the assumed issuance of
approximately 20,029,377 million shares of New USI Common Stock in exchange
for approximately 12,518,361 million shares of Zurn Common Stock issued and
outstanding as of December 31, 1997, utilizing the Zurn Exchange Ratio. The
number of shares of New USI Common Stock to be issued at consummation of the
Transaction will be based on the actual shares of Zurn Common Stock
outstanding at that time.
Paid in capital is adjusted for: (i) the effects of the aforementioned
issuance of New USI Common Stock having a par value of $.01 per share in
exchange for Zurn Common Stock having a par value of $.50 per share, (ii)
the assumed cancellation of 5.6 million and .2 million shares of USI Common
Stock and Zurn Common Stock, respectively, treated as treasury shares for
accounting purposes as of December 31, 1997 and (iii) the issuance of New
USI restricted stock to certain employees of Zurn equal to $3 million
divided by the closing price of New USI Common Stock at the Effective Time.
As of the Effective Time, all rights to acquire shares of USI Common Stock
issuable pursuant to USI stock options plans will automatically convert to
equivalent rights with respect to New USI Common Stock. In addition, all rights
to acquire shares of Zurn Common Stock issuable pursuant to Zurn stock options
plans will automatically convert to equivalent vested rights to acquire New USI
Common Stock reflecting the Zurn Exchange Ratio.
INCOME PER SHARE
Pro forma weighted average shares and common stock equivalents for each of
the two years in the period ended September 30, 1997 and the three months ended
December 31, 1997 reflect the conversion of each outstanding share of Zurn
Common Stock, and each Zurn Common Stock equivalent, used in the basic and
diluted per share computations to 1.6 shares of New USI Common Stock, and 1.6
New USI Common Stock equivalents, respectively. Prior to fiscal 1996, earnings
per share for USI is not presented, as the capital structure for those periods
of the businesses that comprised USI prior to the Demerger was not indicative of
USI's capital structure following the Demerger. Therefore, pro forma earnings
per share information and Zurn's historical earnings per share information is
not presented.
3. PRO FORMA ELJER ACQUISITION
Presented below are the pro forma results of USI and Zurn combined
operations giving effect to the acquisition of Eljer by Zurn in January 1997, in
a transaction accounted for as a purchase, as if it had occurred as of the
beginning of the fiscal year ended September 30, 1997. The pro forma results for
the three month period ended December 31, 1997 are the same as the actual
results of New USI for that period.
YEAR ENDED
SEPTEMBER 30, 1997
-------------------
(IN MILLIONS,
EXCEPT PER SHARE
DATA)
Net sales................................................................. $ 2,914
Operating income.......................................................... 295
Income from continuing operations......................................... 135
Income from continuing operations per share:
Basic................................................................... $ 1.46
Diluted................................................................. 1.41
69
BUSINESSES OF USI, ZURN AND NEW USI
USI
USI's operations are currently grouped into two segments: Consumer Group and
Industrial Group. The Consumer Group consists of companies engaged in the
manufacture and distribution of products principally used in and around the
home, bath and outdoor furniture products and collectible toys, footwear
products and textile products. The Industrial Group consists of companies that
manufacture and distribute indoor and outdoor lighting products and products for
the automotive industry and other industrial products.
ZURN
Zurn and its subsidiaries currently operate in two industry segments:
Building Products and Water Resource Construction. The Building Products segment
manufactures and distributes plumbing and bath products and heating, ventilating
and air conditioning (HVAC) products for the construction and remodeling markets
in the United States, Canada and Europe, with significant suppliers being
located in China and the Pacific Rim. It also designs and installs fire
protection systems in the states of California, Hawaii, Texas, Utah and
Washington. The Water Resource Construction segment constructs a wide variety of
systems to control and treat water and wastewater, principally for government
agencies in southern California.
NEW USI
New USI is currently a wholly owned subsidiary of USI that has not conducted
any business activities except in connection with the Transaction. As a result
of the Transaction, USI and Zurn will each become a wholly owned subsidiary of
New USI. Accordingly, the business of New USI will be the businesses currently
conducted by USI and Zurn.
Upon consummation of the Transaction, New USI intends to combine USI's
Jacuzzi bath products operations with Zurn's existing operations to form a new
division, USI Plumbing and Bath Products Company, which is expected to be a
leading plumbing and bath products company in North America, with annual
revenues of approximately $1.1 billion dollars.
MANAGEMENT OF NEW USI
DIRECTORS
The following descriptions set forth the name, age as of December 31, 1997
and principal positions held during the past five years by each of the persons
who are expected to serve as directors of New USI following consummation of the
Transaction. Immediately following consummation of the Mergers, the New USI
Board is expected to consist of the members of the USI Board as constituted
immediately prior to the consummation of the Transaction, except that pursuant
to the Merger Agreement, Mr. Butler and Mr. Womack are also expected to be
appointed as directors of New USI. The New USI Board will be divided into three
classes, two with four directors and one with three directors. The directors in
each class will serve staggered three-year terms expiring in 1999, 2000 or 2001,
respectively.
70
Class I--To serve until the 1999 Annual Meeting
Brian C. Beazer, 62, has served as a director of USI since September 17,
1996. Mr. Beazer has served as Chairman of Beazer Homes USA, Inc., which
designs, builds and sells single family homes, since 1993. Mr. Beazer served as
Chairman of Beazer plc from 1983 until its acquisition by Hanson in 1991.
John J. McAtee, Jr., 61, has served as a director of USI since the Demerger.
Mr. McAtee has served as Chairman of McAtee & Co., L.L.C., a transactional
consulting firm, since July 1996. Mr. McAtee served as a Vice Chairman of Smith
Barney Inc., an investment banking firm, from 1990 until July 1996 and
previously was a partner in the law firm of Davis Polk & Wardwell. He is a
director of Whitehall Corporation and Chairman of Laser Photonics, Inc.
John G. Raos, 48, has served as President and Chief Operating Officer and a
director of USI since the Demerger. Mr. Raos was President and Chief Operating
Officer of Hanson Industries, the U.S. arm of Hanson, from 1992 until the
Demerger and a director of Hanson from 1989 until the Demerger. Mr. Raos is a
director of Tear Drop Golf Company and Jade Technologies Singapore Ltd.
Class II--To serve until the 2000 Annual Meeting
The Hon. Charles H. Price II, 66, has served as a director of USI since the
Demerger. Mr. Price served as Chairman, President and Chief Executive Officer of
Ameribanc, Inc., a bank holding company, from 1989 to 1992 and was Chairman of
the Board of Mercantile Bank of Kansas City from 1992 to 1996. He served as the
U.S. Ambassador to Belgium from 1981 to 1983 and the U.S. Ambassador to the
Court of St. James's from 1983 to 1989. He is a director of Hanson, Texaco Inc.,
New York Times Co. Inc., 360 Communications Inc. and the Mercantile Bank of
Kansas City and is an Advisory Director of Mercantile Bancorporation, Inc.
Frank R. Reilly, 41, has served as Senior Vice President and Chief Financial
Officer and a director of USI since the Demerger. Mr. Reilly served as an
independent consultant to Hanson Industries from January 1995 to February 1995
and became an employee of a Hanson subsidiary in March 1995. He was Vice
President and Chief Financial Officer of Marine Harvest International, Inc.
("Marine Harvest"), a public company engaged in aquaculture, from January 1993
until its acquisition by Booker plc in November 1994. He served as
Director--Acquisitions of Hanson Industries from 1990 to 1992, having joined
Hanson Industries in 1988 as Assistant Treasurer.
Royall Victor III, 58, has served as a director of USI since the Demerger.
Mr. Victor was Managing Director of Chase Securities, Inc.'s Investment Banking
Group from January 1994 until his retirement in July 1997. He was a Managing
Director of Chemical Banking Corporation's Investment Banking Group during the
balance of the past five years.
William E. Butler, 66, has served as a director of Zurn since November 1992.
Mr. Butler was a director, Chairman and Chief Executive Officer of the Eaton
Corporation (a manufacturer of vehicle powertrain components and controls), and
is a director of Applied Industrial Technologies, Inc., Ferro Corporation, The
Goodyear Tire & Rubber Company and Pitney-Bowes, Inc.
Class III--To serve until the 2001 Annual Meeting
David H. Clarke, 56, has served as Chairman and Chief Executive Officer of
USI since the Demerger. Mr. Clarke was Vice Chairman of Hanson from 1993 until
the Demerger, Deputy Chairman and Chief Executive Officer of Hanson Industries
from 1992 until the Demerger and a director of Hanson from 1989 until May 1996.
Prior to 1992, Mr. Clarke served as President of Hanson Industries. Mr. Clarke
is a director of Fiduciary Trust International, a public company engaged in
investment management and administration of assets for individuals, and serves
on the National Advisory Board of The Chase Manhattan Bank. Mr. Clarke is also a
director of United Pacific Industries Limited, a public company based in Hong
Kong, in which a subsidiary of USI owns a 22.3% common stock interest.
71
Sir Harry Solomon, 60, has served as a director of USI since June 8, 1995.
Sir Harry is a founder and former Chairman of Hillsdown Holdings plc, a U.K.
food manufacturing company. He also serves as a director of Charterhouse
European Holding Limited, Frogmore Estates Plc, H&C Furnishings Plc, Princedale
Group Plc, the Sloane Group, Heathside Limited, Headglen Limited, Consolidated
Land Investments Limited and Uni Bio Ltd. in the U.K. and Barton Brands Inc. in
the U.S.
Mark Vorder Bruegge, 72, has served as a director of USI since the Demerger.
He is a Director of First Commercial Bank of Little Rock. Previously he was Vice
Chairman of United American Bank of Memphis, Tennessee from February 1996 to
February 1997 when it was purchased by First Commercial Bank of Little Rock. He
served as Chairman of United American Bank from 1994 to February 1996 and as
Vice Chairman of that company from 1985 to 1994.
Robert R. Womack, 59, has served as a director, Chairman and Chief Executive
Officer of Zurn since October 1994. Prior thereto, Mr. Womack was an independent
consultant, and is the former Vice Chairman and Chief Executive Officer of IMO
Industries, Inc. (a manufacturer of controls, pumps and engineered power
products) and a former director, President and Chief Operating Officer of Ranco,
Inc.
For certain additional information concerning the persons expected to serve
as directors of New USI (other than Messrs. Butler and Womack), see USI's Proxy
Statement used in connection with its 1997 Annual Meeting of Stockholders (the
"1997 Proxy Statement for USI"), the relevant portions of which are incorporated
by reference into the USI Form 10-K. For certain additional information
concerning Messrs. Butler and Womack, see Zurn's Proxy Statement used in
connection with its 1997 Annual Meeting, the relevant portions of which are
incorporated by reference into the Zurn Form 10-K. See "Additional Information"
and "Incorporation of Certain Documents by Reference."
COMPENSATION OF DIRECTORS
In accordance with existing USI practice, it is expected that directors who
are also full-time employees of New USI will receive no additional compensation
for their services as directors. Each non-employee director will initially
receive the same compensation for service on the New USI Board as received by
non-employee directors on the USI Board.
For information concerning the compensation paid to non-employee directors
on the USI Board, see the 1997 Proxy Statement for USI, the relevant portions of
which are incorporated by reference into the USI Form 10-K. See "Incorporation
of Certain Documents by Reference."
72
EXECUTIVE OFFICERS
Set forth below are the name and expected title of each person who is
expected to serve as an executive officer of New USI following consummation of
the Transaction and the age as of December 31, 1997 and principal positions held
by each person during the past five years.
NAME POSITION
- ------------------------------------- --------------------------------------------------------------------------
David H. Clarke...................... Chairman of the Board and Chief Executive Officer
John G. Raos......................... President, Chief Operating Officer and Director
John F. Bendik....................... Executive Vice President
Frank R. Reilly...................... Senior Vice President, Chief Financial Officer and Director
George H. MacLean.................... Senior Vice President, General Counsel and Secretary
Richard A. Buccarelli................ Vice President-Corporate Development
Diana E. Burton...................... Vice President-Investor Relations
James O'Leary........................ Vice President and Corporate Controller
Dorothy E. Sander.................... Vice President-Administration
Peter F. Reilly...................... Treasurer
For biographical information concerning Messrs. Clarke, Raos and F. Reilly,
see "--Directors" above.
John F. Bendik, 46, has served as Executive Vice President of USI since
January 1998. Mr. Bendik served as Group Vice President of USI from June 1997
until January 1998 and Director of Strategic Planning from August 1995 until
June 1997. For the balance of the past five years, Mr. Bendik held various
positions with Hanson subsidiaries including President and Chief Executive
Officer of Histaccount Corporation and Chief Financial Officer and Group
Controller of SCM Metal Products.
George H. MacLean, 62, has served as Senior Vice President, General Counsel
and Secretary of USI since the Demerger. For the balance of the past five years,
Mr. MacLean served as Vice President and Associate General Counsel of Hanson
Industries.
Richard A. Buccarelli, 42, has served as Vice President-Corporate
Development of USI since July 1997. Mr. Buccarelli served as Vice
President-Properties of USI and President of USI Properties, Inc. from the
Demerger to July 1997. He served as President of Hanson Properties North America
for the balance of the past five years.
Diana E. Burton, 52, has served as Vice President-Investor Relations of USI
since the Demerger. Ms. Burton served as a consultant to Hanson Industries from
January 1995 through February 1995, when she became an employee of a Hanson
subsidiary. For the balance of the past five years, she was Vice President of
Marine Harvest, with principal responsibility for administration and investor
relations.
James O'Leary, 34, has served as Corporate Controller of USI since the
Demerger and as Vice President since January 1996. Mr. O'Leary served as Group
Controller for certain consumer and industrial products businesses of Hanson
Industries from September 1994 until the Demerger. From May 1993 to September
1994, he served as Assistant Corporate Controller and Director of Financial
Analysis and Reporting for Hanson Industries. For the balance of the past five
years, he was employed by Deloitte & Touche LLP as an Audit Manager.
Dorothy E. Sander, 44, has served as Vice President-Administration of USI
since the Demerger. Ms. Sander served as Vice President-Administration and
Benefits of Hanson Industries from 1991 until the Demerger and as an Associate
Director of Hanson from 1993 until the Demerger. She is a member of the
73
Advisory Council of the Prudential Insurance Company and the Bank of New York,
and a member of the Board of Editors of "HR-Law and Practice" magazine.
Peter F. Reilly, 33, has served as Treasurer of USI since January 1998. Mr.
Reilly served USI as Assistant Treasurer from the Demerger until June 1997 and,
subsequently, as a Group Controller. Mr. Reilly was an Independent Consultant
for Hanson Industries from January 1995 through April 1995. He was Assistant
Treasurer of Marine Harvest from April 1994 through November 1994. For the
balance of the past five years, he was a Corporate Controller for Lynton Group,
Inc., a Hanson Industries affiliated company.
For certain additional information concerning the persons expected to serve
as executive officers of New USI, see the 1997 Proxy Statement for USI, the
relevant portions of which are incorporated by reference into the USI Form 10-K.
See "Incorporation of Certain Documents by Reference."
COMPENSATION OF EXECUTIVE OFFICERS
New USI has not yet paid any compensation to its Chief Executive Officer or
any other person anticipated to become an executive officer, and the form and
amount of such compensation to be paid to each such executive officer in any
future period is expected to be substantially similar to the form and amount of
such compensation that USI would have paid to such executive officer in such
period. New USI will assume employment agreements that are currently in effect
between such executive officers and USI. New USI has entered into the Employment
Agreements with Messrs. Womack, Sheeder and Mellett. For a description of the
Employment Agreements, see "The Transaction--Interests of Certain Persons in the
Transaction--Employment Agreements." In addition, the U.S. Industries, Inc.
Annual Performance Incentive Plan, the Amended U.S. Industries, Inc. Stock
Option Plan and the USI Restricted Stock Plan will be assumed by New USI.
For information concerning the employment agreements with, and the
compensation paid to, the Chief Executive Officer and the other four most highly
compensated executive officers of USI for the 1997 fiscal year, see the 1997
Proxy Statement for USI, the relevant portions of which are incorporated by
reference into the USI Form 10-K. For information concerning the compensation
paid to Mr. Womack by Zurn for the 1997 fiscal year, see Zurn's Proxy Statement
used in connection with its 1997 Annual Meeting of Shareholders, the relevant
portions of which are incorporated by reference into the Zurn Form 10-K. See
"Available Information" and "Incorporation of Certain Documents by Reference."
74
DESCRIPTION OF NEW USI CAPITAL STOCK
The following summary of the capital stock of New USI is qualified in its
entirety by reference to the complete text of the proposed Amended and Restated
Certificate of Incorporation of New USI (the "New USI Charter"), which is
attached hereto as Appendix B-1 and incorporated herein by reference.
AUTHORIZED CAPITAL STOCK
New USI will be authorized by the New USI Charter to issue 300 million
shares of New USI Common Stock and 50 million shares of preferred stock, par
value $0.01 per share.
The New USI Charter and New USI By-Laws (as defined below) contain
provisions that may have the effect of delaying, deferring or preventing a
change in control of New USI. See "Comparison of Rights of Stockholders of New
USI and Shareholders of Zurn."
NEW USI COMMON STOCK
The holders of New USI Common Stock will be entitled to receive dividends
when, as and if declared by the New USI Board out of funds legally available
therefor. The holders of New USI Common Stock will be entitled to one vote for
each share on all matters voted on by stockholders under the New USI Charter,
including elections of directors. The holders of New USI Common Stock do not
have any cumulative voting, conversion, redemption or preemptive rights. In the
event of dissolution, liquidation or winding up of New USI, holders of the New
USI Common Stock will be entitled to share ratably in any assets remaining after
the satisfaction in full of the prior rights of creditors, including holders of
New USI's indebtedness.
NEW USI PREFERRED STOCK
The New USI Board will be authorized to issue up to 50 million shares of
preferred stock in one or more series and, subject to the terms of any issued
and outstanding preferred stock, to fix the designations, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions, of all shares of each such series, including
without limitation dividend rates, conversion rights, voting rights, redemption
and sinking fund provisions, liquidation preferences and the number of shares
constituting each such series, without any further vote or action by the holders
of New USI Common Stock. The issuance of one or more series of preferred stock
will likely decrease the amount of earnings and assets available for
distribution to holders of New USI Common Stock and may adversely affect the
rights and powers, including voting rights, of the holders of New USI Common
Stock. The issuance of preferred stock also could have the effect of delaying,
deterring or preventing a change of control of New USI.
OWNERSHIP OF NEW USI COMMON STOCK
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
There are currently 1,000 shares of New USI Common Stock outstanding, all of
which are owned by USI and will be cancelled in the USI Merger. It is
anticipated that, after giving effect to the Transaction, approximately
97,208,620 shares of New USI Common Stock will be issued and outstanding,
approximately 6,061,563 additional shares will be reserved for issuance upon the
exercise of options assumed by New USI and approximately 2,026,625 additional
shares will be available for issuance in connection with grants made after the
Effective Time under stock incentive plans of New USI (including, subject to USI
stockholder approval of the Plan Proposal, the additional 350,000 shares of
restricted common stock).
The following table sets forth the anticipated beneficial ownership, after
giving effect to the Transaction, of New USI Common Stock by (a) each New USI
director and each person expected to be a New USI director upon consummation of
the Transaction, (b) each person expected to be one of the five most highly
75
compensated executive officers of New USI, based on anticipated fiscal 1998
compensation, and (c) all persons expected to be New USI directors and executive
officers, as a group.
NUMBER OF PERCENT
NAME SHARES(1)(2)(3) OF CLASS
- ---------------------------------------------------------------------------------------- -------------- -----------
Brian C. Beazer......................................................................... 67,650(4) *
John E. Bendik.......................................................................... 71,669 *
David H. Clarke......................................................................... 1,546,697(5) 1.6 %
George H. MacLean....................................................................... 198,216 *
William E. Butler....................................................................... 14,926(6) *
John J. McAtee, Jr...................................................................... 37,855 *
The Hon. Charles H. Price II............................................................ 64,267(7) *
John G. Raos............................................................................ 1,101,067(8) 1.1 %
Frank R. Reilly......................................................................... 198,102 *
Sir Harry Solomon....................................................................... 73,855(9) *
Royall Victor III....................................................................... 29,355 *
Mark Vorder Bruegge..................................................................... 13,855 *
Robert R. Womack........................................................................ 439,462(10) *
All directors and executive officers as a group (18 persons, including the foregoing)... 4,227,041
- ------------------------
* Less than 1%.
(1) Includes restricted stock held by the following individuals and all current
directors and executive officers as a group, with respect to which such
persons have voting power but no investment power: Mr. Clarke--801,310
shares; Mr. MacLean--112,026 shares; Mr. Bendik--60,000; Mr. Raos--546,706
shares; Mr. Reilly--112,026 shares; all current directors and executive
officers as a group--1,863,381 shares.
(2) Includes shares contributed as of September 30, 1997 (the latest practicable
date for such information) by USI to match certain amounts invested by the
following individuals and all current directors and executive officers as a
group, in his or her 401(k) account, with respect to which such persons have
voting power but no investment power: Mr. Clarke--6,296 shares; Mr.
MacLean--5,944 shares; Mr. Bendik--276 shares; Mr. Raos--6,202 shares; Mr.
Reilly--769 shares; all current directors and executive officers as a
group--32,227 shares.
(3) Includes shares which are subject to options exercisable within 60 days for
the following individuals and all current directors and executive officers
as a group: Mr. Beazer--15,000 shares; Mr. Butler-- 11,200 shares
(representing the product of 7,000 shares of Zurn Common Stock subject to
options held by Mr. Butler and the Zurn Exchange Ratio); Mr. Clarke--716,814
shares; Mr. MacLean-- 79,646 shares; Mr. McAtee--16,500 shares; Mr.
Bendik--10,783 shares; Mr. Price--16,500 shares; Mr. Raos--477,876 shares;
Mr. Reilly--82,159 shares; Sir Harry--16,500 shares; Mr. Victor--16,500
shares; Mr. Vorder Bruegge--7,500 shares; Mr. Womack--329,600 shares
(representing the product of 206,000 shares of Zurn Common Stock subject to
options held by Mr. Womack and the Zurn Exchange Ratio); all current
directors and executive officers as a group--1,943,872 shares.
(4) Includes 45,000 shares held in trust for Mr. Beazer's family, as to which he
has sole voting power and investment power.
(5) Includes 901 shares held by one of Mr. Clarke's children, as to which he
disclaims beneficial ownership.
(6) Represents the product of 9,329 shares of Zurn Common Stock beneficially
owned by Mr. Butler and the Zurn Exchange Ratio.
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(7) Includes 750 shares held by the Charles H. and Carol Swanson Price
Foundation, 12,000 shares held by the Florence P. Hamilton Foundation, and
13,500 shares held in trusts for the benefit of family members, in each case
as to which Mr. Price has shared voting and investment power but no
pecuniary interest. Also includes 6,000 shares held by his wife, as to which
he disclaims beneficial ownership.
(8) Includes 12,472 shares held by Mr. Raos's wife and children as to which he
has no voting or investment power and disclaims beneficial ownership.
(9) Includes 25,500 shares held in trust for Sir Harry's family, as to which he
disclaims beneficial ownership, and 25,500 shares held in trust for Sir
Harry and his wife, as to which he shares voting power and investment power.
(10) Represents the product of 228,368 shares of Zurn Common Stock beneficially
owned by Mr. Womack and the Zurn Exchange Ratio, together with an estimated
74,074 shares of restricted stock to be issued to Mr. Womack pursuant to the
terms of his employment agreement with New USI based on an assumed price
solely for purposes of such estimate of $27.00 per share.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information as to the anticipated beneficial
ownership of each person expected to own more than 5% of the outstanding shares
of New USI Common Stock. The information with respect to New USI Common Stock is
based on information known to USI as of the date of this Joint Proxy
Statement/Prospectus regarding the beneficial ownership of voting securities of
USI and Zurn.
NAME AND ADDRESS NUMBER OF PERCENT
OF BENEFICIAL OWNER SHARES OF CLASS
- ------------------------------------------------------------------------------------------ ------------ -----------
Harris Associates L.P.(1)................................................................. 13,364,500 14%
Two North LaSalle Street, Suite 500
Chicago, Illinois 60602
- ------------------------
(1) According to a Schedule 13G/A filed on January 27, 1998 by Harris Associates
L.P. and Harris Associates, Inc. (the sole general partner of Harris
Associates L.P.), each of such filing persons may be deemed a beneficial
owner of 13,364,500 shares of USI Common Stock by reason of advisory and
other relationships with the persons who own the shares; each filing person
has shared voting power with respect to all such shares, sole dispositive
power with respect to 6,353,050 of such shares, and shared dispositive power
with respect to 7,011,450 of such shares.
77
COMPARISON OF RIGHTS OF STOCKHOLDERS
OF NEW USI AND USI
New USI and USI are both organized under the laws of the State of Delaware.
Any differences, therefore, in the rights of holders of USI Common Stock and New
USI Common Stock arise primarily from differences in their respective
certificates of incorporation and by-laws. The New USI Charter and the New USI
By-laws are substantially similar to the USI Charter and the USI By-laws,
respectively.
COMPARISON OF RIGHTS OF STOCKHOLDERS OF
NEW USI AND SHAREHOLDERS OF ZURN
THE STATEMENTS SET FORTH UNDER THIS HEADING WITH RESPECT TO THE DGCL, THE
PBCL, THE NEW USI CHARTER, A COPY OF WHICH IS ATTACHED HERETO AS APPENDIX B-1
AND INCORPORATED HEREIN BY REFERENCE, THE BY-LAWS OF NEW USI (THE "NEW USI
BY-LAWS"), A COPY OF WHICH IS ATTACHED HERETO AS APPENDIX B-2 AND INCORPORATED
HEREIN BY REFERENCE, THE ZURN CHARTER AND THE BY-LAWS OF ZURN (THE "ZURN
BY-LAWS"), ARE BRIEF SUMMARIES THEREOF AND DO NOT PURPORT TO BE COMPLETE. SUCH
STATEMENTS ARE SUBJECT TO THE DETAILED PROVISIONS OF THE DGCL, THE PBCL, THE NEW
USI CHARTER, THE NEW USI BY-LAWS, THE ZURN CHARTER AND THE ZURN BY-LAWS. SEE
"AVAILABLE INFORMATION."
The following is a summary of certain of the material differences between
the rights of the holders of New USI Common Stock and the rights of the holders
of Zurn Common Stock. The rights of Zurn shareholders are governed principally
by the PBCL, the Zurn Charter and the Zurn By-Laws. Upon consummation of the
Zurn Merger, such shareholders will become holders of New USI Common Stock, and
their rights will be governed principally by the DGCL, the New USI Charter and
the New USI By-Laws.
DIVIDEND RIGHTS
NEW USI. Under the DGCL, a corporation may pay dividends out of surplus or,
if no such surplus exists, out of net profits for the fiscal year in which such
dividends are declared and/or for its preceding fiscal year, provided, however,
that dividends may not be paid out of net profits if the capital of such
corporation is less than the aggregate amount of capital represented by the
outstanding stock of all classes having a preference upon the distribution of
assets. The New USI By-Laws provide that, subject to the provisions of the DGCL
and the New USI Charter, New USI may can pay dividends at such times and in such
amounts as the New USI Board may determine. The New USI Charter does not limit
this right.
ZURN. Under the PBCL, a corporation is prohibited from making a
distribution to shareholders if, after giving effect thereto: (i) such
corporation would be unable to pay its debts as they become due in the usual
course of business; or (ii) the total assets of such corporation would be less
than the sum of its total liabilities plus the amount that would be needed, if
such corporation were then dissolved, to satisfy the rights of shareholders
having superior preferential rights upon dissolution to the shareholders
receiving such distribution. For the purpose of clause (ii), the board of
directors may base its determination on one or more of the following: the book
value, or the current value, of the corporation's assets and liabilities,
unrealized appreciation and depreciation of the corporation's assets and
liabilities or any other method that is reasonable in the circumstances. The
Zurn Charter provides that shareholders may receive dividends out of surplus
legally available for such purpose, subject to the proviso that all accumulated
dividends on any outstanding preferred stock of Zurn and all dividends for the
current quarter-annual dividend period must be paid or declared and a sum
sufficient for the payment of any preferred stock and quarter-annual dividends
be reserved.
DIRECTORS AND OFFICERS
NEW USI. Under the DGCL, cumulative voting in the election of directors is
only permitted if expressly authorized in a corporation's certificate of
incorporation. The New USI Charter does not provide
78
for cumulative voting in the election of directors. The New USI Charter provides
that the number of directors will be determined from time to time exclusively by
a vote of a majority of the New USI Board. The New USI By-Laws provide that the
number of directors must be at least three. Under the DGCL, any director or the
entire board of directors may be removed, with or without cause, by the owners
of a majority of the shares then entitled to vote at an election of directors.
If the board is classified, however, unless the certificate of incorporation
provides otherwise, stockholders may effect such removal only for cause. The New
USI Charter provides for a classified board consisting of three classes and
requires the affirmative vote of the holders of at least two-thirds of the
voting power of the capital stock to remove a director for cause.
ZURN. Under the PBCL, cumulative voting is required unless otherwise
provided in the articles of the corporation. The Zurn Charter provides that the
shareholders shall not be entitled to cumulate their votes for the election of
directors. The Zurn By-Laws provide that the Zurn Board shall consist of not
less than three nor more than 13 directors, with the exact number to be
established from time to time by the Zurn Board. As of the date hereof, there
are eight directors on the Zurn Board. Under the PBCL, the board of directors
may be removed at any time with or without cause by the unanimous vote or
consent of shareholders entitled to vote thereon. Furthermore, the articles of a
corporation may not prohibit the removal of directors by the shareholders for
cause. The PBCL includes a provision similar to that of the DGCL with respect to
the removal of directors only for cause in situations where there is a
classified board. Under the PBCL, the by-laws of a corporation may provide for a
classified board. The Zurn By-Laws provide that the Board shall be classified
into three classes.
FIDUCIARY DUTIES OF DIRECTORS
NEW USI. Under the DGCL, the business and affairs of a corporation are
managed by or under the direction of its boards of directors. In exercising
their powers, directors are charged with fiduciary duties of loyalty and care. A
party challenging the propriety of a decision of a board of directors generally
bears the burden of rebutting the applicability of the so-called "business
judgment rule" (a presumption that, in making a business decision, directors
acted on an informed basis, in good faith and in the honest belief that the
action was taken in the best interests of the corporation) by demonstrating
that, in reaching their decision, the directors breached one or more of their
fiduciary duties. If the presumption is not rebutted, the business judgment rule
generally attaches to protect the directors and their decisions, and their
business judgments will not be subject to judicial review. Where, however, the
presumption is rebutted (and in certain other circumstances), the directors bear
the burden of demonstrating the entire fairness of the relevant transaction.
Notwithstanding the foregoing, Delaware courts subject directors' conduct to
enhanced scrutiny in respect of defensive actions taken in response to a threat
to corporate control and approval of a transaction resulting in a sale of such
control.
ZURN. The fiduciary duties of directors are similar under the PBCL to the
duties prescribed under the DGCL. Under the PBCL, directors are required to
discharge their duties in good faith and in a manner reasonably believed to be
in the best interests of the corporation. They are required to use such care,
including reasonable inquiry, skill and diligence, as a person of ordinary
prudence would use under similar circumstances. Unlike the DGCL, however, the
PBCL includes a provision specifically permitting (although not requiring)
directors, in discharging their duties, to consider the effects of any action
taken by them upon any or all groups affected by such action, including
shareholders, employees, suppliers, customers and creditors of such corporation,
and upon communities in which offices or other establishments of such
corporation are located. Furthermore, unlike the DGCL, the PBCL also makes clear
that directors have no greater obligation to justify their activities and need
not meet any higher burden of proof in the context of a potential or proposed
acquisition of control than in any other context. Under the PBCL, absent a
breach of fiduciary duty, a lack of good faith or self dealing, any act of the
board of directors, a committee thereof or an individual director is presumed to
be in the best interests of the corporation.
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LIABILITY OF DIRECTORS
NEW USI. The DGCL permits a corporation to include in its certificate of
incorporation a provision limiting or eliminating the liability of its directors
to such corporation or its stockholders for monetary damages arising from a
breach of fiduciary duty, except for: (i) a breach of the duty of loyalty to the
corporation or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) a
declaration of a dividend or the authorization of the repurchase or redemption
of stock in violation of the DGCL or (iv) any transaction from which the
director derived an improper personal benefit. The New USI Charter and the New
USI By-Laws eliminate director liability to the fullest extent permitted by the
DGCL.
ZURN. Under the PBCL, a corporation may include in its by-laws a provision,
adopted by a vote of its shareholders, which eliminates the personal liability
of its directors, as such, for monetary damages for any action taken or the
failure to take any action unless (i) such directors have breached or failed to
perform their duties and (ii) the breach or failure to perform constitutes
self-dealing, willful misconduct or recklessness. A Pennsylvania corporation is
not empowered, however, to eliminate personal liability where the responsibility
or liability of a director is pursuant to any criminal statute or is for the
payment of taxes pursuant to any federal, state or local law. The Zurn Charter
and the Zurn By-Laws eliminate director liability to the fullest extent
permitted by the PBCL.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
NEW USI. Under the DGCL, a corporation may indemnify any person involved in
a third-party action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of being a director or officer of the
corporation, against expenses (including attorneys' fees), judgments, fines and
settlement amounts actually and reasonably incurred in connection with such
action, suit or proceeding (but may indemnify such person only against expenses
incurred in a derivative action on behalf of such corporation) or incurred by
reason of such person's being or having been a representative of such
corporation, if such person acted in good faith and reasonably believed that his
actions were in or not opposed to the best interests of such corporation and,
with respect to any criminal proceeding, had no reasonable cause to believe that
his conduct was unlawful. The DGCL also provides that a corporation may advance
to such director or officer expenses incurred by him in defending any action,
upon receipt of an undertaking by the person to repay the amount advanced if it
is ultimately determined that he is not entitled to indemnification. A
determination as to the amount of the indemnification to be made by the
corporation shall be made by a majority vote of the directors who are not
parties to such action, even though less than a quorum, or, if there are no such
directors or if such directors so direct, by independent legal counsel. No
indemnification for expenses in derivative actions is permitted under the DGCL
where the person is adjudged liable to the corporation, unless a court finds him
entitled to such indemnification. If, however, the person is successful in
defending a third-party or derivative action, indemnification for expenses
incurred is mandatory. The DGCL provides further that the provisions for
indemnification contained therein are nonexclusive of any other rights to which
the party may be entitled under any by-law, agreement or vote of stockholders or
disinterested directors. The New USI By-Laws provide for indemnification of
directors and officers to the fullest extent permitted by law and authorize New
USI to purchase and maintain insurance on behalf of any such person whether or
not New USI would have the power to indemnify such director or officer against
such liability under the New USI By-Laws.
ZURN. The provisions of the PBCL regarding indemnification are
substantially similar to those of the DGCL. Unlike the DGCL, however, the PBCL
expressly permits indemnification in connection with any action, including a
derivative action, unless a court determines that the acts or omissions giving
rise to the claim constituted willful misconduct or recklessness. The Zurn
By-Laws provide for indemnification of directors and officers to the fullest
extent permitted by law. The Zurn By-Laws further provide for the advancement of
certain expenses, provided that such person seeking indemnification shall
execute an
80
undertaking to repay all amounts advanced if it is later ultimately determined
that such person is not entitled to be so indemnified.
ANNUAL MEETINGS
NEW USI. Under the DGCL, if the annual meeting for the election of
directors is not held on the designated date, the directors are required to
cause such a meeting to be held as soon thereafter as convenient. If they fail
to do so for a period of 30 days after the designated date, or if no date has
been designated for a period of 13 months after the organization of the
corporation or after its last annual meeting, the Court of Chancery may
summarily order a meeting to be held upon the application of any stockholder or
director.
ZURN. Under the PBCL, if the annual meeting for election of directors is
not held within six months after the designated date, any shareholder may call
the meeting at any time thereafter.
SPECIAL MEETINGS
NEW USI. Under the DGCL, a special meeting of the stockholders may be
called at any time by the board of directors or such other person as may be
authorized by the certificate of incorporation or the by-laws. The New USI
Charter provides that special meetings of stockholders may be called at any time
only by a majority of the entire New USI Board.
ZURN. Under the PBCL, special meetings of shareholders may be called at any
time by the board of directors, by such officers or by such other persons as
provided in the by-laws, and, unless otherwise provided in the articles, by
shareholders entitled to cast at least 20% of the votes that all shareholders
are entitled to cast at a particular meeting. The shareholders of a "registered
corporation" shall not be entitled by statute to call a special meeting of
shareholders, unless such shareholder is an "interested shareholder" calling a
special meeting for the purpose of approving a "business combination" with such
shareholder. See "--Anti-Takeover Provisions--Zurn." The Zurn By-Laws provide
that special meetings of the shareholders may be called at any time by the
Chairman of the Zurn Board, the Chief Executive Officer or by a majority of the
Zurn Board.
ACTION BY SHAREHOLDERS WITHOUT A MEETING
NEW USI. The DGCL permits the stockholders of a corporation to consent in
writing to any action without a meeting, unless the certificate of incorporation
of such corporation provides otherwise, provided such consent is signed by
stockholders having at least the minimum number of votes required to authorize
such action at a meeting of stockholders at which all shares entitled to vote
thereon were present and voted. The New USI Charter expressly includes a
provision stating that corporate action may not be taken by any written consent
and may only be effected by a duly called meeting of stockholders.
ZURN. Under the PBCL, unless the by-laws of such corporation provide
otherwise, any corporate action may be taken without a meeting, by unanimous
written consent. The Zurn By-Laws do not address this issue.
SHAREHOLDER'S PROPOSALS
NEW USI. The DGCL does not include a provision restricting the manner in
which nominations for directors may be made by stockholders or the manner in
which business may be brought before a meeting. The New USI By-Laws, however,
include detailed provisions regarding the procedures to be followed by
stockholders with respect to the business desired to be brought before the
meeting and with respect to the procedures to be followed in the nomination of
directors by stockholders.
81
ZURN. The PBCL, like the DGCL, does not include a provision restricting the
manner in which nominations for directors may be made by shareholders or the
manner in which business may be brought before a meeting. Neither the Zurn
Charter nor the Zurn By-Laws include provisions regarding the procedures to be
followed in the nomination of directors or provisions regarding the procedures
to be followed in order to properly bring business before a meeting.
CHARTER AMENDMENTS
NEW USI. Under the DGCL, an amendment to the certificate of incorporation
generally requires the approval of the board of directors, followed by a vote of
the owners of a majority of the shares entitled to vote thereon. When an
amendment of the certificate would affect certain substantial rights of the
owners of a class of stock, or the shares of a series of a class, the DGCL
provides that the enactment of the amendment requires the approval of the owners
of a majority of the outstanding shares of the class entitled to vote thereon.
