<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 7, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
FEDDERS NORTH AMERICA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3585 22-2103510
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
505 MARTINSVILLE ROAD
LIBERTY CORNER, NEW JERSEY 07938
(908) 604-8686
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
-------------------------
<TABLE>
<CAPTION>
NAME, ADDRESS AND TELEPHONE NUMBER OF JURISDICTION OF PRIMARY STANDARD INDUSTRY I.R.S. EMPLOYER
ADDITIONAL REGISTRANT ORGANIZATION CLASSIFICATION CODE NUMBER IDENTIFICATION NO.
<S> <C> <C> <C>
FEDDERS CORPORATION DELAWARE 3585 22-2572390
505 MARTINSVILLE ROAD
LIBERTY CORNER, NEW JERSEY 07938
</TABLE>
-------------------------
ROBERT N. EDWARDS, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
FEDDERS CORPORATION
505 MARTINSVILLE ROAD
LIBERTY CORNER, NJ 07938
(908) 604-8686
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
-------------------------
COPIES TO:
MARK C. SMITH, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK CITY, NEW YORK 10022
(212) 735-3330
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
-------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED REGISTERED PER SECURITY(1) AGGREGATE OFFERING PRICE(1) REGISTRATION FEE(1)
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<S> <C> <C> <C> <C>
9 3/8% Senior Subordinated
Notes due 2007 of Fedders
North America, Inc. $50,000,000 100% $50,000,000 $13,900
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Guarantee of 9 3/8% Senior
Subordinated Notes due 2007
of Fedders North America,
Inc. -- -- -- None(2)
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f) promulgated under the Securities Act of 1933, as
amended.
(2) Pursuant to Rule 457(n) under the Securities Act, no separate fee is being
paid with respect to the Guarantee.
-------------------------
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 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
SUBJECT TO COMPLETION, DATED OCTOBER 7, 1999.
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PROSPECTUS
[FEDDERS NORTH AMERICA LOGO]
OFFER TO EXCHANGE ALL 9 3/8% SENIOR SUBORDINATED NOTES DUE 2007
FOR 9 3/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2007
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THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME ON , 1999, UNLESS WE EXTEND IT.
We are offering a total of $50,000,000 9 3/8% Series B Senior Subordinated
Notes, which are registered with the Securities and Exchange Commission, to all
holders of our 9 3/8% Senior Subordinated Notes. We refer to this prospectus and
the letter of transmittal that accompanies it as the exchange offer. We refer to
the 9 3/8% Series B Senior Subordinated Notes being offered in the exchange
offer as the new notes. We refer to the 9 3/8% Senior Subordinated Notes that
can be exchanged for new notes as the old notes. We refer to the old notes and
the new notes collectively as the notes.
TERMS OF THE EXCHANGE OFFER:
- We will issue up to $50,000,000 aggregate principal amount of new notes.
- The exchange offer expires at 5:00 p.m., New York City time, on ,
1999, unless extended.
- We will exchange all old notes that are validly tendered and not withdrawn
prior to the expiration of the exchange offer.
- You may withdraw tenders of old notes at any time prior to the expiration
of the exchange offer.
- We believe that the exchange of notes will not be a taxable exchange for
U.S. federal income tax purposes but you should see "Certain Federal Income
Tax Considerations" on page 83 for more information.
- We will not receive any cash proceeds from the exchange offer.
- The terms of the new notes are substantially identical to the old notes,
except that select transfer restrictions and registration rights relating
to the old notes do not apply to the new notes.
- The old notes are, and the new notes will be, unconditionally guaranteed by
Fedders Corporation.
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SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF
CERTAIN RISKS HOLDERS SHOULD CONSIDER BEFORE TENDERING THEIR OLD NOTES.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
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The date of this prospectus is , 1999.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE> 3
MARKET AND INDUSTRY DATA
Market data and certain industry forecasts used throughout this prospectus
were obtained from internal surveys, market research, publicly available
information and industry publications. Industry publications generally state
that the information contained therein has been obtained from sources believed
to be reliable, but that the accuracy and completeness of such information is
not guaranteed. Similarly, internal surveys, industry forecasts and market
research, while believed to be reliable, have not been independently verified,
and neither we nor the initial purchaser make any representations as to the
accuracy of such information.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements made in this prospectus or the documents
incorporated by reference are forward-looking in nature. The occurrence of the
events described, and the achievement of the intended results, are subject to
the future occurrence of many events, some or all of which are not predictable
or within our control. Therefore, actual results may differ materially from
those anticipated in any forward-looking statements. Many risks and
uncertainties are inherent in the air conditioning industry; others are more
specific to our business. Many of the significant risks are described in this
prospectus, including risks associated with the seasonal and highly competitive
nature of the industry, the fluctuation of the supply and in the cost of raw
materials and stringent environmental regulations.
TABLE OF CONTENTS
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PAGE
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<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 14
Summary Organization Chart.......... 21
Use of Proceeds..................... 22
Capitalization...................... 22
Selected Historical Consolidated
Financial Information............. 23
The Exchange Offer.................. 25
Management's Discussion and Analysis
of Results of Operations and
Financial Condition of Fedders
Corporation....................... 32
Business............................ 37
Management.......................... 47
Description of Certain
Indebtedness...................... 50
Description of Notes................ 52
Certain Federal Income Tax
Considerations.................... 83
Plan of Distribution................ 84
Legal Matters....................... 84
Independent Auditors................ 84
Available Information............... 84
Incorporation of Certain Documents
by Reference...................... 85
Index to Financial Statements....... F-1
</TABLE>
i
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights selected information from this prospectus. It does
not contain all of the information that is important to you in order to
understand this offering or the terms of the notes. You should read carefully
the entire document, including our consolidated financial statements and their
related notes. As used in this prospectus, unless the context otherwise
requires, (1) "Fedders", "we", "our", "ours" and "us" refer to Fedders
Corporation and its subsidiaries and (2) "Fedders North America" refers to
Fedders North America, Inc., the issuer of the notes and a wholly owned
subsidiary of Fedders Corporation, and to its subsidiaries. References in this
prospectus to operations outside North America and operations of Melcor
Corporation refer to operations of Fedders Corporation and not to the operations
of Fedders North America. References to our "fiscal year" refer to our fiscal
year ended August 31.
THE COMPANY
We are a global leader in the air conditioning industry with manufacturing
bases in the United States, China and Spain. We manufacture and sell a broad
line of ductless air conditioners including window, portable, through-the-wall,
split and multi-split units, as well as a complete line of dehumidifiers.
Through our acquisition of Trion, Inc. described below, we are expanding our air
treatment product line to include complementary technologies used in the
manufacture of indoor air quality products including electronic air cleaners,
air filters and humidifiers. We believe our principal subsidiary, Fedders North
America, is the largest manufacturer of room air conditioners in the United
States based on units sold. Fedders North America's products are marketed under
the FEDDERS, EMERSON QUIET KOOL and AIRTEMP brand names as well as under private
labels. In North America, our products are marketed primarily to national and
regional retail chains and home improvement centers, and also to buying groups
and distributors. Private label products are manufactured for retailers and
other original equipment manufacturers (OEMs), including other air conditioner
manufacturers. Outside of North America, Fedders International markets our
products primarily through distributors and under private labels to other OEMs
and air conditioner manufacturers.
We believe that our share of the U.S. market for room air conditioners has
increased from approximately 24% in fiscal 1994 to approximately 28% in 1998.
During this same period, based primarily on Fedders North America's results,
Fedders has achieved significant increases in net sales and EBITDA. Our net
sales increased from $231.6 million in fiscal 1994 to $322.1 million in fiscal
1998, and to $351.2 million for the latest twelve months ended May 31, 1999.
EBITDA increased from $32.3 million in fiscal 1994 to $41.8 million in fiscal
1998, and to $52.6 million for the latest twelve months ended May 31, 1999.
These results reflect a compounded annual growth rate of 8.6% for net sales and
6.7% for EBITDA from fiscal 1994 to fiscal 1998, and a 12.6% increase in net
sales and a 39.3% increase in EBITDA for the nine months ended May 31, 1999
compared to the corresponding period in 1998. Pro forma for the Trion
acquisition described below, Fedders would have had net sales of $407.8 million
and EBITDA of $57.5 million for the latest twelve months ended May 31, 1999.
We have been a leader in heat transfer technology for more than 100 years.
Founded in Buffalo, NY, we originally manufactured automobile radiators and have
been producing room air conditioners for more than 50 years. More recently, we
have been leveraging our expertise to penetrate the much larger and expanding
global market for air conditioners. As part of our recent acceleration of these
efforts, in 1995, we entered into the Fedders Xinle joint venture with the
Ningbo General Air Conditioner Factory of Ningbo, China. Fedders Xinle is 60%
owned by Fedders. In 1998, we entered into a 50-50 manufacturing joint venture
with Bosch-Siemens Hausgerate GmbH of Germany, Europe's second-largest appliance
manufacturer. The joint venture is manufacturing portable room air conditioners
in Estella, Spain. Products manufactured at both joint venture facilities are
marketed by Fedders International to export markets around the world and by
Fedders North America to the North American market. This global expansion
enhances our manufacturing, sales and marketing flexibility in the United States
and abroad.
1
<PAGE> 5
COMPETITIVE STRENGTHS AND COMPANY STRATEGY
Our strategy is to continue to capitalize on our competitive strengths,
including the following:
LOW COST PRODUCER. We believe that we are positioned as the low cost
producer in the United States. Significant cost savings achieved since 1993 were
a key factor in increasing gross margins from 17.5% to 23.1% and operating
margins from 1.2% to 11.2% from fiscal 1993 to the latest twelve months ended
May 31, 1999. We have achieved significant cost reductions by:
- emphasizing global sourcing of components and raw materials to reduce
costs and ensure quality;
- continuously improving manufacturing efficiencies and reducing product
cost through design improvements, based in part on our expertise in heat
transfer technology;
- minimizing fixed costs while maximizing production flexibility, through
outsourcing and the elimination of redundant management and operational
and administrative departments; and
- focusing on low labor costs and flexible manufacturing, allowing us to
manage variable costs in response to fluctuations in demand for our
products.
The direct labor cost component of our products is generally lower than the cost
of freight and duty to import air conditioners into the United States from many
offshore locations, resulting in favorable price comparisons with imported
goods.
HIGH QUALITY PRODUCTS WITH STRONG MULTIPLE BRANDS. We manufacture a broad
line of ductless air conditioners that includes window, portable,
through-the-wall, split and multi-split units to meet a broad range of global
consumer preferences. We believe that we have developed a reputation among our
customers and consumers for producing high quality products at competitive
prices. The FEDDERS, EMERSON QUIET KOOL and AIRTEMP brands each has a long
history and is well known in the U.S. marketplace. We also manufacture on a
private label basis, in various sizes, a portion of the room air conditioners
sold by other global OEMs. All of our principal U.S. manufacturing facilities
have received the highest level of quality certification, ISO 9001, from the
International Standards Organization for our quality management systems. Fedders
Xinle has received ISO 9002 certification.
STRONG RELATIONSHIPS WITH LEADING RETAILERS. Beginning in the early 1990s,
we recognized a significant shift in the U.S. market for room air conditioners
as major regional and national retailers began replacing wholesale distributors
as the primary customers for our products. We believe that we have distinguished
Fedders from its competitors by effectively penetrating this rapidly growing
customer base and by working closely with our customers to improve their
marketing of our products. We estimate that leading retailers currently
represent more than 50% of the total room air conditioner market in the United
States.
ACCURATE-RESPONSE MANUFACTURING AND JUST-IN-TIME DELIVERY. During the
1990s, we have reengineered our manufacturing processes and distribution systems
in order to meet the delivery requirements, including "in-season" orders, of our
major retailing customers who increasingly sought to minimize their inventories.
For example, in 1996, we acquired Rotorex, which had been our principal supplier
of compressors for use in our products for 25 years. This captive supply of
compressors is critical to our accurate-response manufacturing and just-in-time
delivery of our seasonal products. We believe that our accurate-response
manufacturing capability, which allows us to adjust both total production
quantities and product mix on a timely basis, has been a key factor in Fedders'
ability to gain market share from its competitors.
PRODUCT FOCUS. We have focused on manufacturing and selling products
utilizing heat transfer technology for over 100 years. During the past 50 years,
our primary product line has been room air conditioners. More recently, we have
begun to accelerate our efforts to complement our core room air conditioner
product line with synergistic offerings while maintaining our core focus on air
treatment products. For example, the Trion acquisition described below provides
an opportunity to expand into the indoor air quality market where we can
capitalize on our extensive air treatment expertise and established
2
<PAGE> 6
global marketing and distribution channels. Many of our competitors produce a
broad range of consumer products, and as a result, we believe these competitors
have historically given less attention to the development and expansion of air
treatment technologies. Air treatment has been and continues to be our primary
business focus which we believe enables us to be more responsive to our
customers' needs and changing industry environment.
RECENT DEVELOPMENT
On July 12, 1999, Fedders entered into an agreement to acquire Trion, Inc.
(NASDAQ: TRON), a North Carolina-based designer, manufacturer and distributor of
equipment to improve indoor air quality in cleanroom, residential, commercial
and industrial environments, for aggregate consideration of $48.9 million,
including acquired indebtedness. On August 11, 1999 we successfully completed a
cash tender offer to purchase the outstanding shares of common stock of Trion at
a price of $5.50 per share. Approximately 89% of the issued and outstanding
common stock was tendered. Following the completion of this acquisition through
a merger of Trion into a wholly owned subsidiary of Fedders Corporation (which
is expected prior to December 31, 1999), the non-European business of Trion will
be owned and operated by a wholly owned subsidiary of Fedders North America and
the European business of Trion will be owned and operated by a wholly owned
subsidiary of Fedders.
Trion markets its products to a broad customer base that includes
microelectronics, semiconductor, and medical products manufacturers, hospitals,
building contractors, heating equipment manufacturers, retailers and the United
States Navy. Trion's extensive product line includes electronic air cleaners,
humidifiers, dust collectors and filters that provide ultra-clean air
environments, remove contaminants and humidify the air. We believe that Trion's
products will benefit from our global sourcing capabilities and marketing
expertise with significant potential for international growth. Certain product
lines will also benefit from our well-established retail distribution channels
in the United States. We will benefit from Trion's residential product line
sales, which are counterseasonal to Fedders' North American air conditioner and
dehumidifier sales. Air cleaner sales peak in winter months, as do humidifier
sales.
INDUSTRY
U.S. ROOM AIR CONDITIONER MARKET
The U.S. room air conditioner market is the third largest in the world with
average annual sales of 3.7 million units for the last 10 calendar years. The
industry has experienced significant consolidation with a reduction from 18
major domestic manufacturing operations in 1975 to five in 1999.
Sales of room air conditioners in the domestic market vary from year to
year according to the weather. This weather also affects shipments in the
following year due to above or below normal pipeline inventory. We believe that
demand is principally driven by the replacement market. Unlike major household
appliances and central air conditioning systems, the sale of room air
conditioners is not dependent on the construction of new homes.
INTERNATIONAL ROOM AIR CONDITIONER MARKET
Fedders believes that in 1998 the international market for room air
conditioners outside the United States was approximately five times the size of
the U.S. market, based on the number of units sold. After accelerating for
several years, demand for air conditioners outside of North America decreased in
1997 due to the international financial crisis, particularly in Asia.
International demand grew slightly in 1998 and is expected to resume its rapid
growth as international economies recover and average disposable income in
populous nations in hot weather climates increases.
INDOOR AIR QUALITY MARKET
The global indoor air quality industry is estimated to have exceeded $3.0
billion in 1998 and favorable long-term industry growth is expected due to
current industry dynamics. Comparative risk studies
3
<PAGE> 7
performed by the United States Environmental Protection Agency have consistently
ranked air pollution among the top five environmental risks to the public. EPA
studies have demonstrated that indoor air can be two to five times, and
occasionally more than 100 times, more polluted than outdoor air. Indoor air
pollution may contribute to illness and is a serious concern for people with
medical conditions such as asthma and allergies. In addition to health concerns,
increasing requirements for "pure" components utilized in high-performance end
products (e.g., semiconductors in computers) drive demand for indoor air quality
products to ensure clean manufacturing environments.
RISK FACTORS
Your investment in the notes will involve certain risks. You should
carefully consider the discussion of risks beginning on page 14 and the other
information included in this prospectus prior to making an investment in the
notes.
4
<PAGE> 8
THE EXCHANGE OFFER
Old Notes..................... $50,000,000 aggregate principal amount of
9 3/8% Senior Subordinated Notes due 2007,
which were issued on August 24, 1999.
New Notes..................... We are offering up to $50,000,000 aggregate
principal amount of 9 3/8% Series B Senior
Subordinated Notes due 2007 in an offering
which has been registered under the Securities
Act. The terms of the new notes are
substantially identical to those of the old
notes, except that certain transfer
restrictions and registration rights relating
to the old notes do not apply to the new notes.
In addition, old note holders will be entitled
to receive liquidated damages with respect to
the first 90-day period immediately following
the occurrence of a Registration Default (as
defined below) in an amount equal to $.05 per
week per $1,000 principal amount of old notes
held by such holders. The amount of the
liquidated damages will increase by an
additional $.05 per week per $1,000 principal
amount of old notes with respect to each
subsequent 90-day period until all Registration
Defaults have been cured, up to a maximum
amount of liquidated damages of $.40 per week
per $1,000 principal amount of old notes. See
the section of the prospectus entitled
"Description of the Notes--Registration Rights;
Liquidated Damages" for more information.
Exchange Offer................ We are offering to issue the new notes in
exchange for a like principal amount of the old
notes. The old notes were not registered with
the Commission. We are offering to issue the
new notes to satisfy our obligations contained
in the registration rights agreement entered
into when the old notes were sold in
transactions pursuant to Rule 144A under the
Securities Act. You may tender your old notes
by following the procedures stated in the
section of this prospectus entitled "The
Exchange Offer."
Resales....................... Based on interpretations by the staff of the
Commission, as set forth in no-action letters
issued to third parties, we believe that the
new notes you receive in the exchange offer may
be offered for resale, resold or otherwise
transferred without compliance with the
registration and prospectus delivery provisions
of the Securities Act. However, you will not be
able to freely transfer the new notes if:
- you are an "affiliate" (as defined in
Rule 405 under the Securi ties Act) of
our company;
- you are not acquiring the new notes in
the exchange offer in the ordinary
course of your business;
- you have an arrangement or understanding
with any person to participate in the
distribution (as defined in the
Securities Act) of the new notes you
will receive in the exchange offer; or
- you are a broker-dealer that receives
new notes for its own account in the
exchange offer in exchange for old
5
<PAGE> 9
notes that were acquired as a result of
market-making or other trading
activities.
If you fall within one of the exceptions listed
above, you must comply with the registration
and prospectus delivery requirements of the
Securities Act in connection with any resale
transaction involving the new notes.
Tenders; Expiration Date...... The exchange offer will expire at 5:00 p.m.,
New York City time, on , 1999,
unless we extend it. By tendering your old
notes, you represent to us:
- that you are not an "affiliate" (as
defined in Rule'405 under the Securities
Act) of our company;
- that any new notes you receive in the
exchange offer are being acquired by you
in the ordinary course of your business;
- that, at the time of commencement of the
exchange offer, neither you nor, to your
knowledge, anyone receiving new notes
from you, has any arrangement or
understanding with any person to
participate in the distribution (as
defined in the Secu rities Act) of the
new notes in violation of the Securities
Act;
- if you are not a broker-dealer, that you
are not engaged in, and do not intend to
engage in, the distribution (as defined
in the Securities Act) of the new notes;
and
- if you are a broker-dealer, that you
will receive the new notes for your own
account in exchange for old notes that
were acquired by you as a result of your
market-making or other trading
activities and that you will deliver a
prospectus in connection with any resale
of the new notes you receive. For
further information regarding resales of
the new notes by participating
broker-dealers, see the section of this
prospectus entitled "Plan of
Distribution."
Withdrawal; Non-Acceptance.... You may withdraw any old notes tendered in the
exchange offer at any time prior to 5:00 p.m.,
New York City time, on , 1999. If
we decide for any reason not to accept any old
notes for exchange, the old notes will be
returned to the registered holder at our
expense promptly after the expiration or
termination of the exchange offer. In the case
of old notes tendered by book-entry transfer
into the exchange agent's account at The
Depository Trust Company, any withdrawn or
unaccepted old notes will be credited to the
tendering holder's account at The Depository
Trust Company. See "The Exchange Offer--Terms
of the Exchange Offer; Period for Tendering Old
Notes" and "The Exchange Offer--Withdrawal
Rights."
Conditions to the Exchange
Offer......................... The exchange offer is subject to customary
conditions, which we may waive. Please read the
section of this prospectus entitled "The
Exchange Offer--Conditions to the Exchange
Offer" for more information regarding
conditions to the exchange offer.
6
<PAGE> 10
Guaranteed Delivery
Procedures.................... If you are a registered holder of the old notes
and wish to tender your old notes in the
exchange offer, but (1) the old notes are not
immediately available, (2) time will not permit
your old notes or other required documents to
reach the exchange agent before the expiration
of the exchange offer, or (3) the procedure for
book-entry transfer cannot be completed prior
to the expiration of the exchange offer, you
may tender old notes by following the
procedures described below under the section of
this prospectus entitled "The Exchange
Offer--Guaranteed Delivery Procedures."
Special Procedures for
Beneficial Owners............. If you are a beneficial owner whose old notes
are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and you wish to tender your old notes in the
exchange offer, you should promptly contact the
person in whose name the old notes are
registered and instruct that person to tender
on your behalf. If you wish to tender in the
exchange offer on your own behalf, prior to
completing and executing the letter of
transmittal and delivering your old notes, you
must either make appropriate arrangements to
register ownership of the old notes in your
name or obtain a properly completed bond power
from the person in whose name the old notes are
registered.
Certain Federal Income Tax
Considerations.............. Your exchange of old notes for new notes
pursuant to the exchange offer will not result
in any gain or loss to you for federal income
tax purposes. See "Certain Federal Income Tax
Considerations."
Use of Proceeds............... We will receive no proceeds from the exchange
offer.
Exchange Agent................ State Street Bank and Trust Company is the
exchange agent for the exchange offer. The
address and telephone number of the exchange
agent are set forth under the heading "The
Exchange Offer--Exchange Agent" of this
prospectus.
Shelf Registration
Statement..................... Under select circumstances, some holders of old
notes (including holders who are not permitted
to participate in the exchange offer or who may
not freely resell new notes received in the
exchange offer) may require us to file, and
cause to become effective, a shelf registration
statement under the Securities Act which would
cover resales of old notes by these holders.
See the section of the prospectus entitled
"Description of Notes--Registration Rights;
Liquidated Damages."
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<PAGE> 11
CONSEQUENCES OF NOT EXCHANGING OLD NOTES
If you do not exchange your old notes in the exchange offer, your old notes
will continue to be subject to the restrictions on transfer set forth in the
legend on the certificate for your old notes. In general, you may offer or sell
your old notes only if they are registered under, offered or sold pursuant to an
exemption from, or offered or sold in a transaction not subject to, the
Securities Act and applicable state securities laws. We do not currently intend
to register the old notes under the Securities Act. Under certain circumstances,
however, holders of old notes (including holders who are not permitted to
participate in the exchange offer or who may not freely resell new notes
received in the exchange offer) may require us to file and cause to become
effective a shelf registration statement which would cover resales of old notes
by their holders. See the sections of the prospectus entitled "The Exchange
Offer--Consequences of Exchanging or Failing to Exchange Old Notes" and
"Description of Notes--Registration Rights; Liquidated Damages."
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the new notes and the old notes are identical in all material
respects, except that certain transfer restrictions and registration rights
relating to the old notes do not apply to the new notes. In addition, old note
holders will be entitled to receive liquidated damages with respect to the first
90-day period immediately following the occurrence of a Registration Default (as
defined below) in an amount equal to $.05 per week per $1,000 principal amount
of old notes held by such holders. The amount of the liquidated damages will
increase by an additional $.05 per week per $1,000 principal amount of old notes
with respect to each subsequent 90-day period until all Registration Defaults
have been cured, up to a maximum amount of liquidated damages of $.40 per week
per $1,000 principal amount of old notes. See the section of the prospectus
entitled "Description of Notes--Registration Rights; Liquidated Damages."
Issuer........................ Fedders North America, Inc.
Securities Offered............ $50,000,000 aggregate principal amount of
9 3/8% Senior Subordinated Notes due 2007.
Maturity Date................. August 15, 2007.
Interest Payment Dates........ The notes will bear interest at the rate of
9 3/8% per annum, payable semiannually in cash
in arrears on February 15 and August 15 of each
year, commencing February 15, 2000.
Guarantee..................... Fedders Corporation, of which Fedders North
America is a wholly owned subsidiary, will
fully and unconditionally guarantee the notes
on a senior subordinated basis. See
"Description of Notes--Guarantee."
Optional Redemption........... Fedders North America may redeem the notes, in
whole or in part, on or after August 15, 2002,
at the redemption prices set forth in this
prospectus, plus accrued and unpaid interest.
In addition, before August 15, 2000, Fedders
North America may redeem up to 30% of the notes
at 109.375% of the principal amount thereof,
plus accrued and unpaid interest, with the net
cash proceeds of certain sales of common
equity; provided at least 70% of the original
aggregate principal amount of the notes remains
outstanding immediately after such redemption.
See "Description of Notes--Redemption of
Notes--Optional Redemption."
Change of Control............. Upon the occurrence of certain change of
control events, each holder may require Fedders
North America to repurchase all or a portion of
the notes at 101% of the principal amount
thereof,
8
<PAGE> 12
plus accrued and unpaid interest. See
"Description of Notes--Change of Control."
Ranking....................... The notes will be subordinated to all of
Fedders North America, Inc.'s existing and
future senior indebtedness, and equal or senior
to any of Fedders North America, Inc.'s other
existing or future indebtedness. The guarantee
will be subordinated to all of Fedders
Corporation's existing and future senior
indebtedness to the same extent that the notes
are subordinated to Fedders North America,
Inc.'s senior indebtedness, and the guarantee
will be equal or senior to any of Fedders
Corporation's other existing or future
indebtedness. The notes and the guarantee will
also be effectively subordinated to the
existing and future indebtedness of the
subsidiaries of Fedders North America, Inc. and
Fedders Corporation. As of May 31, 1999, after
giving pro forma effect to this offering, the
Trion acquisition and the retirement of certain
acquired company debt:
- Fedders North America, Inc. (other than
its subsidiaries) would have had total
debt, other than the notes, of $102.9
million (net of $0.4 million discount),
$3.3 million of which would have been
senior indebtedness (in addition to
unused commitments of $100.0 million
under its revolving credit facility);
- Fedders Corporation would have had total
debt, other than the guarantee, of $99.6
million (net of $0.4 million discount),
representing its guarantee of Fedders
North America's existing senior
subordinated notes, none of which would
have been senior indebtedness;
- subsidiaries of Fedders Corporation
(other than Fedders North America and
its subsidiaries) would have had $4.2
million of outstanding indebtedness; and
- subsidiaries of Fedders North America,
Inc. would have had $6.1 million of
outstanding indebtedness (in addition to
obligations under Fedders North
America's revolving credit facility, the
entire availability of which was
unused).
Certain Covenants............. The indenture governing the notes will contain
covenants that will, among other things, limit
the ability of Fedders North America and the
ability of certain of its subsidiaries to:
- incur additional indebtedness or issue
preferred stock;
- repay certain other indebtedness;
- pay dividends on, redeem or repurchase
their capital stock;
- sell assets;
- engage in certain transactions with
affiliates;
- enter into sale and leaseback
transactions;
- create certain liens; and
9
<PAGE> 13
- consolidate, merge or sell all or
substantially all of the assets of
Fedders North America.
All of these limitations are subject to
important exceptions and qualifications
described under "Description of Notes--Certain
Covenants."
The indenture does not contain covenants
restricting Fedders or any of its subsidiaries
other than Fedders North America and its
subsidiaries.
Use of Proceeds............... We will receive no proceeds from the offering
of the new notes upon consummation of the
exchange offer. The net proceeds from the
offering of the old notes were used primarily
to replenish cash used in connection with the
Trion acquisition. See "Use of Proceeds."
Certain Federal Income
Tax Considerations.......... The old notes were issued with "original issue
discount." The amount of the original issue
discount was equal to the excess of the stated
redemption price at maturity of the old notes
(i.e., the principal amount) over their issue
price. A holder must include the original issue
discount in gross income as ordinary interest
income as it accrues on a constant yield
method, in advance of the receipt of the cash
representing that income. See "Certain Federal
Income Tax Considerations."
10
<PAGE> 14
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following table shows summary historical consolidated financial
information of Fedders. The historical financial information has been derived
from the audited (for amounts as of and for the years ended August 31) and
unaudited interim consolidated financial statements (for amounts as of and for
the nine months ended May 31) and related notes appearing elsewhere or
incorporated by reference in this prospectus. You should read this information
together with those financial statements and "Management's Discussion and
Analysis of Results of Operations and Financial Condition of Fedders
Corporation." Summarized historical consolidated financial information of
Fedders as of August 31, 1994 and 1995 and for each of the years then ended has
been derived from audited consolidated financial statements which do not appear
in this prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED AUGUST 31, ENDED MAY 31,
-------------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net sales............... $231,572 $316,494 $371,772 $314,100 $322,121 $231,132 $260,221
Gross profit............ 49,263 67,125 83,028 70,076 69,770 48,860 60,137
Selling, general and
administrative
expenses.............. 25,358 29,472 32,040 38,347 40,210 27,909 29,272
Restructuring
expense(1)............ -- -- -- -- 16,750 16,750 --
Operating income........ 23,905 37,653 50,988 31,729 12,810 4,201 30,865
Net interest expense.... 4,102 1,962 952 3,430 8,610 6,992 7,758
Income tax (benefit).... 594 6,187 19,108 10,103 1,611 (863) 7,691
Net income (loss)(2).... 20,989 29,504 31,158 18,764 2,992 (1,605) 15,950
OTHER DATA:
EBITDA(3)............... $ 32,252 $ 44,143 $ 57,796 $ 42,232 $ 41,757 $ 27,550 $ 38,375
Depreciation and
amortization.......... 9,374 7,519 6,578 9,935 9,263 6,636 6,976
Capital
expenditures(4)....... 2,634 9,041 7,043 9,236 8,497 6,115 6,257
Gross profit margin..... 21.3% 21.2% 22.3% 22.3% 21.7% 21.1% 23.1%
</TABLE>
<TABLE>
<CAPTION>
AS OF MAY 31,
1999
(DOLLARS IN
THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 51,664
Working capital........................................... 90,423
Total assets.............................................. 317,405
Long-term debt (including current portion)................ 109,986
Total stockholders' equity................................ 106,627
</TABLE>
11
<PAGE> 15
- ------------------------------
(1) In January 1998, Fedders announced a plan to restructure its operations,
which resulted in Fedders recording a one-time expense totaling $16.8
million in the second fiscal quarter ended February 28, 1998. The charge
consisted of machinery and equipment write-downs ($5.6 million); an amount
for machinery and equipment and other lease terminations, primarily related
to outsourcing ($4.9 million); personnel-related costs, primarily related to
outsourcing ($3.8 million); and administrative facility closing costs ($2.5
million). See note 2 to the Fedders audited consolidated financial
statements appearing elsewhere in this prospectus.
(2) During the first quarter of fiscal 1994, Fedders adopted Statement of
Financial Accounting Standard No. 109 "Accounting for Income Taxes" which
resulted in a tax benefit of $1.8 million from the cumulative effect of an
accounting change.
(3) EBITDA represents income before income taxes plus net interest expense,
depreciation and amortization (excluding amortization of debt discounts and
deferred financing costs) and certain one-time charges. We have presented
EBITDA to provide additional information with respect to the ability of
Fedders and Fedders North America to meet their future debt service, capital
expenditures and working capital requirements. However, EBITDA should not be
considered as a substitute for operating income or as a better indicator of
liquidity than cash flow from operating activities, both of which are
determined in accordance with generally accepted accounting principles.
EBITDA is not necessarily a measure of Fedders' or Fedders North America's
ability to fund cash needs. EBITDA may not be comparable to similarly titled
measures reported by other companies. The amounts shown for EBITDA exclude
one-time charges for restructuring and early retirement as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED NINE MONTHS
AUGUST 31, ENDED MAY 31,
----------------- ------------------
1998 1998 1999
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Fedders North America........................... $17,381 $14,488 --
Other Fedders companies......................... 2,260 2,262 --
------- ------- -------
Fedders......................................... $19,641 $16,750 --
======= ======= =======
</TABLE>
- ------------------------------
(4) Fiscal 1995 amount includes the buyout of $1.8 million of equipment under
lease.
12
<PAGE> 16
(5) Fedders North America is a wholly owned subsidiary of Fedders. The following
table shows historical financial information of Fedders North America, which
has been derived from the supplemental condensed consolidating financial
statements appearing in note 13 to the Fedders audited consolidated
financial statements and note G to the Fedders unaudited interim
consolidated financial statements appearing elsewhere in this prospectus.
You should read this table together with those financial statements. Note
references in the following table are to the notes preceding this note.
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED AUGUST 31, ENDED MAY 31,
-------------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net sales................ $230,074 $311,363 $356,392 $271,874 $289,412 $207,292 $237,615
Gross profit............. 48,938 65,770 79,475 65,004 63,232 43,364 56,094
Restructuring expense.... -- -- -- -- 15,360 14,488 --
Operating income......... 24,825 39,225 54,208 38,874 21,479 10,337 35,426
OTHER DATA:
EBITDA(3)................ $ 31,804 $ 45,316 $ 60,279 $ 46,721 $ 46,000 $ 29,765 $ 41,026
Capital
expenditures(4)........ 2,564 4,286 4,983 7,131 6,541 4,800 5,474
Gross profit margin...... 21.3% 21.1% 22.3% 23.9% 21.8% 20.9% 23.6%
</TABLE>
<TABLE>
<CAPTION>
AS OF MAY 31, 1999
(DOLLARS IN
THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 32,528
Working capital........................................... 52,358
Total assets.............................................. 244,934
Long-term debt (including current portion)................ 105,764
Total stockholders' equity................................ 46,542
</TABLE>
13
<PAGE> 17
RISK FACTORS
You should carefully consider the following factors in addition to the
other information in this prospectus before deciding to tender your old notes in
the exchange offer. The risk factors set forth below, other than those which
discuss the consequences of failing to exchange your old notes in the exchange
offer, are generally applicable to both the old notes and the new notes.
THERE ARE CONSEQUENCES SHOULD YOU CHOOSE NOT TO EXCHANGE YOUR OLD NOTES.
If you do not exchange your old notes for the new notes in the exchange
offer, you will continue to be subject to the restrictions on transfer of your
old notes described in the legend on your old notes. The restrictions on
transfer of your old notes arise because we issued the old notes under
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, you may only offer or sell the old notes if they are registered under
the Securities Act and applicable state securities laws, or offered and sold
under an exemption from these requirements. We do not intend to register the old
notes under the Securities Act. In addition, if you exchange your old notes in
the exchange offer for the new notes, you may be deemed to have received
restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. To the extent old notes are tendered and
accepted in the exchange offer, the trading market, if any, for the old notes
would be adversely affected. See "The Exchange Offer--Consequences of Exchanging
or Failing to Exchange Old Notes."
SUBORDINATION--YOUR RIGHT TO RECEIVE PAYMENT ON THE NOTES IS JUNIOR TO ALL
OF FEDDERS NORTH AMERICA, INC.'S SENIOR INDEBTEDNESS AND POSSIBLY ALL OF
ITS FUTURE BORROWINGS. THE GUARANTEE BY FEDDERS CORPORATION IS JUNIOR TO
ALL OF ITS SENIOR INDEBTEDNESS AND POSSIBLY ALL OF ITS FUTURE BORROWINGS.
The notes will be general unsecured obligations of Fedders North America,
Inc. Payments on the notes will be subordinated in right of payment to all
existing and future senior indebtedness of Fedders North America, Inc. Payments
under the guarantee of the notes by Fedders Corporation will be subordinated in
right of payment to all existing and future senior indebtedness of Fedders
Corporation. As of May 31, 1999, after giving pro forma effect to this offering,
the Trion acquisition and the retirement of certain acquired company debt, the
aggregate principal amount of senior indebtedness of Fedders North America, Inc.
to which the notes would have been subordinated would have been approximately
$3.3 million and there would have been no senior indebtedness of Fedders
Corporation to which its guarantee would have been subordinated. The notes and
the guarantee will also rank equal in right of payment to other existing and
future senior subordinated indebtedness of Fedders North America, Inc. and
Fedders Corporation. As of May 31, 1999, Fedders North America, Inc. and Fedders
Corporation had outstanding $99.6 million (net of $0.4 million discount) of
senior subordinated indebtedness, representing Fedders North America, Inc.'s
existing senior subordinated notes and Fedders Corporation's guarantee of those
notes.
The indenture permits, subject to limitations, the incurrence by Fedders
North America and its restricted subsidiaries of additional indebtedness, some
or all of which may be senior indebtedness. The indenture will not limit the
ability of Fedders and its subsidiaries (other than Fedders North America and
its subsidiaries) to incur additional indebtedness, some or all of which may be
senior indebtedness. By reason of the subordination provisions of the indenture,
in the event of the liquidation or insolvency of Fedders North America or
Fedders, other creditors who are holders of senior indebtedness must be paid in
full before payment of amounts due on the notes or the guarantee. Accordingly,
there may be insufficient assets remaining to pay amounts due on the notes or
the guarantee. In addition, the notes will not be secured by any of our assets.
Therefore, lenders under Fedders North America's revolving credit facility which
is secured by substantially all of our assets will be entitled to exercise
remedies available to a secured lender with respect to those assets.
14
<PAGE> 18
In addition, the indenture restricts the ability of Fedders North America
and Fedders to make any payments on the notes or the guarantee if they are in
default on specified designated senior indebtedness.
Fedders North America's and Fedders' other subsidiaries have and may in the
future incur indebtedness. Holders of this indebtedness will have a claim
against the assets of these subsidiaries that will rank ahead of any claim of
the holders of the notes and the guarantee. As of May 31, 1999, after giving pro
forma effect to this offering, the Trion acquisition and the retirement of
certain acquired company debt, subsidiaries of Fedders (other than Fedders North
America and its subsidiaries) would have had $4.2 million of outstanding
indebtedness and subsidiaries of Fedders North America would have had $6.1
million of outstanding indebtedness (in addition to obligations under Fedders
North America's revolving credit facility, the entire availability of which was
unused).
SEASONALITY--OUR BUSINESS IS SIGNIFICANTLY AFFECTED BY SEASONAL FACTORS AND
IS DEPENDENT ON SUMMER WEATHER CONDITIONS.
Our operating results and financial condition are currently principally
dependent on the manufacture and sale of room air conditioners. The demand for
room air conditioners is highly seasonal in our primary North American markets.
Seasonally low sales volume is insufficient to offset fixed costs, resulting in
operating losses at certain times of the year. In addition, our working capital
needs are seasonal and we draw on our lines of credit to the greatest extent
early in the calendar year.
Fedders North America's business is primarily dependent on the demand for
room air conditioners in North America. As a result, unseasonably cool
temperatures during the summer in principal domestic markets have an adverse
effect on our industry and on our operations. While a cool summer in several
major markets in a given year would likely result in reduced sales and earnings
for a single fiscal year, consecutive cool summers in such major markets could
have a material adverse effect on our business.
DEPENDENCE ON PRINCIPAL CUSTOMERS--OUR BUSINESS DEPENDS ON OUR
RELATIONSHIPS WITH A LIMITED NUMBER OF LARGE CUSTOMERS.
Our two largest customers account for a significant portion of Fedders' net
sales. In 1998, one customer accounted for 30% of net sales and a second
customer accounted for 27% of net sales. In 1997, one customer accounted for 27%
of net sales and a second customer accounted for 19% of net sales. In 1996, one
customer accounted for 30% of net sales. While we have done business with most
of our principal customers for a number of years, agreements with principal
customers are reached annually and are based on purchase orders. We cannot
assure you that sales to principal customers will continue at current levels.
Further, continuation of the relationships depends on the customers'
satisfaction with the price, quality and delivery of our products. The loss of,
or a reduction in purchase levels by, a significant customer which we are unable
to replace with new orders would have a material adverse effect on our business.
ACQUISITION RISKS--OUR FAILURE TO SUCCESSFULLY INTEGRATE TRION OR FUTURE
ACQUISITIONS INTO OUR OPERATIONS COULD ADVERSELY AFFECT US.
We believe that we can realize significant benefits from the successful
integration of Trion. However, we may not be able to maintain or increase the
profitability of Trion and we may not be able to successfully integrate Trion
into our operations. We continually evaluate potential acquisitions and intend
to actively pursue acquisition opportunities, some of which may be material. We
may finance future acquisitions with internally generated funds, bank
borrowings, issuances of debt or equity securities, or a combination of the
foregoing. If we complete acquisitions, we will encounter various associated
risks. These risks include the possible inability to integrate an acquired
business into our operations, increased goodwill amortization, diversion of
management's attention, and unanticipated problems or liabilities. Some of these
risks could result in a material adverse effect on our financial condition or
operating results.
15
<PAGE> 19
COMPETITION--OUR BUSINESS IS HIGHLY COMPETITIVE WHICH COULD ADVERSELY
AFFECT FEDDERS.
Our industry is highly competitive and the principal market in which we
participate is mature. Our competitors include a number of domestic and foreign
manufacturers of air conditioners and other appliances. Many of these
competitors are substantially larger and have greater financial resources than
us. Competitive factors could require price reductions or increased spending on
product development, marketing and sales that could adversely affect our profit
margins.
RESTRICTIVE COVENANTS--OUR DEBT INSTRUMENTS CONTAIN VARIOUS COVENANTS WHICH
LIMIT OUR MANAGEMENT'S DISCRETION IN THE OPERATION OF OUR BUSINESS AND
COULD RESULT IN DEFAULTS.
Fedders North America's revolving credit facility and the indentures
governing its existing senior subordinated notes and the notes we are now
offering contain various restrictive covenants that, among other things, limit
our ability to:
- pay dividends or make certain other restricted payments;
- incur additional indebtedness;
- encumber or sell assets;
- enter into transactions with affiliates;
- enter into certain guarantees of indebtedness;
- make restricted investments;
- merge or consolidate with any other entity; and
- transfer or lease all or substantially all of our assets.
The revolving credit facility also requires Fedders to satisfy certain financial
condition tests. Our ability to meet those tests can be affected by events
beyond our control. We cannot assure you that we will be able to meet those
tests. A breach of any of the restrictive covenants could result in a default
under the debt instruments. In the event of a default, the lenders generally
could elect to declare all amounts outstanding to be immediately due and
payable. If we were unable to repay those amounts, the lenders could proceed
against our assets to satisfy these obligations. If the notes were to be
accelerated, we cannot assure you that our assets would be sufficient to repay
the notes in full. In addition, substantially all of our assets are pledged as
security under the revolving credit facility.
LEVERAGE AND DEBT SERVICE--OUR SUBSTANTIAL INDEBTEDNESS AND DEBT SERVICE
OBLIGATIONS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND PREVENT US
FROM FULFILLING OUR OBLIGATIONS UNDER THE NOTES.
As of May 31, 1999, after giving pro forma effect to this offering, the
Trion acquisition and the retirement of certain acquired company debt, Fedders
North America's total consolidated indebtedness would have been approximately
$156.6 million, representing 77.1% of its total capitalization. This leverage
could have important consequences for us. For example:
- our ability to obtain additional financing for acquisitions, working
capital, capital expenditures or other purposes may be impaired or such
financing may not be on favorable terms;
- a portion of our cash flow will be used to pay interest expense and under
certain conditions to repay indebtedness, which will reduce the funds
that would otherwise be available for operations and future business
opportunities;
- a substantial decrease in net operating cash flows or an increase in
expenses could make it difficult for us to meet our debt service
requirements and force us to modify our operations;
- we may be more highly leveraged than our competitors, placing us at a
competitive disadvantage; and
16
<PAGE> 20
- our leverage may make us more vulnerable to a downturn in our business or
the economy generally.
Fedders North America's ability to pay interest and principal on the notes
and to satisfy its other debt obligations will depend upon its future operating
performance. This performance will be affected by prevailing economic conditions
and financial, business and other factors, many of which are beyond our control.
We cannot assure you that we will have adequate cash available to make required
principal and interest payments.
WORKING CAPITAL REQUIREMENTS--OUR WORKING CAPITAL REQUIREMENTS FLUCTUATE
BECAUSE OF THE SEASONAL NATURE OF OUR BUSINESS. UNAVAILABILITY OF NEEDED
WORKING CAPITAL COULD ADVERSELY AFFECT US.
Because of the seasonal nature of our business, working capital
requirements are significantly higher at certain times of the year. If amounts
required to fund Fedders North America's working capital requirements are not
available from Fedders or under Fedders North America's revolving credit
facility, Fedders North America would need to seek an increase in the borrowing
limit under its revolving credit facility or an alternative source of working
capital. Additional working capital may not be available on satisfactory terms.
Unavailability of needed working capital could have a material adverse effect on
our business and operating results.
CHANGE OF CONTROL PROVISIONS--WE MAY NOT BE ABLE TO MAKE A CHANGE OF
CONTROL OFFER TO REPURCHASE THE NOTES AS REQUIRED BY THE INDENTURE.
In the event of a change of control as defined in the indenture, Fedders
North America will be required to offer to repurchase all of the outstanding
notes at a price equal to 101% of their principal amount plus any accrued and
unpaid interest. Similar repurchase obligations exist under our other debt
instruments. The exercise by the holders of the notes of their right to require
Fedders North America to repurchase the notes on a change of control could also
cause a default under other indebtedness because of the financial effect of such
repurchase, even if the change of control itself does not cause a default. The
ability to pay cash to the holders of the notes on a repurchase may be limited
by Fedders North America's then existing financial resources. We cannot assure
you that in the event of a change of control Fedders North America will have
access to sufficient funds or will be permitted under the terms of its existing
and future debt instruments to pay the required purchase price for all the notes
tendered by holders. In addition, certain important corporate events, such as a
leveraged recapitalization that could substantially increase the levels of our
indebtedness, would not constitute a change of control under the indenture.
CONTROL BY PRINCIPAL STOCKHOLDERS--FEDDERS IS CONTROLLED BY THE GIORDANO
FAMILY WHICH MAY HAVE DIFFERENT INTERESTS THAN THOSE OF THE HOLDERS OF THE
NOTES.
Fedders North America is a wholly owned subsidiary of Fedders. Salvatore
Giordano, Sal Giordano, Jr., Joseph Giordano and members of their families
beneficially own approximately 99.8% of the class B stock of Fedders. Through
their holdings of class B stock, these stockholders, under certain
circumstances, will have the power to:
- elect a majority of the board of directors of Fedders and Fedders North
America;
- designate the management of Fedders and Fedders North America;
- determine the policies of Fedders and Fedders North America; and
- decide the outcome of significant corporate actions requiring stockholder
approval.
The interests of these stockholders may differ from those of the holders of
the notes and they may cause us to act in a manner that is not in your best
interests.
17
<PAGE> 21
DEPENDENCE ON KEY EXECUTIVES--OUR LOSS OF CERTAIN KEY MEMBERS OF MANAGEMENT
OR INABILITY TO ATTRACT OTHER QUALIFIED PERSONNEL COULD NEGATIVELY IMPACT
OUR BUSINESS PROSPECTS.
We believe that our performance has been and will continue to be dependent
upon the efforts of our principal executive officers. Although we have designed
incentive and compensation programs to retain key employees, including options
to purchase stock of Fedders, we cannot assure you that our principal executive
officers will continue to be available. The loss of some or all of these
principal executive officers could have a material adverse effect on us. We
believe that our future success will depend in large part on our continued
ability to attract and retain highly skilled and qualified personnel.
INTERNATIONAL OPERATIONS--OUR INTERNATIONAL OPERATIONS ARE SUBJECT TO RISKS
INCLUDING OUR COMPLIANCE WITH THE FOREIGN CORRUPT PRACTICES ACT.
Fedders has dedicated resources to participating in the international
market by establishing operations in China through Fedders Xinle, a joint
venture with Ningbo General Air Conditioner Factory, and in Spain through BSH
and Fedders International Air Conditioning, S.A., a joint venture with an
indirect subsidiary of Bosch-Siemens Hausgerate GmbH. We intend to continue such
involvement through other production and joint venture agreements. International
manufacturing and sales are subject to inherent risks, including:
- labor unrest;
- political instability;
- restrictions on transfer of funds;
- export duties and quotas;
- domestic and foreign customs and tariffs;
- current and changing regulatory environments;
- difficulty in obtaining distribution and support; and
- potentially adverse tax consequences.
We cannot assure you that these factors will not have a material adverse effect
on Fedders' international operations or sales or upon its financial condition
and operating results.
To the extent that we conduct operations and sell products outside the
United States, we are subject to the Foreign Corrupt Practices Act. This act
generally prohibits U.S. companies and their intermediaries from bribing foreign
officials for the purpose of obtaining or keeping business or licenses or
otherwise obtaining favorable treatment. We may also be liable under the act for
actions which may in the past have been taken or which may be taken in the
future by agents and other intermediaries or by our strategic or local partners
whom we do not control. Although we have taken precautions to comply with the
act, we cannot assure you that these precautions will protect us against
liability under the act. Any determination that we have violated the act could
have a material adverse effect on us.
RAW MATERIALS--THE UNAVAILABILITY OF AND FLUCTUATION IN THE COST OF RAW
MATERIALS COULD ADVERSELY AFFECT OUR FUTURE RESULTS.
Our operations are dependent on the supply of various raw materials,
including steel, copper and aluminum, from domestic and foreign suppliers. We
obtain substantially all of our supply of steel, copper and aluminum under
purchase orders rather than long-term supply contracts. Although to date we have
been able to obtain sufficient quantities of steel, copper and aluminum for our
manufacturing processes, supply interruptions or cost increases which we are
unable to pass on to our customers could adversely affect our future operating
results.
18
<PAGE> 22
LABOR RELATIONS--OUR OPERATIONS COULD BE ADVERSELY AFFECTED BY LABOR
DISPUTES.
Approximately 46% of our employees in the United States are represented by
unions. In the past some of our operations have been the subject of labor
strikes. Our collective bargaining agreements with the unions representing
substantially all of the production employees in our Effingham, Illinois plant
are scheduled to expire in October 2001. Our collective bargaining agreement
with the union representing approximately 50 Rotorex employees is scheduled to
expire in August 2005. We cannot assure you as to the results of negotiations of
future collective bargaining agreements, whether future collective bargaining
agreements will be negotiated without production interruptions, and as to the
possible impact of future collective bargaining agreements on our financial
condition and operating results.
GOVERNMENT REGULATION--WE ARE SUBJECT TO VARIOUS REGULATORY LAWS THAT
AFFECT OUR BUSINESS AND PRODUCTS.
We are subject to various federal, state and local laws affecting our
business. Room air conditioners are subject to federal regulations providing for
minimum energy efficiency rating (EER) requirements. A combination of an
efficient compressor and the design of the air conditioning system using the
compressor is needed to achieve the required ratings. On September 24, 1997, the
Office of Energy Efficiency and Renewable Energy of the United States Department
of Energy issued a final rule under the National Appliance Energy Conservation
Act. This rule revised the minimum required EERs for most classes of room air
conditioners to higher levels. The new EER levels apply to covered units
manufactured on or after October 1, 2000. This will require increasing the
efficiency levels of certain air conditioner models to achieve the revised
minimum EER levels. Future changes in government regulations which adversely
affect the industry and our business could be enacted in the future.
ENVIRONMENTAL REGULATION--A REFRIGERANT USED IN OUR PRODUCTS IS SCHEDULED
TO BE PHASED OUT UNDER CURRENT ENVIRONMENTAL REGULATIONS. THE AVAILABILITY
OF A COST EFFECTIVE ALTERNATIVE IS NOT ASSURED.
The products manufactured by Fedders currently use hydrochlorofluorocarbons
(HCFCs) as the refrigerant. The production of HCFCs for use in new equipment is
currently scheduled to be phased out as of the year 2010 in the United States.
In addition, the production of HCFCs for the servicing of existing equipment is
currently scheduled to be phased out as of the year 2020 in the United States.
Chemical producers are currently developing environmentally acceptable
alternative refrigerants for use in room air conditioners. These alternative
refrigerants are expected to be available in advance of the currently proposed
phase-out deadlines for the current refrigerant. We cannot assure you that we
will be able to develop cost effective products that utilize alternative
refrigerants.
FRAUDULENT TRANSFER CONSIDERATIONS--FEDERAL AND STATE STATUTES COULD UNDER
CERTAIN CIRCUMSTANCES VOID GUARANTEES.
Although laws differ among various jurisdictions, in general, under
fraudulent conveyance laws, a court could subordinate or avoid any guarantee and
require noteholders to return payments received from a guarantor if it found
that the guarantee was incurred with actual intent to hinder, delay or defraud
creditors or the guarantor did not receive fair consideration or reasonably
equivalent value for the guarantee and the guarantor was any of the following:
- insolvent or was rendered insolvent because of the guarantee;
- engaged or about to engage in a business or transaction for which its
remaining assets constituted unreasonably small capital; or
- intended to incur, or believed or reasonably should have believed that it
would incur, debts beyond its ability to pay at maturity.
If a court avoided the guarantee of the notes by Fedders as a result of a
fraudulent conveyance, or held it unenforceable for any other reason,
noteholders would no longer have a claim against the guarantor and would be
solely creditors of Fedders North America.
19
<PAGE> 23
ORIGINAL ISSUE DISCOUNT--THE ORIGINAL ISSUE DISCOUNT MAY PRESENT
UNFAVORABLE TAX AND OTHER LEGAL CONSEQUENCES TO YOU.
The notes will be deemed to have been issued to you at a discount for
federal income tax purposes. Original issue discount, which is the difference
between the stated redemption price of the notes at maturity and the issue price
of the notes, will accrue from the issue date of the notes and be includable in
a holder's gross income as it accrues. See "Certain Federal Income Tax
Considerations."
If a bankruptcy case under the U.S. Bankruptcy Code were commenced by or
against us after the issuance of the notes, the claim of a holder of notes could
be limited to exclude the amount of unamortized original issue discount, as of
the relevant date, if the bankruptcy court determined that it was "unmatured
interest."
ABSENCE OF A PUBLIC MARKET--THERE IS NO CURRENT TRADING MARKET FOR THE
NOTES AND THEIR RESALE MAY BE RESTRICTED.
The new notes are new securities for which there currently is no market.
Although the initial purchaser has advised us that it currently intends to make
a market in the new notes, it is not obligated to do so and may discontinue the
market making at any time without notice. While the old notes are eligible for
trading in the PORTAL market, we do not intend to list any of the notes on any
national securities exchange or to seek their admission on any other automated
quotation system. Accordingly, we cannot assure you that an active market will
develop for any of the notes or that any trading market for the notes will be
liquid. If a liquid trading market does not develop or is not maintained,
holders of the notes may be unable to sell their notes. Future trading prices of
the notes will depend on many factors, including prevailing interest rates, our
results of operations and the market for similar securities. Depending on
prevailing interest rates, the market for similar securities and other factors,
including our financial condition, the notes may trade at a discount from their
principal amount.
20
<PAGE> 24
SUMMARY ORGANIZATION CHART
[FLOW CHART]
- ------------------------------
(1) Fedders North America and several of its subsidiaries manufacture and market
room air conditioners and dehumidifiers primarily for sale to the North
American marketplace, which includes Canada and Mexico.
(2) Following the completion of the Trion acquisition through a merger of Trion
into a wholly owned subsidiary of Fedders Corporation (which is expected
prior to December 31, 1999), the non-European business of Trion will be
owned and operated by a wholly owned subsidiary of Fedders North America and
the European business of Trion will be owned and operated by a wholly owned
subsidiary of Fedders.
(3) Fedders International, headquartered in Singapore, markets room air
conditioners, including split-type air conditioners, in the international
marketplace, which includes all areas of the world other than North America.
In addition, BSH and Fedders International Air Conditioning, S.A., a joint
venture between Fedders International and an indirect subsidiary of
Bosch-Siemens Hausgerate GmbH, manufactures portable room air conditioners
for sale to North America through Fedders North America, and to all other
areas of the world through Fedders International. Fedders International also
operates a research and development center for developing new products for
the international marketplace.
(4) Fedders Investment Corporation, through Fedders Xinle, manufactures room air
conditioners for sale in China, in North America through Fedders North
America, and in all other areas of the world through Fedders International.
(5) Melcor manufactures solid state heat pump modules that perform electrically
the same cooling and heating functions as refrigerant-based compressors and
absorption refrigerators. Melcor's customers are OEMs that primarily use the
modules for cooling purposes in applications such as refrigerators,
laboratory, scientific, medical and restaurant equipment, as well as
telecommunications and computer equipment.
21
<PAGE> 25
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the new notes in
the exchange offer. We will receive old notes in like principal amount in
exchange for the issuance of the new notes in the exchange offer. We will cancel
all old notes surrendered in exchange for new notes in the exchange offer.
The net proceeds that we received from the sale of the old notes, after
deducting fees and expenses and the initial purchaser's discount, were
approximately $45.7 million. We used the proceeds of the offering to replenish:
- approximately $39.4 million of the cash utilized in the Trion
acquisition, and
- the cash utilized to retire certain acquired company debt of
approximately $6.3 million.
CAPITALIZATION
The following table shows the cash and cash equivalents, short-term
borrowing and capitalization of Fedders as of May 31, 1999, and as adjusted on a
pro forma basis to give effect to the issuance of the old notes, the Trion
acquisition and the retirement of certain acquired company debt. You should read
this together with the consolidated financial statements and the related notes
included in this prospectus.
<TABLE>
<CAPTION>
AS OF MAY 31, 1999
------------------------
ACTUAL PRO FORMA(1)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 51,664 $ 51,786
======== ========
Revolving credit facility(2)................................ -- --
======== ========
Long-term debt (including current portion):
9 3/8% senior subordinated notes due 2007 offered hereby,
net of $2.3 million discount(3)........................ -- $ 47,652
9 3/8% senior subordinated notes due 2007, net of $0.4
million discount(3).................................... $ 99,607 99,607
1% promissory note payable to the State of Illinois(3).... 3,292 3,292
Capital lease obligations(3).............................. 2,865 2,865
5% industrial revenue bond due 2011(3)(4)................. -- 3,200
Fedders Xinle promissory notes(5)......................... 4,222 4,222
-------- --------
Total long-term debt.............................. 109,986 160,838
Stockholders' equity........................................ 106,627 106,627
-------- --------
Total capitalization.............................. $216,613 $267,465
======== ========
</TABLE>
- ------------------------------
(1) Adjusted to reflect this offering, the Trion acquisition and the retirement
of certain acquired company debt.
(2) On July 28, 1999, Fedders North America increased its maximum borrowing
availability under its revolving credit facility from $50.0 million to
$100.0 million. Actual availability under the revolving credit facility is
subject to a borrowing base calculation. Borrowings under this revolving
credit facility are used for working capital and other general corporate
purposes. See "Description of Certain Indebtedness."
(3) These items of indebtedness represent obligations of Fedders North America.
(4) This obligation will be acquired in connection with the Trion acquisition.
(5) The average annual interest rate is approximately 8%.
22
<PAGE> 26
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following table shows selected historical consolidated financial
information of Fedders which has been derived from and should be read together
with the audited (for amounts as of August 31, 1996, 1997 and 1998 and for each
of the years then ended) and unaudited (for amounts as of and for the nine
months ended May 31) consolidated financial statements and related notes thereto
appearing elsewhere in this prospectus and "Management's Discussion and Analysis
of Results of Operations and Financial Condition of Fedders Corporation."
Selected historical consolidated financial information of Fedders as of August
31, 1994 and 1995 and for each of the years then ended has been derived from
audited consolidated financial statements which do not appear in this
prospectus. Unaudited interim data reflect, in our opinion, all adjustments
consisting of normal recurring adjustments considered necessary for a fair
presentation of results for these interim periods. The unaudited interim
financial information is not necessarily indicative of the future operating
results of Fedders for any other annual or interim period.
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED AUGUST 31, ENDED MAY 31,
------------------------------ -------------------
1994 1995 1996 1997 1998 1998 1999
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net sales.............. $231,572 $316,494 $371,772 $314,100 $322,121 $231,132 $260,221
Gross profit........... 49,263 67,125 83,028 70,076 69,770 48,860 60,137
Selling, general and
administrative
expenses............ 25,358 29,472 32,040 38,347 40,210 27,909 29,272
Restructuring
expense(1).......... -- -- -- -- 16,750 16,750 --
Operating income....... 23,905 37,653 50,988 31,729 12,810 4,201 30,865
Net interest expense... 4,102 1,962 952 3,430 8,610 6,992 7,758
Income tax (benefit)... 594 6,187 19,108 10,103 1,611 (863) 7,691
Net income (loss)(2)... 20,989 29,504 31,158 18,764 2,992 (1,605) 15,950
Net income (loss)
attributable to
common
stockholders........ 20,989 29,504 31,007 16,344 2,992 (1,605) 15,950
Net income (loss) per
share............... 0.53 0.72 0.77 0.42 0.07 (0.04) 0.44
DIVIDENDS DECLARED PER
SHARE:
Preferred.............. -- -- $ 0.050 $ 0.318 -- -- --
Common................. -- $ 0.020 0.080 0.080 $ 0.085 $ 0.060 $ 0.075
Class A................ -- 0.020 0.080 0.080 0.085 0.060 0.075
Class B................ -- 0.018 0.072 0.072 0.077 0.054 0.068
OTHER DATA:
EBITDA(3).............. $ 32,252 $ 44,143 $ 57,796 $ 42,232 $ 41,757 $ 27,550 $ 38,375
Depreciation and
amortization........ 9,374 7,519 6,578 9,935 9,263 6,636 6,976
Capital
expenditures(4)..... 2,634 9,041 7,043 9,236 8,497 6,115 6,257
Ratio of earnings to
fixed charges(5).... 4.6x 11.5x 17.6x 9.4x 1.5x -- 4.0x
Gross profit margin.... 21.3% 21.2% 22.3% 22.3% 21.7% 21.1% 23.1%
</TABLE>
23
<PAGE> 27
<TABLE>
<CAPTION>
AS OF AUGUST 31, AS OF MAY 31,
------------------------------ -------------------
1994 1995 1996 1997 1998 1998 1999
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 34,869 $ 57,707 $ 90,295 $110,393 $ 90,986 $ 54,027 $ 51,664
Working capital.......... 38,373 56,123 86,817 141,736 93,636 109,188 90,423
Total assets............. 100,653 136,775 290,220 329,014 304,629 331,280 317,405
Long-term debt (including
current portion)....... 17,943 5,106 40,406 115,380 111,013 110,920 109,986
Total stockholder's
equity(6).............. 49,317 82,542 159,751 145,687 104,792 113,559 106,627
</TABLE>
- ------------------------------
(1) In January 1998, Fedders announced a plan to restructure its operations,
which resulted in Fedders recording a one-time expense totaling $16.8
million in the second fiscal quarter ended February 28, 1998. The charge
consisted of machinery and equipment write-downs ($5.6 million); an amount
for machinery and equipment and other lease terminations, primarily related
to outsourcing ($4.9 million); personnel-related costs, primarily related to
outsourcing ($3.8 million); and administrative facility closing costs ($2.5
million). See note 2 to the Fedders audited consolidated financial
statements appearing elsewhere in this prospectus.
(2) During the first quarter of fiscal 1994, Fedders adopted Statement of
Financial Accounting Standard No. 109 "Accounting for Income Taxes" which
resulted in a tax benefit of $1.8 million from the cumulative effect of an
accounting change.
(3) EBITDA represents income before income taxes plus net interest expense,
depreciation and amortization (excluding amortization of debt discounts and
deferred financing costs) and certain one-time charges. We have presented
EBITDA to provide additional information with respect to the ability of
Fedders to meet future debt service, capital expenditures and working
capital requirements. However, EBITDA should not be considered as a
substitute for operating income or as a better indicator of liquidity than
cash flow from operating activities, both of which are determined in
accordance with generally accepted accounting principles. EBITDA is not
necessarily a measure of Fedders' ability to fund cash needs. EBITDA may not
be comparable to similarly titled measures reported by other companies. The
amounts shown for EBITDA exclude one-time charges for restructuring and
early retirement as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED NINE MONTHS
AUGUST 31, ENDED MAY 31,
------------ -----------------------
1998 1998 1999
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Restructuring...................................... $16,750 $16,750 --
Early retirement................................... 2,891 -- --
------- ------- --------
$19,641 $16,750 --
======= ======= ========
</TABLE>
- ------------------------------
(4) Fiscal 1995 amount includes the buyout of $1.8 million of equipment under
lease.
(5) The ratio of earnings to fixed charges is determined by dividing the sum of
net income, income taxes and fixed charges (consisting of interest expense,
the estimated interest component of rent expense and amortization of fees
related to debt financing) by fixed charges. For the nine months ended May
31, 1998, earnings were insufficient to cover fixed charges by approximately
$1.5 million.
(6) Three stock repurchase plans have been announced totaling $105.0 million
($25.0 million in September 1996, $50.0 million in July 1997 and $30.0
million in August 1998). Under these plans, approximately $87.0 million of
capital stock has been repurchased to date, totaling 15.2 million shares at
an average price of $5.72 per share.
24
<PAGE> 28
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Subject to the terms and conditions set forth in this prospectus and the
letter of transmittal, we will accept for exchange old notes which are properly
tendered on or prior to the expiration date and not withdrawn as permitted
below. As used in this prospectus, the term "expiration date" means 5:00 p.m.,
New York City time, on , 1999; provided, however, that if we, in our
sole discretion, have extended the period of time during which the exchange
offer is open, "expiration date" means the latest time and date to which we
extend the exchange offer.
As of the date of this prospectus, $50,000,000 aggregate principal amount
of the old notes are outstanding. This prospectus and the letter of transmittal
are first being sent on or about , 1999, to all holders of old notes
known to us. Our obligation to accept old notes for exchange pursuant to the
exchange offer is subject to certain conditions as set forth below under
"--Conditions to the Exchange Offer."
We expressly reserve the right, at any time or from time to time, to extend
the period of time during which the exchange offer is open, and thereby delay
acceptance for exchange of any old notes, by giving oral or written notice of
such extension to the old note holders as described below. During any extension,
all old notes previously tendered will remain subject to the exchange offer and
may be accepted for exchange by us. We will return at no expense to the holder
any old notes not accepted for exchange as promptly as practicable after the
expiration or termination of the exchange offer.
Old notes tendered in the exchange offer must be in denominations of $1,000
and any integral multiples of $1,000.
If any of the events specified in "--Conditions to the Exchange Offer"
should occur, we expressly reserve the right to amend or terminate the exchange
offer, and not to accept for exchange any old notes not already accepted for
exchange. We will give oral or written notice of any extension, amendment, non-
acceptance or termination to old note holders as promptly as practicable. In the
case of an extension we will issue a press release or other public announcement
no later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration date.
Following consummation of the exchange offer, we may, in our sole
discretion, commence one or more additional exchange offers to those old note
holders who did not exchange their old notes for new notes in the exchange offer
on terms which may differ from those contained in the registration agreement. We
may use this prospectus, as it may be amended or supplemented from time to time,
in connection with additional exchange offers. These additional exchange offers
will take place from time to time until all outstanding old notes have been
exchanged for new notes pursuant to the terms and conditions contained in this
prospectus.
PROCEDURES FOR TENDERING OLD NOTES
When an old note holder tenders, and we accept, the old notes, this will
constitute a binding agreement between us and that holder subject to the terms
and conditions set forth in this prospectus and the letter of transmittal.
Except as set forth below, to tender in the exchange offer, a holder must
transmit either:
- a properly completed and duly executed letter of transmittal, and all
other documents required by the letter of transmittal, to State Street
Bank and Trust Company, the exchange agent, at the address set forth
under "--Exchange Agent" on or prior to the expiration date; or
- if the old notes are tendered pursuant to the book-entry procedures set
forth below, the tendering old note holder may transmit an agent's
message to the exchange agent instead of the letter of transmittal on or
prior to the expiration date.
25
<PAGE> 29
In addition, either:
- the exchange agent must receive the certificates for the old notes and
the letter of transmittal; or
- the exchange agent must receive, prior to , 1999, a timely
confirmation of a book-entry transfer of the old notes into the exchange
agent's account at The Depository Trust Company according to the
procedure for book-entry transfer described below, along with the letter
of transmittal and agent's message; or
- the holder must comply with the guaranteed delivery procedures described
below.
The term "agent's message" means a message, transmitted to The Depository Trust
Company and received by the exchange agent and forming a part of the book-entry
confirmation, which states that The Depository Trust Company has received an
express acknowledgment from the tendering participant (as defined here) that the
participant has received and agrees to be bound by the letter of transmittal and
we may enforce the letter of transmittal against that participant. The method of
delivery of old notes, letters of transmittal or agent's messages and all other
required documents is at the election and risk of the holders. If delivery is by
mail, we recommend registered mail, properly insured, with return receipt
requested. In all cases, you should allow sufficient time to assure timely
delivery. Do not send letters of transmittal or old notes to us.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the old notes surrendered for exchange
are tendered either by a registered holder of the old notes who has not
completed the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal or for the account of an eligible
institution. An eligible institution is a firm which is a member of a registered
national securities exchange or a member of the National Association of
Securities Dealers, Inc. or a commercial bank or trust company having an office
or correspondent in the United States. If signatures on a letter of transmittal
or a notice of withdrawal are required to be guaranteed, the guarantor must be
an eligible institution. If old notes are registered in the name of a person
other than a signer of the letter of transmittal, the old notes surrendered for
exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as we may determine in
our sole discretion, duly executed by the registered holder with the signature
guaranteed by an eligible institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of old notes tendered for exchange will be determined by
us in our sole discretion. Our determination will be final and binding. We
reserve the absolute right to reject any and all tenders of any particular old
notes not properly tendered or to not accept any particular old notes which
acceptance might, in our judgment or that of our counsel, be unlawful. We also
reserve the absolute right to waive any defects or irregularities or conditions
of the exchange offer as to any particular old notes either before or after the
expiration date (including the right to waive the ineligibility of any holder
who seeks to tender old notes in the exchange offer). Our interpretation of the
terms and conditions of the exchange offer as to any particular old notes either
before or after the expiration date (including the letter of transmittal and the
instructions thereto) will be final and binding on all parties. Unless waived,
any defects or irregularities in connection with tenders of old notes for
exchange must be cured within such reasonable period of time as we will
determine. Neither we, the exchange agent nor any other person shall be under
any duty to give notification of any defect or irregularity with respect to any
tender of old notes for exchange, nor shall any of us incur any liability for
failure to give such notification.
If a person or persons other than the registered holder or holders of old
notes signs the letter of transmittal, those old notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name or names of the registered holder or holders that appear on the old
notes.
If trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity sign the letter of transmittal or any old notes, those persons should
so indicate when signing, and must submit proper evidence satisfactory to us of
such persons' authority to so act unless we waive this requirement.
26
<PAGE> 30
By tendering, each holder represents to us that, among other things, the
new notes acquired in the exchange offer are being obtained in the ordinary
course of business of the person receiving the new notes, whether or not that
person is the holder, and that neither the holder nor the other person has any
arrangement or understanding with any person to participate in the distribution
of the new notes. In the case of a holder that is not a broker-dealer, each such
holder, by tendering, will also represent to us that he is not engaged in, and
does not intend to engage in, a distribution of the new notes. If any holder or
any other person is an "affiliate" of ours, as that term is defined under Rule
405 under the Securities Act, or is engaged in or intends to engage in or has an
arrangement or understanding with any person to participate in a distribution of
the new notes to be acquired in the exchange offer, that holder or any other
person cannot rely on the applicable interpretations of the staff of the
Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives new notes for its own account in exchange for
old notes, where those old notes were acquired by the broker-dealer as a result
of market-making activities or other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of those new notes.
See "Plan of Distribution." The letter of transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, promptly after the expiration date, all old notes properly
tendered and will issue the new notes promptly after acceptance of the old
notes. See "--Conditions to the Exchange Offer." For purposes of the exchange
offer, we shall be deemed to have accepted properly tendered old notes for
exchange when, as and if we have given oral or written notice of the acceptance
to the exchange agent, with written confirmation of any oral notice to be given
promptly thereafter.
For each old note accepted for exchange, the old note holder will receive a
new note having a principal amount at maturity equal to that of the surrendered
old note. Interest on the new notes will accrue from (A) the later of (i) the
last interest payment date on which interest was paid on the old notes
surrendered therefor, or (ii) if the old notes are surrendered for exchange on a
date in a period which includes the record date for an interest payment date to
occur on or after the date of such exchange and as to which interest will be
paid, the date of such interest payment date or (B) if no interest has been paid
on the old notes, from February 15, 2000. In addition, old note holders will be
entitled to receive liquidated damages with respect to the first 90-day period
immediately following the occurrence of a Registration Default (as defined
below) in an amount equal to $.05 per week per $1,000 principal amount of old
notes held by such holders. The amount of the liquidated damages will increase
by an additional $.05 per week per $1,000 principal amount of old notes with
respect to each subsequent 90-day period until all Registration Defaults have
been cured, up to a maximum amount of liquidated damages of $.40 per week per
$1,000 principal amount of old notes. Holders of notes will be required to make
certain representations to Fedders North America (as described in the
registration rights agreement) in order to participate in the exchange offer and
will be required to deliver information to be used in connection with the shelf
registration statement and to provide comments on the shelf registration
statement within the time periods set forth in the registration rights agreement
in order to have their notes included in the shelf registration statement and
benefit from the provisions regarding liquidated damages, if any, set forth
above.
Payment of liquidated damages and specific performance are the sole
remedies available to the holders of notes in the event that Fedders North
America does not comply with the deadlines set forth in the registration rights
agreement with respect to the conduct of the exchange offer or the registration
of the notes for resale under a shelf registration statement. Payments of
interest, if any, on old notes in exchange for which new notes were issued will
be made to the persons who, at the close of business on February 15 or August 15
next preceding the interest payment date, are registered holders of the old
notes if the record date occurs prior to the exchange, or are registered holders
of the new notes if the record
27
<PAGE> 31
date occurs on or after the date of the exchange, even if notes are cancelled
after the record date and on or before the interest payment date.
In all cases, issuance of new notes for old notes that are accepted for
exchange pursuant to the exchange offer will be made only after the exchange
agent timely receives either certificates for such old notes or book-entry
confirmation of those old notes into the exchange agent's account at The
Depository Trust Company, a properly completed and duly executed letter of
transmittal and all other required documents or, in the case of a book-entry
confirmation, an agent's message. If for any reason set forth in the terms and
conditions of the exchange offer we do not accept any tendered old notes or if
old notes are submitted for a greater principal amount than the holder desired
to exchange, we will return those unaccepted or non-exchanged old notes without
expense to the tendering holder (or, in the case of old notes tendered by
book-entry transfer into the exchange agent's account at The Depository Trust
Company pursuant to the book-entry procedures described below, non-exchanged old
notes will be credited to an account maintained with The Depository Trust
Company) as promptly as practicable after the expiration or termination of the
exchange offer.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account for the old
notes at The Depository Trust Company for purposes of the exchange offer within
two business days after the date of this prospectus, and any financial
institution that is a participant in The Depository Trust Company's systems may
make book-entry delivery of old notes by causing The Depository Trust Company to
transfer old notes into the exchange agent's account at The Depository Trust
Company in accordance with The Depository Trust Company's procedures for
transfer. However, although delivery of old notes may be effected through
book-entry transfer at The Depository Trust Company, the letter of transmittal
or facsimile thereof, with any required signature guarantees, or an agent's
message in lieu of a letter of transmittal and any other required documents
must, in any case, be transmitted to and received by the exchange agent at one
of the addresses set forth below under "--Exchange Agent" on or prior to the
expiration date or the guaranteed delivery procedures described below must be
complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the old notes desires to tender his old notes and
the old notes are not immediately available, or time will not permit that
holder's old notes or other required documents to reach the exchange agent
before the expiration date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if:
- the tender is made through an eligible institution;
- prior to the expiration date, the exchange agent receives from the
eligible institution a properly completed and duly executed letter of
transmittal (or a facsimile thereof) and notice of guaranteed delivery,
substantially in the form provided by us (by telegram, telex, facsimile
transmission, mail or hand delivery), setting forth the name and address
of the holder of old notes and the amount of old notes tendered, stating
that the tender is being made and guaranteeing that within three New York
Stock Exchange (NYSE) trading days after the date of execution of the
notice of guaranteed delivery, the certificates for all physically
tendered old notes, in proper form for transfer, or a book-entry
confirmation, as the case may be, and any other documents required by the
letter of transmittal will be deposited by the eligible institution with
the exchange agent; and
- the certificates for all physically tendered old notes, in proper form
for transfer, or a book-entry confirmation, as the case may be, and all
other documents required by the letter of transmittal, are received by
the exchange agent within three NYSE trading days after the date of
execution of the notice of guaranteed delivery.
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WITHDRAWAL RIGHTS
Tenders of old notes may be withdrawn at any time prior to the expiration
date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the exchange agent at one of the addresses set forth below under
"--Exchange Agent." Any notice of withdrawal must specify the name of the person
having tendered the old notes to be withdrawn, identify the old notes to be
withdrawn (including the principal amount of the old notes), and (where
certificates for old notes have been transmitted) specify the name in which the
old notes are registered, if different from that of the withdrawing holder. If
certificates for old notes have been delivered or otherwise identified to the
exchange agent, then, prior to the release of the certificates the withdrawing
holder must also submit the serial numbers of the particular certificates to be
withdrawn and signed notice of withdrawal with signatures guaranteed by an
eligible institution unless the holder is an eligible institution. If old notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at The Depository Trust Company to be credited with the withdrawn old notes and
otherwise comply with The Depository Trust Company's procedures. We will
determine all questions as to the validity, form and eligibility (including time
of receipt) of the notices, and our determination shall be final and binding on
all parties. Any old notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the exchange offer. Any old notes which
have been tendered for exchange but which are not exchanged for any reason will
be returned to their holder without cost to the holder (or, in the case of old
notes tendered by book-entry transfer into the exchange agent's account at The
Depository Trust Company pursuant to the book-entry transfer procedures
described above, those old notes will be credited to an account maintained with
The Depository Trust Company for the old notes) as soon as practicable after
withdrawal, rejection of tender or termination of the exchange offer. Properly
withdrawn old notes may be retendered by following one of the procedures
described under "--Procedures for Tendering Old Notes" above at any time on or
prior to the expiration date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the exchange offer, we shall not be
required to accept for exchange, or to issue new notes in exchange for, any old
notes. We may terminate or amend the exchange offer, if at any time before the
acceptance of such old notes for exchange or the exchange of the new notes for
old notes, any of the following events shall occur, which in our reasonable
judgment in any case, and regardless of the circumstances (including any action
by us) giving rise to any event described below, makes it inadvisable to proceed
with the exchange offer and/or with any acceptance for exchange or with any
exchange:
- if any court, governmental agency or other governmental regulatory or
administrative agency or commission, threatens, institutes or issues any
action, injunction, or order of decree seeking to restrain or prohibit
the making or consummation of the exchange offer or any other transaction
contemplated by the exchange offer, or assessing or seeking any damages
as a result of the exchange offer, which results in a material delay in
our ability to accept or exchange some or all of the old notes pursuant
to the exchange offer;
- if any government or governmental authority, agency or court, domestic or
foreign, takes, proposes to take or threatens to take any action, or
seeks, proposes, introduces, enacts, promulgates or deems applicable to
the exchange offer or any of the transactions contemplated by the
exchange offer any statute, rule, regulation, order or injunction that in
our reasonable judgment might directly or indirectly result in any of the
consequences referred to above, or which in our reasonable judgment might
result in new note holders having obligations with respect to resales and
transfers of new notes greater than those described in the Commission's
interpretation referred to on the cover page of this prospectus, or would
otherwise make it inadvisable to proceed with the exchange offer;
- if any general suspension of or general limitation on prices for, or
trading in, securities on any national securities exchange or in the
over-the-counter market occurs;
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<PAGE> 33
- if any limitation by any governmental agency or authority which may
adversely affect our ability to complete the transactions contemplated by
the exchange offer occurs;
- if a declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States or any limitation by any
governmental agency or authority which adversely affects the extension of
credit occurs;
- if a commencement of war, armed hostilities or other similar
international calamity directly or indirectly involving the United
States, or, in the case of any of the foregoing existing at the time of
the commencement of the exchange offer, a material acceleration or
worsening thereof occurs; or
- if any change (or any development involving a prospective change) occurs
or is threatened in our and our subsidiaries' businesses, properties,
assets, liabilities, financial condition, operations, results of
operations or prospects taken as a whole that, in our reasonable
judgment, is or may be adverse to us, or we become aware of facts that,
in our reasonable judgment, have or may have adverse significance with
respect to the value of the old notes or the new notes.
The above conditions are for our sole benefit and we may assert them
regardless of the circumstances giving rise to any of these conditions or we may
waive them in whole or in part at any time and from time to time in our sole
discretion. Our failure at any time to exercise any of the above rights shall
not be deemed a waiver of any of these rights and each of these rights shall be
deemed an ongoing right which may be asserted at any time and from time to time.
In addition, we will not accept for exchange any old notes tendered, and no
new notes will be issued in exchange for any old notes, if any stop order shall
be threatened or in effect with respect to the registration statement of which
this prospectus constitutes a part or the qualification of the Indenture under
the Trust Indenture Act of 1939 (the "TIA").
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as the exchange
agent for the exchange offer. All executed letters of transmittal and agent's
messages should be directed to the exchange agent at one of the addresses set
forth below. Questions and requests for assistance, requests for additional
copies of this prospectus or of the letter of transmittal or agent's message and
requests for notices of guaranteed delivery should be directed to the exchange
agent addressed as follows:
DELIVERY TO: STATE STREET BANK AND TRUST COMPANY, EXCHANGE AGENT
<TABLE>
<S> <C>
BY MAIL: BY OVERNIGHT COURIER OR HAND:
State Street Bank and Trust Company State Street Bank and Trust Company
2 Avenue de Lafayette 2 Avenue de Lafayette
Corporate Trust Department, 5th Floor Corporate Trust Department, 5th Floor
Boston, MA 02111 Boston, MA 02111
Attn: Elijah MacKenzie Attn: Elijah MacKenzie
BY FACSIMILE (FOR ELIGIBLE INSTITUTIONS ONLY):
(617)-662-1452
CONFIRM BY TELEPHONE:
(617)-662-1525
</TABLE>
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF THE LETTER OF TRANSMITTAL.
FEES AND EXPENSES
We will not make any payment to brokers, dealers, or others soliciting
acceptances of the exchange offer.
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<PAGE> 34
We will pay the estimated cash expenses to be incurred in connection with
the exchange offer, which are estimated in the aggregate to be $0.5 million.
TRANSFER TAXES
Holders who tender their old notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
us to register new notes in the name of, or request that old notes not tendered
or not accepted in the exchange offer be returned to, a person other than the
registered tendering holder, will be responsible for the payment of any
applicable transfer tax thereon.
