<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 6, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
LENNOX INTERNATIONAL INC.
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 3585 42-0991521
(State or other jurisdiction of (Primary Industrial Standard (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
2100 LAKE PARK BLVD.
RICHARDSON, TEXAS 75080
(972) 497-5000
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
---------------------
CARL E. EDWARDS, JR.
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
LENNOX INTERNATIONAL INC.
2100 LAKE PARK BLVD.
RICHARDSON, TEXAS 75080
(972) 497-5000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
Copies to:
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<S> <C>
ANDREW M. BAKER ROBERT F. GRAY, JR.
BAKER & BOTTS, L.L.P. FULBRIGHT & JAWORSKI L.L.P.
2001 ROSS AVENUE 1301 MCKINNEY, SUITE 5100
DALLAS, TEXAS 75201 HOUSTON, TEXAS 77010
(214) 953-6500 (713) 651-5151
</TABLE>
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
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, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
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If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, 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(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(2) REGISTRATION FEE
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<S> <C> <C>
Common Stock, par value $.01 per share(1)............... $10,000,000 $2,780
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(1) In accordance with Rule 457(o) under the Securities Act of 1933, as amended,
the number of shares being registered and the proposed maximum offering
price per share are not included in this table.
(2) Estimated solely for the purpose of calculating the registration fee.
---------------------
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 THE 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
EXPLANATORY NOTE
This registration statement contains two forms of prospectus: one to be
used in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and one to be used in a concurrent offering outside the United
States and Canada (the "International Prospectus" and, together with the U.S.
Prospectus, the "Prospectuses"). The Prospectuses are identical in all material
respects except for the front cover page. The U.S. Prospectus is included herein
and is followed by the alternate front cover page to be used in the
International Prospectus. The alternate page for the International Prospectus
included herein is labeled "Alternate Cover Page for International Prospectus."
Final forms of each Prospectus will be filed with the Securities and Exchange
Commission under Rule 424(b).
<PAGE> 3
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 WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS (Subject to Completion)
Issued April 6, 1999
Shares
[LENNOX INTERNATIONAL INC. LOGO]
COMMON STOCK
------------------------
LENNOX INTERNATIONAL INC. IS OFFERING SHARES OF COMMON STOCK AND THE
SELLING STOCKHOLDERS ARE OFFERING SHARES OF COMMON STOCK. THIS IS OUR
INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR OUR SHARES. WE
ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $ AND
$ PER SHARE.
------------------------
APPLICATION WILL BE MADE TO LIST THE COMMON STOCK ON THE
NEW YORK STOCK EXCHANGE UNDER THE SYMBOL "LII."
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 9.
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PRICE $ A SHARE
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UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS LENNOX STOCKHOLDERS
-------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Per Share................. $ $ $ $
Total..................... $ $ $ $
</TABLE>
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The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Lennox International Inc. has granted the underwriters the right to purchase up
to an additional shares of common stock to cover over-allotments.
Morgan Stanley & Co. Incorporated expects to deliver the shares of common stock
to purchasers on , 1999.
------------------------
MORGAN STANLEY DEAN WITTER
CREDIT SUISSE FIRST BOSTON
WARBURG DILLON READ LLC
, 1999
<PAGE> 4
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[LENNOX INTERNATIONAL INC. LOGO] CLIMATE CONTROL SOLUTIONS IN FOUR KEY BUSINESSES
NORTH AMERICAN RESIDENTIAL [PHOTO DEPICTING PRODUCTS]
[PHOTO DEPICTING PRODUCTS] COMMERCIAL AIR CONDITIONING
[PHOTO DEPICTING PRODUCTS] COMMERCIAL REFRIGERATION
HEAT TRANSFER [PHOTO DEPICTING PRODUCTS]
[Graphics depicting timeline of various milestones throughout Lennox's history]
[GRAPHIC]
1895 1904
Dave Lennox builds and markets the industry's first Lennox establishes a one-step distribution network,
riveted-steel furnace. selling directly to installing contractors.
[GRAPHIC] [GRAPHIC]
1923 1935
Lennox expands for the first time, building a warehouse Lennox pioneers the introduction of a forced-air furnace
in Syracuse, New York. Two years later a factory is for residential heating.
added.
1943 1952
Lennox retools its factories to support the World War II Lennox establishes operations in Canada.
effort.
[GRAPHIC] [GRAPHIC]
Lennox expands its product line with the introduction of 1960
residential central air-conditioning systems. Lennox establishes an international division with a
facility in Basingstoke, England and sales offices and
warehouses in Holland and Germany.
[GRAPHIC]
1964 1965
Lennox develops and manufactures the Duracurve heat Lennox introduces packaged multi-zone units for
exchanger, reducing noise problems in gas furnaces. commercial heating and cooling.
[GRAPHIC] [GRAPHIC]
1972 1973
"Dave Lennox" appears for the first time in a Lennox Lennox increases air conditioning efficiency with the
advertising campaign. development of the two-speed hermetic compressor.
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<PAGE> 5
<TABLE>
<S> <C>
[LENNOX INTERNATIONAL INC. LOGO]
HISTORY AND INNOVATIONS
[Graphics depicting timeline of various milestones throughout Lennox's history]
1982 1984
Lennox develops and manufactures the industry's first Lennox International Inc. is established as the parent
high-efficiency gas furnace. company for Lennox Industries Inc. and future
acquisitions.
[GRAPHIC]
[HEATCRAFT LOGO]
1986 1988
Lennox International expands into the commercial Lennox International expands into two-step distribution
refrigeration and heat transfer markets with the of residential heating and cooling equipment with the
establishment of Heatcraft Inc. acquisition of Armstrong Air Conditioning Inc.
[ARMSTRONG AIR CONDITIONING, INC. LOGO]
Heatcraft implements a 48-hour coil replacement program
for commercial air conditioning systems.
[GRAPHIC] [LGL LOGO]
1994 1995
Lennox is the first to manufacture and market a complete Lennox Global Ltd. (LGL) is established to expand the
combination high-efficiency residential space/water company's presence in worldwide commercial air
heating system. conditioning, commercial refrigeration and heat transfer
product markets.
[GRAPHIC] [GRAPHIC]
Lennox enters the hearth products market with the Lennox begins factory configure-to-order for commercial
introduction of gas fireplaces. air conditioning with the introduction of the L series.
[GRAPHIC]
Heatcraft develops Floating Tube and Thermoflex
technology, significantly reducing leaks in air-cooled
condensers and unit coolers used for commercial
refrigeration.
[GRAPHIC]
1996 1997
Heatcraft introduces the Beacon Control System, LGL enters into joint venture agreements in Europe, Asia
improving the accuracy and reliability of refrigeration and Latin America.
system information and easing installation.
[GRAPHIC]
1998
Lennox Industries begins to establish a retail
distribution network offering full sales and service
functions.
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<PAGE> 6
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 4
Risk Factors................................................ 9
Use of Proceeds............................................. 14
Dividend Policy............................................. 14
Capitalization.............................................. 15
Dilution.................................................... 16
Selected Financial and Other Data........................... 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 18
Business.................................................... 29
Management.................................................. 45
Principal and Selling Stockholders.......................... 59
Certain Relationships and Related Party Transactions........ 61
Description of Capital Stock................................ 61
Shares Eligible for Future Sale............................. 68
Certain Federal Income Tax Consequences for Non-U.S.
Holders................................................... 69
Underwriters................................................ 71
Legal Matters............................................... 75
Experts..................................................... 75
Where You Can Find More Information......................... 75
Index to Financial Statements............................... F-1
</TABLE>
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You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of the common stock.
We own or otherwise have rights to trademarks or trade names that we use in
conjunction with the sale of our products. Lennox(R), Armstrong Air(TM),
Bohn(R), Larkin(TM), Heatcraft(R), CompleteHeat(R), Climate Control(TM),
Chandler Refrigeration(R), Advanced Distributor Products(R), Raised Lance(R),
Air-Ease(R), Concord(R), Magic-Pak(R), Superior(TM), Marco(R), Whitfield(R),
Security Chimneys(R), Alcair(TM), Friga-Bohn(TM) and Janka(R), among others, are
trademarks that are owned by us. This prospectus also makes reference to
trademarks of other companies.
Until , 1999 (25 days after the date of this prospectus),
all dealers that buy, sell or trade our common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
3
<PAGE> 7
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and our financial statements and notes appearing elsewhere in this
prospectus.
LENNOX
We are a leading global provider of climate control solutions. We design,
manufacture and market a broad range of products for the heating, ventilation,
air conditioning and refrigeration markets, which is sometimes referred to as
"HVACR." Our products are sold under well-established brand names including
"Lennox", "Armstrong Air", "Bohn", "Larkin", "Heatcraft" and others. We are one
of the largest manufacturers in North America of heat transfer products, such as
evaporator coils and condenser coils. We have leveraged our expertise in heat
transfer technology, which is critical to the efficient operation of any heating
or cooling system, to become an industry leader known for our product innovation
and the quality and reliability of our products. We have also become a leader in
the growing market for hearth products, which includes pre-fabricated fireplaces
and related products. Historically, we have sold our "Lennox" brand of
residential heating and air conditioning products directly to a network of
installing dealers, which currently numbers approximately 6,000, making us the
largest wholesale distributor of these products in North America. We have
recently initiated a program to acquire dealers in metropolitan areas in the
U.S. and Canada so we can provide heating and air conditioning products and
services directly to consumers.
Our furnaces, heat pumps, air conditioners, pre-fabricated fireplaces and
related products are available in a variety of designs, efficiency levels and
price points that provide an extensive line of comfort systems. A majority of
our sales of residential heating and air conditioning products in the U.S. and
Canada are to the repair and replacement market, which is less cyclical than the
new construction market. We also provide a range of air conditioning products
for commercial market applications such as mid-size office buildings,
restaurants, churches and schools. Our commercial refrigeration products are
used primarily in cold storage applications for food preservation in
supermarkets, convenience stores, restaurants, warehouses and distribution
centers. Our heat transfer products are used by us in our HVACR products and
sold to third parties.
Shown below are our four business segments, the key products and brand
names within each segment and 1998 net sales by segment. The North American
residential segment also includes installation, maintenance and repair services
performed by Lennox-owned dealers.
<TABLE>
<CAPTION>
SEGMENT PRODUCTS BRAND NAMES 1998 NET SALES
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(IN MILLIONS)
<S> <C> <C> <C>
North American residential Furnaces, heat pumps, air Lennox, Armstrong Air, $1,013.7
conditioners, packaged Air-Ease, Concord, Magic-Pak,
heating and cooling systems Advanced Distributor
and related products; Products, Superior, Marco,
pre-fabricated fireplaces, Whitfield and Security
freestanding stoves, Chimneys
fireplace inserts and
accessories
Commercial air conditioning Unitary air conditioning and Lennox, Alcair and Janka 392.1
applied systems
Commercial refrigeration Chillers, condensing units, Bohn, Friga-Bohn, Larkin, 237.3
unit coolers, fluid coolers, Climate Control and Chandler
air cooled condensers and air Refrigeration
handlers
Heat transfer Evaporator and condenser Heatcraft and Friga-Bohn 178.7
coils and equipment and
tooling to manufacture coils
--------
Total........................ $1,821.8
========
</TABLE>
4
<PAGE> 8
We market our products using multiple brand names and distribute our
products through multiple distribution channels to penetrate different segments
of the HVACR market. Our "Lennox" brand of residential heating and air
conditioning products is sold directly through installing dealers -- the
"one-step" distribution system -- which has created strong and long-term
relationships with our dealers in North America. Our "Armstrong Air",
"Air-Ease", "Concord" and "Magic-Pak" residential heating and air conditioning
brands are sold to regional distributors that in turn sell the products to
installing contractors -- the "two-step" distribution system typically utilized
in the heating and air conditioning industry. The acquisition of heating and air
conditioning dealers in Canada and the planned acquisition of dealers in the
U.S. allows us to participate in the retail sale and service of heating and air
conditioning products. Our hearth products, commercial air conditioning products
and refrigeration products are also sold under multiple brand names and through
a combination of wholesalers, contractors, original equipment manufacturers,
manufacturers' representatives and national accounts.
From our beginning in 1895 until the mid-1980's, we focused primarily on
the North American residential heating and air conditioning market. In the
1980's, we expanded our product offerings by acquiring several heat transfer and
commercial refrigeration businesses. In the mid-1990's, we increased our
international presence, product offerings and brand portfolio through
acquisitions in Europe, Latin America and the Asia Pacific region. We recently
expanded our product offerings to include hearth products through the
acquisitions of four hearth products companies in the third quarter of 1998 and
in the first quarter of 1999. As a result of these acquisitions, we are one of
the largest manufacturers of hearth products in the U.S. and Canada, offering a
broad line of products through a variety of distribution channels.
COMPETITIVE STRENGTHS
We have a combination of strengths that position us to continue to be a
leading provider of climate control solutions, including:
- strong brand recognition and reputation, particularly with the well
recognized "Lennox" name;
- one of the broadest distribution systems of any major HVACR manufacturer;
- leading heat transfer design and manufacturing expertise;
- commitment to product innovation and technological leadership; and
- demonstrated manufacturing efficiency for our products.
GROWTH STRATEGY
Our growth strategy is designed to capitalize on our competitive strengths
in order to expand our market share and profitability in the worldwide HVACR
markets. We will continue to pursue internal programs and strategic acquisitions
that broaden our product and service offerings, expand our market opportunities
and enhance our technological expertise. The key elements of this strategy
include:
EXPAND MARKET IN NORTH AMERICA
Our program to acquire heating and air conditioning dealers in the U.S. and
Canada represents a new direction for the heating and air conditioning industry
because, to our knowledge, no other major manufacturer has made a significant
investment in retail distribution. This strategy will enable us to extend our
distribution directly to the consumer, thereby permitting us to participate in
the revenues and margins available at the retail level while strengthening and
protecting our brand equity. We believe that the retail sales and service market
represents a significant growth opportunity because this market is large and
highly fragmented. The retail sales and service market in the U.S. is comprised
of over 30,000 dealers. We started this program in September 1998, and as of
March 31, 1999 we had acquired 37 dealers in Canada for an aggregate purchase
price of approximately $55 million and had signed letters of intent to acquire
nine additional Canadian dealers for an aggregate purchase price of
approximately $9 million. We believe our long history of direct relationships
5
<PAGE> 9
with our dealers through the one-step distribution system and the resulting
knowledge of local markets will give us advantages in identifying and acquiring
suitable candidates.
We also intend to increase our market share in North America by:
- strengthening our independent dealer network by providing dealers with
enhanced services and support;
- expanding the network of independent "Lennox" dealers;
- promoting the cross-selling of our "Armstrong Air" brand of products and
our hearth products to our "Lennox" dealers;
- expanding the geographic market of the "Armstrong Air" brand of products
from its traditional presence in the Northeast and Central U.S.; and
- pursuing complementary acquisitions that expand our product offerings or
geographic presence.
EXPLOIT INTERNATIONAL OPPORTUNITIES
Principally as a result of acquisitions in Europe, Latin America and Asia
Pacific, our international sales have grown from $28.5 million in 1996 to $244.5
million in 1998. We will continue to focus on expanding our international
operations through acquisitions and internal growth because we believe that
increasing international demand for HVACR products presents substantial
opportunities, especially in emerging markets and particularly for heat transfer
and refrigeration products.
INCREASE PRESENCE IN HEARTH PRODUCTS MARKET
With our recent acquisitions of hearth products companies, we now
manufacture and sell one of the broadest lines of hearth products in North
America. We believe that we can increase our penetration of this market by
selling in the distribution channels we acquired and through our historical
distribution channels.
CONTINUE PRODUCT INNOVATION
An important part of our growth strategy is to continue to invest in
research and new product development. We have designated certain of our
facilities as "centers for excellence" that are responsible for the research and
development of the core competencies vital to our success. Technological
advances are disseminated from these "centers for excellence" to all of our
operating divisions. This commitment to research and development has resulted in
recent product innovations such as the CompleteHeat, a high efficiency
combination hot water heater and furnace, and the Beacon control system, an
integrated electronic control system for commercial refrigeration applications.
---------------------
We are located at 2100 Lake Park Blvd., Richardson, Texas 75080 and our
telephone number is (972) 497-5000.
6
<PAGE> 10
THE OFFERING
Common stock offered by:
Lennox................... shares
Selling stockholders..... ____ shares
Total............ shares
Common stock offered in:
U.S. offering............ shares
International offering... ____ shares
Total............ shares
Common stock to be
outstanding after this
offering................. shares
Use of proceeds............ We will receive approximately $ million in
net proceeds from the offering. The net proceeds
will be used to repay amounts borrowed under our
revolving credit facility and term credit
agreement, to fund the purchase of additional
dealers and for general corporate purposes. We will
not receive any proceeds from the sale of the
shares of common stock offered by the selling
stockholders.
Proposed NYSE symbol....... LII
All information in this prospectus relating to the number of shares of our
common stock or options has been adjusted to reflect a -for-one stock split
of our common stock which occurred on , 1999.
Unless we specifically state otherwise, the information in this prospectus
does not take into account the issuance of up to shares of common
stock which the underwriters have the option to purchase solely to cover
over-allotments. If the underwriters exercise their over-allotment option in
full, shares of common stock will be outstanding after the offering.
The number of shares of our common stock to be outstanding immediately
after the offering does not take into account shares of our common
stock that will be issuable upon the exercise of stock options, substantially
all of which were awarded under our stock option plans. For more information on
our stock option plans, see "Management -- 1998 Incentive Plan."
7
<PAGE> 11
SUMMARY FINANCIAL AND OTHER DATA
The following summary financial and other data for each of the years ended
December 31, 1996, 1997 and 1998 have been derived from our audited financial
statements included elsewhere in this prospectus. Effective September 30, 1997
we increased our ownership of Ets. Brancher S.A., our European joint venture,
from 50% to 70% and, accordingly, changed our accounting method of recognizing
this investment from the equity method to the consolidation method. You should
read "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the notes thereto included
elsewhere in this prospectus for a further explanation of the financial data
summarized here. The as adjusted amounts give effect to this offering and the
use of the net proceeds as set forth under "Use of Proceeds."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1997 1998
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................ $1,364,546 $1,444,442 $1,821,836
Cost of goods sold....................................... 961,696 1,005,913 1,245,623
---------- ---------- ----------
Gross profit................................... 402,850 438,529 576,213
Selling, general and administrative expenses............. 298,049 326,280 461,143
Other operating expense, net............................. 4,213 7,488 8,467
Product inspection charge(1)............................. -- 140,000 --
---------- ---------- ----------
Income (loss) from operations.................. 100,588 (35,239) 106,603
Interest expense, net.................................... 13,417 8,515 16,184
Other.................................................... (943) 1,955 1,602
Minority interest........................................ -- (666) (869)
---------- ---------- ----------
Income (loss) before income taxes.............. 88,114 (45,043) 89,686
Provision (benefit) for income taxes..................... 33,388 (11,493) 37,161
---------- ---------- ----------
Net income (loss).............................. $ 54,726 $ (33,550) $ 52,525
========== ========== ==========
Earnings (loss) per share:
Basic..................................................
Diluted................................................
Weighted average shares outstanding:
Basic..................................................
Diluted................................................
Dividends per share......................................
OTHER DATA:
EBITDA(2)................................................ $ 135,680 $ 136,902 $ 149,415
Depreciation and amortization............................ 34,149 33,430 43,545
Capital expenditures..................................... 31,903 34,581 52,435
Research and development expenses........................ 23,235 25,444 33,260
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 28,389
Working capital............................................. 263,289
Total assets................................................ 1,152,952
Total debt.................................................. 317,441
Stockholders' equity........................................ 376,440
</TABLE>
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(1) Represents a pre-tax charge taken in the fourth quarter of 1997 for
estimated costs of an inspection program for our Pulse furnaces installed
from 1982 to 1990 in the U.S. and Canada. We initiated the inspection
program because we received anecdotal reports of accelerated corrosion of a
component of these products under extreme operating conditions. We
periodically review the reserve balance and at this time we believe the
remaining reserve of $27.3 million at December 31, 1998 will be adequate to
cover the remaining costs associated with this inspection program. This
program ends on June 30, 1999.
(2) EBITDA is defined as earnings before interest, taxes and depreciation and
amortization expense. For 1997, EBITDA excludes the product inspection
charge. EBITDA is presented here as an alternative measure of our ability to
generate cash flow and should not be construed as an alternative to
operating income or to cash flows from operating activities, as determined
in accordance with generally accepted accounting principles. EBITDA is not
calculated under generally accepted accounting principles and is not
comparable to similarly titled measures of other companies.
8
<PAGE> 12
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. Additional risks and uncertainties not presently
known to us may also impair our business operations.
If any of the following risks actually occur, our business, financial
condition or results of operations could be materially adversely affected. In
such case, the trading price of our common stock could decline, and you may lose
all or part of your investment.
This prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ from those anticipated in
these forward-looking statements as a result of certain factors, including the
risks faced by us described below and elsewhere in this prospectus.
RISK FACTORS RELATING TO OUR BUSINESS
Our business is subject to the following risks, which include risks
relating to the industry in which we operate.
WE MAY INCUR MATERIAL COSTS AS A RESULT OF WARRANTY AND PRODUCT LIABILITY
CLAIMS
The development, manufacture, sale and use of our products involve a risk
of warranty and product liability claims. In addition, as we increase our
efforts to acquire installing heating and air conditioning dealers in the U.S.
and Canada, we incur the risk of liability claims for the installation and
service of heating and air conditioning products. We maintain product liability
insurance. Our product liability insurance policies have limits, however, that
if exceeded, may result in losses that could have an adverse effect on our
future financial results. In addition, warranty claims are not covered by our
product liability insurance and there may be certain types of product liability
claims that are also not covered by our product liability insurance.
WE ARE SUBJECT TO RISKS IN CONNECTION WITH OUR ACQUISITION STRATEGY
Our plan to make acquisitions part of our growth strategy is subject to
several business risks, including:
- we may have difficulties consummating acquisitions and we may incur
significant expenses in connection with acquisitions;
- we may have difficulties in assimilating the operations of the acquired
business into our operations;
- we may lose the acquired customer base or key personnel;
- we face contingent risks with past operations of the acquired business;
- we may not achieve any cost savings or other synergies from our
acquisitions;
- we may face competition for acquisitions, such as competition from
consolidators and utility companies for the acquisition of dealers;
- competition for acquisitions could cause the cost of acquiring businesses
to increase materially; and
- acquisition candidates may not be available on terms and conditions
acceptable to us.
WE ARE ENTERING NEW BUSINESSES IN WHICH WE HAVE LIMITED EXPERIENCE
With our recently initiated program of acquiring heating and air
conditioning dealers and with our recent acquisitions of hearth products
manufacturers, we have entered into new lines of business. We cannot assure you
that we will be able to successfully manage or operate these new businesses.
9
<PAGE> 13
THE CONSOLIDATION OF DISTRIBUTORS AND DEALERS COULD FORCE US TO LOWER OUR
PRICES OR HURT OUR
BRAND NAMES
There is currently an effort underway in the U.S. by certain companies to
purchase independent distributors and dealers and consolidate them into large
enterprises. These large enterprises may be able to exert pressure on us or our
competitors to reduce prices. Additionally, these new enterprises tend to
emphasize their company name, rather than the brand of the manufacturer, in
their promotional activities, which could lead to dilution of the importance and
value of our brand names. Future price reductions and the brand dilution caused
by such consolidation among HVACR distributors and dealers could have an adverse
effect on our future financial results.
OUR DEALER ACQUISITION PROGRAM COULD LEAD TO LOSS OF SALES FROM INDEPENDENT
DEALERS AND DEALERS
OWNED BY CONSOLIDATORS
With our recently initiated program of acquiring heating and air
conditioning dealers in the U.S. and Canada, we face the risk that dealers owned
by consolidators and independent dealers may discontinue using our heating and
air conditioning products because we are and increasingly will be in competition
with them. We sold approximately $50 million of heating and air conditioning
products to consolidators in 1998, representing 2.7% of our net sales.
OUR PROFITABILITY IS STRONGLY AFFECTED BY THE WEATHER
Demand for our products and for our services is strongly affected by the
weather. Hotter than normal summers generate strong demand for our replacement
air conditioning and refrigeration products and colder than normal winters have
the same effect on our heating products. Conversely, cooler than normal summers
and warmer than normal winters depress our sales. Because a high percentage of
our overhead and operating expenses are relatively fixed throughout the year,
operating earnings and net earnings tend to be lower in quarters with lower
sales.
WE MAY NOT BE ABLE TO COMPETE FAVORABLY IN THE HIGHLY COMPETITIVE HVACR
BUSINESS
Competition in our various markets could cause us to reduce our prices or
lose market share, or could negatively affect our cash flow, which could have an
adverse effect on our future financial results. Substantially all of the markets
in which we participate are highly competitive. The most significant competitive
factors we face are product reliability, product performance, service and price,
with the relative importance of these factors varying among our product lines.
In addition, with respect to our new distribution channel whereby we will sell
our products directly to consumers, we face competition from independent dealers
and dealers owned by consolidators and utility companies, some of whom may be
able to provide their services at lower rates than we can.
WE MAY BE ADVERSELY AFFECTED BY PROBLEMS IN THE AVAILABILITY OF OR
INCREASES IN THE PRICES OF
COMPONENTS AND RAW MATERIALS
We are dependent upon components purchased from third parties as well as
raw materials such as copper, aluminum and steel. We enter into contracts each
year for the supply of certain key components at fixed prices. However, if a key
supplier is unable or unwilling to meet our supply requirements, we could
experience supply interruptions or cost increases which could have an adverse
effect on our future financial results. In addition, we regularly pre-purchase a
portion of our raw materials at a fixed price each year to hedge against price
fluctuations, but a large increase in raw materials prices could significantly
increase the cost of our products. Accordingly, increases in raw material costs
or their lack of availability could have an adverse effect on our future
financial results.
OUR INTERNATIONAL OPERATIONS ARE SUBJECT TO ECONOMIC, POLITICAL AND OTHER
RISKS
Our international operations are subject to various economic, political and
other risks that are generally not present in our North American operations. We
sell products in over 70 countries and have business units
10
<PAGE> 14
located in Europe, Asia Pacific, Latin America and Mexico. Sales of our products
outside of the U.S. and Canada represented approximately 13.4% of our 1998 net
sales. We anticipate that, over time, international sales will continue to grow
as a percentage of our total sales. International risks include:
- instability of foreign economies and governments;
- price and currency exchange controls;
- unfavorable changes in monetary and tax policies and other regulatory
changes;
- fluctuations in the relative value of currencies;
- expropriation and nationalization of our foreign assets; and
- war and civil unrest.
THE NATURE OF OUR OPERATIONS PRESENTS INHERENT RISKS OF LOSS THAT, IF NOT
FULLY INSURED AGAINST, COULD ADVERSELY AFFECT OUR FUTURE FINANCIAL RESULTS
Our operations are subject to hazards and risks inherent in operating large
manufacturing facilities, such as fires, natural disasters and explosions, all
of which can result in loss of life or severe damage to our properties and the
suspension of operations. We maintain business interruption and other types of
property insurance as protection against operating hazards. The occurrence of a
significant event not fully covered by insurance could have an adverse effect on
our future financial results.
OUR BUSINESS MAY BE ADVERSELY IMPACTED BY WORK STOPPAGES AND OTHER LABOR
RELATIONS MATTERS
We are subject to a risk of work stoppage and other labor relations matters
because a significant percentage of our workforce is unionized. As of December
31, 1998, approximately 30% of our workforce was unionized. Within the U.S., we
currently have eight manufacturing facilities and five distribution centers,
along with our North American Parts Center in Des Moines, Iowa, with collective
bargaining agreements ranging from three to eight years in length. With respect
to our significant manufacturing facilities, two collective bargaining
agreements expire in April 1999 and one expires in December 1999. Outside of the
U.S., we have 12 significant facilities that are represented by unions. The
agreement for our manufacturing facility in Toronto, Ontario expires in April
1999 and the agreement for our facility in Laval, Quebec expires in December
1999. As we expand our operations, we are subject to increased unionization of
our workforce. The results of future negotiations with these unions, including
the effects of any production interruptions or labor stoppages, could have an
adverse effect on our future financial results. You should read "Business --
Employees" for a more complete discussion of our collective bargaining
agreements.
WE MAY BE ADVERSELY AFFECTED BY ENVIRONMENTAL REGULATIONS
Our future financial results could be adversely affected by current or
future environmental laws. We are subject to extensive and changing federal,
state and local laws and regulations designed to protect the environment in the
U.S. and in other parts of the world. These laws and regulations could impose
liability for remediation costs or result in civil or criminal penalties in
cases of non-compliance. Compliance with environmental laws increases our costs
of doing business. Because these laws are subject to frequent change, we are
unable to predict the future costs resulting from environmental compliance.
The U.S. and other countries have established programs for limiting the
production, importation and use of certain ozone depleting chemicals, including
refrigerants used by us in most of our air conditioning and refrigeration
products. Some categories of these refrigerants have been banned completely and
others are currently scheduled to be phased out in the U.S. by the year 2030.
The U.S. is under pressure from the international environmental community to
accelerate the current 2030 deadline. In Europe, this phaseout may occur even
sooner. The industry's failure to find suitable replacement refrigerants for
substances that have been or will be banned or the acceleration of any phase out
schedules for these substances by governments could have an adverse effect on
our future financial results. You should read "Business -- Regulation" for a
more complete discussion of environmental regulations which affect our business.
11
<PAGE> 15
WE MAY BE ADVERSELY IMPACTED BY THE YEAR 2000 AND OTHER INFORMATION
TECHNOLOGY ISSUES
Year 2000 problems might require us to incur unanticipated expenses that
could have an adverse effect on our future financial results. In 1996, we began
converting all of our major domestic management information systems from
mainframe systems to distributed processing systems. In order to avoid
disruption to our operations, we have conducted the conversion on a phased
basis. We anticipate that our major domestic operations will be supported by
distributed processing by the end of 1999. In addition, we have and will
continue to make investments in our computer systems and applications in an
effort to ensure that they are Year 2000 compliant. However, we may experience
interruptions of operations because of problems in implementing distributed
processing or because of Year 2000 problems within our company. Our suppliers or
customers might experience Year 2000 problems. You should read "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000 Compliance" and "Business -- Information Systems" for a more complete
discussion of our systems upgrade and Year 2000 compliance initiative.
THE NORRIS FAMILY WILL BE ABLE TO EXERCISE SIGNIFICANT CONTROL OVER OUR
COMPANY
Following the closing of the offering, approximately 110 descendants of or
persons otherwise related to D.W. Norris, one of our original owners, will be
able to collectively control % of the outstanding shares of our common
stock. Accordingly, if the Norris family were to act together, it would have the
ability to:
- control the vote of most matters submitted to our stockholders, including
any merger, consolidation or sale of all or substantially all of our
assets;
- elect the members of our Board of Directors;
- prevent or cause a change in control of our company; and
- decide whether to issue additional common stock or other securities or
declare dividends.
RISK FACTORS RELATING TO SECURITIES MARKETS
There are risks relating to the securities markets that you should consider
in connection with your investment in and ownership of our stock.
ANTI-TAKEOVER PROVISIONS IN OUR GOVERNING DOCUMENTS AND DELAWARE LAW COULD
PREVENT OR DELAY A
CHANGE IN CONTROL OF OUR COMPANY
Our governing documents contain certain provisions that may have the effect
of delaying, deterring or preventing a change in control by making it difficult
to implement certain corporate actions. Examples of these provisions include:
- the Board of Directors is authorized to issue shares of preferred stock
without stockholder action;
- a vote of more than 80% of the outstanding voting stock is required for
stockholders to amend certain provisions of the governing documents;
- the Board of Directors is divided into three classes, each serving
three-year terms;
- members of the Board of Directors may be removed only for cause and only
upon the affirmative vote of at least 80% of the outstanding voting
stock; and
- a vote of more than 80% of the outstanding voting stock is required to
approve certain transactions between us and any person or group that owns
at least 10% of our voting stock.
In addition, the Delaware General Corporation Law, under which we are
incorporated, contains certain provisions that impose restrictions on business
combinations such as mergers between us and a holder of 15% or more of our
voting stock. You should read the "Description of Capital Stock" section for a
more complete description of these provisions.
12
<PAGE> 16
A SUBSTANTIAL NUMBER OF OUR SHARES WILL BE AVAILABLE FOR SALE IN THE PUBLIC
MARKET AFTER THE
OFFERING AND SALES OF THOSE SHARES COULD ADVERSELY AFFECT OUR STOCK PRICE
Sales of a substantial number of shares of our common stock into the public
market after the offering, or the perception that these sales could occur, could
adversely affect our stock price or could impair our ability to obtain capital
through an offering of equity securities. After this offering, we will have
outstanding shares of common stock assuming no exercise of the
over-allotment option granted to the underwriters of this offering. In addition,
shares will be issuable upon exercise of options outstanding under our
stock option plan and shares will be reserved for issuance pursuant to our
stock option plan. All shares of common stock sold in the offering will be
freely tradable without restrictions or registration under the Federal
securities laws unless purchased by an "affiliate" of Lennox, as that term is
defined in Rule 144 under the Securities Act of 1933, as amended. All remaining
shares of common stock held by existing stockholders will be "restricted"
securities, as that term is defined in Rule 144. We, along with our executive
officers and directors, the selling stockholders and certain of our
stockholders, have agreed, subject to certain exceptions, not to sell any common
stock for a period of 180 days from the date of this prospectus without the
prior consent of Morgan Stanley & Co. Incorporated. You should read the "Shares
Eligible For Future Sale" section for a more complete discussion of these
matters.
OUR STOCK PRICE MAY FLUCTUATE SIGNIFICANTLY AFTER THE OFFERING AND YOU
COULD LOSE ALL OR PART OF
YOUR INVESTMENT AS A RESULT
Prior to the offering, there has been no public market for our common
stock. We do not know how our common stock will trade in the future. The initial
public offering price will be determined through negotiations between the
underwriters and us. You may not be able to resell your shares at or above the
initial public offering price as the price of our common stock may be affected
by a number of factors, including:
- actual or anticipated fluctuations in our operating results;
- changes in expectations as to our future financial performance or changes
in financial estimates of securities analysts;
- announcements of new products or technological innovations; and
- the operating and stock price performance of other comparable companies.
In addition, the stock market in general has experienced extreme volatility
that often has been unrelated to the operating performance of particular
companies. These broad market and industry fluctuations may adversely affect the
trading price of our common stock, regardless of our actual operating
performance.
You should read the "Underwriters" section for a more complete discussion
of the factors considered in determining the initial public offering price.
13
<PAGE> 17
USE OF PROCEEDS
We estimate that our net proceeds from the sale of our common stock in the
offering, after deducting estimated expenses of $ million and underwriting
discounts and commissions, will be approximately $ million, or approximately
$ million if the underwriters exercise their over-allotment option in full,
at an assumed initial public offering price of $ per share. We will use the
proceeds:
- to repay borrowings under our revolving credit facility and term credit
agreement;
- to fund some of the cash portion of the purchase of additional dealers
and for other acquisitions;
- to provide working capital for our expanded operations;
- to fund capital expenditures; and
- for other general corporate purposes.
We have no agreements or commitments with respect to any material
acquisitions. As of March 31, 1999, approximately $115 million was outstanding
under our revolving credit facility at an average interest rate of 5.3% and
approximately $40 million was outstanding under our term credit agreement at an
interest rate of 6.0%. Borrowings under our revolving credit facility and term
credit agreement were used for:
- seasonal working capital needs;
- the acquisitions of the hearth products companies;
- the acquisitions of heating and air conditioning dealers in Canada;
- certain international acquisitions, including McQuay do Brasil S.A.; and
- expenses incurred in our Pulse inspection program.
For more information about our revolving credit facility and term credit
agreement, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
We will not receive any proceeds from the sale of common stock offered by
the selling stockholders.
DIVIDEND POLICY
We paid cash dividends of $ , $ and $ per share on our common
stock during 1996, 1997 and 1998, respectively. We anticipate that we will
continue to pay cash dividends on our common stock, but any future determination
as to the payment or amount of dividends will depend upon our future results of
operations, capital requirements, financial condition and such other factors as
our Board of Directors may consider. In addition, our revolving credit facility,
term credit agreement and certain of our other debt instruments prohibit the
payment of dividends unless we can incur $1.00 of additional indebtedness
pursuant to the terms of such instruments. For more information about our debt
instruments, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
14
<PAGE> 18
CAPITALIZATION
The following table sets forth our cash and cash equivalents, short-term
debt and capitalization as of December 31, 1998 and as adjusted to give effect
to the offering and the use of the net proceeds as set forth under "Use of
Proceeds." The outstanding share information excludes shares of common
stock issuable upon the exercise of outstanding options as of December 31, 1998.
You should read the information presented below in conjunction with our
consolidated financial statements and notes thereto, "Selected Financial and
Other Data," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Management -- 1998 Incentive Plan" included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 28,389
========
Short-term debt (including current maturities of long-term
debt)..................................................... $ 74,848
========
Long-term debt.............................................. $242,593
Stockholders' equity:
Preferred stock, $.01 par value, 25,000,000 shares
authorized, no shares issued or outstanding............ -- --
Common stock, $.01 par value, 200,000,000 shares
authorized, shares issued and outstanding actual
and shares as adjusted.......................... 11
Additional paid-in capital................................ 33,233
Retained earnings......................................... 350,851
Currency translation adjustments.......................... (7,655)
--------
Total stockholders' equity........................ 376,440
--------
Total capitalization.............................. $619,033
========
</TABLE>
15
<PAGE> 19
DILUTION
Our net tangible book value as of December 31, 1998 was approximately
$ million or $ per share of common stock. Net tangible book value per
share represents the amount of our total tangible assets less total liabilities,
divided by the number of shares of common stock issued and outstanding. After
giving effect to the sale of the shares of common stock offered by us at an
assumed initial public offering price of $ per share and the use of the net
proceeds as set forth under "Use of Proceeds", our pro forma net tangible book
value as of December 31, 1998 would have been $ million, or $ per share.
This represents an immediate increase in net tangible book value of $ per
share to existing stockholders and an immediate dilution of $ per share to
new investors.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $
Net tangible book value before the offering............... $
Increase in pro forma net tangible book value attributable
to new investors.......................................
Pro forma net tangible book value after the offering........
----
Dilution to new investors................................... $
====
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1998, the differences in the total consideration paid and the average price per
share paid by our existing stockholders and by purchasers of the shares of
common stock in the offering:
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION AVERAGE
----------------- ----------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ % $ % $
New investors................ % %
------- ------- ------- -------
Total.............. % $ %
======= ======= ======= =======
</TABLE>
The computations in the tables above exclude shares of common
stock issuable upon exercise of stock options substantially all of which were
awarded under our stock option plans. For more information on our stock option
plans, see "Management -- 1998 Incentive Plan."
16
<PAGE> 20
SELECTED FINANCIAL AND OTHER DATA
The following selected financial and other data for each of the years in
the five-year period ended December 31, 1998 have been derived from our
financial statements which have been audited by Arthur Andersen LLP. Effective
September 30, 1997 we increased our ownership of Ets. Brancher, our European
joint venture, from 50% to 70% and, accordingly, changed our accounting method
of recognizing this investment from the equity method to the consolidation
method. You should read "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our financial statements and the notes
thereto included elsewhere in this prospectus for a further explanation of the
financial data summarized here.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................................. $1,168,099 $1,306,999 $1,364,546 $1,444,442 $1,821,836
Cost of goods sold......................................... 815,511 946,881 961,696 1,005,913 1,245,623
---------- ---------- ---------- ---------- ----------
Gross profit....................................... 352,588 360,118 402,850 438,529 576,213
Selling, general and administrative expenses............... 273,421 285,938 298,049 326,280 461,143
Other operating expense, net............................... 7,460 2,555 4,213 7,488 8,467
Product inspection charge(1)............................... -- -- -- 140,000 --
---------- ---------- ---------- ---------- ----------
Income (loss) from operations...................... 71,707 71,625 100,588 (35,239) 106,603
Interest expense, net...................................... 20,830 20,615 13,417 8,515 16,184
Other...................................................... 836 (622) (943) 1,955 1,602
Minority interest.......................................... -- -- -- (666) (869)
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes.................. 50,041 51,632 88,114 (45,043) 89,686
Provision (benefit) for income taxes....................... 19,286 17,480 33,388 (11,493) 37,161
---------- ---------- ---------- ---------- ----------
Net income (loss).................................. $ 30,755 $ 34,152 $ 54,726 $ (33,550) $ 52,525
========== ========== ========== ========== ==========
Earnings (loss) per share:
Basic....................................................
Diluted..................................................
Weighted average shares outstanding:
Basic....................................................
Diluted..................................................
Dividends per share........................................
OTHER DATA:
EBITDA(2).................................................. $ 103,767 $ 104,459 $ 135,680 $ 136,902 $ 149,415
Depreciation and amortization.............................. 32,896 32,212 34,149 33,430 43,545
Capital expenditures....................................... 36,189 26,675 31,903 34,581 52,435
Research and development expenses.......................... 22,773 22,682 23,235 25,444 33,260
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 2,980 $ 73,811 $ 151,877 $ 147,802 $ 28,389
Working capital............................................ 252,301 307,502 325,956 335,891 263,289
Total assets............................................... 737,528 768,517 820,653 970,892 1,152,952
Total debt................................................. 243,480 219,346 184,756 198,530 317,441
Stockholders' equity....................................... 286,849 315,313 361,464 325,478 376,440
</TABLE>
- ---------------
(1) Represents a pre-tax charge taken in the fourth quarter of 1997 for
estimated costs of an inspection program for our Pulse furnaces installed
from 1982 to 1990 in the U.S. and Canada. We initiated the inspection
program because we received anecdotal reports of accelerated corrosion of a
component of these products under extreme operating conditions. We
periodically review the reserve balance and at this time we believe the
remaining reserve of $27.3 million at December 31, 1998 will be adequate to
cover the remaining costs associated with this inspection program. This
program ends on June 30, 1999.
(2) EBITDA is defined as earnings before interest, taxes and depreciation and
amortization expense. For 1997, EBITDA excludes the product inspection
charge. EBITDA is presented here as an alternative measure of our ability to
generate cash flow and should not be construed as an alternative to
operating income or to cash flows from operating activities, as determined
in accordance with generally accepted accounting principles. EBITDA is not
calculated under generally accepted accounting principles and is not
comparable to similarly titled measures of other companies.
17
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We participate in four reportable business segments of the HVACR industry.
The first segment is the North American residential market in which we
manufacture and market a full line of heating, air conditioning and hearth
products for the residential replacement and new construction markets in the
U.S. and Canada. The North American residential segment also includes
installation, maintenance and repair services performed by Lennox-owned dealers.
The second segment is the global commercial air conditioning market in which we
manufacture and sell rooftop products and applied systems for commercial
applications. The third segment is the global commercial refrigeration market
which consists of unit coolers, condensing units and other commercial
refrigeration products. The fourth segment is the heat transfer market in which
we design, manufacture and sell evaporator and condenser coils, copper tubing
and related manufacturing equipment to original equipment manufacturers and
other specialty purchasers on a global basis.
We sell our products to numerous types of customers, including
distributors, installing dealers, homeowners, national accounts and original
equipment manufacturers. The demand for our products is cyclical and influenced
by national and regional economic and demographic factors, such as interest
rates, the availability of financing, regional population and employment trends
and general economic conditions, especially consumer confidence. In addition to
economic cycles, demand for our products is seasonal and dependent on the
weather. Hotter than normal summers generate strong demand for replacement air
conditioning and refrigeration products and colder than normal winters have the
same effect on heating products. Conversely, cooler than normal summers and
warmer than normal winters depress sales of HVACR products.
The principal components of cost of goods sold are labor, raw materials,
component costs, factory overhead and estimated costs of warranty expense. The
principal raw materials used in our manufacturing processes are copper, aluminum
and steel. In instances where we are unable to pass on to our customers
increases in the costs of copper and aluminum, we enter into forward contracts
for the purchase of such materials. We have forward commitments for the
substantial majority of our internal needs of aluminum through December 1999 and
copper through December 2000. We attempt to minimize the risk of price
fluctuations in certain key components by entering into contracts, typically at
the beginning of the year, which generally provide for fixed prices for our
needs throughout the year. These hedging strategies enable us to establish
product prices for the entire model year while minimizing the impact of price
increases of components and raw materials on our margins. Warranty expense is
estimated based on historical trends and other factors.
In September 1997, we increased our ownership in Ets. Brancher from 50% to
70%. As a result, we assumed control of the venture and began consolidating the
financial position and operating results of the venture in the fourth quarter of
1997. Previously, we used the equity method of accounting for our investment in
this entity. In the fourth quarter of 1998, we restructured our ownership of our
various European entities to allow for more efficient transfer of funds and to
provide for tax optimization. Although our European operations contributed to
revenue, they had an operating loss in both 1997 and 1998, primarily due to the
performance of the commercial air conditioning business. We have installed a new
management team for our European operations and are bringing our manufacturing
and operating expertise to the European businesses.
We acquired Superior Fireplace Company, Marco Mfg., Inc. and Pyro
Industries, Inc. in the third quarter of 1998 and Security Chimneys
International, Ltd. in the first quarter of 1999 for an aggregate purchase price
of approximately $120 million. These acquisitions give us one of the broadest
lines of hearth products in the industry. These businesses had aggregate
revenues of approximately $150 million in 1998, $68.6 million of which was
reflected in our 1998 net sales.
We recently initiated a program to acquire high quality heating and air
conditioning dealers in metropolitan areas in the U.S. and Canada to market
"Lennox" and other brands of heating and air conditioning products. This
strategy will enable us to extend our distribution directly to the consumer,
thereby
18
<PAGE> 22
permitting us to participate in the revenues and margins available at the retail
level while strengthening and protecting our brand equity. We believe that the
retail sales and service market represents a significant growth opportunity
because this market is large and highly fragmented. The retail sales and service
market in the U.S. is comprised of over 30,000 dealers. In addition, we believe
that the heating and air conditioning service business is somewhat less seasonal
than the business of manufacturing and selling heating and air conditioning
products. As of March 31, 1999, we had acquired 37 dealers in Canada for an
aggregate purchase price of approximately $55 million and had signed letters of
intent to acquire nine additional Canadian dealers for an aggregate purchase
price of approximately $9 million. As we acquire more heating and air
conditioning dealers, we expect that we will incur additional costs to expand
our infrastructure to effectively manage these businesses.
Our fiscal year ends on December 31 of each year, and our fiscal quarters
are each comprised of 13 weeks. For convenience, throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations, the 13
week periods comprising each fiscal quarter are denoted by the last day of the
calendar quarter.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net sales, our statement
of income data for the years ended December 31, 1996, 1997 and 1998.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of goods sold.......................................... 70.5 69.6 68.4
----- ----- -----
Gross profit...................................... 29.5 30.4 31.6
----- ----- -----
Selling, general and administrative expenses................ 21.8 22.6 25.3
Other operating expense, net................................ 0.3 0.5 0.4
Product inspection charge................................... -- 9.7 --
----- ----- -----
Income (loss) from operations..................... 7.4 (2.4) 5.9
Interest expense, net....................................... 1.0 0.6 0.9
Other....................................................... (0.1) 0.1 0.1
Minority interest........................................... -- 0.0 0.0
----- ----- -----
Income (loss) before income taxes................. 6.5 (3.1) 4.9
Provision (benefit) for income taxes........................ 2.5 (0.8) 2.0
----- ----- -----
Net income (loss)................................. 4.0% (2.3)% 2.9%
===== ===== =====
</TABLE>
19
<PAGE> 23
The following table sets forth net sales by business segment and geographic
market (dollars in millions):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1996 1997 1998
---------------- ---------------- ----------------
AMOUNT % AMOUNT % AMOUNT %
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
BUSINESS SEGMENT:
North American residential...... $ 857.1 62.8% $ 865.1 59.9% $1,013.7 55.7%
Commercial air conditioning..... 228.9 16.8 278.8 19.3 392.1 21.5
Commercial refrigeration........ 135.6 9.9 154.3 10.7 237.3 13.0
Heat transfer................... 142.9 10.5 146.2 10.1 178.7 9.8
-------- ----- -------- ----- -------- -----
Total net sales....... $1,364.5 100.0% $1,444.4 100.0% $1,821.8 100.0%
======== ===== ======== ===== ======== =====
GEOGRAPHIC MARKET:
U.S. and Canada................. $1,336.0 97.9% $1,368.1 94.7% $1,577.3 86.6%
International................... 28.5 2.1 76.3 5.3 244.5 13.4
-------- ----- -------- ----- -------- -----
Total net sales....... $1,364.5 100.0% $1,444.4 100.0% $1,821.8 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net sales. Net sales increased $377.4 million, or 26.1%, to $1,821.8
million for the year ended December 31, 1998 from $1,444.4 million for the year
ended December 31, 1997. If the effect of the consolidation of Ets. Brancher is
excluded, net sales would have increased by $226.7 million, or 16.1%, to
$1,630.9 million for 1998 as compared to 1997.
Net sales related to the North American residential segment were $1,013.7
million during 1998, an increase of 17.2% from $865.1 million for 1997. This
increase was primarily due to sales growth of both the "Lennox" and "Armstrong
Air" brands and the inclusion of $68.6 million of sales beginning in the third
quarter of 1998 of the hearth products companies. Hot weather in the spring of
1998 and an expanded dealer and distributor base led to greater sales of the
"Lennox" and "Armstrong Air" brands. Commercial air conditioning revenues
increased $113.3 million, or 40.6%, to $392.1 million for 1998 compared to 1997.
If the effect of the consolidation of Ets. Brancher is excluded, commercial air
conditioning revenues would have increased $46.5 million, or 17.9%, to $306.1
million for 1998 as compared to 1997. This increase was primarily due to
increased rooftop air conditioner business in the U.S. and Canada. Net sales
related to the commercial refrigeration segment were $237.3 million during 1998,
an increase of 53.8% from $154.3 million for 1997. If the effect of the
consolidation of Ets. Brancher is excluded, net sales related to the commercial
refrigeration products segment would have increased $20.2 million, or 14.8%, to
$156.8 million for 1998 as compared to 1997. This increase is primarily due to
hot weather in North America in the spring of 1998 and the acquisition of McQuay
do Brasil in September 1998. Heat transfer revenues increased $32.5 million, or
22.3%, to $178.7 million for 1998 compared to 1997. If the effect of the
consolidation of Ets. Brancher is excluded, heat transfer revenues would have
increased $11.4 million, or 8.0%, to $154.3 million for 1998 as compared to
1997. This increase is primarily due to hot weather in North America in the
spring of 1998.
Gross profit. Gross profit was $576.2 million for the year ended December
31, 1998 as compared to $438.5 million for the year ended December 31, 1997, an
increase of $137.7 million. Gross profit margin increased to 31.6% in 1998 from
30.4% for 1997. The increase of $137.7 million in gross profit was primarily
attributable to increased sales in 1998 as compared to 1997 and the effect of
the consolidation of Ets. Brancher for the full year. Ets. Brancher contributed
$47.7 million and $11.2 million to gross profit in 1998 and 1997, respectively,
and its gross profit margin was 25.0% and 27.9% in 1998 and 1997, respectively.
If the effect of the consolidation of Ets. Brancher is excluded, gross profit
margin would have been 32.4% and 30.4% for 1998 and 1997, respectively. The
improved gross profit margin for 1998 is due to lower material costs, improved
manufacturing processes and increased overhead absorption associated with the
higher volume of sales in North America.
Selling, general and administrative expenses. Selling, general and
administrative expenses were $461.1 million for 1998, an increase of $134.8
million, or 41.3%, from $326.3 million for 1997. Selling, general
20
<PAGE> 24
and administrative expenses represented 25.3% and 22.6% of total net revenues
for 1998 and 1997, respectively. If the effect of the consolidation of Ets.
Brancher is excluded, selling, general and administrative expenses would have
been $413.9 million for 1998, an increase of $99.8 million, or 31.8%, from
$314.1 million for 1997, representing 25.4% and 22.4% of total net sales for
1998 and 1997, respectively. Approximately $16.7 million of the increase in
selling, general and administrative expenses is composed of three non-recurring
items: $7.1 million associated with the settlement of a lawsuit; approximately
$5.0 million of incremental expense associated with the implementation of the
SAP enterprise business software system; and $4.6 million associated with
increased expenses of a terminated performance share plan. If the effect of
these non-recurring items and the consolidation of Ets. Brancher is excluded,
selling, general and administrative expenses would have been $397.2 million for
1998, an increase of $83.1 million, or 26.5%, from $314.1 million for 1997,
representing 24.4% and 22.4% of total net sales for 1998 and 1997, respectively.
The remaining increase in selling, general and administrative expenses is
primarily due to increased variable costs associated with sales growth in North
America and costs associated with creating infrastructure to manage
international businesses, such as the establishment of a sales office in
Singapore and the business development functions for our global operation.
Other operating expense, net. Other operating expense, net totaled $8.5
million for 1998, an increase of $1.1 million from $7.4 million for 1997. Other
operating expense, net is comprised of (income) loss from joint ventures,
amortization of goodwill and other intangibles and miscellaneous items. The $1.1
million increase is due to increases in amortization of goodwill of $1.7 million
and losses from joint ventures of $1.3 million, partially offset by a decrease
in other intangible and miscellaneous expense of $2.0 million.
Product inspection charge. In the fourth quarter of 1997, we recorded a
non-recurring pre-tax charge of $140.0 million to provide for projected expenses
of the product inspection program related to our Pulse furnace. We have offered
the owners of all Pulse furnaces installed between 1982 and 1990 a subsidized
inspection and a free carbon monoxide detector. The inspection includes a severe
pressure test to determine the serviceability of the heat exchanger. If the heat
exchanger does not pass the test, we will either replace the heat exchanger or
offer a new furnace and subsidize the labor costs for installation. The cost
required for the program depends on the number of furnaces located, the
percentage of those that do not pass the pressure test and the replacement
option chosen by the homeowner. We periodically review the reserve balance and
at this time believe the remaining reserve of $27.3 million at December 31, 1998
will be adequate to cover the remaining costs associated with this inspection
program. This program ends on June 30, 1999.
Income (loss) from operations. Income (loss) from operations was $106.6
million for 1998 compared to $(35.2) million for 1997. Excluding the Ets.
Brancher consolidation, the special charge for the Pulse inspection program and
the three non-recurring selling, general and administrative expense items
mentioned above, income from operations would have been $122.6 million for 1998,
or 7.5% of net sales, as compared to $106.1 million for 1997, or 7.6% of net
sales.
Interest expense, net. Interest expense, net for 1998 increased to $16.2
million from $8.5 million for 1997. Of the $7.7 million increase in interest
expense, $3.6 million was due to the incurrence of $75 million in additional
long-term borrowings in April 1998, $1.3 million was due to the consolidation of
Ets. Brancher for the full year and the remainder was due to less interest
income in 1998.
Other. Other expense was $1.6 million for 1998 and $2.0 million for 1997.
Other expense is primarily comprised of currency exchange gains or losses.
Minority interest. Minority interest in subsidiaries' net loss of $(0.7)
million in 1997 and $(0.9) million in 1998 represents the minority interest in
Ets. Brancher and, for 1998, McQuay do Brasil.
Provision (benefit) for income taxes. The effective tax rates for the 1998
provision and the 1997 benefit were 41.4% and 25.5%, respectively. The effective
tax rates differ from the federal statutory rate of 35% primarily due to state
income taxes and valuation reserves provided for foreign operating losses.
Net income (loss). Net income (loss) was $52.5 million and $(33.6) million
for the year ended December 31, 1998 and 1997, respectively. If the effects of
the consolidation of Ets. Brancher and the non-recurring charge relating to the
Pulse inspection program are excluded, net income would have been
21
<PAGE> 25
$52.9 million and $55.2 million for 1998 and 1997, representing 3.2% and 3.9% of
net sales for 1998 and 1997, respectively.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net sales. Net sales increased $79.9 million, or 5.9%, to $1,444.4 million
for the year ended December 31, 1997 from $1,364.5 million for the year ended
December 31, 1996. If the effect of the consolidation of Ets. Brancher is
excluded, net sales would have increased by $39.7 million, or 2.9%, to $1,404.2
million for 1997 compared to 1996.