The New USI Charter provides that any proposal to amend, alter, change or repeal
any provision thereof relating to the classification of the New USI Board, or
relating to the removal of directors, stockholder actions and meetings or
amendments thereto, must be approved by the affirmative vote of at least
two-thirds of the votes entitled to be cast thereon.
ZURN. Under the PBCL, an amendment to the articles of incorporation
generally requires the approval of the board of directors followed by the
affirmative vote of a majority of the votes cast by all shareholders entitled to
vote thereon and, if any class or series of shares is entitled to vote thereon
as a class, the affirmative vote of a majority of the votes cast in each such
class vote. However, the PBCL provides that, unless otherwise provided in the
articles of incorporation, an amendment of the articles of incorporation of a
corporation need not be adopted by the board of directors prior to its
submission to the shareholders for approval if it is proposed by a petition of
shareholders entitled to cast at least 10% of the votes that all shareholders
are entitled to cast thereon. The Zurn Charter does not eliminate this right.
The Zurn Charter also provides that the affirmative vote of holders of 80% of
its capital stock is required to amend supermajority voting provisions in the
Zurn Charter for certain corporate actions, such as business combinations in
which "interested persons" are parties. See "Mergers and Major
Transactions--Zurn."
AMENDMENTS TO BY-LAWS
NEW USI. Under the DGCL, by-laws may be adopted, amended or repealed by the
stockholders entitled to vote thereon, except that any corporation may, in its
certificate of incorporation, confer this power upon the directors, provided the
power vested in the stockholders shall not be divested or limited where the
board of directors also has such power. The New USI Charter provides that the
board of directors may amend, alter, change or repeal the New USI By-Laws by a
vote of two-thirds of the entire board of directors.
ZURN. Under the PBCL, by-laws may be adopted, amended and repealed by the
shareholders entitled to vote thereon. This authority may be expressly vested in
the board of directors by the by-laws, subject to the power of the shareholders
to change such action, unless the subject of the amendment is solely within the
province of the shareholders. The Zurn By-Laws provide that, with respect to
those subjects which are not by statute reserved exclusively to the shareholders
and regardless of whether the shareholders have previously adopted or approved
the by-law being amended or repealed, a by-law may be amended or repealed by
vote of a majority of the Zurn Board at any regular or special meeting of
directors.
MERGERS AND MAJOR TRANSACTIONS
NEW USI. Under the DGCL, whenever the approval of the stockholders of a
corporation is required for an agreement of merger or consolidation or for a
sale, lease or exchange of all or substantially all of its assets, such
agreement, sale, lease or exchange must be approved by the affirmative vote of
the owners of a
82
majority of outstanding shares entitled to vote thereon. Notwithstanding the
foregoing, unless required by its certificate of incorporation, no vote of the
stockholders of a constituent corporation surviving a merger is necessary to
authorize such merger if: (i) the agreement of merger does not amend the
certificate of incorporation of such constituent corporation, (ii) each share of
stock of such constituent corporation outstanding prior to such merger is to be
an identical outstanding or treasury share of the surviving corporation after
such merger, (iii) either no shares of common stock of the surviving corporation
and no shares, securities or obligations convertible into such common stock are
to be issued under such agreement of merger, or the number of shares of common
stock issued or so issuable does not exceed 20% of the number thereof
outstanding immediately prior to such merger, and (iv) certain other conditions
are satisfied. In addition, the DGCL provides that a parent corporation that is
the record holder of at least 90% of the outstanding shares of each class of
stock of a subsidiary may merge such subsidiary into such parent corporation
without the approval of such subsidiary's stockholders or board of directors.
Furthermore, the DGCL provides that no stockholder vote is required to approve a
merger of a constituent corporation with a single direct or indirect wholly
owned subsidiary of such corporation, subject to certain qualifications.
ZURN. Under the PBCL, shareholder approval is required for the sale, lease,
exchange or other disposition of all, or substantially all, of the property and
assets of a corporation when not made in the usual and regular course of the
business of such corporation or for the purpose of relocating all or
substantially all of the business of such corporation or in connection with the
dissolution or liquidation of the corporation. Unlike the DGCL, however, in
cases where shareholder approval is required, a merger, consolidation, sale,
lease, exchange or other disposition must be approved by a majority of the votes
cast by all shareholders entitled to vote thereon. Under the PBCL, unless
required by the by-laws of a constituent corporation, shareholder approval is
not required for a plan of merger or consolidation if: (i) the surviving or new
corporation is a domestic corporation whose articles are identical to the
articles of such constituent corporation, (ii) each share of such constituent
corporation outstanding immediately prior to the merger or consolidation will
continue as or be converted into (except as otherwise agreed to by the holder
thereof) an identical share of the surviving or new corporation, and (iii) such
plan provides that the shareholders of such constituent corporation will hold in
the aggregate shares of the surviving or new corporation having a majority of
the votes entitled to be cast generally in an election of directors. In
addition, the PBCL provides that no shareholder approval is required if, prior
to the adoption of such plan, another corporation that is a party to such plan
owns 80% or more of the outstanding shares of each class of such constituent
corporation. The Zurn Charter provides that certain transactions with an
"interested person" (defined generally as a 30% shareholder), including the sale
of assets, mergers, consolidations and certain other fundamental transactions,
require the approval of at least 80% of the votes which all voting shareholders
are entitled to cast thereon, unless the transaction was proposed by the Zurn
Board or if the consideration for such transaction to be received by Zurn
shareholders is not less per share than the highest price paid for any stock by
the interested person from the time such interested person owned in excess of 5%
of Zurn's voting stock, in which case only a majority of the votes cast by the
shareholders entitled to vote thereon is required.
DISSENTERS' RIGHTS OF APPRAISAL
NEW USI. Under the DGCL, unless the certificate of incorporation of a
corporation provides otherwise, there are no appraisal rights provided in the
case of certain mergers, a sale or transfer of all or substantially all of its
assets or an amendment to the corporation's certificate of incorporation.
Moreover, the DGCL does not provide appraisal rights in connection with a merger
or consolidation, unless the certificate of incorporation provides otherwise, to
the owners of shares of a corporation that is either (i) listed on a national
securities exchange or designated as a national market system security by the
National Association of Securities Dealers (ii) held of record by more than
2,000 stockholders, unless the applicable agreement of merger or consolidation
requires the owners of such shares to receive, in exchange for such shares, (a)
any property other than shares of stock of the resulting or surviving
corporation, (b) shares of
83
stock of any other corporation listed on a national securities exchange (or
designated as described above) or held of record by more than 2,000 holders, (c)
cash in lieu of fractional shares, or (d) any combination of the foregoing. In
addition, the DGCL denies appraisal rights to the stockholders of the surviving
corporation in a merger if such merger did not require for its approval the vote
of the stockholders of such surviving corporation.
ZURN. The PBCL provides that shareholders of a corporation have a right of
appraisal with respect to specified corporate actions, including: (i) a plan of
merger, consolidation, division (within the meaning of Section 1951 of the
PBCL), share exchange or conversion (within the meaning of Section 1961 of the
PBCL), (ii) certain other plans or amendments to its articles in which disparate
treatment is accorded to the holders of shares of the same class or series, and
(iii) a sale, lease, exchange or other disposition of all or substantially all
of the corporation's property and assets, except if such sale, lease, exchange
or other disposition is (a) made in connection with the dissolution or
liquidation of the corporation, (b) the acquiring corporation owns all of the
outstanding shares of the acquired corporation or the voting rights,
preferences, limitations or relative rights of the acquired corporation are not
altered thereby, or (c) the assets sold, leased, exchanged or otherwise disposed
of are simultaneously leased back to the corporation. Under the PBCL, appraisal
rights are not provided, however, to the holders of shares of any class that is
either listed on a national securities exchange or held of record by more than
2,000 shareholders unless (i) such shares are not converted solely into shares
of the acquiring, surviving, new or other corporation or solely into such shares
in lieu of fractional shares, (ii) such shares constitute a preferred or special
class of stock, and the articles of such corporation, the corporate action under
consideration or the express terms of the transaction encompassed in such
corporate action do not entitle all holders of the shares of such class to vote
thereon and the transaction requires for the adoption thereof the affirmative
vote of a majority of the votes cast by all shareholders of such class, or (iii)
such shares constitute a group of a class or series which are to receive the
same special treatment in the corporate action under consideration, and the
holders of such group are not entitled to vote as a special class in respect of
such corporate action.
ANTI-TAKEOVER PROVISIONS
NEW USI. Under the DGCL, a corporation is prohibited from engaging in any
"business combination" with a person who, together with his affiliates or
associates owns (or within a three-year period did own) 15% or more of the
corporation's voting stock (an "interested stockholder"), unless (i) prior to
the date on which such person became an interested stockholder, the board of
directors approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, (ii) the
interested stockholder acquired 85% of the voting stock of the corporation
(excluding specified shares) upon consummation of the transaction or (iii) on or
subsequent to the date on which such person became an interested stockholder the
business combination is approved by the board of directors of such corporation
and authorized by the affirmative vote (at an annual or special meeting and not
by written consent) by at least 66 2/3% of the outstanding voting shares of such
corporation (excluding shares held by such interested stockholder). A "business
combination" includes (i) mergers, consolidations and sales or other
dispositions of 10% or more of the assets of a corporation to or with an
interested stockholder, (ii) certain transactions resulting in the issuance or
transfer to an interested stockholder of any stock of such corporation or its
subsidiaries, and (iii) other transactions resulting in a disproportionate
financial benefit to an interested stockholder. This provision of the DGCL does
not apply to a corporation if the certificate of incorporation or by-laws
contains a provision expressly electing not to be governed by this provision or
the corporation does not have voting stock either listed on a national
securities exchange, authorized for quotation on an inter-dealer quotation
system of a registered national securities association or held of record by more
than 2,000 stockholders. The New USI Charter does not address the "business
combination" provision of the DGCL.
The DGCL does not contain a "control-share acquisition" statute similar to
that contained in the PBCL.
84
ZURN. Unlike under the DGCL, the PBCL provides that a "registered
corporation" is permanently prohibited from engaging in any "business
combination" with a person who owns (or is an affiliate or associate of the
corporation and within the preceding five-year period did own) 20% or more of
the corporation's voting shares (an "interested shareholder"), unless: (i) such
business combination, or the acquisition of shares causing such interested
shareholder to become such, was approved in advance by the board of directors of
such corporation, (ii) such interested shareholder acquires at least 80% of the
voting shares of such corporation, the consideration to be offered to
shareholders in connection with such business combination meets specified fair
price standards and such business combination is approved by the affirmative
vote of the holders of shares representing at least a majority of the votes that
the holders of voting shares are entitled to cast, excluding voting shares
beneficially owned by such interested shareholder and its affiliates and
associates, (iii) such business combination is unanimously approved by the
holders of all outstanding common shares of such corporation, (iv) after five
years from the date the shareholder became an interested shareholder, the
business combination is approved by a majority of the outstanding voting shares
of such corporation (excluding shares held by such interested shareholder), (v)
after five years from the date the shareholder became an interested shareholder,
the business combination is approved by a majority of all shareholders and meets
certain considerations set forth in the PBCL concerning the amount of
consideration. A "business combination" generally includes mergers,
consolidations, share exchanges, divisions of the corporation or any subsidiary
thereof, certain sales and other dispositions of assets, certain issuances and
transfers of shares of the corporation or any sbsidiary thereof, a liquidation
or dissolution, certain reclassifications, recapitalizations and other
transactions resulting in a disproportionate financial benefit to an interested
shareholder. A "registered corporation" is defined generally as a corporation
that has voting shares registered under the Exchange Act or is otherwise subject
to the reporting obligations thereunder. The Zurn Charter also contains
provisions requiring a vote of holders of 80% of Zurn voting stock to approve
certain business combinations. See "--Mergers and Major Transactions--Zurn."
The PBCL, unlike the DGCL, provides that, subject to certain limited
exceptions, in the event of the acquisition by any person or group of shares of
a registered corporation that entitles the holder thereof to at least 20% of the
voting power of the voting shares of such corporation, such person or group must
give notice to all shareholders of record of such corporation that such
acquisition has occurred and any of such shareholders may demand payment of the
fair value of their shares.
The PBCL also includes a "control-share acquisition" statute. A
"control-share acquisition" is defined generally as an acquisition of such
number of voting shares as, when added to the voting shares already held by such
acquiring person or group, would entitle such person or group to exercise voting
power for the first time within any of the following three ranges: (i) at least
20% but less than 33 1/3%, (ii) at least 33 1/3% but less than 50%, or (iii)
more than 50%. "Control shares" include such shares together with any voting
shares acquired within 180 days of the occurrence of a "control-share
acquisition" or acquired with the intention of making a "control-share
acquisition." The PBCL provides that control shares of a registered corporation
will not have voting rights unless restored by the affirmative vote of (i) the
holders of a majority of the voting power of the outstanding shares (not
including the control shares) of such corporation and (ii) the holders of a
majority of the voting power of the outstanding voting shares of such
corporation. In addition, under certain circumstances, a registered corporation
is permitted to redeem its control shares.
Any profit realized by a "controlling person" from the disposition of any
equity security of a registered corporation is recoverable by such corporation
if (i) such profit is realized by such controlling person within 18 months after
such controlling person became such and (ii) the equity security so disposed of
was acquired by such controlling person within 24 months prior to or 18 months
after such controlling person became such. Subject to certain exceptions,
"controlling person" generally includes any person or group who (i) acquired,
offered to acquire, or directly or indirectly publicly disclosed or caused to be
publicly disclosed its intention to acquire, power to vote at least 20% of the
voting shares of such corporation, or
85
(ii) publicly disclosed or caused to be publicly disclosed that it may seek to
acquire control of such corporation through any means.
DISSOLUTION
NEW USI. Under the DGCL, if a majority of the board of the directors of the
corporation deems it advisable that the corporation should be dissolved and a
majority of the outstanding stock of the corporation entitled to vote thereon
votes in favor of the proposed dissolution, the corporation shall be dissolved
upon the filing of a certificate of dissolution with the Secretary of State of
the State of Delaware. The corporation shall continue after dissolution for the
purposes of defending suits and settling its affairs for a three-year period.
Persons having a claim against the corporation shall be given notice and file
their claims according to certain procedures specified in the DGCL. A
corporation or successor entity which has given notice in accordance with the
procedures specified in Section 280(a) of the DGCL shall petition the Court of
Chancery to determine the amount of security that the corporation must provide
that will be reasonably likely to be sufficient as compensation for any claim
against the corporation which is not barred and which is likely to arise or
become known to the corporation or successor entity within five years after the
date of dissolution or such longer period as the Court of Chancery may determine
not to exceed ten years. Under the DGCL, directors of a dissolved corporation
that comply with the payment and distribution procedures provided therein shall
not be personally liable to the claimants of the dissolved corporation.
ZURN. Under the PBCL, if the board of directors adopts a resolution
recommending to dissolve the corporation, the shareholders must adopt the
resolution by the affirmative vote of a majority of the votes cast by all
shareholders entitled to vote thereon. Unlike the DGCL, the PBCL provides two
different procedures for the corporation to provide for the winding up and
distribution of the corporation's assets. The board of directors of the
corporation may elect that the dissolution shall proceed under Subchapter H or
under Section 1975 of the PBCL. Under Section 1975, the corporation must provide
for the liabilities of the corporation prior to filing the articles of
dissolution in the Pennsylvania Department of State. Directors of corporations
that elect to follow this procedure are held to the standard of care that
applies to all of their other duties. The Subchapter H provision is largely
analogous to the procedure under the DGCL. Under the PBCL, however, the
corporation only continues to exist for the purpose of settling its affairs for
a period of two years. Furthermore, the court in determining the amount of
security that shall be posted by the dissolved corporation shall consider the
amount that would be reasonably likely to be sufficient to provide compensation
for claims that are unknown but that are likely to arise or become known for a
period of only two years after the dissolution of the corporation.
LEGAL MATTERS
The validity of the New USI Common Stock to be issued in connection with the
Transaction has been passed upon by Weil, Gotshal & Manges LLP.
Weil, Gotshal & Manges LLP, counsel for USI, and Jones, Day, Reavis & Pogue,
counsel for Zurn, have passed upon certain Federal income tax consequences of
the Transaction for USI and Zurn, respectively.
EXPERTS
The consolidated financial statements and schedule of USI in the USI Form
10-K have been audited by Ernst & Young, independent auditors, as set forth in
their report thereon included therein and incorporated herein by reference.
Their report is based in part on the report of Price Waterhouse LLP. Such
consolidated financial statements and schedule have been incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
86
The financial statements of Zurn for the three years ended March 31, 1997,
incorporated by reference in this Joint Proxy Statement/Prospectus, have been
audited by Ernst & Young, independent accountants, as set forth in their report
thereon and incorporated herein by reference. Such financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
It is expected that representatives of Ernst & Young, USI's independent
auditors, will be present at the USI Meeting and representatives of Ernst &
Young, Zurn's independent accountants, will be present at the Zurn Meeting where
they will have an opportunity to respond to appropriate questions of
stockholders and to make a statement if they so desire.
STOCKHOLDER PROPOSALS
The date by which proposals of stockholders of USI must be submitted to USI
in order to be included in USI's proxy materials for the next annual meeting of
USI stockholders is . If the date of such annual meeting is advanced
or delayed, USI will comply with any applicable provision concerning submission
of stockholder proposals under Regulation 14A under the Exchange Act and the USI
By-Laws. If the USI Merger is consummated, it is anticipated that no such annual
meeting will be held.
The date by which proposals of shareholders of Zurn must have been submitted
to Zurn in order to be included in Zurn's proxy materials for the next annual
meeting of Zurn shareholders was February 27, 1998. If the date of such annual
meeting is advanced or delayed, Zurn will comply with any applicable provision
concerning submission of stockholder proposals under Regulation 14A under the
Exchange Act. If the Zurn Merger is consummated, it is anticipated that no such
annual meeting will be held.
If the Mergers are consummated, the first annual meeting of the public
stockholders of New USI after such consummation is expected to be held on or
about , 1998. If any New USI stockholder intends to present a proposal at
such New USI annual meeting and wishes to have such proposal considered for
inclusion in the proxy materials for such meeting, such holder must submit the
proposal to the Secretary of New USI in writing so as to be received at the
executive offices of New USI by , 1998. Such proposals must also meet the
other requirements of the rules of the Commission relating to stockholders'
proposals. In addition, the New USI By-Laws will establish an advance notice
procedure with regard to certain matters, including stockholder proposals not
included in New USI's proxy statement, to be brought before an annual meeting of
stockholders. In general, notice of a stockholder proposal for an annual meeting
must be received by the Secretary of New USI 60 days or more before the date of
the annual meeting and must contain specified information concerning the matters
to be brought before such meeting and concerning the stockholder proposing such
matters. Notice of a stockholder proposal for a special meeting must be received
by the Secretary of New USI no later than the 15th day following the day on
which notice of the date of a special meeting of stockholders was given. If the
presiding officer at any stockholders' meeting determines that a nomination was
not made in accordance with the procedures prescribed by the New USI By-Laws,
New USI need not present the proposal for a vote at such meeting. If the date of
such annual meeting is advanced or delayed, New USI will comply with any
applicable provision concerning submission of stockholder proposals under
Regulation 14A under the Exchange Act and the New USI By-Laws.
87
APPENDIX A-1
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
U.S. INDUSTRIES, INC.,
USI, INC.,
BLUE MERGER CORP.,
ZORO MERGER CORP.
AND
ZURN INDUSTRIES, INC.*
- --------------------------------------------------------------------------------
- ------------------------
* For the convenience of readers, this composite conformed copy combines the
Agreement and Plan of Merger, dated as of February 16, 1998, among U.S.
Industries, Inc., USI, Inc., Blue Merger Corp., Zoro Merger Corp. and Zurn
Industries, Inc. and Amendment No. 1 to the Merger Agreement, dated as of
March 31, 1998, among the parties. Readers should note that any statement
which speaks "as of the date hereof" speaks as of February 16, 1998.
TABLE OF CONTENTS
PAGE
-----
ARTICLE 1
THE MERGERS..................................................................................... 1
SECTION 1.1 - The Mergers...................................................... 1
SECTION 1.2 - Effective Time................................................... 1
SECTION 1.3 - Effect of the Mergers............................................ 2
SECTION 1.4 - Subsequent Actions............................................... 2
SECTION 1.5 - Certificate or Articles of Incorporation, Bylaws and Directors
and Officers of Surviving Corporations......................... 2
SECTION 1.6 - Certificate of Incorporation and Bylaws of Superholdco........... 2
SECTION 1.7 - Corporate Identity............................................... 2
SECTION 1.8 - Dividends........................................................ 3
SECTION 1.9 - Closing of the Mergers........................................... 3
ARTICLE 2
EFFECT ON STOCK OF SUPERHOLDCO, THE SURVIVING CORPORATIONS AND THE MERGED CORPORATIONS..........
3
SECTION 2.1 - Conversion of Shares............................................. 3
SECTION 2.2 - Conversion of USI and Zurn Stock into Merger Consideration....... 3
SECTION 2.3 - Cancellation of Treasury Shares and of Outstanding Superholdco
Common Stock................................................... 3
SECTION 2.4 - Conversion of Common Stock of the Merger Subsidiaries into Common
Stock of the Surviving Corporations............................ 4
SECTION 2.5 - Exchange of Shares Other Than Treasury Shares.................... 4
SECTION 2.6 - Transfer Books................................................... 5
SECTION 2.7 - No Fractional Share Certificates................................. 5
SECTION 2.8 - Stock Options.................................................... 6
SECTION 2.9 - Restricted Stock................................................. 7
SECTION 2.10 - Certain Adjustments.............................................. 7
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF ZURN.......................................................... 7
SECTION 3.1 - Organization and Qualification................................... 7
SECTION 3.2 - Capitalization of Zurn and its Subsidiaries...................... 8
SECTION 3.3 - Authority Relative to this Agreement............................. 9
SECTION 3.4 - SEC Reports; Financial Statements................................ 9
SECTION 3.5 - Information Supplied............................................. 10
SECTION 3.6 - Consents and Approvals; No Violations............................ 10
SECTION 3.7 - No Default....................................................... 11
SECTION 3.8 - No Undisclosed Liabilities; Absence of Changes................... 11
SECTION 3.9 - Litigation....................................................... 11
SECTION 3.10 - Compliance with Applicable Law................................... 12
SECTION 3.11 - Employee Plans................................................... 12
SECTION 3.12 - Environmental Matters............................................ 13
SECTION 3.13 - Tax Matters...................................................... 15
SECTION 3.14 - Intangible Property.............................................. 17
i
PAGE
-----
SECTION 3.15 - Opinion of Financial Advisor..................................... 17
SECTION 3.16 - Brokers.......................................................... 17
SECTION 3.17 - Accounting Matters............................................... 17
SECTION 3.18 - Material Contracts............................................... 18
SECTION 3.19 - Labor Matters.................................................... 18
SECTION 3.20 - Insurance........................................................ 18
SECTION 3.21 - Products......................................................... 18
SECTION 3.22 - Amendment to Rights Agreement.................................... 19
SECTION 3.23 - U.S. Brass Bankruptcy Proceeding................................. 19
SECTION 3.24 - Full Disclosure.................................................. 19
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF USI, SUPERHOLDCO AND THE MERGER SUBSIDIARIES..................
19
SECTION 4.1 - Organization and Qualification................................... 19
SECTION 4.2 - Capitalization of USI and its Subsidiaries....................... 20
SECTION 4.3 - Authority Relative to this Agreement............................. 20
SECTION 4.4 - SEC Reports; Financial Statements................................ 21
SECTION 4.5 - Information Supplied............................................. 21
SECTION 4.6 - Consents and Approvals; No Violations............................ 22
SECTION 4.7 - No Default....................................................... 22
SECTION 4.8 - No Undisclosed Liabilities; Absence of Changes................... 22
SECTION 4.9 - Litigation....................................................... 23
SECTION 4.10 - Compliance with Applicable Law................................... 23
SECTION 4.11 - Employee Plans................................................... 23
SECTION 4.12 - Environmental Matters............................................ 24
SECTION 4.13 - Tax Matters...................................................... 25
SECTION 4.14 - No Prior Activities.............................................. 26
SECTION 4.15 - Brokers.......................................................... 26
SECTION 4.16 - Accounting Matters............................................... 26
SECTION 4.17 - Absence of Certain Status........................................ 27
SECTION 4.18 - Full Disclosure.................................................. 27
ARTICLE 5
COVENANTS....................................................................................... 27
SECTION 5.1 - Conduct of Business of Zurn and USI.............................. 27
SECTION 5.2 - Preparation of S-4 and the Joint Proxy Statement................. 29
SECTION 5.3 - No Solicitation.................................................. 30
SECTION 5.4 - Letters of Accountants........................................... 31
SECTION 5.5 - Meetings......................................................... 31
SECTION 5.6 - Access to Information............................................ 31
SECTION 5.7 - Additional Agreements; Reasonable Best Efforts................... 32
SECTION 5.8 - Antitrust Reviews................................................ 32
SECTION 5.9 - Public Announcements............................................. 33
SECTION 5.10 - Indemnification; Directors' and Officers' Insurance.............. 33
SECTION 5.11 - Notification of Certain Matters.................................. 34
SECTION 5.12 - Pooling.......................................................... 34
SECTION 5.13 - Tax-Free Reorganization Treatment................................ 34
ii
PAGE
-----
SECTION 5.14 - Company Affiliates............................................... 34
SECTION 5.15 - SEC Filings...................................................... 35
SECTION 5.16 - Employment and Employee Benefit Matters.......................... 35
SECTION 5.17 - Location of Zurn Headquarters.................................... 37
SECTION 5.18 - Redemption of Zurn Preferred Stock............................... 37
SECTION 5.19 - Refinancing...................................................... 37
SECTION 5.20 - Guarantee of Performance......................................... 37
ARTICLE 6
CONDITIONS TO CONSUMMATION OF THE MERGERS....................................................... 37
SECTION 6.1 - Conditions to Each Party's Obligations to Effect the Mergers..... 37
SECTION 6.2 - Additional Conditions to the Obligation of Zurn.................. 38
SECTION 6.3 - Additional Conditions to the Obligations of USI and the Merger
Subsidiaries................................................... 38
ARTICLE 7
TERMINATION; AMENDMENT; WAIVER.................................................................. 39
SECTION 7.1 - Termination...................................................... 39
SECTION 7.2 - Effect of Termination............................................ 40
SECTION 7.3 - Fees and Expenses................................................ 40
SECTION 7.4 - Amendment........................................................ 41
SECTION 7.5 - Extension; Waiver................................................ 41
ARTICLE 8
MISCELLANEOUS................................................................................... 41
SECTION 8.1 - Nonsurvival of Representations and Warranties.................... 41
SECTION 8.2 - Entire Agreement; Assignment..................................... 41
SECTION 8.3 - Notices.......................................................... 42
SECTION 8.4 - Governing Law.................................................... 42
SECTION 8.5 - Descriptive Headings............................................. 42
SECTION 8.6 - Parties in Interest.............................................. 42
SECTION 8.7 - Severability..................................................... 42
SECTION 8.8 - Specific Performance............................................. 43
SECTION 8.9 - Certain Definitions.............................................. 43
SECTION 8.10 - Brokers.......................................................... 43
SECTION 8.11 - Counterparts..................................................... 43
iii
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, dated as of February 16, 1998 (the
"Agreement"), is among U.S. INDUSTRIES, INC., a Delaware corporation ("USI"),
USI, INC., a Delaware corporation and a wholly-owned subsidiary of USI
("SUPERHOLDCO"), BLUE MERGER CORP., a Delaware corporation and a wholly-owned
subsidiary of Superholdco ("B-SUB"), ZORO MERGER CORP., a Pennsylvania
corporation and a wholly-owned subsidiary of Superholdco ("Z-SUB"), and ZURN
INDUSTRIES, INC., a Pennsylvania corporation ("ZURN").
WHEREAS, the Board of Directors of Zurn has determined that (i) it is in the
best interests of Zurn that Zurn become a subsidiary of Superholdco pursuant to
the Zurn Merger (as defined in Section 1.1 hereof) upon the terms and conditions
set forth herein and (ii) the Zurn Merger and the other transactions
contemplated hereby are consistent with, and in furtherance of, its business
strategies and goals;
WHEREAS, the Board of Directors of USI has determined that (i) it is fair to
and in the best interests of its stockholders that USI become a subsidiary of
Superholdco pursuant to the USI Merger (as defined in Section 1.1 hereof) upon
the terms and conditions set forth herein and (ii) the USI Merger and the other
transactions contemplated hereby are consistent with, and in furtherance of, its
business strategies and goals;
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition to USI's willingness to enter into this Agreement, Zurn and USI
have entered into a Stock Option Agreement (the "STOCK OPTION AGREEMENT")
attached as Annex A hereto;
WHEREAS, for United States federal income tax purposes, it is intended that
the formation of Superholdco and the Mergers (as defined in Section 1.1 hereof)
shall constitute one or more tax-free transactions under the Internal Revenue
Code of 1986, as amended (the "CODE"); and
WHEREAS, for accounting purposes, it is intended that the Mergers shall be
accounted for in accordance with the Pooling of Interests Method of Accounting
(as defined in Section 3.17 hereof);
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
ARTICLE 1
THE MERGERS
SECTION 1.1--THE MERGERS. Subject to and upon the terms and conditions of
this Agreement, at the Effective Time (as defined in Section 1.2 hereof) (a)
B-Sub shall be merged with and into USI in accordance with the Delaware General
Corporation Law ("DELAWARE LAW"), the separate corporate existence of B-Sub
shall cease, and USI shall continue as the surviving corporation (the "USI
MERGER") and (b) Z-Sub shall be merged with and into Zurn in accordance with the
Pennsylvania Business Corporation Law ("PENNSYLVANIA LAW"), the separate
corporate existence of Z-Sub shall cease, and Zurn shall continue as the
surviving corporation (the "ZURN MERGER"). The USI Merger and the Zurn Merger
are herein collectively referred to as the "MERGERS" and each individually as a
"MERGER". USI and Zurn, as the surviving corporations after the Mergers, are
herein sometimes collectively referred to as the "SURVIVING CORPORATIONS" and
each individually as a "SURVIVING CORPORATION". B-Sub and Z-Sub are herein
sometimes collectively referred to as the "MERGER SUBSIDIARIES" and each
individually as a "MERGER SUBSIDIARY". Superholdco, USI, Zurn, B-Sub and Z-Sub
are herein referred to collectively as the "PARTIES" and each individually as a
"PARTY."
SECTION 1.2--EFFECTIVE TIME. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in Article 6 hereof and the
consummation of the Closing referred to in Section 1.9 hereof, the Parties shall
cause the Mergers to be consummated concurrently by (a) filing a Certificate of
Merger with the Secretary of State of the State of Delaware with respect to the
USI Merger, in such form as required by, and executed in accordance with, the
relevant provisions of Delaware Law and (b) filing Articles of Merger with the
Department of State of the Commonwealth of Pennsylvania with respect to the Zurn
Merger, in such form as required by, and executed in accordance with, the
relevant provisions of Pennsylvania Law (the time of the later of such filings
to occur being the "EFFECTIVE TIME").
SECTION 1.3--EFFECT OF THE MERGERS. At the Effective Time, the effect of
the USI Merger shall be as provided in the applicable provisions of Delaware Law
and the effect of the Zurn Merger shall be as provided in the applicable
provisions of Pennsylvania Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time (a) all the property,
rights, privileges, powers and franchises of USI and B-Sub shall continue with,
or vest in, as the case may be, USI as the Surviving Corporation of the USI
Merger, and all debts, liabilities and duties of USI and B-Sub shall continue to
be, or become, as the case may be, the debts, liabilities and duties of USI as
the Surviving Corporation of the USI Merger and (b) all the property, rights,
privileges, powers and franchises of Zurn and Z-Sub shall continue with, or vest
in, as the case may be, Zurn as the Surviving Corporation of the Zurn Merger,
and all debts, liabilities and duties of Zurn and Z-Sub shall continue to be, or
become, as the case may be, the debts, liabilities and duties of Zurn as the
Surviving Corporation of the Zurn Merger. At the Effective Time, each of the
Surviving Corporations shall become a direct wholly-owned subsidiary of
Superholdco.
SECTION 1.4--SUBSEQUENT ACTIONS. If, at any time after the Effective Time,
either of the Surviving Corporations shall consider or be advised that any
deeds, bills of sale, assignments, assurances or any other actions or things are
necessary or desirable to continue in, vest, perfect or confirm of record or
otherwise in such Surviving Corporation its right, title or interest in, to or
under any of the rights, properties, privileges, franchises or assets of either
of its constituent corporations or otherwise to carry out this Agreement, the
officers and directors of such Surviving Corporation shall be directed and
authorized to execute and deliver, in the name and on behalf of either of such
constituent corporations, all such deeds, bills of sale, assignments and
assurances and to take and do, in the name and on behalf of each of such
corporations or otherwise, all such other actions and things as may be necessary
or desirable to vest, perfect or confirm any and all right, title and interest
in, to and under such rights, properties, privileges, franchises or assets in
such Surviving Corporation or otherwise to carry out this Agreement.
SECTION 1.5--CERTIFICATE OR ARTICLES OF INCORPORATION, BYLAWS AND DIRECTORS
AND OFFICERS OF SURVIVING CORPORATIONS. Unless otherwise agreed by USI and Zurn
before the Effective Time, at the Effective Time:
(a) the Certificate of Incorporation of USI shall be the Certificate of
Incorporation of USI as a Surviving Corporation (except that the corporate
name of USI shall be changed), and the Articles of Incorporation of Zurn
shall be the Articles of Incorporation of Zurn as a Surviving Corporation,
in each case as in effect immediately prior to the Effective Time and until
thereafter amended as provided by law and such Certificate of Incorporation
or Articles of Incorporation.
(b) the respective Bylaws of each of USI and Zurn shall be the Bylaws of
USI and Zurn, respectively, as a Surviving Corporation in each case as in
effect immediately prior to the Effective Time, in each case until
thereafter amended as provided by law and the Certificate or Articles of
Incorporation and such Bylaws; and
(c) the directors and officers of each of USI and Z-Sub immediately
prior to the Effective Time shall continue to serve in their respective
offices of their respective Surviving Corporation from and after the
Effective Time, in each case until their successors are elected or appointed
and qualified or until their resignation or removal. If, at the Effective
Time, a vacancy shall exist on the Board of Directors or in any office of
either of the Surviving Corporations, such vacancy may thereafter be filled
in the manner provided by law and the Bylaws of such Surviving Corporation.
SECTION 1.6--CERTIFICATE OF INCORPORATION AND BYLAWS OF
SUPERHOLDCO. Immediately prior to the Effective Time, USI shall cause the
Certificate of Incorporation and Bylaws of Superholdco to be amended and
restated to read as set forth in Annexes B and C hereto, respectively.
SECTION 1.7--CORPORATE IDENTITY. USI and Zurn agree that immediately after
the Effective Time, the corporate name of Superholdco shall be changed to "U.S.
INDUSTRIES, INC.".
SECTION 1.8--DIVIDENDS. Each of USI and Zurn shall coordinate with the
other the declaration of, and the setting of record dates and payment dates for,
dividends on shares of its common stock so that holders thereof (i) do not
receive dividends on both such shares and shares of Superholdco common stock
2
received in connection with the applicable Merger in respect of any particular
calendar quarter or (ii) fail to receive a dividend on either shares of common
stock or Superholdco common stock received in connection with the applicable
Merger in respect of any particular calendar quarter. Each Party hereby
acknowledges that on January 19, 1998, Zurn declared a quarterly dividend of
$0.10 per share of Zurn Common Stock payable to holders of record on March 20,
1998.
SECTION 1.9--CLOSING OF THE MERGERS. The closing of the Mergers (the
"CLOSING") shall take place at a time and on a date to be specified by the
Parties, which shall be the first business day on which all of the conditions
set forth in Article 6 shall have been satisfied and waived (the "CLOSING
DATE"), at the offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New
York, New York 10153, unless another time, date or place is agreed to in writing
by the Parties.
ARTICLE 2
EFFECT ON STOCK OF SUPERHOLDCO, THE SURVIVING
CORPORATIONS AND THE MERGED CORPORATIONS
SECTION 2.1--CONVERSION OF SHARES. The manner and basis of converting the
shares of common stock of the Surviving Corporations and of the Merger
Subsidiaries at the Effective Time shall be as hereinafter set forth in this
Article 2.
SECTION 2.2--CONVERSION OF USI AND ZURN STOCK INTO MERGER
CONSIDERATION. (a) Each share of common stock, par value $0.01 per share, of
USI ("USI COMMON STOCK") issued and outstanding immediately before the Effective
Time (excluding those held in the treasury of USI) and all rights in respect
thereof, shall at the Effective Time, by virtue of the USI Merger and without
any action on the part of any holder thereof, forthwith cease to exist and be
converted into one share of common stock, par value $0.01 per share
("SUPERHOLDCO COMMON STOCK"), of Superholdco (the "USI MERGER CONSIDERATION").
The quotient obtained by dividing the number of shares of Superholdco Common
Stock referred to in the preceding sentence by one is herein referred to as the
"USI EXCHANGE RATIO".
(b) Each share of common stock, par value $.50 per share, of Zurn ("ZURN
COMMON STOCK") issued and outstanding immediately before the Effective Time
(excluding those held in the treasury of Zurn) and all rights in respect
thereof, shall at the Effective Time, by virtue of the Zurn Merger and without
any action on the part of any holder thereof, forthwith cease to exist and be
converted into the right to receive 1.6 shares of Superholdco Common Stock (the
"ZURN MERGER CONSIDERATION") upon surrender of the certificate theretofore
representing such share in accordance with this Agreement. The quotient obtained
by dividing the number of shares of Superholdco Common Stock referred to in the
preceding sentence by one is herein referred to as the "ZURN EXCHANGE RATIO".
The USI Exchange Ratio and the Zurn Exchange Ratio are herein referred to
collectively as the "Exchange Ratios".
(c) Commencing immediately after the Effective Time, each certificate which,
immediately prior to the Effective Time, represented issued and outstanding
shares of USI Common Stock ("USI SHARES") or Zurn Common Stock (the "ZURN
SHARES" and, together with the USI Shares, the "SHARES"), shall evidence the USI
Merger Consideration or the right to receive the Zurn Merger Consideration, as
the case may be, on the basis hereinbefore set forth, but subject to the
limitations set forth in Sections 2.3, 2.5 and 2.7 hereof.
SECTION 2.3--CANCELLATION OF TREASURY SHARES AND OF OUTSTANDING SUPERHOLDCO
COMMON STOCK. (a) At the Effective Time, each share of USI Common Stock held in
the treasury of USI immediately prior to the Effective Time, and each share of
Zurn Common Stock held in the treasury of Zurn immediately prior to the
Effective Time, shall be canceled and retired and no shares of stock or other
securities of Superholdco or either of the Surviving Corporations shall be
issuable, and no payment or other consideration shall be made, with respect
thereto.