CONSEQUENCES OF EXCHANGING OR FAILING TO EXCHANGE OLD NOTES
Holders of old notes who do not exchange their old notes for new notes in
the exchange offer will continue to be subject to the provisions in the
Indenture regarding transfer and exchange of the old notes and the restrictions
on transfer of old notes as set forth in the legend on the old notes because the
old notes were issued under exemptions from, or in transactions not subject to,
the registration requirements of the Securities Act and applicable state
securities laws. In general, the old notes may not be offered or sold, unless
registered under the Securities Act, except under an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. We do not currently anticipate that we will register the old notes under
the Securities Act. See "Description of the Notes--Registration Rights;
Liquidated Damages." Based on interpretations by the staff of the Commission, as
set forth in no-action letters issued to third parties, we believe that new
notes issued in the exchange offer in exchange for old notes may be offered for
resale, resold or otherwise transferred by holders thereof (other than any
holder which is an "affiliate" of ours within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that the new notes are acquired in
the ordinary course of the holders' business and the holders have no arrangement
or understanding with any person to participate in the distribution of new
notes. However, we do not intend to request the Commission to consider, and the
Commission has not considered, the exchange offer in the context of a no-action
letter and there can be no assurance that the staff of the Commission would make
a similar determination with respect to the exchange offer as in such other
circumstances. Each holder, other than a broker-dealer, must acknowledge that it
is not engaged in, and does not intend to engage in, a distribution of new notes
and has no arrangement or understanding to participate in a distribution of new
notes. If any holder is an affiliate of ours, is engaged in or intends to engage
in or has any arrangement or understanding with respect to the distribution of
the new notes to be acquired pursuant to the exchange offer, that holder could
not rely on the applicable interpretations of the staff of the Commission and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. Each broker-dealer
that receives new notes for its own account in exchange for old notes, where the
old notes were acquired by the broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of new notes. See "Plan of
Distribution." In addition, to comply with state securities laws, the new notes
may not be offered or sold in any state unless they have been registered or
qualified for sale in that state or an exemption from registration or
qualification is available and is complied with. The offer and sale of the new
notes to "qualified institutional buyers" (as such term is defined under Rule
144A of the Securities Act) is generally exempt from registration or
qualification under the state securities laws. We currently do not intend to
register or qualify the sale of the new notes in any state where an exemption
from registration or qualification is required and not available.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION OF FEDDERS CORPORATION
We believe that we are the largest manufacturer of room air conditioners in
North America based on unit sales. We have strong relationships with retailers,
which we have formed by establishing flexible, accurate-response manufacturing
to accommodate our customers' increasingly seasonal delivery requirements.
Our business is currently largely domestic and is affected by summer
weather in major domestic markets. We have more shipments in the second half of
the fiscal year which includes the summer season and fewer in the off-season
first half since leading retailers require just-in-time delivery. Favorable
summer weather in southern domestic markets in fiscal 1998 increased in-season
sales and depleted industry inventories in those markets at fiscal year-end
(August 31). These favorable developments followed a period affected by cool
summer weather in key U.S. markets in fiscal 1996 that increased industry
inventories at some of our competitors (excluding Fedders) and at retailers at
the beginning of fiscal 1997, causing weakened results throughout fiscal 1997.
Retail inventories declined to more customary levels by the end of the fiscal
1997 selling season, benefitting U.S. manufacturers in fiscal 1998. Favorable
summer weather in southern domestic markets in fiscal 1998 increased in-season
sales and depleted industry inventories in those markets at year end, which
contributed to increased sales and earnings in the nine months ended May 31,
1999, as compared to the same period in the prior year.
Fedders implemented a restructuring plan during fiscal 1998 to enhance its
competitiveness. The restructuring, which did not result in any factory
closings, involved shifting additional production from North America to China
and increasing component outsourcing. As part of the restructuring, we relocated
to Singapore all Fedders International activities, including executive
management previously located at our headquarters in New Jersey. The sales,
marketing, service, research and design and administrative support functions of
Fedders North America were relocated to our factory in Illinois.
During fiscal 1998, the international financial crisis unfavorably affected
international sales, which declined 15.4%. In fiscal 1997, our international
sales increased by 84.0% and in fiscal 1996, by 89.7%. International sales
increased by 9.4% during the nine months ended May 31, 1999 as compared to the
prior year period.
In June 1998, Fedders entered into a joint venture with Bosch-Siemens
Hausgerate GmbH in Estella, Spain to manufacture room air conditioners in Spain
for the European market and for export around the world. This joint venture adds
to Fedders' international manufacturing presence, which began with our 1995
joint venture in Ningbo, China to manufacture air conditioners for export and
for the Chinese market. We believe that international air conditioner sales
afford greater growth potential than the domestic room air conditioner market
and will reduce our dependence on summer weather conditions in North America.
In August 1996, we acquired NYCOR, Inc. NYCOR, through its subsidiary
Rotorex Company, Inc., manufactured rotary compressors principally for use in
room air conditioners, and, through Melcor Corporation, manufactured
thermoelectric modules. Rotorex had been our primary supplier of compressors for
25 years. We believe that a captive supply of compressors improves our
flexibility to accurately respond to the just-in-time requirements of our
customers. The supply of compressors from Rotorex and from its Asian compressor
licensees is also strategically important for our international growth.
RECENT DEVELOPMENT
On July 12, 1999, Fedders entered into an agreement to acquire Trion, Inc.,
a North Carolina-based designer, manufacturer and distributor of equipment to
improve indoor air quality in cleanroom, residential, commercial and industrial
environments, for aggregate consideration of $48.9 million, including acquired
indebtedness. On August 11, 1999, we successfully completed a cash tender offer
to purchase the outstanding shares of common stock of Trion at a price of $5.50
per share. Approximately 89% of the issued and outstanding common stock was
tendered. Following the completion of this acquisition through a
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merger of Trion into a wholly owned subsidiary of Fedders Corporation (which is
expected prior to December 31, 1999), the non-European business of Trion will be
owned and operated by a wholly owned subsidiary of Fedders North America and the
European business of Trion will be owned and operated by a wholly owned
subsidiary of Fedders.
RESULTS OF OPERATIONS
The following table sets forth certain financial results of Fedders
Corporation, expressed as a percentage of net sales, for the indicated fiscal
periods. International sales comprised 11.8% of net sales in fiscal 1998, 14.3%
of net sales in fiscal 1997 and 6.6% of net sales in fiscal 1996. See note 13 to
the consolidated financial statements of Fedders included elsewhere in this
prospectus for financial information pertaining to Fedders North America.
OPERATING RESULTS OF FEDDERS CORPORATION AS A PERCENTAGE OF NET SALES
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED ENDED
AUGUST 31, MAY 31,
-------------------- ------------
1996 1997 1998 1998 1999
<S> <C> <C> <C> <C> <C>
Gross profit............................................ 22.3% 22.3% 21.7% 21.1% 23.1%
Selling, general and administrative expenses............ 8.6 12.2 12.5 12.1 11.2
Operating income before restructuring charge............ 13.7 10.1 9.2 9.1 11.9
Restructuring expense................................... -- -- 5.2 7.2 --
Operating income........................................ 13.7 10.1 4.0 1.8 11.9
Net interest expense.................................... 0.3 1.1 2.7 3.0 3.0
Pre-tax income (loss)................................... 13.5 9.2 1.4 (1.1) 9.1
</TABLE>
FIRST NINE MONTHS FISCAL 1999 VERSUS FIRST NINE MONTHS FISCAL 1998
For the first nine months of fiscal 1999, net sales were $260.2 million, an
increase of 12.6% from $231.1 million in the comparable fiscal 1998 period. The
sales increase during the period reflects domestic retailers replenishing lower
end-of-season inventories that were caused by extended warm weather in some
domestic markets in fiscal 1998, increased shipments to retailers anticipating
another warm summer and increased international shipments.
Gross profit margin percentage increased during the first nine months of
fiscal 1999, compared to the same period of fiscal 1998, primarily due to
favorable customer mix and to reduced costs resulting from the 1998
restructuring.
Selling, general and administrative expenses decreased as a percentage of
net sales from the prior year as a result of the net sales increase. For the
first nine months of fiscal 1999, these expenses amounted to a net increase of
$1.4 million, primarily in research and development and administration expenses,
as compared to the same period in fiscal 1998.
Operating income before restructuring expense was $30.9 million, or 11.9%
of net sales, for the first nine months of 1999 compared to $21.0 million, or
9.1% of net sales, in the prior year period.
Net interest expense for the first nine months of fiscal 1999 was $7.8
million compared to $7.0 million in the prior year period. The net increase of
$0.8 million was due primarily to increased short-term borrowings. However, net
interest expense remained at 3.0% of net sales during the first nine months of
fiscal 1999 and fiscal 1998 as a result of an increase in net sales in fiscal
1999.
Net income for the first nine months of fiscal 1999 increased $17.6 million
from a net loss of $1.6 million in the comparable period of fiscal 1998. Net
income of $16.0 million, or $0.44 per share, in the fiscal 1999 period compared
to net income before restructuring expense, net of tax effect, of $9.3 million,
or $0.22 per share, in the prior year period. Net income in the first nine
months of fiscal 1999 reflects an
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effective tax rate of 32.5% versus a 35.0% effective tax rate in the first nine
months of fiscal 1998, resulting from the utilization of net operating loss
carry-forwards which caused a reduction of the valuation reserve in fiscal 1999.
FISCAL YEAR ENDED AUGUST 31, 1998 VERSUS FISCAL YEAR ENDED AUGUST 31, 1997
Net sales in fiscal 1998 totaled $322.1 million, an increase of 2.6% from
net sales of $314.1 million in fiscal 1997. The sales increase in fiscal 1998
reflects lower industry inventory levels entering fiscal 1998 compared to fiscal
1997 and favorable summer weather in the domestic southern market, offset in
part by a decrease in international sales as a result of the international
financial crisis.
Gross profit in fiscal 1998 changed little from fiscal 1997. Gross profit
as a percentage of net sales declined in fiscal 1998 due primarily to a change
in the customer and product mix from fiscal 1997.
Selling, general and administrative expenses increased as a percentage of
net sales in fiscal 1998 as a result of a $2.9 million (0.9% of net sales)
provision for the implementation of an early retirement program. This provision
more than offset reductions in expenses that resulted from our restructuring.
The restructuring charge in fiscal 1998 of $16.8 million consists of the
write-down of fixed assets ($5.6 million), an amount for lease terminations
($4.9 million), personnel-related costs ($3.8 million) and administrative
facility closing costs ($2.5 million).
Net interest expense increased in fiscal 1998 by $5.2 million and as a
percentage of net sales from fiscal 1997. The increase resulted from interest on
Fedders North America's existing senior subordinated notes issued late in fiscal
1997. The increase was offset, in part, by a redemption of our convertible
subordinated debentures that were assumed in our acquisition of NYCOR, and lower
interest on very limited short-term borrowing in fiscal 1998, compared to fiscal
1997. Higher interest expense was also partially offset by the absence of
preferred stock dividends after the redemption of our convertible preferred
stock, that was issued in connection with the acquisition of NYCOR, in September
1997.
Including the charges for the restructuring and early retirement program,
net income decreased to $3.0 million in fiscal 1998 from $18.8 million in fiscal
1997. Net income attributable to common stockholders, excluding the after-tax
effect of charges for the restructuring and early retirement program, would have
been approximately $15.8 million in fiscal 1998 compared to $16.3 million in
fiscal 1997. Net income attributable to common stockholders in fiscal 1997
reflects the dividend requirement of $2.4 million paid on our previously
outstanding convertible preferred stock. Net income in fiscal 1998 and 1997
reflected an effective tax rate of 35.0%.
FISCAL YEAR ENDED AUGUST 31, 1997 VERSUS FISCAL YEAR ENDED AUGUST 31, 1996
Net sales in fiscal 1997 totaled $314.1 million, a decline of 15.5% from
sales of $371.8 million in fiscal 1996. The sales decrease during fiscal 1997
reflects the large end-of-season industry inventories of room air conditioners
due to the cool summer weather in fiscal 1996. This excess inventory condition
contrasted with the beginning of the three previous fiscal years when U.S.
industry inventories were virtually depleted as a result of three consecutive
hot summers. Fiscal 1997 international sales of $45.0 million increased 84.0%
from fiscal 1996.
Gross profit declined in fiscal 1997 by 15.6% due to the sales decline.
Gross profit margin remained at 22.3% in fiscal 1997 due primarily to changes in
customer and product mix, offset in part by lower absorption of factory overhead
expense due to lower production levels.
Selling, general and administrative expenses increased to 12.2% of net
sales in fiscal 1997 from 8.6% in fiscal 1996 due in part to lower sales.
Selling, general and administrative expenses increased by $6.3 million from
fiscal 1996 primarily as a result of expenses related to operations acquired in
the NYCOR acquisition, including $1.8 million of amortization of goodwill and
$1.9 million of compressor research and development expense. Selling, general
and administrative expenses also increased in fiscal 1997 due to infrastructure
expansion to support the future growth of international business.
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Net interest expense increased in fiscal 1997 by $2.5 million and as a
percentage of sales to 1.1% from 0.3% in fiscal 1996 due to interest paid on the
convertible subordinated debentures that were assumed in the NYCOR acquisition
and were redeemed at the end of fiscal 1997.
Net income decreased to $18.8 million in fiscal 1997 from $31.2 million in
fiscal 1996 and reflected an effective tax rate of 35.0% versus 38.0% in fiscal
1996, principally due to a lower effective state tax rate and the release of
prior-year tax provisions no longer required in fiscal 1997. Net income
attributable to common stockholders in fiscal 1997 reflected the dividend
requirements of $2.4 million paid on the convertible preferred stock that was
issued in connection with the NYCOR acquisition and subsequently redeemed.
LIQUIDITY AND CAPITAL RESOURCES
Our working capital requirements are seasonal, with cash balances peaking
in the fourth fiscal quarter and the greatest utilization of our lines of credit
occurring early in the calendar year. Cash-on-hand at May 31, 1999 amounted to
$51.7 million, compared to cash-on-hand at May 31, 1998 of $54.0 million. There
was cash-on-hand of $91.0 million at August 31, 1998. There were no short-term
borrowings at the end of any of these periods. The decrease in cash from August
31, 1998 was due to increased working capital needs ($36.1 million), repurchase
of capital stock ($11.8 million) under our $30.0 million stock repurchase plan,
capital expenditures ($6.3 million) and cash dividends ($2.8 million). Cash
included $2.9 million and $3.4 million at Fedders Xinle, our Chinese joint
venture, at May 31, 1998 and 1999, respectively, compared to $2.9 million at
August 31, 1998.
Net cash used in operations for the nine months ended May 31, 1999 amounted
to $18.2 million, compared to $19.1 million in the prior year period. Our
operations required less cash in the fiscal 1999 period due to increased cash
flow as a result of the increased sales volume. The principal use of cash in
each period was to produce finished goods for the seasonal requirements, which
are heaviest in the third fiscal quarter. Accounts receivable were $69.2 million
at May 31, 1999 versus $74.4 million a year earlier. Inventories were $52.2
million at May 31, 1999 versus $66.9 million a year earlier.
Net cash provided by operations in fiscal 1998 amounted to $38.8 million.
Accounts receivable increased by $5.5 million, reflecting higher volume in
fourth quarter sales in fiscal 1998 resulting from the favorable weather
conditions compared to fiscal 1997. Inventories at August 31, 1998 decreased by
$10.6 million compared to August 31, 1997, reflecting greater in-season sales.
During the same period, accounts payable increased by $15.2 million, primarily
reflecting the receipt of more raw materials during August 1998 compared to
August 1997 due to greater production requirements. Accrued expenses increased
by $1.3 million and reflect an accrual for an early retirement program, offset
in part by lower marketing-related accruals due to a changing customer mix.
Accrued income taxes increased $4.4 million in fiscal 1998 compared to fiscal
1997.
Net cash used in investing activities consisted of capital expenditures of
$6.3 million in the first nine months of fiscal 1999. Net cash used in investing
activities in fiscal 1998 consisted primarily of capital expenditures of $8.5
million and an investment of $3.3 million in our Spanish joint venture, offset
in part by the disposal of $1.8 million of fixed assets, primarily unutilized
real estate.
Net cash used in financing activities during the first nine months of
fiscal 1999 amounted to $14.9 million, primarily due to stock repurchases ($11.8
million) under our $30.0 million stock repurchase plan and dividend payments
($2.8 million). At May 31, 1999 and 1998, we had no short-term borrowings. Net
cash used in financing activities in fiscal 1998 amounted to $48.2 million. We
purchased $45.8 million or 7.7 million shares of our preferred, common and class
A stock under a repurchase program funded in fiscal 1997 through the offering of
Fedders North America's existing senior subordinated notes. In August 1998, we
authorized the repurchase of up to an additional $30.0 million of our
outstanding stock. Dividend payments amounted to $3.5 million in fiscal 1998.
We believe our cash, earnings and borrowing capacity are adequate to meet
the demands of our operations and our long-term credit requirements, including
capital expenditures and debt maturities.
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In August 1997, Fedders North America issued $100.0 million principal
amount of senior subordinated notes. A portion of the proceeds of these notes
($72.3 million) was received by Fedders as a dividend from Fedders North America
and used to satisfy Fedders' obligations on its convertible subordinated
debentures, for repurchases of its capital stock and for general operating
purposes.
Since September 1996, we have announced three stock repurchase plans
totaling $105.0 million ($25.0 million in September 1996, $50.0 million in July
1997 and $30.0 million in August 1998). To date under these plans, we have
repurchased approximately $87.0 million of capital stock, totaling 15.2 million
shares, at an average price of $5.72 per share.
In January 1998, we announced a plan to restructure our operations which
resulted in the recording of a one-time expense totaling $16.8 million. The
restructuring plan and its timing were designed to proactively enhance our
competitiveness in global markets and further position us to take full advantage
of opportunities in the global room air conditioner market. The restructuring
did not result in factory closings. However, the restructuring included the
shifting of some additional production from North America to China and
increasing component outsourcing.
On July 28, 1999, we increased our revolving credit facility up to a
maximum of $100.0 million from $50.0 million of available borrowings. Borrowing
limits are determined by customary percentages of accounts receivable and
inventory. In addition, Fedders has a choice of rate of interest on the facility
at either the prime rate or the London inter-bank borrowing rate plus 2.25%. The
maturity was extended to 2003.
YEAR 2000
The inventory and assessment phases of our Year 2000 plan are materially
complete with respect to internal information technology ("IT") and non-IT
systems, such as embedded technology and micro controllers. The testing and
resolution phases of the plan, except with respect to our business partners,
were also substantially complete by June 30, 1999, with the exception of one
system within our IT systems. The testing and resolution of this remaining IT
system was completed on August 13, 1999. The National Retail Federation has
listed us as being a compliant Year 2000 EDI vendor.
Our principal Year 2000 uncertainty relates to material third-party
relationships with customers and suppliers. Assessment of these relationships,
in part through on-site audits, is ongoing and contingency plans are being
developed to minimize the effect of any such issues. Contingency planning
includes the use of alternate suppliers, which we have in place for all
significant components. In addition, we are developing plans to protect our
facilities from any damage that could occur if a utility supplying that facility
were unable to provide service. Because our business is seasonal, and most
customers in the domestic market do not require shipments of products until
close to the summer season, we will have a period of time to react to any
adverse consequences caused by a vendor or service provider which is not Year
2000 compliant. We cannot at this time estimate lost revenues, if any, that are
reasonably likely to result from Year 2000 issues.
We have not delayed any IT projects that are material to our operations due
to our Year 2000 efforts and we do not believe that any delay in implementation
of these projects will have a material financial impact on us. Related costs are
being expensed as incurred and in the first nine months of fiscal 1999 amounted
to $0.1 million. We estimate that we will incur an additional $0.1 million in
remediation of our Year 2000 issues.
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<PAGE> 40
BUSINESS
GENERAL
We are a global leader in the air conditioning industry with manufacturing
bases in the United States, China and Spain. We manufacture and sell a broad
line of ductless air conditioners including window, portable, through-the-wall,
split and multi-split units, as well as a complete line of dehumidifiers.
Through our acquisition of Trion, Inc. described below, we are expanding our air
treatment product line to include complementary technologies used in the
manufacture of indoor air quality products including electronic air cleaners,
air filters and humidifiers. We believe our principal subsidiary, Fedders North
America, is the largest manufacturer of room air conditioners in the United
States based on units sold. Fedders North America's products are marketed under
the FEDDERS, EMERSON QUIET KOOL and AIRTEMP brand names as well as under private
labels. In North America, our products are marketed primarily to national and
regional retail chains and home improvement centers, and also to buying groups
and distributors. Private label products are manufactured for retailers and
other original equipment manufacturers (OEMs), including other air conditioner
manufacturers. Outside of North America, Fedders International markets our
products primarily through distributors and under private labels to other OEMs
and air conditioner manufacturers.
We believe that our share of the U.S. market for room air conditioners has
increased from approximately 24% in fiscal 1994 to approximately 28% in 1998.
During this same period, based primarily on Fedders North America's results,
Fedders has achieved significant increases in net sales and EBITDA. Our net
sales increased from $231.6 million in fiscal 1994 to $322.1 million in fiscal
1998, and to $351.2 million for the latest twelve months ended May 31, 1999.
EBITDA increased from $32.3 million in fiscal 1994 to $41.8 million in fiscal
1998, and to $52.6 million for the latest twelve months ended May 31, 1999.
These results reflect a compounded annual growth rate of 8.6% for net sales and
6.7% for EBITDA from fiscal 1994 to fiscal 1998, and a 12.6% increase in net
sales and a 39.3% increase in EBITDA for the latest twelve months ended May 31,
1999 compared to the corresponding period in 1998. Pro forma for the Trion
acquisition, Fedders would have had net sales of $407.8 million and EBITDA of
$57.5 million for the latest twelve months ended May 31, 1999.
We have been a leader in heat transfer technology for more than 100 years.
Founded in Buffalo, NY, we originally manufactured automobile radiators and have
been producing room air conditioners for more than 50 years. More recently, we
have been leveraging our expertise to penetrate the much larger and expanding
global market for air conditioners. As part of our recent acceleration of these
efforts, in 1995, we entered into the Fedders Xinle joint venture with the
Ningbo General Air Conditioner Factory of Ningbo, China. Fedders Xinle is 60%
owned by Fedders. In 1998, we entered into a 50-50 manufacturing joint venture
with Bosch-Siemens Hausgerate GmbH of Germany, Europe's second-largest appliance
manufacturer. The joint venture is manufacturing portable room air conditioners
in Estella, Spain. Products manufactured at both joint venture facilities are
marketed by Fedders International to export markets around the world and by
Fedders North America to the North American market. This global expansion
enhances our manufacturing, sales and marketing flexibility in the United States
and abroad.
COMPETITIVE STRENGTHS AND COMPANY STRATEGY
Our strategy is to continue to capitalize on our competitive strengths,
including the following:
LOW COST PRODUCER. We believe that we are positioned as the low cost
producer in the United States. Significant cost savings achieved since 1993 were
a key factor in increasing gross margins from 17.5% to 23.1% and operating
margins from 1.2% to 11.2% from fiscal 1993 to the latest twelve months ended
May 31, 1999. We have achieved significant cost reductions by:
- emphasizing global sourcing of components and raw materials to reduce
costs and ensure quality;
- continuously improving manufacturing efficiencies and reducing product
cost through design improvements, based in part on our expertise in heat
transfer technology;
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<PAGE> 41
- minimizing fixed costs while maximizing production flexibility, through
outsourcing and the elimination of redundant management and operational
and administrative departments; and
- focusing on low labor costs and flexible manufacturing, allowing us to
manage variable costs in response to fluctuations in demand for our
products.
The direct labor cost component of our products is generally lower than the cost
of freight and duty to import air conditioners into the United States from many
offshore locations, resulting in favorable price comparisons with imported
goods.
HIGH QUALITY PRODUCTS WITH STRONG MULTIPLE BRANDS. We manufacture a broad
line of ductless air conditioners that includes window, portable,
through-the-wall, split and multi-split units to meet a broad range of global
consumer preferences. We believe that we have developed a reputation among our
customers and consumers for producing high quality products at competitive
prices. The FEDDERS, EMERSON QUIET KOOL and AIRTEMP brands each has a long
history and is well known in the U.S. marketplace. We also manufacture on a
private label basis, in various sizes, a portion of the room air conditioners
sold by other global OEMs. All of our principal U.S. manufacturing facilities
have received the highest level of quality certification, ISO 9001, from the
International Standards Organization for our quality management systems. Fedders
Xinle has received ISO 9002 certification.
STRONG RELATIONSHIPS WITH LEADING RETAILERS. Beginning in the early 1990s,
we recognized a significant shift in the U.S. market for room air conditioners
as major regional and national retailers began replacing wholesale distributors
as the primary customers for our products. We believe that we have distinguished
Fedders from its competitors by effectively penetrating this rapidly growing
customer base and by working closely with our customers to improve their
marketing of our products. We estimate that leading retailers currently
represent more than 50% of the total room air conditioner market in the United
States.
ACCURATE-RESPONSE MANUFACTURING AND JUST-IN-TIME DELIVERY. During the
1990s, we have reengineered our manufacturing processes and distribution systems
in order to meet the delivery requirements, including "in-season" orders, of our
major retailing customers who increasingly sought to minimize their inventories.
For example, in 1996, we acquired Rotorex, which had been our principal supplier
of compressors for use in our products for 25 years. This captive supply of
compressors is critical to our accurate-response manufacturing and just-in-time
delivery of our seasonal products. We believe that our accurate-response
manufacturing capability, which allows us to adjust both total production
quantities and product mix on a timely basis, has been a key factor in Fedders'
ability to gain market share from its competitors.
PRODUCT FOCUS. We have focused on manufacturing and selling products
utilizing heat transfer technology for over 100 years. During the past 50 years,
our primary product line has been room air conditioners. More recently, we have
begun to accelerate our efforts to complement our core room air conditioner
product line with synergistic offerings while maintaining our core focus on air
treatment products. For example, the Trion acquisition provides an opportunity
to expand into the indoor air quality market where we can capitalize on our
extensive air treatment expertise and established global marketing and
distribution channels. Many of our competitors produce a broad range of consumer
products, and as a result, we believe these competitors have historically given
less attention to the development and expansion of air treatment technologies.
Air treatment has been and continues to be our primary business focus which we
believe enables us to be more responsive to our customers' needs and changing
industry environment.
THE TRION ACQUISITION
On July 12, 1999, Fedders entered into an agreement to acquire Trion, Inc.,
a North Carolina-based designer, manufacturer and distributor of equipment to
improve indoor air quality in cleanroom, residential, commercial and industrial
environments, for aggregate consideration of $48.9 million, including acquired
indebtedness. On August 11, 1999 we successfully completed a cash tender offer
to purchase the
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<PAGE> 42
outstanding shares of common stock of Trion at a price of $5.50 per share.
Approximately 89% of the issued and outstanding common stock was tendered.
Following the completion of this acquisition through a merger of Trion into a
wholly owned subsidiary of Fedders Corporation (which is expected prior to
December 31, 1999), the non-European business of Trion will be owned and
operated by a wholly owned subsidiary of Fedders North America and the European
business of Trion will be owned and operated by a wholly owned subsidiary of
Fedders.
The Trion indoor air quality product line consists of the following three
segments:
- Cleanroom product segment--This segment consists of HEPA/ULPA filters,
fan filter units and lab and medical equipment that provide ultra-clean
air environments for applications such as cleanroom manufacturing and
medical and laboratory processes. These products are marketed to
microelectronics manufacturers, semiconductor manufacturers, medical
products manufacturers and hospitals. Manufacturing in cleanrooms is
becoming increasingly prevalent and has become a standard requirement of
manufacturing in many large and growing industries in order to ensure
product purity.
- Commercial/Industrial product segment--This segment consists of media
filters, electronic filters, humidifiers, dust collectors and packaged
solutions to remove contaminants and provide humidification for
industrial work environments and commercial settings. These products are
marketed to manufacturers, contractors and end users, including office
and apartment buildings, restaurants, educational facilities, sports
arenas, correctional facilities and the United States Navy.
- Residential product segment--This segment includes media filters,
electronic filters, humidifiers and appliances that remove contaminants
and provide humidification for entire homes and specific rooms within a
house. These products are marketed to heating, ventilation and air
conditioning OEMs, building contractors and retailers.
Trion markets its products primarily through an extensive network of
manufacturers' representative organizations and distributors in domestic and
international markets. In addition, Trion sells directly to end users and OEMs.
Trion's three principal facilities include a 263,000 square foot facility
in Sanford, North Carolina, a 63,000 square foot facility in Albuquerque, New
Mexico, and a 53,000 square foot facility in Andover, England.
We believe that Trion's products will benefit from our global sourcing
capabilities and marketing expertise with significant potential for
international growth. Certain product lines will also benefit from our
well-established retail distribution channels in the United States. We will
benefit from Trion's residential product line sales, which are counterseasonal
to Fedders' air conditioner and dehumidifier sales. Air cleaner sales peak in
winter months, as do humidifier sales.
INDUSTRY
U.S. ROOM AIR CONDITIONER MARKET
The U.S. room air conditioner market is the third largest in the world with
average annual sales of 3.7 million units for the last 10 calendar years.
Domestically, room air conditioners are marketed in two basic styles: the window
unit which is installed directly into a window and the through-the-wall unit
which is installed through an outside wall of the consumer's residence. In 1999,
we added to our product offering a portable air conditioner, manufactured at our
joint venture facility in Spain, that can be rolled from room to room.
Sales of room air conditioners in the domestic market vary from year to
year according to the weather, especially in the major markets of the Northeast
and the upper Midwest. Unusual summer weather affects manufacturers' shipments
primarily in the following year. A cool summer reduces consumer demand and
unsold inventory is carried over to the following year. An unusually hot summer
depletes industry inventories, and the distribution system must be refilled to
meet the following year's
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<PAGE> 43
demand. We believe that demand is principally driven by the replacement market.
Unlike major household appliances and central air conditioning systems, the sale
of room air conditioners is not dependent on the construction of new homes.
The distribution of air conditioners in North America changed significantly
in the early 1990s. Sales are now made primarily directly to retailers, in
contrast to the 1980s, when wholesale distributors accounted for the majority of
the industry's business. We estimate that leading retailers currently represent
more than 50% of the total room air conditioner market in the United States.
Additionally, in recent years our customers, now primarily retailers, changed
their purchasing patterns to minimize inventories. In response to these changes,
we developed accurate-response manufacturing and just-in-time delivery to
accommodate customers' requirements in this highly seasonal business. We have
simultaneously minimized our need to carry large inventories of finished goods.
The room air conditioning industry grew rapidly in the 1950s and 1960s and
then experienced substantial consolidation in the 1970s and 1980s. In the early
1990s, other domestic competitors withdrew from the business following two cold
summers. In 1975 there were 18 major domestic manufacturing operations competing
in the industry compared to five in 1999.
INTERNATIONAL ROOM AIR CONDITIONER MARKET
Fedders believes that in 1998 the international market for room air
conditioners outside the United States was approximately five times the size of
the U.S. market, based on the number of units sold. After accelerating for
several years, demand for air conditioners outside of North America decreased in
1997 as a result of the international financial crisis, particularly in Asia.
International demand grew slightly in 1998 and is expected to resume its rapid
growth as international economies recover and average disposable income in
populous nations in hot weather climates increases. Because freight costs to
ship room air conditioners are high relative to the product cost, international
markets are often most efficiently served by local production. The dollar volume
of the U.S. market in 1998 was approximately $1.3 billion. While we estimate
international unit sales to be approximately five times U.S. unit sales, we
estimate the international dollar volume to be in excess of 10 times that of the
U.S. market, as a result of a preference abroad for more expensive split-type
units.
ESTIMATED ROOM AIR CONDITIONER DEMAND
(MILLIONS OF UNITS)
<TABLE>
<CAPTION>
ASIA EUROPE,
UNITED (EXCLUDING MIDDLE EAST,
STATES(1) JAPAN(2) JAPAN)(2) AFRICA(2) OTHER(2)
<S> <C> <C> <C> <C> <C>
1990.................................. 3.8 6.3 2.9 2.4 1.0
1991.................................. 2.5 7.2 4.1 2.4 0.9
1992.................................. 2.6 5.9 5.5 2.9 0.9
1993.................................. 2.8 5.1 5.8 2.6 0.9
1994.................................. 3.9 7.1 6.8 2.6 1.1
1995.................................. 4.4 7.7 7.3 2.6 1.3
1996.................................. 4.5 8.0 8.9 2.8 1.2
1997.................................. 3.8 6.9 8.7 2.9 1.3
1998.................................. 4.4 6.6 9.1 3.1 1.6
</TABLE>
- ------------------------------
(1) Source: U.S. shipments as reported by the Association of Home Appliance
Manufacturers, Chicago, Illinois.
(2) Source: Japan Refrigeration & Air Conditioning Industry Association as
reported by Japan Air Conditioning, Heating and Refrigeration News.
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INDOOR AIR QUALITY MARKET
The global indoor air quality industry is estimated to have exceeded $3.0
billion in 1998 and favorable long-term industry growth is expected due to
current industry dynamics. Comparative risk studies performed by the United
States Environmental Protection Agency have consistently ranked air pollution
among the top five environmental risks to the public. EPA studies have
demonstrated that indoor air can be two to five times, and occasionally more
than 100 times, more polluted than outdoor air. Indoor air pollution may
contribute to illness and is a serious concern for people with medical
conditions such as asthma and allergies. In addition to health concerns,
increasing requirements for "pure" components utilized in high-performance end
products (e.g., semiconductors in computers) drive demand for indoor air quality
products to ensure clean manufacturing environments.
PRODUCTS
Fedders North America manufactures and sells a complete line of window and
through-the-wall room air conditioners in North America, principally for the
residential market. Our air conditioners are manufactured in capacities ranging
from 5,000 BTU (British Thermal Units) to 32,000 BTU. These models comprise
distinct product lines marketed under the brands FEDDERS, EMERSON QUIET KOOL and
AIRTEMP. We also manufacture products under various private labels. We have
positioned these different brands across most price levels, emphasizing quality
and value for retailers and consumers.
We also manufacture and market a complete line of household dehumidifiers,
ranging in capacity from 20 to 50 pints per 24 hours. Fedders North America's
Rotorex subsidiary manufactures a broad line of rotary compressors for use in
our room air conditioners.
Fedders Xinle manufactures window air conditioners and split-type room air
conditioners, in which the condensing unit is installed separately outdoors, in
capacities from 5,000 to 40,000 BTU. These products are sold for both
residential and commercial use in international markets and to Fedders North
America. Our Spanish joint venture manufactures portable air conditioners for
sale in global markets, including to Fedders North America.
Fedders, through Melcor, manufactures solid state heat pump modules that
utilize electricity to perform the same cooling and heating functions as
refrigerant-based compressors and absorption refrigerators. Melcor's modules are
typically used in applications with special requirements, such as limited space,
lightweight cooling requirements or a space existing under special environmental
conditions. They are also used for precise temperature control by reversing the
electric current to cycle from cooling to heating. Melcor's customers are OEMs
that primarily use the modules for cooling purposes in applications such as
refrigerators, laboratory, scientific, medical and restaurant equipment, and
telecommunications and computer equipment. Melcor's products are sold under the
trademarks MELCOR and FRIGICHIPS.
MARKETS AND DISTRIBUTION
In North America, we market room air conditioners and dehumidifiers
principally to national and regional retail chains, home improvement centers and
retail buying groups. These retail chains and retail buying groups (comprised of
retailers that negotiate as groups the prices at which they will purchase our
products) represent approximately 10,000 retail outlets marketing room air
conditioners throughout the United States. We also market our air conditioners
under private label to both retailers and OEMs.
Fedders North America's sales, marketing and service departments are
headquartered in Effingham, Illinois. Our 25 salespersons and marketing
employees are proactive in working with customers to assist them in maximizing
their profitability and market share through responsive changes in product mix
and marketing. We have nine regional distribution centers which help us to
provide next-day delivery to all major U.S. markets. This geographic coverage is
critical during heat waves that stimulate increased retail sales. Additionally,
we have instituted computerized systems, including electronic data interchange
(EDI), to accommodate major high-volume retailers that require suppliers to
replenish inventories frequently and on short notice.
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<PAGE> 45
To support and service our customers and the ultimate consumer, we have
established a network of more than 3,000 independent servicers throughout the
United States. These independent servicers are local tradespeople who are
screened and monitored by us.
We promote our FEDDERS and EMERSON QUIET KOOL brands of air conditioners
through advertising, primarily in trade publications. In addition, many of our
customers advertise and promote our products at their own expense.
Fedders expects to increase its participation in overseas markets through
strategic alliances, primarily under production and joint venture agreements,
based on our expertise, technological capability and well-established global
sourcing program. For example, the establishment of Fedders Xinle has
strategically positioned Fedders to:
- sell FEDDERS brand products to low-import-duty markets outside of China,
including the U.S., and within China;
- provide private label products for OEMs with established sales and
service organizations worldwide, including China; and
- establish assembly operations within each major trading block that has
protective duties in order to import subassemblies or semi-finished goods
from the China facility.
The establishment of our Spanish joint venture has strategically positioned
us to sell products in the growing European market, and has enabled us to add
the portable air conditioner to our U.S. product offerings.
Melcor's products are currently sold by salaried salespeople and a network
of sales representative firms located around the world. Melcor advertises its
products in a variety of national and international technical and trade
publications, principally in the electronics and electro-optical industries, and
participates in international trade exhibitions.
PRODUCTION AND PROPERTIES
Fedders North America currently manufactures its air conditioners in two
owned facilities in the United States:
- a 650,000 square foot facility in Effingham, Illinois; and
- a 232,000 square foot facility in Columbia, Tennessee.
These two facilities have a combined annual capacity of approximately
2,000,000 units.
Fedders also manufactures air conditioners, through Fedders Xinle, in a
facility owned by the joint venture in Ningbo, China. This facility's capacity
is approximately 500,000 units.
Rotorex currently assembles all of its compressors in a 200,000 square foot
facility in Walkersville, Maryland. The current capacity is approximately
1,500,000 compressors.
Fedders also manufactures thermoelectric modules, through Melcor, in two
facilities comprising 37,400 square feet near Lawrence Township, New Jersey.
We believe our production capacity at our major manufacturing facilities is
adequate to meet our needs for the foreseeable future.
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<PAGE> 46
Fedders owns or leases the following principal facilities:
<TABLE>
<CAPTION>
APPROXIMATE SQUARE
LOCATION PRINCIPAL FUNCTION FEET OF FLOOR AREA
<S> <C> <C>
Liberty Corner, New Jersey
(Leased)........................... Corporate headquarters 25,000
Effingham, Illinois (Owned)(1)....... Manufacturing of air conditioners 650,000
Columbia, Tennessee (Owned)(2)....... Manufacturing of air conditioners and 232,000
dehumidifiers
Walkersville, Maryland (Owned)(3).... Assembly of rotary compressors 200,000
Singapore (Leased)................... International headquarters and 14,600
research and design center
Lawrence Township, NJ (Owned)........ Manufacturing 15,000
Lawrence Township, NJ (Leased)(4).... Headquarters of Melcor and 22,400
manufacturing
</TABLE>
- ------------------------------
(1) The Effingham, Illinois facility is subject to a mortgage securing a $3.5
million, 1% promissory note payable over the next 9 years to the State of
Illinois.
(2) Owned by Columbia Specialities, Inc., a wholly owned subsidiary of Fedders
North America.
(3) Owned by Rotorex.
(4) Melcor has contracted to purchase this facility.
RAW MATERIALS
The principal raw materials used in the production of air conditioners are
steel, copper and aluminum. We obtain these raw materials from domestic and
foreign suppliers. We also purchase certain components used in our products from
other domestic and foreign manufacturers, including thermostats, compressors,
motors and electrical controls. We attempt to obtain the lowest possible cost in
our purchases of raw materials and components, which must meet specified quality
standards, through an active global sourcing program.
QUALITY ASSURANCE
One of the key elements of our strategy is a commitment to a single
worldwide standard of quality. Each of Fedders North America's principal
manufacturing facilities has earned the highest level of certification, ISO
9001, for its quality management system under the International Standards
Organization. Fedders Xinle has also earned the ISO 9002 certification for its
facility. The ISO 9000 program is an internationally recognized benchmark of
quality management systems within a production facility.
Fedders North America's products are backed by a warranty policy that
generally provides five-year coverage for sealed systems including compressors,
two-year coverage on motors and one-year coverage on all other parts and labor
related to air conditioners sold in North America.
SEASONALITY OF BUSINESS, WORKING CAPITAL PRACTICES AND BACKLOG
Fedders North America's results of operations and financial condition are
principally dependent on the manufacture and sale of room air conditioners, the
demand for which is highly seasonal in North American markets. Seasonally low
sales volume is insufficient to offset fixed costs, resulting in operating
losses at certain times of the year. Our working capital needs are also
seasonal, with the greatest utilization of lines of credit occurring early in
the calendar year. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition of Fedders Corporation." Fedders regularly
reviews working
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<PAGE> 47
capital components with a view to maintaining the lowest level consistent with
requirements of anticipated levels of operations. Fedders North America's sales
are predominantly made directly to retailers, who typically require just-in-time
delivery, primarily in April through July. Production is weighted towards the
retail selling season to minimize borrowing earlier in the fiscal year, although
room air conditioners may be produced throughout much of the rest of the year at
a lower rate of production. Our fiscal year end, August 31, coincides with the
end of the seasonal room air conditioner sales cycle. Accordingly, backlog at
that time of the year is insignificant.
COMPETITION
Domestically, our competitors include a number of domestic and foreign
manufacturers of air conditioners and appliances, including Whirlpool
Corporation, Frigidaire Company, Matsushita Electric Industrial Co., Ltd., Sharp
Corporation and LG Corporation. Many of these competitors are substantially
larger and have greater resources than we do. We compete principally on the
basis of price, quality and our ability to deliver products and services to our
customers on an accurate-response basis. We believe that we compete effectively
by using a multiple brand strategy of providing competitively priced, high
quality products.
Internationally, competitors vary depending on the market. Some markets,
such as China, are served by many local manufacturers. Other markets are
dominated by foreign manufacturers of air conditioners and electronics products
including Matsushita Electric Industrial Co., Ltd., Carrier-Toshiba Corporation,
Hitachi, Ltd., Mitsubishi Electric Corporation and Sanyo Electric Trading Co.,
Ltd., all of which also manufacture compressors. We believe that we can compete
effectively by using a strategy of manufacturing low cost air conditioners
locally, controlling our supply of compressors and utilizing our global sourcing
network.
Trion's key competitors vary in each of its markets. The principal
competitors in the cleanroom product segment are all located outside of the
United States. The commercial/industrial product segment is highly fragmented
and no competitor controls a major share of the market. The residential product
segment includes several large, U.S.-based companies as principal competitors.
While each market segment is different, the purchase criteria for indoor air
quality products are relatively consistent, primarily technology, quality,
customer service or price. Trion competes on the basis of offering a broad range
of high quality products that typically rate at the top of their class in
performance and durability.
GOVERNMENT REGULATION
Fedders North America and Fedders are subject to various federal, state and
local laws affecting their businesses. Room air conditioners are subject to
federal regulations providing for minimum energy efficiency rating (EER)
requirements. A combination of an efficient compressor and the design of the air
conditioning system using the compressor is needed to achieve the required
ratings. On September 24, 1997, the Office of Energy Efficiency and Renewable
Energy of the United States Department of Energy issued a final rule under the
National Appliance Energy Conservation Act. This rule revised the minimum
required EERs for most classes of room air conditioners to higher levels. The
new EER levels apply to covered units manufactured on or after October 1, 2000.
This will require increasing the efficiency levels of certain air conditioner
models to achieve the revised minimum EER levels. We do not believe that these
EER regulations will adversely affect our operating results.
EMPLOYEES
At May 31, 1999, Fedders had more than 3,000 employees, including
approximately 2,300 at Fedders North America. The current contract with the
union representing substantially all of the production employees at the
Effingham, Illinois plant is scheduled to expire in October 2001. The current
contract with the union representing approximately 50 employees of Rotorex is
scheduled to expire in August 2005. We consider our relations with our employees
to be generally satisfactory.
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<PAGE> 48
RESEARCH AND DEVELOPMENT
We conduct our research and development of room air conditioner technology
and design at our Effingham facility, and our research and development of
compressors at our Walkersville, Maryland facility. In fiscal 1998, we spent
approximately $6.6 million on research and development, including activities at
our Singapore facility focusing on products for the international market.
INTELLECTUAL PROPERTY
Fedders owns a number of trademarks, including:
- FEDDERS;
- EMERSON QUIET KOOL;
- AIRTEMP;
- ROTOREX;
- MELCOR; and
- FRIGICHIPS.
We attempt to register and aggressively protect our material trademarks,
trade names and other intellectual property rights both domestically and in key
foreign markets. While we believe that our trademarks are well known and enhance
the marketing of our products, we do not consider the successful conduct of our
business to be dependent on such trademarks.
ENVIRONMENTAL MATTERS
Fedders North America's and Fedders' operations are subject to various
foreign and United States federal, state and local environmental statutes and
regulations, including:
- laws and regulations dealing with storage, treatment, discharge and
disposal of hazardous materials, substances and wastes, remediation of
soil, surface and groundwater contamination and damage to natural
resources; and
- laws that affect the production of chemical refrigerants.
The products manufactured by Fedders currently use hydrochlorofluorocarbons
(HCFCs) as the refrigerant. The production of HCFCs for use in new equipment is
currently scheduled to be phased out as of the year 2010 in the United States.
In addition, the production of HCFCs for the servicing of existing equipment is
currently scheduled to be phased out as of the year 2020 in the United States.
Chemical producers are currently developing environmentally acceptable
alternative refrigerants for use in room air conditioners. These alternative
refrigerants are expected to be available in advance of the currently proposed
phase-out deadlines for the current refrigerant.
We believe we are currently in material compliance with applicable
environmental laws and regulations. We did not make capital expenditures on
environmental matters during fiscal 1998 that are material to our total capital
expenditures, earnings and competitive position and do not anticipate making
material capital expenditures on such items in fiscal 1999 or fiscal 2000.
Fedders North America has been identified as a potentially responsible
party (PRP) by the United States Environmental Protection Agency under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended (CERCLA), at the PCB Treatment Inc. site located in Kansas City, Kansas
and in Kansas City, Missouri, based on the delivery there of certain materials
from our Effingham, Illinois facility. The act imposes strict and, in certain
circumstances, joint and several liability on PRPs for response costs at waste
sites and imposes liability for related damages to natural resources. In view of
the substantial number of other PRPs at this site and the relatively small
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<PAGE> 49
volume of material sent by us to the site, Fedders North America does not
believe it will incur any material liability for this matter.
Fedders North America has identified a groundwater problem at its
Walkersville, Maryland facility. It is preparing a response to the Maryland
Department of Environment's request to delineate the full extent of the
contaminant plume and evaluate remedial options. Based on available information,
Fedders North America does not expect the cost of investigation or any required
remediation relating to this matter to have a material adverse effect on its
operating results.
LITIGATION
We are a party to various litigation matters incidental to the conduct of
our business. We do not believe that the outcome of any of these current
litigation matters will have a material adverse effect on our financial
condition or our operating results.
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<PAGE> 50
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth certain information about directors and executive
officers of Fedders North America as of August 19, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
<S> <C> <C>
Salvatore Giordano................... 88 Chairman of the Board
Sal Giordano, Jr. ................... 60 Vice Chairman and Director
William J. Brennan................... 71 Director
David C. Chang....................... 57 Director
Joseph Giordano...................... 66 Director
C. A. Keen........................... 74 Director
Howard S. Modlin..................... 68 Director
Clarence Russel Moll................. 85 Director
S. A. Muscarnera..................... 59 Director
Anthony E. Puleo..................... 64 Director
Robert L. Laurent, Jr................ 44 Executive Vice President
Michael Giordano..................... 35 Vice President, Finance and Chief Financial Officer
Michael B. Etter..................... 44 Senior Vice President of Fedders and Chairman and
Chief Executive Officer of Air Conditioning
Gerald C. Senion..................... 53 President
Kent E. Hansen....................... 52 Senior Vice President and Secretary
Thomas A. Kroll...................... 44 Controller
Robert N. Edwards.................... 53 Vice President and General Counsel
Nancy DiGiovanni..................... 48 Treasurer
</TABLE>
Salvatore Giordano has been chairman of the board of directors of Fedders
North America since 1976 and chairman of the board of directors of Fedders since
1945. Mr. Giordano is the father of Sal Giordano, Jr. and Joseph Giordano, the
grandfather of Michael Giordano and the uncle of S. A. Muscarnera.
Sal Giordano, Jr. has been vice chairman of Fedders North America since
1997 and was previously also president and chief operating officer of Fedders
North America, a position he held for more than five years. Mr. Giordano has
also been vice chairman, president and chief executive officer of Fedders since
1988. He has been a director of Fedders North America since 1976 and a director
of Fedders since 1965. Mr. Giordano is the father of Michael Giordano.
William J. Brennan has served as a director of Fedders North America and of
Fedders from 1980 to 1987 and 1989 to the present. He is also a director of CSM
Environmental Systems, Inc. He has been a financial consultant since 1988.
David C. Chang has served as a director of Fedders North America and of
Fedders since 1998. Dr. Chang has been president of Polytechnic University for
more than four years and was previously dean of the College of Engineering and
Applied Sciences at Arizona State University.
Joseph Giordano has served as a director of Fedders North America since
1976 and was senior vice president of Fedders North America and Fedders for more
than five years prior to his retirement from those positions in August 1992. He
has been a director of Fedders since 1961.
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<PAGE> 51
C. A. Keen has been a director of Fedders North America and of Fedders
since 1996. Mr. Keen was a vice president of Fedders for over 20 years, with
responsibilities including treasury, marketing and international sales and
sourcing.
Howard S. Modlin has served as a director of Fedders North America and of
Fedders since 1977. Mr. Modlin has been a partner or officer at Weisman Celler
Spett & Modlin P.C., and predecessors, a law firm that has rendered legal
services to Fedders North America and/or to Fedders for more than 25 years. He
is also a director of General DataComm Industries, Inc. and Trans-Lux
Corporation.
Clarence Russel Moll has served as a director of Fedders North America
since 1976 and of Fedders since 1967. Dr. Moll has also been president emeritus
of Widener University since 1991 and is a director of Ironworkers Savings Bank.
S. A. Muscarnera has been a director of Fedders North America and of
Fedders since 1983. Mr. Muscarnera was senior vice president and secretary of
Fedders North America and Fedders from 1986 to August 1996. Mr. Muscarnera
served Fedders for over 39 years in various capacities including legal and human
resources.
Anthony E. Puleo has served as a director of Fedders North America and of
Fedders since 1994. Mr. Puleo has also been president of Puleo Tree Co., an
importer of Christmas items and garden furniture, since 1992. He was previously
president of Boulderwood Corporation, a retailer of summer and Christmas
products.
Robert L. Laurent, Jr. has been executive vice president of Fedders North
America since 1993. Mr. Laurent served as executive vice president, finance and
administration and chief financial officer of Fedders North America and Fedders
from 1993 until 1999 when he was named executive vice president, acquisitions
and alliances of Fedders. Mr. Laurent joined Fedders in 1980 and has served as
internal auditor, plant controller, corporate controller and vice president,
finance.
Michael Giordano has been vice president, finance and chief financial
officer of Fedders North America and Fedders since July 1, 1999. Mr. Giordano
also served as senior vice president of Fedders International, Inc. from 1998
until being elected to his current position. Mr. Giordano joined the Fedders
organization in 1990 and has held various positions with Fedders and certain
subsidiaries including: assistant director of sourcing; sales manager; director
of sales and marketing; vice president, sales; and managing director of the
Singapore office of Fedders International.
Michael B. Etter has been chairman and chief executive officer of the air
conditioning unit of Fedders since May 1, 1999. Mr. Etter is also a senior vice
president of Fedders. Mr. Etter rejoined Fedders North America in 1977 after a
brief break in service and has served in various capacities with Fedders North
America including: vice president, purchasing; vice president, materials
management; and vice president, materials management/global purchasing. He
served as vice president of global purchasing for Fedders from December 1997 to
May 1999.
Gerald C. Senion has been president of Fedders North America since 1998.
Mr. Senion also served as group vice president and chief operating officer of
Fedders North America from 1997 until assuming his current responsibilities.
Prior to joining Fedders North America, Mr. Senion was employed by Frigidaire
Corporation for approximately 20 years, most recently as group vice president of
the Frigidaire Home Products Company, Home Comfort Division and the Electrolux
Global Home Comfort Products Division.
Kent E. Hansen has been senior vice president and secretary of Fedders
North America and of Fedders since 1996. Mr. Hansen also served as vice
president and general counsel of Fedders North America and of Fedders from
October 1989 to September 1992. From September 1992 to August 1996, he was vice
president, finance and general counsel and chief financial officer of NYCOR.
Thomas A. Kroll has been controller of Fedders North America since 1992. He
has been controller of Fedders since 1995. Prior to 1992, he was controller of
Emerson Quiet Kool.
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<PAGE> 52
Robert N. Edwards joined Fedders North America and Fedders in 1992 as
senior counsel. He was promoted to general counsel of Fedders North America and
of Fedders in 1994 and vice president in 1995. Prior to joining Fedders North
America, Mr. Edwards was vice president, general counsel and secretary of
Information Science Incorporated, a manufacturer of computer software.
Nancy DiGiovanni has been treasurer of Fedders North America and Fedders
since 1998. Since joining Fedders in 1969, she most recently served as corporate
director, treasury services, since 1996 and as assistant treasurer since 1989.
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<PAGE> 53
DESCRIPTION OF CERTAIN INDEBTEDNESS
Fedders North America amended its revolving credit facility on July 28,
1999. Fedders North America and all of its direct and indirect subsidiaries are
parties to the revolving credit facility as borrowers or guarantors of the
borrowers' obligations. The revolving credit facility provides for loans to
Fedders North America of up to $100.0 million based on certain customary
percentages of accounts receivable and inventory. The obligations of Fedders
North America under the revolving credit facility are also guaranteed by Fedders
Corporation and certain of its other subsidiaries (other than Fedders North
America and its subsidiaries). Substantially all of the assets of Fedders
Corporation and its subsidiaries are pledged as collateral under the revolving
credit facility. While the revolving credit facility is intended principally to
provide financing for our working capital requirements, we may use up to $15.0
million of the amount available under the revolving credit facility for general
corporate purposes.
At our option, borrowings under the revolving credit facility bear interest
at a rate per annum
- based upon the London interbank offered rate (LIBOR) 2.25% (provided that
not more than 80% of loans outstanding at any time may be based upon
LIBOR); or
- equal to the prime rate of First Union National Bank.
In addition, we must pay
- an unused line fee of 0.5% per month on the amount by which $70.0 million
exceeds the average outstanding daily principal balance of loans
outstanding;
- an early termination fee equal to 0.5% of the maximum availability if the
revolving credit facility is terminated prior to February 1, 2003, the
expiration date of the revolving credit facility;
- an amendment fee of $300,000;
- an agency fee of $50,000; and
- a service fee of $60,000 annually.
Borrowings under the revolving credit facility are secured by collateral
assignments or other security interests in substantially all of the assets of
Fedders Corporation and its subsidiaries including:
- all material contracts;
- substantially all property, plant, equipment, inventory and other
tangible assets;
- all receivables of Fedders North America;
- all intellectual property and other intangible assets; and
- all capital stock of the direct and indirect subsidiaries of Fedders.
The revolving credit facility contains negative covenants that limit the
ability of Fedders Corporation and its direct and indirect subsidiaries to do
the following:
- create liens and other encumbrances;
- incur indebtedness;
- enter into transactions with affiliates;
- make loans, investments or guarantees; and
- pay dividends.
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<PAGE> 54
In addition, the revolving credit facility requires that Fedders
Corporation meet certain financial tests including:
- consolidated net worth of not less than $70.0 million; and
- consolidated working capital of not less than $25.0 million.
The revolving credit facility contains customary events of default
including:
- non-payment of principal or interest;
- breach of any term, covenant, condition or provision of the revolving
credit facility;
- material breach of representations and warranties;
- bankruptcy, insolvency or assignment for the benefit of creditors;
- cross-defaults on other indebtedness;
- material adverse change in the business, assets or financial condition;
and
- a change in control.
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<PAGE> 55
DESCRIPTION OF NOTES
The old notes were, and the new notes will be, issued by us under the
Indenture dated as of August 24, 1999 (the "Indenture") among Fedders North
America, Fedders Corporation and State Street Bank and Trust Company, as trustee
(the "Trustee"). The terms of the notes include those terms stated in the
Indenture and those terms made part of the Indenture by reference to the Trust
Indenture Act of 1939 (the "TIA") as in effect on the date of the Indenture. The
new notes are identical in all material respects to the terms of the old notes,
except for certain transfer restrictions and registration rights relating to the
old notes. In addition, the old note holders will receive liquidated damages
with respect to the first 90-day period immediately following the occurrence of
a Registration Default (as defined below) in an amount equal to $.05 per week
per $1,000 principal amount of old notes held by such holders. The amount of the
liquidated damages will increase by an additional $.05 per week per $1,000
principal amount of old notes with respect to each subsequent 90-day period
until all Registration Defaults have been cured, up to a maximum amount of
liquidated damages of $.40 per week per $1,000 principal amount of old notes.
See "--Registration Rights; Liquidated Damages."
The following description is a summary of the material provisions of the
Indenture. It does not include all of the provisions of the Indenture. We urge
you to read the Indenture because it defines your rights as holders of these
notes. We have filed copies of this Indenture as an exhibit to the registration
statement which includes this prospectus. A copy of the Indenture may be
obtained from us or the initial purchaser. You can find definitions of certain
capitalized terms used in the following summary under "--Definitions" and
throughout this description. Capitalized terms that are used but not otherwise
defined herein have the meanings assigned to them in the Indenture and such
definitions are incorporated by reference.
GENERAL
Fedders North America will issue the notes pursuant to an indenture among
Fedders North America, Fedders Corporation, as guarantor, and State Street Bank
and Trust Company, as trustee, the terms of which will be substantially the same
as those in the indenture dated as of August 18, 1997 governing the existing
senior subordinated notes of Fedders North America (the "1997 notes"). The terms
of the notes include those stated in the indenture and those made part of the
indenture by reference to the Trust Indenture Act of 1939, as amended, as in
effect on the date of original issuance of the notes. The notes are subject to
all such terms, and holders of the notes are referred to the indenture and the
Trust Indenture Act for a statement thereof. The following is a summary of the
provisions of the indenture. It is not complete and is qualified in its entirety
by reference to the indenture, including the definitions in the indenture of
certain terms used below.
As of the date of the indenture, all of the Subsidiaries of Fedders North
America will be Restricted Subsidiaries. However, under certain circumstances,
Fedders North America will be able to designate each of its existing
Subsidiaries, Subsidiaries formed by Fedders North America or Subsidiaries
acquired by Fedders North America after the original issuance of the notes as
Non-Restricted Subsidiaries. Non-Restricted Subsidiaries will not be subject to
any of the restrictive covenants set forth in the indenture.
The notes will be limited to $100,000,000 in aggregate principal amount, of
which $50,000,000 will be issued in this offering, and will mature on August 15,
2007. Additional notes may be issued from time to time subject to the
limitations set forth under the "Limitation on Incurrence of Indebtedness"
covenant. References to the "notes" in this Description of Notes will include
any such additional notes. The notes will bear interest at the rate of 9 3/8%
per annum. Interest on the notes is payable semi-annually in cash in arrears on
February 15 and August 15 in each year, commencing February 15, 2000, to holders
of record of notes at the close of business on the February 1 or August 1
immediately preceding such interest payment date. Interest on the notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of original issuance. Interest will be
computed on the basis of a 360-day year of twelve 30-day months. The notes will
be issued in denominations of $1,000 and integral multiples thereof.
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<PAGE> 56
Principal of, premium, if any, and interest on the notes will be payable,
and the notes may be presented for registration of transfer or exchange, at the
office of the paying agent and registrar in New York, New York. Holders of notes
must surrender their notes to the paying agent to collect principal payments,
and Fedders North America may pay principal and interest by check and may mail
checks to a holder's registered address; provided that all payments with respect
to global notes and certificated notes, the holders of which have given wire
transfer instructions to Fedders North America, will be required to be made by
wire transfer of immediately available funds to the accounts specified by the
holders thereof. The registrar may require payment of a sum sufficient to cover
any transfer tax or similar governmental charge payable in connection with
certain transfers or exchanges. See "--Transfer and Exchange." The trustee will
initially act as paying agent and registrar. Fedders North America may change
the paying agent or registrar without prior notice to holders of notes, and
Fedders North America or any of its Subsidiaries may act as paying agent or
registrar.
SUBORDINATION
The payment of principal of, and premium, interest and liquidated damages,
if any, on the notes will be subordinated in right of payment, as set forth in
the indenture, to the prior payment in full of all Senior Indebtedness, whether
outstanding on the date of the indenture or thereafter incurred. The indenture
will permit the incurrence of additional Senior Indebtedness in the future.
Upon any distribution to creditors of Fedders North America in a
liquidation or dissolution of Fedders North America or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to
Fedders North America or its property, an assignment for the benefit of
creditors or any marshaling of the assets and liabilities of Fedders North
America, the holders of Senior Indebtedness will be entitled to receive payment
in full of all Obligations due in respect of such Senior Indebtedness (including
interest after the commencement of any such proceeding at the rate specified in
the applicable Senior Indebtedness) before the holders of notes will be entitled
to receive any payment with respect to the notes, and until all Obligations with
respect to Senior Indebtedness are paid in full, any distribution to which the
holders of notes would be entitled shall be made to the holders of Senior
Indebtedness (except that holders of notes may receive payments made from the
trust described under "--Satisfaction and Discharge of the Indenture") if:
- a default in the payment of the principal of or premium, if any, or
interest on Senior Indebtedness occurs and is continuing beyond any
applicable period of grace; or
- any other default occurs and is continuing with respect to Designated
Senior Indebtedness that permits holders of the Designated Senior
Indebtedness as to which such default relates to accelerate its maturity
and the trustee receives a written notice (with a copy to Fedders North
America) of such other default (a "Payment Blockage Notice") from Fedders
North America or the holders of any Designated Senior Indebtedness.
Payments on the notes shall be resumed
- in the case of a payment default, upon the date on which such default is
cured or waived; and
- in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which
the applicable Payment Blockage Notice is received by the trustee, unless
the maturity of any Designated Senior Indebtedness has been accelerated.
No new period of payment blockage may be commenced unless and until 360
days have elapsed since the date of receipt by the trustee of the
immediately prior Payment Blockage Notice.
No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice (it being understood that any
subsequent action, or any breach of any covenant for a period commencing after
the date of receipt by the trustee of such Payment Blockage Notice, that, in
either case, would give rise to such a default pursuant to any provisions under
which a default previously existed or was continuing shall constitute a new
default for this purpose).
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<PAGE> 57
The indenture will further require that Fedders North America promptly
notify holders of Senior Indebtedness if payment of the notes is accelerated
because of an Event of Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, holders of notes may recover less ratably than
creditors of Fedders North America who are holders of Senior Indebtedness. On a
pro forma basis at May 31, 1999, after giving effect to this offering, the Trion
acquisition and the retirement of certain acquired company debt, the aggregate
principal amount of Senior Indebtedness outstanding would have been
approximately $3.3 million and the aggregate principal amount of pari passu
Indebtedness of Fedders North America outstanding would have been approximately
$99.6 million (net of $0.4 million discount). The indenture will limit, subject
to certain financial tests, the amount of additional Indebtedness, including
Senior Indebtedness, that Fedders North America and its Subsidiaries can incur.
See "--Certain Covenants--Limitation on Incurrence of Indebtedness."
GUARANTEE
Fedders Corporation will irrevocably and unconditionally guarantee on a
senior subordinated basis the performance and punctual payment when due, whether
at stated maturity, by acceleration or otherwise, of all obligations of Fedders
North America under the indenture and the notes, whether for principal of, or
interest or liquidated damages, if any, on the notes, expenses, indemnification
or otherwise (all such obligations guaranteed by Fedders Corporation being
herein called the "Guaranteed Obligations"). Fedders Corporation's assets
consist primarily of the common stock of Fedders North America and of the common
stock of its Subsidiaries which conduct the international operations of Fedders
Corporation and the operations of Melcor and, accordingly, its ability to
perform under its guarantee will be dependent on the financial condition and net
worth of its Subsidiaries, including Fedders North America.
The guarantee is a continuing guarantee and shall:
- remain in full force and effect until payment in full of all the
guaranteed Obligations;
- be binding upon Fedders Corporation and its successors, transferees and
assigns; and
- inure to the benefit of and be enforceable by the trustee, the holders of
the notes and their successors, transferees and assigns.
SUBORDINATION OF GUARANTEE
Payments on the guarantee will be subordinated, as set forth in the
indenture, in right of payment to the prior payment in full of all Guarantor
Senior Indebtedness. The terms of such subordination will be substantially
similar to the subordination terms applicable to the notes.
REDEMPTION OF NOTES
Optional Redemption. The notes will be redeemable, at the option of
Fedders North America, on or after August 5, 2002. During the 12-month period
beginning on August 15 of the years indicated below, the notes will be
redeemable, at the option of Fedders North America, in whole or in part, on at
least 30 but not more than 60 days' notice to each holder of notes to be
redeemed, at the redemption prices (expressed as percentages of the principal
amount) set forth below, plus any accrued and unpaid interest and liquidated
damages, if any, to the redemption date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2002...................................................... 104.688%
2003...................................................... 103.125%
2004...................................................... 101.563%
2005 and thereafter....................................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time on or before August 15, 2000,
Fedders North America may (but will not have the obligation to) redeem for cash
up to 30% of the original aggregate principal
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<PAGE> 58
amount of the notes (including the original aggregate principal amount of any
additional notes issued under the indenture) at a redemption price of 109.375%
of the principal amount thereof, in each case plus any accrued and unpaid
interest and liquidated damages, if any, thereon to the redemption date, with
the net proceeds of an Equity Offering; provided that at least 70% of the
original principal amount of the notes (including the original aggregate
principal amount of any additional notes issued under the indenture) remains
outstanding immediately after the occurrence of such redemption; and provided,
further, that such redemption will occur within 60 days of the date of the
closing of such Equity Offering.
Mandatory Redemption. Except as set forth below under "--Mandatory Offers
to Purchase Notes--Change of Control" and "--Asset Sales," Fedders North America
is not required to make any mandatory redemption, purchase or sinking fund
payments with respect to the notes.
MANDATORY OFFERS TO PURCHASE NOTES
Change of Control. Upon the occurrence of a Change of Control (such date
being the "Change of Control Trigger Date"), each holder of notes shall have the
right to require Fedders North America to purchase all or any part (equal to
$1,000 or an integral multiple thereof) of such holder's notes pursuant to an
Offer (as defined below) at a purchase price in cash equal to 101% of the
aggregate principal amount thereof, plus any accrued and unpaid interest and
liquidated damages, if any, to the date of purchase. Fedders North America shall
furnish to the trustee, at least two Business Days before notice of an Offer is
mailed to all holders of notes pursuant to the procedures described below under
"--Procedures for Offers," notice that the Offer is being made. Transactions
constituting a Change of Control are not limited to hostile takeover
transactions not approved by the current management of Fedders North America.
Except as described, the indenture does not permit the holders of notes to
require Fedders North America to purchase or redeem the notes in the event of a
takeover, recapitalization or similar restructuring, including an issuer
recapitalization or similar transaction with management. Consequently, these
Change of Control provisions will not afford any protection in a highly
leveraged transaction, including such a transaction initiated by Fedders North
America, management of Fedders North America or an affiliate of Fedders North
America, if such transaction does not result in a Change of Control. In
addition, because the obligations of Fedders North America with respect to the
notes are subordinated to all Senior Indebtedness of Fedders North America and
all obligations of the Subsidiaries of Fedders North America, existing or future
Senior Indebtedness of Fedders North America or obligations of the Subsidiaries
of Fedders North America may prohibit Fedders North America from repurchasing
the notes upon a Change of Control. Moreover, the ability of Fedders North
America to repurchase notes following a Change of Control will be limited by
Fedders North America's then-available resources. These Change of Control
provisions may not be waived by the Board of Directors of Fedders North America
or the trustee without the consent of holders of at least a majority in
principal amount of the notes. See "--Amendment, Supplement and Waiver."
Fedders North America expects that prepayment of the notes following a
Change of Control would, and the exercise by holders of notes of the right to
require Fedders North America to purchase notes may, constitute a default under
the Credit Agreement or under Senior Indebtedness of Fedders North America. In
the event a Change of Control occurs, Fedders North America will likely be
required to refinance the Senior Indebtedness outstanding under the Credit
Agreement, the 1997 notes and the notes. If there is a Change of Control, any
Senior Indebtedness under the Credit Agreement could be accelerated. Moreover,
there can be no assurance that sufficient funds will be available at the time of
any Change of Control to make any required repurchases of the notes. The
financing of the purchases of notes could additionally result in a default under
the Credit Agreement or other indebtedness of Fedders North America. The
occurrence of a Change of Control may also have an adverse impact on the ability
of Fedders North America to obtain additional financing in the future.
Asset Sales. The indenture provides that Fedders North America may not,
and may not permit any Restricted Subsidiary to, directly or indirectly,
consummate an Asset Sale (including the sale of any of the Capital Stock of any
Restricted Subsidiary) providing for Net Proceeds in excess of $5,000,000 unless
the
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<PAGE> 59
Net Proceeds from such Asset Sale are applied (in any manner otherwise permitted
by the indenture) to one or more of the following purposes in such combination
as Fedders North America shall elect:
(a) an investment in another asset or business in the same line of
business as, or a line of business similar to that of, the line of business
of Fedders North America and its Restricted Subsidiaries at the time of the
Asset Sale; provided that such investment occurs on or prior to the 365th
day following the date of such Asset Sale (the "Asset Sale Disposition
Date");
(b) to reimburse Fedders North America or its Subsidiaries for
expenditures made, and costs incurred, to repair, rebuild, replace or
restore property lost, damaged or taken to the extent that the Net Proceeds
consist of insurance proceeds received on account of such loss, damage or
taking;
(c) the purchase, redemption or other prepayment or repayment of
outstanding Senior Indebtedness or Indebtedness of Fedders North America's
Restricted Subsidiaries or the 1997 notes on or prior to the 365th day
following the Asset Sale Disposition Date; or
(d) an Offer expiring on or prior to the Purchase Date (as defined
below).
The indenture also provides that Fedders North America may not, and may not
permit any Restricted Subsidiary to, directly or indirectly, consummate an Asset
Sale unless at least 70% of the consideration therefor received by Fedders North
America or such Restricted Subsidiary is in the form of cash, cash equivalents
or marketable securities; provided that, solely for purposes of calculating such
70% of the consideration, the amount of
(x) any liabilities (as shown on Fedders North America's or such
Restricted Subsidiary's most recent balance sheet or in the notes thereto,
excluding contingent liabilities and trade payables) of Fedders North
America or any Restricted Subsidiary (other than liabilities that are by
their terms subordinated to the notes) that are assumed by the transferee
of any such assets, and
(y) any notes or other obligations received by Fedders North America
or any such Restricted Subsidiary from such transferee that are promptly,
but in no event more than 30 days after receipt, converted by Fedders North
America or such Restricted Subsidiary into cash (to the extent of the cash
received),
shall be deemed to be cash and cash equivalents for purposes of this provision.
Any Net Proceeds from any Asset Sale that are not applied or invested as
provided in clauses (a), (b), (c) or (d) above shall constitute "Excess
Proceeds."
When the aggregate amount of Excess Proceeds exceeds $6,500,000 (such date
being an "Asset Sale Trigger Date"), Fedders North America shall make an Offer
(an "Asset Sale Offer") to all holders of notes to purchase the maximum
principal amount of the notes then outstanding that may be purchased out of
Excess Proceeds, at an offer price in cash in an amount equal to 100% of
principal amount thereof plus any accrued and unpaid interest and liquidated
damages, if any, to the Purchase Date in accordance with the procedures set
forth in the indenture governing the notes. Notwithstanding the foregoing, to
the extent that any or all of the Net Proceeds of an Asset Sale are prohibited
or delayed by applicable local law from being repatriated to the United States,
the portion of such Net Proceeds so affected will not be required to be applied
as described in this or the next preceding paragraph, but may be retained for so
long, but only for so long, as the applicable local law prohibits repatriation
to the United States.
To the extent that any Excess Proceeds remain after completion of an Asset
Sale Offer, Fedders North America may use such remaining amount for general
corporate purposes. Upon completion of an Asset Sale Offer, the amount of Excess
Proceeds shall be reset at zero.
Although the Credit Agreement will permit Fedders North America to pay
interest on the notes, dividends for other purposes, such as repurchases of
notes by Fedders North America upon an Asset Sale, will not be permitted under
the terms of the Credit Agreement. Accordingly, Fedders North America would need
to seek the consent of its lenders under the Credit Agreement in order to
repurchase notes with the Net Proceeds of an Asset Sale.
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Procedures for Offers. Within 30 days following any Change of Control
Trigger Date or Asset Sale Trigger Date, subject to the provisions of the
indenture, Fedders North America shall mail a notice to each holder of notes at
such holder's registered address stating:
(a) that an offer (an "Offer") is being made pursuant to a Change of
Control or an Asset Sale Trigger Date, as the case may be, the length of
time the Offer shall remain open and the maximum principal amount of notes
that will be accepted for payment pursuant to such Offer;
(b) the purchase price, the amount of accrued and unpaid interest as
of the purchase date, and the purchase date (which shall be no earlier than
30 days and no later than 60 days from the date such notice is mailed (the
"Purchase Date")); and
(c) such other information required by the indenture and applicable
law and regulations.
On the Purchase Date for any Offer, Fedders North America will, to the
extent required by the indenture and such Offer:
(1) in the case of an Offer resulting from a Change of Control, accept
for payment all notes or portions thereof tendered pursuant to such Offer
and, in the case of an Offer resulting from an Asset Sale Trigger Date,
accept for payment the maximum principal amount of notes or portions
thereof tendered pursuant to such Offer that can be purchased out of Excess
Proceeds;
(2) deposit with the paying agent the aggregate purchase price of all
notes or portions thereof accepted for payment and any accrued and unpaid
interest and liquidated damages, if any, on such notes as of the Purchase
Date; and
(3) deliver or cause to be delivered to the trustee all notes tendered
pursuant to the Offer.
The paying agent shall promptly mail to each holder of notes or portions
thereof accepted for payment an amount equal to the purchase price for such
notes plus any accrued and unpaid interest and liquidated damages, if any,
thereon, and the trustee shall promptly authenticate and mail (or cause to be
transferred by book-entry) to such holder of notes accepted for payment in part
a new note equal in principal amount to any unpurchased portion of the notes and
any note not accepted for payment in whole or in part shall be promptly returned
to the holder thereof. Fedders North America will publicly announce the results
of the Offer on or as soon as practicable after the Purchase Date.
Fedders North America will comply with any tender offer rules under the
Securities Exchange Act of 1934 which may then be applicable, including Rule
14e-1, in connection with an offer required to be made by Fedders North America
to repurchase the notes as a result of a Change of Control or an Asset Sale
Trigger Date. To the extent that the provisions of any securities laws or
regulations conflict with provisions of the indenture, Fedders North America
shall comply with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations under the indenture by virtue
thereof.
Selection and Notice. In the event of a redemption or purchase of less
than all of the notes, the notes to be redeemed or purchased will be chosen by
the trustee pro rata, by lot or by any other method that the trustee considers
fair and appropriate and, if the notes are listed on any securities exchange, by
a method that complies with the requirements of such exchange; provided that, if
less than all of a holder's notes and are to be redeemed or accepted for
payment, only principal amounts of $1,000 or multiples thereof may be selected
for redemption or accepted for payment. On and after any redemption or purchase
date, interest shall cease to accrue on the notes or portions thereof called for
redemption or accepted for payment. Notice of any redemption or offer to
purchase will be mailed at least 30 days but not more than 60 days before the
redemption or purchase date to each holder of notes to be redeemed or purchased
at such holder's registered address.
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CERTAIN COVENANTS
The indenture contains, among other things, the following covenants:
Limitation on Restricted Payments. The indenture provides that Fedders
North America will not, and will not permit any Restricted Subsidiary to,
directly or indirectly,
(i) declare or pay any dividend or make any distribution on account of
Fedders North America's or such Restricted Subsidiary's Capital Stock or
other Equity Interests (other than dividends or distributions payable in
Capital Stock or other Equity Interests (other than Disqualified Stock) of
Fedders North America and dividends or distributions payable by a
Restricted Subsidiary to a Restricted Subsidiary or to Fedders North
America);
(ii) purchase, redeem or otherwise acquire or retire for value any
Capital Stock or other Equity Interests of Fedders North America or any of
its Restricted Subsidiaries;
(iii) make any principal payment on, purchase, defease, redeem,
prepay, decrease or otherwise acquire or retire for value, prior to any
scheduled final maturity, scheduled repayment or scheduled sinking fund
payment, any Indebtedness of Fedders North America that is subordinate or
junior in right of payment to the notes; or
(iv) make any Restricted Investment (all such dividends,
distributions, purchases, redemptions, acquisitions, retirements,
prepayments and Restricted Investments being collectively referred to as
"Restricted Payments"), if, at the time of such Restricted Payment:
(a) a Default or Event of Default shall have occurred and be
continuing or shall occur as a consequence thereof; or
(b) immediately after such Restricted Payment and after giving pro
forma effect thereto, Fedders North America shall not be able to issue
$1.00 of additional Indebtedness pursuant to the first sentence of the
"Limitation on Incurrence of Indebtedness" covenant; or
(c) such Restricted Payment, together with the aggregate of all
other Restricted Payments made after August 18, 1997, without
duplication, exceeds the sum of
(1) 50% of the aggregate Consolidated Net Income (including, for
this purpose, gains or losses from Asset Sales) of Fedders North
America (or, in case such aggregate is a loss, 100% of such loss) for
the period (taken as one accounting period) from the beginning of the
fiscal quarter commencing March 1, 1997 and ended as of Fedders North
America's most recently ended fiscal quarter at the time of such
Restricted Payment; plus
(2) 100% of the aggregate net cash proceeds and the fair market
value of any property or securities (as determined by the Board of
Directors in good faith) received by Fedders North America from the
issue or sale of Capital Stock or other Equity Interests of Fedders
North America subsequent to August 18, 1997 (other than (x) Capital
Stock or other Equity Interests issued or sold to a Restricted
Subsidiary and (y) the issuance or sale of Disqualified Stock); plus
(3) the amount by which the principal amount of and any accrued
interest on either (A) Indebtedness of Fedders North America or (B)
any Indebtedness of any Restricted Subsidiary is reduced on Fedders
North America's consolidated balance sheet upon the conversion or
exchange other than by a Restricted Subsidiary subsequent to August
18, 1997 of any Indebtedness of Fedders North America or any
Restricted Subsidiary (not held by Fedders North America or any
Restricted Subsidiary) for Capital Stock or other Equity Interests
(other than Disqualified Stock) of Fedders North America (less the
amount of any cash, or the fair market value of any other property or
securities (as determined by the Board of Directors in good faith),
distributed by Fedders North America or any Restricted Subsidiary (to
persons other than Fedders North America or any other Restricted
Subsidiary) upon such conversion or exchange); plus
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(4) if any Non-Restricted Subsidiary is redesignated as a
Restricted Subsidiary, the value of the Restricted Payment that would
result if such Subsidiary were redesignated as a Non-Restricted
Subsidiary at such time, as determined in accordance with the second
paragraph of the "Designation of Restricted and Non-Restricted
Subsidiaries" covenant.
Notwithstanding the foregoing, clauses (b) and (c) shall not prohibit as
Restricted Payments:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration, such payment would
comply with all covenants of the indenture (including, but not limited to,
the "Limitation on Restricted Payments" covenant); provided that payments
made pursuant to this paragraph shall count as a Restricted Payment for
purposes of the calculation in clause (c) of this covenant;
(ii) payments to Fedders Corporation in an amount equal to the amount
of income tax that Fedders North America would have paid had it filed
consolidated tax returns on a separate company basis in any given tax year;
provided that payments made pursuant to this paragraph (ii) shall not count
as a Restricted Payment for purposes of the calculation in paragraph (c) of
this covenant;
(iii) cash dividends or loans from Fedders North America to Fedders
Corporation pursuant to the Services Agreement but in no event exceeding 4%
of the revenues of Fedders North America and its Restricted Subsidiaries
for the immediately preceding four fiscal quarters; provided, that payments
made pursuant to this paragraph (iii) shall not count as a Restricted
Payment for purposes of the calculation in paragraph (c) of this covenant;
(iv) the redemption, repurchase, retirement or other acquisition of
any Capital Stock or other Equity Interests of Fedders North America or any
Restricted Subsidiary in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to a Subsidiary of Fedders North
America) of other Capital Stock or other Equity Interests of Fedders North
America (other than any Disqualified Stock) or the redemption, repurchase,
retirement or other acquisition of any Capital Stock or other Equity
Interests of any Restricted Subsidiary in exchange for, or out of the
proceeds of, the substantially concurrent sale (other than to Fedders North
America or a Subsidiary of Fedders North America) of other Capital Stock or
other Equity Interests of such Restricted Subsidiary; provided that, in
each case, any net cash proceeds that are utilized for any such redemption,
repurchase, retirement or other acquisition, and any Net Income resulting
therefrom, shall be excluded from clause (c) of this covenant;
(v) Restricted Investments made or received in connection with the
sale, transfer or disposition of any business, properties or assets of
Fedders North America or any Restricted Subsidiary; provided that, if such
sale, transfer or disposition constitutes an Asset Sale, Fedders North
America complies with the "Asset Sale" provisions of the indenture, and
such Restricted Investments shall not count as a Restricted Payment for
purposes of the calculation in paragraph (c) of this covenant;
(vi) the payment of a dividend to Fedders Corporation in order to
allow Fedders Corporation to pay its regular quarterly dividend in respect
of Fedders Corporation's Convertible Preferred Stock, Common Stock, Class A
Common Stock and Class B Common Stock; provided that payments made pursuant
to this paragraph (vi) shall count as a Restricted Payment for purposes of
the calculation in paragraph (c) of this covenant; and
(vii) $3,000,000; provided that payments made pursuant to this
paragraph (vii) shall count as a Restricted Payment for purposes of the
calculation in paragraph (c) of this covenant.
Limitation on Incurrence of Indebtedness. The indenture provides that
Fedders North America will not, and will not permit any Restricted Subsidiary
to, issue any Indebtedness (other than the Indebtedness represented by the notes
in an aggregate principal amount not to exceed $50,000,000) unless Fedders North
America's Cash Flow Coverage Ratio for its four full fiscal quarters next
preceding the date such additional Indebtedness is issued would have been at
least 2.0 to 1 on or prior to August 31, 1999 and at least 2.25 to 1 thereafter
determined on a Pro Forma Basis (including, for this purpose, any other
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Indebtedness incurred since the end of the applicable four quarter period) as if
such additional Indebtedness and any other Indebtedness issued since the end of
such four-quarter period had been issued at the beginning of such four-quarter
period.
The foregoing limitations will not apply to the issuance of:
(i) Indebtedness of Fedders North America and/or its Restricted
Subsidiaries under the Credit Agreement as measured on such date of
issuance in an aggregate principal amount outstanding on any such date of
issuance not exceeding the greater of (x) the sum of (A) 75% of the book
value of the accounts receivable of Fedders North America and its
Restricted Subsidiaries on a consolidated basis and (B) 60% of the book
value of the inventory of Fedders North America and its Restricted
Subsidiaries on a consolidated basis or (y) $50,000,000;
(ii) Indebtedness of Fedders North America and its Restricted
Subsidiaries in connection with capital leases, purchase money obligations,
capital expenditures or similar financing transactions relating to their
properties, assets and rights up to $10,000,000 in aggregate principal
amount;
(iii) additional Indebtedness of Fedders North America and its
Restricted Subsidiaries in an aggregate principal amount of up to
$10,000,000; and
(iv) Other Permitted Indebtedness.
Notwithstanding the foregoing, no Restricted Subsidiary shall under any
circumstances issue a guarantee of any Indebtedness of Fedders North America
except for guarantees issued by Restricted Subsidiaries pursuant to the
"Limitation on Guarantees of Company Indebtedness by Restricted Subsidiaries"
covenant; provided, however, that the foregoing will not limit or restrict
guarantees issued by Restricted Subsidiaries in respect of Indebtedness of other
Restricted Subsidiaries.