Net sales related to the North American residential segment were $865.1
million during 1997, an increase of 0.9% from $857.1 million for 1996. This
increase was principally due to increases in the number of heating and air
conditioning units sold by us, despite the fact that industry shipments were
generally down 5% for 1997. The weather in 1997 was mild with a cool spring and
modest winter over most of the U.S., and inventory levels for both dealers and
distributors were higher than normal at the end of 1996. Commercial air
conditioning revenues increased $49.9 million, or 21.8%, to $278.8 million for
1997 compared to 1996. Of the $49.9 million increase, 61.5% was due to increased
rooftop air conditioner business in North America and the balance was due to the
consolidation of Ets. Brancher in the fourth quarter of 1997. Rooftop air
conditioner business increased in 1997 principally due to focused sales efforts
through commercial districts that we established early in 1997 as well as the
continued roll out of the L Series rooftop product line. Net sales related to
the commercial refrigeration segment were $154.3 million during 1997, an
increase of 13.8% from $135.6 million for 1996. This increase was primarily due
to the consolidation of Ets. Brancher in the fourth quarter of 1997. Heat
transfer revenues increased $3.3 million, or 2.3%, to $146.2 million for 1997
compared to 1996. Ets. Brancher contributed $3.3 million to heat transfer
product sales in 1997.
Gross profit. Gross profit was $438.5 million for the year ended December
31, 1997 as compared to $402.9 million for the year ended December 31, 1996, an
increase of $35.6 million. Gross profit margins were 30.4% and 29.5% for 1997
and 1996, respectively. The increase of $35.6 million in gross profit was
primarily attributable to increased sales in 1997 and the effect of the
consolidation of Ets. Brancher. Ets. Brancher contributed $11.2 million to gross
profit in 1997, and its gross profit margin was 27.9%. If the effect of the
consolidation of Ets. Brancher is excluded, gross profit margin would have
remained the same for 1997.
Selling, general and administrative expenses. Selling, general and
administrative expenses were $326.3 million for 1997, an increase of $28.3
million, or 9.5%, from $298.0 million for 1996. Selling, general and
administrative expenses represented 22.6% and 21.8% of net sales for 1997 and
1996, respectively. Of the $28.3 million increase, $12.2 million was related to
the consolidation of Ets. Brancher. Excluding the effect of the consolidation of
Ets. Brancher, selling, general and administrative expenses would have
represented 22.4% of net sales in 1997. The remaining $16.1 million increase in
selling, general and administrative expenses related to expenses in establishing
specialized commercial sales districts in North America, increased expenses
related to a profit sharing plan and other variable cost increases associated
with increased sales.
Other operating expense, net. Other operating expense, net totaled $7.4
million for 1997, an increase of $3.2 million from $4.2 million for 1996. In
1996, we recognized a non-recurring $4.6 million gain on the sale of a portion
of our interest in Alliance Compressors, a joint venture to manufacture
compressors. After the sale, we owned a 24.5% interest in Alliance Compressors.
Income (loss) from operations. Income (loss) from operations was $(35.2)
million in 1997, a decrease of $135.8 million from $100.6 million in 1996. The
$135.8 million decrease was primarily due to the $140.0 million non-recurring
pre-tax charge relating to the Pulse inspection program. Excluding the special
charge for the Pulse inspection program and the consolidation of Ets. Brancher,
income from operations would have been $106.1 million in 1997, representing 7.6%
of net sales, the same percent as in 1996.
Interest expense, net. Interest expense, net for 1997 decreased to $8.5
million from $13.4 million for 1996. The decrease of $4.9 million in interest
expense was primarily due to higher average cash balances resulting from
improved working capital management. We did not have any short-term borrowings
in 1996 or 1997 and long-term debt remained fairly consistent each year.
22
<PAGE> 26
Other. Other expense was $2.0 million for 1997 and $(0.9) million for 1996.
Other expense is primarily comprised of currency exchange gains or losses.
Minority interest. Minority interest in subsidiaries' net loss of $(0.7)
million in 1997 represents the minority interest in Ets. Brancher.
Provision (benefit) for income taxes. The effective tax rates for the 1997
benefit and the 1996 provision were 25.5% and 37.9%, respectively. The effective
tax rates differ from the federal statutory rate of 35% primarily due to state
income taxes and valuation reserves provided for foreign operating losses.
Net income (loss). There was a net loss of $(33.6) million for the year
ended December 31, 1997 compared to net income of $54.7 million for the year
ended December 31, 1996. If the non-recurring charge relating to the Pulse
inspection program and the consolidation of Ets. Brancher are excluded, net
income would have been $55.2 million for 1997, representing 3.9% of net sales,
compared to 4.0% of net sales for 1996.
LIQUIDITY AND CAPITAL RESOURCES
We have historically financed our operations and capital requirements from
internally generated funds and, to a lesser extent, borrowings from external
sources. Our capital requirements have related principally to acquisitions, the
expansion of our production capacity and increased working capital needs that
have accompanied sales growth.
We closely monitor controllable working capital, which we define as
inventories plus trade accounts receivables less accounts payable. To measure
the effectiveness of our management of controllable working capital, we
calculate the amount of controllable working capital as a percent of sales on a
rolling twelve month basis. From January 1996 to December 1998, controllable
working capital as a percent of sales has declined from 36.1% to 26.7%. If
controllable working capital management had not improved, we estimate that our
investment in working capital would have been approximately $180 million higher
at December 31, 1998. Controllable working capital has improved primarily
because we have introduced the concepts of "Demand Flow"(R) technology, cellular
manufacturing, just-in-time inventory management and configure-to-order
processes to reduce production cycle lead times in our manufacturing facilities.
Prior to introducing these manufacturing efficiencies, lead times were as long
as 90 days or more and, consequently, substantial buffer stocks were required to
cover anticipated forecast errors. These stocks were often inventoried in one
location when the demand would occur in another location. With lead times as
short as one week, we now require minimal safety stock and rarely have to
redeploy inventory from one location to another.
Net cash provided by operating activities totaled $158.8 million, $58.5
million and $5.0 million for 1996, 1997 and 1998, respectively. The reduction in
cash provided by operating activities is primarily due to the Pulse inspection
program as we spent $26.6 million and $86.1 million on this program in 1997 and
1998, respectively. In addition, we had unusually strong sales of our "Lennox"
brand of North American air conditioning products late in 1997 and accordingly
accounts receivable in December 1997 were higher than normal. Net cash used in
investing activities totaled $37.1 million, $44.6 million and $212.4 million for
1996, 1997 and 1998, respectively. The greater use of cash for investing relates
primarily to increased acquisition activity as we spent $14.3 million and $160.5
million for acquisitions in 1997 and 1998, respectively. Net cash provided by
(used in) financing activities was ($44.0) million, ($17.3) million and $89.5
million for 1996, 1997 and 1998, respectively. In 1998, we issued $75.0 million
principal amount of notes and increased short term borrowings by $36.7 million.
Due to the seasonality of the air conditioning and refrigeration businesses, we
typically use cash in the first six months and generate cash during the latter
half of the year. Our internally generated cash flow, along with borrowings
under our revolving credit facility, have been sufficient to cover our working
capital, capital expenditure and debt service requirements over the last three
years.
In the past, we have used a combination of internally generated funds,
external borrowings and our stock to make acquisitions. We intend to acquire
additional heating and air conditioning dealers in the U.S. and Canada. We plan
to finance these acquisitions with a combination of cash, including a portion of
the net proceeds of this offering, stock and debt. As of March 31, 1999, we had
acquired 37 dealers in Canada for an
23
<PAGE> 27
aggregate purchase price of approximately $55 million and had signed letters of
intent to acquire nine additional Canadian dealers for an aggregate purchase
price of approximately $9 million.
Our capital expenditures were $31.9 million, $34.6 million and $52.4
million for 1996, 1997 and 1998, respectively. We have budgeted $80 million for
capital expenditures for 1999. These expenditures primarily relate to production
equipment (including tooling), training facilities and information systems. The
majority of these planned capital expenditures are discretionary. We plan to
finance these capital expenditures using cash flow from operations and a portion
of the net proceeds from this offering.
At December 31, 1998, we had long-term debt obligations outstanding of
$261.4 million. The total long-term debt consists primarily of six issues of
notes with an aggregate principal amount of $240.6 million, interest rates
ranging from 6.56% to 9.69% and maturities ranging from 2001 to 2008. The notes
contain certain restrictive covenants, including covenants that place certain
limitations on our ability to incur additional indebtedness, encumber our assets
or pay dividends. Our ability to incur debt is limited to 60.0% of our
consolidated capitalization. As of December 31, 1998, our consolidated
indebtedness as a percent of consolidated capitalization was 43.4%. Under the
terms of the notes, we are not allowed to pay dividends unless we could incur
$1.00 of additional indebtedness. In addition, we are required to maintain a
consolidated net worth equal to $261.0 million plus 15% of our consolidated
quarterly net income beginning April 1, 1998. At December 31, 1998, the required
consolidated net worth was $267.8 million and we had a consolidated net worth of
$376.4 million. Our debt service requirements (including principal and interest
payments) for long-term debt are $38.1 million for 1999. As of December 31,
1998, we had approximate minimum commitments on all non-cancelable operating
leases of $22 million and $19 million in 1999 and 2000, respectively.
We have $135 million of borrowings available under our revolving credit
facility. Our revolving credit facility provides for both "standby loans" and
"offered rate loans." Standby loans are made ratably by all lenders under the
revolving credit facility, while offered rate loans are, subject to the terms
and conditions of the credit facility, separately negotiated between us and one
or more members of the lending syndicate. Standby loans bear interest, at our
option, at a rate equal to either (a) the London Interbank Offered Rate plus a
margin equal to 0.150% to 0.405% depending on the ratio of our debt to total
capitalization, or (b) the greater of (1) the Federal Funds Effective Rate plus
0.5%, and (2) the Prime Rate. Offered rate loans bear interest at a fixed rate
agreed to by us and the lender or lenders making such loans. Under the revolving
credit facility, we are obligated to pay certain fees, including (a) a quarterly
facility fee to each lender under the credit facility equal to a percentage,
varying from 0.100% to 0.220% (depending on the ratio of our debt to total
capitalization) of each lender's total commitment, whether used or unused, under
the revolving credit facility and (b) certain administrative fees to the
administrative agent and documentation agent under the revolving credit
facility. The revolving credit facility contains the same restrictive covenants
and maintenance tests as the notes. The revolving credit facility will expire on
July 13, 2001, unless earlier terminated pursuant to its terms and conditions.
In March 1999, we entered into a term credit agreement which provides for
borrowings of up to $115 million. Repayments of borrowings result in a permanent
reduction of the commitment. Loans bear interest, at our option, at a rate equal
to (a) the rate offered by the administrative agent in its London offices plus
1.00% to 1.75%, depending upon the period, or (b) the greater of (1) the Federal
Funds Effective Rate plus 0.5% or (2) the Prime Rate, in each case plus 0% to
0.75%, depending upon the period. Under the term credit agreement, we are
obligated to pay certain fees, including (a) a quarterly commitment fee equal to
0.15% of the unused portion of the commitment and (b) certain administrative
fees to the administrative agent. We are required to use the net proceeds from
any issuance of our securities, including the net proceeds from this offering,
to repay any amounts outstanding under the term credit agreement. The term
credit agreement otherwise expires on December 31, 1999.
We believe that cash flow from operations, as well as the net proceeds from
the offering and available borrowings under our revolving credit facility, will
be sufficient to fund our operations for the foreseeable future.
24
<PAGE> 28
QUARTERLY RESULTS OF OPERATIONS
The following table presents certain of our quarterly information for the
years ended December 31, 1997 and 1998. Such information is derived from our
unaudited financial statements and, in the opinion of our management, includes
all adjustments, consisting of only normal recurring adjustments, necessary for
a fair presentation of such information. Operating results for any given quarter
are not necessarily indicative of results for any future period and should not
be relied upon as an indicator of future performance. Beginning with the fourth
quarter of 1997, our results of operations reflect the consolidation of Ets.
Brancher.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------
1997 1998
-------------------------------------- --------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
------- ------- -------- ------- ------- ------- -------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................................... $307.1 $365.4 $381.9 $390.0 $379.6 $456.0 $529.2 $457.0
Cost of goods sold........................... 211.6 252.0 265.2 277.1 261.8 309.0 359.6 315.2
------ ------ ------ ------- ------ ------ ------ ------
Gross profit................................. 95.5 113.4 116.7 112.9 117.8 147.0 169.6 141.8
------ ------ ------ ------- ------ ------ ------ ------
Selling, general, administrative and other
expenses................................... 79.1 80.3 81.0 93.3 99.6 116.9 121.7 131.4
Product inspection charge.................... -- -- -- 140.0 -- -- -- --
------ ------ ------ ------- ------ ------ ------ ------
Income (loss) from operations................ 16.4 33.1 35.7 (120.4) 18.2 30.1 47.9 10.4
------ ------ ------ ------- ------ ------ ------ ------
Net income (loss)............................ $ 7.9 $ 17.6 $ 18.5 $(77.6) $ 8.3 $ 17.2 $ 24.5 $ 2.5
</TABLE>
The following table sets forth, as a percentage of net sales, statement of
income data by quarter for the years ended December 31, 1997 and 1998.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------
1997 1998
-------------------------------------- --------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
------- ------- -------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold........................... 68.9 69.0 69.4 71.1 69.0 67.8 68.0 69.0
----- ----- ----- ------ ----- ----- ----- -----
Gross profit................................. 31.1 31.0 30.6 28.9 31.0 32.2 32.0 31.0
----- ----- ----- ------ ----- ----- ----- -----
Selling, general and administrative
expenses................................... 25.8 22.0 21.2 23.9 26.2 25.6 22.9 28.8
Product inspection charge.................... -- -- -- 35.9 -- -- -- --
----- ----- ----- ------ ----- ----- ----- -----
Income (loss) from operations................ 5.3 9.0 9.4 (30.9) 4.8 6.6 9.1 2.2
----- ----- ----- ------ ----- ----- ----- -----
Net income (loss)............................ 2.6% 4.8% 4.8% (19.9)% 2.2% 3.8% 4.6% .5%
</TABLE>
Our quarterly operating results have varied significantly and are likely to
vary significantly in the future. Demand for our products is seasonal and
dependent on the weather. In addition, a majority of our revenue is derived from
products whose sales peak in the summer months. Consequently, we often
experience lower sales levels in the first and fourth quarters of each year.
Because a high percentage of our overhead and operating expenses are relatively
fixed throughout the year, operating earnings and net earnings tend to be lower
in quarters with lower sales.
MARKET RISK
The estimated fair values of our financial instruments approximate their
respective carrying amounts at December 31, 1998, except as follows (in
thousands):
<TABLE>
<CAPTION>
FAIR VALUE
-------------------
CARRYING INTEREST
AMOUNT AMOUNT RATE
-------- ------- --------
<S> <C> <C> <C>
9.69% promissory notes.................................. $24,600 $26,601 6.75%
9.53% promissory notes.................................. 21,000 21,923 6.75
11.10% promissory notes................................. 7,547 7,739 9.00
</TABLE>
The fair values presented above are based on the amount of future cash
flows associated with each instrument, discounted using our current borrowing
rate for similar debt instruments of comparable maturity.
25
<PAGE> 29
The fair values are estimates as of December 31, 1998, and are not necessarily
indicative of amounts for which we could settle currently or indicative of the
intent or ability of us to dispose of or liquidate such instruments.
Our results of operations can be affected by changes in exchange rates. Net
sales and expenses in currencies other than the U.S. dollar are translated into
U.S. dollars for financial reporting purposes based on the average exchange rate
for the period. During 1996, 1997 and 1998, net sales from outside the U.S. and
Canada represented 2.1%, 5.3% and 13.4%, respectively, of total net sales.
Historically, foreign currency transaction gains (losses) have not had a
material effect on our operations.
We have entered into foreign currency exchange contracts to hedge our
investment in Ets. Brancher. We do not engage in currency speculation. These
contracts do not subject us to risk from exchange rate movements because the
gains or losses on the contracts offset the losses or gains, respectively, on
the assets and liabilities of Ets. Brancher. As of December 31, 1998, we had
entered into foreign currency exchange contracts with a nominal value of 165.5
million French francs (approximately $30.0 million). These contracts require us
to exchange French francs for U.S. dollars at maturity, which is in May 2003, at
rates agreed to at inception of the contracts. If the counterparties to the
exchange contracts do not fulfill their obligations to deliver the contracted
currencies, we could be at risk for any currency related fluctuations.
From time to time we enter into foreign currency exchange contracts to
hedge receivables from our foreign subsidiaries. These contracts do not subject
us to risk from exchange rate movements because the gains or losses on the
contracts offset losses or gains, respectively, on the receivables being hedged.
As of December 31, 1998, we had obligations to deliver the equivalent of $33.2
million of various foreign currencies by March 31, 1999, for which the
counterparties to the contracts will pay fixed contract amounts.
INFLATION
Historically, inflation has not had a material effect on our results of
operations.
YEAR 2000 COMPLIANCE
The Year 2000 issue concerns the ability of information technology and
non-information technology systems and processes to properly recognize and
process date-sensitive information before, during and after December 31, 1999.
We have a variety of computer software program applications, computer hardware
equipment and other equipment with embedded electronic circuits, including
applications used in our financial business systems, manufacturing processes and
administrative functions, which are collectively referred to as the "Systems".
We expect that our Systems will be ready for the Year 2000 transition.
In order to identify and resolve Year 2000 issues affecting us, we
established a Year 2000 Compliance Program. The Year 2000 Compliance Program is
administered by a Task Force, consisting of members of senior management as well
as personnel from our accounting, internal audit and legal departments, which
has oversight of the information systems managers and other administrative
personnel charged with implementing our Year 2000 Compliance Program. The Task
Force has established a specific compliance team for Lennox Corporate and for
each of our operating locations.
In 1994 we began the replacement of all core business systems for our
domestic subsidiaries. The purpose of this replacement was to upgrade systems
architecture and functionality, improve business integration and implement
process improvements. SAP was selected as the enterprise resource for planning
("ERP") system to replace mission critical software and hardware for Lennox
Industries, Heatcraft (Heat Transfer and Refrigeration Products Divisions) and
the Lennox Corporate operations. Fourth Shift was selected as the ERP system for
the Electrical Products Division of Heatcraft and is also being implemented for
various subsidiaries of Lennox Global. A new version of ROI Manage 2000 was
implemented for Armstrong. As of December 31, 1998, all replacements were
complete except for the Heat Transfer Division of Heatcraft, which is scheduled
to be complete by September 30, 1999, and replacements for certain subsidiaries
of Lennox Global.
SAP, Fourth Shift and ROI Manage 2000 have certified that these systems are
Year 2000 compliant. Hardware, operating systems and databases installed to
support these systems are either compliant or have
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Year 2000 vendor supplied updates to be applied in 1999. Other smaller
applications integrated with SAP have been replaced or upgraded with Year 2000
compliant software.
The implementations of SAP, Fourth Shift and ROI Manage 2000 and the
related hardware, operating systems and databases comprise the systems that are
most critical to our operations ("Critical Systems") and address the areas of
our business which would have otherwise been significantly affected by the Year
2000. As of March 15, 1999, we were approximately 85% complete with the
implementation of the Year 2000 Compliance Program for all Critical Systems, and
we expect to be 100% complete by September 30, 1999.
Our Year 2000 Program also addresses compliance in areas in addition to
Critical Systems, including: voice and data networks, desktop computers,
peripherals, EDI, contracted or purchased departmental software, computer
controlled production equipment, test stations, building security, transport and
heating and air conditioning systems, service providers, key customers and
suppliers and Lennox manufactured and purchased products. As of March 15, 1999,
we were more than 50% complete with the implementation of the Year 2000
Compliance Program for all such areas, and we expect to be 100% complete by
September 30, 1999.
We have initiated communications with significant suppliers, customers and
other third parties to identify and assess Year 2000 risks and to develop
solutions that will minimize the impact on us. If third party providers, due to
the Year 2000 issue, fail to provide us with components or materials which are
necessary to manufacture our products, with sufficient electrical power and
other utilities to sustain our manufacturing process, or with adequate and
reliable means of transporting our products to our customers, then any such
failure could have an adverse effect on our future financial results. The amount
of potential liability and lost revenue cannot be estimated. Currently, we are
not aware of any of our significant third party providers or customers that are
not or will not be Year 2000 compliant.
In order to address the potential Year 2000 non-compliance by third parties
affecting our operations, we will continue to survey our key customers and third
party providers requesting that they respond regarding their Year 2000 plans. If
we find a third party whose lack of Year 2000 readiness could have a substantial
impact on our operations, we intend to take corrective action. However, no
assurance can be given that third party suppliers or others on whom we rely will
address such issues successfully.
The implementation of Critical Systems began in 1994 and was not
accelerated as a result of the Year 2000. We do not separately track the costs
of our Year 2000 Compliance Program because the majority of such costs consist
of internal payroll and related benefits of our compliance teams. Year 2000
remediation costs are expensed in the year incurred. We do not expect future
remediation expenditures to be material.
To date, we have no indication that the time to replace or convert any
specific function or system is so great as to threaten our present schedule. If
we complete our remediation plans, then any adverse effects from the Year 2000
problem will result from circumstances outside our control. As we cannot
anticipate such circumstances now, we have not yet developed "most reasonably
likely worst case Year 2000 scenarios."
Although at this time we believe that we are adequately addressing the Year
2000 issues, there can be no assurance that the Year 2000 issues will not have
an adverse effect on our future financial results. In addition, disruptions in
the economy generally resulting from Year 2000 issues could have a materially
adverse effect on us.
FORWARD-LOOKING STATEMENTS
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other sections of this prospectus contain forward-looking
statements which are subject to various risks and uncertainties. Actual results
could differ materially from those discussed herein. Important factors that
could cause or contribute to such differences include those discussed under
"Risk Factors" as well as those discussed elsewhere in this prospectus.
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<PAGE> 31
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement establishes accounting and reporting
standards for derivative instruments, including certain derivatives embedded in
other contracts (collectively referred to as derivatives) and for hedging
activities. This statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. We do not believe that the adoption of this
pronouncement will have a significant impact on our financial statements.
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<PAGE> 32
BUSINESS
We are a leading global provider of climate control solutions. We design,
manufacture and market a broad range of products for the HVACR markets. Our
products are sold under well-established brand names including "Lennox",
"Armstrong Air", "Bohn", "Larkin", "Heatcraft" and others. We are also one of
the largest manufacturers in North America of heat transfer products, such as
evaporator coils and condenser coils. We have leveraged our expertise in heat
transfer technology, which is critical to the efficient operation of any heating
or cooling system, to become an industry leader known for our product innovation
and the quality and reliability of our products. As a result of recent
acquisitions, we have also become a leader in the growing market for hearth
products, which includes pre-fabricated fireplaces and related products.
Historically, we have sold our "Lennox" brand of residential heating and air
conditioning products directly to a network of installing dealers, which
currently numbers approximately 6,000, making us the largest wholesale
distributor of these products in North America. We have recently initiated a
program to acquire dealers in metropolitan areas in the U.S. and Canada so that
we can provide heating and air conditioning products and services directly to
consumers.
Our furnaces, heat pumps, air conditioners, pre-fabricated fireplaces and
related products are available in a variety of designs, efficiency levels and
price points that provide an extensive line of comfort systems. A majority of
our sales of residential heating and air conditioning products in the U.S. and
Canada are to the repair and replacement market, which is less cyclical than the
new construction market. We also provide a range of air conditioning products
for commercial market applications such as mid-size office buildings,
restaurants, churches and schools. Our commercial refrigeration products are
used primarily in cold storage applications for food preservation in
supermarkets, convenience stores, restaurants, warehouses and distribution
centers. Our heat transfer products are used by us in our HVACR products and
sold to third parties.
Shown below are our four business segments, the key products and brand
names within each segment and 1998 net sales by segment. The North American
residential segment also includes installation, maintenance and repair services
performed by Lennox-owned dealers. See our audited financial statements included
elsewhere in this prospectus for more information on our segments.
<TABLE>
<CAPTION>
SEGMENT PRODUCTS BRAND NAMES 1998 NET SALES
------- -------- ----------- --------------
(IN MILLIONS)
<S> <C> <C> <C>
North American residential Furnaces, heat pumps, air Lennox, Armstrong Air, Air-Ease, $1,013.7
conditioners, packaged heating Concord, Magic-Pak, Advanced
and cooling systems and related Distributor Products, Superior,
products; pre-fabricated Marco, Whitfield and Security
fireplaces, free standing Chimneys
stoves, fireplace inserts and
accessories
Commercial air conditioning Unitary air conditioning and Lennox, Alcair and Janka 392.1
applied systems
Commercial refrigeration Chillers, condensing units, unit Bohn, Friga-Bohn, Larkin, 237.3
coolers, fluid coolers, air Climate Control and Chandler
cooled condensers and air Refrigeration
handlers
Heat transfer Evaporator and condenser coils Heatcraft and Friga-Bohn 178.7
and equipment and tooling to
manufacture coils
--------
Total........................... $1,821.8
========
</TABLE>
We market and distribute our products using multiple brand names through
multiple distribution channels to penetrate different segments of the HVACR
market. Our "Lennox" brand of residential heating and air conditioning products
is sold directly through installing dealers -- the "one-step" distribution
system -- which has created strong and long-term relationships with dealers in
North America. Our "Armstrong Air," "Air-Ease," "Concord" and "Magic-Pak"
residential heating and air conditioning brands are sold to regional
distributors that in turn sell the products to installing contractors -- the
"two-step" distribution system typically utilized in the heating and air
conditioning industry. The acquisition of heating
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and air conditioning dealers in Canada and the planned acquisition of dealers in
the U.S. allows us to participate in the retail sale and service of heating and
air conditioning products. Our hearth products, commercial air conditioning
products and refrigeration products are also sold under multiple brand names and
through a combination of wholesalers, contractors, original equipment
manufacturers, manufacturers' representatives and national accounts.
From our beginning in 1895 until the mid-1980's, we focused primarily on
the North American residential heating and air conditioning market. In the
1980's, we expanded our product offerings by acquiring several heat transfer and
commercial refrigeration businesses. In the mid-1990's, we increased our
international presence, product offerings and brand portfolio through
acquisitions in Europe, Latin America and the Asia Pacific region. The most
significant international acquisition was the purchase in 1996 of a 50% interest
in two operating subsidiaries of Ets. Brancher for approximately $22.0 million,
which significantly expanded our geographic presence and provided us with an
entry into the commercial air conditioning and refrigeration markets in Europe.
In 1997, we increased our ownership interest in Ets. Brancher to 70% for an
additional $18.4 million. In September 1998, we acquired a majority interest in
McQuay do Brasil S.A., a Brazilian company which participates in the commercial
refrigeration and heat transfer markets in Brazil and surrounding countries, for
$20.5 million. We recently expanded our product offerings to include hearth
products through the acquisitions of Superior Fireplace Company, Marco Mfg.,
Inc. and Pyro Industries, Inc. in the third quarter of 1998 and Security
Chimneys International, Ltd. in the first quarter of 1999 for an aggregate
purchase price of approximately $120 million. As a result of these acquisitions,
we are one of the largest manufacturers of hearth products in the U.S. and
Canada, offering a broad line of products through a variety of distribution
channels.
We were founded in 1895 in Marshalltown, Iowa when Dave Lennox, who owned a
machine repair business for the railroads, successfully developed and patented a
riveted steel coal-fired furnace which was substantially more durable than the
cast iron furnaces used at the time. By 1904, the manufacture of these furnaces
had grown into a significant business and was diverting the Lennox Machine Shop
from its core business. As a result, in 1904, a group of investors headed by
D.W. Norris bought the furnace business and named it the Lennox Furnace Company.
Over the years, D.W. Norris ensured that ownership of Lennox was distributed to
all generations of his family. Today, Lennox's ownership is broadly distributed
among approximately 110 descendants of or persons otherwise related to D.W.
Norris.
INDUSTRY OVERVIEW
NORTH AMERICAN RESIDENTIAL
Residential Heating and Air Conditioning. The residential market in the
U.S. and Canada is divided into two basic categories: furnaces and air
conditioning systems. Air conditioning is further divided into two basic
categories: residential split systems and heat pumps and window and room air
conditioners. We do not participate in the window and room air conditioner
category. Split system air conditioners are comprised of a condensing unit,
normally located outside of the household, and an evaporator unit, which is
typically positioned indoors to use the blower mechanism of a furnace or fan
coil unit in the case of a heat pump.
In recent decades the functions performed by the products of this market
have become increasingly important to modern life. The advent of modern, high
efficiency air conditioning was one of the significant factors contributing to
the growth of large metropolitan areas in parts of the southern U.S. According
to a report published by the U.S. Department of Housing and Urban Development
for 1995, 98% of all new houses constructed in the southern region of the U.S.
and 80% of all new houses in the U.S. included central air conditioning.
According to the U.S. Census Bureau, manufacturers' sales for all residential
air conditioners and warm air furnaces produced in 1997 for the U.S. market were
approximately $5.5 billion, reflecting a compound annual growth rate of
approximately 7.2% from 1993 to 1997. We estimate that manufacturers' sales in
Canada were approximately $200 million in 1997.
Services in the residential market in North America consist of the
installation, replacement, maintenance and repair of heating and air
conditioning systems at existing residences and the installation of heating and
air conditioning systems at newly constructed homes. This market is served by
small, owner-operated businesses
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operating in a single geographic area and dealers owned by consolidators,
utility companies and others, some of whom may operate under a uniform trade
name and in multiple geographic locations. The retail sales and service market
in the U.S. is comprised of over 30,000 dealers.
The principal factors affecting market growth in the North American
residential market are new home construction, the weather and economic
conditions, especially consumer confidence. Residential heating and air
conditioning products are sold for both the replacement and new construction
markets. The residential new construction market has historically been a more
price sensitive market because many homebuilders focus on initial price rather
than operating efficiency or ongoing service costs.
Hearth Products. The main components of the hearth products market are
pre-fabricated gas fireplaces and inserts, pre-fabricated wood burning
fireplaces and inserts, pellet stoves, gas logs, and accessories and
miscellaneous items. We participate in all major aspects of the hearth products
market. According to the Hearth Products Association, an industry trade group,
there were 2.3 million unit sales in 1998, including all gas and wood burning
appliances, and this market is expected to grow at 7.5% per year through 2000.
The addition of a fireplace is considered one of the best return on investment
decisions that a homeowner can make. Hearth products are distributed and sold
through many channels, ranging from contractors to specialty retailers.
COMMERCIAL AIR CONDITIONING
The global commercial air conditioning market is divided into two basic
categories: unitary air conditioners and applied systems. We primarily
participate in the unitary air conditioning market in North America and in both
the unitary and applied systems markets in Europe. Unitary products consist of
modular split systems and packaged products with up to 30 tons of cooling
capacity. One ton of cooling capacity is equivalent to 12,000 BTUs and is
generally adequate to air condition approximately 500 square feet of space.
Packaged units are self-contained heating and cooling or cooling only units that
typically fit on top of a low rise commercial building such as a shopping center
or a restaurant. Applied systems are typically larger engineered systems, which
are designed to operate in multi-story buildings and include air cooled and
water cooled chillers, air handling units and equipment to monitor and control
the entire system.
According to the Air-Conditioning & Refrigeration Institute, an industry
trade group, global manufacturers' sales for all commercial air conditioning
systems produced in 1994 (the latest available data) were approximately $14
billion. The principal factors affecting growth in this market are new
construction, economic conditions and environmental regulation of refrigerants.
Unlike residential heating and air conditioning systems, some commercial air
conditioning systems use refrigerants that have been banned or that are
currently being phased out, especially in Europe. We expect that such regulation
will lead to increased growth in this market.
COMMERCIAL REFRIGERATION
The global refrigeration market is a highly diversified market, including
everything from household refrigerators and walk-in coolers to large, ammonia
based flash freezing plants and process cooling equipment. We define our served
market as the design and manufacture of equipment used in cold storage,
primarily for the preservation of perishable goods. Our served market includes
condensing units, unit coolers, air cooled condensers, non-supermarket racks and
packaged systems. According to the U.S. Census Bureau, our served market in the
U.S. accounted for approximately $510.9 million in revenues in 1997, reflecting
a compound annual growth rate of approximately 5.3% from 1993 to 1997.
The principal factors affecting growth in the commercial refrigeration
market are:
- new commercial construction activity, including construction of
supermarkets, restaurants, convenience stores and distribution centers;
- replacement and retrofit activity in commercial buildings such as
efficiency improvements and store design changes; and
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<PAGE> 35
- emergency replacement activity such as replacement of weather related
product/component breakdowns and product maintenance.
HEAT TRANSFER
The heat transfer surface or coil is a fundamental technology employed in
the heating and cooling cycles for HVACR products. The global heat transfer
surface market is comprised not only of the traditional HVACR applications such
as furnaces, air conditioners and unit coolers, but also numerous other
applications such as ice machines, refrigerated trucks, certain farm equipment
and off-road vehicles, recreational vehicles, computer room air conditioners and
process cooling equipment used with sophisticated laser cutting machines. We
produce heat transfer surfaces not only for traditional HVACR applications, but
also for many of these other applications. Many HVACR manufacturers produce
standard coils for their own use and generally do not sell coils to third
parties. Coils are also designed and produced by independent coil manufacturers
and sold to original equipment manufacturers for use in their products. Coils
are typically designed, developed and sold by engineers who work with customers
to produce a coil that will meet the customer's precise specifications. Factors
affecting a coil purchaser's decision are quality, delivery time, engineering
and design capability, and price.
Since heat transfer products are a fundamental part of HVACR products, the
heat transfer market is driven by the same economic factors that affect the
HVACR markets generally. Because of the fragmented nature of this market and the
fact that coils are often produced internally by HVACR manufacturers, it is
difficult to gauge the size of the worldwide served heat transfer market.
According to the U.S. Census Bureau, the served market in the U.S. (i.e., third
party sales) accounted for approximately $528.1 million in revenues in 1997,
reflecting a compound annual growth rate of approximately 6.2% from 1993 to
1997.
COMPETITIVE STRENGTHS
We have a combination of strengths that position us to continue to be a
leading provider of climate control solutions including:
STRONG BRAND RECOGNITION AND REPUTATION
We believe that our well known brand names and reputation for quality
products and services position us to compete successfully in our existing
markets and to continue to expand internationally. Our studies indicate that our
"Lennox" brand is the most widely recognized brand name in the North American
residential heating and air conditioning markets. Furthermore, in a recent
survey of home builders, the "Lennox" brand received the highest overall rating
in terms of product quality for furnaces and unitary air conditioners. We market
our other HVACR and hearth products under the well known brand names of
"Armstrong Air", "Bohn", "Larkin" and "Superior", among others.
BREADTH OF DISTRIBUTION
We market and distribute our products using multiple brand names through
multiple distribution channels to penetrate different segments of the HVACR
market. We sell our heating and air conditioning products through independent
and Lennox-owned installing dealers, as well as through regional distributors.
Our hearth products, commercial air conditioning and refrigeration products are
also sold under multiple brand names and through a combination of wholesalers,
installing contractors, manufacturers' representatives, original equipment
manufacturers, national accounts and specialty retailers. We believe that sales
growth is driven, in part, by the level of exposure to our customers and our
distribution strategy is designed to maximize this exposure.
PROVEN HEAT TRANSFER EXPERTISE
Heat transfer surfaces, which include evaporator and condenser coils, are
critical to the operation of most HVACR products. For a given application, a
variety of factors must be evaluated, such as the size of the HVACR unit and
desired energy efficiency, while considering such additional elements as
manufacturing
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ease. Since our acquisition of the Heatcraft business in 1986, we have devoted
significant resources to the development of heat transfer surfaces. We use
computer-aided design and other advanced software to improve the efficiency of
designs and simulate and evaluate the movement of refrigerants even before a
prototype is built. Since we also produce coils for sale to third parties, we
are able to spread our research and development costs over third party purchases
of heat transfer products as well as sales of our own HVACR products. We have
recently agreed to acquire Livernois Engineering Holding Company, which will
provide us with access to additional heat transfer technology. Livernois
produces heat transfer manufacturing equipment for the HVACR and automotive
industries.
COMMITMENT TO PRODUCT INNOVATION AND TECHNOLOGICAL LEADERSHIP
Throughout our history, we have dedicated substantial resources to research
and development and product innovation. We pioneered the introduction of the
forced air furnace in 1935, which resulted in new approaches to home design for
more efficient heating. Other examples of our product innovation include:
- the multi-zone rooftop air conditioner in 1965;
- the two-speed condensing unit for more efficient air conditioning in
1973;
- the high efficiency gas furnace in 1982;
- the first commercially available high efficiency combination hot water
heater and furnace in 1994; and
- "Floating Tube" and "Thermoflex" technologies, which significantly reduce
leaks in air cooled condensers and unit coolers, in 1995.
We have invested approximately $125 million over the last five years on
research and development activities, and we intend to continue to invest in
these activities to create innovative and technologically superior products.
DEMONSTRATED MANUFACTURING EFFICIENCY
Over the last several years, we have introduced concepts of "Demand
Flow"(R) technology, cellular manufacturing, just-in-time inventory management
and configure-to-order processes to reduce production cycle lead times to a week
or as little as 48 hours in many of our manufacturing facilities, compared to
lead times of 90 days or more before the introduction of such concepts. The
increases in manufacturing efficiency have led to improvements in inventory
turnover. Without these improvements, along with improvements in accounts
receivable and accounts payable management, we estimate that our investment in
working capital would have been approximately $180 million higher at December
31, 1998.
GROWTH STRATEGY
Our growth strategy is designed to capitalize on our competitive strengths
in order to expand our market share and profitability in the worldwide HVACR
markets. We will continue to pursue internal programs and strategic acquisitions
that broaden our product and service offerings, expand our market opportunities
and enhance our technological expertise. The key elements of this strategy
include:
EXPAND MARKET IN NORTH AMERICA
Our program to acquire heating and air conditioning dealers in the U.S. and
Canada represents a new direction for the heating and air conditioning industry
because, to our knowledge, no other major manufacturer has made a significant
investment in retail distribution. This strategy will enable us to extend our
distribution directly to the consumer, thereby permitting us to participate in
the revenues and margins available at the retail level while strengthening and
protecting our brand equity. We believe that the retail sales and service market
represents a significant growth opportunity because this market is large and
highly fragmented. The retail sales and service market in the U.S. is comprised
of over 30,000 dealers. We started this program in September 1998, and as of
March 31, 1999 we had acquired 37 dealers in Canada for an aggregate purchase
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price of approximately $55 million and had signed letters of intent to acquire
nine additional Canadian dealers for an aggregate purchase price of
approximately $9 million. We intend to start acquiring dealers in the U.S. by
initially focusing on our existing "Lennox" dealers and will try to achieve a
balance between residential new construction, residential replacement and light
commercial activities. We believe our long history of direct relationships with
our dealers through the one-step distribution system and the resulting knowledge
of local markets will give us advantages in identifying and acquiring suitable
candidates. We have assembled an experienced management team to administer the
dealer operations, and we have developed a portfolio of training programs,
management procedures and goods and services that we believe will enhance the
quality, effectiveness and profitability of dealer operations.
In addition to our acquisition program, we have initiated a program to
strengthen our independent dealer network by providing all dealers with a broad
array of services and support. Participants in a newly-created Associate Dealer
Program will receive certain retirement and other benefits in exchange for
agreeing that a certain percentage of their purchases will be of our products
and for granting us a right of first refusal to acquire their businesses. All
independent dealers, including participants in the Associate Dealer Program,
will be provided with access to Lennox-sponsored volume purchasing programs with
third parties for goods and services used in their businesses.
We also intend to increase our market share in North America by:
- selectively expanding our "Lennox" independent dealer network;
- promoting the cross-selling of our "Armstrong Air" and other residential
heating and air conditioning brands to our existing network of "Lennox"
dealers as a second line;
- promoting the cross-selling of our hearth products to our "Lennox" dealer
base;
- expanding the geographic market for the "Armstrong Air" brand of
residential heating and air conditioning products from its traditional
presence in the Northeast and Central U.S. to the southern and western
portions of the U.S.;
- exploiting the fragmented third-party evaporator coil market; and
- pursuing complementary acquisitions that expand our product offerings or
geographic presence.
EXPLOIT INTERNATIONAL OPPORTUNITIES
Worldwide demand for residential and commercial heating, air conditioning,
refrigeration and heat transfer products is increasing. We believe that the
increasing international demand for these products presents substantial
opportunities, especially in emerging markets and particularly for heat transfer
and refrigeration products. An example is the increasing use of refrigeration
products to preserve perishables including food products in underdeveloped
countries. Refrigeration products generally have the same design and
applications globally. To take advantage of international opportunities, we have
made substantial investments in manufacturing facilities in Europe, Latin
America and Asia Pacific through acquisitions, including a 70% interest in Ets.
Brancher. Our international sales have grown from $28.5 million in 1996 to
$244.5 million in 1998. We will continue to focus on expanding our international
operations through acquisitions and internal growth to take advantage of
international growth opportunities. We are also investing additional resources
in our international operations with the goal of achieving manufacturing and
distribution efficiencies comparable to that of our North American operations.
INCREASE PRESENCE IN HEARTH PRODUCTS MARKET
With our recent acquisitions of hearth products companies, we now
manufacture and sell one of the broadest lines of hearth products in North
America. We offer multiple brands of hearth products at a range of price points.
We believe that this broad product line will allow us to compete successfully in
the hearth products market since many distributors prefer to concentrate their
product purchases with a limited number of suppliers. We believe that we can
increase our penetration of this market by selling in the distribution
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channels we acquired and through our historical distribution channels. Many of
our heating and air conditioning dealers have begun to expand their product
offerings to include hearth products.
CONTINUE PRODUCT INNOVATION
An important part of our growth strategy is to continue to invest in
research and new product development. We have designated certain of our
facilities as "centers for excellence" that are responsible for the research and
development of core competencies vital to our success, such as combustion
technology, vapor compression, heat transfer and low temperature refrigeration.
Technological advances are disseminated from these "centers for excellence" to
all of our operating divisions. Historically, our commitment to research and
development has resulted in product innovations such as the first high
efficiency gas furnace. More recently, we were the first to manufacture and
market a complete combination high efficiency water heater and furnace, the
CompleteHeat, and also developed an integrated electronic refrigeration control
system, the Beacon control system.
PRODUCTS
NORTH AMERICAN RESIDENTIAL PRODUCTS AND SERVICES
Heating and Air Conditioning Products. We manufacture and market a broad
range of furnaces, heat pumps, air conditioners, packaged heating and cooling
systems and related products. These products are available in a variety of
product designs and efficiency levels at a range of price points intended to
provide a complete line of home comfort systems for both the residential
replacement and new construction markets. We market these products through
multiple brand names. In addition, we manufacture zoning controls, thermostats
and a complete line of replacement parts. We believe that by maintaining a broad
product line with multiple brand names, we can address different market segments
and penetrate multiple distribution channels.
Our Advanced Distributor Products division builds evaporator coils, unit
heaters and air handlers under the "ADP" brand as well as the "Lennox" and
"Armstrong Air" brands. This division supplies us with components for our
heating and air conditioning products and produces evaporator coils to be used
in conjunction with competitors' heating and air conditioning products and as an
alternative to such competitors' brand name components. We started this business
in 1993 and have been able to achieve an approximate 20% share of this market
for evaporator coils through the application of our technological and
manufacturing skills.
Hearth Products. We believe we are the only North American HVACR
manufacturer that also designs, manufactures and markets residential hearth
products. Our hearth products include prefabricated gas and wood burning
fireplaces, free standing pellet and gas stoves, fireplace inserts, gas logs and
accessories. Many of the fireplaces are built with a blower or fan option and
are efficient heat sources as well as attractive amenities to the home. Prior to
the hearth products acquisitions, we offered a limited selection of hearth
products in Canada and, to a lesser extent, in the U.S. We substantially
expanded our offering of hearth products and distribution outlets with these
acquisitions. We currently market our hearth products under the "Lennox",
"Superior", "Marco", "Whitfield", and "Security Chimneys" brand names. We
believe that our strong relationship with our dealers and our brand names will
assist in selling into this market.
Retail Service. With our recently initiated program of acquiring dealers in
the U.S. and Canada, we have begun to provide installation, maintenance, repair
and replacement services for heating and air conditioning systems directly to
both residential and light commercial customers. Installation services include
the installation of heating and air conditioning systems in new construction and
the replacement of existing systems. Other services include preventative
maintenance, emergency repairs and the replacement of parts associated with
heating and air conditioning systems. We also sell a wide range of mechanical
and electrical equipment, parts and supplies in connection with these services.
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COMMERCIAL AIR CONDITIONING
We manufacture and sell commercial air conditioning equipment in North
America, Europe, Asia Pacific and South America.
North America. In the North American commercial markets, our air
conditioning equipment is used in applications such as low rise office
buildings, restaurants, retail and supermarket centers, churches and schools.
Our product offerings for these applications include rooftop units which range
from two to 30 tons of cooling capacity and split system/air handler
combinations which range from two to 20 tons. In North America, we sell unitary
equipment as opposed to larger applied systems. Our newest rooftop unit, the L
Series, was introduced in 1995 and has been well received by the national
accounts market where it is sold to restaurants, mass merchandisers and other
retail outlets. We believe that this product's success is attributable to its
efficiency, design flexibility, low life cycle cost, ease of service and
advanced control technology.
International. We compete in the commercial air conditioning market in
Europe through our ownership of 70% of Ets. Brancher and Ets. Brancher's
operating subsidiaries, HCF S.A. and Friga-Bohn S.A. We have agreed to buy the
remaining 30% interest in Ets. Brancher on March 31, 2000 for approximately $17
million. HCF manufactures and sells unitary products which range from two to 30
tons and applied systems which range up to 500 tons. HCF's products consist of
chillers, air handlers, fan coils and large rooftop units and serve medium
high-rise buildings, institutional applications and other field engineered
applications. HCF manufactures its air conditioning products in several
locations throughout Europe, including sites in the United Kingdom, France,
Holland and Spain, and markets such products through various distribution
channels in the foregoing countries and Italy, Germany, Belgium and the Czech
Republic.
We have been active in Australia for several years, primarily in the
distribution of our residential and light commercial heating and air
conditioning products manufactured in North America. In 1997, we acquired the
assets of Alcair Industries, an Australian manufacturer of commercial heating
and air conditioning products (packaged and split systems) ranging in size from
two to 60 tons. This acquisition provided us with a manufacturing presence,
doubled our revenues in Australia and added marketing, distribution and
management strength to our operations in Australia.
Through our 50% owned Fairco joint venture in Argentina, we manufacture
split system heating and air conditioning products and a limited range of L
Series commercial air conditioning products for sale in Argentina, Chile and the
surrounding Mercosur trading zone, which includes Brazil, Argentina, Bolivia,
Paraguay and Uruguay.
COMMERCIAL REFRIGERATION
North America. We are one of the leading manufacturers of commercial
refrigeration products in North America. Our refrigeration products include
chillers, condensing units, unit coolers, fluid coolers, air cooled condensers
and air handlers. Our refrigeration products are sold for cold storage
applications to preserve food and other perishables. These products are used by
supermarkets, convenience stores, restaurants, warehouses and distribution
centers. As part of our sale of commercial refrigeration products, we routinely
provide application engineering for consulting engineers, contractors and
others. Some of our larger commercial refrigeration projects have included the
sale of custom designed systems for the Georgia Dome, Camden Yards, Ohio
University, the Boston Museum of Fine Arts and Ericsson Stadium.
International. Friga-Bohn manufactures and markets refrigeration products
through manufacturing facilities and joint ventures located in France, Italy and
Spain. Friga-Bohn's refrigeration products include small chillers, unit coolers,
air cooled condensers, fluid coolers and refrigeration racks. These products are
sold to distributors, installing contractors and original equipment
manufacturers.
We also own 50% of a joint venture in Mexico that produces unit coolers and
condensing units of the same design and quality as those manufactured by us in
the U.S. Since this venture produces a smaller range of products, the product
line is complemented with imports from the U.S. which are sold through the joint
venture's distribution network. Sales are made in Mexico to wholesalers,
installing contractors and original
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<PAGE> 40
equipment manufacturers. As production volumes increase, there exists the
potential to export some of the high labor content products from the joint
venture into North America and Latin America.
In the third quarter of 1998, we acquired a 79% interest in McQuay do
Brasil S.A., a Brazilian company that manufactures condensing units and unit
coolers. We believe this acquisition gives us the leading market share for
commercial refrigeration products in Brazil.
In the fourth quarter of 1998, we acquired the assets of Lovelock Luke Pty.
Limited, a distributor of refrigeration and related equipment in Australia and
New Zealand. This acquisition gives us an established commercial refrigeration
business in Australia and New Zealand.
HEAT TRANSFER
We are one of the largest manufacturers of heat transfer coils in the U.S.,
Europe, Mexico and Brazil. These products are used primarily by original
equipment manufacturers of residential and commercial air conditioning products,
transportation air conditioning and refrigeration systems, and commercial
refrigeration products. A portion of our original equipment manufacturer coils
are produced for use in our residential and commercial HVACR products. We also
produce private label replacement coils for use in other manufacturers' HVACR
equipment. We believe that the engineering expertise of our sales force provides
us with an advantage in designing and applying these products for our customers.
Advanced computer software enables us to predict with a high degree of accuracy
the performance of complete air conditioning and refrigeration systems.
In addition to supplying the original equipment manufacturer market, we
also produce replacement coils for large commercial air conditioning, heating
and industrial processing systems. Many of these coils are specially designed
for particular systems and in the event of a failure may need to be replaced
quickly. We are the industry leader in this market and have designed our
manufacturing processes and systems in North America so that we can deliver
custom coils within 48 hours of receipt of an order. This premium service
enables us to receive superior prices and generate attractive margins.
We also design and manufacture the equipment and tooling necessary to
produce coils. We use such equipment and tooling in our manufacturing facilities
and sell it to third parties. Typically, there is a long lead time between the
initial order and receipt for this type of equipment and tooling from third
parties. Since we have the ability to quickly produce the equipment and tooling
necessary to manufacture heat transfer products and systems, we can accelerate
the international growth of our heat transfer products segment. For example, we
were able to design, manufacture and deliver the equipment necessary to produce
evaporator and condenser coils for our joint venture in Mexico in what we
estimate was half the time than would otherwise have been required to obtain the
equipment from third parties. Upon completion of our acquisition of Livernois,
we will also supply heat transfer manufacturing equipment to the automotive
industry.
In addition to manufacturing heat transfer products in the North American
market, we produce coils for the European market through a joint venture in the
Czech Republic. Our joint venture in Mexico produces evaporator and condenser
coils for use in that country and for export to the Caribbean and the U.S. Our
Brazilian joint venture manufactures heat transfer coils that are sold to both
HVACR manufacturers and automotive original equipment manufacturers in Brazil.
MARKETING AND DISTRIBUTION
We manage numerous distribution channels for our products in order to
better penetrate the HVACR market. Generally, our products are sold through a
combination of distributors, independent and company-owned dealers, wholesalers,
manufacturers' representatives, original equipment manufacturers and national
accounts. We have also established separate distribution networks in each
country in which we conduct operations. We deploy dedicated sales forces across
all our business segments and brands in a manner designed to maximize the
ability of each sales force to service its particular distribution channel. To
maximize enterprise-wide effectiveness, we have active cross-functional and
cross-organizational teams working on issues such as pricing and coordinated
approaches to product design and national account customers with
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<PAGE> 41
interests cutting across business segments. We have approximately 1,600 persons
employed in sales and marketing positions and spent $50.2 million on
advertising, promotions and related marketing activities in 1998.
One example of the competitive strength of our marketing and distribution
strategy is in the North American residential heating and air conditioning
market, in which we use three distinctly different distribution
approaches -- the one-step distribution system, the two-step distribution system
and sales made directly to consumers through Lennox-owned dealers. We market and
distribute our "Lennox" brand of heating and air conditioning products directly
to approximately 6,000 dealers that install these products.
We distribute our "Armstrong Air", "Air-Ease", "Concord" and "Magic-Pak"
brands of residential heating and air conditioning products through the
traditional two-step distribution process whereby we sell our products to
distributors who, in turn, sell the products to a local installing dealer.
Accordingly, by using multiple brands and distribution channels, we are able to
better penetrate the North American residential heating and air conditioning
market. In addition, we have begun to acquire or establish distributors in key
strategic areas when a satisfactory relationship with an independent distributor
is not available.
We have initiated a program to acquire high quality dealers in metropolitan
areas in the U.S. and Canada so we can provide heating and air conditioning
products and services directly to consumers. We intend to start acquiring
dealers in the U.S. by initially focusing on our existing "Lennox" dealers who
are part of our one-step distribution system.
Through the years, the "Lennox" brand has become synonymous with the "Dave
Lennox" image, which is utilized in national television and print advertising as
well as in numerous locally produced dealer ads, open houses and trade events,
and is easily the best recognized advertising icon in the heating and air
conditioning industry. We spent an aggregate of $40.1 million in advertising,
promotions and related marketing activities in 1998 on the "Lennox" brand alone.
MANUFACTURING
We operate 15 manufacturing facilities in the U.S. and Canada and 19
outside the U.S. and Canada. These plants range from small manufacturing
facilities to large 1,000,000 square foot facilities in Grenada, Mississippi and
Marshalltown, Iowa. In our facilities most impacted by seasonal demand, we
manufacture both heating and air conditioning products to smooth seasonal
production demands and maintain a relatively stable labor force. We are
generally able to hire temporary employees to meet changes in demand.
Over the last several years, we have introduced concepts of "Demand
Flow"(R) technology, cellular manufacturing, just-in-time inventory management
and configure-to-order processes to reduce production cycle lead times to a week
or as little as 48 hours in many of our manufacturing facilities, compared to
lead times of 90 days or more before the introduction of such concepts. These
processes enable us to deliver to our customers the product with the exact
specifications and features they desire in a very short lead time while reducing
inventory, inventory obsolescence and working capital. If these improvements had
not occurred, along with improvements in accounts receivable and accounts
payable management, we estimate that our investment in working capital would
have been approximately $180 million higher at December 31, 1998. These
improvements in manufacturing efficiency have also allowed us to produce more
output with a smaller workforce and less factory space, and accordingly to
consolidate our manufacturing facilities.
Some of the recently acquired manufacturing facilities have not yet reached
the levels of efficiency that have been achieved at our plants which we have
owned for a longer time. However, we intend to bring our manufacturing and
operating expertise to these plants.
PURCHASING
We rely on various suppliers to furnish the raw materials and components
used in the manufacture of our products. To maximize our buying power in the
marketplace, we utilize a "purchasing council" that consolidates purchases of
our entire domestic requirements of particular items across all business
segments. The purchasing council generally concentrates its purchases for a
given material or component with one or two
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<PAGE> 42
suppliers, although we believe that there are alternative suppliers for all of
our key raw material and component needs. Compressors, motors and controls
constitute our most significant component purchases, while steel, copper and
aluminum account for the bulk of our raw material purchases. Although most of
the compressors used by us are purchased directly from major compressor
manufacturers, we own a 24.5% interest in a joint venture to manufacture
compressors in the one and one-half to seven horsepower range. We expect that
this joint venture, which began limited production in April 1998, will be
capable of providing us with a substantial portion of our compressor
requirements in the residential air conditioning market after achieving full
production levels, which is expected in 2001.
We attempt to minimize the risk of price fluctuations in certain key
components by entering into contracts, typically at the beginning of the year,
which generally provide for fixed prices for our needs throughout the year. In
instances where we are unable to pass on to our customers increases in the costs
of copper and aluminum, we enter into forward contracts for the purchase of such
materials. We have forward commitments for the substantial majority of our
internal needs of aluminum through December 1999 and copper through December
2000.
INFORMATION SYSTEMS
Our North American operations are supported by enterprise business systems
which support all core business processes. Enterprise business systems are
designed to enhance the continuity of operations, ensure appropriate controls,
and support timely and efficient decision making. Our largest operating
divisions began installing the SAP enterprise business software system in 1996.
We have substantially completed the implementation of SAP software and full
implementation by all divisions converting to SAP is expected to be completed by
the end of 1999. The SAP software system is designed to facilitate the flow of
information and business processes across all business functions such as sales,
manufacturing, distribution and financial accounting.
TECHNOLOGY AND RESEARCH AND DEVELOPMENT
We support an extensive research and development program focusing on the
development of new products and improvements to our existing product lines. We
spent an aggregate of $23.2 million, $25.4 million and $31.8 million on research
and development during 1996, 1997 and 1998, respectively. As of December 31,
1998, we employed approximately 480 persons dedicated to research and
development activities. We have a number of research and development facilities
located around the world, including a limited number of "centers for excellence"
that are responsible for the research and development of particular core
competencies vital to our business, such as combustion technology, vapor
compression, heat transfer and low temperature refrigeration.