(b) At the Effective Time, the shares of Superholdco Common Stock held by
USI shall be canceled and retired and all consideration paid by USI in respect
thereof shall be returned. No shares of stock or
3
other securities of Superholdco or any other corporation shall be issuable, and
no other payment or consideration shall be made, with respect to such shares of
Superholdco Common Stock.
SECTION 2.4--CONVERSION OF COMMON STOCK OF THE MERGER SUBSIDIARIES INTO
COMMON STOCK OF THE SURVIVING CORPORATIONS. (a) Each share of common stock, par
value $0.01 per share, of B-Sub issued and outstanding immediately prior to the
Effective Time, and all rights in respect thereof, shall at the Effective Time,
by virtue of the USI Merger and without any action on the part of Superholdco,
forthwith cease to exist and be converted into and become one validly issued,
fully paid and nonassessable share of common stock of USI, par value $0.01 per
share (the "NEW USI COMMON STOCK"). At any time after the Effective Time, upon
surrender by Superholdco of the certificate formerly representing the shares of
the common stock of B-Sub, USI, as a Surviving Corporation, shall deliver to
Superholdco an appropriate certificate or certificates representing the shares
of New USI Common Stock into which the shares of common stock of B-Sub owned by
Superholdco were converted at the Effective Time.
(b) Each share of common stock, par value $0.01 per share, of Z-Sub issued
and outstanding immediately prior to the Effective Time, and all rights in
respect thereof, shall at the Effective Time, without any action on the part of
Superholdco, forthwith cease to exist and be converted into and become one
validly issued, fully paid and nonassessable share of common stock of Zurn, par
value $0.50 per share (the "NEW ZURN COMMON STOCK"). At any time after the
Effective Time and upon surrender by Superholdco of the certificate formerly
representing the shares of the common stock of Z-Sub, Zurn as a Surviving
Corporation, shall deliver to Superholdco an appropriate certificate or
certificates representing the shares of New Zurn Common Stock into which the
shares of common stock of Z-Sub owned by Superholdco were converted at the
Effective Time.
SECTION 2.5--EXCHANGE OF SHARES OTHER THAN TREASURY SHARES. (a) Subject to
the terms and conditions hereof, from and after the Effective Time, each
outstanding certificate which theretofore represented issued and outstanding USI
Shares (other than USI Shares to be canceled in accordance with Section 2.3)
shall be deemed for all corporate purposes of Superholdco to represent the
number of full shares of Superholdco Common Stock into which the USI Shares
theretofore represented by such certificate shall have been converted in
accordance with the provisions of Section 2.2 hereof, and all such shares of
Superholdco Common Stock shall be deemed to have been issued at the Effective
Time.
(b) Subject to the terms and conditions hereof, at or prior to the Effective
Time, Superholdco shall appoint an exchange agent to effect the exchange of Zurn
Shares for Superholdco Common Stock in accordance with the provisions of this
Article 2 (the "EXCHANGE AGENT"). As promptly as practicable after the Effective
Time, Superholdco shall deposit, or cause to be deposited, certificates
representing the shares of Superholdco Common Stock to be issued upon the
surrender for exchange of certificates theretofore representing Zurn Shares in
accordance with the provisions of Section 2.2 hereof (such certificates,
together with any dividends or distributions with respect thereto, being herein
referred to collectively as the "EXCHANGE FUND") and the Excess Shares (as
defined in Section 2.7(b) hereof). Commencing immediately after the Effective
Time and until the appointment of the Exchange Agent shall be terminated, each
holder of a certificate or certificates theretofore representing Zurn Shares may
surrender the same to the Exchange Agent, and, after the appointment of the
Exchange Agent shall be terminated, any such holder may surrender any such
certificate to Superholdco. Such holder shall be entitled upon such surrender to
receive in exchange therefor a certificate or certificates representing the
number of full shares of Superholdco Common Stock into which the Zurn Shares
theretofore represented by the certificate or certificates so surrendered shall
have been converted in accordance with the provisions of Section 2.2 hereof,
together with a cash payment in lieu of fractional shares, if any, in accordance
with Section 2.7 hereof, and all such shares of Superholdco Common Stock shall
be deemed to have been issued at the Effective Time. From and after the
Effective Time, until so surrendered and exchanged, each outstanding certificate
which theretofore represented issued and outstanding Zurn Shares (other than
Zurn Shares to be canceled in accordance with Section 2.3) shall be deemed for
all corporate purposes of Superholdco, other than the payment of dividends and
other distributions, if any, to represent the right to receive the Zurn Merger
Consideration. Unless and until any such certificate theretofore representing
Zurn Shares is
4
so surrendered, no dividend or other distribution, if any, payable to the
holders of record of Superholdco Common Stock as of any date subsequent to the
Effective Time shall be paid to the holder of such certificate in respect
thereof. Upon the surrender of any such certificate theretofore representing
Zurn Shares, however, the record holder of the certificate or certificates
representing shares of Superholdco Common Stock issued in exchange therefor
shall receive from the Exchange Agent or from Superholdco, as the case may be,
payment of the amount of dividends and other distributions, if any, which as of
any date subsequent to the Effective Time and until such issuance shall have
become payable with respect to such number of shares of Superholdco Common Stock
("PRE-ISSUANCE DIVIDENDS"). No interest shall be payable with respect to the
payment of Pre-Issuance Dividends upon the surrender of certificates theretofore
representing Zurn Shares. After the appointment of the Exchange Agent shall have
been terminated, such holders of Superholdco Common Stock which have not
received payment of Pre-Issuance Dividends shall look only to Superholdco for
payment thereof. Notwithstanding the foregoing provisions of this Section
2.5(b), neither the Exchange Agent nor any Party shall be liable to a holder of
Zurn Shares for any Superholdco Common Stock or dividends or distributions
thereon delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law or to a transferee pursuant to Section 2.6
hereof.
SECTION 2.6--TRANSFER BOOKS. The stock transfer books of USI with respect
to the USI Shares and the stock transfer books of Zurn with respect to the Zurn
Shares shall each be closed at the Effective Time and no transfer of any Shares
will thereafter be recorded on any of such stock transfer books. In the event of
a transfer of ownership of Shares that is not registered in the stock transfer
records of Zurn at the Effective Time, a certificate or certificates
representing the number of full shares of Superholdco Common Stock that a holder
of such number of Shares would be entitled to receive in accordance with this
Article 2 shall be issued to the transferee together with a cash payment in lieu
of fractional shares, if any, in accordance with Section 2.7 hereof, and a cash
payment in the amount of Pre-Surrender Dividends, if any, in accordance with
Section 2.5 hereof, if the certificate or certificates representing such Shares
is or are surrendered as provided in Section 2.5 hereof, accompanied by all
documents required to evidence and effect such transfer and by evidence of
payment of any applicable stock transfer tax.
SECTION 2.7--NO FRACTIONAL SHARE CERTIFICATES. (a) No scrip or fractional
share certificate for Superholdco Common Stock will be issued upon the surrender
for exchange of certificates evidencing Shares, and an outstanding fractional
share interest will not entitle the owner thereof to vote, to receive dividends
or to any rights of a stockholder of Superholdco or of either of the Surviving
Corporations with respect to such fractional share interest. The Parties
acknowledge that payment of the cash consideration described below in lieu of
the issuance of fractional shares was not separately bargained for consideration
but merely represents a mechanical rounding off for purposes of simplifying the
corporate and accounting problems which would otherwise be caused by the
issuance of fractional shares.
(b) As promptly as practicable following the Effective Time, the Exchange
Agent shall determine the excess of (i) the number of full shares of Superholdco
Common Stock that would be issued and delivered to the Exchange Agent pursuant
to Section 2.5 hereof but for the operation of Section 2.7(a) over (ii) the
aggregate number of full shares of Superholdco Common Stock to be distributed to
holders of Shares pursuant to Section 2.5 hereof giving effect to the operation
of Section 2.7(a) (such excess being herein called the "EXCESS SHARES").
Following the Effective Time, the Exchange Agent, as agent for the holders of
Shares, shall sell the Excess Shares at then prevailing prices on the NYSE, all
in the manner provided in subsection (c) of this Section 2.7.
(c) The sale of the Excess Shares by the Exchange Agent shall be executed on
the NYSE through one or more member firms of the NYSE and shall be executed in
round lots to the extent practicable. The Exchange Agent shall use all
reasonable efforts to complete the sale of the Excess Shares as promptly
following the Effective Time as, in the Exchange Agent's reasonable judgment, is
practicable consistent with obtaining the best execution of such sales in light
of prevailing market conditions. Until the net proceeds of such sale or sales
have been distributed to the holders of Shares, the Exchange Agent will hold
5
such proceeds in trust for such holders (the "COMMON SHARES TRUST"). Superholdco
shall pay all commissions, transfer taxes and other out-of-pocket transaction
costs, including the expenses and compensation of the Exchange Agent, incurred
in connection with such sale of the Excess Shares. The Exchange Agent shall
determine the portion of the Common Shares Trust to which each holder of shares
shall be entitled, if any, by multiplying the amount of the aggregate net
proceeds comprising the Common Shares Trust by a fraction, the numerator of
which is the amount of fractional share interests to which such holder is
entitled (after taking into account all Shares held at the Effective Time by
such holder) and the denominator of which is the aggregate amount of fractional
share interests to which all holders of Shares are entitled.
(d) Notwithstanding the provisions of subsections (b) and (c) of this
Section 2.7, USI and Zurn may agree at their option, exercised prior to the
Effective Time, in lieu of the issuance and sale of Excess Shares and the making
of the payments contemplated in such subsections, to cause Superholdco to pay to
the Exchange Agent an amount sufficient for the Exchange Agent to pay each
holder of Shares an amount in cash equal to the product obtained by multiplying
(i) the fractional share interest to which such holder would otherwise be
entitled (after taking into account all Shares held at the Effective Time by
such holder) by (ii) the closing price for a share of Superholdco Common Stock
on the NYSE Composite Transaction Tape on the first business day immediately
following the Effective Time, and, in such case, all reference herein to the
cash proceeds of the sale of the Excess Shares and similar references shall be
deemed to mean and refer to the payments calculated as set forth in this
subsection (d). In such event, Excess Shares shall not be issued or otherwise
transferred to the Exchange Agent pursuant to Section 2.5 hereof.
(e) As soon as practicable after the determination of the amount of cash, if
any, to be paid to holders of Shares with respect to any fractional share
interests, the Exchange Agent shall make available such amounts, net of any
required withholding, to such holders, subject to and in accordance with the
terms of Section 2.5 hereof.
(f) Any portion of the Exchange Fund and the Common Shares Trust which
remains undistributed for six months after the Effective Time shall be delivered
to Superholdco, upon demand, and any holders of Shares who have not theretofore
complied with the provisions of this Article 2 shall thereafter look only to
Superholdco for satisfaction of their claims for Superholdco Common Stock or any
cash in lieu of fractional shares of Superholdco Common Stock and any
Pre-Surrender Dividends.
SECTION 2.8--STOCK OPTIONS. (a) At the Effective Time, each option granted
by USI to purchase shares of USI Common Stock, or by Zurn to purchase shares of
Zurn Common Stock, which is outstanding and unexercised immediately prior to the
Effective Time (collectively, "OPTIONS"), shall be assumed by Superholdco and
converted into an option (a "SUPERHOLDCO OPTION") to purchase shares of
Superholdco Common Stock in such amount and at such exercise price as provided
below and otherwise having the same terms and conditions as nearly as
practicable as are in effect immediately prior to the Effective Time:
(i) the number of shares of Superholdco Common Stock to be subject to
the Superholdco Option shall be equal to the product of (x) the number of
shares of USI Common Stock or Zurn Common Stock subject to the original
Option and (y) the USI Exchange Ratio (if the original Option related to USI
Common Stock) or the Zurn Exchange Ratio (if the original Option related to
Zurn Common Stock);
(ii) the exercise price per share of Superholdco Common Stock under the
Superholdco Option shall be equal to (x) the exercise price per share of the
USI Common Stock or Zurn Common Stock under the original Option divided by
(y) the USI Exchange Ratio (if the original Option related to USI Common
Stock) or the Zurn Exchange Ratio (if the original Option related to Zurn
Common Stock); and
(iii) upon each exercise of Superholdco Options by a holder thereof, the
aggregate number of shares of Superholdco Common Stock deliverable upon such
exercise shall be rounded down, if necessary, to the nearest whole share and
the aggregate exercise price shall be rounded up, if necessary, to the
nearest cent.
6
The adjustments provided herein with respect to any Options which are
"incentive stock options" (as defined in Section 422 of the Code) shall be
effected in a manner consistent with Section 424(a) of the Code.
(b) Superholdco shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Superholdco Common Stock for delivery
upon exercise of Superholdco Options in accordance with this Section 2.8. At or
prior to the Effective Time, Superholdco shall file a registration statement on
Form S-8 (or any successor or other appropriate forms) with respect to the
shares of Superholdco Common Stock subject to the Superholdco Options and shall
use its reasonable best efforts to maintain the effectiveness of such
registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as the
Superholdco Options remain outstanding.
SECTION 2.9--RESTRICTED STOCK. At the Effective Time, any shares of USI
Common Stock awarded pursuant to any plan, arrangement or transaction,
including, without limitation, the USI 1997 Restricted Stock Plan and the
Amended USI Stock Option Plan, and outstanding immediately prior to the
Effective Time shall be converted into the right to receive shares of
Superholdco Common Stock in accordance with Section 2.2 hereof, and such shares
of Superholdco Common Stock will be subject to the same terms, conditions and
restrictions as were in effect with respect to such shares of USI Common Stock
immediately prior to the Effective Time, except to the extent that such terms,
conditions and restrictions may be altered in accordance with their terms as a
result of the transactions contemplated hereby.
SECTION 2.10--CERTAIN ADJUSTMENTS. If between the date of this Agreement
and the Effective Time, the outstanding shares of USI Common Stock or Zurn
Common Stock shall be changed into a different number of shares by reason of any
reclassification, recapitalization, split-up, combination or exchange of shares,
or any dividend payable in stock or other securities shall be declared thereon
with a record date within such period, the applicable Exchange Ratio established
pursuant to the provisions of Section 2.2 hereof shall be adjusted accordingly
to provide to the holders of USI Common Stock and Zurn Common Stock the same
economic effect as contemplated by this Agreement prior to such
reclassification, recapitalization, split-up, combination, exchange or dividend.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF ZURN
Zurn hereby represents and warrants to USI and each Merger Subsidiary as
follows:
SECTION 3.1--ORGANIZATION AND QUALIFICATION.
(a) Zurn and each of its subsidiaries (as defined in Section 8.9) is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization and has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its businesses as now being conducted, except where the failure to be
so organized, existing and in good standing or to have such power and authority
would not, individually or in the aggregate, have a Material Adverse Effect (as
defined below) on Zurn. When used in connection with any Party to this
Agreement, the term "MATERIAL ADVERSE EFFECT" means a material adverse effect on
(i) the business, financial condition or results of operations of such Party and
its subsidiaries, taken as whole, except effects that are generally applicable
in the United States economy and/or the economy in any other region of the world
which do not have a disproportionate effect on USI and its subsidiaries or Zurn
and its subsidiaries (as the case may be) or (ii) the ability of such Party to
consummate the transactions contemplated hereby without unreasonable delay.
7
(b) Except as set forth in Section 3.1(b) of the Disclosure Schedule
previously delivered by Zurn to USI (the "ZURN DISCLOSURE SCHEDULE"), Zurn has
no subsidiaries and does not own, directly or indirectly, beneficially or of
record, any shares of capital stock or other security of any other entity or any
other investment in any other entity.
(c) Zurn has heretofore made available to USI accurate and complete copies
of the articles of incorporation and bylaws (or similar governing documents), as
currently in effect, of Zurn and each of its subsidiaries. Each of Zurn and its
subsidiaries is duly qualified or licensed and in good standing to do business
in each jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such qualification or licensing
necessary, except in such jurisdictions where the failure to be so duly
qualified or licensed and in good standing has not had and would not have a
Material Adverse Effect on Zurn.
SECTION 3.2--CAPITALIZATION OF ZURN AND ITS SUBSIDIARIES.
(a) The authorized capital stock of Zurn consists of: 100,000,000 shares of
Zurn Common Stock, of which, as of February 11, 1998, 12,787,707 shares were
issued and outstanding, and 5,000,000 shares of preferred stock, par value $1.00
per share, of which, as of February 11, 1998, 1,956 shares of $1.00 Cumulative
Convertible Preferred Stock, par value $1.00 per share ("ZURN PREFERRED STOCK"),
were issued and outstanding. Of the 5,000,000 shares of preferred stock
authorized, 150,000 shares have been designated as Zurn Preferred Stock and
3,000,000 shares have been designated as Second Series Junior Participating
Preferred Stock. All of the issued and outstanding shares of Zurn Common Stock
and Zurn Preferred Stock have been validly issued, and are fully paid,
nonassessable and free of preemptive rights. As of February 11, 1998, 1,464,625
shares of Zurn Common Stock were reserved for issuance and issuable upon or
otherwise deliverable in connection with the exercise of outstanding options
granted by Zurn to purchase shares of Zurn Common Stock issued pursuant to the
Zurn stock incentive plans listed on Section 3.2(a) of the Zurn Disclosure
Schedule (the "ZURN STOCK INCENTIVE PLANS") and 3,912 shares of Zurn Common
Stock were reserved for issuance and issuable upon conversion of the Zurn
Preferred Stock in accordance with its terms. Since February 11, 1998, except as
set forth on Section 3.2(a) of the Zurn Disclosure Schedule, no shares of Zurn's
capital stock have been issued otherwise than pursuant to the exercise of
options granted by Zurn to purchase shares of Zurn Common Stock already in
existence on such date, upon the conversion of Zurn Preferred Stock or as
expressly permitted by this Agreement and, since February 11, 1998, no options
to purchase shares of Zurn Common Stock have been granted. Except as set forth
above in this Section 3.2(a), Zurn Securities (as defined below) issued after
the date hereof as expressly permitted by this Agreement, the rights (the
"RIGHTS") issued pursuant to the Rights Agreement, dated as of May 28, 1996,
between Zurn and Society National Bank, as Rights Agent (the "RIGHTS AGREEMENT")
and obligations with respect to employer matching contributions under 401(k)
plans listed in Section 3.11(a) of the Zurn Disclosure Schedule, there are
outstanding (i) no shares of capital stock or other voting securities of Zurn,
(ii) no securities of Zurn or its subsidiaries convertible into or exchangeable
for shares of capital stock or voting securities of Zurn, (iii) no options or
other rights to acquire from Zurn or its subsidiaries, and no other contract,
understanding, arrangement or obligation (whether or not contingent) of Zurn or
its subsidiaries to issue or sell, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of Zurn and (iv) no equity equivalents, or interests in the ownership
or earnings, of Zurn or its subsidiaries (including stock appreciation rights)
(collectively, "ZURN SECURITIES"). There are no contracts, understandings,
arrangements or obligations (whether or not contingent) of Zurn or its
subsidiaries to repurchase, redeem or otherwise acquire any Zurn Securities.
Except as set forth in Section 3.2(a) of the Zurn Disclosure Schedule, there are
no stockholder agreements, voting trusts or other agreements or understandings
to which Zurn is a party or to which it is bound relating to the voting of any
shares of capital stock of Zurn.
(b) Except as set forth in Section 3.2(b) of the Zurn Disclosure Schedule,
(i) all of the outstanding capital stock of Zurn's subsidiaries is owned
beneficially and of record by Zurn, directly or indirectly, free and clear of
any Lien (as defined below) and (ii) there are no securities of Zurn or its
subsidiaries
8
convertible into or exchangeable for, no options or other rights to acquire from
Zurn or its subsidiaries, and no other contract, understanding, arrangement or
obligation (whether or not contingent) of Zurn or its subsidiaries to issue or
sell any capital stock or other ownership interests in, or any other securities
of, any subsidiary of Zurn. There are no contracts, understandings, arrangements
or obligations (whether or not contingent) of Zurn or its subsidiaries to
repurchase, redeem or otherwise acquire any outstanding shares of capital stock
or other ownership interests in any subsidiary of Zurn. Except as set forth in
Section 3.2(b) of the Zurn Disclosure Schedule, there are no stockholder
agreements, voting trusts or other agreements or understandings to which Zurn or
its subsidiaries is a party or to which it is bound relating to the voting of
any shares of capital stock of any subsidiary of Zurn. For purposes of this
Agreement, "Lien" means, with respect to any asset (including, without
limitation, any security) any mortgage, lien, pledge, charge, security interest,
or other encumbrance of any kind in respect of such asset.
SECTION 3.3--AUTHORITY RELATIVE TO THIS AGREEMENT
(a) Zurn has all necessary corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Zurn (the "ZURN BOARD") and, assuming the accuracy of the
representation and warranty set forth in Section 4.17, no other corporate
proceedings on the part of Zurn are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby (other than, with respect to
Zurn Merger, the approval and adoption of this Agreement by the affirmative vote
of the holders of a majority of the votes cast by the then outstanding shares of
Zurn Common Stock and Zurn Preferred Stock, voting together as one class, at the
meeting of Zurn stockholders referred to in Section 5.5 hereof). This Agreement
has been duly and validly executed and delivered by Zurn and constitutes a
valid, legal and binding agreement of Zurn, enforceable against Zurn in
accordance with its terms.
(b) The Zurn Board has, by unanimous vote of those present, duly and validly
approved, and taken all corporate actions required to be taken by the Zurn Board
for the consummation of the transactions contemplated hereby (including, without
limitation, the Zurn Merger and the execution and delivery of the Stock Option
Agreement) and resolved to recommend that the stockholders of Zurn approve and
adopt this Agreement. Assuming the accuracy of the representation and warranty
set forth in Section 4.17, none of the provisions of Section 2538 and
Subchapters F (Business Combinations), G (Control--Share Acquisitions), I and J
of Chapter 25 (including, without limitation, Sections 2555, 2564, 2582 and 2587
thereof) of the Pennsylvania Law and Article Seventh of the Zurn Articles of
Incorporation, and to the knowledge of Zurn, no provision of any other
Pennsylvania or other state takeover statute or similar statute or regulation,
applies to the Zurn Merger, this Agreement, the Stock Option Agreement or any of
the transactions contemplated hereby or thereby.
(c) The Zurn Common Stock is listed on the NYSE.
SECTION 3.4--SEC REPORTS; FINANCIAL STATEMENTS.
(a) Zurn has filed all required forms, reports and documents with the
Securities and Exchange Commission (the "SEC") since April 1, 1994, each of
which has complied in all material respects with all applicable requirements of
the Securities Act of 1933, as amended (the "SECURITIES ACT") and the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), each as in effect on the
dates such forms, reports and documents were filed. Zurn has heretofore
delivered to USI, in the form filed with the SEC (including any amendments
thereto), (i) its Annual Reports on Form 10-K for each of the fiscal years ended
March 31, 1995, 1996 and 1997, (ii) all definitive proxy statements relating to
Zurn's meetings of stockholders (whether annual or special) held since April 1,
1994 and (iii) all other reports or registration statements filed by Zurn with
the SEC since April 1, 1994 (the "ZURN SEC REPORTS"). None of such forms,
reports or documents, including, without limitation, any financial statements or
schedules included or incorporated by reference therein, contained, when filed,
any untrue statement of a material fact or omitted to state a material fact
required to be stated or incorporated by reference therein or necessary in
9
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The consolidated financial statements of Zurn
included in the Zurn SEC Reports complied as to form in all material respects
with applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto, have been prepared in conformity with GAAP
(except, in the case of unaudited consolidated quarterly statements, which have
been prepared in accordance with the instructions to Form 10-Q of the SEC and
Article 10 of Regulation S-X) applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto), and fairly present
the consolidated financial position of Zurn and its consolidated subsidiaries as
of the dates thereof and their consolidated results of operations and cash flows
for the periods then ended (subject, in the case of the unaudited interim
financial statements, to normal, recurring year-end adjustments). Since March
31, 1997, except as set forth in the Zurn SEC Reports, there has not been any
change, or any application or request for any change, by Zurn or any of its
subsidiaries in accounting principles, methods or policies for financial
accounting or tax purposes.
(b) Zurn has heretofore made available to USI a complete and correct copy of
any material amendments or modifications, which have not yet been filed with the
SEC, to agreements, documents or other instruments which previously had been
filed by Zurn with the SEC pursuant to the Exchange Act.
SECTION 3.5--INFORMATION SUPPLIED. None of the information supplied or to
be supplied by Zurn for inclusion or incorporation by reference in (i) the
registration statement on Form S-4 to be filed with the SEC by Superholdco in
connection with the issuance of shares of Superholdco Common Stock in the
Mergers (the "S-4") will, at the time the S-4 is filed with the SEC and at the
time it becomes effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and (ii) the
joint proxy statement/prospectus relating to the meetings of Zurn's stockholders
and the USI's stockholders to be held in connection with the Mergers and the
offer by Superholdco of the shares of Superholdco Common Stock issuable upon
conversion of the Shares and the other transactions contemplated hereby (the
"JOINT PROXY STATEMENT") will, at the date mailed to stockholders of Zurn and
USI and at the times of the meetings of stockholders of Zurn and USI to be held
in connection with the Mergers, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. If at any time prior to the Effective Time, any
event with respect to Zurn, its officers and directors or any of its
subsidiaries should occur which is required to be described in an amendment of,
or a supplement to, the S-4 or the Joint Proxy Statement, Zurn shall promptly so
advise USI and such event shall be so described, and such amendment or
supplement (which USI shall have a reasonable opportunity to review) shall be
promptly filed with the SEC and, as and to the extent required by law,
disseminated to the stockholders of Zurn. The Joint Proxy Statement, insofar as
it relates to the meeting of Zurn's stockholders to vote on Zurn Merger, will
comply as to form in all material respects with the provisions of the Exchange
Act and the rules and regulations thereunder, except that no representation or
warranty is made with respect to statements made or incorporated by reference
therein based on information supplied by USI specifically for inclusion or
incorporation by reference in such document.
SECTION 3.6--CONSENTS AND APPROVALS; NO VIOLATIONS. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Act, the Exchange Act, state
securities or blue sky laws, the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR ACT"), the filing and recordation of the Articles of
Merger as required by the Pennsylvania Law and as otherwise set forth in Section
3.6 to the Zurn Disclosure Schedule, no filing with or notice to, and no permit,
authorization, consent or approval of, any court or tribunal or administrative,
governmental or regulatory body, agency or authority (a "GOVERNMENTAL ENTITY")
is necessary for the execution and delivery by Zurn of this Agreement or the
consummation by Zurn of the transactions contemplated hereby, except where the
failure to obtain such permits, authorizations, consents or approvals or to make
such filings or give such notice would not, individually or in the aggregate,
have a
10
Material Adverse Effect on Zurn. Except as set forth in Section 3.6 to the Zurn
Disclosure Schedule, and assuming all filings, notifications, permits,
authorizations, consents and approvals referred to in the immediately preceding
sentence are duly and timely obtained or made, neither the execution, delivery
and performance of this Agreement by Zurn nor the consummation by Zurn of the
transactions contemplated hereby will (i) conflict with or result in any breach
of any provision of the respective certificate or articles of incorporation or
bylaws (or similar governing documents) of Zurn or any of its subsidiaries, (ii)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of indemnification,
termination, amendment, cancellation or acceleration or Lien) under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which Zurn or
any of its subsidiaries is a party or by which any of them or any of their
respective properties or assets may be bound, or (iii) violate any order, writ,
injunction, decree, law, statute, rule or regulation applicable to Zurn or any
of its subsidiaries or any of their respective properties or assets, except in
the case of (ii) and (iii) for violations, breaches or defaults which would not,
individually or in the aggregate, have not had and would not have a Material
Adverse Effect on Zurn.
SECTION 3.7--NO DEFAULT. None of Zurn or its subsidiaries is in default or
violation (and no event has occurred which with or without due notice or the
lapse of time or both would constitute a default or violation) of any term,
condition or provision of (i) its articles of incorporation or bylaws (or
similar governing documents), (ii) any note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which Zurn or
any of its subsidiaries is now a party or by which any of them or any of their
respective properties or assets may be bound or (iii) any order, writ,
injunction, decree, law, statute, rule or regulation applicable to Zurn, its
subsidiaries or any of their respective properties or assets, except in the case
of (ii) and (iii) for violations, breaches or defaults which, individually or in
the aggregate, have not had and would not have a Material Adverse Effect on
Zurn.
SECTION 3.8--NO UNDISCLOSED LIABILITIES; ABSENCE OF CHANGES. Except as and
to the extent publicly disclosed by Zurn in the Zurn SEC Reports filed and
publicly available prior to the date of this Agreement (the "FILED ZURN SEC
REPORTS") and for any liabilities or obligations arising out of matters
disclosed in Section 3.9 or 3.14 of the Zurn Disclosure Schedule, as of March
31, 1997, none of Zurn or its subsidiaries had any liabilities or obligations of
any nature, whether or not accrued, contingent or otherwise, and whether due or
to become due or asserted or unasserted, which would be required by GAAP to be
reflected in, reserved against or otherwise described in the consolidated
financial statements of Zurn (including the notes thereto) as of such date or
which, individually or in the aggregate, has had or would have a Material
Adverse Effect on Zurn. Except as publicly disclosed by Zurn in the Filed Zurn
SEC Reports, since March 31, 1997, (i) the business of Zurn and its subsidiaries
has been carried on in the ordinary course and (ii) there has not been any
condition, event or occurrence (except for conditions, events or occurrences
arising out of (A) matters disclosed in Section 3.9 or 3.14 of the Zurn
Disclosure Schedule or (B) any actual or potential claim, proceeding or
investigation, or any facts or circumstances underlying any such claim,
proceeding or investigation, which have been disclosed in the Filed Zurn SEC
Reports) which, individually or in the aggregate, has had or would have a
Material Adverse Effect on Zurn.
SECTION 3.9--LITIGATION. Except as publicly disclosed by Zurn in the Filed
Zurn SEC Reports, publicly disclosed by Eljer Industries, Inc. ("ELJER") in any
report, proxy statement, information statement or registration statement filed
by Eljer with the SEC since April 1, 1994 (the "ELJER SEC REPORTS"), or
disclosed in Section 3.9 of the Zurn Disclosure Schedule, there is no suit,
claim, action, proceeding or investigation pending or, to the knowledge of Zurn,
threatened against Zurn or any of its subsidiaries or any of their respective
properties or assets which (a) individually or in the aggregate, has had or
would have a Material Adverse Effect on Zurn or (b) questions the validity of
this Agreement or any action to be taken by Zurn in connection with the
consummation of the transactions contemplated hereby. Except as publicly
disclosed by Zurn in the Filed Zurn SEC Reports or by Eljer in the Eljer SEC
Reports, none of
11
Zurn or its subsidiaries is subject to any outstanding order, writ, injunction
or decree which, individually or in the aggregate, has had or would have a
Material Adverse Effect on Zurn.
SECTION 3.10--COMPLIANCE WITH APPLICABLE LAW. Except as publicly disclosed
by Zurn in the Filed Zurn SEC Reports or by Eljer in the Eljer SEC Reports, Zurn
and its subsidiaries hold all permits, licenses, variances, exemptions, orders
and approvals of all Governmental Entities necessary for the lawful conduct of
their respective businesses (the "ZURN PERMITS"), except for failures to hold
such permits, licenses, variances, exemptions, orders and approvals which,
individually or in the aggregate, have not had and would not have a Material
Adverse Effect on Zurn. Except as publicly disclosed by Zurn in the Filed Zurn
SEC Reports or by Eljer in the Eljer SEC Reports, Zurn and its subsidiaries are
in compliance with the terms of Zurn Permits, except where the failure so to
comply, individually or in the aggregate, has not had and would not have a
Material Adverse Effect on Zurn. Except as publicly disclosed by Zurn in the
Filed Zurn SEC Reports or by Eljer in the Eljer SEC Reports, the businesses of
Zurn and its subsidiaries are not being conducted in violation of any law,
ordinance or regulation of any Governmental Entity, except that no
representation or warranty is made in this Section 3.10 with respect to
Environmental Laws (as defined and addressed in Section 3.12(a)) and except for
violations or possible violations which, individually or in the aggregate, have
not had and would not have a Material Adverse Effect on Zurn. Except as publicly
disclosed by Zurn in the Filed Zurn SEC Reports, or publicly disclosed by Eljer
in the Eljer SEC Reports, no investigation or review by any Governmental Entity
with respect to Zurn or its subsidiaries is pending or, to the knowledge of
Zurn, threatened, nor, to the knowledge of Zurn, has any Governmental Entity
indicated an intention to conduct the same, other than, in each case, those the
outcome of which, individually or in the aggregate, have not had and would not
have a Material Adverse Effect on Zurn.
SECTION 3.11--EMPLOYEE PLANS.
(a) Section 3.11(a) of the Zurn Disclosure Schedule lists all "employee
benefit plans," as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and all other employee benefit plans
or other benefit arrangements, including executive compensation, directors'
benefit, bonus or other incentive compensation, severance and deferred
compensation plans and practices which Zurn or any of its subsidiaries
maintains, is a party to, contributes to or has any obligation to or liability
for (each an "EMPLOYEE BENEFIT PLAN" and collectively, the "EMPLOYEE BENEFIT
PLANS"), except Employee Benefit Plans mandated by law ("STATUTORY PLANS").
(b) True, correct and complete copies or descriptions of each Employee
Benefit Plan that is a salaried plan, except Statutory Plans, have been
delivered to USI for review prior to the date hereof.
(c) As of the date hereof, except for exceptions which, individually or in
the aggregate, have not had and would not have a Material Adverse Effect on
Zurn, (i) all payments required to be made by or under any Employee Benefit
Plan, any related trusts, or any collective bargaining agreement have been made;
(ii) Zurn and its subsidiaries have performed all obligations required to be
performed by them under any Employee Benefit Plan; (iii) the Employee Benefit
Plans have been administered in compliance with their terms and, if applicable,
the requirements of ERISA, the Code and other applicable laws; (iv) there are no
actions, suits, arbitrations or claims (other than routine claims for benefit)
pending or, to the knowledge of Zurn, threatened with respect to any Employee
Benefit Plan; and (v) Zurn and its subsidiaries have no liability as a result of
any "prohibited transaction" (as defined in Section 406 of ERISA and Section
4975 of the Code) for any excise tax or civil penalty.
(d) Except as disclosed on Section 3.11(d) of the Zurn Disclosure Schedule,
none of the Employee Benefit Plans is subject to Title IV of ERISA.
(e) Except for exceptions which, individually or in the aggregate, have not
had and would not have a Material Adverse Effect on Zurn, Zurn and its
subsidiaries have not incurred any unsatisfied withdrawal liability with respect
to any Multiemployer Plan.
12
(f) Except for exceptions which, individually or in the aggregate, have not
had and would not have a Material Adverse Effect on Zurn, each of the Pension
Plans which is intended to be "qualified" within the meaning of Section 401(a)
and 401(k), if applicable, and 501(a) of the Code has been determined by the
Internal Revenue Service to be so "qualified" and Zurn knows of no fact which
would adversely affect the qualified status of any such Pension Plan.
(g) Except as set forth on Section 3.11(g) of the Zurn Disclosure Schedule,
neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment becoming due, or
increase the amount of compensation due, to any current or former employee of
Zurn or any of its subsidiaries; (ii) increase any benefits otherwise payable
under any Employee Benefit Plan; or (iii) result in the acceleration of the time
of payment or vesting of any such benefits.
(h) If and to the extent applicable, no Employee Benefit Plan has or has
incurred an accumulated funding deficiency within the meaning of Section 302 of
ERISA or Section 412 of the Code, nor has any waiver of the minimum funding
standards of Section 302 of ERISA and Section 412 of the Code been requested of
or granted by the IRS with respect to any Employee Benefit Plan, nor has any
lien in favor of any such plan arisen under Section 412(n) of the Code or
Section 302(f) of ERISA. Except as indicated on Schedule 3.11(h) of the Zurn
Disclosure Schedule, no Plan that is a welfare benefit plan is self funded by
Zurn. Except as disclosed on Schedule 3.11(h) of the Zurn Disclosure Schedule
and for exceptions which, individually or in the aggregate, have not had and
would not have a Material Adverse Effect on Zurn, with respect to any insurance
policy providing funding for benefits under any Employee Benefit Plan, there is
no liability of Zurn in the nature of a retroactive rate adjustment, loss
sharing arrangement, or other actual or contingent liability, there will be no
such liability arising wholly or partially out of events occurring prior to the
execution of this Agreement, nor would there be any such liability if Zurn
cancelled such policy as of the date hereof.
SECTION 3.12--ENVIRONMENTAL MATTERS. (a) As used in this Agreement:
(1) "ENVIRONMENTAL LAW" means any applicable federal, state or local
law, statute, code, ordinance, rule, regulation or other governmental
requirement from any U.S. or foreign jurisdiction concerning the Release (as
defined herein), handling, storage, processing, transportation or other use
of any solid waste, industrial waste or Hazardous Substance (as defined
herein), as of the date hereof, including, by way of example but not
limitation, the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. Section 9601 et seq.), the Hazardous Materials
Transportation Act (49 U.S.C. Section 1801 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), the Clean
Water Act (42 U.S.C. Section 7401 et seq.), the Clean Air Act (33 U.S.C.
Section 2601 et seq.), the Toxic Substances Control Act (15 U.S.C. Section
2601 et seq.), and the Federal Insecticide, Fungicide and Rodenticide Act (7
U.S.C. Section 136 et seq.) and the Occupational Safety and Health Act (29
U.S.C. Section 651 et seq.), and the regulations promulgated pursuant
thereto.
(2) "ENVIRONMENTAL CLAIM" means any written notice of violation,
action, claim, lien, demand, order, injunction, judgment, decree, ruling,
assessment or arbitration award or directive (conditional or otherwise) by
any Governmental Entity or any person for personal injury (including
sickness, disease or death), tangible or intangible property damage,
diminution in value, damage to the environment or natural resources,
nuisance, pollution, contamination or other adverse effects on the
environment, or for fines, penalties or restrictions resulting from or based
upon (a) the existence, or the continuation of the existence, of a Release
(including, without limitation, sudden or non-sudden accidental or
non-accidental Release) of, or exposure to, any Hazardous Substance, odor,
audible noise, or any solid or industrial waste; (b) the transportation,
storage, treatment or disposal of solid waste, industrial waste or Hazardous
Substances, in connection with the past or present operations of Zurn, any
of its subsidiaries or, to the knowledge of Zurn, any of their respective
predecessors or assigns; or (c) the violation, or alleged violation, of any
Environmental Laws, orders, injunctions,
13
judgments, decrees, rulings, assessments, arbitration awards, Environmental
Permits or ruling, order or decision of any court arbitrator or Government
Entity relating to Zurn and its environmental matters.