Sale and Leaseback Transactions. The indenture provides that Fedders North
America will not, and will not cause or permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
Fedders North America may enter into a sale and leaseback transaction if:
(i) Fedders North America could have incurred Indebtedness in an
amount equal to the Attributable Debt relating to such sale and leaseback
transaction pursuant to Fedders North America's Cash Flow Coverage Ratio
test set forth in the first sentence of the "Limitation on Incurrence of
Indebtedness" covenant; and
(ii) the net cash proceeds of such sale and leaseback transaction are
at least equal to the fair market value (as determined in good faith by the
Board of Directors and set forth in an officers' certificate delivered to
the trustee) of the property that is the subject of such sale and leaseback
transaction; and
(iii) the transfer of assets in such sale and leaseback transaction is
permitted by, and the proceeds of such transaction are applied in
compliance with, the "Asset Sales" covenant.
Limitation on Liens. The indenture provides that Fedders North America
will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume or suffer to exist any Lien (other than
Permitted Liens) upon any property or asset now owned or hereafter acquired by
them, or any income or profits therefrom, or assign or convey any right to
receive income therefrom; provided, however, that in addition to creating
Permitted Liens on its properties or assets, Fedders North America and any of
its Restricted Subsidiaries may create any Lien upon any of their properties or
assets (including, but not limited to, any Capital Stock of its Subsidiaries) if
the notes are equally and ratably secured.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The indenture provides that Fedders North America will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
create or otherwise cause or suffer to exist or become effective, any
encumbrance or restriction on the ability of any Restricted Subsidiary to: (a)
pay dividends or make any other distributions on its Capital Stock or any other
interest or participation in, or measured by, its profits,
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owned by Fedders North America or any Restricted Subsidiary, or pay any
Indebtedness owed to, Fedders North America or any Restricted Subsidiary, (b)
make loans or advances to Fedders North America, or (c) transfer any of its
properties or assets to Fedders North America, except for such encumbrances or
restrictions existing under or by reason of:
(i) applicable law;
(ii) Indebtedness permitted (A) under the first sentence of the first
paragraph of the "Limitation on Incurrence of Indebtedness" covenant, (B)
under clauses (i) or (iii) of the second paragraph of the "Limitation on
Incurrence of Indebtedness" covenant or clauses (i), (v), (vi) or (viii) of
the definition of "Other Permitted Indebtedness", or (C) by agreements and
transactions permitted under the "Limitation on Restricted Payments"
covenant;
(iii) customary provisions restricting subletting or assignment of any
lease or license of Fedders North America or any Restricted Subsidiary;
(iv) any instrument governing Indebtedness or any other encumbrance or
restriction of a person acquired by Fedders North America or any Restricted
Subsidiary at the time of such acquisition, which encumbrance or
restriction is not applicable to any person, or the properties or assets of
any person, other than the person, or the property or assets of the person,
so acquired;
(v) the Credit Agreement and the 1997 notes;
(vi) any Refinancing Indebtedness permitted under the "Limitation on
Incurrence of Indebtedness" covenant or clauses (i), (v) or (viii) of the
definition of Other Permitted Indebtedness; provided that the encumbrances
and restrictions created in connection with such Refinancing Indebtedness
are no more restrictive in any material respect with regard to the
interests of the holders of notes than the encumbrances and restrictions in
the refinanced Indebtedness; or
(vii) the terms of purchase money obligations, but only to the extent
such purchase money obligations restrict or prohibit the transfer of the
property so acquired.
Nothing contained in this covenant shall prevent Fedders North America from
entering into any agreement or instrument providing for the incurrence of
Permitted Liens or restricting the sale or other disposition of property or
assets of Fedders North America or any of its Restricted Subsidiaries that are
subject to Permitted Liens.
Limitation on Transactions With Affiliates. The indenture provides that
neither Fedders North America nor any of its Restricted Subsidiaries may make
any loan, advance, guarantee or capital contribution to, or for the benefit of,
or sell, lease, transfer or dispose of any properties or assets to, or for the
benefit of, or purchase or lease any property or assets from, or enter into or
amend any contract, agreement or understanding with, or for the benefit of, an
Affiliate (each such transaction or series of related transactions that are part
of a common plan are referred to as an "Affiliate Transaction"), except in good
faith and on terms that are no less favorable to Fedders North America or the
relevant Restricted Subsidiary than those that would have been obtained in a
comparable transaction on an arm's length basis from an unrelated person.
The indenture further provides that Fedders North America will not, and
will not permit any Restricted Subsidiary to, engage in any Affiliate
Transaction involving aggregate payments or other transfers by Fedders North
America and its Restricted Subsidiaries in excess of $3,500,000 (including cash
and non-cash payments and benefits valued at their fair market value by the
Board of Directors of Fedders North America in good faith) unless Fedders North
America delivers to the trustee:
(i) a resolution of the Board of Directors of Fedders North America
stating that the Board of Directors (including a majority of the
disinterested directors, if any) has, in good faith, determined that such
Affiliate Transaction complies with the provisions of the indenture; and
(ii) (A) with respect to any Affiliate Transaction involving the
incurrence of Indebtedness, a written opinion of a nationally recognized
investment banking or accounting firm experienced in the
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review of similar types of transactions, (B) with respect to any Affiliate
Transaction involving the transfer of real property, fixed assets or
equipment, either directly or by a transfer of 50% or more of the Capital
Stock of a Restricted Subsidiary which holds any such real property, fixed
assets or equipment, a written appraisal from a nationally recognized
appraiser, experienced in the review of similar types of transactions, or
(C) with respect to any Affiliate Transaction not otherwise described in
(A) and (B) above, a written certification from a nationally recognized
professional or firm experienced in evaluating similar types of
transactions, in each case, stating that the terms of such transaction are
fair to Fedders North America or such Restricted Subsidiary, as the case
may be, from a financial point of view.
Notwithstanding the foregoing, this Affiliate Transactions covenant will
not apply to:
(i) transactions between Fedders North America and any wholly owned
Restricted Subsidiary or between wholly owned Restricted Subsidiaries;
(ii) transactions permitted by the "Limitation on Restricted Payments"
covenant;
(iii) compensation paid to officers, employees or consultants of
Fedders North America or any subsidiary as determined in good faith by
Fedders North America's Board of Directors or executives; or
(iv) transactions between Fedders North America and Fedders
Corporation or between Fedders North America and a Subsidiary of Fedders
Corporation in the ordinary course of business on terms substantially
consistent with past practice.
Limitation on Senior Subordinated Indebtedness. Fedders North America will
not, directly or indirectly, incur any Indebtedness that by its terms would
expressly rank senior in right of payment to the notes and expressly rank
subordinate in right of payment to any Senior Indebtedness.
Limitation on Guarantees of Company Indebtedness by Restricted
Subsidiaries. The indenture provides that Fedders North America will not permit
any Restricted Subsidiary, directly or indirectly, to guarantee any Indebtedness
of Fedders North America other than the notes (the "Other Company Indebtedness")
unless
(A) such Restricted Subsidiary contemporaneously executes and delivers
a supplemental indenture to the indenture providing for a guarantee of
payment of the notes then outstanding by such Restricted Subsidiary to the
same extent as the guarantee of payment (the "Other Company Indebtedness
Guarantee") of the Other Company Indebtedness (including waiver of
subrogation, if any); and
(B) if the Other Company Indebtedness guaranteed by such Restricted
Subsidiary is Senior Indebtedness, the guarantee for the notes shall be
subordinated in right of payment with the Other Company Indebtedness
Guarantee; provided, however, that the provisions of this section do not
apply to guarantees by any Restricted Subsidiary of the Company's
Indebtedness under the Credit Agreement as in effect on August 18, 1997.
Each guarantee of the notes created by a Restricted Subsidiary pursuant to
the provisions described in the foregoing paragraph shall be in form and
substance satisfactory to the trustee and shall provide, among other things,
that it will be automatically and unconditionally released and discharged upon
(i) any sale, exchange or transfer permitted by the indenture of (a)
all of Fedders North America's Capital Stock in such Restricted Subsidiary
or (b) the sale of all or substantially all of the assets of the Restricted
Subsidiary and upon the application of the Net Proceeds from such sale in
accordance with the requirements of the "Asset Sales" provisions described
herein; or
(ii) the release or discharge of the Other Company Indebtedness
Guarantee that resulted in the creation of such guarantee of the notes.
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Designation of Restricted and Non-Restricted Subsidiaries. The indenture
provides that, subject to the exceptions described below, from and after August
18, 1997, Fedders North America may designate any existing or newly formed or
acquired Subsidiary as a Non-Restricted Subsidiary; provided that either
(A) the Subsidiary to be so designated has total assets of $1,000,000
or less; or
(B) immediately before and after giving effect to such designation:
(1) Fedders North America could incur $1.00 of additional
Indebtedness pursuant to the first sentence of the "Limitation on
Incurrence of Indebtedness" covenant determined on a Pro Forma Basis;
(2) no Default or Event of Default shall have occurred and be
continuing;
(3) all Investments made by Fedders North America or by a
Restricted Subsidiary of Fedders North America in such Restricted
Subsidiary which is being designated a Non-Restricted Subsidiary prior
to or on the date such Restricted Subsidiary is being designated a
Non-Restricted Subsidiary shall have been permitted pursuant to the
"Limitation on Restricted Payments" covenant as if all of such
Restricted Payments had been made on the day such Restricted Subsidiary
is designated a Non-Restricted Subsidiary (to the extent not previously
included as a Restricted Payment) in the amount of the greater of (i)
the fair market value (as determined by the Board of Directors of
Fedders North America in good faith) of the Equity Interests of such
Subsidiary held by Fedders North America and its Restricted Subsidiaries
on such date or (ii) the amount of the Investments determined in
accordance with GAAP made by Fedders North America and any of its
Restricted Subsidiaries in such Restricted Subsidiary; and
(4) all transactions between the Subsidiary to be so designated and
its Affiliates remaining in effect are permitted pursuant to the
"Limitation on Transactions with Affiliates" covenant.
A Non-Restricted Subsidiary may be redesignated as a Restricted Subsidiary.
Fedders North America may not, and may not permit any Restricted Subsidiary to,
take any action or enter into any transaction or series of transactions that
would result in a person becoming a Restricted Subsidiary (whether through an
acquisition, the redesignation of a Non-Restricted Subsidiary or otherwise, but
not including through the creation of a new Restricted Subsidiary) unless,
immediately before and after giving effect to such action, transaction or series
of transactions,
(a) Fedders North America could incur at least $1.00 of additional
Indebtedness pursuant to the first sentence of "Limitation on Incurrence of
Indebtedness" on a Pro Forma Basis; and
(b) no Default or Event of Default shall have occurred and be
continuing.
The designation of a Subsidiary as a Restricted Subsidiary or the removal
of such designation is required to be made by a resolution adopted by a majority
of the Board of Directors of Fedders North America stating that the Board of
Directors has made such designation in accordance with the indenture, and
Fedders North America is required to deliver to the trustee such resolution
together with an officers' certificate certifying that the designation complies
with the indenture. Such designation will be effective as of the date specified
in the applicable resolution which may not be before the date the applicable
officers' certificate is delivered to the trustee.
MERGER OR CONSOLIDATION
The indenture provides that each of Fedders North America and Fedders
Corporation shall not consolidate or merge with or into, or sell, lease, convey
or otherwise dispose of all or substantially all of its assets to, any person
(any such consolidation, merger or sale being a "Disposition") unless:
(a) the successor corporation of such Disposition or the corporation
to which such Disposition shall have been made is a corporation organized
or existing under the laws of the United States, any state thereof or the
District of Columbia;
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(b) the successor corporation of such Disposition or the corporation
to which such Disposition shall have been made expressly assumes the
Obligations of Fedders North America or Fedders Corporation, as the case
may be, pursuant to a supplemental indenture in a form reasonably
satisfactory to the trustee, under the indenture and the notes;
(c) immediately after such Disposition, no Default or Event of Default
shall exist; and
(d) the corporation formed by or surviving any such Disposition, or
the corporation to which such Disposition shall have been made, shall (i)
have Consolidated Net Worth (immediately after the Disposition but prior to
giving any pro forma effect to purchase accounting adjustments resulting
from the Disposition) equal to or greater than the Consolidated Net Worth
of Fedders North America or Fedders Corporation, as the case may be,
immediately preceding the Disposition, and (ii) be permitted immediately
after the Disposition by the terms of the indenture to issue at least $1.00
of additional Indebtedness pursuant to the first sentence of the
"Limitation on Incurrence of Indebtedness" covenant determined on a Pro
Forma Basis.
The limitations in the indenture on Fedders North America's ability to make
a Disposition described in the preceding paragraph do not restrict Fedders North
America's ability to sell less than all or substantially all of its assets, such
sales being governed by the "Asset Sales" provisions of the indenture as
described herein. Prior to the consummation of any proposed Disposition, Fedders
North America shall deliver to the trustee an officers' certificate to the
foregoing effect and an opinion of counsel stating that the proposed Disposition
and such supplemental indenture comply with the indenture.
PROVISION OF FINANCIAL INFORMATION TO HOLDERS OF NOTES
So long as the notes are outstanding, whether or not Fedders Corporation is
subject to the reporting requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Fedders Corporation shall submit for filing with the SEC
the annual reports, quarterly reports and other documents relating to Fedders
Corporation and its Subsidiaries that Fedders Corporation would have been
required to file with the SEC pursuant to Section 13 or 15(d) if Fedders
Corporation were subject to such reporting requirements. Fedders Corporation
will also provide to all holders of notes and file with the trustee copies of
such annual reports, quarterly reports and other documents required to be
furnished to stockholders generally under the Securities Exchange Act of 1934.
In addition, following the consummation of the exchange offer, whether or
not required by the SEC, we will file a copy of all information and reports
referred to above with the SEC for public availability within the time periods
specified in the SEC's rules and regulations (unless the SEC will not accept
such a filing) and make such information available to securities analysts and
prospective investors upon request.
EVENTS OF DEFAULT AND REMEDIES
The indenture provides that an Event of Default is:
(a) a default for 30 days in payment of interest on the notes;
(b) a default in payment when due of principal or premium, if any,
with respect to the notes;
(c) failure by Fedders North America to comply with the provisions
described under the captions "--Mandatory Offers to Purchase Notes--Change
of Control," "--Certain Covenants--Limitation on Restricted Payments,"
"--Certain Covenants--Limitation on Incurrence of Indebtedness" or
"--Merger or Consolidation";
(d) the failure of Fedders North America to comply with any of its
other agreements or covenants in, or provisions of, the indenture or the
notes and the Default continues for the period, if applicable, and after
the notice specified in the next paragraph;
(e) a default by Fedders North America, Fedders Corporation or any
Restricted Subsidiary under any mortgage, indenture or instrument under
which there may be issued or by which there may
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be secured or evidenced any Indebtedness for money borrowed by Fedders
North America or any Restricted Subsidiary (or the payment of which is
guaranteed by Fedders North America or any Restricted Subsidiary), whether
such Indebtedness or guarantee now exists or shall be created hereafter, if
(1) either (A) such default results from the failure to pay principal of or
interest on any such Indebtedness (after giving effect to any extensions
thereof) or (B) as a result of such default the maturity of such
Indebtedness has been accelerated prior to its expressed maturity, and (2)
the principal amount of such Indebtedness, together with the principal
amount of any other such Indebtedness in default for failure to pay
principal or interest thereon, or, because of the acceleration of the
maturity thereof, aggregates in excess of $2,500,000;
(f) a failure by Fedders North America or any Restricted Subsidiary to
pay final judgments (not covered by insurance) aggregating in excess of
$2,500,000 which judgments a court of competent jurisdiction does not
rescind, annul or stay within 45 days after their entry; and
(g) certain events of bankruptcy or insolvency involving Fedders North
America, Fedders Corporation or any Significant Subsidiary.
In the case of any Event of Default pursuant to clause (a) or (b) above
occurring by reason of any willful action (or inactions) taken (or not taken) by
or on behalf of Fedders North America with the intention of avoiding payment of
the premium that Fedders North America would have to pay pursuant to a
redemption of notes as described under "--Redemption of Notes--Optional
Redemption," an equivalent premium shall also become and be immediately due and
payable to the extent permitted by law.
A Default or Event of Default under clause (d) is not an Event of Default
under the indenture until the trustee or the holders of at least 25% in
principal amount of the notes then outstanding notify Fedders North America of
the Default and Fedders North America does not cure the Default within 30 days
after receipt of the notice. A Default or Event of Default under clause (g) of
the next preceding paragraph will result in the notes automatically becoming due
and payable without further action or notice.
Upon the occurrence of an Event of Default, the trustee or the holders of
at least 25% in principal amount of the then outstanding notes may declare all
notes to be due and payable by notice in writing to Fedders North America and
the trustee specifying the respective Event of Default and that it is a "notice
of acceleration" (the "Acceleration Notice") and the same shall become
immediately due and payable. The holders of a majority in principal amount of
the notes then outstanding under the indenture, by notice to the trustee, may
rescind any declaration of acceleration of such notes and its consequences (if
the rescission would not conflict with any judgment or decree) if all existing
Events of Default (other than the nonpayment of principal of or interest on such
notes that shall have become due by such declaration) shall have been cured or
waived. Subject to certain limitations, holders of a majority in principal
amount of the notes then outstanding may direct the trustee in its exercise of
any trust or power. Holders of the notes may not enforce the indenture, except
as provided therein. The trustee may withhold from holders of notes notice of
any continuing Default or Event of Default (except a Default or an Event of
Default in payment of principal, premium, if any, or interest) if the trustee
determines that withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the notes then
outstanding may on behalf of all holders of such notes waive any existing
Default or Event of Default under the indenture and its consequences, except a
continuing Default in the payment of the principal of, or premium, if any, or
interest on, such notes, which may only be waived with the consent of each
holder of the notes affected.
Upon any payment or distribution of assets of Fedders North America and its
subsidiaries in a total or partial liquidation, dissolution, reorganization or
similar proceeding, including a Default under clause (g) above involving certain
events of bankruptcy or insolvency of Fedders North America or a Significant
Subsidiary, there may not be sufficient assets remaining to satisfy the claims
of any holders of notes given the effective structural subordination of the
notes to the obligations of the Subsidiaries of Fedders North America.
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Fedders North America is required to deliver to the trustee annually a
statement regarding compliance with the indenture, and upon an executive officer
of Fedders North America becoming aware of any Default or Event of Default, a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF OFFICERS, DIRECTORS, EMPLOYEES AND STOCKHOLDERS
No officer, employee, director or stockholder of Fedders North America
shall have any liability for any Obligations of Fedders North America under the
notes or the indenture, or for any claim based on, in respect of, or by reason
of, such Obligations or the creation of any such Obligation. Each holder of the
notes by accepting a Note waives and releases all such liability, and such
waiver and release is part of the consideration for issuance of the notes. The
foregoing waiver may not be effective to waive liabilities under the federal
securities laws and the SEC is of the view that such a waiver is against public
policy.
SATISFACTION AND DISCHARGE OF THE INDENTURE
Fedders North America at any time may terminate all its obligations under
the notes, Fedders Corporation's Guaranteed Obligations and the indenture
("legal defeasance option"), except for certain obligations (including those
with respect to the defeasance trust (as defined herein) and obligations to
register the transfer or exchange of the notes, to replace mutilated, destroyed,
lost or stolen notes and to maintain a registrar and paying agent in respect of
the notes).
Fedders North America at any time may terminate:
(1) its obligations under the "Change of Control" and "Asset Sales"
provisions described herein and the covenants described under "--Certain
Covenants" and certain other covenants in the indenture;
(2) the operation of clauses (c), (d), (e), and (f) contained in the
first paragraph of the "Events of Default and Remedies" provisions
described herein; and
(3) the limitations contained in clauses (c) and (d) under the "Merger
or Consolidation" provisions described herein (collectively, a "covenant
defeasance option").
Fedders North America may exercise its legal defeasance option
notwithstanding its prior exercise of its covenant defeasance option. If Fedders
North America exercises its legal defeasance option, payment of the notes may
not be accelerated because of an Event of Default with respect thereto. If
Fedders North America exercises its covenant defeasance option, payment of the
notes shall not be accelerated because of an Event of Default specified in
clauses (c), (d), (e) or (f) in the first paragraph under the "Events of Default
and Remedies" provisions described herein or because of Fedders North America's
failure to comply with clauses (c) and (d) under the "Merger or Consolidation"
provisions described herein.
To exercise either defeasance option with respect to the notes outstanding,
Fedders North America must irrevocably deposit in trust (the "defeasance trust")
with the trustee money or U.S. Government Obligations (as defined in the
indenture) for the payment of principal of, premium, if any, and unpaid interest
on the notes then outstanding to redemption or maturity, as the case may be, and
must comply with certain other conditions, including the passage of 91 days and
the delivery to the trustee of an opinion of counsel to the effect that holders
of such notes will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit and defeasance and will be subject to
federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred (and, in the case of legal defeasance only, such opinion of counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable federal income tax law).
TRANSFER AND EXCHANGE
Holders of notes may transfer or exchange their notes in accordance with
the indenture, but the registrar may require a holder, among other things, to
furnish appropriate endorsements and transfer
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documents, and to pay any taxes and fees required by law or permitted by the
indenture, in connection with any such transfer or exchange. Neither Fedders
North America nor the registrar is required to issue, register the transfer of,
or exchange (i) any note selected for redemption or tendered pursuant to an
offer, or (ii) any note during the period between (a) the date the trustee
receives notice of a redemption from Fedders North America and the date the
notes to be redeemed are selected by the trustee or (b) a record date and the
next succeeding interest payment date. The registered holder of a note will be
treated as its owner for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the indenture may be amended or supplemented
with the consent of the holders of at least a majority in principal amount of
the notes then outstanding under the indenture, and any existing Default or
Event of Default (other than a payment default) or compliance with any provision
may be waived with the consent of the holders of a majority in principal amount
of the notes then outstanding under the indenture. Without the consent of any
holder of notes, Fedders North America and the trustee may amend or supplement
the indenture or the notes to cure any ambiguity, defect or inconsistency, to
provide for uncertificated notes in addition to or in place of certificated
notes, to provide for the assumption by a successor corporation of Fedders North
America's or Fedders Corporation's obligations to the holders of notes in the
case of a Disposition, to comply with the Trust Indenture Act, or to make any
change that does not materially adversely affect the legal rights of any holder
of notes.
Without the consent of each holder of notes affected, Fedders North America
may not:
(i) reduce the principal amount of notes whose holders must consent to
an amendment to the indenture or a waiver under the indenture;
(ii) reduce the rate on or change the interest payment time of the
notes, or alter the redemption provisions with respect thereto (other than
the provisions relating to the covenants described above under the caption
"--Mandatory Offers to Purchase Notes--Change of Control" and "--Asset
Sales") or the price at which Fedders North America is required to offer to
purchase the notes;
(iii) reduce the principal of or change the fixed maturity of the
notes;
(iv) make the notes payable in money other than stated in the notes;
(v) make any change in the provisions concerning waiver of Defaults or
Events of Default by holders of the notes, or rights of holders of the
notes to receive payment of principal or interest; or
(vi) waive any default in the payment of principal of, premium, if
any, or unpaid interest on, and liquidated damages, if any, with respect to
the notes.
CONCERNING THE TRUSTEE
The indenture contains certain limitations on the rights of the trustee, if
it becomes a creditor of Fedders North America, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest (as defined in
the Trust Indenture Act) it must eliminate such conflict or resign.
The holders of a majority in principal amount of the notes then outstanding
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that if an Event of Default occurs
(and has not been cured), the trustee will be required, in the exercise of its
power, to use the degree of care and skill of a prudent person in similar
circumstances in the conduct of its own affairs. Subject to the provisions of
the indenture, the trustee will be under no obligation to exercise any of its
rights or powers under the indenture at the request of any of the holders of the
notes, unless such holders shall have offered to the trustee security and
indemnity satisfactory to it.
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CERTAIN DEFINITIONS
Set forth below are certain of the defined terms used in the indenture.
Reference is made to the indenture for the definition of all other terms used in
the indenture.
"Affiliate" means any of the following: (i) any person directly or
indirectly controlling or controlled by or under direct or indirect common
control with Fedders North America, (ii) any spouse, immediate family member or
other relative who has the same principal residence as any person described in
clause (i) above, (iii) any trust in which any such persons described in clause
(i) or (ii) above has a beneficial interest, and (iv) any corporation or other
organization of which any such persons described above collectively owns 10% or
more of the equity of such entity.
"Asset Sale" means the sale, lease, conveyance or other disposition by
Fedders North America or a Restricted Subsidiary of assets or property whether
owned on August 18, 1997 or thereafter acquired, in a single transaction or in a
series of related transactions; provided that Asset Sales will not include such
sales, leases, conveyances or dispositions in connection with
(i) the surrender or waiver of contract rights or the settlement,
release or surrender of contract, tort or other claims of any kind;
(ii) the sale of inventory in the ordinary course of business;
(iii) a sale-leaseback of assets within one year following the
acquisition of such assets;
(iv) the grant of any license of patents, trademarks, registration
therefor and other similar intellectual property;
(v) a transfer of assets by Fedders North America or a Restricted
Subsidiary to Fedders North America or a Restricted Subsidiary;
(vi) the designation of a Restricted Subsidiary as a Non-Restricted
Subsidiary pursuant to the "Designation of Restricted and Non-Restricted
Subsidiaries" covenant;
(vii) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of Fedders North America as permitted under
"--Merger or Consolidation";
(viii) the sale or disposition of obsolete equipment or other obsolete
assets;
(ix) Restricted Payments permitted by the "Limitations on Restricted
Payments" covenant; or
(x) the exchange of assets for other non-cash assets that (a) are
useful in the business of Fedders North America and its Restricted
Subsidiaries and (b) have a fair market value at least equal to the fair
market value of the assets being exchanged (as determined in good faith by
the Board of Directors or the board of directors of the Restricted
Subsidiary which owns such assets).
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Board of Directors" means Fedders North America's board of directors or
any authorized committee of such board of directors.
"Capital Stock" means any and all shares, interests, participations or
other equivalents (however designated) of corporate stock, including any
Preferred Stock.
"Cash Flow" means, for any given period and person, the sum of, without
duplication, Consolidated Net Income, plus
(a) any provision for taxes based on income or profits to the extent
such income or profits were included in computing Consolidated Net Income,
plus
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(b) Consolidated Interest Expense, to the extent deducted in computing
Consolidated Net Income, plus
(c) the amortization of all intangible assets, to the extent such
amortization was deducted in computing Consolidated Net Income (including,
but not limited to, inventory write-ups, goodwill, debt and financing
costs), plus
(d) all depreciation and all other non-cash charges (including,
without limitation, those charges relating to purchase accounting
adjustments and LIFO adjustments), to the extent deducted in computing
Consolidated Net Income, plus
(e) any interest income, to the extent such income was not included in
computing Consolidated Net Income, plus
(f) all dividend payments on Preferred Stock (whether or not paid in
cash) to the extent deducted in computing Consolidated Net Income;
provided, however, that, if any such calculation includes any period during
which an acquisition or sale of a person or the incurrence or repayment of
Indebtedness occurred, then such calculation for such period shall be made on a
Pro Forma Basis.
"Cash Flow Coverage Ratio" means, for any given period and person, the
ratio of (i) Cash Flow, divided by (ii) the sum of Consolidated Interest Expense
(except dividends paid or payable in additional shares of Capital Stock (other
than Disqualified Stock)) in each case, without duplication; provided, however,
that if any such calculation includes any period during which an acquisition or
sale of a person or the incurrence or repayment of Indebtedness occurred, then
such calculation for such period shall be made on a Pro Forma Basis.
"Change of Control" means the occurrence of any of the following:
(i) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934), excluding the Existing
Stockholders, is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a
person shall be deemed to have "beneficial ownership" of all securities
that such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total Voting Stock of Fedders North
America or of Fedders Corporation; or
(ii) Fedders North America or Fedders Corporation consolidates with,
or merges with or into, another person or sells, assigns, conveys,
transfers, leases or otherwise disposes of all or substantially all of its
assets to any person, or any person consolidates with, or merges with or
into, Fedders North America or Fedders Corporation, in any such event
pursuant to a transaction in which the outstanding Voting Stock of Fedders
North America or of Fedders Corporation is converted into or exchanged for
cash, securities or other property, other than any such transaction where
(A) the outstanding Voting Stock of Fedders North America or of Fedders
Corporation is converted into or exchanged for (1) Voting Stock (other than
Disqualified Stock) of the surviving or transferee corporation or (2) cash,
securities and other property in an amount which could be paid by Fedders
North America as a Restricted Payment under the indenture and
(B)immediately after such transaction no "person" or "group" (as such terms
are used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934), excluding the Existing Stockholders, is the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934,
except that a person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total Voting Stock of the surviving or
transferee corporation; or
(iii) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of Fedders
North America or of Fedders Corporation (together with any new directors
whose election by such Board of Directors or whose nomination for election
by
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the stockholders of Fedders North America was approved by a vote of a
majority of the directors then still in office who are entitled to vote to
elect such new director and were either directors at the beginning of such
period or persons whose election as directors or nomination for election
was previously so approved) cease for any reason to constitute a majority
of the Board of Directors of Fedders North America or of Fedders
Corporation then in office.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of Fedders North America's assets. Although there is a developing body of case
law interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of notes to require Fedders North America to repurchase such notes as a
result of a sale, lease, transfer, conveyance or other disposition of less than
all of the assets of Fedders North America and its Subsidiaries to another
person may be uncertain.
"Consolidated Interest Expense" means, for any given period and person, the
aggregate of
(i) the interest expense in respect of all Indebtedness of such person
and its Restricted Subsidiaries for such period, on a consolidated basis,
determined in accordance with GAAP (including amortization of original
issue discount on any such Indebtedness, all non-cash interest payments,
the interest portion of any deferred payment obligation and the interest
component of capital lease obligations, but excluding amortization of
deferred financing fees if such amortization would otherwise be included in
interest expense); and
(ii) the product of (a) all cash dividend payments (and non-cash
dividend payments in the case of a person that is a Restricted Subsidiary)
on any series of Preferred Stock of such person and its Restricted
Subsidiaries payable to a party other than Fedders North America or a
wholly owned Subsidiary, times (b) a fraction, the numerator of which is
one and the denominator of which is one minus the then current combined
federal, state and local statutory tax rate of such person, expressed as a
decimal, on a consolidated basis and in accordance with GAAP; provided,
however, that for the purpose of the Cash Flow Coverage Ratio, Consolidated
Interest Expense shall be calculated on a Pro Forma Basis.
"Consolidated Net Income" means, for any given period and person, the
aggregate of the Net Income of such person and its Restricted Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that
(i) the Net Income of any person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded;
(ii) the Net Income (but not loss) of any person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends
or distributions paid in cash to the referent Person;
(iii) the Net Income of any Restricted Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental approval
(which has not been obtained) or, directly or indirectly, by operation of
the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders;
(iv) the cumulative effect of a change in accounting principles shall
be excluded;
(v) income or loss attributable to discontinued operations shall be
excluded; and
(vi) all other extraordinary, unusual or nonrecurring gains or losses
shall be excluded; provided, however, that for purposes of determining the
Cash Flow Coverage Ratio, Consolidated Net Income shall be calculated on a
Pro Forma Basis.
"Consolidated Net Worth" means, with respect to any person at any date, the
sum of
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(i) the consolidated stockholders' equity of such person less the
amount of such stockholders' equity attributable to Disqualified Stock of
such person and its Subsidiaries (Restricted Subsidiaries, in the case of
Fedders North America), as determined on a consolidated basis in accordance
with GAAP consistently applied and
(ii) the amount of any Preferred Stock of such person not included in
the stockholders' equity of such person in accordance with GAAP, which
Preferred Stock does not constitute Disqualified Stock.
"Credit Agreement" means collectively, the Accounts Financing Agreement
between Columbia Specialties, Inc. and Congress Financial Corporation dated
December 23, 1992, and the Accounts Financing Agreement by and among Fedders
North America, Inc., Emerson Quiet Kool Corporation and Congress Financial
Corporation dated December 23, 1992, together with all loan documents and
instruments thereunder (including, without limitation, any guarantee agreements,
covenant supplements and security documents), in each case as such agreements
have been or may be amended (including any amendment and restatement thereof),
supplemented or otherwise modified from time to time, including any agreement
extending the maturity of, refinancing, replacing or otherwise restructuring
(including, without limitation, increasing the amount of available borrowings
thereunder, and all Obligations with respect thereto, in each case, to the
extent permitted by the "Limitation on Incurrence of Indebtedness" covenant or
adding Subsidiaries of Fedders North America as additional borrowers or
guarantors thereunder) all or any portion of the Indebtedness under such
agreement or any successor or replacement agreement and whether by the same or
any other agent, lender or group of lenders.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) any Indebtedness outstanding
under the Credit Agreement and (ii) any other Senior Indebtedness permitted
under the indenture the principal amount of which is $20,000,000 or more and
that has been designated by Fedders North America as Senior Indebtedness.
"Disqualified Stock" with respect to any person means any Capital Stock or
Equity Interests that by its terms (or by the terms of any security into which
it is convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part on, or prior to, the maturity date of the notes, or any
Capital Stock or Equity Interests in any Restricted Subsidiary of such person.
"Equity Interests" means Capital Stock or partnership interests or
warrants, options or other rights to acquire Capital Stock or partnership
interests (but excluding (i) any debt security that is convertible into, or
exchangeable for, Capital Stock or partnership interests, and (ii) any other
Indebtedness or Obligation).
"Equity Offering" means a public or private offering by Fedders North
America or Fedders Corporation for cash of Capital Stock or other Equity
Interests and all warrants, options or other rights to acquire Capital Stock,
other than an offering of Disqualified Stock.
"Existing Stockholders" means the officers and directors of each of Fedders
North America and Fedders Corporation on August 18, 1997 and their respective
Affiliates and family members and trusts for the benefit of any of the
foregoing.
"GAAP" means generally accepted accounting principles, consistently
applied, as in effect in the United States from time to time. All financial and
accounting determinations and calculations under the indenture will be made in
accordance with GAAP.
"Guarantor Senior Indebtedness" means, with respect to Fedders Corporation,
Fedders Corporation's guarantee of Fedders North America's obligations under the
Credit Agreement and any other Indebtedness of Fedders Corporation (other than
as otherwise provided in this definition), whether outstanding on August 18,
1997 or thereafter created, incurred or assumed, unless, in the case of any
particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding
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expressly provides that such Indebtedness shall not be senior in right of
payment to the guarantee. Notwithstanding the foregoing, "Guarantor Senior
Indebtedness" will not include
(i) Indebtedness evidenced by the guarantee;
(ii) Indebtedness of Fedders Corporation that is subordinate or junior
in right of payment to any other Indebtedness of Fedders Corporation;
(iii) Indebtedness of Fedders Corporation which, when incurred and
without respect to any other election under Section 1111(b) of Title 11,
United States Code, is without recourse to Fedders Corporation;
(iv) Indebtedness which is represented by Disqualified Stock of
Fedders Corporation;
(v) any liability for foreign, federal, state, local or other taxes
owed or owing by Fedders Corporation;
(vi) Indebtedness of Fedders Corporation to a Subsidiary or any other
Affiliate of Fedders Corporation or any of such Affiliate's subsidiaries;
(vii) that portion of any Indebtedness which, when incurred, is issued
in violation of the indenture; and
(viii) trade payables owed or owing by Fedders Corporation.
"Hedging Obligations" means, with respect to any person, the Obligations of
such persons under
(i) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements,
(ii) foreign exchange contracts, currency swap agreements or similar
agreements, and
(iii) other agreements or arrangements designed to protect such person
against fluctuations, or otherwise to establish financial hedges in respect
of, exchange rates, currency rates or interest rates.
"Indebtedness" means, with respect to any person,
(i) any indebtedness, whether or not contingent, in respect of
borrowed money or evidenced by bonds, notes, debentures or similar
instruments or letters of credit (or reimbursement agreements in respect
thereof) or representing the deferred and unpaid balance of the purchase
price of any property (including pursuant to capital leases), except any
such balance that constitutes an accrued expense or a trade payable, and
any Hedging Obligations, if and to the extent such indebtedness (other than
a Hedging Obligation) would appear as a liability upon a balance sheet of
such person prepared on a consolidated basis in accordance with GAAP, and
also includes, to the extent not otherwise included, the guarantee of items
that would be included within this definition;
(ii) Disqualified Stock of such person; or
(iii) Preferred Stock issued by a Restricted Subsidiary of such
person.
"Investment" means any capital contribution to, or other debt or equity
investment in, any Person. For the purposes of the "Limitation on Restricted
Payments" covenant, the amount of any Investment shall be the original cost of
such Investment plus the cost of all additional Investments by Fedders North
America or any of its Restricted Subsidiaries, without any adjustments for
increases or decreases in value, or write-ups, write-downs or write-offs with
respect to such Investment, reduced by the payment of dividends or distributions
in connection with such Investment or any other amounts received by Fedders
North America or any Restricted Subsidiary in respect of such Investment to the
extent not included in Consolidated Net Income.
"issue" means create, issue, assume, guarantee, incur or otherwise become
directly or indirectly liable for any Indebtedness or Capital Stock, as
applicable; provided, however, that any Indebtedness or Capital Stock of a
person existing at the time such person becomes a Restricted Subsidiary (whether
by merger,
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consolidation, acquisition or otherwise) shall be deemed to be issued by such
Restricted Subsidiary at the time it becomes a Restricted Subsidiary. For this
definition, the terms "issuing," "issuer," "issuance" and "issued" have meanings
correlative to the foregoing.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell and any filing of or
agreement to give any financing statement under the Uniform Commercial Code (or
equivalent statutes) of any jurisdiction).
"Net Income" means, with respect to any person, the net income (loss) of
such person, determined in accordance with GAAP, excluding, however, any gain or
loss, together with any related provision for taxes, realized in connection with
any Asset Sale (including, without limitation, dispositions pursuant to sale and
leaseback transactions).
"Net Proceeds" means, with respect to any Asset Sale, the aggregate amount
of cash proceeds (including any cash received by way of deferred payment
pursuant to a note receivable issued in connection with such Asset Sale, other
than the portion of such deferred payment constituting interest, and including
any amounts received as disbursements or withdrawals from any escrow or similar
account established in connection with any such Asset Sale, but, in either such
case, only as and when so received) received by Fedders North America or any of
its Restricted Subsidiaries in respect of such Asset Sale, net of
(i) the cash expenses of such Asset Sale (including, without
limitation, the payment of principal of, and premium, if any, and interest
on, Indebtedness required to be paid as a result of such Asset Sale (other
than the notes) and legal, accounting, management and advisory and
investment banking fees and sales commissions);
(ii) taxes paid or payable as a result thereof; and
(iii) any portion of cash proceeds that Fedders North America
determines in good faith should be reserved for post-closing adjustments,
it being understood and agreed that on the day that all such post-closing
adjustments have been determined, the amount (if any) by which the reserved
amount in respect of such Asset Sale exceeds the actual post-closing
adjustments payable by Fedders North America or any of its Restricted
Subsidiaries shall constitute Net Proceeds on such date.
"Non-Restricted Subsidiary" means any Subsidiary of Fedders North America
other than a Restricted Subsidiary.
"Obligations" means, with respect to any Indebtedness, all principal,
interest, premiums, penalties, fees, indemnities, expenses (including legal fees
and expenses), reimbursement obligations and other liabilities payable to the
holder of such Indebtedness under the documentation governing such Indebtedness,
and any other claims of such holder arising in respect of such Indebtedness.
"Other Permitted Indebtedness" means:
(i) Indebtedness of Fedders North America and its Restricted
Subsidiaries existing as of August 18, 1997 and all related Obligations as
in effect on such date;
(ii) Indebtedness of Fedders North America and its Restricted
Subsidiaries in respect of bankers' acceptances and letters of credit
(including, without limitation, letters of credit in respect of workers'
compensation claims) issued in the ordinary course of business, or other
Indebtedness in respect of reimbursement-type obligations regarding
workers' compensation claims;
(iii) Refinancing Indebtedness; provided that: (A) the principal
amount of such Refinancing Indebtedness shall not exceed the outstanding
principal amount of Indebtedness (including unused commitments) extended,
refinanced, renewed, replaced, substituted or refunded plus any amounts
incurred to pay premiums, fees and expenses in connection therewith, and
(B) the Refinancing Indebtedness shall have a Weighted Average Life to
Maturity equal to or greater than the Weighted
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Average Life to Maturity of the Indebtedness being extended, refinanced,
renewed, replaced, substituted or refunded;
(iv) intercompany Indebtedness of and among Fedders North America and
its wholly owned Restricted Subsidiaries (excluding guarantees by
Restricted Subsidiaries of Indebtedness of Fedders North America not issued
in compliance with the "Limitation on Guarantees of Company Indebtedness by
Restricted Subsidiaries" covenant);
(v) Indebtedness of any Non-Restricted Subsidiary created after August
18, 1997; provided that such Indebtedness is nonrecourse to Fedders North
America and its Restricted Subsidiaries and Fedders North America and its
Restricted Subsidiaries have no Obligations with respect to such
Indebtedness;
(vi) Indebtedness of Fedders North America and its Restricted
Subsidiaries under Hedging Obligations;
(vii) Indebtedness of Fedders North America and its Restricted
Subsidiaries arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except
in the case of daylight overdrafts, which will not be, and will not be
deemed to be, inadvertent) drawn against insufficient funds in the ordinary
course of business;
(viii) guarantees by a Restricted Subsidiary of Indebtedness of
Fedders North America if the Indebtedness so guaranteed is permitted under
the indenture and the notes are guaranteed by such Restricted Subsidiary to
the extent required by the "Limitation on Guarantees of Company
Indebtedness by Restricted Subsidiaries" covenant;
(ix) Indebtedness of Fedders North America and its Restricted
Subsidiaries in connection with performance, surety, statutory, appeal or
similar bonds in the ordinary course of business;
(x) intercompany Indebtedness of Fedders North America to Fedders
Corporation; provided such Indebtedness does not bear interest; and
(xi) the 1997 notes.
"Permitted Liens" means, with respect to Fedders North America and its
Restricted Subsidiaries,
(i) Liens for taxes, assessments, governmental charges or claims which
are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted and if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have
been made therefor;
(ii) statutory Liens of landlords and carriers', warehousemen's,
mechanics', suppliers', materialmen's, repairmen's or other like Liens
arising in the ordinary course of business and with respect to amounts not
yet delinquent or being contested in good faith by appropriate proceedings,
if a reserve or other appropriate provision, if any, as shall be required
in conformity with GAAP shall have been made therefor;
(iii) Liens incurred on deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security;
(iv) Liens incurred on deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds,
government contracts, performance and return of money bonds and other
obligations of a like nature incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money);
(v) easements, rights-of-way, zoning or other restrictions, minor
defects or irregularities in title and other similar charges or
encumbrances not interfering in any material respect with the business of
Fedders North America or any of its Restricted Subsidiaries incurred in the
ordinary course of business;
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(vi) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(vii) judgment and attachment Liens not giving rise to an Event of
Default;
(viii) leases or subleases granted to others not interfering in any
material respect with the business of Fedders North America or any of its
Restricted Subsidiaries;
(ix) Liens securing Indebtedness under Hedging Obligations;
(x) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements;
(xi) Liens arising out of consignment or similar arrangements for the
sale of goods entered into by Fedders North America or its Restricted
Subsidiaries in the ordinary course of business;
(xii) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(xiii) Liens existing on August 18, 1997 and any extensions,
refinancings, renewals, replacements, substitutions or refundings thereof;
(xiv) any Lien granted to the trustee and any substantially equivalent
Lien granted to any trustee or similar institution under any indenture for
the 1997 notes or any Senior Indebtedness permitted by the terms of the
indenture;
(xv) Liens securing Senior Indebtedness or Indebtedness of a
Restricted Subsidiary if such Indebtedness is incurred pursuant to the
Credit Agreement or is permitted to be incurred pursuant to the first
sentence of the covenant "Limitation on Incurrence of Indebtedness;"
(xvi) Liens securing Indebtedness of Fedders North America and its
Restricted Subsidiaries in connection with capital leases, sale and
leaseback transactions, purchase money obligations, capital expenditures or
similar financing transactions, which Indebtedness is permitted under the
"Limitation on Incurrence of Indebtedness" or "Sale and Leaseback
Transactions" covenants;
(xvii) Liens on property existing at the time of acquisition thereof
by Fedders North America or a Restricted Subsidiary of Fedders North
America; provided that such Liens were in existence prior to the
contemplation of such acquisition; and
(xviii) additional Liens at any one time outstanding in respect of
properties or assets where aggregate fair market value does not exceed
$2,000,000 (the fair market value to be determined on the date such Lien is
granted on such properties or assets).
"Preferred Stock" of any person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person, to shares of Capital
Stock of any other class of such person.
"Pro Forma Basis" means, for purposes of determining Consolidated Net
Income in connection with the Cash Flow Coverage Ratio (including in connection
with the "Limitation on Restricted Payments" covenant, the "Designation of
Restricted and Non-Restricted Subsidiaries" covenant, the "Merger or
Consolidation" covenant, the incurrence of Indebtedness pursuant to the first
sentence of the "Limitation on Incurrence of Indebtedness" covenant and
Consolidated Net Worth for purposes of the "Merger or Consolidation" covenant),
giving pro forma effect to
(x) any acquisition or sale of a person, business or asset, related
incurrence, repayment or refinancing of Indebtedness or other related
transactions, including any Restructuring Charges which would otherwise be
accounted for as an adjustment permitted by Regulation S-X under the
Securities Act or on a pro forma basis under GAAP, or
(y) any incurrence, repayment or refinancing of any Indebtedness and
the application of the proceeds therefrom, in each case, as if such
acquisition or sale and related transactions, restructurings,
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consolidations, cost savings, reductions, incurrence, repayment or
refinancing were realized on the first day of the relevant period permitted
by Regulation S-X under the Securities Act or on a pro forma basis under
GAAP.
Furthermore, in calculating the Cash Flow Coverage Ratio,
(1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the determination date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate per
annum equal to the rate of interest on such Indebtedness in effect on the
determination date;
(2) if interest on any Indebtedness actually incurred on the
determination date may optionally be determined at an interest rate based
upon a factor of a prime or similar rate, a eurocurrency interbank offered
rate, or other rates, then the interest rate in effect on the determination
date will be deemed to have been in effect during the relevant period; and
(3) notwithstanding clause (1) above, interest on Indebtedness
determined on a fluctuating basis, to the extent such interest is covered
by agreements relating to interest rate swaps or similar interest rate
protection Hedging Obligations, shall be deemed to accrue at the rate per
annum resulting after giving effect to the operation of such agreements.
"Refinancing Indebtedness" means Indebtedness of Fedders North America and
its Restricted Subsidiaries issued or given in exchange for, or the proceeds of
which are used to, extend, refinance, renew, replace, substitute or refund the
notes or Indebtedness contemplated by clause (i) of the definition of Other
Permitted Indebtedness or any Indebtedness issued to so extend, refinance,
renew, replace, substitute for or refund such Indebtedness.
"Restricted Investment" means any Investment in any person; provided that
Restricted Investments will not include:
(i) Investments in marketable securities and other negotiable
instruments permitted by the indenture;
(ii) Investments in Fedders North America; or
(iii) Investments in any Restricted Subsidiary or in a person that
becomes a Restricted Subsidiary as a result of such investment (provided
that any Investment in a Restricted Subsidiary or in a Person that becomes
a Restricted Subsidiary is made for fair market value (as determined by the
Board of Directors in good faith)); or
(iv) Investments which existed on August 18, 1997.
The amount of any Restricted Investment shall be the amount of cash and the fair
market value at the time of transfer of all other property (as determined by the
Board of Directors in good faith) initially invested or paid for such Restricted
Investment, plus all additions thereto, without any adjustments for increases or
decreases in value of or write-ups, write-downs or write-offs with respect to,
such Restricted Investment.
"Restricted Subsidiary" means
(i) any Subsidiary of Fedders North America existing on August 18,
1997; and
(ii) any other Subsidiary of Fedders North America formed, acquired or
existing after August 18, 1997 that is designated as a "Restricted
Subsidiary" by Fedders North America pursuant to a resolution approved by a
majority of the Board of Directors; provided, however, that the term
Restricted Subsidiary shall not include any Subsidiary of Fedders North
America that has been redesignated by Fedders North America pursuant to a
resolution approved by a majority of the Board of Directors as a
Non-Restricted Subsidiary in accordance with the "Designation of Restricted
and Non-Restricted Subsidiaries" covenant unless such Subsidiary shall have
subsequently been redesignated a Restricted Subsidiary in accordance with
clause (ii) of this definition.
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"Restructuring Charges" means any charges or expenses in respect of
restructuring or consolidating any business, operations or facilities, any
compensation or headcount reduction, or any other cost savings, of any persons
or businesses either alone or together with Fedders North America or any
Restricted Subsidiary, as permitted by GAAP or Regulation S-X under the
Securities Act.
"Senior Indebtedness" means the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
Indebtedness of Fedders North America, whether outstanding on August 18, 1997 or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the notes. Without limiting the generality
of the foregoing, "Senior Indebtedness" shall also include the principal of,
premium, if any, interest (including any interest accruing subsequent to the
filing of a petition of bankruptcy at the rate provided for in the documentation
with respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of, all monetary
obligations (including guarantees thereof) of every nature of Fedders North
America under the Credit Agreement, including, without limitation, obligations
to pay principal and interest, reimbursement obligations under letters of
credit, fees, expenses and indemnities. "Senior Indebtedness" shall not include
(i) any Indebtedness of Fedders North America to a Subsidiary of
Fedders North America;
(ii) Indebtedness to, or guaranteed on behalf of, any shareholder,
director, officer or employee of Fedders North America or any Subsidiary of
Fedders North America (including, without limitation, amounts owed for
compensation);
(iii) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services;
(iv) Indebtedness represented by Disqualified Stock;
(v) any liability for federal, state, local or other taxes owed or
owing by Fedders North America;
(vi) that portion of any Indebtedness incurred in violation of the
indenture provisions set forth under "Limitation on Incurrence of
Indebtedness"; and
(vii) any Indebtedness which is, by its express terms, subordinated in
right of payment to any other Indebtedness of Fedders North America.
"Services Agreement" means the Services Agreement dated as of July 31, 1997
between Fedders North America and Fedders Corporation.
"Significant Subsidiary" means any Restricted Subsidiary of Fedders North
America that would be a "significant subsidiary" as defined in clause (2) of the
definition of such term in Rule 1-02 of Regulation S-X under the Securities Act
and the Securities Exchange Act of 1934.
"Subsidiary" of any person means any entity of which the Equity Interests
entitled to cast at least a majority of the votes that may be cast by all Equity
Interests having ordinary voting power for the election of directors or other
governing body of such entity are owned by such person (regardless of whether
such Equity Interests are owned directly by such person or through one or more
Subsidiaries).
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect the board of directors.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing
(i) the then outstanding principal amount of such Indebtedness into
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(ii) the sum of the product(s) obtained by multiplying (a) the amount
of each then remaining installment, sinking fund, serial maturity or other
required payment of principal, including payment at final maturity, in
respect thereof, by (b) the number of years (calculated to the nearest
one-twelfth) which will elapse between such date and the making of such
payment.
BOOK-ENTRY, DELIVERY AND FORM
The new notes initially will be in the form of one or more registered
global notes without interest coupons (collectively, the "Global Notes"). Upon
issuance, the Global Notes will be deposited with the trustee, as custodian for
DTC, in New York, New York, and registered in the name of DTC or its nominee, in
each case for credit to the accounts of DTC's Direct and Indirect Participants
(as defined below). Transfer of beneficial interests in any Global Notes will be
subject to the applicable rules and procedures of DTC and its Direct or Indirect
Participants, which may change from time to time.
The Global Notes may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in certain
limited circumstances. Beneficial interests in the Global Notes may be exchanged
for notes in certificated form in certain limited circumstances. See
"--Transfers of Interests in Global Notes for Certificated Notes."
Initially, the trustee will act as paying agent and registrar. The new
notes may be presented for registration of transfer and exchange at the offices
of the registrar.
DEPOSITARY PROCEDURES
DTC has advised Fedders North America that DTC is a limited-purpose trust
company created to hold securities for its participating organizations
(collectively, the "Direct Participants") and to facilitate the clearance and
settlement of transactions in those securities between Direct Participants
through electronic book-entry changes in accounts of Participants. The Direct
Participants include securities brokers and dealers (including the initial
purchaser), banks, trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to other entities that
clear through or maintain a direct or indirect, custodial relationship with a
Direct Participant (collectively, the "Indirect Participants"). DTC may hold
securities beneficially owned by other persons only through the Direct
Participants or Indirect Participants and such other persons' ownership interest
and transfer of ownership interest will be recorded only on the records of the
Direct Participants and/or Indirect Participants, and not on the records
maintained by DTC.
DTC has also advised Fedders North America that, pursuant to DTC's
procedures,
- upon deposit of the Global Notes, DTC will credit the accounts of the
Direct Participants designated by the initial purchaser with portions of
the principal amount of the Global Notes allocated by the initial
purchaser to such Direct Participants, and
- DTC will maintain records of the ownership interests of such Direct
Participants in the Global Notes and the transfer of ownership interests
by and between Direct Participants.
DTC will not maintain records of the ownership interests of, or the transfer of
ownership interests by and between, Indirect Participants or other owners of
beneficial interests in the Global Notes. Direct Participants and Indirect
Participants must maintain their own records of the ownership interests of, and
the transfer of ownership interests by and between, Indirect Participants and
other owners of beneficial interests in the Global Notes.
Investors in the Global Notes may hold their interests therein directly
through DTC if they are Direct Participants in DTC or indirectly through
organizations that are Direct Participants in DTC.
The laws of some states require that certain persons take physical delivery
in definitive, certificated form, of securities that they own. This may limit or
curtail the ability to transfer beneficial interests in a Global Note to such
persons. Because DTC can act only on behalf of Direct Participants, which in
turn act on behalf of Indirect Participants and others, the ability of a person
having a beneficial interest in a
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Global Note to pledge such interest to persons or entities that are not Direct
Participants in DTC, or otherwise to take actions in respect of such interests,
may be affected by the lack of physical certificates evidencing such interests.
For certain other restrictions on the transferability of the notes see
"--Transfers of Interests in Global Notes for Certificated Notes."
Except as described in "--Transfers of Interests in Global Notes for
Certificated Notes," owners of beneficial interests in the Global Notes will not
have notes registered in their names, will not receive physical delivery of
notes in certificated form and will not be considered the registered owners or
holders thereof under the indenture for any purpose.
Under the terms of the indenture, Fedders North America, Fedders
Corporation and the trustee will treat the persons in whose names the notes are
registered (including notes represented by Global Notes) as the owners thereof
for the purpose of receiving payments and for any and all other purposes
whatsoever. Payments in respect of the principal, premium, liquidated damages,
if any, and interest on Global Notes registered in the name of DTC or its
nominee will be payable by the trustee to DTC or its nominee as the registered
holder under the indenture. Consequently, neither Fedders North America, the
trustee nor any agent of Fedders North America or the trustee has or will have
any responsibility or liability for
- any aspect of DTC's records or any Direct Participant's or Indirect
Participant's records relating to or payments made on account of
beneficial ownership interests in the Global Notes or for maintaining,
supervising or reviewing any of DTC's records or any Direct Participant's
or Indirect Participant's records relating to the beneficial ownership
interests in any Global Notes or
- any other matter relating to the actions and practices of DTC or any of
its Direct Participants or Indirect Participants.
DTC has advised Fedders North America that its current payment practice
(for payments of principal, interest and the like) with respect to securities
such as the notes is to credit the accounts of the relevant Direct Participants
with such payment on the payment date in amounts proportionate to such Direct
Participant's respective ownership interests in the Global Notes as shown on
DTC's records. Payments by Direct Participants and Indirect Participants to the
beneficial owners of the notes will be governed by standing instructions and
customary practices between them and will not be the responsibility of DTC, the
trustee, Fedders North America or Fedders Corporation. Neither Fedders North
America, Fedders Corporation nor the trustee will be liable for any delay by DTC
or its Direct Participants or Indirect Participants in identifying the
beneficial owners of the notes, and Fedders North America and the trustee may
conclusively rely on and will be protected in relying on instructions from DTC
or its nominee as the registered owner of the notes for all purposes.
The Global Notes will trade in DTC's Same-Day Funds Settlement System and,
therefore, transfers between Direct Participants in DTC will be effected in
accordance with DTC's procedures and will be settled in immediately available
funds. Transfers between Indirect Participants who hold an interest through a
Direct Participant will be effected in accordance with the procedures of such
Direct Participant but generally will settle in immediately available funds.
DTC has advised Fedders North America that it will take any action
permitted to be taken by a holder of notes only at the direction of one or more
Direct Participants to whose account interests in the Global Notes are credited
and only in respect of such portion of the aggregate principal amount of the
notes as to which such Direct Participant or Direct Participants has or have
given direction. However, if there is an Event of Default under the notes, DTC
reserves the right to exchange Global Notes (without the direction of one or
more of its Direct Participants) for legended notes in certificated form, and to
distribute such certificated forms of notes to its Direct Participants. See
"--Transfers of Interests in Global Notes for Certificated Notes."
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global Notes among Direct Participants, they are under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. None of Fedders North America,
Fedders Corporation, the initial purchaser or the trustee will have any
responsibility for the performance by
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DTC or their respective Direct Participants and Indirect Participants of their
respective obligations under the rules and procedures governing any of their
operations.
The information in this section concerning DTC and their book-entry systems
has been obtained from sources that Fedders North America believes to be
reliable, but Fedders North America takes no responsibility for the accuracy
thereof.
TRANSFERS OF INTERESTS IN GLOBAL NOTES FOR CERTIFICATED NOTES
An entire Global Note may be exchanged for definitive notes in registered,
certificated form without interest coupons ("Certificated Notes") if
- DTC (x) notifies Fedders North America that it is unwilling or unable to
continue as depositary for the Global Notes and Fedders North America
thereupon fails to appoint a successor depositary within 90 days or (y)
has ceased to be a clearing agency registered under the Securities
Exchange Act of 1934;
- Fedders North America, at its option, notifies the trustee in writing
that it elects to cause the issuance of Certificated Notes; or
- there shall have occurred and be continuing a Default or an Event of
Default with respect to the notes. In any such case, Fedders North
America will notify the trustee in writing that, upon surrender by the
Direct Participants and Indirect Participants of their interest in such
Global Note, Certificated Notes will be issued to each person that such
Direct Participants and Indirect Participants and the DTC identify as
being the beneficial owner of the related notes.
Beneficial interests in Global Notes held by any Direct Participant or
Indirect Participant may be exchanged for Certificated Notes upon request to
DTC, by such Direct Participant (for itself or on behalf of an Indirect
Participant), to the trustee in accordance with customary DTC procedures.
Certificated Notes delivered in exchange for any beneficial interest in any
Global Note will be registered in the names, and issued in any approved
denominations, requested by DTC on behalf of such Direct Participants or
Indirect Participants (in accordance with DTC's customary procedures).
Neither Fedders North America, Fedders Corporation nor the trustee will be
liable for any delay by the holder of the Global Notes or DTC in identifying the
beneficial owners of notes, and Fedders North America, Fedders Corporation and
the trustee may conclusively rely on, and will be protected in relying on,
instructions from the holder of the Global Notes or DTC for all purposes.
SAME DAY SETTLEMENT AND PAYMENT
The indenture will require that payments in respect of the notes
represented by the Global Notes (including principal, premium, if any, interest
and liquidated damages, if any) be made by wire transfer of immediately
available same day funds to the accounts specified by the holder of interests in
such Global Note. With respect to Certificated Notes, Fedders North America will
make all payments of principal, premium, if any, interest and liquidated
damages, if any, by wire transfer of immediately available same day funds to the
accounts specified by the holders thereof or, if no such account is specified,
by mailing a check to each such holder's registered address. Fedders North
America expects that secondary trading in the Certificated Notes will also be
settled in immediately available funds.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
In connection with the sale of the old notes to the initial purchaser,
pursuant to the purchase agreement, dated August 19, 1999, among Fedders North
America, Fedders Corporation and the initial purchaser, the holders of the old
notes became entitled to the benefits of the registration rights agreement,
dated as of August 24, 1999, among Fedders North America, Fedders Corporation
and the initial purchaser. Pursuant to the registration rights agreement,
Fedders North America agreed to file with the SEC an exchange offer registration
statement on the appropriate form under the Securities Act with
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respect to the new notes. Upon the effectiveness of this exchange offer
registration statement, Fedders North America will offer to the holders of
Transfer Restricted Securities (as defined below), pursuant to the exchange
offer, who are able to make certain representations the opportunity to exchange
their Transfer Restricted Securities for new notes. If
- Fedders North America and Fedders Corporation are not required to file
the exchange offer registration statement or not permitted to consummate
the exchange offer because the exchange offer is not permitted by
applicable law or SEC policy; or
- any holder of Transfer Restricted Securities notifies Fedders North
America within 10 business days following consummation of the exchange
offer that
(A) it is prohibited by law or SEC policy from participating in the
exchange offer, or
(B) it may not resell the new notes acquired by it in the exchange
offer to the public without delivering a prospectus and the prospectus
contained in the exchange offer registration statement is not appropriate
or available for such resales, or
(C) it is a broker-dealer and owns notes acquired directly from
Fedders North America or an Affiliate thereof,
Fedders North America and Fedders Corporation will file with the SEC a shelf
registration statement to cover resales of the notes by the holders thereof who
satisfy certain conditions relating to the provision of information in
connection with the shelf registration statement. Fedders North America and
Fedders Corporation will use their best efforts to cause the applicable
registration statement to be declared effective as promptly as possible by the
SEC. For purposes of the foregoing, "Transfer Restricted Securities" means each
note until
- the date on which such note has been exchanged by a person other than a
broker-dealer for a new note in the exchange offer;
- following the exchange by a broker-dealer in the exchange offer of an old
note for a new note, the date on which such new note is sold to a
purchaser who receives from such broker-dealer on or prior to the date of
such sale a copy of the prospectus contained in the exchange offer
registration statement;
- the date on which such new note has been effectively registered under the
Securities Act and disposed of in accordance with the shelf registration
statement; or
- the date on which such new note is distributed to the public pursuant to
Rule 144 under the Securities Act.
Under the registration rights agreement we have agreed:
(i) to file the exchange offer registration statement with the SEC on
or prior to 45 days after the closing date of the issuance of the old
notes;
(ii) to use our best efforts to have the exchange offer registration
statement declared effective by the SEC on or prior to 150 days after the
closing date of the issuance of the old notes;
(iii) unless the exchange offer would not be permitted by applicable
law or SEC policy, to commence the exchange offer and use our best efforts
to issue on or prior to 30 business days after the effective date of the
exchange offer registration statement, new notes (and the related
guarantee) in exchange for all notes tendered prior thereto in the exchange
offer; and
(iv) if obligated to file the shelf registration statement, we will
use our best efforts to file the shelf registration statement with the SEC
on or prior to 45 days after such filing obligation arises and to cause the
shelf registration to be declared effective by the SEC on or prior to 150
days after such obligation arises.
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If
(a) Fedders North America and Fedders Corporation fail to file any of
the registration statements required by the registration rights agreement
on or before the date specified for such filing; or
(b) any of such registration statements is not declared effective by
the SEC on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"); or
(c) Fedders North America and Fedders Corporation fail to consummate
the exchange offer within 30 business days of the effective date of the
exchange offer registration statement; or
(d) the shelf registration statement or the exchange offer
registration statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer Restricted
Securities during the period specified in the registration rights
agreement;
(each such event referred to in clauses (a) through (d) above being a
"Registration Default"), then Fedders North America will pay liquidated damages
to each holder of notes, with respect to the first 90-day period immediately
following the occurrence of such Registration Default in an amount equal to $.05
per week per $1,000 principal amount of old notes held by such holders. The
amount of the liquidated damages will increase by an additional $.05 per week
per $1,000 principal amount of old notes with respect to each subsequent 90-day
period until all Registration Defaults have been cured, up to a maximum amount
of liquidated damages of $.40 per week per $1,000 principal amount of old notes.
All accrued liquidated damages will be paid by Fedders North America on each
damages payment date to the Global Note holder by wire transfer of immediately
available funds or by federal funds check and to holders of Certificated
Securities by wire transfer to the accounts specified by them or by mailing
checks to their registered addresses if no such accounts have been specified.
Following the cure of all Registration Defaults, the accrual of liquidated
damages will cease.
Holders of notes will be required to make certain representations to
Fedders North America (as described in the registration rights agreement) in
order to participate in the exchange offer and will be required to deliver
information to be used in connection with the shelf registration statement and
to provide comments on the shelf registration statement within the time periods
set forth in the registration rights agreement in order to have their notes
included in the shelf registration statement and benefit from the provisions
regarding liquidated damages, if any, set forth above.
Payment of liquidated damages and specific performance are the sole
remedies available to the holders of notes in the event that Fedders North
America does not comply with the deadlines set forth in the registration rights
agreement with respect to the conduct of the exchange offer or the registration
of the notes for resale under a shelf registration statement.
82
<PAGE> 86
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain United States federal
income tax consequences associated with the exchange of the old notes for the
new notes pursuant to the exchange offer and the ownership and disposition of
the new notes. This summary applies only to a holder of a new note which
acquired an old note at the initial offering from the initial purchaser for the
original offering price thereof and which acquires the new note pursuant to the
exchange offer. This discussion is based on provisions of the Internal Revenue
Code of 1986, as amended, Treasury regulations promulgated thereunder, and
administrative and judicial interpretations thereof, all as in effect on the
date hereof and all of which are subject to change, possibly with retroactive
effect. This discussion does not address the tax consequences to subsequent
purchasers of the new notes. In addition, the discussion does not address any
aspect of state, local or foreign taxation.
The exchange of an old note for a new note pursuant to the exchange offer
will not be treated as an "exchange" for United States federal income tax
purposes because the new notes will not be considered to differ materially in
kind or extent from the old notes. Rather, the new notes issued in the exchange
offer received by a holder will be treated as a continuation of the old notes in
the hands of such holder. As a result, there will be no United States federal
income tax consequences to holders exchanging the old notes for the new notes
issued in the exchange offer, and any exchanging holder of old notes will have
the same tax basis and holding period in, and original issue discount income in
respect of, the new notes issued in the exchange offer as such holder had in the
old notes immediately prior to such exchange.
PROSPECTIVE HOLDERS OF THE NOTES ISSUED IN THE EXCHANGE OFFER ARE URGED TO
CONSULT THEIR TAX ADVISORS CONCERNING THE PARTICULAR TAX CONSEQUENCES OF
EXCHANGING OLD NOTES FOR NEW NOTES ISSUED IN THE EXCHANGE OFFER, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX
LAWS.
83
<PAGE> 87
PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of such new notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of new notes received in exchange for old notes where such old
notes were acquired as a result of market-making activities or other trading
activities. We have agreed that, for a period of one year after the expiration
date of the exchange offer, we will make this prospectus available to any
broker-dealer for use in connection with any resale.
We will receive no proceeds in connection with the exchange offer. New
notes received by broker-dealers for their own account pursuant to the exchange
offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the new notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer or the
purchasers of any such new notes. Any broker-dealer that resells new notes that
were received by it for its own account pursuant to the exchange offer and any
broker or dealer that participates in a distribution of such new notes may be
deemed to be an "underwriter" within the meaning of the Act and any profit on
any such resale or new notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Act.
For a period of one year after the expiration date of the exchange offer,
we will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests these documents
in the letter of transmittal. We have agreed to pay all expenses incident to
this exchange offer, other than commissions or concessions of any brokers or
dealers and will indemnify the holders of the new notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Act.
LEGAL MATTERS
Certain legal matters with respect to the validity and enforceability of
the new notes will be passed upon for Fedders by Robert N. Edwards, Esq., Vice
President and General Counsel of Fedders.
EXPERTS
The consolidated balance sheets of Fedders Corporation as of August 31,
1998 and 1997, and the related consolidated statements of operations and
comprehensive income, cash flows and stockholders' equity for each of the three
years in the period ended August 31, 1998, which are included or incorporated by
reference in this prospectus, have been audited by BDO Seidman, LLP, independent
certified public accountants, as set forth in their report thereon included in
this prospectus.
AVAILABLE INFORMATION
Fedders is subject to the information requirements of the Securities
Exchange Act and files reports and other information with the SEC. You can
inspect and copy reports, proxy and information statements and other information
filed by Fedders at the public reference facilities maintained by the SEC at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's
regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and 7 World Trade Center, 13th Floor, New York, New York 10048. You can obtain
copies of this material from the public reference section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. You can review
this material through the SEC's Electronic Data Gathering, Analysis, and
Retrieval System (EDGAR), which is publicly available through the SEC's Web site
(http://www.sec.gov). In addition, certain classes of
84
<PAGE> 88
securities of Fedders are listed on the New York Stock Exchange. You can inspect
reports, proxy statements and other information concerning these securities at
the public reference facilities of the NYSE.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed with the SEC are incorporated
in this prospectus by reference:
1. Fedders' annual report on Form 10-K for the fiscal year ended August 31,
1998.
2. Fedders' quarterly report on Form 10-Q for the quarter ended November
30, 1998.
3. Fedders' quarterly report on Form 10-Q for the quarter ended February
28, 1999, as amended on Form 10-Q/A.
4. Fedders' quarterly report on Form 10-Q for the quarter ended May 31,
1999.
5. Fedders' notice of annual meeting of stockholders and proxy statement
dated November 25, 1998.
All reports and other documents filed by Fedders with the SEC pursuant to
Section 13(a), 13(c), 14 or 15 (d) of the Securities Exchange Act after the date
of this prospectus will be deemed to be incorporated herein by reference and to
be a part of this prospectus on and from the filing of these documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference in this prospectus will be deemed to be modified or superseded for
purposes of this prospectus or incorporated herein by reference or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference modifies or supersedes this statement. Any statement so modified or
superseded will not be deemed, except as so modified or superseded, to
constitute a part of this prospectus.
We will provide without charge to each person to whom this prospectus is
delivered, upon written or oral request, a copy of the documents incorporated by
reference in this prospectus (other than exhibits to these documents unless such
exhibits are specifically incorporated by reference into the documents). You
should direct written or telephone request to the secretary of Fedders at its
principal executive offices, which are located at 505 Martinsville Road, P.O.
Box 813, Liberty Corner, New Jersey 07938; telephone number: (908) 604-8686;
facsimile number: (908) 604-0715.
85
<PAGE> 89
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fedders unaudited interim financial statements:
Consolidated Statements of Operations for the nine months
ended May 31, 1999 and 1998............................ F-2
Consolidated Balance Sheet as of May 31, 1999............. F-3
Consolidated Statements of Cash Flows for the nine months
ended May 31, 1999 and 1998............................ F-4
Notes to Consolidated Financial Statements................ F-5
Fedders audited year end financial statements:
Consolidated Statements of Operations and Comprehensive
Income for the years ended August 31, 1998, 1997 and
1996................................................... F-11
Consolidated Balance Sheets as of August 31, 1998 and
1997................................................... F-12
Consolidated Statements of Cash Flows for the years ended
August 31, 1998, 1997 and 1996......................... F-13
Consolidated Statements of Stockholders' Equity for the
years ended August 31, 1998, 1997 and 1996............. F-14
Notes to Consolidated Financial Statements................ F-15
Report of Independent Certified Public Accountants.......... F-30
</TABLE>
F-1
<PAGE> 90
FEDDERS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED MAY 31,
--------------------
1999 1998
<S> <C> <C>
Net sales................................................... $260,221 $231,132
Cost of sales............................................... 200,084 182,272
Selling, general and administrative expenses................ 29,272 27,909
Restructuring charge........................................ -- 16,750
-------- --------
229,356 226,931
Operating income............................................ 30,865 4,201
Partner's net interest in joint venture results............. 534 323
Net interest expense........................................ (7,758) (6,992)
-------- --------
Income (loss) before income taxes........................... 23,641 (2,468)
Federal, state and foreign income taxes (benefit)........... 7,691 (863)
-------- --------
Net income (loss)........................................... $ 15,950 $ (1,605)
======== ========
Earnings (loss) per share:
Basic..................................................... $ 0.44 $ (0.04)
======== ========
Diluted................................................... $ 0.42 $ (0.04)
======== ========
Dividends per share declared:
Common.................................................... $ 0.0750 $ 0.060
Class A................................................... 0.0750 0.060
Class B................................................... 0.0675 0.054
</TABLE>
See accompanying notes
F-2
<PAGE> 91
FEDDERS CORPORATION
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
MAY 31,
1999
<S> <C>
ASSETS:
Current assets:
Cash and cash equivalents................................. $ 51,664
Accounts receivable (less allowance of $1,977)............ 69,172
Inventories:
Finished goods......................................... 13,423
Work in process........................................ 4,946
Raw materials and supplies............................. 33,857
--------
52,226
Deferred tax benefit...................................... 5,902
Prepaid expenses.......................................... 3,026
--------
Total current assets.............................. 181,990
Property, plant and equipment at cost:
Land and improvements..................................... 2,994
Buildings................................................. 22,205
Machinery and equipment................................... 84,758
Machinery and equipment under capital lease............... 8,446
--------
118,403
Less accumulated depreciation............................... 61,729
--------
56,674
Deferred income taxes....................................... 8,838
Goodwill.................................................... 53,884
Other assets................................................ 16,019
--------
$317,405
========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of long-term debt......................... $ 3,072
Accounts payable.......................................... 25,501
Income taxes payable...................................... 20,775
Accrued expenses.......................................... 42,219
--------
Total current liabilities......................... 91,567
Long-term debt.............................................. 106,914
Other long-term liabilities................................. 9,672
Minority interest in joint venture.......................... 2,625
Stockholders' equity:
Common Stock (all classes $1 par value):
80,000 shares authorized, 16,347 issued................ 16,347
Class A Stock, 60,000 shares authorized, 19,445 issued.... 19,445
Class B Stock, 7,500 shares authorized, 2,267 issued...... 2,267
Additional paid-in capital................................ 29,305
Retained earnings......................................... 49,654
Cumulative other comprehensive income (loss).............. (391)
--------
116,627
Less: treasury stock, at cost, 1,690 shares................. (8,702)
Deferred compensation....................................... (1,298)
Total stockholders' equity........................ 106,627
--------
$317,405
========
</TABLE>
See accompanying notes
F-3
<PAGE> 92
FEDDERS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MAY 31,
--------------------
1999 1998
<S> <C> <C>
Cash flows from operations:
Net income (loss)......................................... $ 15,950 $ (1,605)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization.......................... 6,976 6,636
Restructuring charge:
Provision for facility closing....................... -- 9,850
Write-off of long-lived assets....................... -- 6,900
Changes in operating assets and liabilities:
Accounts receivable.................................... (54,652) (65,389)
Inventories............................................ 35 (4,716)
Other current assets................................... 1,475 5,844
Other assets........................................... (163) (6,026)
Accounts payable....................................... (268) 22,854
Accrued expenses....................................... 9,868 5,475
Income tax payable..................................... 6,369 1,817
Other long-term liabilities............................ (1,996) (275)
Other.................................................. (1,750) (415)
-------- --------
Net cash used in operations............................ (18,156) (19,050)
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment................ (6,257) (6,155)
Disposals of property, plant and equipment................ -- 3,701
-------- --------
Net cash used in investing activities.................. (6,257) (2,454)
-------- --------
Cash flows from financing activities:
Repayments of long-term debt.............................. (546) (4,496)
Proceeds from stock options exercised..................... 179 3,317
Repurchase of capital stock (buy-back plan)............... (11,756) (29,301)
Repurchase of capital stock (other)....................... -- (1,838)
Cash dividends............................................ (2,786) (2,544)
-------- --------
Net cash used in financing activities.................. (14,909) (34,862)
-------- --------
Net decrease in cash and cash equivalents................... (39,322) (56,366)
Cash and cash equivalents at beginning of period............ 90,986 110,393
-------- --------
Cash and cash equivalents at end of period.................. $ 51,664 $ 54,027
======== ========
Supplemental disclosure:
Interest paid............................................. $ 8,120 $ 5,746
Net income taxes paid (refunded).......................... 2,441 (2,872)
</TABLE>
See accompanying notes
F-4
<PAGE> 93
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
A. The financial information included herein is unaudited and prepared in
accordance with the instructions for Regulation S-X; however, such information
reflects all adjustments, which consist solely of normal recurring adjustments
which are, in the opinion of management, necessary for a fair statement of
results for the interim periods. Reference should be made to the annual
financial statements, including footnotes thereto, included herein and in
Fedders Corporation's (the "Company") Annual Report on Form 10-K for the fiscal
year ended August 31, 1998. The Company's business is seasonal, and
consequently, operating results for the three-month and nine month period ending
May 31, 1999 are not necessarily indicative of the results that may be expected
for the fiscal year ending August 31, 1999.
B. In July 1997, the Company announced that it had been authorized to
repurchase up to $50 million of outstanding stock. Under this plan, in the first
nine months of fiscal 1998, the Company purchased approximately 3.4 million
shares of Common, Class A, and Preferred Stock for $19.9 million or $5.87 per
share. Total repurchases under this plan which were complete by August 1998
amounted to approximately 8.4 million shares of Common, Class A and Preferred
Stock for $50.1 million or $5.93 per share.
In August 1998, the Company announced that it had been authorized to
repurchase up to an additional $30 million of outstanding stock. Under this
plan, in the first nine months of fiscal 1999, the Company repurchased
approximately 2.4 million shares of Common and Class A Stock for $11.8 million
or $4.86 per share.
C. In the first nine months of 1999 and 1998, net income (loss) per share
was computed using the weighted average number of shares outstanding, which
amounted to approximately 36,268,000 and 41,806,000 shares, respectively.
Options on approximately 1,666,000 shares of capital stock were included in
computing diluted earnings per share in 1999. Options on approximately 1,820,000
shares of capital stock were not included in computing diluted earnings per
share due to the net loss in the 1998 period.
D. In January 1998, the Company announced a plan to restructure its
operations, which resulted in the Company recording a one-time expense totaling
$16.8 million in the second fiscal quarter of 1998. At May 31, 1999, the
restructuring reserve balance was approximately $3.0 million and consisted
principally of amounts for terminations of various equipment and facility
leases.
E. The Company adopted Statement of Financial Accounting Standards (SFAS)
130, "Reporting Comprehensive Income", on September 1, 1998. This statement
established standards for reporting and display of comprehensive income, its
components and accumulated balances. Comprehensive income is defined to include
all changes in equity except those resulting from investments by owners and
distributions to owners. Comprehensive income of the Company is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MAY 31,
------------------
1999 1998
<S> <C> <C>
Net income (loss)........................................... $15,950 $(1,605)
Other comprehensive income (loss), net of tax:
Foreign currently translation adjustment.................. 39 (104)
------- -------
Comprehensive income (loss)................................. $15,989 $(1,709)
======= =======
</TABLE>
The Company has adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information". This standard supersedes SFAS 14,
"Financial Reporting for Segments of a Business Enterprise" and establishes
standards for the way that public companies report information about operating
segments and standards for disclosures regarding products and services,
geographic areas and major customers. As permitted by SFAS 131, the Company will
not apply this statement to interim periods in the initial year of adoption.
Results of operations and financial position will be unaffected by
implementation of this standard.
F-5
<PAGE> 94
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
In February 1998, the FASB issued SFAS 132 "Employers Disclosures About
Pensions and Other Post-Retirement Benefits"--an Amendment of SFAS 87, 88 and
106, which revises disclosure about pension and other post-retirement benefits.
The statement is effective for the Company's financial statements for the fiscal
year ending August 31, 1999. The Company does not expect this statement to have
a material impact on the Company's financial statements.
F. On July 12, 1999, Fedders Corporation entered into an agreement
providing for Fedders' acquisition (by way of a cash tender offer and a
subsequent merger of Trion into a wholly owned subsidiary of Fedders
Corporation) of Trion, Inc., a manufacturer of indoor air quality products, at a
price of $5.50 per share in cash for all (approximately 7.2 million) outstanding
shares of Trion's common stock. Following the acquisition, Trion will continue
as an indirect wholly-owned subsidiary of Fedders. On July 28, 1999, Fedders
North America, Inc. ("FNA"), a subsidiary of the Company, amended its revolving
credit facility, increasing availability to $100.0 million.
G. In August 1997, FNA issued $100.0 million principal amount of 9 3/8%
Senior Subordinated Notes due in 2007. The Notes are guaranteed by the Company
on a senior subordinated basis. The following condensed consolidating financial
statements present separate information for FNA (including its subsidiaries) and
the Company and its subsidiaries, other than FNA. The subsidiaries of the
Company other than FNA (including its subsidiaries) are inconsequential,
individually and in the aggregate, to the consolidated financial statements and
management has determined that separate financial statements of the Company
would not be meaningful.