We use advanced, commercially available computer-aided design,
computer-aided manufacturing, computational fluid dynamics and other
sophisticated software not only to streamline the design and manufacturing
processes, but also to give us the ability to run complex computer simulations
on a product design before a working prototype is created. We operate a full
line of metalworking equipment and advanced laboratories certified by applicable
industry associations.
PATENTS AND PROPRIETARY RIGHTS
We hold numerous patents that relate to the design and use of our products.
We consider these patents important, but no single patent is material to the
overall conduct of our business. Our policy is to obtain and protect patents
whenever such action would be beneficial to us. We own several trademarks that
we consider important in the marketing of our products, including Lennox(R),
Heatcraft(R), CompleteHeat(R), Raised Lance(R), Larkin(TM), Climate Control(TM),
Chandler Refrigeration(R), Bohn(R), Advanced Distributor Products(R), Armstrong
Air(TM), Air-Ease(R), Concord(R), Magic-Pak(R), Superior(TM), Marco(R),
Whitfield(R), Security Chimneys(R), Janka(R), Alcair(TM) and Friga-Bohn(TM). We
believe our rights in these trademarks are adequately protected.
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COMPETITION
Substantially all of the markets in which we participate are highly
competitive. The most significant competitive factors facing us are product
reliability, product performance, service and price, with the relative
importance of these factors varying among our product lines. In addition, as we
acquire more heating and air conditioning dealers, we will face increasing
competition from independent dealers and dealers owned by consolidators and
utility companies. Certain competitors may have greater financial and marketing
resources than we have. Listed below are some of the companies that we view as
our main manufacturing competitors in each segment we serve, with relevant brand
names, when different than the company name, shown in parentheses.
- North American residential -- United Technologies Corporation (Carrier);
Goodman Manufacturing Company (Janitrol, Amana); American Standard
Companies Inc. (Trane); York International Corporation; Hearth
Technologies Inc. (Heatilator); and CFM Majestic, Inc. (Majestic).
- Commercial air conditioning -- United Technologies Corporation (Carrier);
American Standard Companies Inc. (Trane); York International Corporation;
Daikin Industries, Ltd.; and McQuay International.
- Commercial refrigeration -- United Technologies Corporation (Ardco
Group); Tecumseh Products Co.; Copeland Corporation; and Hussmann
International Inc. (Krack).
- Heat transfer -- Modine Manufacturing Company and Super Radiator Coils.
EMPLOYEES
As of December 31, 1998, we employed approximately 11,700 employees,
approximately 3,400 of which were represented by unions. The number of hourly
workers we employ during the course of the year may vary in order to match our
labor needs during periods of fluctuating demand. We believe that our
relationships with our employees are generally good.
Within the U.S., we have eight manufacturing facilities and five
distribution centers, along with our North American Parts Center in Des Moines,
Iowa, with collective bargaining agreements ranging from three to eight years in
length. The five distribution centers are covered by a single contract that
expires in 2001. With respect to our significant manufacturing facilities, two
collective bargaining agreements expire in April 1999 -- Bellevue, Ohio and
Union City, Tennessee -- and one expires in December 1999 -- Lynwood,
California. Three collective bargaining agreements expire in
2000 -- Marshalltown, Iowa, Burlington, Washington and Atlanta, Georgia -- and
one expires in 2002 -- Danville, Illinois. Outside of the U.S., we have 12
significant facilities that are represented by unions. The four agreements for
HCF in France have no fixed expiration date. The agreements at our facilities in
Toronto, Ontario and Laval, Quebec expire in April 1999 and December 1999,
respectively, and the agreement at our facility in Burgos, Spain expires in
2000. We believe that our relationships with the unions representing our
employees are generally good, and do not anticipate any material adverse
consequences resulting from negotiations to renew these agreements.
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<PAGE> 44
PROPERTIES
The following chart lists our major domestic and international
manufacturing, distribution and office facilities and whether such facilities
are owned or leased:
DOMESTIC FACILITIES
<TABLE>
<CAPTION>
LOCATION DESCRIPTION AND APPROXIMATE SIZE PRINCIPAL PRODUCTS OWNED/LEASED
-------- -------------------------------- ------------------ ------------
<S> <C> <C> <C>
Richardson, TX World headquarters and offices; Lennox N/A Owned and
Industries headquarters; 230,000 Leased
square feet
Bellevue, OH Armstrong headquarters, factory and Residential furnaces, residential and Owned and
distribution center; 800,000 square light commercial air conditioners and Leased
feet heat pumps
Grenada, MS Heatcraft Heat Transfer Division Coils and copper tubing; evaporator Owned and
headquarters and factory, 1,000,000 coils, gas-fired unit heaters and Leased
square feet; Advanced Distributor residential air handlers; and custom
Products factory, 300,000 square feet; order replacement coils
commercial products factory, 217,000
square feet
Stone Mountain, GA Heatcraft Refrigeration Products Commercial and industrial condensing Owned
Division headquarters, R&D and units, packaged chillers and custom
factory; 145,000 square feet refrigeration racks
Marshalltown, IA Lennox Industries heating and air Residential heating and cooling Owned and
conditioning products factory, products, gas furnaces, split-system Leased
1,000,000 square feet; distribution condensing units, split-system heat
center, 300,000 square feet pumps and CompleteHeat
Des Moines, IA Lennox Industries distribution center Central supplier of Lennox repair Leased
and light manufacturing; 352,000 parts
square feet
Carrollton, TX Lennox Industries heating and air N/A Owned
conditioning products development and
research facility; 130,000 square feet
Stuttgart, AR Lennox Industries light commercial Commercial rooftop equipment and Owned and
heating and air conditioning factory; accessories Leased
500,000 square feet
Union City, TN Superior Fireplace Company factory; Gas and wood burning fireplaces
294,690 square feet
Lynwood, CA Marco Mfg. Inc. headquarters and Gas and wood burning fireplaces Leased
factory; 200,000 square feet
</TABLE>
INTERNATIONAL FACILITIES
<TABLE>
<CAPTION>
LOCATION DESCRIPTION AND APPROXIMATE SIZE PRINCIPAL PRODUCTS OWNED/LEASED
-------- -------------------------------- ------------------ ------------
<S> <C> <C> <C>
Genas, France Friga-Bohn headquarters and factory; Heat exchangers for refrigeration and *
16,000 square meters air conditioning; refrigeration
products, condensers, fluid coolers,
pressure vessels, liquid receivers and
refrigeration components
Mions, France HCF-Lennox headquarters and factories; Air cooled chillers, water cooled *
12,000 square meters chillers, reversible chillers and
packaged boilers
Burgos, Spain Lennox-Refac factory; 8,000 square Comfort air conditioning equipment, *
meters packaged and split units (cooling or
heat pump); small and medium capacity
water cooled chillers
Krunkel, Germany European headquarters and factories Process cooling systems *
for HYFRA GmbH products; 6,000 square
meters
Prague, Czech Janka and Friga-Coil factories; 30,000 Air handling equipment; heat transfer *
Republic square meters coils
Sydney, Australia Lennox Australia Pty. Ltd. Rooftop packaged and split commercial Leased
headquarters and factory; 20,000 air conditioners
square feet
San Jose dos McQuay do Brasil headquarters and Refrigeration condensing units, unit *
Campos, Brazil factory; 160,000 square feet coolers and heat transfer coils
Etobicoke, Canada Lennox-Canada factory, 212,000 square Multi-position gas furnaces, gas Owned
feet fireplaces and commercial unit heaters
</TABLE>
- ---------------
* Facilities owned or leased by a joint venture in which we have an interest.
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In addition to the properties described above and excluding dealer
facilities, we lease over 60 facilities in the U.S. for use as sales offices and
district warehouses and a limited number of additional facilities worldwide for
use as sales and service offices and regional warehouses. We believe that our
properties are in good condition and adequate for our requirements. We also
believe that our principal plants are generally adequate to meet our production
needs.
REGULATION
Our operations are subject to evolving and often increasingly stringent
federal, state, local and international laws and regulations concerning the
environment. Environmental laws that affect or could affect our domestic
operations include, among others, the Clean Air Act, the Clean Water Act, the
Resource Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation, and Liability Act, the Occupational Safety and Health
Act, the National Environmental Policy Act, the Toxic Substances Control Act,
any regulations promulgated under these acts and various other Federal, state
and local laws and regulations governing environmental matters. We believe we
are in substantial compliance with such existing environmental laws and
regulations. Our non-U.S. operations are also subject to various environmental
statutes and regulations. Generally, these statutes and regulations impose
operational requirements that are similar to those imposed in the U.S. We
believe we are in substantial compliance with applicable non-U.S. environmental
statutes and regulations.
Refrigerants. In the past decade, there has been increasing regulatory and
political pressure to phase out the use of certain ozone depleting substances,
including hydrochlorofluorocarbons, which are sometimes referred to as "HCFCs".
This development is of particular importance to us and our competitors because
of the common usage of HCFCs as refrigerants for air conditioning and
refrigeration equipment. As discussed below, we do not believe that
implementation of the phase out schedule for HCFCs contained in the current
regulations will have a material adverse effect on our financial position or
results of operations. We do believe, however, that there will likely be
continued pressure by the international environmental community for the U.S. and
other countries to accelerate the phase out schedule. We have been an active
participant in the ongoing international dialogue on these issues and believe
that we are well positioned to react to any changes in the regulatory landscape.
In September 1987, the U.S. became a signatory to an international
agreement titled the Montreal Protocol on Substances that Deplete the Ozone
Layer. The Montreal Protocol requires its signatories to phase out HCFCs on an
orderly basis. All countries in the developed world have become signatories to
the Montreal Protocol. The manner in which these countries implement the
Montreal Protocol and regulate HCFCs differs widely.
The 1990 U.S. Clean Air Act amendments implement the Montreal Protocol by
establishing a program to limit the production, importation and use of certain
ozone depleting substances, including HCFCs currently used as refrigerants by us
and our competitors. Under the Act and implementing regulations, all HCFCs must
be phased out between 2010 and 2030. We believe that these regulations as
currently in effect will not have a material adverse effect on our operations.
It is not expected that the planned phase out of HCFCs will have a significant
impact on the sales of products utilizing these refrigerants prior to the end of
the decade. Nonetheless, as the supply of virgin and recycled HCFCs falls, it
will be necessary to address the need to substitute permitted substances for
HCFCs. Further, the U.S. is under pressure from the international environmental
community to accelerate the current 2030 deadline for phase out of HCFCs. An
accelerated phase out schedule could adversely affect our future financial
results and the industry generally.
We, in conjunction with major chemical manufacturers, are continually in
the process of reviewing and addressing the potential impact of refrigerant
regulations on our products. We believe that the combination of products that
presently utilize HCFCs, and products in the field which can be retrofitted to
alternate refrigerants, provide a complete line of commercial and industrial
products. Therefore, we do not foresee any material adverse impact on our
business or competitive position as a result of the Montreal Protocol, the 1990
Clean Air Act amendments or their implementing regulations. However, we believe
that the implementation
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<PAGE> 46
of severe restrictions on the production, importation or use of refrigerants we
employ in larger quantities or acceleration of the current phase out schedule
could have such an impact on us and our competitors.
We are subject to appliance efficiency regulations promulgated under the
National Appliance Energy Conservation Act of 1987, as amended, and various
state regulations concerning the energy efficiency of our products. We have
developed and are developing products which comply with National Appliance
Energy Conservation Act regulations, and do not believe that such regulations
will have a material adverse effect on our business. The U.S. Department of
Energy began in 1998 its review of national standards for comfort products
covered under National Appliance Energy Conservation Act. It is anticipated that
the National Appliance Energy Conservation Act regulations requiring
manufacturers to phase in new higher efficiency products will not take effect
prior to 2006. We believe we are well positioned to comply with any new
standards that may be promulgated by the Department of Energy and do not foresee
any adverse material impact from a National Appliance Energy Conservation Act
standard change.
Remediation Activity. In addition to affecting our ongoing operations,
applicable environmental laws can impose obligations to remediate hazardous
substances at our properties, at properties formerly owned or operated by us and
at facilities to which we sent or send waste for treatment or disposal. We are
currently involved in remediation activities at our facility in Grenada,
Mississippi and at a formerly owned site in Ft. Worth, Texas. In addition,
former hazardous waste management units at two of our facilities, Danville,
Illinois and Wilmington, North Carolina, are currently in the process of being
closed under the Resource Conservation and Recovery Act. The Resource
Conservation and Recovery Act closure process can result in the need to conduct
soil and/or groundwater remediation to address any on-site releases. The Grenada
facility is subject to an administrative order issued by the Mississippi
Department of Environmental Quality pursuant to which we will conduct
groundwater remediation. We have established a $1.8 million reserve to cover
costs of remediation at the Grenada facility and possible costs associated with
the Resource Conservation and Recovery Act closure at the Danville facility. We
also have installed and are operating a groundwater treatment system at our
previously owned facility in Ft. Worth, Texas. We have established a reserve
having a balance of approximately $200,000 to cover the projected $50,000 annual
operating costs for ongoing treatment at the Ft. Worth site. Resource
Conservation and Recovery Act closure activities at the Wilmington facility
include an ongoing groundwater remediation project. This project is being
conducted and funded by a prior owner of the facility, pursuant to an
indemnification obligation under the contract pursuant to which we acquired the
facility. We have no reason to believe that the prior owner will not continue to
conduct and pay for the required remediation at the Wilmington facility.
However, if the prior owner refused to meet its contractual obligations, we
could be required to complete the remediation. In addition, we have from time to
time received notices that we are a potentially responsible party along with
other potentially responsible parties in Superfund proceedings for cleanup of
hazardous substances at certain sites to which the potentially responsible
parties are alleged to have sent waste. At present, our only active Superfund
involvements are at the Granville Solvents Superfund Site located in Ohio and at
the Envirochem Third Site in Illinois. Since 1994, we have spent an average of
$49,000 per year for costs related to the Granville Solvents site and expect to
incur similar costs with respect to the site over the next few years. Total
estimated exposure costs at the Envirochem Third Site are approximately $30,000.
Based on the facts presently known, we do not believe that environmental cleanup
costs associated with either Superfund site will have a material adverse effect
on our financial position or results of operations.
Dealer operations. The heating and air conditioning dealers acquired in the
U.S. and Canada will be subject to various federal, state and local laws and
regulations, including, among others:
- permitting and licensing requirements applicable to service technicians
in their respective trades;
- building, heating, ventilation, air conditioning, plumbing and electrical
codes and zoning ordinances;
- laws and regulations relating to consumer protection, including laws and
regulations governing service contracts for residential services; and
- laws and regulations relating to worker safety and protection of the
environment.
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A large number of state and local regulations governing the residential and
commercial maintenance services trades require various permits and licenses to
be held by individuals. In some cases, a required permit or license held by a
single individual may be sufficient to authorize specified activities for all of
our service technicians who work in the geographic area covered by the permit or
license.
LEGAL PROCEEDINGS
We are involved in various claims and lawsuits incidental to our business.
In the opinion of our management, these claims and suits in the aggregate will
not have a material adverse effect on our business, financial condition or
results of operations.
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<PAGE> 48
MANAGEMENT
The directors and executive officers of our company, their present
positions and their ages are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John W. Norris, Jr. ...................... 63 Chairman of the Board and Chief Executive Officer
H. E. French.............................. 57 President and Chief Operating Officer, Heatcraft
Inc.
Robert E. Schjerven....................... 56 President and Chief Operating Officer, Lennox
Industries Inc.
Michael G. Schwartz....................... 40 President and Chief Operating Officer, Armstrong
Air Conditioning Inc.
Harry J. Ashenhurst....................... 50 Executive Vice President, Human Resources
Scott J. Boxer............................ 48 Executive Vice President, Lennox Global Ltd. and
President, European Operations
Carl E. Edwards, Jr. ..................... 57 Executive Vice President, General Counsel and
Secretary
W. Lane Pennington........................ 43 Executive Vice President, Lennox Global Ltd. and
President, Asia Pacific Operations
Clyde W. Wyant............................ 60 Executive Vice President, Chief Financial Officer
and Treasurer
John J. Hubbuch........................... 56 Vice President, Controller and Chief Accounting
Officer
Linda G. Alvarado......................... 47 Director
David H. Anderson......................... 58 Director
Richard W. Booth.......................... 67 Director
David V. Brown............................ 51 Director
James J. Byrne............................ 63 Director
Thomas B. Howard, Jr. .................... 70 Director
John E. Major............................. 53 Director
Donald E. Miller.......................... 68 Director
Loraine B. Millman........................ 52 Director
Robert W. Norris.......................... 61 Director
Terry D. Stinson.......................... 57 Director
Lynn B. Storey............................ 58 Director
Richard L. Thompson....................... 59 Director
</TABLE>
The following biographies describe the business experience of our executive
officers and directors.
John W. Norris, Jr. was elected Chairman of the Board of Directors of
Lennox in 1991. He has served as a Director of Lennox since 1966. After joining
Lennox in 1960, Mr. Norris held a variety of key positions including Vice
President of Marketing, President of Lennox Industries (Canada) Ltd., and
Corporate Senior Vice President. He became President of Lennox in 1977 and was
appointed President and Chief Executive Officer of Lennox in 1980. Mr. Norris is
on the Board of Directors of the Air-Conditioning & Refrigeration Institute of
which he was Chairman in 1986. He is also an active Board member of the Gas
Appliance Manufacturers Association, where he was Chairman from 1980 to 1981. He
also serves as a Director of AmerUs Life Holdings, Inc. and Metroplex Regional
Advisory Board of Chase Bank of Texas, NA.
H. E. French is the President and Chief Operating Officer of Heatcraft Inc.
Mr. French joined Lennox in 1989 as Vice President and General Manager of the
Refrigeration Products division for Heatcraft Inc. In 1995 he was named
President and Chief Operating Officer of Armstrong Air Conditioning Inc. Mr.
French was appointed to his current role in 1997. Prior to joining Lennox, Mr.
French spent 11 years in management with Wickes/Larkin, Inc.
Robert E. Schjerven was named President and Chief Operating Officer of
Lennox Industries Inc. in 1995. In 1986, he joined Lennox as Vice President of
Marketing and Engineering for Heatcraft Inc. From 1988 to 1991 he held the
position of Vice President and General Manager of that subsidiary. From 1991 to
1995 he
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<PAGE> 49
served as President and Chief Operating Officer of Armstrong Air Conditioning
Inc. Mr. Schjerven spent the first 20 years of his career with the Trane Company
and McQuay-Perfex Inc.
Michael G. Schwartz became the President and Chief Operating Officer of
Armstrong Air Conditioning Inc. in 1997. He joined Heatcraft in 1990 when Lennox
acquired Bohn Heat Transfer Inc. and served as Director of Sales and Marketing,
Original Equipment Manufacturer Products. Prior to his current appointment, he
served as Vice President of Commercial Products for Heatcraft Inc. where his
responsibilities included the development of Heatcraft's position in the A-Coil
market. Mr. Schwartz began his career with Bohn Heat Transfer Inc. in 1981.
Harry J. Ashenhurst was appointed Executive Vice President, Human Resources
and Administration in 1994. He joined Lennox in 1989 as Vice President of Human
Resources. Dr. Ashenhurst was named Executive Vice President, Human Resources
for Lennox in 1990 and in 1994 moved to his current position and assumed
responsibility for the Public Relations and Communications and Aviation
departments. Prior to joining Lennox, he worked as an independent management
consultant with the consulting firm of Roher, Hibler and Replogle. While at
Roher, Hibler and Replogle, Dr. Ashenhurst was assigned to work as a corporate
psychologist for Lennox.
Scott J. Boxer joined Lennox in 1998 as Executive Vice President, Lennox
Global Ltd. and President, European Operations. Prior to joining Lennox, Mr.
Boxer spent 26 years with York International Corporation in various roles, most
recently as President, Unitary Products Group Worldwide, where he reported
directly to the Chairman of that company and was responsible for directing that
company's residential and light commercial heating and air conditioning
operations worldwide.
Carl E. Edwards, Jr. joined Lennox in February 1992 as Vice President and
General Counsel. He became the Secretary of Lennox in April 1992 and was also
named Executive Vice President and General Counsel in December 1992. Prior to
joining Lennox, he was Vice President, General Counsel and Secretary for Elcor
Corporation. He also serves as a Director of Kentucky Electric Steel Inc.
W. Lane Pennington was appointed to his current position of Executive Vice
President, Lennox Global Ltd. and President, Asia Pacific Operations in 1998. He
joined Lennox in 1997 as Vice President, Asia Pacific Operations. From 1988
until 1997, Mr. Pennington was with Hilti International Corp., where he most
recently served as President, Hilti Asia Limited, based in Hong Kong.
Clyde W. Wyant joined Lennox in 1990 and was appointed Executive Vice
President, Chief Financial Officer and Treasurer, the position he still holds.
Prior to joining Lennox, he served as Executive Vice President, Chief Financial
Officer and Director of Purolator Products Co. (formerly Facet Enterprises,
Inc.), from 1985 to 1990. In 1965, Mr. Wyant began his career with Helmerich &
Payne Inc., where he last served as Vice President, Finance.
John J. Hubbuch was named Vice President, Controller and Chief Accounting
Officer of Lennox in 1998. Mr. Hubbuch joined Lennox in 1986 as the Division
Controller for Heatcraft Inc. In 1989 he became Heatcraft's Group Controller.
From 1982 to 1986, Mr. Hubbuch was the Division Controller for McQuay-Perfex
Inc./SynderGeneral. In 1992 he became Corporate Controller of Lennox.
Linda G. Alvarado has served as a Director of Lennox since 1987. She is
President of Alvarado Construction, Inc. a general contracting firm specializing
in commercial, government and industrial construction and environmental
remediation projects. She currently serves on the Board of Directors of Cyprus
Amax Minerals Company, US West Communications, Inc., Englehard Corporation and
Pitney Bowes Inc., and is part owner of the Colorado Rockies Baseball Club.
David H. Anderson has served as a Director of Lennox since 1973. Mr.
Anderson currently serves as the Co-Executive Director of the Santa Barbara
Museum of Natural History. He formerly had a private law practice specializing
in land use and environmental law. Mr. Anderson also serves as legal counsel for
a local land conservation organization in Santa Barbara County. He currently
serves on the Boards of the California Nature Conservancy, the Land Trust for
Santa Barbara County and the Santa Barbara Foundation.
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<PAGE> 50
Richard W. Booth has served as a Director of Lennox since 1966. Mr. Booth
retired from Lennox in 1992 as Executive Vice President, Administration and
Secretary, a position he had held since 1983. Mr. Booth held a variety of key
positions after joining Lennox in 1954. He serves on the Board of Directors of
Employers Mutual Casualty Company and is a member of the Board of Trustees of
Grinnell College.
David V. Brown has served as a Director of Lennox since 1989. Dr. Brown
owns the Plantation Farm Camp, a working 500-acre ranch with livestock that
provides learning in a farm setting for children. He is currently serving on the
Strategic Planning Board of the Western Association of Independent Camps.
James J. Byrne has served as a Director of Lennox since 1990. He has been a
managing partner of Byrne Technology Partners, Ltd. since January 1996. Prior to
his current role, he held a number of positions in the technology industry
including President of Harris Adacom Corporation, Senior Vice President of
United Technologies Corporation's Semiconductor Operation and President of North
American group of Mohawk Data Sciences. Mr. Byrne began his career with General
Electric. Mr. Byrne is a Director of STB Systems Inc. and ICARUS International,
Inc.
Thomas B. Howard, Jr. has served as a Director of Lennox since 1980. From
1989 to 1992, Mr. Howard served as Chairman and Chief Executive Officer of
Beazer U.S.A. and as a Director of Beazer PLC (U.K.). From 1969 to 1989, Mr.
Howard served Gifford-Hill & Company Inc. in various capacities most recently as
its Chief Executive Officer. After Gifford-Hill was acquired by Beazer PLC
(U.K.), Mr. Howard assumed the position of Chairman and Chief Executive Officer,
a position he held until he retired in 1992. He is a member of the Board of
Directors of Beazer Homes USA.
John E. Major has served as a Director of Lennox since 1993. Mr. Major has
been the Chairman, Chief Executive Officer and President of Wireless Knowledge,
a QUALCOMM Incorporated and Microsoft joint venture, since November 1998.
Previously he was Executive Vice President of QUALCOMM and President of its
Wireless Infrastructure Division, and was responsible for managing and guiding
the market potential for CDMA infrastructure products. Prior to joining QUALCOMM
in 1997, Mr. Major served most recently as Senior Vice President and Staff Chief
Technical Officer at Motorola, Inc. and Senior Vice President and General
Manager for Motorola's Worldwide Systems Group of the Land Mobile Products
Sector. Mr. Major currently serves on the Board of Directors of Littlefuse, Inc.
and Verilink Corporation.
Donald E. Miller has served as a Director of Lennox since 1987. Mr. Miller
spent his 35 year career with The Gates Corporation. He retired as Vice Chairman
of that company in 1996. From 1987 until 1994 he held the position of President
and Chief Operating Officer of The Gates Corporation. Mr. Miller serves on the
Board of Directors of Sentry Insurance Corporation, OEA, Inc. and Chateau
Communities Inc., and is the President of the Board of Colorado School of Mines
Foundation.
Loraine B. Millman has served as a Director of Lennox since 1994. She is a
social worker who is currently the Director of Treatment Services at Central
Nassau Guidance and Counseling Services, Inc., a mental health clinic in
Hicksville, New York where she has worked since 1983. Prior to that she worked
in the field of education.
Robert W. Norris has served as a Director of Lennox since 1967. Mr. Norris
is recently retired from teaching. Mr. Norris joined Lennox in 1966 as manager
of Lennox-Europe and in 1968 he became Assistant Works Manager in Columbus,
Ohio, a position he held until 1972. From 1972 to 1979 he held various positions
including assistant superintendent of Chapel Hills Public Schools, consultant
with the International Management training for Educational Change in Oslo,
Norway, and owner and manager of Provent AB. He serves as a Trustee of both
Sunbridge College and WAMC Public Radio Station.
Terry D. Stinson has served as a Director of Lennox since 1998. Mr. Stinson
has been the Chairman and Chief Executive Officer of Bell Helicopter Textron
Inc. since 1998 and was its President from 1996 to 1998. From 1991 to 1996, Mr.
Stinson served as Group Vice President and Segment President of Textron
Aerospace Systems and Components for Textron Inc. Prior to that position, he had
been the President of Hamilton Standard Division of United Technologies
Corporation since 1986.
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<PAGE> 51
Lynn B. Storey has served as a Director of Lennox since 1981. Ms. Storey is
a community volunteer and fundraiser. At present she is co-chair for Community
Leadership for Planned Parenthood for Monterey County. She served on the Board
of Directors of Planned Parenthood Monterey/Mar Monte from 1990 to 1997. She
also served on the Community Services District of Fallen Leaf Lake in California
administering the development and financing of public lands. She is a past
president of the Junior League of Monterey County and the Monterey County
Medical Auxiliary and served on the Board of the National Council on Alcoholism
for Monterey County.
Richard L. Thompson has served as a Director of Lennox since 1993. In 1995,
Mr. Thompson was named to his present position of Group President and member of
the Executive Office of Caterpillar Inc. He joined Caterpillar in 1983 as Vice
President, Customer Services. In 1990, he was appointed President of Solar
Turbines Inc., a wholly owned subsidiary of Caterpillar. From 1990 to 1995, he
held the role of Vice President of Caterpillar, with responsibility for its
worldwide engine business. Previously, he had held the positions of Vice
President of Marketing and Vice President and General Manager, Components
Operations with RTE Corporation.
John W. Norris, Jr., Richard W. Booth, Robert W. Norris, David H. Anderson,
David V. Brown, Loraine B. Millman, Lynn B. Storey are all grandchildren of D.W.
Norris. John W. Norris, Jr. and Robert W. Norris are siblings, as are Lynn B.
Storey, Loraine B. Millman and David V. Brown. Both groups of siblings, as well
as Richard W. Booth and David H. Anderson, are first cousins.
INFORMATION REGARDING THE BOARD OF DIRECTORS AND COMMITTEES
Our Board of Directors is divided into three classes of directors, with
each class elected to a three-year term every third year and holding office
until their successors are elected and qualified. The class whose term of office
will expire at our 1999 Annual Meeting of Stockholders consists of David H.
Anderson, James J. Byrne, Donald E. Miller, John W. Norris, Jr. and Lynn B.
Storey. The class whose term of office will expire at our 2000 Annual Meeting of
Stockholders consists of Linda G. Alvarado, Richard W. Booth, David V. Brown,
Thomas B. Howard, Jr. and John E. Major. The class whose term of office will
expire at our 2001 Annual Meeting of Stockholders consists of Robert W. Norris,
Loraine B. Millman, Terry D. Stinson and Richard L. Thompson.
Our Board of Directors has established an Audit Committee, Acquisition
Committee, Board Operations Committee, Human Resource Committee, Compensation
Committee and a Pension and Risk Management Committee. The Audit Committee is
responsible for meeting with management and our independent accountants to
determine the adequacy of internal controls and other financial reporting
matters. The following directors currently serve on the Audit Committee: John E.
Major (Chair), Linda G. Alvarado, Donald E. Miller, Loraine B. Millman and Terry
D. Stinson.
The Acquisition Committee is responsible for evaluating potential
acquisitions and making recommendations with respect to proposed acquisitions.
The following directors currently serve on the Acquisition Committee: Donald E.
Miller (Chair), David H. Anderson, Thomas B. Howard, Jr., Robert W. Norris,
Terry D. Stinson and Richard L. Thompson.
The Board Operations Committee is responsible for making recommendations
with respect to the election of directors and officers, the number of directors,
and other matters pertaining to the operations of our Board of Directors. The
following directors currently serve on the Board Operations Committee: Richard
W. Booth (Chair), James J. Byrne, John E. Major, Robert W. Norris and Lynn B.
Storey.
The Human Resource Committee is responsible for succession planning,
management development programs and other human resource matters. The following
directors currently serve on the Human Resource Committee: James J. Byrne
(Chair), Linda G. Alvarado, David V. Brown, Thomas B. Howard, Jr., John E. Major
and Richard L. Thompson.
The Compensation Committee is responsible for evaluating the performance of
our Chief Executive Officer, making recommendations with respect to the salary
of our Chief Executive Officer, approving the compensation of executive staff
members, approving the compensation for non-employee directors and
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<PAGE> 52
committee members, approving incentive stock options for senior management,
approving all employee benefit plan designs and other matters relating to the
compensation of our directors, officers and employees. The following directors
currently serve on the Compensation Committee: Richard L. Thompson (Chair),
Linda G. Alvarado, James J. Byrne and Thomas B. Howard, Jr.
The Pension and Risk Management Committee is responsible for overseeing the
administration of our pension and profit sharing plans, overseeing matters
relating to our insurance coverage, reviewing matters of legal liability and
environmental issues, and other matters relating to risk management. The
following directors currently serve on the Pension and Risk Management
Committee: David H. Anderson (Chair), Richard W. Booth, David V. Brown, Donald
E. Miller, Loraine B. Millman and Lynn B. Storey.
COMPENSATION OF DIRECTORS
In 1999, non-employee directors will receive an annual retainer of $21,000
in cash and $5,000 in common stock for board of directors and committee service,
an annual retainer of $4,000 in cash for serving as a committee chair and a fee
of $1,000, or $500 in the event of a telephonic meeting, in cash for attending
each meeting day of the Board of Directors or any committee thereof. Board
members may elect to receive the cash portion of their annual retainer in cash
or shares of common stock. All directors receive reimbursement for reasonable
out-of-pocket expenses incurred in connection with attendance at meetings of the
Board of Directors or any committee thereof. In addition, each non-employee
director may receive, pursuant to our 1998 Incentive Plan, options to purchase
shares of common stock at an exercise price equal to the fair market value of
such shares at the date of grant.
EXECUTIVE COMPENSATION
The following table sets forth information on compensation earned in 1998
by our Chief Executive Officer and our four other most highly compensated
executive officers, such individuals sometimes being referred to as the "Named
Executive Officers". In the third quarter of 1998, we terminated the Lennox
International Inc. Performance Share Plan in connection with the adoption of the
1998 Incentive Plan of Lennox International Inc. We terminated the Performance
Share Plan to reduce potential earnings volatility associated with the
application of variable price accounting rules to the provisions of the plan.
The amounts in the LTIP Payouts column in the Summary Compensation Table below
consists of the value of common stock issued to the Named Executive Officers in
connection with the termination of the Performance Share Plan and in full
settlement of our obligations under that plan. Performance awards are now
granted under our 1998 Incentive Plan.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------------
AWARDS
------------------------- PAYOUTS
ANNUAL SECURITIES ----------
COMPENSATION RESTRICTED UNDERLYING
--------------------- STOCK OPTIONS/SARS LTIP ALL OTHER
NAME SALARY BONUS(1) AWARDS(2) GRANTED PAYOUTS(3) COMPENSATION(4)
---- -------- ---------- ---------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
John W. Norris, Jr....... $648,660 $1,130,003 $1,960,304 $2,043,909 $146,600
Robert L. Jenkins(5)..... 361,200 370,158 288,206 859,815 91,425
Robert E. Schjerven...... 335,400 323,562 739,038 750,994 86,656
H.E. French.............. 309,852 328,902 502,320 595,940 80,389
Clyde W. Wyant........... 291,300 348,639 516,762 718,883 67,645
</TABLE>
- ---------------
(1) Includes annual incentive payments for the respective year from two annual
variable pay plans.
(2) Represents performance share awards of the following number of shares of
restricted common stock granted pursuant to the 1998 Incentive Plan in
December 1998 multiplied by the stock price on the grant date, $ per
share: Mr. Norris -- ; Mr. Jenkins -- ; Mr.
Schjerven -- ; Mr. French -- ; and Mr. Wyant -- . Such
shares represent all of such individual's holdings
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<PAGE> 53
of restricted common stock at December 31, 1998. For the Named Executive
Officers, shares will vest at December 31, 1999, shares will
vest at December 31, 2000 and the remainder will vest at December 31, 2001,
in each case if performance targets are met. Shares which do not vest in any
performance period due to failure to achieve such goals will vest in 2006,
2007 and 2008, respectively. Information with respect to performance share
awards made pursuant to the 1998 Incentive Plan in December 1998 which do
not vest unless certain performance goals are met is set forth in the table
titled "Long-Term Incentive Plans -- Awards in Last Fiscal Year."
(3) Represents awards of shares of common stock multiplied by the stock price on
the award date, $ per share, in connection with the termination of the
Performance Share Plan.
(4) Composed of contributions by Lennox to the Lennox International Inc. Profit
Sharing Retirement Plan and to the Lennox International Inc. Profit Sharing
Restoration Plan and the dollar value of term life insurance premiums paid
by us for the benefit of the Named Executive Officers. Contributions to the
plans for the Named Executive Officers were as follows: Mr.
Norris -- $139,730; Mr. Jenkins -- $86,223; Mr. Schjerven -- $81,369; Mr.
French -- $73,833; and Mr. Wyant -- $62,619.
(5) On December 31, 1998, Mr. Jenkins retired from his position as the Assistant
to the Chairman of the Board -- Business Development.
We maintain a pay-for-performance compensation philosophy to pay
market-competitive base salaries, while also delivering variable pay which is
directly linked to the achievement of performance measurements and to the
performance and contribution of the individual.
Executive compensation is composed of three primary components: base
salary, variable pay (annual incentives and long-term incentives) and benefits
and perquisites. In order to evaluate the competitiveness of our total
compensation programs, we have periodically engaged Hewitt Associates LLC, a
Human Resources consulting firm, to conduct market analyses of the compensation
programs for executive level jobs within our organization. In doing so, we
emphasize delivering competitive total compensation opportunities, while
maintaining the flexibility to design individual compensation components to
support critical business objectives.
The following table provides information concerning stock options granted
to the Named Executive Officers in 1998.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS/SARS
UNDERLYING GRANTED TO GRANT DATE
OPTIONS/SARS EMPLOYEES IN EXERCISE OR PRESENT
NAME GRANTED FISCAL YEAR BASE PRICE EXPIRATION DATE VALUE(1)
---- ------------ ------------------ ----------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
John W. Norris, Jr.... 16.7% December 11, 2008 $755,325
Robert L. Jenkins..... -- -- --
Robert E. Schjerven... 5.6 December 11, 2008 251,775
H. E. French.......... 4.1 December 11, 2008 184,635
Clyde W. Wyant........ 4.1 December 11, 2008 184,635
</TABLE>
- ---------------
(1) The grant date present values shown in the table were determined pursuant to
the Black-Scholes option valuation model using the following assumptions:
stock price volatility of 35.4% which represents an average volatility among
general industry companies; expected option life of 10.0 years; dividend
yield of 1.66%; risk free interest rate of 4.53%; Hewitt Associates Modified
Derived Value: $ which includes the following additional assumptions:
discounts for the probability of termination for death, disability,
retirement and voluntary/involuntary terminations.
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<PAGE> 54
The following table sets forth for each of the Named Executive Officers the
options exercised during 1998 and the number of options and the value of
unexercised options held by the Named Executive Officers as of December 31,
1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES DECEMBER 31, 1998 DECEMBER 31, 1998(1)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John W. Norris, Jr......... -- $1,872,771 0
Robert L. Jenkins.......... $ 812,648 -- -- -- --
Robert E. Schjerven........ 1,042,300 -- -- 0
H. E. French............... 1,363,807 -- -- 0
Clyde W. Wyant............. 360,121 1,106,297 0
</TABLE>
- ---------------
(1) Calculated on the basis of the fair market value of the underlying
securities as of December 31, 1998, $ per share, minus the exercise
price of "in-the-money" options
The following table provides certain information concerning performance
share awards made under the 1998 Incentive Plan to the Named Executive Officers
in 1998. The Named Executive Officers are awarded a number of shares of common
stock subject to achievement of certain performance targets based on the average
return on equity for a three year period. Information with respect to the
portion of the award that becomes vested regardless of whether the performance
goals are met is set forth under the Restricted Stock Awards column in the table
titled "Summary Compensation Table." Set forth below is the maximum number of
shares of common stock that may be payable to each of the Named Executive
Officers that is subject to achievement of the performance goals. The actual
number of shares awarded depends on the level of achievement of the performance
objectives.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF SHARES, UNITS PERFORMANCE OR OTHER PERIOD
NAME OR OTHER RIGHTS UNTIL MATURATION OR PAYOUT
---- ----------------------- ---------------------------
<S> <C> <C>
John W. Norris, Jr...................... 3 years
Robert L. Jenkins....................... 3 years
Robert E. Schjerven..................... 3 years
H. E. French............................ 3 years
Clyde W. Wyant.......................... 3 years
</TABLE>
1998 INCENTIVE PLAN
GENERAL
Our Board of Directors has adopted, and our stockholders have approved, the
1998 Incentive Plan. The 1998 Incentive Plan amends and restates the Lennox
International Inc. 1994 Stock Option and Restricted Stock Plan. Any outstanding
awards under the 1994 Stock Option and Restricted Stock Plan will remain
outstanding. The objectives of the 1998 Incentive Plan are to attract and retain
employees, to attract and retain qualified directors and to stimulate the active
interest of such persons in our development and financial success. Awards
provide participants with a proprietary interest in our growth and performance.
The description set forth below represents a summary of the principal terms and
conditions of the 1998 Incentive Plan.
Awards to our employees or independent contractors under the 1998 Incentive
Plan may be made in the form of grants of stock options, stock appreciation
rights, restricted or non-restricted stock or units denominated in stock, cash
awards, performance awards or any combination of the foregoing. Awards to non-
employee directors under the 1998 Incentive Plan will be in the form of grants
of stock options.
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<PAGE> 55
The 1998 Incentive Plan provides for awards to be made in respect of a
maximum of shares of our common stock, of which shares will be
available for awards to our employees and the remainder of which will be
available for awards to non-employee directors. No participant under the 1998
Incentive Plan may be granted in any 12-month period awards consisting of stock
options or stock appreciation rights for more than shares of common stock,
stock awards for more than shares of common stock or cash awards in
excess of $ . Shares of common stock which are the subject of awards that
are forfeited or terminated or expire unexercised will again immediately become
available for awards under the 1998 Incentive Plan.
Insofar as the 1998 Incentive Plan relates to employee awards, our
Compensation Committee will have the exclusive authority to administer the 1998
Incentive Plan and to take all actions which are specifically contemplated by
the plan or are necessary or appropriate in connection with the administration
thereof. The Compensation Committee may, in its discretion:
- provide for the extension of the exercisability of an award;
- accelerate the vesting or exercisability of an award to our employees;
- eliminate or make less restrictive any restrictions contained in an award
to our employees;
- waive any restriction or other provision of the 1998 Incentive Plan or in
any award to our employees; or
- otherwise amend or modify an award to our employees in any manner that is
either not adverse to the employee holding the award or consented to by
such employee.
EMPLOYEE AWARDS
The Compensation Committee will determine the type or types of awards made
under the 1998 Incentive Plan and will designate the employees who are to be
recipients of such awards. Each award may be embodied in an agreement, which
will contain such terms, conditions and limitations as are determined by the
Compensation Committee. Awards to our employees may be granted singly, in
combination or in tandem. Awards to our employees may also be made in
combination or in tandem with, in replacement of, or as alternatives to, grants
or rights under the 1998 Incentive Plan or any other employee plan or program of
Lennox, including any acquired entity. All or part of an award to our employees
may be subject to conditions established by the Compensation Committee, which
may include continuous service with Lennox, achievement of specific business
objectives, increases in specified indices, attainment of specified growth rates
and other comparable measurements of performance.
The types of awards to our employees that may be made under the 1998
Incentive Plan are as follows:
Options: Options are rights to purchase a specified number of shares of
common stock at a specified price. An option granted pursuant to the 1998
Incentive Plan may consist of either an incentive stock option that complies
with the requirements of Section 422 of the Internal Revenue Code of 1986, or a
non-qualified stock option that does not comply with such requirements.
Incentive stock options must have an exercise price per share that is not less
than the fair market value of the common stock on the date of grant. To the
extent that the aggregate fair market value, measured at the time of grant, of
common stock subject to incentive stock options that first become exercisable by
an employee in any one calendar year exceeds $100,000, such options shall be
treated as non-qualified stock options and not as incentive stock options.
Non-qualified stock options must have an exercise price per share that is not
less than, but may exceed, the fair market value of the common stock on the date
of grant. In either case, the exercise price must be paid in full at the time an
option is exercised in cash or, if the employee so elects, by means of tendering
common stock or surrendering another award.
Stock Appreciation Rights: Stock appreciation rights are rights to receive
a payment, in cash or common stock, equal to the excess of the fair market value
or other specified valuation of a specified number of shares of common stock on
the date the rights are exercised over a specified strike price. A stock
appreciation right may be granted in tandem under the 1998 Incentive Plan to the
holder of an option with respect to all or a portion of the shares of common
stock subject to such option or may be granted separately. The terms, conditions
and limitations applicable to any stock appreciation rights, including the term
of any stock
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appreciation rights and the date or dates upon which they become exercisable,
will be determined by our Compensation Committee.
Stock Awards: Stock awards consist of grants of restricted common stock or
non-restricted common stock or units denominated in common stock. The terms,
conditions and limitations applicable to any stock awards will be determined by
our Compensation Committee. The Compensation Committee may remove any
restrictions on stock awards, at its discretion. Without limiting the foregoing,
rights to dividends or dividend equivalents may be extended to and made part of
any stock award in the discretion of the Compensation Committee.
Cash Awards: Cash awards consist of grants denominated in cash. The terms,
conditions and limitations applicable to any cash awards will be determined by
our Compensation Committee.
Performance Awards: Performance awards consist of grants made to an
employee subject to the attainment of one or more performance goals. A
performance award will be paid, vested or otherwise deliverable solely upon the
attainment of one or more pre-established, objective performance goals
established by our Compensation Committee prior to the earlier of (a) 90 days
after the commencement of the period of service to which the performance goals
relate and (b) the elapse of 25% of the period of service, and in any event
while the outcome is substantially uncertain. A performance goal may be based
upon one or more business criteria that apply to the employee, one or more
business units of Lennox or Lennox as a whole. The terms, conditions and
limitations applicable to any performance awards will be determined by our
Compensation Committee.
DIRECTOR AWARDS
Our Board of Directors will administer the 1998 Incentive Plan as it
relates to awards to non-employee directors. The board will have the right to
determine on an annual basis, or at any other time in its sole discretion, to
award options which are non-qualified stock options to non-employee directors.
Such options awarded shall provide that no more than shares of common stock
be purchased in any year. All options awarded to directors shall have a term of
10 years and shall vest and become exercisable in increments of one-third on
each of the three succeeding anniversaries after the date of grant. Unvested
options awarded to directors shall be forfeited if a director resigns without
the consent of the majority of our Board of Directors.
OTHER PROVISIONS
Our Board of Directors may amend, modify, suspend or terminate the 1998
Incentive Plan for the purpose of addressing any changes in legal requirements
or for any other purpose permitted by law, except that:
- no amendment that would impair the rights of any employee or non-employee
director with respect to any award may be made without the consent of
such employee or non-employee Director; and
- no amendment requiring stockholder approval pursuant to any applicable
legal requirements will be effective until such approval has been
obtained.
In the event of any subdivision or consolidation of outstanding shares of
our common stock, declaration of a stock dividend payable in shares of our
common stock or other stock split, the 1998 Incentive Plan provides for the
Board of Directors to make appropriate adjustments to:
- the number of shares of common stock reserved under the 1998 Incentive
Plan;
- the number of shares of common stock covered by outstanding awards in the
form of common stock or units denominated in common stock;
- the exercise or other price in respect of such awards;
- the appropriate fair market value and other price determinations for
awards in order to reflect such transactions; and
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<PAGE> 57
- the limitations set forth in the 1998 Incentive Plan regarding the number
of awards which may be made to any employee in a given year.
Furthermore, in the event of any other recapitalization or capital
reorganization of Lennox, any consolidation or merger of Lennox with another
corporation or entity, the adoption by Lennox of any plan of exchange affecting
the common stock or any distribution to holders of common stock or securities or
property, other than normal cash dividends or stock dividends, our Board of
Directors will make appropriate adjustments to the amounts or other items
referred to above to give effect to such transactions, but only to the extent
necessary to maintain the proportionate interest of the holders of the awards
and to preserve, without exceeding, the value thereof.
RETIREMENT PLANS
The Named Executive Officers participate in four Lennox-sponsored
retirement plans. The plans are as follows: the Lennox International Inc.
Pension Plan for Salaried Employees, the Lennox International Inc. Profit
Sharing Retirement Plan, the Lennox International Inc. Supplemental Retirement
Plan, and the Lennox International Inc. Profit Sharing Restoration Plan. The
Supplemental Retirement Plan and the Profit Sharing Restoration Plan are
non-qualified plans. We pay the full cost of all these plans.
The Pension Plan for Salaried Employees is a floor offset plan. A target
benefit is calculated using credited service and final average pay during the
five highest consecutive years. The benefit is currently based on 1.00% of final
average pay, plus .60% of final average pay above Social Security covered
compensation, times the number of years of credited service, not to exceed 30
years. Employees vest after five years of service and may commence unreduced
benefits at age 65. If certain age and service requirements are met, benefits
may commence earlier on an actuarially reduced basis. At time of retirement, a
participant may choose one of five optional forms of payment. The Supplemental
Retirement Plan permits income above Internal Revenue Service limitations to be
considered in determining final average pay, doubles the rate of benefit
accrual, limits credited service to 15 years and permits early retirement on
somewhat more favorable terms than the Pension Plan.
The Profit Sharing Retirement Plan is a defined contribution plan. Profit
sharing contributions, as determined by the Board of Directors, are credited
annually to participants' accounts based on pay. Participants are fully vested
after 6 years. The assets of the plan are employer directed. Distributions may
occur at separation of employment and can be paid directly to the participant.
The Restoration Plan permits accruals that otherwise could not occur because of
Internal Revenue Service limitations on compensation.
The estimates of annual retirement benefits shown in the following table
are the targets established by the Supplemental Retirement Plan.
<TABLE>
<CAPTION>
YEARS OF SERVICE
FINAL AVERAGE ---------------------------------------------------------------
EARNINGS(1) 5 10 15 20 25 30
------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 250,000..................... $ 35,896 $ 71,792 $107,688 $107,688 $107,688 $107,688
425,000.................... 63,896 127,792 191,688 191,688 191,688 191,688
600,000.................... 91,896 183,792 275,688 275,688 275,688 275,688
775,000.................... 119,896 239,792 359,688 359,688 359,688 359,688
950,000.................... 147,896 295,792 443,688 443,688 443,688 443,688
1,125,000.................... 175,896 351,792 527,688 527,688 527,688 527,688
</TABLE>
- ---------------
(1) Final Average Earnings are the average of the five highest consecutive years
of includible earnings. Compensation for these purposes includes salary and
bonuses, and excludes extraordinary compensation such as benefits from the
1998 Incentive Plan or its predecessor plans. Bonus numbers used in these
calculations, as per plan requirements, are the bonuses actually paid in
those years. In the Summary Compensation Table, the 1998 bonus reported is
the bonus earned in 1998, but not paid until 1999.
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As of December 31, 1998, the final average pay and the eligible years of
credited service for each of the Named Executive Officers was as follows: Mr.
Norris, $855,001 -- 38.25 years; Mr. Jenkins, $483,948 -- 14.00 years; Mr.
Wyant, $402,391 -- 8.30 years; Mr. Schjerven, $411,416 -- 12.80 years; Mr.
French, $340,666 -- 9.80 years.
EMPLOYMENT AGREEMENTS
We have entered into an employment agreement with each of the Named
Executive Officers who are currently employees of Lennox. These employment
agreements establish a specified duration or term of employment; the basis of
compensation and assignments; and post-employment covenants covering
confidential information, the diverting of employees, vendors and contractors
and the solicitation of customers. These agreements also establish binding
arbitration as the mechanism for resolving disputes and provide certain benefits
and income in the event employment terminates under specified circumstances.
The agreements commence on the date they are signed by both parties and
remain in effect until December 31 of that year and thereafter for a series of
one-year terms. On January 1 of each year after the end of the first term and
for each year thereafter, the agreements automatically renew for an additional
year, unless either party notifies the other, in writing, at least 30 days prior
to such date, of a decision not to renew the agreement.
If we terminate the employee prior to the expiration of the term of the
agreement or if we do not renew the agreement for any reason other than for
cause (as defined in the agreement), the employee will be entitled to receive
monthly payments of the greater of the employee's base salary for the remainder
of the agreement's term or three months of the employee's base salary in
addition to any other compensation or benefits applicable to an employee at the
employee's level.
If we terminate the employee other than for cause, including our
non-renewal of the agreement, and the employee agrees to execute a written
general release of any and all possible claims against us existing at the time
of termination, we will provide the employee with an enhanced severance package.
That package includes payment of the employee's base monthly salary for a period
of twenty-four months following the date of termination, a lump sum payment of
$12,000 in lieu of perquisites lost, and forgiveness of COBRA premiums due for
group health insurance coverage for up to eighteen months while the employee
remains unemployed. If the employee remains unemployed at the end of eighteen
months, the equivalent of the COBRA premium will be paid to the employee on a
month to month basis for up to six additional months while the employee remains
unemployed. Outplacement services are provided or, at the employee's election, a
lump-sum payment of 10% of the employee's annual base salary will be made to the
employee in lieu of those services. Additionally, the employee's beneficiary
will receive a lump-sum death benefit equivalent to six months of the employee's
base salary should the employee die while entitled to enhanced severance
payments.
CHANGE OF CONTROL EMPLOYMENT AGREEMENTS
We have entered into a change of control employment agreement with each of
the Named Executive Officers who are currently employees of Lennox. The change
of control agreements provide for certain benefits under specified circumstances
if the officer's employment is terminated following a change of control
transaction involving Lennox. The change of control agreements are intended to
provide protections to the officers that are not afforded by their existing
employment agreements, but not to duplicate benefits provided thereunder. The
term of the change of control agreements is generally two years from the date of
a Potential Change of Control, as discussed below, or a Change of Control. If
the officer remains employed at the conclusion of such term, the officer's
existing employment agreement will continue to apply. The employment rights of
the Named Executive Officers under the change of control agreements would be
triggered by either a Change of Control or a Potential Change of Control.
Following a Potential Change of Control, the term of the change of control
agreement may terminate but the Change of Control Agreement will remain in force
and a new term of the agreement will apply to any future Change of Control or
Potential Change of Control, if either (a) our Board of Directors determines
that a Change of Control is not likely or (b) the Named Executive
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<PAGE> 59
Officer, upon proper notice to us, elects to terminate his term of the change of
control agreement as of any anniversary of the Potential Change of Control.
A "Change of Control" generally includes the occurrence on or after the
date of the offering of any of the following:
(a) any person, other than certain exempt persons, including Lennox
and its subsidiaries and employee benefit plans, becoming a beneficial
owner of 35% or more of the shares of common stock or voting stock of
Lennox then outstanding, including as a result of the offering;
(b) a change in the identity of a majority of the persons serving as
members of our Board of Directors, unless such change was approved by a
majority of the incumbent members of our Board of Directors;
(c) the approval by the stockholders of a reorganization, merger or
consolidation in which:
(1) existing stockholders would not own more than 65% of the common
stock and voting stock of the resulting company;
(2) a person, other than certain exempt persons, would own 35% or
more of the common stock or voting stock of the resulting company; or
(3) less than a majority of the board of the resulting company
would consist of the then incumbent members of our Board of Directors;
or
(d) the approval by the stockholders of a liquidation or dissolution
of Lennox, unless such liquidation or dissolution is part of a plan of
liquidation or dissolution involving a sale to a company of which following
such transaction:
(1) more than 65% of the common stock and voting stock would be
owned by existing stockholders;
(2) no person (other than certain exempt persons) would own 35% or
more of the common stock or voting stock of such company; and
(3) at least a majority of the board of directors of such company
would consist of the then incumbent members of our Board of Directors.
A "Potential Change in Control" generally includes any of the following:
- the commencement of a tender or exchange offer for voting stock that, if
consummated, would result in a Change of Control;
- Lennox entering into an agreement which, if consummated, would constitute
a Change of Control;
- the commencement of a contested election contest subject to certain proxy
rules; or
- the occurrence of any other event that our Board of Directors determines
could result in a Change of Control.
During the term of the change of control agreement, an officer's position,
authority, duties and responsibilities may not be diminished, and all forms of
compensation, including salary, bonus, regular salaried employee plan benefits,
stock options, restricted stock and other awards, must continue on a basis no
less favorable than at the beginning of the term of the change of control
agreement and, in the case of certain benefits, must continue on a basis no less
favorable in the aggregate than the most favorable application of such benefits
to any of our employees.
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If an officer terminates employment during the term of the change of
control agreement for good reason, as defined in the change of control
agreements, and we fail to honor the terms of the change of control agreement,
we will pay the officer:
- his then unpaid current salary and a pro rata portion of the highest
bonus earned during the three preceding years, as well as previously
deferred compensation and accrued vacation time;
- a lump-sum benefit equal to the sum of three times the officer's annual
base salary and three times the annual bonus (as both such terms are
defined in the change of control agreements) he would have earned in the
year of termination;
- for purposes of our Supplemental Retirement Plan and our Profit Sharing
Restoration Plan, three additional years added to both his service and
age criteria; and
- continued coverage under our employee welfare benefits plans for up to
four and one-half years.
In addition, all options, restricted stock and other compensatory awards held by
the officer will immediately vest and become exercisable, and the term thereof
will be extended for up to one year following termination of employment. The
officer may also elect to cash out equity-based compensatory awards at the
highest price per share paid by specified persons during the term of the change
of control agreement or the six-month period prior to the beginning of the term
of the change of control agreement.
In the event of any contest concerning a change of control agreement in
which the officer is successful, in whole or in part, on the merits, (a) we have
no right of offset, (b) the officer is not required to mitigate damages, and (c)
we agree to pay any legal fees incurred by the officer in connection with such
contest. We also agree to pay all amounts owing to the officer during any period
of dispute, subject only to the officer's agreement to repay any amounts to
which he is determined not to be entitled. The change of control agreements
provide for a tax gross-up in the event that certain excise taxes are applicable
to payments made by us under a change of control agreement or otherwise. The
change of control agreements require the officer to maintain the confidentiality
of our information, and, for a period of 24 months following his termination of
employment, to avoid any attempts to induce our employees to terminate their
employment with us.
INDEMNIFICATION AGREEMENTS
We have entered into indemnification agreements with our directors and
certain of our executive officers. Under the terms of the indemnification
agreements, we have generally agreed to indemnify, and advance expenses to, each
indemnitee to the fullest extent permitted by applicable law on the date of the
agreements and to such greater extent as applicable law may thereafter permit.