(3) "ENVIRONMENTAL PERMIT" means any permit, approval, authorization,
license, variance, registration, permit application, notification, program
development and implementation, or permission required under any applicable
Environmental Law.
(4) "HAZARDOUS SUBSTANCE" means any substance, material or waste which
is regulated under any Environmental Law or by any applicable Governmental
Entity in the jurisdictions in which Zurn or any subsidiary or any of their
respective predecessors or assigns conducts or has conducted business, or
the United States, including, without limitation, any material or substance
which is defined as a "hazardous waste," "hazardous material," "hazardous
substance," "extremely hazardous waste" or "restricted hazardous waste,"
"subject waste," "contaminant," "toxic waste," "toxic substance" or
"residual waste" under any Environmental Law, including, but not limited to,
radioactive materials, petroleum products, asbestos and polychlorinated
biphenyls.
(5) "PROPERTY" means, with respect to any person or entity, any land,
facility or operations currently or previously owned or otherwise used by
such person or entity, any of its subsidiaries or any of their respective
predecessors.
(6) "RELEASE" means, with respect to any person or entity, any
intentional or unintentional, continuous or intermittent release, spill,
emission, seepage, leaking, pumping, uncontrolled loss, injection, deposit,
disposal, discharge, dispersal, leaching or migration into the environment,
or any building surface, or onto or from any Property of such person or
entity of any Hazardous Substance, including the movement of any Hazardous
Substance through or in the air, soil, surface water, ground water or
otherwise.
(7) "REMEDIAL ACTION" means, with respect to any person or entity, all
actions, including, without limitation, any capital expenditures, required
or voluntarily undertaken by such person or entity to (i) clean up, remove,
treat, or in any other way address any Hazardous Substance or any other
material required pursuant to applicable Environmental Law; (ii) prevent the
Release or threat of Release, or minimize the further Release of any
Hazardous Substance or any other material required pursuant to applicable
Environmental Law; (iii) perform pre-remedial studies and investigations or
post-remedial monitoring and care including the conduct of risk assessments
and negotiation with applicable governmental entities regarding Hazardous
Substance or any other material required pursuant to applicable
Environmental Law; or (iv) bring the Properties of such person or entity
into compliance with all applicable Environmental Laws and Environmental
Permits.
(b) Except as disclosed in any Filed Zurn SEC Report or any Eljer SEC
Report, Zurn and each of its subsidiaries and its use of and operations at each
Property is in compliance with all applicable Environmental Laws, except where
the failure to so be in compliance, individually or in the aggregate, has not
had and would not have a Material Adverse Effect on Zurn.
(c) Except as disclosed in any Filed Zurn SEC Report or any Eljer SEC
Report, neither Zurn nor any of its subsidiaries or, to the knowledge of Zurn,
any of their respective predecessors, has received any written communication
from a court, Governmental Entity or any other person or entity that alleges
that Zurn or any such subsidiary or predecessor is not in compliance, in all
respects, with any Environmental Law or has liability thereunder, except with
respect to failures to so be in compliance which, individually or in the
aggregate, have not had and would not have a Material Adverse Effect on Zurn.
(d) Except as disclosed in any Filed Zurn SEC Report or any Eljer SEC
Report, (i) none of the Properties or operations of Zurn or any of its
subsidiaries or, to the knowledge of Zurn, any of their respective predecessors,
is the subject of any investigation by any Governmental Entity, whether federal,
state, local or foreign, with respect to (A) any Environmental Law, (B) any
Remedial Action or (C) any
14
Environmental Claim, which in each case, individually or in the aggregate, has
had or would have a Material Adverse Effect on Zurn and (ii) Zurn and each of
its subsidiaries has filed all notices, obtained all Environmental Permits and
conducted all Remedial Actions required under all Environmental Laws, except
where the failure to file such notices, obtain such Environmental Permits or
take such Remedial Actions, individually or in the aggregate, has not had and
would not have a Material Adverse Effect on Zurn.
(e) Except as disclosed in any Filed Zurn SEC Report or any Eljer SEC
Report, Zurn and each of its subsidiaries and, to the knowledge of Zurn, each of
their respective predecessors, have filed all notices required to be filed by
them under all Environmental Laws reporting any Release, except where failure to
file such notices, individually or in the aggregate, has not had and would not
have a Material Adverse Effect on Zurn.
(f) Except as disclosed in any Filed Zurn SEC Report or any Eljer SEC
Report, neither Zurn nor any of its subsidiaries has any contingent liabilities
with respect to its business or, to the knowledge of Zurn, that of its
predecessors, in connection with any Hazardous Substance or Environmental Law
which, individually or in the aggregate, have had or would have a Material
Adverse Effect on Zurn.
(g) Except as disclosed in any Filed Zurn SEC Report or any Eljer SEC
Report, underground storage tanks are not located on or under any Property for
which Zurn or any of its subsidiaries would be responsible or potentially
responsible under any Environmental Law and there have been no Releases of
Hazardous Substances on, in or under any Property for which Zurn or any of its
subsidiaries would be responsible or potentially responsible under any
Environmental Law that in either case, individually or in the aggregate, have
had or would have a Material Adverse Effect on Zurn.
(h) Except as disclosed in any Filed Zurn SEC Report or any Eljer SEC
Report, none of Zurn, any of its subsidiaries or, to the knowledge of Zurn, any
of their respective predecessors, is subject to any judicial, administrative or
arbitral actions, suits, proceedings (public or private), written claims or
governmental proceedings alleging the violation of any Environmental Law or
Environmental Permit that, individually or in the aggregate, have had or would
have a Material Adverse Effect on Zurn.
(i) Except as disclosed in any Filed Zurn SEC Report or any Eljer SEC
Report, none of Zurn, any of its subsidiaries or, to the knowledge of Zurn, any
of their respective predecessors, as a result of their respective past and
current operations, has caused or permitted any Hazardous Substances to remain
or be disposed of, either on or under any Property of Zurn or on any real
property, otherwise than in compliance with all applicable Environmental Laws,
in a manner that, individually or in the aggregate, has had or would have a
Material Adverse Effect on Zurn.
SECTION 3.13--TAX MATTERS. Except as disclosed in Section 3.13 of the Zurn
Disclosure Schedule or as disclosed in any Filed Zurn SEC Document or any Eljer
SEC Report:
(a) Subject to such exceptions which, individually or in the aggregate,
have not had and would not have a Material Adverse Effect on Zurn, (i) Zurn
and each of its subsidiaries, and each affiliated group (within the meaning
of Section 1504 of the Code) of which Zurn or any of its subsidiaries is or
has been a member, has timely filed all federal income tax returns and all
other Tax (as defined below) returns and reports required to be filed by it,
(ii) all such Tax returns are complete and correct in all respects and (iii)
Zurn and each of its subsidiaries has paid (or Zurn has paid on its
subsidiaries' behalf) all Taxes due in respect of the taxable periods
covered by such Tax returns. Zurn has previously delivered to USI copies of
all U.S. federal income Tax returns filed by Zurn and each of its
subsidiaries for their taxable years ended in 1996 and 1997. For purposes of
this Agreement, (i) "TAX" or "TAXES" shall mean all taxes, charges, fees,
imposts, levies, gaming or other assessments, including, without limitation,
all net income, gross receipts, capital, sales, use, ad valorem, value
added, transfer, franchise, profits, inventory, capital stock, license,
withholding, payroll, employment, social security, unemployment, excise,
severance, stamp, occupation, property and estimated taxes, customs duties,
15
fees, assessments and charges of any kind whatsoever, together with any
interest and any penalties, fines, additions to tax or additional amounts
imposed by any taxing authority (domestic or foreign) and shall include any
transferee liability in respect of taxes, any liability in respect of taxes
imposed by contract, tax sharing agreement, tax indemnity agreement or any
similar agreement and (ii) "Tax returns" shall mean any report, return,
document, declaration or any other information or filing required to be
supplied to any taxing authority or jurisdiction (foreign or domestic) with
respect to Taxes, including without limitation, information returns, any
document with respect to or accompanying payments or estimated Taxes, or
with respect to or accompanying requests for the extension of time in which
to file any such report, return document, declaration or other information.
(b) Subject to such exceptions which, individually or in the aggregate,
have not had and would not have a Material Adverse Effect on Zurn, no
deficiencies for any Taxes have been proposed, asserted or assessed against
Zurn or any of its subsidiaries that have not been fully paid or adequately
provided for in the appropriate financial statements of Zurn and its
subsidiaries.
(c) Subject to such exceptions which, individually or in the aggregate,
have not had and would not have a Material Adverse Effect on Zurn, (i) no
requests for waivers of the time to assess any Taxes are pending, and no
power of attorney with respect to any Taxes has been executed or filed with
any taxing authority and (ii) no issues relating to Taxes have been raised
in writing by the relevant taxing authority during any pending audit or
examination. The federal income Tax returns of Zurn and each of its
subsidiaries consolidated in such Tax returns have been reviewed by the
Internal Revenue Service for all years through its fiscal year ended March
31, 1994.
(d) Subject to such exceptions which, individually or in the aggregate,
have not had and would not have a Material Adverse Effect on Zurn, no Liens
for Taxes exist with respect to any assets or properties of Zurn or any of
its subsidiaries, except for statutory liens for Taxes not yet due.
(e) None of Zurn or any of its subsidiaries is a party to or is bound by
any Tax sharing agreement, Tax indemnity obligation or similar agreement,
arrangement or practice with respect to Taxes (including any advance pricing
agreement, closing agreement or other agreement relating to Taxes with any
taxing authority).
(f) None of Zurn or any of its subsidiaries has taken or agreed to take
any action that would prevent the Zurn Merger from constituting a
reorganization qualifying under the provisions of Section 368(a) of the
Code.
(g) There is no employment, severance or termination agreement, other
compensation arrangement or Employee Benefit Plan currently in effect which
provide for the payment of any amount (whether in cash or property or the
vesting of property) solely as a result of the consummation of the
transactions contemplated by this Agreement to occur prior to or
concurrently with the Effective Time that would not be deductible by reason
of Sections 280G or 162(m) of the Code.
(h) Subject to such exceptions which, individually or in the aggregate,
have not had and would not have a Material Adverse Effect on Zurn, Zurn and
its subsidiaries have complied with all applicable laws, rules and
regulations relating to the payment and withholding of Taxes.
(i) Subject to such exceptions which, individually or in the aggregate,
have not had and would not have a Material Adverse Effect on Zurn, no
federal, state, local or foreign audits or other administrative proceedings
or court proceedings are presently pending with regard to any federal income
or material state, local or foreign Taxes or Tax returns of Zurn or its
subsidiaries and neither Zurn nor any of its subsidiaries has received a
written notice of any pending audit or proceeding.
(j) Neither Zurn nor any of its subsidiaries has agreed to or is
required to make any adjustment under Section 481(a) of the Code.
16
(k) Neither Zurn nor any of its subsidiaries has (i) with regard to any
assets or property held or acquired by any of them, filed a consent to the
application of Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
such term is defined in Section 341(f)(4) of the Code) owned by Zurn or any
of its subsidiaries, (ii) executed or entered into a closing agreement
pursuant to Section 7121 of the Code or any similar provision of state,
local or foreign law or (iii) received or filed any requests for rulings or
determinations in respect of any Taxes within the last five years.
(l) No property owned by Zurn or any of its subsidiaries (i) is property
required to be treated as being owned by another Person pursuant to the
provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as
amended and in effect immediately prior to the enactment of the Tax Reform
Act of 1986; (ii) constitutes "tax exempt use property" within the meaning
of Section 168(h)(1) of the Code; or (iii) is "tax exempt bond financed
property" within the meaning of Section 168(g) of the Code.
(m) Zurn and each of its subsidiaries are not currently, have not been
within the last five years, and do not anticipate becoming a "United States
real property holding company" within the meaning of Section 897(c) of the
Code.
(n) No subsidiary of Zurn owns any Shares.
SECTION 3.14--INTANGIBLE PROPERTY. Subject to such exceptions which,
individually or in the aggregate, have not had and would not have a Material
Adverse Effect on Zurn, Zurn and its subsidiaries own or possess adequate
licenses or other valid rights to use all patents, patent rights, trademarks,
trademark rights, trade names, trade name rights, copyrights, service marks,
trade secrets, applications for trademarks and for service marks, know-how and
other proprietary rights and information used or held for use in connection with
the business of Zurn and its subsidiaries as currently conducted or as
contemplated to be conducted, and, except as set forth in the Filed Zurn SEC
Reports, the Eljer SEC Reports or Section 3.14 of the Zurn Disclosure Schedule,
Zurn is unaware of any assertion or claim challenging the validity or
enforceability of any of the foregoing which, individually or in the aggregate,
has had or would have a Material Adverse Effect on Zurn. Except as disclosed in
Section 3.14 of the Zurn Disclosure Schedule or in any Filed Zurn SEC Report or
Eljer SEC Report and subject to such exceptions which, individually or in the
aggregate, have not had and would not have a Material Adverse Effect on Zurn,
there have been no claims made or notices that the manufacture and sale of any
of Zurn's products infringes the patents of any third party.
SECTION 3.15--OPINION OF FINANCIAL ADVISOR. BT Wolfensohn (the "ZURN
FINANCIAL ADVISOR") has delivered to the Zurn Board its opinion, dated the date
of this Agreement, to the effect that, as of such date, the Zurn Merger
Consideration is fair to the holders of Zurn Common Shares from a financial
point of view, and such opinion has not been withdrawn or adversely modified.
SECTION 3.16--BROKERS. No broker, finder or investment banker (other than
the Zurn Financial Advisor, a true and correct copy of whose engagement
agreement has been provided to USI) is entitled to any brokerage, finder's or
other fee or commission or expense reimbursement in connection with the
transactions contemplated by this Agreement based upon arrangements made by and
on behalf of Zurn or any of its affiliates.
SECTION 3.17--ACCOUNTING MATTERS. Neither Zurn nor, to its knowledge, any
of its affiliates or stockholders, has taken or agreed to take any action that
would prevent Superholdco from accounting for the transactions to be effected
pursuant to Article 1 of this Agreement in accordance with the pooling of
interests method of accounting under the requirements of the Accounting
Principles Board Opinion No. 16 "Business Combinations", as amended by
applicable pronouncements by the Financial Accounting Standards Board, the
Emerging Issues Taskforce and the SEC (the "POOLING OF INTERESTS METHOD OF
ACCOUNTING"). Zurn has not failed to bring to the attention of USI any actions,
or agreements or understandings, whether
17
written or oral, that would be reasonably likely to prevent Superholdco from
accounting for the transactions to be effected pursuant to Article 1 of this
Agreement in accordance with the Pooling of Interests Method of Accounting.
SECTION 3.18--MATERIAL CONTRACTS.
(a) Zurn has delivered or otherwise made available to USI true, correct and
complete copies of all contracts and agreements (and all amendments,
modifications and supplements thereto and all side letters to which Zurn is a
party affecting the obligations of any party thereunder) to which Zurn or any of
its subsidiaries is a party or by which any of its properties or assets are
bound that are material to the business, properties or assets of Zurn and its
subsidiaries taken as a whole, including, without limitation, to the extent any
of the following is material to the business, properties or assets of Zurn and
its subsidiaries taken as a whole: (i) any employment, product design or
development, personal services, consulting, non-competition, severance or
indemnification contracts (including, without limitation, any contract to which
Zurn or any of its subsidiaries is a party involving employees of Zurn or any of
its subsidiaries); (ii) any licensing, merchandising or distribution agreements;
(iii) any contract granting a right of first refusal or first negotiation; (iv)
any partnership or joint venture agreements; (v) any agreement for the
acquisition, sale, lease or other disposition of material properties or assets
of Zurn or its subsidiaries or predecessors (by merger, purchase or sale of
assets or stock or otherwise) entered into since January 1, 1992; (vi) any
contract or agreement with any Governmental Entity; and (vii) any commitment or
agreement to enter into any of the foregoing (collectively, the "CONTRACTS").
(b) Each of the Contracts is valid and enforceable in accordance with its
terms, and there is no default under any Contract either by Zurn or, to the
knowledge of Zurn, by any other party thereto, and no event has occurred that
with the lapse of time or the giving of notice or both would constitute a
default thereunder by Zurn or, to the knowledge of Zurn, any other party, in any
such case in which such default or event, individually or in the aggregate, has
had or would have a Material Adverse Effect on Zurn.
(c) No party to any such Contract has given notice to Zurn of or made a
claim against Zurn with respect to any breach or default thereunder, in any such
case in which such breach or default, individually or in the aggregate, has had
or would have a Material Adverse Effect on Zurn.
SECTION 3.19--LABOR MATTERS. As of the date of this Agreement, except as
set forth in Section 3.19 of the Zurn Disclosure Schedule, neither Zurn nor any
of its subsidiaries is a party to any employment, severance compensation, labor
or collective bargaining agreement and there are no employment, severance
compensation, labor or collective bargaining agreements which pertain to
employees of Zurn or any of its subsidiaries. As of the date of this Agreement,
no labor organization or group of employees of Zurn or any of its subsidiaries
has made a pending written demand for recognition or certification.
SECTION 3.20--INSURANCE. As of the date of this Agreement, each of Zurn and
its subsidiaries is, and has been continuously since January 1, 1994, insured
with financially responsible insurers in such amounts and against such risks and
losses as are customary for companies conducting the business as conducted by
Zurn and its subsidiaries during such time period. Except as set forth in the
Filed Zurn SEC Reports or the Eljer SEC Reports and subject to such exceptions
which, individually or in the aggregate, have not had and would not have a
Material Adverse Effect on Zurn, (i) since January 1, 1994, neither Zurn nor any
of its subsidiaries has received notice of cancellation or termination (or a
denial of coverage) with respect to any material insurance policy of Zurn or its
subsidiaries and (ii) the insurance policies of Zurn and its subsidiaries are
valid and enforceable policies.
SECTION 3.21--PRODUCTS. Except as otherwise disclosed in the Filed Zurn SEC
Reports or the Eljer SEC Reports and subject to such exceptions which,
individually or in the aggregate, have not had and would not have a Material
Adverse Effect on Zurn, (i) each of the products currently or formerly produced
or sold by Zurn or its subsidiaries (A) complies or complied, as the case maybe,
with all applicable federal, state, local and foreign laws and regulations and
(B) conforms or conformed, as the case may be, to any promises or affirmations
of fact made on the container or label for such product or in connection with
its
18
sale and (ii) there are no defects in any such product that would adversely
affect the functioning thereof in accordance with any published specifications
therefor.
SECTION 3.22--AMENDMENT TO RIGHTS AGREEMENT. Concurrently with the
execution and delivery of this Agreement, the Zurn Board has taken all necessary
action to approve, and Zurn has duly executed, an amendment to the Rights
Agreement which provides that (a) notwithstanding anything in the Rights
Agreement to the contrary, (i) no Distribution Date (as defined in the Rights
Agreement) will occur, (ii) neither USI nor Superholdco will be an Acquiring
Person (as defined in the Rights Agreement), and (iii) no Stock Acquisition Date
(as defined in the Rights Agreement) will occur, solely as a result of the
approval, execution or delivery of this Agreement or the consummation of the
transactions contemplated hereby and (b) the Expiration Date (as defined in the
Rights Agreement) of the Rights shall occur immediately prior to the Effective
Time, and Zurn will cause such amendment to be delivered to the Rights Agent (as
defined in the Rights Agreement) in accordance with Section 26 of the Rights
Agreement as promptly as practicable. Except as set forth in the preceding
sentence in connection with the transactions contemplated by this Agreement, the
Rights Agreement may not be amended by Zurn without the prior written consent of
USI in its sole discretion.
SECTION 3.23--U.S. BRASS BANKRUPTCY PROCEEDING. As of the date of this
Agreement, a case pursuant to Chapter 11 of Title 11, United States Code, is
pending for United States Brass Corporation ("U.S. BRASS"), Case No. 94-40823-S,
in the United States Bankruptcy Court for the Eastern District of Texas. The
case has not been converted to a Chapter 7 proceeding and no trustee or examiner
has been appointed. U.S. Brass, together with Eljer Industries, Inc. and Eljer
Manufacturing, Inc., have proposed a Fourth Amended Plan of Reorganization (the
"PLAN"), all amendments or modifications of which have been furnished to USI.
After a confirmation hearing which concluded on January 29, 1998, the Bankruptcy
Court indicated that it would confirm the Plan in its entirety. No order of
confirmation has been entered as of the date of this Agreement.
SECTION 3.24--FULL DISCLOSURE. None of the representations or warranties of
Zurn contained in this Article 3 nor any of the disclosures contained in the
Zurn Disclosure Schedule contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements contained herein or therein, in light of the
circumstances under which they are to be made, not misleading, subject to such
exceptions which, individually or in the aggregate, have not had and would not
have a Material Adverse Effect on Zurn.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF USI, SUPERHOLDCO AND THE MERGER SUBSIDIARIES
USI, Superholdco and each Merger Subsidiary hereby represents and warrants
to Zurn as follows:
SECTION 4.1--ORGANIZATION AND QUALIFICATION.
(a) Each of USI, Superholdco, the Merger Subsidiaries and USI's other
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
and has all requisite corporate power and authority to own, lease and operate
its properties and to carry on its businesses as now being conducted, except
where the failure to be so organized, existing and in good standing or to have
such power and authority, individually or in the aggregate, has not had and
would not have a Material Adverse Effect on USI.
(b) USI has heretofore delivered to Zurn accurate and complete copies of the
articles of incorporation and bylaws, as currently in effect, of USI,
Superholdco and each of the Merger Subsidiaries. Each of USI, Superholdco, the
Merger Subsidiaries and USI's other subsidiaries is duly qualified or licensed
and in good standing to do business in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except in such jurisdictions
where the failure to be so duly qualified or licensed and in good standing,
individually or in the aggregate, has not had and would not have a Material
Adverse Effect on USI.
19
SECTION 4.2--CAPITALIZATION OF USI AND ITS SUBSIDIARIES.
(a) The authorized capital stock of USI consists of 200,000,000 shares of
USI Common Stock, of which, as of February 11, 1998, 77,013,920 shares were
issued and outstanding, and 50,000,000 shares of preferred stock, $.01 par value
per share, no shares of which were issued and outstanding as of such date. All
of the issued and outstanding shares of USI Common Stock have been validly
issued, and are fully paid, nonassessable and free of preemptive rights. As of
February 11, 1998, 3,803,750 shares of USI Common Stock were reserved for
issuance and issuable upon or otherwise deliverable in connection with the
exercise of outstanding options granted by USI to purchase shares of USI Common
Stock issued pursuant to the USI stock incentive plans listed on Section 4.2(a)
of the Disclosure Schedule previously delivered by USI to Zurn (the "USI
DISCLOSURE SCHEDULE"). Since February 11, 1998, no shares of USI's capital stock
have been issued otherwise than pursuant to the exercise of options granted by
USI to purchase shares of USI Common Stock already in existence on such date or
as expressly permitted by this Agreement and, since February 11, 1998, no
options to purchase shares of USI Common Stock have been granted. Except as set
forth above in this Section 4.2(a), as of the date hereof there are outstanding
(i) no shares of capital stock or voting securities of USI (ii) no securities of
USI or its subsidiaries convertible into or exchangeable for shares of capital
stock or voting securities of USI, (iii) no options or other rights to acquire
from USI or its subsidiaries, and no other contract, understanding, arrangement
or obligation (whether or not contingent) of USI or its subsidiaries to issue or
sell, any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of USI and (iv) no equity
equivalents, or interests in the ownership or earnings of USI, including stock
appreciation rights (collectively, "USI SECURITIES"). There are no contracts,
understandings, arrangements or obligations (whether or not contingent) of USI
or any of its subsidiaries to repurchase, redeem or otherwise acquire any USI
Securities. There are no stockholder agreements, voting trusts or other
agreements or understandings to which USI is a party or to which it is bound
relating to the voting of any shares of capital stock of USI.
(b) Except for minority equity interests in indirect foreign subsidiaries of
USI which, individually or in the aggregate, are not material to USI and its
subsidiaries taken as a whole, all of the outstanding capital stock of USI's
subsidiaries (including Superholdco and the Merger Subsidiaries) is owned by
USI, directly or indirectly, free and clear of any Lien. There are no securities
of USI or its subsidiaries convertible into or exchangeable for, no options or
other rights to acquire from USI or its subsidiaries, and no other contract,
understanding, arrangement or obligation (whether or not contingent) of USI or
its subsidiaries to issue or sell any capital stock or other ownership interests
in, or any other securities of, any subsidiary of USI. There are no contracts,
understandings, arrangements or obligations (whether or not contingent) of USI
or its subsidiaries to repurchase, redeem or otherwise acquire any outstanding
shares of capital stock or other ownership interests in any subsidiary of USI.
(c) All of the issued and outstanding capital stock of Superholdco is duly
authorized, validly issued, fully paid and nonassessable, and is owned by USI
free and clear of any Lien. All of the issued and outstanding capital stock of
each of B-Sub and Z-Sub is duly authorized, validly issued, fully paid and
nonassessable, and is owned by Superholdco free and clear of any Lien.
SECTION 4.3--AUTHORITY RELATIVE TO THIS AGREEMENT. (a) Each of USI,
Superholdco and each Merger Subsidiary has all necessary corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by the Boards of Directors of USI, Superholdco and each
Merger Subsidiary, by USI as the sole stockholder of Superholdco and by
Superholdco as the sole stockholder of each of B-Sub and Z-Sub and no other
corporate proceedings on the part of USI, Superholdco or either of the Merger
Subsidiaries is necessary to authorize this Agreement or to consummate the
transactions contemplated hereby (other than the affirmative vote of the holders
of a majority of the then outstanding shares of USI Common Stock entitled to
vote thereon which are present in person or represented by proxy at the meeting
of USI stockholders referred to in Section 5.5 hereof). This Agreement has been
duly and validly executed and delivered by
20
each of USI, Superholdco and each Merger Subsidiary and constitutes a valid,
legal and binding agreement of each of USI, Superholdco and each Merger
Subsidiary, enforceable against each of USI, Superholdco and each Merger
Subsidiary in accordance with its terms.
(b) The Board of Directors of USI (the "USI BOARD") has, by unanimous vote
of those present, duly and validly approved, and taken all corporate actions
required to be taken by the USI Board for the consummation of the transactions
contemplated hereby (including, without limitation, the USI Merger) and resolved
to recommend that the stockholders of USI approve and adopt this Agreement.
(c) The USI Common Stock is listed on the NYSE.
SECTION 4.4--SEC REPORTS; FINANCIAL STATEMENTS.
(a) USI has filed all required forms, reports and documents with the SEC
since May 31, 1995, each of which has complied in all material respects with all
applicable requirements of the Securities Act and the Exchange Act, each as in
effect on the dates such forms, reports and documents were filed. USI has
heretofore made available to Zurn, in the form filed with the SEC (including any
amendments thereto), (i) its Annual Reports on Form 10-K for each of the fiscal
years ended on the Saturday closest to September 30, 1995, 1996 and 1997, (ii)
all definitive proxy statements relating to USI's meetings of stockholders
(whether annual or special) held since May 31, 1995 and (iii) all other reports
or registration statements filed by USI with the SEC since May 31, 1995 (the
"USI SEC REPORTS"). None of such forms, reports or documents, including, without
limitation, any financial statements or schedules included or incorporated by
reference therein, contained, when filed, any untrue statement of a material
fact or omitted to state a material fact required to be stated or incorporated
by reference therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
consolidated financial statements of USI included in the USI SEC Reports
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto have been prepared, in conformity with GAAP (except, in the case of
unaudited consolidated quarterly statements, which have been prepared in
accordance with the instructions to Form 10-Q of the SEC and Article 10 of
Regulation S-X) applied on a consistent basis during the periods presented
(except as may be indicated in the notes thereto) and fairly present the
consolidated financial position of USI and its consolidated subsidiaries as of
the dates thereof and their consolidated results of operations and cash flows
for the periods then ended (subject, in the case of the unaudited interim
financial statements, to normal year-end adjustments). Since September 28, 1997,
except as set forth in the USI SEC Reports, there has not been any change, or
any application or request for any change, by USI or any of its subsidiaries in
accounting principles, methods or policies for financial accounting or tax
purposes.
(b) USI has heretofore made available to Zurn a complete and correct copy of
any material amendments or modifications, which have not yet been filed with the
SEC, to agreements, documents or other instruments which previously had been
filed by USI with the SEC pursuant to the Exchange Act.
SECTION 4.5--INFORMATION SUPPLIED. None of the information supplied or to
be supplied by USI or any of the Merger Subsidiaries for inclusion or
incorporation by reference in (i) the S-4 will, at the time the S-4 is filed
with the SEC and at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading and (ii) the Joint Proxy Statement will, at the date mailed to
stockholders of Zurn and USI and at the times of the meetings of stockholders of
Zurn and USI to be held in connection with the Mergers, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. If at any time
prior to the Effective Time, any event with respect to USI, its officers and
directors or any of its subsidiaries should occur which is required to be
described in an amendment of, or a supplement to, the S-4 or the Joint Proxy
Statement, USI shall promptly so advise Zurn and such event shall be so
described, and such amendment or
21
supplement (which Zurn shall have a reasonable opportunity to review) shall be
promptly filed with the SEC and, as and to the extent required by law,
disseminated to the stockholders of USI. The S-4 will comply as to form in all
material respects with the provisions of the Securities Act and the rules and
regulations thereunder and the Joint Proxy Statement will comply as to form in
all material respects with the provisions of the Exchange Act and the rules and
regulations thereunder, except that no representation or warranty is made with
respect to statements made or incorporated by reference therein based on
information supplied by Zurn specifically for inclusion or incorporation by
reference in such document.
SECTION 4.6--CONSENTS AND APPROVALS; NO VIOLATIONS. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Act, the Exchange Act, state
securities or blue sky laws, the HSR Act, the filing and recordation of the
Certificate of Merger as required by Delaware Law and the Articles of Merger as
required by Pennsylvania Law and as otherwise set forth in Section 4.6 to the
USI Disclosure Schedule, no filing with or notice to, and no permit,
authorization, consent or approval of, any Governmental Entity is necessary for
the execution and delivery by USI, Superholdco or either of the Merger
Subsidiaries of this Agreement or the consummation by USI, Superholdco or either
of the Merger Subsidiaries of the transactions contemplated hereby, except where
the failure to obtain such permits, authorizations, consents or approvals or to
make such filings or give such notice would not, individually or in the
aggregate, have a Material Adverse Effect on USI. Except as set forth in Section
4.6 of the USI Disclosure Schedule, and assuming all filings, notifications,
permits, authorizations, consents and approvals referred to in the immediately
preceding sentence are duly and timely obtained or made, neither the execution,
delivery and performance of this Agreement by USI, Superholdco or any of the
Merger Subsidiaries nor the consummation by USI, Superholdco or any of the
Merger Subsidiaries of the transactions contemplated hereby will (i) conflict
with or result in any breach of any provision of the respective certificate of
incorporation or bylaws (or similar governing documents) of USI, Superholdco or
either of the Merger Subsidiaries or any of USI's other subsidiaries, (ii)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of indemnification,
termination, amendment, cancellation or acceleration or Lien) under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which USI,
Superholdco or either of the Merger Subsidiaries or any of USI's other
subsidiaries is a party or by which any of them or any of their respective
properties or assets may be bound or (iii) violate any order, writ, injunction,
decree, law, statute, rule or regulation applicable to USI, Superholdco or
either of the Merger Subsidiaries or any of USI's other subsidiaries or any of
their respective properties or assets, except in the case of (ii) and (iii) for
violations, breaches or defaults which, individually or in the aggregate, have
not had and would not have a Material Adverse Effect on USI.
SECTION 4.7--NO DEFAULT. None of USI or its subsidiaries is in default or
violation (and no event has occurred which with or without due notice or the
lapse of time or both would constitute a default or violation) of any term,
condition or provision of (i) its certificate or articles of incorporation or
bylaws (or similar governing documents), (ii) any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or obligation
to which USI or any of its subsidiaries is now a party or by which any of them
or any of their respective properties or assets may be bound or (iii) any order,
writ, injunction, decree, law, statute, rule or regulation applicable to USI,
its subsidiaries or any of their respective properties or assets, except in the
case of (ii) and (iii) for violations, breaches or defaults which, individually
or in the aggregate, have not had and would not have a Material Adverse Effect
on USI.
SECTION 4.8--NO UNDISCLOSED LIABILITIES; ABSENCE OF CHANGES. Except as and
to the extent publicly disclosed by USI in the USI SEC Reports filed and
publicly available prior to the date of this Agreement (the "FILED USI SEC
REPORTS"), as of September 28, 1997, none of USI or its subsidiaries had any
liabilities or obligations of any nature, whether or not accrued, contingent or
otherwise, and whether due or to become due or asserted or unasserted, which
would be required by GAAP to be reflected in, reserved against or otherwise
described in the consolidated balance sheet of USI (including the notes thereto)
as of such date or which, individually or in the aggregate, have had or would
have a Material Adverse Effect on
22
USI. Except as publicly disclosed by USI in the Filed USI SEC Reports, since
September 28, 1997, the business of USI and its subsidiaries has been carried on
in the ordinary course and there has not been any condition, event or occurrence
which, individually or in the aggregate, has had or would have a Material
Adverse Effect on USI.
SECTION 4.9--LITIGATION. Except as publicly disclosed by USI in the Filed
USI SEC Reports, there is no suit, claim, action, proceeding or investigation
pending or, to the knowledge of USI, threatened against USI or any of its
subsidiaries or any of their respective properties or assets which (a)
individually or in the aggregate, would have a Material Adverse Effect on USI or
(b) questions the validity of this Agreement or any action to be taken by USI in
connection with the consummation of the transactions contemplated hereby. Except
as publicly disclosed by USI in the Filed USI SEC Reports, none of USI or its
subsidiaries is subject to any outstanding order, writ, injunction or decree
which, individually or in the aggregate, has had or would have a Material
Adverse Effect on USI.
SECTION 4.10--COMPLIANCE WITH APPLICABLE LAW. Except as publicly disclosed
by USI in the Filed USI SEC Reports, USI and its subsidiaries hold all permits,
licenses, variances, exemptions, orders and approvals of all Governmental
Entities necessary for the lawful conduct of their respective businesses (the
"USI PERMITS"), except for failures to hold such permits, licenses, variances,
exemptions, orders and approvals which, individually or in the aggregate, have
not had and would not have a Material Adverse Effect on USI. Except as publicly
disclosed by USI in the Filed USI SEC Reports, USI and its subsidiaries are in
compliance with the terms of the USI Permits, except where the failure so to
comply, individually or in the aggregate, has not had and would not have a
Material Adverse Effect on USI. Except as publicly disclosed by USI in the Filed
USI SEC Reports, the businesses of USI and its subsidiaries are not being
conducted in violation of any law, ordinance or regulation of any Governmental
Entity except for violations or possible violations which, individually or in
the aggregate, have not had and would not have a Material Adverse Effect on USI.
Except as publicly disclosed by USI in the Filed USI SEC Reports, no
investigation or review by any Governmental Entity with respect to USI or its
subsidiaries is pending or, to the knowledge of USI, threatened, nor to the
knowledge of USI, has any Governmental Entity indicated an intention to conduct
the same, other than, in each case, those the outcome of which, individually or
in the aggregate, has not had and would not have a Material Adverse Effect on
USI.
SECTION 4.11--EMPLOYEE PLANS.
(a) For the purposes of this Agreement, all "employee benefit plans," as
defined in Section 3(3) of ERISA, and all other employee benefit plans or other
benefit arrangements, including executive compensation, directors' benefit,
bonus or other incentive compensation, severance and deferred compensation plans
and practices which USI or any of its subsidiaries maintains, is a party to,
contributes to or has any obligation to or liability shall be defined as
individually a "USI EMPLOYEE BENEFIT PLAN" and collectively, the "USI EMPLOYEE
BENEFIT PLANS".
(b) As of the date hereof, except for exceptions which, individually or in
the aggregate, have not had and would not have a Material Adverse Effect on USI,
(i) all payments required to be made by or under any USI Employee Benefit Plan,
any related trusts, or any collective bargaining agreement have been made; (ii)
USI and its subsidiaries have performed all obligations required to be performed
by them under any USI Employee Benefit Plan; (iii) the USI Employee Benefit
Plans have been administered in compliance with their terms and, if applicable,
the requirements of ERISA, the Code and other applicable laws; (iv) there are no
actions, suits, arbitrations or claims (other than routine claims for benefits)
pending or, to the knowledge of USI, threatened, with respect to any USI
Employee Benefit Plan; and (v) USI and its subsidiaries have no liability as a
result of any "prohibited transaction" (as defined in Section 406 of ERISA and
Section 4975 of the Code) for any excise tax or civil penalty.
(c) Except for exceptions which, individually or in the aggregate, have not
had and would not have a Material Adverse Effect on USI, USI and its
subsidiaries have not incurred any unsatisfied withdrawal liability with respect
to any Multiemployer Plan.
23
(d) Except for exceptions which, individually or in the aggregate, have not
and would not have a Material Adverse Effect on USI, each of the USI Employee
Benefit Plans which is intended to be "qualified" within the meaning of Section
401(a) and 401(k), if applicable, and 501(a) of the Code has been determined by
the IRS to be so "qualified" or USI intends to seek such a determination, and
USI knows of no fact which would adversely affect the qualified status of any
such USI Employee Benefit Plan or which is reasonably likely to preclude the
issuance of such IRS determination retroactive to the original date of such
plan.
(e) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment becoming due, or increase the amount of compensation due, to any current
or former employee of USI or any of its subsidiaries; (ii) increase any benefits
otherwise payable under any USI Employee Benefit Plan; or (iii) result in the
acceleration of the time of payment or vesting of any such benefits.
(f) If and to the extent applicable, no USI Employee Benefit Plan has or has
incurred an accumulated funding deficiency within the meaning of Section 302 of
ERISA or Section 412 of the Code, nor has any waiver of the minimum funding
standards of Section 302 of ERISA and Section 412 of the Code been requested of
or granted by the IRS with respect to any USI Employee Benefit Plan, nor has any
lien in favor of any such plan arisen under Section 412(n) of the Code or
Section 302(f) of ERISA. Except for exceptions which, individually or in the
aggregate, have not had and would not have a Material Adverse Effect on USI,
with respect to any insurance policy providing funding for benefits under any
USI Employee Benefit Plan, there is no liability of USI in the nature of a
retroactive rate adjustment, loss sharing arrangement, or other actual or
contingent liability, there will be no such liability arising wholly or
partially out of events occurring prior to the execution of this Agreement, nor
would there be any such liability if USI cancelled such policy as of the date
hereof.
SECTION 4.12--ENVIRONMENTAL MATTERS.
(a) Except as disclosed in any Filed USI SEC Document, USI and each of its
subsidiaries and its use of and operations at each Property is in compliance
with all applicable Environmental Laws, except where the failure to so be in
compliance, individually or in the aggregate, has not had and would not have a
Material Adverse Effect on USI.