F-6
<PAGE> 95
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
MAY 31, 1999
---------------------------------------
FEDDERS OTHER FEDDERS
NORTH AMERICA FEDDERS CORPORATION
<S> <C> <C> <C>
Net sales................................................ $237,615 $22,606 $260,221
Cost of sales............................................ 181,521 18,563 200,084
Selling, general and administrative expenses(1,3)........ 20,668 8,604 29,272
-------- ------- --------
Operating income (loss).................................. 35,426 (4,561) 30,865
Partner's net interest in joint venture results.......... -- 534 534
Net interest expense(2).................................. (7,684) (74) (7,758)
-------- ------- --------
Income (loss) before income taxes........................ 27,742 (4,101) 23,641
Income taxes (benefit)................................... 8,956 (1,265) 7,691
-------- ------- --------
Net income (loss)........................................ $ 18,786 $(2,836) $ 15,950
======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
MAY 31, 1998
---------------------------------------
FEDDERS OTHER FEDDERS
NORTH AMERICA FEDDERS CORPORATION
<S> <C> <C> <C>
Net sales................................................ $207,292 $23,840 $231,132
Cost of sales............................................ 163,928 18,344 182,272
Selling, general and administrative expense(1)........... 18,539 9,370 27,909
Restructuring charge..................................... 14,488 2,262 16,750
-------- ------- --------
Operating income (loss).................................. 10,337 (6,136) 4,201
Partner's net interest in joint venture results.......... -- 323 323
Net interest income (expense)(2)......................... (7,849) 857 (6,992)
-------- ------- --------
Income (loss) before income taxes........................ 2,488 (4,956) (2,468)
Income taxes (benefit)................................... 871 (1,734) (863)
-------- ------- --------
Net income (loss)........................................ $ 1,617 $(3,222) $ (1,605)
======== ======= ========
</TABLE>
See accompanying notes
F-7
<PAGE> 96
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
MAY 31, 1999
-------------------------------------------------------
FEDDERS OTHER ELIMINATING FEDDERS
NORTH AMERICA FEDDERS ENTRIES CORPORATION
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash..................................... $ 32,528 $ 19,136 -- $ 51,664
Accounts Receivable, net................. 64,591 4,581 -- 69,172
Inventories.............................. 40,322 11,904 -- 52,226
Other current assets..................... 6,589 2,339 -- 8,928
-------- -------- --------- --------
Total current assets....................... 144,030 37,960 -- 181,990
Investment in subsidiaries................. -- 104,306 $(104,306) --
Property, plant and equipment, net......... 46,070 10,604 -- 56,674
Goodwill................................... 47,814 6,070 -- 53,884
Other long-term assets..................... 7,020 17,837 -- 24,857
-------- -------- --------- --------
$244,934 $176,777 $(104,306) $317,405
======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt........ $ 1,501 $ 1,571 -- $ 3,072
Accounts and income tax payable
(receivable).......................... 47,624 (1,348) -- 46,276
Accrued (prepaid) expenses............... 42,547 (328) -- 42,219
-------- -------- --------- --------
Total current liabilities.................. 91,672 (105) -- 91,567
Long-term debt............................. 104,263 2,651 -- 106,914
Other long-term liabilities................ 2,457 9,840 -- 12,297
Stockholders' equity:
Common, Class A and Class B Stock........ 5 38,059 $ (5) 38,059
Paid-in capital.......................... 21,292 112,315 (173,219) (39,612)
Retained earnings........................ 25,619 24,033 68,918 118,570
Treasury stock........................... -- (8,702) -- (8,702)
Deferred compensation.................... -- (1,298) -- (1,298)
Cumulative other comprehensive income
(loss)................................... (374) (16) -- (390)
-------- -------- --------- --------
Total stockholders' equity................. 46,542 164,391 (104,306) 106,627
-------- -------- --------- --------
$244,934 $176,777 $(104,306) $317,405
======== ======== ========= ========
</TABLE>
See accompanying notes
F-8
<PAGE> 97
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
MAY 31, 1999
----------------------------------------
FEDDERS OTHER FEDDERS
NORTH AMERICA FEDDERS CORPORATION
<S> <C> <C> <C>
Net cash used in operations............................. $ (9,453) $ (8,703) $(18,156)
-------- -------- --------
Net additions to property, plant and equipment, being
cash used in investing activities..................... (3,294) (2,963) (6,257)
-------- -------- --------
Net (repayments) proceeds of short and long-term
borrowings............................................ (1,630) 1,084 (546)
Cash dividends.......................................... -- (2,786) (2,786)
Proceeds from stock options exercised................... -- 179 179
Repurchase of capital stock............................. -- (11,756) (11,756)
Change in net due to (from) affiliate................... 40,891 (40,891) --
-------- -------- --------
Net cash provided by (used in) financing activities..... 39,261 (54,170) (14,909)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents.... 26,514 (65,836) (39,322)
Cash and cash equivalents at beginning of period........ 6,014 84,972 90,986
-------- -------- --------
Cash and cash equivalents at end of period.............. $ 32,528 $ 19,136 $ 51,664
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
MAY 31, 1998
-----------------------------------------
FEDDERS OTHER FEDDERS
NORTH AMERICA FEDDERS CORPORATION
<S> <C> <C> <C>
Net cash used in operations........................... $ (5,027) $ (14,023) $ (19,050)
-------- --------- ---------
Net additions to property, plant and equipment, being
cash used in investing activities................... (2,283) (171) (2,454)
-------- --------- ---------
Net repayments of short and long-term borrowings...... (1,324) (3,172) (4,496)
Cash dividends........................................ -- (2,544) (2,544)
Proceeds from stock options exercised................. -- 3,317 3,317
Repurchase of capital stock........................... -- (31,139) (31,139)
Change in net due to (from) affiliate................. 11,578 (11,578) --
-------- --------- ---------
Net cash provided by (used in) financing activities... 10,254 (45,116) (34,862)
-------- --------- ---------
Net increase (decrease) in cash and cash
equivalents......................................... 2,944 (59,310) (56,366)
Cash and cash equivalents at beginning of period...... -- 110,393 110,393
-------- --------- ---------
Cash and cash equivalents at end of period............ $ 2,944 $ 51,083 $ 54,027
======== ========= =========
</TABLE>
See accompanying notes
F-9
<PAGE> 98
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
The historical condensed consolidating financial statements presented above
include the following transactions between the Company and FNA.
1) The Company charges corporate overhead essentially on a cost basis
allocated in proportion to sales. Such charges to FNA amounted to approximately
$8.7 million and $7.2 million for the nine months ended May 31, 1999 and 1998,
respectively.
2) FNA's interest expense reflects actual interest charges on the 9 3/8%
Senior Subordinated Notes due 2007, a revolving line of credit, a promissory
note and capital lease obligations.
3) FNA's depreciation and amortization for the nine months ended May 31,
1999 and 1998 amounted to approximately $5.6 million and $5.3 million,
respectively. Capital expenditures of FNA for the nine-month period ended May
31, 1999 and 1998 amounted to approximately $5.5 million and $4.8 million,
respectively.
F-10
<PAGE> 99
FEDDERS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------
1998 1997 1996
<S> <C> <C> <C>
Net sales.................................................. $322,121 $314,100 $371,772
Costs and expenses:
Cost of sales.............................................. 252,351 244,024 288,744
Selling, general and administrative........................ 40,210 38,347 32,040
Restructuring.............................................. 16,750 -- --
-------- -------- --------
309,311 282,371 320,784
-------- -------- --------
Operating income........................................... 12,810 31,729 50,988
Minority interest in joint venture......................... 403 568 230
Interest expense (net of interest income of $2,599, $920
and $1,410 in 1998, 1997 and 1996, respectively)......... (8,610) (3,430) (952)
-------- -------- --------
Income before income taxes................................. 4,603 28,867 50,266
Federal, state and foreign income taxes.................... 1,611 10,103 19,108
-------- -------- --------
Net income................................................. 2,992 18,764 31,158
Preferred stock dividend requirement....................... -- 2,420 151
-------- -------- --------
Net income attributable to common stockholders............. 2,992 16,344 31,007
Other comprehensive income, (loss) Foreign currency
translation--net of tax adjustment....................... (190) 13 (107)
Comprehensive income....................................... $ 2,802 $ 16,357 $ 30,900
======== ======== ========
Earnings per share:
Basic.................................................... $ 0.07 $ 0.42 $ 0.77
======== ======== ========
Diluted.................................................. $ 0.07 $ 0.39 $ 0.74
======== ======== ========
Dividends per share declared:
Preferred................................................ $ -- $ 0.318 $ 0.050
Common/Class A........................................... 0.085 0.080 0.080
Class B.................................................. 0.077 0.072 0.072
</TABLE>
See accompanying notes
F-11
<PAGE> 100
FEDDERS CORPORATION
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
AUGUST 31,
--------------------
1998 1997
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents................................. $ 90,986 $110,393
Accounts receivable (less allowance of $2,032 and $1,834
in 1998 and 1997)...................................... 14,520 9,060
Inventories............................................... 52,261 62,887
Deferred income taxes..................................... 5,902 4,070
Other current assets...................................... 4,308 8,917
-------- --------
Total current assets........................................ 167,977 195,327
Net property, plant and equipment........................... 56,318 63,994
Deferred income taxes....................................... 8,838 6,374
Goodwill.................................................... 55,159 56,858
Other assets................................................ 16,337 6,461
-------- --------
$304,629 $329,014
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of long-term debt......................... $ 2,065 $ 1,891
Accounts payable.......................................... 25,769 10,591
Income taxes payable...................................... 14,406 10,027
Accrued expenses.......................................... 32,101 31,082
-------- --------
Total current liabilities................................... 74,341 53,591
Long-term debt.............................................. 108,948 113,489
Other long-term liabilities:
Warranty.................................................. 2,556 2,780
Other..................................................... 9,355 8,427
Minority interest in joint venture.......................... 4,637 5,040
Commitments and contingencies
Stockholders' equity (all classes $1 par value):
Preferred Stock, 6,809 issued at August 31, 1997............ -- 6,809
Common Stock, 16,972 and 18,990 issued...................... 16,972 18,990
Class A Stock, 19,381 and 20,074 issued..................... 19,381 20,074
Class B Stock, 2,267 issued................................. 2,267 2,267
Additional paid-in capital.................................. 31,619 85,702
Retained earnings........................................... 36,496 37,024
Cumulative other comprehensive income (loss)................ (430) (138)
-------- --------
106,305 170,728
Less deferred compensation (1998) and Treasury stock, at
cost, 4,335 shares of Class A Stock (1997)................ (1,513) (25,041)
Total stockholders' equity.................................. 104,792 145,687
-------- --------
$304,629 $329,014
======== ========
</TABLE>
See accompanying notes
F-12
<PAGE> 101
FEDDERS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
AUGUST 31,
-------------------------------
1998 1997 1996
<S> <C> <C> <C>
Operating activities:
Net income................................................ $ 2,992 $ 18,764 $31,158
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization............................. 9,263 9,935 6,578
Deferred income taxes..................................... (4,296) 504 (1,717)
Restructuring charge--fixed asset write-down.............. 5,590 -- --
Changes in operating assets and liabilities:
Accounts receivable....................................... (5,460) (1,085) 4,402
Inventories............................................... 10,626 (9,441) (7,856)
Other current assets...................................... 6,263 (5,551) (628)
Other assets.............................................. (7,281) (335) (568)
Income taxes payable...................................... 4,379 (5,364) 6,243
Accounts payable.......................................... 15,178 (5,923) (2,887)
Accrued expenses.......................................... 1,269 (6,973) 3,784
Other long-term liabilities............................... 704 (3,288) 3,151
Other--net.................................................. (403) (548) (825)
-------- -------- -------
Net cash provided by (used in) operating activities......... 38,824 (9,305) 40,835
-------- -------- -------
Investing activities:
Additions to property, plant and equipment................ (8,497) (9,236) (7,043)
Disposal of property, plant and equipment................. 1,847 428 535
Investment in joint venture............................... (3,347) -- --
-------- -------- -------
Net cash used in investing activities....................... (9,997) (8,808) (6,508)
-------- -------- -------
Financing activities:
Net proceeds from issuance of 9 3/8% Senior Subordinated
Notes.................................................. -- 96,025 --
Repayment and redemption of 8 1/2% Convertible
Subordinated Debentures................................ -- (22,806) --
Repayments of NYCOR, Inc. short-term borrowing............ -- -- (3,000)
Repayments of long-term debt.............................. (1,903) (1,992) (695)
Proceeds form stock options exercised..................... 5,289 1,727 1,868
Tax benefit related to stock options exercised............ 3,825 479 437
Net (repayment of) proceeds from Fedders Xinle
financing.............................................. (2,517) (168) 6,299
Repayment of Fedders Xinle short-term debt................ -- -- (3,396)
Cash dividends............................................ (3,520) (5,605) (3,252)
Repurchases of capital stock.............................. (49,408 (29,449 --
-------- -------- -------
Net cash provided by (used in) financing activities......... (48,234) 38,211 (1,739)
-------- -------- -------
Net (decrease) increase in cash and cash equivalents........ (19,407) 20,098 32,588
Cash and cash equivalents at beginning of year.............. 110,393 90,295 57,707
-------- -------- -------
Cash and cash equivalents at end of year.................... $ 90,986 $110,393 $90,295
======== ======== =======
Supplemental disclosure:
Net interest paid......................................... $ 10,654 $ 3,406 $ 2,249
Net income taxes (refunded) paid.......................... (2,788) 14,090 13,513
</TABLE>
See accompanying notes
F-13
<PAGE> 102
FEDDERS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Convertible Preferred Stock Balance at beginning of year.... $ 6,809 $ 7,643 --
Issuance of stock........................................... -- -- $ 7,643
Redemption for Class A Stock................................ (6,754) -- --
Conversion to Class A Stock................................. -- (129) --
Repurchase and retirement of stock.......................... (55) (705) --
-------- -------- -------
Balance at end of year...................................... -- $ 6,809 $ 7,643
======== ======== =======
Common Stock Balance at beginning of year................... $ 18,990 $ 18,990 $18,990
Shares relinquished or purchased............................ (100) -- --
Repurchase and retirement of stock.......................... (1,918) -- --
-------- -------- -------
Balance at end of year...................................... $ 16,972 $ 18,990 $18,990
======== ======== =======
Class A Stock Balance at beginning of year.................. $ 20,074 $ 19,416 $18,831
Redemption of Convertible Preferred Stock................... 6,904 -- --
Conversion of Convertible Preferred Stock................... -- 129 --
Stock options exercised..................................... 4,251 529 585
Insurance of restricted stock............................... 300 -- --
Retirement of Class A treasury shares....................... (12,148) -- --
-------- -------- -------
Balance at end of year...................................... $ 19,381 $ 20,074 $19,416
======== ======== =======
Class B Stock Balance at beginning of year.................. $ 2,267 $ 2,267 $ 2,267
-------- -------- -------
Balance at end of year...................................... $ 2,267 $ 2,267 $ 2,267
======== ======== =======
Additional paid-in capital Balance at beginning of year..... $ 85,702 $ 87,728 $46,481
Issuance of stock........................................... -- -- 40,126
Stock options exercised..................................... 10,287 1,198 1,283
Tax benefit related to stock options exercised.............. 3,825 479 437
Repurchase of stock......................................... (9,917) (3,703) --
Retirement of treasury shares............................... (59,591) -- --
Issuance of restricted stock................................ 1,463 -- --
Expenses related to NYCOR merger............................ -- -- (599)
Redemption of Convertible Preferred Stock................... (150) -- --
-------- -------- -------
Balance at end of year...................................... $ 31,619 $ 85,702 $87,728
======== ======== =======
Retained earnings (deficit) Balance at beginning of year.... $ 37,024 $ 23,865 $(4,041)
Net income.................................................. 2,992 18,764 31,158
Dividends................................................... (3,520) (5,605) (3,252)
-------- -------- -------
Balance at end of year...................................... $ 36,496 $ 37,024 $23,865
======== ======== =======
Cumulative other comprehensive income Balance at beginning
of year................................................... $ (138) $ (158) $ 15
Foreign currency translation adjustment..................... (292) 20 (173)
-------- -------- -------
Balance at end of year...................................... $ (430) $ (138) $ (158)
======== ======== =======
Deferred Compensation/Treasury Stock Balance at beginning
of year................................................... $(25,041) -- --
Repurchase of stock......................................... (37,504) $(25,041) --
Issuance of restricted stock--deferred compensation......... (1,763) -- --
Amortization of deferred compensation....................... 250 -- --
Shares relinquished or purchased............................ (9,194) -- --
Retirement of treasury shares............................... 71,739 -- --
-------- -------- -------
Balance at end of year...................................... (1,513) $(25,041) --
======== ======== =======
</TABLE>
See accompanying notes
F-14
<PAGE> 103
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(YEARS ENDED AUGUST 31, 1998, 1997 AND 1996; AMOUNTS IN
THOUSANDS, EXCEPT PER SHARE, SHARE AND MARKET DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Fedders Corporation and all of its wholly-owned and majority-owned subsidiaries
(the "Company"). All significant intercompany accounts and transactions are
eliminated in consolidation.
NET SALES
Sales are recorded, at time of shipment, net of provisions for sales
allowances, warranty and similar items.
WARRANTY AND RETURN POLICY
The Company's warranty policy generally provides five-year coverage for
sealed systems including compressors, two-year coverage on motors and one-year
coverage on all other parts and labor related to air conditioners sold in North
America. The Company's policy is to accrue the estimated cost of warranty
coverage and returns at the time the sale is recorded. The policy with respect
to sales returns generally provides that a customer may not return inventory
except at the Company's option.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's foreign subsidiaries are translated
at the rate of exchange in effect at the end of the period. Net sales and
expenses are translated at the average rate of exchange for the period.
Translation adjustments are reflected as a separate component of stockholders'
equity.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
initial maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of the first-in, first-out (FIFO) cost
or market. The Company reviews inventory periodically for slow-moving and
obsolete items. Write-downs, which have historically been insignificant, are
recorded in the period in which they are identified. Inventories consist of the
following at August 31:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Finished goods.............................................. $25,553 $32,233
Work-in-process............................................. 4,132 6,631
Raw materials and supplies.................................. 22,576 24,023
------- -------
TOTAL....................................................... $52,261 $62,887
======= =======
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
Replacements, betterments and additions to property, plant and equipment
are capitalized at cost. Expenditures for maintenance and repairs are charged to
expense as incurred. Upon sale or retirement of property, plant and equipment,
the cost and related accumulated depreciation are removed from the
F-15
<PAGE> 104
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
respective accounts and any gain or loss is reflected in income. Property, plant
and equipment at cost consist of the following at August 31:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1998 1997
<S> <C> <C> <C>
Land and improvements.......................... $ 2,994 $ 3,924
Buildings...................................... 20 to 30 years 22,326 24,349
Machinery and equipment........................ 5 to 12 years 79,454 87,421
Machinery and equipment under capital leases... 12 years 8,647 8,647
-------- --------
Property, plant and equipment.................. 113,421 124,341
Accumulated depreciation....................... 57,103 60,347
-------- --------
$ 56,318 $ 63,994
======== ========
</TABLE>
Depreciation is provided on the straight-line basis over the estimated
useful life of each asset as noted above. Accumulated depreciation includes
$1,287 and $1,005 of depreciation related to equipment under capital leases in
1998 and 1997, respectively.
GOODWILL
Goodwill is amortized over 40 years using the straight-line method and
recoverability is evaluated periodically based on the expected undiscounted net
cash flows of the related businesses. Goodwill and other assets are net of
accumulated amortization of $12,171 and $10,472 at August 31, 1998 and 1997,
respectively.
OTHER ASSETS
On June 3, 1998, the Company entered into a joint venture with
Bosch-Siemens Hausgerate GmbH ("BSH") in Estella, Spain to manufacture room air
conditioners in Spain. The Company contributed $3,347 of cash for its 50%
interest in the BSH and Fedders International Air Conditioning, S.A. joint
venture. The Company's investment in the joint venture is accounted for under
the equity method.
Other assets consist of the following at August 31:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Note due from an executive officer (note 11)................ $ 4,000 --
Unamortized deferred finance costs.......................... 3,284 $3,498
Cash surrender value of live insurance...................... 3,192 2,102
Investment in joint venture................................. 3,078 --
Other....................................................... 2,783 861
------- ------
$16,337 $6,461
======= ======
</TABLE>
F-16
<PAGE> 105
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ACCRUED EXPENSES
Accrued expenses consist of the following at August 31:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Warranty.................................................... $ 3,271 $ 4,047
Marketing programs.......................................... 9,508 11,686
Salaries and benefits....................................... 8,465 7,876
Restructuring............................................... 4,768 --
Other....................................................... 6,089 7,473
------- -------
$32,101 $31,082
======= =======
</TABLE>
INCOME TAXES
Deferred income taxes are provided to reflect the tax effects of "temporary
differences" between assets and liabilities for financial reporting purposes and
income tax purposes. Provisions are also made for U.S. income taxes on
undistributed earnings of foreign subsidiaries not considered to be indefinitely
reinvested (note 7).
RESEARCH AND DEVELOPMENT COSTS
All research and development costs are charged to expense as incurred and
amount to $6,557, $6,268 and $3,891 in 1998, 1997 and 1996, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RISKS AND UNCERTAINTIES
Approximately 4% of the Company's employees are covered by a one-year
collective bargaining agreement, which expires in August 1999. Another 33% of
the Company's employees are covered by a separate collective bargaining
agreement which expires in October 2001.
NON-CASH INVESTING AND FINANCING ACTIVITIES
The Company had non-cash investing and financing activities as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Issuance of 7,643,000 shares of Preferred Stock at a
price of $6.25 in exchange for all the outstanding
shares of capital stock of NYCOR, Inc................. -- -- $47,769
Exchange of 6,754,000 shares of Preferred Stock for
Class A Stock on a 1 for 1.022 basis.................. $6,904 -- --
</TABLE>
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 128 "Earnings Per Share,"
which establishes standards for
F-17
<PAGE> 106
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
computing and presenting earnings per share. SFAS 128 replaces the presentation
of primary and fully diluted earnings per share with basic and diluted earnings
per share, respectively. Basic earnings per share are computed by dividing
income attributable to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted earnings per share are
computed similarly to fully diluted earnings per share. The Company adopted the
provisions of SFAS 128 in the second fiscal quarter of 1998.
Earnings per share amounts for prior periods, have been restated to conform
to the requirements of SFAS 128. The computation of basic earnings per share and
diluted earnings per share is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net income.................................................. $2,992 $18,764 $31,158
Preferred Stock dividends................................... -- (2,420) (151)
------ ------- -------
Income attributable to common stockholders for basic
earnings per share........................................ $2,992 $16,344 $31,007
Convertible Preferred Stock dividends....................... -- 2,420 151
------ ------- -------
Income attributable to common stockholders after assumed
conversion................................................ $2,992 $18,764 $31,158
====== ======= =======
Basic weighted average shares outstanding................... 41,355 38,931 40,351
Dilutive effect of potential Common Stock:
Stock option plans........................................ 1,202 1,957 1,646
Convertible Preferred Stock............................... -- 6,959 385
------ ------- -------
Dilutive potential shares outstanding....................... 42,557 47,847 42,382
====== ======= =======
Earnings per share:
Basic..................................................... $ 0.07 $ 0.42 $ 0.77
Diluted................................................... 0.07 0.39 0.74
</TABLE>
The Company adopted SFAS 130, "Reporting Comprehensive Income," on
September 1, 1998. This statement established standards for reporting and
display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners. The provisions
of SFAS 130 have been retroactively applied to all years presented in the
accompanying financial statements.
In June 1997 SFAS 131, "Disclosure about Segments of an Enterprise and
Related Information" was issued. In February 1998, SFAS 132 "Employees
Disclosures about Pensions and Other Postretirement Benefits"--an amendment of
SFAS 87, 88 and 106 was issued. SFAS 131 requires disclosure of reportable
operating segments. SFAS 132 revises disclosures about pension and other
post-retirement benefits. These statements, which are effective for the
Company's 1999 fiscal year, expand or modify disclosures which will have no
material impact on the Company's consolidated financial position, results of
operations, or cash flows.
In June 1998, SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued. SFAS 133 establishes accounting and reporting standards
for derivative instruments and for hedging activities. Currently SFAS 133 will
not have a material effect on the consolidated financial statements.
2. RESTRUCTURING
In January 1998, the Company announced a plan to restructure its
operations, which resulted in the Company recording a one-time expense totaling
$16,750 in the second fiscal quarter ending February 28, 1998. The charge
consisted of machinery and equipment write-downs ($5,590) an amount for
machinery
F-18
<PAGE> 107
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and equipment and other lease terminations, primarily related to outsourcing
($4,856), personnel-related costs, primarily related to outsourcing ($3,803),
and administrative facility closing costs ($2,501).
The restructuring did not result in factory closings. However, it did
involve shifting some additional production from North America to China and
increasing component outsourcing. As part of the restructuring, all Fedders
International activities, including executive management located at the
Company's headquarters in New Jersey, were relocated to the Company's Asian
headquarters in Singapore. The sales, marketing, research and design, service
and administrative support functions of Fedders North America were relocated to
the Company's facility in Illinois.
3. LITIGATION
The Company is involved in litigation, both as plaintiff and defendant,
incidental to the conduct of its business. It is the opinion of management,
after consultation with counsel, that the outcome of such litigation will not
have a material adverse effect on the accompanying financial statements.
4. SHORT-TERM BORROWING
At August 31, 1998 and 1997, the Company had no short-term borrowing under
its revolving credit facility with a commercial finance company. Availability
under the facility of $50,000 at August 31, 1998 and 1997 is based on accounts
receivable and inventory and requires maintenance of certain financial
covenants. The maximum amount outstanding under the credit facility was $8,593
and $50,000 during fiscal 1998 and 1997, respectively. The average amount
outstanding and average rate of interest charged on outstanding borrowings under
the credit facility were $460 and 8.5% in fiscal 1998 and $14,974 and 8.6% in
fiscal 1997. The credit facility is collateralized by substantially all of the
Company's assets and is in effect until February 2000. The rate of interest on
the facility is the prime rate.
5. LONG-TERM DEBT
Long-term debt consists of the following at August 31:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
9 3/8% Senior Subordinated Notes due in 2007:
$100,000 principal amount less unamortized discount of $429
and $477.................................................. $ 99,571 $ 99,523
Fedders Xinle 8% promissory note............................ 3,614 6,131
Promissory note payable to the State of Illinois, interest
at 1%..................................................... 3,521 3,859
Capital lease obligations................................... 4,307 5,867
-------- --------
111,013 115,380
Less current maturities..................................... 2,065 1,891
-------- --------
$108,948 $113,489
======== ========
</TABLE>
Aggregate amounts of long-term debt, excluding capital leases of $4,307
maturing in each of the years ending August 31 are: 1999-$342, 2000-$346,
2001-$349, 2002-$352, 2003-$356, and thereafter $105,390.
In August 1997, a subsidiary of the Company issued $100,000 principal
amount of 9 3/8% Senior Subordinated Notes due 2007. The notes are guaranteed by
the Company on a senior subordinated basis. The notes may be redeemed by Fedders
North America after August 2002 at a redemption price of 104.688% of principal
amount. The provisions of the notes limit, among other things, the payment of
dividends by the subsidiary.
F-19
<PAGE> 108
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The long-term promissory note of Fedders Xinle is payable to a People's
Republic of China bank and matures in 2008. The loan is secured by certain joint
venture assets and is not guaranteed by the Company or its other subsidiaries.
Fedders Xinle made payments of $2,517 during fiscal 1998.
The loan from the State of Illinois has an interest rate of 1%, is to be
paid over the next ten years, and is collateralized by a mortgage on the
Illinois facility.
6. LEASES
CAPITAL LEASES
Aggregate future minimum rental payments under capital leases primarily
assumed in conjunction with the NYCOR merger (note 12) for the years ended
August 31 are as follows: $2,055, $1,696, $177, $191 and $170 in 1999, 2000,
2001, 2002 and 2003, respectively, and $18 thereafter. The present value of net
minimum lease payments is $4,307, excluding the interest portion of $638.
OPERATING LEASES
The Company leases certain property and equipment under operating leases,
which expire over the next four years. Most of these operating leases contain
one of the following options: (a) the Company may, at the end of the initial
lease term, purchase the property at the then fair market value or (b) the
Company may renew its lease at the then fair rental value for a period of one
month to four years. Minimum payments for operating leases having
non-cancellable terms are as follows: $3,502, $2,138, $1,449, $1,255 and $570 in
1999, 2000, 2001, 2002 and 2003, respectively, and $665 thereafter. Minimum
lease payments total $9,579. Total rent expense for all operating leases
amounted to $3,940, $3,749 and $2,025 in 1998, 1997 and 1996, respectively.
7. INCOME TAXES
The provision for income tax (benefit) consists of the following
components:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Current:
Federal............................................. $ 1,854 $ 8,005 $18,047
State............................................... 170 714 2,253
------- ------- -------
Foreign............................................. 58 401 88
------- ------- -------
2,082 9,120 20,388
------- ------- -------
Charge in lieu of income taxes........................ 3,825 479 437
------- ------- -------
Deferred:
Federal............................................. (3,970) 380 (1,530)
------- ------- -------
State............................................... (326) 124 (187)
------- ------- -------
(4,296) 504 (1,717)
------- ------- -------
$ 1,611 $10,103 $19,108
======= ======= =======
</TABLE>
The exercise of stock options to acquire shares of the Company's Class A
Stock creates a compensation deduction for income tax purposes for which there
is no corresponding expense required for financial reporting purposes. The tax
benefits related to these deductions are reflected as a charge in lieu of income
taxes and a credit to additional paid-in capital.
F-20
<PAGE> 109
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes result from "temporary differences" between assets
and liabilities for financial reporting and income tax purposes, the components
of which are as follows at August 31:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Warranty.................................................... $ 2,011 $ 2,498
Depreciation................................................ 2,190 (1,263)
Employee benefit programs................................... 4,697 4,560
Inventory................................................... 2,553 2,249
Net operating loss carryforwards............................ 5,575 8,221
Restructuring............................................... 1,907 --
Other....................................................... 2,543 915
------- -------
21,476 17,180
(6,736) (6,736)
------- -------
$14,740 $10,444
======= =======
</TABLE>
The difference between the United States statutory income tax rate and the
consolidated effective income tax rate is due to the following items:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Expected tax at statutory rate......................... $1,611 $10,103 $17,593
Valuation allowance reflected in current income........ -- (289) (325)
State taxes, less federal income tax benefit........... 95 545 1343
Prior year provisions no longer required............... (297) (675) --
202 419 497
------ ------- -------
$1,611 $10,103 $19,108
====== ======= =======
</TABLE>
At August 31, 1998, the Company has Canadian net operating loss
carryforwards of approximately $464 that expire in the years 2002 through 2003,
and U.S. net operating loss and tax credit carryforwards of approximately
$12,000 and $1,000, respectively, which are restricted as to use and expire in
the years 2001 through 2010. Due to the uncertainty of recoverability of these
amounts, the Company established a valuation allowance.
8. INDUSTRY SEGMENT
The Company operates in one industry segment and sells its room air
conditioners primarily directly to retailers and also through private label
arrangements and distributors. In 1998, one customer accounted for 30% of net
sales and a second customer accounted for 27% of net sales. In 1997, one
customer accounted for 27% of net sales and a second customer accounted for 19%
of net sales. In 1996, one customer accounted for 30% of net sales.
International sales were $38,078 in 1998, $45,012 in 1997, and $24,458 in
1996 and were made principally to Canada, Mexico, Europe and Asia.
9. CAPITAL STOCK
Preferred Stock (15,000,000 shares authorized): In August 1997, the
Company called its Preferred Stock for redemption. In September 1997, each share
of Preferred Stock was redeemed for 1.022 shares of Class A Stock based on the
average closing price of the Class A Stock of $6.113. Fractional shares and all
accounts holding 100 shares or less were paid in cash at the rate of $6.25 per
share. During fiscal 1998 and 1997, 52,153 and 705,233 shares, respectively, of
Preferred Stock were repurchased for $326 and $4,408,
F-21
<PAGE> 110
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
respectively, under the Company's $50,000 stock repurchase program (the "$50
Million Plan") and were retired.
Common Stock (80,000,000 shares authorized): During fiscal 1998, 1,917,500
shares were repurchased for $11,487 and retired under the $50 Million Plan. An
additional 100,139 shares were received from employees and retired in connection
with the exercise of stock options under the Company's stock option plans and
amounted to $563. Shares of Common Stock are reserved for the conversion of
Class A and Class B Stock as indicated herein.
Class A Stock (60,000,000 shares authorized): During fiscal 1998,
5,750,132 shares were repurchased for $33,937 under the $50 Million Plan. An
additional 2,063,173 shares were received from employees and retired in
connection with the exercise of stock options under the Company's stock option
plans and amounted to $12,772. During fiscal 1997, 4,334,800 shares were
repurchased under the Company's $25 million stock repurchase plan and were held
in treasury as of August 31, 1997. All Class A shares that were repurchased
during fiscal 1997 and 1998 have been retired as of August 31, 1998. Shares of
Class A Stock reserved under the Company's stock option plans amounted to
5,819,933 and 10,138,000 at August 31, 1998 and 1997, respectively. Class A
Stock has rights, including dividend rights, substantially identical to the
Common Stock, except that the Class A Stock will not be entitled to vote except
to the extent provided under Delaware law. Class A Stock is immediately
convertible into Common Stock on a share-for-share basis upon conversion of all
of the Class B Stock and accordingly, 22,792,082 and 37,171,281 shares of Common
Stock are reserved for such conversion at August 31, 1998 and 1997,
respectively. In 1998, the Company granted 300,000 shares of restricted stock to
an executive officer, the value of which is $1,763 (note 11).
Class B Stock (7,500,000 shares authorized): Class B Stock is immediately
convertible into Common Stock on a share-for-share basis and accordingly, at
August 31, 1998 and 1997, 2,266,606 shares of Common Stock are reserved for such
conversion. Class B Stock has greater voting power, in certain circumstances,
ten-to-one, in the election of directors but receives a lower dividend, if
declared, equal to 90% of the dividend on Common Stock, and has limited
transferability. Class B Stock also votes separately, as a class, on certain
significant issues.
In August 1998, the Company's Board of Directors authorized a $30,000 stock
repurchase plan for the Company's Common and Class A Stock.
10. STOCK OPTION PLANS
All stock option plans, as approved by the stockholders, provide for the
granting to employees and officers of incentive stock options (as defined under
current tax laws) and non-qualified stock options. All of the plans provide for
the granting of non-qualified stock options to directors who are not employees.
Stock options are exercisable one year after the date of grant and, if not
exercised, will expire five years from the date of grant. Certain options are
only exercisable at the end of five years.
On September 1, 1996, the Company adopted SFAS 123 "Accounting for Stock
Based Compensation" and chose to continue the application of APB Opinion 25 and
related interpretations in accounting for its stock options issued to employees.
Accordingly, the adoption of SFAS 123 did not have a material effect on the
Company's consolidated financial statements. Had compensation cost for the
Company's stock option plans been determined consistent with SFAS 123, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below.
F-22
<PAGE> 111
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C> <C>
Net income attributable to common stockholders...... As reported $2,992 $16,344
Pro forma 2,553 14,801
Basic earnings per share:........................... As reported $ 0.07 $ 0.42
Pro forma 0.06 0.38
Diluted earnings per share:......................... As reported $ 0.07 $ 0.39
Pro forma 0.06 0.31
</TABLE>
The stock option plan summary and changes during each year are presented
below:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Options outstanding beginning of year................ $ 5,992 $ 4,852 $ 4,715
Granted.............................................. 21 1,761 752
Canceled............................................. (91) (92) (30)
Exercised............................................ (4,247) (529) (585)
-------- -------- --------
Options outstanding at end of year................... 1,675 5,992 4,852
Options exercisable at end of year................... 1,655 3,385 3,682
======== ======== ========
Exercise price per share............................. $ 2.67 $ 1.87 $ 1.69
to 5.75 to 5.50 to 4.87
</TABLE>
Options exercisable at August 31, 1998 have an average exercise price of
$4.49. The fair value of the stock options granted during 1998, 1997 and 1996
was $1.71, $1.41 and $1.09, respectively. The fair value of each option granted
is estimated on the date of granting using the Black-Scholes option pricing
model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Expected dividend yield..................................... $.085 $.080 $.080
Risk free rate.............................................. 6.1% 6.1% 6.3%
Expected life in years...................................... 4 4 4
Volatility.................................................. 32% 32% 32%
</TABLE>
The following table summarizes information on stock options outstanding at
August 31, 1998:
<TABLE>
<CAPTION>
OPERATIONS
OPERATIONS OUTSTANDING EXERCISABLE
------------------------------------ ----------------------
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE(1) PRICE(1) EXERCISABLE PRICE
<S> <C> <C> <C> <C> <C>
$2.67-2.93............................ 28 3.6 $2.79 28 $2.79
$3.00-3.53............................ 169 1.9 3.27 169 3.27
$3.60-3.93............................ 33 1.6 3.7 33 3.7
$4.00-4.50............................ 319 3 4.49 319 4.49
$4.75-4.87............................ 956 4.5 4.76 956 4.76
$5.13-5.75............................ 170 4.7 5.31 150 4.63
----- --- ----- ----- -----
1,675 3.1 4.56 1,655 4.49
----- --- ----- ----- -----
</TABLE>
- ------------------------------
(1) Weighted average
11. PENSION PLANS AND OTHER COMPENSATION ARRANGEMENTS
The Company maintains a 401(k) defined contribution plan covering all U.S.
employees except union employees at one subsidiary. Company matching
contributions under the plan are based on the level of
F-23
<PAGE> 112
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
individual participant contributions and amounted to $1,328, $1,340 and $1,171
in 1998, 1997 and 1996, respectively. In 1996, the Company terminated its
defined benefit pension plan that was curtailed in 1993 with no material gain or
loss recognized.
The Company has an agreement with an officer that has a term of ten years
from any point in time and provides for salary during the employment period, a
disability program, post-retirement benefits and a death benefit in an amount
equal to ten times the prior year's compensation, payable by the Company over
ten years. The estimated present value of future non-salary benefits payable
under the agreement has been determined based upon certain assumptions and is
being amortized over the expected remaining years of service to the Company. The
Company has an agreement with another officer that has a term that extends
through September 2003. The agreement provides for annual base and incentive
compensation, a non-interest bearing uncollateralized loan maturing in September
2004 (note 1), a retirement contribution that vests over the life of the
agreement and restricted stock that vests in January 2004 (note 9). The Company
is amortizing the retirement contribution and the restricted stock over the life
of the agreement.
The Company provides a portion of health care and life insurance benefits
for retired employees who elect to participate in the Company's plan. SFAS 106
requires accrual accounting for all post-retirement benefits other than pension.
At August 31, 1998 and 1997, post-retirement benefits were fully accrued with no
material change between these dates.
12. MERGER
On August 13, 1996 and upon receiving more than a two-thirds majority
approval of all Common and Class B Stockholders, the Company merged with NYCOR,
a manufacturer of rotary compressors and thermoelectric heating and cooling
modules. Consideration consisted of 7,643,000 shares of Preferred Stock with a
value of approximately $47,769. The merger was accounted for using the purchase
method, with the consideration allocated to the assets acquired based on their
estimated fair values as of the merger date. The purchase price plus the fair
value of net liabilities assumed was allocated to goodwill, which is being
amortized on a straight line basis over 40 years. One share of Fedders
Convertible Preferred Stock was issued for each share of NYCOR Common, Class A
and Class B Stock.
Purchases from NYCOR at negotiated market prices, amounted to $53,878 in
1996. Certain officers and directors of the Company were also officers and/or
directors of NYCOR and had significant stockholdings in both companies.
13. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Fedders North America, Inc. ("FNA") is a wholly owned subsidiary of the
Company. FNA and the Company are the Issuer and the Guarantor, respectively, of
the senior subordinated notes due 2007 which were issued in August 1997 (the
"Offering" note 5). The Company's guarantee is full, unconditional, and joint
and several. The following condensed consolidating financial statements present
separate information for FNA and for the Company and its subsidiaries other than
FNA and should be read in connection with the consolidated financial statements
of the Company. The non-guarantor subsidiaries of the Company are
inconsequential individually and in the aggregate, to the consolidated financial
statements and management has determined that separate financials of the
Guarantor would not be meaningful.
The amounts shown for FNA (presented under the caption "Fedders North
America") in the following historical condensed consolidating financial
statements include the accounts of Rotorex Company, Inc. ("Rotorex") since
August 13, 1996. The amounts presented under the caption ("Other Fedders")
include the Company, the accounts of NYCOR and its subsidiaries other than
Rotorex since August 13, 1996. August 13, 1996 was the date of the merger
between Fedders Corporation and NYCOR (note 12). The amounts shown for Other
Fedders and FNA reflect the elimination of the $20,000, 10%
F-24
<PAGE> 113
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
note payable by Rotorex to NYCOR as a contribution to the capital of Rotorex
retroactive to August 13, 1996, since this amount was contributed to Rotorex's
capital in connection with the Offering. The amounts also present the
intercompany receivable by FNA from Other Fedders for all periods prior to
August 31, 1997 as a reduction of stockholders' equity since the balance in this
account was forgiven at the time of completing the Offering.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31, 1998
------------------------------------------------------
FEDDERS OTHER ELIMINATING FEDDERS
NORTH AMERICA FEDDERS ENTRIES CORPORATION
<S> <C> <C> <C> <C>
Net sales.................................... $289,412 $32,709 -- $322,121
Cost of sales................................ 226,180 26,171 -- 252,351
Selling, general and administrative
expenses(a)................................ 26,393 13,817 -- 40,210
Restructuring charge......................... 15,360 1,390 -- 16,750
-------- ------- -------- --------
Operating loss............................... 21,479 (8,669) -- 12,810
Minority interest in joint venture........... -- 403 -- 403
Net interest income (expense)(b)............. (10,354) 1,744 -- (8,610)
-------- ------- -------- --------
Loss before income taxes..................... 11,125 (6,522) -- 4,603
Income taxes (benefit)....................... 3,894 (2,283) -- 1,611
-------- ------- -------- --------
Net income (loss)............................ $ 7,231 $(4,239) -- $ 2,992
======== ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31, 1997
------------------------------------------------------
FEDDERS OTHER ELIMINATING FEDDERS
NORTH AMERICA FEDDERS ENTRIES CORPORATION
<S> <C> <C> <C> <C>
Net sales.................................... $271,874 $42,226 -- $314,100
Cost of sales................................ 206,870 37,154 -- 244,024
Selling, general and administrative
expenses(a)................................ 26,130 12,217 -- 38,347
-------- ------- -------- --------
Operating income (loss)...................... 38,874 (7,145) -- 31,729
Minority interest in joint venture........... -- 568 -- 568
Net interest income (expense)(b)............. (4,341) 911 -- (3,430)
-------- ------- -------- --------
Income (loss) before income taxes............ 34,533 (5,666) -- 28,867
Income taxes (benefit)....................... 12,087 (1,984) -- 10,103
-------- ------- -------- --------
Net income (loss)............................ 22,446 (3,682) -- 18,764
Dividend income(f)........................... -- 72,300 (72,300) --
Preferred stock dividend requirement......... -- 2,420 -- 2,420
-------- ------- -------- --------
Net income (loss) attributable to common
stockholders............................... $ 22,446 $66,198 $(72,300) $ 16,344
======== ======= ======== ========
</TABLE>
F-25
<PAGE> 114
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31, 1997
------------------------------------------------------
FEDDERS OTHER ELIMINATING FEDDERS
NORTH AMERICA FEDDERS ENTRIES CORPORATION
<S> <C> <C> <C> <C>
Net sales.................................... $356,392 $15,380 -- $371,772
Cost of sales................................ 276,917 11,827 -- 288,744
Selling, general and administrative
expenses(a)................................ 25,267 6,773 -- 32,040
-------- ------- -------- --------
Operating income (loss)...................... 54,208 (3,220) -- 50,988
Minority interest in joint venture........... -- 230 -- 230
Net interest income (expense)(b)............. (3,941) 2,989 -- (952)
-------- ------- -------- --------
Income (loss) before income taxes............ 50,267 (1) -- 50,266
Income taxes (benefit)....................... 19,108 --) -- 19,108
-------- ------- -------- --------
Net income (loss)............................ 31,159 (1) -- 31,158
Preferred stock dividend requirement......... -- 151 -- 151
-------- ------- -------- --------
Net income (loss) attributable to common
stockholders............................... $ 31,159 $ (152) $ -- $ 31,007
======== ======= ======== ========
</TABLE>
F-26
<PAGE> 115
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31, 1997
---------------
FEDDERS OTHER ELIMINATING FEDDERS
NORTH AMERICA FEDDERS ENTRIES CORPORATION
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............. $ -- $110,393 -- $110,393
Net accounts receivable................ 5,461 3,599 -- 9,060
Inventories............................ 50,303 12,584 -- 62,887
Other current assets................... 584 12,403 -- 12,987
-------- -------- --------- --------
Total current assets..................... 56,348 138,979 -- 195,327
Investments in subsidiaries.............. -- 104,306 $(104,306) --
Net property, plant and equipment........ 51,446 12,528 -- 63,994
Goodwill................................. 50,284 6,574 -- 56,858
Other long-term assets................... 7,794 5,041 -- 12,835
-------- -------- --------- --------
$165,892 $267,428 $(104,306) $329,014
======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion long-term debt......... $ 1,870 $ 21 -- $ 1,891
Accounts and income taxes payable...... 20,747 (129) -- 20,618
Accrued Expenses....................... 22,752 8,330 -- 31,082
-------- -------- --------- --------
Total current liabilities................ 45,369 8,222 -- 53,591
Net due to (from) affiliates............. (10,758) 10,758 -- --
Long-term debt........................... 107,346 6,143 -- 113,489
Other long-term liabilities.............. 2,780 13,467 -- 16,247
Stockholders' equity:
Preferred Stock........................ -- 6,809 -- 6,809
Common, Class A and Class B Stock...... 5 41,331 $ (5) 41,331
Paid-in capital(f)..................... 21,292 237,629 (173,219) 85,702
Retained earnings (deficit)(f)......... -- (31,894) 68,918 37,024
Treasury Stock......................... -- (25,041) -- (25,041)
Cumulative other comprehensive income
(loss).............................. (142) 4 -- (138)
-------- -------- --------- --------
Total stockholders' equity............... 21,155 228,838 104,306) 145,687
-------- -------- --------- --------
$165,892 $267,428 $(104,306) $329,014
======== ======== ========= ========
</TABLE>
F-27
<PAGE> 116
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31, 1998
-------------------------------------
FEDDERS OTHER FEDDERS
NORTH AMERICA FEDDERS CORP.
<S> <C> <C> <C>
Net cash provided by operations......................... $ 43,320 $ (4,496) $ 38,824
-------- -------- --------
Net additions to property, plant and equipment, being
cash used in investing activities..................... (5,351) (4,646) (9,997)
-------- -------- --------
Net repayments from short and long-term borrowings...... (1,822) (2,598) (4,420)
Cash dividends.......................................... -- (3,520) (3,520)
Proceeds from stock options exercised................... -- 5,289 5,289
Tax benefit related to stock options exercised.......... -- 3,825 3,825
Repurchase of capital stock............................. -- (49,408) (49,408)
Change in net due to (from) affiliate................... (30,133) 30,133 --
-------- -------- --------
Net cash used in financing activities................... (31,955) (16,279) (48,234)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents.... 6,014 (25,421) (19,407)
Cash and cash equivalents at beginning of year.......... -- 110,393 110,393
-------- -------- --------
Cash and cash equivalents at end of year................ $ 6,014 $ 84,972 $ 90,986
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31, 1997
-------------------------------------
FEDDERS OTHER FEDDERS
NORTH AMERICA FEDDERS CORP.
<S> <C> <C> <C>
Net cash provided by operations......................... $ 12,694 $(21,999) $ (9,305)
-------- -------- --------
Net additions to property, plant and equipment, being
cash used in investing activities..................... (6,750) (2,058) (8,808)
-------- -------- --------
Net (repayments) proceeds from short and long-term
borrowings............................................ (1,716) (276) (1,992)
Cash dividends.......................................... (5,605) (5,605)
Proceeds from stock options exercised................... -- 1,727 1,727
Tax benefit related to stock options exercised.......... -- 479 479
Proceeds form bond offering............................. 96,025 -- 96,025
Redemption of 8 1/2% convertible subordinated
debentures............................................ -- (22,806) (22,806)
Purchase of Class A Stock............................... -- (25,041) (25,041)
Purchase of Preferred Stock............................. -- (4,408) (4,408)
Other................................................... -- (168) (168)
Intercompany dividend................................... (72,300) 72,300 --
Change in net due to (from) affiliate................... (27,953) 27,953 --
-------- -------- --------
Net cash (used in) provided by financing activities..... (5,944) 44,155 38,211
-------- -------- --------
Net increase in cash and cash equivalents............... -- 20,098 20,098
Cash and cash equivalents at beginning of year.......... -- 90,295 90,295
-------- -------- --------
Cash and cash equivalents at end of year................ $ -- $110,393 $110,393
======== ======== ========
</TABLE>
F-28
<PAGE> 117
FEDDERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31, 1996
------------------------------------
FEDDERS OTHER FEDDERS
NORTH AMERICA FEDDERS CORP.
<S> <C> <C> <C>
Net cash provided by operations.......................... $ 36,073 $ 4,762 $40,835
-------- -------- -------
Net additions to property, plant and equipment, being
cash used in investing activities...................... (4,448) (2,060) (6,508)
-------- -------- -------
Net (repayment) proceeds from short and long-term
borrowings............................................. (398) (394) (792)
Cash dividends........................................... -- (3,252) (3,252)
Proceeds from stock options exercised.................... -- 1,868 1,868
Other.................................................... -- 437 437
Change in net due to (from) affiliate.................... (31,227) 31,227 --
-------- -------- -------
Net cash (used in) provided by financing activities...... (31,625) (29,886) (1,739)
-------- -------- -------
Net increase in cash and cash equivalents................ -- 32,588 32,588
Cash and cash equivalents at beginning of year........... -- $ 57,707 $57,707
-------- -------- -------
Cash and cash equivalents at end of year................. -- $ 90,295 $90,295
======== ======== =======
</TABLE>
INTERCOMPANY TRANSACTIONS
The historical condensed consolidating financial statements presented above
include the following transactions between FNA and the Company:
(a) The Company charges corporate overhead to FNA essentially on a
cost basis allocated in proportion to sales. Such charges to FNA amounted
to $9,383, $9,747 and $10,247 for the years ended August 31, 1998, 1997 and
1996, respectively.
(b) In 1998, FNA's interest expense reflects actual interest charges
on the 9 3/8% Senior Subordinated Notes due 2007, State of Illinois
Promissory Note and capital lease obligations. The Company allocated
interest expense to FNA based upon the level of FNA's working capital at
the prime rate of interest in prior years. Such interest charges amounted
to $3,953 and $2,751 for the years ended August 31, 1997 and 1996,
respectively.
(c) FNA's depreciation and amortization for the years ended August 31,
1998, 1997 and 1996 amounted to $7,500, $7,847 and $6,071, respectively.
Capital expenditures of FNA for the same periods amounted to $8,083, $7,131
and $4,983, respectively.
(d) The Company guarantees FNA's obligations under FNA's revolving
credit facility.
(e) The Company's stock option plans include FNA's employees.
(f) In connection with the completion of the offering on August 13,
1997, FNA declared a dividend of $72,300 to the Company. In addition, the
intercompany receivable from Fedders Corporation on August 13, 1997 of
$152,097 was forgiven and has been reflected as an adjustment to
stockholders' equity of both companies in the accompanying condensed
consolidated balance sheets.
F-29
<PAGE> 118
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF FEDDERS CORPORATION
We have audited the accompanying consolidated balance sheets of Fedders
Corporation as of August 31, 1998 and 1997, and the related consolidated
statements of operations and comprehensive income, cash flows and stockholders'
equity for each of the three years in the period ended August 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Fedders
Corporation as of August 31, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
August 31, 1998, in conformity with generally accepted accounting principles.
BDO Seidman, LLP
Woodbridge, New Jersey
October 19, 1998
F-30
<PAGE> 119
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[FEDDERS NORTH AMERICA LOGO]
$50,000,000
9 3/8% SENIOR SUBORDINATED NOTES DUE 2007
--------------------
PROSPECTUS
--------------------
OCTOBER 7, 1999
- --------------------------------------------------------------------------------
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE YOU
WRITTEN INFORMATION OTHER THAN THIS PROSPECTUS OR TO MAKE REPRESENTATIONS AS TO
MATTERS NOT STATED IN THIS PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED
INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES OR OUR
SOLICITATION OF YOUR OFFER TO BUY THE SECURITIES IN ANY JURISDICTION WHERE THAT
WOULD NOT BE PERMITTED OR LEGAL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALES MADE HEREUNDER AFTER THE DATE OF THIS PROSPECTUS SHALL CREATE AN
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR OUR AFFAIRS HAVE NOT
CHANGED SINCE THE DATE HEREOF.
- --------------------------------------------------------------------------------
<PAGE> 120
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") empowers a Delaware corporation to indemnify any person who was or is a
party or witness or is threatened to be made a party to any threatened, pending
or completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than action by or in the right of such
corporation), by reason of the fact that he or she is or was an officer,
director, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. Depending on
the character of the proceeding, a corporation may indemnify against expenses,
costs and fees (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with such action, suit
or proceeding if the person indemnified acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the corporation's best
interests, and, for criminal proceedings, had no reasonable cause to believe his
or her conduct was unlawful. If the person indemnified is not wholly successful
in such action, suit or proceeding, but is successful, on the merits or
otherwise, in one or more but less than all claims, issues or matters in such
proceeding, he or she may be indemnified against expenses actually and
reasonably incurred in connection with each successfully resolved claim, issue
or matter. In the case of an action or suit by or in the right of the
corporation, no indemnification may be made with respect to 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 is brought, shall determine that despite the
adjudication of liability, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper. Section 145
provides that, to the extent a director, officer, employee or agent of a
corporation has been successful in the defense of any action, suit or proceeding
referred to above or in the defense of any claim, issue or manner therein, he or
she shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him or her in connection therewith.
Article V of the By-laws of the Guarantor provides for indemnification by
the Guarantor of its directors and officers to the fullest extent permitted by
the DGCL. The Guarantor has purchased insurance on behalf of the present and
former directors and officers of the Guarantor and its subsidiaries against
liabilities asserted against or incurred by them in such capacity or arising out
of their status as such.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
3.1 Restated Certificate of Incorporation of the Company dated
November 18, 1997 filed as Exhibit (3)(i) to the Company's
Annual Report on Form 10-K for 1997 and incorporated herein
by reference.
3.2 By-Laws, amended through January 16, 1998, filed as Exhibit
(3)(vii) to the Company's Annual Report on Form 10-K for
1997 and incorporated herein by reference.
4.1* Indenture, dated August 24, 1999, between Fedders North
America, Inc., Fedders Corporation and State Street Bank and
Trust Company, as Trustee.
4.2* Form of Certificate of Senior Subordinated Note (included as
Exhibit A to Exhibit 4.1)
4.3* Registration Rights Agreement, dated August 24, 1999, by and
among Fedders North America, Inc., Fedders Corporation and
Donaldson, Lufkin & Jenrette Securities Corporation.
5.1* Opinion of Robert N. Edwards, Esq., Vice President and
General Counsel of Fedders.
10.1 Stock Option Plan II, filed as Exhibit 10.4 to the Company's
Annual Report on Form 10-K for 1984 and incorporated herein
by reference.
</TABLE>
II-1
<PAGE> 121
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
10.2 Stock Option Plan III, filed as Exhibit 10(iv) to the
Company's Annual Report on Form 10-K for 1985 and
incorporated herein by reference.
10.3 Stock Option Plan IV, filed as Exhibit 10(iv) to the
Company's Annual Report on Form 10-K for 1987 and
incorporated herein by reference.
10.4 Stock Option Plan V, filed as Exhibit 10(v) to the Company's
Annual Report on Form 10-K for 1988 and incorporated herein
by reference.
10.5 Stock Option Plan VI, filed as Exhibit 10(vi) to the
Company's Annual Report on Form 10-K for 1989 and
incorporated herein by reference.
10.6 Stock Option Plan VII, filed as Exhibit 10(vi) to the
Company's Annual Report on Form 10-K for 1990 and
incorporated herein by reference.
10.7 Stock Option Plan VIII, filed as Annex F to the Company's
Proxy Statement--Prospectus dated May 10, 1996 and
incorporated herein by reference.
10.8 Employment Contract between the Company and Salvatore
Giordano dated March 23, 1993 filed as Exhibit 10(viii) to
the Company's Annual Report on Form 10-K 1993 and
incorporated herein by reference.
10.9 Joint Venture Contract between Ningbo General Air
Conditioner Factory and Fedders Investment Corporation for
the establishment of Fedders Xinle Co. Ltd., dated July 31,
1995 filed as Exhibit 10(viii) on the Form 10-K 1996 and
incorporated herein by reference.
10.10 Employment Agreement between the Company and Sal Giordano,
Jr. effective October 1, 1997, filed as Exhibit 10 to the
Company's Quarterly Report on From 10-Q for the quarter
ended November 30, 1997 and incorporated herein by
reference.
21.1* Subsidiaries of Fedders
23.1* Consent of BDO Seidman, LLP.
24.1* Powers of attorney (included on signature pages to the
Registration Statement).
25.1* Statement of Eligibility and Qualification on Form T-1 of
State Street Bank and Trust Company as Trustee under the
Indenture relating to the Company's 9 3/8% Senior
Subordinated Notes due 2007.
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
99.3* Form of Letter to Brokers, Dealers, Commercial Bankers,
Trust Companies and Other Nominees.
99.4* Form of Letter to Clients.
99.5* Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9
</TABLE>
- ------------------------------
* Filed with this Registration Statement
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1993;
(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, represents 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)
II-2
<PAGE> 122
if, in the aggregate, the changes in volume and price represent no more
that 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;
provided, however, that the undertakings set forth in paragraphs (a)(1)(i)
and (a)(1)(ii) above do not apply if the information required to be
included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the Guarantor pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in this 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.
(b) The undersigned Registrant hereby undertakes:
Insofar as indemnification for liabilities arising under the Securities Act
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 Securities 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 Securities Act and will be governed by the final
adjudication of such issue.
(c) 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.
(d) The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report, to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus in sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(e) The undersigned Registrant hereby undertakes as follows:
(1) 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
II-3
<PAGE> 123
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;
(2) 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 an 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.
(f) For purposes of determining any liability under the Securities Act of
1933:
(1) the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective;
(2) each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at the time
shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 124
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the town of Liberty Corner, State of
New Jersey, on October 7, 1999.
FEDDERS NORTH AMERICA, INC.
By /s/ ROBERT N. EDWARDS
------------------------------------
Robert N. Edwards
Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1993, this
Registration Statement has been signed by the following persons in the
capacities shown on October 7, 1999.
<TABLE>
<C> <S>
/s/ SALVATORE GIORDANO Chairman of the Board
- -----------------------------------------------------
Salvatore Giordano
/s/ SAL GIORDANO, JR. Vice Chairman and a Director
- ----------------------------------------------------- (Principal Executive Officer)
Sal Giordano, Jr.
/s/ WILLIAM J. BRENNAN Director
- -----------------------------------------------------
William J. Brennan
/s/ DAVID C. CHANG Director
- -----------------------------------------------------
David C. Chang
/s/ JOSEPH GIORDANO Director
- -----------------------------------------------------
Joseph Giordano
/s/ C. A. KEEN Director
- -----------------------------------------------------
C. A. Keen
/s/ HOWARD S. MODLIN Director
- -----------------------------------------------------
Howard S. Modlin
/s/ CLARENCE RUSSEL MOLL Director
- -----------------------------------------------------
Clarence Russel Moll
/s/ S. A. MUSCARNERA Director
- -----------------------------------------------------
S. A. Muscarnera
/s/ ANTHONY E. PULEO Director
- -----------------------------------------------------
Anthony E. Puleo
/s/ MICHAEL GIORDANO Chief Financial Officer
- -----------------------------------------------------
Michael Giordano
/s/ THOMAS A. KROLL Controller
- -----------------------------------------------------
Thomas A. Kroll
</TABLE>
By /s/ ROBERT N. EDWARDS
------------------------------------
Robert N. Edwards
Attorney-in-fact
II-5
<PAGE> 125
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the town of Liberty Corner, State of
New Jersey, on October 7, 1999.
FEDDERS CORPORATION
By /s/ ROBERT N. EDWARDS
------------------------------------
Robert N. Edwards
Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1993, this
Registration Statement has been signed by the following persons in the
capacities shown on October 7, 1999.
<TABLE>
<C> <S>
/s/ SALVATORE GIORDANO Chairman of the Board
- -----------------------------------------------------
Salvatore Giordano
/s/ SAL GIORDANO, JR. Vice Chairman and a Director
- ----------------------------------------------------- (Principal Executive Officer)
Sal Giordano, Jr.
/s/ WILLIAM J. BRENNAN Director
- -----------------------------------------------------
William J. Brennan
/s/ DAVID C. CHANG Director
- -----------------------------------------------------
David C. Chang
/s/ JOSEPH GIORDANO Director
- -----------------------------------------------------
Joseph Giordano
/s/ C. A. KEEN Director
- -----------------------------------------------------
C. A. Keen
/s/ HOWARD S. MODLIN Director
- -----------------------------------------------------
Howard S. Modlin
/s/ CLARENCE RUSSEL MOLL Director
- -----------------------------------------------------
Clarence Russel Moll
/s/ S. A. MUSCARNERA Director
- -----------------------------------------------------
S. A. Muscarnera
/s/ ANTHONY E. PULEO Director
- -----------------------------------------------------
Anthony E. Puleo
/s/ MICHAEL GIORDANO Chief Financial Officer
- -----------------------------------------------------
Michael Giordano
/s/ THOMAS A. KROLL Controller
- -----------------------------------------------------
Thomas A. Kroll
</TABLE>
By /s/ ROBERT N. EDWARDS
------------------------------------
Robert N. Edwards
Attorney-in-fact
II-6
<PAGE> 126
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGES
<S> <C> <C>
3.1 Restated Certificate of Incorporation of the Company dated
November 18, 1997 filed as Exhibit (3)(i) to the Company's
Annual Report on Form 10-K for 1997 and incorporated herein
by reference.
3.2 By-Laws, amended through January 16, 1998, filed as Exhibit
(3)(vii) to the Company's Annual Report on Form 10-K for
1997 and incorporated herein by reference.
4.1* Indenture, dated August 24, 1999, between Fedders North
America, Inc., Fedders Corporation and State Street Bank and
Trust Company, as Trustee.
4.2* Form of Certificate of Senior Subordinated Note (included as
Exhibit A to Exhibit 4.1)
4.3* Registration Rights Agreement, dated August 24, 1999, by and
among Fedders North America, Inc., Fedders Corporation and
Donaldson, Lufkin & Jenrette Securities Corporation.
5.1* Opinion of Robert N. Edwards, Esq., Vice President and
General Counsel of Fedders.
10.1 Stock Option Plan II, filed as Exhibit 10.4 to the Company's
Annual Report on Form 10-K for 1984 and incorporated herein
by reference.
10.2 Stock Option Plan III, filed as Exhibit 10(iv) to the
Company's Annual Report on Form 10-K for 1985 and
incorporated herein by reference.
10.3 Stock Option Plan IV, filed as Exhibit 10(iv) to the
Company's Annual Report on Form 10-K for 1987 and
incorporated herein by reference.
10.4 Stock Option Plan V, filed as Exhibit 10(v) to the Company's
Annual Report on Form 10-K for 1988 and incorporated herein
by reference.
10.5 Stock Option Plan VI, filed as Exhibit 10(vi) to the
Company's Annual Report on Form 10-K for 1989 and
incorporated herein by reference.
10.6 Stock Option Plan VII, filed as Exhibit 10(vi) to the
Company's Annual Report on Form 10-K for 1990 and
incorporated herein by reference.
10.7 Stock Option Plan VIII, filed as Annex F to the Company's
Proxy Statement--Prospectus dated May 10, 1996 and
incorporated herein by reference.
10.8 Employment Contract between the Company and Salvatore
Giordano dated March 23, 1993 filed as Exhibit 10(viii) to
the Company's Annual Report on Form 10-K 1993 and
incorporated herein by reference.
10.9 Joint Venture Contract between Ningbo General Air
Conditioner Factory and Fedders Investment Corporation for
the establishment of Fedders Xinle Co. Ltd., dated July 31,
1995 filed as Exhibit 10(viii) on the Form 10-K 1996 and
incorporated herein by reference.
10.10 Employment Agreement between the Company and Sal Giordano,
Jr. effective October 1, 1997, filed as Exhibit 10 to the
Company's Quarterly Report on From 10-Q for the quarter
ended November 30, 1997 and incorporated herein by
reference.
21.1* Subsidiaries of Fedders
23.1* Consent of BDO Seidman, LLP.
24.1* Powers of attorney (included on signature pages to the
Registration Statement).
25.1* Statement of Eligibility and Qualification on Form T-1 of
State Street Bank and Trust Company as Trustee under the
Indenture relating to the Company's 9 3/8% Senior
Subordinated Notes due 2007.
99.1* Form of Letter of Transmittal.
</TABLE>
II-7
<PAGE> 127
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGES
<S> <C> <C>
99.2* Form of Notice of Guaranteed Delivery.
99.3* Form of Letter to Brokers, Dealers, Commercial Bankers,
Trust Companies and Other Nominees.
99.4* Form of Letter to Clients.
99.5* Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9
</TABLE>
- ------------------------------
* Filed with this Registration Statement
II-8
<PAGE> 1
Exhibit 4.1
================================================================================
INDENTURE
Dated as of August 24, 1999
Between
FEDDERS NORTH AMERICA, INC., as Issuer,
and
FEDDERS CORPORATION, as Guarantor,
and
STATE STREET BANK AND TRUST COMPANY, as Trustee
--------------------
Up to $100,000,000
9 3/8% Senior Subordinated Notes due 2007
================================================================================
<PAGE> 2
CROSS-REFERENCE TABLE
Trust Indenture Indenture
Act Section Section
----------- -------
ss.310(a)(1) .......................................... 7.10
(a)(2) .......................................... 7.10
(a)(3) .......................................... N.A.
(a)(4) .......................................... N.A.
(a)(5) .......................................... 7.08, 7.10.
(b) ............................................. 7.08; 7.10; 13.02
(C) ............................................. N.A.
ss.311(a) ............................................. 7.11
(b) ............................................. 7.11
(c) ............................................. N.A.
ss.312(a) ............................................. 2.05
(b) ............................................. 13.03
(C) ............................................. 13.03
ss.313(a) ............................................. 7.06
(b)(1) .......................................... 7.06
(b)(2) .......................................... 7.06
(c) ............................................. 7.06; 13.02
(d) ............................................. 7.06
ss.314(a) ............................................. 4.11; 4.12; 13.02
(b) ............................................. N.A.
(c)(1) .......................................... 13.04
(c)(2) .......................................... 13.04
(c)(3) .......................................... N.A.
(d) ............................................. N.A.
(e) ............................................. 13.05
(f) ............................................. N.A.
ss.315(a) ............................................. 7.01(b)
(b) ............................................. 7.05; 13.02
(c) ............................................. 7.01(a)
(d) ............................................. 7.01(c)
(e) ............................................. 6.11
ss.316(a)(last sentence) .............................. 2.09
(a)(1)(A) ....................................... 6.05
(a)(1)(B) ....................................... 6.04
(a)(2) .......................................... N.A.
(b) ............................................. 6.07
(c) ............................................. 10.04
ss.317(a)(1) .......................................... 6.08
(a)(2) .......................................... 6.09
(b) ............................................. 2.04
ss.318(a) ............................................. 13.01
- ----------
N.A. means Not Applicable.
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be
a part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
Page
----
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions ............................................... 1
SECTION 1.02. Incorporation by Reference of Trust Indenture Act ......... 16
SECTION 1.03. Rules of Construction ..................................... 16
ARTICLE TWO
THE SECURITIES
SECTION 2.01. Form and Dating ........................................... 17
SECTION 2.02. Execution and Authentication .............................. 18
SECTION 2.03. Registrar and Paying Agent ................................ 19
SECTION 2.04. Paying Agent to Hold Assets in Trust ...................... 19
SECTION 2.05. Securityholder Lists ...................................... 20
SECTION 2.06 Transfer and Exchange ..................................... 20
SECTION 2.07. Replacement Securities .................................... 32
SECTION 2.08. Outstanding Securities .................................... 32
SECTION 2.09. Treasury Securities ....................................... 32
SECTION 2.10. Temporary Securities ...................................... 33
SECTION 2.11. Cancellation .............................................. 33
SECTION 2.12. Defaulted Interest ........................................ 33
SECTION 2.13. CUSIP Number .............................................. 33
SECTION 2.14. Deposit of Moneys ......................................... 33
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee ........................................ 34
SECTION 3.02. Selection of Securities to Be Redeemed .................... 34
SECTION 3.03. Notice of Redemption ...................................... 35
SECTION 3.04. Effect of Notice of Redemption ............................ 35
SECTION 3.05. Deposit of Redemption Price ............................... 36
SECTION 3.06. Securities Redeemed in Part ............................... 36
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Securities ..................................... 36
SECTION 4.02. Maintenance of Office or Agency ........................... 36
SECTION 4.03. Transactions with Affiliates .............................. 37
SECTION 4.04. Limitation on Incurrence of Indebtedness .................. 38
-i-
<PAGE> 4
Page
----
SECTION 4.05. Limitation on Certain Asset Sales ......................... 38
SECTION 4.06. Limitation on Restricted Payments ......................... 41
SECTION 4.07. Corporate Existence ....................................... 43
SECTION 4.08. Payment of Taxes and Other Claims ......................... 43
SECTION 4.09. Notice of Defaults ........................................ 43
SECTION 4.10. Maintenance of Properties and Insurance ................... 43
SECTION 4.11. Compliance Certificate .................................... 44
SECTION 4.12. Provision of Financial Information ........................ 44
SECTION 4.13. Waiver of Stay, Extension or Usury Laws ................... 44
SECTION 4.14. Change of Control ......................................... 45
SECTION 4.15. Limitation on Senior Subordinated Indebtedness ............ 46
SECTION 4.16. Limitations on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries ........................ 46
SECTION 4.17. Designation of Restricted and Non-Restricted Subsidiaries . 47
SECTION 4.18. Limitation on Liens ....................................... 48
SECTION 4.19. Limitation on Sale and Leaseback Transactions ............. 48
SECTION 4.20. Limitation on Guarantees of Company Indebtedness by
Restricted Subsidiaries .................................. 48
ARTICLE FIVE
MERGERS; SUCCESSOR CORPORATION
SECTION 5.01. Mergers, Consolidation and Sale of Assets ................. 49
SECTION 5.02. Successor Corporation Substituted ......................... 49
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default ......................................... 49
SECTION 6.02. Acceleration .............................................. 51
SECTION 6.03. Other Remedies ............................................ 51
SECTION 6.04. Waiver of Past Default .................................... 51
SECTION 6.05. Control by Majority ....................................... 52
SECTION 6.06. Limitation on Suits ....................................... 52
SECTION 6.07. Rights of Holders to Receive Payment ...................... 53
SECTION 6.08. Collection Suit by Trustee ................................ 53
SECTION 6.09. Trustee May File Proofs of Claim .......................... 53
SECTION 6.10. Priorities ................................................ 53
SECTION 6.11. Undertaking for Costs ..................................... 54
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee ......................................... 54
SECTION 7.02. Rights of Trustee ......................................... 55
SECTION 7.03. Individual Rights of Trustee .............................. 56
-ii-
<PAGE> 5
Page
----
SECTION 7.04. Trustee's Disclaimer ...................................... 56
SECTION 7.05. Notice of Defaults ........................................ 56
SECTION 7.06. Reports by Trustee to Holders ............................. 57
SECTION 7.07. Compensation and Indemnity ................................ 57
SECTION 7.08. Replacement of Trustee .................................... 58
SECTION 7.09. Successor Trustee by Merger, etc. ......................... 59
SECTION 7.10. Eligibility; Disqualification ............................. 59
SECTION 7.11. Preferential Collection of Claims Against Company ......... 59
ARTICLE EIGHT
SUBORDINATION OF SECURITIES
SECTION 8.01. Securities Subordinated to Senior Indebtedness ............ 59
SECTION 8.02. No Payment on Securities in Certain Circumstances ......... 60
SECTION 8.03. Payment Over of Proceeds upon Dissolution, etc. ........... 61
SECTION 8.04. Subrogation ............................................... 62
SECTION 8.05. Obligations of Company Unconditional ...................... 62
SECTION 8.06. Notice to Trustee ......................................... 63
SECTION 8.07. Reliance on Judicial Order or Certificate of
Liquidating Agent ........................................ 63
SECTION 8.08. Trustee's Relation to Senior Indebtedness ................. 63
SECTION 8.09. Subordination Rights Not Impaired by Acts or Omissions
of the Company or Holders of Senior Indebtedness ......... 64
SECTION 8.10. Securityholders Authorize Trustee to Effectuate
Subordination of Securities .............................. 64
SECTION 8.11. This Article Not to Prevent Events of Default ............. 64
SECTION 8.12. Trustee's Compensation Not Prejudiced ..................... 64
SECTION 8.13. No Waiver of Subordination Provisions ..................... 64
SECTION 8.14. Subordination Provisions Not Applicable to Collateral
Held in Trust for Securityholders; Payments May Be
Paid Prior to Dissolution ................................ 65
SECTION 8.15. Acceleration of Securities ................................ 65
ARTICLE NINE
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 9.01. Discharge of Indenture .................................... 65
SECTION 9.02. Legal Defeasance .......................................... 66
SECTION 9.03. Covenant Defeasance ....................................... 66
SECTION 9.04. Conditions to Legal Defeasance or Covenant Defeasance ..... 66
SECTION 9.05. Deposited Money and U.S. Government Obligations to
Be Held in Trust; Other Miscellaneous Provisions ......... 68
SECTION 9.06. Reinstatement ............................................. 68
SECTION 9.07. Moneys Held by Paying Agent ............................... 69
SECTION 9.08. Moneys Held by Trustee .................................... 69
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ARTICLE TEN
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 10.01. Without Consent of Holders ............................... 69
SECTION 10.02. With Consent of Holders .................................. 70
SECTION 10.03. Compliance with Trust Indenture Act ...................... 71
SECTION 10.04. Revocation and Effect of Consents ........................ 71
SECTION 10.05. Notation on or Exchange of Securities .................... 72
SECTION 10.06. Trustee to Sign Amendments, etc. ......................... 72
ARTICLE ELEVEN
GUARANTEE
SECTION 11.01. Unconditional Guarantee .................................. 72
SECTION 11.02. Severability ............................................. 73
SECTION 11.03. Limitation of Guarantor's Liability ...................... 73
SECTION 11.04. Subordination of Subrogation and Other Rights ............ 73
SECTION 11.05. Delivery of Guarantee .................................... 73
ARTICLE TWELVE
SUBORDINATION OF GUARANTEE
SECTION 12.01. Guarantee Obligations Subordinated to Guarantor
Senior Indebtedness ..................................... 74
SECTION 12.02. No Payment on Guarantee in Certain Circumstances ......... 74
SECTION 12.03. Payment Over of Proceeds upon Dissolution, etc. .......... 75
SECTION 12.04. Subrogation .............................................. 76
SECTION 12.05. Obligations of Guarantor Unconditional ................... 77
SECTION 12.06. Notice to Trustee ........................................ 77
SECTION 12.07. Reliance on Judicial Order or Certificate of
Liquidating Agent ....................................... 78
SECTION 12.08. Trustee's Relation to Guarantor Senior Indebtedness ...... 78
SECTION 12.09. Subordination Rights Not Impaired by Acts or Omissions
of the Guarantor or Holders of Guarantor Senior
Indebtedness ............................................ 78
SECTION 12.10. Securityholders Authorize Trustee to Effectuate
Subordination of Guarantee .............................. 78
SECTION 12.11. This Article Not to Prevent Events of Default ............ 79
SECTION 12.12. Trustee's Compensation Not Prejudiced .................... 79
SECTION 12.13. No Waiver of Guarantee Subordination Provisions .......... 79
SECTION 12.14. Payments May Be Paid Prior to Dissolution ................ 79
ARTICLE THIRTEEN
MISCELLANEOUS
SECTION 13.01. Trust Indenture Act Controls ............................. 80
SECTION 13.02. Notices .................................................. 80
SECTION 13.03. Communications by Holders with Other Holders ............. 81
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SECTION 13.04. Certificate and Opinion as to Conditions Precedent ....... 81
SECTION 13.05. Statements Required in Certificate or Opinion ............ 81
SECTION 13.06. Rules by Trustee, Paying Agent, Registrar ................ 82
SECTION 13.07. Governing Law ............................................ 82
SECTION 13.08. No Recourse Against Others ............................... 82
SECTION 13.09. Successors ............................................... 82
SECTION 13.10. Counterpart Originals .................................... 82
SECTION 13.11. Severability ............................................. 82
SECTION 13.12. No Adverse Interpretation of Other Agreements ............ 83
SECTION 13.13. Legal Holidays ........................................... 83
SIGNATURES ..............................................................S-1
EXHIBIT A Form of Security .........................................A-1
EXHIBIT B Form of Certificate of Transfer ..........................B-1
EXHIBIT C Form of Certificate of Exchange ..........................C-1
EXHIBIT D Form of Certificate from Acquiring
Institutional Accredited Investor ........................D-1
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NOTE: This Table of Contents shall not, for any purpose, be deemed to be a
part of the Indenture.
-v-
<PAGE> 8
INDENTURE dated as of August 24, 1999, between FEDDERS NORTH
AMERICA, INC., a Delaware corporation (the "Company"), FEDDERS CORPORATION, a
Delaware corporation (the "Guarantor"), and STATE STREET BANK AND TRUST COMPANY,
a Massachusetts trust company, as trustee (the "Trustee").
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the Securities:
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"1997 Notes" means the Company's existing 9 3/8% Senior Subordinated
Notes due 2007, originally issued on August 18, 1997, as to which the Securities
are pari passu.
"Acceleration Notice" see Section 6.02.
"Additional Securities" means, subject to the Company's compliance
with Section 4.04, 9 3/8% Senior Subordinated Notes due 2007 issued from time to
time after August 24, 1999 under the terms of this Indenture (other than those
issued pursuant to Section 2.06, 2.07, 2.10, 3.06, 4.05, 4.14 or 10.05 of this
Indenture).
"Affiliate" means any of the following: (i) any Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the Company, (ii) any spouse, immediate family member or other
relative who has the same principal residence as any Person described in clause
(i) above, (iii) any trust in which any such Person described in clause (i) or
(ii) above has a beneficial interest, and (iv) any corporation or other
organization of which any such Person described above collectively owns 10% or
more of the equity of such entity.
"Affiliate Transaction" see Section 4.03.
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Applicable Procedures" means, with respect to any transfer or
exchange of, or for beneficial interests in, any Global Security, the rules and
procedures of the Depositary, Euroclear and Cedel that apply to such transfer or
exchange.
"Asset Sale" means the sale, lease, conveyance or other disposition
by the Company or a Restricted Subsidiary of assets or property whether owned on
August 18, 1997 or thereafter acquired, in a single transaction or in a series
of related transactions; provided that Asset Sales will not include such sales,
leases, conveyances or dispositions in connection with (i) the surrender or
waiver of contract rights or the settlement, release or surrender of contract,
tort or other claims of any kind, (ii) the sale of inventory in the ordinary
course of business, (iii) a sale-leaseback of assets within one year following
the acquisition of such assets, (iv) the grant of any license of patents,
trademarks, registration therefor and other similar intellectual prop-
<PAGE> 9
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erty, (v) a transfer of assets by the Company or a Restricted Subsidiary to the
Company or a Restricted Subsidiary, (vi) the designation of a Restricted
Subsidiary as a Non-Restricted Subsidiary pursuant to Section 4.17, (vii) the
sale, lease, conveyance or other disposition of all or substantially all of the
assets of the Company as permitted under Section 5.01, (viii) the sale or
disposition of obsolete equipment or other obsolete assets, (ix) Restricted
Payments permitted by Section 4.06 or (x) the exchange of assets for other
non-cash assets that (a) are useful in the business of the Company and its
Restricted Subsidiaries and (b) have a fair market value at least equal to the
fair market value of the assets being exchanged (as determined in good faith by
the Board of Directors or the board of directors of the Restricted Subsidiary
which owns such assets).
"Asset Sale Disposition Date" see Section 4.05.
"Asset Sale Offer" see Section 4.05.
"Asset Sale Purchase Date" see Section 4.05.
"Asset Sale Trigger Date" see Section 4.05.
"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Bankruptcy Law" see Section 6.01.
"Board of Directors" means the Company's board of directors or any
authorized committee of such board of directors.
"Broker-Dealer" means any broker-dealer that receives Series B
Securities for its own account in an Exchange Offer in exchange for Series A
Securities that were acquired by such broker-dealer as a result of market-making
or other trading activities.
"Business Day" means a day (other than a Saturday or Sunday) on
which the Depositary and banks in New York, and banks in the city in which the
Corporate Trust Office of the Trustee is located, are open for business.
"Capital Stock" means any and all shares, interests, participations
or other equivalents (however designated) of corporate stock, including any
Preferred Stock.
"Cash Flow" means, for any given period and Person, the sum of,
without duplication, Consolidated Net Income, plus (a) any provision for taxes
based on income or profits to the extent such income or profits were included in
computing Consolidated Net Income, plus (b) Consolidated Interest Expense, to
the extent deducted in computing Consolidated Net Income, plus (c) the
amortization of all intangible assets, to the extent such amortization was
deducted in computing Consolidated Net Income (including, but not limited to,
inventory write-ups, goodwill, debt and financing costs), plus (d) all
depreciation and all other non-cash charges (including, without limitation,
those charges relating to purchase accounting adjustments and LIFO adjustments),
to the extent deducted in computing Consolidated Net Income, plus (e) any
interest income, to the extent such income was not included in computing
Consolidated Net Income, plus (f) all dividend payments
<PAGE> 10
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on Preferred Stock (whether or not paid in cash) to the extent deducted in
computing Consolidated Net Income; provided, however, that, if any such
calculation includes any period during which an acquisition or sale of a Person
or the incurrence or repayment of Indebtedness occurred, then such calculation
for such period shall be made on a Pro Forma Basis.
"Cash Flow Coverage Ratio" means, for any given period and Person,
the ratio of: (i) Cash Flow, divided by (ii) the sum of Consolidated Interest
Expense (except dividends paid or payable in additional shares of Capital Stock
(other than Disqualified Stock)) in each case, without duplication; provided,
however, that if any such calculation includes any period during which an
acquisition or sale of a Person or the incurrence or repayment of Indebtedness
occurred, then such calculation for such period shall be made on a Pro Forma
Basis.
"CEDEL" means Cedel Bank, Societe Anonyme (or any successor
securities clearing agency).
"Change of Control" means the occurrence of any of the following:
(i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act), excluding the Existing Stockholders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total Voting Stock of the Company or of the
Guarantor; or (ii) the Company or the Guarantor consolidates with, or merges
with or into, another person or sells, assigns, conveys, transfers, leases or
otherwise disposes of all or substantially all of its assets to any person, or
any person consolidates with, or merges with or into, the Company or the
Guarantor, in any such event pursuant to a transaction in which the outstanding
Voting Stock of the Company or of the Guarantor is converted into or exchanged
for cash, securities or other property, other than any such transaction where
(A) the outstanding Voting Stock of the Company or of the Guarantor is converted
into or exchanged for (1) Voting Stock (other than Disqualified Stock) of the
surviving or transferee corporation or (2) cash, securities and other property
in an amount which could be paid by the Company as a Restricted Payment under
the Indenture and (B) immediately after such transaction no "person" or "group"
(as such terms are used in Sections 13(d) and 14(d) of the Exchange Act),
excluding the Existing Stockholders, is the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be
deemed to have "beneficial ownership" of all securities that such person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of more than 50% of the total
Voting Stock of the surviving or transferee corporation; or (iii) during any
consecutive two-year period, individuals who at the beginning of such period
constituted the Board of Directors or the board of directors of the Guarantor
(together with any new directors whose election by such Board of Directors or
the board of directors of the Guarantor whose nomination for election by the
stockholders of the Company was approved by a vote of a majority of the
directors then still in office who are entitled to vote to elect such new
director and were either directors at the beginning of such period or persons
whose election as directors or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors or the board of directors of the Guarantor then in office.
"Change of Control Offer" see Section 4.14.
"Change of Control Purchase Date" see Section 4.14.
"Change of Control Trigger Date" see Section 4.14.
<PAGE> 11
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"Commission" means the Securities and Exchange Commission.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture until a successor shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor.
"Company Request" or "Company Order" means a written request or
order signed in the name of the Company by its Chairman of the Board, its Vice
Chairman of the Board, its President, a Vice President or its Treasurer, and by
an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered
to the Trustee.
"Consolidated Interest Expense" means, for any given period and
Person, the aggregate of (i) the interest expense in respect of all Indebtedness
of such Person and its Restricted Subsidiaries for such period, on a
consolidated basis, determined in accordance with GAAP (including amortization
of original issue discount on any such Indebtedness, all non-cash interest
payments, the interest portion of any deferred payment obligation and the
interest component of capital lease obligations, but excluding amortization of
deferred financing fees if such amortization would otherwise be included in
interest expense) and (ii) the product of (a) all cash dividend payments (and
non-cash dividend payments in the case of a Person that is a Restricted
Subsidiary) on any series of Preferred Stock of such Person and its Restricted
Subsidiaries payable to a party other than the Company or a wholly owned
Subsidiary, times (b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal, state and
local statutory tax rate of such Person, expressed as a decimal, on a
consolidated basis and in accordance with GAAP; provided, however, that for the
purpose of the Cash Flow Coverage Ratio, Consolidated Interest Expense shall be
calculated on a Pro Forma Basis.
"Consolidated Net Income" means, for any given period and Person,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that: (i) the Net Income of any Person acquired in a pooling
of interests transaction for any period prior to the date of such acquisition
shall be excluded, (ii) the Net Income (but not loss) of any Person that is not
a Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person, (iii) the Net Income of any
Restricted Subsidiary shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that Restricted Subsidiary of
that Net Income is not at the date of determination permitted without any prior
governmental approval (which has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders, (iv) the cumulative effect of a
change in accounting principles shall be excluded, (v) income or loss
attributable to discontinued operations shall be excluded and (vi) all other
extraordinary, unusual or nonrecurring gains or losses shall be excluded;
provided, however, that for purposes of determining the Cash Flow Coverage
Ratio, Consolidated Net Income shall be calculated on a Pro Forma Basis.