In addition, the indemnification agreements contain specific provisions pursuant
to which we have agreed to indemnify each indemnitee:
- if such person is, by reason of his or her status as a director, nominee
for director, officer, agent or fiduciary of ours or of any other
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise with which such person was serving at our request, any
such status being referred to as a "Corporate Status," made or threatened
to be made a party to any threatened, pending or completed action, suit,
arbitration, alternative dispute resolution mechanism, investigation or
other proceeding, other than a proceeding by or in the right of Lennox;
- if such person is, by reason of his or her Corporate Status, made or
threatened to be made a party to any proceeding brought by or in the
right of Lennox to procure a judgment in its favor, except that no
indemnification shall be made in respect of any claim, issue or matter in
such proceeding as to which such indemnitee shall have been adjudged to
be liable to Lennox if applicable law prohibits such indemnification,
unless and only to the extent that a court shall otherwise determine;
- against expenses actually and reasonably incurred by such person or on
his or her behalf in connection with any proceeding to which such
indemnitee was or is a party by reason of his or her Corporate Status and
in which such indemnitee is successful, on the merits or otherwise;
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<PAGE> 61
- against expenses actually and reasonably incurred by such person or on
his or her behalf in connection with a proceeding to the extent that such
indemnitee is, by reason of his or her Corporate Status, a witness or
otherwise participates in any proceeding at a time when such person is
not a party in the proceeding; and
- against expenses actually and reasonably incurred by such person in
certain judicial adjudications of or awards in arbitration to enforce his
or her rights under the indemnification agreements.
In addition, under the terms of the indemnification agreements, we have
agreed to pay all reasonable expenses incurred by or on behalf of an indemnitee
in connection with any proceeding, whether brought by or in the right of Lennox
or otherwise, in advance of any determination with respect to entitlement to
indemnification and within 15 days after the receipt by us of a written request
from such indemnitee for such payment. In the indemnification agreements, each
indemnitee has agreed that he or she will reimburse and repay us for any
expenses so advanced to the extent that it shall ultimately be determined that
he or she is not entitled to be indemnified by us against such expenses.
The indemnification agreements also include provisions that specify the
procedures and presumptions which are to be employed to determine whether an
indemnitee is entitled to indemnification thereunder. In some cases, the nature
of the procedures specified in the indemnification agreements varies depending
on whether we have undergone a change in control, as such term is defined in the
indemnification agreements.
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<PAGE> 62
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of December 31, 1998 and as adjusted to reflect
the offering by the following individuals:
- each person known by us to own more than 5% of the outstanding shares of
common stock;
- each of our directors;
- each Named Executive Officer;
- all executive officers and directors as a group; and
- each selling stockholder.
All persons listed have an address in care of our principal executive offices
and have sole voting and investment power with respect to their shares unless
otherwise indicated.
The information contained in this table with respect to beneficial
ownership reflects "beneficial ownership" as defined in Rule 13d-3 of the
Securities Exchange Act of 1934, as amended. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options held by that person that were
exercisable on December 31, 1998 or became exercisable within 60 days following
December 31, 1998 are deemed outstanding. However, such shares are not deemed
outstanding for the purpose of computing the percentage ownership of any other
person. To our knowledge and unless otherwise indicated, each stockholder has
sole voting and investment power with respect to the shares listed as
beneficially owned by such stockholder, subject to community property laws where
applicable. Percentage of ownership is based on shares of common stock
outstanding as of December 31, 1998 and shares of common stock outstanding
after the completion of the offering assuming no exercise of the underwriters'
over-allotment option. As of December 31, 1998, we had approximately
beneficial holders of our common stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
BEFORE THE OFFERING AFTER THE OFFERING
--------------------- SHARES TO BE SOLD ---------------------
BENEFICIAL OWNER NUMBER PERCENTAGE IN THE OFFERING NUMBER PERCENTAGE
---------------- -------- ---------- ----------------- -------- ----------
<S> <C> <C> <C> <C> <C>
John W. Norris, Jr.(1)............. 11.2%
H. E. French....................... *
Robert E. Schjerven................ *
Robert L. Jenkins.................. *
Clyde W. Wyant(2).................. *
Linda G. Alvarado(3)............... *
David H. Anderson(4)............... 12.4
Richard W. Booth(5)................ 14.5
David V. Brown(6).................. 3.7
James J. Byrne(7).................. *
Thomas B. Howard, Jr.(8)........... *
John E. Major(9)................... *
Donald E. Miller(10)............... *
Loraine B. Millman(11)............. 3.1
Robert W. Norris(12)............... 7.0
Terry D. Stinson................... --
Lynn B. Storey(13)................. 3.6
Richard L. Thompson(14)............ *
All executive officers and
directors as a group (23
persons)(15)..................... 56.7
A.O.C. Corporation(16)............. 7.6
Thomas W. Booth(17)................ 7.8
</TABLE>
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- ---------------
* Less than 1%
(1) Includes:
(a) shares held by the Robert W. Norris Trust A of which John W. Norris,
Jr. is a co-trustee;
(b) shares held by the John W. Norris, Jr. Trust A of which John W.
Norris, Jr. is a co-trustee;
(c) shares held by the Megan E. Norris Trust A of which John W. Norris,
Jr. is a co-trustee;
(d) shares of the Robert W. Norris Irrevocable Descendants' Trust of
which John W. Norris, Jr. is the trustee; and
(e) shares subject to options.
(2) Includes shares of common stock subject to options.
(3) Includes:
(a) shares held by Cimarron Holdings L.L.C. of which Linda G. Alvarado
is the managing member; and
(b) shares subject to options.
(4) Includes:
(a) shares held by the Leo E. Anderson Trust of which David H. Anderson
is the trustee;
(b) shares held by the Kristin H. Anderson Trust of which David H.
Anderson is a co-trustee;
(c) shares held by the David H. Anderson Trust of which David H.
Anderson is the trustee;
(d) shares held by the Betty Oakes Trust of which David H. Anderson is
the trustee;
(e) shares held by David H. Anderson's child; and
(f) shares subject to options.
(5) Includes:
(a) shares held by the 1996 Anderson GST Exempt Trust of which Richard
W. Booth is the trustee;
(b) shares held by a trust for the benefit of Richard W. Booth of which
Richard W. Booth is a co-trustee;
(c) shares held by a trust for the benefit of Anne Zink of which Richard
W. Booth is a co-trustee; and
(d) shares subject to options.
(6) Includes:
(a) shares held by David V. Brown's children; and
(b) shares subject to options.
(7) Includes shares subject to options.
(8) Includes:
(a) shares held by the Howard Family Trust of which Thomas B. Howard,
Jr. is a co-trustee; and
(b) shares subject to options.
(9) Includes shares subject to options.
(10) Includes:
(a) shares held by the Donald E. Miller Trust of which Donald E. Miller
is a co-trustee; and
(b) shares subject to options.
(11) Includes shares subject to options.
(12) Includes:
(a) shares held by the Robert W. Norris Trust A of which Robert W.
Norris is a co-trustee;
(b) shares held by the John W. Norris, Jr. Trust A of which Robert W.
Norris is a co-trustee;
(c) shares held by the Robert W. Norris Revocable Trust of which Robert
W. Norris is the trustee;
(d) shares held by the Christine Marie Dammann 1991 Revocable Trust of
which Robert W. Norris is the trustee;
(e) shares held by the Stefan Robert Norris Revocable Trust of which
Robert W. Norris is the trustee; and
(f) shares held by the Nicholas W. Norris 1991 Revocable Trust of which
Robert W. Norris is the trustee; and
(g) shares subject to options.
(13) Includes shares subject to options.
(14) Includes shares subject to options.
(15) Includes shares subject to options.
(16) John W. Norris, Jr., David H. Anderson, Richard W. Booth and David V. Brown
are members of the board of directors of A.O.C. Corporation.
(17) Includes:
(a) shares held by a trust for the benefit of Richard W. Booth of which
Thomas W. Booth is a co-trustee;
(b) shares held by the Thomas W. Booth Trust of which Thomas W. Booth is
the trustee; and
(c) shares held by Thomas W. Booth's children.
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<PAGE> 64
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
John W. Norris, Jr., our Chairman and Chief Executive Officer, and David H.
Anderson, Richard W. Booth, David V. Brown, Loraine B. Millman, Robert W. Norris
and Lynn B. Storey, each one of our directors, as well as certain of our
stockholders, are members of AOC Land Investment, LLC. AOC Land Investment, LLC
owns 70% of AOC Development II, LLC. AOC Development II, LLC is building a new
office building and we have agreed to lease part of it for use in conjunction
with our corporate headquarters. The lease will have a term of 25 years and the
annual lease payments are expected to be approximately $2.1 million per year for
the first five years. We believe that the terms of our lease with AOC
Development II, LLC are at least as favorable as could be obtained from
unaffiliated third parties.
From time to time we have entered into Stock Disposition Agreements which
allowed certain executives, directors and stockholders to borrow money and use
our capital stock held by them as collateral. The Stock Disposition Agreements
provided that in the event of a default on the underlying loan, we would do one
of several things, including registering the capital stock under the Securities
Act of 1933, as amended, finding a buyer to purchase the stock or purchasing the
stock ourself. There were never any defaults under these agreements. Currently,
there are Stock Disposition Agreements in existence covering shares of
common stock. We will not enter into these type of agreements following
consummation of the offering.
The foregoing transactions were not the result of arms-length negotiations.
Accordingly certain of the terms of these transactions may be more or less
favorable to us than might have been obtained from unaffiliated third parties.
We do not intend to enter into any future transactions in which our directors,
executive officers or principal stockholders and their affiliates have a
material interest unless such transactions are approved by a majority of the
disinterested members of our Board of Directors and are on terms that are no
less favorable to us than those that we could obtain from unaffiliated third
parties.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 200,000,000 shares of common stock
and 25,000,000 shares of preferred stock, par value $.01 per share. Of the
200,000,000 shares of common stock authorized, are being offered in the
offering, or shares if the underwriters' over-allotment option is exercised
in full, and shares have been reserved for issuance pursuant to our 1998
Incentive Plan. See "Management -- 1998 Incentive Plan" for a description of the
1998 Incentive Plan. None of the preferred stock is outstanding. The following
summary description of our capital stock is qualified by reference to our
restated certificate of incorporation and bylaws, copies of which are filed as
exhibits to the registration statement of which this prospectus forms a part.
COMMON STOCK
The holders of common stock are entitled to one vote per share on all
matters to be voted on by stockholders. Generally, all matters to be voted on by
stockholders must be approved by a majority (or, in the case of election of
directors, by a plurality) of the votes entitled to be cast by all shares of
common stock present in person or represented by proxy, voting together as a
single class, except as may be required by law and subject to any voting rights
granted to holders of any preferred stock. However, the removal of a director
from office, the approval and authorization of certain business combinations and
amendments to certain provisions of our certificate of incorporation each
require the approval of not less than 80% of the combined voting power of our
outstanding shares of stock entitled to vote generally in the election of
directors, voting together as a single class. See "-- Certificate of
Incorporation and Bylaw Provisions". The common stock does not have cumulative
voting rights.
Subject to the prior rights of the holders of any shares of our preferred
stock, the holders of common stock shall be entitled to receive, to the extent
permitted by law, such dividends as may be declared from time to time by our
Board of Directors. On our liquidation, dissolution or winding up, after payment
in full of the amounts required to be paid to holders of preferred stock, if
any, all holders of common stock are entitled to share ratably in any assets
available for distribution to holders of shares of common stock.
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<PAGE> 65
The outstanding shares of common stock are legally issued, fully paid and
nonassessable. The common stock does not have any preemptive, subscription or
conversion rights. Additional shares of authorized common stock may be issued,
as authorized by our Board of Directors from time to time, without stockholder
approval, except as may be required by applicable stock exchange requirements.
PREFERRED STOCK
As of the date of this prospectus, no shares of preferred stock are
outstanding. Our Board of Directors may authorize the issuance of preferred
stock in one or more series and may determine, with respect to any such series,
the designations, powers, preferences and rights of such series, and the
qualifications, limitations and restrictions thereof, including:
- the designation of the series;
- the consideration for which the shares of any such series are to be
issued;
- the rate or amount per annum, if any, at which holders of the shares of
such series shall be entitled to receive dividends, the dates on which
such dividends shall be payable, whether the dividends shall be
cumulative or noncumulative, and if cumulative, the date or dates from
which such dividends shall be cumulative;
- the redemption rights and price or prices, if any, for shares of the
series;
- the amounts payable on and the preferences, if any, of shares of the
series in the event of dissolution or upon distribution of our assets;
- whether the shares of the series will be convertible into or exchangeable
for other of our securities, and the price or prices or rate or rates at
which conversion or exchange shall be exercised;
- the terms and amounts of any sinking fund provided for the purchase or
redemption of shares of any series;
- the voting rights, if any, of the holders of shares of such series; and
- such other preferences and rights, privileges and restrictions applicable
to any such series as may be permitted by law.
We believe that the ability of our Board of Directors to issue one or more
series of preferred stock will provide us with flexibility in structuring
possible future financings and acquisitions and in meeting other corporate needs
that might arise. The authorized shares of preferred stock will be available for
issuance without further action by our stockholders, unless such action is
required by applicable law or the rules of any stock exchange on which our
securities may be listed or traded.
Although our Board of Directors has no intention at the present time of
doing so, it could issue a series of preferred stock that could, depending on
the terms of such series, impede the completion of a merger, tender offer or
other takeover attempt. Our Board of Directors will make any determination to
issue such shares based on its judgment as to our best interests and the best
interests of our stockholders. Our Board of Directors, in so acting, could issue
preferred stock having terms that could discourage a potential acquiror from
making, without first negotiating with the Board of Directors, an acquisition
attempt through which such acquiror may be able to change the composition of the
Board of Directors, including a tender offer or other transaction that some, or
a majority, of our stockholders might believe to be in their best interests or
in which stockholders might receive a premium for their stock over the then
current market price of such stock.
BUSINESS COMBINATION STATUTE
As a corporation organized under the laws of the State of Delaware, we will
be subject to Section 203 of the Delaware General Corporation Law, which
restricts certain business combinations between us and an "interested
stockholder" (in general, a stockholder owning 15% or more of our outstanding
voting stock) or its
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<PAGE> 66
affiliates or associates for a period of three years following the time that the
stockholder becomes an "interested stockholder." The restrictions do not apply
if:
- prior to an interested stockholder becoming such, our Board of Directors
approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder;
- upon consummation of the transaction which resulted in any person
becoming an interested stockholder, such interested stockholder owns at
least 85% of our voting stock outstanding at the time the transaction
commenced, excluding shares owned by certain employee stock ownership
plans and persons who are both directors and officers of Lennox; or
- at or subsequent to the time an interested stockholder becomes such, the
business combination is both approved by our Board of Directors and
authorized at an annual or special meeting of our stockholders, not by
written consent, by the affirmative vote of at least 66 2/3% of the
outstanding voting stock not owned by the interested stockholder.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to effect various business
combinations with a corporation for a three-year period, although the
stockholders may elect to exclude a corporation from the restrictions imposed
thereunder. Our certificate of incorporation does not exclude us from the
restrictions imposed under Section 203. It is anticipated that the provisions of
Section 203 may encourage companies interested in acquiring us to negotiate in
advance with our Board of Directors since the stockholder approval requirement
would be avoided if a majority of the directors then in office approves, prior
to the date on which a stockholder becomes an interested stockholder, either the
business combination or the transaction which results in the stockholder
becoming an interested stockholder.
CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
The summary set forth below describes certain provisions of our certificate
of incorporation and bylaws. The summary is qualified in its entirety by
reference to the provisions of our restated certificate of incorporation and
bylaws, copies of which have been filed as exhibits to the registration
statement of which this prospectus forms a part.
Certain of the provisions of our certificate of incorporation and bylaws
discussed below may have the effect, either alone or in combination with the
provisions of Section 203 discussed above, of making more difficult or
discouraging a tender offer, proxy contest or other takeover attempt that is
opposed by our Board of Directors but that a stockholder might consider to be in
such stockholder's best interest. Those provisions include:
- restrictions on the rights of stockholders to remove directors;
- prohibitions against stockholders calling a special meeting of
stockholders or acting by unanimous written consent in lieu of a meeting;
- requirements for advance notice of actions proposed by stockholders for
consideration at meetings of the stockholders; and
- restrictions on business combination transactions with "related persons."
CLASSIFIED BOARD OF DIRECTORS; REMOVAL; NUMBER OF DIRECTORS; FILLING
VACANCIES
Our certificate of incorporation and bylaws provide that the Board of
Directors shall be divided into three classes, designated Class I, Class II and
Class III, with the classes to be as nearly equal in number as possible. The
term of office of each class shall expire at the third annual meeting of
stockholders for the election of directors following the election of such class.
See "Management -- Information Regarding the Board of Directors and Committees"
for a discussion of the directors in each class. Each director is to hold office
until his or her successor is duly elected and qualified, or until his or her
earlier resignation or removal.
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Our bylaws provide that the number of directors will be fixed from time to
time pursuant to a resolution adopted by the Board of Directors; provided that
the number so fixed shall not be more than 15 nor less than three directors. Our
bylaws also provide that any vacancies will be filled only by the affirmative
vote of a majority of the remaining directors, even if less than a quorum.
Accordingly, absent an amendment to the bylaws, the Board of Directors could
prevent any stockholder from enlarging the Board of Directors and filling the
new directorships with such stockholder's own nominees. Moreover, our
certificate of incorporation and bylaws provide that directors may be removed
only for cause and only upon the affirmative vote of holders of at least 80% of
our voting stock at a special meeting of stockholders called expressly for that
purpose.
The classification of directors could have the effect of making it more
difficult for stockholders to change the composition of the Board of Directors.
At least two annual meetings of stockholders, instead of one, are generally
required to effect a change in a majority of the Board of Directors. Such a
delay may help ensure that our directors, if confronted by a holder attempting
to force a proxy contest, a tender or exchange offer, or an extraordinary
corporate transaction, would have sufficient time to review the proposal as well
as any available alternatives to the proposal and to act in what they believe to
be the best interest of the stockholders. The classification provisions will
apply to every election of directors, however, regardless of whether a change in
the composition of the Board of Directors would be beneficial to us and our
stockholders and whether or not a majority of our stockholders believe that such
a change would be desirable.
The classification provisions could also have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or otherwise
attempting to obtain control of us, even though such an attempt might be
beneficial to us and our stockholders. The classification of the Board of
Directors could thus increase the likelihood that incumbent directors will
retain their positions. In addition, because the classification provisions may
discourage accumulations of large blocks of our stock by purchasers whose
objective is to take control of us and remove a majority of the Board of
Directors, the classification of the Board of Directors could tend to reduce the
likelihood of fluctuations in the market price of the common stock that might
result from accumulations of large blocks. Accordingly, stockholders could be
deprived of certain opportunities to sell their shares of common stock at a
higher market price than might otherwise be the case.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
Our certificate of incorporation and bylaws provide that stockholder action
can be taken only at an annual or special meeting of stockholders and
stockholder action may not be taken by written consent in lieu of a meeting.
Special meetings of stockholders can be called only by the Board of Directors
pursuant to a resolution adopted by a majority of the Board of Directors, or by
the Chairman of the Board, Vice Chairman or the President. Moreover, the
business permitted to be conducted at any special meeting of stockholders is
limited to the business brought before the meeting pursuant to the notice of
meeting given by us.
The provisions of our certificate of incorporation and bylaws prohibiting
stockholder action by written consent and permitting special meetings to be
called only by the Chairman, Vice Chairman or President, or at the request of a
majority of the Board or Directors, may have the effect of delaying
consideration of a stockholder proposal until the next annual meeting. The
provisions would also prevent the holders of a majority of our voting stock from
unilaterally using the written consent procedure to take stockholder action.
Moreover, a stockholder could not force stockholder consideration of a proposal
over the opposition of the Chairman, Vice Chairman or President, or a majority
of the Board of Directors, by calling a special meeting of stockholders prior to
the time such parties believe such consideration to be appropriate.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER
PROPOSALS
Our bylaws establish an advance notice procedure for stockholders to make
nominations of candidates for election as directors or bring other business
before an annual meeting of stockholders.
The stockholder notice procedure provides that only persons who are
nominated by, or at the direction of, the Board of Directors, or by a
stockholder who has given timely written notice containing specified information
to our Secretary prior to the meeting at which directors are to be elected, will
be eligible for election as our directors. The stockholder notice procedure also
provides that at an annual meeting only such
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business may be conducted as has been brought before the meeting by, or at the
direction of, the Chairman of the Board of Directors, or in the absence of the
Chairman of the Board, the President, or by a stockholder who has given timely
written notice containing specified information to our Secretary of such
stockholder's intention to bring such business before such meeting. Under the
stockholder notice procedure, for notice of stockholder nominations or proposals
to be made at an annual meeting to be timely, such notice must be received by us
not less than 60 days nor more than 90 days in advance of such meeting. For
notice of stockholder nominations or proposals to be made at a special meeting
of stockholders to be timely, such notice must be received by us not later than
the close of business on the tenth day following the date on which notice of
such meeting is first given to stockholders. Notwithstanding the foregoing, in
the event that less than 70 days notice or prior public disclosure of the date
of the meeting of stockholders is given or made to the stockholders, to be
timely, notice of a nomination or proposal delivered by the stockholder must be
received by our Secretary not later than the close of business on the tenth day
following the day on which notice of the date of the meeting of stockholders was
mailed or such public disclosure was made to the stockholders. If the Board of
Directors or, alternatively, the presiding officer at a meeting, in the case of
a stockholder proposal, or the chairman of the meeting, in the case of a
stockholder nomination to the Board of Directors, determines at or prior to the
meeting that business was not brought before the meeting or a person was not
nominated in accordance with the stockholder notice procedure, such business
will not be conducted at such meeting, or such person will not be eligible for
election as a director, as the case may be.
By requiring advance notice of nominations by stockholders, the stockholder
notice procedure will afford the Board of Directors an opportunity to consider
the qualifications of the proposed nominees and, to the extent deemed necessary
or desirable by the Board of Directors, to inform stockholders about such
qualifications. By requiring advance notice of other proposed business, the
stockholder notice procedure will also provide a more orderly procedure for
conducting annual meetings of stockholders and, to the extent deemed necessary
or desirable by the Board of Directors, will provide the Board of Directors with
an opportunity to inform stockholders, prior to such meetings, of any business
proposed to be conducted at such meetings, together with any recommendations as
to the Board of Directors' position regarding action to be taken with respect to
such business, so that stockholders can better decide whether to attend such a
meeting or to grant a proxy regarding the disposition of any such business.
Although our bylaws do not give the Board of Directors any power to approve
or disapprove stockholder nominations for the election of directors or proposals
for action, they may have the effect of precluding a contest for the election of
directors or the consideration of stockholder proposals if the proper procedures
are not followed, and of discouraging or deterring a third party from conducting
a solicitation of proxies to elect its own slate of directors or to approve its
own proposal, without regard to whether consideration of such nominees or
proposals might be harmful or beneficial to us and our stockholders.
FAIR PRICE PROVISION
Our certificate of incorporation contains a "fair price" provision that
applies to certain business combination transactions involving any person,
entity or group that beneficially owns at least 10% of our aggregate voting
stock -- such person, entity or group is sometimes referred to as a "related
person". This provision requires the affirmative vote of the holders of not less
than 80% of our voting stock to approve certain transactions between a related
person and us or our subsidiaries, including:
- any merger, consolidation or share exchange;
- any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of our assets, or the assets of any of our subsidiaries
having a fair market value of more than 10% of our total consolidated
assets, or assets representing more than 10% of our earning power and our
subsidiaries taken as a whole (a "Substantial Part");
- any sale, lease, exchange, mortgage, pledge, transfer or other
disposition to or with us or any of our subsidiaries of all or a
Substantial Part of the assets of a related person;
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- the issuance or transfer of any of our securities or any of our
subsidiaries by us or any of our subsidiaries to a related person;
- any reclassification of securities, recapitalization, or any other
transaction involving us or any of our subsidiaries that would have the
effect of increasing the voting power of a related person;
- the adoption of a plan or proposal for our liquidation or dissolution
proposed by or on behalf of a related person;
- the acquisition by or on behalf of a related person of shares
constituting a majority of our voting power; and
- the entering into of any agreement, contract or other arrangement
providing for any of the transactions described above.
This voting requirement will not apply to certain transactions, including:
(a) any transaction approved by a two-thirds vote of the continuing
directors (as defined in our certificate of incorporation); or
(b) any transaction in which:
(1) the consideration to be received by the holders of common stock
(other than the related person involved in the business combination) is
not less in amount than the highest per share price paid by the related
person in acquiring any of its holdings of common stock; and
(2) if necessary, a proxy statement complying with the requirements
of the Securities Exchange Act of 1934 shall have been mailed at least
30 days prior to any vote on such business combination to all of our
stockholders for the purpose of soliciting stockholder approval of such
business combination.
This provision could have the effect of delaying or preventing a change in
control of us in a transaction or series of transactions that did not satisfy
the "fair price" criteria.
LIABILITY OF DIRECTORS; INDEMNIFICATION
Our certificate of incorporation provides that a director will not be
personally liable for monetary damages to us or our stockholders for breach of
fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- for paying a dividend or approving a stock repurchase in violation of
Section 174 of the Delaware General Corporation Law; or
- for any transaction from which the director derived an improper personal
benefit.
Any amendment or repeal of such provision shall not adversely affect any
right or protection of a director existing under such provision for any act or
omission occurring prior to such amendment or repeal.
Our bylaws provide that each person who at any time serves or served as one
of our directors or officers, or any person who, while one of our directors or
officers, is or was serving at our request as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise, shall be
entitled to indemnification and the advancement of expenses from us, and to the
fullest extent, permitted by Section 145 of the Delaware General Corporation Law
or any successor statutory provision. We will indemnify any person who was or is
a party to any threatened, pending or completed action, suit or proceeding
because he or she is or was one of our directors or officers, or is or was
serving at our request as a director or officer of another corporation,
partnership or other enterprise. However, as provided in Section 145, this
indemnification will only be provided
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if the indemnitee acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, our best interests.
AMENDMENTS
Our certificate of incorporation provides that we reserve the right to
amend, alter, change, or repeal any provision contained in our certificate of
incorporation, and all rights conferred to stockholders are granted subject to
such reservation. The affirmative vote of holders of not less than 80% of our
voting stock, voting together as a single class, shall be required to alter,
amend, adopt any provision inconsistent with or repeal certain provisions of our
certificate of incorporation, including those provisions discussed in this
section. In addition, the 80% vote described in the prior sentence shall not be
required for any alteration, amendment, adoption of inconsistent provision or
repeal of the "fair price" provision discussed under "-- Fair Price Provision"
above which is recommended to the stockholders by two-thirds of the continuing
directors of Lennox and such alteration, amendment, adoption of inconsistent
provision or repeal shall require the vote, if any, required under the
applicable provisions of the Delaware General Corporation Law and our
certificate of incorporation. In addition, our certificate of incorporation
provides that stockholders may only adopt, amend or repeal our bylaws by the
affirmative vote of holders of not less than 80% of our voting stock, voting
together as a single class. Our bylaws may be amended by our Board of Directors.
RIGHTS TO PURCHASE SECURITIES AND OTHER PROPERTY
Our certificate of incorporation authorizes the Board of Directors to
create and issue rights, warrants and options entitling the holders thereof to
purchase from us shares of any class or classes of our capital stock or other
securities or property upon such terms and conditions as the Board of Directors
may deem advisable.
LISTING
Application will be made to list the common stock on the New York Stock
Exchange under the symbol "LII".
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is ChaseMellon
Shareholder Services, L.L.C.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to the offering, there has been no public market for our common
stock. Future sales of substantial amounts of common stock in the public market
could adversely affect prevailing market prices.
Upon completion of the offering, we will have shares of common stock
issued and outstanding, or shares if the underwriters' over-allotment
option is exercised in full. Of these shares, the shares of common stock
to be sold in the offering will be freely tradable without restrictions or
further registration under the Securities Act of 1933, as amended, except that
shares purchased by an "affiliate" of ours (as that term is defined in Rule 144
under the Securities Act of 1933, as amended) will be subject to the resale
limitations of Rule 144. The remaining shares of common stock outstanding
will be "restricted securities" as that term is defined by Rule 144.
In general, under Rule 144 as currently in effect, if a period of at least
one year has elapsed after the later of the date on which "restricted" shares
were acquired from us or the date on which they were acquired from an
"affiliate," then the holder of such shares, including an affiliate, is entitled
to sell a number of shares within any three-month period that does not exceed
the greater of:
- one percent of the then outstanding shares of the common stock; or
- the average weekly reported volume of trading of the common stock during
the four calendar weeks preceding such sale.
Sales under Rule 144 are also subject to certain requirements pertaining to
the manner of such sales, notices of such sales and the availability of current
public information concerning Lennox. Affiliates may sell shares not
constituting "restricted" shares in accordance with the foregoing volume
limitations and other requirements but without regard to the one-year period.
Under Rule 144(k), if a period of at least two years has elapsed between the
later of the date on which "restricted" shares were acquired from us and the
date on which they were acquired from an affiliate, a holder of such shares who
is not an affiliate at the time of the sale and has not been an affiliate for at
least three months prior to the sale would be entitled to sell the shares
immediately without regard to the volume limitations and other conditions
described above. The foregoing description of Rule 144 is not intended to be a
complete description thereof.
Sales of significant amounts of the common stock, or the perception that
such sales could occur, could have an adverse impact on the market price of the
common stock. We, our directors and executive officers, the selling stockholders
and certain other stockholders have agreed that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, such
person will not, during the period ending 180 days after the date of this
prospectus:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock;
whether any such transaction described above is to be settled by delivery of
common stock or such other securities, in cash or otherwise; provided, however,
that any such person or entity shall be permitted to make a bona fide gift of
shares of common stock during such period if such person or entity delivers to
Morgan Stanley & Co. Incorporated an agreement substantially similar to the
above executed by the donee.
The restrictions described in the previous paragraph do not apply to
- the sale of the shares of common stock to the underwriters;
- transactions by any person other than Lennox relating to shares of common
stock or other securities acquired in open market transactions after
completion of the offering; or
- the issuance or sale of shares of common stock pursuant to our stock
option plans existing on the date of consummation of the offering.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES FOR NON-U.S. HOLDERS
The following is a summary of certain material U.S. federal income and
estate tax consequences expected to result under current law from the purchase,
ownership and taxable disposition of common stock by a Non-U.S. Holder. For this
purpose, a "Non-U.S. Holder" is defined as a person or entity other than:
(a) a citizen or resident of the U.S.;
(b) a corporation, partnership or other entity created or organized in
or under the laws of the U.S. or of any state thereof;
(c) an estate, the income of which is subject to U.S. federal income
taxation regardless of its source; or
(d) a trust whose administration is subject to the primary supervision
of a U.S. court and which has one or more U.S. persons who have the
authority to control all substantial decisions of the trust.
This summary deals only with purchasers of common stock who hold common
stock as capital assets and does not address all of the U.S. federal income and
estate tax considerations that may be relevant to a Non-U.S. Holder in light of
its particular circumstances or to Non-U.S. Holders that may be subject to
special treatment under U.S. federal income tax laws, such as insurance
companies, tax-exempt organizations, financial institutions, brokers, dealers in
securities, regulated investment companies, common trust funds, or persons that
hold common stock as part of a hedge, conversion or constructive sale
transaction, straddle or other risk reduction transaction. Furthermore, this
summary does not discuss any aspects of state, local or foreign taxation. This
summary is based on current provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury regulations, judicial opinions, published
positions of the U.S. Internal Revenue Service and other applicable authorities,
all of which are subject to change, possibly with retroactive effect. Each
prospective purchaser of common stock is advised to consult its tax advisor with
respect to the tax consequences of acquiring, holding and disposing of common
stock.
DIVIDENDS
Dividends paid to a Non-U.S. Holder of common stock generally will be
subject to withholding of U.S. federal income tax at a 30 percent rate (or such
lower rate as may be specified by an applicable income tax treaty) unless the
dividends are effectively connected with the conduct of a trade or business of
the Non-U.S. Holder within the U.S. (and, if an income tax treaty applies, such
dividends are attributable to a U.S. permanent establishment of the Non-U.S.
Holder) and the Non-U.S. Holder provides the payor with proper documentation
(generally I.R.S. Form 4224 or any successor form), in which case the dividends
will be taxed at ordinary U.S. federal income tax rates and will not be subject
to the withholding tax described above. If the Non-U.S. Holder is a corporation,
such effectively connected income may also be subject to an additional "branch
profits tax" which is imposed, under certain circumstances, at a rate of 30% (or
such lower rate as may be specified by an applicable treaty) of the Non-U.S.
corporation's "effectively connected earnings and profits," subject to certain
adjustments.
SALE OR DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
in respect of any gain recognized on the sale or other taxable disposition of
common stock unless:
- the gain is effectively connected with a trade or business of the
Non-U.S. Holder in the U.S.;
- in the case of a Non-U.S. Holder who is an individual and holds the
common stock as a capital asset, the holder is present in the U.S. for
183 or more days in the taxable year of the disposition and either (a)
the individual has a "tax home" for U.S. federal income tax purposes in
the U.S. or (b) the gain is attributable to an office or other fixed
place of business maintained by the individual in the U.S.;
- the Non-U.S. Holder is subject to tax pursuant to the provisions of U.S.
federal income tax law applicable to certain U.S. expatriates; or
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- Lennox is or has been during certain periods preceding the disposition a
U.S. real property holding corporation and either (a) the common stock
ceases to be "regularly traded on an established securities market" for
U.S. federal income tax purposes or (b) the Non-U.S. Holder has held,
directly or indirectly, at any time during the five-year period ending on
the date of disposition (or, if shorter, the Non-U.S. Holder's holding
period), more than 5 percent of all of Lennox's outstanding common stock.
Lennox is not, and does not anticipate becoming, a U.S. real property
holding corporation.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Lennox must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to such holder and the amount, if any, of tax withheld
with respect to such dividends. This information may also be made available to
the tax authorities in the Non-U.S. Holder's country of residence.
U.S. backup withholding (which generally is a withholding tax imposed at
the rate of 31% on certain payments to persons that fail to furnish certain
information under the U.S. information reporting requirements) generally will
not apply to dividends paid to Non-U.S. Holders if such dividends are subject to
the 30% withholding discussed above (or that are not so subject because a tax
treaty applies that reduces or eliminates such 30% withholding). In the case of
dividends which are not described in the preceding sentence, backup withholding
would still not apply (a) under current law, if such dividends are paid before
January 1, 2000 to a Non-U.S. Holder at an address outside the U.S. or (b) under
recently promulgated final U.S. Treasury regulations which are to become
effective as of January 1, 2000, if certain certification procedures (or, in the
case of payments made outside the U.S. with respect to an offshore account,
certain documentary evidence procedures) are satisfied.
Upon the sale or other taxable disposition of common stock by a Non-U.S.
Holder to or through a U.S. office of a broker, the broker must backup withhold
at a rate of 31 percent and report the sale to the IRS, unless the holder
certifies its non-U.S. status under penalties of perjury or otherwise
establishes an exemption. Upon the sale or other taxable disposition of common
stock by a Non-U.S. Holder to or through the foreign office of a U.S. broker, or
a foreign broker with certain types of relationships to the U.S., the broker
must report the sale to the IRS (but, prior to January 1, 2000, is not required
to backup withhold) unless the broker has documentary evidence in its files that
the seller is a Non-U.S. Holder and certain other conditions are met, or the
holder otherwise establishes an exemption. A sale or other taxable disposition
of common stock by a Non-U.S. Holder to or through the foreign office of a
foreign broker that does not have certain types of relationships to the U.S. is
generally not subject to either information reporting or backup withholding.
Backup withholding is not an additional U.S. federal income tax. Amounts
withheld under the backup withholding rules are generally allowable as a refund
or credit against such Non-U.S. Holder's U.S. federal income tax liability, if
any, provided that the required information is furnished to the IRS.
FEDERAL ESTATE TAXES
Common stock owned or treated as owned by an individual who is not a
citizen or resident (as specially defined for U.S. federal estate tax purposes)
of the U.S. at the time of death will be included in such individual's gross
estate for U.S. federal estate tax purposes, unless an applicable estate tax
treaty provides otherwise.
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UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the U.S.
underwriters named below, for whom Morgan Stanley & Co. Incorporated, Credit
Suisse First Boston Corporation and Warburg Dillon Read LLC are acting as U.S.
representatives, and the international underwriters named below, for whom Morgan
Stanley & Co. International Limited, Credit Suisse First Boston (Europe) Limited
and UBS AG, acting through its division Warburg Dillon Read, are acting as
international representatives, have severally agreed to purchase, and Lennox and
the selling stockholders have agreed to sell to them, severally, the respective
number of shares of common stock set forth opposite the names of such
underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.........................
Credit Suisse First Boston Corporation....................
Warburg Dillon Read LLC, a subsidiary of UBS AG...........
Subtotal..........................................
--------
International Underwriters:
Morgan Stanley & Co. International Limited................
Credit Suisse First Boston (Europe) Limited...............
UBS AG, acting through its division Warburg Dillon Read...
Subtotal..........................................
--------
Total.............................................
========
</TABLE>
The U.S. underwriters and the international underwriters are collectively
referred to as the "underwriters", and the U.S. representatives and the
international representatives are collectively referred to as the
"representatives". The underwriters are offering the shares subject to their
acceptance of the shares from us and the selling stockholders and subject to
prior sale. The Underwriting Agreement provides that the
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obligations of the several underwriters to pay for and accept delivery of the
shares of common stock offered hereby are subject to the approval of certain
legal matters by their counsel and to certain other conditions. The underwriters
are obligated to take and pay for all of the shares of our common stock offered
hereby, other than those covered by the U.S. underwriters' over-allotment option
described below, if any such shares are taken.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. underwriter has represented and agreed that, with certain exceptions:
- it is not purchasing any shares (as defined herein) for the account of
anyone other than a U.S. or Canadian Person (as defined herein); and
- it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares or distribute any prospectus relating to the
shares outside the U.S. or Canada or to anyone other than a U.S. or
Canadian Person.
Pursuant to the Agreement between U.S. and International Underwriters, each
international underwriter has represented and agreed that, with certain
exceptions:
- it is not purchasing any shares for the account of any U.S. or Canadian
Person; and
- it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares or distribute any prospectus relating to the
shares in the U.S. or Canada or to any U.S. or Canadian Person.
With respect to any underwriter that is a U.S. underwriter and an
international underwriter, the foregoing representations and agreements made by
it in its capacity as a U.S. underwriter apply only to it in its capacity as a
U.S. underwriter and made by it in its capacity as an international underwriter
apply only to it in its capacity as an international underwriter. The foregoing
limitations do not apply to stabilization transactions or to certain other
transactions specified in the Agreement between U.S. and International
Underwriters. As used herein, "U.S. or Canadian Person" means any national or
resident of the U.S. or Canada, or any corporation, pension, profit-sharing or
other trust or other entity organized under the laws of the U.S. or Canada or of
any political subdivision thereof (other than a branch located outside the U.S.
and Canada of any U.S. or Canadian Person), and includes any U.S. or Canadian
branch of a person who is otherwise not a U.S. or Canadian Person. All shares of
common stock to be purchased by the Underwriters under the Underwriting
Agreement are referred to herein as the "shares".
Pursuant to the Agreement between U.S. and International Underwriters,
sales may be made between the U.S. underwriters and international underwriters
of any number of shares as may be mutually agreed. The per share price of any
shares so sold shall be the public offering price set forth on the cover page
hereof, in U.S. dollars, less an amount not greater than the per share amount of
the concession to dealers set forth below.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any shares, directly or indirectly, in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and has
represented that any offer or sale of shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer or sale is made. Each U.S.
underwriter has further agreed to send to any dealer who purchases from it any
of the shares a notice stating in substance that, by purchasing such shares,
such dealer represents and agrees that it has not offered or sold, and will not
offer or sell, directly or indirectly, any of such shares in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and that
any offer or sale of shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the province or territory of Canada
in which such offer or sale is made, and that such dealer will deliver to any
other dealer to whom it sells any of such shares a notice containing
substantially the same statement as is contained in this sentence.
72
<PAGE> 76
Pursuant to the Agreement between U.S. and International Underwriters, each
international underwriter has represented and agreed that:
- it has not offered or sold and, prior to the date six months after the
closing date for the sale of the shares to the international
underwriters, will not offer or sell, any shares to persons in the United
Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments, as principal or
agent, for the purposes of their businesses or otherwise in circumstances
which have not resulted and will not result in an offer to the public in
the United Kingdom within the meaning of the Public Offers of Securities
Regulations 1995;
- it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the shares in, from or otherwise involving the United
Kingdom; and
- it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the
offering of the shares to a person who is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 (as amended) or is a person to whom such document
may otherwise lawfully be issued or passed on.
Pursuant to the Agreement between U.S. and International Underwriters, each
international underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell, directly or indirectly, in Japan or
to or for the account of any resident thereof, any of the shares acquired in
connection with the distribution contemplated hereby, except for offers or sales
to Japanese international underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law. Each
international underwriter has further agreed to send to any dealer who purchases
from it any of the shares a notice stating in substance that, by purchasing such
shares, such dealer represents and agrees that it has not offered or sold, and
will not offer or sell, any of such shares, directly or indirectly, in Japan or
to or for the account of any resident thereof except for offers or sales to
Japanese international underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law, and that
such dealer will send to any other dealer to whom it sells any of such shares a
notice containing substantially the same statement as is contained in this
sentence.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price that represents a concession
not in excess of $ a share under the public offering price. Any underwriter
may allow, and such dealers may reallow, a concession not in excess of $ a
share to other underwriters or to certain dealers. After the initial offering of
the shares of common stock, the offering price and other selling terms may from
time to time be varied by the representatives.
Lennox has granted to the U.S. underwriters an option, exercisable for 30
days from the date of this prospectus, to purchase up to an aggregate of
additional shares of common stock at the public offering price set forth on the
cover page hereof, less underwriting discounts and commissions. The U.S.
underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, made in connection with the offering of the shares of
common stock offered hereby. To the extent such option is exercised, each U.S.
underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares of common stock as
the number set forth next to such U.S. underwriter's name in the preceding table
bears to the total number of shares of common stock set forth next to the names
of all U.S. underwriters in the preceding table. If the U.S. underwriters'
option is exercised in full, the total price to the public for this offering
would be $ , the total underwriters' discounts and commissions would be
$ and the total proceeds to Lennox would be $ .
At the request of Lennox, the underwriters have reserved for sale, at the
initial public offering price, up to shares offered hereby for directors,
officers, employees, business associates and related persons of Lennox. The
number of shares of common stock available for sale to the general public will
be reduced to the extent such
73
<PAGE> 77
persons purchase such reserved shares. Any reserved shares which are not so
purchased will be offered by the underwriters to the general public on the same
basis as the other shares offered hereby.
The underwriters have informed Lennox that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
Application will be made to list the common stock on the New York Stock
Exchange under the symbol "LII."
Each of Lennox, its directors and executive officers, the selling
stockholders and certain other stockholders has agreed that, without the prior
written consent of Morgan Stanley & Co. Incorporated on behalf of the
underwriters, it will not, during the period ending 180 days after the date of
this prospectus:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock;
whether any such transaction described above is to be settled by delivery of
common stock or such other securities, in cash or otherwise; provided, however,
that any such person or entity shall be permitted to make a bona fide gift of
shares of common stock during such period if such person or entity delivers to
Morgan Stanley & Co. Incorporated an agreement substantially similar to the
above executed by the donee.
The restrictions described in the previous paragraph do not apply to:
- the sale of the shares to the underwriters;
- transactions by any person other than Lennox relating to shares of common
stock or other securities acquired in open market transactions after the
completion of the offering; or
- the issuance or sale of shares of common stock pursuant to Lennox stock
option plans existing on the date of consummation of the offering.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may agree to sell, or
allot, more shares than the shares of common stock Lennox has agreed to
sell to them. This over-allotment would create a short position in the common
stock for the underwriters' account. To cover any over-allotments or to
stabilize the price of the common stock, the underwriters may bid for, and
purchase, shares of common stock in the open market. Finally, the underwriting
syndicate may reclaim selling concessions allowed to an underwriter or a dealer
for distributing the common stock in the offering, if the syndicate repurchases
previously distributed common stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. The underwriters have
reserved the right to reclaim selling concessions in order to encourage
underwriters and dealers to distribute the common stock for investment, rather
than for short-term profit taking. Increasing the proportion of the offering
held for investment may reduce the supply of common stock available for
short-term trading. Any of these activities may stabilize or maintain the market
price of the common stock above independent market levels. The underwriters are
not required to engage in these activities, and may end any of these activities
at any time.
Lennox, the selling stockholders and the underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act of 1933, as amended.
An affiliate of Credit Suisse First Boston Corporation was a participant
bank in Lennox's revolving credit facility which expired in June 1998. Such
affiliate currently has issued approximately $20 million in letters of credit on
behalf of Lennox, all but $1 million of which expired in December 1998. Such
affiliate has received customary banking fees for such services. In addition,
Warburg Dillon Read LLC has provided certain
74
<PAGE> 78
investment banking services and has acted as placement agent for Lennox's
private placements of debt securities in 1993 and 1998, for which services they
received customary fees in connection therewith.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiations
between Lennox and the U.S. representatives. Among the factors to be considered
in determining the initial public offering price will be the future prospects of
Lennox and its industry in general, sales, earnings and certain other financial
operating information of Lennox in recent periods, and the price-earnings
ratios, price-sales ratios, market prices of securities and certain financial
and operating information of companies engaged in activities similar to those of
Lennox. The estimated initial public offering price range set forth on the cover
page of this prospectus is subject to change as a result of market conditions
and other factors.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered by this
prospectus will be passed upon for us by Baker & Botts, L.L.P., Dallas, Texas.
Certain legal matters in connection with the sale of the common stock offered
hereby will be passed upon for the underwriters by Fulbright & Jaworski L.L.P.,
Houston, Texas.
EXPERTS
Our financial statements and schedule as of December 31, 1997 and 1998 and
for each of the three years in the period ended December 31, 1998 included in
this prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, a registration statement on Form S-1 under the Securities Act of 1933, as
amended, with respect to the common stock offered hereby. This prospectus does
not contain all of the information set forth in the registration statement and
the exhibits and schedules thereto. Certain items are omitted in accordance with
the rules and regulations of the SEC. For further information with respect to
Lennox and the common stock, reference is made to the registration statement and
the exhibits and any schedules filed therewith. Statements contained in this
prospectus as to the contents of any contract or other document referred to are
not necessarily complete and in each instance, if such contract or document is
filed as an exhibit, reference is made to the copy of such contract or other
documents filed as an exhibit to the registration statement, each statement
being qualified in all respects by such reference. A copy of the registration
statement, including the exhibits and schedules thereto, may be read and copied
at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. Information on the operation of the Public Reference Room may be obtained
by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet
site at http://www.sec.gov, from which interested persons can electronically
access the registration statement, including the exhibits and any schedules
thereto.
As a result of the offering, we will become subject to the full
informational requirements of the Securities Exchange Act of 1934, as amended.
We will fulfill our obligations with respect to such requirements by filing
periodic reports and other information with the SEC. We intend to furnish our
shareholders with annual reports containing consolidated financial statements
certified by an independent public accounting firm.
75
<PAGE> 79
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ANNUAL FINANCIAL STATEMENTS OF LENNOX INTERNATIONAL INC.
Report of Independent Public Accountants.................. F-2
Consolidated Balance Sheets as of December 31, 1997 and
1998................................................... F-3
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1997 and 1998....................... F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1996, 1997 and 1998........... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998....................... F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>
F-1
<PAGE> 80
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Lennox International Inc.:
We have audited the accompanying consolidated balance sheets of Lennox
International Inc. (a Delaware corporation) and Subsidiaries as of December 31,
1997 and 1998, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended December
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 financial position of Lennox International Inc.
and Subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
February 18, 1999
F-2
<PAGE> 81
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------
1997 1998
-------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $147,802 $ 28,389
Accounts and notes receivable, net........................ 273,229 318,858
Inventories............................................... 183,077 274,679
Deferred income taxes..................................... 51,137 37,426
Other assets.............................................. 15,260 36,183
-------- ----------
Total current assets.............................. 670,505 695,535
INVESTMENTS IN JOINT VENTURES............................... 14,803 17,261
PROPERTY, PLANT, AND EQUIPMENT, net......................... 215,333 255,125
GOODWILL, net............................................... 42,620 155,290
OTHER ASSETS................................................ 27,631 29,741
-------- ----------
TOTAL ASSETS...................................... $970,892 $1,152,952
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt........................................... $ 6,021 $ 56,070
Current maturities of long-term debt...................... 8,926 18,778
Accounts payable.......................................... 104,679 149,824
Accrued expenses.......................................... 210,668 207,040
Income taxes payable...................................... 4,320 534
-------- ----------
Total current liabilities......................... 334,614 432,246
LONG-TERM DEBT.............................................. 183,583 242,593
DEFERRED INCOME TAXES....................................... 2,690 11,628
POSTRETIREMENT BENEFITS, OTHER THAN PENSIONS................ 17,288 16,511
OTHER LIABILITIES........................................... 92,471 60,845
-------- ----------
Total liabilities................................. 630,646 763,823
-------- ----------
MINORITY INTEREST........................................... 14,768 12,689
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 25,000,000 shares
authorized, no shares issued or outstanding............ -- --
Common stock, $.01 par value, 200,000,000 shares
authorized, 1,042,648 shares and 1,077,180 shares
issued and outstanding for 1997 and 1998,
respectively........................................... 10 11
Additional paid-in capital................................ 19,594 33,233
Retained earnings......................................... 309,610 350,851
Currency translation adjustments.......................... (3,736) (7,655)
-------- ----------
Total stockholders' equity........................ 325,478 376,440
-------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $970,892 $1,152,952
======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 82
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
NET SALES................................................ $1,364,546 $1,444,442 $1,821,836
COST OF GOODS SOLD....................................... 961,696 1,005,913 1,245,623
---------- ---------- ----------
Gross profit................................... 402,850 438,529 576,213
OPERATING EXPENSES:
Selling, general and administrative.................... 298,049 326,280 461,143
Other operating expense, net........................... 4,213 7,488 8,467
Product inspection charge.............................. -- 140,000 --
---------- ---------- ----------
Income (loss) from operations.................. 100,588 (35,239) 106,603
INTEREST EXPENSE, net.................................... 13,417 8,515 16,184
OTHER.................................................... (943) 1,955 1,602
MINORITY INTEREST........................................ -- (666) (869)
---------- ---------- ----------
Income (loss) before income taxes.............. 88,114 (45,043) 89,686
PROVISION (BENEFIT) FOR INCOME TAXES..................... 33,388 (11,493) 37,161
---------- ---------- ----------
Net income (loss).............................. $ 54,726 $ (33,550) $ 52,525
========== ========== ==========
EARNINGS (LOSS) PER SHARE:
Basic.................................................. $ 53.60 $ (32.64) $ 49.65
Diluted................................................ $ 52.52 $ (32.64) $ 48.50
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 83
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
----------------------
SHARES ADDITIONAL CURRENCY TOTAL
ISSUED AND PAID-IN RETAINED TRANSLATION STOCKHOLDERS' COMPREHENSIVE
OUTSTANDING AMOUNT CAPITAL EARNINGS ADJUSTMENTS EQUITY INCOME
----------- -------- ---------- -------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995....... 998,665 $ 10 $ 4,078 $313,044 $(1,819) $315,313 $ --
Net income....................... -- -- -- 54,726 -- 54,726 54,726
Dividends, $8.66 per share....... -- -- -- (8,845) -- (8,845) --
Stock dividend -- 2%............. 19,991 -- 6,097 (6,097) -- -- --
Foreign currency translation
adjustments.................... -- -- -- -- (156) (156) (156)
Common stock repurchased......... (4,177) -- (1,460) -- -- (1,460) --
Common stock issued.............. 6,816 -- 1,886 -- -- 1,886 --
--------
Comprehensive income............. -- -- -- -- -- -- 54,570
--------- -------- ------- -------- ------- -------- ========
BALANCE AT DECEMBER 31, 1996....... 1,021,295 10 10,601 352,828 (1,975) 361,464 --
Net loss......................... -- -- -- (33,550) -- (33,550) (33,550)
Dividends, $9.38 per share....... -- -- -- (9,668) -- (9,668) --
Foreign currency translation
adjustments.................... -- -- -- -- (1,761) (1,761) (1,761)
Common stock repurchased......... (11,180) -- (4,892) -- -- (4,892) --
Common stock issued.............. 32,533 -- 13,885 -- -- 13,885 --
--------
Comprehensive income (loss)...... -- -- -- -- -- -- (35,311)
--------- -------- ------- -------- ------- -------- ========
BALANCE AT DECEMBER 31, 1997....... 1,042,648 10 19,594 309,610 (3,736) 325,478 --
Net income....................... -- -- -- 52,525 -- 52,525 52,525
Dividends, $10.62 per share...... -- -- -- (11,284) -- (11,284) --
Foreign currency translation
adjustments.................... -- -- -- -- (3,919) (3,919) (3,919)
Common stock repurchased......... (15,321) -- (8,510) -- -- (8,510) --
Common stock issued.............. 49,853 1 22,149 -- -- 22,150 --
--------
Comprehensive income............. -- -- -- -- -- -- $ 48,606
--------- -------- ------- -------- ------- -------- ========
BALANCE AT DECEMBER 31, 1998....... 1,077,180 $ 11 $33,233 $350,851 $(7,655) $376,440
========= ======== ======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 84
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1996 1997 1998
--------- --------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 54,726 $(33,550) $ 52,525
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Minority interest.................................... -- (666) (869)
Joint venture losses................................. 1,118 1,782 3,111
Depreciation and amortization........................ 34,149 33,430 43,545
Loss (gain) on disposal of equipment................. 1,315 (251) 570
Deferred income taxes................................ (5,103) (42,195) 26,424
Other................................................ (962) 2,112 (130)
Changes in assets and liabilities, net of effects of
acquisitions:
Accounts and notes receivable........................ 13,269 (25,878) (20,567)
Inventories.......................................... 28,539 17,258 (52,445)
Other current assets................................. (3,239) 3,622 (4,739)
Accounts payable..................................... (3,018) (4,774) 29,851
Accrued expenses..................................... 38,774 64,400 (17,040)
Income taxes payable and receivable.................. 4,166 (2,361) (18,610)
Long-term warranty, deferred income and other
liabilities....................................... (4,890) 45,557 (36,662)
-------- -------- ---------
Net cash provided by operating activities......... 158,844 58,486 4,964
-------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the disposal of property, plant and
equipment.............................................. 547 4,205 538
Purchases of property, plant and equipment................ (31,903) (34,581) (52,435)
Investments in joint ventures............................. (23,395) (3,735) (458)
Acquisitions, net of cash acquired........................ -- (10,527) (160,063)
Proceeds from the sale of businesses...................... 17,633 -- --
-------- -------- ---------
Net cash used in investing activities............. (37,118) (44,638) (212,418)
-------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings..................................... -- (3,732) 36,724
Repayments of long-term debt.............................. (34,588) (5,712) (12,499)
Long-term borrowings...................................... -- 5,572 75,044
Sales of common stock..................................... 630 729 9,607
Repurchases of common stock............................... (1,460) (4,892) (8,510)
Cash dividends paid....................................... (8,560) (9,312) (10,820)
-------- -------- ---------
Net cash provided by (used in) financing
activities...................................... (43,978) (17,347) 89,546
-------- -------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 77,748 (3,499) (117,908)
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS....... 318 (576) (1,505)
CASH AND CASH EQUIVALENTS, beginning of year................ 73,811 151,877 147,802
-------- -------- ---------
CASH AND CASH EQUIVALENTS, end of year...................... $151,877 $147,802 $ 28,389
======== ======== =========
Supplementary disclosures of cash flow information:
Cash paid during the year for:
Interest............................................... $ 18,481 $ 15,016 $ 20,351
======== ======== =========
Income taxes........................................... $ 34,198 $ 33,938 $ 29,347
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 85
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
1. NATURE OF OPERATIONS:
Lennox International Inc. and subsidiaries (the "Company"), a Delaware
corporation, is a global designer, manufacturer, and marketer of a broad range
of products for the heating, ventilation, air conditioning, and refrigeration
("HVACR") markets. The Company participates in four reportable business segments
of the HVACR industry. The first is North American residential heating, air
conditioning and hearth products in which the Company manufactures and markets a
full line of these products for the residential replacement and new construction
markets in North America. The second reportable segment is the global commercial
air conditioning market in which the Company manufactures and sells rooftop
products and applied systems for commercial applications. The third is the
global commercial refrigeration market which consists of unit coolers,
condensing units and other commercial refrigeration products. The fourth
reportable segment is heat transfer products in which the Company designs,
manufactures and sells evaporator and condenser coils, copper tubing, and
related equipment to original equipment manufacturers ("OEMs") and other
specialty purchasers on a global basis. See Note 4 for financial information
regarding the Company's reportable segments.