(b) Except as disclosed in any Filed USI SEC Document, neither USI nor any
of its subsidiaries or, to the knowledge of USI, any of their respective
predecessors, has received any written communication from a court, Governmental
Entity or any other person or entity that alleges that USI or any such
subsidiary or predecessor is not in compliance, in all respects, with any
Environmental Law or has liability thereunder, except with respect to failures
to so be in compliance which, individually or in the aggregate, have not had and
would not have a Material Adverse Effect on USI.
(c) Except as disclosed in any Filed USI SEC Document, (i) none of the
Properties or operations of USI or any of its subsidiaries or, to the knowledge
of USI, any of their respective predecessors, is the subject of any
investigation by any Governmental Entity, whether federal, state, local or
foreign, with respect to (A) any Environmental Law, (B) any Remedial Action or
(C) any Environmental Claim, which in each case, individually or in the
aggregate, has had or would have a Material Adverse Effect on USI and (ii) USI
and each of its subsidiaries has filed all notices, obtained all Environmental
Permits and conducted all Remedial Actions required under all Environmental
Laws, except where the failure to file such notices, obtain such Environmental
Permits or take such Remedial Actions, individually or in the aggregate, has not
had and would not have a Material Adverse Effect on USI.
(d) Except as disclosed in any Filed USI SEC Document, USI and each of its
subsidiaries and, to the knowledge of USI, each of their respective
predecessors, have filed all notices required to be filed by them under all
Environmental Laws reporting any Release, except where failure to file such
notices, individually or in the aggregate, has not had and would not have a
Material Adverse Effect on USI.
24
(e) Except as disclosed in any Filed USI SEC Document, neither USI nor any
of its subsidiaries has any contingent liabilities with respect to its business
or, to the knowledge of USI, that of its predecessors in connection with any
Hazardous Substance or Environmental Law that, individually or in the aggregate,
have had or would have a Material Adverse Effect on USI.
(f) Except as disclosed in any Filed USI SEC Document, underground storage
tanks are not located on or under any Property for which USI or any of its
subsidiaries would be responsible or potentially responsible under Environmental
Law and there have been no Releases of Hazardous Substances on, in or under any
Property for which USI or any of its subsidiaries would be responsible or
potentially responsible under Environmental Law that in either case,
individually or in the aggregate, have had or would have a Material Adverse
Effect on USI.
(g) Except as disclosed in any Filed USI SEC Document, neither USI nor any
of its subsidiaries or, to the knowledge of USI, any of their respective
predecessors, is subject to any judicial, administrative or arbitral actions,
suits, proceedings (public or private), written claims or governmental
proceedings alleging the violation of any Environmental Law or Environmental
Permit that, individually or in the aggregate, have had or would have a Material
Adverse Effect on USI.
(h) Except as disclosed in any Filed USI SEC Document, neither USI nor any
of its subsidiaries or, to the knowledge of USI, any of their respective
predecessors, as a result of their respective past and current operations, has
caused or permitted any Hazardous Substances to remain or be disposed of, either
on or under any Property of USI or on any real property, otherwise than in
substantial compliance with all applicable Environmental Laws, in a manner that,
individually or in the aggregate, has had or would have a Material Adverse
Effect on USI.
SECTION 4.13--TAX MATTERS. Except as disclosed in Section 4.13 of the USI
Disclosure Schedule or as disclosed in any Filed USI SEC Document:
(a) Subject to such exceptions which, individually or in the aggregate, have
not had and would not have a Material Adverse Effect on USI, (i) USI and each of
its subsidiaries, and each affiliated group (within the meaning of Section 1504
of the Code) of which USI or any of its subsidiaries is or has been a member,
has timely filed all federal income tax returns and all other Tax (as defined
below) returns and reports required to be filed by it, (ii) all such Tax returns
are complete and correct in all respects and (iii) USI and each of its
subsidiaries has paid (or USI has paid on its subsidiaries' behalf) all Taxes
due in respect of the taxable periods covered by such Tax returns.
(b) Subject to such exceptions which, individually or in the aggregate, have
not had and would not have a Material Adverse Effect on USI, no deficiencies for
any Taxes have been proposed, asserted or assessed against USI or any of its
subsidiaries that have not been fully paid or adequately provided for in the
appropriate financial statements of USI and its subsidiaries.
(c) Subject to such exceptions which, individually or in the aggregate, have
not had and would not have a Material Adverse Effect on USI, (i) no requests for
waivers of the time to assess any Taxes are pending, and no power of attorney
with respect to any Taxes has been executed or filed with any taxing authority
and (ii) no issues relating to Taxes have been raised in writing by the relevant
taxing authority during any pending audit or examination. The federal income Tax
returns of USI and each of its subsidiaries consolidated in such Tax returns
have been reviewed with the Internal Revenue Service for all years through
September 28, 1985.
(d) Subject to such exceptions which, individually or in the aggregate, have
not had and would not have a Material Adverse Effect on USI, no Liens for Taxes
exist with respect to any assets or properties of USI or any of its
subsidiaries, except for statutory liens for Taxes not yet due.
(e) None of USI or any of its subsidiaries is a party to or is bound by any
Tax sharing agreement, Tax indemnity obligation or similar agreement,
arrangement or practice with respect to Taxes (including any
25
advance pricing agreement, closing agreement or other agreement relating to
Taxes with any taxing authority).
(f) None of USI or any of its subsidiaries has taken or agreed to take any
action that would prevent the USI Merger from constituting a reorganization
qualifying under the provisions of Section 368(a) of the Code.
(g) There are no employment, severance or termination agreement, other
compensation arrangement or Employee Benefit Plan currently in effect which
provide for the payment of any amount (whether in cash or property or the
vesting of property) that would not be deductible by reason of Section 162(m) of
the Code.
(h) Subject to such exceptions which, individually or in the aggregate, have
not had and would not have a Material Adverse Effect on USI, USI and its
subsidiaries have complied with all applicable laws, rules and regulations
relating to the payment and withholding of Taxes.
(i) Subject to such exceptions which, individually or in the aggregate, have
not had and would not have a Material Adverse Effect on USI, no federal, state,
local or foreign audits or other administrative proceedings or court proceedings
are presently pending with regard to any federal income or material state, local
or foreign Taxes or Tax returns of USI or its subsidiaries and neither USI nor
any of its subsidiaries has received a written notice of any pending audit or
proceeding.
(j) Neither USI nor any of its subsidiaries has agreed to or is required to
make any adjustment under Section 481(a) of the Code.
(k) Neither USI nor any of its subsidiaries has (i) with regard to any
assets or property held or acquired by any of them, filed a consent to the
application of Section 341(f) of the Code or agreed to have Section 341(f)(2) of
the Code apply to any disposition of a subsection (f) asset (as such term is
defined in Section 341(f)(4) of the Code) owned by USI or any of its
subsidiaries, (ii) executed or entered into a closing agreement pursuant to
Section 7121 of the Code or any similar provision of state, local or foreign law
or (iii) received or filed any requests for rulings or determinations in respect
of any Taxes within the last five years.
(l) No property owned by USI or any of its subsidiaries (i) is property
required to be treated as being owned by another Person pursuant to the
provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended
and in effect immediately prior to the enactment of the Tax Reform Act of 1986;
(ii) constitutes "tax exempt use property" within the meaning of Section
168(h)(1) of the Code; or (iii) is "tax exempt bond financed property" within
the meaning of Section 168(g) of the Code.
(m) USI and each of its subsidiaries are not currently, have not been within
the last five years, and do not anticipate becoming a "United States real
property holding company" within the meaning of Section 897(c) of the Code.
(n) No subsidiary of USI owns any Shares.
SECTION 4.14--NO PRIOR ACTIVITIES. Except for obligations incurred in
connection with its incorporation or organization, or the negotiation and
consummation of this Agreement and the transactions contemplated hereby, none of
Superholdco or the Merger Subsidiaries has incurred any obligation or liability,
or engaged in any business or activity of any type or kind whatsoever, or
entered into any agreement or arrangement with any person or entity.
SECTION 4.15--BROKERS. No broker, finder or investment banker (other than
Credit Suisse First Boston Corporation) is entitled to any brokerage, finder's
or other fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by and on behalf of USI, Superholdco
or any of the Merger Subsidiaries or any of their affiliates.
SECTION 4.16--ACCOUNTING MATTERS. Neither USI nor, to its knowledge, any of
its affiliates, has taken or agreed to take any action that would prevent
Superholdco from accounting for the transactions to
26
be effected pursuant to Article 1 of this Agreement in accordance with the
Pooling of Interests Method of Accounting. USI has not failed to bring to the
attention of Zurn any actions, or agreements or understandings, whether written
or oral, to act that would be reasonably likely to prevent Superholdco from
accounting for the transactions to be effected pursuant to Article 1 of this
Agreement in accordance with the Pooling of Interests Method of Accounting.
SECTION 4.17--ABSENCE OF CERTAIN STATUS. Neither USI nor any of its
affiliates is an "interested stockholder" of Zurn within the meaning of Section
2553 of Pennsylvania Law or an "Interested Person" within the meaning of Article
Seventh of Zurn's Articles of Incorporation.
SECTION 4.18--FULL DISCLOSURE. None of the representations or warranties of
USI and the Merger Subsidiaries contained in this Article 4 nor any of the
disclosures contained in the USI Disclosure Schedule contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements contained herein or
therein, in light of the circumstances under which they are to be made, not
misleading, subject to such exceptions which, individually or in the aggregate,
have not had and would not have a Material Adverse Effect on USI.
ARTICLE 5
COVENANTS
SECTION 5.1--CONDUCT OF BUSINESS OF ZURN AND USI. Except as contemplated by
this Agreement, during the period from the date hereof to the Effective Time,
Zurn and USI will, and will cause their respective subsidiaries to, conduct
their respective operations in the ordinary course of business consistent with
past practice and, to the extent consistent therewith, with no less diligence
and effort than would be applied in the absence of this Agreement, seek to
preserve intact its current business organizations, seek to keep available the
service of its current officers and employees and seek to preserve its
relationships with customers, suppliers and others having business dealings with
it to the end that goodwill and ongoing businesses shall be unimpaired at the
Effective Time. Without limiting the generality of the foregoing, and except as
otherwise expressly provided in this Agreement, prior to the Effective Time,
Zurn and USI shall not, and shall not permit their respective subsidiaries to,
without the prior written consent of the other which consent shall not be
unreasonably withheld:
(a) amend its certificate or articles of incorporation or bylaws (or other
similar governing instrument);
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other securities or equity equivalents (including, without
limitation, any stock options or stock appreciation rights), except for (i) the
issuance, sale or delivery of shares of Zurn Common Stock upon the exercise of
outstanding options granted prior to the date hereof under the Zurn Stock
Incentive Plans, upon the exercise of Rights, upon the conversion of outstanding
shares of Zurn Preferred Stock, or pursuant to any obligation with respect to
employer matching contributions under any 401(k) plan listed in Section 3.11 of
the Zurn Disclosure Schedule, (ii) the issuance, sale or delivery of shares of
stock or other securities or equity equivalents pursuant to any compensation or
benefit plan or arrangement or agreement maintained by USI or any of its
subsidiaries or to which USI or any of its subsidiaries is a party, and (iii)
any issuance, sale or delivery of shares of stock or other securities or equity
equivalents in respect of which USI or any subsidiary of USI receives
consideration having a value substantially equivalent to or greater than the
value of the stock or other securities or equity equivalents so issued, sold or
delivered, as determined in good faith by the USI Board;
(c) split, combine or reclassify any shares of its capital stock, declare,
set aside or pay any dividend (other than quarterly dividends of no more than
$0.25 per share of Zurn Preferred Stock, $0.10 per share of Zurn Common Stock
and $0.05 per share of USI Common Stock) or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock,
make any other actual,
27
constructive or deemed distribution in respect of any shares of its capital
stock or otherwise make any payments to stockholders in their capacity as such,
or redeem or otherwise acquire any of its securities or any securities of any of
its subsidiaries (other than any redemption of the Rights and any such
distributions, payments, redemptions or acquisitions made or effected by any
wholly owned subsidiary of Zurn or USI to and from the corporate parent of such
subsidiary);
(d) adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of Zurn,
USI or any of their respective subsidiaries (except that USI and/or any
subsidiary of USI may adopt a plan of merger in connection with an acquisition
or disposition of a business or assets, except for any such plan of merger which
would have a Material Adverse Effect on USI);
(e) alter through merger, liquidation, reorganization, restructuring or in
any other fashion the corporate structure or ownership of any subsidiary except
(i) with respect to any subsidiary of USI, any such alteration which would not
have a Material Adverse Effect on USI and (ii) with respect to any subsidiary of
Zurn, any such alteration described in Section 3.1(b) of the Zurn Disclosure
Schedule;
(f) in the case of Zurn and its subsidiaries only,(i) incur or assume any
indebtedness for money borrowed or issue any debt securities, except for
borrowings (A) under lines of credit existing on the date hereof and (B) in the
ordinary course of business not in excess of $20 million in the aggregate; (ii)
assume, guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other person,
except for obligations incurred in the ordinary course of business consistent
with past practice not in excess of $20 million in the aggregate, and except for
obligations of wholly owned subsidiaries of Zurn; (iii) make any loans, advances
or capital contributions to, or investments in, any other person (other than to
wholly owned subsidiaries of Zurn or customary loans or advances to employees in
the ordinary course of business consistent with past practice and in amounts not
material to the maker of such loan or advance); (iv) pledge or otherwise
encumber shares of capital stock of Zurn or its subsidiaries, otherwise than
pursuant to the terms of existing credit facilities; or (v) mortgage or pledge
any of its material assets, tangible or intangible, or create or suffer to exist
any material Lien thereupon, except pursuant to the terms of credit facilities
existing on the date hereof;
(g) in the case of Zurn and its subsidiaries only, except as may be required
by law or as contemplated by this Agreement, enter into, adopt or amend or
terminate any bonus, profit sharing, compensation, severance, termination, stock
option, stock appreciation right, restricted stock, performance unit, stock
equivalent, stock purchase agreement, pension, retirement, deferred
compensation, employment, severance or other employee benefit agreement, trust,
plan, fund, award or other arrangement for the benefit or welfare of any
director, officer or employee in any manner, or (except for normal increases in
the ordinary course of business consistent with past practice that, in the
aggregate, do not result in a material increase in benefits or compensation
expense to Zurn, and as required under existing agreements or in the ordinary
course of business generally consistent with past practice) increase in any
manner the compensation or fringe benefits of any director, officer or employee
or pay any benefit not required by any plan and arrangement as in effect as of
the date hereof (including, without limitation, the granting of stock
appreciation rights or performance units);
28
(h) in the case of Zurn and its subsidiaries only, acquire, sell, lease
or dispose of any assets except (i) acquisitions of raw materials in the
ordinary course of business, (ii) acquisitions of assets with a fair market
value of less than $25 million in the aggregate, (iii) sales of inventory in
the ordinary course of business, and (iv) sales, leases or dispositions of
assets with a fair market value of less than $25 million in the aggregate;
or enter into any commitment or transaction outside the ordinary course of
business or grant any exclusive distribution rights;
(i) in the case of Zurn and its subsidiaries only, except as may be
required as a result of a change in law or in generally accepted accounting
principles, change any of the accounting principles or practices used by it;
(j) in the case of Zurn and its subsidiaries only, revalue in any
material respect any of its assets, including, without limitation, writing
down the value of inventory or writing-off notes or accounts receivable,
other than in the ordinary course of business;
(k) in the case of Zurn and its subsidiaries only, (i) acquire (by
merger, consolidation, or acquisition of stock or assets) any corporation,
partnership or other business organization or division thereof or any equity
interest therein, except for such acquisitions with a fair market value of
less than $25 million in the aggregate; (ii) enter into or amend any
contract or agreement, other than in the ordinary course of business; or
(iii) authorize any new capital expenditure or expenditures which,
individually, is in excess of $3 million or, in the aggregate, are in excess
of $10 million; PROVIDED, that none of the foregoing shall limit any capital
expenditure already approved by the Zurn Board prior to the date hereof and
disclosed to USI;
(l) in the case of Zurn and its subsidiaries only, make or revoke any
tax election or settle or compromise any tax liability material to Zurn and
its subsidiaries taken as a whole or change (or make a request to any taxing
authority to change) any material aspect of its method of accounting for tax
purposes;
(m) in the case of Zurn and its subsidiaries only, pay, discharge or
satisfy any material claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction in the ordinary course of business of liabilities
reflected or reserved against in, or contemplated by, the consolidated
financial statements (or the notes thereto) of Zurn and its subsidiaries or
incurred in the ordinary course of business consistent with past practice
and the payment, discharge and satisfaction of all obligations under Zurn's
existing bank credit facility prior to or concurrently with the Effective
Time.
(n) in the case of Zurn and its subsidiaries only, settle or compromise
any pending or threatened suit, action or claim relating to the transactions
contemplated hereby;
(o) in the case of Zurn and its subsidiaries only, take any material
action in connection with the Chapter 11 case of U.S. Brass, pending in the
United States Bankruptcy Court, Eastern District of Texas (case no
94-408233) that is not contemplated by the Plan or an order of such
Bankruptcy Court confirming the Plan or propose or agree to any material
amendment to or modification of the Plan or such order (it being understood
that nothing contained in this Section 5.1(o) is intended in any way to
affect the duties, obligations or responsibilities of U.S. Brass as a debtor
under Chapter 11 of the Bankruptcy Code); or
(p) take or agree in writing or otherwise to take, any of the actions
described in Sections 5.1(a) through 5.1(o) or any action which would make
any of the representations or warranties of Zurn contained in this Agreement
untrue or incorrect in any material respect.
SECTION 5.2--PREPARATION OF S-4 AND THE JOINT PROXY STATEMENT. USI and Zurn
will, as promptly as practicable, jointly prepare the Joint Proxy Statement.
Superholdco will, as promptly as practicable, file with the SEC the S-4, which
shall contain the Joint Proxy Statement and forms of proxy, in connection with
the registration under the Securities Act of the shares of Superholdco Common
Stock issuable upon conversion of the Shares and the other transactions
contemplated hereby. USI and Zurn will, and will
29
cause their accountants and lawyers to, use all reasonable best efforts to cause
the S-4 to be declared effective as promptly as practicable, including, without
limitation, causing their accountants to deliver necessary or required
instruments such as opinions, consents and certificates, and will take any other
action required or necessary to be taken under federal or state securities laws
or otherwise in connection with the registration process; PROVIDED, that the
Parties will have no obligation to cause the S-4 to be declared effective if the
SEC does not allow the Mergers to be accounted for under GAAP as a "pooling-
of-interests". Each of USI and Zurn will use its reasonable best efforts to
cause the Joint Proxy Statement to be mailed to its stockholders at the earliest
practicable date after the effectiveness of the S-4.
SECTION 5.3--NO SOLICITATION.
(a) Until the valid termination of this Agreement, Zurn shall not, and shall
not authorize or permit any of its subsidiaries, or any of its or its
subsidiaries' officers, directors, employees, representatives, agents or
affiliates (including, without limitation, any investment banker, financial
advisor, attorney, accountant or other representative of Zurn or any of its
subsidiaries), to, directly or indirectly, initiate, solicit or knowingly
encourage (including by way of furnishing non-public information or assistance),
or take any other action to facilitate, any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, an
Acquisition Proposal (as defined below); PROVIDED, HOWEVER, that if, at any time
prior to the date on which the stockholders of Zurn vote to approve the Zurn
Merger, the Zurn Board determines in good faith and based upon the advice of
outside legal counsel that such action is necessary for the Zurn Board to comply
with its fiduciary duties under applicable law, Zurn may, in response to a bona
fide, written Acquisition Proposal made subsequent to the date hereof, (x) after
providing reasonable prior notice to USI to the effect that it is taking such
action, which notice shall include the identity of the person or entity
requesting such information, furnish information with respect to Zurn to any
person pursuant to a confidentiality agreement on terms no less favorable to
Zurn than the Confidentiality Agreement dated as of October 13, 1997, as amended
on January 1, 1998, between Zurn and USI (the "CONFIDENTIALITY AGREEMENT") and
(y) participate in discussions, investigations and/or negotiations regarding
such Acquisition Proposal. Zurn will promptly (and in no event later than 24
hours after receipt of any Acquisition Proposal) notify USI after any receipt of
any Acquisition Proposal, which notice shall be provided orally and in writing
and shall identify the person making such Acquisition Proposal and set forth the
material terms thereof. For purposes of this Agreement, "ACQUISITION PROPOSAL"
means any inquiry, proposal or offer relating to any of the following (other
than the transactions contemplated by this Agreement) involving Zurn or any of
its subsidiaries: (w) any merger, consolidation, share exchange,
recapitalization, business combination or other similar transaction; (x) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition of 20
percent or more of the assets of Zurn and its subsidiaries, taken as a whole, in
a single transaction or series of related transactions; (y) any tender offer or
exchange offer that, if consummated, would result in any person beneficially
owning more than 20 percent of the outstanding shares of Zurn Common Stock or
the filing of a registration statement under the Securities Act in connection
therewith; or (z) any public announcement of a proposal, plan or intention to do
any of the foregoing or any agreement to engage in any of the foregoing.
(b) Except as set forth in this Section 5.3(b), the Zurn Board shall not (i)
withdraw or modify, or propose publicly to withdraw or modify, in a manner
adverse to USI, the approval or recommendation of the Zurn Merger and this
Agreement by the Zurn Board, (ii) approve or recommend, or propose publicly to
approve or recommend, any Acquisition Proposal, or (iii) cause Zurn to enter
into any agreement (including, without limitation, any letter of intent but
excluding any confidentiality agreement) with respect to any Acquisition
Proposal. Notwithstanding the foregoing, if the Zurn Board, after consultation
with and based upon the advice of outside legal counsel, determines in good
faith that it is necessary to do so in order to comply with its fiduciary duties
under applicable law, the Zurn Board may withdraw or modify, or propose publicly
to withdraw or modify, in a manner adverse to USI, the approval and
recommendation of the Zurn Merger and this Agreement by the Zurn Board, approve
or recommend, or propose publicly to approve or recommend, a Superior Proposal
(as defined below) or cause Zurn to enter into an agreement with respect to a
Superior Proposal, but in each case only after the expiration of five business
days after the
30
date on which Zurn provides written notice to USI (a "NOTICE OF SUPERIOR
PROPOSAL") advising USI that the Zurn Board has received a Superior Proposal,
specifying the terms and conditions of such Superior Proposal and identifying
the person making such Superior Proposal; provided, that prior to or
concurrently with entering into an agreement (including a letter of intent) with
respect to a Superior Proposal, Zurn shall terminate this Agreement pursuant to
Section 7.1(d)(iii). For purposes of this Agreement, a "SUPERIOR PROPOSAL" means
any Acquisition Proposal that the Zurn Board determines (x) in its good faith
judgment (based on the advice of a financial advisor of nationally recognized
reputation) to be more favorable from a financial point of view to Zurn's
stockholders than the Zurn Merger, including as part of the Zurn Board's
determination, that, as to any cash consideration to be paid pursuant to the
Superior Proposal, the person making the Superior Proposal has all requisite
funds on hand or is reasonably capable of obtaining any requisite funds and (y)
in the manner contemplated by Subchapter B of Chapter 17 of Pennsylvania Law, to
be otherwise in the best interests of Zurn.
(c) Nothing contained in this Section 5.3 shall prohibit the Zurn Board from
taking and disclosing to Zurn's stockholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act or from making any disclosure to
Zurn's stockholders that the Zurn Board, after consultation with and based on
the advice of independent legal counsel, determines in good faith is required
under applicable law.
SECTION 5.4--LETTERS OF ACCOUNTANTS.
(a) Zurn shall use its reasonable best efforts to cause to be delivered to
USI a letter of Ernst & Young LLP ("E&Y"), Zurn's independent auditors, dated a
date within two business days before the date on which the S-4 shall become
effective and addressed to USI, in form and substance reasonably satisfactory to
USI and customary in scope and substance for letters delivered by independent
public accountants in connection with registration statements similar to the
S-4.
(b) USI shall use its reasonable best efforts to cause to be delivered to
Zurn a letter of E&Y, USI's independent auditors, dated a date within two
business days before the date on which the S-4 shall become effective and
addressed to Zurn, in form and substance reasonably satisfactory to Zurn and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the S-4.
SECTION 5.5--MEETINGS. Zurn and USI each shall call a meeting of its
stockholders to be held as promptly as practicable for the purpose of voting
upon this Agreement and the Zurn Merger (with respect to Zurn) and this
Agreement and the USI Merger (with respect to USI). Subject to Section 5.3(b),
Zurn agrees that its obligations pursuant to the first sentence of this Section
5.5 shall not be affected by the commencement, public proposal, public
disclosure or communication to Zurn of any Acquisition Proposal. USI and Zurn
will, through their respective Boards of Directors, recommend to their
respective stockholders approval of this Agreement and the Zurn Merger (with
respect to Zurn) and this Agreement and the USI Merger (with respect to USI),
subject to the right of the Zurn Board to modify or withdraw its recommendation
pursuant to Section 5.3(b). Zurn and USI shall coordinate and cooperate with
respect to the timing of such meetings and each of Zurn and USI shall use its
best efforts to hold such meetings as soon as practicable after the date hereof;
provided, that in the event that all of the conditions to closing set forth in
Article 6 of this Agreement (except the condition set forth in Section 6.1(a))
have not been satisfied or waived prior to such meetings, such meetings shall be
adjourned until a date as soon as practicable following the satisfaction or
waiver of such conditions.
SECTION 5.6--ACCESS TO INFORMATION.
(a) Between the date hereof and the Effective Time, each of Zurn and USI
will give the other and its authorized representatives reasonable access to all
employees, plants, offices, warehouses and other facilities and to all books and
records of itself and its subsidiaries, will permit the other to make such
inspections as the other may reasonably require and will cause its' officers and
those of its subsidiaries to furnish the other with such financial and operating
data and other information with respect to the business, properties and
personnel of itself and its subsidiaries as the other may from time to time
reasonably
31
request, provided that no investigation pursuant to this Section 5.6(a) shall
affect or be deemed to modify any of the representations or warranties made by
Zurn or USI.
(b) Between the date hereof and the Effective Time, each of Zurn and USI
shall furnish to the other (i) within five business days after the delivery
thereof to management, such monthly financial statements and data as are
regularly prepared for distribution to its management and (ii) at the earliest
time they are available, such quarterly and annual financial statements as are
prepared for its' SEC filings, which (in the case of this clause (ii)), shall be
in accordance with its books and records.
(c) Each of Zurn and USI will hold and will cause its consultants and
advisors to hold in confidence all documents and information concerning the
other and the other's subsidiaries furnished to it in connection with the
transactions contemplated by this Agreement to the extent required by the
Confidentiality Agreement.
SECTION 5.7--ADDITIONAL AGREEMENTS; REASONABLE BEST EFFORTS. Subject to the
terms and conditions herein provided, each of the Parties hereto agrees to use
its reasonable best efforts to take, or cause to be taken, all action, and to
do, or cause to be done, all things reasonably necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including, without limitation, (i)
cooperation in the preparation and filing of the Joint Proxy Statement and the
S-4, any filings that may be required under the HSR Act, and any amendments to
any thereof; (ii) cooperation in obtaining, prior to the Effective Time, the
approval for listing on the NYSE, effective upon the official notice of
issuance, of the shares of Superholdco Common Stock into which the Shares will
be converted pursuant to Article I hereof; (iii) the taking of all action
reasonably necessary, proper or advisable to secure any necessary consents of
all third parties and Governmental Entities, including those relating to
existing debt obligations of Zurn and its subsidiaries; (iv) contesting any
legal proceeding relating to the Mergers; and (v) the execution of any
additional instruments, including the Certificate of Merger and Articles of
Merger, as the case may be, necessary to consummate the transactions
contemplated hereby. Subject to the terms and conditions of this Agreement,
Zurn, USI, Superholdco and the Merger Subsidiaries agree to use their best
efforts to cause the Effective Time to occur on the date of the stockholder
votes with respect to the Mergers. The provisions of this Section 5.7 will not
limit or otherwise affect the right or ability of any Party to take or omit to
take any action that it is permitted to take or omit to take, as the case may
be, pursuant to any other provisions of this Agreement, including, without
limitation, the provisions of Section 5.3 and Articles 6 and 7.
SECTION 5.8--ANTITRUST REVIEWS. Each party hereto will use its reasonable
best efforts (a) to file with the US Department of Justice and US Federal Trade
Commission, as soon as practicable after the date hereof, the Notification and
Report Form under the HSR Act and any supplemental information or material
requested pursuant to the HSR Act, and (b) to comply as soon as practicable
after the date hereof with any other laws of any country and the European Union
under which any consent, authorization, registration, declaration or other
action with respect to the transactions contemplated herein may be required.
Each party hereto shall furnish to the other such information and assistance as
the other may reasonably request in connection with any filing or other act
undertaken in compliance with the HSR Act or other such laws, and shall keep
each other timely apprised of the status of any communications with, and any
inquiries or requests for additional information from, any Governmental Entity
under the HSR Act or other such laws. Each party hereto shall take any and all
action reasonably necessary to prevent the entry of any order, preliminary or
permanent injunction, or other legal restraint or prohibition preventing
consummation of the Zurn Merger or any related transactions contemplated by this
Agreement, and to lift, mitigate or rescind the effect of any litigation or
administrative proceeding adversely affecting this Agreement or any transactions
contemplated herein.
SECTION 5.9--PUBLIC ANNOUNCEMENTS. Each of USI, Superholdco, the Merger
Subsidiaries and Zurn will consult with one another before issuing any press
release or otherwise making any public statements with respect to the
transactions contemplated by this Agreement, including, without limitation, the
Mergers, and shall not issue any such press release or make any such public
statement prior to such
32
consultation, except as may be required by applicable law or by obligations
pursuant to any listing agreement with the NYSE, as determined by USI, the
Merger Subsidiaries or Zurn, as the case may be.
SECTION 5.10--INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE.
(a) INDEMNIFICATION. From and after the Effective Time, Superholdco shall,
to the fullest extent permitted by applicable law, indemnify, defend and hold
harmless each person who is now, or has been at any time prior to the date
hereof, or who becomes prior to the Effective Time, a director, officer or
employee of any party hereto or any subsidiary thereof (each an "INDEMNIFIED
PARTY" and, collectively, the "INDEMNIFIED PARTIES") against all losses,
expenses (including reasonable attorneys' fees and expenses), claims, damages,
liabilities and, subject to the proviso of the next succeeding sentence, amounts
paid in settlement, arising out of any threatened or actual claim, action, suit,
proceeding or investigation (whether threatened or commenced prior to, at or
after the Effective Time) that, in whole or in part, is (i) based on or arises
out of the fact that such person is or was a director, officer or employee of
such party or a subsidiary of such party or (ii) based on, arises out of or
pertains to the transactions contemplated by this Agreement. Without limiting
the generality or effect of the immediately preceding sentence, in the event of
any such threatened or actual claim, action, suit, proceeding or investigation,
(i) Superholdco shall pay the reasonable fees and expenses of counsel selected
by the Indemnified Parties, which counsel shall be reasonably satisfactory to
Superholdco, promptly after statements therefor are received and otherwise
advance to such Indemnified Party upon request reimbursement of documented
expenses reasonably incurred, in either case to the extent not prohibited by
applicable law and upon receipt of any affirmation and undertaking required by
applicable law, (ii) Superholdco will cooperate in the defense of any such
matter and (iii) any determination required to be made with respect to whether
an Indemnified Party's conduct complies with the standards set forth under
applicable law shall be made by independent counsel mutually acceptable to
Superholdco and the Indemnified Party; PROVIDED, HOWEVER, that Superholdco shall
not be liable for any settlement effected without its written consent (which
consent shall not be reasonably withheld). The Indemnified Parties as a group
may retain only one law firm with respect to each related matter except to the
extent there is, in the opinion of counsel to an Indemnified Party, under
applicable standards of professional conduct, a conflict on any significant
issue between positions of any two or more Indemnified Parties.
(b) INSURANCE. For a period of 6 years after the Effective Time,
Superholdco shall cause to be maintained in effect the policies of directors'
and officers' liability insurance maintained by Zurn for the benefit of those
persons who are covered by such policies at the Effective Time (or Superholdco
may substitute therefor policies of at least the same coverage with respect to
matters occurring prior to the Effective Time), to the extent that such
liability insurance can be maintained annually at a cost to Superholdco not
greater than 200 percent of the premium for the current Company directors' and
officers' liability insurance; provided that if such insurance cannot be so
maintained or obtained at such costs, Superholdco shall maintain or obtain as
much of such insurance as can be so maintained or obtained at a cost equal to
200 percent of the current annual premiums of Zurn for such insurance.
(c) SURVIVAL OF INDEMNIFICATION. To the fullest extent permitted by law,
from and after the Effective Time, all rights to indemnification now existing in
favor of the employees, agents, directors or officers of USI and its
subsidiaries, on the one hand, and Zurn and its subsidiaries, on the other hand,
with respect to their capacities or activities as such prior to the Effective
Time, as provided in USI's certificate of incorporation or bylaws or Zurn's
articles of incorporation or bylaws, in effect on the date thereof or otherwise
in effect on the date hereof, shall survive the USI Merger or Zurn Merger, as
the case may be, and shall continue in full force and effect for a period of the
lesser of six years from the Effective Time and the expiration of the applicable
statute of limitations.
(d) SUCCESSORS. In the event Superholdco or any of its successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity in such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person,
33
then and in either such case, proper provision shall be made so that the
successors and assigns of Superholdco assume the obligations set for in this
Section 5.10.
(e) BENEFIT. The provisions of this Section 5.10 are intended to be for
the benefit of, and shall be enforceable by, each Indemnified Party, his or her
heirs and his or her representatives.
SECTION 5.11--NOTIFICATION OF CERTAIN MATTERS. Zurn shall give prompt
notice to USI and USI shall give prompt notice to Zurn of (i) the occurrence or
nonoccurrence of any event the occurrence or nonoccurrence of which would be
likely to cause any representation or warranty contained in this Agreement to be
untrue or inaccurate in any material respect at or prior to the Effective Time,
(ii) any material failure of Zurn, USI, Superholdco or the Merger Subsidiaries,
as the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder, (iii) any notice of,
or other communication relating to, a default or event which, with notice or
lapse of time or both, would become a default, received by it or any of its
subsidiaries subsequent to the date of this Agreement and prior to the Effective
Time, under any contract or agreement material to the business, financial
condition results of operations of it and its subsidiaries taken as a whole to
which it or any of its subsidiaries is a party or is subject, (iv) any notice or
other communication from any third party alleging that the consent of such third
party is or may be required in connection with the transactions contemplated by
this Agreement, or (v) any material adverse change in business, financial
condition or results of operations of it and its subsidiaries taken as a whole,
other than changes resulting from general economic conditions; PROVIDED,
HOWEVER, that the delivery of any notice pursuant to this Section 5.11 shall not
cure such breach or non-compliance or limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
SECTION 5.12--POOLING. Each of the Parties agrees that it will not take any
action which could prevent Superholdco from accounting for the transactions to
be effected pursuant to Article 1 of this Agreement in accordance with the
Pooling of Interests Method of Accounting and Zurn will bring to the attention
of USI, and USI will bring to the attention of Zurn, any actions, or agreements
or understandings, whether written or oral, that could be reasonably likely to
prevent Superholdco from accounting for the transactions to be effected pursuant
to Article 1 of this Agreement in accordance with the Pooling of Interests
Method of Accounting. Zurn and USI shall use their reasonable best efforts to
cause E&Y, the independent auditors for both Zurn and USI, to deliver to USI and
Zurn a letter dated as of the Closing Date, addressed to Superholdco, Zurn and
USI, stating that after appropriate review of this Agreement and based upon its
familiarity with Superholdco, Zurn and USI, Superholdco, Zurn and USI are
entities that would qualify as parties to a pooling of interests transaction
under APB No. 16 and applicable SEC rules and regulations.
SECTION 5.13--TAX-FREE REORGANIZATION TREATMENT. Zurn, USI, Superholdco and
the Merger Subsidiaries shall execute and deliver to Jones, Day, Reavis & Pogue,
counsel to Zurn, and Weil, Gotshal & Manges LLP, counsel to USI, Superholdco and
the Merger Subsidiaries, certificates relating to the tax-free reorganization
treatment substantially in the forms to be agreed to by the parties as promptly
as practicable following the date hereof, at such time or times as may be
reasonably requested by such law firms in connection with their respective
deliveries of opinions with respect to the transactions contemplated hereby.
Prior to the Effective Time, none of Zurn, USI, Superholdco or the Merger
Subsidiaries shall take or cause to be taken any action which would cause to be
untrue (or fail to take or cause not to be taken any action which would cause to
be untrue) any of the representations in such certificates.
SECTION 5.14--COMPANY AFFILIATES. Each of Zurn and USI has identified to
the other each of its affiliates (as such term is defined in Rule 12b-2 under
the Exchange Act) and each such affiliate has delivered to USI on or prior to
the date hereof, a written agreement in the form of Annex D-1 or D-2 hereto, as
appropriate, that (i) such affiliate will not sell, pledge, transfer or
otherwise dispose of any shares of Superholdco Common Stock issued to such
affiliate pursuant to the Mergers, except in compliance with Rule 145
promulgated under the Securities Act or an exemption from the registration
requirements of the Securities Act and (ii) from and after the earlier of (x)
the mailing of the Joint Proxy
34
Statement and (y) the thirtieth day prior to the Effective Time, such affiliate
will not sell or in any other way reduce such affiliate's risk relative to any
shares of Superholdco Common Stock received or to be received in the Mergers
(within the meaning of the SEC's Financial Reporting Release No. 1,
"Codification of Financing Reporting Policies," Section 201.01 47 F.R. 21028
(April 15, 1982)), until such time as financial results (including combined
sales and net income) covering at least 30 days of post-merger operations have
been published, except as permitted by Staff Accounting Bulletin No. 76 issued
by the SEC.
SECTION 5.15--SEC FILINGS. Each of USI and Zurn shall promptly provide the
other party (or its counsel) with copies of all filings made by the other party
or any of its subsidiaries with the SEC or any other state or federal
Governmental Entity in connection with this Agreement and the transactions
contemplated hereby.
SECTION 5.16--EMPLOYMENT AND EMPLOYEE BENEFIT MATTERS.