"Consolidated Net Worth" means, with respect to any Person at any
date, the sum of (i) the consolidated stockholders' equity of such Person less
the amount of such stockholders' equity attributable to Disqualified Stock of
such Person and its Subsidiaries (Restricted Subsidiaries, in the case of the
Company), as determined on a consolidated basis in accordance with GAAP
consistently applied and (ii) the amount of any Preferred Stock of such Person
not included in the stockholders' equity of such Person in accordance with GAAP,
which Preferred Stock does not constitute Disqualified Stock.
<PAGE> 12
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"Corporate Trust Office of the Trustee" shall be at the address of
the Trustee specified in Section 13.02 or such other address as the Trustee may
give notice to the Company.
"Covenant Defeasance Option" see Section 9.02.
"Credit Agreement" means collectively, the Accounts Financing
Agreement between Columbia Specialties, Inc. and Congress Financial Corporation
dated December 23, 1992, and the Accounts Financing Agreement by and among
Fedders North America, Inc., Emerson Quiet Kool Corporation and Congress
Financial Corporation dated December 23, 1992, together with all loan documents
and instruments thereunder (including, without limitation, any guarantee
agreements, covenant supplements and security documents), in each case as such
agreements have been or may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including, without limitation, increasing the amount of available
borrowings thereunder, and all Obligations with respect thereto, in each case,
to the extent permitted by Section 4.04 or adding Subsidiaries of the Company as
additional borrowers or guarantors thereunder) all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement and
whether by the same or any other agent, lender or group of lenders.
"Custodian" see Section 6.01.
"Default" means any event that is, or after notice or passage of
time or both would be, an Event of Default.
"defeasance trust" see Section 9.04.
"Definitive Securities" means Securities that are in the form of the
Securities attached hereto as Exhibit A that do not include the information
called for by footnote 1 and 6 thereof.
"Depositary" means, with respect to the Securities issuable or
issued in whole or in part in global form, the Person specified in Section 2.03
hereof as the Depositary with respect to the Securities, until a successor shall
have been appointed and become such Depositary pursuant to the applicable
provision of this Indenture, and, thereafter, "Depositary" shall mean or include
such successor.
"Designated Guarantor Senior Indebtedness" means (i) the guarantee
by the Guarantor of any Indebtedness outstanding under the Credit Agreement and
(ii) any other Guarantor Senior Indebtedness of the Guarantor the principal
amount of which is $20,000,000 or more.
"Designated Senior Indebtedness" means (i) any Indebtedness
outstanding under the Credit Agreement and (ii) any other Senior Indebtedness
permitted under this Indenture the principal amount of which is $20,000,000 or
more and that has been designated by the Company as Senior Indebtedness.
"Disposition" see Section 5.01.
"Disqualified Stock" with respect to any Person means any Capital
Stock or Equity Interests that by its terms (or by the terms of any security
into which it is convertible or for which it is exchangeable), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or is redeemable at the option of the
holder thereof, in whole or in part on, or prior to, the
<PAGE> 13
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maturity date of the Securities, or any Capital Stock or Equity Interests in any
Restricted Subsidiary of such Person.
"Distribution Compliance Period" means the period as defined in
Regulation S; provided that promptly after the expiration of such period, the
Company shall give written notice thereof, identifying therein the day on which
such period expires.
"Equity Interests" means Capital Stock or partnership interests or
warrants, options or other rights to acquire Capital Stock or partnership
interests (but excluding (i) any debt security that is convertible into, or
exchangeable for, Capital Stock or partnership interests, and (ii) any other
Indebtedness or Obligation).
"Equity Offering" means a public or private offering by the Company
or the Guarantor for cash of Capital Stock or other Equity Interests and all
warrants, options or other rights to acquire Capital Stock, other than an
offering of Disqualified Stock.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Euroclear" means Morgan Guaranty Trust Company of New York,
Brussels office, or its successor, as operator of the Euroclear system.
"Event of Default" see Section 6.01.
"Excess Proceeds" see Section 4.05.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the Commission thereunder.
"Exchange Offer" means an offer that may be made by the Company
pursuant to a Registration Rights Agreement to exchange Series B Securities for
Series A Securities.
"Exchange Offer Registration Statement" has the meaning given to
such term in a Registration Rights Agreement.
"Existing Stockholders" means the officers and directors of each of
the Company and the Guarantor on August 18, 1997 and their respective Affiliates
and family members and trusts for the benefit of any of the foregoing.
"Final Maturity Date" means August 15, 2007.
"GAAP" means generally accepted accounting principles, consistently
applied, as in effect in the United States from time to time. All financial and
accounting determinations and calculations under the Indenture will be made in
accordance with GAAP.
"Global Security" means a Security that is the form of the Security
attached hereto as Exhibit A that contains the paragraph referred to in footnote
1 and the additional schedule referred to in footnote 6 to such Exhibit A.
<PAGE> 14
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"Global Security Legend" means the legend set forth in Section
2.06(g)(ii), which is required to be placed on all Global Securities issued
under this Indenture.
"Guarantee" means the guarantee of the Obligations of the Company
with respect to the Securities by the Guarantor pursuant to the terms of Article
11 hereof.
"Guaranteed Obligations" see Section 11.01.
"Guarantor" means Fedders Corporation, the sole stockholder of the
Company.
"Guarantor Blockage Period" see Section 12.02(a).
"Guarantor Payment Blockage Notice" see Section 12.02(a).
"Guarantor Senior Indebtedness" means, with respect to the
Guarantor, the Guarantor's guarantee of the Company's obligations under the
Credit Agreement and any other Indebtedness of the Guarantor (other than as
otherwise provided in this definition), whether outstanding on August 18, 1997
or thereafter created, incurred or assumed, unless, in the case of any
particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the Guarantee.
Notwithstanding the foregoing, "Guarantor Senior Indebtedness" will not include
(i) Indebtedness evidenced by the Guarantee; (ii) Indebtedness of the Guarantor
that is subordinate or junior in right of payment to any other Indebtedness of
the Guarantor; (iii) Indebtedness of the Guarantor which, when incurred and
without respect to any other election under Section 1111(b) of the Bankruptcy
Law, is without recourse to the Guarantor; (iv) Indebtedness which is
represented by Disqualified Stock of the Guarantor; (v) any liability for
foreign, federal, state, local or other taxes owed or owing by the Guarantor;
(vi) Indebtedness of the Guarantor to a Subsidiary or any other Affiliate of the
Guarantor or any of such Affiliate's subsidiaries; (vii) that portion of any
Indebtedness which, when incurred, is issued in violation of this Indenture; and
(viii) trade payables owed or owing by the Guarantor.
"Hedging Obligations" means, with respect to any Person, the
Obligations of such Persons under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, (ii) foreign exchange
contracts, currency swap agreements or similar agreements, and (iii) other
agreements or arrangements designed to protect such Person against fluctuations,
or otherwise to establish financial hedges in respect of, exchange rates,
currency rates or interest rates.
"Holder," "holder of Securities," "Securitvholders" or other similar
terms mean the registered holder of any Security.
"Indebtedness" means, with respect to any Person, (i) any
indebtedness, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or representing the
deferred and unpaid balance of the purchase price of any property (including
pursuant to capital leases), except any such balance that constitutes an accrued
expense or a trade payable, and any Hedging Obligations, if and to the extent
such indebtedness (other than a Hedging Obligation) would appear as a liability
upon a balance sheet of such Person prepared on a consolidated basis in
accordance with GAAP, and also includes, to the extent not otherwise included,
the guarantee of items that would be included within this definition; (ii)
Disqualified Stock of such Person; or (iii) Preferred Stock issued by a
Restricted Subsidiary of such Person.
<PAGE> 15
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"Indenture" means this Indenture as amended or supplemented from
time to time.
"Indirect Participant" means, with respect to the Depositary,
Euroclear or Cedel, a Person that clears through or maintains a direct or
indirect custodial relationship with a Participant.
"Initial Purchaser" means (i) with respect to the Series A
Securities issued on August 24, 1999, Donaldson, Lufkin & Jenrette Securities
Corporation and (ii) with respect to each issuance of Additional Securities, the
Person(s) purchasing such Additional Securities under the related Purchase
Agreement.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 50l(a)(1), (2), (3) or (7)
under the Securities Act, who is not also a QIB.
"Interest Payment Date" means each semiannual interest payment date
on February 15 and August 15 of each year.
"Interest Record Date" for the interest payable on any Interest
Payment Date (except a date for payment of defaulted interest) means the
February 1 or August 1 (whether or not a Business Day), as the case may be,
immediately preceding such Interest Payment Date.
"Investment" means any capital contribution to, or other debt or
equity investment in, any Person. For the purposes of Section 4.06, the amount
of any Investment shall be the original cost of such Investment plus the cost of
all additional Investments by the Company or any of its Restricted Subsidiaries,
without any adjustments for increases or decreases in value, or write-ups,
write-downs or write-offs with respect to such Investment, reduced by the
payment of dividends or distributions in connection with such investment or any
other amounts received by the Company or any Restricted Subsidiary in respect of
such Investment to the extent not included in Consolidated Net Income.
"issue" means create, issue, assume, guarantee, incur or otherwise
become directly or indirectly liable for any Indebtedness or Capital Stock, as
applicable; provided, however, that any Indebtedness or Capital Stock of a
Person existing at the time such Person becomes a Restricted Subsidiary (whether
by merger, consolidation, acquisition or otherwise) shall be deemed to be issued
by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary.
For this definition, the terms "issuing," "issuer," "issuance" and "issued" have
meanings correlative to the foregoing.
"Legal Defeasance Option" see Section 9.02.
"Letter of Transmittal" means the letter of transmittal to be
prepared by the Company and sent to all Holders of the Securities for use by
such Holders in connection with an Exchange Offer.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell and any filing of or
agreement to give any financing statement under the Uniform Commercial Code (or
equivalent statutes) of any jurisdiction).
"Liquidated Damages" has the meaning provided in the Registration
Rights Agreement.
<PAGE> 16
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"Net Income" means, with respect to any Person, the net income
(loss) of such Person, determined in accordance with GAAP, excluding, however,
any gain or loss, together with any related provision for taxes, realized in
connection with any Asset Sale (including, without limitation, dispositions
pursuant to sale and leaseback transactions).
"Net Proceeds" means, with respect to any Asset Sale, the aggregate
amount of cash proceeds (including any cash received by way of deferred payment
pursuant to a note receivable issued in connection with such Asset Sale, other
than the portion of such deferred payment constituting interest, and including
any amounts received as disbursements or withdrawals from any escrow or similar
account established in connection with any such Asset Sale, but, in either such
case, only as and when so received) received by the Company or any of its
Restricted Subsidiaries in respect of such Asset Sale, net of: (i) the cash
expenses of such Asset Sale (including, without limitation, the payment of
principal of, and premium, if any, and interest on, Indebtedness required to be
paid as a result of such Asset Sale (other than the Securities) and legal,
accounting, management and advisory and investment banking fees and sales
commissions), (ii) taxes paid or payable as a result thereof, and (iii) any
portion of cash proceeds that the Company determines in good faith should be
reserved for post-closing adjustments, it being understood and agreed that on
the day that all such post-closing adjustments have been determined, the amount
(if any) by which the reserved amount in respect of such Asset Sale exceeds the
actual post-closing adjustments payable by the Company or any of its Restricted
Subsidiaries shall constitute Net Proceeds on such date.
"New York Presenting Agent" see Section 4.02.
"Non-Restricted Subsidiary" means any Subsidiary of the Company
other than a Restricted Subsidiary.
"Obligations" means, with respect to any Indebtedness, all
principal, interest, premiums, penalties, fees, indemnities, expenses (including
legal fees and expenses), reimbursement obligations and other liabilities
payable to the holder of such Indebtedness under the documentation governing
such Indebtedness, and other claims of such holder arising in respect of such
Indebtedness.
"Officer" means the Chairman, the Vice Chairman, the President, any
Vice President, the Chief Financial Officer, or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers
or by an Officer and an Assistant Treasurer or Assistant Secretary of the
Company complying with Sections 13.04 and 13.05.
"Opinion of Counsel" means a written opinion from legal counsel who
is reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Other Company Indebtedness Guarantee" see Section 4.20.
"Other Permitted Indebtedness" means (i) Indebtedness of the Company
and its Restricted Subsidiaries existing as of August 18, 1997 and all related
Obligations as in effect on such date; (ii) Indebtedness of the Company and its
Restricted Subsidiaries in respect of bankers acceptances and letters of credit
(including, without limitation, letters of credit in respect of workers'
compensation claims) issued in the ordinary course of business, or other
Indebtedness in respect of reimbursement-type obligations regarding workers'
compensation claims; (iii) Refinancing Indebtedness; provided that: (A) the
principal amount of such Refinancing Indebtedness shall not exceed the
outstanding principal amount of Indebtedness (including unused
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commitments) extended, refinanced, renewed, replaced, substituted or refunded
plus any amounts incurred to pay premiums, fees and expenses in connection
therewith, and (B) the Refinancing Indebtedness shall have a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to Maturity
of the Indebtedness being extended, refinanced, renewed, replaced, substituted
or refunded; (iv) intercompany Indebtedness of and among the Company and its
wholly owned Restricted Subsidiaries (excluding guarantees by Restricted
Subsidiaries of Indebtedness of the Company not issued in compliance with
Section 4.20); (v) Indebtedness of any Non-Restricted Subsidiary created after
August 18, 1997; provided that such Indebtedness is nonrecourse to the Company
and its Restricted Subsidiaries and the Company and its Restricted Subsidiaries
have no Obligations with respect to such Indebtedness; (vi) Indebtedness of the
Company and its Restricted Subsidiaries under Hedging Obligations; (vii)
Indebtedness of the Company and its Restricted Subsidiaries arising from the
honoring by a bank or other financial institution of a check, draft or similar
instrument inadvertently (except in the case of daylight overdrafts, which will
not be, and will not be deemed to be, inadvertent) drawn against insufficient
funds in the ordinary course of business; (viii) guarantees by a Restricted
Subsidiary of Indebtedness of the Company if the Indebtedness so guaranteed is
permitted under this Indenture and the Securities are guaranteed by such
Restricted Subsidiary to the extent required by Section 4.20; (ix) Indebtedness
of the Company and its Restricted Subsidiaries in connection with performance,
surety, statutory, appeal or similar bonds in the ordinary course of business;
(x) intercompany Indebtedness of the Company to the Guarantor; provided such
Indebtedness does not bear interest; and (xi) the 1997 Notes.
"Owner Securities Certification" see Section 2.01.
"Participant" means, with respect to the Depositary, Euroclear or
Cedel, a Person who has an account with the Depositary, Euroclear or Cedel,
respectively (and, with respect to The Depositary Trust Company, shall include
Euroclear and Cedel).
"Paying Agent" see Section 2.03.
"Payment Blockage Notice" see Section 8.02(a).
"Payment Blockage Period" see Section 8.02(a).
"Permitted Liens" means with respect to the Company and its
Restricted Subsidiaries, (i) Liens for taxes, assessments, governmental charges
or claims which are being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted and if a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made therefor; (ii) statutory Liens of landlords and carriers',
warehousemen's, mechanics', suppliers', materialmen's, repairmen's or other like
Liens arising in the ordinary course of business and with respect to amounts not
yet delinquent or being contested in good faith by appropriate proceedings, if a
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made therefor; (iii) Liens incurred on
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security; (iv)
Liens incurred on deposits made to secure the performance of tenders, bids,
leases, statutory obligations, surety and appeal bonds, government contracts,
performance and return of money bonds and other obligations of a like nature
incurred in the ordinary course of business (exclusive of obligations for the
payment of borrowed money); (v) easements, rights-of-way, zoning or other
restrictions, minor defects or irregularities in title and other similar charges
or encumbrances not interfering in any material respect with the business of the
Company or any of its Restricted Subsidiaries incurred in the ordinary course of
business; (vi) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods; (vii) judgment and attachment Liens not giving
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rise to an Event of Default; (viii) leases or subleases granted to others not
interfering in any material respect with the business of the Company or any of
its Restricted Subsidiaries; (ix) Liens securing Indebtedness under Hedging
Obligations; (x) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual or warranty requirements; (xi) Liens
arising out of consignment or similar arrangements for the sale of goods entered
into by the Company or its Restricted Subsidiaries in the ordinary course of
business; (xii) Liens arising from filing Uniform Commercial Code financing
statements regarding leases; (xiii) Liens existing on August 18, 1997 and any
extensions, refinancings, renewals, replacements, substitutions or refundings
thereof; (xiv) any Lien granted to the Trustee and any substantially equivalent
Lien granted to any trustee or similar institution under any indenture for the
1997 Notes or any Senior Indebtedness permitted by the terms of this Indenture;
(xv) Liens securing Senior Indebtedness or Indebtedness of a Restricted
Subsidiary if such Indebtedness is incurred pursuant to the Credit Agreement or
is permitted to be incurred pursuant to paragraph (a) of Section 4.04; (xvi)
Liens securing Indebtedness of the Company and its Restricted Subsidiaries in
connection with capital leases, sale and leaseback transactions, purchase money
obligations, capital expenditures or similar financing transactions, which
Indebtedness is permitted under Section 4.04 or 4.19; (xvii) Liens on property
existing at the time of acquisition thereof by the Company or a Restricted
Subsidiary of the Company; provided that such Liens were in existence prior to
the contemplation of such acquisition; and (xviii) additional Liens at any one
time outstanding in respect of properties or assets where aggregate fair market
value does not exceed $2,000,000 (the fair market value to be determined on the
date such Lien is granted on such properties or assets).
"Person" means any individual, corporation, limited liability
company, limited or general partnership, joint venture, association, joint-stock
company, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Preferred Stock" of any Person means Capital Stock of such Person
of any class or classes (however designated) that ranks prior, as to the payment
of dividends or as to the distribution of assets upon any voluntary or
involuntary liquidation, dissolution or winding up of such Person, to shares of
Capital Stock of any other class of such Person.
principal" of a debt security means the principal of the security,
plus, when appropriate, the premium, if any, on the security.
"Private Placement Legend" means the legend set forth in Section
2.06(g)(i), which is required to be placed on all Securities issued under this
Indenture except where otherwise permitted by the provisions of this Indenture.
"Pro Forma Basis" means, for purposes of determining Consolidated
Net Income in connection with the Cash Flow Coverage Ratio (including in
connection with Sections 4.06, 4.17 and 5.01, the incurrence of Indebtedness
pursuant to paragraph (a) of Section 4.04 and Consolidated Net Worth for
purposes of Section 5.01), giving pro forma effect to (x) any acquisition or
sale of a Person, business or asset, related incurrence, repayment or
refinancing of Indebtedness or other related transactions, including any
Restructuring Charges which would otherwise be accounted for as an adjustment
permitted by Regulation S-X under the Securities Act or on a pro forma basis
under GAAP, or (y) any incurrence, repayment or refinancing of any Indebtedness
and the application of the proceeds therefrom, in each case, as if such
acquisition or sale and related transactions, restructurings, consolidations,
cost savings, reductions, incurrence, repayment or refinancing were realized on
the first day of the relevant period permitted by Regulation S-X under the
Securities Act or on a pro forma basis under GAAP. Furthermore, in calculating
the Cash Flow Coverage Ratio, (1) interest on outstanding Indebtedness
determined on a fluctuating basis as of the determination date and which will
con-
<PAGE> 19
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tinue to be so determined thereafter shall be deemed to have accrued at a fixed
rate per annum equal to the rate of interest on such Indebtedness in effect on
the determination date; (2) if interest on any Indebtedness actually incurred on
the determination date may optionally be determined at an interest rate based
upon a factor of a prime or similar rate, a eurocurrency interbank offered rate,
or other rates, then the interest rate in effect on the determination date will
be deemed to have been in effect during the relevant period; and (3)
notwithstanding clause (1) above, interest on Indebtedness determined on a
fluctuating basis, to the extent such interest is covered by agreements relating
to interest rate swaps or similar interest rate protection Hedging Obligations,
shall be deemed to accrue at the rate per annum resulting after giving effect to
the operation of such agreements.
"Purchase Agreement" means (i) with respect to the Series A
Securities issued on August 24, 1999, the Purchase Agreement dated August 19,
1999 between the Company, the Guarantor and the Initial Purchaser and (ii) with
respect to each issuance of Additional Securities, the Purchase Agreement or
underwriting agreement among the Company, the Guarantor and the Persons
purchasing such Additional Securities.
"Qualified Institutional Buyer" or "QIB" means a "qualified
institutional buyer" as that term is defined in Rule 144A under the Securities
Act.
"Redemption Date," when used with respect to any Security to be
redeemed, means the date fixed for such redemption pursuant to this Indenture.
redemption price," when used with respect to any Security to be
redeemed, means the price fixed for such redemption pursuant to this Indenture
as set forth in the form of Security annexed hereto as Exhibit A.
"Refinancing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries issued or given in exchange for, or the proceeds of
which are used to, extend, refinance, renew, replace, substitute for or refund
the Securities or Indebtedness contemplated by clause (i) of the definition of
Other Permitted Indebtedness or any Indebtedness issued to so extend, refinance,
renew, replace, substitute for or refund such Indebtedness.
"Reg S Global Security" means a Reg S Temporary Global Security or
Reg S Permanent Global Security.
"Reg S Permanent Global Security" means a permanent Global Security
in the form of Exhibit A hereto bearing the Global Security Legend and the
Private Placement Legend and deposited with or on behalf of and registered in
the name of the Depositary or its nominee, issued in a denomination equal to the
outstanding principal amount of the Reg S Temporary Global Security upon
expiration of the Distribution Compliance Period.
"Reg S Temporary Global Security" means a temporary Global Security
in the form of Exhibit A hereto bearing the Private Placement Legend and
deposited with or on behalf of and registered in the name of the Depositary or
its nominee, issued in a denomination equal to the outstanding principal amount
of the Securities initially sold in reliance on Rule 903 of Regulation S.
"Register" see Section 2.03.
"Registrar" see Section 2.03.
<PAGE> 20
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"Registration" means the registration of an Exchange Offer by the
Company and the Guarantor or other registration of the Securities under the
Securities Act pursuant to and in accordance with the terms of a Registration
Rights Agreement.
"Registration Rights Agreement" means (i) with respect to the Series
A Securities issued on August 24. 1999, the Registration Rights Agreement dated
as of August 24, 1999 between the Company, the Guarantor and the Initial
Purchaser and (ii) with respect to each issuance of Additional Securities issued
in transactions exempt from the registration requirements of the Securities Act,
the registration rights agreement, if any, among the Company, any guarantors
thereunder and the Persons purchasing such Additional Securities under the
related Purchase Agreement.
"Registration Statement" means the registration statement(s) as
defined and described in a Registration Rights Agreement.
"Regulation S" means Regulation S under the Securities Act.
"Restricted Definitive Security" means a Definitive Security bearing
the Private Placement Legend.
"Restricted Global Security" means a Global Security bearing the
Private Placement Legend.
"Restricted Investment" means any Investment in any Person; provided
that Restricted Investments will not include: (i) Investments in marketable
securities and other negotiable instruments permitted by the Indenture; (ii)
Investments in the Company; (iii) Investments in any Restricted Subsidiary or in
a Person that becomes a Restricted Subsidiary as a result of such investment
(provided that any Investment in a Restricted Subsidiary or in a Person that
becomes a Restricted Subsidiary is made for fair market value (as determined by
the Board of Directors in good faith)); or (iv) Investments which existed on
August 18, 1997. The amount of any Restricted Investment shall be the amount of
cash and the fair market value at the time of transfer of all other property (as
determined by the Board of Directors in good faith) initially invested or paid
for such Restricted Investment, plus all additions thereto, without any
adjustments for increases or decreases in value of or write-ups, write-downs or
write-offs with respect to, such Restricted Investment.
"Restricted Payments" see Section 4.06.
"Restricted Security" means a Security, unless or until it has been
(i) effectively registered under the Securities Act and issued or disposed of in
accordance with the registration statement covering it or (ii) distributed to
the public pursuant to Rule 144 (or any similar provision then in force) under
the Securities Act.
"Restricted Subsidiary" means: (i) any Subsidiary of the Company
existing on August 18, 1997, and (ii) any other Subsidiary of the Company
formed, acquired or existing after August 18, 1997 that is designated as a
"Restricted Subsidiary" by the Company pursuant to a resolution approved by a
majority of the Board of Directors; provided, however, that the term Restricted
Subsidiary shall not include any Subsidiary of the Company that has been
redesignated by the Company pursuant to a resolution approved by a majority of
the Board of Directors as a Non-Restricted Subsidiary in accordance with Section
4.17 unless such Subsidiary shall have subsequently been redesignated a
Restricted Subsidiary in accordance with clause (ii) of this definition.
<PAGE> 21
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"Restructuring Charges" means any charges or expenses in respect of
restructuring or consolidating any business, operations or facilities, any
compensation or headcount reduction, or any other cost savings, of any Persons
or businesses either alone or together with the Company or any Restricted
Subsidiary, as permitted by GAAP or Regulation S-X under the Securities Act.
"Rule 144A" means Rule 144A under the Securities Act, as it may be
amended from time to time, and any successor provision thereto.
"Securities" means, collectively, the Series A Securities and the
Series B Securities, all of which should be treated as a single class of
securities, as amended or supplemented from time to time in accordance with the
terms of this Indenture.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated by the Commission thereunder.
"Securities Custodian" means the Trustee, as custodian with respect
to the Global Securities, or any successor entity thereto.
"Senior Indebtedness" means the principal of, premium, if any, and
interest (including any interest accruing subsequent to the filing of a petition
of bankruptcy at the rate provided for in the documentation with respect
thereto, whether or not such interest is an allowed claim under applicable law)
on any Indebtedness of the Company, whether outstanding on August 18, 1997 or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Securities. Without limiting the
generality of the foregoing, "Senior Indebtedness" shall also include the
principal of, premium, if any, interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for in
the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law) on, and all other amounts owing in respect
of, all monetary obligations (including guarantees thereof) of every nature of
the Company under the Credit Agreement, including, without limitation,
obligations to pay principal and interest, reimbursement obligations under
letters of credit, fees, expenses and indemnities and the guarantee of any
obligations owing by any Subsidiary under the Credit Agreement. "Senior
Indebtedness" shall not include (i) any Indebtedness of the Company to a
Subsidiary of the Company, (ii) Indebtedness to, or guaranteed on behalf of, any
shareholder, director, officer or employee of either the Company or any
Subsidiary of the Company (including, without limitation, amounts owed for
compensation), (iii) Indebtedness to trade creditors and other amounts incurred
in connection with obtaining goods, materials or services, (iv) Indebtedness
represented by Disqualified Stock, (v) any liability for federal, state, local
or other taxes owed or owing by the Company, (vi) that portion of any
Indebtedness incurred in violation of the Indenture provisions set forth in
Section 4.04 and (vii) any Indebtedness which is, by its express terms,
subordinated in right of payment to any other Indebtedness of the Company.
"Series A Securities" means (a) $50.0 million principal amount of
9 3/8% Senior Subordinated Notes due 2007 of the Company issued pursuant to this
Indenture and sold pursuant to the Purchase Agreement on August 24, 1999, and
(b) Additional Securities, if any, issued in the form of 9 3/8% Senior
Subordinated Notes due 2007, Series A, or other series of 9 3/8% Senior
Subordinated Notes due 2007 in a transaction exempt from the registration
requirements of the Securities Act.
"Series B Securities" means (a) 9 3/8% Senior Subordinated Notes due
2007 of the Company to be issued pursuant to this Indenture in exchange for the
Series A Securities pursuant to an Exchange Offer
<PAGE> 22
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and a Registration Rights Agreement and (b) Additional Securities, if any,
issued in the form of 9 3/8% Senior Subordinated Notes due 2007, Series B, or
other series of 9 3/8% Senior Subordinated Notes due 2007 in a transaction
registered under the Securities Act.
"Services Agreement" means the Services Agreement dated as of July
31, 1997 between the Company and the Guarantor.
"Shelf Registration Statement" shall have the meaning set forth in a
Registration Rights Agreement.
"Significant Subsidiary" means any Restricted Subsidiary of the
Company that would be a "significant subsidiary" as defined in clause (2) of the
definition of such term in Rule 1-02 of Regulation S-X under the Securities Act
and the Exchange Act.
"Subsidiary" of any Person means any entity of which the Equity
Interests entitled to cast at least a majority of the votes that may be cast by
all Equity Interests having ordinary voting power for the election of directors
or other governing body of such entity are owned by such Person (regardless of
whether such Equity Interests are owned directly by such Person or through one
or more Subsidiaries).
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code
ss.ss.77aaa-77bbb), as amended, as in effect on the date of this Indenture,
except as provided in Section 10.03.
"Transfer Restricted Securities" means Securities that bear or are
required to bear the Private Placement Legend, the Global Note Legend or the Reg
S Temporary Global Note Legend set forth in Section 2.06 hereof.
"Trust Officer" means any officer within the corporate trust
department (or any successor group) of the Trustee including any vice president,
assistant vice president, assistant secretary or any other officer or assistant
officer of the Trustee customarily performing functions similar to those
performed by the persons who at that time shall be such officers, and also
means, with respect to a particular corporate trust matter, any other officer to
whom such trust matter is referred because of his knowledge of and familiarity
with the particular subject.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"UCC" means the Uniform Commercial Code as in effect from time to
time in the State of New York.
"U.S. Global Security" means a Global Security in the form of
Exhibit A hereto bearing the Global Security Legend and the Private Placement
Legend and deposited with or on behalf of, and registered in the name of, the
Depositary or its nominee that will be issued in a denomination equal to the
outstanding principal amount of the Securities sold in reliance on Rule 144A.
"U.S. Government Obligations" means direct non-callable obligations
of the United States of America for the payment of which the full faith and
credit of the United States is pledged.
"U.S. Person" means a "U.S. person" as defined in Rule 902 under the
Securities Act.
<PAGE> 23
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"Unrestricted Definitive Security" means one or more Definitive
Securities that do not bear and are not required to bear the Private Placement
Legend.
"Unrestricted Global Security" means a permanent Global Security in
the form of Exhibit A attached hereto that bears the Global Security Legend and
that has the "Schedule of Exchanges of Definitive Securities" attached thereto,
and that is deposited with or on behalf of and registered in the name of the
Depositary, representing a series of Securities that do not bear the Private
Placement Legend.
"Voting Stock" means any class or classes of Capital Stock pursuant
to which the holders thereof have the general voting power under ordinary
circumstances to elect the board of directors.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the then
outstanding principal amount of such Indebtedness into (ii) the sum of the
product(s) obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture. The
following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company or any other
obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
and not otherwise defined herein have the meanings assigned to them therein.
SECTION 1.03. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting principles
in effect from time to time, and any other reference in this Indenture to
"generally accepted accounting principles" refers to GAAP;
<PAGE> 24
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(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the
plural include the singular;
(5) provisions apply to successive events and transactions;
and
(6) "herein," "hereof" and other words of similar import refer
to this Indenture as a whole and not to any particular Article, Section or
other subdivision.
ARTICLE TWO
THE SECURITIES
SECTION 2.01. Form and Dating.
The Securities and the Trustee's certificate of authentication with
respect thereto shall be substantially in the form of Exhibit A hereto. The
Securities may have notations, legends or endorsements (including notations
relating to the Guarantee) required by law, stock exchange rule or usage. The
Company and the Trustee shall approve the form of the Securities and any
notation, legend or endorsement (including notations relating to the Guarantee)
on them. Each Security shall be dated the date of its authentication, shall bear
interest from the applicable date which shall be payable on each Interest
Payment Date as long as such Security is outstanding and shall be payable on the
Final Maturity Date.
The terms and provisions contained in the Securities shall
constitute, and are hereby expressly made, a part of this Indenture and, to the
extent applicable, the Company and the Trustee, by their execution and delivery
of this Indenture, expressly agree to such terms and provisions and to be bound
thereby.
(a) Securities offered and sold in their initial distribution to
Qualified Institutional Buyers in reliance on Rule 144A or in offshore
transactions in reliance on Regulation S and (b) Additional Securities issued in
the form of Series B Securities may, unless the applicable Holder requests
Securities in the form of Definitive Securities, which shall be substantially in
the form of Exhibit A, be initially issued in the form of Global Securities in
fully registered form without interest coupons, substantially in the form of
Exhibit A, with such applicable legends as are provided for in Exhibit A.
Securities offered and sold in their initial distribution to
Qualified Institutional Buyers in reliance on Rule 144A shall be issued in the
form of one or more U.S. Global Securities which shall be registered in the name
of the Depositary or its nominee and deposited with the Trustee, as custodian
for the Depositary, duly executed by the Company and authenticated by the
Trustee as hereinafter provided, for credit by the Depositary to the respective
accounts of beneficial owners of the Securities represented thereby (or such
other accounts as they may direct).
Securities offered and sold in reliance on Regulation S shall
initially be in the form of one or more Reg S Temporary Global Securities which
shall be registered in the name of the Depositary or its nominee and deposited
with the Trustee, as custodian for the Depositary, duly executed by the Company
and
<PAGE> 25
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authenticated by the Trustee as hereinafter provided, for credit by the
Depositary to the respective accounts of the beneficial owners of the Securities
represented thereby (or such other accounts as they may direct), provided that
upon such deposit all such Securities shall be credited to or through accounts
maintained at the Depositary by or on behalf of Euroclear or CEDEL.
Additional Securities offered and sold in their initial distribution
in the form of Series B Securities in a transaction registered under the
Securities Act shall initially be in the form of one or more Unrestricted Global
Securities which shall be registered in the name of the Depositary or its
nominee and deposited with the Trustee, as custodian for the Depositary, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided, for credit by the Depositary to the respective accounts of beneficial
owners of the Securities represented thereby (or such other accounts as they may
direct).
Securities issued in global form shall be substantially in the form
of Exhibit A attached hereto (including the Global Security Legend and the
"Schedule of Exchanges of Definitive Securities" attached thereto). Securities
issued in definitive form shall be substantially in the form of Exhibit A
attached hereto (but without the Global Security Legend and without the
"Schedule of Exchanges of Definitive Securities" attached thereto). Each Global
Security shall represent such of the outstanding Securities as shall be
specified therein and each shall provide that it shall represent the aggregate
principal amount of outstanding Securities from time to time endorsed thereon
and that the aggregate principal amount of outstanding Securities represented
thereby may from time to time be reduced or increased, as appropriate, to
reflect exchanges and redemptions. Any endorsement of a Global Security to
reflect the amount of any increase or decrease in the aggregate principal amount
of outstanding Securities represented thereby shall be made by the Trustee or
the Securities Custodian, at the direction of the Company, in accordance with
instructions given by the Holder thereof as required by Section 2.06 hereof.
SECTION 2.02. Execution and Authentication.
Two Officers, or an Officer and an Assistant Secretary, shall sign,
or one Officer shall sign and one Officer or an Assistant Secretary (each of
whom shall, in each case, have been duly authorized by all requisite corporate
actions) shall attest to, the Securities for the Company by manual or facsimile
signature.
If an Officer whose signature is on a Security was an Officer at the
time of such execution but no longer holds that office at the time the Trustee
authenticates the Security, the Security shall be valid nevertheless. Each
execution of a Security by the Company shall be accompanied by the execution of
a Guarantee by the Guarantor (and by any Restricted Subsidiary that guarantees
Indebtedness of the Company pursuant to Section 4.20).
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
Upon receipt of a written order of the Company in the form of an
Officers' Certificate, on August 24, 1999 the Trustee shall authenticate Series
A Securities for original issue in the aggregate principal amount not to exceed
$50,000,000. In addition, subject to Section 4.04, from time to time, the
Trustee shall authenticate Additional Securities for original issue after August
24, 1999 in an aggregate principal amount not to exceed $50,000,000 upon receipt
of a written order of the Company in the form of an Officers' Certificate. Each
such Officers' Certificate shall specify the amount of Securities to be
authenticated, the series of Securities and the date on which the Securities are
to be authenticated, and, in the case of issuance of Additional Se-
<PAGE> 26
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curities pursuant to Section 2.15 after August 24, 1999, shall certify that such
issuance is not prohibited by Section 4.04. The aggregate principal amount of
Securities outstanding at any time may not exceed $100,000,000, except as
provided in Section 2.07.
Upon receipt of a written order of the Company in the form of an
Officers' Certificate, the Trustee shall authenticate Securities in substitution
for Securities originally issued to reflect any name change of the Company.
The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate Securities. Unless otherwise provided
in the appointment, an authenticating agent may authenticate Securities whenever
the Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company and Affiliates of the Company.
The Securities shall be issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof.
SECTION 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency where (a) Securities
may be presented or surrendered for registration of transfer or for exchange
("Registrar"), (b) Securities may be presented or surrendered for payment
("Paying Agent") and (c) notices and demands in respect of the Securities and
this Indenture may be served. The Registrar shall keep a register (the
"Register") of the Securities and of their transfer and exchange. The Company,
upon notice to the Trustee, may appoint one or more co-Registrars and one or
more additional Paying Agents. The term "Paying Agent" includes any additional
Paying Agent. Except as provided herein, the Company, or any Subsidiary may act
as Paying Agent, Registrar or co-Registrar.
The Company shall enter into an appropriate agency agreement with
any Agent not a party to this Indenture, which shall incorporate the provisions
of the TIA. The agreement shall implement the provisions of this Indenture that
relate to such Agent. The Company shall notify the Trustee of the name and
address of any such Agent. If the Company fails to maintain a Registrar or
Paying Agent, or fails to give the foregoing notice, the Trustee shall act as
such and shall be entitled to appropriate compensation in accordance with
Section 7.07.
The Company initially appoints the Trustee as Registrar and Paying
Agent until such time as the Trustee has resigned or a successor has been
appointed.
The Company initially appoints The Depositary Trust Company ("DTC")
to act as Depositary with respect to the Global Securities.
SECTION 2.04. Paying Agent to Hold Assets in Trust.
The Company shall require each Paying Agent other than the Trustee
to agree in writing that each Paying Agent shall hold in trust for the benefit
of Holders or the Trustee all assets held by the Paying Agent for the payment of
principal of or premium, if any, or interest or Liquidated Damages, if any, on
the Securities, and shall notify the Trustee of any Default by the Company in
making any such payment. The Company at any time may require a Paying Agent to
distribute all assets held by it to the Trustee and account for any assets
disbursed and the Trustee may at any time during the continuance of any payment
Default, upon
<PAGE> 27
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written request to a Paying Agent, require such Paying Agent to distribute all
assets held by it to the Trustee and to account for any assets distributed. Upon
distribution to the Trustee of all assets that shall have been delivered by the
Company to the Paying Agent (if other than the Company), the Paying Agent shall
have no further liability for such assets. If the Company, any Subsidiary or any
of their respective Affiliates acts as Paying Agent, it shall, on or before each
due date of the principal of or interest on the Securities, segregate and hold
in trust for the benefit of the Persons entitled thereto a sum sufficient to pay
the principal or premium, if any, or, interest or Liquidated Damages, if any, so
becoming due until such sums shall be paid to such Persons or otherwise disposed
of as herein provided and will promptly notify the Trustee of its action or
failure so to act.
SECTION 2.05. Securityholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders. If the Trustee is not the Registrar, the Company shall furnish to the
Trustee before each Interest Record Date and at such other times as the Trustee
may request in writing a list as of such date and in such form as the Trustee
may reasonably require of the names and addresses of Holders, which list may be
conclusively relied upon by the Trustee.
SECTION 2.06 Transfer and Exchange.
(a) Transfer and Exchange of Global Securities. A Global Security
may not be transferred as a whole except by the Depositary to a nominee of the
Depositary, by a nominee of the Depositary to the Depositary or to another
nominee of the Depositary, or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary. All Global
Securities will be exchanged by the Company for Definitive Securities if (i) the
Company delivers to the Trustee notice from the Depositary that it is unwilling
or unable to continue to act as Depositary or that it is no longer a clearing
agency registered under the Exchange Act and, in either case, a successor
Depositary is not appointed by the Company within 30 days after the date of such
notice from the Depositary, (ii) the Company, at its option, determines that the
Global Securities (in whole but not in part) should be exchanged for Definitive
Securities and delivers a written notice to such effect to the Trustee or (iii)
upon request of the Trustee or Holders of a majority of the aggregate principal
amount of outstanding Securities if there shall have occurred and be continuing
a Default or Event of Default with respect to the Securities; provided that in
no event shall a Reg S Temporary Global Security be exchanged by the Company for
Definitive Securities prior to (x) the expiration of the applicable Distribution
Compliance Period and (y) the receipt by the Registrar of any certificates
identified by the Company or its counsel to be required pursuant to Rule 903 or
Rule 904 under the Securities Act. Upon the occurrence of any of the preceding
events in (i), (ii) or (iii) above, Definitive Securities shall be issued in
such names as the Depositary shall instruct the Trustee. Global Securities also
may be exchanged or replaced, in whole or in part, as provided in this Section
2.06 or in Sections 2.07 and 2.10 hereof. Every Security authenticated and
delivered in exchange for, or in lieu of, a Global Security or any portion
thereof, pursuant to this Section 2.06 or Section 2.07 or 2.10 hereof, shall be
authenticated and delivered in the form of, and shall be, a Global Security. A
Global Security may not be exchanged for another Security other than as provided
in this Section 2.06(a). Beneficial interests in a Global Security may be
transferred and exchanged as provided in Section 2.06(b), (c) or (f) hereof.
(b) Transfer and Exchange of Beneficial Interests in the Global
Securities. The transfer and exchange of beneficial interests in the Global
Securities shall be effected through the Depositary, in accordance with the
provisions of this Indenture and the Applicable Procedures. Beneficial interests
in the Restricted Global Securities shall be subject to restrictions on transfer
comparable to those set forth herein to the extent
<PAGE> 28
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required by the Securities Act. Transfers of beneficial interests in the Global
Securities also shall require compliance with either subparagraph (i) or (ii)
below, as applicable, as well as one or more of the other following
subparagraphs, as applicable:
(i) Transfer of Beneficial Interests in the Same Global Security.
Beneficial interests in any Restricted Global Security may be transferred
to Persons who take delivery thereof in the form of a beneficial interest
in the same Restricted Global Security in accordance with the transfer
restrictions set forth in the Private Placement Legend; provided, however,
that prior to the expiration of the applicable Distribution Compliance
Period, transfers of beneficial interests in a Reg S Temporary Global
Security may not be made to a U.S. Person or for the account or benefit of
a U.S. Person (other than an Initial Purchaser). Beneficial interests in
any Unrestricted Global Security may be transferred to Persons who take
delivery thereof in the form of a beneficial interest in an Unrestricted
Global Security. No written orders or instructions shall be required to be
delivered to the Registrar to effect the transfers described in this
Section 2.06(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests in
Global Securities. In connection with all transfers and exchanges of
beneficial interests that are not subject to Section 2.06(b)(i) above, the
transferor of such beneficial interest must deliver to the Registrar
either (A) (1) an order from a Participant or an Indirect Participant
given to the Depositary in accordance with the Applicable Procedures
directing the Depositary to credit or cause to be credited a beneficial
interest in another Global Security in an amount equal to the beneficial
interest to be transferred or exchanged and (2) instructions given in
accordance with the Applicable Procedures containing information regarding
the Participant account to be credited with such increase or (B) (1) an
order from a Participant or an Indirect Participant given to the
Depositary in accordance with the Applicable Procedures directing the
Depositary to cause to be issued a Definitive Security in an amount equal
to the beneficial interest to be transferred or exchanged and (2)
instructions given by the Depositary to the Registrar containing
information regarding the Person in whose name such Definitive Security
shall be registered to effect the transfer or exchange referred to in (B)
(1) above; provided that in no event shall Definitive Securities be issued
upon the transfer or exchange of beneficial interests in a Reg S Temporary
Global Security prior to (x) the expiration of the applicable Distribution
Compliance Period and (y) the receipt by the Registrar of any certificates
identified (by written notice to the Registrar) by the Company or its
counsel to be required pursuant to Rule 903 and Rule 904 under the
Securities Act. Upon consummation of an Exchange Offer by the Company in
accordance with Section 2.06(f) hereof, the requirements of this Section
2.06(b)(ii) shall be deemed to have been satisfied upon receipt by the
Registrar of the instructions contained in the Letter of Transmittal
delivered by the Holder of such beneficial interests in the Restricted
Global Securities. Upon satisfaction of all of the requirements for
transfer or exchange of beneficial interests in Global Securities
contained in this Indenture and the Securities or otherwise applicable
under the Securities Act, the Trustee shall adjust the principal amount of
the relevant Global Security(s) pursuant to Section 2.06(h) hereof.
(iii) Transfer of Beneficial Interests to Another Restricted Global
Security. A beneficial interest in any Restricted Global Security may be
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in another Restricted Global Security if the transfer
complies with the requirements of Section 2.06(b)(ii) above and the
Registrar receives the following:
(A) if the transferee will take delivery in the form of a
beneficial interest in a U.S. Global Security, then the transferor
must deliver a certificate in the form of Exhibit B hereto,
including the certifications in item (1) thereof; and
<PAGE> 29
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(B) if the transferee will take delivery in the form of a
beneficial interest in a Reg S Temporary Global Security or a Reg S
Permanent Global Security, then the transferor must deliver a
certificate in the form of Exhibit B hereto, including the
certifications in item (2) thereof.
(iv) Transfer and Exchange of Beneficial Interests in a Restricted
Global Security for Beneficial Interests in the Unrestricted Global
Security. A beneficial interest in any Restricted Global Security may be
exchanged by any holder thereof for a beneficial interest in an
Unrestricted Global Security or transferred to a Person who takes delivery
thereof in the form of a beneficial interest in an Unrestricted Global
Security if the exchange or transfer complies with the requirements of
Section 2.06(b)(ii) above and:
(A) such exchange or transfer is effected pursuant to an
Exchange Offer in accordance with a Registration Rights Agreement
and the holder of the beneficial interest to be transferred, in the
case of an exchange, or the transferee, in the case of a transfer,
certifies in the applicable Letter of Transmittal that it is not (1)
a Broker-Dealer, (2) a Person participating in the distribution of
the Series B Securities or (3) a Person who is an affiliate (as
defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to a Shelf Registration
Statement in accordance with a Registration Rights Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant to
an Exchange Offer Registration Statement in accordance with a
Registration Rights Agreement; or
(D) the Registrar receives the following: (1) if the holder of
such beneficial interest in a Restricted Global Security proposes to
exchange such beneficial interest for a beneficial interest in an
Unrestricted Global Security, a certificate from such holder in the
form of Exhibit C hereto, including the certifications in item
(1)(a) thereof; or (2) if the holder of such beneficial interest in
a Restricted Global Security proposes to transfer such beneficial
interest to a Person who shall take delivery thereof in the form of
a beneficial interest in an Unrestricted Global Security, a
certificate from such holder in the form of Exhibit B hereto,
including the certifications in item (4) thereof; and, in each such
case set forth in this subparagraph (D), an Opinion of Counsel in
form reasonably acceptable to the Registrar and the Company which
expressly permits reliance thereon by the Company and the Registrar
to the effect that such exchange or transfer is in compliance with
the Securities Act and that the restrictions on transfer contained
herein and in the Private Placement Legend are no longer required in
order to maintain compliance with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B) or (D)
above at a time when an Unrestricted Global Security has not yet been
issued, the Company shall issue and, upon receipt of an Authentication
Order in accordance with Section 2.02 hereof, the Trustee shall
authenticate one or more Unrestricted Global Securities in an aggregate
principal amount equal to the aggregate principal amount of beneficial
interests transferred pursuant to subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Security cannot be
exchanged for, or transferred to Persons who take delivery thereof in the
form of, a beneficial interest in a Restricted Global Security.
(c) Transfer or Exchange of Beneficial Interests for Definitive
Securities.
<PAGE> 30
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(i) Beneficial Interests in Restricted Global Securities to
Restricted Definitive Securities. If any holder of a beneficial interest
in a Restricted Global Security proposes to exchange such beneficial
interest for a Restricted Definitive Security or to transfer such
beneficial interest to a Person who takes delivery thereof in the form of
a Restricted Definitive Security, then, upon receipt by the Registrar of
the following documentation:
(A) if the holder of such beneficial interest in a Restricted
Global Security proposes to exchange such beneficial interest for a
Restricted Definitive Security, a certificate from such holder in
the form of Exhibit C hereto, including the certifications in item
(2)(a) thereof;
(B) if such beneficial interest is being transferred to a QIB
in accordance with Rule 144A under the Securities Act, a certificate
to the effect set forth in Exhibit B hereto, including the
certifications in item (1) thereof;
(C) if such beneficial interest is being transferred to a
Non-U.S. Person in an offshore transaction in accordance with Rule
903 or Rule 904 under the Securities Act, a certificate to the
effect set forth in Exhibit B hereto, including the certifications
in item (2) thereof;
(D) if such beneficial interest is being transferred pursuant
to an exemption from the registration requirements of the Securities
Act in accordance with Rule 144 under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including
the certifications in item (3)(a) thereof;
(E) if such beneficial interest is being transferred to an
Institutional Accredited Investor in reliance on an exemption from
the registration requirements of the Securities Act other than those
listed in subparagraphs (B) through (D) above, a certificate to the
effect set forth in Exhibit B hereto, including the certifications,
certificates and Opinion of Counsel required by item (3) thereof, if
applicable;
(F) if such beneficial interest is being transferred to the
Company or any of its Subsidiaries, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in item
(3)(b) thereof; or
(G) if such beneficial interest is being transferred pursuant
to an effective registration statement under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including
the certifications in item (3)(c) thereof,
the Trustee shall cause the aggregate principal amount of the applicable
Restricted Global Security to be reduced accordingly pursuant to Section
2.06(h) hereof, and the Company shall execute and, upon receipt of an
Authentication Order pursuant to Section 2.02, the Trustee shall
authenticate and deliver to the Person designated in the instructions a
Restricted Definitive Security in the appropriate principal amount. Any
Restricted Definitive Security issued in exchange for a beneficial
interest in a Restricted Global Security pursuant to this Section 2.06(c)
shall be registered in such name or names and in such authorized
denomination or denominations as the holder of such beneficial interest
shall instruct the Registrar through instructions from the Depositary and
the Participant or Indirect Participant. The Trustee shall deliver such
Restricted Definitive Securities to the Persons in whose names
<PAGE> 31
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such Securities are so registered. Any Restricted Definitive Security
issued in exchange for a beneficial interest in a Restricted Global
Security pursuant to this Section 2.06(c)(i) shall bear the Private
Placement Legend and shall be subject to all restrictions on transfer
contained therein.
(ii) Beneficial Interests in Restricted Global Securities to
Unrestricted Definitive Securities. A holder of a beneficial interest in a
Restricted Global Security may exchange such beneficial interest for an
Unrestricted Definitive Security or may transfer such beneficial interest
to a Person who takes delivery thereof in the form of an Unrestricted
Definitive Security only if:
(A) such exchange or transfer is effected pursuant to an
Exchange Offer in accordance with a Registration Rights Agreement
and the holder of such beneficial interest, in the case of an
exchange, or the transferee, in the case of a transfer, certifies in
the applicable Letter of Transmittal that it is not (1) a
Broker-Dealer, (2) a Person participating in the distribution of the
Series B Securities or (3) a Person who is an affiliate (as defined
in Rule 144) of the Company;
(B) such transfer is effected pursuant to a Shelf Registration
Statement in accordance with a Registration Rights Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant to
an Exchange Offer Registration Statement in accordance with a
Registration Rights Agreement; or
(D) the Registrar receives the following: (1) if the holder of
such beneficial interest in a Restricted Global Security proposes to
exchange such beneficial interest for a Definitive Security that
does not bear the Private Placement Legend, a certificate from such
holder in the form of Exhibit C hereto, including the certifications
in item (l)(b) thereof; or (2) if the holder of such beneficial
interest in a Restricted Global Security proposes to transfer such
beneficial interest to a Person who shall take delivery thereof in
the form of a Definitive Security that does not bear the Private
Placement Legend, a certificate from such holder in the form of
Exhibit B hereto, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), an
Opinion of Counsel in form reasonably acceptable to the Registrar
and the Company to the effect that such exchange or transfer is in
compliance with the Securities Act and that the restrictions on
transfer contained herein and in the Private Placement Legend are no
longer required in order to maintain compliance with the Securities
Act.
(iii) Beneficial Interests in Unrestricted Global Securities to
Unrestricted Definitive Securities. If any holder of a beneficial interest
in an Unrestricted Global Security proposes to exchange such beneficial
interest for an Unrestricted Definitive Security or to transfer such
beneficial interest to a Person who takes delivery thereof in the form of
an Unrestricted Definitive Security, then, upon satisfaction of the
conditions set forth in Section 2.06(b)(ii) hereof, the Trustee shall
cause the aggregate principal amount of the applicable Unrestricted Global
Security to be reduced accordingly pursuant to Section 2.06(h) hereof, and
the Company shall execute and, upon receipt of an Authentication Order
pursuant to Section 2.02, the Trustee shall authenticate and deliver to
the Person designated in the instructions an Unrestricted Definitive
Security in the appropriate principal amount. Any Unrestricted Definitive
Security issued in exchange for a beneficial interest pursuant to this
Section 2.06(c)(iii) shall be registered in such name or names and in such
authorized denomination or denominations as the holder of such beneficial
interest shall instruct the Registrar through instructions
<PAGE> 32
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from the Depositary and the Participant or Indirect Participant. The
Trustee shall deliver such Unrestricted Definitive Securities to the
Persons in whose names such Securities are so registered. Any Unrestricted
Definitive Security issued in exchange for a beneficial interest pursuant
to this Section 2.06(c)(iii) shall not bear the Private Placement Legend.
(iv) Transfer or Exchange of Reg S Temporary Global Securities.
Notwithstanding Sections 2.06(c)(i)(A) and (C) hereof, a beneficial
interest in a Reg S Temporary Global Security may not be (A) exchanged for
a Definitive Security prior to (x) the expiration of the applicable
Distribution Compliance Period (unless such exchange is effected by the
Company, does not require an investment decision on the part of the
holder thereof and does not violate the provisions of Regulation S) and
(y) the receipt by the Registrar of any certificates identified by the
Company or its counsel to be required pursuant to Rule 903(c)(3)(B) under
the Securities Act or (B) transferred to a Person who takes delivery
thereof in the form of a Definitive Security prior to the events set forth
in clause (A) above or unless the transfer is pursuant to an exemption
from the registration requirements of the Securities Act other than Rule
903 or Rule 904.
(d) Transfer and Exchange of Definitive Securities for Beneficial
Interests.
(i) Restricted Definitive Securities to Beneficial Interests in
Restricted Global Securities. If any Holder of a Restricted Definitive
Security proposes to exchange such Security for a beneficial interest in a
Restricted Global Security or to transfer such Restricted Definitive
Securities to a Person who takes delivery thereof in the form of a
beneficial interest in a Restricted Global Security, then, upon receipt by
the Registrar of the following documentation:
(A) if the Holder of such Restricted Definitive Security
proposes to exchange such Security for a beneficial interest in a
Restricted Global Security, a certificate from such Holder in the
form of Exhibit C hereto, including the certifications in item
(2)(b) thereof;
(B) if such Restricted Definitive Security is being
transferred to a QIB in accordance with Rule 144A under the
Securities Act, a certificate to the effect set forth in Exhibit B
hereto, including the certifications in item (1) thereof; or
(C) if such Restricted Definitive Security is being
transferred to a Non-U.S. Person in an offshore transaction in
accordance with Rule 903 or Rule 904 under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including
the certifications in item (2) thereof,
the Trustee shall cancel the Restricted Definitive Security, increase or
cause to be increased the aggregate principal amount of, in the case of
subparagraph (A) above, the appropriate Restricted Global Security, in the
case of subparagraph (B) above, the applicable U.S. Global Security and,
in the case of subparagraph (C) above, the applicable Reg S Global
Security.
(ii) Restricted Definitive Securities to Beneficial Interests in
Unrestricted Global Securities. A Holder of a Restricted Definitive
Security may exchange such Security for a beneficial interest in an
Unrestricted Global Security or transfer such Restricted Definitive
Security to a Person who takes delivery thereof in the form of a
beneficial interest in an Unrestricted Global Security only if:
<PAGE> 33
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(A) such exchange or transfer is effected pursuant to an
Exchange Offer in accordance with a Registration Rights Agreement
and the Holder, in the case of an exchange, or the transferee, in
the case of a transfer, certifies in the applicable Letter of
Transmittal that it is not (1) a Broker-Dealer, (2) a Person
participating in the distribution of the Series B Securities or (3)
a Person who is an affiliate (as defined in Rule 144) of the
Company;
(B) such transfer is effected pursuant to a Shelf Registration
Statement in accordance with a Registration Rights Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant to
an Exchange Offer Registration Statement in accordance with a
Registration Rights Agreement; or
(D) the Registrar receives the following: (1) if the Holder of
such Restricted Definitive Securities proposes to exchange such
Securities for a beneficial interest in the Unrestricted Global
Security, a certificate from such Holder in the form of Exhibit C
hereto, including the certifications in item (1)(c) thereof; or (2)
if the Holder of such Restricted Definitive Securities proposes to
transfer such Securities to a Person who shall take delivery thereof
in the form of a beneficial interest in the Unrestricted Global
Security, a certificate from such Holder in the form of Exhibit B
hereto, including the certifications in item (4) thereof; and, in
each such case set forth in this subparagraph (D), an Opinion of
Counsel in form reasonably acceptable to the Registrar and the
Company to the effect that such exchange or transfer is in
compliance with the Securities Act and that the restrictions on
transfer contained herein and in the Private Placement Legend are no
longer required in order to maintain compliance with the Securities
Act.
Upon satisfaction of the conditions of any of the subparagraphs in
this Section 2.06(d)(ii), the Trustee shall cancel the Restricted
Definitive Securities so transferred or exchanged and increase or cause to
be increased the aggregate principal amount of the Unrestricted Global
Security.
(iii) Unrestricted Definitive Securities to Beneficial Interests in
Unrestricted Global Securities. A Holder of an Unrestricted Definitive
Security may exchange such Security for a beneficial interest in an
Unrestricted Global Security or transfer such Definitive Securities to a
Person who takes delivery thereof in the form of a beneficial interest in
an Unrestricted Global Security at any time. Upon receipt of a request for
such an exchange or transfer, the Trustee shall cancel the applicable
Unrestricted Definitive Security and increase or cause to be increased the
aggregate principal amount of one of the Unrestricted Global Securities.
If any such exchange or transfer from a Definitive Security to a
beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D)
or (iii) of this Section 2.06(d) at a time when an Unrestricted Global
Security has not yet been issued, the Company shall issue and, upon
receipt of an Authentication Order in accordance with Section 2.02 hereof,
the Trustee shall authenticate one or more Unrestricted Global Securities
in an aggregate principal amount equal to the principal amount of
Definitive Securities so transferred.
(e) Transfer and Exchange of Definitive Securities for Definitive
Securities. Upon request by a Holder of Definitive Securities and such Holder's
compliance with the provisions of this Section 2.06(e), the Registrar shall
register the transfer or exchange of Definitive Securities. In such case, the
Company shall issue and the Trustee shall authenticate and deliver Definitive
Securities as appropriate to effect such transfer. Prior to such registration of
transfer or exchange, the requesting Holder shall present or surrender to the
Registrar the Definitive Securities duly endorsed or accompanied by a written
instruction of transfer in form satis-
<PAGE> 34
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factory to the Registrar duly executed by such Holder or by its attorney, duly
authorized in writing. In addition, the requesting Holder shall provide any
additional certifications, documents and information, as applicable, required
pursuant to the following provisions of this Section 2.06(e).
(i) Restricted Definitive Securities to Restricted Definitive
Securities. Any Restricted Definitive Security may be transferred to and
registered in the name of Persons who take delivery thereof in the form of
a Restricted Definitive Security if the Registrar receives the following:
(A) if the transfer will be made pursuant to Rule 144A under
the Securities Act, then the transferor must deliver a certificate
in the form of Exhibit B hereto, including the certifications in
item (1) thereof;
(B) if the transfer will be made pursuant to Rule 903 or Rule
904, then the transferor must deliver a certificate in the form of
Exhibit B hereto, including the certifications in item (2) thereof;
and
(C) if the transfer will be made pursuant to any other
exemption from the registration requirements of the Securities Act,
then the transferor must deliver a certificate in the form of
Exhibit B hereto, including the certifications, certificates and
Opinion of Counsel required by item (3) thereof, if applicable.
(ii) Restricted Definitive Securities to Unrestricted Definitive
Securities. Any Restricted Definitive Security may be exchanged by the
Holder thereof for an Unrestricted Definitive Security or transferred to a
Person or Persons who take delivery thereof in the form of an Unrestricted
Definitive Security if:
(A) such exchange or transfer is effected pursuant to an
Exchange Offer in accordance with a Registration Rights Agreement
and the Holder, in the case of an exchange, or the transferee, in
the case of a transfer, certifies in the applicable Letter of
Transmittal that it is not (1) a Broker-Dealer, (2) a Person
participating in the distribution of the Series B Securities or (3)
a Person who is an affiliate (as defined in Rule 144) of the
Company;
(B) any such transfer is effected pursuant to a Shelf
Registration Statement in accordance with a Registration Rights
Agreement;
(C) any such transfer is effected by a Broker-Dealer pursuant
to an Exchange Offer Registration Statement in accordance with a
Registration Rights Agreement; or
(D) the Registrar receives the following: (1) if the Holder of
such Restricted Definitive Securities proposes to exchange such
Securities for an Unrestricted Definitive Security, a certificate
from such Holder in the form of Exhibit C hereto, including the
certifications in item (1 )(d) thereof; or (2) if the Holder of such
Restricted Definitive Securities proposes to transfer such
Securities to a Person who shall take delivery thereof in the form
of an Unrestricted Definitive Security, a certificate from such
Holder in the form of Exhibit B hereto, including the certifications
in item (4) thereof; and, in each such case set forth in this
subparagraph (D), an Opinion of Counsel in form reasonably
acceptable to the Registrar and the Company to the effect that such
exchange or transfer is in compliance with the Securities
<PAGE> 35
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Act and that the restrictions on transfer contained herein and in
the Private Placement Legend are no longer required in order to
maintain compliance with the Securities Act.
(iii) Unrestricted Definitive Securities to Unrestricted Definitive
Securities. A Holder of Unrestricted Definitive Securities may transfer
such Securities to a Person who takes delivery thereof in the form of an
Unrestricted Definitive Security. Upon receipt of a request to register
such a transfer, the Registrar shall register the Unrestricted Definitive
Securities pursuant to the instructions from the Holder thereof.
(f) Exchange Offer. Upon the occurrence of an Exchange Offer in
accordance with a Registration Rights Agreement, the Company shall issue and,
upon receipt of an Authentication Order in accordance with Section 2.02 and, if
requested by the Holders of at least a majority in principal amount of the
outstanding Series A Securities entitled to the benefits of the applicable
Registration Rights Agreement, an Opinion of Counsel for the Company as to
certain matters discussed in this Section 2.06(f), the Trustee shall
authenticate (i) one or more Unrestricted Global Securities in an aggregate
principal amount equal to the sum of (A) the principal amount of the beneficial
interests in the Restricted Global Securities tendered for acceptance by Persons
that certify in the applicable Letters of Transmittal that (x) they are not
Broker-Dealers, (y) they are not participating in a distribution of the Series B
Securities and (z) they are not affiliates (as defined in Rule 144) of the
Company, and accepted for exchange in the applicable Exchange Offer and (B) the
principal amount of Definitive Securities exchanged or transferred for
beneficial interests in Unrestricted Global Securities in connection with the
applicable Exchange Offer pursuant to Section 2.06(d)(ii), and (ii) Definitive
Securities in an aggregate principal amount equal to the principal amount of the
Restricted Definitive Securities accepted for exchange in the applicable
Exchange Offer (other than Definitive Securities described in clause (i)(B)
immediately above). Concurrently with the issuance of such Securities, the
Trustee shall cause the aggregate principal amount of the applicable Restricted
Global Securities to be reduced accordingly, and the Company shall execute and,
upon receipt of an Authentication Order pursuant to Section 2.02, the Trustee
shall authenticate and deliver to the Persons designated by the Holders of
Definitive Securities so accepted Definitive Securities in the appropriate
principal amount.
The Opinion of Counsel for the Company referenced above shall be
addressed to the Trustee and shall state that:
(i) the Series B Securities have been duly authorized and, when
executed and authenticated in accordance with the provisions of this
Indenture and delivered in exchange for Series A Securities in accordance
with this Indenture and the applicable Exchange Offer, will be entitled to
the benefits of this Indenture and will be valid and binding obligations
of the Company, enforceable in accordance with their terms except as (x)
the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and (y) rights of
acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability; and
(ii) when the Series B Securities are executed and authenticated in
accordance with the provisions of this Indenture and delivered in exchange
for Series A Securities in accordance with this Indenture and the
applicable Exchange Offer, any Guarantees thereof will be entitled to the
benefits of this Indenture and will be valid and binding obligations of
the Guarantor, enforceable in accordance with their terms except as (x)
the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and (y) rights of
acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability.
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(g) Legends. The following legends shall appear on the face of all
Global Securities and Definitive Securities issued under this Indenture unless
specifically stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B) below, each Global
Security and each Definitive Security (and all Securities issued in
exchange therefor or substitution thereof) shall bear the legend in
substantially the following form:
"THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE.
BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE
HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB")
OR (B) IT IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES
THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A)
TO FEDDERS NORTH AMERICA, INC. OR ANY OF ITS SUBSIDIARIES, (B) TO A
PERSON WHO THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR
ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING
THE REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION
MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT,
(D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (E) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN
OPINION OF COUNSEL ACCEPTABLE TO FEDDERS NORTH AMERICA, INC. OR
SUBJECT TO SUCH OTHER PROVISIONS SET FORTH IN THE INDENTURE RELATED
TO THIS NOTE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE
JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO
WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE
TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE MEANINGS
GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT.
THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE
TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE
FOREGOING."
(B) Notwithstanding the foregoing, (x) any Global Security or
Definitive Security issued pursuant to subparagraph (b)(iv),
(c)(ii), (c)(iii), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) of
this Section 2.06 and (y) Additional Securities issued in the form
of Series B Securities
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in a transaction registered under the Securities Act (and all
Securities issued in exchange therefor or substitution thereof)
shall not bear the Private Placement Legend.
(ii) Global Security Legend. To the extent required by the
Depositary, each Global Security shall bear a legend in substantially the
following form:
"THIS GLOBAL SECURITY IS HELD BY THE DEPOSITARY (AS DEFINED IN THE
INDENTURE GOVERNING THIS SECURITY) OR ITS NOMINEE IN CUSTODY FOR THE
BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO
ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY
MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION
2.06 OF THE INDENTURE, (II) THIS GLOBAL SECURITY MAY BE EXCHANGED IN
WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE,
(III) THIS GLOBAL SECURITY MAY BE DELIVERED TO THE TRUSTEE FOR
CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS
GLOBAL SECURITY MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH
THE PRIOR WRITTEN CONSENT OF THE COMPANY."
(iii) Reg S Temporary Global Security Legend. To the extent required
by the Depositary, each Reg S Temporary Global Security shall bear a
legend in substantially the following form:
"THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE,
AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR
DEFINITIVE NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED
HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS
REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE CASH
PAYMENTS OF INTEREST DURING THE PERIOD WHICH SUCH HOLDER HOLDS THIS
NOTE. NOTHING IN THIS LEGEND SHALL BE DEEMED TO PREVENT INTEREST
FROM ACCRUING ON THIS NOTE."
(h) Cancellation and/or Adjustment of Global Securities. At such
time as all beneficial interests in a particular Global Security have been
exchanged for Definitive Securities or a particular Global Security has been
redeemed, repurchased or cancelled in whole and not in part, each such Global
Security shall be returned to or retained and cancelled by the Trustee in
accordance with Section 2.11 hereof. At any time prior to such cancellation, if
any beneficial interest in a Global Security is exchanged for or transferred to
a Person who will take delivery thereof in the form of a beneficial interest in
another Global Security or for Definitive Securities, the principal amount of
Securities represented by such Global Security shall be reduced accordingly and
an endorsement shall be made on such Global Security by the Trustee or by the
Depositary at the direction of the Trustee to reflect such reduction; and if the
beneficial interest is being exchanged for or transferred to a Person who will
take delivery thereof in the form of a beneficial interest in another Global
Security, such other Global Security shall be increased accordingly and an
endorsement shall be made on such Global Security by the Trustee or by the
Depositary at the direction of the Trustee to reflect such increase.
<PAGE> 38
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(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate Global Securities and
Definitive Securities upon receipt of an Authentication Order.
(ii) No service charge shall be made to a holder of a beneficial
interest in a Global Security or to a Holder of a Definitive Security for
any registration of transfer or exchange, but the Company may require
payment of a sum sufficient to cover any transfer tax or similar
governmental charge payable in connection therewith (other than any such
transfer taxes or similar governmental charge payable upon exchange or
transfer pursuant to Sections 2.10, 3.06, 4.05 and 4.14 hereof).
(iii) The Registrar shall not be required to register the transfer
of or exchange any Security selected for redemption in whole or in part,
except the unredeemed portion of any Security being redeemed in part.
(iv) All Global Securities and Definitive Securities issued upon any
registration of transfer or exchange of Global Securities or Definitive
Securities shall be the valid obligations of the Company, evidencing the
same indebtedness, and entitled to the same benefits under this Indenture,
as the Global Securities or Definitive Securities surrendered upon such
registration of transfer or exchange.
(v) The Company shall not be required (A) to issue, to register the
transfer of or to exchange any Securities during a period beginning at the
opening of business 15 days before the day of any selection of Securities
for redemption under Section 3.02 hereof and ending at the close of
business on the day of selection, (B) to register the transfer of or to
exchange any Security so selected for redemption in whole or in part,
except the unredeemed portion of any Security being redeemed in part or
(C) to register the transfer of or to exchange a Security between an
Interest Record Date and the next succeeding Interest Payment Date.
(vi) Prior to due presentment for the registration of a transfer of
any Security, the Trustee, any Agent and the Company may deem and treat
the Person in whose name any Security is registered as the absolute owner
of such Security for the purpose of receiving payment of principal of and
interest on such Securities and for all other purposes, and none of the
Trustee, any Agent or the Company shall be affected by notice to the
contrary.
(vii) The Trustee shall authenticate Global Securities and
Definitive Securities in accordance with the provisions of Section 2.02
hereof.
(viii) All certifications, certificates and Opinions of Counsel
required to be submitted to the Registrar pursuant to this Section 2.06 to
effect a registration of transfer or exchange may be submitted by
facsimile.
Notwithstanding anything herein to the contrary, as to any
certifications and certificates delivered to the Trustee or the Registrar
pursuant to this Section 2.06, the Trustee's duties and the Registrar's duties,
as applicable, shall be limited to confirming that any such certifications and
certificates delivered to it are in the form of Exhibits B, C and D attached
hereto. Neither the Trustee nor the Registrar shall be responsible for
confirming the truth or accuracy of representations made in any such
certifications or certificates; and
<PAGE> 39
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notwithstanding anything contained in this Indenture to the contrary, neither
the Trustee nor the Registrar shall be responsible or liable for determining
compliance with applicable federal or state securities laws (including, without
limitation, the Securities Act, or any particular rule or regulation promulgated
thereunder); provided, however, that if a specified transfer certificate or
opinion is required by the express terms of this Section 2.06 to be delivered to
the Trustee or Registrar prior to the registration of a proposed transfer, the
Trustee or Registrar, as applicable, shall be under a duty to receive such
certificate or opinion of counsel prior to registration of such transfer and to
examine the same to determine whether it conforms on its face to the
requirements hereof (and the Trustee or Registrar, as the case may be, shall
promptly notify the party delivering the same if it determines that such
certificate or opinion does not conform to such requirements).
SECTION 2.07. Replacement Securities.
If a mutilated Security is surrendered to the Trustee or if the
Holder of a Security claims that the Security has been lost, destroyed or
wrongfully taken, the Company shall issue and the Trustee shall authenticate a
replacement Security if the Company's and the Trustee's requirements for
replacement of Securities are met. Such Holder must provide an indemnity bond or
other indemnity, sufficient in the judgment of both the Company and the Trustee,
to protect the Company, the Trustee and any Agent from any loss which any of
them may suffer if a Security is replaced and evidence to their satisfaction of
the apparent loss, destruction or theft of such Security. The Company may charge
such Holder for its reasonable out-of-pocket expenses in replacing a Security,
including reasonable fees and expenses of counsel.
Every replacement Security is an additional obligation of the
Company.
SECTION 2.08. Outstanding Securities.
Securities outstanding at any time are all the Securities that have
been authenticated by the Trustee except those canceled by it, those delivered
to it for cancellation and those described in this Section 2.08 as not
outstanding. Subject to Section 2.09, a Security does not cease to be
outstanding because the Company or any of its Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.07 (other than a
mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser. A mutilated Security ceases to be outstanding
upon surrender of such Security and replacement thereof pursuant to Section
2.07.
If on a Redemption Date or the Final Maturity Date the Paying Agent
holds money sufficient to pay all of the principal and interest due on the
Securities payable on that date, then on and after that date such Securities
cease to be outstanding and interest on them ceases to accrue.
SECTION 2.09. Treasury Securities.
In determining whether the Holders of the required principal amount
of Securities have concurred in any direction, waiver or consent, Securities
owned by the Company, the Guarantor or any of their respective Affiliates shall
be disregarded, except that, for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Securities that a Trust Officer of the Trustee actually knows are so owned shall
be disregarded.
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The Trustee may require an Officers' Certificate listing Securities
owned by the Company, the Guarantor or, to the knowledge of the Officers signing
such Officers' Certificate, their respective Affiliates.
SECTION 2.10. Temporary Securities.
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities. Temporary
Securities shall be substantially in the form of definitive Securities but may
have variations that the Company considers appropriate for temporary Securities.
Without unreasonable delay, the Company shall prepare and the Trustee shall
authenticate upon receipt of a Company Order pursuant to Section 2.02 definitive
Securities in exchange for temporary Securities.
SECTION 2.11. Cancellation.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for transfer, exchange or payment. The
Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent,
and no one else, shall cancel all Securities surrendered for transfer, exchange,
payment or cancellation and deliver to the Company such canceled Securities for
disposal. Subject to Section 2.07, the Company may not issue new Securities to
replace Securities that it has paid or delivered to the Trustee for
cancellation. If the Company or the Guarantor shall acquire any of the
Securities, such acquisition shall not operate as a redemption or satisfaction
of the Indebtedness represented by such Securities unless and until the same are
surrendered to the Trustee for cancellation pursuant to this Section 2.11.
SECTION 2.12. Defaulted Interest.
If the Company defaults in a payment of principal of or interest on
the Securities, it shall pay interest on overdue principal and on overdue
installments of interest (without regard to any applicable grace periods) from
time to time on demand at the rate per annum borne by the Securities, to the
extent lawful.
SECTION 2.13. CUSIP Number.
The Company in issuing the Securities will use a "CUSIP" number, and
the Trustee shall use the CUSIP number in notices of redemption or exchange as a
convenience to Holders; provided that any such notice may state that no
representation is made as to the correctness or accuracy of the CUSIP number
printed in the notice or on the Securities and that reliance may be placed only
on the other identification numbers printed on the Securities. The Company shall
promptly notify the Trustee of any changes in CUSIP numbers.
SECTION 2.14. Deposit of Moneys.
Prior to 10:00 a.m. New York City time on each Interest Payment
Date, Redemption Date and the Final Maturity Date, the Company shall deposit
with the Paying Agent in immediately available funds money sufficient to make
cash payments, if any, due on such Interest Payment Date, Redemption Date or
Final Maturity Date, as the case may be, in a timely manner which permits the
Paying Agent to remit payment to the Holders on such Interest Payment Date,
Redemption Date or Final Maturity Date, as the case may be.
<PAGE> 41
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SECTION 2.15. Issuance of Additional Securities.
The Company shall be entitled to issue Additional Securities under
this indenture which shall have identical terms as the Securities issued on
August 24, 1999, other than with respect to the date of issuance, issue price
and amount of interest payable on the first payment date applicable thereto
(and, if such Additional Securities shall be issued in the form of Series B
Securities, other than with respect to transfer restrictions); provided, that
such issuance is not prohibited by Section 4.04.
With respect to any Additional Securities, the Company shall set
forth in a resolution of the Board of Directors and in an Officers' Certificate,
a copy of each of which shall be delivered to the Trustee, the following
information:
(A) the aggregate principal amount of such Additional Securities to
be authenticated and delivered pursuant to this Indenture;
(B) the issue price, the issue date and the CUSIP number of such
Additional Securities and the amount of interest payable on the first
payment date applicable thereto; provided, however, that no Additional
Securities may be issued at a price that would cause such Additional
Securities to have "original issue discount" within the meaning of Section
1273 of the Internal Revenue Code of 1986, as amended, different than the
"original issue discount" applicable to the Series A Securities issued on
August 24, 1999; and
(C) whether such Additional Securities shall be transfer restricted
securities and issued in the form of Series A Securities or shall be
registered securities issued in the form of Series B Securities.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee.
If the Company wants to redeem Securities pursuant to paragraph 6 or
7 of the Securities at the applicable redemption price set forth therein, it
shall notify the Trustee in writing of the Redemption Date and the principal
amount of Securities to be redeemed. The Company shall give such notice to the
Trustee at least 45 days before the Redemption Date (unless a shorter notice
shall be agreed to by the Trustee in writing), together with an Officers'
Certificate stating that such redemption will comply with the conditions
contained herein.
SECTION 3.02. Selection of Securities to Be Redeemed.
If less than all of the Securities are to be redeemed pursuant to
paragraph 6 of the Securities, the Trustee shall select the Securities to be
redeemed in compliance with the requirements of the national securities
exchange, if any, on which the Securities are listed or, if the Securities are
not then listed on a national securities exchange, on a pro rata basis, by lot
or by any other method as the Trustee shall deem fair and appropriate. Selection
of the Securities to be redeemed pursuant to paragraph 7 of the Securities shall
be made
<PAGE> 42
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by the Trustee only on a pro rata basis or on as nearly a pro rata basis as is
practicable (subject to the procedures of the Depositary) based on the aggregate
principal amount of Securities held by each Holder. The Trustee shall make the
selection from the Securities then outstanding, subject to redemption and not
previously called for redemption.
The Trustee may select for redemption pursuant to paragraph 6 or 7
of the Securities portions of the principal amount of Securities that have
denominations equal to or larger than $1,000 principal amount. Securities and
portions of them the Trustee so selects shall be in amounts of $1,000 principal
amount or integral multiples thereof. Provisions of this Indenture that apply to
Securities called for redemption also apply to portions of Securities called for
redemption.
SECTION 3.03. Notice of Redemption.
At least 30 days but not more than 60 days before a Redemption Date,
the Company shall mail a notice of redemption by first-class mail to each Holder
at such Holder's registered address whose Securities are to be redeemed.
Each notice of redemption shall identify the Securities to be
redeemed (including, but subject to the provisions of Section 2.13, the CUSIP
number thereon) and shall state:
(i) the Redemption Date;
(ii) the redemption price;
(iii) the name and address of the Paying Agent to which the
Securities are to be surrendered for redemption;
(iv) that Securities called for redemption must be surrendered to
the Paying Agent to collect the redemption price;
(v) that, unless the Company defaults in making the redemption
payment, interest on Securities called for redemption ceases to accrue on
and after the Redemption Date and the only remaining right of the Holders
is to receive payment of the redemption price upon surrender to the Paying
Agent; and
(vi) if any Security is being redeemed in part, the portion of the
principal amount of such Security to be redeemed and that, after the
Redemption Date, upon surrender of such Security, a new Security or
Securities in principal amount equal to the unredeemed portion thereof
will be issued.
At the Company's request, the Trustee shall give the notice of
redemption on behalf of the Company, in the Company's name and at the Company's
expense.
SECTION 3.04. Effect of Notice of Redemption.
Once a notice of redemption is mailed, Securities called for
redemption become due and payable on the Redemption Date and at the redemption
price specified in such notice. Upon surrender to the Paying Agent, such
Securities shall be paid at the redemption price, plus accrued interest thereon,
if any, to
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the Redemption Date, but interest installments whose maturity is on or prior
to such Redemption Date shall be payable to the Holders of record at the
close of business on the relevant Interest Record Date.
SECTION 3.05. Deposit of Redemption Price.
At least one Business Day before the Redemption Date, the Company
shall deposit with the Paying Agent (or if the Company is its own Paying Agent,
shall, on or before the Redemption Date, segregate and hold in trust) money
sufficient to pay the redemption price of and accrued interest and Liquidated
Damages, if any, on all Securities to be redeemed on that date other than
Securities or portions thereof called for redemption on that date which have
been delivered by the Company to the Trustee for cancellation.
If any Security surrendered for redemption in the manner provided in
the Securities shall not be so paid on the Redemption Date due to the failure of
the Company to deposit with the Paying Agent money sufficient to pay the
redemption price thereof, the principal and accrued and unpaid interest, if any,
thereon shall, until paid or duly provided for, bear interest as provided in
Sections 2.12 and 4.01 with respect to any payment default.
SECTION 3.06. Securities Redeemed in Part.
Upon surrender of a Security that is redeemed in part, the Trustee
shall authenticate for the Holder a new Security equal in principal amount to
the unredeemed portion of the Security surrendered.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Securities.
The Company shall pay the principal of and premium, if any, and
interest and Liquidated Damages, if any, on the Securities in the manner
provided in the Securities and the Registration Rights Agreement. An installment
of principal, premium, interest or Liquidated Damages shall be considered paid
on the date due if the Trustee or Paying Agent (other than the Company, a
Subsidiary or an Affiliate of the Company) holds on that date money designated
for and sufficient to pay the installment in full and is not prohibited from
paying such money to the Holders of the Securities pursuant to the terms of this
Indenture. The Trustee shall not be responsible for knowing the amount of
Liquidated Damages due unless the Trustee shall have been notified by the
Company thereof.
The Company shall pay interest on overdue principal at the same rate
per annum borne by the Securities. The Company shall pay interest on overdue
installments of interest at the same rate per annum borne by the Securities, to
the extent lawful, as provided in Section 2.12.
SECTION 4.02. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, The City of
New York, an office or agency (which may be an office of the Trustee, Registrar
or co-registrar) where Securities may be surrendered for payment or for
registration of transfer or exchange and where notices and demands to or upon
the
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Company in respect of the Securities and this Indenture may be presented (the
"New York Presenting Agent"). The Company may also from time to time designate
one or more other offices or agencies where the Securities may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain an office or agency
in the Borough of Manhattan, The City of New York for such purposes. The Company
shall give prompt written notice to the Trustee of the location, and any change
in the location, of such office or agency. If at any time the Company shall fail
to maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the address of the Trustee set forth in Section
13.02 hereof. The Company hereby initially designates State Street Bank and
Trust Company, N.A., at its address at 61 Broadway, 15th Floor, New York, New
York 10006, as its office or agency in The Borough of Manhattan, The City of New
York, for such purposes.
SECTION 4.03. Transactions with Affiliates.
(a) The Company shall not, and shall not cause or permit any
Restricted Subsidiary to, directly or indirectly, make any loan, advance,
guarantee or capital contribution to, or for the benefit of, or sell, lease,
transfer or dispose of any properties or assets to, or for the benefit of, or
purchase or lease any property or assets from, or enter into or amend any
contract, agreement or understanding with, or for the benefit of, an Affiliate
(each such transaction or series of related transactions that are part of a
common plan are referred to as an "Affiliate Transaction"), except in good faith
and on terms that are no less favorable to the Company or the relevant
Restricted Subsidiary than those that would have been obtained in a comparable
transaction on an arm's length basis from an unrelated person.