The Company sells its products to numerous types of customers, including
distributors, installing dealers, national accounts and OEMs.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Lennox
International Inc. and its subsidiaries. All intercompany transactions and
balances have been eliminated. Investments in joint ventures where the Company
has a 50% or less ownership interest are being accounted for using the equity
method of accounting.
As discussed in Note 7, the Company increased its ownership in Ets.
Brancher from 50% to 70% in September 1997. As a result, the Company assumed
control of the venture and began consolidating the financial position and
results of operations in the fourth quarter of 1997. Previously, the Company
used the equity method of accounting for its investment in this entity.
CASH EQUIVALENTS
The Company considers all highly liquid temporary investments with original
maturity dates of three months or less to be cash equivalents. Cash equivalents
consist of investment grade securities and are stated at cost which approximates
fair value. The Company earned interest income of $4.8 million, $6.4 million and
$4.5 million for the years ended December 31, 1996, 1997 and 1998, respectively,
which is included in interest expense, net on the accompanying consolidated
statements of income.
ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable have been shown net of an allowance for
doubtful accounts of $16.9 million and $18.5 million as of December 31, 1997 and
1998, respectively. The Company has no significant credit risk concentration
among its diversified customer base.
INVENTORIES
Inventory costs include applicable material, labor, depreciation, and plant
overhead. Inventories of $125.5 million and $169.6 million in 1997 and 1998,
respectively, are valued at the lower of cost or market using the last-in,
first-out (LIFO) cost method. The remaining portion of the inventory is valued
at the lower of cost or market with cost being determined on the first-in,
first-out (FIFO) basis.
F-7
<PAGE> 86
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Expenditures for renewals
and betterments are capitalized, and expenditures for maintenance and repairs
are charged to expense as incurred. Gains and losses resulting from the
dispositions of property, plant and equipment are included in other operating
expense. Depreciation is computed using the straight-line method over the
following estimated useful lives:
<TABLE>
<S> <C>
Land and improvements....................................... 10 to 20 years
Buildings and improvements.................................. 15 to 39 years
Machinery and equipment..................................... 3 to 10 years
</TABLE>
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets have been recorded based on their fair
value at the date of acquisition and are being amortized on a straight-line
basis over periods generally ranging from thirty to forty years. As of December
31, 1997 and 1998, accumulated amortization was $26.5 million and $34.4 million,
respectively.
Goodwill and other long-lived assets are periodically reviewed for
impairment by comparing the carrying value of the assets to the estimated
undiscounted future cash flows associated with them. If such evaluations
indicated that the future undiscounted cash flows of certain long-lived assets
were not sufficient to recover the carrying value of such assets, the assets
would be adjusted to their fair values. As a result of these periodic reviews,
there have been no adjustments to the carrying value of long-lived assets in
1996, 1997 and 1998.
PRODUCT WARRANTIES
A liability for estimated warranty expense is established by a charge
against operations at the time products are sold. The subsequent costs incurred
for warranty claims serve to reduce the product warranty liability. The actual
warranty costs the Company will ultimately pay could differ materially from this
estimate.
Total liabilities for estimated warranty expense are $155.7 million and
$83.2 million as of December 31, 1997 and 1998, respectively, and are included
in the following captions on the accompanying consolidated balance sheets (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
-------- -------
<S> <C> <C>
Current accrued expenses................................. $ 94,042 $48,467
Other non-current liabilities............................ 61,617 34,707
-------- -------
$155,659 $83,174
======== =======
</TABLE>
Liabilities for estimated warranty expense as of December 31, 1997 and
1998, include approximately $113.4 million and $27.3 million, respectively, in
remaining estimated liabilities associated with a product inspection program
initiated in 1997 (see Note 3).
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled.
F-8
<PAGE> 87
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
REVENUE RECOGNITION
Sales are recorded when products are shipped or when services are rendered.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs are expensed as incurred. The Company
expended approximately $23.2 million, $25.4 million, and $33.3 million for the
years ended December 31, 1996, 1997, and 1998, respectively, for research and
product development activities. Research and development costs are included in
selling, general and administrative expense on the accompanying consolidated
statements of income.
ADVERTISING
Production costs of commercials and programming are charged to operations
in the period first aired. The costs of other advertising, promotion and
marketing programs are charged to operations in the period incurred. Advertising
expense was $36.4 million, $37.9 million, and $50.2 million for the years ended
December 31, 1996, 1997, and 1998, respectively.
TRANSLATION OF FOREIGN CURRENCIES
All assets and liabilities of foreign subsidiaries and joint ventures are
translated into United States dollars using rates of exchange in effect at the
balance sheet date. Revenues and expenses are translated at average exchange
rates during the respective years. The unrealized translation gains and losses
are accumulated in a separate component of stockholders' equity. Transaction
gains (losses) included in the accompanying statements of income were $943,000,
$(1,955,000), and $(1,602,000) for the years ended December 31, 1996, 1997, and
1998, respectively.
FOREIGN CURRENCY CONTRACTS
The Company has entered into foreign currency exchange contracts to hedge
its investment in Ets. Brancher S.A. (see Note 7) and not to engage in currency
speculation. These contracts do not subject the Company to risk from exchange
rate movements because the gains or losses on the contracts offset the losses or
gains, respectively, on the assets and liabilities of the subsidiary. As of
December 31, 1998, the Company had 165.5 million French francs (approximately
$30.0 million) outstanding under these contracts.
These contracts require the Company to exchange French francs for U.S.
dollars at maturity (May 2003), at rates agreed to at inception of the
contracts. If the counterparty to the exchange contracts does not fulfill their
obligations to deliver the contracted currencies, the Company could be at risk
for any currency related fluctuations. The gains and losses associated with
these contracts, net of tax, are recorded as a component of currency translation
adjustments on the accompanying 1996, 1997 and 1998 consolidated statements of
stockholders' equity.
The Company from time to time enters into foreign currency exchange
contracts to hedge receivables from its foreign subsidiaries, and not to engage
in currency speculation. These contracts do not subject the Company to risk from
exchange rate movements because the gains or losses on the contracts offset
losses or gains, respectively, on the receivables being hedged. As of December
31, 1998, the Company had obligations to deliver $33.2 million of various
foreign currencies within the next three months, for which the counterparties to
the contracts will pay fixed contract amounts.
F-9
<PAGE> 88
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PURCHASE COMMITMENTS
The Company has contracts with various suppliers to purchase copper and
aluminum for use in its manufacturing processes. These contracts, which vary
from one to thirty-six months, cover fixed quantities at fixed and floating
prices. As of December 31, 1998, the Company had forward commitments for
delivery through December 31, 1999, for approximately 9.4 million pounds of
aluminum and 8.5 million pounds of copper.
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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.
3. PRODUCT INSPECTION CHARGE
During 1997, the Company recorded a pre-tax charge of $140.0 million to
provide for projected expenses of the product inspection program related to its
Pulse furnace. The Company has offered the owners of Pulse furnaces installed
between 1982 and 1990 a subsidized inspection and a free carbon monoxide
detector. The inspection includes a severe pressure test to determine the
serviceability of the heat exchanger. If the heat exchanger does not pass the
test, the Company will either replace the heat exchanger or offer a new furnace
and subsidize the labor costs for installation. The cost required for the
program depends on the number of furnaces located, the percentage of those
located that do not pass the pressure test, and the replacement option chosen by
the homeowner.
As of December 31, 1998, the Company had incurred approximately $112.7
million in costs related to the product inspection program. Consequently, there
is a current liability of $27.3 million recorded on the accompanying
consolidated balance sheet as of December 31, 1998, to accrue for the estimated
remaining costs of the program. The product inspection program ends in June 1999
and the Company believes its current liability of $27.3 million is adequate to
cover the remaining costs of the program.
4. REPORTABLE BUSINESS SEGMENTS:
As of December 31, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 131, which requires disclosure of business
segment data in accordance with the "management approach." The management
approach is based on the way segments are organized within the Company for
making operating decisions and assessing performance. The Company's business
operations are organized within the following four reportable business segments
as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Net Sales
North American residential............. $ 857,131 $ 865,147 $1,013,747
Commercial air conditioning............ 228,935 278,837 392,053
Commercial refrigeration............... 135,566 154,247 237,264
Heat transfer*......................... 142,914 146,211 178,772
---------- ---------- ----------
$1,364,546 $1,444,442 $1,821,836
========== ========== ==========
</TABLE>
- ---------------
* The Heat transfer segment had intersegment sales of $34,911, $23,571, and
$32,307 in 1996, 1997, and 1998, respectively.
F-10
<PAGE> 89
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<S> <C> <C> <C>
Income (Loss) from Operations
North American residential............. $ 99,658 $ (47,516)* $ 123,426
Commercial air conditioning............ (9,477) 4,521 (6,579)
Commercial refrigeration............... 13,717 15,407 20,383
Heat transfer.......................... 17,311 16,857 12,700
Corporate and other.................... (20,621) (24,508) (43,327)
---------- ---------- ----------
$ 100,588 $ (35,239) $ 106,603
========== ========== ==========
</TABLE>
- ---------------
* Includes a $140.0 million charge related to a product inspection program (see
Note 3).
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------
1997 1998
-------- ----------
<S> <C> <C>
Identifiable Assets
North American residential.......................... $330,864 $ 528,660
Commercial air conditioning......................... 175,748 198,982
Commercial refrigeration............................ 146,118 194,601
Heat transfer....................................... 69,272 88,633
Corporate and other................................. 248,890 142,076
-------- ----------
$970,892 $1,152,952
======== ==========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Capital Expenditures
North American residential.................... $18,561 $12,914 $14,942
Commercial air conditioning................... 2,577 5,677 6,180
Commercial refrigeration...................... 3,779 6,798 7,367
Heat transfer................................. 6,453 6,907 12,136
Corporate and other........................... 533 2,285 11,810
------- ------- -------
$31,903 $34,581 $52,435
======= ======= =======
Depreciation and Amortization
North American residential.................... $15,170 $14,892 $15,437
Commercial air conditioning................... 4,447 4,048 5,802
Commercial refrigeration...................... 6,428 6,390 9,376
Heat transfer................................. 3,963 3,991 5,912
Corporate and other........................... 4,141 4,109 7,018
------- ------- -------
$34,149 $33,430 $43,545
======= ======= =======
</TABLE>
The following table sets forth certain financial information relating to
the Company's operations by geographic area (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Net Sales to External Customers
United States and Canada............... $1,336,013 $1,368,063 $1,577,296
International.......................... 28,533 76,379 244,540
---------- ---------- ----------
Total net sales to external
customers.................... $1,364,546 $1,444,442 $1,821,836
========== ========== ==========
</TABLE>
F-11
<PAGE> 90
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1997 1998
-------- --------
<S> <C> <C>
Long-Lived Assets
United States and Canada.............................. $253,196 $371,361
International......................................... 47,191 86,056
-------- --------
Total long-lived assets....................... $300,387 $457,417
======== ========
</TABLE>
5. INVENTORIES:
Components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1997 1998
-------- --------
<S> <C> <C>
Finished goods.......................................... $116,052 $177,490
Repair parts............................................ 37,248 31,674
Work in process......................................... 15,755 15,574
Raw materials........................................... 70,223 102,876
-------- --------
239,278 372,614
Reduction for last-in, first-out........................ 56,201 52,935
-------- --------
$183,077 $274,679
======== ========
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT:
Components of property, plant and equipment are as follows (in thousands):
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------
1997 1998
--------- ---------
<S> <C> <C>
Land and improvements................................. $ 15,305 $ 24,959
Buildings and improvements............................ 145,039 156,488
Machinery and equipment............................... 325,392 404,848
--------- ---------
Total....................................... 485,736 586,295
Less -- accumulated depreciation...................... (270,403) (331,170)
--------- ---------
Property, plant and equipment, net.................... $ 215,333 $ 255,125
========= =========
</TABLE>
7. INVESTMENTS IN JOINT VENTURES AND SUBSIDIARIES:
ALLIANCE
In 1994, the Company acquired a 50% interest in a joint venture, Alliance
Compressors, with American Standard Inc.'s Trane subsidiary ("Trane") to
develop, manufacture, and market both reciprocating and scroll compressor
products.
In December 1996, Alliance Compressors was restructured to admit a new
partner, Copeland Corporation, and to focus solely on the development,
manufacturing, and marketing of scroll compressors. In connection with the
restructuring, the net assets associated with the reciprocating compressor
business were distributed equally to the Company and Trane. The Company
subsequently sold its share of the reciprocating compressor net assets to Trane.
In addition, the Company and Trane sold portions of their interests in Alliance
Compressors to Copeland Corporation. As a result, Alliance Compressors is now
owned 51% by Copeland Corporation, 24.5% by the Company, and 24.5% by Trane.
During 1996, the Company recognized a pretax gain of $4.6 million as a result of
the restructuring, which is included in other operating expense, net on the
F-12
<PAGE> 91
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accompanying 1996 consolidated statement of income. The Company's investment in
Alliance Compressors at December 31, 1998, is $6.1 million and is being
accounted for using the equity method of accounting.
ETS. BRANCHER
In May 1996, the Company's subsidiary, Lennox Global Ltd., acquired a 50%
interest in HCF-Lennox, a manufacturer of air conditioning and refrigeration
equipment. In addition to acquiring an interest in HCF-Lennox, the Company
increased its ownership of an existing joint venture, Friga-Bohn, from 20% to
50%. The aggregate purchase price for these acquisitions was approximately $22
million in cash. The aggregate purchase price exceeded the Company's interests
in the underlying equity in the ventures at the date of acquisition. As a
result, the Company recorded goodwill of approximately $2.9 million, which is
being amortized on a straight-line basis over a 30-year period.
Effective September 30, 1997, Lennox Global Ltd. acquired an additional 20%
interest in HCF-Lennox and Friga-Bohn, and a 70% interest in certain real
properties. In conjunction with the purchase, the stock of HCF-Lennox and
Friga-Bohn was combined into an existing holding company, Ets. Brancher S.A. As
of December 31, 1997, Lennox Global Ltd. owns 70% of the stock of Ets. Brancher
S.A. The aggregate purchase price for this acquisition was $18.4 million, of
which $10 million was in cash and $8.4 million was in Company stock. The
acquisition was accounted for in accordance with the purchase method of
accounting. Accordingly, the purchase price has been allocated to the assets and
liabilities based upon their estimated fair values at the date of acquisition.
As a result, the Company recorded additional goodwill of approximately $6.4
million, which is being amortized on a straight-line basis over a 30-year
period.
The Company obtained control of Ets. Brancher S.A. on September 30, 1997,
and, accordingly, began consolidating the financial position and operating
results of the subsidiary. The 30% interest in Ets. Brancher S.A. not owned by
the Company is reflected as minority interest on the accompanying consolidated
balance sheets and statements of income.
The following table presents the pro forma results as if the Company's 70%
interest in Ets. Brancher had been consolidated beginning January 1, 1996 (in
thousands, except per share data).
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Net sales............................................ $1,576,418 $1,588,985
Net income (loss).................................... 54,605 (33,381)
Basic earnings per share............................. 53.48 (32.47)
Diluted earnings per share........................... 52.40 (32.47)
</TABLE>
CANADIAN DEALERS
In the fourth quarter of 1998, the Company's Lennox Industries (Canada)
Ltd. subsidiary, which is included in the North American residential segment,
purchased for cash fourteen dealers (the "Dealers") in Canada that had been
independent retail outlets of the Company's products. The aggregate purchase
price of the Dealers was $22.9 million in cash. These acquisitions were
accounted for in accordance with the purchase method of accounting. The purchase
price of each Dealer has been allocated to the assets and liabilities of the
Dealers, and the excess of $19.0 million has been allocated to goodwill, which
is being amortized on a straight-line basis over 40 years. The results of
operations of the Dealers, including sales of $8.2 million and net income of
$139,000, have been fully consolidated with those of the Company since the dates
of acquisition.
F-13
<PAGE> 92
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
HEARTH COMPANIES
During June and July 1998, the Company's Hearth Products Inc. subsidiary,
which is included in the North American residential segment, purchased
substantially all of the assets and certain liabilities of Superior Fireplace
Co. and all of the outstanding stock of Marco Manufacturing Inc. and Pyro
Industries Inc. The aggregate purchase price for these acquisitions was $102.9
million, of which $99.1 million was in cash and $3.8 million was in the form of
a note payable. These acquisitions were accounted for in accordance with the
purchase method of accounting. Accordingly, the aggregate purchase price has
been allocated to assets totaling $131.5 million and to liabilities totaling
$28.6 million of the acquired companies based upon the fair value of those
assets and liabilities. As a result, the Company recorded goodwill of
approximately $73.8 million which is being amortized on a straight-line basis
over 40 years. The results of operations of the acquired Hearth companies,
including sales of $68.6 million and net income of $1.9 million, have been fully
consolidated with those of the Company since the dates of acquisition.
MCQUAY DO BRASIL
During August 1998, the Company's Lennox Global Ltd. subsidiary purchased
84% of the outstanding stock of McQuay do Brasil, a Brazilian company engaged in
the manufacture and sale of refrigeration, automotive air conditioning
equipment, and heat transfer products. The purchase price of $20.5 million in
cash has been allocated to the acquired assets and liabilities based upon the
fair value of those assets and liabilities, and the excess of $11.3 million has
been allocated to goodwill, which is being amortized on a straight-line basis
over 40 years. The results of operations of McQuay do Brasil have been
consolidated with those of the Company since the date of acquisition.
8. LONG-TERM DEBT AND LINES OF CREDIT:
Long-term debt at December 31 consists of the following (in thousands):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
6.73% promissory notes, payable $11,111 annually 2000
through 2008.......................................... $100,000 $100,000
9.69% promissory notes, payable $4,900 annually 1998
through 2002 and $5,000 in 2003....................... 29,500 24,600
5.75% promissory note, payable in 1999.................. 1,596 951
5.84% promissory note, payable in 2000.................. 2,146 2,275
4.80% promissory note, payable annually through 2004.... 1,197 1,119
6.50% promissory note, payable annually 1999 through
2005.................................................. 1,334 1,382
5.50% promissory note, payable annually through 2004.... -- 639
6.50% promissory note, payable annually through 2003.... -- 371
9.53% promissory notes, payable $10,000 in 1999, $8,000
in 2000, and $3,000 in 2001........................... 21,000 21,000
7.06% promissory note, payable $10,000 annually in 2004
and 2005.............................................. 20,000 20,000
6.56% promissory note, payable in 2005.................. -- 25,000
6.75% promissory note, payable in 2008.................. -- 50,000
11.10% mortgage note, payable semiannually through
2000.................................................. 8,306 7,547
Texas Housing Opportunity Fund, Ltd. note, payable in
1999.................................................. 205 109
Capitalized lease obligations and other................. 7,225 6,378
-------- --------
192,509 261,371
Less current maturities................................. 8,926 18,778
-------- --------
$183,583 $242,593
======== ========
</TABLE>
F-14
<PAGE> 93
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1998, the aggregate amounts of required payments on
long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
1999........................................................ $ 18,778
2000........................................................ 35,354
2001........................................................ 20,712
2002........................................................ 17,534
2003........................................................ 17,424
Thereafter.................................................. 151,569
--------
$261,371
========
</TABLE>
The Company has bank lines of credit aggregating $164 million, of which $56
million was outstanding at December 31, 1998. Included in the bank lines is a
$135 million revolving credit facility. The revolving credit facility provides
for both "standby loans" and "offered rate loans." Standby loans are made
ratably by all lenders under the revolving credit facility, while offered rate
loans are, subject to the terms and conditions of the credit facility,
separately negotiated between the Company and one or more members of the lending
syndicate. Standby loans bear interest at a rate equal to either (a) the London
Interbank Offered Rate plus a margin equal to 0.150% to 0.405% depending on the
ratio of debt to total capitalization, or (b) the greater of (1) the Federal
Funds Effective Rate plus 0.5%, and (2) the Prime Rate. Offered rate loans bear
interest at a fixed rate negotiated with the lender or lenders making such
loans. Under the revolving credit facility, the Company is obligated to pay
certain fees, including (a) a quarterly facility fee to each lender under the
credit facility equal to a percentage, varying from 0.100% to 0.220% (depending
on the ratio of debt to total capitalization), of each lender's total
commitment, whether used or unused, under the revolving credit facility and (b)
certain administrative fees to the administrative agent and documentation agent
under the revolving credit facility. The revolving credit facility will expire
on July 13, 2001, unless earlier terminated pursuant to its terms and
conditions. The unsecured promissory note agreements and lines of credit provide
for restrictions with respect to additional borrowings, maintenance of minimum
working capital and payment of dividends.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair values of the Company's financial instruments
approximate their respective carrying amounts at December 31, 1998, except as
follows (in thousands):
<TABLE>
<CAPTION>
FAIR VALUE
------------------
CARRYING INTEREST
AMOUNT AMOUNT RATE
-------- ------- --------
<S> <C> <C> <C>
9.69% promissory notes............................ $24,600 $26,601 6.75%
9.53% promissory notes............................ 21,000 21,923 6.75%
11.10% mortgage note.............................. 7,547 7,739 9.00%
</TABLE>
The fair values presented above are based on the amount of future cash
flows associated with each instrument, discounted using the Company's current
borrowing rate for similar debt instruments of comparable maturity. The fair
values are estimates as of December 31, 1998, and are not necessarily indicative
of amounts for which the Company could settle currently or indicative of the
intent or ability of the Company to dispose of or liquidate such instruments.
F-15
<PAGE> 94
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. INCOME TAXES:
The income tax provision (benefit) consisted of the following (in
thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1996 1997 1998
--------- ---------- ---------
<S> <C> <C> <C>
Current --
Federal...................................... $33,615 $ 24,673 $15,820
State........................................ 3,950 790 944
Foreign...................................... 926 5,239 (6,027)
------- -------- -------
Total current........................ 38,491 30,702 10,737
------- -------- -------
Deferred --
Federal...................................... (5,135) (31,144) 30,946
State........................................ 32 (1,917) 2,237
Foreign...................................... -- (9,134) (6,759)
------- -------- -------
Total deferred....................... (5,103) (42,195) 26,424
------- -------- -------
Total income tax provision
(benefit).......................... $33,388 $(11,493) $37,161
======= ======== =======
</TABLE>
The difference between the income tax provision (benefit) computed at the
statutory federal income tax rate and the financial statement provision
(benefit) for taxes is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
------- -------- -------
<S> <C> <C> <C>
Provision (benefit) at the U.S. statutory rate
of 35%....................................... $30,840 $(15,765) $31,390
Increase (reduction) in tax expense resulting
from --
State income tax, net of federal income tax
benefit...................................... 2,437 (350) 705
Foreign losses not providing a current
benefit...................................... -- 1,044 3,572
Other.......................................... (111) 3,578 1,494
------- -------- -------
Total income tax provision
(benefit).......................... $33,388 $(11,493) $37,161
======= ======== =======
</TABLE>
Deferred income taxes reflect the tax consequences on future years of
temporary differences between the tax basis of assets and liabilities and their
financial reporting basis and are reflected as current or noncurrent depending
on the timing of the expected realization. The deferred tax provision (benefit)
for the periods shown represents the effect of changes in the amounts of
temporary differences during those periods.
F-16
<PAGE> 95
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax assets (liabilities), as determined under the provisions of
SFAS No. 109, "Accounting for Income Taxes," were comprised of the following at
December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Gross deferred tax assets --
Warranties............................................ $ 60,421 $ 28,281
Foreign operating losses.............................. 14,537 12,652
Postretirement and pension benefits................... 7,799 7,852
Inventory reserves.................................... 4,907 6,383
Receivable allowance.................................. 3,420 3,950
Other................................................. 3,518 9,253
-------- --------
Total deferred tax assets..................... 94,602 68,371
Valuation allowance........................... (14,543) (12,652)
-------- --------
Net deferred tax assets....................... 80,059 55,719
-------- --------
Gross deferred tax liabilities --
Depreciation.......................................... (19,241) (17,999)
Intangibles........................................... (1,873) (1,674)
Other................................................. (10,498) (10,248)
-------- --------
Total deferred tax liabilities................ (31,612) (29,921)
-------- --------
Net deferred tax asset.................................. $ 48,447 $ 25,798
======== ========
</TABLE>
The Company has net foreign operating loss carryforwards, mainly in Europe,
which expire at various dates in the future. All such loss carryforwards have a
full valuation allowance. The net change in the deferred tax asset valuation
reserve for the year ended December 31, 1998, was a decrease of $1,891. The
decrease is a result of operating loss carryforwards which have expired.
No provision has been made for income taxes which may become payable upon
distribution of the foreign subsidiaries' earnings since management considers
substantially all of these earnings permanently invested. As of December 31,
1998, the unrecorded deferred tax liability related to the undistributed
earnings of the Company's foreign subsidiaries was insignificant.
11. CURRENT ACCRUED EXPENSES:
Significant components of current accrued expenses are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- --------
<S> <C> <C>
Accrued product inspection charge....................... $ 71,956 $ 27,336
Accrued wages........................................... 46,685 52,915
Accrued warranties...................................... 22,086 21,131
Other................................................... 69,941 105,658
-------- --------
Total current accrued expenses................ $210,668 $207,040
======== ========
</TABLE>
12. EMPLOYEE BENEFIT PLANS:
PROFIT SHARING PLANS
The Company maintains noncontributory profit sharing plans for its salaried
employees. These plans are discretionary as the Company's contributions are
determined annually by the Board of Directors. Provisions
F-17
<PAGE> 96
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for contributions to the plans amounted to $12.0 million, $11.5 million, and
$13.6 million in 1996, 1997, and 1998, respectively.
401(k) PLAN
The Company provides a 401(k) plan to substantially all eligible hourly and
salary employees of the Company, as defined. Participants may contribute up to
12% of their compensation to a 401(k) plan under Internal Revenue Code Section
401(k).
LONG-TERM INCENTIVE PLAN
The Company provided a long-term incentive plan, the Lennox International
Inc. Performance Share Plan (the "Performance Plan") to certain employees.
During 1998, the Company terminated the Performance Plan. Under the Performance
Plan, participants earned shares of the Company's common stock in accordance
with a discretionary formula established by the Board of Directors based on the
Company's performance over a three-year period. The value of the shares earned
was determined using an independent appraisal. Under the Performance Plan 2,009
shares, 7,243 shares, and 5,293 shares earned in fiscal 1995, 1996, and 1997,
respectively, were issued in 1996, 1997, and 1998, respectively. During 1998,
10,878 shares were earned and issued in the same year. Compensation expense
recognized under the Performance Plan was $1,900,000, $2,259,616, and $6,876,335
for the years ended December 31, 1996, 1997, and 1998, respectively, based on
the fair value of the shares earned.
EMPLOYEE BENEFITS TRUST
The Company also has an Employee Benefits Trust (the "Trust") to provide
eligible employees of the Company, as defined, with certain medical benefits.
Trust contributions are made by the Company as defined by the Trust agreement.
PENSION AND POSTRETIREMENT BENEFIT PLANS
The Company has domestic and foreign pension plans covering substantially
all employees. The Company makes annual contributions to the plans equal to or
greater than the statutory required minimum. The Company also maintains an
unfunded postretirement benefit plan which provides certain medical and life
insurance benefits to eligible employees. The pension plans are accounted for
under provisions of SFAS No. 87, "Employers' Accounting for Pensions." The
postretirement benefit plan is accounted for under the provisions of SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other than Pensions."
The following table sets forth amounts recognized in the Company's financial
statements and the plans' funded status (in thousands):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------- -------------------
1997 1998 1997 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Change in benefit obligation --
Benefit obligation at beginning of
year.............................. $113,942 $119,835 $ 15,679 $ 16,055
Service cost......................... 3,439 3,875 457 494
Interest cost........................ 8,411 9,128 1,166 1,128
Plan participants' contributions..... 304 189 1,274 1,452
Amendments........................... 93 2,132 -- --
Actuarial (gain)/loss................ 993 7,471 40 (449)
Exchange rate changes................ -- 83 -- --
Benefits paid........................ (7,347) (7,892) (2,561) (2,382)
-------- -------- -------- --------
Benefit obligation at end of year.... $119,835 $134,821 $ 16,055 $ 16,298
======== ======== ======== ========
</TABLE>
F-18
<PAGE> 97
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------- -------------------
1997 1998 1997 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Changes in plan assets --
Fair value of plan assets at
beginning of year................. $112,588 $131,376 $ -- $ --
Actual return on plan assets......... 21,510 17,466 -- --
Employer contribution................ 4,610 3,792 1,287 930
Plan participants' contributions..... 304 189 1,274 1,452
Expenses............................. (664) (549) (79) (34)
Benefits paid........................ (6,972) (7,405) (2,482) (2,348)
-------- -------- -------- --------
Fair value of plan assets at end of
year.............................. 131,376 144,869 -- --
-------- -------- -------- --------
Funded status.......................... 11,541 10,048 (16,055) (16,298)
Unrecognized actuarial (gain)/loss... (16,151) (14,420) (2,158) (1,311)
Unrecognized prior service cost...... 747 641 -- --
Unrecognized net
obligation/(asset)................ 6,248 7,420 (520) (347)
-------- -------- -------- --------
Net amount recognized................ $ 2,385 $ 3,689 $(18,733) $(17,956)
======== ======== ======== ========
Amounts recognized in the consolidated
balance sheets consist of --
Prepaid benefit cost................. $ 13,588 $ 13,303 $ -- $ --
Accrued benefit liability............ (12,742) (12,540) (18,733) (17,956)
Intangible assets.................... 1,539 2,926 -- --
-------- -------- -------- --------
Net amount recognized................ $ 2,385 $ 3,689 $(18,733) $(17,956)
======== ======== ======== ========
Weighted-average assumptions as of
December 31 --
Discount rate........................ 7.50% 7.25% 7.50% 7.25%
Expected return on plan assets....... 9.50 9.50 -- --
Rate of compensation increase........ 4.00 4.00 -- --
</TABLE>
For measurement purposes, an 8.5% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 1998. The rate was assumed to
decrease gradually to 5.0% by 2003 and remain at that level thereafter.
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
---------------------------- --------------------------
1996 1997 1998 1996 1997 1998
------- ------- -------- ------ ------- -------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic
benefit cost --
Service cost.............. $ 3,344 $ 3,439 $ 3,875 $ 268 $ 457 $ 494
Interest cost............. 8,153 8,411 9,128 1,161 1,166 1,128
Expected return on plan
assets................. (8,655) (9,844) (10,931) -- -- --
Amortization of prior
service cost........... 716 716 880 (173) (173) (173)
Recognized actuarial
loss................... -- -- -- (961) (1,129) (1,297)
------- ------- -------- ------ ------- -------
Net periodic benefit
cost................... $ 3,558 $ 2,722 $ 2,952 $ 295 $ 321 $ 152
======= ======= ======== ====== ======= =======
</TABLE>
F-19
<PAGE> 98
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The benefit obligation and fair value of plan assets for the pension plans with
benefit obligations in excess of plan assets were approximately $10,770,000 and
$0, respectively, as of December 31, 1997, and $12,478,000 and $3,607,000,
respectively, as of December 31, 1998.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one-percentage-point change in
assumed health care cost trend rates would have the following effects (in
thousands):
<TABLE>
<CAPTION>
1-PERCENTAGE- 1-PERCENTAGE-
POINT INCREASE POINT DECREASE
-------------- --------------
<S> <C> <C>
Effect on total of service and interest cost
components...................................... $ 230 $ (187)
Effect on the post-retirement benefit
obligation...................................... 1,882 (1,605)
</TABLE>
13. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company has various leases relating principally to the use of operating
facilities. Rent expense for 1996, 1997 and 1998 was approximately $18.6
million, $23.2 million and $28.2 million, respectively.
The approximate minimum commitments under all noncancelable leases at
December 31, 1998, are as follows (in thousands):
<TABLE>
<S> <C>
1999........................................................ $ 22,244
2000........................................................ 18,825
2001........................................................ 13,241
2002........................................................ 10,977
2003........................................................ 10,049
Thereafter.................................................. 33,386
--------
$108,722
========
</TABLE>
LITIGATION
The Company is involved in various claims and lawsuits incidental to its
business. In the opinion of management, these claims and suits in the aggregate
will not have a material adverse effect on the Company's business, financial
condition or results of operations.
14. STOCK-BASED COMPENSATION PLAN:
The Company has a Stock Option and Restricted Stock Plan, which was amended
in September 1998 (the "1998 Incentive Plan"). The 1998 Incentive Plan is
accounted for under APB Opinion No. 25, under which no compensation cost has
been recognized. If the 1998 Incentive Plan had been accounted for under the
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company's net income (loss) would have been adjusted to the following pro forma
amounts (in thousands, except per share data):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1996 1997 1998
------- -------- -------
<S> <C> <C> <C> <C>
Net income (loss): As reported............. $54,726 $(33,550) $52,525
Pro forma............... 52,557 (35,595) 52,525
Basic earnings (loss) per share: As reported............. $ 53.60 $ (32.64) $ 49.65
Pro forma............... 51.48 (34.63) 49.65
Diluted earnings (loss) per share: As reported............. $ 52.52 $ (32.64) $ 48.50
Pro forma............... 50.44 (34.63) $ 48.50
</TABLE>
F-20
<PAGE> 99
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Because the method of accounting under SFAS No. 123 has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
Under the 1998 Incentive Plan, the Company is authorized to issue options
for 248,987 shares of common stock. As of December 31, 1998, options for 165,529
shares of common stock have been granted and options for 24,892 shares have been
cancelled or repurchased. Consequently, as of December 31, 1998, there are
options for 108,350 shares available for grant. Under the 1998 Incentive Plan,
the option exercise price equals the stock's fair value on the date of grant.
1998 Incentive Plan options granted prior to 1998 vest on the date of grant.
1998 Incentive Plan options granted in 1998 vest over three years. All 1998
Incentive Plan options expire after ten years.
The Plan's status is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
1996 1997 1998
----------------- ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year............................ 67,204 $237.35 92,099 $297.55 115,828 $334.33
Granted........................... 28,675 430.50 26,570 458.04 32,450 622.84
Exercised......................... (3,680) 235.29 (2,141) 253.02 (31,751) 298.20
Forfeited......................... (100) 253.35 (700) 439.35 (1,434) 285.11
------ ------- ------- ------- ------- -------
Outstanding at end of year........ 92,099 $297.55 115,828 $334.33 115,093 $426.30
====== ======= ======= ======= ======= =======
Exercisable at end of year........ 92,099 $297.55 115,828 $334.33 82,943 $426.30
====== ======= ======= ======= ======= =======
Fair value of options granted..... $127.48 $124.15 $192.49
======= ======= =======
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------------------------------
NUMBER WEIGHTED-AVERAGE
RANGE OF OUTSTANDING AT REMAINING WEIGHTED-AVERAGE
EXERCISE PRICES DECEMBER 31, 1998 CONTRACTUAL LIFE(YEARS) EXERCISE PRICE
--------------- ----------------- ----------------------- ----------------
<S> <C> <C> <C>
$240.28 to $248.38 40,534 6 $245.71
$436.01 to $458.82 42,409 7 448.74
$514.55 to $627.90 32,150 9.5 624.37
------- --- -------
115,093 8 $426.30
======= === =======
</TABLE>
As of December 31, 1998, options to purchase 40,534 shares of common stock
with exercise prices ranging from $240.28 to $248.38 and options to purchase
42,409 shares of common stock with exercise prices ranging from $436.01 to
$458.82 were exercisable. The fair value of each option is estimated on the date
of grant based on a risk-free interest rate of 6%, expected life of ten years,
and an expected dividend yield of 2% in 1996, 1997 and 1998.
15. EARNINGS PER SHARE:
Basic earnings per share are computed by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share are computed by dividing net income by the sum of the
weighted average number of shares and the number of equivalent shares assumed
F-21
<PAGE> 100
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
outstanding, if dilutive, under the Company's stock-based compensation plans.
Diluted earnings per share are computed as follows (in thousands, except per
share data):
<TABLE>
<CAPTION>
1996 1997 1998
------- -------- -------
<S> <C> <C> <C>
Net income (loss).............................. $54,726 $(33,550) $52,525
======= ======== =======
Weighted average shares outstanding............ 1,021 1,028 1,058
Effect of assumed exercise of options.......... 21 -- 25
------- -------- -------
Weighted average shares outstanding, as
adjusted.................................. 1,042 1,028 1,083
------- -------- -------
Diluted earnings (loss) per share.............. $ 52.52 $ (32.64) $ 48.50
======= ======== =======
</TABLE>
Options to purchase 27,400 shares of common stock at $439.25 per share,
115,828 shares of common stock at prices ranging from $169.49 per share to
$458.82 per share and 31,450 shares of common stock at $627.90 per share were
outstanding for the years ended December 31, 1996, 1997, and 1998, respectively,
but were not included in the diluted earnings per share calculation because the
assumed exercise of such options would have been antidilutive.
16. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivatives
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities. This statement is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. The Company does not believe that
the adoption of this pronouncement will have a significant impact on the
Company's financial statements.
17. RELATED PARTY TRANSACTIONS
John W. Norris, Jr., the Company's Chairman and Chief Executive Officer,
and David H. Anderson, Richard W. Booth, David V. Brown, Loraine B. Millman,
Robert W. Norris and Lynn B. Storey, directors of the Company, as well as
certain stockholders, are members of AOC Land Investment, LLC. AOC Land
Investment, LLC owns 70% of AOC Development II, LLC. AOC Development II, LLC is
building a new office building and the Company has agreed to lease part of it
for use in conjunction with the Company's corporate headquarters. The lease will
have a term of 25 years and the annual lease payments are expected to be
approximately $2.1 million per year for the first five years. The Company
believes that the terms of the lease with AOC Development II, LLC are at least
as favorable as could be obtained from unaffiliated third parties.
18. SUBSEQUENT EVENTS (UNAUDITED):
The Company is filing a registration statement for an initial public
offering of its common stock, the proceeds of which will be used for general
corporate purposes, including regularly scheduled debt payments and for any
possible future acquisitions.
Subsequent to year-end, the Company's Lennox Industries (Canada) Ltd.
subsidiary completed the acquisition of eleven dealers in Canada that had been
independent retail outlets of the Company's products. The aggregate cash
purchase price of these entities was $43.8 million.
On March 16, 1999, the Company entered into a term loan agreement with a
bank pursuant to which the Company may borrow up to $115 million. On March 22,
1999, the Company borrowed $40 million at LIBOR plus 1% (6.0%). The Company is
required to use the net proceeds from the initial public offering to repay any
amounts outstanding under the term loan agreement. The term loan agreement
expires on December 31, 1999.
F-22
<PAGE> 101
<TABLE>
<S> <C>
[LENNOX INTERNATIONAL INC. LOGO] STRENGTH THROUGH
BRANDS AND PEOPLE
[Inside of back cover]
[Graphics depicting pictures of employees of
the Company]
[LENNOX LOGO]
[HEARTH PRODUCTS INC. LOGO]
[MARCO LOGO]
[SUPERIOR, THE FIREPLACE COMPANY LOGO]
[WHITFIELD HEARTH PRODUCTS LOGO]
[AIR-EASE LOGO]
[ARMSTRONG LOGO]
[MAGIC-PAK LOGO]
[HEATCRAFT LOGO]
[ADVANCED DISTRIBUTOR PRODUCTS LOGO]
[ALCAIR LOGO]
[APPLIED PRODUCTS LOGO]
[BOHN LOGO]
[CHANDLER REFRIGERATION LOGO]
[CLIMATE CONTROL LOGO]
[CONCORD LOGO]
[FRIGA-BOHN LOGO]
[LARKIN LOGO]
</TABLE>
<PAGE> 102
[LENNOX LOGO]
<PAGE> 103
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 WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
[ALTERNATE COVER PAGE FOR INTERNATIONAL PROSPECTUS]
PROSPECTUS (Subject to Completion)
Issued April 6, 1999
Shares
[LENNOX INTERNATIONAL INC. LOGO]
COMMON STOCK
------------------------
LENNOX INTERNATIONAL INC. IS OFFERING SHARES OF COMMON STOCK AND THE
SELLING STOCKHOLDERS ARE OFFERING SHARES OF COMMON STOCK. THIS IS OUR
INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR THE COMMON
STOCK. WE ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN
$ AND $ PER SHARE.
------------------------
APPLICATION WILL BE MADE TO LIST THE COMMON STOCK ON THE
NEW YORK STOCK EXCHANGE UNDER THE SYMBOL "LII."
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 9.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS LENNOX STOCKHOLDERS
-------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Per Share................. $ $ $ $
Total..................... $ $ $ $
</TABLE>
------------------------
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Lennox International Inc. has granted the U.S. underwriters the right to
purchase up to an additional shares of common stock to cover
over-allotments. Morgan Stanley & Co. Incorporated expects to deliver the shares
of common stock to purchasers on , 1999.
------------------------
MORGAN STANLEY DEAN WITTER
CREDIT SUISSE FIRST BOSTON
WARBURG DILLON READ
, 1999
<PAGE> 104
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
All capitalized terms used and not defined in Part II of this Registration
Statement shall have the meanings assigned to them in the prospectus which forms
a part of this Registration Statement.
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a statement of estimated expenses incurred by Lennox in
connection with the issuance and distribution of the securities being registered
pursuant to this Registration Statement, other than underwriting discounts and
commissions.
<TABLE>
<CAPTION>
AMOUNT
------
<S> <C>
Securities Act registration fee............................. $2,780
NASD filing fee............................................. 1,500
Blue sky qualification fees and expenses.................... *
Printing and engraving fees and expenses.................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Transfer agent and registrar fees and expenses.............. *
New York Stock Exchange listing fee......................... *
Miscellaneous............................................... *
------
Total............................................. $
======
</TABLE>
- ---------------
* To be completed by amendment.
All of the foregoing estimated costs, expenses and fees will be borne by
Lennox.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
DELAWARE GENERAL CORPORATION LAW
Section 145(a) of the Delaware General Corporation Law (the "DGCL")
provides that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that the person is or was a director, officer, 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 against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding if the person
acted in good faith and in a manner the person reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe the person's
conduct was unlawful.
Section 145(b) of the DGCL provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that the
person is or was a director, officer, 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 against expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or settlement
of such action or suit if the person acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the
II-1
<PAGE> 105
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Delaware Court of Chancery or such other court shall deem proper.
Section 145(c) of the DGCL provides that to the extent that a present or
former director or officer of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Section
145(a) and (b), or in defense of any claim, issue or matter therein, such person
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
Section 145(d) of the DGCL provides that any indemnification under Section
145(a) and (b) (unless ordered by a court) shall be made by the corporation only
as authorized in the specific case upon a determination that indemnification of
the present or former director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Section 145(a) and (b). Such determination shall be made, with respect to a
person who is a director or officer at the time of such determination, (1) by a
majority vote of the directors who were not parties to such action, suit or
proceeding, even though less than a quorum, or (2) by a committee of such
directors designated by majority vote of such directors, even though less than a
quorum, or (3) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion, or (4) by the stockholders.
Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that such
person is not entitled to be indemnified by the corporation as authorized in
Section 145. Such expenses (including attorneys' fees) incurred by former
directors and officers or other employees and agents may be so paid upon such
terms and conditions, if any, as the corporation deems appropriate.
Section 145(f) of the DGCL provides that the indemnification and
advancement of expenses provided by, or granted pursuant to, Section 145 shall
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in such person's official capacity and as to action in another
capacity while holding such office.
Section 145(g) of the DGCL provides that a corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, 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
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of such person's status as such, whether or
not the corporation would have the power to indemnify such person against such
liability under Section 145.
Section 102(b)(7) of the DGCL provides that the liability of a director may
not be limited or eliminated for the breach of such director's duty of loyalty
to the corporation or its stockholders, for such director's intentional acts or
omissions not in good faith, for such director's concurrence in or vote for an
unlawful payment of a dividend or unlawful stock purchase or redemption or for
any improper personal benefit derived by the director from any transaction.
RESTATED CERTIFICATE OF INCORPORATION
Article Eighth of Lennox's restated certificate of incorporation provides
that a director of Lennox shall not be liable to Lennox or its stockholders for
monetary damages for breach of fiduciary duty as a director, except to the
extent such exemption from liability or limitation thereof is not permitted
under the DGCL as the same exists or may hereafter be amended. Any repeal or
modification of Article Eighth shall not adversely affect any right or
protection of a director of Lennox existing thereunder with respect to any act
or omission occurring prior to such repeal or modification.
II-2
<PAGE> 106
BYLAWS
Article VI of Lennox's bylaws provides that each person who at any time
shall serve or shall have served as a director or officer of Lennox, or any
person who, while a director or officer of Lennox, is or was serving at the
request of Lennox as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise, shall be entitled to (a)
indemnification and (b) the advancement of expenses incurred by such person from
Lennox as, and to the fullest extent, permitted by Section 145 of the DGCL or
any successor statutory provision, as from time to time amended. Lennox may
indemnify any other person, to the same extent and subject to the same
limitations specified in the immediately preceding sentence, by reason of the
fact that such other person is or was an employee or agent of Lennox or another
corporation, partnership, joint venture, trust or other enterprise.
The indemnification and advancement of expenses provided by, or granted
pursuant to, Article VI shall not be deemed exclusive of any other rights to
which any person seeking indemnification or advancement of expenses may be
entitled under any bylaw of Lennox, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office. All rights to indemnification under Article VI shall be deemed to be
provided by a contract between Lennox and the director, officer, employee or
agent who served in such capacity at any time while the bylaws of Lennox and
other relevant provisions of the DGCL and other applicable law, if any, are in
effect. Any repeal or modification thereof shall not affect any rights or
obligations then existing. Without limiting the provisions of Article VI, Lennox
is authorized from time to time, without further action by the stockholders of
Lennox, to enter into agreements with any director or officer of Lennox
providing such rights of indemnification as Lennox may deem appropriate, up to
the maximum extent permitted by law. Any agreement entered into by Lennox with a
director may be authorized by the other directors, and such authorization shall
not be invalid on the basis that similar agreements may have been or may
thereafter be entered into with other directors.
Lennox may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of Lennox, or is or was serving at
the request of Lennox as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against any
liability asserted against such person and incurred by such person in any such
capacity, or arising out of such person's status as such, whether or not Lennox
would have the power to indemnify such person against such liability under the
applicable provisions of Article VI or the DGCL.
UNDERWRITING AGREEMENT
The Underwriting Agreement, the form of which is filed as Exhibit 1.1 to
this Registration Statement, provides for the indemnification of the directors
and officers of Lennox against certain liabilities, including liabilities
arising under the Securities Act of 1933, as amended (the "Securities Act").
The above discussion of the restated certificate, bylaws and Underwriting
Agreement, and Section 145 of the DGCL is not intended to be exhaustive and is
respectively qualified in its entirety by the restated certificate, bylaws,
Underwriting Agreement and such statute.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Pursuant to the several Note Purchase Agreements, dated as of April 3,
1998, by and among Lennox International Inc. and The Prudential Insurance
Company of America, Teachers Insurance and Annuity Association of America,
Connecticut General Life Insurance Company, Connecticut General Life Insurance
Company on Behalf of One or More Separate Accounts, CIGNA Property and Casualty
Insurance Company and U.S. Private Placement Fund, United of Omaha Life
Insurance Company and Companion Life Insurance Company (collectively, the "Note
Purchasers"), Lennox sold an aggregate of $25,000,000 of its 6.56% Senior Notes
due April 3, 2005, and an aggregate of $50,000,000 of its 6.75% Senior Notes due
April 3, 2008 to the Note Purchasers at the purchase price of 100% of the
principal amount thereof in reliance upon the exemption from the registration
requirements of the Securities Act set forth in Section 4(2) thereof.
II-3
<PAGE> 107
Between April 1, 1996 and April 6, 1999, Lennox sold the following
securities pursuant to its various benefit programs: (a) 39,153 shares of common
stock issued upon the exercise of options granted to directors and employees of
Lennox pursuant to Lennox's benefit programs and (b) 399 shares of common stock
to directors of Lennox. The exercise prices of the options referred to in clause
(a) ranged from $130.71 to $469.59 per share. The sale prices of shares referred
to in clause (b) ranged from $266.65 to $702.12 per share. Lennox issued the
securities referred to in clauses (a) and (b) above in reliance upon the
exemption from the registration requirements of the Securities Act set forth in
Section 4(2) and Regulation 701 thereof. During the same three-year period,
Lennox sold 2,886 shares of common stock to certain existing stockholders of
Lennox at sales prices ranging from $299.01 per share to $707.12 per share in
reliance upon the exemption from the registration requirements of the Securities
Act set forth in Section 4(2) thereof.
In November 1997, Lennox issued 2,500 shares of common stock to Ray Strong,
an individual, in connection with the purchase of a 50% interest in Strong LGL
International, L.L.C. The value allocated to such shares of common stock was
approximately $1.2 million. In addition, in September 1997, Lennox issued 19,133
shares of common stock to Jean Jacques Brancher, an individual, or his
designated assigns, in connection with Lennox's acquisition of an additional 20%
interest in the Ets. Brancher joint venture. The value allocated to such shares
of common stock was approximately $8.3 million. The shares issued in both of the
foregoing transactions were issued in reliance upon the exemption from the
registration requirements of the Securities Act set forth in Section 4(2)
thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1* -- Form of Underwriting Agreement.
3.1 -- Restated Certificate of Incorporation of Lennox.
3.2 -- Amended and Restated Bylaws of Lennox.
4.1* -- Specimen Stock Certificate for the Common Stock, par
value $.01 per share, of Lennox.
5.1* -- Opinion of Baker & Botts, L.L.P. regarding legality of
securities being registered.
10.1 -- Agreement of Assumption and Restatement, dated as of
December 1, 1991 between Lennox and identified
Noteholders relating to Lennox's 9.53% Series F
Promissory Notes due 2001 and 9.69% Promissory Notes due
2003.
10.2 -- Note Purchase Agreement, dated as of December 1, 1993,
between Lennox and identified Noteholders relating to
Lennox's 6.73% Senior Promissory Notes due 2008.
10.3 -- Note Purchase Agreement, dated as of July 6, 1995,
between Lennox and Teachers Insurance and Annuity
Association of America relating to Lennox's 7.06% Senior
Promissory Notes due 2005.
10.4 -- Note Purchase Agreement, dated as of April 3, 1998,
between Lennox and identified Noteholders relating to
Lennox's 6.56% Senior Notes due 2005 and 6.75% Senior
Notes due 2008.
10.5 -- Note Amendment Agreement, dated as of April 3, 1998,
between Lennox and identified Noteholders relating to
Lennox's 9.53% Senior Promissory Notes due 2001, 9.69%
Senior Promissory Notes due 2003, 7.06% Senior Promissory
Notes due 2005 and 6.73% Senior Promissory Notes due
2008.
10.6 -- Revolving Credit Facility Agreement, dated as of July 13,
1998, among Lennox, identified Lenders, Chase Bank of
Texas, N.A., as Administrative Agent, and Wachovia Bank,
N.A., as Documentation Agent.
</TABLE>
II-4
<PAGE> 108
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.7 -- Advance Term Credit Agreement, dated as of March 16,
1999, among Lennox, Chase Bank of Texas, National
Association, as Administrative Agent, and Wachovia Bank,
N.A., as Documentation Agent.
10.8 -- 1998 Incentive Plan of Lennox International Inc.
10.9 -- Lennox International Inc. Profit Sharing Restoration
Plan.
10.10 -- Lennox International Inc. Supplemental Executive
Retirement Plan.
10.11 -- Letter of Intent, dated as of June 23, 1998, between
Jean-Jacques Brancher and Lennox Global Ltd.
10.12* -- First Amendment to the Amended and Restated Venture
Agreement, dated as of December 27, 1997, between Ets.
Brancher S.A. and Lennox Global Ltd.
10.13* -- Amended and Restated Venture Agreement, dated as of
November 10, 1997, by and among Lennox Global Ltd.,
Lennox International Inc., Ets. Brancher S.A. and Fibel
S.A.
10.14* -- Shareholder Restructure Agreement, dated as of September
30, 1997, by and among Jean Jacques Brancher, Ets.
Brancher S.A., AFIBRAL S.A., Parifri S.A. and Lennox
International Inc.
10.15 -- Form of Indemnification Agreement entered into between
Lennox and certain executive officers and directors.
10.16 -- Form of Employment Agreement entered into between Lennox
and certain executive officers.
10.17 -- Form of Change of Control Employment Agreement entered
into between Lennox and certain executive officers.
21.1 -- Subsidiaries of Lennox.
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Baker & Botts, L.L.P. (included in the opinion
filed as Exhibit 5.1 to this Registration Statement).
24.1 -- Powers of Attorney (included in the signature pages of
this Registration Statement).
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment
(b) Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts and Reserves and report of
Arthur Andersen LLP thereon.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
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
II-5
<PAGE> 109
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.
The undersigned registrant also undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in the
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 the
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, 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 this offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 110
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 City of Richardson, State of
Texas, on April 6, 1999.
LENNOX INTERNATIONAL INC.
By: /s/ JOHN W. NORRIS, JR.
----------------------------------
John W. Norris, Jr.
Chairman of the Board and
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors and
officers of Lennox International Inc., a Delaware corporation, which is filing a
Registration Statement on Form S-1 with the Securities and Exchange Commission
under the provisions of the Securities Act of 1933, as amended (the "Securities
Act"), hereby constitutes and appoints John W. Norris, Jr., Carl E. Edwards and
Clyde W. Wyant, and each of them, his or her true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for him or her
and in his or her name, place and stead, and in any and all capacities, to sign
and file (i) any and all amendments (including post-effective amendments) to
this Registration Statement, with all exhibits thereto, and other documents in
connection therewith, and (ii) a registration statement, and any and all
amendments thereto, relating to the offering covered hereby filed pursuant to
Rule 462(b) under the Securities Act, with the Securities and Exchange
Commission, it being understood that said attorneys-in-fact and agents, and each
of them, shall have full power and authority to do and perform each and every
act and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he or she might or could do in person and
that each of the undersigned hereby ratifies and confirms all that said
attorneys-in-fact as agents or any of them, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOHN W. NORRIS, JR. Chairman of the Board and Chief April 6, 1999
- ----------------------------------------------------- Executive Officer (Principal
John W. Norris, Jr. Executive Officer)
/s/ CLYDE W. WYANT Executive Vice President, Chief April 6, 1999
- ----------------------------------------------------- Financial Officer and
Clyde W. Wyant Treasurer (Principal Financial
Officer)
/s/ JOHN J. HUBBUCH Vice President, Controller and April 6, 1999
- ----------------------------------------------------- Chief Accounting Officer
John J. Hubbuch (Principal Accounting Officer)
/s/ LINDA G. ALVARADO Director April 6, 1999
- -----------------------------------------------------
Linda G. Alvarado
/s/ DAVID H. ANDERSON Director April 6, 1999
- -----------------------------------------------------
David H. Anderson
</TABLE>
II-7
<PAGE> 111
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DAVID V. BROWN Director April 6, 1999
- -----------------------------------------------------
David V. Brown
/s/ RICHARD W. BOOTH Director April 6, 1999
- -----------------------------------------------------
Richard W. Booth
/s/ JAMES J. BYRNE Director April 6, 1999
- -----------------------------------------------------
James J. Byrne
/s/ THOMAS B. HOWARD, JR. Director April 6, 1999
- -----------------------------------------------------
Thomas B. Howard, Jr.
/s/ JOHN E. MAJOR Director April 6, 1999
- -----------------------------------------------------
John E. Major
/s/ DONALD E. MILLER Director April 6, 1999
- -----------------------------------------------------
Donald E. Miller
Director
- -----------------------------------------------------
Loraine B. Millman
Director
- -----------------------------------------------------
Robert W. Norris
/s/ TERRY D. STINSON Director April 6, 1999
- -----------------------------------------------------
Terry D. Stinson
Director
- -----------------------------------------------------
Lynn B. Storey
/s/ RICHARD L. THOMPSON Director April 6, 1999
- -----------------------------------------------------
Richard L. Thompson
</TABLE>
II-8
<PAGE> 112
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To: The Stockholders and Board of Directors of
Lennox International Inc.