(a) Subject to the provisions of any agreement that may be entered into
between Superholdco or any of its subsidiaries and any Covered Employee (as
defined below) in connection with the execution and delivery of this Agreement,
Superholdco shall, and shall cause its subsidiaries following the Effective Time
(including Zurn as a Surviving Corporation) to:
(i) honor and provide for payment of all obligations and benefits under
all Employee Benefit Plans in accordance with their terms on the date hereof
and as amended in accordance with the provisions of this Agreement;
(ii) honor and provide for the payment of all obligations and benefits
under all employment or severance agreements between Zurn and any employee
or former employee who is or had been an employee of Zurn or any of its
subsidiaries on or before the Closing Date (each, a "COVERED EMPLOYEE") in
accordance with their terms on the date hereof and as amended in accordance
with the provisions of this Agreement and, except as provided in Section
5.16(a)(ii) of the Zurn Disclosure Schedule, Zurn as a Surviving Corporation
shall be deemed to have assumed, as of the Effective Time, all of Zurn's
obligations under such agreements;
(iii) provide from and after the Effective Time until (i) the end of
the transition period described in Section 410(b)(6)(C) of the Code with
respect to any Employee Benefit Plan which is intended to be "qualified"
within the meaning of Section 401(a) and 401(k), if applicable, and Section
501(a) of the Code and (ii) the second anniversary of the Closing Date with
respect to all other Employee Benefit Plans (collectively, the "BENEFITS
MAINTENANCE PERIOD"), employee benefits which are at least substantially
comparable (as determined in good faith by the management of Superholdco) in
the aggregate to the level of employee benefits provided by Zurn and its
subsidiaries under the Employee Benefit Plans in effect as of the Closing
Date for the benefit of Covered Employees PROVIDED that there shall be no
obligation pursuant to this clause (iii) to provide any stock option plan or
long-term incentive plan; and
(iv) provide until the first anniversary of the Closing Date for the
benefit of Covered Employees who remain in the employ of Zurn as a Surviving
Corporation or Superholdco or any of its affiliates employee compensation
plans that are in the aggregate at a level at least substantially comparable
(as determined in good faith by the management of Superholdco) to the
employee compensation plans (including base pay and incentive-type
compensation plans, subject, in the case of incentive-type compensation
plans, to satisfaction of incentive criteria established by Superholdco
under such plans) provided by Zurn and its subsidiaries under the
compensation arrangements in effect as of the Closing Date (it being
understood that the general structure of Zurn's existing compensation plans,
including the award opportunities to be made available under incentive-type
compensation plans, will be maintained).
(b) If Covered Employees are included in any benefit plan (including,
without limitation, provision for vacation) of Superholdco or its subsidiaries,
Superholdco agrees that the Covered Employees shall receive credit as employees
of Superholdco and its subsidiaries for service prior to the Closing Date with
35
Zurn and its subsidiaries to the same extent such service was counted under
similar Employee Benefit plans for purposes of eligibility, vesting and
eligibility for retirement. In addition, with respect to vacation, disability
and severance, such service will also be counted for benefit accrual. If Covered
Employees are included in any medical, dental or health plan other than the plan
or plans they participated in on the Closing Date, Superholdco agrees that any
such plans shall not include pre-existing condition exclusions, except to the
extent such exclusions were applicable under the similar Employee Benefit Plan
on the Closing Date, and shall provide credit for any deductibles and
co-payments applied or made with respect to each Covered Employee in the
calendar year of the change.
(c) Prior to the Effective Time, the Zurn Board will take or cause to be
taken (i) such actions in respect of the Zurn Executive Incentive Plan and the
Zurn Long-Term Incentive Plan as may be necessary to provide that for the
purposes of determining all awards thereunder that are to be determined with
reference to Zurn's performance for its fiscal year ending March 31, 1998, the
effects of all transaction costs and non-recurring charges associated with or
taken in contemplation of the Zurn Merger shall be disregarded and (ii) such
actions in respect of the 401(k) plans listed in Section 3.11(a) of the Zurn
Disclosure Schedule as may be necessary to provide that employee matching
contributions under such plans made after the Effective Time will be made in
Superholdco Common Stock, rather than in shares of Zurn Common Stock and for
purposes of calculating the amount of the employer matching contributions under
such plans, the effects of all transaction costs and nonrecurring charges
associated with or taken in contemplation of the Zurn Merger shall be
disregarded.
(d) Prior to the Effective Time, the Zurn Board shall have adopted and
approved amendments, in form and substance reasonably satisfactory to USI, to
the 1986 Retirement Plan for Outside Directors of Zurn Industries, Inc., the
Long Term Incentive Plan and the Zurn Industries, Inc. Deferred Compensation
Plan for Non-Employee Directors, providing that, at the Effective Time, payment
of all obligations and benefits under such plans shall be made in accordance
with their terms and such plans shall terminate, and further provided that the
Long Term Incentive Plan shall not be extended for any period beyond March 31,
1998 without the express written consent of USI.
(e) At the Effective Time, Superholdco shall assume sponsorship of all stock
option and/or restricted stock plans sponsored by each of Zurn and USI, and Zurn
and USI shall consent to such assumptions by Superholdco.
(f) In the case of Employee Benefit Plans and USI Employee Benefit Plans
under which the employees' interests are based upon Zurn Common Stock and USI
Common Stock respectively, or the respective market prices thereof (but which
interests do not constitute stock options), USI and Zurn agree that such
interests shall, from and after the Effective Time, be based on Superholdco
Common Stock in accordance with the applicable Exchange Ratio.
(g) With respect to all Employee Benefit Plans and USI Employee Benefit
Plans which have entitlement or vesting terms that are based upon the market
price or value per share of Zurn Common Stock and USI Common Stock respectively,
Zurn and USI agree that from and after the Effective Time, such market price or
value per share shall be adjusted by multiplying it by the inverse of the
applicable Exchange Ratio.
(h) Without limiting the applicability of Sections 2.8 and 2.9 hereof, each
of the Parties shall take all actions as are necessary to ensure that Zurn and
USI will not at the Effective Time be bound by any options, SARs, warrants or
other rights or agreements which would entitle any person, other than
Superholdco, to own any capital stock of Zurn and USI or to receive any payment
in respect thereof.
(i) Prior to the Effective Time, Zurn will use its reasonable best efforts
to contact any individual holding outstanding Options and to obtain from such
individual a written agreement that such individual will not require Zurn to
purchase for cash any of such individual's Options under any stock option plan
of Zurn.
36
(j) The parties acknowledge that nothing in this Section 5.16 shall be
deemed to be a commitment on the part of Superholdco or Zurn as a Surviving
Corporation to provide employment to any person for any period of time and,
except as otherwise provided in this Section 5.16, nothing herein shall be
deemed to prevent Superholdco or Zurn as a Surviving Corporation from amending
or terminating any Employee Benefit Plan in accordance with its terms.
(k) Zurn shall use its reasonable best efforts to obtain the agreement of
First National Bank of Pennsylvania (the "Trustee") that, upon the contribution
by Zurn prior to the Effective Time of sufficient assets to satisfy its
obligations under the non-qualified retirement and deferred compensation plans
listed on Section 3.11(a) of the Zurn Disclosure Schedule under the heading
"IRREVOCABLE TRUSTS", the Trustee will distribute to Zurn prior to the Effective
Time the 217,877 shares of Zurn Common Stock held by it. Zurn shall cancel such
shares, subject to receipt thereof, prior to the Effective Time.
SECTION 5.17--LOCATION OF ZURN HEADQUARTERS. Superholdco has no intention
of changing the location of Zurn's executive headquarters and agrees, for a
period of at least three years after the Effective Time, that Zurn's executive
headquarters will remain at its present location in Addison, Texas.
SECTION 5.18--REDEMPTION OF ZURN PREFERRED STOCK.As soon as practicable
following the date hereof, Zurn shall mail a notice of redemption to all holders
of record of Zurn Preferred Stock which fixes a date not later than 45 days from
the date of such mailing on which Zurn will redeem all outstanding shares of
Zurn Preferred Stock for $40.00 per share, plus accrued and unpaid dividends up
to and including the date fixed for redemption (the "REDEMPTION DATE"). On the
Redemption Date, Zurn shall redeem all outstanding shares of Zurn Preferred
Stock in accordance with the terms thereof.
SECTION 5.19--REFINANCING. On or prior to the Closing Date, USI will obtain
financing sufficient to pay all of the outstanding principal of and accrued
interest on Zurn's existing bank credit facility, which principal amount shall
not exceed $154,771,393, plus amounts borrowed after the date hereof in
accordance with this Agreement, plus accrued and unpaid interest and any related
costs and expenses incurred by the lenders thereunder in connection with the
transactions contemplated by this Agreement. Superholdco agrees that it will
pay, or cause to be paid, all of the amounts described in the preceding sentence
prior to or concurrently with the Effective Time.
SECTION 5.20--GUARANTEE OF PERFORMANCE. USI hereby guarantees the
performance by each of Superholdco and the Merger Subsidiaries of its
obligations under this Agreement.
ARTICLE 6
CONDITIONS TO CONSUMMATION OF THE MERGERS
SECTION 6.1--CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE
MERGERS. The respective obligations of each party hereto to effect the Mergers
are subject to the satisfaction or written waiver on or prior to the Closing
Date of the following conditions:
(a) this Agreement shall have been approved and adopted by the
requisite vote of the stockholders of Zurn and of USI;
(b) no statute, rule, regulation, executive order, decree, ruling or
injunction which has the continuing effect of prohibiting the consummation
of the Mergers shall have been enacted, entered, promulgated or enforced
against any Party by any United States court or United States governmental
authority;
(c) any waiting period applicable to the Mergers under the HSR Act
shall have terminated or expired, and any other governmental or regulatory
notices or approvals required with respect to the transactions contemplated
hereby shall have been either filed or received, subject to such exceptions
as would not, individually or in the aggregate, have a Material Adverse
Effect on Superholdco;
37
(d) the S-4 shall have become effective under the Securities Act and
shall not be the subject of any stop order or proceedings seeking a stop
order;
(e) each of Superholdco and Zurn shall have received a letter from E&Y
dated as of the Closing Date and addressed to Superholdco and Zurn, as
applicable, stating in substance that each of the Mergers will qualify as a
pooling of interests transaction under APB No. 16 and applicable SEC rules
and regulations; and
(f) the Superholdco Common Stock issuable in the Mergers shall have
been authorized for listing on the NYSE, upon official notice of issuance.
SECTION 6.2--ADDITIONAL CONDITIONS TO THE OBLIGATION OF ZURN. The
obligation of Zurn to effect the Zurn Merger is also subject to the satisfaction
or written waiver on or prior to the Closing Date of the following conditions:
(a) the representations and warranties of USI, Superholdco and the
Merger Subsidiaries contained in this Agreement or in any other document
delivered pursuant hereto shall be true and correct in all material respects
on and as of the Closing Date with the same effect as if made on and as of
the Closing Date, and at the Closing USI, Superholdco and the Merger
Subsidiaries shall have delivered to Zurn a certificate to that effect
signed by an executive officer of USI, Superholdco, and each Merger
Subsidiary;
(b) each of the obligations of USI, Superholdco and the Merger
Subsidiaries to be performed on or before the Closing Date pursuant to the
terms of this Agreement shall have been duly performed in all material
respects on or before the Closing Date and at the Closing USI and the Merger
Subsidiaries shall have delivered to Zurn a certificate to that effect
signed by an executive officer of USI, Superholdco and each Merger
Subsidiary;
(c) Jones, Day, Reavis & Pogue, counsel to Zurn, shall have delivered
to Zurn an opinion, dated the Closing Date and addressed to Zurn,
substantially to the effect that (on the basis of the representations and
assumptions set forth in such opinion) (i) no gain or loss will be
recognized for federal income tax purposes by Superholdco, Zurn or Z-Sub as
a result of the Zurn Merger; and (ii) no gain or loss will be recognized for
federal income tax purposes by a stockholder of Zurn upon the exchange of
Zurn Common Shares for Zurn Common Merger Consideration pursuant to the Zurn
Merger (other than with respect to cash received in lieu of fractional
shares of Superholdco Common Stock);
(d) USI shall have received the opinion described in Section 6.3(c) in
form and substance satisfactory to Zurn; and
(e) the Board of Directors of Superholdco shall consist of the Board of
Directors of USI immediately prior to the Effective Time, together with
William E. Butler and Robert R. Womack, if they are willing to serve as
directors of Superholdco.
SECTION 6.3--ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF USI AND THE MERGER
SUBSIDIARIES. The respective obligations of USI and the Merger Subsidiaries to
effect the USI Merger are also subject to the satisfaction or written waiver on
or prior to the Closing Date of the following conditions:
(a) the representations and warranties of Zurn contained in this
Agreement or in any other document delivered pursuant hereto shall be true
and correct in all material respects on and as of the Closing Date with the
same effect as if made on and as of the Closing Date, and at the Closing
Zurn shall have delivered to USI a certificate to that effect signed by an
executive officer of Zurn;
(b) each of the obligations of Zurn to be performed on or before the
Closing Date pursuant to the terms of this Agreement shall have been duly
performed in all material respects on or before the
38
Closing Date and at the Closing Zurn shall have delivered to USI a
certificate to that effect signed by an executive officer of Zurn;
(c) Weil, Gotshal & Manges LLP, counsel to USI, shall have delivered to
USI an opinion, dated the Closing Date and addressed to USI, substantially
to the effect that (on the basis of the representations and assumptions set
forth in such opinion) (i) no gain or loss will be recognized for federal
income tax purposes by Superholdco, USI or B-Sub as a result of the
formation of Superholdco, B-Sub and Z-Sub and the USI Merger; and (ii) no
gain or loss will be recognized for federal income tax purposes by a
stockholder of USI upon the exchange of USI Common Stock for USI Merger
Consideration pursuant to the USI Merger;
(d) Zurn shall have received the opinion described in Section 6.2(c) in
form and substance satisfactory to USI; and
(e) USI shall have received reasonably satisfactory evidence that all
outstanding shares of Zurn Preferred Stock have been redeemed by Zurn in
accordance with the terms thereof.
ARTICLE 7
TERMINATION; AMENDMENT; WAIVER
SECTION 7.1--TERMINATION. This Agreement may be terminated at any time,
prior to the Effective Time:
(a) by mutual written consent of USI and Zurn;
(b) by USI or Zurn if the Closing shall not have occurred on or before
July 31, 1998, except that if the Joint Proxy Statement has not been mailed
to the stockholders of USI and Zurn on or before July 1, 1998 because the
S-4 has not been declared effective by the SEC prior to such date, the
earliest date on which USI or Zurn may terminate this Agreement because the
Closing shall not have occurred shall be August 31, 1998 (the applicable
date being the "OUTSIDE DATE") PROVIDED that no Party may terminate this
Agreement pursuant to this Section 7.1(b) if such Party's failure or the
failure of any affiliate of such Party to fulfill any of its obligations
under this Agreement shall have been the reason that the Effective Time
shall not have occurred on or before said date;
(c) by USI or Zurn if (i) Zurn shall have convened a meeting of its
stockholders and failed to obtain the requisite vote to approve this
Agreement and the Zurn Merger, (ii) USI shall have convened a meeting of its
stockholders and failed to obtain the requisite vote to approve this
Agreement and the USI Merger, or (iii) if any federal or state court of
competent jurisdiction or other Governmental Entity shall have issued an
order, decree or ruling, or taken any other action, permanently enjoining or
otherwise prohibiting either of the Mergers, PROVIDED that neither party may
terminate this Agreement pursuant to this clause (iii) if it has not
complied with its obligations under Sections 5.7 and 5.8;
(d) by Zurn, if (i) there shall have been a breach of any
representation or warranty on the part of USI, Superholdco or the Merger
Subsidiaries set forth in this Agreement, or if any representation or
warranty of USI, Superholdco or the Merger Subsidiaries shall have become
untrue, in any case such that the conditions set forth in Section 6.2(a)
would be incapable of being satisfied by the Outside Date, (ii) there shall
have been a material breach by USI, Superholdco or the Merger Subsidiaries
of any of their respective covenants or agreements hereunder and such breach
shall not have been cured within 15 days after notice by Zurn thereof, or
(iii) Zurn concurrently with or immediately following such termination
enters into an agreement (including a letter of intent) providing for the
consummation of the transactions contemplated by a Superior Proposal after
complying with the terms of Section 5.3(b), including, without limitation,
the expiration of the five-
39
business day period contemplated thereby (provided that such termination
shall not be effective until payment of the amount required under Section
7.3(a)), or
(e) by USI if (i) there shall have been a breach of any representation
or warranty on the part of Zurn set forth in this Agreement, or if any
representation or warranty of Zurn shall have become untrue, in either case
such that the conditions set forth in Section 6.3(a) would be incapable of
being satisfied by the Outside Date, (ii) there shall have been a material
breach by Zurn of its covenants or agreements hereunder and such breach
shall not have been cured within 15 days after notice by USI thereof, (iii)
the Zurn Board shall have withdrawn or modified, or shall have publicly
proposed to withdraw or modify, in a manner adverse to USI, the approval or
recommendation of this Agreement or the Zurn Merger by the Zurn Board or
shall have recommended, or shall have publicly proposed to recommend, to
Zurn's stockholders any Acquisition Proposal (other than the Zurn Merger) or
Zurn shall have publicly proposed to enter into an agreement (other than a
confidentiality agreement) providing for the consummation of the
transactions contemplated by a Superior Proposal, or (iv) the Zurn Board
shall, following the commencement, public proposal, public disclosure or
communication to Zurn of any Acquisition Proposal, have failed to call, give
notice of, convene or hold a stockholders' meeting to vote upon the Zurn
Merger in breach of its obligations under Section 5.5, or shall have adopted
any resolution to effect any of the foregoing.
SECTION 7.2--EFFECT OF TERMINATION. In the event of the termination and
abandonment of this Agreement pursuant to Section 7.1, this Agreement (other
than the provisions of this Section 7.2, and Sections 5.6(c), 5.9 and 7.3 and
Article 8) shall forthwith become void and have no effect, without any liability
on the part of any party hereto or its affiliates, directors, officers or
shareholders, PROVIDED, HOWEVER, that nothing contained in this Section 7.2
shall relieve any party from liability for any willful or intentional breach of
this Agreement.
SECTION 7.3--FEES AND EXPENSES. (a) In the event that this Agreement shall
be terminated pursuant to:
(i) Section 7.1(c)(i) and, prior to or on the date of the meeting of
Zurn's stockholders there shall have been commenced, publicly disclosed or
publicly proposed any transaction (other than the Zurn Merger) that, if
consummated, would constitute an Acquisition Proposal and, within twelve
months after the termination of this Agreement, Zurn consummates the
transaction contemplated by (A) any Acquisition Proposal (other than the
Zurn Merger) which shall have been commenced, publicly disclosed or publicly
proposed prior to or on the date of the meeting of Zurn's stockholders or
(B) any Acquisition Proposal (other than the Zurn Merger) which contemplates
the acquisition of more than 50 percent of (x) the assets of Zurn and its
subsidiaries, taken as a whole, or (y) the outstanding shares of Zurn Common
Stock;
(ii) Section 7.1(e)(iv), and, within twelve months thereafter, Zurn
consummates the transaction contemplated by (i) any Acquisition Proposal
(other than the Zurn Merger) which shall have been commenced, publicly
disclosed or publicly proposed prior to or on the date on which the Zurn
Board shall have failed to call, give notice of, convene or hold a
stockholders' meeting to vote upon the Zurn Merger in breach of its
obligations under Section 5.5 or (ii) any Acquisition Proposal (other than
the Zurn Merger) which contemplates the acquisition of more than 50 percent
of (x) the assets of Zurn and its subsidiaries, taken as a whole, or (y) the
outstanding shares of Zurn Common Stock; or
(iii) Sections 7.1(d)(iii) or 7.1(e)(iii), then Zurn shall pay to USI
as a fee the amount of $10 million plus all actual documented out-of-pocket
fees and expenses, not to exceed $2 million, incurred by USI, the Merger
Subsidiaries and their affiliates or on their behalf in connection with the
Mergers and the consummation of all transactions contemplated by this
Agreement (including, without limitation, fees payable to investment
bankers, counsel to any of the foregoing, and accountants), in the manner
provided by Section 7.3(b).
40
(b) Zurn shall pay the amounts referred to in Section 7.3(a) as follows:
(i) in the case of a termination under Section 7.1(c)(i) in respect of
which the conditions specified in Section 7.3(a)(i) are satisfied, such
amounts shall be paid concurrently with the consummation of the transaction
referred to in Section 7.3(a)(i);
(ii) in the case of a termination under Section 7.1(e)(iv) in respect
of which the conditions specified in Section 7.3(a)(ii) are satisfied, such
amounts shall be paid concurrently with the consummation of the transaction
referred to in Section 7.3(a)(ii);
(iii) in the case of a termination under Section 7.1(d)(iii), such
amounts shall be paid prior to or concurrently with Zurn entering into the
agreement referred to in such Section 7.1(d)(iii); and
(iv) in the case of a termination under Section 7.1(e)(iii), such
amount shall be paid within two business days after the date of such
termination.
USI or the Merger Subsidiaries will provide Zurn in due course with invoices
or other reasonable evidence of their out-of-pocket fees and expenses upon
request. Zurn shall in any event pay the amount of out-of-pocket fees and
expenses referred to in Section 7.3(a) within two business days of a request by
USI, subject to Zurn's right to demand a return of any portion as to which
invoices are not received in due course. Upon payment of the amounts provided by
this Section 7.3, Zurn shall be fully released and discharged from any liability
or obligation under or resulting from this Agreement.
(c) Except as specifically provided in this Section 7.3, each party shall
bear its own expenses in connection with this Agreement and the transactions
contemplated hereby. The cost of printing the S-4 and the Joint Proxy Statement
and the cost of filing any required notification under the HSR Act shall be
borne equally by Zurn and USI.
SECTION 7.4--AMENDMENT. This Agreement may be amended by action taken by
Zurn or USI at any time before or after approval of the Mergers by the
stockholders of Zurn and stockholders of USI but, after any such approval, no
amendment shall be made which requires the approval of such stockholders under
applicable law without such approval. This Agreement may not be amended except
by an instrument in writing signed on behalf of the parties hereto.
SECTION 7.5--EXTENSION; WAIVER. At any time prior to the Effective Time,
each Party hereto (for purposes of this Section 7.5, USI, Superholdco and the
Merger Subsidiaries shall together be deemed one party and Zurn shall be deemed
the other party) may (i) extend the time for the performance of any of the
obligations or other acts of the other party, (ii) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document, certificate or writing delivered pursuant hereto or (iii) waive
compliance by the other party with any of the agreements or conditions contained
herein. Any agreement on the part of either party hereto to any such extension
or waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure of either party hereto to assert any of its
rights hereunder shall not constitute a waiver of such rights.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1--NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties made herein shall not survive beyond the
Effective Time or a termination of this Agreement.
SECTION 8.2--ENTIRE AGREEMENT; ASSIGNMENT. This Agreement:
(a) constitutes the entire agreement between the Parties hereto with
respect to the subject matter hereof and supersedes all other prior
agreements and understandings, both written and oral, between the Parties
with respect to the subject matter hereof; and
41
(b) shall not be assigned by operation of law or otherwise.
SECTION 8.3--NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telegram, facsimile or telex, or by registered or certified mail (postage
prepaid, return receipt requested), to the other party as follows:
if to USI or to any of the Merger
Subsidiaries to: U.S. Industries, Inc.
101 Wood Avenue South
Iselin, NJ 08830
Attention: George H. MacLean, Esq.
Facsimile: (732) 767-2208
with a copy to: Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Attention: Ellen J. Odoner, Esq.
Facsimile: (212) 310-8007
if to Zurn to: Zurn Industries, Inc.
14801 Quorum Drive
Addison, TX 75240
Attention: George Hanthorn, Esq.
Facsimile: (972) 560-2256
with a copy to: Jones, Day, Reavis & Pogue
2300 Trammell Crow Center
2001 Ross Avenue
Dallas, TX 75201-2958
Attention: Mark E. Betzen, Esq.
Facsimile: (214) 969-5100
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above.
SECTION 8.4--GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to the principles of conflicts of law thereof, except to the extent that matters
relating to the Zurn Merger and other matters relating to the internal corporate
affairs of Zurn or Z-Sub are necessarily governed by Pennsylvania Law.
SECTION 8.5--DESCRIPTIVE HEADINGS. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
SECTION 8.6--PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and its successors, and except
as provided in Sections 5.10 and 5.16, nothing in this Agreement, express or
implied, is intended to or shall confer upon any other person any rights,
benefits or remedies of any nature whatsoever under or by reason of this
Agreement.
SECTION 8.7--SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
adverse to any party.
42
SECTION 8.8--SPECIFIC PERFORMANCE. The Parties hereto acknowledge that
irreparable damage would result if this Agreement were not specifically
enforced, and they therefore consent that the rights and obligations of the
parties under this Agreement may be enforced by a decree of specific performance
issued by a court of competent jurisdiction. Such remedy shall, however, not be
exclusive and, shall be in addition to any other remedies which any party may
have under this Agreement or otherwise.
SECTION 8.9--CERTAIN DEFINITIONS. For purposes of this Agreement (a) the
term "subsidiary" shall mean, when used with reference to any entity, any entity
more than fifty percent (50%) of the outstanding voting securities or interests
(including membership interests) of which are owned directly or indirectly by
such first entity, (b) the term "affiliate" shall mean, when used with reference
to any person or entity, any other person or entity that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, such first person or entity, (c) the term "knowledge" shall
mean the actual knowledge of any executive officer of Zurn or USI, as the case
may be and (d) the phrase "held in the treasury of USI" shall mean, when used
with reference to shares of capital stock of any corporation, such shares as
have been issued by such corporation and subsequently reacquired and held of
record by such corporation, or a subsidiary of such corporation, and not
cancelled and returned to the status of authorized but unissued shares;
PROVIDED, HOWEVER, that with reference to shares of capital stock of USI, shares
of USI Common Stock held by USI American Holdings, Inc. shall not be deemed to
be held in the treasury of USI.
SECTION 8.10--BROKERS. Except as otherwise provided in Section 7.3, Zurn
agrees to indemnify and hold harmless USI, Superholdco and the Merger
Subsidiaries, and USI and the Merger Subsidiaries agree to indemnify and hold
harmless Zurn, from and against any and all liability to which USI, Superholdco
and the Merger Subsidiaries, on the one hand, or Zurn, on the other hand, may be
subjected by reason of any brokers, finder's or similar fees or expenses with
respect to the transactions contemplated by this Agreement to the extent such
similar fees and expenses are attributable to any action undertaken by or on
behalf of Zurn, or USI, Superholdco or the Merger Subsidiaries, as the case may
be.
SECTION 8.11--COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
[SIGNATURES BEGIN ON NEXT PAGE]
43
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be duly
executed on its behalf as of the day and year first above written.
U.S. INDUSTRIES, INC.
By: /s/ DAVID H. CLARKE
-----------------------------------------
Name: David H. Clarke
Title: Chairman and Chief Executive
Officer
USI, INC.
By: /s/ DAVID H. CLARKE
-----------------------------------------
Name: David H. Clarke
Title: Chairman and Chief Executive
Officer
BLUE MERGER CORP.
By: /s/ DAVID H. CLARKE
-----------------------------------------
Name: David H. Clarke
Title: Chairman and Chief Executive
Officer
[SIGNATURES CONTINUE ON NEXT PAGE]
44
ZORO MERGER CORP.
By: /s/ DAVID H. CLARKE
-----------------------------------------
Name: David H. Clarke
Title: Chairman and Chief Executive
Officer
ZURN INDUSTRIES, INC.
By: /s/ ROBERT R. WOMACK
-----------------------------------------
Name: Robert R. Womack
Title: Chairman and Chief Executive
Officer
45
APPENDIX A-2
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT (this "Agreement"), dated as of February 16, 1998, by
and between ZURN INDUSTRIES, INC., a Pennsylvania corporation ("Zurn"), and U.S.
INDUSTRIES, INC., a Delaware corporation ("USI").
WHEREAS, concurrently with the execution and delivery of this Agreement,
Zurn, USI, USI, Inc., a Delaware corporation and a wholly owned subsidiary of
USI, Blue Merger Corp., a Delaware corporation and a wholly owned subsidiary of
Superholdco ("B-Sub"), and Zoro Merger Corp., a Delaware corporation and a
wholly owned subsidiary of Superholdco ("Z-Sub"), are entering into an Agreement
and Plan of Merger, dated as of the date hereof (the "Merger Agreement"), which
provides that, among other things, upon the terms and subject to the conditions
thereof, Z-Sub will be merged with Zurn (the "Zurn Merger") and B-Sub will be
merged with USI (the USI Merger"); and
WHEREAS, as a condition to USI's willingness to enter into the Merger
Agreement, USI has requested that Zurn agree, and in order to induce USI to
enter into the Merger Agreement, Zurn has so agreed, to grant to USI an option
with respect to certain shares of common stock, par value $.50 per share, of
Zurn (the "Zurn Common Stock") on the terms and subject to the conditions set
forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein and in the Merger Agreement and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. GRANT OF OPTION. Zurn hereby grants to USI an irrevocable option (the
"Stock Option") to purchase up to 1,291,559 shares of Zurn Common Stock, or such
other number of shares of Zurn Common Stock as equals 10.1% of the issued and
outstanding shares of Zurn Common Stock at the time of exercise of the Stock
Option, in the manner set forth below, at a price of $44.30 per share (the
"Exercise Price"), payable in cash in accordance with Section 5 hereof.
Capitalized terms used and not otherwise defined herein shall have the meanings
set forth in the Merger Agreement.
2. EXERCISE OF OPTION. The Stock Option may be exercised by USI, in whole
or in part, at any time or from time to time prior to its termination pursuant
to Section 3 hereof and (a) after the Merger Agreement is terminated pursuant to
Section 7.1(d)(iii) or 7.1(e)(iii) thereof or (b) after the date on which Zurn
delivers to USI a Transaction Notice (as defined below), each of the events
described in clause (a) and (b) being a "Trigger Event". Zurn shall not
consummate any transaction if the consummation thereof would result in a fee
being payable to USI pursuant to Section 7.3(a)(i) or 7.3(a)(ii) of the Merger
Agreement unless Zurn shall have delivered to USI, at least 15 business days
prior to such consummation, a written notice specifying the material terms of
such transaction and stating Zurn's intention to consummate such transaction (a
"Transaction Notice").
In the event USI wishes to exercise the Stock Option, USI shall deliver to
Zurn a written notice (an "Exercise Notice") specifying the total number of
shares of Zurn Common Stock it wishes to purchase. Each closing of a purchase of
shares of Zurn Common Stock (a "Closing") shall occur at a place, on a date and
at a time designated by USI in an Exercise Notice delivered at least two
business days prior to the date of the Closing.
Notwithstanding the foregoing, the Stock Option may not be exercised if USI
or, in the case of the Merger Agreement, USI, Superholdco or either of the
Merger Subsidiaries is (or, at the time of the termination of the Merger
Agreement, was) in material breach of any of its representations, warranties,
covenants or agreements contained in this Agreement or in the Merger Agreement.
3. TERMINATION. The Stock Option shall terminate upon the earliest of: (i)
the Effective Time; (ii) the termination of the Merger Agreement (otherwise than
pursuant to Section 7.1(c)(i), 7.1(d)(iii), 7.1(e)(iii) or 7.1(e)(iv) thereof);
(iii) 120 days following any Trigger Event described in clause (a) of Section 2
hereof (or if, at the expiration of such 120 day period the Stock Option cannot
be exercised by reason of
any applicable judgment, decree, order, law or regulation, or because the
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act") has not expired or been terminated, 10
business days after such impediment to exercise shall have been removed or shall
have become final and not subject to appeal, but in no event under this clause
(iii) later than 210 days after the date of the Trigger Event); (iv) the
fifteenth business day following the delivery to USI of a Transaction Notice
pursuant to the second sentence of Section 2 hereof; and (v) 365 days following
the termination of the Merger Agreement.
4. CONDITIONS TO CLOSING. The obligation of Zurn to issue shares of Zurn
Common Stock to USI hereunder is subject to the conditions that (i) all waiting
periods, if any, under the HSR Act applicable to the issuance of shares of Zurn
Common Stock hereunder shall have expired or have been terminated, and all
consents, approvals, orders or authorizations of, or registrations, declarations
or filings with, any federal administrative agency or commission or other
federal governmental authority or instrumentality, if any, required in
connection with the issuance of shares of Zurn Common Stock hereunder shall have
been obtained or made, as the case may be; (ii) no preliminary or permanent
injunction or other order by any court of competent jurisdiction prohibiting or
otherwise restraining such issuance shall be in effect; and (iii) except as may
be waived in writing by Zurn, such shares shall have been approved for listing
on the NYSE upon official notice of issuance.
5. CLOSING. At any Closing, (a) Zurn will deliver to USI a single
certificate in definitive form representing the number of shares of Zurn Common
Stock designated by USI in its Exercise Notice, such certificate to be
registered in the name of USI, or such affiliate of USI as USI shall designate
in the Exercise Notice, and shall bear the legend set forth in Section 11, and
(b)USI will deliver to Zurn the aggregate Exercise Price for the shares of Zurn
Common Stock so designated and being purchased at such Closing by wire transfer
of immediately available funds.
6. REPRESENTATIONS AND WARRANTIES OF ZURN. Zurn represents and warrants to
USI that (a) Zurn is a corporation duly organized, validly existing and in good
standing under the laws of the State of Pennsylvania and has the corporate power
and authority to enter into this Agreement and to carry out its obligations
hereunder,(b) assuming the accuracy of the representation and warranty set forth
in Section 4.14 of the Merger Agreement, the execution and delivery of this
Agreement by Zurn and the consummation by Zurn of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Zurn and no other corporate proceedings on the part of Zurn are necessary to
authorize this Agreement or any of the transactions contemplated hereby,(c) this
Agreement has been duly executed and delivered by Zurn and constitutes a valid
and binding obligation of Zurn, and, assuming this Agreement constitutes a valid
and binding obligation of USI, is enforceable against Zurn in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights and to general equity principles, (d)Zurn has
taken all necessary corporate action to authorize and reserve for issuance and
to permit it to issue, upon exercise of the Stock Option, and at all times from
the date hereof through the expiration of the Stock Option will have so
reserved, 1,291,559 unissued shares of Zurn Common Stock (or such other number
of shares of Zurn Common Stock as may be required to permit the issuance of
10.1% of the issued and outstanding shares of Zurn Common Stock at the time of
exercise of the Stock Option), all of which, upon their issuance and delivery in
accordance with the terms of this Agreement, will be validly issued, fully paid
and nonassessable,(e) upon delivery of such shares of Zurn Common Stock to USI
upon exercise of the Stock Option, USI will acquire valid title to all of such
shares, free and clear of any and all Liens,(f) the execution and delivery of
this Agreement by Zurn does not, and the performance of this Agreement by Zurn
will not, (1) violate the certificate of incorporation or by-laws of Zurn, (2)
conflict with or violate any statute, rule, regulation, order, judgment or
decree applicable to Zurn or by which it or any of its assets or properties is
bound or affected, or (3) result in any breach or violation of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give rise to any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of any
2
Lien on any of the property or assets of Zurn pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, or other instrument or
obligation to which Zurn or any of its subsidiaries is a party or by which Zurn
or any of its assets or properties is bound or affected (except, in the case of
clauses (2) or (3) above, for violations, breaches or defaults which would not,
individually or in the aggregate, have a Material Adverse Effect on Zurn), and
(g) the execution and delivery of this Agreement by Zurn does not, and the
performance of this Agreement by Zurn will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority except for pre-merger notification requirements of the
HSR Act. As soon as practicable following the date hereof, Zurn will file a
supplemental listing application with the NYSE relating to the shares of Zurn
Common Stock issuable upon exercise of the Option and will use its reasonable
best efforts to have such shares authorized for listing on the NYSE, subject to
official notice of issuance.
7. REPRESENTATIONS AND WARRANTIES OF USI. USI represents and warrants to
Zurn that (a) USI is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has the corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder, (b) the execution and delivery of this Agreement by USI and the
consummation by USI of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of USI and no other
corporate proceedings on the part of USI are necessary to authorize this
Agreement or any of the transactions contemplated hereby, (c) this Agreement has
been duly executed and delivered by USI and constitutes a valid and binding
obligation of USI, and, assuming this Agreement constitutes a valid and binding
obligation of Zurn, is enforceable against USI in accordance with its terms
subject to bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles, (d) the execution and
delivery of this Agreement by USI does not, and the performance of this
Agreement by USI will not (1) violate the certificate of incorporation or
by-laws of USI, (2) conflict with or violate any statute, rule, regulation,
order, judgment or decree applicable to USI or by which it or any of its
properties or assets is bound or affected or (3) result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give rise to any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of a Lien
on any of the property or assets of USI pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, or other instrument or
obligation to which USI is a party or by which USI or any of its properties or
assets is bound or affected (except, in the case of clauses (2) and (3) above,
for violations, breaches, or defaults which would not, individually or in the
aggregate, have a Material Adverse Effect on USI), (e) the execution and
delivery of this Agreement by USI does not, and the performance of this
Agreement by USI will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any governmental or regulatory
authority, except for pre-merger notification requirements of the HSR Act and
(f) any shares of Zurn Common Stock acquired upon exercise of the Stock Option
will be, and the Stock Option is being, acquired by USI for its own account and
not with a view to the public distribution or resale thereof in any manner which
would be in violation of applicable United States securities laws.
8. CERTAIN REPURCHASES. (a) USI Put. At the request of USI at any time
during which the Stock Option is exercisable pursuant to Section 2 (the
"Repurchase Period"), Zurn (or any successor entity thereof) shall repurchase
from USI the Stock Option, or any portion thereof, for a price equal to the
amount by which the "Market/Tender Offer Price" for shares of Zurn Common Stock
as of the date USI gives notice of its intent to exercise its rights under this
Section 8 (defined as the higher of (A) the highest price per share of Zurn
Common Stock paid as of such date pursuant to any tender or exchange offer or
other Acquisition Proposal or (B) the average of the closing sale prices of
shares of Zurn Common Stock on the NYSE for the ten trading days immediately
preceding such date) exceeds the Exercise Price, multiplied by the number of
shares of Zurn Common Stock purchasable pursuant to the Stock Option (or portion
thereof with respect to which USI is exercising its rights under this Section
8)).
3
(b) Payment and Redelivery of Stock Option or Shares. In the event USI
exercises its rights under this Section 8, Zurn shall, within 10 business days
thereafter, pay the required amount to USI in immediately available funds and
USI shall surrender to Zurn the Stock Option, and USI shall warrant that it owns
the Stock Option free and clear of all Liens.