(b) The Company shall not, and shall not permit any Restricted
Subsidiary to, engage in any Affiliate Transaction involving aggregate payments
or other transfers by the Company and its Restricted Subsidiaries in excess of
$3,500,000 (including cash and non-cash payments and benefits valued at their
fair market value by the Board of Directors in good faith) unless the Company
delivers to the Trustee:
(i) a resolution of the Board of Directors stating that the Board of
Directors (including a majority of the disinterested directors, if any)
has, in good faith, determined that such Affiliate Transaction complies
with the provisions of the Indenture, and
(ii) (A) with respect to any Affiliate Transaction involving the
incurrence of Indebtedness, a written opinion of a nationally recognized
investment banking or accounting firm experienced in the review of similar
types of transactions, (B) with respect to any Affiliate Transaction
involving the transfer of real property, fixed assets or equipment, either
directly or by a transfer of 50% or more of the Capital Stock of a
Restricted Subsidiary which holds any such real property, fixed assets or
equipment, a written appraisal from a nationally recognized appraiser,
experienced in the review of similar types of transactions or (C) with
respect to any Affiliate Transaction not otherwise described in (A) and
(B) above, a written certification from a nationally recognized
professional or firm experienced in evaluating similar types of
transactions, in each case, stating that the terms of such transaction are
fair to the Company or such Restricted Subsidiary, as the case may be,
from a financial point of view.
(c) Notwithstanding paragraphs (a) and (b) of this Section 4.03,
this Section 4.03 shall not apply to: (i) transactions between the Company and
any wholly owned Restricted Subsidiary or between wholly owned Restricted
Subsidiaries; (ii) transactions permitted by Section 4.06; (iii) compensation
paid to
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officers, employees or consultants of the Company or any subsidiary as
determined in good faith by the Board of Directors or executives; or (iv)
transactions between the Company and the Guarantor or between the Company and a
Subsidiary of the Guarantor in the ordinary course of business on terms
substantially consistent with past practice.
SECTION 4.04. Limitation on Incurrence of Indebtedness.
(a) The Company shall not, and shall not cause or permit any
Restricted Subsidiary to, directly or indirectly, issue any Indebtedness (other
than the Indebtedness represented by the Series A Securities issued on August
24, 1999 or the Series B Securities issued pursuant to an Exchange Offer in
exchange therefor, in an aggregate principal amount not to exceed $50,000,000)
unless the Company's Cash Flow Coverage Ratio for its four full fiscal quarters
next preceding the date such additional Indebtedness is issued would have been
at least 2.0 to 1 on or prior to August 31, 1999 and at least 2.25 to 1
thereafter determined on a Pro Forma Basis (including, for this purpose, any
other Indebtedness incurred since the end of the applicable four-quarter period)
as if such additional Indebtedness and any other Indebtedness issued since the
end of such four-quarter period had been issued at the beginning of such
four-quarter period.
(b) The foregoing limitations will not apply to the issuance of:
(i) Indebtedness of the Company and/or its Restricted Subsidiaries
under the Credit Agreement as measured on such date of issuance in an
aggregate principal amount outstanding on any such date of issuance not
exceeding the greater of (x) the sum of (A) 75% of the book value of the
accounts receivable of the Company and its Restricted Subsidiaries on a
consolidated basis and (B) 60% of the book value of the inventory of the
Company and its Restricted Subsidiaries on a consolidated basis or (y)
$50,000,000;
(ii) Indebtedness of the Company and its Restricted Subsidiaries in
connection with capital leases, purchase money obligations, capital
expenditures or similar financing transactions relating to their
properties, assets and rights up to $10,000,000 in aggregate principal
amount;
(iii) additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount of up to $10,000,000; and
(iv) Other Permitted Indebtedness.
(c) Notwithstanding paragraphs (a) and (b) of this Section 4.04, no
Restricted Subsidiary shall under any circumstances issue a guarantee of any
Indebtedness of the Company except for guarantees issued by Restricted
Subsidiaries pursuant to Section 4.20; provided, however, that the foregoing
will not limit or restrict guarantees issued by Restricted Subsidiaries in
respect of Indebtedness of other Restricted Subsidiaries.
SECTION 4.05. Limitation on Certain Asset Sales.
(a) The Company shall not, and shall not cause or permit any
Restricted Subsidiary to, directly or indirectly, consummate an Asset Sale
(including the sale of any of the Capital Stock of any Restricted Subsidiary)
providing for Net Proceeds in excess of $5,000,000 unless the Net Proceeds from
such Asset Sale are applied (in any manner otherwise permitted by this
Indenture) to one or more of the following purposes in such combination as the
Company shall elect: (i) an investment in another asset or business in the same
line of
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business as, or a line of business similar to that of, the line of business of
the Company and its Restricted Subsidiaries at the time of the Asset Sale;
provided that such investment occurs on or prior to the 365th day following the
date of such Asset Sale (the "Asset Sale Disposition Date"), (ii) to reimburse
the Company or its Subsidiaries for expenditures made, and costs incurred, to
repair, rebuild, replace or restore property lost, damaged or taken to the
extent that the Net Proceeds consist of insurance proceeds received on account
of such loss, damage or taking, (iii) the purchase, redemption or other
prepayment or repayment of outstanding Senior Indebtedness or Indebtedness of
the Company's Restricted Subsidiaries or the 1997 Notes on or prior to the 365th
day following the Asset Sale Disposition Date or (iv) an Asset Sale Offer
expiring on or prior to the Asset Sale Purchase Date. The Company shall not, and
shall not cause or permit any Restricted Subsidiary to, directly or indirectly,
consummate an Asset Sale unless at least 70% of the consideration therefor
received by the Company or such Restricted Subsidiary is in the form of cash,
cash equivalents or marketable securities; provided that, solely for purposes of
calculating such 70% of the consideration, the amount of (x) any liabilities (as
shown on the Company's or such Restricted Subsidiary's most recent balance sheet
or in the notes thereto, excluding contingent liabilities and trade payables) of
the Company or any Restricted Subsidiary (other than liabilities that are by
their terms subordinated to the Securities) that are assumed by the transferee
of any such assets and (y) any notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee that are
promptly, but in no event more than 30 days after receipt, converted by the
Company or such Restricted Subsidiary into cash (to the extent of the cash
received), shall be deemed to be cash and cash equivalents for purposes of this
provision. Any Net Proceeds from any Asset Sale that are not applied or invested
as provided in the first sentence of this paragraph shall constitute "Excess
Proceeds."
(b) When the aggregate amount of Excess Proceeds exceeds $6,500,000
(such date being an "Asset Sale Trigger Date"), the Company shall make an Offer
(an "Asset Sale Offer") to all holders of Securities to purchase the maximum
principal amount of the Securities then outstanding that may be purchased out of
Excess Proceeds, at an offer price in cash in an amount equal to 100% of
principal amount thereof plus any accrued and unpaid interest and liquidated
damages, if any, to the date (the "Asset Sale Purchase Date") the Securities
tendered are purchased and paid for in accordance with this Section 4.05. Within
30 days following any Asset Sale Trigger Date, the Company shall mail a notice
to each holder of Securities at such holder's registered address stating:
(i) that an Asset Sale Offer is being made pursuant to an Asset Sale
Trigger Date, the length of time the Asset Sale Offer shall remain open
and the maximum principal amount of Securities that will be accepted for
payment pursuant to such Asset Sale Offer;
(ii) the purchase price, the amount of accrued and unpaid interest
as of the Asset Sale Purchase Date and the Asset Sale Purchase Date (which
shall be no earlier than 30 days and no later than 60 days from the date
such notice is mailed);
(iii) that any Security or portion thereof not tendered or accepted
for payment will continue to accrue interest;
(iv) that any Security accepted for payment pursuant to the Asset
Sale Offer shall cease to accrue interest on and after the Asset Sale
Purchase Date;
(v) that Holders electing to have a Security purchased pursuant to
the Asset Sale Offer will be required to surrender the Security, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
Security completed, to a Paying Agent at the address specified in the
notice at least three Business Days before the Asset Sale Purchase Date;
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(vi) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day before the Asset Sale Purchase Date, a facsimile transmission
or letter setting forth the name of the Holder, the principal amount of
the Security the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have the Security purchased;
(vii) that, if the aggregate principal amount of Securities
surrendered by Holders exceeds the Excess Proceeds, the Trustee shall
select the Securities to be purchased on a pro rata basis, by lot or by
any other method that the Trustee considers fair and appropriate and, if
the Securities are listed on any securities exchange, by a method that
complies with the requirements of such exchange; provided that, if less
than all of a holder's Securities are to be redeemed or accepted for
payment, only principal amounts of $1,000 or integral multiples thereof
may be selected for redemption or accepted for payment;
(viii) that Holders whose Securities were purchased only in part
will be issued new Securities equal in principal amount to the unpurchased
portion of the Securities surrendered; and
(ix) a brief description of the circumstances and relevant facts
regarding such Asset Sale.
On the Asset Sale Purchase Date, the Company will, to the extent
required by this Indenture and the Asset Sale Offer, (1) accept for payment the
maximum principal amount of Securities or portions thereof tendered pursuant to
the Asset Sale Offer that can be purchased out of Excess Proceeds, (2) deposit
with the Paying Agent the aggregate purchase price of all Securities or portions
thereof accepted for payment and any accrued and unpaid interest and liquidated
damages, if any, on such Securities as of the Asset Sale Purchase Date, and (3)
deliver or cause to be delivered to the Trustee all Securities tendered pursuant
to the Asset Sale Offer. The Paying Agent shall promptly mail to each holder of
Securities or portions thereof accepted for payment an amount equal to the
purchase price for such Securities plus any accrued and unpaid interest thereon
and liquidated damages, if any, and the Trustee shall promptly authenticate and
mail (or cause to be transferred by book-entry) to such holder of Securities
accepted for payment in part a new Security equal in principal amount to any
unpurchased portion of the Securities and any Security not accepted for payment
in whole or in part shall be promptly returned to the holder thereof. The
Company will publicly announce the results of the Asset Sale Offer on or as soon
as practicable after the Asset Sale Purchase Date.
The Company will comply with any tender offer rules under the
Exchange Act which may then be applicable, including Rule 14e-l, in connection
with an Asset Sale offer. To the extent that the provisions of any securities
laws or regulations conflict with provisions of this Indenture, the Company
shall comply with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations under this Indenture by virtue
thereof.
Notwithstanding the foregoing, to the extent that any or all of the
Net Proceeds of an Asset Sale are prohibited or delayed by applicable local law
from being repatriated to the United States, the portion of such Net Proceeds so
affected will not be required to be applied as described in this Section 4.05,
but may be retained for so long, but only for so long, as the applicable local
law prohibits repatriation to the United States.
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To the extent that any Excess Proceeds remain after completion of an
Asset Sale Offer, the Company may use such remaining amount for general
corporate purposes. Upon completion of an Asset Sale Offer, the amount of Excess
Proceeds shall be reset at zero.
SECTION 4.06. Limitation on Restricted Payments.
The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, directly or indirectly, (i) declare or pay any dividend or make
any distribution on account of the Company's or such Restricted Subsidiary's
Capital Stock or other Equity Interests (other than dividends or distributions
payable in Capital Stock or other Equity Interests (other than Disqualified
Stock) of the Company and dividends or distributions payable by a Restricted
Subsidiary to a Restricted Subsidiary or to the Company); (ii) purchase, redeem
or otherwise acquire or retire for value any Capital Stock or other Equity
Interests of the Company or any of its Restricted Subsidiaries; (iii) make any
principal payment on, purchase, defease, redeem, prepay, decrease or otherwise
acquire or retire for value, prior to any scheduled final maturity, scheduled
repayment or scheduled sinking fund payment, any Indebtedness of the Company
that is subordinate or junior in right of payment to the Securities; or (iv)
make any Restricted Investment (all such dividends, distributions, purchases,
redemptions, acquisitions, retirements, prepayments and Restricted Investments
being collectively referred to as "Restricted Payments"), if, at the time of
such Restricted Payment:
(a) a Default or Event of Default shall have occurred and be
continuing or shall occur as a consequence thereof; or
(b) immediately after such Restricted Payment and after giving pro
forma effect thereto, the Company shall not be able to issue $1.00 of
additional Indebtedness pursuant to paragraph (a) of Section 4.04; or
(c) such Restricted Payment, together with the aggregate of all
other Restricted Payments made after August 18, 1997, without duplication,
exceeds the sum of (1) 50% of the aggregate Consolidated Net Income
(including, for this purpose, gains or losses from Asset Sales) of the
Company (or, in case such aggregate is a loss, 100% of such loss) for the
period (taken as one accounting period) from the beginning of the fiscal
quarter commencing March 1, 1997 and ended as of the Company's most
recently ended fiscal quarter at the time of such Restricted Payment; plus
(2) 100% of the aggregate net cash proceeds and the fair market value of
any property or securities (as determined by the Board of Directors in
good faith) received by the Company from the issue or sale of Capital
Stock or other Equity Interests of the Company subsequent to August 18,
1997 (other than (x) Capital Stock or other Equity Interests issued or
sold to a Restricted Subsidiary and (y) the issuance or sale of
Disqualified Stock); plus (3) the amount by which the principal amount of
and any accrued interest on either (A) Indebtedness of the Company or (B)
any Indebtedness of any Restricted Subsidiary is reduced on the Company's
consolidated balance sheet upon the conversion or exchange other than by a
Restricted Subsidiary subsequent to August 18, 1997 of any Indebtedness of
the Company or any Restricted Subsidiary (not held by the Company or any
Restricted Subsidiary) for Capital Stock or other Equity Interests (other
than Disqualified Stock) of the Company (less the amount of any cash, or
the fair market value of any other property or securities (as determined
by the Board of Directors in good faith), distributed by the Company or
any Restricted Subsidiary (to Persons other than the Company or any other
Restricted Subsidiary) upon such conversion or exchange); plus (4) if any
Non-Restricted Subsidiary is redesignated as a Restricted Subsidiary, the
value of the Restricted Payment that would result if such Subsidiary were
redesignated as a Non-Restricted Subsidiary at such time, as determined in
accordance with Section 4.17(b).
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Notwithstanding the foregoing, paragraphs (b)and (c) shall not
prohibit as Restricted Payments:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration, such payment would
comply with all covenants of this Indenture (including, but not limited
to, this Section 4.06); provided that payments made pursuant to this
paragraph shall count as a Restricted Payment for purposes of the
calculation in paragraph (c) of this Section 4.06;
(ii) payments to the Guarantor in an amount equal to the amount of
income tax that the Company would have paid had it filed consolidated tax
returns on a separate company basis in any given tax year; provided that
payments made pursuant to this paragraph (ii) shall not count as a
Restricted Payment for purposes of the calculation in paragraph (c) of
this Section 4.06;
(iii) cash dividends or loans from the Company to the Guarantor
pursuant to the Services Agreement but in no event exceeding 4% of the
revenues of the Company and its Restricted Subsidiaries for the
immediately preceding four fiscal quarters; provided, that payments made
pursuant to this paragraph (iii) shall not count as a Restricted Payment
for purposes of the calculation paragraph (c) of this Section 4.06;
(iv) the redemption, repurchase, retirement or other acquisition of
any Capital Stock or other Equity Interests of the Company or any
Restricted Subsidiary in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to a Subsidiary of the Company)
of other Capital Stock or other Equity Interests of the Company (other
than any Disqualified Stock) or the redemption, repurchase, retirement or
other acquisition of any Capital Stock or other Equity Interests of any
Restricted Subsidiary in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to the Company or a Subsidiary
of the Company) of other Capital Stock or other Equity Interests of such
Restricted Subsidiary; provided that, in each case, any net cash proceeds
that are utilized for any such redemption, repurchase, retirement or other
acquisition, and any Net Income resulting therefrom, shall be excluded
from paragraph (c) of this Section 4.06;
(v) Restricted Investments made or received in connection with the
sale, transfer or disposition of any business, properties or assets of the
Company or any Restricted Subsidiary; provided that, if such sale,
transfer or disposition constitutes an Asset Sale, the Company complies
with the provisions of the Section 4.05, and such Restricted Investments
shall not count as a Restricted Payment for purposes of the calculation in
paragraph (c) of this Section 4.06;
(vi) the payment of a dividend to the Guarantor in order to allow
the Guarantor to pay its regular quarterly dividend in respect of the
Guarantor's Convertible Preferred Stock, Common Stock, Class A Stock and
Class B Stock; provided that payments made pursuant to this paragraph (vi)
shall count as a Restricted Payment for purposes of the calculation in
paragraph (c) of this Section 4.06; and
(vii) $3,000,000; provided that payments made pursuant to this
paragraph (vii) shall count as a Restricted Payment for purposes of the
calculation in paragraph (c) of this Section 4.06.
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SECTION 4.07. Corporate Existence.
Subject to Article Five, the Company and the Guarantor shall do or
shall cause to be done all things necessary to preserve and keep in full force
and effect their respective corporate existence and the corporate, partnership
or other existence of each Restricted Subsidiary in accordance with the
respective organizational documents of each of them (as the same may be amended
from time to time) and the rights (charter and statutory) and material
franchises of the Company, the Guarantor and the Restricted Subsidiaries;
provided, however, that the Company and the Guarantor shall not be required to
preserve any such right or franchise, or the corporate existence of any
Restricted Subsidiary, if the Board of Directors or the board of directors of
the Guarantor shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company, the Guarantor and the
Restricted Subsidiaries, taken as a whole, and that the loss thereof is not, and
will not be, adverse in any material respect to the Holders.
SECTION 4.08. Payment of Taxes and Other Claims.
The Company and the Guarantor shall pay or discharge or cause to be
paid or discharged, before the same shall become delinquent, (1) all material
taxes, assessments and governmental charges levied or imposed upon the Company,
the Guarantor or any Restricted Subsidiary or upon the income, profits or
property of the Company, the Guarantor or any Restricted Subsidiary and (2) all
lawful claims for labor, materials and supplies which, in each case, if unpaid,
might by law become a material liability, or Lien upon the property, of the
Company, the Guarantor or any Restricted Subsidiary; provided, however, that
neither the Company nor the Guarantor shall be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings and for which appropriate provision has been made.
SECTION 4.09. Notice of Defaults.
(a) In the event that any Indebtedness of the Company, the Guarantor
or any of their Subsidiaries is declared due and payable before its maturity
because of the occurrence of any default (or any event which, with notice or
lapse of time, or both, would constitute such a default) under such
Indebtedness, the Company or the Guarantor shall promptly give written notice to
the Trustee of such declaration, the status of such default or event and what
action the Company or the Guarantor is taking or proposes to take with respect
thereto.
(b) Upon becoming aware of any Default or Event of Default, the
Company or the Guarantor shall promptly deliver an Officers' Certificate to the
Trustee specifying the Default or Event of Default.
SECTION 4.10. Maintenance of Properties and Insurance.
(a) The Company and the Guarantor shall cause all material
properties owned by or leased to either of them or any Restricted Subsidiary and
used or useful in the conduct of their business or the business of any
Restricted Subsidiary to be maintained and kept in normal condition, repair and
working order and supplied with all necessary equipment and shall cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company or the Guarantor may be
necessary, so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
nothing in this Section 4.10 shall prevent the Company, the Guarantor or any
Restricted Subsidiary from discontinuing the use, operation or maintenance of
any of such properties, or disposing of any of them, if such discontinuance or
disposal is, in the judgment of the Board of Di-
<PAGE> 51
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rectors or of the board of directors of the Guarantor or Restricted Subsidiary
concerned, or of an officer (or other agent employed by the Company, the
Guarantor or any Restricted Subsidiary) of the Company, the Guarantor or such
Restricted Subsidiary having managerial responsibility for any such property,
desirable in the conduct of the business of the Company, the Guarantor or any
Restricted Subsidiary, and if such discontinuance or disposal is not adverse in
any material respect to the Holders.
(b) The Company and the Guarantor shall maintain, and shall cause
the Restricted Subsidiaries to maintain, insurance with responsible carriers
against such risks and in such amounts, and with such deductibles, retentions,
self-insured amounts and co-insurance provisions, as are customarily carried by
similar businesses of similar size, including property and casualty loss, and
workers' compensation insurance.
SECTION 4.11. Compliance Certificate.
The Company shall deliver to the Trustee within 90 days after the
close of each fiscal year a certificate signed by the principal executive
officer, principal financial officer or principal accounting officer stating
that a review of the activities of the Company has been made under the
supervision of the signing officers with a view to determining whether a Default
or Event of Default has occurred and whether or not the signers know of any
Default or Event of Default by the Company that occurred during such fiscal
year. If they do know of such a Default or Event of Default, the certificate
shall describe all such Defaults or Events of Default, their status and the
action the Company is taking or proposes to take with respect thereto.
SECTION 4.12. Provision of Financial Information.
For so long as the Securities are outstanding, whether or not the
Guarantor or any successor thereto is subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, the Guarantor shall submit for filing
with the Commission the annual reports, quarterly reports and other documents
relating to the Guarantor and its Subsidiaries that the Guarantor would have
been required to file with the Commission pursuant to Section 13 or 15(d) if the
Guarantor were subject to such reporting requirements. The Guarantor will also
provide to all holders of Securities and file with the Trustee copies of such
annual reports, quarterly reports and other documents required to be furnished
to stockholders generally under the Exchange Act.
Delivery of such reports, information and documents to the Trustee
is for informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of the Trustee of any information contained
therein or determinable from information contained therein, including the
Company's compliance with any of its covenants hereunder (as to which the
Trustee is entitled to rely exclusively on Officers' Certificates).
SECTION 4.13. Waiver of Stay, Extension or Usury Laws.
The Company and the Guarantor covenants (to the extent that they may
lawfully do so) that they shall not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law, which would prohibit or forgive the
Company or such Guarantor from paying all or any portion of the principal of
and/or interest, if any, on the Securities as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
performance of this Indenture; and (to the extent that they may lawfully do so)
each of the Company and the Guarantor hereby expressly waives all benefit or
advantage of any such law, and covenants that it shall not hinder, delay or
impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law had
been enacted.
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SECTION 4.14. Change of Control.
Following the occurrence of a Change of Control (the date of such
occurrence being the "Change of Control Trigger Date"), the Company shall notify
the Holders of the Securities of such occurrence in the manner prescribed by
this Indenture and shall, within 30 days after the Change of Control Trigger
Date, make an offer (the "Change of Control Offer") to purchase all Securities
then outstanding at a purchase price in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the date (the "Change of Control Purchase Date") the
Securities tendered are purchased and paid for in accordance with this Section
4.14. The Company shall furnish to the Trustee, at least 14 days before notice
of a Change of Control Offer is mailed to all holders of Securities, notice that
the Change of Control Offer is being made. Within 30 days following any Change
of Control Trigger Date, the Company shall mail a notice to each Holder of
Securities at such Holder's registered address stating:
(i) that a Change of Control Offer is being made pursuant to a
Change of Control Trigger Date, the length of time the Change of Control
Offer shall remain open and that all Securities tendered for payment will
be accepted for payment, and otherwise subject to the terms and conditions
set forth therein;
(ii) the purchase price, the amount of accrued and unpaid interest
as of the Change of Control Purchase Date, and the Change of Control
Purchase Date (which shall be no earlier than 30 days and no later than 60
days from the date such notice is mailed);
(iii) that any Security not tendered will continue to accrue
interest;
(iv) that any Security accepted for payment pursuant to the Change
of Control Offer shall cease to accrue interest on and after the Change of
Control Purchase Date;
(v) that Holders accepting the Change of Control Offer will be
required to surrender the Securities to the Paying Agent specified in the
notice prior to the close of business on the third Business Day preceding
the Change of Control Purchase Date;
(vi) that Holders will be entitled to withdraw their acceptance if
the Paying Agent receives, not later than the close of business on the
third Business Day preceding the Change of Control Purchase Date, a
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Securities delivered for purchase and a statement
that such Holder is withdrawing his election to have such Securities
purchased;
(vii) that Holders whose Securities are being purchased only in part
will be issued new Securities equal in principal amount to the unpurchased
portion of the Securities surrendered;
(viii) any other procedures that a Holder must follow to accept a
Change of Control Offer or effect withdrawal of such acceptance; and
(ix) the name and address of the Paying Agent.
On the Change of Control Purchase Date, the Company will, to the
extent required by this Indenture and the Change of Control Offer, (1) accept
for payment all Securities or portions thereof (subject to the requirement that
any portion of a Security tendered must be tendered in any integral multiple
$1,000
<PAGE> 53
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principal amount) tendered pursuant to the Change of Control Offer; (2) deposit
with the Paying Agent the aggregate purchase price of all Securities or portions
thereof accepted for payment and any accrued and unpaid interest and Liquidated
Damages, if any, on such Securities as of the Change of Control Purchase Date,
and (3) deliver or cause to be delivered to the Trustee all Securities tendered
pursuant to the Change of Control Offer. The Paying Agent shall promptly mail to
each holder of Securities or portions thereof accepted for payment an amount
equal to the purchase price for such Securities plus any accrued and unpaid
interest and Liquidated Damages, if any, thereon, and the Trustee shall promptly
authenticate and mail (or cause to be transferred by book-entry) to such holder
of Securities accepted for payment in part a new Security equal in principal
amount to any unpurchased portion of the Securities and any Security not
accepted for payment in whole or in part shall be promptly returned to the
holder thereof. The Company will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Purchase
Date.
The Company will comply with any tender offer rules under the
Exchange Act which may then be applicable, including Rule 14e-1, in connection
with a Change of Control Offer. To the extent that the provisions of any
securities laws or regulations conflict with provisions of this Indenture, the
Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under this Indenture by
virtue thereof.
SECTION 4.15. Limitation on Senior Subordinated Indebtedness.
The Company shall not, directly or indirectly, incur any
Indebtedness that by its terms would expressly rank senior in right of payment
to the Securities and expressly rank subordinate in right of payment to any
Senior Indebtedness.
SECTION 4.16. Limitations on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries.
The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective, any encumbrance or restriction on the ability of any
Restricted Subsidiary to (a) pay dividends or make any other distributions on
its Capital Stock or any other interest or participation in, or measured by, its
profits, owned by the Company or any Restricted Subsidiary, or pay any
Indebtedness owed to, the Company or any Restricted Subsidiary, (b) make loans
or advances to the Company, or (c) transfer any of its properties or assets to
the Company, except for such encumbrances or restrictions existing under or by
reason of:
(i) applicable law;
(ii) Indebtedness permitted (A) under paragraph (a) of Section 4.04,
(B) under clauses (i) or (iii) of paragraph (b) of Section 4.04 or clauses
(i), (v), (vi) or (viii) of the definition of Other Permitted
Indebtedness, or (C) by agreements and transactions permitted under
Section 4.06;
(iii) customary provisions restricting subletting or assignment of
any lease or license of the Company or any Restricted Subsidiary;
(iv) any instrument governing Indebtedness or any other encumbrance
or restriction of a Person acquired by the Company or any Restricted
Subsidiary at the time of such acquisition, which encumbrance or
restriction is not applicable to any Person, or the properties or assets
of any Person, other than the Person, or the property or assets of the
Person, so acquired;
<PAGE> 54
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(v) the Credit Agreement;
(vi) any Refinancing Indebtedness permitted under Section 4.04 or
clauses (i), (v) or (viii) of the definition of Other Permitted
Indebtedness; provided that the encumbrances and restrictions created in
connection with such Refinancing Indebtedness are no more restrictive in
any material respect with regard to the interests of the Holders of
Securities than the encumbrances and restrictions in the refinanced
Indebtedness;
(vii) the terms of purchase money obligations, but only to the
extent such purchase money obligations restrict or prohibit the transfer
of the property so acquired; or
(viii) the 1997 Notes.
Nothing contained in this Section 4.16 shall prevent the Company
from entering into any agreement or instrument providing for the incurrence of
Permitted Liens or restricting the sale or other disposition of property or
assets of the Company or any of its Restricted Subsidiaries that are subject to
Permitted Liens.
SECTION 4.17. Designation of Restricted and Non-Restricted Subsidiaries.
(a) As of the date of this Indenture, all Subsidiaries of the
Company shall be Restricted Subsidiaries. Subject to the exceptions described
below, from and after August 18, 1997, the Company may designate any existing or
newly formed or acquired Subsidiary as a Non-Restricted Subsidiary; provided
that either (i) the Subsidiary to be so designated has total assets of
$1,000,000 or less or (ii) immediately before and after giving effect to such
designation: (I) the Company could incur $1.00 of additional Indebtedness
pursuant to paragraph (a) of Section 4.04 determined on a Pro Forma Basis; (II)
no Default or Event of Default shall have occurred and be continuing; (III) all
Investments made by the Company or by a Restricted Subsidiary of the Company in
such Restricted Subsidiary which is being designated a Non-Restricted Subsidiary
prior to or on the date such Restricted Subsidiary is being designated a
Non-Restricted Subsidiary shall have been permitted pursuant to Section 4.06 as
if all of such Restricted Payments had been made on the day such Restricted
Subsidiary is designated a Non-Restricted Subsidiary (to the extent not
previously included as a Restricted Payment) in the amount of the greater of (A)
the fair market value (as determined by the Board of Directors in good faith) of
the Equity Interests of such Subsidiary held by the Company and its Restricted
Subsidiaries on such date or (B) the amount of the Investments determined in
accordance with GAAP made by the Company and any of its Restricted Subsidiaries
in such Restricted Subsidiary; and (IV) all transactions between the Subsidiary
to be so designated and its Affiliates remaining in effect are permitted
pursuant to Section 4.03.
(b) The Company may redesignate any Non-Restricted Subsidiary as a
Restricted Subsidiary. The Company may not, and may not permit any Restricted
Subsidiary to, take any action or enter into any transaction or series of
transactions that would result in a Person becoming a Restricted Subsidiary
(whether through an acquisition, the redesignation of a Non-Restricted
Subsidiary or otherwise, but not including through the creation of a new
Restricted Subsidiary) unless, immediately before and after giving effect to
such action, transaction or series of transactions, (i) the Company could incur
at least $1.00 of additional Indebtedness pursuant to paragraph (a) of Section
4.04 on a Pro Forma Basis and (ii) no Default or Event of Default shall have
occurred and be continuing.
(c) The designation of a Subsidiary as a Restricted Subsidiary or
the removal of such designation shall be made by a resolution adopted by a
majority of the Board of Directors stating that the Board of
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Directors has made such designation in accordance with this Indenture, and the
Company shall deliver to the Trustee such resolution together with an Officers'
Certificate certifying that the designation complies with this Indenture. Such
designation will be effective as of the date specified in the applicable
resolution which may not be before the date the applicable Officers' Certificate
is delivered to the Trustee.
SECTION 4.18. Limitation on Liens.
The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist
any Lien (other than Permitted Liens) upon any property or asset now owned or
hereafter acquired by them, or any income or profits therefrom, or assign or
convey any right to receive income therefrom; provided, however, that in
addition to creating Permitted Liens on its properties or assets, the Company
and any of its Restricted Subsidiaries may create any Lien upon any of their
properties or assets (including, but not limited to, any Capital Stock of its
Subsidiaries) if the Securities are equally and ratably secured.
SECTION 4.19. Limitation on Sale and Leaseback Transactions.
The Company shall not, and shall not cause or permit any of its
Restricted Subsidiaries to, enter into any sale and leaseback transaction;
provided that the Company may enter into a sale and leaseback transaction if (i)
the Company could have incurred Indebtedness in an amount equal to the
Attributable Debt relating to such sale and leaseback transaction pursuant to
the Company's Cash Flow Coverage Ratio test set forth in paragraph (a) of
Section 4.04, (ii) the net cash proceeds of such sale and leaseback transaction
are at least equal to the fair market value (as determined in good faith by the
Board of Directors and set forth in an Officers' Certificate delivered to the
Trustee) of the property that is the subject of such sale and leaseback
transaction and (iii) the transfer of assets in such sale and leaseback
transaction is permitted by, and the proceeds of such transaction are applied in
compliance with, Section 4.05.
SECTION 4.20. Limitation on Guarantees of Company Indebtedness by Restricted
Subsidiaries.
The Company shall not permit any Restricted Subsidiary, directly or
indirectly, to guarantee any Indebtedness of the Company other than the
Securities (the "Other Company Indebtedness") unless (A) such Restricted
Subsidiary contemporaneously executes and delivers a supplemental indenture to
this Indenture providing for a guarantee of payment of the Securities then
outstanding by such Restricted Subsidiary to the same extent as the guarantee of
payment (the "Other Company Indebtedness Guarantee") of the Other Company
Indebtedness (including waiver of subrogation, if any) and (B) if the Other
Company Indebtedness guaranteed by such Restricted Subsidiary is Senior
Indebtedness, the guarantee for the Securities shall be subordinated in right of
payment with the Other Company Indebtedness Guarantee; provided, however, that
the provisions of this Section 4.20 do not apply to guarantees by any Restricted
Subsidiary of the Company's Indebtedness under the Credit Agreement as in effect
on August 18, 1997.
Each guarantee of the Securities created by a Restricted Subsidiary
pursuant to the provisions described in the foregoing paragraph shall be in form
and substance satisfactory to the Trustee and shall provide, among other things,
that it will be automatically and unconditionally released and discharged upon
(i) any sale, exchange or transfer permitted by this Indenture of (a) all of the
Company's Capital Stock in such Restricted Subsidiary or (b) the sale of all or
substantially all of the assets of the Restricted Subsidiary and upon the
application of the Net Proceeds from such sale in accordance with the
requirements of Section 4.05 or (ii) the release or discharge of the Other
Company Indebtedness Guarantee that resulted in the creation of such guarantee
of the Securities.
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ARTICLE FIVE
MERGERS; SUCCESSOR CORPORATION
SECTION 5.01. Mergers, Consolidation and Sale of Assets.
(a) Each of the Company and the Guarantor shall not consolidate or
merge with or into, or sell, lease, convey or otherwise dispose of all or
substantially all of its assets to, any Person (any such consolidation, merger
or sale being a "Disposition") unless: (i) the successor corporation of such
Disposition or the corporation to which such Disposition shall have been made is
a corporation organized or existing under the laws of the United States, any
state thereof or the District of Columbia; (ii) the successor corporation of
such Disposition or the corporation to which such Disposition shall have been
made expressly assumes the Obligations of the Company or the Guarantor, as the
case may be, pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee, under this Indenture and the Securities; (iii)
immediately after such Disposition, no Default or Event of Default shall exist;
and (iv) the corporation formed by or surviving any such Disposition, or the
corporation to which such Disposition shall have been made, shall (I) have
Consolidated Net Worth (immediately after the Disposition but prior to giving
any pro forma effect to purchase accounting adjustments resulting from the
Disposition) equal to or greater than the Consolidated Net Worth of the Company
or the Guarantor, as the case may be, immediately preceding the Disposition, and
(II) be permitted immediately after the Disposition by the terms of the
Indenture to issue at least $1.00 of additional Indebtedness pursuant to
paragraph (a) of Section 4.04 determined on a Pro Forma Basis. The limitations
in this Indenture on the Company's ability to make a Disposition described in
this paragraph (a) do not restrict the Company's ability to sell less than all
or substantially all of its assets, such sales being governed by Section 4.05.
(b) Prior to the consummation of any proposed Disposition, the
Company shall deliver to the Trustee an Officers' Certificate to the foregoing
effect and an Opinion of Counsel stating that the proposed Disposition and such
supplemental indenture comply with this Indenture.
SECTION 5.02. Successor Corporation Substituted.
(a) In the event of any Disposition of the Company or the Guarantor
in accordance with Section 5.01, the successor corporation formed by such
consolidation or into which the Company or the Guarantor is merged or to which
such Disposition is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company or the Guarantor under this
Indenture with the same effect as if such successor corporation had been named
as the Company or the Guarantor herein, and thereafter the predecessor
corporation shall be relieved of all Obligations and covenants under this
Indenture and the Securities.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.
Each of the following shall be an "Event of Default" for purposes of
this Indenture:
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(i) a default for 30 days in payment of interest or Liquidated
Damages, if any, on the Securities;
(ii) a default in payment when due of principal or premium, if any,
with respect to the Securities;
(iii) failure by the Company to comply with the provisions of
Section 4.04, 4.06, 4.14 or 5.01;
(iv) the failure of the Company to comply with any of its other
agreements or covenants in, or provisions of, this Indenture or the
Securities, which failure is not cured within thirty days after notice and
demand for cure sent to the Company by the Trustee or Holders of at least
25% of principal amount of the Securities then outstanding;
(v) a default by the Company, the Guarantor or any Restricted
Subsidiary under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any Restricted
Subsidiary (or the payment of which is guaranteed by the Company or any
Restricted Subsidiary), whether such Indebtedness or guarantee now exists
or shall be created hereafter, if (I) either (A) such default results from
the failure to pay principal of or interest on any such Indebtedness
(after giving effect to any extensions thereof) or (B) as a result of such
default the maturity of such Indebtedness has been accelerated prior to
its expressed maturity, and (II) the principal amount of such
Indebtedness, together with the principal amount of any other such
Indebtedness in default for failure to pay principal or interest thereon,
or, because of the acceleration of the maturity thereof, aggregates in
excess of $2,500,000;
(vi) a failure by the Company or any Restricted Subsidiary to pay
final judgments (not covered by insurance) aggregating in excess of
$2,500,000 which judgments a court of competent jurisdiction does not
rescind, annul or stay within 45 days after their entry;
(vii) the Company, the Guarantor or any Significant Subsidiary
pursuant to or within the meaning of any Bankruptcy Law: (I) commences a
voluntary case, (II) consents to the entry of an order for relief against
it in an involuntary case, (III) consents to the appointment of a
Custodian of it or for all or substantially all of its property, (IV)
makes a general assignment for the benefit of its creditors, or (V)
generally is not paying its debts as they become due; and
(viii) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that: (I) is for relief against the Company, the
Guarantor or any Significant Subsidiary in an involuntary case, (II)
appoints a Custodian of the Company, the Guarantor or any Significant
Subsidiary or for all or substantially all of the property of the Company,
the Guarantor or any Significant Subsidiary, or (III) orders the
liquidation of the Company, the Guarantor or any Significant Subsidiary,
and the order or decree remains unstayed and in effect for 60 days.
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar
Federal or state law for the relief of debtors. The term "Custodian" means any
receiver, trustee, assignee, liquidator or similar official under any Bankruptcy
Law.
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In the case of any Event of Default pursuant to paragraph (i) or
(ii) above occurring by reason of any willful action (or inactions) taken (or
not taken) by or on behalf of the Company with the intention of avoiding payment
of the premium that the Company would have to pay pursuant to a redemption of
Securities as described under Article Three, an equivalent premium shall also
become and be immediately, due and payable to the extent permitted by law.
SECTION 6.02. Acceleration.
If an Event of Default with respect to the Securities occurs and is
continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount of the outstanding Securities may declare the unpaid principal of and
accrued interest and Liquidated Damages, if any, to the date of acceleration on
all outstanding Securities to be due and payable immediately by notice in
writing to the Company (and to the Trustee if given by the Holders) specifying
the respective Event of Default and that it is a "notice of acceleration" (the
"Acceleration Notice") and, upon any such declaration, such principal amount and
accrued interest and Liquidated Damages, if any, notwithstanding anything
contained in this Indenture or the Securities to the contrary, shall become
immediately due and payable.
A Default or Event of Default under paragraph (vii) or (viii) will
result in the Securities automatically becoming due and payable without further
action or notice.
After a declaration of acceleration, but before a judgment or decree
of the money due in respect of the Securities has been obtained, the Holders of
not less than a majority in aggregate principal amount of the Securities then
outstanding by written notice to the Trustee may rescind an acceleration and its
consequences if all existing Events of Default (other than the nonpayment of
principal of and interest and Liquidated Damages, if any, on the Securities
which has become due solely by virtue of such acceleration) have been cured or
waived and if the rescission would not conflict with any judgment or decree. No
such rescission shall affect any subsequent Default or impair any right
consequent thereto.
SECTION 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or interest and Liquidated Damages, if any, on the
Securities or to enforce the performance of any provision of the Securities or
this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Securities or does not produce any of them in the proceeding. A delay
or omission by the Trustee or any Securityholder in exercising any right or
remedy maturing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
SECTION 6.04. Waiver of Past Default.
Subject to Sections 2.09, 6.07 and 10.02, prior to the declaration
of acceleration of the Securities, the Holders of not less than a majority in
aggregate principal amount of the outstanding Securities by written notice to
the Trustee may waive an existing Default or Event of Default and its
consequences, except a continuing Default in the payment of principal of or
premium, if any, or interest or Liquidated Damages, if any, on any Security or a
Default in respect of any term or provision of this Indenture that may not be
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amended or modified without the consent of each Holder affected as provided in
Section 10.02 (and except for any failure to pay any amount owing to the
Trustee, or waiver of any covenant or other provision for the personal
protection of the Trustee, without the Trustee's consent). The Company shall
deliver to the Trustee an Officers' Certificate stating that the requisite
percentage of Holders have consented to such waiver and attaching copies of such
consents. In case of any such waiver, the Company, the Trustee and the Holders
shall be restored to their former positions and rights hereunder and under the
Securities, respectively. This paragraph of this Section 6.04 shall be in lieu
of ss. 316(a)(1)(B) of the TIA and such ss. 316(a)(1)(B) of the TIA is hereby
expressly excluded from this Indenture and the Securities, as permitted by the
TIA.
Upon any such waiver, such Default shall cease to exist and be
deemed to have been cured and not to have occurred, and any Event of Default
arising therefrom shall be deemed to have been cured and not to have occurred
for every purpose of this Indenture and the Securities, but no such waiver shall
extend to any subsequent or other Default or Event of Default or impair any
right consequent thereon.
SECTION 6.05. Control by Majority.
Subject to Section 2.09, the Holders of a majority in principal
amount of the outstanding Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on it. However, the Trustee may refuse to follow
any direction that conflicts with law or this Indenture, that the Trustee
determines may be unduly prejudicial to the rights of another Securityholder, or
that may involve the Trustee in personal liability; provided, however, that the
Trustee may take any other action deemed proper by the Trustee which is not
inconsistent with such direction. In the event the Trustee takes any action or
follows any direction pursuant to this Indenture, the Trustee shall be entitled
to indemnification satisfactory to it in its sole discretion against any loss or
expense caused by taking such action or following such direction. This Section
6.05 shall be in lieu of ss. 316(a)(l)(A) of the TIA, and such ss. 316(a)(1)(A)
of the TIA is hereby expressly excluded from this Indenture and the Securities,
as permitted by the TIA.
SECTION 6.06. Limitation on Suits.
A Securityholder may not pursue any remedy with respect to this
Indenture or the Securities unless:
(i) the Holder gives to the Trustee written notice of a continuing
Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of
the outstanding Securities make a written request to the Trustee to pursue
a remedy;
(iii) such Holder or Holders offer and, if requested, provide to the
Trustee indemnity satisfactory to the Trustee against any loss, liability
or expense;
(iv) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the
provision of indemnity; and
(v) during such 60-day period the Holders of a majority in principal
amount of the outstanding Securities do not give the Trustee a direction
which, in the opinion of the Trustee, is inconsistent with the request.
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A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over such other
Securityholder.
SECTION 6.07. Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder to receive payment of principal of or interest or Liquidated Damages, if
any, on a Security, on or after the respective due dates expressed in the
Security, or to bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent of
the Holder.
SECTION 6.08. Collection Suit by Trustee.
If an Event of Default in payment of principal or premium, if any, or
interest or Liquidated Damages, if any, specified in Section 6.0 1(i) or (ii)
occurs and is continuing, the Trustee may recover judgment in its own name and
as trustee of an express trust against the Company or the Guarantor or any other
obligor on the Securities for the whole amount of principal and premium, if any,
and accrued interest remaining unpaid, and Liquidated Damages, if any, together
with interest overdue on principal and to the extent that payment of such
interest is lawful, interest on overdue installments of interest, in each case
at the rate per annum borne by the Securities and such further amount as shall
be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
SECTION 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or documents as
may be necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel) and the Securityholders
allowed in any judicial proceedings relative to the Company or the Guarantor (or
any other obligor upon the Securities), any of their respective creditors or any
of their respective property and shall be entitled and empowered to collect and
receive any monies or other property payable or deliverable on any such claims
and to distribute the same, and any Custodian in any such judicial proceedings
is hereby authorized by each Securityholder to make such payments to the
Trustee and, in the event that the Trustee shall consent to the making of such
payments directly to the Securityholders, to pay to the Trustee any amount due
to it for the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agent and counsel, and any other amounts due the Trustee under
Section 7.07. Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Securityholder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Securityholder in any such proceeding.
SECTION 6.10. Priorities.
If the Trustee collects any money or property pursuant to this Article
Six, subject to the proisions of Articles Eight and Twelve, it shall pay out the
money or property in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: to Holders for amounts due and unpaid on the Securities for
principal, premium, if any, or Liquidated Damages, if any, and interest,
ratably, without preference or priority of any kind,
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according to the amounts due and payable in the Securities for principal
and interest, respectively; and
Third: to the Company or, to the extent the Trustee collects any
amount from the Guarantor, to the Guarantor.
The Trustee, upon prior written notice to the Company, may fix a
record date and payment date for any payment to Securityholders pursuant to this
Section 6.10.
SECTION 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees and expenses, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section 6.11 shall not apply to a suit by the Trustee, a suit by
a Holder or group of Holders of more than 10% in aggregate principal amount of
the outstanding Securities, or to any suit instituted by any Holder for the
enforcement or the payment of the principal of or interest or premium or
Liquidated Damages, if any, on any Securities on or after the respective due
dates expressed in the Security.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.
(a) If a Default has occurred and is continuing, the Trustee shall
exercise such of the rights and powers vested in it by this Indenture and use
the same degree of care and skill in their exercise as a prudent Person would
exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of a Default:
(1) The Trustee shall not be liable except for the performance
of such duties as are specifically set forth herein; and
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions
conforming to the requirements of this Indenture; however, in the case of
any such certificates or opinions which by any provision hereof are
specifically required to be furnished to the Trustee, the Trustee shall
examine such certificates and opinions to determine whether or not they
conform to the requirements of this Indenture.
(c) The Trustee shall not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
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(1) This paragraph does not limit the effect of paragraph (b)
of this Section 7.01;
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(3) The Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or to take or omit to take
any action under this Indenture or take any action at the request or
direction of Holders if it shall have reasonable grounds for believing
that repayment of such funds is not assured to it or it does not receive
from such Holders an indemnity satisfactory to it in its sole discretion
against such risk, liability, loss, fee or expense which might be incurred
by it in compliance with such request or direction.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.02. Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate and/or an Opinion of Counsel, which shall conform
to the provisions of Section 13.05. The Trustee shall not be liable for
any action it takes or omits to take in good faith in reliance on such
Officers Certificate or Opinion of Counsel.
(c) The Trustee may act through attorneys and agents of its
selection and shall not be responsible for the misconduct or negligence of
any agent or attorney (other than an agent who is an employee of the
Trustee) appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it reasonably believes to be authorized or
within its rights or powers.
(e) The Trustee may consult with counsel and the advice or opinion
of such counsel as to matters of law shall be full and complete
authorization and protection from liability in respect of any action
taken, omitted or suffered by it hereunder in good faith and in accordance
with the advice or opinion of such counsel.
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(f) Any request or direction of the Company mentioned herein shall
be sufficiently evidenced by a Company Request or Company Order and any
request or direction of the Guarantor mentioned herein shall be
sufficiently evidenced if signed by an officer of the Guarantor.
(g) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or
direction of any of the Securityholders pursuant to this Indenture, unless
such Securityholders shall have offered to the Trustee reasonable security
or indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction.
(h) The Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, security, other evidence of indebtedness or other paper
or document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and
premises of the Company or the Guarantor, personally or by agent or
attorney.
(i) The Trustee shall not be deemed to have notice of any Event of
Default unless a Trust Officer of the Trustee has actual knowledge thereof
or unless the Trustee shall have received written notice thereof at the
Corporate Trust Office of the Trustee, and such notice references the
Securities and this Indenture.
(j) Permissive rights or powers available to the Trustee hereunder
shall not be assumed to be mandatory duties or obligations.
SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company or its
Affiliates with the same rights it would have if it were not Trustee, subject to
Section 7.10 hereof. Any Agent may do the same with like rights. However, the
Trustee is subject to Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Securities, it shall not
be accountable for the Company's use of the proceeds from the Securities, and it
shall not be responsible for any statement of the Company or the Guarantor in
this Indenture or any document issued in connection with the sale of Securities
or any statement in the Securities other than the Trustee's certificate of
authentication.
SECTION 7.05. Notice of Defaults.
The Company shall deliver to the Trustee annually a statement
regarding compliance with this Indenture and, upon an Officer of the Company
becoming aware of any Default or Event of Default, a statement specifying such
Default or Event of Default. If a Default or an Event of Default occurs and is
continuing and the Trustee knows of such Default or Event of Default, the
Trustee shall mail to each Securityholder notice of the Default or Event of
Default within 90 days after the occurrence thereof. Except in the case
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of a Default or an Event of Default in payment of principal of or premium, if
any, or interest or Liquidated Damages, if any, on any Security or a Default or
Event of Default in complying with Section 5.01 hereof, the Trustee may withhold
the notice if and so long as a committee of its Trust Officers in good faith
determines that withholding the notice is in the interest of Securityholders.
This Section 7.05 shall be in lieu of the proviso to ss 315(b) of the TIA and
such proviso to ss 315(b) of the TIA is hereby expressly excluded from this
Indenture and the Securities, as permitted by the TIA.
SECTION 7.06. Reports by Trustee to Holders.
If required by TIA ss 313(a), within 60 days after each May 15
beginning with the May 15 following the date of this Indenture, the Trustee
shall mail to each Securityholder a report dated as of such May 15 that complies
with TIA ss 313(a). The Trustee also shall comply with TIA ss 313(b), (c) and
(d).
A copy of each such report at the time of its mailing to
Securityholders shall be filed with the Commission and each stock exchange, if
any, on which the Securities are listed.
The Company shall promptly notify the Trustee in writing if the
Securities become listed on any stock exchange or of any delisting thereof.
SECTION 7.07. Compensation and Indemnity.
The Company and the Guarantor jointly and severally shall pay to the
Trustee from time to time such compensation as the Company and the Trustee shall
from time to time agree in writing for its services. The Trustee's compensation
shall not be limited by any law on compensation of a trustee of an express
trust. The Company and the Guarantor shall reimburse the Trustee upon request
for all reasonable disbursements, expenses and advances (including fees,
disbursements and expenses of its agents and counsel) incurred or made by it in
addition to the compensation for its services except any such disbursements,
expenses and advances as may be attributable to the Trustee's negligence or bad
faith. Such expenses shall include the reasonable compensation, disbursements
and expenses of the Trustee's agents, accountants, experts and counsel and any
taxes or other expenses incurred by a trust created pursuant to Section 9.01
hereof.
The Company and the Guarantor jointly and severally shall indemnify
the Trustee for, and hold it harmless against any and all loss, damage, claims,
liability or expense, including taxes (other than franchise taxes imposed on the
Trustee and taxes based upon, measured by or determined by the income of the
Trustee), arising out of or in connection with the acceptance or administration
of the trust or trusts hereunder, including the costs and expenses of defending
itself against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder, except to the extent that
such loss, damage, claim, liability or expense is due to its own negligence or
bad faith. The Trustee shall notify the Company promptly of any claim asserted
against the Trustee for which it may seek indemnity. However, the failure by the
Trustee to so notify the Company shall not relieve the Company or the Guarantor
of their respective obligations hereunder. The Company and the Guarantor shall
defend the claim and the Trustee shall cooperate in the defense (and may employ
its own counsel) at the Company's and the Guarantor's expense; provided,
however, that the Company's and the Guarantor's reimbursement obligation with
respect to counsel employed by the Trustee will be limited to the reasonable
fees and expenses of such counsel.
The Company and the Guarantor need not pay for any settlement made
without their written consent, which consent shall not be unreasonably withheld.
The Company and the Guarantor need not reim-
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burse any expense or indemnify against any loss or liability incurred by the
Trustee as a result of the violation of this Indenture by the Trustee.
To secure the Company's and the Guarantor's payment obligations in
this Section 7.07, the Trustee shall have a Lien prior to the Securities against
all money or property held or collected by the Trustee, in its capacity as
Trustee, except money or property held in trust to pay principal of or premium,
if any, or interest or Liquidated Damages, if any, on particular Securities or
the purchase price or redemption price of any Securities to be purchased
pursuant to an Asset Sale Offer or Change of Control Offer or redeemed.
When the Trustee incurs expenses or renders services after an Event
of Default specified in Section 6.01 (vii) or (viii) occurs, the expenses
(including the reasonable fees and expenses of its agents and counsel) and the
compensation for the services shall be preferred over the status of the Holders
in a proceeding under any Bankruptcy Law and are intended to constitute expenses
of administration under any Bankruptcy Law. The Company's and the Guarantor's
obligations under this Section 7.07 and any claim arising hereunder shall
survive the resignation or removal of any Trustee, the discharge of the
Company's and the Guarantor's obligations pursuant to Article Nine and any
rejection or termination under any Bankruptcy Law.
SECTION 7.08. Replacement of Trustee.
The Trustee may resign at any time by so notifying the Company in
writing. The Holders of a majority in principal amount of the outstanding
Securities may remove the Trustee by so notifying the Trustee and the Company in
writing and may appoint a successor Trustee with the Company's consent. The
Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent under any
Bankruptcy Law;
(3) a custodian or other public officer takes charge of the
Trustee or its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the Securities may appoint a successor
Trustee to replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. As promptly as
practicable after that, the retiring Trustee shall transfer, after payment of
all sums then owing to the Trustee pursuant to Section 7.07, all property held
by it as Trustee to the successor Trustee, subject to the Lien provided in
Section 7.07, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee shall have the rights, powers and duties of
the Trustee under this Indenture. A successor Trustee shall mail notice of its
succession to each Securityholder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the out-
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standing Securities may petition, at the expense of the Company, any court of
competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's and the Guarantor's obligations under Section 7.07 shall
continue for the benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation or banking corporation, the resulting, surviving or transferee
corporation or banking corporation without any further act shall be the
successor Trustee.
SECTION 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee which shall be eligible
to act as Trustee under TIA ss.ss. 310(a)(1) and 310(a)(2). The Trustee shall
have a combined capital and surplus of at least $50,000,000 as set forth in its
most recent published annual report of condition. If the Trustee has or shall
acquire any "conflicting interest" within the meaning of TIA ss. 310(b), the
Trustee and the Company shall comply with the provisions of TIA ss. 310(b);
provided, however, that there shall be excluded from the operation of TIA ss.
310(b)(1) any indenture or indentures under which other securities or
certificates of interest or participation in other securities of the Company are
outstanding if the requirements for such exclusion set forth in TIA ss.
3l0(b)(1) are met. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section 7.10, the Trustee shall resign
immediately in the manner and with the effect hereinbefore specified in this
Article Seven.
SECTION 7.11. Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated therein.
ARTICLE EIGHT
SUBORDINATION OF SECURITIES
SECTION 8.01. Securities Subordinated to Senior Indebtedness.
The Company and the Guarantor covenant and agree, and the Trustee
and each Holder of the Securities by his acceptance thereof likewise covenant
and agree, that all Securities shall be issued subject to the provisions of this
Article Eight; and each person holding any Security, whether upon original issue
or upon transfer, assignment or exchange thereof, accepts and agrees that all
payments of the principal of and interest and Liquidated Damages, if any, on the
Securities by the Company or the Guarantor shall, to the extent and in the
manner set forth in this Article Eight, be subordinated and junior in right of
payment to the prior payment
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in full in cash of all amounts payable under Senior Indebtedness, whether
outstanding on the date of the Indenture or thereafter incurred.
SECTION 8.02. No Payment on Securities in Certain Circumstances.
(a) No direct or indirect payment by or on behalf of the Company of
principal of or interest and Liquidated Damages, if any, on the Securities,
whether pursuant to the terms of the Securities, upon acceleration, pursuant to
an Asset Sale Offer or Change of Control Offer or otherwise, shall be made to
the Holders of Securities and instead shall be made to the Holders of Senior
Indebtedness (except that Holders of Securities may receive payments made from
the defeasance trust described under Section 9.04) if (i) a default in the
payment of the principal of or premium, if any, or interest on Senior
Indebtedness occurs and is continuing beyond any applicable period of grace or
(ii) any other default occurs and is continuing with respect to Designated
Senior Indebtedness that permits holders of the Designated Senior Indebtedness
as to which such default relates to accelerate its maturity and the Trustee
receives a written notice (with a copy to the Company) of such other default (a
"Payment Blockage Notice") from the Company or the holders of any Designated
Senior Indebtedness until all Obligations with respect to Senior indebtedness
are paid in full; payments on the Securities shall be resumed (a) in the case of
a payment default, upon the date on which such default is cured or waived and
(b) in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which the
applicable Payment Blockage Notice is received by the Trustee (such period being
referred to herein as the "Payment Brokerage Period"), unless the maturity of
any Designated Senior Indebtedness has been accelerated (and written notice of
such acceleration has been received by the Trustee). No nonpayment default that
existed or was continuing on the date of delivery of any Payment Blockage Notice
to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice (it being understood that any subsequent action, or any breach of any
covenant for a period commencing after the date of receipt by the Trustee of
such Payment Blockage Notice, that, in either case, would give rise to such a
default pursuant to any provisions under which a default previously existed or
was continuing shall constitute a new default for this purpose).
Notwithstanding anything herein or in the Securities to the
contrary, (x) in no event shall a Payment Blockage Period extend beyond 179 days
from the date the Payment Blockage Notice in respect thereof was given, (y)
there shall be a period of at least 181 consecutive days in each 360-day period
when no Payment Blockage Period is in effect and (z) not more than one Payment
Blockage Period may be commenced with respect to the Securities during any
period of 360 consecutive days. No event of default that existed or was
continuing on the date of commencement of any Payment Blockage Period with
respect to the Designated Senior Indebtedness initiating such Payment Blockage
Period (to the extent the holder of Designated Senior Indebtedness, or trustee
or agent, giving notice commencing such Payment Blockage Period had knowledge of
such existing or continuing event of default) may be, or be made, the basis for
the commencement of any other Payment Blockage Period by the holder or holders
of such Designated Senior Indebtedness or the trustee or agent acting on behalf
of the holders of such Designated Senior Indebtedness, whether or not within a
period of 360 consecutive days, unless such event of default has been cured or
waived for a period of not less than 90 consecutive days.
(b) In the event that, notwithstanding the foregoing, any payment
shall be received by the Trustee or any Holder when such payment is prohibited
by Section 8.02(a), such payment shall be held in trust for the benefit of, and
shall be paid over or delivered to, the holders of Designated Senior
Indebtedness or their respective representatives, or to the trustee or trustees
under any indenture pursuant to which any of such Designated Senior Indebtedness
may have been issued, as their respective interests may appear, but only to the
extent that, upon notice from the Trustee to the holders of Designated Senior
indebtedness that such prohibited
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payment has been made, the holders of the Designated Senior Indebtedness (or
their representative or representatives or a trustee) notify the Trustee in
writing of the amounts then due and owing on the Designated Senior Indebtedness,
if any, and only the amounts specified in such notice to the Trustee shall be
paid to the holders of Designated Senior Indebtedness.
SECTION 8.03. Payment Over of Proceeds upon Dissolution, etc.
(a) Upon any payment or distribution of assets or securities of the
Company of any kind or character, whether in cash, property or securities, upon
any dissolution or winding-up or liquidation or reorganization of the Company,
whether voluntary or involuntary or in bankruptcy, insolvency, receivership or
other similar proceedings, an assignment for the benefit of creditors or any
marshaling of the Company's assets, the holders of Senior Indebtedness shall be
entitled to receive payment in full in cash of all Obligations due in respect of
such Senior Indebtedness (including interest after the commencement of any
proceeding at the rate specified in the applicable Senior Indebtedness) before
the Holders of the Securities or the Trustee on behalf of such Holders shall be
entitled to receive any payment by the Company of the principal of or interest
or Liquidated Damages, if any, on the Securities, or any payment by the Company
to acquire any of the Securities for cash, property or securities, or any
distribution with respect to the Securities of any cash, property or securities.
Before any payment may be made by, or on behalf of, the Company of the principal
of or interest or Liquidated Damages, if any, on the Securities upon any such
dissolution or winding-up or liquidation or reorganization, any payment or
distribution of assets or securities of the Company of any kind or character,
whether in cash, property or securities, to which the Holders of the Securities
or the Trustee on their behalf would be entitled, but for the subordination
provisions of this Indenture, shall be made by the Company or by any receiver,
trustee in bankruptcy, liquidating trustee, agent or other Person making such
payment or distribution, directly to the holders of the Senior Indebtedness (pro
rata to such holders on the basis of the respective amounts of Senior
Indebtedness held by such holders) or their representatives or to the trustee or
trustees or agent or agents under any agreement or indenture pursuant to which
any of such Senior Indebtedness may have been issued, as their respective
interests may appear, to the extent necessary to pay all such Senior
Indebtedness in full in cash after giving effect to any prior or concurrent
payment, distribution or provision therefor to or for the holders of such Senior
Indebtedness.
(b) In the event that, notwithstanding the foregoing provision
prohibiting such payment or distribution, any payment or distribution of assets
or securities of the Company of any kind or character, whether in cash, property
or securities, shall be received by the Trustee or any Holder of Securities at a
time when such payment or distribution is prohibited by Section 8.03(a) and
before all obligations in respect of Senior Indebtedness are paid in full in
cash, or payment provided for, such payment or distribution shall be received
and held in trust for the benefit of, and shall be paid over or delivered to,
the holders of Senior Indebtedness (pro rata to such holders on the basis of the
respective amounts of Senior Indebtedness held by such holders) or their
respective representatives, or to the trustee or trustees or agent or agents
under any indenture pursuant to which any of such Senior Indebtedness may have
been issued, as their respective interests may appear, for application to the
payment of Senior Indebtedness remaining unpaid until all such Senior
Indebtedness has been paid in full in cash after giving effect to any prior or
concurrent payment, distribution or provision therefor to or for the holders of
such Senior Indebtedness.
The consolidation of the Company with, or the merger of the Company
with or into, another corporation or the liquidation or dissolution of the
Company following the conveyance or transfer of its property as an entirety, or
substantially as an entirety, to another corporation upon the terms and
conditions provided in Article Five shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the pur-
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poses of this Section 8.03 if such other corporation shall, as a part of such
consolidation, merger, conveyance or transfer, comply with the conditions stated
in Article Five.
SECTION 8.04. Subrogation.
Upon the payment in full in cash of all Senior Indebtedness, or
provision for payment, the Holders of the Securities shall be subrogated to the
rights of the holders of Senior Indebtedness to receive payments or
distributions of cash, property or securities of the Company made on such Senior
Indebtedness until the principal of and interest and Liquidated Damages, if any,
on the Securities shall be paid in full in cash; and, for the purposes of such
subrogation, no payments or distributions to the holders of the Senior
Indebtedness of any cash, property or securities to which the Holders of the
Securities or the Trustee on their behalf would be entitled except for the
provisions of this Article Eight, and no payment over pursuant to the provisions
of this Article Eight to the holders of Senior Indebtedness by Holders of the
Securities or the Trustee on their behalf shall, as between the Company, its
creditors other than holders of Senior Indebtedness, and the Holders of the
Securities, be deemed to be a payment by the Company to or on account of the
Senior Indebtedness. It is understood that the provisions of this Article Eight
are and are intended solely for the purpose of defining the relative rights of
the Holders of the Securities, on the one hand, and the holders of the Senior
Indebtedness, on the other hand.
If any payment or distribution to which the Holders of the
Securities would otherwise have been entitled but for the provisions of this
Article Eight shall have been applied, pursuant to the provisions of this
Article Eight, to the payment of all amounts payable under Senior Indebtedness,
then and in such case, the Holders of the Securities shall be entitled to
receive from the holders of such Senior Indebtedness any payments or
distributions received by such holders of Senior Indebtedness in excess of the
amount required to make payment in full, or provision for payment, of such
Senior Indebtedness.
SECTION 8.05. Obligations of Company Unconditional.
Nothing contained in this Article Eight or elsewhere in this
Indenture or in the Securities is intended to or shall impair, as between the
Company and the Holders of the Securities, the obligation of the Company, which
is absolute and unconditional, to pay to the Holders of the Securities the
principal of and interest and Liquidated Damages, if any, on the Securities as
and when the same shall become due and payable in accordance with their terms,
or is intended to or shall affect the relative rights of the Holders of the
Securities and creditors of the Company other than the holders of the Senior
Indebtedness, nor shall anything herein or therein prevent the Holder of any
Security or the Trustee on their behalf from exercising all remedies otherwise
permitted by applicable law upon default under this Indenture, subject to the
rights, if any, under this Article Eight of the holders of the Senior
Indebtedness in respect of cash, property or securities of the Company received
upon the exercise of any such remedy.
Without limiting the generality of the foregoing, nothing contained
in this Article Eight shall restrict the right of the Trustee or the Holders of
Securities to take any action to declare the Securities to be due and payable
prior to their stated maturity pursuant to Section 6.01 or to pursue any rights
or remedies hereunder; provided, however, that all Senior Indebtedness then due
and payable shall first be paid in full before the Holders of the Securities or
the Trustee are entitled to receive any direct or indirect payment from the
Company of principal of or interest or Liquidated Damages, if any, on the
Securities.
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SECTION 8.06. Notice to Trustee.
The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment to or
by the Trustee in respect of the Securities pursuant to the provisions of this
Article Eight. The Trustee shall not be charged with knowledge of the existence
of any event of default with respect to any Senior Indebtedness or of any other
facts which would prohibit the making of any payment to or by the Trustee unless
and until the Trustee shall have received notice in writing at its Corporate
Trust Office to that effect signed by an Officer of the Company, or by a holder
of Senior Indebtedness or trustee or agent therefor; and prior to the receipt of
any such written notice, the Trustee shall, subject to Article Seven, be
entitled to assume that no such facts exist; provided that if the Trustee shall
not have received the notice provided for in this Section 8.06 at least two
Business Days prior to the date upon which by the terms of this Indenture any
moneys shall become payable for any purpose (including, without limitation, the
payment of the principal of or interest or Liquidated Damages, if any, on any
Security), then, regardless of anything herein to the contrary, the Trustee
shall have full power and authority to receive any moneys from the Company and
to apply the same to the purpose for which they were received, and shall not be
affected by any notice to the contrary which may be received by it on or after
such prior date. Nothing contained in this Section 8.06 shall limit the right of
the holders of Senior Indebtedness to recover payments as contemplated by
Section 8.03. The Trustee shall be entitled to rely on the delivery to it of a
written notice by a Person representing himself or itself to be a holder of any
Senior Indebtedness (or a trustee on behalf of, or other representative of, such
holder) to establish that such notice has been given by a holder of such Senior
Indebtedness or a trustee or representative on behalf of any such holder.
In the event that the Trustee determines in good faith that any
evidence is required with respect to the right of any Person as a holder of
Senior Indebtedness to participate in any payment or distribution pursuant to
this Article Eight, the Trustee may request such Person to furnish evidence to
the reasonable satisfaction of the Trustee as to the amount of Senior
Indebtedness held by such Person, the extent to which such Person is entitled to
participate in such payment or distribution and any other facts pertinent to the
rights of such Person under this Article Eight, and if such evidence is not
furnished, the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment.
SECTION 8.07. Reliance on Judicial Order or Certificate of Liquidating Agent.
Upon any payment or distribution of assets or securities referred to
in this Article Eight, the Trustee and the Holders of the Securities shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction in which bankruptcy, dissolution, winding-up, liquidation or
reorganization proceedings are pending, or upon a certificate of the receiver,
trustee in bankruptcy, liquidating trustee, agent or other person making such
payment or distribution, delivered to the Trustee or to the Holders of the
Securities for the purpose of ascertaining the Persons entitled to participate
in such distribution, the holders of the Senior Indebtedness and other
Indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Article Eight.
SECTION 8.08. Trustee's Relation to Senior Indebtedness
The Trustee and any Paying Agent shall be entitled to all the rights
set forth in this Article Eight with respect to any Senior Indebtedness which
may at any time be held by it in its individual or any other capacity to the
same extent as any other holder of Senior Indebtedness, and nothing in this
Indenture shall deprive the Trustee or any Paying Agent of any of its rights as
such holder.
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With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article Eight, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness (except as provided in
Section 8.03(b)). The Trustee shall not be liable to any such holders if the
Trustee shall in good faith mistakenly pay over or distribute to Holders of
Securities or to the Company or to any other person cash, property or securities
to which any holders of Senior Indebtedness shall be entitled by virtue of this
Article Eight or otherwise.
SECTION 8.09. Subordination Rights Not Impaired by Acts or Omissions of the
Company or Holders of Senior Indebtedness.
No right of any present or future holders of any Senior Indebtedness
to enforce subordination as provided herein shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms of this Indenture, regardless of any
knowledge thereof which any such holder may have or otherwise be charged with.
The provisions of this Article Eight are intended to be for the benefit of, and
shall be enforceable directly by, the holders of Senior Indebtedness.
SECTION 8.10. Securityholders Authorize Trustee to Effectuate Subordination of
Securities.
Each Holder of Securities by his acceptance of such Securities
authorizes and expressly directs the Trustee on its or his behalf to take such
action as may be necessary or appropriate to effectuate the subordination
provided in this Article Eight, and appoints the Trustee its or his
attorney-in-fact for such purposes, including, in the event of any dissolution,
winding-up, liquidation or reorganization of the Company (whether in bankruptcy,
insolvency, receivership, reorganization or similar proceedings or upon an
assignment for the benefit of creditors or otherwise) tending towards
liquidation of the business and assets of the Company, the filing of a claim for
the unpaid balance of its or his Securities in the form required in those
proceedings.
SECTION 8.11. This Article Not to Prevent Events of Default.
The failure to make a payment on account of principal of or interest
or Liquidated Damages, if any, on the Securities by reason of any provision of
this Article Eight shall not be construed as preventing the occurrence of an
Event of Default specified in clause (i) or (ii) of Section 6.01.
SECTION 8.12. Trustee's Compensation Not Prejudiced.
Nothing in this Article Eight shall apply to amounts due to the
Trustee pursuant to other sections in this Indenture.
SECTION 8.13. No Waiver of Subordination Provisions.
Without in any way limiting the generality of Section 8.09, the
holders of Senior Indebtedness may, at any time and from time to time, without
the consent of or notice to the Trustee or the Holders of the Securities,
without incurring responsibility to the Holders of the Securities and without
impairing or releasing the subordination provided in this Article Eight or the
obligations hereunder of the Holders of the Securities to the holders of Senior
Indebtedness, do any one or more of the following: (a) change the manner,
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place or terms of payment or extend the time of payment of, or renew or alter,
Senior Indebtedness or any instrument evidencing the same or any agreement under
which Senior Indebtedness is outstanding or secured; (b) sell, exchange, release
or otherwise deal with any property pledged, mortgaged or otherwise securing
Senior Indebtedness; (c) release any Person liable in any manner for the
collection of Senior Indebtedness; and (d) exercise or refrain from exercising
any rights against the Company and any other Person.
SECTION 8.14. Subordination Provisions Not Applicable to Collateral Held in
Trust for Securityholders; Payments May Be Paid Prior to
Dissolution.
All money and United States Government Obligations deposited in
trust with the Trustee pursuant to and in accordance with Article Nine shall be
for the sole benefit of the Holders and shall not be subject to this Article
Eight.
Nothing contained in this Article Eight or elsewhere in this
Indenture shall prevent (i) the Company, except under the conditions described
in Section 8.02, from making payments of principal of and interest and
Liquidated Damages, if any, on the Securities, or from depositing with the
Trustee any moneys for such payments or from effecting a termination of the
Company's and the Guarantor's obligations under the Securities and this
Indenture as provided in Article Nine, or (ii) the application by the Trustee of
any moneys deposited with it for the purpose of making such payments of
principal of and interest and Liquidated Damages, if any, on the Securities, to
the Holders entitled thereto unless at least two Business Days prior to the date
upon which such payment becomes due and payable, the Trustee shall have received
the written notice provided for in Section 8.02(b) or in Section 8.06. The
Company shall give prompt written notice to the Trustee of any dissolution,
winding-up, liquidation or reorganization of the Company.
SECTION 8.15. Acceleration of Securities.
If payment of the Securities is accelerated because of an Event of
Default, the Company shall promptly notify holders of the Senior Indebtedness of
the acceleration.
ARTICLE NINE
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 9.01. Discharge of Indenture.
The Company and the Guarantor may terminate their Obligations under
the Securities, the Guarantee and this Indenture, except the obligations
referred to in the last paragraph of this Section 9.01, if there shall have been
cancelled by the Trustee or delivered to the Trustee for cancellation all
Securities theretofore authenticated and delivered (other than any Securities
that are asserted to have been destroyed, lost or stolen and that shall have
been replaced as provided in Section 2.07) and the Company has paid all sums
payable by it hereunder or deposited all required sums with the Trustee.
After such delivery the Trustee upon request shall acknowledge in
writing the discharge of the Company's and the Guarantor's Obligations under the
Securities, the Guarantee and this Indenture except for those surviving
obligations specified below.
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Notwithstanding the satisfaction and discharge of this Indenture,
the obligations of the Company and the Guarantor in Sections 7.07, 9.05 and 9.06
hereof shall survive.
SECTION 9.02. Legal Defeasance.
The Company may at its option, by resolution of the Board of
Directors, be discharged from its Obligations with respect to the Securities and
the Guarantor discharged from its Obligations under the Guarantee on the date
the conditions set forth in Section 9.04 below are satisfied (hereinafter, the
"Legal Defeasance Option"). For this purpose, exercise of such Legal Defeasance
Option means that the Company shall be deemed to have paid and discharged the
entire indebtedness represented by the Securities and to have satisfied all its
other Obligations under such Securities and this Indenture insofar as such
Securities are concerned (and the Trustee, at the expense of the Company, shall,
subject to Section 9.06 hereof, execute proper instruments acknowledging the
same), except for the following which shall survive until otherwise terminated
or discharged hereunder: (A) the rights of Holders of outstanding Securities to
receive solely from the trust funds described in Section 9.04 hereof and as more
fully set forth in such Section, payments in respect of the principal of and
premium, if any, and interest and Liquidated Damages, if any, on such Securities
when such payments are due, (B) the Company's obligations with respect to such
Securities under Sections 2.03, 2.04 and 2.07, (C) the rights, powers, trusts,
duties, and immunities of the Trustee hereunder (including claims of, or
payments to, the Trustee under or pursuant to Section 7.07 hereof) and (D) this
Article Nine. Subject to compliance with this Article Nine, the Company may
exercise its Legal Defeasance Option under this Section 9.02 with respect to the
Securities notwithstanding the prior exercise of its option under Section 9.03
below with respect to the Securities. If the Company exercises its Legal
Defeasance Option, payment of the Securities may not be accelerated because of
an Event of Default with respect thereto.
SECTION 9.03. Covenant Defeasance.
At the option of the Company, pursuant to a resolution of the Board
of Directors, the Company and the Guarantor shall be released from their
respective Obligations under Sections 4.03 through 4.06 and Sections 4.14
through 4.20, clauses (iii) and (iv) of paragraph (a) of Section 5.01, and
paragraphs (iii), (iv), (v) and (vi) of Section 6.01, with respect to the
outstanding Securities on and after the date the conditions set forth in Section
9.04 hereof are satisfied (hereinafter, "Covenant Defeasance Option"). For this
purpose, exercise of such Covenant Defeasance Option means that the Company and
the Guarantor may omit to comply with and shall have no liability in respect of
any term, condition or limitation set forth in any such specified Section or
portion thereof, whether directly or indirectly by reason of any reference
elsewhere herein to any such specified Section or portion thereof or by reason
of any reference in any such specified Section or portion thereof to any other
provision herein or in any other document, but the remainder of this Indenture
and the Securities shall be unaffected thereby. If the Company exercises the
Covenant Defeasance Option, payment of the Securities shall not be accelerated
because of an Event of Default specified in paragraphs (iii), (iv), (v) or (vi)
of Section 6.01 or because of the Company's failure to comply with clauses (iii)
and (iv) under paragraph (a) of Section 5.01.
SECTION 9.04. Conditions to Legal Defeasance or Covenant Defeasance.
The following shall be the conditions to application of Section 9.02
or Section 9.03 hereof to the outstanding Securities:
(1) the Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 7.10 who shall agree to comply with
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the provisions of this Article Nine applicable to it) as funds in trust
(the "defeasance trust") for the purpose of making the following payments,
specifically pledged as security for, and dedicated solely to, the benefit
of the Holders of the Securities, (A) money in an amount, or (B) U.S.
Government Obligations which through the scheduled payment of principal
and interest in respect thereof in accordance with their terms will
provide, not later than the due date of any payment, money in an amount,
or (C) a combination thereof, sufficient, in the opinion of a
nationally-recognized firm of independent public accountants expressed in
a written certification thereof delivered to the Trustee, to pay and
discharge, and which shall be applied by the Trustee (or other qualifying
trustee) to pay and discharge, the principal of and premium, if any, and
accrued interest and Liquidated Damages, if any, on the outstanding
Securities on the Final Maturity Date of such principal of or premium, if
any, or interest, and Liquidated Damages, if any, or on dates for payment
and redemption of such principal and premium, if any, and interest and
Liquidated Damages, if any, selected in accordance with the terms of this
Indenture and of the Securities;
(2) no Event of Default or Default with respect to the Securities
shall have occurred and be continuing on the date of such deposit, or
shall have occurred and be continuing at any time during the period ending
on the 91st day after the date of such deposit or, if longer, ending on
the day following the expiration of the longest preference period under
any Bankruptcy Law applicable to the Company in respect of such deposit
(it being understood that this condition shall not be deemed satisfied
until the expiration of such period);
(3) such Legal Defeasance Option or Covenant Defeasance Option shall
not cause the Trustee to have a conflicting interest for purposes of the
TIA with respect to any securities of the Company;
(4) such Legal Defeasance Option or Covenant Defeasance Option shall
not result in a breach or violation of, or constitute default under any
other agreement, including without limitation the Credit Agreement, or
instrument to which the Company is a party or by which it is bound;
(5) the Company shall have delivered to the Trustee an Opinion of
Counsel stating that, as a result of such Legal Defeasance Option or
Covenant Defeasance Option, neither the trust nor the Trustee will be
required to register as an investment company under the Investment Company
Act of 1940, as amended;
(6) in the case of an election under Section 9.02 above, the Company
shall have delivered to the Trustee an Opinion of Counsel stating that (i)
the Company has received from, or there has been published by, the
Internal Revenue Service a ruling to the effect that or (ii) there has
been a change in any applicable federal income tax law with the effect
that, and such opinion shall confirm that, the Holders of the outstanding
Securities or Persons in their positions will not recognize income, gain
or loss for federal income tax purposes solely as a result of such deposit
in the defeasance trust or the exercise of the Legal Defeasance Option and
will be subject to federal income tax on the same amount, in the same
manner and at the same times as would have been the case if such deposit
in the defeasance trust or the exercise of the Legal Defeasance Option had
not occurred;
(7) in the case of an election under Section 9.03 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel to the
effect that the Holders of the outstanding Securities or Persons in their
positions will not recognize income, gain or loss for federal income tax
purposes solely as a result of such deposit in the defeasance trust or the
exercise of the Covenant Defeasance
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Option and will be subject to federal income tax on the same amount, in
the same manner and at the same times as would have been the case if such
deposit in the defeasance trust or the exercise of the Covenant Defeasance
Option had not occurred;
(8) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the Legal Defeasance Option
under Section 9.02 or the Covenant Defeasance Option under Section 9.03
(as the case may be) have been complied with;
(9) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit under clause (1) was not made by the
Company with the intent of defeating, hindering, delaying or defrauding
any creditors of the Company or others; and
(10) the Company shall have paid or duly provided for payment under
terms mutually satisfactory to the Company and the Trustee all amounts
then due to the Trustee pursuant to Section 7.07 hereof.
SECTION 9.05. Deposited Money and U.S. Government Obligations to Be Held in
Trust; Other Miscellaneous Provisions.
All money and U.S. Government Obligations (including the proceeds
thereof) deposited with the Trustee pursuant to Section 9.04 hereof in respect
of the outstanding Securities shall be held in trust and applied by the Trustee,
in accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any Paying Agent as the Trustee may
determine, to the Holders of such Securities, of all sums due and to become due
thereon in respect of principal, premium, if any, accrued interest and
Liquidated Damages, if any, but such money need not be segregated from other
funds except to the extent required by law.
The Company and the Guarantor shall pay and indemnify the Trustee
against any tax, fee or other charge imposed on or assessed against the U.S.
Government Obligations deposited pursuant to Section 9.04 hereof or the
principal, premium, if any, and interest received in respect thereof other than
any such tax, fee or other charge which by law is for the account of the Holders
of the outstanding Securities.
Anything in this Article Nine to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 9.04 which, in the opinion of a nationally-recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent Legal Defeasance Option or
Covenant Defeasance Option.
SECTION 9.06. Reinstatement.
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with Section 9.01, 9.02 or 9.03 by reason
of any legal proceeding or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, the Company's and the Guarantor's Obligations under this Indenture,
the Securities and the Guarantee shall be revived and reinstated as though no
deposit had occurred pursuant to this Article Nine until such time as the
Trustee or Paying Agent is permitted to apply all such money or U.S. Government
Obligations in
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accordance with Section 9.01; provided, however, that if the Company or the
Guarantor has made any payment of principal of, premium, if any, accrued
interest or Liquidated Damages, if any, on any Securities because of the
reinstatement of their Obligations, the Company or the Guarantor, as the case
may be, shall be subrogated to the rights of the Holders of such Securities to
receive such payment from the money or U.S. Government Obligations held by the
Trustee or Paying Agent.
SECTION 9.07. Moneys Held by Paying Agent.
In connection with the satisfaction and discharge of this Indenture,
all moneys then held by any Paying Agent under the provisions of this Indenture
shall, upon demand of the Company, be paid to the Trustee, or if sufficient
moneys have been deposited pursuant to Section 9.01 hereof, to the Company (or,
if such moneys had been deposited by the Guarantor, to such Guarantor), and
thereupon such Paying Agent shall be released from all further liability with
respect to such moneys.
SECTION 9.08. Moneys Held by Trustee.
Any moneys deposited with the Trustee or any Paying Agent or then
held by the Company or the Guarantor in trust for the payment of the principal
of, or premium, if any, interest or Liquidated Damages, if any, on any Security
that are not applied but remain unclaimed by the Holder of such Security for two
years after the date upon which the principal of, or premium, if any, interest
or Liquidated Damages, if any, on such Security shall have respectively become
due and payable shall be repaid to the Company (or, if appropriate, the
Guarantor) upon Company Request, or if such moneys are then held by the Company
or the Guarantor in trust, such moneys shall be released from such trust; and
the Holder of such Security entitled to receive such payment shall thereafter,
as an unsecured general creditor, look only to the Company and the Guarantor for
the payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money shall thereupon cease; provided, however, that the
Trustee or any such Paying Agent, before being required to make any such
repayment, may, at the expense of the Company and the Guarantor, either mail to
each Securityholder affected, at the address shown in the Register, or cause to
be published once a week for two successive weeks, in a newspaper published in
the English language, customarily published each Business Day and of general
circulation in The City of New York, New York, a notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less than
30 days from the date of such mailing or publication, any unclaimed balance of
such moneys then remaining will be repaid to the Company or the Guarantor. After
payment to the Company or the Guarantor or the release of any money held in
trust by the Company or the Guarantor, as the case may be, Securityholders
entitled to the money must look only to the Company and the Guarantor for
payment as general creditors unless applicable abandoned property law designates
another Person.
ARTICLE TEN
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 10.01. Without Consent of Holders.