We have audited in accordance with generally accepted auditing standards
the consolidated financial statements of Lennox International Inc. and
subsidiaries included in this registration statement on Form S-1 and have issued
our report thereon dated February 18, 1999. Our audits were made for the purpose
of forming an opinion on the basic consolidated financial statements taken as a
whole. Schedule II, Valuation and Qualifying Accounts and Reserves, is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audits of the basic consolidated
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Dallas, Texas
February 18, 1999
S-1
<PAGE> 113
LENNOX INTERNATIONAL INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COST AND AT END
OF YEAR EXPENSES DEDUCTIONS(1) OF YEAR
---------- ---------- ------------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1996:
Allowance for doubtful accounts................ $ 9,611 $7,041 $(4,537) $12,115
1997:
Allowance for doubtful accounts................ $12,115 $8,997 $(4,164) $16,948
1998:
Allowance for doubtful accounts................ $16,948 $6,224 $(4,647) $18,525
</TABLE>
- ---------------
(1) Uncollectable accounts charged off, net of recoveries.
S-2
<PAGE> 114
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1* -- Form of Underwriting Agreement.
3.1 -- Restated Certificate of Incorporation of Lennox.
3.2 -- Amended and Restated Bylaws of Lennox.
4.1* -- Specimen Stock Certificate for the Common Stock, par
value $.01 per share, of Lennox.
5.1* -- Opinion of Baker & Botts, L.L.P. regarding legality of
securities being registered.
10.1 -- Agreement of Assumption and Restatement, dated as of
December 1, 1991 between Lennox and identified
Noteholders relating to Lennox's 9.53% Series F
Promissory Notes due 2001 and 9.69% Promissory Notes due
2003.
10.2 -- Note Purchase Agreement, dated as of December 1, 1993,
between Lennox and identified Noteholders relating to
Lennox's 6.73% Senior Promissory Notes due 2008.
10.3 -- Note Purchase Agreement, dated as of July 6, 1995,
between Lennox and Teachers Insurance and Annuity
Association of America relating to Lennox's 7.06% Senior
Promissory Notes due 2005.
10.4 -- Note Purchase Agreement, dated as of April 3, 1998,
between Lennox and identified Noteholders relating to
Lennox's 6.56% Senior Notes due 2005 and 6.75% Senior
Notes due 2008.
10.5 -- Note Amendment Agreement, dated as of April 3, 1998,
between Lennox and identified Noteholders relating to
Lennox's 9.53% Senior Promissory Notes due 2001, 9.69%
Senior Promissory Notes due 2003, 7.06% Senior Promissory
Notes due 2005 and 6.73% Senior Promissory Notes due
2008.
10.6 -- Revolving Credit Facility Agreement, dated as of July 13,
1998, among Lennox, identified Lenders, Chase Bank of
Texas, N.A., as administrative agent, and Wachovia Bank,
N.A., as documentation agent.
10.7 -- Advance Term Credit Agreement, dated as of March 16,
1999, among Lennox, Chase Bank of Texas, National
Association, as Administrative Agent, and Wachovia Bank,
N.A., as Documentation Agent.
10.8 -- 1998 Incentive Plan of Lennox International Inc.
10.9 -- Lennox International Inc. Profit Sharing Restoration
Plan.
10.10 -- Lennox International Inc. Supplemental Executive
Retirement Plan.
10.11 -- Letter of Intent, dated as of June 23, 1998, between
Jean-Jacques Brancher and Lennox Global Ltd.
10.12* -- First Amendment to the Amended and Restated Venture
Agreement, dated as of December 27, 1997, between Ets.
Brancher S.A. and Lennox Global Ltd.
10.13* -- Amended and Restated Venture Agreement, dated as of
November 10, 1997, by and among Lennox Global Ltd.,
Lennox International Inc., Ets. Brancher S.A. and Fibel
S.A.
10.14* -- Shareholder Restructure Agreement, dated as of September
30, 1997, by and among Jean Jacques Brancher, Ets.
Brancher S.A., AFIBRAL S.A., Parifri S.A. and Lennox
International Inc.
10.15 -- Form of Indemnification Agreement entered into between
Lennox and certain executive officers and directors.
10.16 -- Form of Employment Agreement entered into between Lennox
and certain executive officers.
</TABLE>
<PAGE> 115
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.17 -- Form of Change of Control Employment Agreement entered
into between Lennox and certain executive officers.
21.1 -- Subsidiaries of Lennox.
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Baker & Botts, L.L.P. (included in the opinion
filed as Exhibit 5.1 to this Registration Statement).
24.1 -- Powers of Attorney (included in the signature pages of
this Registration Statement).
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment
<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
LENNOX INTERNATIONAL INC.
Lennox International Inc., a corporation organized and existing under
the laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is Lennox International Inc. The
Certificate of Incorporation of the corporation was filed with the Secretary of
State of the State of Delaware on August 13, 1991.
2. Pursuant to Sections 242 and 245 of the General Corporation Law of
Delaware, this Restated Certificate of Incorporation restates and integrates and
amends the provisions of the Restated Certificate of Incorporation of the
corporation.
3. The text of the Restated Certificate of Incorporation is hereby
restated and amended to read in its entirety as follows:
FIRST: The name of the corporation (the "Corporation") is Lennox
International Inc.
SECOND: The address of the Corporation's registered office in the State
of Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle 19801. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware ("DGCL").
FOURTH:
(a) The total number of shares of stock that the Corporation shall have
authority to issue is Two Hundred Twenty-Five Million (225,000,000) consisting
of Two Hundred Million (200,000,000) shares of Common Stock, par value one cent
($.01) per share, and Twenty-Five Million (25,000,000) shares of Preferred
Stock, par value one cent ($.01) per share.
(b) The designations, voting powers, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions of the above classes of stock are as follows:
(1) Subject to the limitations hereinafter contained and to
the requirements of the laws of the State of Delaware, authority is
hereby vested in the Board of Directors of the corporation to issue
from time to time said Twenty-Five Million (25,000,000) shares of
1
<PAGE> 2
Preferred Stock in one or more series, with such voting powers, full or
limited, or no voting powers, and such designations, preferences and
relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as shall be stated
in the resolution or resolutions providing for the issuance of such
stock adopted by the Board of Directors. Without limiting the
generality of the foregoing, in the resolution or resolutions providing
for the issuance of such shares of each particular series of Preferred
Stock, subject to the limitations hereinafter contained and to the
requirements of the laws of the State of Delaware, the Board of
Directors is also expressly authorized:
(i) to fix the distinctive serial designation of
the shares of any such series;
(ii) to fix the consideration for which the
shares of any such series are to be issued;
(iii) to fix the rate or amount per annum, if any, at
which the holders of the shares of any such series shall be
entitled to receive dividends, the dates on which such
dividends shall be payable, whether the dividends shall be
cumulative or noncumulative, and if cumulative, to fix the
date or dates from which such dividends shall be cumulative;
(iv) to fix the price or prices at which, the times
during which, and the other terms, if any, upon which the
shares of any such series may be redeemed;
(v) to fix the rights, if any, which the holders of
shares of any such series have in the event of dissolution or
upon distribution of the assets of the Corporation;
(vi) to determine whether the shares of any such
series shall be made convertible into or exchangeable for
other securities of the Corporation, including shares of the
Common Stock of the Corporation or shares of any other series
of the Preferred Stock of the Corporation, now or hereafter
authorized, or any new class of preferred stock of the
Corporation hereafter authorized, the price or prices or the
rate or rates at which conversion or exchange may be made, and
the terms and conditions upon which any such conversion right
or exchange right shall be exercised;
(vii) to determine whether a sinking fund shall be
provided for the purchase or redemption of shares of any
series and, if so, to fix the terms and amount or amounts of
such sinking fund;
(viii) to determine whether the shares of any such
series shall have voting rights, and, if so, to fix the voting
rights of the shares of such series; and
(ix) to fix such other preferences and rights,
privileges and restrictions applicable to any such series as
may be permitted by law.
2
<PAGE> 3
(2) Subject to the prior rights of the holders of any shares
of Preferred Stock, the holders of the Common Stock shall be entitled
to receive, to the extent permitted by law, such dividends as may be
declared from time to time by the Board of Directors.
(3) In the event of any voluntary or involuntary liquidation,
dissolution, distribution of assets or winding up of the Corporation,
after the holders of the Preferred Stock then outstanding, if any,
shall have received the full preferential amounts to which such holders
may be entitled upon such voluntary or involuntary liquidation,
dissolution, distribution of assets or winding up, the holders of
Common Stock shall be entitled, to the exclusion of such holders of the
Preferred Stock then outstanding, to receive all the remaining assets
of the Corporation of whatever kind available for distribution to
stockholders, ratably in proportion to the number of shares of Common
Stock held by them respectively. A consolidation, merger or
reorganization of the Corporation with any other corporation or
corporations, or a sale of all or substantially all of the assets of
the Corporation, shall not be considered a dissolution, liquidation or
winding up of the Corporation within the meaning of the immediately
preceding sentence.
(4) Except as may otherwise be required by law, the Bylaws of
the corporation or this Certificate of Incorporation, each holder of
Common Stock shall be entitled to one vote for each share of Common
Stock held of record in the name of such stockholder on all matters
voted upon by the stockholders, including the election of directors.
FIFTH: The Corporation is to have perpetual existence.
SIXTH:
(a) Except as may be otherwise provided by law or in this Certificate
of Incorporation, the business and affairs of the Corporation shall be managed
under the direction of the Board of Directors. The following provisions are
inserted for the management of the business and for the conduct of the affairs
of the Corporation and for the purpose of creating, defining, limiting and
regulating the powers of the Corporation and its directors and stockholders:
(1) The number of directors of the Corporation shall be fixed
from time to time by, or in the manner provided in, the Bylaws of the
Corporation.
(2) Elections of directors need not be by written ballot
except to the extent provided in the Bylaws of the Corporation.
(3) In furtherance and not in limitation of the powers
conferred by the laws of the State of Delaware, the Board of Directors
of the Corporation is expressly authorized:
3
<PAGE> 4
(i) to adopt, amend or repeal the Bylaws of the
Corporation, subject to this Certificate of Incorporation and
the power of the stockholders, at the time entitled to vote,
to alter, amend or repeal Bylaws made by the Board of
Directors;
(ii) to authorize and issue obligations of the
Corporation, secured or unsecured, and to include therein such
provisions as to redemption, conversion or other terms thereof
as the Board of Directors in its sole discretion may
determine, and to authorize the mortgaging or pledging, as
security therefor, of any property of the Corporation, real or
personal, including after-acquired property;
(iii) to determine whether any, and if any, what
part, of the net prof its of the Corporation or of its surplus
shall be declared in dividends and paid to the stockholders,
and to direct and determine the use and disposition of such
net profits or such surplus; and
(iv) from time to time, without the vote or assent of
the stockholders, to issue additional shares of authorized
Common Stock.
In addition to the powers and authorities herein or by law expressly
conferred upon it, the Board of Directors may exercise all such powers and do
all such acts and things as may be exercised or done by the Corporation,
subject, nevertheless, to the provisions of the laws of the State of Delaware,
of this Certificate of Incorporation and of the Bylaws of the Corporation.
(b) The Board of Directors shall be divided into three classes,
designated Class I, Class II and Class III, as nearly equal in number as the
then total number of directors constituting the whole Board permits. If the
number of directors is changed, any increase or decrease shall be apportioned by
the Board of Directors among the three classes so that the number in each class
shall be as nearly equal as possible. The term of office of each class shall
expire at the third annual meeting of stockholders for election of directors
following the election of such class, except that the initial term of office of
the Class I directors shall expire at the annual meeting of stockholders in
1996, the initial term of office of the Class II directors shall expire at the
annual meeting of stockholders in 1997 and the initial term of office of the
Class III directors shall expire at the annual meeting of stockholders in 1998.
At each annual meeting of the stockholders of the Corporation, the successors of
the class of directors whose term expires at such meeting shall be elected to
hold office for a term expiring as of the third succeeding annual meeting.
(c) A director may be removed from office only for cause and by the
affirmative vote of the holders of not less than eighty percent (80%) of all the
outstanding shares of stock of the Corporation entitled to vote generally in the
election of directors at a special meeting of stockholders called expressly for
that purpose.
SEVENTH: All preemptive rights of shareholders are hereby denied, so
that no shares of capital stock of the Corporation of any class whether now or
hereafter authorized and no other
4
<PAGE> 5
security of the Corporation shall carry with it and no holder or owner of any
share or shares of capital stock of the Corporation of any class whether now or
hereafter authorized or of any other security of the Corporation shall have any
preferential or preemptive right to acquire additional shares of capital stock
of the Corporation of any class whether now or hereafter authorized or of any
other security of the Corporation.
All cumulative voting rights are hereby denied, so that none of the
capital stock of the Corporation of any class whether now or hereafter
authorized or of any other security of the Corporation shall carry with it and
no holder or owner of any share or shares of capital stock of the Corporation of
any class whether now or hereafter authorized or of any other security of the
Corporation shall have any right to cumulative voting in the election of
directors or for any other purpose.
EIGHTH: A director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the DGCL as the same exists or may
hereafter be amended. Any repeal or modification of this ARTICLE EIGHTH shall
not adversely affect any right or protection of a director of the Corporation
existing hereunder with respect to any act or omission occurring prior to such
repeal or modification.
NINTH: Except as otherwise provided in this Certificate of
Incorporation, any action required or permitted to be taken by the stockholders
of the Corporation must be effected at a duly called annual or special meeting
of stockholders of the Corporation and may not be effected by consent in writing
by such stockholders. A special meeting of stockholders may be called only by
the Board of Directors pursuant to a resolution adopted by the affirmative vote
of a majority of the entire Board of Directors or by the Chairman of the Board
of Directors, a Vice Chairman of the Board of Directors or the President. The
stockholders of the Corporation shall have the power to adopt, amend or repeal
the Bylaws of the Corporation at any annual or special meeting by the
affirmative vote of holders of not less than eighty percent (80%) of the
combined voting power of the outstanding shares of stock of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class.
TENTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may
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be, agree to any compromise or arrangement and to any reorganization of the
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
ELEVENTH:
(a) The affirmative vote of the holders of not less than eighty percent
(80%) of the voting power of the Corporation shall be required for the approval
or authorization of any "Business Combination" (as hereinafter defined);
provided, however, that the eighty percent (80%) voting requirement shall not be
applicable, and the provisions of Delaware law and of this Certificate of
Incorporation relating to the percentage of stockholder approval, if any, shall
apply to any such Business Combination if:
(1) The Continuing Directors (as hereinafter defined) of the
Corporation by a two-thirds vote have expressly approved the Business
Combination either in advance of or subsequent to the acquisition of
outstanding shares of Common Stock of the Corporation that caused the
Related Person (as hereinafter defined) involved in the Business
Combination to become a Related Person; or
(2) If (A) the aggregate amount of the cash and the fair
market value of the property, securities or other consideration to be
received in the Business Combination by holders of the Common Stock of
the Corporation, other than the Related Person involved in the Business
Combination, is not less than the "Highest Per Share Price" (as
hereinafter defined) (with appropriate adjustments for
recapitalizations, reclassifications, stock splits, reverse stock
splits and stock dividends) paid by the Related Person in acquiring any
of its holdings of the Corporation's Common Stock, all as determined by
two-thirds of the Continuing Directors; and (B) if necessary, a proxy
statement complying with the requirements of the Securities Exchange
Act of 1934, as amended, shall have been mailed at least thirty (30)
days prior to any vote on the Business Combination, to all stockholders
of the Corporation for the purpose of soliciting stockholder approval
of the Business Combination. The proxy statement shall contain at the
front thereof, in a prominent place, the position of the Continuing
Directors as to the advisability (or inadvisability) of the Business
Combination and, if deemed appropriate by two-thirds of the Continuing
Directors, the opinion of an investment banking firm selected by
two-thirds of the Continuing Directors as to the fairness of the terms
of the Business combination, from the point of view of the holders of
the outstanding shares of capital stock of the Corporation other than
the Related Person involved in the Business Combination.
(b) For purposes of this ARTICLE ELEVENTH:
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(1) The term "Business Combination" shall mean (A) any merger,
consolidation or share exchange of the Corporation or any of its
subsidiaries into or with a Related Person, in each case irrespective
of which corporation or company is the surviving entity; (B) any sale,
lease, exchange, mortgage, pledge, transfer or other disposition to or
with a Related Person (in a single transaction or a series of related
transactions) of all or a Substantial Part (as hereinafter defined) of
the assets of the Corporation (including without limitation any
securities of a subsidiary of the Corporation) or a Substantial Part of
the assets of any of its subsidiaries; (C) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition to or with the
Corporation or to or with any of its subsidiaries (in a single
transaction or series of related transactions) of all or a Substantial
Part of the assets of a Related Person; (D) the issuance or transfer of
any securities of the Corporation or any of its subsidiaries by the
Corporation or any of its subsidiaries to a Related Person (other than
an issuance or transfer of securities which is effected on a pro rata
basis to all stockholders of the Corporation); (E) any reclassification
of securities (including any reverse stock split), recapitalization, or
any other transaction involving the Corporation or any of its
subsidiaries, that would have the effect of increasing the voting power
of a Related Person; (F) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation proposed by or on behalf
of a Related Person; (G) the acquisition by or on behalf of a Related
Person of shares constituting a majority of the voting power of the
Corporation; and (H) the entering into of any agreement, contract or
other arrangement providing for any of the transactions described in
this definition of Business combination.
(2) The term "Related Person" shall mean any individual,
corporation, partnership or other person or entity, other than the
Corporation or any of its subsidiaries or any benefit plan or trust (or
any trustee thereof), which, as of the record date for the
determination of stockholders entitled to notice of and to vote on any
Business Combination, or immediately prior to the consummation of such
transaction, together with its "Affiliates" and "Associates" (each as
defined in Rule 12b-2 of the Regulations under the Securities Exchange
Act of 1934 as in effect at the date of the adoption of this ARTICLE
ELEVENTH by the stockholders of the Corporation (collectively and as so
in effect, the "Exchange Act")), are "Beneficial Owners" (as defined in
Rule 13d-3 of the Exchange Act) in the aggregate of 10% or more of the
outstanding shares of Common Stock of the Corporation, and any
Affiliate or Associate of any such individual, corporation, partnership
or other person or entity. Notwithstanding the definition of
"Beneficial Owners" in this subparagraph 2, any Common Stock of the
Corporation that any Related Person has the right to acquire pursuant
to any agreement, or upon exercise of conversion rights, warrants or
options, or otherwise, shall be deemed beneficially owned by the
Related Person.
(3) The term "Substantial Part" shall mean more than 10% of
the fair market value, as determined by two-thirds of the continuing
Directors, of the total consolidated assets, or assets representing
more than 10% of the earning power, of the Corporation and its
subsidiaries taken as a whole, as of the end of its most recent fiscal
year ending prior to the time the determination is being made.
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(4) In the event of a Business Combination in which the
Corporation is the surviving corporation, the term "other consideration
to be received" shall include, without limitation, Common Stock or
other capital stock of the Corporation retained by stockholders of the
Corporation other than Related Persons or parties to such Business
Combination.
(5) The term "Continuing Directors" shall mean a director who
either (i) was a member of the Board of Directors of the Corporation
immediately prior to the time that the Related Person involved in a
Business Combination became a Related Person, or (ii) was designated
(before his or her initial election as a director) as a Continuing
Director by two-thirds of the then Continuing Directors.
(6) A Related Person shall be deemed to have acquired a share
of the Common Stock of the Corporation at the time when such Related
Person became the Beneficial Owner thereof. With respect to the shares
owned by Affiliates, Associates or other person whose ownership is
attributed to a Related Person under the foregoing definition of
Related Person, the price paid for said shares shall be deemed to be
the higher of (i) the price paid upon the acquisition thereof by the
Affiliate, Associate or other person, or (ii) the market price of the
shares in question at the time when the Related Person became the
Beneficial Owner thereof.
(7) The term "Highest Per Share Price" shall mean the highest
price determined by two-thirds of the Continuing Directors to have been
paid at any time by the Related Person for any share or shares of
Common Stock. In determining the Highest Per Share Price, all purchases
by the Related Person shall be taken into account regardless of whether
the shares were purchased before or after the Related Person became a
Related Person. The Highest Per Share Price shall include any brokerage
commission, transfer taxes and soliciting dealers' fees paid by the
Related Person with respect to the shares of Common Stock of the
Corporation acquired by the Related Person.
TWELFTH: To the extent not prohibited by law, the Corporation by action
of its Board of Directors may purchase shares of any class of stock issued by it
from any holder or holders thereof.
THIRTEENTH: The Corporation by action of its Board of Directors may
create and issue, from time to time, whether or not in connection with the
issuance and sale of any shares of stock or other securities of the Corporation,
rights, warrants and options entitling the holders thereof to purchase from the
Corporation shares of any class or classes of its capital stock or other
securities or property of the Corporation, or shares or other securities or
property of any successor in interest of the Corporation, at such times, in such
amounts, to such persons, for such consideration, if any, and upon such other
terms and conditions as the Board of Directors may deem advisable.
FOURTEENTH: The Corporation reserves the right to amend, alter, change
or repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation; provided, however,
that notwithstanding anything contained in the Certificate of
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Incorporation to the contrary, the affirmative vote of holders of not less than
eighty percent (80%) of the combined voting power of the outstanding shares of
stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class, shall be required to alter, amend,
adopt any provision inconsistent with or repeal ARTICLE SIXTH, ARTICLE SEVENTH,
ARTICLE EIGHTH, ARTICLE NINTH, ARTICLE ELEVENTH or this ARTICLE FOURTEENTH;
provided, further, that such eighty percent (80%) vote shall not be required for
any such alteration, amendment, adoption of any provision inconsistent with or
repeal of ARTICLE ELEVENTH which is recommended to stockholders by two-thirds of
the Continuing Directors and such alteration, amendment, adoption of
inconsistent provision or repeal shall require the vote, if any, required under
the applicable provisions of the DGCL and this Certificate of Incorporation.
FIFTEENTH: No sale, assignment, transfer or other disposition of shares
of Common Stock of the Corporation by any stockholder, whether voluntary or by
operation of law or by gift or otherwise, shall be effective unless and until
there is compliance with the following terms and conditions of this ARTICLE
FIFTEENTH:
(a) Any stockholder who desires to sell all or any part of such
stockholder's shares of Common Stock of the Corporation pursuant to a bona fide
offer to purchase such shares from a third party, including, without limitation,
another stockholder of the Corporation, shall, as a condition precedent to such
stockholder's right to do so, by notice in writing delivered to the Chairman of
the Board of the Corporation at the Corporation's principal executive offices,
inform the Corporation of such stockholder's intention to sell all or any part
of such stockholder's shares of Common Stock and the identity of the third party
to whom, and the terms pursuant to which, such shares are proposed to be sold,
and shall by such notice offer the shares that such stockholder desires to sell
for sale to the Corporation at the price per share at which, and the terms
pursuant to which, such stockholder proposes to sell such shares to such third
party. The Corporation shall have a period of fifteen (15) days after such
notice is received by it within which to indicate its election to exercise its
right to purchase, at such price and on such terms, all or any portion of such
shares. The Corporation may elect by notice in writing to such stockholder given
within such fifteen (15)-day period to purchase all or any portion of such
shares, and the shares selected by the Corporation for purchase must be sold at
such price and on such terms and transferred to the Corporation by such
stockholder. Delivery of such shares and payment therefor shall be made at the
principal executive offices of the Corporation within ten (10) days after notice
of the election to purchase is given by the Corporation to such stockholder. Any
of such shares offered by such stockholder to the Corporation and not selected
for purchase by the Corporation may then be sold by such stockholder to such
third party at a price and upon terms no more favorable than those set forth in
the notice of offer delivered to the Corporation; provided, however, that any
such sale must be completed within fortyfive (45) days after the date such
notice of offer was received by the Corporation; and provided further that such
third party shall receive and hold such shares subject to all the terms and
conditions of this ARTICLE FIFTEENTH. If such sale to such third party is not
completed within such fortyfive (45)-day period, such stockholder shall continue
to hold such shares subject to all the terms and conditions of this ARTICLE
FIFTEENTH and may not consummate a sale without again complying with the
provisions of this paragraph (a). Notwithstanding the foregoing provisions of
this paragraph
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(a), if the purchase price (or any portion thereof) of the shares proposed to be
sold by such stockholder to such third party consists of a consideration other
than cash, then the purchase price payable by the Corporation under this
paragraph (a) for any shares proposed to be sold for such noncash consideration
which are selected for purchase by the Corporation shall be a cash purchase
price per share in an amount equal to the Applicable Market Value (as defined in
paragraph (d) of this ARTICLE FIFTEENTH) of the Common Stock as of the date the
notice of offer relating to such shares was received by the Corporation.
(b) The terms and conditions of this ARTICLE FIFTEENTH shall not apply
to any disposition by any stockholder of all or any part of such stockholder's
shares of Common Stock of the Corporation by will or pursuant to the laws of
descent and distribution, or by gift, to or for the benefit of such
stockholder's spouse, father, mother or adopted or natural lineal descendants
(and if such transfer is in trust, the trustee, upon termination of the trust,
may transfer such shares to such beneficial owner); provided, however, that the
transferee of such shares shall receive and hold such shares subject to all the
terms and conditions of this ARTICLE FIFTEENTH.
(c) Dispositions by stockholders of shares of Common Stock of the
Corporation other than as provided for under paragraphs (a) and (b) of this
ARTICLE FIFTEENTH, whether voluntary or by operation of law or by gift or
otherwise, shall be subject to a right of first refusal in favor of the
corporation, which right of first refusal shall entitle the Corporation to
purchase, in accordance with the procedures specified in paragraph (a) of this
ARTICLE FIFTEENTH (including without limitation the delivery to the Corporation
of a notice of offer), all or any portion of the shares that are the subject of
such disposition; provided, however, that the purchase price payable by the
Corporation for any shares selected for purchase by the Corporation pursuant to
the exercise by it of such right of first refusal shall be a cash purchase price
per share in an amount equal to the Applicable Market Value of the Common Stock
as of the date the notice of offer relating to such shares was received by the
Corporation. The transferee of any such shares not so selected for purchase by
the Corporation shall receive and hold such shares subject to all the terms and
conditions of this ARTICLE FIFTEENTH.
(d) As used in this ARTICLE FIFTEENTH, the term "Applicable Market
Value" shall mean the fair market value of a share of Common Stock of the
Corporation as most recently fixed and determined (prior to the date of the
event giving rise to the use and application of such term) by independent
consultants to the Corporation selected and appointed by the Board of Directors
of the Corporation for the purpose of ascertaining Applicable Market Value. Such
independent consultants shall fix and determine the fair market value of a share
of Common Stock of the Corporation on a quarterly basis following the end of
each calendar quarter. In ascertaining such value, such consultants shall
consider the latest available financial statements and financial information of
the Corporation, projections and internal information relating to the
Corporation prepared by its management and furnished to such consultants for the
purpose of their analysis, publicly available information concerning other
companies and the trading markets for certain other companies' securities and
all other information such consultants believe relevant to their inquiry. The
value of a share of Common Stock shall be discounted to reflect, as and to the
extent deemed appropriate by
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the independent consultants, the minority nature of any individual's
shareholding and the lack of a public market for the Common Stock and consequent
illiquidity.
(e) The restrictions on transfer set forth in this ARTICLE FIFTEENTH
shall terminate and be of no further force or effect in the event the Common
Stock of the Corporation becomes publicly traded on an established securities
market. Nothing contained in this ARTICLE FIFTEENTH shall be deemed to limit the
scope or effect of any other restrictions on transfer which may be imposed on
shares of Common Stock of the Corporation pursuant to the terms of any employee
benefit plan, arrangement or program of the Corporation or any of its
subsidiaries or any agreement between the Corporation and an employee of the
Corporation or any of its subsidiaries.
4. This Restated Certificate of Incorporation shall become effective at
the close of business, Dallas, Texas time, on the day on which it shall be filed
in the office of the Secretary of State of the State of Delaware.
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EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
LENNOX INTERNATIONAL INC.
(A Delaware Corporation)
as of
September 11, 1998
ARTICLE I.
OFFICES
Section 1. Registered Office. The registered office of Lennox
International Inc. (the "Corporation") in the State of Delaware shall be at
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle, and the registered agent in charge thereof shall be The
Corporation Trust Company.
Section 2. Other Offices. The Corporation may also have an office or
offices, and keep the books and records of the Corporation, except as may
otherwise be required by law, at such other place or places, either within or
without the State of Delaware, as the Board of Directors may from time to time
determine or the business of the Corporation may require.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meeting. All meetings of the stockholders shall be
held at the principal executive offices of the Corporation or at such other
places, either within or without the State of Delaware, as may from time to time
be fixed by the Board of Directors, the Chairman of the Board or the President.
Section 2. Annual Meetings. The annual meetings of stockholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held on such date and at such time and
place as may from time to time be established by the Board of Directors, the
Chairman of the Board or the President.
Section 3. Special Meetings. Except as otherwise required by law,
special meetings of the stockholders for any purpose or purposes may be called
only by (i) the Board of Directors, (ii) the Chairman of the Board or (iii) the
President. Only such business as is specified in the notice of any special
meeting of the stockholders shall come before such meeting.
<PAGE> 2
Section 4. Notice of Meetings. Except as otherwise provided in this
Section 4 or by law, written notice of each meeting of the stockholders, whether
annual or special, shall be given, either by personal delivery or by mail, not
less than ten nor more than sixty days before the date of the meeting to each
stockholder of record entitled to notice of the meeting, unless the meeting is
called for the purpose of acting on an agreement of merger or consolidation
involving the Corporation or for the purpose of authorizing the sale, lease or
exchange of all or substantially all of the property and assets of the
Corporation, in which case the notice of the meeting shall be given at least
twenty days prior to the date of the meeting. If mailed, such notice shall be
deemed given when deposited in the United States mail, postage prepaid, directed
to the stockholder at such stockholder's address as it appears on the records of
the Corporation. Each such notice shall state the place, date and hour of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. Notice of any meeting of stockholders shall not be
required to be given to any stockholder who shall waive notice thereof as
provided in Article X of these Bylaws. Notice of adjournment of a meeting of
stockholders need not be given if the time and place to which it is adjourned
are announced at such meeting, unless the adjournment is for more than thirty
days or, after adjournment, a new record date is fixed for the adjourned
meeting.
Whenever notice is required to be given by these Bylaws or by law to
any stockholder to whom (i) notice of two consecutive annual meetings of the
stockholders, and all notices of meetings to such person during the period
between such two consecutive annual meetings, or (ii) all, and at least two,
payments (if sent by first class mail) of dividends or interest on securities
during a twelve-month period, have been mailed addressed to such person at such
person's address as shown on the records of the Corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the Corporation a written notice
setting forth such person's then current address, the requirement that notice be
given to such person shall be reinstated.
Section 5. Quorum. Except as otherwise provided by law or the
Certificate of Incorporation or these Bylaws, the holders of a majority of the
outstanding shares of stock of each class entitled to be voted, present in
person or represented by proxy, shall constitute a quorum for the transaction of
business at any meeting of the stockholders. For purposes of the foregoing, two
or more classes or series of stock shall be considered a single class if the
holders thereof are entitled to vote together as a single class at the meeting.
The stockholders present or represented at a duly organized meeting may continue
to transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum. Shares of the Corporation's own
capital stock belonging on the record date for the meeting to the Corporation or
to another corporation, if a majority of the shares entitled to vote in the
election of directors of such other corporation is held, directly or indirectly,
by the Corporation, shall neither be entitled to vote nor be counted for quorum
purposes; provided, however, that the foregoing shall not limit the right of the
Corporation to vote stock, including, but not limited to, its own stock, held by
it in a fiduciary capacity.
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Section 6. Adjournments. In the absence of a quorum, the holders of a
majority of the shares of stock entitled to be voted at the meeting, present in
person or represented by proxy, may adjourn the meeting from time to time. At
any such adjourned meeting at which a quorum is present, any business may be
transacted which might have been transacted at the meeting as originally called.
Section 7. Order of Business. At each meeting of the stockholders, the
Chairman of the Board, or in the absence of the Chairman of the Board, the
President, shall act as chairman. The order of business at each such meeting
shall be as determined by the chairman of the meeting. The chairman of the
meeting shall have the right and authority to prescribe such rules, regulations
and procedures and to do all such acts and things as are necessary or desirable
for the proper conduct of the meeting, including, without limitation, the
establishment of procedures for the maintenance of order and safety, limitations
on the time allotted to questions or comments on the affairs of the Corporation,
restrictions on entry to such meeting after the time prescribed for the
commencement thereof and the opening and closing of the voting polls.
Section 8. List of Stockholders. It shall be the duty of the Secretary
or other officer of the Corporation who has charge of the stock ledger of the
Corporation to prepare and make, at least ten days before each meeting of
stockholders, a complete list of the stockholders entitled to vote thereat,
arranged in alphabetical order, and showing the address of each stockholder and
the number of shares registered in such stockholder's name. Such list shall be
produced and kept available at the times and places required by law.
Section 9. Voting. Except as otherwise provided by law or in the
Certificate of Incorporation, each stockholder of record shall be entitled at
each meeting of the stockholders to one vote for each share of stock which has
voting power upon the matter in question, registered in such stockholder's name
on the books of the Corporation:
(a) on the date fixed pursuant to Section 6 of Article VII of
these Bylaws as the record date for the determination of stockholders
entitled to notice of and to vote at such meeting; or
(b) if no such record date shall have been so fixed, then at
the close of business on the day next preceding the date on which
notice of such meeting is given, or, if notice is waived, at the close
of business on the day next preceding the day on which the meeting is
held.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for such stockholder by a proxy
signed by such stockholder or such stockholder's attorney-in-fact or by any
other means which constitutes a valid grant of a proxy under the General
Corporation Law of the State of Delaware. Any such proxy relating to a meeting
of stockholders shall be delivered to the secretary of such meeting at or prior
to the time designated for holding such meeting but, in any event, not later
than the time designated in the order of business for so delivering such
proxies. No such proxy shall be voted or acted upon after three years from
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its date, unless the proxy provides for a longer period. A duly executed proxy
shall be irrevocable if it states that it is irrevocable and if, and only as
long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A stockholder may revoke any proxy which is not irrevocable
by attending the meeting and voting in person or by filing an instrument in
writing revoking the proxy or another duly executed proxy bearing a later date
than the original proxy with the Secretary of the Corporation.
At each meeting of the stockholders, all corporate actions, other than
the election of directors, to be taken by vote of the stockholders (except as
otherwise required by law or the Certificate of Incorporation or these Bylaws)
shall be authorized by a majority of the outstanding shares of all classes of
stock entitled to vote thereon, present in person or represented by proxy;
provided that (except as otherwise required by law or by the Certificate of
Incorporation) the Board of Directors may require a larger vote upon any
election or question. Directors shall be elected by a plurality of the votes of
the shares present in person or represented by proxy at the meeting and entitled
to vote on the election of the directors.
Unless required by law or determined by the chairman of the meeting to
be advisable, the vote on any matter, including the election of directors, need
not be by written ballot. In the case of a vote by written ballot, each ballot
shall be signed by the stockholder voting, or by such stockholder's proxy, and
shall state the number of shares voted.
Section 10. Inspectors. Except as otherwise provided by law, either the
Board of Directors or, in the absence of a designation of inspectors by the
Board, the chairman of any meeting of stockholders may, in its or such person's
discretion, appoint one or more inspectors to act at any meeting of
stockholders. Such inspectors shall perform such duties as shall be specified by
the Board or the chairman of the meeting. Inspectors need not be stockholders.
No director or nominee for the office of director shall be appointed such an
inspector.
Section 11. Action Without a Meeting. Except as otherwise provided in
the Certificate of Incorporation, any action required by law to be taken at any
annual or special meeting of the stockholders, or any action which may be taken
at any annual or special meeting of the stockholders, may not be effected by
consent in writing in lieu of a meeting by such stockholders.
Section 12. Notice of Stockholder Business. At a meeting of the
stockholders, only such business shall be conducted, and only such proposals
shall be acted upon, as shall have been properly brought before the meeting. To
be properly brought before a meeting, business or a proposal must (a) be
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors or the persons calling the meeting as
herein provided, (b) otherwise be properly brought before the meeting by or at
the direction of the Board of Directors or (c) otherwise (i) be properly
requested to be brought before the meeting by a stockholder of record entitled
to vote in the election of directors generally, and (ii) constitute a proper
subject to be brought before such meeting.
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For business or a proposal to be properly brought before a meeting of
stockholders, any stockholder who intends to bring any matter (other than the
election of directors) before a meeting of stockholders and is entitled to vote
on such matter must deliver written notice of such stockholder's intent to bring
such matter before the meeting of stockholders, either by personal delivery or
by United States mail, postage prepaid, to the Secretary of the Corporation.
Such notice must be received by the Secretary: (i) with respect to an annual
meeting of stockholders, not less than sixty days nor more than ninety days in
advance of such meeting; and (ii) with respect to any special meeting of
stockholders, not later than the close of business on the tenth day following
the date on which notice of such meeting is first given to stockholders;
provided, however, that in the event that less than seventy (70) days notice or
prior public disclosure of the date of the annual meeting of stockholders is
given or made to the stockholders, to be timely, notice of a proposal delivered
by the stockholder must be received by the Secretary not later than the close of
business on the tenth day following the day on which notice of the date of the
annual meeting of stockholders was mailed or such public disclosure was made to
the stockholders.
A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the meeting of stockholders (a)
a brief description of the business or proposal desired to be brought before the
meeting and the reasons for conducting such business at the meeting, (b) the
name and address, as they appear on the Corporation's books, of the stockholder
proposing such business and any other stockholders known to be supporting the
proposal, (c) the class or classes of stock and number of shares of such class
or classes of stock which are beneficially owned by the proposing stockholder on
the date of the stockholder notice, and (d) any material interest of the
proposing stockholder in such business.
No business shall be conducted at a meeting of stockholders except in
accordance with the procedures set forth in this Section 12. The Board of
Directors may reject any stockholder proposal submitted for consideration at a
meeting of stockholders which is not made in accordance with the terms of this
Section 12 or which is not a proper subject for stockholder action in accordance
with provisions of applicable law. Alternatively, if the Board of Directors
fails to consider the validity of any such stockholder proposal, the presiding
officer of a meeting shall, if the facts warrant, determine and declare to the
meeting that (i) the business proposed to be brought before the meeting is not a
proper subject therefor and/or (ii) such business was not properly brought
before the meeting in accordance with the provisions hereof, and if he should so
determine, he shall declare to the meeting that (i) the business proposed to be
brought before the meeting is not a proper subject therefor and/or (ii) such
business was not properly brought before the meeting and shall not be
transacted. The Board of Directors or, as the case may be, the presiding officer
of the meeting shall have absolute authority to decide questions of compliance
with the foregoing procedures and the Board of Directors' or, as the case may
be, the presiding officer's ruling thereon shall be final and conclusive. This
provision shall not prevent the consideration and approval or disapproval at the
annual meeting of stockholders of reports of officers, directors and committees
of the Board of Directors, but, in connection with such reports, no new business
shall be acted upon at such meeting unless stated, filed and received as herein
provided.
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ARTICLE III.
BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors, which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by law or by the Certificate of Incorporation of the
Corporation directed or required to be exercised or done by the stockholders.
Section 2. Number, Qualifications and Election. The exact number of
directors which shall constitute the whole Board shall be fixed from time to
time by resolution of the Board of Directors; provided, however, that the number
so fixed shall not be less than three nor more than fifteen; and provided
further that no decrease in the number of directors constituting the Board shall
have the effect of shortening the term of any incumbent director.
Each director shall be at least twenty-one years of age. No person
shall be qualified for election or appointment as a director who, on or before
the date set for election or appointment, has attained seventy or more years of
age. Directors need not be stockholders of the Corporation.
The Board of Directors is specifically authorized to divide the Board
into three classes, as authorized by the Delaware General Corporation Law and
the Certificate of Incorporation, designated Class I, Class II and Class III, as
nearly equal in number as the then total number of directors constituting the
whole Board permits. The term of office of each class shall expire at the third
annual meeting of stockholders for election of directors following the election
of such class, except that the initial term of office of the Class I directors
shall expire at the annual meeting of stockholders in 1996, the initial term of
office of the Class II directors shall expire at the annual meeting of
stockholders in 1997 and the initial term of office of the Class III directors
shall expire at the annual meeting of stockholders in 1998. At each annual
meeting of stockholders, directors of the class whose term then expires shall be
elected for a full term of three (3) years to succeed the directors of such
class so that the term of office of the directors of one class shall expire in
each year.
In any election of directors, the persons receiving a plurality of the
votes cast, up to the number of directors to be elected in such election, shall
be deemed elected. The stockholders of the Corporation are expressly prohibited
from cumulating their votes in any election of directors of the Corporation.
Each director shall hold office until his or her successor is elected and
qualified or until his or her earlier resignation or removal.
Section 3. Notification of Nominations. Except for directors elected
pursuant to the provisions of Section 13 of this Article III, only individuals
nominated for election to the Board of Directors pursuant to and in accordance
with the provisions of this Section 3 may be elected to and may serve upon the
Board of Directors of the Corporation. Nominations for the election of directors
may be made by the Board of Directors or by any stockholder entitled to vote in
the election of
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directors generally. Subject to the foregoing, only a stockholder of record
entitled to vote in the election of directors generally may nominate one or more
persons for election as directors at a meeting of stockholders and only if
written notice of such stockholder's intent to make such nomination or
nominations has been given, either by personal delivery or by United States
mail, postage prepaid, to the Secretary of the Corporation and has been received
by the Secretary: (i) with respect to an election to be held at an annual
meeting of stockholders, not less than sixty days nor more than ninety days in
advance of such meeting; and (ii) with respect to an election to be held at a
special meeting of stockholders for the election of directors, not later than
the close of business on the tenth day following the date on which notice of
such meeting is first given to stockholders; provided, however, that in the
event that less than seventy (70) days' notice or prior public disclosure of the
date of the meeting of stockholders is given or made to stockholders, to be
timely, notice of a nomination delivered by such stockholder must be received by
the Secretary not later than the close of business on the tenth day following
the day on which notice of the date of the meeting of stockholders was mailed or
such public disclosure was made to the stockholders.
Each such notice shall set forth:
(a) the name, age, business address and residence address, and
the principal occupation or employment of any nominee proposed in such
notice;
(b) the name and address of the stockholder or stockholders
giving the notice as the same appears in the Corporation's stock
ledger;
(c) a representation that each nominating stockholder is a
holder of record of stock of the Corporation entitled to vote at such
meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice, and the number
of shares of stock of the Corporation which are beneficially owned by
such stockholder and by any such person or persons;
(d) a description of all arrangements or understandings
between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; and
(e) such other information regarding each nominee proposed by
such stockholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and
Exchange Commission soliciting proxies for the election of such
nominee, had the Corporation been subject to such proxy rules and had
the nominee been nominated, or intended to be nominated, by the Board
of Directors.
At the request of the Board of Directors, any person nominated for
election as a director shall furnish to the Secretary the information required
by this Section 3 to be set forth in a stockholder's notice of nomination which
pertains to the nominee.
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To be effective, each notice of intent to make a nomination given
hereunder shall be accompanied by the written consent of each nominee to serve
as a director of the Corporation if elected.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not properly brought before the
meeting in accordance with the provisions hereof and, if he should so determine,
he shall declare to the meeting that such nomination was not properly brought
before the meeting and shall not be considered. The chairman of a meeting of
stockholders shall have absolute authority to decide questions of compliance
with the foregoing procedures and such chairman's ruling thereon shall be final
and conclusive.
Section 4. Quorum and Manner of Acting. Except as otherwise provided by
law or in Article IV of these Bylaws, (i) a majority of the entire Board of
Directors shall constitute a quorum for the transaction of business at any
meeting of the Board and (ii) the vote of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the Board unless the
Certificate of Incorporation or these Bylaws require a vote of a greater number.
In the absence of a quorum, a majority of the directors present may adjourn the
meeting to another time and place. At any adjourned meeting at which a quorum is
present, any business that might have been transacted at the meeting as
originally called may be transacted.
Section 5. Place of Meeting. The Board of Directors may hold its
meetings at such place or places within or without the State of Delaware as the
Board may from time to time determine or as shall be specified or fixed in the
respective notices or waivers of notice thereof.
Section 6. Annual Meetings. The first meeting of each newly elected
Board of Directors shall be held for the purpose of organization and the
transaction of any other business, without notice, immediately following the
annual meeting of stockholders, and at the same place, unless such time or place
shall be changed by the Board.
Section 7. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such times and places as the Board shall from time to time by
resolution determine. If any day fixed for a regular meeting shall be a legal
holiday under the laws of the place where the meeting is to be held, the meeting
that would otherwise be held on that day shall be held at the same hour on the
next succeeding business day.
Section 8. Special Meetings. Special meetings of the Board of Directors
shall be held whenever called by the Chairman of the Board or the President or
by any two or more directors.
Section 9. Notice of Meetings. Notice of annual and regular meetings of
the Board of Directors or of any adjourned meeting thereof need not be given.
Notice of each special meeting of the Board shall be mailed to each director,
addressed to such director at such director's residence or usual place of
business, not later than the third day before the day on which the meeting is to
be held or shall be sent to such director at such place by facsimile
transmission, telegram or telex or be given
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personally or by telephone, not later than the day before the meeting is to be
held, but notice need not be given to any director who shall waive notice
thereof as provided in Article X of these Bylaws. Every such notice shall state
the time and place but need not state the purpose of the meeting.
Section 10. Participation in Meeting by Means of Communication
Equipment. Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, any one or more members of the Board of Directors or any committee
thereof may participate in any meeting of the Board or of any such committee by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and such
participation shall constitute presence in person at such meeting.
Section 11. Action Without a Meeting. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board or
of any such committee consent thereto in writing and the writing or writings are
filed with the minutes of proceedings of the Board or of such committee.
Section 12. Resignations; Removal. Any director of the Corporation may
at any time resign by giving written notice to the Board of Directors, the
Chairman of the Board, the President or the Secretary of the Corporation. Such
resignation shall take effect at the time specified therein or, if the time be
not specified, upon delivery thereof; and unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
A director may be removed from office only for cause and by the affirmative vote
of the holders of not less than eighty percent (80%) of all the outstanding
shares of stock of the Corporation entitled to vote generally in the election of
directors at a special meeting of stockholders called expressly for that
purpose.
Section 13. Vacancies. Unless otherwise provided in the Certificate of
Incorporation or these Bylaws, vacancies on the Board of Directors and newly
created directorships resulting from any increase in the authorized number of
directors may be filled by a majority of the directors then in office, though
less than a quorum, or by a sole remaining director, and the directors so chosen
shall hold office until the next annual election of the class for which such
directors shall have been chosen, and until their successors are duly elected
and shall qualify, unless sooner displaced. If there are no directors in office
then an election of directors may be held in the manner provided by the
statutes.
Section 14. Compensation. Each director who shall not at the time also
be a salaried officer or employee of the Corporation or any of its subsidiaries
(an "outside director"), in consideration of such person serving as a director,
shall be entitled to receive from the Corporation such amount per annum and such
fees for attendance at meetings of the Board of Directors or of committees of
the Board, or both, as the Board shall from time to time determine. In addition,
each outside director shall be entitled to receive from the Corporation
reimbursement for the reasonable expenses incurred by such person in connection
with the performance of such person's duties as a director. Nothing
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contained in this Section 14 shall preclude any director from serving the
Corporation or any of its subsidiaries in any other capacity and receiving
compensation therefor.
Section 15. Interested Directors. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because such person's or
persons' votes are counted for such purpose, if: (i) the material facts as to
such person's relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
such person's relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified by the Board of Directors,
a committee thereof or the stockholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee which authorizes the contract or transaction.
ARTICLE IV.
EXECUTIVE AND OTHER COMMITTEES
Section 1. Executive Committee. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate annually two or
more of its members to constitute members or alternate members of an Executive
Committee, which Committee shall have and may exercise, between meetings of the
Board, all the powers and authority of the Board in the management of the
business and affairs of the Corporation, including, if such Committee is so
empowered and authorized by resolution adopted by a majority of the whole Board,
the power and authority to declare a dividend and to authorize the issuance of
stock, and may authorize the seal of the Corporation to be affixed to all papers
that may require it, except that the Executive Committee shall not have such
power or authority in reference to:
(a) amending the Certificate of Incorporation of the
Corporation;
(b) adopting an agreement of merger or consolidation involving
the Corporation;
(c) recommending to the stockholders the sale, lease or
exchange of all or substantially all of the property and assets of the
Corporation;
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(d) recommending to the stockholders a dissolution of the
Corporation or a revocation of a dissolution;
(e) adopting, amending or repealing any bylaw of the
Corporation;
(f) filling vacancies on the Board of Directors or any
committee of the Board, including the Executive Committee; or
(g) amending or repealing any resolution of the Board of
Directors which by its terms may be amended or repealed only by the
Board.
The Board shall have the power at any time to change the membership of the
Executive Committee, to fill all vacancies in it and to discharge it, either
with or without cause.
Section 2. Other Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate from among its members one or
more other committees, each of which shall, except as otherwise prescribed by
law, have such authority of the Board as may be specified in the resolution of
the Board designating such committee. A majority of all members of such
committee may determine its action and fix the time and place of its meetings,
unless the Board shall otherwise provide. The Board shall have the power at any
time to change the membership of, to fill all vacancies in and to discharge any
such committee, either with or without cause.
Section 3. Procedure, Meetings, Quorum. Regular meetings of the
Executive Committee or any other committee of the Board of Directors, of which
no notice shall be necessary, may be held at such times and places as shall be
fixed by resolution adopted by a majority of the members thereof. Special
meetings of the Executive Committee or any other committee of the Board shall be
called at the request of any member thereof. Notice of each special meeting of
the Executive Committee or any other committee of the Board shall be sent by
mail, facsimile transmission, telegram, telex or telephone, or be delivered
personally, to each member thereof not later than the day before the day on
which the meeting is to be held, but notice need not be given to any member who
shall waive notice thereof as provided in Article X of these Bylaws. Any special
meeting of the Executive Committee or any other committee of the Board shall be
a legal meeting without any notice thereof having been given if all the members
thereof shall be present thereat. Notice of any adjourned meeting of the
Executive Committee or any other committee of the Board need not be given. The
Executive Committee or any other committee of the Board may adopt such rules and
regulations not inconsistent with the provisions of law, the Certificate of
Incorporation of the Corporation or these Bylaws for the conduct of its meetings
as the Executive Committee or such other committee deems proper. A majority of
the Executive Committee or any other committee of the Board shall constitute a
quorum for the transaction of business at any meeting, and the vote of a
majority of the members thereof present at any meeting at which a quorum is
present shall be the act of such committee. The Executive Committee and any
other committee of the Board shall keep written minutes of its proceedings and
shall report on such proceedings to the Board.
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ARTICLE V.
OFFICERS
Section 1. Number, Term of Office. The officers of the Corporation
shall be elected by the Board of Directors and shall be a Chairman of the Board,
a President, one or more Vice Presidents as may be determined from time to time
by the Board (and in the case of each such Vice President, with such descriptive
title, if any, including that of Executive Vice President, as the Board shall
deem appropriate), a Treasurer, a Secretary and such other officers or agents
with such titles and such duties as the Board of Directors may from time to time
determine, each to have such authority, functions or duties as in these Bylaws
provided or as the Board may from time to time determine, and each to hold
office for such term as may be prescribed by the Board and until such person's
successor shall have been elected and shall qualify, or until such person's
death or resignation, or until such person's removal in the manner hereinafter
provided. The Chairman of the Board shall be elected from among the directors.
One person may hold the offices and perform the duties of any two or more of
said officers; provided, however, that no officer shall execute, acknowledge or
verify any instrument in more than one capacity if such instrument is required
by law, the Certificate of Incorporation of the Corporation or these Bylaws to
be executed, acknowledged or verified by two or more officers. The Board may
from time to time authorize any officer to appoint and remove any such other
officers and agents and to prescribe their powers and duties.
Section 2. Removal. Any officer may be removed, either with or without
cause, by the Board of Directors at any meeting thereof, or, except in the case
of any officer elected by the Board, by any committee or superior officer upon
whom such power may be conferred by the Board.
Section 3. Resignation. Any officer may at any time resign by giving
written notice to the Board of Directors, the Chairman of the Board, the
President or the Secretary of the Corporation. Any such resignation shall take
effect at the date of delivery of such notice or at any later date specified
therein, and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal or any other cause may be filled for the unexpired portion
of the term in the manner prescribed in these Bylaws for election to such
office.
Section 5. Chairman of the Board. The Chairman of the Board shall have
general supervision and direction of the business and affairs of the
Corporation, subject to the control of the Board of Directors. The Chairman of
the Board shall, if present, preside at meetings of the stockholders, meetings
of the Board and meetings of the Executive Committee. The Chairman of the Board
shall perform such other duties as the Board or the Executive Committee may from
time to time determine. The Chairman of the Board may sign and execute in the
name of the Corporation deeds, mortgages, bonds, contracts or other instruments
authorized by the Board or any committee thereof empowered to authorize the
same.
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Section 6. President. The President shall, if present and in the
absence of the Chairman of the Board, preside at meetings of the stockholders,
meetings of the Board and meetings of the Executive Committee. The President
shall counsel with and advise the Chairman of the Board and perform such other
duties as the Board, the Executive Committee or the Chairman of the Board may
from time to time determine. The President may sign and execute in the name of
the Corporation deeds, mortgages, bonds, contracts or other instruments
authorized by the Board or any committee thereof empowered to authorize the
same.
Section 7. Vice Presidents. Each Vice President shall have such powers
and duties as shall be prescribed by the Chairman of the Board, the President or
the Board of Directors. Any Vice President may sign and execute in the name of
the Corporation deeds, mortgages, bonds, contracts or other instruments
authorized by the Board or any committee thereof empowered to authorize the
same.
Section 8. Treasurer. The Treasurer shall perform all duties incident
to the office of Treasurer and such other duties as from time to time may be
assigned to the Treasurer by the Chairman of the Board, the President or the
Board of Directors. The Board may require the Treasurer to give security for the
faithful performance of such person's duties.
Section 9. Secretary. It shall be the duty of the Secretary to act as
secretary at all meetings of the Board of Directors, of the Executive Committee
and of the stockholders and to record the proceedings of such meetings in a book
or books kept for that purpose; the Secretary shall see that all notices
required to be given by the Corporation are duly given and served; the Secretary
shall be custodian of the seal of the Corporation (if one is adopted) and shall
affix the seal or cause it to be affixed to all certificates of stock of the
Corporation (unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and to all documents, the execution of which
on behalf of the Corporation under its seal is duly authorized in accordance
with the provisions of these Bylaws; the Secretary shall have charge of the
stock ledger books and also of the other books, records and papers of the
Corporation and shall see that the reports, statements and other documents
required by law are properly kept and filed; and the Secretary shall in general
perform all duties incident to the office of Secretary and such other duties as
from time to time may be assigned to such person by the Chairman of the Board,
the President or the Board of Directors.
Section 10. Assistant Treasurers and Assistant Secretaries. If elected,
the Assistant Treasurers and Assistant Secretaries shall perform such duties as
shall be assigned to them by the Treasurer and Secretary, respectively, or by
the Chairman of the Board, the President or the Board of Directors. The Board
may require any Assistant Treasurer to give security for the faithful
performance of such person's duties.
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ARTICLE VI.
INDEMNIFICATION
Section 1. General. Each person who at any time shall serve or shall
have served as a Director or officer of the Corporation, or any person who,
while a director or officer of the Corporation, is or was serving at the request
of the Corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise, shall be entitled to (a)
indemnification and (b) the advancement of expenses incurred by such person from
the Corporation as, and to the fullest extent, permitted by Section 145 of the
General Corporation Law of the State of Delaware or any successor statutory
provision, as from time to time amended. The Corporation may indemnify any other
person, to the same extent and subject to the same limitations specified in the
immediately preceding sentence, by reason of the fact that such other person is
or was an employee or agent of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise. The foregoing right of
indemnification and advancement of expenses provided shall not be deemed
exclusive of any other rights to which any person seeking indemnification or
advancement of expenses may be entitled under any agreement, vote of
stockholders or disinterested directors of the Corporation or otherwise, both as
to action in such person's official capacity and as to action in another
capacity while holding such office. All rights to indemnification under this
Article shall be deemed to be provided by a contract between the Corporation and
the director, officer, employee or agent who served in such capacity at any time
while this Article and other relevant provisions of the General Corporation Law
of the State of Delaware and other applicable law, if any, are in effect. Any
repeal or modification thereof shall not affect any rights or obligations then
existing. Without limiting the provisions of this Article, the Corporation is
authorized from time to time, without further action by the stockholders of the
Corporation, to enter into agreements with any director or officer of the
Corporation providing such rights of indemnification as the Corporation may deem
appropriate, up to the maximum extent permitted by law. Any agreement entered
into by the Corporation with a director may be authorized by the other
directors, and such authorization shall not be invalid on the basis that similar
agreements may have been or may thereafter be entered into with other directors.