9. REGISTRATION RIGHTS. In the event that USI shall desire to sell any of
the shares of Zurn Common Stock purchased pursuant to the Stock Option
("Restricted Shares") within 3 years after a Trigger Event and such sale
requires, in the opinion of counsel to USI (which opinion shall be reasonably
satisfactory to Zurn and its counsel), registration of such shares under the
Securities Act, USI may, by written notice (the "Registration Notice") to Zurn
(the "Registrant"), request the Registrant to register under the Securities Act
all or any part of the Restricted Shares beneficially owned by USI (the
"Registrable Securities") pursuant to a bona fide firm commitment underwritten
public offering in which USI and the underwriters shall effect as wide a
distribution of such Registrable Securities as is reasonably practicable and
shall use their best efforts to prevent any person (including any group) and its
affiliates from purchasing through such offering Restricted Shares representing
more than 2% of the outstanding shares of common stock of the Registrant on a
fully diluted basis (a "Permitted Offering"). The Registration Notice shall
include a certificate executed by USI and its proposed managing underwriter,
which underwriter shall be an investment banking firm of nationally recognized
standing reasonably acceptable to Zurn (the "Manager"), stating that (i) they
have a good faith intention to commence promptly a Permitted Offering and (ii)
the Manager in good faith believes that, based on the then prevailing market
conditions, it will be able to sell the Registrable Securities at a per share
price to be specified in such Registration Notice (the "Fair Market Value"). The
Registrant (and/or any person designated by the Registrant) shall thereupon have
the option exercisable by written notice delivered to USI within 10 business
days after the receipt of the Registration Notice, irrevocably to agree to
purchase all or any part of the Registrable Securities for cash at a price (the
"Option Price") equal to the product of (i) the number of Registrable Securities
and (ii) the Fair Market Value of such Registrable Securities. Any such purchase
of Registrable Securities by the Registrant hereunder shall take place at a
closing to be held at the principal executive offices of the Registrant or its
counsel at any reasonable date and time designated by the Registrant and its
designee in such notice within 20 business days after delivery of such notice.
Any payment for the shares to be purchased shall be made by delivery at the time
of such closing of the Option Price in immediately available funds.
If the Registrant does not elect to exercise its option pursuant to this
Section 9 with respect to all Registrable Securities designated in the
Registration Notice, it shall use its best efforts to effect, as promptly as
practicable, the registration under the Securities Act of the unpurchased
Registrable Securities; provided, however, that (i) USI shall not be entitled to
more than an aggregate of two effective registration statements hereunder and
(ii) the Registrant will not be required to file any such registration statement
during any period of time (not to exceed 90 days after such request in the case
of clause (B) below or 120 days in the case of clauses (A) and (C) below) when
(A) the Registrant is in possession of material non-public information which it
reasonably believes would be detrimental to be disclosed at such time and, in
the judgment of the Board of Directors of the Registrant, such information would
have to be disclosed if a registration statement were filed at that time; (B)
the Registrant is required under the Securities Act to include audited financial
statements for any period in such registration statement and such financial
statements are not yet available for inclusion in such registration statement;
or (C) the Registrant determines, in its reasonable judgment, that such
registration would interfere with any financing, acquisition or other material
transaction involving the Registrant or any of its affiliates. If consummation
of the sale of any Registrable Securities pursuant to a registration hereunder
does not occur within 120 days after the filing with the SEC of the initial
registration statement with respect thereto, the provisions of this Section 9
shall again be applicable to any proposed registration; provided, however, that
USI shall not be entitled to request more than two registrations pursuant to
this Section 9 in any 12 month period. The Registrant shall use its best efforts
to cause all Registrable Securities registered pursuant to this Section 9 to be
qualified for sale under the securities or blue-sky laws of such jurisdictions
as USI may reasonably
4
request and shall continue such registration or qualification in effect in such
jurisdiction; provided, however, that the Registrant shall not be required to
qualify to do business in, or consent to general service of process in, any
jurisdiction by reason of this provision.
The registration rights set forth in this Section 9 are subject to the
condition that USI shall provide the Registrant with such information with
respect to USI's Registrable Securities, the plans for the distribution thereof,
and such other information with respect to USI as, in the reasonable judgment of
counsel for the Registrant, is necessary to enable the Registrant to include in
such registration statement all material facts required to be disclosed with
respect to a registration thereunder.
A registration effected under this Section 9 shall be effected at the
Registrant's expense, except for underwriting discounts and commissions and the
fees and the expenses of counsel to USI, and the Registrant shall provide to the
underwriters such documentation (including certificates, opinions of counsel and
"comfort" letters from auditors) as are customary in connection with
underwritten public offerings as such underwriters may reasonably require. In
connection with any such registration, the parties agree (i) to indemnify each
other and the underwriters in the customary manner and (ii) to enter into an
underwriting agreement in form and substance customary to transactions of this
type with the Manager and the other underwriters participating in such offering.
10. PROFIT LIMITATION. (a) Notwithstanding any other provision of this
Agreement, in no event shall USI's Total Profit (as hereinafter defined) exceed
$5 million and, if it otherwise would exceed such amount USI, at its sole
election, shall either (i) deliver to Zurn for cancellation Restricted Shares
previously purchased by USI, (ii) pay cash or other consideration to Zurn or
(iii) undertake any combination thereof, so that USI's Total Profit shall not
exceed $5 million after taking into account the foregoing actions.
(b) Notwithstanding any other provision of this Agreement, this Stock Option
may not be exercised for a number of Restricted Shares as would, as of the date
of the Exercise Notice, result in a Notional Total Profit (as defined below) of
more than $5 million, and, if exercise of the Stock Option otherwise would
exceed such amount, USI, at its discretion, may increase the Exercise Price for
that number of Restricted Shares set forth in the Exercise Notice so that the
Notional Total Profit shall not exceed $5 million; provided, that nothing in
this sentence shall restrict any exercise of the Stock Option permitted hereby
on any subsequent date at the Exercise Price set forth in Section 1 hereof.
(c) As used herein, the term "Total Profit" shall mean the aggregate amount
(before taxes) of the following: (i) the amount received by USI pursuant to
Zurn's repurchase of the Stock Option pursuant to Section 8 hereof, and (ii) (x)
the net cash amounts received by USI pursuant to the sale of Restricted Shares
(or any other securities into which such shares are converted or exchanged) to
any unaffiliated party, less (y) USI's purchase price for such Restricted
Shares.
(d) As used herein, the term "Notional Total Profit" with respect to any
number of Restricted Shares as to which USI may propose to exercise this Stock
Option shall be the Total Profit determined as of the date of the Exercise
Notice assuming that this Stock Option were exercised on such date for such
number of Restricted Shares and assuming that such Restricted Shares, together
with all other Restricted Shares held by USI and its affiliates as of such date,
were sold for cash at the closing market price for Zurn Common Stock as of the
close of business on the preceding trading day (less customary brokerage
commissions).
11. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. In the event of any change in
Zurn Common Stock by reason of stock dividends, stock splits, mergers (other
than the Merger), recapitalizations, combinations, exchange of shares or the
like, the type and number of shares or securities subject to the Stock Option,
and the Exercise Price per share, shall be adjusted appropriately.
5
12. RESTRICTIVE LEGENDS. Each certificate representing shares of Zurn Common
Stock issued to USI hereunder shall initially be endorsed with a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD
ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION AND
APPLICABLE STATE SECURITIES LAWS IS AVAILABLE. SUCH SECURITIES ARE ALSO
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE STOCK
OPTION AGREEMENT, DATED FEBRUARY 16, 1998, A COPY OF WHICH MAY BE OBTAINED
FROM THE ISSUER HEREOF.
13. BINDING EFFECT; NO ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors, and
permitted assigns. Except as expressly provided in this Agreement, neither this
Agreement nor the rights or the obligations of either party hereto are
assignable, except by operation of law, or with the written consent of the other
party. Nothing contained in this Agreement, express or implied, is intended to
confer upon any person other than the parties hereto and their respective
permitted assigns any rights or remedies of any nature whatsoever by reason of
this Agreement. Any Restricted Shares sold by a party in compliance with the
provisions of Section 9 shall, upon consummation of such sale, be free of the
restrictions imposed with respect to such shares by this Agreement. In no event
will any transferee of any Restricted Shares be entitled to the rights of USI
hereunder. Certificates representing shares sold in a registered public offering
pursuant to Section 9 shall not be required to bear the legend set forth in
Section 12.
14. SPECIFIC PERFORMANCE. The parties recognize and agree that if for any
reason any of the provisions of this Agreement are not performed in accordance
with their specific terms or are otherwise breached, immediate and irreparable
harm or injury would be caused for which money damages would not be an adequate
remedy. Accordingly, each party agrees that, in addition to other remedies, the
other party shall be entitled to an injunction restraining any violation or
threatened violation of the provisions of this Agreement. In the event that any
action should be brought in equity to enforce the provisions of the Agreement,
neither party will allege, and each party hereby waives the defense, that there
is an adequate remedy at law.
15. ENTIRE AGREEMENT. This Agreement and the Merger Agreement (together with
the other documents and instruments referred to in the Merger Agreement, and the
exhibits and disclosure schedules thereto) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all other
prior agreements and understandings, both written and oral, among the parties or
any of them with respect to the subject matter hereof.
16. FURTHER ASSURANCES. Each party will execute and deliver all such further
documents and instruments and take all such further action as may be necessary
in order to consummate the transactions contemplated hereby.
17. NO REMEDY IN CERTAIN CIRCUMSTANCES. Each party agrees that, should any
court or other competent authority hold any provision of this Agreement or part
hereof to be null, void or unenforceable, or order any party to take any action
inconsistent herewith or not to take an action consistent herewith or required
hereby, the validity, legality and enforceability of the remaining provisions
and obligations contained or set forth herein shall not in any way be affected
or impaired thereby, unless the foregoing inconsistent action or the failure to
take an action constitutes a material breach of this Agreement or makes the
Agreement impossible to perform in which case this Agreement shall terminate.
Except as otherwise contemplated by this Agreement, to the extent that a party
hereto took an action inconsistent herewith or failed to take action consistent
herewith or required hereby pursuant to an order or judgment of a court or other
competent authority, such party shall incur no liability or obligation unless
such party did not in good faith seek to resist or object to the imposition or
entering of such order or judgment.
6
18. NOTICES. Any notice or communication required or permitted hereunder
shall be in writing and either delivered personally, telegraphed or telecopied
or sent by certified or registered mail, postage prepaid, and shall be deemed to
be given, dated and received when so delivered personally, telegraphed or
telecopied (answerback received) or, if mailed, five business days after the
date of mailing, to the following address or telecopy number, or to such other
address or addresses as such person may subsequently designate by notice given
hereunder:
(a) if to USI, to:
U.S. Industries, Inc.
101 Wood Avenue South
Iselin, NJ 08830
Attention: George H. MacLean, Esq.
Facsimile: (732) 767-2208
with a copy (which shall
not constitute notice) to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Ellen J. Odoner, Esq.
Facsimile: (212) 310-8007
(b) if to Zurn, to:
Zurn Industries, Inc.
14801 Quorum Drive
Addison, TX 75240
Attention: George Hanthorn, Esq.
Facsimile: (972) 560-2256
with a copy (which shall
not constitute notice) to:
Jones, Day Reavis & Pogue
2300 Trammell Crow Center
2001 Ross Avenue
Dallas, TX 75201-2958
Attention: Mark E. Betzen, Esq.
Facsimile: (214) 969-5100
19. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to the
principles of conflicts of law thereof.
20. DESCRIPTIVE HEADINGS. The descriptive headings herein are inserted for
convenience of reference only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.
21. COUNTERPARTS. This Agreement may be executed in multiple counterparts,
each of which shall be deemed to be an original, but all of which, taken
together, shall constitute one and the same instrument.
22. EXPENSES. Except as otherwise expressly provided herein or in the Merger
Agreement, all costs and expenses incurred in connection with the transactions
contemplated by this Agreement shall be paid by the party incurring such
expenses.
7
23. AMENDMENTS; WAIVER. This Agreement may be amended by the parties hereto
and the terms and conditions hereof may be waived only by an instrument in
writing signed on behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first above
written.
ZURN INDUSTRIES, INC.
By: /s/ ROBERT R. WOMACK
------------------------------------------
Name: Robert R. Womack
Title: Chairman and Chief Executive Officer
U.S. INDUSTRIES, INC.
By: /s/ DAVID H. CLARKE
------------------------------------------
Name: David H. Clarke
Title: Chairman and Chief Executive Officer
8
APPENDIX B-1
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
U.S. INDUSTRIES, INC.
This document constitutes an amendment and restatement of the original
Certificate of Incorporation of USI, Inc. (the "Corporation") which was filed
with the Secretary of State of Delaware on February 4, 1998. This Amended and
Restated Certificate of Incorporation was duly adopted in accordance with the
provisions of Sections 245(c) and 242 of the Delaware General Corporation Law
ARTICLE I.
NAME
The name of the Corporation is U.S. Industries, Inc.
ARTICLE II.
ADDRESS OF REGISTERED OFFICE;
NAME OF REGISTERED AGENT
The address of the registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, 19801. The name of its registered agent at
that address in the State of Delaware is The Corporation Trust Company.
ARTICLE III.
PURPOSE AND POWERS
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may now or hereafter be organized under the Delaware
General Corporation Law ("Delaware Law"). It shall have all powers that may now
or hereafter be lawful for a corporation to exercise under the Delaware Law.
ARTICLE IV.
CAPITAL STOCK
SECTION 4.1 TOTAL NUMBER OF SHARES OF STOCK. The total number of shares of
capital stock of all classes that the Corporation shall have authority to issue
is 350,000,000 shares. The authorized capital stock is divided into 50,000,000
shares of preferred stock, of the par value of $.01 each (the "Preferred
Stock"), and 300,000,000 shares of common stock, of the par value of $.01 each
(the "Common Stock").
SECTION 4.2 PREFERRED STOCK. (a) The shares of Preferred Stock of the
Corporation may be issued from time to time in one or more classes or series
thereof, the shares of each class or series thereof to have such voting powers,
full or limited, or no voting powers, and such designations, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, as are stated and expressed herein or in
the resolution or resolutions providing for the issue of such class or series,
adopted by the board of directors of the Corporation (the "Board of Directors")
as hereinafter provided.
(b) Authority is hereby expressly granted to the Board of Directors, subject
to the provisions of this Article IV and to the limitations prescribed by the
Delaware Law, to authorize the issue of one or more classes, or series thereof,
of Preferred Stock and with respect to each such class or series to fix by
resolution or resolutions providing for the issue of such class or series the
voting powers, full or limited, if any, of the shares of such class or series
and the designations, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof. The authority of the Board of Directors with respect to
each class or series thereof shall include, but not be limited to, the
determination or fixing of the following:
(i) the maximum number of shares to constitute such class or series,
which may subsequently be increased or decreased by resolutions of the Board
of Directors unless otherwise provided in the resolution providing for the
issue of such class or series, the distinctive designation thereof and the
stated value thereof if different than the par value thereof;
(ii) the dividend rate of such class or series, the conditions and dates
upon which such dividends shall be payable, the relation which such
dividends shall bear to the dividends payable on any other class or classes
of stock or any other series of any class of stock of the Corporation, and
whether such dividends shall be cumulative or noncumulative;
(iii) whether the shares of such class or series shall be subject to
redemption, in whole or in part, and if made subject to such redemption the
times, prices and other terms and conditions of such redemption, including
whether or not such redemption may occur at the option of the Corporation or
at the option of the holder or holders thereof or upon the happening of a
specified event;
(iv) the terms and amount of any sinking fund established for the
purchase or redemption of the shares of such class or series;
(v) whether or not the shares of such class or series shall be
convertible into or exchangeable for shares of any other class or classes of
any stock or any other series of any class of stock of the Corporation, and,
if provision is made for conversion or exchange, the times, prices, rates,
adjustments, and other terms and conditions of such conversion or exchange;
(vi) the extent, if any, to which the holders of shares of such class or
series shall be entitled to vote with respect to the election of directors
or otherwise;
(vii) the restrictions, if any, on the issue or reissue of any additional
Preferred Stock;
(viii) the rights of the holders of the shares of such class or series
upon the dissolution of, or upon the subsequent distribution of assets of,
the Corporation; and
(ix) the manner in which any facts ascertainable outside the resolution
or resolutions providing for the issue of such class or series shall operate
upon the voting powers, designations, preferences, rights and
qualifications, limitations or restrictions of such class or series.
Section 4.3 COMMON STOCK. The shares of Common Stock of the Corporation
shall be of one and the same class. The holders of Common Stock shall have one
vote per share of Common Stock on all matters on which holders of Common Stock
are entitled to vote.
ARTICLE V.
BOARD OF DIRECTORS
Section 5.1 POWERS OF BOARD OF DIRECTORS. The business and affairs of the
Corporation shall be managed by or under the direction of its Board of Directors
which shall consist of not less than three members. In furtherance, and not in
limitation, of the powers conferred by the laws of the State of Delaware, the
Board of Directors is expressly authorized to:
(a) adopt, amend, alter, change or repeal the By-Laws of the
Corporation; provided, however, that no By-Laws hereafter adopted shall
invalidate any prior act of the directors that would have been valid if such
new By-Laws had not been adopted;
2
(b) determine the rights, powers, duties, rules and procedures that
affect the power of the Board of Directors to manage and direct the business
and affairs of the Corporation, including the power to designate and empower
committees of the Board of Directors, to elect, appoint and empower the
officers and other agents of the Corporation, and to determine the time and
place of, the notice requirements for, Board meetings, as well as quorum and
voting requirements for, and the manner of taking, Board action; and
(c) exercise all such powers and do all such acts as may be exercised or
done by the Corporation, subject to the provisions of the Delaware Law, this
Certificate of Incorporation, and the By-Laws of the Corporation.
Section 5.2 NUMBER OF DIRECTORS. The number of directors constituting the
Board of Directors shall be determined from time to time exclusively by a vote
of a majority of the Board of Directors in office at the time of such vote.
Section 5.3 CLASSIFIED BOARD OF DIRECTORS. The directors shall be divided
into three classes, which each class to be as nearly equal in number as
reasonably possible, and with the initial term of office of the first class of
directors to expire at the 1999 annual meeting of stockholders, the initial term
of office of the second class of directors to expire at the 2000 annual meeting
of stockholders and the initial term of office of the third class of directors
to expire at the 2001 annual meeting of stockholders, in each case upon the
election and qualification of their successors. Commencing with the 1999 annual
meeting of stockholders, directors elected to succeed those directors whose
terms have thereupon expired shall be elected to a term of office to expire at
the third succeeding annual meeting of stockholders after their election, and
upon the election and qualification of their successors. If the number of
directors is changed, any increase or decrease shall be apportioned among the
classes so as to maintain or attain the number of directors in each class as
nearly equal as reasonably possible, but in no case will a decrease in the
number of directors shorten the term of any incumbent director.
Section 5.4 VACANCIES. Any vacancies in the Board of Directors for any
reason and any newly created directorship resulting by reason of any increase in
the number of directors may be filled only by the Board of Directors, acting by
a majority of the remaining directors then in office, although less than a
quorum, or by a sole remaining director, and any directors so appointed shall
hold office until the next election of the class of which such directors have
been chosen and until their successors are elected and qualified.
Section 5.5 REMOVAL OF DIRECTORS. Except as may be provided in a
resolution or resolutions providing for any class or series of Preferred Stock
pursuant to Article IV hereof with respect to any directors elected by the
holders of such class or series, any director, or the entire Board of Directors,
may be removed from office at any time, but only for cause, and only by the
affirmative vote of the holders of at least 66 2/3% of the voting power of all
of the shares of capital stock of the Corporation then entitled to vote
generally in the election of directors, voting together as a single class.
ARTICLE VI.
STOCKHOLDER ACTIONS AND MEETINGS OF STOCKHOLDERS
Except as may be provided in a resolution or resolutions providing for any
class or series of Preferred Stock pursuant to Article IV hereof, any action
required or permitted to be taken by the stockholders of the Corporation must be
effected at a duly called annual or special meeting of such holders and may not
be effected by any written consent in lieu of a meeting by such holders. Special
meetings of stockholders of the Corporation may be called only by the Board of
Directors pursuant to a resolution adopted by a majority of the members of the
Board of Directors then in office. Elections of directors need not be by written
ballot, unless otherwise provided in the By-Laws. For purposes of all meetings
of stockholders, a
3
quorum shall consist of a majority of the shares entitled to vote at such
meeting of stockholders, unless otherwise required by law.
ARTICLE VII.
LIMITATION ON LIABILITY OF DIRECTORS
No person shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director, including
without limitation directors serving on committees of the Board of Directors;
provided, however, that the foregoing shall not eliminate or limit the liability
of a director (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware Law, or (iv) for any transaction from which the
director derived an improper personal benefit. If the Delaware Law is amended
hereafter to authorize corporate action further eliminating or limited the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the Delaware Law, as so amended. Any amendment, repeal or modification of this
Article VII shall not adversely affect any right or protection of a director of
the Corporation existing hereunder with respect to any act or omission occurring
prior to such amendment, repeal or modification.
ARTICLE VIII.
AMENDMENT OF BY-LAWS
The Board of Directors shall have the power to adopt, amend, alter, change
or repeal any By-Laws of the Corporation. In addition, the stockholders of the
Corporation may adopt, amend, alter, change or repeal any By-Laws of the
Corporation by the affirmative vote of the holders of at least 66 2/3% of the
voting power of all of the shares of capital stock of the Corporation then
entitled to vote generally in the election of directors, voting together as a
single class (notwithstanding the fact that a lesser percentage may be specified
by Delaware Law).
ARTICLE IX.
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation hereby reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation in any manner
permitted by Delaware Law and all rights and powers conferred upon stockholders,
directors, and officers herein are granted subject to this reservation. Except
as may be provided in a resolution or resolutions providing for any class or
series of Preferred Stock pursuant to Article IV hereof and which relate to such
class or series of Preferred Stock, any such amendment, alteration, change or
repeal shall require the affirmative vote of both (a) a majority of the members
of the Board of Directors then in office and (b) a majority of the voting power
of all of the shares of capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class;
except that any proposal to amend, alter, change or repeal the provisions of
Articles 5.3, Article 5.5, Article VI, Article VIII and this Article IX shall
require the affirmative vote of 66 2/3% of the voting power of all of the shares
of capital stock entitled to vote generally in the election of directors,voting
together as a single class.
4
ARTICLE X
SEVERABILITY
In the event that any of the provisions of this Certificate of Incorporation
(including any provision within a single Section, paragraph or sentence) are
held by a court of competent jurisdiction to be invalid, void or otherwise
unenforceable, the remaining provisions are severable and shall remain
enforceable to the full extent permitted by law.
* * * *
5
APPENDIX B-2
FORM OF
AMENDED AND RESTATED
BY-LAWS
OF
U.S. INDUSTRIES, INC.
(A DELAWARE CORPORATION)
ARTICLE I
STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. (a) All annual meetings of the Stockholders
for the election of directors shall be held at such place as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting. Special meetings of Stockholders for any other purpose may be held at
such time and place as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
(b) Annual meetings of Stockholders shall be held on such date and at such
time as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting, at which they shall elect by a plurality
vote a Board of Directors or, during such time as the certificate of
incorporation of the Corporation (the "Certificate of Incorporation") provides
for a classified Board of Directors, that class of directors the term of which
shall expire at the meeting, and transact such other business as may properly be
brought before the meeting.
(c) Written notice of the annual meeting stating the place, date, and hour
of the meeting shall be given to each Stockholder entitled to vote at such
meeting not less than ten days nor more than sixty days prior to the date of the
meeting. A written waiver of any such notice signed by the person entitled
thereto, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends the 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.
(d) The officer who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten days before every meeting of Stockholders, a
complete list of the Stockholders entitled to vote at the 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 also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any Stockholder who is present. The stock
ledger shall be the only evidence as to the Stockholders entitled to examine the
stock ledger, the list required by this section or the books of the Corporation,
or to vote in person or by proxy at any meeting of Stockholders.
SECTION 2. SPECIAL MEETINGS. (a) Special meetings of the Stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation of the Corporation, shall be called by the
Chairman, President or Secretary only at the request in writing of a majority of
the Board of Directors then in office. Such request shall state the purpose or
purposes of the proposed meeting.
(b) Written notice of a special meeting stating the place, date, and hour of
the meeting and, in general terms, the purpose or purposes for which the meeting
is called, shall be given not less than ten days nor
more than sixty days prior to the date of the meeting, to each Stockholder
entitled to vote at such meeting. Special meetings may be held at such place as
shall be designated by the Board of Directors. Whenever the directors shall fail
to fix such place, the meeting shall be held at the principal executive offices
of the Corporation.
(c) Business transacted at any special meeting of Stockholders, other than
procedural matters and matters relating to the conduct of the meeting, shall be
limited to the purpose or purposes stated in the notice.
SECTION 3. QUORUMS. (a) The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the Stockholders for the
transaction of business except as otherwise provided by the Delaware General
Corporation Law ("Delaware Law") or by the Certificate of Incorporation. Unless
these By-Laws otherwise require, when a meeting is adjourned to another time or
place, whether or not a quorum is present, notice need not be given of the
adjourned meeting if the time and place thereof are announced at the meeting at
which the adjournment is taken. At the adjourned meeting, the Corporation may
transact any business which might have been transacted at the original meeting.
If the adjournment is for more than thirty days, or if after the adjournment a
new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each Stockholder of record entitled to vote at the
meeting. When a quorum is once present it is not broken by the subsequent
withdrawal of any Stockholder.
(b) When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one on which, by express provision of Delaware Law or of the Certificate of
Incorporation, a different vote is required, in which case such express
provision shall govern and control the decision of such question.
SECTION 4. ORGANIZATION. Meetings of Stockholders shall be presided over
by the Chairman, if any, or if none or in the Chairman's absence, the President,
if any, or if none or in the President's absence, by a Chairman to be chosen by
the Stockholders entitled to vote who are present in person or by proxy at the
meeting. The Secretary of the Corporation, or in the Secretary's absence an
Assistant Secretary, shall act as Secretary of every meeting and keep the
minutes thereof, but if neither the Secretary nor an Assistant Secretary is
present, the presiding officer of the meeting shall appoint any person present
to act as secretary of the meeting. The order of business at all meetings of
stockholders shall be as determined by the Chairman of the meeting.
SECTION 5. VOTING; PROXIES; REQUIRED VOTE. (a) At each meeting of
Stockholders, every Stockholder shall be entitled to vote in person or by proxy
appointed by an instrument in writing, subscribed by such Stockholder or by such
Stockholder's duly authorized attorney-in-fact (but no such proxy shall be voted
or acted upon after three years from its date, unless the proxy provides for a
longer period) and, unless Delaware Law or the Certificate of Incorporation
(including resolutions designating any class or series of preferred stock
pursuant to Article IV of the Certificate of Incorporation) provides otherwise,
shall have one vote for each share of stock entitled to vote registered in the
name of such Stockholder on the books of the Corporation on the applicable
record date fixed pursuant to these By-Laws. At all elections of directors the
voting may but need not be by ballot and a plurality of the votes cast there
shall elect directors. Except as otherwise required by law or the Certificate of
Incorporation, any other action shall be authorized by a majority of the votes
cast.
(b) Where a separate vote by a class or classes, a majority of the
outstanding shares of such class or classes, present in person or represented by
proxy, shall constitute a quorum entitled to vote on that matter, the
affirmative vote of the majority of shares of such class or classes present in
person or represented by proxy at the meeting shall be the act of such class,
unless otherwise provided in the Certificate of Incorporation.
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SECTION 6. INSPECTOR OF ELECTION. The Board of Directors, in advance of
any meeting, may, but need not, appoint one or more inspectors of election to
act at the meeting or any adjournment thereof. If an inspector or inspectors are
not so appointed, the person presiding at the meeting may, but need not, appoint
one or more inspectors. In case any person who may be appointed as an inspector
fails to appear or act, the vacancy may be filled by appointment made by the
directors in advance of the meeting or at the meeting by the person presiding
thereat. Each inspector, if any, before entering upon the discharge of his or
her duties, shall take and sign an oath faithfully to execute the duties of
inspector at such meeting with strict impartiality and according to the best of
his ability. The inspectors, if any, shall determine the number of shares of
stock outstanding and the voting power of each, the shares of stock represented
at the meeting, the existence of a quorum, and the validity and effect of
proxies, and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the result, and do such acts
as are proper to conduct the election or vote with fairness to all Stockholders.
On request of the person presiding at the meeting, the inspector or inspectors,
if any, shall make a report in writing of any challenge, question or matter
determined by such inspector or inspectors and execute a certificate of any fact
found by such inspector or inspectors.
SECTION 7. STOCKHOLDER PROPOSALS AND NOMINATIONS. (a) No proposal for a
stockholder vote shall be submitted by a stockholder (a "Stockholder Proposal")
to the Corporation's stockholders unless the stockholder submitting such
proposal (the "Proponent") shall have filed a written notice setting forth with
particularity (i) the names and business addresses of the Proponent and all
persons or entities (collectively, the "Persons") acting in concert with the
Proponent; (ii) the name and address of the Proponent and the Persons identified
in clause (i), as they appear on the Corporation's books (if they so appear);
(iii) the class and number of shares of the Corporation beneficially owned by
the Proponent and the Persons identified in clause (i); (iv) a description of
the Stockholder Proposal containing all material information relating thereto;
and (v) such other information as the Board of Directors reasonably determines
is necessary or appropriate to enable the Board of Directors and stockholders of
the Corporation to consider the Stockholder Proposal. The presiding officer at
any stockholders' meeting may determine that any Stockholder Proposal was not
made in accordance with the procedures prescribed in these By-Laws or is
otherwise not in accordance with law, and if it is so determined, such officer
shall so declare at the meeting and the Stockholder Proposal shall be
disregarded.
(b) Only persons who are selected and recommended by the Board of Directors
or the committee of the Board of Directors designated to make nominations (if
any), or who are nominated by stockholders in accordance with the procedures set
forth in this Section 7, shall be eligible for election, or qualified to serve,
as directors. Nominations of individuals for election to the Board of Directors
of the Corporation at any annual meeting or any special meeting of stockholders
at which directors are to be elected may be made by any stockholder of the
Corporation entitled to vote for the election of directors at that meeting by
compliance with the procedures set forth in this Section 7. Nominations by
stockholders shall be made by written notice (a "Nomination Notice"), which
shall set forth (i) as to each individual nominated, (A) the name, date of
birth, business address and residence address of such individual; (B) the
business experience during the past five years of such nominee, including his or
her principal occupations and employment during such period, the name and
principal business of any corporation or other organization in which such
occupations and employment were carried on, and such other information as to the
nature of his or her responsibilities and level of professional competence as
may be sufficient to permit assessment of his or her prior business experience;
(C) whether the nominee is or has ever been at any time a director, officer or
owner of 5% or more of any class of capital stock, partnership interests or
other equity interest of any corporation, partnership or other entity; (D) any
directorships held by such nominee in any company with a class of securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended, or subject to the requirements of Section 15(d) of such Act or any
company registered as an investment company under the Investment Company Act of
1940, as amended; and (E) whether, in the last five years, such nominee has been
convicted in a criminal proceeding or has been subject to a judgment, order,
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finding or decree of any federal, state or other governmental entity, concerning
any violation of federal, state or other law, or any proceeding in bankruptcy,
which conviction, order, finding, decree or proceeding may be material to an
evaluation of the ability or integrity of the nominee; and (ii) as to the Person
submitting the Nomination Notice and any Person acting in concert with such
Person, (x) the name and business address of such Person, (y) the name and
address of such Person as they appear on the Corporation's books (if they so
appear), and (z) the class and number of shares of the Corporation that are
beneficially owned by such Person. A written consent to being named in a proxy
statement as a nominee, and to serve as a director if elected, signed by the
nominee, shall be filed with any Nomination Notice. If the presiding officer at
any stockholders' meeting determines that a nomination was not made in
accordance with the procedures prescribed by these By-Laws, he shall so declare
to the meeting and the defective nomination shall be disregarded.
(c) Stockholder Proposals and Nomination Notices shall be delivered to the
Secretary at the principal executive office of the Corporation 60 days or more
before the date of the stockholders' meeting if such Stockholder Proposal or
Nomination Notice is to be submitted at an annual stockholders' meeting.
Stockholder Proposals and Nomination Notices shall be delivered to the Secretary
at the principal executive office of the Corporation no later than the close of
business on the 15th day following the day on which notice of the date of a
special meeting of stockholders was given if the Stockholder Proposal or
Nomination Notice is to be submitted at a special stockholders' meeting.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business, property and affairs of the
Corporation shall be managed by, or under the direction of, the Board of
Directors. The Board of Directors shall exercise exclusive strategic control of
the Corporation and shall not delegate its policy-making powers.
SECTION 2. QUALIFICATION; NUMBER; TERM; REMUNERATION. (a) Each director
shall be at least 18 years of age. A director need not be a Stockholder, a
citizen of the United States, or a resident of the State of Delaware. The number
of directors constituting the entire Board shall be such number as may be fixed
from time to time by the Board of Directors, but shall be not less than three.
One of the directors may be selected by the Board of Directors to be its
Chairman, who shall preside at meetings of the Stockholders and the Board of
Directors and shall have such other duties, if any, as may from time to time be
assigned by the Board of Directors. In the absence of formal selection, the
President of the Corporation shall serve as Chairman. The use of the phrase
"entire Board" herein refers to the total number of directors which the
Corporation would have if there were no vacancies.
(b) 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 as director. 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 3. QUORUM AND MANNER OF VOTING. Except as otherwise provided by
law, a majority of the entire Board of Directors shall constitute a quorum. A
majority of the directors present, whether or not a quorum is present, may
adjourn a meeting from time to time to another time and place without notice.
The vote of the majority of the directors present at a meeting at which a quorum
is present shall be the act of the Board of Directors. When a meeting is
adjourned to another time or place, whether or not a quorum is present, notice
need not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting, the Board of Directors may transact any business which might have been
transacted at the original meeting. If a quorum shall not be present at any
meeting of the Board of Directors, the directors present thereat may adjourn the
meeting, from time to time, without notice other than announcement at the
meeting, until a quorum is present.
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SECTION 4. ANNUAL MEETING. At the next regular meeting following the
annual meeting of Stockholders, the newly elected Board of Directors shall meet
for the purpose of the election of officers and the transaction of such other
business as may properly come before the meeting.
SECTION 5. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such times as the Board of Directors shall from time to time by
resolution determine. After the place and time of regular meetings of the Board
of Directors shall have been determined and notice thereof shall have been once
given to each member of the Board of Directors, regular meetings may be held
without further notice being given.
SECTION 6. SPECIAL MEETINGS. Notice of the date, time and place of each
special meeting shall be mailed by regular mail to each director at his
designated address at least six days before the meeting; or sent by overnight
courier to each director at his designated address at least two days before the
meeting (with delivery scheduled to occur no later than the day before the
meeting); or given orally by telephone or other means, or by telegraph or
telecopy, or by any other means comparable to any of the foregoing, to each
director at his designated address at least 24 hours before the meeting;
provided, however, that if less than five days' notice is provided and one third
of the members of the Board of Directors then in office object in writing prior
to or at the commencement of the meeting, such meeting shall be postponed until
five days after such notice was given pursuant to this sentence (or such short
period to which a majority of those who objected in writing agree), provided
that notice of such postponed meeting shall be given in accordance with this
Section 7. The notice of the special meeting shall state the general purpose of
the meeting, but other routine business may be conducted at the special meeting
without such matter being stated in the notice.
SECTION 7. ORGANIZATION. At all meetings of the Board of Directors, the
Chairman or in the Chairman's absence or inability to act, the President, or in
the President's absence, a Chairman chosen by the directors, shall preside. The
Secretary of the Corporation shall act as secretary at all meetings of the Board
of Directors when present, and, in the Secretary's absence, the presiding
officer may appoint any person to act as Secretary.
SECTION 8. RESIGNATION. Any director may resign at any time upon written
notice to the Corporation and such resignation shall take effect upon receipt
thereof by the Chairman or Secretary, unless otherwise specified in the
resignation. Directors may be removed only in the manner provided in the
Certificate of Incorporation.
SECTION 9. VACANCIES. Unless otherwise provided in these By-Laws,
vacancies on the Board of Directors, whether caused by resignation, death,
disqualification, removal, an increase in the authorized number of directors or
otherwise, may be filled by the affirmative vote of a majority of the remaining
directors, although less than a quorum, or by a sole remaining director.
SECTION 10. PREFERRED DIRECTORS. Notwithstanding anything else contained
herein, whenever the holders of one or more classes or series of Preferred Stock
shall have the right, voting separately as a class or series, to elect
directors, the election, term of office, filling of vacancies, removal and other
features of such directorships shall be governed by the terms of the resolutions
applicable thereto adopted by the Board of Directors pursuant to the Certificate
of Incorporation, and such directors so elected shall not be subject to the
provisions of this Article II unless otherwise provided herein.
ARTICLE III
COMMITTEES
SECTION 1. APPOINTMENT; POWERS. The Board of Directors may, by resolution
passed by a majority of the whole board, designate one or more Committees, each
Committee to consist of one or more of the directors of the Corporation. The
Board of Directors may designate one or more directors as alternate members of
any Committee, who may replace any absent or disqualified member at any meeting
of the
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Committee. In the absence or disqualification of a member of a Committee, the
member or members present at any meeting and not disqualified from voting,
whether or not such member or members constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member. Any such Committee, to the
extent provided in the resolution, shall, subject to the provisions of Article
II, Section 1 of these By-Laws, have and may exercise the powers of the Board of
Directors in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers which may
require it; but no such Committee shall have the power or authority to: (i)
approve or adopt, or recommend to the stockholders, any action or matter
required to be submitted to the stockholders for approval or (ii) adopt, amend
or repeal any By-Law. Such Committee or Committees shall have such name or names
as may be determined from time to time by resolution adopted by the Board of
Directors.
SECTION 2. PROCEDURES, QUORUM AND MANNER OF ACTING. Each Committee shall
fix its own rules of procedure, and shall meet where and as provided by such
rules or by resolution of the Board of Directors, subject to the provisions of
Sections 3 and 4 of Article II. Except as otherwise provided by law, the
presence of a majority of the then appointed members of a Committee shall
constitute a quorum for the transaction of business by that Committee, and in
every case where a quorum is present the affirmative vote of a majority of the
members of the Committee present shall be the act of the Committee. Each
Committee shall keep minutes of its proceedings, and actions taken by a
Committee shall be reported to the Board of Directors.
SECTION 3. TERMINATION. In the event any person shall cease to be a
director of the Corporation, such person shall simultaneously therewith cease to
be a member of any Committee appointed by the Board of Directors.
ARTICLE IV
OFFICERS
SECTION 1. ELECTION AND QUALIFICATIONS. The Board of Directors at its
first meeting held after each annual meeting of Stockholders shall elect the
officers of the Corporation, which shall include a President and a Secretary,
and may include, by election or appointment, a Chairman of the Board, one or
more Vice-Presidents (any one or more of whom may be given an additional
designation of rank or function), a Treasurer and such Assistant Secretaries,
such Assistant Treasurers and such other officers as the Board of Directors may
from time to time deem proper. Each officer shall have such powers and duties as
may be prescribed by these By-Laws and as may be assigned by the Board of
Directors or the President. Any two or more offices may be held by the same
person.
SECTION 2. TERM OF OFFICE AND REMUNERATION. The term of office of all
officers shall be until their respective successors have been elected and
qualified or their earlier death, resignation or removal. The remuneration of
all officers of the Corporation may be fixed by the Board of Directors or in
such manner as the Board of Directors shall provide.