The Company and the Guarantor, when authorized by a resolution of
the Board of Directors and the board of directors of the Guarantor, and the
Trustee may amend or supplement this Indenture or the Securities without notice
to or consent of any Securityholder:
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(i) to cure any ambiguity, defect or inconsistency; provided,
however, that such amendment or supplement does not adversely affect the
rights of any Holder;
(ii) to provide for uncertificated Securities in addition to or in
place of Certificated Securities;
(iii) to provide for the assumption by a successor Person of the
obligations of the Company or the Guarantor to the Holders of Securities
under the Securities, this Indenture and the Registration Rights Agreement
in connection with any transaction complying with Article Five of this
Indenture;
(iv) to provide for a guarantee of payment of the Securities by any
Restricted Subsidiary pursuant to Section 4.20;
(v) to comply with any requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the TIA; or
(vi) to make any change that does not materially adversely affect
the legal rights of any Holder under this Indenture;
provided, however, that the Company has delivered to the Trustee an Opinion of
Counsel stating that such amendment or supplement complies with the provisions
of this Section 10.01.
SECTION 10.02. With Consent of Holders.
Subject to Section 6.07, the Company and the Guarantor, when
authorized by a resolution of the Boards of Directors and the board of directors
of the Guarantor, and the Trustee may amend or supplement this Indenture or the
Securities with the written consent of the Holders of at least a majority in
principal amount of the outstanding Securities. Subject to Section 6.07, the
Holders of a majority in principal amount of the outstanding Securities may
waive compliance by the Company or the Guarantor with any provision of this
Indenture or the Securities. However, without the consent of each Securityholder
affected, an amendment, supplement or waiver, including a waiver pursuant to
Section 6.04, may not:
(i) reduce the principal amount of any Securities whose Holders must
consent to an amendment to this Indenture or a waiver under this
Indenture;
(ii) reduce the rate on or change the interest payment time on any
Security or alter the redemption provisions with respect thereto (other
than the provisions relating to Section 4.05 and 4.14) or the price at
which the Company is required to offer to purchase the Securities;
(iii) reduce the principal of or change the fixed maturity of any
Security;
(iv) change currency of payment of the principal of or interest on
any Security;
(v) modify any provisions of Section 6.01 or 6.04 (other than to add
sections of this Indenture or the Securities subject thereto) or 6.07; and
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(vi) waive any default in the payment of the principal of, premium,
if any, or unpaid interest on, and Liquidated Damages, if any, with
respect to the Securities.
An amendment under this Section 10.02 may not make any change under
Article Eight, Article Nine, Article Eleven or Article Twelve hereof that
adversely affects in any material respect the rights of any holder of Senior
Indebtedness then outstanding unless the holders of such Senior Indebtedness (or
any representative thereof authorized to give a consent) shall have consented to
such change.
It shall not be necessary for the consent of the Holders under this
Section 10.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 10.02
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture.
SECTION 10.03. Compliance with Trust Indenture Act.
Every amendment to or supplement of this Indenture or the Securities
shall comply with the TIA as then in effect.
SECTION 10.04. Revocation and Effect of Consents.
Until an amendment or waiver becomes effective, a consent to it by a
Holder is a continuing consent by the Holder and every subsequent Holder of that
Security or portion of that Security that evidences the same debt as the
consenting Holder's Security, even if notation of the consent is not made on any
Security. Subject to the following paragraph, any such Holder or subsequent
Holder may revoke the consent as to such Holder's Security or portion of such
Security by notice to the Trustee or the Company received before the date on
which the Trustee receives an Officers' Certificate certifying that the Holders
of the requisite principal amount of Securities have consented (and not
theretofore revoked such consent) to the amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders of Securities entitled to consent to
any amendment, supplement or waiver. If a record date is fixed, then,
notwithstanding the last sentence of the immediately preceding paragraph, those
persons who were Holders of Securities at such record date (or their duly
designated proxies), and only those persons, shall be entitled to consent to
such amendment, supplement or waiver or to revoke any consent previously given,
whether or not such Persons continue to be Holders of such Securities after such
record date. No such consent shall be valid or effective for more than 90 days
after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder, unless it makes a change described in any of clauses
(i) through (vi) of Section 10.02. In that case the amendment, supplement or
waiver shall bind each Holder of a Security who has consented to it and every
subsequent Holder of a Security or portion of a Security that evidences the same
debt as the consenting Holder's Security.
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SECTION 10.05. Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms of a
Security, the Trustee may require the Holder of the Security to deliver it to
the Trustee. The Trustee may place an appropriate notation on the Security about
the changed terms and return it to the Holder. Alternatively, if the Company or
the Trustee so determines, the Company in exchange for the Security shall issue
and the Trustee shall authenticate a new Security that reflects the changed
terms. Failure to make the appropriate notation or issue a new Security shall
not affect the validity and effect of such amendment, supplement or waiver.
SECTION 10.06. Trustee to Sign Amendments, etc.
The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
any amendment, supplement or waiver authorized pursuant to this Article Ten is
authorized or permitted by this Indenture and that such amendment, supplement or
waiver constitutes the legal, valid and binding obligation of the Company and
the Guarantor, enforceable in accordance with its terms (subject to customary
exceptions). The Trustee may, but shall not be obligated to, execute any such
amendment, supplement or waiver which affects the Trustee's own rights, duties
or immunities under this Indenture or otherwise. In signing any amendment,
supplement or waiver, the Trustee shall be entitled to receive an indemnity
reasonably satisfactory to it.
ARTICLE ELEVEN
GUARANTEE
SECTION 11.01. Unconditional Guarantee.
The Guarantor hereby irrevocably and unconditionally guarantees to
each Holder of a Security authenticated by the Trustee and to the Trustee and
its successors and assigns that: the principal of and premium, if any, interest
or Liquidated Damages, if any, on the Securities will be promptly paid in full
when due, subject to any applicable grace period, whether on the Final Maturity
Date, by acceleration, call for redemption, upon a Change of Control Offer, upon
an Asset Sale Offer or otherwise, and interest on the overdue principal and
interest on any overdue interest on the Securities and expenses, indemnification
or otherwise, and all other obligations of the Company (all such obligations
guaranteed by the Guarantor being called herein the "Guaranteed Obligations"),
to the Holders or the Trustee hereunder or under the Securities will be promptly
paid in full or performed, all in accordance with the terms hereof and thereof;
subject, however, to the limitations set forth in Section 11.03. The Guarantor
hereby agrees that its obligations hereunder shall be unconditional and
continuing, irrespective of the validity, regularity or enforceability of the
Securities or this Indenture, the absence of any action to enforce the same, any
waiver or consent by any Holder of the Securities with respect to any provisions
hereof or thereof, the recovery of any judgment against the Company, any action
to enforce the same or any other circumstance which might otherwise constitute a
legal or equitable discharge or defense of the Guarantor and shall (a) remain in
full force and effect until payment in full of all the Guaranteed Obligations,
(b) be binding upon the Guarantor and its successors, transferees and assigns
and (c) inure to the benefit of and be enforceable by the Trustee, the Holders
of the Securities and their successors, transferees and assigns. The Guarantor
hereby waives diligence, presentment, demand of payment, filing of claims with a
court in the event of insolvency or bankruptcy of the Company, any right to
require a proceeding first against the Company, protest, notice and all demands
whatsoever and covenants that the Guarantee will
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not be discharged except by complete performance of the Guaranteed Obligations,
and this Guarantee. If any Holder or the Trustee is required by any court or
otherwise to return to the Company, the Guarantor, or any Custodian, trustee,
liquidator or other similar official acting in relation to the Company or the
Guarantor, any amount paid by the Company or the Guarantor to the Trustee or
such Holder, the Guarantee, to the extent theretofore discharged, shall be
reinstated in full force and effect. The Guarantor further agrees that, as
between the Guarantor, on the one hand, and the Holders and the Trustee, on the
other hand, (x) the maturity of the Guaranteed Obligations hereby may be
accelerated as provided in Article Six for the purpose of this Guarantee,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the Guaranteed Obligations, and (y) in the event of
any acceleration of the Guaranteed obligations as provided in Article Six, such
Guaranteed Obligations (whether or not due and payable) shall forthwith become
due and payable by the Guarantor for the purpose of this Guarantee.
SECTION 11.02. Severability.
In case any provision of this Guarantee shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
SECTION 11.03. Limitation of Guarantor's Liability.
The Guarantor and, by its acceptance of a Security issued hereunder,
each Holder and the Trustee hereby confirm that it is the intention of all such
parties that the guarantee by the Guarantor pursuant to its Guarantee not
constitute a fraudulent transfer or conveyance for purposes of any Bankruptcy
Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act
or any similar U.S. federal or state or other applicable law. To effectuate the
foregoing intention, the Holders and the Guarantor hereby irrevocably agree that
the obligations of the Guarantor under the Guarantee shall be limited to the
maximum amount as will, after giving effect to all other contingent and fixed
liabilities of the Guarantor, result in the obligations of the Guarantor under
the Guarantee not constituting such fraudulent transfer or conveyance.
SECTION 11.04. Subordination of Subrogation and Other Rights.
The Guarantor hereby agrees that any claim against the Company that
arises from the payment, performance or enforcement of the Guarantor's
obligations under the Guarantee or this Indenture, including, without
limitation, any right of subrogation, shall be subject and subordinate to, and
no payment with respect to any such claim of the Guarantor shall be made before,
the payment in full in cash of all outstanding Securities in accordance with the
provisions provided therefor in this Indenture.
SECTION 11.05. Delivery of Guarantee.
The delivery of any Security by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of the Guarantee
set forth in Section 11.01 on behalf of the Guarantor.
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ARTICLE TWELVE
SUBORDINATION OF GUARANTEE
SECTION 12.01. Guarantee Obligations Subordinated to Guarantor Senior
Indebtedness.
The Guarantor covenants and agrees, and the Trustee and each Holder
of the Securities by its or his acceptance thereof likewise covenants and
agrees, that the Guarantee shall be issued subject to the provisions of this
Article Twelve; and each person holding any Security, whether upon original
issue or upon transfer, assignment or exchange thereof, accepts and agrees that
all payments of the principal of and premium, if any, interest and Liquidated
Damages, if any, on the Securities pursuant to the Guarantee made by or on
behalf of the Guarantor shall, to the extent and in the manner set forth in this
Article Twelve, be subordinated and junior in right of payment to the prior
payment in full in cash of all amounts payable under Guarantor Senior
Indebtedness of the Guarantor.
SECTION 12.02. No Payment on Guarantee in Certain Circumstances.
(a) No direct or indirect payment by or on behalf of the Guarantor
of principal of or premium, if any, or interest or Liquidated Damages, if any,
on the Securities, whether pursuant to the Guaranteed Obligations, whether
pursuant to the terms of the Securities, upon acceleration, pursuant to an Asset
Sale Offer or Change of Control Offer or otherwise, shall be made to the holders
of Securities and instead shall be made to the holders of Guarantor Senior
Indebtedness (except that holders of Securities may receive payments made from
the defeasance trust described under Section 9.04) if (i) a default in the
payment of the principal of or premium, if any, or interest on Guarantor Senior
Indebtedness occurs and is continuing beyond any applicable period of grace or
(ii) any other default occurs and is continuing with respect to Designated
Guarantor Senior Indebtedness that permits holders of the Designated Guarantor
Senior Indebtedness as to which such default relates to accelerate its maturity
and the Trustee receives a written notice (with a copy to the Guarantor) of such
other default (a "Guarantor Payment Blockage Notice") from the Guarantor or the
holders of any Designated Guarantor Senior Indebtedness until all Obligations
with respect to such Designated Guarantor Senior Indebtedness are paid in full;
payments on the Securities shall be resumed (a) in the case of a payment
default, upon the date on which such default is cured or waived and (b) in case
of a nonpayment default, the earlier of the date on which such nonpayment
default is cured or waived or 179 days after the date on which the applicable
Guarantor Payment Blockage Notice is received by the Trustee (such period being
referred to herein as the "Guarantor Payment Blockage Period"), unless the
maturity of any Designated Guarantor Senior Indebtedness has been accelerated
(and written notice of such acceleration has been received by the Trustee). No
nonpayment default that existed or was continuing on the date of delivery of any
Guarantor Payment Blockage Notice to the Trustee shall be, or be made, the basis
for a subsequent Guarantor Payment Blockage Notice (it being understood that any
subsequent action, or any breach of any covenant for a period commencing after
the date of receipt by the Trustee of such Guarantor Payment Blockage Notice,
that, in either case, would give rise to such a default pursuant to any
provisions under which a default previously existed or was continuing shall
constitute a new default for this purpose).
Notwithstanding anything herein or in the Securities to the
contrary, (x) in no event shall a Guarantor Payment Blockage Period extend
beyond 179 days from the date the Guarantor Payment Blockage Notice in respect
thereof was given, (y) there shall be a period of at least 181 consecutive days
in each 360-day period when no Guarantor Payment Blockage Period is in effect
and (z) not more than one Guarantor Payment Blockage Period may be commenced
with respect to the Guarantor during any period of 360 con-
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secutive days. No event of default that existed or was continuing on the date of
commencement of any other Guarantor Payment Blockage Period with respect to the
Designated Guarantor Senior Indebtedness initiating such Guarantor Payment
Blockage Period (to the extent the holder of Designated Guarantor Senior
Indebtedness, or trustee or agent, giving notice commencing such Guarantor
Payment Blockage Period had knowledge of such existing or continuing event of
default) may be, or be made, the basis for the commencement of any other
Guarantor Payment Blockage Period by the holder or holders of such Designated
Guarantor Senior Indebtedness or the trustee or agent acting on behalf of such
Designated Guarantor Senior Indebtedness, whether or not within a period of 360
consecutive days, unless such event of default has been cured or waived for a
period of not less than 90 consecutive days.
(b) In the event that, notwithstanding the foregoing, any payment
shall be received by the Trustee or any Holder when such payment is prohibited
by Section 12.02(a), such payment shall be held in trust for the benefit of, and
shall be paid over or delivered to, the holders of such Designated Guarantor
Senior Indebtedness or their respective representatives, or to the trustee or
trustees under any indenture pursuant to which any of such Designated Guarantor
Senior Indebtedness may have been issued, as their respective interests may
appear, but only to the extent that, upon notice from the Trustee to the holders
of such Designated Guarantor Senior Indebtedness that such prohibited payment
has been made, the holders of such Designated Guarantor Senior Indebtedness (or
their representative or representatives or a trustee) notify the Trustee in
writing of the amounts then due and owing on such Designated Guarantor Senior
Indebtedness, if any, and only the amounts specified in such notice to the
Trustee shall be paid to the holders of such Designated Guarantor Senior
Indebtedness.
SECTION 12.03. Payment Over of Proceeds upon Dissolution, etc.
(a) Upon any payment or distribution of assets or securities of the
Guarantor of any kind or character, whether in cash, property or securities,
upon any dissolution or winding-up or liquidation or reorganization of the
Guarantor, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other similar proceedings, the holders of Guarantor Senior
Indebtedness shall be entitled to receive payment in full in cash of all
Obligations due in respect of such Guarantor Senior Indebtedness before the
Holders of the Securities or the Trustee on behalf of such Holders shall be
entitled to receive any payment by the Guarantor of the principal of or premium,
if any, and interest or Liquidated Damages, if any, on the Securities pursuant
to the Guarantee, or any payment to acquire any of the Securities for cash,
property or securities, or any distribution with respect to the Securities of
any cash, property or securities. Before any payment may be made by, or on
behalf of, the Guarantor of the principal of or premium, if any, and interest or
Liquidated Damages, if any, on the Securities upon any such dissolution or
winding-up or liquidation or reorganization, any payment or distribution of
assets or securities of the Guarantor of any kind or character, whether in cash,
property or securities, to which the Holders of the Securities or the Trustee on
their behalf would be entitled, but for the subordination provisions of this
Indenture, shall be made by the Guarantor or by any receiver, trustee in
bankruptcy, liquidating trustee, agent or other Person making such payment or
distribution, directly to the holders of the Guarantor Senior Indebtedness (pro
rata to such holders on the basis of the respective amounts of Guarantor Senior
Indebtedness held by such holders) or their representatives or to the trustee or
trustees or agent or agents under any agreement or indenture pursuant to which
any Guarantor Senior Indebtedness may have been issued, as their respective
interests may appear, to the extent necessary to pay all the Guarantor Senior
Indebtedness in full in cash after giving effect to any prior or concurrent
payment, distribution or provision therefor to or for the holders of Guarantor
Senior Indebtedness.
(b) In the event that, notwithstanding the foregoing provision
prohibiting such payment or distribution, any payment or distribution of assets
or securities of the Guarantor of any kind or character,
<PAGE> 83
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whether in cash, property or securities, shall be received by the Trustee or any
Holder of Securities at a time when such payment or distribution is prohibited
by Section 12.03(a) and before all Obligations in respect of the Guarantor
Senior Indebtedness are paid in full in cash, or payment provided for, such
payment or distribution shall be received and held in trust for the benefit of,
and shall be paid over or delivered to, the holders of the Guarantor Senior
Indebtedness (pro rata to such holders on the basis of the respective amounts of
Guarantor Senior Indebtedness held by such holders) or their respective
representatives, or to the trustee or trustees or agent or agents under any
indenture pursuant to which any of Guarantor Senior Indebtedness may have been
issued, as their respective interests may appear, for application to the payment
of the Guarantor Senior Indebtedness remaining unpaid until all Guarantor Senior
Indebtedness has been paid in full in cash after giving effect to any prior or
concurrent payment, distribution or provision therefor to or for the holders of
Guarantor Senior Indebtedness; provided that the Trustee shall be entitled to
receive from the holders of Guarantor Senior Indebtedness written notice of the
amounts owing on the Guarantor Senior Indebtedness.
The consolidation of the Guarantor with, or the merger of the
Guarantor with or into, another corporation or the liquidation or dissolution of
the Guarantor following the conveyance or transfer of its property as an
entirety, or substantially as an entirety, to another corporation upon the terms
and conditions provided in Article Five shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the purposes of this Section 12.03
if such other corporation shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in Article Five.
SECTION 12.04. Subrogation.
Upon the payment in full in cash of all Guarantor Senior
Indebtedness of the Guarantor, or provision for payment, the Holders of the
Securities shall be subrogated to the rights of the holders of Guarantor Senior
Indebtedness to receive payments or distributions of cash, property or
securities of the Guarantor made on Guarantor Senior Indebtedness until the
principal of and premium, if any, and interest and Liquidated Damages, if any,
on the Securities shall be paid in full in cash; and, for the purposes of such
subrogation, no payments or distributions to the holders of Guarantor Senior
Indebtedness of any cash, property or securities to which the Holders of the
Securities or the Trustee on their behalf would be entitled except for the
provisions of this Article Twelve, and no payment over pursuant to the
provisions of this Article Twelve to the holders of the Guarantor Senior
Indebtedness by Holders of the Securities or the Trustee on their behalf shall,
as between the Guarantor, its creditors other than holders of the Guarantor
Senior Indebtedness, and the Holders of the Securities, be deemed to be a
payment by the Guarantor to or on account of the Guarantor Senior Indebtedness.
It is understood that the provisions of this Article Twelve are and are intended
solely for the purpose of defining the relative rights of the Holders of the
Securities, on the one hand, and the holders of Guarantor Senior Indebtedness,
on the other hand.
If any payment or distribution to which the Holders of the
Securities would otherwise have been entitled but for the provisions of this
Article Twelve shall have been applied, pursuant to the provisions of this
Article Twelve, to the payment of all amounts payable under Guarantor Senior
Indebtedness, then and in such case, the Holders of the Securities shall be
entitled to receive from the holders of such Guarantor Senior Indebtedness any
payments or distributions received by such holders of Guarantor Senior
Indebtedness in excess of the amount required to make payment in full, or
provision for payment, of such Guarantor Senior Indebtedness.
<PAGE> 84
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SECTION 12.05. Obligations of Guarantor Unconditional.
Nothing contained in this Article Twelve or elsewhere in this
Indenture or in the Securities or the Guarantee is intended to or shall impair,
as between the Guarantor and the Holders of the Securities, the obligation of
the Guarantor, which is absolute and unconditional, to pay to the Holders of the
Securities the principal of and premium, if any, or interest and Liquidated
Damages, if any, on the Securities as and when the same shall become due and
payable in accordance with the terms of the Guarantee, or is intended to or
shall affect the relative rights of the Holders of the Securities and creditors
of the Guarantor other than the holders of Guarantor Senior Indebtedness, nor
shall anything herein or therein prevent the Holder of any Security or the
Trustee on their behalf from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, subject to the rights, if any,
under this Article Twelve of the holders of Guarantor Senior Indebtedness in
respect of cash, property or securities of the Guarantor received upon the
exercise of any such remedy.
Without limiting the generality of the foregoing, nothing contained
in this Article Twelve shall restrict the right of the Trustee or the Holders of
Securities to take any action to declare the Securities to be due and payable
prior to their stated maturity pursuant to Section 6.01 or to pursue any rights
or remedies hereunder; provided, however, that all Guarantor Senior Indebtedness
of the Guarantor then due and payable shall first be paid in full before the
Holders of the Securities or the Trustee are entitled to receive any direct or
indirect payment from such Guarantor of principal of or premium, if any, or
interest or Liquidated Damages, if any, on the Securities pursuant to such
Guarantor's Guarantee.
SECTION 12.06. Notice to Trustee.
The Company and the Guarantor shall give prompt written notice to
the Trustee of any fact known to the Company or the Guarantor which would
prohibit the making of any payment to or by the Trustee in respect of the
Securities pursuant to the provisions of this Article Twelve. The Trustee shall
not be charged with knowledge of the existence of any event of default with
respect to any Guarantor Senior Indebtedness or of any other facts which would
prohibit the making of any payment to or by the Trustee unless and until the
Trustee shall have received notice in writing at its Corporate Trust Office to
that effect signed by an Officer of the Company or the Guarantor, or by a holder
of Guarantor Senior Indebtedness or trustee or agent therefor; and prior to the
receipt of any such written notice, the Trustee shall, subject to Article Seven,
be entitled to assume that no such facts exist; provided that if the Trustee
shall not have received the notice provided for in this Section 12.06 at least
two Business Days prior to the date upon which by the terms of this Indenture
any moneys shall become payable for any purpose (including, without limitation,
the payment of the principal of or premium, if any, or interest or Liquidated
Damages, if any, on any Security), then, regardless of anything herein to the
contrary, the Trustee shall have full power and authority to receive any moneys
from the Guarantor and to apply the same to the purpose for which they were
received, and shall not be affected by any notice to the contrary which may be
received by it on or after such prior date. Nothing contained in this Section
12.06 shall limit the right of the holders of Guarantor Senior Indebtedness to
recover payments as contemplated by Section 12.03. The Trustee shall be entitled
to rely on the delivery to it of a written notice by a Person representing
himself or itself to be a holder of any Guarantor Senior Indebtedness (or a
trustee on behalf of, or other representative of, such holder) to establish that
such notice has been given by a holder of Guarantor Senior Indebtedness or a
trustee or representative on behalf of any such holder.
In the event that the Trustee determines in good faith that any
evidence is required with respect to the right of any Person as a holder of
Guarantor Senior Indebtedness to participate in any payment or distribution
pursuant to this Article Twelve, the Trustee may request such Person to furnish
evidence to the
<PAGE> 85
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reasonable satisfaction of the Trustee as to the amount of Guarantor Senior
Indebtedness held by such Person, the extent to which such Person is entitled to
participate in such payment or distribution and any other facts pertinent to the
rights of such Person under this Article Twelve, and if such evidence is not
furnished, the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment.
SECTION 12.07. Reliance on Judicial Order or Certificate of Liquidating Agent.
Upon any payment or distribution of assets or securities of the
Guarantor referred to in this Article Twelve, the Trustee and the Holders of the
Securities shall be entitled to rely upon any order or decree made by any court
of competent jurisdiction in which bankruptcy, dissolution, winding-up,
liquidation or reorganization proceedings are pending, or upon a certificate of
the receiver, trustee in bankruptcy, liquidating trustee, agent or other person
making such payment or distribution, delivered to the Trustee or to the Holders
of the Securities for the purpose of ascertaining the Persons entitled to
participate in such distribution, the holders of Guarantor Senior Indebtedness
and other Indebtedness of the Guarantor, the amount thereof or payable thereon,
the amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article Twelve.
SECTION 12.08. Trustee's Relation to Guarantor Senior Indebtedness.
The Trustee and any Paying Agent shall be entitled to all the rights
set forth in this Article Twelve with respect to any Guarantor Senior
Indebtedness which may at any time be held by it in its individual or any other
capacity to the same extent as any other holder of Guarantor Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee or any
Paying Agent of any of its rights as such holder.
With respect to the holders of Guarantor Senior Indebtedness, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article Twelve, and no implied
covenants or obligations with respect to the holders of Guarantor Senior
Indebtedness shall be read into this Indenture against the Trustee. The Trustee
shall not be deemed to owe any fiduciary duty to the holders of Guarantor Senior
Indebtedness (except as provided in Section 12.03(b)). The Trustee shall not be
liable to any such holders if the Trustee shall in good faith mistakenly pay
over or distribute to Holders of Securities or to the Company or to any other
person cash, property or securities to which any holders of Guarantor Senior
Indebtedness shall be entitled by virtue of this Article Twelve or otherwise.
SECTION 12.09. Subordination Rights Not Impaired by Acts or Omissions of the
Guarantor or Holders of Guarantor Senior Indebtedness.
No right of any present or future holders of any Guarantor Senior
Indebtedness to enforce subordination as provided herein shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Guarantor or by any act or failure to act, in good faith, by any such
holder, or by any noncompliance by the Guarantor with the terms of this
Indenture, regardless of any knowledge thereof which any such holder may have or
otherwise be charged with. The provisions of this Article Twelve are intended to
be for the benefit of, and shall be enforceable directly by, the holders of
Guarantor Senior Indebtedness.
SECTION 12.10. Securityholders Authorize Trustee to Effectuate Subordination of
Guarantee.
Each Holder of Securities by its or his acceptance of such
Securities authorizes and expressly directs the trustee on its or his behalf to
take such action as may be necessary or appropriate to effectuate the
<PAGE> 86
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subordination provided in this Article Twelve, and appoints the Trustee its or
his attorney-in-fact for such purposes, including, in the event of any
dissolution, winding-up, liquidation or reorganization of the Guarantor (whether
in bankruptcy, insolvency, receivership, reorganization or similar proceedings
or upon an assignment for the benefit of creditors or otherwise) tending towards
liquidation of the business and assets of such Guarantor, the filing of a claim
for the unpaid balance of its or his Securities in the form required in those
proceedings.
SECTION 12.11. This Article Not to Prevent Events of Default.
The failure to make a payment on account of principal of or premium,
if any, or interest or Liquidated Damages, if any, on the Securities by reason
of any provision of this Article Twelve shall not be construed as preventing the
occurrence of an Event of Default specified in clauses (i) or (ii) of Section
6.01.
SECTION 12.12. Trustee's Compensation Not Prejudiced.
Nothing in this Article Twelve shall apply to amounts due to the
Trustee pursuant to other sections in this Indenture.
SECTION 12.13. No Waiver of Guarantee Subordination Provisions.
Without in any way limiting the generality of Section 12.09, the
holders of Guarantor Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article
Twelve or the obligations hereunder of the Holders of the Securities to the
holders of Guarantor Senior Indebtedness, do any one or more of the following:
(a) change the manner, place or terms of payment or extend the time of payment
of, or renew or alter, Guarantor Senior Indebtedness or any instrument
evidencing the same or any agreement under which Guarantor Senior Indebtedness
is outstanding or secured; (b) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing Guarantor Senior
Indebtedness; (c) release any Person liable in any manner for the collection of
Guarantor Senior Indebtedness; and (d) exercise or refrain from exercising any
rights against the Guarantor and any other Person.
SECTION 12.14. Payments May Be Paid Prior to Dissolution.
Nothing contained in this Article Twelve or elsewhere in this
Indenture shall prevent (i) the Guarantor, except under the conditions described
in Section 12.02, from making payments of principal of and premium, if any, and
interest and Liquidated Damages, if any, on the Securities, or from depositing
with the Trustee any moneys for such payments, or (ii) the application by the
Trustee of any moneys deposited with it for the purpose of making such payments
of principal of and premium, if any, and interest and Liquidated Damages, if
any, on the Securities, to the Holders entitled thereto unless at least two
Business Days prior to the date upon which such payment becomes due and payable,
the Trustee shall have received the written notice provided for in Section
12.02(b) or in Section 12.06. The Guarantor shall give prompt written notice to
the Trustee of any dissolution, winding-up, liquidation or reorganization of the
Guarantor.
<PAGE> 87
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ARTICLE THIRTEEN
MISCELLANEOUS
SECTION 13.01. Trust Indenture Act Controls.
This Indenture is subject to the provisions of the TIA that are
required to be a part of this Indenture, and shall, to the extent applicable, be
governed by such provisions. If any provision of this Indenture modifies any TIA
provision that may be so modified, such TIA provision shall be deemed to apply
to this Indenture as so modified. If any provision of this Indenture excludes
any TIA provision that may be so excluded, such TIA provision shall be excluded
from this Indenture.
The provisions of TIA ss.ss. 310 through 317 that impose duties on
any Person (including the provisions automatically deemed included unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
SECTION 13.02. Notices.
Any notice or communication shall be sufficiently given if in
writing and delivered in person, by facsimile and confirmed by overnight
courier, or mailed by first-class mail addressed as follows:
if to the Company or to the Guarantor:
Fedders Corporation
Westgate Corporate Center
505 Martinsville Road
P.O. Box 813
Liberty Corner, New Jersey 07938
Attention: Robert N. Edwards
Vice President and General Counsel
Facsimile: (908) 604-9317
Telephone: (908) 604-8686
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Mark C. Smith
Facsimile: (212) 735-2000
Telephone: (212) 735-3330
<PAGE> 88
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if to the Trustee:
State Street Bank and Trust Company
2 Avenue de Lafayette
Boston, Massachusetts 02111-1724
Attention: Corporate Trust Department
Facsimile: (617) 664-5374
Telephone: (617) 662-1726
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed, first-class, postage prepaid, to
a Holder including any notice delivered in connection with TIA ss. 310(b), TIA
ss. 313(c), TIA ss. 314(a) and TIA ss. 315(b), shall be mailed to it or him at
its or his address as set forth in the Register and shall be sufficiently given
to it or him if so mailed within the time prescribed. To the extent required by
the TIA, any notice or communication shall also be mailed to any Person
described in TIA ss. 313(c).
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. Except for a notice to the Trustee, which is deemed given only
when received, if a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 13.03. Communications by Holders with Other Holders.
Securityholders may communicate pursuant to TIA ss. 312(b) with
other Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and any other Person shall
have the protection of TIA ss. 312(c).
SECTION 13.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company or the Guarantor to
the Trustee to take or refrain from taking any action under this Indenture, the
Company or the Guarantor shall furnish to the Trustee at the request of the
Trustee:
(1) an Officers' Certificate in form and substance satisfactory to
the Trustee stating that, in the opinion of the signers, all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with; and
(2) an Opinion of Counsel in form and substance satisfactory to the
Trustee stating that, in the opinion of such counsel, all such conditions
precedent have been complied with.
SECTION 13.05. Statements Required in Certificate or Opinion.
Each Officers' Certificate or Opinion of Counsel with respect to
compliance with a condition or covenant provided for in this Indenture shall
include:
<PAGE> 89
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(1) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether or not, in the opinion of such person,
such condition or covenant has been complied with; provided, however, that
with respect to matters of fact an Opinion of Counsel may rely on an
Officers' Certificate or certificates of public officials.
SECTION 13.06. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules for action by or at a meeting
of Securityholders. The Paying Agent or Registrar may make reasonable rules for
its functions.
SECTION 13.07. Governing Law.
The laws of the State of New York shall govern this Indenture, the
Securities and the Guarantee without regard to principles of conflicts of law.
SECTION 13.08. No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the
Company or the Guarantor shall not have any liability for any Obligations of the
Company or the Guarantor under the Securities, the Guarantee or this Indenture
or for any claim based on, in respect of or by reason of such Obligations or
their creation. Each Securityholder by accepting a Security waives and releases
all such liability and such waiver and release is part of the consideration for
issuance of the Securities.
SECTION 13.09. Successors.
All agreements of the Company in this Indenture and the Securities
shall bind its successor. All agreements of the Guarantor in this Indenture and
the Guarantee shall bind its successor. All agreements of the Trustee in this
Indenture shall bind its successor.
SECTION 13.10. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 13.11. Severability.
In case any provision in this Indenture, in the Securities or in the
Guarantee shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby, and a Holder shall have no claim therefor against any party
hereto.
<PAGE> 90
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SECTION 13.12. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan
or debt agreement of the Company, the Guarantor or a Subsidiary. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.
SECTION 13.13. Legal Holidays.
If a payment date is a not a Business Day at a place of payment,
payment may be made at that place on the next succeeding Business Day, and no
interest shall accrue for the intervening period.
[Signature Pages Follow]
<PAGE> 91
S-1
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the date first written above.
FEDDERS NORTH AMERICA, INC.
By: /s/ Robert L. Laurent, Jr.
----------------------------------------
Name: Robert L. Laurent, Jr.
Title: Executive Vice President
FEDDERS CORPORATION,
as Guarantor
By: /s/ Robert L. Laurent, Jr.
----------------------------------------
Name: Robert L. Laurent, Jr.
Title: Executive Vice President
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By: /s/ Robert J Dunn
----------------------------------------
Name: Robert J Dunn
Title: Vice President
<PAGE> 92
EXHIBIT A
[FORM OF FACE OF SECURITY]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO
THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS GLOBAL SECURITY IS HELD BY THE DEPOSITARY (AS DEFINED IN THE
INDENTURE GOVERNING THIS SECURITY) OR ITS NOMINEE IN CUSTODY FOR THE
BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO
ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY
MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION
2.06 OF THE INDENTURE, (II) THIS GLOBAL SECURITY MAY BE EXCHANGED IN
WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE,
(III) THIS GLOBAL SECURITY MAY BE DELIVERED TO THE TRUSTEE FOR
CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS
GLOBAL SECURITY MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH
THE PRIOR WRITTEN CONSENT OF THE COMPANY. (1)
THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND
THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR DEFINITIVE
NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN).
NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S
TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE CASH PAYMENTS OF
INTEREST DURING THE PERIOD WHICH SUCH HOLDER HOLDS THIS NOTE.
NOTHING IN THIS LEG-
- ----------
(1) The preceding two paragraphs should be included only for the Global
Securities.
A-1
<PAGE> 93
END SHALL BE DEEMED TO PREVENT INTEREST FROM ACCRUING ON THIS
NOTE.(2)
THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE.
BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE
HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB")
OR (B) IT IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES
THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A)
TO FEDDERS NORTH AMERICA, INC. OR ANY OF ITS SUBSIDIARIES, (B) TO A
PERSON WHO THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR
ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING
THE REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION
MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT,
(D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (E) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN
OPINION OF COUNSEL ACCEPTABLE TO FEDDERS NORTH AMERICA, INC. OR
SUBJECT TO SUCH OTHER PROVISIONS SET FORTH IN THE INDENTURE RELATED
TO THIS NOTE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE
JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO
WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE
TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE MEANINGS
GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT.
THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE
TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE
FOREGOING.(3)
[FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED, AND THE RULES AND REGULATIONS
THEREUNDER, THIS SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE
DISCOUNT; FOR EACH $1,000 PRINCIPAL AMOUNT OF THIS SECURITY, (1) THE
ISSUE PRICE IS $953.04; (2) THE AMOUNT OF THE ORIGINAL
- ----------
(2) This paragraph should be included only for the Reg S Temporary Global
Securities.
(3) This paragraph should be included only for the Transfer Restricted
Securities.
A-2
<PAGE> 94
ISSUE DISCOUNT IS $46.96; (3) THE ISSUE DATE IS AUGUST 24, 1999; AND
(4) THE YIELD TO MATURITY IS 10.25% (COMPOUNDED SEMI-ANNUALLY).](4)
- ----------
(4) This paragraph should be included in the Series A Securities issued on
August 24, 1999 and any Securities issued in substitution or exchange
therefor. A similar paragraph, with such changes as are necessary, should
be included in any Additional Securities issued after August 24, 1999 and
any Securities issued in substitution or exchange therefor.
A-3
<PAGE> 95
FEDDERS NORTH AMERICA, INC.
9 3/8% Senior Subordinated Note
due August 15, 2007, [Series A][Series B]
CUSIP No:
No.[ ] $[ ]
FEDDERS NORTH AMERICA, INC., a Delaware corporation (the "Company",
which term includes any successor corporation), for value received promises to
pay to [ ] or registered assigns, the principal sum of [ ] Dollars,
on August 15, 2007.
Interest Payment Dates: February 15 and August 15, commencing on
[ ]
Interest Record Dates: February 1 and August 1.
Reference is made to the further provisions of this Security
contained herein, which will for all purposes have the same effect as if set
forth at this place.
IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officer.
FEDDERS NORTH AMERICA, INC.
By: ____________________________________
Name:
Title:
Attest: ________________________________
Name:
Title:
A-4
<PAGE> 96
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the 9 3/8% Senior Subordinated Notes due 2007,
[Series A], [Series B], described in the within-mentioned Indenture.
Dated:
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By:___________________________________
Authorized Signatory
A-5
<PAGE> 97
(REVERSE OF SECURITY)
FEDDERS NORTH AMERICA, INC.
9 3/8% Senior Subordinated Note
due August 15, 2007, [Series A][Series B]
1. Interest.
FEDDERS NORTH AMERICA, INC., a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Security at the rate
per annum shown above. Cash interest on the Securities will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from [ ]. The Company will pay interest semi-annually in arrears on each
Interest Payment Date, commencing [ ]. Interest will be computed on the
basis of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal from time to
time on demand at the rate borne by the Securities and on overdue installments
of interest (without regard to any applicable grace periods) to the extent
lawful.
2. Method of Payment.
The Company shall pay interest on the Securities (except defaulted
interest) to the Persons who are the registered Holders at the close of business
on the Interest Record Date immediately preceding the Interest Payment Date even
if the Securities are canceled on registration of transfer or registration of
exchange after such Interest Record Date. Holders must surrender Securities to a
Paying Agent to collect principal payments. The Company shall pay principal and
premium, if any, and interest and Liquidated Damages, if any, in money of the
United States that at the time of payment is legal tender for payment of public
and private debts ("U.S. Legal Tender"). However, the Company may pay principal
and premium, if any, and interest and Liquidated Damages, if any, by wire
transfer of Federal funds (provided that the Paying Agent shall have received
wire instructions on or prior to the relevant Interest Record Date), or interest
by check payable in such U.S. Legal Tender. The Company may deliver any such
interest payment to the Paying Agent or to a Holder at the Holder's registered
address.
3. Paying Agent and Registrar.
Initially, State Street Bank and Trust Company (the "Trustee") will
act as Paying Agent and Registrar. The Company may change any Paying Agent or
Registrar without notice to the Holders. The Company or any of its Subsidiaries
may, subject to certain exceptions, act as Registrar.
4. Indenture and Guarantees.
[This Security in one of a duly authorized issue of [Series A]
[Series B] Securities of the Company designated as its 9 3/8% Senior
Subordinated Notes due 2007.] The Company shall be entitled to issue Additional
Securities pursuant to Section 2.15 of the Indenture; provided that such
issuance is not prohibited by Section 4.04 of the Indenture. The Series A
Securities issued on August 24, 1999, any Additional Securities, and any Series
B Securities issued pursuant to the Indenture, are treated as a single class of
securities under the Indenture.
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<PAGE> 98
The Company issued the Securities under an Indenture, dated as of
August 24, 1999 (the "Indenture"), among the Company, Fedders Corporation, a
Delaware corporation and the sole stockholder of the Company (the "Guarantor"),
and the Trustee. Capitalized terms herein are used as defined in the Indenture
unless otherwise defined herein. The terms of the Securities include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) (the "TIA"), as in
effect on the date of the Indenture until such time as the Indenture is
qualified under the TIA, and thereafter as in effect on the date on which the
Indenture is qualified under the TIA. Notwithstanding anything to the contrary
herein, the Securities are subject to all such terms, and holders of Securities
are referred to the Indenture and the TIA for a statement of them. The
Securities are general obligations of the Company limited in aggregate principal
amount to $100,000,000, [of which only $50,000,000 are being initially issued on
August 24, 1999 in the form of Series A Securities].
5. [Registration Rights.
Pursuant to a Registration Rights Agreement among the Company, the
Guarantor and the Initial Purchaser of the Series A Securities, the Company and
the Guarantor will be obligated to consummate an exchange offer pursuant to
which the Holder of this Security shall have the right to exchange this Security
for 9 3/8% Senior Subordinated Notes due 2007, Series B, of the Company (the
"Series B Securities"), which have been registered under the Securities Act, in
like principal amount and having identical terms as the Series A Securities. The
Holders of Series A Securities shall be entitled to receive certain additional
payments in the event such exchange offer is not consummated and upon certain
other conditions, all pursuant to and in accordance with the terms of the
Registration Rights Agreement. The Series A Securities and the Series B
Securities are together referred to herein as the "Securities."](5)
[Exchange Offer.
The Series B Securities were issued pursuant to an Exchange Offer
pursuant to which 9 3/8% Senior Subordinated Notes due 2007, Series A, of the
Company (the "Series A Securities"), in like principal amount and having
substantially identical terms as the Series B Securities, were exchanged for the
Series B Securities. The Series A Securities and the Series B Securities are
together referred to herein as the "Securities."](6)
6. Optional Redemption.
The Securities will be redeemable at the option of the Company, in
whole or in part, at any time or from time to time, on or after August 15, 2002
at the redemption prices (expressed as a percentage of principal amount) set
forth below, plus accrued and unpaid interest and Liquidated Damages thereon, if
any, to the Redemption Date if redeemed during the twelve-month period
commencing on August 15 of the years set forth below:
- ----------
(5) This paragraph should only be included in Series A Securities.
(6) This paragraph should only be included in Series B Securities issued in
exchange for Series A Securities in an Exchange Offer.
A-7
<PAGE> 99
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2002 104.688%
2003 103.125%
2004 101.563%
2005 and thereafter 100.000%
</TABLE>
7. Optional Redemption upon Certain Equity Issuances.
At any time, or from time to time, prior to August 15, 2000, the
Company may redeem up to 30% of the originally issued principal amount of
Securities (including the aggregate principal amount of any Additional
Securities) at a redemption price equal to 109.375% of the principal amount of
the Securities so redeemed, plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the Redemption Date, with the net proceeds of one or
more Equity Offerings; provided, however, that at least 70% of the originally
issued principal amount of Securities (including the aggregate principal amount
of any Additional Securities) remains outstanding immediately after giving
effect to any such redemption and provided, further, that such redemption will
occur within 60 days of the date of the Closing of such Equity Offering.
8. Notice of Redemption.
Notice of redemption will be mailed by first-class mail at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Securities to be redeemed at its registered address. The Trustee may select for
redemption portions of the principal amount of Securities that have
denominations equal to or larger than $1,000 principal amount. Securities and
portions of them the Trustee so selects shall be in amounts of $1,000 principal
amount or integral multiples thereof.
If any Security is to be redeemed in part only, the notice of
redemption that relates to such Security shall state the portion of the
principal amount thereof to be redeemed. A new Security in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Security. On and after the Redemption
Date, interest will cease to accrue on Securities or portions thereof called for
redemption so long as the Company has deposited with the Paying Agent for the
Securities funds in satisfaction of the redemption price pursuant to the
Indenture.
9. Change of Control Offer.
Upon the occurrence of a Change of Control, the Company will be
required to offer to purchase all outstanding Securities at a purchase price
equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the Change of Control
Purchase Date.
10. Limitation on Disposition of Assets.
The Company is, subject to certain conditions, obligated to make an
offer to purchase Securities at a purchase price equal to 100% of the aggregate
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the Asset Sale Purchase Date.
11. Subordination.
The Indebtedness evidenced by the Securities is, to the extent and
in the manner provided in the Indenture, subordinated and subject in right
payment to the prior payment in full in cash of all Senior Indebtedness as
defined in the Indenture, and this Security is issued subject to such
provisions. Each Holder of this Security, by accepting the same, (a) agrees to
and shall be bound by such provisions, (b) authorizes and
A-8
<PAGE> 100
directs the Trustee, on behalf of such Holder, to take such action as may be
necessary or appropriate to effectuate the subordination as provided in the
Indenture and (c) appoints the Trustee attorney-in-fact of such Holder for such
purpose.
12. Denominations; Transfer; Exchange.
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer or exchange of Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer or
exchange of any Securities or portions thereof selected for redemption, except
the unredeemed portion of any security being redeemed in part. Also, it need not
exchange or register any transfer of any Notes for a period of 15 days before a
selection of Notes to be redeemed or during the period between an Interest
Record Date and the corresponding Interest Payment Date.
13. Persons Deemed Owners.
The registered Holder of a Security shall be treated as the owner of
it for all purposes.
14. Unclaimed Funds.
If funds for the payment of principal or premium, if any, or
interest or Liquidated Damages if any, remain unclaimed for two years, the
Trustee and the Paying Agent will repay the funds to the Company at its written
request. After that, all liability of the Trustee and such Paying Agent with
respect to such funds shall cease.
15. Legal Defeasance and Covenant Defeasance.
The Company and the Guarantor may be discharged from their
obligations under the Indenture, the Securities and the Guarantee except for
certain provisions thereof, and may be discharged from obligations to comply
with certain covenants contained in the Indenture, the Securities and the
Guarantee, in each case upon satisfaction of certain conditions specified in the
Indenture.
16. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture, the Securities and the
Guarantee may be amended or supplemented with the written consent of the Holders
of at least a majority in aggregate principal amount of the Securities then
outstanding, and any existing Default or Event of Default or compliance with an
provision may be waived with the consent of the Holders of a majority in
aggregate principal amount of the Securities then outstanding. Without notice to
or consent of any Holder, the parties thereto may amend or supplement the
Indenture, the Securities and the Guarantee to, among other things, cure any
ambiguity, defect or inconsistency, provide for uncertificated Securities in
addition to or in place of Certificated Securities or comply with any
requirements of the Commission in connection with the qualification of the
Indenture under the TIA, or make any other change that does not materially
adversely affect the rights of any Holder of a Security.
17. Restrictive Covenants.
The Indenture contains certain covenants that, among other things,
limit the ability of the Company and the Restricted Subsidiaries to make
Restricted Payments, to incur Indebtedness, to create Liens.
A-9
<PAGE> 101
to sell assets, to permit restrictions on dividends and other payments by
Restricted Subsidiaries to the Company, to consolidate, merge or sell all or
substantially all of its assets or to engage in transactions with Affiliates.
The limitations are subject to a number of important qualifications and
exceptions. The Company must annually report to the Trustee on compliance with
such limitations.
18. Defaults and Remedies.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately in
the manner and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture, the Securities or the Guarantee except as
provided in the Indenture. The Trustee is not obligated to enforce the
Indenture, the Securities or the Guarantee unless it has received indemnity
satisfactory to it. The Indenture permits, subject to certain limitations
therein provided, Holders of a majority in aggregate principal amount of the
Securities then outstanding to direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Holders of Securities notice of certain
continuing Defaults or Events of Default if it determines that withholding
notice is in their interest.
19. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company, its Subsidiaries or their respective Affiliates as if it were
not the Trustee.
20. No Recourse Against Others.
No stockholder, director, officer or employee of the Company shall
have any liability for any Obligation of the Company under the Securities or the
Indenture, or for any claim based on, in respect of, or by reason of, such
Obligations or their creation. Each Holder of a Security by accepting a Security
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Securities.
21. Authentication.
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on this Security.
22. Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A
(= Uniform Gifts to Minors Act).
23. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
A-10
<PAGE> 102
24. Governing Law.
The laws of the State of New York shall govern the Indenture, this
Security and the Guarantee without regard to principles of conflicts of laws.
A-11
<PAGE> 103
[FORM OF NOTATION ON SECURITY RELATING TO GUARANTEE]
SENIOR SUBORDINATED GUARANTEE
Fedders Corporation (the "Guarantor") has unconditionally and
irrevocably guaranteed on a senior subordinated basis (such guarantee being
referred to herein as the "Guarantee") (i) the due and punctual payment of the
principal of and interest or premium or Liquidated Damages, if any, on the
Securities; whether on the Final Maturity Date, by acceleration, call for
redemption, upon a Change of Control Offer, upon an Asset Sale Offer or
otherwise, the due and punctual payment of interest on the overdue principal and
interest, if any, on the Securities and expenses, indemnification or otherwise,
and the due and punctual performance of all other obligations of the Company to
the Holders or the Trustee all in accordance with the terms set forth in Article
Eleven and Article Twelve of the Indenture and (ii) in case of any extension of
time of payment or renewal of any Securities or any of such other obligations,
that the same will be promptly paid in full when due or performed in accordance
with the terms of the extension or renewal, whether at stated maturity, by
acceleration or otherwise.
The obligations of the Guarantor to the Holders and to the Trustee
pursuant to the Guarantee and the Indenture are expressly set forth and are
expressly subordinated and subject in right of payment to the prior payment in
full of all Guarantor Senior Indebtedness of the Guarantor, to the extent and in
the manner provided, in Article Eleven and Article Twelve of the Indenture, and
reference is hereby made to such Indenture for the precise terms of the
Guarantee therein made.
No director, officer, employee or stockholder, as such, of the
Guarantor shall have any liability under the Guarantee by reason of such
person's status as director, officer, employee or stockholder. Each holder of a
Security by accepting a Security waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the
Guarantee Indebtedness.
The Guarantee shall not be valid or obligatory for any purpose until
the certificate of authentication on the Securities upon which the Guarantee is
noted shall have been executed by the Trustee under the Indenture by the manual
signature of one of its authorized officers.
FEDDERS CORPORATION
By: _____________________________________
Name:
Title:
A-12
<PAGE> 104
ASSIGNMENT FORM
I or we assign and transfer this Security to
________________________________________________________________________________
________________________________________________________________________________
(Print or type name, address and zip code of assignee or transferee)
________________________________________________________________________________
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint_________________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Dated:___________________ Signed:______________________________________
(Signed exactly as name appears
on the other side of this Security)
Signature Guarantee: __________________________________________________________
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor
program reasonably acceptable to the Trustee)
A-13
<PAGE> 105
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.05 or Section 4.14 of the Indenture, check the appropriate
box:
Section 4.05 [ ]
Section 4.14 [ ]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.05 or Section 4.14 of the Indenture, state the
amount: $_____________
Dated:____________________ Your Signature:____________________________________
(Signed exactly as name appears
on the other side of this Security)
Signature Guarantee: ___________________________________________________________
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor
program reasonably acceptable to the Trustee)
A-14
<PAGE> 106
SCHEDULE OF EXCHANGES OF DEFINITIVE SECURITY(7)
The following exchanges of a part of this Global Security for
Definitive Securities have been made:
<TABLE>
<CAPTION>
Amount of Principal Amount Signature of
decrease in Amount of increase of this Global Security authorized officer
Principal Amount in Principal Amount following such of Trustee or Security
Date of Exchange of this Global Security of this Global Security decrease (or increase) Custodian
- ---------------- ----------------------- ----------------------- ---------------------- ---------
<S> <C> <C> <C> <C>
</TABLE>
- ----------
(7) This should be included only if the Security is issued in global form.
A-15
<PAGE> 107
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
Fedders North America, Inc.
Westgate Corporate Center
505 Martinsville Road
P.O. Box 813
Liberty Corner, NJ 07938
Attention: General Counsel
State Street Bank and Trust Company
2 Avenue de Lafayette
Boston, Massachusetts 02111-1724
Attention: Corporate Trust Department
Re: 9 3/8 % Senior Subordinated Notes due 2007
Ladies and Gentlemen:
Reference is hereby made to the Indenture, dated as of August 24,
1999 (the "Indenture"), among Fedders North America, Inc., as issuer (the
"Company"), the Guarantor party thereto and State Street Bank and Trust Company,
as trustee. Capitalized terms used but not defined herein shall have the
meanings given to them in the Indenture. ______________, (the "Transferor") owns
and proposes to transfer the Security[s] or interest in such Security[s]
specified in Annex A hereto, in the principal amount of $___________ in such
Security[s] or interests (the "Transfer"), to ___________ (the "Transferee"), as
further specified in Annex A hereto. In connection with the Transfer, the
Transferor hereby certifies that:
CHECK ALL THAT APPLY
1. |_| Check if Transferee will take delivery of (i) a beneficial interest in
the U.S. Global Security or (ii) a Definitive Security pursuant to Rule 144A.
The Transfer is being effected pursuant to and in accordance with Rule 144A
under the United States Securities Act of 1933, as amended (the "Securities
Act"), and, accordingly, the Transferor hereby further certifies that the
beneficial interest or Definitive Security is being transferred to a Person that
the Transferor reasonably believed and believes is purchasing the beneficial
interest or Definitive Security for its own account, or for one or more accounts
with respect to which such Person exercises sole investment discretion, and such
Person and each such account is a "qualified institutional buyer" within the
meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and
such Transfer is in compliance with any applicable blue sky securities laws of
any state of the United States. Upon consummation of the proposed Transfer in
accordance with the terms of the indenture, the transferred beneficial interest
or Definitive Security will be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the U.S. Global Security
and/or the Definitive Security and in the Indenture and the Securities Act.
2. |_| Check if Transferee will take delivery of (i) a beneficial interest in a
Reg S Global Security or (ii) a Definitive Security pursuant to Regulation S.
The Transfer is being effected pursuant to and in accordance with Rule 903 or
Rule 904 under the Securities Act and, accordingly, the Transferor hereby
further certifies
B-1
<PAGE> 108
that (i) the Transfer is not being made to a person in the United States and (x)
at the time the buy order was originated, the Transferee was outside the United
States or such Transferor and any Person acting on its behalf reasonably
believed and believes that the Transferee was outside the United States or (y)
the transaction was executed in, on or through the facilities of a designated
offshore securities market and neither such Transferor nor any Person acting on
its behalf knows that the transaction was prearranged with a buyer in the United
States, (ii) no directed selling efforts have been made in contravention of the
requirements of Rule 903(b) or Rule 904(b) of Regulation S under the Securities
Act, (iii) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act and (iv) if the proposed
transfer is being made prior to the expiration of the applicable Distribution
Compliance Period, the transfer is not being made to a U.S. Person or for the
account or benefit of a U.S. Person (other than an Initial Purchaser) and the
interest transferred will be held immediately thereafter through Euroclear or
Cedel. Upon consummation of the proposed transfer in accordance with the terms
of the Indenture, the transferred beneficial interest or Definitive Security
will be subject to the restrictions on Transfer enumerated in the Private
Placement Legend printed on the Reg S Global Security and/or the Definitive
Security and in the Indenture and the Securities Act.
3. |_| Check and complete if Transferee will take delivery of a beneficial
interest in a Definitive Security pursuant to any provision of the Securities
Act other than Rule 144A or Regulation S. The Transfer is being effected in
compliance with the transfer restrictions applicable to beneficial interests in
Restricted Global Securities and Restricted Definitive Securities and pursuant
to and in accordance with the Securities Act and any applicable blue sky
securities laws of any state of the United States, and accordingly the
Transferor hereby further certifies that (check one):
(a) |_| Such Transfer is being effected pursuant to and in accordance
with Rule 144 under the Securities Act; or
(b) |_| Such Transfer is being effected to the Company or a subsidiary
thereof; or
(c) |_| Such Transfer is being effected pursuant to an effective
registration statement under the Securities Act and in compliance with
the prospectus delivery requirements of the Securities Act; or
(d) |_| Such Transfer is being effected to an Institutional Accredited
Investor and pursuant to an exemption from the registration requirements
of the Securities Act other than Rule 144A, Rule 144 or Rule 904, and the
Transferor hereby further certifies that it has not engaged in any
general solicitation within the meaning of Regulation D under the
Securities Act and the Transfer complies with the transfer restrictions
applicable to beneficial interests in a Restricted Global Security or
Restricted Definitive Securities and the requirements of the exemption
claimed, which certification is supported by (1) a certificate executed
by the Transferee in a form of Exhibit D to the Indenture and (2) if such
Transfer is in respect of a principal amount of Securities at the time of
transfer of less than $250,000, an Opinion of Counsel provided by the
Transferor or the Transferee (a copy of which the Transferor has attached
to this certification and provided to the Company, which has confirmed
its acceptability), to the effect that such Transfer is in compliance
with the Securities Act. Upon consummation of the proposed transfer in
accordance with the terms of the Indenture, the Definitive Security will
be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Definitive Securities and in the
Indenture and the Securities Act.
4. |_| Check if Transferee will take delivery of a beneficial interest in an
Unrestricted Global Security or of an Unrestricted Definitive Security.
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<PAGE> 109
(a) |_| Check if Transfer is pursuant to Rule 144. (i) The Transfer is
being effected pursuant to and in accordance with Rule 144 under the
Securities Act and in compliance with the transfer restrictions contained
in the indenture and any applicable blue sky securities laws of any state
of the United States and (ii) the restrictions on transfer contained in
the Indenture and the Private Placement Legend are not required in order
to maintain compliance with the Securities Act. Upon consummation of the
proposed Transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Definitive Security will no longer be
subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Restricted Global Securities, on
Restricted Definitive Securities and in the indenture and the Securities
Act.
(b) |_| Check if Transfer is Pursuant to Regulation S. (i) The Transfer
is being effected pursuant to and in accordance with Rule 903 or Rule 904
under the Securities Act and in compliance with the transfer restrictions
contained in the Indenture and (ii) the restrictions on transfer
contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act. Upon
consummation of the proposed Transfer in accordance with the terms of the
Indenture, the transferred beneficial interest or Definitive Security
will no longer be subject to the restrictions on transfer enumerated in
the Private Placement Legend printed on the Restricted Global Securities
on Restricted Definitive Securities and in the Indenture and the
Securities Act.
(c) |_| Check if Transfer is Pursuant to Other Exemption. (i) The
Transfer is being effected pursuant to and in compliance with an
exemption from the registration requirements of the Securities Act other
than Rule 144, Rule 903 or Rule 904 and in compliance with the transfer
restrictions contained in the Indenture and any applicable blue sky
securities laws of any state of the United States and (ii) the
restrictions on transfer contained in the indenture and the Private
Placement Legend are not required in order to maintain compliance with
the Securities Act. Upon consummation of the proposed Transfer in
accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Security will not be subject to the restrictions
on transfer enumerated in the Private Placement Legend printed on the
Restricted Global Securities or Restricted Definitive Securities and in
the Indenture.
This certificate and the statements contained herein are made for your benefit
and the benefit of the Company and the Guarantor.
_____________________________________ Dated:_______________________________
[Insert Name of Transferor]
By: _________________________________
Name:
Title:
B-3
<PAGE> 110
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) |_| a beneficial interest in the:
(i) |_| U.S. Global Security (CUSIP 313139AD9), or
(ii) |_| Reg S Global Security (CUSIP U31334AB8), or
(b) |_| a Restricted Definitive Security.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) |_| a beneficial interest in the:
(i) |_| U.S. Global Security (CUSIP 313139AD9), or
(ii) |_| Reg S Global Security (CUSIP U31334AB8), or
(iii) |_| Unrestricted Global Security (CUSIP 313139AE7); or
(b) |_| a Restricted Definitive Security; or
(c) |_| an Unrestricted Definitive Security,
in accordance with the terms of the Indenture.
B-4
<PAGE> 111
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
Fedders North America, Inc.
Westgate Corporate Center
505 Martinsville Road
P.O. Box 813
Liberty Corner, NJ 07938
Attention: General Counsel
State Street Bank and Trust Company
2 Avenue de Lafayette
Boston, Massachusetts 02111-1724
Attention: Corporate Trust Department
Re: 9 3/8% Senior Subordinated Notes due 2007
Ladies and Gentlemen:
Reference is hereby made to the Indenture, dated as of August 24,
1999 (the "Indenture"), among Fedders North America, Inc., as issuer (the
"Company"), the Guarantor party thereto and State Street Bank and Trust Company,
as trustee. Capitalized terms used but not defined herein shall have the
meanings given to them in the Indenture.
_________________, (the "Owner") owns and proposes to exchange the
Security[s] or interest in such Security[s] specified herein, in the principal
amount of $____________ in such Security[s] or interests (the "Exchange"). In
connection with the Exchange, the Owner hereby certifies that:
1. Exchange of Restricted Definitive Securities or Beneficial Interests in a
Restricted Global Security for Unrestricted Definitive Securities or Beneficial
Interests in an Unrestricted Global Security
(a) |_| Check if Exchange is from beneficial interest in a Restricted
Global Security to beneficial interest in an Unrestricted Global Security.
In connection with the Exchange of the Owner's beneficial interest in a
Restricted Global Security for a beneficial interest in an Unrestricted
Global Security in an equal principal amount, the Owner hereby certifies
(i) the beneficial interest is being acquired for the Owner's own account
without transfer, (ii) such Exchange has been effected in compliance with
the transfer restrictions applicable to the Global Securities and pursuant
to and in accordance with the United States Securities Act of 1933, as
amended (the "Securities Act"), (iii) the restrictions on transfer
contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv)
the beneficial interest in an Unrestricted Global Security is being
acquired in compliance with any applicable blue sky securities laws of any
State of the United States.
C-1
<PAGE> 112
(b) |_| Check if Exchange is from beneficial interest in a Restricted
Global Security to Unrestricted Definitive Security. In connection with
the Exchange of the Owner's beneficial interest in a Restricted Global
Security for an Unrestricted Definitive Security, the Owner hereby
certifies (i) the Definitive Security is being acquired for the Owner's
own account without transfer, (ii) such Exchange has been effected in
compliance with the transfer restrictions applicable to the Restricted
Global Securities and pursuant to and in accordance with the Securities
Act, (iii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance
with the Securities Act and (iv) the Definitive Security is being acquired
in compliance with any applicable blue sky securities laws of any state of
the United States.
(c) |_| Check if Exchange is from Restricted Definitive Security to
beneficial interest in an Unrestricted Global Security. In connection with
the Owner's Exchange of a Restricted Definitive Security for a beneficial
interest in an Unrestricted Global Security the Owner hereby certifies (i)
the beneficial interest is being acquired for the Owner's own account
without transfer, (ii) such Exchange has been effected in compliance with
the transfer restrictions applicable to Restricted Definitive Securities
and pursuant to and in accordance with the Securities Act, (iii) the
restrictions on transfer contained in the Indenture and the Private
Placement Legend are not required in order to maintain compliance with the
Securities Act and (iv) the beneficial interest is being acquired in
compliance with any applicable blue sky securities laws of any state of
the United States.
(d) |_| Check if Exchange is from Restricted Definitive Security to
Unrestricted Definitive Security. In connection with the Owner's Exchange
of a Restricted Definitive Security for an Unrestricted Definitive
Security, the Owner hereby certifies (i) the Unrestricted Definitive
Security is being acquired for the Owner's own account without transfer,
(ii) such Exchange has been effected in compliance with the transfer
restrictions applicable to Restricted Definitive Securities and pursuant
to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are
not required in order to maintain compliance with the Securities Act and
(iv) the Unrestricted Definitive Security is being acquired in compliance
with any applicable blue sky securities laws of any state of the United
States.
2. Exchange of Restricted Definitive Securities or Beneficial Interests in
Restricted Global Securities for Restricted Definitive Securities or Beneficial
Interests in Restricted Global Securities
(a) |_| Check if Exchange is from beneficial interest in a Restricted
Global Security to Restricted Definitive Security. In connection with the
Exchange of the Owner's beneficial interest in a Restricted Global
Security for a Restricted Definitive Security with an equal principal
amount, the Owner hereby certifies that the Restricted Definitive Security
is being acquired for the Owner's own account without transfer. Upon
consummation of the proposed Exchange in accordance with the terms of the
Indenture, the Restricted Definitive Security issued will continue to be
subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Restricted Definitive Security and in the
Indenture and the Securities Act.
(b) |_| Check if Exchange is from Restricted Definitive Security to
beneficial interest in a Restricted Global Security. In connection with
the Exchange of the Owner's Restricted Definitive Secu-
C-2
<PAGE> 113
rity for a beneficial interest in a: [CHECK ONE] |_| U.S. Global Security
or |_| Reg S Global Security with an equal principal amount, the Owner
hereby certifies (i) the beneficial interest is being acquired for the
Owner's own account without transfer and (ii) such Exchange has been
effected in compliance with the transfer restrictions applicable to the
Restricted Global Securities and pursuant to and in accordance with the
Securities Act, and in compliance with any applicable blue sky securities
laws of any State of the United States. Upon consummation of the proposed
Exchange in accordance with the terms of the Indenture, the beneficial
interest issued will be subject to the restrictions on transfer enumerated
in the Private Placement Legend printed on the relevant Restricted Global
Security and in the Indenture and the Securities Act.
This certificate and the statements contained herein are made for
your benefit and the benefit of the Company and the Guarantor.
___________________________________
[Insert Name of Owner]
By:________________________________
Name:
Title:
Date:______________________________
C-3
<PAGE> 114
EXHIBIT D
FORM OF CERTIFICATE FROM ACQUIRING
INSTITUTIONAL ACCREDITED INVESTOR
Fedders North America, Inc.
Westgate Corporate Center
505 Martinsville Road
P.O. Box 813
Liberty Corner, NJ 07938
Attention: General Counsel
State Street Bank and Trust Company
2 Avenue de Lafayette
Boston, Massachusetts 02111-1724
Attention: Corporate Trust Department
Re: 9 3/8% Senior Subordinated Notes due 2007
Ladies and Gentlemen:
Reference is hereby made to the Indenture, dated as of August 24,
1999 (the "Indenture"), among Fedders North America, Inc., as issuer (the
"Company"), the Guarantor party thereto and State Street Bank and Trust Company,
as trustee. Capitalized terms used but not defined herein shall have the
meanings given to them in the Indenture.
In connection with our proposed purchase of $__________ aggregate
principal amount of: (a) a beneficial interest in a Global Security, or (b) a
Definitive Security, we confirm that:
1. We understand that any subsequent transfer of the Securities or
any interest therein is subject to certain restrictions and conditions set forth
in the Indenture and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Securities or any interest therein except in
compliance with, such restrictions and conditions and the United States
Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Securities have not
been registered under the Securities Act, and that the Securities and any
interest therein may not be offered or sold except as permitted in the following
sentence. We agree, on our own behalf and on behalf of any accounts for which we
are acting as hereinafter stated, that if we should sell the Securities or any
interest therein, we will do so only (A) to the Company or any subsidiary
thereof, (B) in accordance with Rule 144A under the Securities Act to a
"qualified institutional buyer" (as defined therein), (C) outside the United
States in accordance with Rule 903 or Rule 904 of Regulation S under the
Securities Act, (D) pursuant to the provisions of Rule 144 under the Securities
Act, (E) in accordance with another exemption from the registration requirements
of the Securities Act (and based upon an Opinion of Counsel acceptable to the
Company or subject to such other provisions set forth in the Indenture related
to the Securities) or (F) pursuant to an effective registration statement under
the Securities Act, and we further agree to provide to any person purchasing the
Definitive Security from us in a transaction meeting the requirements of clauses
(A) through (E) of this paragraph a notice advising such purchaser that resales
thereof are restricted as stated herein.
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<PAGE> 115
3. We understand that, on any proposed resale of the Securities or
beneficial interest therein, we will be required to furnish to you such
certifications, legal opinions and other information as you may reasonably
require to confirm that the proposed sale complies with the foregoing
restrictions. We further understand that the Securities purchased by us will
bear a legend to the foregoing effect.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Securities, and we
and any accounts for which we are acting are each able to bear the economic risk
of our or its investment.
5. We are acquiring the Securities or beneficial interest therein
purchased by us for our own account or for one or more accounts (each of which
is an institutional "accredited investor") as to each of which we exercise sole
investment discretion.
D-2
<PAGE> 116
You are entitled to rely upon this letter and are irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceedings or official inquiry with respect to the
matters covered hereby.
___________________________________ Dated: _________________________, ______
[Insert Name of Accredited Investor]
By:________________________________
Name:
Title:
D-3
<PAGE> 1
Exhibit 4.3
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of August 24, 1999
by and among
FEDDERS NORTH AMERICA, INC.
FEDDERS CORPORATION
as Guarantor
and
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
================================================================================
<PAGE> 2
This Registration Rights Agreement (this "Agreement") is made and
entered into as of August 24, 1999, by and among Fedders North America, Inc., a
Delaware corporation (the "Company"), Fedders Corporation, a Delaware
corporation (the "Guarantor"), and Donaldson, Lufkin and Jenrette Securities
Corporation (the "Initial Purchaser"). The Initial Purchaser has agreed to
purchase the Company's 9 3/8% Senior Subordinated Notes due 2007 (the "Series A
Notes") pursuant to the Purchase Agreement (as defined below):
This Agreement is made pursuant to the Purchase Agreement, dated
August 19, 1999 (the "Purchase Agreement"), by and among the Company, the
Guarantor and the Initial Purchaser. In order to induce the Initial Purchaser to
purchase the Series A Notes, the Company has agreed to provide the registration
rights set forth in this Agreement. The execution and delivery of this Agreement
is a condition to the obligations of the Initial Purchaser set forth in Section
3 of the Purchase Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall
have the following meanings:
Act: The Securities Act of 1933, as amended.
Advice: As defined in Section 6(d) hereof.
Business Day: Any day except a Saturday, Sunday or other day in the
City of New York, or in the city of the corporate trust office of the Trustee,
on which banks are authorized to close.
Broker-Dealer: Any broker or dealer registered under the Exchange
Act.
Broker-Dealer Transfer Restricted Securities: Exchange Notes that
are acquired by a Broker-Dealer in the Exchange Offer in exchange for Series A
Notes that such Broker-Dealer acquired for its own account as a result of market
making activities or other trading activities (other than Series A Notes
acquired directly from the Company or any of its affi1iates).
Certificated Securities: As defined in the Indenture.
Closing Date: The date hereof.
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<PAGE> 3
Commission: The Securities and Exchange Commission.
Consummate: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Exchange Notes to be issued in the Exchange Offer, (b) the
maintenance of such Registration Statement continuously effective and the
keeping of the Exchange Offer open for a period not less than the minimum period
required pursuant to Section 3(b) hereof and (c) the delivery by the Company to
the Registrar of Exchange Notes in the same aggregate principal amount as the
aggregate principal amount of Series A Notes tendered by Holders thereof
pursuant to the Exchange Offer.
Damages Payment Date: With respect to the Series A Notes, each
Interest Payment Date.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Notes: The Company's 9 3/8% Senior Subordinated Notes due
2007 to be issued pursuant to the Indenture (i) in the Exchange Offer or (ii)
upon the request of any Holder of Series A Notes covered by a Shelf Registration
Statement, in exchange for such Series A Notes.
Exchange Offer: The registration by the Company under the Act of the
Exchange Notes pursuant to the Exchange Offer Registration Statement pursuant to
which the Company shall offer the Holders of all outstanding Transfer Restricted
Securities the opportunity to exchange all such outstanding Transfer Restricted
Securities for Exchange Notes in an aggregate principal amount equal to the
aggregate principal amount of the Transfer Restricted Securities tendered in
such exchange offer by such Holders.
Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer.
Exempt Resales: The transactions in which the Initial Purchaser
proposes to sell the Series A Notes (i) to certain "qualified institutional
buyers," as such term is defined in Rule 144A under the Act and (ii) to persons
permitted to purchase the Series A Notes in offshore transactions in reliance on
Regulation S under the Act.
Global Securities: As defined in the Indenture.
Holders: As defined in Section 2 hereof.
Indemnified Holder: As defined in Section 8(a) hereof.
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<PAGE> 4
Indenture: The Indenture, dated the Closing Date, among the Company,
the Guarantor and State Street Bank and Trust Company, as trustee (the
"Trustee"), pursuant to which the Notes are to be issued, as such Indenture is
amended or supplemented from time to time in accordance with the terms thereof.
Interest Payment Date: As defined in the Indenture and the Notes.
Liquidated Damages: As defined in Section 5 hereof.
NASD: National Association of Securities Dealers, Inc.
Notes: The Series A Notes and the Exchange Notes.
Person: An individual, partnership, corporation, trust,
unincorporated organization, or a government or agency or political subdivision
thereof.
Prospectus: The prospectus included in a Registration Statement at
the time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
Record Holder: With respect to any Damages Payment Date, each Person
who is a Holder of Notes on the record date with respect to the Interest Payment
Date on which such Damages Payment Date shall occur.
Registrar: As defined in the Indenture.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the Company
and the Guarantor relating to (a) an offering of Exchange Notes pursuant to an
Exchange Offer or (b) the registration for resale of Transfer Restricted
Securities pursuant to the Shelf Registration Statement, in each case, (i) which
is filed pursuant to the provisions of this Agreement and (ii) including the
Prospectus included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated by
reference therein.
Restricted Broker-Dealer: Any Broker-Dealer which holds
Broker-Dealer Transfer Restricted Securities.
Shelf Registration Statement: As defined in Section 4 hereof.
3
<PAGE> 5
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section
77aaa-77bbbb) as in effect on the date of the Indenture.
Transfer Restricted Securities: Each Note, until the earliest to
occur of (a) the date on which such Note is exchanged in the Exchange Offer and
entitled to be resold to the public by the Holder thereof without complying with
the prospectus delivery requirements of the Act, (b) the date on which such Note
has been disposed of in accordance with a Shelf Registration Statement, (c) the
date on which such Note is disposed of by a Broker-Dealer pursuant to the "Plan
of Distribution" contemplated by the Exchange Offer Registration Statement
(including delivery of the Prospectus contained therein) or (d) the date on
which such Note is distributed to the public pursuant to Rule 144 under the Act.
Underwritten Registration or Underwritten Offering: A registration
in which securities of the Company are sold to an underwriter for reoffering to
the public.
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "Holder") whenever such Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable
federal law or applicable interpretation of the staff of the Commission (after
the procedures set forth in Section 6(a)(i) below have been complied with), the
Company and the Guarantor shall (i) cause to be filed with the Commission as
soon as practicable after the Closing Date, but in no event later than 45 days
after the Closing Date, the Exchange Offer Registration Statement, (ii) use its
best efforts to cause such Exchange Offer Registration Statement to become
effective at the earliest practicable time, but in no event later than 150 days
after the Closing Date, (iii) in connection with the foregoing, (A) file all
pre-effective amendments to such Exchange Offer Registration Statement as may be
necessary in order to cause such Exchange Offer Registration Statement to become
effective, (B) file, if applicable, a post-effective amendment to such Exchange
Offer Registration Statement pursuant to Rule 430A under the Act and (C) cause
all necessary filings, if any, in connection with the registration and
qualification of the Exchange Notes to be made under the state Blue Sky or
securities laws of such jurisdictions as are necessary to permit Consummation of
the Exchange Offer, and (iv) upon the effectiveness of such Exchange Offer
Registration Statement, commence and use its best efforts to Consummate the
Exchange Offer. The Exchange Offer shall
4
<PAGE> 6
be on the appropriate form permitting registration of the Exchange Notes to be
offered in exchange for the Series A Notes that are Transfer Restricted
Securities and to permit sales of Broker-Dealer Transfer Restricted Securities
by Restricted Broker-Dealers as contemplated by Section 3(c) below.
(b) The Company and the Guarantor shall use their respective best
efforts to cause the Exchange Offer Registration Statement to be effective
continuously, and shall keep the Exchange Offer open for a period of not less
than the minimum period required under applicable federal and state securities
laws to Consummate the Exchange Offer; provided, however, that in no event shall
such period be less than 20 Business Days. The Company and the Guarantor shall
cause the Exchange Offer to comply with all applicable federal and state
securities laws. No securities other than the Notes shall be included in the
Exchange Offer Registration Statement. The Company and the Guarantor shall use
their respective best efforts to cause the Exchange Offer to be Consummated on
the earliest practicable date after the Exchange Offer Registration Statement
has become effective, but in no event later than 30 Business Days thereafter.
(c) The Company shall include a "Plan of Distribution" section in
the Prospectus contained in the Exchange Offer Registration Statement and
indicate therein that any Restricted Broker-Dealer who holds Series A Notes that
are Transfer Restricted Securities and that were acquired for the account of
such Broker-Dealer as a result of market-making activities or other trading
activities, may exchange such Series A Notes (other than Transfer Restricted
Securities acquired directly from the Company or any Affiliate of the Company)
pursuant to the Exchange Offer; however, such Broker-Dealer may be deemed to be
an "underwriter" within the meaning of the Act and must, therefore, deliver a
prospectus meeting the requirements of the Act in connection with its initial
sale of each Exchange Note received by such Broker-Dealer in the Exchange Offer,
which prospectus delivery requirement may be satisfied by the delivery by such
Broker-Dealer of the Prospectus contained in the Exchange Offer Registration
Statement. Such "Plan of Distribution" section shall also contain all other
information with respect to such sales of Broker-Dealer Transfer Restricted
Securities by Restricted Broker-Dealers that the Commission may require in order
to permit such sales pursuant thereto, but such "Plan of Distribution" shall not
name any such Broker-Dealer or disclose the amount of Notes held by any such
Broker-Dealer, except to the extent required by by the Commission as a result of
a change in policy after the date of this Agreement.
The Company and the Guarantor shall use their respective best
efforts to keep the Exchange Offer Registration Statement continuously
effective, supplemented and amended as required by the provisions of Section
6(c) below to the extent necessary to en-
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<PAGE> 7
sure that it is available for sales of Broker-Dealer Transfer Restricted
Securities by Retricted Broker-Dealers, and to ensure that such Registration
Statement conforms with the requirements of this Agreement, the Act and the
policies, rules and regulations of the Commission as announced from time to
time, for a period of 270 days from the date on which the Exchange Offer is
Consummated.
The Company and the Guarantor shall promptly provide sufficient
copies of the latest version of such Prospectus to such Restricted
Broker-Dealers promptly upon request at any time during such one-year period in
order to facilitate such sales.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Company and the Guarantor are not
required to file an Exchange Offer Registration Statement with respect to the
Exchange Notes or not permitted to Consummate the Exchange Offer because the
Exchange Offer is not permitted by applicable law or the applicable
interpretations of the staff of the Commission (after the procedures set forth
in Section 6(a)(i) below have been complied with) or (ii) if any Holder of
Transfer Restricted Securities shall notify the Company within 10 Business Days
following the Consummation of the Exchange Offer that (A) such Holder was
prohibited by law or Commission policy from participating in the Exchange Offer
or (B) such Holder may not resell the Exchange Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and the Prospectus
contained in the Exchange Offer Registration Statement is not appropriate or
available for such resales by such Holder or (C) such Holder is a Broker-Dealer
and holds Series A Notes acquired directly from the Company or one of its
affiliates, then the Company and the Guarantor shall (x) cause to be filed on or
prior to 45 days after the date on which the Company determines that it is not
required to file the Exchange Offer Registration Statement or not permitted to
Consummate the Exchange Offer pursuant to clause (i) above or 45 days after the
date on which the Company receives the notice specified in clause (ii) above a
shelf registration statement pursuant to Rule 415 under the Act (which may be an
amendment to the Exchange Offer Registration Statement (in either event, the
"Shelf Registration Statement")), relating to all Transfer Restricted Securities
the Holders of which shall have provided the information required pursuant to
Section 4(b) hereof, and shall (y) use their respective best efforts to cause
such Shelf Registration Statement to become effective on or prior to 150 days
after the date on which the Company becomes obligated to file such Shelf
Registration Statement. If, after the Company has filed an Exchange Offer
Registration Statement which satisfies the requirements of Section 3(a) above,
the Company is required to file and make effective a Shelf Registration
Statement solely because the Exchange Offer shall not be permitted under
applicable federal law, then the filing of the Exchange Offer Registra-
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<PAGE> 8
tion Statement shall be deemed to satisfy the requirements of clause (x) above.
Such an event shall have no effect on the requirements of clause (y) above. The
Company and the Guarantor shall use their respective best efforts to keep the
Shelf Registration Statement discussed in this Section 4(a) continuously
effective, supplemented and amended as required by and subject to the provisions
of Sections 6(b) and (c) hereof to the extent necessary to ensure that it is
available for sales of Transfer Restricted Securities by the Holders thereof
entitled to the benefit of this Section 4(a), and to ensure that it conforms
with the requirements of this Agreement, the Act and the policies, rules and
regulations of the Commission as announced from time to time, for a period of at
least two years (as extended pursuant to Section 6(c)(i)) following the date on
which such Shelf Registration Statement first becomes effective under the Act.
(b) Provision by Holders of Certain Information in Connection with
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor, such
information specified in item 507 of Regulation S-K under the Act for use in
connection with any Shelf Registration Statement or Prospectus or preliminary
Prospectus included therein. No Holder of Transfer Restricted Securities shall
be entitled to Liquidated Damages pursuant to Section 5 hereof unless and until
such Holder shall have provided all such information. Each Holder as to which
any Shelf Registration Statement is being effected agrees to furnish promptly to
the Company all information required to be disclosed in order to make the
information previously furnished to the Company by such Holder not materially
misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the date specified for such filing in
this Agreement, (ii) any such Registration Statement has not been declared
effective by the Commission on or prior to the date specified for such
effectiveness in this Agreement, (iii) the Exchange Offer has not been
Consummated within 30 Business Days after the Exchange Offer Registration
Statement is first declared effective by the Commission or (iv) any Registration
Statement required by this Agreement is filed and declared effective but shall
thereafter cease to be effective or fail to be usable for its intended purpose
without being succeeded promptly by a post-effective amendment to such
Registration Statement that cures such failure and that is itself declared
effective immediately (each such event referred to in clauses (i) through (iv),
a "Registration Default"), then the Company and the Guarantor hereby jointly and
severally agree to pay liquidated damages (the "Liquidated Damages") to each
Holder of Transfer
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<PAGE> 9
Restricted Securities with respect to the first 90-day period immediately
following the occurrence of such Registration Default, in an amount equal to
$.05 per week per $1,000 principal amount of Transfer Restricted Securities held
by such Holder for each week or portion thereof that the Registration Default
continues. The amount of the Liquidated Damages shall increase by an additional
$.05 per week per $1,000 in principal amount of Transfer Restricted Securities
with respect to each subsequent 90-day period until all Registration Defaults
have been cured, up to a maximum amount of Liquidated Damages of $.40 per week
per $1,000 principal amount of Transfer Restricted Securities. Notwithstanding
anything to the contrary set forth herein, (1) upon filing of the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf Registration
Statement), in the case of (i) above, (2) upon the effectiveness of the Exchange
Offer Registration Statement (and/or, if applicable, the Shelf Registration
Statement), in the case of (ii) above, (3) upon Consummation of the Exchange
Offer, in the case of (iii) above, or (4) upon the filing of a post-effective
amendment to the Registration Statement or an additional Registration Statement
that causes the Exchange Offer Registration Statement (and/or, if applicable,
the Shelf Registration Statement) to again be declared effective or made usable
in the case of (iv) above, the Liquidated Damages payable with respect to the
Transfer Restricted Securities as a result of such clause (i), (ii), (iii) or
(iv), as applicable, shall cease.