Section 2. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of such person's status as such, whether or
not the Corporation would have had the power to indemnify such person against
such liability under the applicable provisions of this Article VI or the General
Corporation Law of the State of Delaware.
ARTICLE VII.
CAPITAL STOCK
Section 1. Certificates For Shares. Certificates representing shares of
stock of the Corporation, whenever authorized by the Board of Directors, shall
be in such form as shall be approved by the Board. The certificates representing
shares of stock shall be signed by, or in the
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name of, the Corporation by the Chairman of the Board or the President or a Vice
President and by the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer of the Corporation, and sealed with the seal of the
Corporation (if one has been adopted), which may be by a facsimile thereof. Any
or all such signatures may be facsimiles. Although any officer, transfer agent
or registrar who has signed or whose facsimile signature has been placed upon a
certificate ceases to be such officer, transfer agent or registrar before such
certificate is issued, it may nevertheless be issued by the Corporation with the
same effect as if such officer, transfer agent or registrar were still such at
the date of issue.
The stock ledger and blank share certificates shall be kept by the
Secretary or a transfer agent or by a registrar or by any other officer or agent
designated by the Board.
Section 2. Transfer of Shares. Transfer of shares of stock of the
Corporation shall be made only on the books of the Corporation by the holder
thereof, or by such holder's attorney thereunto authorized by a power of
attorney duly executed and filed with the Secretary of the Corporation or a
transfer agent for such stock, if any, and on surrender of the certificate or
certificates for such shares properly endorsed or accompanied by a duly executed
stock transfer power and the payment of all taxes thereon. The person in whose
name shares stand on the books of the Corporation shall be deemed the owner
thereof for all purposes as regards the Corporation; provided, however, that
whenever any transfer of shares shall be made for collateral security and not
absolutely, and written notice thereof shall be given to the Secretary or to
such transfer agent, such fact shall be stated in the entry of the transfer. No
transfer of shares shall be valid as against the Corporation, its stockholders
and creditors for any purpose until it shall have been entered in the stock
records of the Corporation by an entry showing from and to whom transferred.
Section 3. Address of Stockholders. Each stockholder shall designate to
the Secretary or transfer agent of the Corporation an address at which notices
of meetings and all other corporate notices may be served or mailed to such
person, and, if any stockholder shall fail to designate such address, corporate
notices may be served upon such person by mail directed to such person at such
person's post office address, if any, as the same appears on the share record
books of the Corporation or at such person's last known post office address.
Section 4. Lost, Destroyed and Mutilated Certificates. The holder of
any share of stock of the Corporation shall immediately notify the Corporation
of any loss, theft, destruction or mutilation of the certificate therefor; the
Corporation may issue to such holder a new certificate or certificates for
shares, upon the surrender of the mutilated certificate or, in the case of loss,
theft or destruction of the certificate, upon satisfactory proof of such loss,
theft or destruction; and the Board of Directors, or a committee designated
thereby, may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or such person's legal representative, to give the Corporation a
bond in such sum and with such surety or sureties as it may direct to indemnify
the Corporation and said transfer agents and registrars against any claim that
may be made on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
15
<PAGE> 16
Section 5. Regulations. The Board of Directors may make such additional
rules and regulations as it may deem expedient concerning the issue and transfer
of certificates representing shares of stock of the Corporation and may make
such rules and take such action as it may deem expedient concerning the issue of
certificates in lieu of certificates claimed to have been lost, stolen,
destroyed or mutilated.
Section 6. Fixing Record Date for Determination of Stockholders of
Record. In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors, and which record date shall not be more than sixty nor
less than ten days before the date of such meeting. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or entitled to exercise any rights in respect of any change, conversion
or exchange of stock, or for the purpose of any other lawful action, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board adopts the resolution relating thereto.
ARTICLE VIII.
SEAL
The Board of Directors may provide a corporate seal, which, if adopted,
shall be in the form of a circle and shall bear the full name of the Corporation
and the words "Corporate Seal Delaware" or such other words or figures as the
Board of Directors may approve and adopt. The seal may be used by causing it or
a facsimile thereof to be impressed or affixed or in any other manner
reproduced.
ARTICLE IX.
FISCAL YEAR
The twelve-month period ending at midnight on December 31 in each year
shall be the fiscal year of the Corporation.
16
<PAGE> 17
ARTICLE X.
WAIVER OF NOTICE
Whenever any notice whatsoever is required to be given by these Bylaws,
by the Certificate of Incorporation of the Corporation or by law, the person
entitled thereto may, either before or after the meeting or other matter in
respect of which such notice is to be given, waive such notice in writing, which
writing shall be filed with or entered upon the records of the meeting or the
records kept with respect to such other matter, as the case may be, and in such
event such notice need not be given to such person and such waiver shall be
deemed equivalent to notice. Neither the business to be transacted at, nor the
purpose of, any meeting of the stockholders, the Board of Directors or any
committee of the Board need be specified in any waiver of notice of such
meeting. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
ARTICLE XI.
AMENDMENTS
To the extent permitted by law and the Certificate of Incorporation,
these Bylaws may be altered, amended or repealed or new bylaws may be adopted by
the Board of Directors at any annual, regular or special meeting of the Board.
ARTICLE XII.
MISCELLANEOUS
Section 1. Execution of Documents. The Board of Directors or any
committee thereof shall designate the officers, employees and agents of the
Corporation who shall have power to execute and deliver deeds, contracts,
mortgages, bonds, debentures, notes, checks, drafts and other orders for the
payment of money and other documents for and in the name of the Corporation and
may authorize such officers, employees and agents to delegate such power
(including authority to redelegate) by written instrument to other officers,
employees or agents of the Corporation. Such delegation may be by resolution or
otherwise and the authority granted shall be general or confined to specific
matters, all as the Board or such committee may determine. In the absence of
such designation referred to in the first sentence of this Section 1, the
officers of the Corporation shall have such power so referred to, to the extent
incident to the normal performance of their duties.
Section 2. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
or otherwise as the Board of Directors or any
17
<PAGE> 18
committee thereof or any officer of the Corporation to whom power in that
respect shall have been delegated by the Board or any such committee shall
select.
Section 3. Checks. All checks, drafts and other orders for the payment
of money out of the funds of the Corporation, and all notes or other evidence of
indebtedness of the Corporation, shall be signed on behalf of the Corporation in
such manner as shall from time to time be determined by resolution of the Board
of Directors or of any committee thereof. In the absence of such resolution
referred to in the immediately preceding sentence, the officers of the
Corporation shall have such power so referred to, to the extent incident to the
normal performance of their duties.
Section 4. Proxies in Respect of Stock or Other Securities of Other
Corporations. The Board of Directors or any committee thereof shall designate
the officers of the Corporation who shall have authority from time to time to
appoint an agent or agents of the Corporation to exercise in the name and on
behalf of the Corporation the powers and rights that the Corporation may have as
the holder of stock or other securities in any other corporation, and to vote or
consent in respect of such stock or securities; such designated officers may
instruct the person or persons so appointed as to the manner of exercising such
powers and rights; and such designated officers may execute or cause to be
executed in the name and on behalf of the Corporation and under its corporate
seal, or otherwise, such written proxies, powers of attorney or other
instruments as they may deem necessary or proper in order that the Corporation
may exercise its said powers and rights. In the absence of such designation
referred to in the first sentence of this Section 4, the officers of the
Corporation shall have such power so referred to, to the extent incident to the
normal performance of their duties.
18
<PAGE> 1
EXHIBIT 10.1
Execution Form
================================================================================
LENNOX INTERNATIONAL INC.
_______________________
AGREEMENT OF ASSUMPTION AND RESTATEMENT
Dated as of December 1, 1991
_______________________
9.55% Series B Senior Promissory Notes due 1996
11.05% Series C Senior Promissory Notes due 1997
9.60% Series D Senior Promissory Notes due 1998
10.15% Series E Senior Promissory Notes due 1998
9.53% Series F Senior Promissory Notes due 2001
9.50% Series G Senior Promissory Notes due 2001
9.69% Series H Senior Promissory Notes due 2003
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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SECTION 1. ASSUMPTION OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. Description of Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Assumption of Notes and Amendment of Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.3. Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.4. Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.5. Investment Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 2. REPRESENTATIONS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.1. Organization and Authority of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.2. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.3. Incorporation, Good Standing and Ownership of Shares of Subsidiaries . . . . . . . . . . . . . . . . . 10
2.4. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.5. Compliance with Other Instruments of the Company and Subsidiaries; No Dividend Restriction . . . . . . 12
2.6. Governmental Authorizations, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.7. Litigation; Observance of Statutes, Regulations and Orders . . . . . . . . . . . . . . . . . . . . . . 13
2.8. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.9. Title to Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.10. Licenses, Permits, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.11. Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.12. No Public Offering by the Company; No Fees Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.13. Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.14. Use of Proceeds; Margin Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.15. Existing Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.16. Existing Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.17. Foreign Assets Control Regulations, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.18. Status Under Certain Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.19. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.20. Representations in Existing Note Purchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 3. CONDITIONS OF CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.1. Proceedings Satisfactory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.2. Opinions of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.3. Representations True, etc.; Officers' Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.4. Legality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.5. Absence of Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.6. Other Agreements, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.7. Private Placement Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.8. Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.9. Prepayment of Industries 9.05% Promissory Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
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3.10. Bank Credit Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.11. Fees Payable at Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 4. PREPAYMENT, PAYMENT AND
PURCHASE OF THE SUBSTITUTE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.1. Mandatory Prepayments of the Substitute Notes; Payment at Maturity . . . . . . . . . . . . . . . . . . 21
4.2. Optional Prepayment of the Substitute Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.3. Special Purchase of Substitute Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.4. Notice of Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.5. Allocation of Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.6. Surrender of Substitute Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.7. Purchase of Substitute Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.8. Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 5. FINANCIAL STATEMENTS AND INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 6. INSPECTION OF PROPERTIES AND BOOKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 7. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.1. Payment of Principal, Premium and Interest; Maintenance of Books and Reserves . . . . . . . . . . . . 36
7.2. Payment of Taxes; Corporate Existence; Maintenance of Properties; Compliance with Laws . . . . . . . . 36
7.3. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.4. Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.5. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.6. Dividends and Other Restricted Payments; Restricted Investments . . . . . . . . . . . . . . . . . . . 40
7.7. Sales and Leasebacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
7.8. Maintenance of Certain Financial Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
7.9. Subsidiary Stock and Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.10. Consolidation, Merger or Disposition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
7.11. Issuance of Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.12. Purchase of Substitute Notes Upon Change of Control. . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.13. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.14. Change in Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.15. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.16. Limitation on Dividend Restrictions, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 8. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
8.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
8.2. Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 9. EVENTS OF DEFAULT; REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
</TABLE>
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9.1. Events of Default Defined; Acceleration of Maturity . . . . . . . . . . . . . . . . . . . . . . . . . 62
9.2. Suits for Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
9.3. Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
9.4. Remedies Not Waived . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 10. REGISTRATION, TRANSFER AND EXCHANGE OF SUBSTITUTE NOTES . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 11. LOST, ETC. NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 12. AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 13. HOME OFFICE PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 14. LIABILITIES OF THE HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 15. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 16. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
16.1. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
16.2. Reliance on and Survival of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
16.3. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
16.4. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
16.5. Substitution of Your Wholly-Owned Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
16.6. LAW GOVERNING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
16.7. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
16.8. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
16.9. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
16.10. Limitation on Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
16.11. Interpretation of Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
</TABLE>
SCHEDULE I -- Names and Addresses of Noteholders
EXHIBITS A-1 to A-7 -- Forms of Substitute Notes
EXHIBIT B -- Subsidiaries
EXHIBIT C -- Debt
EXHIBIT D -- Investments
EXHIBIT E -- Form of Opinion of Company's Counsel
EXHIBIT F -- Form of Subordination Provisions
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<PAGE> 5
LENNOX INTERNATIONAL INC.
2100 Lake Park Boulevard
Richardson, Texas 75080
AGREEMENT OF ASSUMPTION AND RESTATEMENT
New York, New York
as of December 1, 1991
To the Noteholder Identified
on the Signature Page at
the End of this Agreement:
Ladies and Gentlemen:
LENNOX INTERNATIONAL INC., a Delaware corporation and
successor by merger to Lennox International Inc., an Iowa corporation (together
with any successor or transferee which becomes such in the manner specified in
Section 7.10, the "Company"), hereby agrees with you as follows:
SECTION 1. ASSUMPTION OF NOTES.
1.1. Description of Transaction. Pursuant to the several
separate Existing Note Purchase Agreements described below, Lennox Industries
Inc., an Iowa corporation ("Industries"), Heatcraft, Inc., a Mississippi
corporation ("Heatcraft"), and Armstrong Air Conditioning Inc., an Ohio
corporation ("Armstrong" and, together with Heatcraft and Industries and any
successor to any of them, the "Issuing Subsidiaries"), each a direct
wholly-owned subsidiary of the Company, as applicable, issued and sold to one
or more of the institutional purchasers named on Schedule I hereto the
following promissory notes (collectively referred to herein as the "Existing
Notes"):
(i) Heatcraft Inc.'s 9.55% Promissory Notes due December
1, 1996 originally issued in the aggregate principal amount of
$14,000,000 (of which $10,000,000 is outstanding on the date hereof);
(ii) Lennox Industries Inc.'s 11.05% Promissory Notes due
December 1, 1997 originally issued in the aggregate principal amount
of $25,000,000 (all of which is outstanding on the date hereof);
(iii) Lennox Industries Inc.'s 9.60% Senior Promissory
Notes due December 1, 1998 originally issued in the aggregate
principal amount of $35,000,000 (all of which is outstanding on the
date hereof);
<PAGE> 6
(iv) Heatcraft Inc.'s 10.15% Promissory Notes due December
1, 1998 originally issued in the aggregate principal amount of
$10,000,000 (all of which is outstanding on the date hereof);
(v) Lennox Industries Inc.'s 9.53% Senior Promissory
Notes due December 1, 2001 originally issued in the aggregate
principal amount of $21,000,000 (all of which is outstanding on the
date hereof);
(vi) Armstrong Air Conditioning Inc.'s 9.50% Senior
Promissory Notes due December 1, 2001 originally issued in the
aggregate principal amount of $31,000,000 (all of which is outstanding
on the date hereof); and
(vii) Heatcraft Inc.'s 9.69% Promissory Notes due December
1, 2003 originally issued in the aggregate principal amount of
$54,000,000 (all of which is outstanding on the date hereof).
The Existing Notes held by each institutional purchaser named
on Schedule I hereto remain outstanding on the date hereof in the principal
amounts set forth opposite such purchaser's name in Column B of said Schedule
I.
Each Existing Note was issued and sold pursuant to one of the
following note purchase agreements or, in the case of the Existing Notes
described in the foregoing clauses (iii), (v), (vi) and (vii), simultaneously
executed note purchase agreements identical to all other note purchase
agreements under which the Existing Notes bearing the same interest rate were
issued, except for the signature of the purchaser at the end thereof (each
separate note purchase agreement described below being referred to herein as an
"Existing Note Purchase Agreement"):
(i) Note Purchase Agreement, dated as of November 1,
1985, between Industries and Teachers Insurance and Annuity
Association of America;
(ii) Note Purchase Agreement, dated as of November 1,
1986, between Heatcraft and Teachers Insurance and Annuity Association
of America;
(iii) Note Purchase Agreements, each dated as of December
1, 1988, between Industries and The Travelers Insurance Company, The
Charter Oak Fire Insurance Company and Teachers Insurance and Annuity
Association of America, respectively;
(iv) Note Purchase Agreement, dated as of September 29,
1988, between Heatcraft and Teachers Insurance and Annuity Association
of America;
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<PAGE> 7
(v) Note Purchase Agreements, each dated as of February
28, 1990, between Heatcraft and Teachers Insurance and Annuity
Association of America, Connecticut General Life Insurance Company and
INA Life Insurance Company of New York, respectively;
(vi) Note Purchase Agreements, each dated as of October
19, 1989, between Armstrong and The Travelers Insurance Company, The
Travelers Life Insurance Company, The Phoenix Insurance Company, The
Travelers Indemnity Company, Teachers Insurance and Annuity
Association of America and Tandem Insurance Group, Inc., respectively;
and
(vii) Note Purchase Agreements, each dated as of February
28, 1990, between Industries and Teachers Insurance and Annuity
Association of America, Connecticut General Life Insurance Company and
INA Life Insurance Company of New York, respectively.
The Company wishes to (a) assume the outstanding indebtedness
of the Issuing Subsidiaries evidenced by the Existing Notes and (b) consolidate
the various covenants applicable to one or more members of the group comprised
of the Company and its consolidated subsidiaries contained in the Existing Note
Purchase Agreements into this Agreement and the Other Agreements, with such
changes in and additions to such covenants as the Holders may agree to. To
accomplish that end, the Company proposes, on the Effective Date referred to in
Section 1.3 below, and subject to the terms and conditions hereof, to assume
the obligations of the Issuing Subsidiaries evidenced by the Existing Notes
and, as obligor under the Existing Notes, to amend and restate the Existing
Note Purchase Agreements to be and to read in their entirety as set forth in
this Agreement. The Holders, as holders of the Existing Notes, have, subject
to the terms and conditions hereof, consented to such assumption of the
Existing Notes and such amendment and restatement of the Existing Note Purchase
Agreements.
Capitalized terms used and not otherwise defined herein shall
have the respective meanings assigned thereto in Section 8. Unless otherwise
specified, any reference in this Agreement to a particular section or other
subdivision, or a particular schedule or exhibit, shall be considered a
reference to that section or other subdivision of, or to that schedule or
exhibit to, this Agreement.
1.2. Assumption of Notes and Amendment of Agreements. The
Company hereby (i) assumes, effective as of the Effective Date, as its direct
and primary obligation, the outstanding indebtedness of the Issuing
Subsidiaries evidenced by the Existing Notes and all rights, obligations
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<PAGE> 8
and duties of the Issuing Subsidiaries thereunder and under the related
Existing Note Purchase Agreements, and agrees, from and after the Effective
Date, to duly and punctually perform and observe all of the obligations,
undertakings, covenants and conditions to be kept, performed or observed by
"the Company" under each Existing Note and each Existing Note Purchase
Agreement, in each case to the same extent and with the same force and effect
as if the Company had originally been named "the Company" under the Existing
Notes and the Existing Note Purchase Agreements and (ii) amends and restates,
effective from and after the Effective Date, each Existing Note Purchase
Agreement to be and to read in its entirety as set forth in this Agreement,
such that the covenants and obligations of "the Company" under the Existing
Note Purchase Agreements shall thereafter be the covenants and obligations of
the Company as set forth in this Agreement. You hereby consent, subject to the
terms and conditions hereof, to the assumption of the Existing Notes described
in the foregoing clause (i), the concurrent release of the Issuing Subsidiaries
from their obligations to you under the applicable Existing Notes and Existing
Note Purchase Agreements and the amendment and restatement of the Existing Note
Purchase Agreements described in the foregoing clause (ii).
1.3. Effective Date. The closing of the effectiveness of the
assumption by the Company of the Existing Notes and the Existing Note Purchase
Agreements and the amendment and restatement of the Existing Note Purchase
Agreements described in Section 1.2 shall be held commencing at 10:00 A.M., New
York City time, on December __, 1991 (the "Effective Date"), at the offices of
Breed, Abbott & Morgan, Citicorp Center, 153 East 53rd Street, New York, New
York 10022. On the Effective Date (a) the assumption provided for in clause
(i) of Section 1.2, the amendment and restatement of the Existing Note Purchase
Agreements provided for in clause (ii) of Section 1.2 and the consent and
release provided for in the last sentence of Section 1.2 shall become effective
without further action on the part of the Company or the Holders, and (b) you
shall make appropriate notations on each Existing Note held by you to reflect
the assumption thereof by the Company, your release of the applicable Issuing
Subsidiary and the amendment and restatement of the Existing Note Purchase
Agreement under which such Existing Note was issued, provided that, upon your
request, the Company will deliver to you, at the Company's expense, a new Note
or Notes in the form of the Substitute Notes described in Section 1.4 below
dated December 1, 1991 reflecting such assumption, against delivery by you to
the Company of the corresponding Existing Note or Notes. Immediately upon
receipt of an Existing Note, the Company shall cancel such Existing Note and
will not thereafter under any circumstances reissue, transfer or
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<PAGE> 9
otherwise dispose of such Existing Note or permit any reissue, transfer or
other disposition of such Existing Note, or any interest therein. If on the
Effective Date the Company shall fail to tender to you upon your request, the
Substitute Notes, as provided in this Section 1.3, or any of the conditions
specified in Section 3 shall not have been fulfilled to your satisfaction, you
shall, at your election, be relieved of all further obligations under this
Agreement, without thereby waiving any other rights you may have by reason of
such failure or nonfulfillment, and the Existing Note Purchase Agreements and
the Existing Notes shall remain in full force and effect, with no assumption of
the Existing Notes and no amendment of or modification to any of the terms of
the Existing Note Purchase Agreements.
The Company represents and warrants that contemporaneously
herewith it is entering into eight separate Agreements of Assumption and
Restatement (the "Other Agreements") identical with this Agreement (except for
the signature of the holder at the end thereof) with the other institutional
holders (the "Other Holders") named in Schedule I, providing for the commitment
by the Company to assume the Existing Notes held by the Other Holders as shown
opposite their names in Column B of said Schedule I and to amend and restate
the Existing Note Purchase Agreements to which the Other Holders are a party.
This Agreement and the Other Agreements are to be separate agreements and the
assumption of the Existing Notes held by you and the Other Holders are to be
separate and several transactions. You and the Other Holders are herein
sometimes collectively referred to as the "Holders," and this Agreement and the
Other Agreements are herein sometimes collectively referred to as the
"Agreements".
1.4. Authorization. Each Issuing Subsidiary duly authorized
at the time of issuance thereof the issue and sale of the Existing Notes issued
and sold by it pursuant to the Existing Note Purchase Agreement or Agreements
to which it is a party. The Company has duly authorized (a) the assumption by
the Company, as its direct and primary obligation, of the outstanding
indebtedness of the Issuing Subsidiaries evidenced by the Existing Notes and
all rights, obligations and duties of the Issuing Subsidiaries thereunder and
under the Existing Note Purchase Agreements; (b) the amendment and restatement
of each Existing Note Purchase Agreement, to be and read in its entirety as set
forth in this Agreement; and (c) upon the assumption of the Existing Notes and
the request of the applicable Holder or Holders thereof, the delivery by the
Company to you of the Substitute Notes in substitution for the Existing Notes.
Each Substitute Note shall be in the same aggregate principal amount and have
the same interest rate and maturity date as the corresponding Existing Note, as
set
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<PAGE> 10
forth below, provided that for convenience of reference, the Substitute Notes
shall include a series designation as follows:
(a) the 9.55% Series B Senior Promissory Notes due
December 1, 1996 in the aggregate principal amount of $10,000,000
(together with all notes issued in substitution or exchange therefor
in accordance with the terms of this Agreement and the Other
Agreements, the "Series B Notes") each of which shall (i) bear
interest on the unpaid principal amount thereof at the rate of 9.55%
per annum (computed on the basis of a 360-day year of twelve 30-day
months) payable semiannually on June 1 and December 1 of each year,
and with interest on any overdue principal (including any overdue
prepayment of principal) and (to the extent permitted by applicable
law) any overdue premium, if any, and interest at the rate of 10.55%
per annum until paid, such overdue interest (if any) to be payable
semiannually as aforesaid or, at the option of the registered holder
of such Series B Note, on demand, and (ii) mature and be due and
payable as to the entire remaining unpaid principal amount thereof on
December 1, 1996;
(b) the 11.05% Series C Senior Promissory Notes due
December 1, 1997 in the aggregate principal amount of $25,000,000
(together with all notes issued in substitution or exchange therefor
in accordance with the terms of this Agreement and the Other
Agreements, the "Series C Notes") each of which shall (i) bear
interest on the unpaid principal amount thereof at the rate of 11.05%
per annum (computed on the basis of a 360-day year of twelve 30-day
months) payable semiannually on June 1 and December 1 of each year and
with interest on any overdue principal (including any overdue
prepayment of principal) and (to the extent permitted by applicable
law) any overdue premium, if any, and interest at the rate of 12.05%
per annum until paid, such overdue interest (if any) to be payable
semiannually as aforesaid or, at the option of the registered holder
of such Series C Note, on demand, and (ii) mature and be payable as to
the entire remaining unpaid principal amount thereof on December 1,
1997;
(c) the 9.60% Series D Senior Promissory Notes due
December 1, 1998 in the aggregate principal amount of $35,000,000
(together with all notes issued in substitution or exchange therefor
in accordance with the terms of this Agreement and
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<PAGE> 11
the Other Agreements, the "Series D Notes") each of which shall (i)
bear interest on the unpaid principal amount thereof at the rate of
9.60% per annum (computed on the basis of a 360-day year of twelve
30-day months) payable semiannually on June 1 and December 1 of each
year and with interest on any overdue principal (including any overdue
prepayment of principal) and (to the extent permitted by applicable
law) any overdue premium, if any, and interest at the rate of 10.60%
per annum until paid, such overdue interest (if any) to be payable
semiannually as aforesaid or, at the option of the registered holder
of such Series D Note, on demand, and (ii) mature and be payable as to
the entire remaining unpaid principal amount thereof on December 1,
1998;
(d) the 10.15% Series E Senior Promissory Notes due
December 1, 1998 in the aggregate principal amount of $10,000,000
(together with all notes issued in substitution or exchange therefor
in accordance with the terms of this Agreement and the Other
Agreements, the "Series E Notes") each of which shall (i) bear
interest on the unpaid principal amount thereof at the rate of 10.15%
per annum (computed on the basis of a 360-day year of twelve 30-day
months) payable semiannually on June 1 and December 1 of each year,
and with interest on any overdue principal (including any overdue
prepayment of principal) and (to the extent permitted by applicable
law) any overdue premium, if any, and interest at the rate of 11.15%
per annum until paid, such overdue interest (if any) to be payable
semiannually as aforesaid or, at the option of the registered holder
of such Series E Note, on demand, and (ii) mature and be due and
payable as to the entire remaining unpaid principal amount thereof on
December 1, 1998;
(e) the 9.53% Series F Senior Promissory Notes due
December 1, 2001 in the aggregate principal amount of $21,000,000
(together with all notes issued in substitution or exchange therefor
in accordance with the terms of this Agreement and the Other
Agreements, the "Series F Notes") each of which shall (i) bear
interest on the unpaid principal amount thereof at the rate of 9.53%
per annum (computed on the basis of a 360-day year of twelve 30-day
months) payable semiannually on June 1 and December 1 of each year,
and with interest on any overdue principal (including any overdue
prepayment of principal) and (to the extent permitted by applicable
law) any overdue premium,
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<PAGE> 12
if any, and interest at the rate of 10.53% per annum until paid, such
overdue interest (if any) to be payable semiannually as aforesaid or,
at the option of the registered holder of such Series F Note, on
demand, and (ii) mature and be payable as to the entire remaining
unpaid principal amount thereof on December 1, 2001;
(f) the 9.50% Series G Senior Promissory Notes due
December 1, 2001 in the aggregate principal amount of $31,000,000
(together with all notes issued in substitution or exchange therefor
in accordance with the terms of this Agreement and the Other
Agreements, the "Series G Notes") each of which shall (i) bear
interest on the unpaid principal amount thereof at the rate of 9.50%
per annum (computed on the basis of a 360- day year of twelve 30-day
months) payable semiannually on June 1 and December 1 of each year,
and with interest on any overdue principal (including any overdue
prepayment of principal) and (to the extent permitted by applicable
law) any overdue premium, if any, and interest at the rate of 10.50%
per annum until paid, such overdue interest (if any) to be payable
semiannually as aforesaid or, at the option of the registered holder
of such Series G Note, on demand, and (ii) mature and be payable as to
the entire remaining unpaid principal amount thereof on December 1,
2001; and
(g) the 9.69% Series H Senior Promissory Notes due
December 1, 2003 in the aggregate principal amount of $54,000,000
(together with all notes issued in substitution or exchange therefor
in accordance with the terms of this Agreement and the Other
Agreements, the "Series H Notes") each of which shall (i) bear
interest on the unpaid principal amount thereof at the rate of 9.69%
per annum (computed on the basis of a 360- day year of twelve 30-day
months) payable semiannually on June 1 and December 1 of each year,
and with interest on any overdue principal (including any overdue
prepayment of principal) and (to the extent permitted by applicable
law) any overdue premium, if any, and interest at the rate of 10.69%
per annum until paid, such overdue interest (if any) to be payable
semiannually as aforesaid or, at the option of the registered holder
of such Series H Note, on demand, and (ii) mature and be payable as to
the entire remaining unpaid principal amount thereof on December 1,
2003.
The Series B Notes, Series C Notes, Series D Notes, Series E
Notes, Series F Notes, Series G Notes and Series H Notes shall be substantially
in the forms of Exhibits A-1 through A-7, respectively, and are referred to
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<PAGE> 13
herein collectively together with, from and after the Effective Date, any
Existing Notes not delivered for substitution pursuant to the proviso in
Section 1.3, as the "Substitute Notes" and separately as a "Series" of
Substitute Notes.
1.5. Investment Representation. You represent to the Company
that on the Effective Date you will accept the Substitute Notes, if any, being
delivered to you for your own account for investment and not with a view to the
distribution or sale of the Substitute Notes, subject, however, to any
requirement of law that the disposition of your property be at all times within
your control and without prejudice to your right to sell or otherwise dispose
of all or any part of the Substitute Notes held by you pursuant to an effective
registration under the Securities Act or under an exemption from such
registration available under the Securities Act.
SECTION 2. REPRESENTATIONS OF THE COMPANY. The Company
represents and warrants to you that:
2.1. Organization and Authority of the Company. The Company
is a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware, and has all requisite power and authority to
own or hold under lease the property it purports to own or hold under lease, to
transact the business it transacts and proposes to transact, to execute and
deliver the Agreements and the Substitute Notes and to perform the provisions
hereof and thereof. The Company has, by all necessary corporate action (no
action of shareholders of the Company being required by law, by its charter or
by-laws, or otherwise), duly authorized the execution and delivery of this
Agreement, the Other Agreements and the Substitute Notes and the performance of
its obligations under this Agreement (including, without limitation, the
assumption of the Existing Notes, the amendment and restatement of the Existing
Note Purchase Agreements and the delivery of the Substitute Notes) and the
Substitute Notes. The merger of Lennox International Inc., an Iowa
corporation, into the Company was completed in compliance with all applicable
laws on October 11, 1991, such merger qualifies as a reorganization under
Section 368(a)(1)(F) of the Code and the Company has succeeded to all the
assets and liabilities of such Iowa corporation. The Company is duly qualified
as a foreign corporation and is in good standing in each jurisdiction in which
the character of the properties owned or held under lease by it or the nature
of the business transacted by it requires such qualification and in which the
failure so to qualify would materially affect adversely the business,
operations or properties of the Company, or of the Company and its Subsidiaries
taken as a whole, or the ability of the Company to perform the Agreements and
discharge its obligations on the Substitute Notes.
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<PAGE> 14
2.2. Disclosure. Neither this Agreement, the financial
statements referred to in Section 2.4 nor any other document, instrument or
certificate delivered to you by or on behalf of the Company in connection with
the transactions contemplated by the Agreements contains any untrue statement
of a material fact, or omits to state any fact necessary to make the statements
contained herein or therein (taken as a whole) not misleading. The Company
does not know of any fact (other than matters of a general economic nature)
which materially affects adversely or, so far as the Company can reasonably now
foresee, will materially affect adversely, the business, operations or
properties of the Company, or of the Company and its Subsidiaries taken as a
whole, or the ability of the Company to perform the Agreements and discharge
its obligations on the Substitute Notes.
2.3. Incorporation, Good Standing and Ownership of Shares of
Subsidiaries. Annexed hereto as Exhibit B is a complete and correct list of
the Company's Subsidiaries, showing, as to each Subsidiary, the correct name
thereof, the jurisdiction of its incorporation, the jurisdictions in which
substantial operating assets are located and the percentage of shares of each
class outstanding owned by the Company and each other Subsidiary and specifying
whether such Subsidiary is designated a Restricted Subsidiary. All of the
outstanding shares of each of said Subsidiaries shown in Exhibit B as being
owned by the Company and its Subsidiaries have been validly issued, are fully
paid and nonassessable and are owned beneficially and of record by the Company
or another Subsidiary free and clear of any Lien. No Subsidiary owns any
shares of the Company. Each Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, and is duly qualified as a foreign corporation and is in good
standing in each jurisdiction in which the character of the properties owned or
held under lease by it or the nature of the business transacted by it requires
such qualification and in which the failure so to qualify would materially
affect adversely the business, operations or properties of the Company or of
the Company and its Subsidiaries taken as a whole, or the ability of the
Company to perform the Agreements and discharge its obligations on the
Substitute Notes. Each Subsidiary has all requisite power and authority to own
or hold under lease the property it purports to own or hold under lease and to
transact the business it transacts and proposes to transact. There are no
outstanding rights, options, warrants, conversion rights or agreements for the
purchase or acquisition
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<PAGE> 15
from the Company or any Subsidiary of any shares of capital stock of any such
Subsidiary.
2.4. Financial Statements. The Company has delivered to you
copies of
(a) the audited balance sheets of each of the Company,
Heatcraft and Industries as at December 31 in each of the years 1986,
1987, 1988, 1989 and 1990 and the related statements of income,
stockholders' equity and changes in financial position for the annual
periods ended December 31, 1986 and the related statements of income,
stockholders' equity and cash flows for the annual periods ended
December 31, 1987, 1988, 1989 and 1990, accompanied by the reports
thereon by Coopers & Lybrand, independent certified public accountants
of the Company, Heatcraft and Industries;
(b) the audited balance sheets of Armstrong as at
December 31 in each of the years 1989 and 1990 and the related
statements of income, stockholders' equity and cash flows for the
annual periods then ended accompanied by the reports thereon by
Coopers & Lybrand, independent certified public accountants of
Armstrong;
(c) the unaudited balance sheets of each Issuing
Subsidiary as at March 31 and June 30, 1991, and the related unaudited
statements of income, retained earnings and cash flows for the
quarterly periods ended on said dates;
(d) the unaudited consolidated and consolidating balance
sheets of the Company and its Subsidiaries as at March 31, June 30 and
September 30, 1991 and the related unaudited consolidated and
consolidating statements of income for the quarters then ended;
(e) the Company's Long-Term Debt Repayment Schedule
(Present Debt) as of December 31, 1990; and
(f) the management letter submitted to the Company by
Cooper's & Lybrand in connection with the audit of the Company for the
fiscal year ended December 31, 1990.
All the above-mentioned financial statements (including in
each case the related schedules and notes) are correct and complete and fairly
present the financial
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<PAGE> 16
position of the entities to which they relate as of the respective dates of
said balance sheets and the results of their operations for the respective
periods covered by said statements of income, stockholders' equity, cash flows
and changes in financial position (subject, in the case of the unaudited
financial statements, to year-end adjustments) and have been prepared in
accordance with GAAP consistently applied throughout the periods involved,
except as set forth in the notes thereto. There are no material liabilities,
contingent or otherwise, of the Company or any Subsidiary (of any type required
by GAAP to be reflected in a consolidated balance sheet of the Company and its
Subsidiaries or the footnotes thereto) as of December 31, 1990 not reflected in
the consolidated balance sheet of the Company and its Subsidiaries as of said
date described in paragraph (a) of this Section 2.4 (or the footnotes thereto).
Since December 31, 1990 there have been no changes in the assets, liabilities
or financial position of the Company or any Issuing Subsidiary from that set
forth in the audited balance sheets of the Company or such Issuing Subsidiary
as of said date, other than (i) expenses of approximately $14,000,000 accrued
in connection with the functional reorganization of Industries and the closing
of the Fort Worth Plant, (ii) the purchase on July 2, 1991 by Lennox Industries
Limited of Environheat Ltd. and (iii) changes in the ordinary course of
business which have not, either individually or in the aggregate, been
materially adverse to the Company or such Issuing Subsidiary.
2.5. Compliance with Other Instruments of the Company and
Subsidiaries; No Dividend Restriction. The consummation of the transactions
contemplated by this Agreement and the performance of the terms and provisions
of the Agreements and the Substitute Notes will not result in any breach of, or
constitute a default under, or result in the creation of any Lien in respect of
any property of the Company or any Subsidiary under, any indenture, mortgage,
deed of trust, license, bank loan or credit agreement, lease, corporate
charter, by-law, or other agreement or instrument to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary or any of their
respective properties is or may be bound or affected, or violate any existing
law, governmental rule or regulation or any Order of any court, arbitrator or
Governmental Body applicable to the Company or any Subsidiary. Neither the
Company nor any Subsidiary is a party to or bound by any instrument or
agreement which contains any restriction on the incurrence by the Company of
any Debt other than (i) the Agreements, (ii) the Existing Note Purchase
Agreements and (iii) the Revolving Credit Agreement dated as of December 4,
1991, among the Company, the banks named therein and The Northern Trust
Company, as agent, under each of which the Company is permitted to maintain
outstanding the Debt
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<PAGE> 17
evidenced by the Substitute Notes. No Restricted Subsidiary is bound by or
subject to any contract (other than the Existing Note Purchase Agreements) or
charter or by-law provision limiting the amount of, or otherwise imposing
restrictions on the declaration, payment or setting aside of funds for the
making of, dividends or other distributions in respect of the capital stock of
such Restricted Subsidiary to the Company or another Restricted Subsidiary.
2.6. Governmental Authorizations, etc. No consent, approval
or authorization of, or registration, filing or declaration with, any
Governmental Body or any other Person (including any trustee or holder of any
indebtedness, obligation or other securities of the Company or any of its
Subsidiaries) is required for the validity of the execution and delivery or for
the performance by the Company of the Agreements or the Substitute Notes or the
assumption by the Company of the Existing Notes or the discharge by the Company
of its obligations under the Agreements and the Substitute Notes.
2.7. Litigation; Observance of Statutes, Regulations and
Orders. There are no actions, suits or proceedings (including, without
limitation, actions, suits or proceedings under any statute or other law
relating to environmental protection or occupational health and safety
practices) pending or, to the knowledge of the Company, threatened against or
affecting the Company or any Subsidiary or any property of the Company or any
Subsidiary in any court or before any arbitrator of any kind or before or by
any Governmental Body (except actions, suits or proceedings of the character
normally incident to the kind of business conducted by the Company or any
Subsidiary which (a) do not question the validity or legality of this Agreement
or the Substitute Notes or any action taken or to be taken pursuant hereto or
thereto and (b) in the aggregate, if adversely determined, would not materially
affect adversely the business, operations or properties of the Company, or of
the Company and its Subsidiaries taken as a whole or the ability of the Company
to perform the Agreements or discharge its obligations on the Substitute
Notes). Neither the Company nor any Subsidiary is in default under any Order
of any court, arbitrator or Governmental Body which default could have a
materially adverse effect on the Company or on the Company and its Subsidiaries
taken as a whole; and neither the Company nor any Subsidiary is subject to or a
party to any Order of any court or Governmental Body arising out of any action,
suit or proceeding under any statute or other law respecting antitrust,
monopoly, restraint of trade or unfair competition, or environmental protection
or occupational health and safety practices, or similar matters.
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<PAGE> 18
As used in this Agreement, the term "Governmental Body"
includes any Federal, State, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign; and
the term "Order" includes any order, writ, injunction, decree, judgment, award,
determination, direction or demand.
2.8. Taxes. The Company and its Subsidiaries have filed all
federal tax returns required to have been filed by them and all tax returns
which are required to have been filed in each jurisdiction in which they are
qualified to do business, as aforesaid, and have paid all taxes shown to be due
and payable on such returns and all other material taxes and assessments
payable by them, to the extent the same have become due and payable and before
they have become delinquent, except for any taxes and assessments the amount,
applicability or validity of which is currently being contested in good faith
by appropriate proceedings and with respect to which the Company or a
Subsidiary, as the case may be, has set aside on its books reserves (segregated
to the extent required by GAAP) deemed by it to be adequate. The Company does
not know of any proposed material tax assessment against the Company or any
Subsidiary, and in the opinion of the Company all tax liabilities are
adequately provided for on the books of the Company and its Subsidiaries. The
Federal income tax liabilities of the Company and its Subsidiaries have been
determined by the Internal Revenue Service (or the applicable statute of
limitations has run) and such liabilities have been paid for all fiscal years
up to and including the fiscal year ended December 31, 1985. The federal
income tax returns of the Company and its Subsidiaries for the years 1986 and
1987 are currently being audited by the Internal Revenue Service and certain
adjustments may be proposed by the Internal Revenue Service which, if made,
will not either in any one case or in the aggregate be in the opinion of the
Company materially adverse to the assets, liabilities or financial condition of
the Company and its Subsidiaries, taken as a whole.
2.9. Title to Property. The Company and its Restricted
Subsidiaries have good title to their respective real properties and other
properties as reflected in the most recent audited consolidated balance sheet
of the Company and its Subsidiaries referred to in Section 2.4(a) or purported
to have been acquired by the Company or such Restricted Subsidiary after said
date, except as sold or otherwise disposed of in the ordinary course of
business, subject to no title defects which would not be acceptable in
accordance with good business practice to similar companies engaged in a
similar business. Except as permitted by Section 7.5, all properties of the
Company and each Restricted Subsidiary are free and clear of all Liens.
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<PAGE> 19
2.10. Licenses, Permits, etc. The Company and its
Subsidiaries possess all licenses, permits, franchises, authorizations,
patents, copyrights, trademarks and trade names, or rights thereto, required to
conduct their respective businesses substantially as now conducted and as
currently proposed to be conducted, without known conflict with the rights of
others.
2.11. Compliance with ERISA. No employee benefit plan
established or maintained by the Company or by any Commonly Controlled Entity
or to which the Company or any Commonly Controlled Entity is required to make
contributions, which is subject to Part 3 of Subtitle B of Title 1 of ERISA, or
Section 412 of the Code, had, as of the last day of the most recent fiscal year
of such plan heretofore ended, an accumulated funding deficiency (as such term
is defined in Section 302 of ERISA or Section 412 of the Code). Except as set
forth in the audited consolidated financial statements of the Company and its
Subsidiaries for the fiscal year ended December 31, 1990 referred to in Section
2.4(a), the present value of all accrued benefits under each such employee
benefit plan (based on those assumptions used to fund such plan, which
assumptions are reasonable) did not, as of such date exceed the then current
value of the assets of such plan allocable to such benefits. The amount by
which the aggregate vested benefit obligations for the qualified pension plans
of the Company and its Subsidiaries, determined as of the end of the fiscal
year ended December 31, 1990, exceed the aggregate fair value of the assets of
such plans determined as of the end of such fiscal year, is less than
$3,000,000. No liability to the Pension Benefit Guaranty Corporation (other
than required insurance premiums, all of which, to the extent due and payable,
have been paid) has been incurred with respect to any such plan and there has
not been any reportable event within the meaning of ERISA, or any other event
or condition, which presents a material risk of termination of any such plan by
the Pension Benefit Guaranty Corporation. To the knowledge of the Company
after reasonable investigation, neither the Department of Labor, the Internal
Revenue Service nor any other Governmental Body has determined that any such
plan or any trust created thereunder, or any trustee or administrator thereof,
has engaged in a "prohibited transaction" (as defined in Section 4975 of the
Code) with respect to any such plan that could subject any such plan, trust,
trustee, administrator, the Company or any Commonly Controlled Entity to any
material tax or penalty on prohibited transactions imposed under said Section
4975 or Section 502(i) of ERISA, and the Company is not aware of any facts that
would constitute such a prohibited transaction. Neither the execution,
delivery or performance by the Company of the Agreements nor the delivery by
the Company of the Substitute Notes nor the assumption by the Company of
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<PAGE> 20
the Existing Notes will involve any prohibited transaction (as so defined).
The representation by the Company in the immediately preceding sentence is made
in reliance upon and subject to the accuracy of your representation, if any,
contained in Section 1.4 of each Existing Note Purchase Agreement to which you
are a party and the representation by the Company in the immediately preceding
sentence is expressly conditioned thereupon. Neither the Company nor any
Commonly Controlled Entity is making or accruing, or has made or accrued, an
obligation to make contributions to any Multiemployer Plan. For purposes
hereof, (i) "Commonly Controlled Entity" shall mean any trade or business,
whether or not incorporated, which is under common control with the Company
(within the meaning of Section 414(b) or (c) of the Code); and (ii)
"Multiemployer Plan" shall mean a "multiemployer plan," as defined in Section
4001(a)(3) of ERISA.
2.12. No Public Offering by the Company; No Fees Paid.
Neither the Company nor Dillon, Read & Co. Inc. (the only Person authorized by
the Company to act on its behalf in connection with the assumption by the
Company of the Existing Notes and the amendment of the Existing Note Purchase
Agreements) has offered the Substitute Notes or any similar securities for sale
to, or solicited any offer to buy any of the same from, or otherwise approached
or negotiated in respect thereof with, any Person other than you, the Other
Holders and The Equitable Life Assurance Society of the United States,
Equitable Variable Life Insurance Company and Equitable General Insurance
Company. Neither the Company nor anyone acting on its behalf has taken, or
will take, any action which would subject the assumption of the Existing Notes
or the delivery of the Substitute Notes by the Company as contemplated by the
Agreements, to Section 5 of the Securities Act. As used in this Section 2.12,
the term "Substitute Notes" shall mean the Substitute Notes to be executed and
delivered under the Agreements and any similar security or securities. The
Company has not paid, nor agreed to pay, to Dillon, Read & Co. Inc. or to any
other Person (including, without limitation, the Other Holders) any fee or
other compensation (other than for reimbursement for out-of-pocket expenses, if
any) in connection with the assumption by the Company of the Existing Notes,
the amendment of the Existing Note Purchase Agreements or the restructuring of
any other debt of the Company and its Subsidiaries.
2.13. Solvency. The Company is, and upon giving effect to
the assumption of the Existing Notes will be, a "solvent institution," as said
term is used in Section 1405(c) of the New York Insurance Law, whose
"obligations are not in default as to principal or interest," as said terms are
used in said Section 1405(c).
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<PAGE> 21
2.14. Use of Proceeds; Margin Regulations. No part of the
proceeds from the sale of the Existing Notes was used, directly or indirectly,
by the Company or any Subsidiary for the purpose of purchasing or carrying any
margin stock within the meaning of Regulation G of the Board of Governors of
the Federal Reserve System (12 CFR 207, as amended), or for the purpose of
purchasing or carrying or trading in any securities under such circumstances as
to involve the Company or any Subsidiary in a violation of Regulation X of said
Board (12 CFR 224, as amended) or to involve any broker or dealer in a
violation of Regulation T of said Board (12 CFR 220, as amended). The assets
of the Company and its Subsidiaries do not consist to the extent of 25% or more
of margin stock, and the Company has no present intention of acquiring margin
stock to the extent of 25% or more of its assets, and in no event under any
circumstances during the term of the Agreements will 25% or more of the assets
of the Company and its Subsidiaries consist of margin stock. As used in this
Section, the term "margin stock" shall have the meaning assigned to it in the
aforesaid Regulation G.
2.15. Existing Debt. Annexed hereto as Exhibit C is a
complete and correct list of all secured and unsecured Debt of the Company and
its Restricted Subsidiaries as of the date hereof, showing as to each item of
such Debt the obligor, the aggregate principal amount outstanding on the date
specified in Exhibit C, the final maturity date of such Debt, and a brief
description of any security therefor. With respect to each item of Debt of the
Company listed in Exhibit C, the Company has delivered to your special counsel
named in Section 3.2 a true and complete copy of each instrument evidencing any
such Debt in excess of $100,000 or pursuant to which any such Debt in excess of
$100,000 was issued or secured (including each amendment, consent, waiver or
similar instrument in respect thereof), as the same is in effect on the date
hereof. Neither the Company nor any Subsidiary is in default in the
performance or observance of any of the terms, covenants or conditions
contained in any of said instruments and neither the Company nor any Restricted
Subsidiary is in default with respect to any Debt listed in Exhibit C, and no
event has occurred and is continuing which, with notice or the lapse of time or
both, would become such a default.
2.16. Existing Investments. Annexed hereto as Exhibit D is a
complete and correct list of Investments of the Company and its Restricted
Subsidiaries as of the date specified in Exhibit D, other than Investments of
the character specified in Subsection (a) of the definition of "Restricted
Investment" set forth in Section 8.1.
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<PAGE> 22
2.17. Foreign Assets Control Regulations, etc. Neither the
Company nor any of its Subsidiaries is a "national" of any foreign country
designated in the Foreign Assets Control Regulations, the Transaction Control
Regulations, the Foreign Funds Control Regulations, the Iranian Assets Control
Regulations, the Cuban Assets Control Regulations, the Nicaraguan Trade Control
Regulations or the Libyan Sanctions Regulations of the United States Treasury
Department (31 CFR Subtitle B, Chapter V, as amended). None of the proceeds of
the sale of the Existing Notes under the Existing Note Purchase Agreements has
been or will be used, directly or indirectly, for the purpose of engaging in
any transaction which violates any of said Regulations or which violates the
Foreign Funds Control Regulations or the Transaction Control Regulations of the
United States Treasury Department (31 CFR Subtitle B, Chapter V, as amended),
or any regulation or ruling issued thereunder.
2.18. Status Under Certain Statutes. The Company is not an
"investment company" or a Person directly or indirectly "controlled" by or
"acting on behalf of" an investment company within the meaning of the
Investment Company Act of 1940, as amended. The Company is not a "holding
company," or a "subsidiary company" of a "holding company," or an "affiliate"
of a "holding company" or of a "subsidiary company" of a "holding company," as
such terms are defined in the Public Utility Holding Company Act of 1935, as
amended.
2.19. Environmental Matters. (a) The Company and its
Subsidiaries currently are in compliance with all applicable Environmental Laws
except to the extent failure to comply has not had and will not have a material
adverse effect on the Company or the Company and its Subsidiaries, taken as a
whole.
(b) Neither the Company nor any Subsidiary has any
knowledge of any events, conditions or circumstances that could reasonably be
expected to give rise to any liability on the part of the Company or any
Subsidiary based on or related to (i) a violation of any Environmental Law or
(ii) the presence on, in, under or above the Company Premises of any Hazardous
Substance, other than any such liabilities referred to in this Subdivision (b)
that will not have, either in any one case or in the aggregate, a material
adverse effect on the Company or the Company and its Subsidiaries, taken as a
whole.
2.20. Representations in Existing Note Purchase Agreements.
The representations and warranties of the Issuing Subsidiaries contained in the
Existing Note Purchase Agreements or otherwise made in writing by or on behalf
of the Issuing Subsidiaries pursuant to the Existing Note Purchase Agreements
were true on and as of the date first made.
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<PAGE> 23
SECTION 3. CONDITIONS OF CLOSING. Your obligation to consent
to the assumption of the Existing Notes, the release of the Issuing
Subsidiaries and the amendment and restatement of the Existing Note Purchase
Agreements as provided in Section 1.2 shall be subject to the conditions
hereinafter set forth:
3.1. Proceedings Satisfactory. All proceedings taken in
connection with the assumption by the Company of the Existing Notes, the
amendment and restatement of the Existing Note Purchase Agreements, the
delivery of the Substitute Notes and the consummation of the transactions
contemplated hereby and all documents and papers relating thereto shall be
satisfactory to you and your special counsel, and you and your special counsel
shall have received copies of such documents and papers, all in form and
substance satisfactory to you and your special counsel, as you or they may
reasonably request in connection therewith.
3.2. Opinions of Counsel. You shall have received opinions,
each dated the Effective Date, addressed to you and satisfactory in form, scope
and substance to you from (a) Anne W. Wooten, Esq., Corporate Counsel of the
Company, substantially in the form of Exhibit E and covering such other matters
as you or your special counsel may reasonably request, and (b) Breed, Abbott &
Morgan, your special counsel in connection with the transactions contemplated
by this Agreement, covering such matters as you may reasonably request.
3.3. Representations True, etc.; Officers' Certificate. All
representations and warranties of the Company contained in this Agreement or
otherwise made in writing by or on behalf of the Company in connection with the
transactions contemplated hereby shall (except as affected by the consummation
of such transactions) be true on and as of the Effective Date with the same
effect as though such representations and warranties had been made on and as of
the Effective Date; the Company shall have performed all agreements on its part
required to be performed under the Agreements on or prior to the Effective
Date; no Default or Event of Default under this Agreement nor any Default or
Event of Default (under and as defined in the Existing Note Purchase
Agreements) shall have occurred and be continuing; since the date of the most
recent audited balance sheets referred to in Section 2.4, neither the Company
nor any Subsidiary shall have consolidated with, merged into, or sold, leased
or otherwise disposed of its properties as an entirety or substantially as an
entirety to
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<PAGE> 24
any Person (other than the merger of the Company and Lennox International Inc.,
an Iowa corporation, described in Section 2.1); and you shall have received a
certificate signed by the Chief Executive Officer, a Vice President or the
Treasurer of the Company and by the Secretary or an Assistant Secretary of the
Company, dated the Effective Date, certifying to the effects specified in this
Section.
3.4. Legality. On the Effective Date the Substitute Notes to
be delivered to you hereunder shall be a legal investment for you under the
laws of each jurisdiction to which you may be subject, without resort to any
basket provision of said laws such as New York Insurance Law Section
1405(a)(8), and you shall have received such certificates or other evidence as
you may reasonably request demonstrating the legality of such investment under
such laws.
3.5. Absence of Certain Events. There shall not have
occurred any material adverse change in the assets, liabilities, business,
operations, properties or condition (financial or otherwise) of the Company or
of the Company and its Subsidiaries, taken as a whole, from that reflected in
the most recent audited financial statements referred to in Section 2.4, copies
of which shall have been delivered to you.
3.6. Other Agreements, etc. The Other Agreements shall have
been duly entered into and become effective.
3.7. Private Placement Number. Each Series of Substitute
Notes shall have been assigned a private placement number by Standard and
Poor's CUSIP Service Bureau.
3.8. Ratings. On or prior to the Effective Date, the
Substitute Notes shall have been rated "2" or better by the National
Association of Insurance Commissioners and satisfactory evidence of such rating
shall have been delivered to you and your special counsel.
3.9. Prepayment of Industries 9.05% Promissory Notes.
Industries shall have prepaid in full its 9.05% Promissory Notes due December 1,
1992, and you shall have received evidence satisfactory to you of such
prepayment.
3.10. Bank Credit Agreement. On or prior to the Effective
Date the Company shall have entered into an unsecured revolving credit facility
with one or more commercial banks, in form and substance satisfactory to you
and your special counsel, pursuant to which the Company shall be entitled to
borrow not more than $80,000,000, a true and complete copy of which shall have
been delivered to you and your special counsel.
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<PAGE> 25
3.11. Fees Payable at Closing. Your special counsel shall
have received the legal fees and expenses required to be paid or reimbursed by
the Company, as provided in Section 16.1, in connection with their preparation
and review of the Agreements and documents and papers relating thereto and
negotiations and other matters in connection therewith, and for which the
Company shall have received invoices on or prior to the second Business Day
preceding the Effective Date.
SECTION 4. PREPAYMENT, PAYMENT AND PURCHASE OF THE SUBSTITUTE
NOTES.
4.1. Mandatory Prepayments of the Substitute Notes; Payment
at Maturity. The provisions of the Substitute Notes with respect to mandatory
prepayment shall be identical to the provisions with respect to mandatory
prepayment of the Existing Notes, as follows:
(a) Series B Notes. On December 1, 1992 and on each December
1 thereafter to and including December 1, 1995 (so long as any of the Series B
Notes shall be outstanding), the Company will prepay $2,000,000 in aggregate
principal amount of the Series B Notes (or, if less, the unpaid balance
thereof). On December 1, 1996, the Company will in any event pay the entire
remaining unpaid principal amount of the Series B Notes together with all
interest accrued thereon.