SECTION 3. RESIGNATION; REMOVAL. Any officer may resign at any time upon
written notice to the Corporation and such resignation shall take effect upon
receipt thereof by the President or Secretary, unless otherwise specified in the
resignation. Any officer shall be subject to removal, with or without cause, at
any time by the Board of Directors. Any vacancy in any office shall be filled in
such manner as the Board of Directors shall determine.
SECTION 4. POWERS AND DUTIES OF OFFICERS.
(a) The Chairman of the Board of Directors, if there be one, shall preside
at all meetings of the Board of Directors and shall have such other powers and
duties as may from time to time be assigned by the Board of Directors. The
Chairman of the Board of Directors, if there be one, shall be the chief
executive officer of the Corporation and shall preside at all meetings of the
Stockholders and the Board of
6
Directors and shall have general management of and supervisory authority over
the property, business and affairs of the Corporation and its other officers.
The Chairman of the Board may execute and deliver in the name of the Corporation
powers of attorney, contracts, bonds and other obligations and instruments, and
shall have such other authority and perform such other duties as from time to
time may be assigned by the Board of Directors. The Chairman of the Board shall
see that all orders and resolutions of the Board of Directors are carried into
effect and shall perform such additional duties that usually pertain to the
office of chief executive officer.
(b) If there be no Chairman of the Board, the President shall be the chief
executive officer and shall exercise the powers listed in (a) above. Otherwise,
the President may execute and deliver in the name of the Corporation powers of
attorney, contracts, bonds and other obligations and instruments, and shall have
such other authority and perform such other duties as from time to time may be
assigned by the Board of Directors or the Chairman of the Board.
(c) A Vice President may execute and deliver in the name of the Corporation
powers of attorney, contracts, bonds and other obligations and instruments, and
shall have such other authority and perform such other duties as from time to
time may be assigned by the Board of Directors, the Chairman of the Board or the
President.
(d) The Treasurer shall in general have all duties and authority incident to
the position of Treasurer and such other duties and authority as may be assigned
by the Board of Directors, the Chairman of the Board or the President. The
Treasurer shall keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation and shall deposit all moneys and other
valuable effects in the name and to the credit of the Corporation in such
depositories as may be designated by or at the direction of the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, the Chairman of the Board or the President,
and shall render, upon request, an account of all such transactions.
(e) The Secretary shall in general have all the duties and authority
incident to the position of Secretary and such other duties and authority as may
be assigned by the Board of Directors, the Chairman of the Board or the
President. The Secretary shall attend all meetings of the Board of Directors and
all meetings of Stockholders and record all the proceedings thereat in a book or
books to be kept for that purpose. The Secretary shall give, or cause to be
given, notice of all meetings of the Stockholders and special meetings of the
Board of Directors. The Secretary shall have custody of the seal of the
Corporation and any officer of the Corporation shall have authority to affix the
same to any instrument requiring it and when so affixed, it may be attested by
the signature of the Secretary or any other officer.
(f) Any assistant officer shall have such duties and authority as the
officer such assistant officer assists and, in addition, such other duties and
authority as the Board of Directors, the Chairman of the Board or President
shall from time to time assign.
ARTICLE V
CONTRACTS, ETC.
SECTION 1. CONTRACTS. The Board of Directors may authorize any person or
persons, in the name and on behalf of the Corporation, to enter into or execute
and deliver any and all deeds, bonds, mortgages, contracts and other obligations
or instruments, and such authority may be general or confined to specific
instances.
SECTION 2. PROXIES; POWERS OF ATTORNEY; OTHER INSTRUMENTS. (a) The
Chairman, the President, any Vice President, the Treasurer or any other person
designated by any of them shall have the power and authority to execute and
deliver proxies, powers of attorney and other instruments on behalf of the
Corporation in connection with the execution of contracts, the purchase of real
or personal property, the rights and powers incident to the ownership of stock
by the Corporation and such other situations as the
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Chairman, the President, such Vice President or the Treasurer shall approve,
such approval to be conclusively evidenced by the execution of such proxy, power
of attorney or other instrument on behalf of the Corporation.
(b) The Chairman, the President, any Vice President, the Treasurer or any
other person authorized by proxy or power of attorney executed and delivered by
any of them on behalf of the Corporation may attend and vote at any meeting of
stockholders of any company in which the Corporation may hold stock, and may
exercise on behalf of the Corporation any and all of the rights and powers
incident to the ownership of such stock at any such meeting, or otherwise as
specified in the proxy or power of attorney so authorizing any such person. The
Board of Directors, from time to time, may confer like powers upon any other
person.
ARTICLE VI
BOOKS AND RECORDS
SECTION 1. LOCATION. The books and records of the Corporation may be kept
at such place or places as the Board of Directors or the respective officers in
charge thereof may from time to time determine. The record books containing the
names and addresses of all Stockholders, the number and class of shares of stock
held by each and the dates when they respectively became the owners of record
thereof shall be kept by the Secretary as prescribed in the By-Laws or by such
officer or agent as shall be designated by the Board of Directors.
SECTION 2. ADDRESSES OF STOCKHOLDERS. Notices of meetings and all other
corporate notices may be delivered personally or mailed to each Stockholder at
the Stockholder's address as it appears on the records of the Corporation.
SECTION 3. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. (a) In
order that the Corporation may determine the Stockholders entitled to notice of
or to vote at any meeting of Stockholders or any adjournment thereof, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors and which record date shall not be more than 60 days nor less than 10
days before the date of such meeting. If no record date is fixed by the Board of
Directors, the record date for determining Stockholders entitled to notice of or
to vote at a meeting of Stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held. A determination of Stockholders of record entitled to notice of or to vote
at a meeting of Stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
(b) In order that the Corporation may determine the Stockholders entitled to
receive payment of any dividend or other distribution or allotment of any rights
or the Stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action
not contemplated by paragraph (a) of this Section 3, the Board of Directors may
fix a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted and which record date shall be not
more than 60 days prior to such action. If no record date is fixed, the record
date for determining Stockholders for any such purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto.
ARTICLE VII
CERTIFICATES REPRESENTING STOCK
SECTION 1. CERTIFICATES; SIGNATURES. The shares of the Corporation shall
be represented by certificates, provided that the Board of Directors of the
Corporation may provide by resolution or resolutions that some or all of any or
all classes or series of its stock shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until such
certificate is surrendered to
8
the Corporation. Notwithstanding the adoption of such a resolution by the Board
of Directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate,
signed by or in the name of the Corporation by the Chairman or Vice-Chairman of
the Board of Directors, or the President or any Vice-President, and by the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the Corporation, representing the number of shares registered in certificate
form. Any or all of the signatures on any such certificate may be a facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if such person were
such officer, transfer agent or registrar at the date of issue.
SECTION 2. RECORD OWNERSHIP. The name of the holder of record of the
shares represented thereby, with the number of such shares and the date of issue
thereof, shall be entered on the books of the Corporation. The Corporation shall
be entitled to treat the holder of record of any share of stock as the holder in
fact thereof, and accordingly shall not be bound to recognize any equitable or
other claim to or interest in any share on the part of any other person, whether
or not it shall have express or other notice thereof, except as required by
Delaware Law. The Board of Directors shall have power and authority to make all
such rules and regulations as it may deem expedient concerning the issue,
transfer and registration of certificates representing shares of the
Corporation.
SECTION 3. TRANSFER OF RECORD OWNERSHIP. Transfer of stock shall be made
on the books of the Corporation only by direction of the person named in the
certificate or such person's attorney, lawfully constituted in writing, and only
upon the surrender of the certificate therefor and a written assignment of the
shares evidenced thereby, which certificate shall be canceled before the new
certificate is issued.
SECTION 4. FRACTIONAL SHARES. The Corporation may, but shall not be
required to, issue certificates for fractions of a share where necessary to
effect authorized transactions, or the Corporation may pay in cash the fair
value of fractions of a share as of the time when those entitled to receive such
fractions are determined, or it may issue scrip in registered or bearer form
over the manual or facsimile signature of an officer of the Corporation or of
its agent, exchangeable as therein provided for full shares, but such scrip
shall not entitle the holder to any rights of a Stockholder except as therein
provided.
SECTION 5. LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation may
issue a new certificate in place of any certificate theretofore issued by it,
alleged to have been lost, stolen or destroyed, and the Board of Directors may
require the owner of any lost, stolen or destroyed certificate, or his legal
representative, to give the Corporation a bond sufficient to indemnify the
Corporation against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
any such new certificate.
SECTION 6. TRANSFER AGENTS; REGISTRANTS; RULES RESPECTING
CERTIFICATES. The Board of Directors may appoint, or authorize any officer or
officers to appoint, one or more transfer agents and one or more registrars. The
Board of Directors may make such further rules and regulations as it may deem
expedient concerning the issue, transfer and registration of stock certificates
of the Corporation.
ARTICLE VIII
DIVIDENDS
Subject to the provisions of Delaware Law and the Certificate of
Incorporation, the Board of Directors shall have full power to declare and pay
dividends on the capital stock of the Corporation. Before payment of any
dividend, there may be set aside out of any funds of the Corporation available
for dividends such sum or sums as the Board of Directors from time to time, in
its absolute discretion, may determine for any proper purpose, and the Board of
Directors may modify or abolish any such reserve.
9
ARTICLE IX
RATIFICATION
Any transaction, questioned in any lawsuit on the ground of lack of
authority, defective or irregular execution, adverse interest of director,
officer or Stockholder, non-disclosure, miscomputation, or the application of
improper principles or practices of accounting, may be ratified before or after
judgment, by the Board of Directors or by the Stockholders, and if so ratified
shall have the same force and effect as if the questioned transaction had been
originally duly authorized. Such ratification shall be binding upon the
Corporation and its Stockholders and shall constitute a bar to any claim or
execution of any judgment in respect of such questioned transaction.
ARTICLE X
CORPORATE SEAL
The corporate seal shall be in form of a circular inscription which contains
the words "Corporate Seal" and such additional information as the officer
inscribing such seal shall determine in such officer's sole discretion. The
corporate seal may be used by causing it or a facsimile thereof to be impressed
or affixed or reproduced or otherwise displayed or it may be manually inscribed.
ARTICLE XI
FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and shall be subject to
change, by the Board of Directors. Unless otherwise fixed by the Board of
Directors, the fiscal year of the Corporation shall end on the Saturday closest
to September 30.
ARTICLE XII
WAIVER OF NOTICE
Whenever notice is required to be given by these By-Laws or by the
Certificate of Incorporation or by law, a written waiver thereof, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent to notice.
ARTICLE XIII
AMENDMENTS
By-Laws may be adopted, amended or repealed by either the Board of Directors
or the affirmative vote of the holders of at least 66 2/3% of the voting power
of all shares of the Corporation's capital stock then entitled to vote generally
in the election of directors.
ARTICLE XIV
INDEMNIFICATION
SECTION 1. RIGHT TO INDEMNIFICATION. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "Proceeding"), by reason of the
fact (a) that he or she is or was a director or officer of the Corporation, or
(b) that he or she, being at the time a director or officer of the Corporation,
is or was serving at the request of the Corporation as a director, officer,
member, employee, fiduciary or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (collectively, "another enterprise" or "other
enterprise"), shall be indemnified and held harmless by the Corporation to the
fullest extent permitted by Delaware Law as the same exists or may hereafter be
amended (but, in the case of any such amendment, with respect to alleged action
or inaction occurring prior to such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights than
10
permitted prior thereto), against all expense, liability and loss (including,
without limitation, attorneys' and other professionals' fees and expenses,
claims, judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) actually and reasonably incurred or suffered by such person in
connection therewith ("Losses"). Without diminishing the scope of
indemnification provided by this Section 1, such persons shall also be entitled
to the further rights set forth below.
SECTION 2. ACTIONS, SUITS OR PROCEEDINGS OTHER THAN THOSE BY OR IN THE
RIGHT OF THE CORPORATION. Subject to the terms and conditions of this Article,
the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any Proceeding (other than an action by or in
the right of the Corporation) by reason of the fact that such person is or was a
director or officer of the Corporation, or, being at the time a director,
officer or employee of the Corporation, is or was serving at the request of the
Corporation as a director, officer, member, employee, fiduciary or agent of
another enterprise, against all Losses, actually and reasonably incurred or
suffered by such person in connection with such Proceeding if such person acted
in good faith and in a manner 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 the conduct was unlawful. The
termination of any 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 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 the conduct was unlawful.
SECTION 3. ACTIONS, SUITS OR PROCEEDINGS BY OR IN THE RIGHT OF THE
CORPORATION. Subject to the terms and conditions of this Article, the
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any Proceeding by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that such person is or was
a director or officer of the Corporation, or being at the time a director,
officer or employee of the Corporation, is or was serving at the request of the
Corporation as a director, officer, member, employee, fiduciary or agent of
another enterprise against all Losses actually and reasonably incurred or
suffered by such person in connection with the defense or settlement of such
action or suit if such person acted in good faith and in a manner 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 to the Corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
SECTION 4. AUTHORIZATION OF INDEMNIFICATION. Any indemnification under
this Article (unless ordered by a court) shall be made by the Corporation only
as authorized in the specific case upon a determination that indemnification of
a person is proper in the circumstances because such person has met the
applicable standard of conduct required by Section 1 or set forth in Section 2
or 3 of this Article, as the case may be. Such determination shall be made, with
respect to a person who is a director or officer at the time of such
determination, in a reasonably prompt manner (i) by the Board of Directors by a
majority vote of directors who were not parties to such action, suit or
proceeding, whether or not they constitute a quorum of the Board of Directors,
(ii) by a committee of such directors designated by majority vote of such
directors, even though less than a quorum, (iii) if there are no such directors,
or if such directors so direct, by independent legal counsel in a written
opinion, (iv) by the stockholders or (v) as Delaware Law may otherwise permit.
To the extent, however, that a present or former director or officer of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding described above, or in defense of any claim, issue or
matter therein, such person shall be indemnified against expenses (including
attorneys' and other professionals' fees) actually and reasonably incurred by
such person in connection therewith, without the necessity of authorization in
the specific case.
11
SECTION 5. GOOD FAITH DEFINED. For purposes of any determination under
Section 4 of this Article, a person shall be deemed to have acted in good faith
if the action is based on (a) the records or books of account of the Corporation
or another enterprise, or on information supplied to such person by the officers
of the Corporation or another enterprise in the course of their duties or on (b)
the advice of legal counsel for the Corporation or another enterprise, or on
information or records given or reports made to the Corporation or another
enterprise by an independent certified public accountant, independent financial
adviser, appraiser or other expert selected with reasonable care by the
Corporation or the other enterprise. The provisions of this Section 5 shall not
be deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standard of conduct.
SECTION 6. PROCEEDINGS INITIATED BY INDEMNIFIED PERSONS. Notwithstanding
any provisions of this Article to the contrary, the Corporation shall not
indemnify any person or make advance payments in respect of Losses to any person
pursuant to this Article in connection with any Proceeding (or portion thereof)
initiated against the Corporation by such person unless such Proceeding (or
portion thereof) is authorized by the Board of Directors or its designee;
provided, however, that this prohibition shall not apply to a counterclaim,
cross-claim or third-party claim brought in any Proceeding or to any claims
provided for in Section 7 of this Article.
SECTION 7. INDEMNIFICATION BY A COURT. Notwithstanding any contrary
determination in the specific case under Section 4 of this Article, and
notwithstanding the absence of any determination thereunder, any director,
officer or employee may apply to any court of competent jurisdiction for
indemnification to the extent otherwise permissible under Section 1, 2 or 3 of
this Article. Notice of any application for indemnification pursuant to this
Section 7 shall be given to the Corporation promptly upon the filing of such
application.
SECTION 8. LOSSES PAYABLE IN ADVANCE. Losses reasonably incurred by an
officer or director in defending any threatened or pending Proceeding shall be
paid by the Corporation in advance of the final disposition of such Proceeding
upon receipt of an undertaking by or on behalf of such director or officer to
repay such amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the Corporation as authorized in this Article.
Losses shall be reasonably documented by the officer or director and required
payments shall be made promptly by the Corporation. Losses incurred by former
directors and officers or other employees and agents may be so paid upon such
terms and conditions, if any, as the Corporation deems appropriate.
SECTION 9. NON-EXCLUSIVITY AND SURVIVAL OF INDEMNIFICATION. The
indemnification and advancement of expenses provided by or granted pursuant to
this Article shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under the
Certificate of Incorporation, any By-Law, agreement, contract, vote of
Stockholders or of disinterested directors, or pursuant to the direction
(howsoever embodied) of any court of competent jurisdiction or otherwise. The
provisions of this Article shall not be deemed to preclude the indemnification
of any person who is not specified in Section 1, 2 or 3 of this Article but whom
the Corporation has the power or obligation to indemnify under the provisions of
Delaware Law, or otherwise. The rights conferred by this Article shall continue
as to a person who has ceased to be a director, officer or employee and shall
inure to the benefit of such person and the heirs, executors, administrators and
other comparable legal representatives of such person. The rights conferred in
this Article shall be enforceable as contract rights, and shall continue to
exist after any rescission or restrictive modification hereof with respect to
events occurring prior thereto. No rights are conferred in this Article for the
benefit of any person (including, without limitation, officers, directors and
employees of subsidiaries of the Corporation) in any capacity other than as
explicitly set forth herein.
SECTION 10. MEANING OF CERTAIN TERMS IN CONNECTION WITH EMPLOYEE BENEFIT
PLANS, ETC. For purposes of this Article, references to "fines" shall include
any excise taxes assessed on a person with respect to an employee benefit plan;
references to "serving at the request of the Corporation" shall include any
service
12
as a director, officer or employee of the Corporation which imposes duties on,
or involves services by, such director, officer or employee, with respect to an
employee benefit plan, its participants or beneficiaries; and a person who has
acted in good faith and in a manner reasonably believed to be in the interest of
the participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the Corporation"
as referred to in this Article.
SECTION 11. INSURANCE. The Corporation may, but shall not be required to,
purchase and maintain insurance on behalf of any person who is or was a
director, officer or employee of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, member, employee, fiduciary
or agent of another against any liability asserted against such person and
incurred by such person in any such capacity, or arising out of such person's
status as such, whether or not the Corporation would have the power or the
obligation to indemnify such person against such liability under the provisions
of this Article.
Dated: , 1998.
13
APPENDIX C-1
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[LOGO]
February 14, 1998
Board of Directors
U.S. Industries, Inc.
17 Mount Street, Mayfair
London, England
WIY 5RA
Members of the Board:
You have asked us to advise you with respect to the fairness to U.S.
Industries, Inc. (the "Acquiror") from a financial point of view of the Company
Exchange Ratio (as defined below) contemplated by the Agreement and Plan of
Merger (the "Merger Agreement") among the Acquiror, USI, Inc. (to be renamed
U.S. Industries, Inc. after the Mergers (as defined below)), a wholly-owned
subsidiary of the Acquiror ("Superholdco"), Blue Merger Corp., a wholly-owned
subsidiary of Superholdco ("B-Sub"), Zoro Merger Corp., a wholly-owned
subsidiary of Superholdco ("Z-Sub"), and Zurn Industries, Inc. (the "Company").
The Merger Agreement provides, among other things, for (1) the merger of B-Sub
into the Acquiror (the "USI Merger"), whereby each outstanding share of common
stock, par value $0.01 per share, of B-Sub will be converted into and become
1,000 shares of common stock, par value $0.01 per share, of the Acquiror (the
"Acquiror Common Stock") and each outstanding share of Acquiror Common Stock
will be converted into the right to receive one share of common stock, par value
$0.01 per share, of Superholdco (the "Superholdco Common Stock"), and (2) the
merger of Z-Sub into the Company (the "Zurn Merger" and, together with the USI
Merger, the "Mergers"), whereby each outstanding share of common stock, par
value $0.01 per share, of Z-Sub will be converted into and become 1,000 shares
of common stock, par value $0.50 per share, of the Company (the "Company Common
Stock") and each outstanding share of Company Common Stock will be converted
into the right to receive 1.6 shares (the "Company Exchange Ratio") of
Superholdco Common Stock.
In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to the Company and the Acquiror, as
well as a draft dated February 12, 1998 of the Merger Agreement. We have also
reviewed certain other information, including financial forecasts, provided to
us by the Company and the Acquiror, and have met with the managements of the
Company and the Acquiror to discuss the business and prospects of the Company
and the Acquiror as well as the business, operational and strategic benefits and
implications of the Mergers and the synergistic values and operating cost
savings expected by the managements of the Company and the Acquiror to be
achieved through the combination of the operations of the Company and the
Acquiror.
We have also considered certain financial and stock market data of the
Company and the Acquiror, and we have compared that data with similar data for
other publicly held companies in businesses similar to those of the Company and
the Acquiror, and we have considered the financial terms of certain other
business combinations and other transactions that have recently been effected.
We have also considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria which we deemed
relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material
[LOGO]
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BOARD OF DIRECTORS
FEBRUARY 14, 1998
PAGE 2
respects. With respect to the financial forecasts, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the managements of the Company and the Acquiror as to
the future financial performance of their respective companies and the
synergistic values and operating cost savings expected to be achieved through
the combination of the operations of the Company and the Acquiror. In addition,
we have not made an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of the Company or the Acquiror, nor have
we been furnished with any such evaluations or appraisals. We are not expressing
any opinion as to what the value of the shares of the Superholdco Common Stock
actually will be when issued to the Company's stockholders pursuant to the
Mergers or the prices at which such shares of the Superholdco Common Stock will
trade subsequent to the Mergers. Our opinion is necessarily based upon
financial, economic, market and other conditions as they exist and can be
evaluated on the date hereof.
We have acted as financial advisor to the Acquiror in connection with the
Mergers and will receive a fee for our services, a significant portion of which
is contingent upon the consummation of the Mergers. We will also receive a fee
for rendering this opinion. In addition, we have a right of first offer to act
as co-lead manager for an offering of debt securities of the Company or
Superholdco in connection with the Mergers. We have also in the past performed
financial advisory services for the Acquiror and have received customary fees
for such services.
In the ordinary course of our business, Credit Suisse First Boston
Corporation and its affiliates may actively trade the debt and equity securities
of both the Company and the Acquiror for their own account and for the accounts
of customers and, accordingly, may at any time hold a long or short position in
such securities.
It is understood that this letter is for the information of the Board of
Directors of the Acquiror in connection with its consideration of the Mergers
and is not to be quoted or referred to, in whole or in part, in any registration
statement, prospectus or proxy statement, or in any other document used in
connection with the offering or sale of securities, nor shall this letter be
used for any other purposes, without Credit Suisse First Boston Corporation's
prior written consent, and such consent shall not be unreasonably withheld.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Company Exchange Ratio is fair to the Acquiror from a financial
point of view.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
APPENDIX C-2
February 14, 1998
Board of Directors
Zurn Industries, Inc.
14801 Quorum Drive
Dallas, TX 75240-7584
Lady and Gentlemen:
BT Wolfensohn has acted as financial advisor to Zurn Industries, Inc.
("Zurn") in connection with the proposed merger of each of Zurn and U.S.
Industries, Inc. ("USI") with subsidiaries of USI, Inc. ("Holdco") pursuant to
an Agreement and Plan of Merger to be entered into among USI, Holdco, Blue
Merger Corp., Zoro Merger Corp. and Zurn (the "Merger Agreement"), as a result
of which each of Zurn and USI will become a wholly owned subsidiary of Holdco.
As set forth more fully in the form of the Merger Agreement reviewed by BT
Wolfensohn, as a result of the merger of Zurn with Zoro Merger Corp. (the
"Transaction"), each issued and outstanding share of the Common Stock, par value
$0.50 per share, of Zurn ("Zurn Common Stock") will be converted into the right
to receive 1.6 shares (the "Merger Consideration") of Common Stock, par value
$0.01 per share, of Holdco. The terms and conditions of the Transaction are more
fully set forth in the Merger Agreement.
You have requested BT Wolfensohn's opinion, as investment bankers, as to the
fairness, from a financial point of view, of the Merger Consideration to the
holders of Zurn Common Stock.
In connection with BT Wolfensohn's role as financial advisor to Zurn, and in
arriving at its opinion, BT Wolfensohn has reviewed certain publicly available
financial and other information concerning USI and Zurn and certain internal
analyses and other information furnished to it by USI and Zurn. BT Wolfensohn
has also held discussions with members of the senior managements of USI and Zurn
regarding the businesses and prospects of their respective companies and the
joint prospects of a combined company. In addition, BT Wolfensohn has (i)
reviewed the reported prices and trading activity for USI Common Stock and Zurn
Common Stock, (ii) compared certain financial and stock market information for
USI and Zurn with similar information for certain other companies whose
securities are publicly traded, (iii) reviewed the financial terms of certain
recent business combinations which it deemed comparable in whole or in part,
(iv) reviewed the terms of the Merger Agreement, and (v) performed such other
studies and analyses and considered such other factors as it deemed appropriate.
BT Wolfensohn has not assumed responsibility for independent verification
of, and has not independently verified, any information, whether publicly
available or furnished to it, concerning USI or Zurn, including, without
limitation, any financial information, forecasts or projections considered in
connection with the rendering of its opinion. Accordingly, for purposes of its
opinion, BT Wolfensohn has assumed and relied upon the accuracy and completeness
of all such information and BT Wolfensohn has not conducted a physical
inspection of any of the properties or assets, and has not prepared or obtained
any independent evaluation or appraisal of any of the assets or liabilities, of
USI or Zurn. With respect to the financial forecasts and projections, including
the analyses and forecasts of certain cost savings, operating efficiencies,
revenue effects and financial synergies expected by USI and Zurn to be achieved
as a result of the Transaction (collectively, the "Synergies"), made available
to BT Wolfensohn and used in its analyses, BT Wolfensohn has assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the management of USI or Zurn, as the case may be, as
to the matters covered thereby. In rendering its opinion, BT Wolfensohn
expresses no view as to the reasonableness of such forecasts and projections,
including the Synergies, or the assumptions on which they are based. In
addition, we express no opinion as to prices at which shares of Holdco will
trade following the Merger. BT Wolfensohn's opinion is necessarily based upon
economic, market and other conditions as in effect on, and the information made
available to it as of, the date hereof. In connection with our engagement, we
have not been authorized by Zurn or its Board of Directors to solicit, nor have
we solicited, any third party indications of interest for the acquisition of
Zurn, nor have we reviewed with Zurn or its Board of Directors any potential
transactions in lieu of the Transaction.
For purposes of rendering its opinion, BT Wolfensohn has assumed that, in
all respects material to its analysis, the representations and warranties of the
parties to the Merger Agreement contained in the Merger Agreement are true and
correct, the parties to the Merger Agreement will each perform all of the
covenants and agreements to be performed by it under the Merger Agreement and
all conditions to the obligations of each of the parties to the Merger Agreement
to consummate the Transaction will be satisfied without any waiver thereof. BT
Wolfensohn has also assumed that all material governmental, regulatory or other
approvals and consents required in connection with the consummation of the
Transaction will be obtained and that in connection with obtaining any necessary
governmental, regulatory or other approvals and consents, or any amendments,
modifications or waivers to any agreements, instruments or orders to which
either Zurn or USI is a party or is subject or by which it is bound, no
limitations, restrictions or conditions will be imposed or amendments,
modifications or waivers made that would have a material adverse effect on Zurn
or USI or materially reduce the contemplated benefits of the Transaction to
Zurn. In addition, you have informed BT Wolfensohn that the Transaction is
intended to be, and for purposes of rendering its opinion BT Wolfensohn has
assumed that the Transaction will be, tax-free to each of Zurn and USI and their
respective stockholders and that the Transaction will be accounted for as a
pooling of interests.
This opinion is addressed to, and for the use and benefit of, the Board of
Directors of Zurn and is not a recommendation to the stockholders of Zurn to
approve the Transaction. This opinion is limited to the fairness, from a
financial point of view, of the Merger Consideration to the holders of Zurn
Common Stock, and BT Wolfensohn expresses no opinion as to the merits of the
underlying decision by Zurn to engage in the Transaction.
BT Wolfensohn is engaged in the merger and acquisition and client advisory
business of Bankers Trust (together with its affiliates the "BT Group") and, for
legal and regulatory purposes, is a division of BT Alex. Brown Incorporated, a
registered broker-dealer and member of the New York Stock Exchange. BT
Wolfensohn will be paid a fee for its services as financial advisor to Zurn in
connection with the Transaction, a substantial portion of which is contingent
upon consummation of the Transaction. One or more members of the BT Group have,
from time to time, provided investment banking, commercial banking (including
extension of credit) and other financial services to Zurn or its affiliates for
which it has received compensation. A member of the BT Group is the lead
administrative agent for Zurn's $270 million bank facility and was the
administrative agent for Zurn's $250 million bank facility that was replaced by
the current facility. In the ordinary course of business, members of the BT
Group may actively trade in the securities and other instruments and obligations
of Zurn and USI for their own accounts and for the accounts of their customers.
Accordingly, the BT Group may at any time hold a long or short position in such
securities, instruments and obligations.
Based upon and subject to the foregoing, it is BT Wolfensohn's opinion as
investment bankers that the Merger Consideration is fair, from a financial point
of view, to the holders of Zurn Common Stock.
Very truly yours,
BT WOLFENSOHN
2
APPENDIX D-1
FINANCIAL STATEMENTS OF USI, INC.
AS OF DATE
-----------
Shareholder's Equity
Common Stock, $.01 par value per share; authorized, 1,000 shares; 100
shares subscribed................................................... $ 1,000
Stock subscription receivable......................................... ($ 1,000)
-----------
$ --
-----------
NOTE
USI, Inc. (the "Company") was incorporated on February 4, 1998 for purposes
of being the holding company for U.S. Industries, Inc. and Zurn Industries, Inc.
which will be combined pursuant to an Agreement and Plan of Merger, dated as of
February 16, 1998, as amended March 31, 1998.
To the Board of Directors and Stockholder
of USI, Inc.
We have audited the accompanying balance sheet of USI, Inc. at March 31, 1998.
The balance sheet is the responsibility of the Company's management. Our
responsibility is to express an opinion on the balance sheet 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 balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management as well
as evaluating the overall balance sheet presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, based on our audit the balance sheet referred to above presents
fairly, in all material respects, the financial position of USI, Inc. at March
31, 1998 in conformity with generally accepted accounting principles.
New York, New York
April 9, 1998
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL permits a corporation to indemnify any of its
directors or officers who was or is a party, or is threatened to be made a party
to any third party proceeding by reason of the fact that such person is or was a
director or officer of the corporation, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding, if
such person acted in good faith and in a manner such person 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 reason to believe that such
person's conduct was unlawful. In a derivative action, i.e., one by or in the
right of the corporation, the corporation is permitted to indemnify directors
and officers against expenses (including attorneys' fees) actually and
reasonably incurred by them in connection with the defense or settlement of an
action or suit if they acted in good faith and in a manner that they reasonably
believed to be in or not opposed to the best interests of the corporation,
except that no indemnification shall be made if such person shall have been
adjudged liable to the corporation, unless and only to the extent that the court
in which the action or suit was brought shall determine upon application that
the defendant directors or officers are fairly and reasonably entitled to
indemnity for such expenses despite such adjudication of liability.
Article 7 of the New USI Charter provides for the elimination of director
liability to the fullest extent permitted by the DGCL.
Pursuant to Section 5.10 of the Merger Agreement, New USI has agreed, from
and after the Effective Time, to the fullest extent permitted by applicable law,
to indemnify directors, officers and employees of the parties to the Merger
Agreement against all losses, expenses, claims, damages, liabilities and
(subject to New USI's approval of amounts paid in settlement) for acts or
omissions occurring prior to the Effective Time, based on the fact that such
person is or was a director, officer or employee of a party to the Merger
Agreement, or based on the transactions contemplated by the Merger Agreement.
New USI has agreed to cause to be maintained for a period of six years after the
Effective Time the directors' and officers' liability insurance maintained by
Zurn for the benefit of those persons covered by such policies at the Effective
Time to the extent such insurance can be maintained for an annual premium not in
excess of 200 percent of the premium for the current Zurn directors' and
officers' insurance (the "Maximum Premium"). If such insurance cannot be
obtained or maintained at such cost, then USI will maintain or obtain as much of
such insurance coverage as can be obtained at a cost equal to the Maximum
Premium.
New USI has entered into employment agreements with certain executive
officers of Zurn effective upon consummation of the Transaction which provide
that New USI will indemnify such officers for actions in their corporate
capacity and that New USI will provide directors' and officers' liability
insurance.
II-1
ITEM 21. EXHIBITS
(a) Exhibits
EXHIBIT
NUMBER
- -----------
2.1** Agreement and Plan of Merger, dated February 16, 1998, by and among U.S. Industries, Inc., USI, Inc.,
Blue Merger Corp., Zoro Merger Corp. and Zurn Industries, Inc. (Included as Appendix A-1 to the Joint
Proxy Statement/Prospectus.) The disclosure schedules relating to the Agreement and Plan of Merger and
the annexes thereto have been omitted. New USI will furnish supplementally to the Commission any of such
schedules or annexes upon request.
3.1** Form of Amended and Restated Certificate of Incorporation of U.S. Industries, Inc. (Included as Appendix
B-1 to the Joint Proxy Statement/Prospectus.)
3.2** Form of Amended and Restated By-Laws of U.S. Industries, Inc. (Included as Appendix B-2 to the Joint
Proxy Statement/Prospectus.)
5.1** Opinion of Weil, Gotshal & Manges LLP regarding validity of securities being registered.
8.1** Opinion of Weil, Gotshal & Manges LLP regarding certain federal income tax matters.
8.2** Opinion of Jones, Day, Reavis & Pogue regarding certain federal income tax matters.
23.1** Consent of Ernst & Young LLP (independent auditors for U.S. Industries, Inc.).
23.2** Consent of Price Waterhouse LLP.
23.3** Consent of Ernst & Young LLP (independent auditors for Zurn Industries, Inc.).
23.4** Consent of Weil, Gotshal & Manges LLP. (Included in the opinions filed as Exhibits 5.1 and 8.1 to this
Registration Statement and incorporated herein by reference.)
23.5** Consent of Jones, Day, Reavis & Pogue. (Included in the opinion filed as Exhibit 8.2 to this
Registration Statement and incorporated herein by reference.)
23.6* Consent of Credit Suisse First Boston.
23.7* Consent of BT Wolfensohn.
23.8** Consent of Arthur Andersen LLP.
99.1* U.S. Industries, Inc. Proxy/Voting Instruction Card.
99.2* Zurn Industries, Inc. Proxy/Voting Instruction Card.
99.3* Letter of Transmittal.
99.4** Joint Consent of Directors of U.S. Industries, Inc.
99.5** Employment Agreement, dated as of February 16, 1998, between USI, Inc. and Robert R. Womack
99.6** Employment Agreement, dated as of February 16, 1998, between USI, Inc. and Frank E. Sheeder
99.7** Employment Agreement, dated as of February 16, 1998, between USI, Inc. and John R. Mellett
99.8** Stock Option Agreement, dated as of February 16, 1998, between U.S. Industries, Inc. and Zurn
Industries, Inc. (Included as Appendix A-2 to the Joint Proxy Statement/Prospectus.)
- ------------------------
* Previously filed
** Filed herewith
II-2
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(e) The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registrant statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein. and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-3
(f) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(g) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of a
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Iselin, New Jersey on
April 10, 1998.
USI, Inc.
By: /s/ FRANK R. REILLY
-----------------------------------------
Frank R. Reilly
SENIOR VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to the Registration Statement has been signed by the following persons
in the capacity indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
Chairman of the Board and
/s/ DAVID H. CLARKE Chief Executive Officer April 10, 1998
- ------------------------------ (principal executive
David H. Clarke officer)
/s/ JOHN G. RAOS
- ------------------------------ Director, President and April 10, 1998
John G. Raos Chief Operating Officer
/s/ GEORGE H. MACLEAN Director, Senior Vice
- ------------------------------ President, General April 10, 1998
George H. MacLean Counsel and Secretary
Senior Vice President and
/s/ FRANK R. REILLY Chief Financial Officer April 10, 1998
- ------------------------------ (principal financial
Frank R. Reilly officer)
Vice President and
/s/ JAMES O'LEARY Corporate Controller April 10, 1998
- ------------------------------ (principal accounting
James O'Leary officer)
II-5
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------------
2.1** Agreement and Plan of Merger, dated February 16, 1998, by and among U.S. Industries, Inc., USI, Inc.,
Blue Merger Corp., Zoro Merger Corp. and Zurn Industries, Inc. (Included as Appendix A-1 to the Joint
Proxy Statement/Prospectus.) The disclosure schedules relating to the Agreement and Plan of Merger and
the annexes thereto have been omitted. New USI will furnish supplementally to the Commission any of the
schedules or annexes upon request.
3.1** Form of Amended and Restated Certificate of Incorporation of U.S. Industries, Inc. (Included as
Appendix B-1 to the Joint Proxy Statement/Prospectus.)
3.2** Form of Amended and Restated By-Laws of U.S. Industries, Inc. (Included as Appendix B-2 to the Joint
Proxy Statement/Prospectus.)
5.1** Opinion of Weil, Gotshal & Manges LLP regarding validity of securities being registered.
8.1** Opinion of Weil, Gotshal & Manges LLP regarding certain federal income tax matters.
8.2** Opinion of Jones, Day, Reavis & Pogue regarding certain federal income tax matters.
23.1* Consent of Ernst & Young LLP (independent auditors of U.S. Industries, Inc.).
23.2* Consent of Price Waterhouse LLP.
23.3* Consent of Ernst & Young LLP (independent auditors of Zurn Industries, Inc.).
23.4** Consent of Weil, Gotshal & Manges LLP. (Included in the opinions filed as Exhibits 5.1 and 8.1 to this
Registration Statement and incorporated herein by reference.)
23.5** Consent of Jones, Day, Reavis & Pogue. (Included in the opinion filed as Exhibit 8.2 to this
Registration Statement and incorporated herein by reference.)
23.6* Consent of Credit Suisse First Boston.
23.7* Consent of BT Wolfensohn.
23.8** Consent of Arthur Andersen LLP.
99.1* U.S. Industries, Inc. Proxy/Voting Instruction Card.
99.2* Zurn Industries, Inc. Proxy/Voting Instruction Card.
99.3* Letter of Transmittal.
99.4** Joint Consent of Directors of U.S. Industries, Inc.
99.5** Employment Agreement, dated as of February 16, 1998, between USI, Inc. and Robert R. Womack
99.6** Employment Agreement, dated as of February 16, 1998, between USI, Inc. and Frank E. Sheeder
99.7** Employment Agreement, dated as of February 16, 1998, between USI, Inc. and John R. Mellett
99.8** Stock Option Agreement, dated as of February 16, 1998, between U.S. Industries, Inc. and Zurn
Industries, Inc. (Included as Appendix A-2 to the Joint Proxy Statement/Prospectus.)
- ------------------------
* Previously filed
** Filed herewith
II-6