All accrued Liquidated Damages shall be paid to Holders of Transfer
Restricted Securities that are in the form of Global Securities by wire transfer
of immediately available funds or by federal funds check and to Holders of
Transfer Restricted Securities that are in the form of Certificated Securities
by wire transfer to the account specified by them or by mailing checks to their
registered addresses on each Damages Payment Date. All obligations of the
Company and the Guarantor set forth in the preceding paragraph that are
outstanding with respect to any Transfer Restricted Security at the time such
security ceases to be a Transfer Restricted Security shall survive until such
time as all such obligations with respect to such security shall have been
satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company and the Guarantor shall comply with all applicable
provisions of Section 6(c) below, shall use their respective best efforts to
effect such exchange and to permit the sale of Broker-Dealer Transfer Restricted
Securities being sold in accordance with the intended method or methods of
distribution thereof, and shall comply with all of the following provisions:
(i) If, following the date hereof there has been published a change
in Commission policy with respect to exchange offers such as the
8
<PAGE> 10
Exchange Offer, such that in the reasonable opinion of counsel to the
Company there is a substantial question as to whether the Exchange Offer
is permitted by applicable federal law, the Company and the Guarantor
hereby agree to seek a no-action letter or other favorable decision from
the Commission allowing the Company and the Guarantor to Consummate an
Exchange Offer for the Series A Notes. The Company and the Guarantor
hereby agree to pursue the issuance of such a decision to the Commission
staff level but shall not be required to take commercially unreasonable
action to effect a change of Commission policy. In connection with the
foregoing, the Company and the Guarantor hereby agree to take all such
other actions as are requested by the Commission or otherwise required in
connection with the issuance of such decision, including without
limitation (A) participating in telephonic conferences with the
Commission, (B) delivering to the Commission staff an analysis prepared by
counsel to the Company setting forth the legal bases, if any, upon which
such counsel has concluded that such an Exchange Offer should be permitted
and (C) diligently pursuing a resolution (which need not be favorable) by
the Commission staff of such submission.
(ii) As a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each Holder of Transfer
Restricted Securities shall furnish, upon the request of the Company,
prior to the Consummation of the Exchange Offer, a written representation
to the Company and the Guarantor (which may be contained in the letter of
transmittal contemplated by the Exchange Offer Registration Statement) to
the effect that (A) it is not an affiliate of the Company, (B) it is not
engaged in, and does not intend to engage in, and has no arrangement or
understanding with any person to participate in, a distribution of the
Exchange Notes to be issued in the Exchange Offer and (C) it is acquiring
the Exchange Notes in its ordinary course of business. In addition, each
Holder shall acknowledge and agree that any Broker-Dealer and any such
Holder using the Exchange Offer to participate in a distribution of the
securities to be acquired in the Exchange Offer (1) could not under
Commission policy as in effect on the date of this Agreement rely on the
position of the Commission enunciated in Morgan Stanley and Co., Inc.,
(available June 5, 1991) and Exxon Capital Holdings Corporation (available
May 13, 1988), as interpreted in the Commission's letter to Shearman &
Sterling dated July 2, 1993, and similar no-action letters (including, if
applicable, any no-action letter obtained pursuant to clause (i) above),
and (2) must comply with the registration and prospectus delivery
requirements of the Act in connection with a secondary
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<PAGE> 11
resale transaction and that such a secondary resale transaction must be
covered by an effective registration statement containing the selling
security holder information required by Item 507 or 508, as applicable, of
Regulation S-K if the resales are of Exchange Notes obtained by such
Holder in exchange for Series A Notes acquired by such Holder directly
from the Company or an affiliate thereof.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company and the Guarantor shall provide a supplemental
letter to the Commission (A) stating that the Company and the Guarantor
are registering the Exchange Offer in reliance on the position of the
Commission enunciated in Exxon Capital Holdings Corporation (available May
13, 1988), Morgan Stanley and Co., Inc. (available June 5, 1991) and, if
applicable, any no-action letter obtained pursuant to clause (i) above,
(B) including a representation that neither the Company nor the Guarantor
has entered into any arrangement or understanding with any Person to
distribute the Exchange Notes to be received in the Exchange Offer and
that, to the best of the Company's and the Guarantor's information and
belief, each Holder participating in the Exchange Offer is acquiring the
Exchange Notes in its ordinary course of business and has no arrangement
or understanding with any Person to participate in the distribution of the
Exchange Notes received in the Exchange Offer and (C) any other
undertaking or representation required by the Commission as set forth in
any no-action letter obtained pursuant to clause (i) above.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company and the Guarantor shall comply with all the
provisions of Section 6(c) below and shall use their respective best efforts to
effect such registration to permit the sale of the Transfer Restricted
Securities being sold in accordance with the intended method or methods of
distribution thereof (as indicated in the information furnished to the Company
pursuant to Section 4(b) hereof), and pursuant thereto the Company and the
Guarantor will prepare and file with the Commission a Registration Statement
relating to the registration on any appropriate form under the Act, which form
shall be available for the sale of the Transfer Restricted Securities in
accordance with the intended method or methods of distribution thereof within
the time periods and otherwise in accordance with the provisions hereof.
(c) General Provisions. In connection with any Registration
Statement required by this Agreement to permit the sale or resale of Transfer
Restricted Securities (including, without limitation, any Exchange Offer
Registration Statement, to the extent that the same are required to be available
to permit sales of Broker-Dealer
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Transfer Restricted Securities by Restricted Broker-Dealers), the Company and
the Guarantor shall:
(i) use their respective best efforts to keep such Registration
Statement continuously effective and provide all requisite financial
statements for the period specified in Section 3 or 4 of this Agreement,
as applicable. Upon the occurrence of any event that would cause any such
Registration Statement (including the Prospectus contained therein) (A) to
contain a material misstatement or omission or (B) not to be effective and
usable for resale of Transfer Restricted Securities during the period
required by this Agreement, the Company and the Guarantor shall file
promptly an appropriate amendment to such Registration Statement, (1) in
the case of clause (A), correcting any such misstatement or omission, and
(2) in the case of clauses (A) and (B), use their respective best efforts
to cause such amendment to be declared effective and such Registration
Statement and the related Prospectus to become usable for their intended
purpose(s) as soon as practicable thereafter;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be
necessary to keep the Registration Statement effective for the applicable
period set forth in Section 3 or 4 hereof, or such shorter period as will
terminate when all Transfer Restricted Securities covered by such
Registration Statement have been sold; cause the Prospectus to be
supplemented by any required Prospectus supplement, and as so supplemented
to be filed pursuant to Rule 424 under the Act, and to comply fully with
Rules 424, 430A and 462, as applicable, under the Act in a timely manner;
and comply with the provisions of the Act with respect to the disposition
of all securities covered by such Registration Statement during the
applicable period in accordance with the intended method or methods of
distribution by the sellers thereof set forth in such Registration
Statement or supplement to the Prospectus;
(iii) advise the managing underwriter(s), if any, and selling
Holders promptly and, if requested by such Persons, confirm such advice in
writing, (A) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to any
Registration Statement or any post-effective amendment thereto, when the
same has become effective, (B) of any request by the Commission for
amendments to the Registration Statement or amendments or supplements to
the Prospectus or for additional information relating thereto, (C) of the
issuance by the Commission of any stop order suspending the effectiveness
of the Registra-
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<PAGE> 13
tion Statement under the Act or of the suspension by any state securities
commission of the qualification of the Transfer Restricted Securities for
offering or sale in any jurisdiction, or the initiation of any proceeding
for any of the preceding purposes, (D) of the existence of any fact or the
happening of any event that makes any statement of a material fact made in
the Registration Statement, the Prospectus, any amendment or supplement
thereto or any document incorporated by reference therein untrue, or that
requires the making of any additions to or changes in the Registration
Statement in order to make the statements therein not misleading, or that
requires the making of any additions to or changes in the Prospectus in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. If at any time the Commission
shall issue any stop order suspending the effectiveness of the
Registration Statement, or any state securities commission or other
regulatory authority shall issue an order suspending the qualification or
exemption from qualification of the Transfer Restricted Securities under
state Blue Sky or securities laws, the Company and the Guarantor shall use
their respective best efforts to obtain the withdrawal or lifting of such
order at the earliest practicable time;
(iv) furnish to the Initial Purchaser, each selling Holder named in
any Registration Statement or Prospectus and each of the underwriter(s) in
connection with such sale, if any, before filing with the Commission,
copies of any Registration Statement or any Prospectus included therein or
any amendments or supplements to any such Registration Statement or
Prospectus (including all documents incorporated by reference after the
initial filing of such Registration Statement), which documents will be
subject to the review and comment of such Holders and underwriter(s) in
connection with such sale, if any, for a period of at least five Business
Days, and the Company will not file any such Registration Statement or
Prospectus or any amendment or supplement to any such Registration
Statement or Prospectus (including all such documents incorporated by
reference) to which the selling Holders of the Transfer Restricted
Securities covered by such Registration Statement or the underwriter(s) in
connection with such sale, if any, shall reasonably object within five
Business Days after the receipt thereof. A selling Holder or managing
underwriter, if any, shall be deemed to have reasonably objected to such
filing if such Registration Statement, amendment, Prospectus or
supplement, as applicable, as proposed to be filed, contains a material
misstatement or omission or fails to comply with the applicable
requirements of the Act;
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<PAGE> 14
(v) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus,
provide copies of such document to the selling Holders and to the
underwriter(s) in connection with such sale, if any, make the Company's
and the Guarantor's representatives available for discussion of such
document and other customary due diligence matters, and include such
information in such document prior to the filing thereof as such selling
Holders or underwriter(s), if any, reasonably may request;
(vi) make available at reasonable times for inspection by the
selling Holders, any managing underwriter participating in any disposition
pursuant to such Registration Statement and any attorney or accountant
retained by such selling Holders or any of such underwriter(s), all
financial and other records, pertinent corporate documents and properties
of the Company and the Guarantor and cause the Company's and the
Guarantor's officers, directors and employees to supply all information
reasonably requested by any such Holder, underwriter, attorney or
accountant in connection with such Registration Statement or any
post-effective amendment thereto subsequent to the filing thereof and
prior to its effectiveness;
(vii) if requested by any selling Holders or the managing
underwriter(s) in connection with such sale, if any, promptly include in
any Registration Statement or Prospectus, pursuant to a supplement or
post-effective amendment if necessary, such information as such selling
Holders and underwriter(s), if any, may reasonably request to have
included therein, including, without limitation, information relating to
the "Plan of Distribution" of the Transfer Restricted Securities,
information with respect to the principal amount of Transfer Restricted
Securities being sold to such underwriter(s), the purchase price being
paid therefor and any other terms of the offering of the Transfer
Restricted Securities to be sold in such offering; and make all required
filings of such Prospectus supplement or post-effective amendment as soon
as practicable after the Company is notified of the matters to be included
in such Prospectus supplement or post-effective amendment;
(viii) furnish to each selling Holder and each of the managing
underwriter(s) in connection with such sale, if any, without charge, at
least one copy of the Registration Statement, as first filed with the
Commission, and of each amendment thereto, including all documents
incorporated by reference therein and all exhibits (including exhibits
incorporated therein by reference);
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<PAGE> 15
(ix) deliver to each selling Holder and each of the underwriter(s),
if any, without charge, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto as such
Persons reasonably may request; the Company and the Guarantor hereby
consent to the use (in accordance with law) of the Prospectus and any
amendment or supplement thereto by each of the selling Holders and each of
the underwriter(s), if any, in connection with the offering and the sale
of the Transfer Restricted Securities covered by the Prospectus or any
amendment or supplement thereto;
(x) enter into such agreements (including an underwriting agreement)
and make such representations and warranties and take all such other
actions in connection therewith in order to expedite or facilitate the
disposition of the Transfer Restricted Securities pursuant to any
Registration Statement contemplated by this Agreement as may be reasonably
requested by any Holder of Transfer Restricted Securities or underwriter
in connection with any sale or resale pursuant to any Registration
Statement contemplated by this Agreement, and in such connection, whether
or not an underwriting agreement is entered into and whether or not the
registration is an Underwritten Registration, the Company and the
Guarantor shall:
(A) furnish (or in the case of paragraphs (2) and (3), use its
best efforts to furnish) to each selling Holder and each
underwriter, if any, upon the effectiveness of the Shelf
Registration Statement and to each Restricted Broker-Dealer upon
Consummation of the Exchange Offer:
(1) a certificate, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, signed on behalf
of the Company and the Guarantor by (x) the President and (y)
a principal financial or accounting officer of the Company and
the Guarantor, confirming, as of the date thereof, the matters
set forth in paragraphs (a), (b) and (d) of Section 9 of the
Purchase Agreement and such other similar matters as the
Holders, managing underwriter(s) and/or Restricted Broker
Dealers may reasonably request;
(2) an opinion, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, of counsel for the
Company and the Guarantor covering matters similar to those
set forth in paragraphs (e) and (f) of Section 9 of the
Purchase Agreement and such other matter
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<PAGE> 16
as the Holders, managing underwriter(s) and/or Restricted
Broker Dealers may reasonably request, and in any event
including a statement to the effect that such counsel has
participated in conferences with officers and other
representatives of the Company and the Guarantor,
representatives of the independent public accountants for the
Company and the Guarantor and have considered the matters
required to be stated therein and the statements contained
therein, although such counsel has not independently verified
the accuracy, completeness or fairness of such statements; and
that such counsel advises that, on the basis of the foregoing
(relying as to materiality to a large extent upon facts
provided to such counsel by officers and other representatives
of the Company and the Guarantor and without independent check
or verifications), no facts came to such counsel's attention
that caused such counsel to believe that the applicable
Registration Statement, at the time such Registration
Statement or any post-effective amendment thereto became
effective and, in the case of the Exchange Offer Registration
Statement, as of the date of Consummation of the Exchange
Offer, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or
that the Prospectus contained in such Registration Statement
as of its date and, in the case of the opinion dated the date
of Consummation of the Exchange Offer, as of the date of
Consummation, contained an untrue statement of a material fact
or omitted to state a material fact necessary in order to make
the statements therein, in the light of the circumstances
under which they were made, not misleading. Without limiting
the foregoing, such counsel may state further that such
counsel assumes no responsibility for, and has not
independently verified, the accuracy, completeness or fairness
of the financial statements, notes and schedules and other
financial data included in any Registration Statement
contemplated by this Agreement or the related Prospectus; and
(3) a customary comfort letter, dated as of the date of
effectiveness of the Shelf Registration Statement or the date
of Consummation of the Exchange Offer, as the case may be,
from the Company's independent accountants, in the customary
form and covering matters of the type customarily covered in
comfort letters to underwriters in connection with primary
underwritten offerings, and affirming the matters set forth in
the comfort letters delivered pursuant
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<PAGE> 17
to paragraph (h) of Section 9 of the Purchase Agreement,
without exception;
(B) set forth in full or incorporate by reference in the
underwriting agreement, if any, in connection with any sale or
resale pursuant to any Shelf Registration Statement the
indemnification provisions and procedures of Section 8 hereof with
respect to all parties to be indemnified pursuant to said Section;
and
(C) deliver such other documents and certificates as may be
reasonably requested by the selling Holders, the managing
underwriter(s), if any, and Restricted Broker Dealers, if any, to
evidence compliance with clause (A) above and with any customary
conditions contained in the underwriting agreement or other
agreement entered into by the Company and the Guarantor pursuant to
this clause (x).
The above shall be done at each closing under such underwriting or
similar agreement, as and to the extent required thereunder, and if at any
time the representations and warranties of the Company and the Guarantor
contemplated in (A)(1) above cease to be true and correct, the Company
and the Guarantor shall so advise the underwriter(s), if any, the selling
Holders and each Restricted Broker-Dealer promptly and if requested by
such Persons, shall confirm such advice in writing;
(xi) prior to any public offering of Transfer Restricted Securities,
cooperate with the selling Holders, the underwriter(s), if any, and their
respective counsel in connection with the registration and qualification
of the Transfer Restricted Securities under the state Blue Sky or
securities laws of such jurisdictions as the selling Holders or managing
underwriter(s), if any, may request and do any and all other acts or
things necessary or advisable to enable the disposition in such
jurisdictions of the Transfer Restricted Securities covered by the
applicable Registration Statement; provided, however, that neither the
Company nor any Guarantor shall be required to register or qualify as a
foreign corporation where it is not now so qualified or to take any action
that would subject it to the service of process in suits or to taxation,
other than as to matters and transactions relating to the Registration
Statement, in any jurisdiction where it is not now so subject;
(xii) issue, upon the request of any Holder of Series A Notes
covered by any Shelf Registration Statement contemplated by this
Agreement, Exchange Notes having an aggregate principal amount equal to
the
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<PAGE> 18
aggregate principal amount of Series A Notes surrendered to the Company by
such Holder in exchange therefor or being sold by such Holder; such
Exchange Notes to be registered in the name of such Holder or in the name
of the purchaser(s) of such Notes, as the case may be; in return, the
Series A Notes held by such Holder shall be surrendered to the Company for
cancellation;
(xiii) in connection with any sale of Transfer Restricted Securities
that will result in such securities no longer being Transfer Restricted
Securities, cooperate with the selling Holders and the underwriter(s), if
any, to facilitate the timely preparation and delivery of certificates
representing Transfer Restricted Securities to be sold and not bearing any
restrictive legends; and to register such Transfer Restricted Securities
in such denominations and such names as the Holders or the underwriter(s),
if any, may request at least two Business Days prior to such sale of
Transfer Restricted Securities;
(xiv) use their respective best efforts to cause the disposition of
the Transfer Restricted Securities covered by the Registration Statement
to be registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof or
the underwriter(s), if any, to consummate the disposition of such Transfer
Restricted Securities, subject to the proviso contained in clause (xi)
above;
(xv) subject to Section 6(c)(i), if any fact or event contemplated
by Section 6(c)(iii)(D) above shall exist or have occurred, prepare a
supplement or post-effective amendment to the Registration Statement or
related Prospectus or any document incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
purchasers of Transfer Restricted Securities, the Prospectus will not
contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
(xvi) provide a CUSIP number for all Transfer Restricted Securities
not later than the effective date of a Registration Statement covering
such Transfer Restricted Securities and provide the Trustee under the
Indenture with printed certificates for the Transfer Restricted Securities
which are in a form eligible for deposit with the Depository Trust
Company;
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<PAGE> 19
(xvii) cooperate and assist in any filings required to be made with
the NASD and in the performance of any due diligence investigation by any
underwriter (including any "qualified independent underwriter") that is
required to be retained in accordance with the rules and regulations of
the NASD, and use their respective best efforts to cause such Registration
Statement to become effective and approved by such governmental agencies
or authorities as may be necessary to enable the Holders selling Transfer
Restricted Securities to consummate the disposition of such Transfer
Restricted Securities;
(xviii) otherwise use their respective best efforts to comply with
all applicable rules and regulations of the Commission, and make generally
available to its security holders with regard to any applicable
Registration Statement, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 (which need not be audited)
covering a twelve-month period beginning after the effective date of the
Registration Statement (as such term is defined in paragraph (c) of Rule
158 under the Act);
(xix) cause the Indenture to be qualified under the TIA not later
than the effective date of the first Registration Statement required by
this Agreement and, in connection therewith, cooperate with the Trustee
and the Holders of Notes to effect such changes to the Indenture as may be
required for such Indenture to be so qualified in accordance with the
terms of the TIA; and execute and use its best efforts to cause the
Trustee to execute, all documents that may be required to effect such
changes and all other forms and documents required to be filed with the
Commission to enable such Indenture to be so qualified in a timely manner;
and
(xx) provide promptly to each Holder upon request each document
filed with the Commission pursuant to the requirements of Section 13 or
Section 15(d) of the Exchange Act.
(d) Restrictions on Holders. Each Holder agrees by acquisition of a
Transfer Restricted Security that, upon receipt of the notice referred to in
Section 6(c)(i) or any notice from the Company of the existence of any fact of
the kind described in Section 6(c)(iii)(D) hereof, such Holder will forthwith
discontinue disposition of Transfer Restricted Securities pursuant to the
applicable Registration Statement until such Holder's receipt of the copies of
the supplemented or amended Prospectus contemplated by Section 6(c)(xv) hereof,
or until it is advised in writing by the Company that the use of the Prospectus
may be resumed, and has received copies of any
18
<PAGE> 20
additional or supplemental filings that are incorporated by reference in the
Prospectus (the "Advice"). If so directed by the Company, each Holder will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such Holder's possession, of the Prospectus
covering such Transfer Restricted Securities that was current at the time of
receipt of either such notice. In the event the Company shall give any such
notice, the time period regarding the effectiveness of such Registration
Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended
by the number of days during the period from and including the date of the
giving of such notice pursuant to Section 6(c)(i) or Section 6(c)(iii)(D) hereof
to and including the date when each selling Holder covered by such Registration
Statement shall have received the copies of the supplemented or amended
Prospectus contemplated by Section 6(c)(xv) hereof or shall have received the
Advice.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's and the Guarantor's
performance of or compliance with this Agreement will be borne by the Company,
regardless of whether a Registration Statement becomes effective, including
without limitation: (i) all registration and filing fees and expenses (including
filings made by any Purchaser or Holder with the NASD (and, if applicable, the
fees and expenses of any "qualified independent underwriter") and its counsel
that may be required by the rules and regulations of the NASD); (ii) all fees
and expenses of compliance with federal securities and state Blue Sky or
securities laws; (iii) all expenses of printing (including printing certificates
for the Exchange Notes to be issued in the Exchange Offer and printing of
Prospectuses), messenger and delivery services and telephone; (iv) all fees and
disbursements of counsel for the Company, the Guarantor and the Holders of
Transfer Restricted Securities (subject to the provisions of Section 7(b)
hereof); (v) all application and filing fees in connection with listing the
Exchange Notes on a national securities exchange or automated quotation system
pursuant to the requirements hereof; and (vi) all fees and disbursements of
independent certified public accountants of the Company and the Guarantor
(including the expenses of any special audit and comfort letters required by or
incident to such performance).
The Company will, in any event, bear its and the Guarantor's
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), the expenses
of any annual audit and the fees and expenses of any Person, including special
experts, retained by the Company or the Guarantor.
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<PAGE> 21
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company and the Guarantor
will reimburse the Holders of Transfer Restricted Securities being tendered in
the Exchange Offer and/or resold pursuant to the "Plan of Distribution"
contained in the Exchange Offer Registration Statement or registered pursuant to
the Shelf Registration Statement, as applicable, for the reasonable fees and
disbursements of not more than one counsel, who shall be chosen by the Holders
of a majority in principal amount of the Transfer Restricted Securities for
whose benefit such Registration Statement is being prepared. The Company and the
Guarantor shall not have any obligation to pay any underwriting fees, discounts
or commissions attributable to the sale of any Exchange Notes pursuant to this
Agreement.
SECTION 8. INDEMNIFICATION
(a) The Company and the Guarantor, jointly and severally, agree to
indemnify and hold harmless (i) each Holder and (ii) each person, if any, who
controls (within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act) any Holder (any of the persons referred to in this clause (ii)
being hereinafter referred to as a "controlling person") and (iii) the
respective officers, directors, partners, employees, representatives and agents
of any Holder or any controlling person (any person referred to in clause (i),
(ii) or (iii) may hereinafter be referred to as an "Indemnified Holder"), to the
fullest extent lawful, from and against any and all losses, claims, damages,
liabilities, judgments, actions and expenses (including without limitation and
as incurred, reimbursement of all reasonable costs of investigating, preparing,
pursuing or defending any claim or action, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, including the
reasonable fees and expenses of counsel to any Indemnified Holder) directly or
indirectly caused by, related to, based upon, arising out of or in connection
with any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement, preliminary prospectus or Prospectus
(or any amendment or supplement thereto), or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses are caused by an untrue statement or omission
or alleged untrue statement or omission that is made in reliance upon and in
conformity with information relating to any of the Holders furnished in writing
to the Company by any of the Holders expressly for use therein.
In case any action or proceeding (including any governmental or
regulatory investigation or proceeding) shall be brought or asserted against any
of the Indemnified
20
<PAGE> 22
Holders with respect to which indemnity may be sought against the Company or the
Guarantor, such Indemnified Holder (or the Indemnified Holder controlled by such
controlling person) shall promptly notify the Company and the Guarantor in
writing. Such Indemnified Holder shall have the right to employ its own counsel
in any such action and the fees and expenses of such counsel shall be paid, as
incurred, by the Company and the Guarantor (regardless of whether it is
ultimately determined that an Indemnified Holder is not entitled to
indemnification hereunder). The Company and the Guarantor shall not, in
connection with any one such action or proceeding or separate but substantially
similar or related actions or proceedings in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the reasonable
fees and expenses of more than one separate firm of attorneys (in addition to
any local counsel) at any time for such Indemnified Holders, which firm shall be
designated by the Holders. The Company and the Guarantor shall be liable for any
settlement of any such action or proceeding effected with the Company's prior
written consent, which consent shall not be withheld unreasonably, and the
Company and the Guarantor agree to indemnify and hold harmless each Indemnified
Holder from and against any loss, claim, damage, liability or expense by reason
of any settlement of any action effected with the written consent of the
Company. Neither the Company nor any Guarantor shall, without the prior written
consent of each Indemnified Holder, settle or compromise or consent to the entry
of judgment in or otherwise seek to terminate any pending or threatened action,
claim, litigation or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not any Indemnified Holder is a
party thereto), unless such settlement, compromise, consent or termination
includes an unconditional release of each Indemnified Holder from all liability
arising out of such action, claim, litigation or proceeding.
(b) Each Holder of Transfer Restricted Securities agrees, severally
and not jointly, to indemnify and hold harmless the Company and the Guarantor,
and their respective directors, officers, and any person controlling (within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act) the Company
or the Guarantor, and the respective officers, directors, partners, employees,
representatives and agents of each such person, to the same extent as the
foregoing indemnity from the Company and the Guarantor to each of the
Indemnified Holders, but only with respect to claims and actions based on
information relating to such Holder furnished in writing by such Holder
expressly for use in any Registration Statement. In case any action or
proceeding shall be brought against the Company, the Guarantor or its directors
or officers or any such controlling person in respect of which indemnity may be
sought against a Holder of Transfer Restricted Securities, such Holder shall
have the rights and duties given the Company and the Guarantor, and the Company,
the Guarantor, such directors or officers or such controlling person shall have
the rights and duties given to each Holder by the preceding paragraph. In no
event shall any Holder be li-
21
<PAGE> 23
able or responsible for any amount in excess of the amount by which the total
received by such Holder with respect to its sale of Transfer Restricted
Securities pursuant to a Registration Statement exceeds (i) the amount paid by
such Holder for such Transfer Restricted Securities and (ii) the amount of any
damages which such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission.
(c) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party under Section 8(a) or Section 8(b) hereof
(other than by reason of exceptions provided in those Sections) in respect of
any losses, claims, damages, liabilities or expenses referred to therein, then
each applicable indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Guarantor, on the one hand, and the Holders, on the other hand,
from their sale of Transfer Restricted Securities or if such allocation is not
permitted by applicable law, the relative fault of the Company and the
Guarantor, on the one hand, and of the Indemnified Holder, on the other hand, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of the Company and the Guarantor,
on the one hand, and of the Indemnified Holder, on the other hand, shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the Guarantor
or by the Indemnified Holder and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in the second paragraph of Section 8(a),
any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any action or claim.
The Company, the Guarantor and each Holder of Transfer Restricted
Securities agree that it would not be just and equitable if contribution
pursuant to this Section 8(c) were determined by pro rata allocation (even if
the Holders were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages, liabilities
or expenses referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred
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<PAGE> 24
by such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 8, no Holder or
its related Indemnified Holders shall be required to contribute, in the
aggregate, any amount in excess of the amount by which the total received by
such Holder with respect to the sale of its Transfer Restricted Securities
pursuant to a Registration Statement exceeds the sum of (A) the amount paid by
such Holder for such Transfer Restricted Securities plus (B) the amount of any
damages which such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Holders' obligations to contribute
pursuant to this Section 8(c) are several in proportion to the respective
principal amount of Series A Notes held by each of the Holders hereunder and not
joint.
SECTION 9. RULE 144A
The Company and the Guarantor hereby agree with each Holder, for so
long as any Transfer Restricted Securities remain outstanding and, in the event
the Company subsequently becomes subject to Section 13 or 15(d) of the Exchange
Act, during any period in which the Company or the Guarantor is not subject to
Section 13 or 15(d) of the Exchange Act, to make available, upon request of any
Holder of Transfer Restricted Securities, to any Holder of Transfer Restricted
Securities in connection with any sale thereof and any prospective purchaser of
such Transfer Restricted Securities designated by such Holder, the information
required by Rule 144A(d)(4) under the Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A.
SECTION 10. UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in customary underwriting arrangements entered
into in connection therewith and (b) completes and executes all reasonable
questionnaires, powers of attorney, and other documents required under the terms
of such underwriting arrangements.
SECTION 11. SELECTION OF UNDERWRITERS
For any Underwritten Offering, the investment banker or investment
bankers and manager or managers for any Underwritten Offering that will
administer such offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer
23
<PAGE> 25
Restricted Securities included in such offering. Such investment bankers and
managers are referred to herein as the "underwriters."
SECTION 12. MISCELLANEOUS
(a) Remedies. Each Holder, in addition to being entitled to exercise
all rights provided herein, in the Indenture, the Purchase Agreement or granted
by law, including recovery of Liquidated Damages (the payment of which is the
sole monetary remedy available to the Holders of Transfer Restricted Series A
Notes in the event that the Company does not comply with the deadlines set forth
in this Agreement with respect to the conduct of the Exchange Offer or the
registration of the Series A Notes for resale under a Shelf Registration
Statement) or other damages, will in addition be entitled to specific
performance of its rights under this Agreement. The Company and the Guarantor
agree that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by them of the provisions of this Agreement and
hereby agree to waive the defense in any action for specific performance that a
remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor the
Guarantor will, on or after the date of this Agreement, enter into any agreement
with respect to its securities that is inconsistent with the rights granted to
the Holders in this Agreement or otherwise conflicts with the provisions hereof.
Neither the Company nor the Guarantor has previously entered into any agreement
granting any registration rights with respect to its securities to any Person,
other than the Registration Rights Agreement, dated as of August 18, 1997 with
respect to the Company's existing 9 3/8% Senior Subordinated Notes due 2007. The
rights granted to the Holders hereunder do not in any way conflict with and are
not inconsistent with the rights granted to the holders of the Company's and the
Guarantor's securities under any agreement in effect on the date hereof.
(c) Adjustments Affecting the Notes. Neither the Company nor the
Guarantor will take any action, or voluntarily permit any change to occur, with
respect to the Notes that would materially and adversely affect the ability of
the Holders to Consummate any Exchange Offer.
(d) Amendments and Waivers. This Agreement may not be amended,
modified or supplemented, and waivers or consents to or departures from the
provisions hereof may not be given unless (i) in the case of Section 5 hereof
and this Section 12(d)(i), the Company has obtained the written consent of
Holders of all outstanding Transfer Restricted Securities (except with respect
to a waiver or departure
24
<PAGE> 26
entered into by a Holder with the Company that is binding only with respect to
the Notes held by such Holder) and (ii) in the case of all other provisions
hereof, the Company has obtained the written consent of Holders of a majority of
the outstanding principal amount of Transfer Restricted Securities.
Notwithstanding the foregoing, a waiver or consent to departure from the
provisions hereof that relates exclusively to the rights of Holders whose
securities are being tendered pursuant to the Exchange Offer and that does not
affect directly or indirectly the rights of other Holders whose securities are
not being tendered pursuant to such Exchange Offer may be given by the Holders
of a majority of the outstanding principal amount of Transfer Restricted
Securities subject to such Exchange Offer.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of the
Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to the Company or the Guarantor:
505 Martinsville Road
P.O. Box 813
Liberty Corner, New Jersey 07938
Facsimile No.: (908) 604-9317
Attention: Robert N. Edwards, Esq.
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Facsimile No.: (212) 735-2000
Attention: Mark C. Smith, Esq.
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
Business Days after being deposited in the mail, postage prepaid, if mailed;
when receipt acknowledged, if telecopied; and on the next Business Day, if
timely delivered to an air courier guaranteeing overnight delivery.
25
<PAGE> 27
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities; provided,
however, that this Agreement shall not inure to the benefit of or be binding
upon a successor or assign of a Holder unless and to the extent such successor
or assign acquired Transfer Restricted Securities directly from such Holder.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
26
<PAGE> 28
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
FEDDERS NORTH AMERICA, INC.
By: /s/ Robert L. Laurent, Jr.
-------------------------------------
Name: Robert L. Laurent, Jr.
Title: Executive Vice President
FEDDERS CORPORATION
By: /s/ Robert L. Laurent, Jr.
-------------------------------------
Name: Robert L. Laurent, Jr.
Title: Executive Vice President
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:________________________________
Name:
Title:
S-1
<PAGE> 29
IN WITNESS WHEREOF, the paints have executed this Agreement as of
the date first written above.
FEDDERS NORTH AMERICA, INC.
By:_____________________________________
Name:
Title:
FEDDERS CORPORATION
By:_____________________________________
Name:
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ D. Kete Cockrell, II
--------------------------------
Name: D. Kete Cockrell, II
Title: Vice President
S-1
<PAGE> 1
Exhibit 5.1
October 7, 1999
Fedders Corporation
505 Martinsville Road
Liberty Corner, New Jersey 07938
Re: Fedders North America, Inc.
REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
I am Vice President and General Counsel of Fedders
Corporation, a Delaware corporation (the "Guarantor") and of Fedders North
America, Inc., a Delaware corporation (the "Company"), and have acted as general
counsel to the Guarantor and the Company in connection with the public offering
of $50,000,000 aggregate principal amount of the Company's 9 3/8% Senior
Subordinated Notes due 2007 (the "Exchange Notes") which are to be guaranteed on
a senior subordinated basis pursuant to a guarantee (the "Guarantee") by the
Guarantor. The Exchange Notes are to be issued pursuant to an exchange offer
(the "Exchange Offer") in exchange for a like principal amount of the issued and
outstanding 9 3/8% Senior Subordinated Notes due 2007 of the Company (the
"Original Notes") under an Indenture dated as of August 24, 1999 (the
"Indenture"), between the Company, the Guarantor and State Street Bank and Trust
Company, as Trustee (the "Trustee"), as contemplated by the Registration Rights
Agreement dated as of August 24, 1999 (the "Registration Rights Agreement"), by
and among the Company, the Guarantor and Donaldson, Lufkin & Jenrette Securities
Corporation.
This opinion is being furnished in accordance with the
requirements of Item 601(b)(5) of Regulation S-K under the Securities Act of
1933, as amended (the "Act").
In connection with this opinion, I have examined originals or
copies, certified or otherwise identified to my satisfaction, of (i) the
Registration Statement on Form S-4 to be filed with the Securities and Exchange
Commission (the
<PAGE> 2
"Commission") on the date hereof under the Act (the "Registration Statement");
(ii) an executed copy of the Registration Rights Agreement; (iii) an executed
copy of the Indenture; (iv) the Restated Certificate of Incorporation of the
Company and the Guarantor; (v) the Restated By-Laws of the Company and the
Guarantor, as amended to date; (vi) certain resolutions adopted by the Board of
Directors of the Company and the Guarantor relating to the Exchange Offer, the
issuance of the Original Notes and the Exchange Notes, the Indenture and related
matters; (vii) the Form T-1 of the Trustee filed as an exhibit to the
Registration Statement; and (viii) the form of the Exchange Notes. I have also
examined originals or copies, certified or otherwise identified to my
satisfaction, of such records of the Company and the Guarantor and such
agreements, certificates of public officials, certificates of officers or other
representatives of the Company and the Guarantor and others, and such other
documents, certificates and records as I have deemed necessary or appropriate as
a basis for the opinions set forth herein.
In my examination, I have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to me as certified, conformed or photostatic copies and
the authenticity of the originals of such latter documents. In making my
examination of executed documents or documents to be executed, I have assumed
that the parties thereto, other than the Company and the Guarantor, had or will
have the power, corporate or other, to enter into and perform all obligations
thereunder and have also assumed the due authorization by all requisite action,
corporate or other, and execution and delivery by such parties of such documents
and the validity and binding effect on such parties. As to any facts material to
the opinions expressed herein which I have not independently established or
verified, I have relied upon statements and representations of officers and
other representatives of the Company and the Guarantor and others.
My opinions set forth herein are limited to the Delaware
corporate law and the laws of the State of New York that are normally applicable
to transactions of the type contemplated by the Exchange Offer and to the extent
that judicial or regulatory orders or decrees or consents, approvals, licenses,
authorizations, validations, filings, recordings or registrations with
governmental authorities are relevant, to those required under such laws (all of
the foregoing being referred to as "Opined on Law"). I do not express any
opinion with respect to the law of any jurisdiction other than Opined on Law or
as to the effect of any such non-opined law on the opinions herein stated.
2
<PAGE> 3
Based upon and subject to the foregoing and the limitations,
qualifications, exceptions and assumptions set forth herein, I am of the opinion
that when the Exchange Notes (in the form examined by us) have been duly
executed and authenticated in accordance with the terms of the Indenture and
have been delivered upon consummation of the Exchange Offer against receipt of
Original Notes surrendered in exchange therefor in accordance with the terms of
the Exchange Offer, the Exchange Notes and the related Guarantee will constitute
valid and binding obligations of the Company and the Guarantor, enforceable
against the Company and the Guarantor in accordance with their terms, except to
the extent that enforcement thereof may be limited by (1) bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other similar
laws now or hereafter in effect relating to creditors' rights generally and (2)
general principles of equity (regardless of whether enforceability is considered
in a proceeding at law or in equity).
In rendering the opinion set forth above, I have assumed that
the execution and delivery by the Company and the Guarantor of the Indenture and
the Exchange Notes and the performance by the Company and the Guarantor of its
obligations thereunder do not and will not violate, conflict with or constitute
a default under any agreement or instrument to which the Company and the
Guarantor or its properties is subject, except for those agreements and
instruments which have been identified to us by the Company or the Guarantor as
being material to it and which are listed in Part 2 of the Company's or the
Guarantor's Annual Report on Form 10-K.
I hereby consent to the filing of this opinion with the
Commission as an exhibit to the Registration Statement. I also consent to the
reference to me under the caption "Legal Matters" in the Registration Statement.
In giving this consent, I do not thereby admit that I am included in the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Commission.
Very truly yours,
/s/ ROBERT N. EDWARDS
3
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES
Fedders North America, Inc.
Fedders International, Inc.
Fedders Investment Corporation
Melcor Corporation
Emerson Quiet Kool Corporation
Columbia Specialties, Inc.
Rotorex Company, Inc.
Fedders, Inc.
Fedders de Mexico S.A. de CV
Fedders Asia PTE, Ltd.
Fedders Exporting, Inc.
Fedders Xinle Co. Ltd.
NYCOR North America, Inc.
Melcor International Sales, Inc.
Melcor International Sales Corp.
Rotorex International, Inc.
Rotorex Technologies, Inc.
Fedders Trading Co. Ltd.
Fedders Europe, S.L.
BSH and Fedders International Air Conditioning, S.A.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
----------------------------
Fedders Corporation
Liberty Corner, New Jersey
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated October 19, 1998, relating to the
consolidated financial statements of Fedders Corporation appearing in
the Company's Annual Report on Form 10-K for the year ended August 31, 1998.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO SEIDMAN, LLP
Woodbridge, New Jersey
October 7, 1999
<PAGE> 1
Exhibit 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
---------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2)
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Maureen Scannell Bateman, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
FEDDERS NORTH AMERICA, INC.
(Exact name of obligor as specified in its charter)
DELAWARE 22-2103510
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
505 MARTINSVILLE ROAD
LIBERTY CORNER, NEW JERSEY 07938
(908) 604-8686
(Address of principal executive offices) (Zip Code)
SENIOR SUBORDINATED NOTES
(Title of indenture securities)
<PAGE> 2
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO
WHICH IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington,
D.C., Federal Deposit Insurance Corporation, Washington, D.C.
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its
parent, State Street Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN
EFFECT.
A copy of the Articles of Association of the trustee, as now
in effect, is on file with the Securities and Exchange
Commission as Exhibit 1 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with
the Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the trustee
to commence business was necessary or issued is on file with
the Securities and Exchange Commission as Exhibit 2 to
Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No. 22-17940)
and is incorporated herein by reference thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE
TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS
SPECIFIED IN PARAGRAPH (1) OR (2), ABOVE.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities and
Exchange Commission as Exhibit 3 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee (Form
T-1) filed with the Registration Statement of Morse Shoe, Inc.
(File No. 22-17940) and is incorporated herein by reference
thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is on
file with the Securities and Exchange Commission as Exhibit 4
to the Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of Eastern
Edison Company (File No. 33-37823) and is incorporated herein
by reference thereto.
1
<PAGE> 3
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS IN
DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(b) OF THE ACT.
The consent of the trustee required by Section 321(b) of the
Act is annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING
AUTHORITY.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority is annexed hereto as
Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the 1st of October, 1999.
STATE STREET BANK AND TRUST COMPANY
By: /s/ PATRICK E. THEBADO
----------------------------
NAME PATRICK E. THEBADO
TITLE ASSISTANT VICE PRESIDENT
2
<PAGE> 4
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by FEDDERS
NORTH AMERICAN of its SENIOR SUBORDINATED NOTES, we hereby consent that reports
of examination by Federal, State, Territorial or District authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ PATRICK E. THEBADO
----------------------------
NAME PATRICK E. THEBADO
TITLE ASSISTANT VICE PRESIDENT
DATED: OCTOBER 1, 1999
3
<PAGE> 5
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business June 30, 1999, published
in accordance with a call made by the Federal Reserve Bank of this District
pursuant to the provisions of the Federal Reserve Act and in accordance with a
call made by the Commissioner of Banks under General Laws, Chapter 172, Section
22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin ............................... 1,755,237
Interest-bearing balances ........................................................ 14,209,161
Securities ................................................................................ 13,027,148
Federal funds sold and securities purchased under agreements to resell in
domestic offices of the bank and its Edge subsidiary ............................. 7,840,413
Loans and lease financing receivables:
Loans and leases, net of unearned income ......................................... 8,134,756
Allowance for loan and lease losses .............................................. 88,351
Allocated transfer risk reserve .................................................. 0
Loans and leases, net of unearned income and allowances .......................... 8,046,405
Assets held in trading accounts ........................................................... 1,753,511
Premises and fixed assets ................................................................. 529,247
Other real estate owned ................................................................... 0
Investments in unconsolidated subsidiaries ................................................ 603
Customers' liability to this bank on acceptances outstanding .............................. 76,078
Intangible assets ......................................................................... 223,035
Other assets .............................................................................. 1,481,250
-----------
Total assets .............................................................................. 48,942,088
===========
LIABILITIES
Deposits:
In domestic offices .............................................................. 13,006,374
Noninterest-bearing ..................................................... 9,462,505
Interest-bearing ........................................................ 3,543,869
In foreign offices and Edge subsidiary ........................................... 19,913,151
Noninterest-bearing ..................................................... 444,189
Interest-bearing ........................................................ 19,468,962
Federal funds purchased and securities sold under agreements to repurchase in
domestic offices of the bank and of its Edge subsidiary .......................... 10,510,055
Demand notes issued to the U.S. Treasury .................................................. 0
Trading liabilities ...................................................... 1,151,604
Other borrowed money ...................................................................... 198,253
Subordinated notes and debentures ......................................................... 0
Bank's liability on acceptances executed and outstanding .................................. 76,078
Other liabilities ......................................................................... 1,291,791
Total liabilities ......................................................................... 46,147,306
-----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus ............................................. 0
Common stock .............................................................................. 29,931
Surplus ................................................................................... 489,739
Undivided profits and capital reserves/Net unrealized holding gains (losses) .............. 2,313,006
Net unrealized holding gains (losses) on available-for-sale securities ... (25,610)
Cumulative foreign currency translation adjustments ....................................... (12,284)
Total equity capital ...................................................................... 2,794,782
-----------
Total liabilities and equity capital ...................................................... 48,942,088
-----------
</TABLE>
4
<PAGE> 6
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
5
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
FEDDERS NORTH AMERICA, INC.
OFFER FOR ALL OUTSTANDING
9 3/8% SENIOR SUBORDINATED NOTES DUE 2007
IN EXCHANGE FOR
9 3/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2007
PURSUANT TO THE PROSPECTUS DATED , 1999
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON
,
1999, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
Delivery To: STATE STREET BANK AND TRUST COMPANY, Exchange Agent
<TABLE>
<S> <C> <C>
By Mail: For Information Call: By Overnight Courier or Hand:
State Street Bank and Trust 617-662-1525 State Street Bank and Trust
Company Company
2 Avenue de Lafayette By Facsimile Transmission 2 Avenue de Lafayette
Corporate Trust Department, 5th (for Eligible Institutions only): Corporate Trust Department, 5th
Floor Floor
Boston, MA 02111 617-662-1452 Boston, MA 02111
Attn: Elijah MacKenzie Attn: Elijah MacKenzie
Confirm by Telephone:
617-662-1525
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges that he or she has received and reviewed the
prospectus dated , 1999 (the "Prospectus"), of Fedders North
America, Inc., a Delaware corporation (the "Company"), and this Letter of
Transmittal (the "Letter"), which together constitute the Company's offer (the
"Exchange Offer") to exchange an aggregate principal amount of up to $50,000,000
of the Company's 9 3/8% Series B Senior Subordinated Notes due 2007 (the "New
Notes"), which have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), for a like principal amount of the Company's issued and
outstanding 9 3/8% Senior Subordinated Notes due 2007 (the "Old Notes") from the
holders thereof.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. Old Note holders will be entitled to receive liquidated damages with
respect to the first 90-day period immediately following the occurrence of a
Registration Default, as defined in the Registration Rights Agreement, in an
amount equal to $.05 per week per $1,000 principal amount of Old Notes held by
such holders. The amount of the liquidated damages will increase by an
additional $.05 per week per $1,000 principal amount of Old Notes with respect
to each subsequent 90-day period until all Registration Defaults have been
cured, up to a maximum amount of liquidated damages of $.40 per week per $1,000
principal amount of Old Notes. Holders of Old Notes accepted for exchange will
be deemed to have waived the right to receive any other payments or accrued
interest on the Old Notes.
This Letter is to be completed by a holder of Old Notes either if
certificates are to be forwarded herewith or if a tender of certificates for Old
Notes, if available, is to be made by book-entry transfer to the account
maintained by the Exchange Agent at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in the
section of the Prospectus entitled "The Exchange Offer -- Book-entry transfer"
and an Agent's Message (as defined herein) is not delivered. Holders of Old
Notes whose certificates are not immediately available, or who are unable to
deliver their certificates or confirmation of the book-entry tender of their Old
Notes into the Exchange Agent's account at the Book-Entry Transfer Facility (a
"Book-Entry Confirmation") and all other documents required by this Letter to
the Exchange Agent on or prior to the Expiration Date, must tender their Old
Notes according to the guaranteed delivery procedures set forth in the section
of the Prospectus entitled "The Exchange Offer -- Guaranteed delivery
procedures." See Instruction 1. Delivery of documents to the Book-Entry Transfer
Facility does not constitute delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
<PAGE> 2
List below the Old Notes to which this Letter relates. If the space
provided below is inadequate, the certificate numbers and principal amount of
Old Notes should be listed on a separate signed schedule affixed hereto.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES 1 2 3
- ----------------------------------------------------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PRINCIPAL
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE AMOUNT OF AMOUNT
(PLEASE FILL IN, IF BLANK) NUMBER(S)* OLD NOTE(S) TENDERED**
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
TOTAL
- ----------------------------------------------------------------------------------------------------------------------
* Need not be completed if Old Notes are being tendered by book-entry transfer.
** Unless otherwise indicated in this column, a holder will be deemed to have tendered ALL of the Old Notes
represented by the Old Notes indicated in column 2. See Instruction 2. Old Notes tendered must be in denominations
of principal amount of $1,000 and any integral multiple thereof. See Instruction 1.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
Account Number
------------------------------- Transaction Code Number
-------------------------------
By crediting Old Notes to the Exchange Agent's account at the Book-Entry
Facility in accordance with the Book-Entry Transfer Facility's Automated Tender
Offer Program ("ATOP") and by complying with applicable ATOP procedures with
respect to the Exchange Offer, including transmitting an Agent's Message to the
Exchange Agent in which the holder of Old Notes acknowledges and agrees to be
bound by the terms of this Letter, the participant in ATOP confirms on behalf of
itself and the beneficial owners as if it had completed the information required
herein and executed and transmitted this Letter to the Exchange Agent.
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Holder(s)
Window Ticket Number (if any)
Date of Execution of Notice of Guaranteed Delivery
Name of Institution Which Guaranteed Delivery
IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number
------------------------------- Transaction Code Number
-------------------------------
2
<PAGE> 3
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO:
Name:
Address:
----------------------------------------------------------------------------
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of New
Notes. If the undersigned is a broker-dealer that will receive New Notes for its
own account in exchange for Old Notes, it represents that the Old Notes to be
exchanged for New Notes were acquired by it as a result of market-making or
other trading activities and acknowledges that it will deliver a prospectus
meeting the requirements of the Securities Act of 1933, as amended, in
connection with any resale of such New Notes; however, by so acknowledging and
by delivering a prospectus, the undersigned will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act of 1933, as
amended. If the undersigned is a broker-dealer that will receive New Notes, it
represents that the Old Notes to be exchanged for the New Notes were acquired as
a result of market-making activities or other trading activities.
3
<PAGE> 4
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of Old
Notes indicated above. Subject to, and effective upon, the acceptance for
exchange of the Old Notes tendered hereby, the undersigned hereby sells, assigns
and transfers to, or upon the order of, the Company, all right, title and
interest in and to such Old Notes as are being tendered hereby.
The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as the undersigned's true and lawful agent and attorney-in-fact with
respect to such tendered Old Notes, with full power of substitution, among other
things, to cause the Old Notes to be assigned transferred and exchanged. The
undersigned hereby represents and warrants that the undersigned has full power
and authority to tender, sell, assign and transfer the Old Notes tendered hereby
and that the Company will acquire good and unencumbered title thereto, free and
clear of all liens, restrictions, charges and encumbrances and not subject to
any adverse claim when the same are accepted by the Company. The undersigned
hereby further represents that any New Notes acquired in exchange for Old Notes
tendered hereby will have been acquired in the ordinary course of business of
the person receiving such New Notes, whether or not such person is the
undersigned, that neither the holder of such Old Notes nor any such other person
is participating in, intends to participate in or has an arrangement or
understanding with any person to participate in the distribution of such New
Notes and that neither the Holder of such Old Notes nor any such other person is
an "affiliate," as defined in Rule 405 under the Securities Act, of the Company.
The undersigned acknowledges that this Exchange Offer is being made in
reliance on interpretations by the staff of the Securities and Exchange
Commission (the "SEC"), as set forth in no-action letters issued to third
parties, that the New Notes issued in exchange for the Old Notes pursuant to the
Exchange Offer may be offered for resale, resold and otherwise transferred by
holders thereof (other than any such holder that is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such holders' business and such holders have no arrangement with any person
to participate in the distribution of such New Notes. However, the Company does
not intend to request the SEC to consider, and the SEC has not considered, the
Exchange Offer in the context of a no-action letter and there can be no
assurance that the staff of the SEC would make a similar determination with
respect to the Exchange Offer as in other circumstances. If the undersigned is
not a broker-dealer, the undersigned represents that it is not engaged in, and
does not intend to engage in, a distribution of New Notes and has no arrangement
or understanding to participate in a distribution of New Notes. If any holder is
an affiliate of the Company or is engaged in or intends to engage in or has any
arrangement or understanding with respect to the distribution of the New Notes
to be acquired pursuant to the Exchange Offer, such holder (i) could not rely on
the applicable interpretations of the staff of the SEC and (ii) must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. If the undersigned is a broker-dealer
that will receive New Notes for its own account in exchange for Old Notes, it
represents that the Old Notes to be exchanged for the New Notes were acquired by
it as a result of market-making or other trading activities and acknowledges
that it will deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of such New Notes; however, by so acknowledging
and by delivering a prospectus meeting the requirements of the Securities Act,
the undersigned will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in the section of the Prospectus entitled "The
Exchange Offer -- Withdrawal rights."
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not exchanged)
in the name of the undersigned or, in the case of a book-entry delivery of Old
Notes, please credit the account indicated above
4
<PAGE> 5
maintained at the Book-Entry Transfer Facility. Similarly, unless otherwise
indicated under the box entitled "Special Delivery Instructions" below, please
send the New Notes (and, if applicable, substitute certificates representing Old
Notes for any Old Notes not exchanged) to the undersigned at the address shown
above in the box entitled "Description of the Old Notes."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF THE OLD
NOTES" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD
NOTES AS SET FORTH IN SUCH BOX ABOVE.
- ------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
- ------------------------------------------------------------
To be completed ONLY if the certificates for the Old Notes not exchanged
and/or the New Notes are to be issued in the name of and sent to someone other
than the person or persons whose signature(s) appear(s) on this Letter above,
or if the Old Notes delivered by book-entry transfer which are not accepted
for exchange are to be returned by credit to an account maintained at the
Book-Entry Transfer Facility other than the account indicated above.
Issue: New Notes and/or Old Notes to:
Name(s)
------------------------------------------------
(PLEASE TYPE OR PRINT)
-----------------------------------------------------------
(PLEASE TYPE OR PRINT)
Address
-------------------------------------------------
-----------------------------------------------------------
(ZIP CODE)
(COMPLETE SUBSTITUTE FORM W-9)
[ ] Credit unexchanged Old Notes delivered by book-entry transfer to the
Book-Entry Transfer Facility account set forth below.
-----------------------------------------------------------
(BOOK-ENTRY TRANSFER FACILITY
ACCOUNT NUMBER, IF APPLICABLE)
- ------------------------------------------------------------
- ------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
- ------------------------------------------------------------
To be completed ONLY if the certificates for the Old Notes not exchanged
and/or the New Notes are to be sent to someone other than the person or
persons whose signature(s) appear(s) on this Letter above or to such person or
persons at an address other than shown in the box entitled "Description of the
Old Notes" on this Letter above.
Mail: New Notes and/or Old Notes to:
Name(s)
------------------------------------------------
(PLEASE TYPE OR PRINT)
-----------------------------------------------------------
(PLEASE TYPE OR PRINT)
Address
-------------------------------------------------
-----------------------------------------------------------
(ZIP CODE)
- ------------------------------------------------------------
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF OR AN AGENT'S MESSAGE IN LIEU
THEREOF (TOGETHER WITH THE CERTIFICATES FOR OLD NOTES OR A BOOK-ENTRY
CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR THE NOTICE OF GUARANTEED
DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK
CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
5
<PAGE> 6
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 ON REVERSE SIDE)
Dated:
- --------------------------------------------------------------------------, 1999
x
- --------------------------------------------------------------------------, 1999
x
- --------------------------------------------------------------------------, 1999
SIGNATURE(S) OF OWNER DATE
Area Code and Telephone Number
- --------------------------------------------------------------------------------
If a holder is tendering any Old Notes, this Letter must be signed by the
registered holder(s) as the name(s) appear(s) on the certificate(s) for the Old
Notes or by any person(s) authorized to become registered holder(s) by
endorsements and documents transmitted herewith. If signature is by a trustee,
executor, administrator, guardian, officer or other person acting in a fiduciary
or representative capacity, please set forth full title. See Instruction 3.
Name(s):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Capacity:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDING ZIP CODE)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by
an Eligible Institution:
- --------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
- --------------------------------------------------------------------------------
(TITLE)
- --------------------------------------------------------------------------------
(NAME AND FIRM)
Dated:
- --------------------------------------------------------------------------, 1999
6
<PAGE> 7
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER FOR THE
9 3/8% SENIOR SUBORDINATED NOTES DUE 2007 IN EXCHANGE FOR THE
9 3/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2007 OF FEDDERS NORTH AMERICA,
INC.
1. DELIVERY OF THIS LETTER AND NOTES; GUARANTEED DELIVERY PROCEDURES.
This Letter is to be completed by noteholders either if certificates are to
be forwarded herewith or if tenders are to be made pursuant to the procedures
for delivery by book-entry transfer set forth in the section of the Prospectus
entitled "The Exchange Offer -- Book-entry transfer" and an Agent's Message is
not delivered. Certificates for all physically tendered Old Notes, or Book-Entry
Confirmation, as the case may be, as well as a properly completed and duly
executed Letter (or manually signed facsimile hereof) and any other documents
required by this Letter, must be received by the Exchange Agent at the address
set forth herein on or prior to the Expiration Date, or the tendering holder
must comply with the guaranteed delivery procedures set forth below. Old Notes
tendered hereby must be in denominations of principal amount at maturity of
$1,000 and any integral multiple thereof. The term Agent's Message means a
message transmitted to the Book-Entry Transfer Facility and received by the
Exchange Agent and forms a part of the Book-Entry Confirmation, which states
that the Book-Entry Transfer Facility has received an express acknowledgment
from the tendering Participant that such Participant has received and agrees to
be bound by this Letter and that the Company may enforce this Letter against
such Participant.
Noteholders whose certificates for Old Notes are not immediately available
or who cannot deliver their certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date, or who cannot complete the
procedure for book-entry transfer on a timely basis, may tender their Old Notes
pursuant to the guaranteed delivery procedures set forth in the section of the
Prospectus entitled "The Exchange Offer -- Guaranteed delivery procedures."
Pursuant to such procedures, (i) such tender must be made through an Eligible
Institution, (ii) prior to the Expiration Date, the Exchange Agent must receive
from such Eligible Institution a properly completed and duly executed Letter (or
a facsimile thereof or an Agent's Message in lieu thereof) and Notice of
Guaranteed Delivery, substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of Old Notes and the amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that within three New
York Stock Exchange ("NYSE") trading days after the date of execution of the
Notice of Guaranteed Delivery, the certificates for all physically tendered Old
Notes, or a Book-Entry Confirmation, and any other documents required by this
Letter will be deposited by the Eligible Institution with the Exchange Agent,
and (iii) the certificates for all physically tendered Old Notes, in proper form
for transfer, or a Book-Entry Confirmation, as the case may be, and all other
documents required by this Letter, are received by the Exchange Agent within
three NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.
The method of delivery of this Letter, the Old Notes and all other required
documents is at the election and risk of the tendering holders, but the delivery
will be deemed made only when actually received or confirmed by the Exchange
Agent. If Old Notes are sent by mail, it is suggested that the mailing be made
sufficiently in advance of the Expiration Date to permit delivery to the
Exchange Agent prior to 5:00 P.M., New York City time, on the Expiration Date.
See the section of the Prospectus entitled "The Exchange Offer."
2. PARTIAL TENDERS (NOT APPLICABLE TO NOTEHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER).
If less than all of the Old Notes evidenced by a submitted certificate are
to be tendered, the tendering holder(s) should fill in the aggregate principal
amount of Old Notes to be tendered in the box above entitled "Description of the
Old Notes -- Principal Amount Tendered." A reissued certificate representing the
balance of nontendered Old Notes will be sent to such tendering holder, unless
otherwise provided in the appropriate box on this Letter, promptly after the
Expiration Date. ALL OF THE OLD NOTES DELIVERED TO THE EXCHANGE AGENT WILL BE
DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE INDICATED.
7
<PAGE> 8
3. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES.
If this Letter is signed by the registered holder of the Old Notes tendered
hereby, the signature must correspond exactly with the name as written on the
face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all of such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
When this Letter is signed by the registered holder or holders of the Old
Notes specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required. If, however, the New Notes are to be issued,
or any untendered Old Notes are to be reissued, to a person other than the
registered holder, then endorsements of any certificates transmitted hereby or
separate bond powers are required. Signatures on such certificate(s) must be
guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder or
holders of any certificate(s) specified herein, such certificate(s) must be
endorsed or accompanied by appropriate bond powers, in either case signed
exactly as the name or names of the registered holder or holders appear(s) on
the certificate(s) and signatures on such certificate(s) must be guaranteed by
an Eligible Institution.
If this Letter or any certificates or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of such persons' authority to so act
must be submitted.
Endorsements on certificates for Old Notes or signatures on bond powers
required by this Instruction 3 must be guaranteed by a firm which is a member of
a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust company
having an office or correspondent in the United States (an "Eligible
Institution").
Signatures on this Letter need not be guaranteed by an Eligible
Institution, provided the Old Notes are tendered: (i) by a registered holder of
Old Notes (which term, for purposes of the Exchange Offer, includes any
participant in the Book-Entry Transfer Facility system whose name appears on a
security position listing as the holder of such Old Notes) who has not completed
the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on this Letter, or (ii) for the account of an Eligible
Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of Old Notes should indicate in the applicable box the
name and address to which New Notes issued pursuant to the Exchange Offer and or
substitute certificates evidencing Old Notes not exchanged are to be issued or
sent, if different from the name or address of the person signing this Letter.
In the case of issuance in a different name, the employer identification or
social security number of the person named must also be indicated. Noteholders
tendering Old Notes by book-entry transfer may request that Old Notes not
exchanged be credited to such account maintained at the Book-Entry Transfer
Facility as such noteholder may designate hereon. If no such instructions are
given, such Old Notes not exchanged will be returned to the name and address of
the person signing this Letter.
5. TAXPAYER IDENTIFICATION NUMBER.
Federal income tax law generally requires that a tendering holder whose Old
Notes are accepted for exchange must provide the Company (as payor) with such
holder's correct Taxpayer Identification Number ("TIN") on Substitute Form W-9
below, which in the case of a tendering holder who is an individual, is his or
her social security number. If the Company is not provided with the current TIN
or an adequate basis for an exemption, such tendering holder may be subject to a
$50 penalty imposed by the Internal Revenue Service. In addition, delivery to
such tendering holder of New Notes may be subject to backup withholding in an
amount equal to 31% of all reportable payments made after the exchange. If
withholding results in an overpayment of taxes, a refund may be obtained.
8
<PAGE> 9
Exempt holders of Old Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See the enclosed Guidelines of Certification of Taxpayer
Identification Number on Substitute Form W-9 (the "W-9 Guidelines") for
additional instructions.
To prevent backup withholding, each tendering holder of Old Notes must
provide its correct TIN by completing the Substitute Form W-9 set forth below,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN) and that (i) the holder is exempt from backup withholding, or (ii) the
holder has not been notified by the Internal Revenue Service that such holder is
subject to backup withholding as a result of a failure to report all interest or
dividends or (iii) the Internal Revenue Service has notified the holder that
such holder is no longer subject to backup withholding. If the tendering holder
of Old Notes is a nonresident alien or foreign entity not subject to backup
withholding, such holder must give the Company a completed Form W-8, Certificate
of Foreign Status. These forms may be obtained from the Exchange Agent. If the
Old Notes are in more than one name or are not in the name of the actual owner,
such holder should consult the W-9 Guidelines for information on which TIN to
report. If such holder does not have a TIN, such holder should consult the W-9
Guidelines for instructions on applying for a TIN, check the box in Part 2 of
the Substitute Form W-9 and write "applied for" in lieu of its TIN. Note:
Checking this box and writing "applied for" on the form means that such holder
has already applied for a TIN or that such holder intends to apply for one in
the near future. If such holder does not provide its TIN to the Company within a
60-day period, backup withholding will begin and continue until such holder
furnishes its TIN to the Company.
6. TRANSFER TAXES.
The Company will pay all transfer taxes, if any, applicable to the transfer
of Old Notes to it or its order pursuant to the Exchange Offer. If, however, New
Notes and/or substitute Old Notes not exchanged are to be delivered to, or are
to be registered or issued in the name of, any person other than the registered
holder of the Old Notes tendered hereby, or if tendered Old Notes are registered
in the name of any person other than the person signing this Letter, or if a
transfer tax is imposed for any reason other than the transfer of Old Notes to
the Company or its order pursuant to the Exchange Offer, the amount of any such
transfer taxes (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted herewith, the amount of such
transfer taxes will be billed directly to such tendering holder. Except as
provided in this Instruction 6, it will not be necessary for transfer tax stamps
to be affixed to the Old Notes specified in this Letter.
7. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive satisfaction of any or all
conditions enumerated in the Prospectus.
8. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Old Notes, by execution of this Letter, shall
waive any right to receive notice of the acceptance of their Old Notes for
exchange.
Neither the Company, the Exchange Agent nor any other person is obligated
to give notice of any defect or irregularity with respect to any tender of Old
Notes nor shall any of them incur any liability for failure to give any such
notice.
9. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES.
Any holder whose Old Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
10. WITHDRAWAL RIGHTS.
Tenders of Old Notes to be effective, a written notice of withdrawal must
be received by the Exchange Agent at the address set forth above before 5:00
P.M., New York City time, on the Expiration Date. Any such notice of withdrawal
must (i) specify the name of the person having tendered the Old Notes to be
withdrawn (the "Depositor"), (ii) identify the Old Notes to be withdrawn
(including certificate number or numbers and the principal amount of such Old
Notes), (iii) contain a statement that such holder is withdrawing his election
to have such Old Notes exchanged, (iv) be signed
9
<PAGE> 10
by the holder in the same manner as the original signature on the Letter by
which such Old Notes were tendered (including any required signature guarantees)
or be accompanied by documents of transfer to have the Trustee with respect to
the Old Notes register the transfer of such Old Notes in the name of the person
withdrawing the tender and (v) specify the name in which such Old Notes are
registered, if different from that of the Depositor. If Old Notes have been
tendered pursuant to the procedure for book-entry transfer set forth in "The
Exchange Offer -- Book-Entry Transfer" section of the Prospectus, any notice of
withdrawal must specify the name and number of the account at the Book-Entry
Transfer Facility to be credited with the withdrawn Old Notes and otherwise
comply with the procedures of such facility. All questions as to the validity,
form and eligibility (including time of receipt) of such notices will be
determined by the Company, whose determination shall be final and binding on all
parties. Any Old Notes so withdrawn will be deemed not to have validly tendered
for exchange for purposes of the Exchange Offer and no New Notes will be issued
with respect thereto unless the Old Notes so withdrawn are validly retendered.
Any Old Notes that have been tendered for exchange but which are not exchanged
for any reason will be returned to the Holder thereof without cost to such
Holder (or, in the case of Old Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures set forth in "The Exchange Offer -- Book-Entry
Transfer" section of the Prospectus, such Old Notes will be credited to an
account maintained with the Book-Entry Transfer Facility for the Original Notes)
as soon as practicable after withdrawal, rejection of tender or termination of
the Exchange Offer. Properly withdrawn Old Notes may be retendered by following
the procedures described above at any time on or before 5:00 P.M., New York City
time, on the Expiration Date.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, and requests for Notices of
Guaranteed Delivery and other related documents may be directed to the Exchange
Agent, at the address and telephone number indicated above.
12. INCORPORATION OF LETTER OF TRANSMITTAL.
This letter shall be deemed to be incorporated in and acknowledged and
accepted by any tender through the Book-Entry Transfer Facility's ATOP
procedures by any Participant on behalf of itself and the beneficial owners of
any Old Notes so tendered.
10
<PAGE> 11
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYOR'S NAME: STATE STREET BANK AND TRUST COMPANY
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1--PLEASE PROVIDE YOUR TIN IN THE BOX AT
FORM W-9 RIGHT AND CERTIFY BY SIGNING AND DATING BELOW.
TIN: --------
Social Security Number or
Employer Identification Number
-------------------------------------------------------------------------------------------------
PART 2--TIN APPLIED FOR [ ]
-------------------------------------------------------------------------------------------------
CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
DEPARTMENT OF THE
TREASURY (1) the number shown on this form is my correct Taxpayer Identification Number (or I am waiting
INTERNAL REVENUE SERVICE for a number to be issued to me)
(2) I am not subject to backup withholding either because: (a) I am exempt from backup
PAYOR'S REQUEST FOR withholding, or (b) I have not been notified by the Internal Revenue Service (the "IRS")
TAXPAYER IDENTIFICATION that I am subject to backup withholding as a result of a failure to report all interest or
NUMBER ("TIN") AND dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding,
CERTIFICATION and
(3) any other information provided on this form is true and correct.
Signature: ---------- Date: ------
- -------------------------------------------------------------------------------------------------------------------------------
You must cross out item (2) of the above certification if you have been notified by the IRS that you are subject to backup
withholding because of underreporting of interest or dividends on your tax return and you have not been notified by the IRS
that you are no longer subject to backup withholding.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 2 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of the exchange, 31% of all
reportable payments made to me thereafter will be withheld until I provide a
number.
- ------------------------------ ------------------------------
Signature Date
11
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY FOR
FEDDERS NORTH AMERICA, INC.
This form or one substantially equivalent hereto must be used to accept the
Exchange Offer of Fedders North America, Inc. (the "Company") made pursuant to
the Prospectus, dated , 1999 (the "Prospectus"), if certificates
for the outstanding 9 3/8% Senior Subordinated Notes due 2007 (the "Old Notes")
of the Company are not immediately available or if the procedure for book-entry
transfer cannot be completed on a timely basis or time will not permit all
required documents to reach the Company prior to 5:00 p.m., New York City time,
on the Expiration Date of the Exchange Offer. Such form may be delivered or
transmitted by telegram, telex, facsimile transmission, mail or hand delivery to
State Street Bank and Trust Company (the "Exchange Agent") as set forth below.
In addition, in order to utilize the guaranteed delivery procedure to tender Old
Notes pursuant to the Exchange Offer, a completed, signed and dated Letter of
Transmittal (or facsimile thereof) must also be received by the Exchange Agent
prior to 5:00 p.m., New York City time, on the Expiration Date. Capitalized
terms not defined herein are defined in the Prospectus.
Delivery To: STATE STREET BANK AND TRUST COMPANY, Exchange Agent
<TABLE>
<S> <C> <C>
By Mail: By Facsimile: By Overnight Courier or Hand:
State Street Bank and Trust
State Street Bank and Trust 617-662-1525 Company
Company 2 Avenue de Lafayette
2 Avenue de Lafayette Confirm by Telephone: Corporate Trust Department, 5th
Corporate Trust Department, 5th 617-662-1452 Floor
Floor Boston, MA 02111
Boston, MA 02111 Attn: Elijah MacKenzie
Attn: Elijah MacKenzie
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the principal amount of Old Notes set forth below, pursuant to the
guaranteed delivery procedure described in "The Exchange Offer -- Guaranteed
Delivery Procedures" section of the Prospectus.
<TABLE>
<S> <C>
Principal Amount of Old Notes Tendered:* If Old Notes will be delivered by book-entry
transfer to The Depository Trust Company, provide
$ account number
- --------------------------------------------------
Certificate Nos. (if available): Account Number
------------------------------------------
- --------------------------------------------------
Total Principal Amount Represented by Original
Notes Certificate(s):
$
- --------------------------------------------------
</TABLE>
- ---------------
* Must be in denomination of principal amount at maturity of $1,000 and any
integral multiple thereof.
<PAGE> 2
ALL AUTHORITY HEREIN CONFERRED OR AGREED TO BE CONFERRED SHALL SURVIVE THE
DEATH OR INCAPACITY OF THE UNDERSIGNED AND EVERY OBLIGATION OF THE UNDERSIGNED
HEREUNDER SHALL BE BINDING UPON THE HEIRS, PERSONAL REPRESENTATIVES, SUCCESSORS
AND ASSIGNS OF THE UNDERSIGNED.
PLEASE SIGN HERE
<TABLE>
<S> <C>
X
- -------------------------------------------- --------------------------------------------
X
- --------------------------------------------
--------------------------------------------
SIGNATURE(S) OF OWNER(S) DATE
OR AUTHORIZED SIGNATORY
Area Code and Telephone Number:
- -----------------------------------------------------------------------------------------------
</TABLE>
Must be signed by the holder(s) of Old Notes as their name(s) appear(s) on
certificates for Old Notes or on a security position listing, or by person(s)
authorized to become registered holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must set
forth his or her full title below.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
NAME(S):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CAPACITY:
- --------------------------------------------------------------------------------
ADDRESS(ES):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GUARANTEE
The undersigned, a member of a registered national securities exchange, or
a member of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an office or correspondent in the United
States, hereby guarantees that the certificates representing the principal
amount of Old Notes tendered hereby in proper form for transfer, or timely
confirmation of the book-entry transfer of such Old Notes into the Exchange
Agent's account at The Depository Trust Company pursuant to the procedures set
forth in "The Exchange Offer--Guaranteed Delivery Procedures" section of the
Prospectus, together with a properly completed and duly executed Letter of
Transmittal (or a manually signed facsimile thereof) with any required signature
guarantee and any other documents required by the Letter of Transmittal, will be
received by the Exchange Agent at the address set forth above, no later than
three New York Stock Exchange trading days after the date of execution hereof.
Name of Firm:
- -------------------------------
Address:
- --------------------------------------
- ------------------------------------------------
(ZIP CODE)
Area Code and
Telephone No.:
- -------------------------------
- ------------------------------------------------
(AUTHORIZED SIGNATURE)
Name:
- ----------------------------------------
(PLEASE TYPE OR PRINT)
Title:
- -----------------------------------------
Dated: , 1999
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM.
CERTIFICATES FOR OLD NOTES SHOULD ONLY BE SENT WITH YOUR
LETTER OF TRANSMITTAL.
2
<PAGE> 1
EXHIBIT 99.3
FEDDERS NORTH AMERICA, INC.
OFFER FOR ALL OUTSTANDING 9 3/8% SENIOR SUBORDINATED NOTES DUE 2007
IN EXCHANGE FOR 9 3/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2007
TO: BROKERS, DEALERS, COMMERCIAL BANKS
TRUST COMPANIES AND OTHER NOMINEES:
Fedders North America, Inc. (the "Company") is offering, upon and subject
to the terms and conditions set forth in the prospectus dated , 1999
(the "Prospectus"), and the enclosed Letter of Transmittal (the "Letter of
Transmittal"), to exchange (the "Exchange Offer") its 9 3/8% Series B Senior
Subordinated Notes due 2007, which have been registered under the Securities Act
of 1933, as amended, for its outstanding 9 3/8% Senior Subordinated Notes due
2007 (the "Old Notes"). The Exchange Offer is being made in order to satisfy
certain obligations of the Company contained in the Registration Rights
Agreement dated August 24, 1999, by and among the Company, the Guarantor and the
Initial Purchaser referred to therein.
We are requesting that you contact your clients for whom you hold Old Notes
regarding the Exchange Offer. For your information and for forwarding to your
clients for whom you hold Old Notes registered in your name or in the name of
your nominee, or who hold Old Notes registered in their own names, we are
enclosing the following documents:
1. Prospectus dated , 1999;
2. The Letter of Transmittal for your use and for the information of
your clients;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange
Offer if certificates for Old Notes are not immediately available or time
will not permit all required documents to reach the Exchange Agent prior to
the Expiration Date (as defined below) or if the procedure for book-entry
transfer cannot be completed on a timely basis;
4. A form of letter which may be sent to your clients for whose
account you hold Old Notes registered in your name or the name of your
nominee, with space provided for obtaining such clients' instructions with
regard to the Exchange Offer; and
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
YOUR PROMPT ACTION IS REQUESTED. THE EXCHANGE OFFER WILL EXPIRE AT 5:00
P.M., NEW YORK CITY TIME, ON , 1999, UNLESS EXTENDED BY THE COMPANY
(THE "EXPIRATION DATE"). OLD NOTES TENDERED PURSUANT TO THE EXCHANGE OFFER MAY
BE WITHDRAWN AT ANY TIME BEFORE THE EXPIRATION DATE.
To participate in the Exchange Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, should be sent to the
Exchange Agent and certificates representing the Old Notes should be delivered
to the Exchange Agent, all in accordance with the instructions set forth in the
Letter of Transmittal and the Prospectus.
If holders of Old Notes wish to tender, but it is impracticable for them to
forward their certificates for Old Notes prior to the expiration of the Exchange
Offer or to comply with the book-entry transfer procedures on a timely basis, a
tender may be effected by following the guaranteed delivery procedures described
in the section of the Prospectus entitled "The Exchange Offer -- Guaranteed
delivery procedures."
The Company will, upon request, reimburse brokers, dealers, commercial
banks and trust companies for reasonable and necessary costs and expenses
incurred by them in forwarding the Prospectus and the related documents to the
beneficial owners of Old Notes held by them as nominee or in a fiduciary
capacity. The Company will pay or cause to be paid all stock transfer taxes
applicable to the exchange of Old Notes pursuant to the Exchange Offer, except
as set forth in Instruction 6 of the Letter of Transmittal.
<PAGE> 2
Any inquiries you may have with respect to the Exchange Offer, or requests
for additional copies of the enclosed materials, should be directed to State
Street Bank and Trust Company, the Exchange Agent for the Old Notes, at its
address and telephone number set forth on the front of the Letter of
Transmittal.
Very truly yours,
FEDDERS NORTH AMERICA, INC.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY
OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF EITHER OF
THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN
THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
Enclosures
2
<PAGE> 1
EXHIBIT 99.4
FEDDERS NORTH AMERICA, INC.
OFFER FOR ALL OUTSTANDING 9 3/8% SENIOR SUBORDINATED NOTES DUE 2007
IN EXCHANGE FOR 9 3/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2007
TO OUR CLIENTS:
Enclosed for your consideration is a Prospectus dated , 1999
(the "Prospectus"), and the related Letter of Transmittal (the "Letter of
Transmittal"), relating to the offer (the "Exchange Offer") of Fedders North
America, Inc. (the "Company") to exchange its 9 3/8% Series B Senior
Subordinated Notes due 2007, which have been registered under the Securities Act
of 1933, as amended, for its outstanding 9 3/8% Senior Subordinated Notes due
2007 (the "Old Notes"), upon the terms and subject to the conditions described
in the Prospectus and the Letter of Transmittal. The Exchange Offer is being
made in order to satisfy certain obligations of the Company contained in the
Registration Rights Agreement dated August 24, 1999, by and among the Company,
the Guarantor and the Initial Purchaser referred to therein.
This material is being forwarded to you as the beneficial owner of the Old
Notes carried by us in your account but not registered in your name. A TENDER OF
SUCH OLD NOTES MAY ONLY BE MADE BY US AS THE HOLDER OF RECORD AND PURSUANT TO
YOUR INSTRUCTIONS.
Accordingly, we request instructions as to whether you wish us to tender on
your behalf the Old Notes held by us for your account, pursuant to the terms and
conditions set forth in the enclosed Prospectus and Letter of Transmittal.
Your instructions should be forwarded to us as promptly as possible in
order to permit us to tender the Old Notes on your behalf in accordance with the
provisions of the Exchange Offer. The Exchange Offer will expire at 5:00 p.m.,
New York City time, on , 1999, unless extended by the Company. Any
Old Notes tendered pursuant to the Exchange Offer may be withdrawn at any time
before the Expiration Date.
Your attention is directed to the following:
1. The Exchange Offer is for any and all Old Notes.
2. The Exchange Offer is subject to certain conditions set forth in
the Prospectus in the section entitled "The Exchange Offer -- Conditions to
the exchange offer."
3. Any transfer taxes incident to the transfer of Old Notes from the
holder to the Company will be paid by the Company, except as otherwise
provided in the Instructions in the Letter of Transmittal.
4. The Exchange Offer expires at 5:00 p.m., New York City time, on
, 1999, unless extended by the Company.
If you wish to have us tender your Old Notes, please so instruct us by
completing, executing and returning to us the instruction form on the back of
this letter. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR INFORMATION ONLY
AND MAY NOT BE USED DIRECTLY BY YOU TO TENDER OLD NOTES.
<PAGE> 2
INSTRUCTIONS WITH RESPECT TO
THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer made by Fedders
North America, Inc. with respect to its Old Notes.
This will instruct you to tender the Old Notes held by you for the account
of the undersigned, upon and subject to the terms and conditions set forth in
the Prospectus and the related Letter of Transmittal.
Please tender the Old Notes held by you for my account as indicated below:
<TABLE>
<S> <C>
AGGREGATE PRINCIPAL AMOUNT OF OLD NOTES
-------------------------------------------------
9 3/8% Senior Subordinated Notes due 2007.................. -------------------------------------------------
[ ] Please do not tender any Old Notes held
by you for my account
-------------------------------------------------
-------------------------------------------------
Dated: ------------------------------, 1999 Signature(s)
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
Please print name(s) here
-------------------------------------------------
-------------------------------------------------
Address(es)
-------------------------------------------------
Area Code and Telephone Number
-------------------------------------------------
Tax Identification or Social Security No(s).
</TABLE>
None of the Old Notes held by us for your account will be tendered unless
we receive written instructions from you to do so. Unless a specific contrary
instruction is given in the space provided, your signature(s) hereon shall
constitute an instruction to us to tender all the Old Notes held by us for your
account.
2
<PAGE> 1
EXHIBIT 99.5
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER -- Social Security numbers have nine digits separated by two hyphens:
i.e., 000-00-0000. Employer identification numbers have nine digits separated by
only one hyphen: i.e., 00-0000000. The table below will help determine the
number to give the payer.
<TABLE>
<C> <S> <C>
- ------------------------------------------------------------
GIVE THE
FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY
NUMBER OF --
- ------------------------------------------------------------
1. An individual's account The individual
2. TWO or more individuals (Joint The actual owner of
account) the account or, if
combined funds, any
one of the
individuals(1)
3. Husband and wife (joint account) The actual owner of
the account or, if
joint funds, either
person(1)
4. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
5. a. The usual revocable savings The grantor-
trust account (grantor is also trustee(1)
trustee)
b. So-called trust account that is The actual owner(1)
not a legal or valid trust
under state law
6. Sole proprietorship account The Owner(4)
- ------------------------------------------------------------
- ------------------------------------------------------------
GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: IDENTIFICATION
NUMBER OF--
- ------------------------------------------------------------
7. A valid trust, estate, or pension Legal entity (Do
trust not furnish the
identifying number
of the personal
representative or
trustee unless the
legal entity itself
is not designated
in the account
title.)(5)
8. Corporate The corporation
9. Partnership The partnership
10. Association, club, religious, The organization
charitable, or educational, or
other tax-exempt organization
11. A broker or registered nominee The broker or
nominee
12. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a state or
local government, school district,
or prison) that receives
agricultural program payments
- ------------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Show the name of the owner.
(4) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE> 2
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, Form
W-7, Application for IRS Individual Taxpayer Identification Number or Form SS-4,
Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEE EXEMPT FROM BACKUP WITHHOLDING
Payees that may be exempt from backup withholding include the following:
- A corporation.
- A financial institution.
PAYEES THAT ARE EXEMPT FROM BACKUP WITHHOLDING INCLUDE THE FOLLOWING:
- An organization exempt from tax under Section 501(a) or an individual
retirement plan.
- --The United States or any agency or instrumentality thereof.
- A state, the District of Columbia, a possession of the United States or any
subdivision or instrumentality thereof.
- --A foreign government, a political subdivision of a foreign government or
any agency or instrumentality thereof.
- An international organization or any agency or instrumentality thereof.
- A registered dealer in securities or commodities registered in the U.S., the
District of Columbia, or a possession of the U.S.
- A real estate investment trust.
- A common trust fund operated by a bank under Section 584(a).
- A trust exempt from tax under Section 664 or described in Section 4947.
- An entity registered at all times under the Investment Company Act of 1940.
- --A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- Payments to nonresident aliens subject to withholding under section 1441.
- Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident alien partner.
- Payments of patronage dividends where the amount received is not paid in
money.
- Payments made by certain foreign organizations.
Payments of interest not generally subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals. NOTE: You may be
subject to backup withholding if this interest is $600 or more and is paid
in the course of the payer's trade or business and you have not provided
your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt interest dividends under
section 852).
- Payments described in section 6049(b)(5) to non-resident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
JOINT FOREIGN PAYEES
Backup withholding applies unless:
1. Every joint payee provides the statement regarding foreign status; or
2. Anyone of the joint payees who has not established foreign status
supplies a TIN.
If anyone of the joint payees who has not established foreign status supplies
a TIN, that number is the TIN that must be used for purposes of backup
withholding and information reporting.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, ENTER YOUR CORRECT TAXPAYER
IDENTIFICATION NUMBER IN PART I, WRITE "EXEMPT" IN PART II AND SIGN AND DATE THE
FORM.
Certain payments other than interest, dividends and patronage dividends that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041(a), 6045
and 6050A.
PRIVACY ACT NOTICE.--Section 6109 of the Internal Revenue Code requires most
recipients of dividend, interest or other payments to give taxpayer
identification numbers to payers who must report the payments to the IRS. The
IRS uses the numbers for identification purposes. Payers must be given the
numbers whether or not recipients are required to file tax returns. Payers must
generally withhold 31% of taxable interest, dividend and certain other payments
to a payee who does not furnish a taxpayer identification number to a payer.
Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX
CONSULTANT OR THE INTERNAL REVENUE SERVICE.