(b) Series C Notes. On December 1, 1993 and on each December
1 thereafter to and including December 1, 1996 (so long as any of the Series C
Notes shall be outstanding), the Company will prepay $5,000,000 in aggregate
principal amount of the Series C Notes (or, if less, the unpaid balance
thereof). On December 1, 1997, the Company will in any event pay the entire
remaining unpaid principal amount of the Series C Notes together with all
interest accrued thereon.
(c) Series D Notes. On December 1, 1993 and on each December
1 thereafter to and including December 1, 1997 (so long as any of the Series D
Notes shall be outstanding), the Company will prepay $5,000,000 in aggregate
principal amount of the Series D Notes (or, if less, the unpaid balance
thereof). On December 1, 1998, the Company will in any event pay the entire
remaining unpaid principal amount of the Series D Notes together with all
interest accrued thereon.
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<PAGE> 26
(d) Series E Notes. On December 1, 1992 and on each December
1 thereafter to and including December 1, 1997 (so long as any of the Series E
Notes shall be outstanding), the Company will prepay $1,428,571 in aggregate
principal amount of the Series E Notes (or, if less, the unpaid balance
thereof). On December 1, 1998, the Company will in any event pay the entire
remaining unpaid principal amount of the Series E Notes together with all
interest accrued thereon.
(e) Series F Notes. The Company will, on December 1, 1999,
prepay $10,000,000 in aggregate principal amount of the Series F Notes (or, if
less, the unpaid balance thereof) and on December 1, 2000, prepay $8,000,000 in
aggregate principal amount of the Series F Notes (or, if less, the unpaid
balance thereof). On December 1, 2001, the Company will in any event pay the
entire remaining unpaid principal amount of the Series F Notes together with
all interest accrued thereon.
(f) Series G Notes. On December 1, 1994 and on each December
1 thereafter to and including December 1, 2000 (so long as any of the Series G
Notes shall be outstanding), the Company will prepay $3,875,000 in aggregate
principal amount of the Series G Notes (or, if less, the unpaid balance
thereof). On December 1, 2001, the Company will in any event pay the entire
remaining unpaid principal amount of the Series G Notes together with all
interest accrued thereon.
(g) Series H Notes. On December 1, 1993 and on each December
1 thereafter to and including December 1, 2002 (so long as any of the Series H
Notes shall be outstanding), the Company will prepay $4,900,000 aggregate
principal amount of the Series H Notes (or, if less, the unpaid balance
thereof. On December 1, 2003, the Company will in any event pay the entire
remaining unpaid principal amount of the Series H Notes together with all
interest accrued thereon.
(h) Adjustment of Mandatory Prepayments, etc.
Notwithstanding paragraphs (a) through (g) to the contrary, if any Substitute
Note or Notes (but less than all the Substitute Notes) of a Series shall be
purchased pursuant to Section 7.12, then the aggregate principal amount of the
Substitute Notes of such Series required to be prepaid on any December 1
thereafter pursuant to this Section 4.1 shall be reduced to that amount which
bears the same relation to the amount of such prepayment specified to be made
on such December 1 (or such lower amount to which such required prepayment
shall have theretofore been reduced in accordance with this paragraph (h)) as
the aggregate principal amount of the Substitute Notes of such Series
outstanding immediately
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<PAGE> 27
following said purchase pursuant to Section 7.12 bears to the aggregate
principal amount of the Substitute Notes of such Series outstanding immediately
prior to said purchase pursuant to Section 7.12. The Company covenants and
agrees that it will, in the event of any reduction pursuant to this paragraph
(h), promptly after the purchase giving rise to such reduction give to each
holder of a Substitute Note or Notes of the Series affected written notice
thereof, specifying in each such case the amounts of the respective mandatory
prepayments due thereafter in respect of each Substitute Note held by such
holder (giving effect to such reduction) and containing calculations
demonstrating the method by which such reduction was effected. Each prepayment
pursuant to this Section 4.1 shall be at 100% of the principal amount so to be
prepaid, together with accrued interest thereon to the date of such prepayment,
without premium.
4.2. Optional Prepayment of the Substitute Notes. The
provisions of the Substitute Notes with respect to optional prepayment shall be
identical to the provisions with respect to optional prepayment of the Existing
Notes, as follows:
(a) Series B Notes. Upon notice given as provided in Section
4.4, the Company, at its option, may
(i) on any December 1 fixed for a mandatory prepayment of
Series B Notes pursuant to Section 4.1(a), prepay an aggregate
principal amount of the Series B Notes equal to the amount of such
mandatory principal prepayment, or any lesser aggregate principal
amount constituting a multiple of $100,000, in each case at the
principal amount so to be prepaid, together with interest accrued
thereon to the date of such prepayment, without premium; provided,
however, that (A) the aggregate principal amount of the Series B Notes
which may be prepaid in all prepayments pursuant to this Subsection
shall not exceed $2,800,000 and (B) the privilege of the Company to
make prepayments pursuant to this Subsection shall be non-cumulative,
so that failure to exercise the same in whole or in part on any such
December 1 shall not entitle the Company to increase the amount which
may be prepaid on any subsequent December 1 in accordance with this
Subsection (i); and
(ii) on or after December 1, 1993, prepay the Series B Notes
as a whole, or from time to time in part (in multiples of $100,000),
in each case at the principal amount so to be prepaid, together with
interest accrued thereon to the date fixed for such prepayment, plus a
premium equal to the applicable percentage of the principal amount so
to be prepaid, determined as follows:
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<PAGE> 28
<TABLE>
<CAPTION>
If Prepaid During
12-Month Period Applicable
Beginning December 1 Percentage
-------------------- ----------
<S> <C>
1993 2.1222%
1994 1.0611%
1995 0%
</TABLE>
(b) Series C Notes. Upon notice given as provided in Section
4.4, the Company, at its option, may
(i) on any December 1 fixed for a mandatory prepayment of
Series C Notes pursuant to Section 4.1(b), prepay an aggregate
principal amount of the Series C Notes equal to the amount of such
mandatory principal prepayment, or any lesser aggregate principal
amount constituting a multiple of $100,000, in each case at the
principal amount so to be prepaid, together with interest accrued
thereon to the date of such prepayment and without premium, which
privilege shall be non-cumulative; provided, however, that the
aggregate principal amount of the Series C Notes which may be prepaid
in all prepayments pursuant to this Subsection shall not exceed
$6,250,000; and
(ii) on or after December 1, 1993, prepay the Series C Notes
as a whole, or from time to time in part (in multiples of $100,000),
in each case at the principal amount so to be prepaid, together with
interest accrued thereon to the date fixed for such prepayment, plus a
premium equal to the applicable percentage of the principal amount so
to be prepaid, determined as follows:
<TABLE>
<CAPTION>
If Prepaid During
12 Month Period Applicable
Beginning December 1 Percentage
-------------------- ----------
<S> <C>
1993 3.0136%
1994 2.0091%
1995 1.0045%
1996 0%
</TABLE>
(c) Series D Notes. Upon notice given as provided in Section
4.4, the Company, at its option, may
(i) on any December 1 fixed for a mandatory prepayment of
Series D Notes pursuant to Section 4.1(c), prepay an aggregate
principal amount of the Series D Notes equal to the amount of such
mandatory
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<PAGE> 29
principal prepayment, or any lesser aggregate principal amount
constituting a multiple of $100,000, in each case at the principal
amount so to be prepaid, together with interest accrued thereon to the
date of such prepayment and without premium; provided, however, that
(A) the aggregate principal amount of the Series D Notes which may be
prepaid in all prepayments pursuant to this Subsection shall not
exceed $8,750,000 and (B) the privilege of the Company to make
prepayments pursuant to this Subsection shall be non-cumulative so
that failure to exercise the same in whole or in part on any such
December 1 shall not increase the amount which may be prepaid on any
subsequent December 1 in accordance with this Subsection; and
(ii) on or after December 2, 1996, prepay the Series D Notes
as a whole, or from time to time in part (in multiples of $100,000),
in each case at the principal amount so to be prepaid, together with
interest accrued thereon to the date fixed for such prepayment, plus a
prepayment premium equal to the applicable percentage of the principal
amount so to be prepaid, determined as follows:
<TABLE>
<CAPTION>
If Prepaid During
12-Month Period Applicable
Beginning December 2 Percentage
-------------------- ----------
<S> <C>
1996 1.0667%
1997 0%
</TABLE>
(d) Series E Notes. Upon notice given as provided in Section
4.4, the Company, at its option, may
(i) on any December 1 fixed for a mandatory prepayment of
Series E Notes pursuant to Section 4.1(d), prepay an aggregate
principal amount of the Series E Notes equal to the amount of such
mandatory principal prepayment, or any lesser aggregate principal
amount constituting a multiple of $100,000, in each case at the
principal amount so to be prepaid, together with interest accrued
thereon to the date of such prepayment, without premium; provided,
however, that (A) the aggregate principal amount of the Series E Notes
which may be prepaid in all prepayments pursuant to this Subsection
shall not exceed $2,000,000 and (B) the privilege of the Company to
make prepayments pursuant to this Subsection shall be non-cumulative
so that failure to exercise the same in whole or in part on any such
December 1, shall not entitle the Company to increase the amount which
may be prepaid on any subsequent December 1 in accordance with this
Subsection; and
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<PAGE> 30
(ii) on or after December 1, 1995, prepay the Series E Notes
as a whole, or from time to time in part (in multiples of $100,000),
in each case at the principal amount so to be prepaid, together with
interest accrued thereon to the date fixed for such prepayment, plus a
premium equal to the applicable percentage of the principal amount so
to be prepaid, determined as follows:
<TABLE>
<CAPTION>
If Prepaid During
12-Month Period Applicable
Beginning December 1 Percentage
-------------------- ----------
<S> <C>
1995 2.2556%
1996 1.1278%
1997 0%
</TABLE>
(e) Series F Notes. Upon notice given as provided in Section
4.4, the Company, at its option, may, on or after August 2, 2000, prepay the
Series F Notes as a whole, or from time to time in part (in multiples of
$100,000), in each case at the principal amount so to be prepaid, together with
interest accrued thereon to the date fixed for such prepayment, plus, in the
case of any such prepayment made on or after August 2, 2000 and prior to
December 2, 2000, a prepayment premium equal to 0.866% of the principal amount
so to be prepaid.
(f) Series G Notes. Upon notice given as provided in Section
4.4, the Company, at is option, may
(i) on any December 1 fixed for a mandatory prepayment of
Series G Notes pursuant to Section 4.1(f), prepay an aggregate amount
of Series G Notes equal to the amount of such mandatory prepayment or
any lesser aggregate principal amount constituting an integral
multiple of $100,000, in each case at the principal amount so to be
prepaid, together with interest accrued thereon to the date of such
prepayment and without premium; provided, however, that (A) the
aggregate principal amount of the Series G Notes which may be prepaid
in all prepayments pursuant to this Subsection shall not exceed
$7,750,000 and (B) the privilege of the Company to make prepayments
pursuant to this Subsection shall be non-cumulative so that failure to
exercise the same in whole or in part on any such December 1 shall not
increase the amount which may be prepaid on any subsequent December 1
in accordance with this Subsection; and
(ii) on or after December 2, 1996, prepay the Series G Notes
as a whole, or from time to time in part (in integral multiples of
$100,000), in each case at
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<PAGE> 31
the principal amount so to be prepaid, together with interest accrued
thereon to the date fixed for such prepayment, plus a prepayment
premium equal to the applicable percentage of the principal amount so
to be prepaid, determined as follows:
<TABLE>
<CAPTION>
If Prepaid During
12-Month Period Applicable
Beginning December 2 Percentage
-------------------- ----------
<S> <C>
1996 3.4546%
1997 2.5909%
1998 1.7273%
1999 0.8636%
2000 0%
</TABLE>
(g) Series H Notes. Upon notice given as provided in Section
4.4, the Company, at its option, may, on or after December 2, 1999, prepay the
Series H Notes as a whole, or from time to time in part (in multiples of
$100,000), in each case at the principal amount so to be prepaid, together with
interest accrued thereon to the date fixed for such prepayment, plus a premium
equal to the applicable percentage of the principal amount so to be prepaid,
determined as follows:
<TABLE>
<CAPTION>
If Prepaid During
12-Month Period Applicable
Beginning December 2 Percentage
-------------------- ----------
<S> <C>
1999 2.235%
2000 1.490%
2001 0.745%
2002 0%
</TABLE>
(h) Mandatory Prepayments Not Affected; etc. No prepayment
of less than all the Substitute Notes of any Series pursuant to this Section
4.2 shall relieve the Company of its obligation to make (nor shall it reduce
the amount of) the prepayments of principal on the Substitute Notes of such
Series required by Section 4.1. Each partial prepayment made pursuant to this
Section 4.2 shall be allocated as provided in Section 4.5.
4.3. Special Purchase of Substitute Notes. The Company shall
be required to purchase Substitute Notes of each holder thereof which shall
have replied affirmatively to an offer to purchase the same given as
contemplated by Section 7.12, such purchase to be made at the price and on the
date and otherwise as provided in Section 7.12.
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<PAGE> 32
4.4. Notice of Prepayment. The Company shall call the
Substitute Notes of any Series for prepayment pursuant to Section 4.2 by giving
written notice thereof to each holder of an outstanding Substitute Note of such
Series, which notice shall be given not less than 30 nor more than 60 days
prior to the date fixed for such prepayment in such notice and shall specify
the amount so to be prepaid, together with the premium (if any) to be paid
thereon and the date fixed for such prepayment. Each such notice of prepayment
shall be accompanied by a certificate of an authorized financial officer of the
Company stating the facts showing compliance with the provisions of Section
4.2. Upon the giving of notice of any prepayment as provided in this Section
4.4, the Company will prepay on the date therein fixed for prepayment the
principal amount of the Substitute Notes of the Series so to be prepaid as
specified in such notice, together with interest accrued thereon to such date
fixed for prepayment, plus the applicable premium (if any).
4.5. Allocation of Prepayments. In the event of any
prepayment pursuant to Section 4.1 or 4.2 of less than all of the outstanding
Substitute Notes of any Series, the Company will allocate the principal amount
so to be prepaid (but only in units of $1,000) among the Substitute Notes of
such Series in proportion, as nearly as may be, to the respective principal
amounts thereof not theretofore called for prepayment.
4.6. Surrender of Substitute Notes. Any Substitute Note paid
or prepaid in full shall thereafter be surrendered to the Company upon its
written request therefor and canceled and not reissued.
4.7. Purchase of Substitute Notes. The Company will not, and
will not permit any Affiliate to, acquire directly or indirectly by purchase or
prepayment or otherwise any of the outstanding Substitute Notes except by way
of payment, prepayment or purchase in accordance with the provisions of the
Substitute Notes and the Agreements.
4.8. Maturity. In the case of each prepayment of Substitute
Notes, whether required or optional, the principal amount of each Substitute
Note to be prepaid shall become due and payable on the date fixed for such
prepayment together with interest accrued on such principal amount to such date
and the applicable prepayment premium, if any.
SECTION 5. FINANCIAL STATEMENTS AND INFORMATION. The Company
will furnish to you and to any of your Affiliates, so long as you or such
Affiliate shall hold any of the Substitute Notes, and (upon request) to each
other Qualified Institutional Holder of any Substitute Notes, in duplicate:
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(a) as soon as available and in any event within 45 days
after the end of the first, second and third quarterly accounting
periods in each fiscal year of the Company,
(i) copies of a consolidated and consolidating
balance sheet of the Company and its Restricted Subsidiaries
and of the Company and its Subsidiaries as of the end of such
accounting period and of the related consolidated and
consolidating statements of income and stockholder's equity
and cash flows of the Company and its Restricted Subsidiaries
and of the Company and its Subsidiaries for the portion of the
fiscal year ended with the last day of such quarterly
accounting period, all in reasonable detail and stating, in
the case of such consolidated statements, in comparative form
the respective figures for the corresponding date and period
in the previous fiscal year, and certified by the principal
financial officer of the Company, in the case of such
consolidated statements, as having been prepared in accordance
with GAAP and as presenting fairly the information contained
therein, subject to year-end and audit adjustments and, in the
case of such consolidating statements, as being fairly stated
in all material respects in relation to the consolidated
financial statements for such period as a whole, subject to
year-end and audit adjustments,
(ii) a written statement of such financial officer
of the Company setting forth computations in reasonable detail
showing, as of the date of such balance sheet, (A) the ratio
of Current Assets to Current Liabilities, (B) the amount of
Net Worth and Total Capitalization, (C) the maximum amount of
additional Debt and Restricted Debt which the Company could
have incurred under Section 7.4 and the outstanding amount of
Debt and Restricted Debt of the Company and each Restricted
Subsidiary and (D) the amount available for Restricted
Payments and Restricted Investments in compliance with Section
7.6, and
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(iii) a written discussion and analysis by management of
the financial condition and results of operations of the line
of business conducted by each Issuing Subsidiary and its
Subsidiaries for such accounting period;
(b) as soon as available and in any event within 120 days
after the end of each fiscal year of the Company,
(i) copies of a consolidated and consolidating
balance sheet of the Company and its Restricted Subsidiaries
and of the Company and its Subsidiaries as of the end of such
fiscal year and of the related consolidated and consolidating
statements of income and stockholder's equity and cash flows
of the Company and its Restricted Subsidiaries and of the
Company and its Subsidiaries for such fiscal year, all in
reasonable detail and stating in comparative form the
respective figures as of the end of and for the previous
fiscal year, accompanied, in the case of such consolidated
statements, by an unqualified report thereon of Coopers &
Lybrand, or other independent certified public accountants of
recognized national standing selected by the Company (which
report shall contain a statement to the effect that such
consolidated financial statements present fairly the financial
position of the corporation or corporations being reported
upon as at the dates indicated and the results of operations
and cash flows of such corporation or corporations for the
periods indicated and have been prepared in accordance with
GAAP applied on a basis consistent with prior years (except
for changes in application in which such accountants concur
and which are noted in such financial statements) and that the
audit by such accountants in connection with such consolidated
financial statements has been made in accordance with
generally accepted auditing standards at the time in effect,
and accordingly included such tests of the accounting records
and such other auditing procedures as were considered
necessary in the circumstances) and, in the case of such
consolidating statements, either certified by the principal
financial officer of the Company as fairly stating, or
accompanied by a report thereon by such accountants containing
a statement to the effect that
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such consolidating financial statements fairly state, the
financial position of the corporations being reported on in
all material respects in relation to the consolidated
financial statements for the periods indicated as a whole,
(ii) a written statement of the accountants
referred to in Clause (i) above
(A) setting forth computations in
reasonable detail showing, as of the date of such
balance sheet, (1) the ratio of Current Assets to
Current Liabilities, (2) the amount of Net Worth and
Total Capitalization, (3) the maximum amount of
additional Debt and Restricted Debt which the Company
could have incurred under Section 7.4 and the
outstanding amount of Debt and Restricted Debt of the
Company and each Restricted Subsidiary, and (4) the
amount available for Restricted Payments and
Restricted Investments in compliance with Section
7.6, and
(B) stating that in making the
examination necessary for their report on such
financial statements they obtained no knowledge of
any default by the Company in the observance of any
of the covenants contained in Section 7 or, if such
accountants shall have obtained knowledge of any such
default, specifying all such defaults and the nature
and status, and
(iii) a written discussion and analysis by
management of the financial condition and results of operations
of the line of business conducted by each Issuing Subsidiary
and its Subsidiaries for such accounting period;
(c) concurrently with the financial statements for each
quarterly accounting period and for each fiscal year of the Company
furnished pursuant to Subsections (a) and (b) of this Section,
(i) a certificate signed by the President or a
Vice President and by the Treasurer of the Company stating
that, based upon such examination or investigation and
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review of the Agreements as in the opinion of the signers is
necessary to enable the signers to express an informed opinion
with respect thereto, to the best knowledge of said signers,
the Company is not and has not during such period been in
default in the performance or observance of any of the terms,
covenants or conditions hereof, or, if the Company shall be or
shall have been in default, specifying all such defaults, and
the nature and period of existence thereof, and what action
the Company has taken, is taking or proposes to take with
respect thereto; provided that it shall not be necessary for
any such certificate to be signed by more than one of the
officers of the Company listed in this Subsection (c)(i) if
the officer so signing shall have been approved for that
purpose in writing by the holder or holders of not less than
66-2/3% in aggregate principal amount of all the Substitute
Notes outstanding and Mr. Clyde Wyant, Executive Vice
President, Chief Financial Officer and Treasurer of the
Company is hereby approved by you for such purpose,
(ii) a written statement of the principal financial
officer of the Company setting forth computations showing in
reasonable detail (A) the aggregate book value of property of
the Company and its Restricted Subsidiaries subject to
sale-leaseback transactions permitted by Section 7.7, and (B)
the book value of assets of the Company and its Restricted
Subsidiaries sold since the Effective Date and since the first
day of such fiscal year, and
(iii) a written statement of the principal financial
officer of the Company that, to the best of his knowledge
after due inquiry, except as otherwise disclosed in writing to
you, there is no litigation (including derivative actions),
arbitration proceeding or governmental proceeding pending to
which the Company or any Subsidiary is a party, or with
respect to the Company or any Subsidiary or their respective
properties, which has a significant possibility of
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materially and adversely affecting the business, operations,
properties or condition of the Company or of the Company and
its Subsidiaries taken as a whole;
(d) promptly after the same are available and in any
event within 15 days thereafter (if the Company or any Subsidiary
shall have become registered under Section 12 of the Exchange Act)
copies of all such proxy statements, financial statements and reports
as the Company or such Subsidiary shall send or make available
generally to any of its security holders and copies of all regular and
periodic reports and of all registration statements (other than on
Form S-8 or a similar form) which the Company or such Subsidiary may
file with the Commission or with any securities exchange;
(e) within 15 days after the end of each fiscal month, a
complete copy of any written agreements entered into by the Company
during such fiscal month amending, modifying, waiving or supplementing
any financial covenant set forth in an agreement or instrument
evidencing Debt of the Company in an aggregate unpaid principal amount
of $10,000,000 or more (together with a copy of the agreement or
instrument so amended, modified, waived or supplemented if not
previously furnished by the Company), provided, that if the Company
shall be a party to any agreement providing a holder of Debt of the
Company with greater rights with respect to delivery of amendments,
modifications, waivers or supplements to agreements or instruments of
the Company evidencing Debt than are provided to you above in this
paragraph (e), the Company shall give prompt written notice of such
fact to each holder of a Substitute Note, each such holder shall be
entitled to the benefit of such greater rights and this Agreement
shall be deemed modified to the extent required to provide such
greater rights;
(f) promptly upon any officer of the Company (i)
obtaining knowledge of any condition or event which constitutes a
Default or an Event of Default, or becoming aware that the holder of
any Substitute Note has given any written notice expressly asserting
the occurrence of a Default or Event of Default, a statement by the
principal financial officer of the Company specifying in reasonable
detail the nature and period of
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existence thereof and what action the Company has taken or is taking
or proposes to take with respect thereto, or (ii) becoming aware that
the holder of any Substitute Note has taken any other action with
respect to a claimed Default or Event of Default or that any holder of
any Debt referred to in Section 9.1(d) has given any notice to the
Company or any Restricted Subsidiary or taken any other action with
respect to a claimed default under or in respect of any such Debt or
with respect to the occurrence or existence of any event or condition
of the type referred to in Section 9.1(e) or 9.1(f), a statement by
the principal financial officer of the Company specifying in
reasonable detail the nature and period of existence thereof and what
action the Company has taken or is taking or proposes to take with
respect thereto, provided, that if the Company shall be a party to any
agreement providing a holder of Debt of the Company with greater
rights with respect to notices of the events described above in this
paragraph (f) than are provided to you above in this paragraph (f) or
in Section 9.1(c) with respect to this paragraph (f), the Company
shall give prompt written notice of such fact to each holder of a
Substitute Note, each such holder shall be entitled to the benefit of
such greater rights and this Agreement shall be deemed modified to the
extent required to provide such greater rights;
(g) promptly upon receipt thereof (and in any event within
five Business Days thereafter), copies of the management letter
submitted to the Company by its independent public accountants in
connection with the annual audit of the Company and its Subsidiaries
made by such accountants for the fiscal year ended December 31, 1991;
(h) promptly upon entering into any agreement or instrument
evidencing Debt of the Company or any Restricted Subsidiary (other
than any agreement providing for automatic modification thereof in
substantially the same form as Section 9.1(d) of this Agreement) which
provides that the holder of any such Debt may declare such Debt to be
due and payable prior to the scheduled maturity thereof as a result of
the occurrence of any default in the performance of any term or
condition contained in the agreement or instrument evidencing any
other Debt of the Company or any Restricted Subsidiary (regardless of
whether such other Debt shall have been declared due and
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payable prior to the stated maturity thereof), written notice to such
effect, making reference in such notice to Section 9.1(d) of this
Agreement; and
(i) such other information, including financial statements and
computations relating to the performance of the provisions of this
Agreement and the affairs of the Company, as may from time to time be
reasonably requested by you or your Affiliates or a Qualified
Institutional Holder.
The Company will keep at its principal executive office true
copies of the Agreements (as from time to time in effect), and cause the same
to be available for inspection at said office during normal business hours by
any holder of a Substitute Note or any prospective purchaser of a Substitute
Note designated by a holder thereof.
SECTION 6. INSPECTION OF PROPERTIES AND BOOKS.
(a) So long as you or your nominee or any other Qualified
Institutional Holder holds any of the Substitute Notes, your or such Qualified
Institutional Holder's representatives shall have the right to visit and
inspect any of the properties of the Company and its Restricted Subsidiaries in
the presence of an officer of the Company, to examine the books of account and
records of the Company and its Restricted Subsidiaries, to make copies and
extracts therefrom, to discuss the affairs, finances and accounts of the
Company and its Restricted Subsidiaries with, and to be advised as to the same
by, its officers and (in the presence of an officer of the Company) key
employees, and its independent public accountants, all at such times and
intervals as you or such other Qualified Institutional Holder may reasonably
desire. The Company will likewise afford your and such Qualified Institutional
Holder's representatives the opportunity to obtain any information, to the
extent the Company or any Restricted Subsidiary possesses such information or
can acquire it without unreasonable effort or expense, necessary to verify the
accuracy of any of the representations and warranties made by the Company
hereunder.
(b) You agree, and (by its acceptance of any Substitute
Note) each other holder of Substitute Notes shall be deemed to have agreed, to
hold in confidence all information furnished pursuant to the Agreements and
relating to the Company or any of its Subsidiaries which was designated in
writing as "confidential" at the time the same was furnished, provided,
however, that you or such other holder may disclose any information,
irrespective of whether
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or not such information shall have been designated as "confidential", (i) to
actual or prospective purchasers of the Substitute Notes or any participations
therein, (ii) to prospective assignees pursuant to Section 16.3, (iii) pursuant
to or in connection with any action, suit or proceeding by, or any statute,
rule or regulation of, any Governmental Body, (iv) pursuant to any Order of any
court, arbitrator or Governmental Body or as otherwise required by law, (v) to
your auditors, to the extent required in the course of their audit, to your
counsel or to the National Association of Insurance Commissioners or similar
associations or authorities, or (vi) to the extent necessary in the enforcement
of your rights hereunder and under the Substitute Notes during the continuance
of a Default or Event of Default; and the Company, for itself and on behalf of
its Subsidiaries, expressly consents to the disclosure of any such information
to any of such Persons (and under any such circumstances) contemplated in this
Section; provided, further, however, that any Person to whom any such
information shall be disclosed pursuant to Clause (i) or (ii) of this
Subsection shall agree with you or such other holder of Substitute Notes to
likewise be bound by and subject to the provisions of this Section.
(c) Anything herein to the contrary notwithstanding,
neither the Company nor any of its Subsidiaries shall have any obligations to
disclose pursuant hereto any engineering, scientific, or other technical data
without significance to your analysis of the financial position of the Company
and its Subsidiaries.
SECTION 7. COVENANTS. The Company covenants and agrees that
from the date of the Agreements to the Effective Date and thereafter so long as
any Substitute Note shall be outstanding:
7.1. Payment of Principal, Premium and Interest; Maintenance
of Books and Reserves. The Company will duly and punctually pay the principal
of, premium (if any) and interest on the Substitute Notes in accordance with
the terms of the Substitute Notes and the Agreements. The Company will, and
will cause each of its Restricted Subsidiaries to, keep proper books of record
and account and set aside appropriate reserves, all in accordance with GAAP.
7.2. Payment of Taxes; Corporate Existence; Maintenance of
Properties; Compliance with Laws. The Company will, and will cause each of its
Subsidiaries to,
(a) subject to Section 7.10, do or cause to be done all
things necessary to preserve and keep in full force and effect its
corporate existence and its licenses, rights (charter and statutory)
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and franchises to the extent the same are material and the termination
thereof would be adverse to the Company, or to the Company and its
Restricted Subsidiaries taken as a whole, or to the ability of the
Company to perform the Agreements and discharge its obligations on the
Substitute Notes; and the Company will maintain its principal office
at a location in the United States of America where notices,
presentations and demands in respect of this Agreement and the
Substitute Notes may be made upon it and will notify, in writing, each
holder of a Substitute Note of any change of location of such office
and such office shall be maintained at 2100 Lake Park Boulevard,
Richardson, Texas, 75080, until such time as the Company shall so
notify the holders of the Substitute Notes of any such change;
(b) pay and discharge or cause to be paid and discharged
all taxes, assessments and governmental charges or levies imposed upon
it or upon its income or profits or upon any of its property, real,
personal or mixed, or upon any part thereof, when due, as well as all
lawful claims for labor, materials and supplies which, if unpaid,
might by law become a Lien upon its property; provided, however, that
neither the Company nor any Subsidiary shall be required to pay any
such tax, assessment, charge, levy or claim if the amount,
applicability or validity thereof shall currently be contested in good
faith by appropriate proceedings, and if such reserve or other
appropriate provision, if any, as shall be required by GAAP shall have
been made therefor;
(c) maintain and keep, or cause to be maintained and
kept, all material properties used or useful in the business of the
Company and its Subsidiaries in good repair, working order and
condition, and from time to time make or cause to be made all repairs,
renewals, replacements and improvements which are necessary in
connection with the proper and advantageous conduct of such business;
and
(d) use its best efforts to comply in all material
respects with all applicable statutes, regulations and orders of, and
all applicable restrictions imposed by, any governmental agency, in
respect of the conduct of its business and the ownership of its
properties (including, without limitation, applicable statutes,
regulations and orders relating to equal employment opportunities),
except such as are being contested in good faith by appropriate
proceedings.
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7.3. Insurance. The Company will insure and keep insured,
and will cause each of its Subsidiaries to insure and keep insured, with
financially sound and reputable insurers, so much of their respective
properties, and such insurance shall be of such type and in such amounts (and
with such deductibles), as similarly situated manufacturing companies in
accordance with good business practice customarily insure properties of a
similar character against loss by fire and from other causes. In addition, the
Company will, and will cause each Subsidiary to, maintain public liability
insurance with financially sound and reputable insurers or maintain a program
of self-insurance covering claims for personal injury, death or property damage
suffered by others upon or in or about any premises occupied by it or occurring
as a result of its ownership, maintenance or operation of any automobiles,
trucks or other vehicles, aircraft or other facilities or as a result of the
use of products manufactured, constructed or sold by it or services rendered by
it, in such amounts (and with such deductibles) as such insurance is usually
maintained by companies engaged in a similar business and as is in accordance
with good business practice, provided that the aggregate annual amount of such
self-insurance maintained by the Company and its Subsidiaries shall not on any
date exceed 5% of Net Worth as at the end of the most recently completed fiscal
quarter.
7.4. Debt. The Company will not and will not permit any
Restricted Subsidiary to, directly or indirectly, create, assume, incur, agree
to purchase or repurchase or provide funds in respect of, or otherwise become
or be directly or indirectly liable in respect of, by way of Guarantee or
otherwise, any Debt, except that, subject in any event to the last paragraph of
this Section 7.4:
(a) the Company may remain liable in respect of the Debt
evidenced by the Substitute Notes;
(b) the applicable Restricted Subsidiaries may remain
liable in respect of the Debt described as items C(4) and E(1) in
Exhibit C, but may not extend, renew, refund or refinance any thereof
except as otherwise permitted by another provision of this Section
7.4, provided that on the Effective Date the Debt evidenced by the
Existing Notes shall be assumed by the Company as provided in Section
1.2;
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(c) any Restricted Subsidiary may become and remain
liable in respect of unsecured Debt of such Restricted Subsidiary
owing to the Company or a Wholly-owned Restricted Subsidiary, and the
Company may become and remain liable in respect of Subordinated Debt
owing to a Wholly-owned Restricted Subsidiary; and
(d) the Company and any Restricted Subsidiary may become
and remain liable in respect of additional Debt if on the date (the
"Incurrence Date") on which the Company or such Restricted Subsidiary
proposes to incur any such Debt, and after giving effect to such
incurrence and the substantially concurrent incurrence of any other
Debt and to the substantially concurrent retirement of any other Debt
and to the application of the proceeds of all such Debt, Total Debt
shall not exceed 55% of Total Capitalization; provided, however, that
nothing in this Section 7.4(d) shall permit the Company or any
Restricted Subsidiary to incur any Restricted Debt on any Incurrence
Date unless, after giving effect to any such incurrence and to the
substantially concurrent incurrence of any other Restricted Debt and
to the substantially concurrent retirement of any Restricted Debt and
to the application of the proceeds of all such Restricted Debt, the
Restricted Debt Amount shall not exceed 10% of Total Capitalization.
For all purposes of this Section 7.4, (i) any Person becoming
a Restricted Subsidiary after the date of this Agreement shall be deemed to
have incurred all of its then outstanding Debt at the time it becomes a
Restricted Subsidiary and (ii) in the event the Company or any Restricted
Subsidiary shall extend, renew, refund or refinance any Debt, the Company or
such Restricted Subsidiary shall be deemed to have incurred such Debt at the
time of such extension, renewal, refunding or refinancing. The Company will
not in any event incur or permit to exist any Debt of the Company to a
Restricted Subsidiary other than Subordinated Debt owing to a Wholly-owned
Restricted Subsidiary.
7.5. Liens. The Company will not and will not permit any
Restricted Subsidiary to, directly or indirectly, create, assume, incur or
suffer to be created, assumed or incurred or to exist any Lien in respect of
any property of any character owned by the Company or any Restricted Subsidiary
(whether such property is held on the date hereof or hereafter acquired),
except, subject in any event to the last paragraph of this Section 7.5 and to
Subsection (d) of Section 7.4:
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(a) Liens representing
(i) Liens for taxes or assessments or other
governmental charges or levies, either not yet due and payable
or to the extent that nonpayment thereof shall be permitted by
the proviso to Section 7.2(b),
(ii) Liens created by or resulting from any
litigation or legal proceeding which is currently being
contested in good faith by appropriate proceedings diligently
pursued, and
(iii) other Liens consisting of minor title defects
affecting real property or which are otherwise incidental to
the normal conduct of the business of the Company and its
Restricted Subsidiaries or the ownership of their respective
properties which do not secure Debt and which do not in the
aggregate materially impair the use of such property in the
operation of the business of the Company, or of the Company
and its Restricted Subsidiaries taken as a whole, or
materially impair the value of such property for the purposes
of such business;
(b) Liens existing on the date of this Agreement
specified in Exhibit C and securing the item or items of Debt
indicated thereon; provided that the principal amount of the Debt
secured by such Liens shall not be increased, or refinanced or
refunded except as permitted under Section 7.4;
(c) Liens on assets of any Restricted Subsidiary securing
Debt or other obligations of such Restricted Subsidiary owing to the
Company or to a Wholly-owned Restricted Subsidiary; and
(d) Liens in addition to those permitted by the preceding
clauses (a), (b) and (c) if, immediately after giving effect to the
creation thereof, the Company shall be entitled to incur at least $1
of additional Debt constituting Restricted Debt under the proviso to
Section 7.4(d).
For all purposes of this Section 7.5, any refunding or
refinancing of any Lien by the Company or any Restricted Subsidiary shall be
deemed to be an incurrence of such Lien at the time of such refunding or
refinancing, and any Lien existing on any property or assets at the time it
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or the Person owning it is acquired by the Company or any Restricted Subsidiary
shall be deemed to have been created at the time of such acquisition. In the
event that any property or assets of the Company or any Restricted Subsidiary
shall become or be subject to a Lien not permitted by the foregoing clauses (a)
through (d) of this Section 7.5, the Company shall make or cause to be made
effective provision satisfactory to the holders of the outstanding Substitute
Notes whereby the Substitute Notes will be secured equally and ratably with all
other obligations secured thereby, and in any event, the Substitute Notes shall
have the benefit, to the full extent that (and with such priority as) the
holders thereof may be entitled under applicable law, of an equitable Lien on
such property or asset; provided, however, that any Lien created, assumed,
incurred or suffered to exist in violation of this Section 7.5 shall constitute
an Event of Default whether or not the Company shall have made effective
provision to secure the Substitute Notes equally and ratably with any such
other obligations or the holders of Substitute Notes shall be entitled to such
equal and ratable security or any such equitable Lien.
7.6. Dividends and Other Restricted Payments; Restricted
Investments. The Company will not directly or indirectly (i) declare or pay
any dividend, or make any distribution, on the Company's shares of any class,
other than dividends or distributions payable in common shares of the Company,
or (ii) make any other Restricted Payment, and the Company will not make and
will not permit any Restricted Subsidiary to make any Restricted Investment,
unless, on the date of declaration in the case of any proposed dividend and on
the date of payment or distribution in the case of any proposed Restricted
Payment (including any dividend) or Restricted Investment (the "Computation
Date"), and after giving effect thereto,
(a) the aggregate amount of all Restricted Payments made
during the period (taken as one accounting period) commencing on
January 1, 1991 and ending on and including the Computation Date (the
"Computation Period"), and of all Restricted Investments made during
the Computation Period and outstanding on the Computation Date, shall
not exceed an amount equal to the sum of
(i) $45,000,000, plus
(ii) 85% of the aggregate amount of Consolidated
Net Income for each full fiscal year in the Computation Period
for which Consolidated Net Income is positive, minus
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(iii) 100% of the aggregate amount of Consolidated
Net Income for each full fiscal year in the Computation Period
for which there is a deficit,
plus 85% (or, in the case of a deficit, minus 100%) of Consolidated Net
Income for any period in the Computation Period not included in Clause
(ii) or (iii) above;
(b) no Event of Default or Default shall have occurred
and be continuing; and
(c) the Company shall be entitled to incur at least $1 of
additional Debt under Section 7.4(d).
The Company will not declare any dividend (other than dividends payable solely
in shares of its common stock) on any shares of any class of its stock which is
payable more than 90 days after the date of declaration thereof. For purposes
of this Section 7.6, Investments owned by any Person or for which it is
obligated at the time it becomes a Restricted Subsidiary shall be deemed to be
made at the time such Person becomes a Restricted Subsidiary.
Notwithstanding any other provision of this Section 7.6 to the
contrary, the Company may, at any time or from time to time, reacquire up to an
aggregate amount of $15,000,000 of shares of its common stock in transactions
qualifying as distributions under Section 303 of the Code if but only if (i)
such acquisitions are at prices not exceeding the fair market value of the
shares so acquired, in each case as determined in good faith by a resolution of
the Board, and (ii) no Event of Default or Default shall have occurred and be
continuing. The amount of said dividends shall not be subject to the
limitations of this Section 7.6 or included in any future computations pursuant
to this Section 7.6.
7.7. Sales and Leasebacks. The Company will not and will not
permit any Restricted Subsidiary to, as part of the same transaction or series
of related transactions, sell or otherwise transfer to any Person or Persons
any item or items of property, whether now owned or hereafter acquired, having
a book value in any one case or in the aggregate for all such property so
transferred from and including the date hereof through the date of such
transfer of $20,000,000 or more if the Company or such Restricted Subsidiary
shall then or thereafter, as part of the same transaction or series of related
transactions, rent or lease as lessee, or similarly acquire the right to
possession or use of such property, or one or more properties which it intends
to use for the same
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purpose or purposes as such property, provided that the Company will not and
will not permit any Restricted Subsidiary to enter into any transaction
otherwise permitted by this Section 7.7 if the sale or other disposition of the
property of the Company or a Restricted Subsidiary being transferred in such
transaction would not at the time be permitted under Section 7.10.
7.8. Maintenance of Certain Financial Conditions. The
Company will not permit:
(a) Current Assets as at the end of any fiscal quarter of
the Company to be less than 150% of Current Liabilities as at end of
such fiscal quarter;
(b) Net Worth as at the last day of any fiscal quarter of
the Company to be less than the Minimum Amount for such fiscal
quarter. For purposes of this Section 7.8(b), the "Minimum Amount"
shall be (i) for the fiscal quarter ended December 31, 1991,
$230,000,000, and (ii) for each fiscal quarter thereafter, the sum of
the Minimum Amount for the immediately preceding fiscal quarter plus
15% (or 0% in the case of a deficit) of Consolidated Net Income for
such immediately preceding fiscal quarter; or
(c) the aggregate vested benefit obligations for the
qualified pension plans of the Company and its Subsidiaries,
determined in each fiscal year by the Company's actuaries in the
ordinary course of business, to exceed the aggregate fair value of the
assets of such plans, also determined in each fiscal year by the
Company's actuaries in the ordinary course of business, by more than
$3,000,000.
For purposes of paragraph (c) of this Section 7.8, obligations and assets of
pension plans of the Company and its Subsidiaries shall be determined as of the
end of each fiscal year in accordance with Statement No. 87 of the Financial
Accounting Standards Board.
7.9. Subsidiary Stock and Debt. The Company will not:
(a) directly or indirectly sell, assign, pledge or
otherwise transfer or dispose of any Debt of, or claim against, or any
shares of stock or similar interests or other securities of (or
warrants, rights or options to acquire stock or
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similar interests or other securities of), any Restricted Subsidiary,
except to a Wholly-owned Restricted Subsidiary and except as
directors' qualifying shares if required by applicable law;
(b) permit any Restricted Subsidiary directly or
indirectly to sell, assign, pledge or otherwise transfer or dispose of
any Debt of, or claim against, or any shares of stock or similar
interests or other securities of (or warrants, rights or options to
acquire stock or similar interests or other securities of), any other
Restricted Subsidiary, except to the Company or a Wholly-owned
Restricted Subsidiary and except as directors' qualifying shares if
required by applicable law;
(c) permit any Restricted Subsidiary to have outstanding
any shares of preferred stock other than shares of preferred stock
which are owned by the Company or a Wholly-owned Restricted
Subsidiary; or
(d) permit any Restricted Subsidiary directly or
indirectly to issue or sell any shares of its stock or similar
interests or other securities (or warrants, rights or options to
acquire stock or similar interests or other securities) except to the
Company or a Wholly-owned Restricted Subsidiary or as directors'
qualifying shares if required by applicable law;
provided, however, that all stock or similar interests or other securities (or
warrants, rights or options to acquire stock or similar interests or other
securities) of any Restricted Subsidiary other than an Issuing Subsidiary may
be simultaneously sold as an entirety for a cash consideration at least equal
to the fair value thereof (as determined in good faith by a resolution of the
Board) at the time of such sale, if (A) such Restricted Subsidiary being sold
does not at the time own any Debt or stock or similar interests or other
securities of (or warrants, rights or options to acquire stock or similar
interests or other securities of) the Company or of any other Restricted
Subsidiary which is not also being simultaneously sold as an entirety as
permitted by this Section 7.9 or Section 7.10, (B) the assets of such
Restricted Subsidiary being sold represented by the equity interests to be so
transferred are such that the sale of such assets would be permitted by Section
7.10 (in which case such transaction shall be considered and deemed a
disposition of assets for the purposes of Section 7.10), and (C) immediately
after the consummation of such transaction, (x) the Company shall then be
permitted to incur $1.00 of
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additional Debt pursuant to Section 7.4(d), and (y) no condition or event shall
exist which constitutes a Default or an Event of Default.
7.10. Consolidation, Merger or Disposition of Assets. The
Company will not and will not permit any Restricted Subsidiary to, directly or
indirectly, consolidate or merge with, or sell, lease or otherwise dispose of
any of its assets to, any Person, except, subject (to the extent hereinafter
provided) to the last paragraph of this Section 7.10:
(a) the Company may consolidate or merge with any other
corporation, provided that the Company shall be the continuing or
surviving corporation and, after giving effect to any such
consolidation or merger, no Change of Control shall have occurred;
(b) any Restricted Subsidiary may consolidate or merge
with, and any Restricted Subsidiary may sell, lease or otherwise
dispose of its assets to, the Company or a Wholly-owned Restricted
Subsidiary;
(c) the Company may consolidate with or merge into, or
sell, lease or otherwise dispose of its assets as an entirety or
substantially as an entirety to, any solvent corporation, but only if
(i) such corporation (A) is duly organized and
validly existing in good standing under the laws of the United
States of America or a state thereof and (B) expressly
assumes, pursuant to a written agreement satisfactory in form,
scope and substance to the holders of the Substitute Notes,
the due and punctual payment of the principal of, premium (if
any) and interest on the Substitute Notes according to their
tenor, and the due and punctual performance and observance of
the obligations of the Company under the Agreements and the
Substitute Notes, an executed counterpart of which agreement
shall have been furnished to each holder of a Substitute Note
together with a favorable opinion of counsel satisfactory to
each such holder covering such matters relating to such
corporation, such assumption and such agreement as such holder
may reasonably request, and
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(ii) in the case of any such transaction which
would involve or result in a Change of Control, the Company
shall have offered to purchase all Substitute Notes held by
each holder thereof pursuant to Section 7.12 and, not later
than the time of consummation of such transaction, shall have
purchased, in compliance with Section 7.12, the full amount of
all Substitute Notes of each holder thereof which shall have
accepted such offer;
(d) the Company and any Restricted Subsidiary may sell,
lease or otherwise dispose of any of its assets in the ordinary course
of business;
(e) Industries may sell the Fort Worth Plant and
Heatcraft may sell the Wilmington Plant for a consideration at least
equal to the fair market value thereof (as determined in good faith by
the Board); and
(f) the Company and any Restricted Subsidiary may sell,
lease or otherwise dispose of any of its assets (other than in the
ordinary course of its business) for a consideration at least equal to
the fair market value thereof (as determined in good faith by the
Board) at the time of such sale or other disposition, provided that
the assets so sold on any date, when taken together with all assets
theretofore sold by the Company and its Restricted Subsidiaries
(including all deemed dispositions of assets pursuant to Section 7.9
and all assets sold in connection with sale-leaseback transactions
permitted under Section 7.7), (i) during the fiscal year in which such
date occurs, (A) shall not have contributed more than 15% of
Consolidated Operating Income for the immediately preceding fiscal
year and (B) shall not have a book value exceeding 15% of the book
value of consolidated total assets of the Company and its Restricted
Subsidiaries as at the end of the immediately preceding fiscal year,
and (ii) during the period from and including the date hereof through
the date of such disposition, shall not have a book value exceeding
30% of the book value of consolidated total assets of the Company and
its Restricted Subsidiaries as at the end of the immediately preceding
fiscal year.
Immediately after any consolidation, merger or other
disposition under Subsection (a), (b), (c), (e) or (f) of this Section 7.10,
(1) no Event of Default or Default
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shall have occurred and be continuing, and (2) the Company (which term, for the
purpose of this sentence, shall not include the corporation that originally
executed this Agreement if any other Person has become the Company pursuant to
any assumption described in Subsection (c) of this Section 7.10) shall be
entitled to incur at least $1 of additional Debt under Section 7.4(d). No
disposition under Subsection (c) of this Section 7.10 shall release the
corporation that originally executed this Agreement from its liability as
obligor on the Substitute Notes.
7.11. Issuance of Stock. The Company will not (either
directly or indirectly by the issuance of rights or options for, or securities
convertible into, such shares) issue, sell or otherwise dispose of any shares
of any class of its capital stock (other than directors' qualifying shares, if
required by applicable law) if any Change of Control shall thereby occur,
unless the Company shall have offered to purchase the Substitute Notes pursuant
to Section 7.12.
7.12. Purchase of Substitute Notes Upon Change of Control.
At least 15 Business Days (or, in the case of any transaction permitted by
Section 7.10 or 7.11 resulting in a Change of Control, at least 45 days) and
not more than 90 days prior to the occurrence of any Change of Control, the
Company shall give written notice thereof to each holder of an outstanding
Substitute Note in the manner and to the address specified for notices pursuant
to this Section 7.12 for such holder in Schedule I or as otherwise specified by
such holder in writing to the Company. Such notice shall contain (i) an offer
by the Company to purchase, on the date of such Change of Control or, if such
notice shall be delivered less than 35 days prior to the date of such Change of
Control, on the date 35 days after the date of such notice (the "Purchase
Date"), all Substitute Notes held by each such holder at a price equal to 100%
of the principal amount thereof, together with interest accrued thereon to the
Purchase Date, plus a premium equal to the Special Premium, (ii) the estimated
respective amounts of accrued interest and the Special Premium payable to such
holder in respect of such purchase, showing in each case in reasonable detail
the calculation thereof and, with respect to the estimated Special Premium, the
Reference Rate used in such calculation and (iii) the Company's estimate of the
date on which such Change of Control shall occur. Said offer shall be deemed
to lapse as to any such holder which has not replied affirmatively thereto in
writing within 35 days of the giving of such notice. As soon as practicable
(and in any event at least 24 hours) prior to such Change of Control, the
Company shall give written confirmation of the date thereof to each such holder
which has affirmatively replied to the notice given pursuant to the first
sentence
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of this Section 7.12. In the event that the Company shall purchase any
Substitute Notes pursuant to this Section 7.12, the same shall thereafter be
canceled and not reissued and shall not be deemed "outstanding" for any purpose
of this Agreement.
For the purposes of this Section 7.12, a "Change of Control"
shall be deemed to occur if any New Owner shall acquire beneficial ownership of
shares in the Company having Voting Rights pertaining thereto which would allow
such New Owner to elect more members of the Board than could be elected by the
exercise of all Voting Rights pertaining to shares in the Company then owned
beneficially by the Norris Family. As used in this Section 7.12:
(i) "Voting Rights" pertaining to shares of a corporation
means the rights to cast votes for the election of directors of such
corporation in ordinary circumstances (without consideration of voting
rights which exist only in the event of contingencies).
(ii) "Norris Family" means all persons who are lineal
descendants of D.W. Norris (by birth or adoption), all spouses of such
descendants, all estates of such descendants or spouses which are in
the course of administration, all trusts for the benefit of such
descendants or spouses, and all corporations or other entities in
which, directly or indirectly, such descendants or spouses (either
alone or in conjunction with other such descendants or spouses) have
the right, whether by ownership of stock or other equity interests or
otherwise, to direct the management and policies of such corporations
or other entities (each such person, spouse, estate, trust,
corporation or entity being referred to herein as a "member" of the
Norris Family). In addition, so long as any employee stock ownership
plan exercises its Voting Rights in the same manner as members of the
Norris Family (exclusive of employee stock ownership plans) who have a
majority of the Voting Rights exercised by all such members of the
Norris Family, such employee stock ownership plan shall be deemed a
member of the Norris Family.
(iii) "New Owner" means any person (other than a member of
the Norris Family), or any syndicate or group of persons (exclusive of
all members of the Norris Family) which would be deemed a "person" for
the purposes of Section 13(d) of the Exchange Act, who directly or
indirectly acquires shares in the Company.
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Notwithstanding anything in this Section 7.12 to the contrary, if an Event of
Default exists following a Change of Control and the Substitute Notes are
accelerated pursuant to the provisions of Section 9.1, the holders of the
Substitute Notes shall be entitled to receive the Special Premium relating to
such accelerated amount as provided in Section 9.1.
7.13. Transactions with Affiliates. The Company will not and
will not permit any Restricted Subsidiary to engage in any material transaction
with an Affiliate on terms less favorable to the Company or such Restricted
Subsidiary than would have been obtainable at the time from any Person which is
not an Affiliate in arm's-length dealing provided, that the foregoing
restrictions shall not apply to any transaction between the Company and a
Wholly-owned Restricted Subsidiary or between a Wholly-owned Restricted
Subsidiary and another Wholly-owned Restricted Subsidiary.
7.14. Change in Business. The Company will not either
directly or by or through a Subsidiary make or permit any substantial change in
the nature of the business in which the Company and its Subsidiaries, taken as
a whole, are engaged on the date of this Agreement except for such changes as
are natural extensions of the heating, cooling, refrigeration, copper tube
manufacturing and electronics businesses.
7.15. Environmental Matters. (a) The Company will and will
cause each of its Subsidiaries to comply in all material respects with all
applicable Environmental Laws if, individually or in the aggregate, failure to
comply therewith could reasonably be expected to have a material adverse effect
on the Company or the Company and its Subsidiaries, taken as a whole.
(b) The Company will not and will not permit any of its
Subsidiaries to cause or allow any Hazardous Substance to be present at any
time on, in, under or above any real property or any part thereof in which the
Company or any Subsidiary has a direct interest (including without limitation
ownership thereof or any arrangement for the lease, rental or other use
thereof, or the retention of any mortgage or security interest therein or
thereon), except in a manner and to an extent that is in compliance in all
material respects with all applicable Environmental Laws and that will not have
a material adverse effect on the Company or the Company and its Subsidiaries,
taken as a whole.
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7.16. Limitation on Dividend Restrictions, etc. The Company
will not permit any Restricted Subsidiary to enter into, adopt, create or
otherwise be or become bound by or subject to any contract or charter or by-law
provision limiting the amount of, or otherwise imposing restrictions on the
declaration, payment or setting aside of funds for the making of, dividends or
other distributions in respect of the capital stock of such Restricted
Subsidiary to the Company or another Restricted Subsidiary.
SECTION 8. DEFINITIONS.
8.1. Definitions. Except as otherwise specified or as the
context may otherwise require, the following terms shall have the respective
meanings set forth below whenever used in this Agreement and such terms shall
include the singular as well as the plural:
"Affiliate" of any specified Person shall mean any other
Person controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, "control" when used with respect
to any specified Person means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"After-Tax Basis" shall have the meaning specified in Section
15(c).
"Agreements" shall have the meaning specified in Section 1.3.
"Armstrong" shall have the meaning specified in Section 1.1.
"Board" shall mean (i) in the case of determinations of value
under Section 7.10, the board of directors of the Restricted Subsidiary which
owns the relevant assets and (ii) in all other cases, either the board of
directors of the Company or any duly authorized committee of that board.
"Business Day" shall mean a day other than a Saturday or
Sunday or a day on which banks are required or authorized to close in New York,
New York, or Dallas, Texas.
"Capital Lease" shall mean any lease of property which in
accordance with GAAP should be capitalized on the lessee's balance sheet; and
"Capital Lease Obligation" shall mean the amount of the liability under a
Capital Lease which is or should be so capitalized in accordance with GAAP.
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"Change of Control" shall have the meaning specified in
Section 7.12.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and any successor statute thereto, together with the rules and
regulations issued thereunder, in each case as in effect from time to time.
"Commission" shall mean the Securities and Exchange Commission
and any other similar or successor agency of the Federal Government
administering the Securities Act.
"Commonly Controlled Entity" shall have the meaning specified
in Section 2.11.
"Company" shall have the meaning specified in the introductory
paragraph.
"Company Premises" shall mean real property in which the
Company or any Person which has at any time been or hereafter becomes a
Subsidiary of the Company at any time has or ever had any direct interest,
including, without limitation, ownership thereof, or any arrangement for the
lease, rental or other use thereof, or the retention or claim of any mortgage
or security interest therein or thereon.
"Computation Date" shall have the meaning specified in Section
7.6.
"Computation Period" shall have the meaning specified in
Section 7.6.
"Consolidated Net Income" for any period shall mean the Net
Income of the Company and its Restricted Subsidiaries for such period
consolidated in accordance with GAAP.
"Consolidated Operating Income" for any period shall mean
Consolidated Net Income for such period plus the net amount deducted during
such period in determining the amount thereof in respect of interest expense
(including the interest equivalent in respect of Capital Lease Obligations) and
taxes imposed on or measured by income or excess profits.
"Current Assets" shall mean the current assets of the Company
and its Restricted Subsidiaries determined in accordance with GAAP on a
consolidated basis after eliminating all intercompany items.
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"Current Liabilities" shall mean the current liabilities of
the Company and its Restricted Subsidiaries determined in accordance with GAAP
on a consolidated basis after eliminating all intercompany items and after
excluding current liabilities consisting of current maturities of long-term
debt.
"Debt" as applied to any Person (without duplication) shall
mean all obligations of such Person for borrowed money (whether short or
long-term and whether or not represented by bonds, debentures, notes, drafts or
other similar instruments) and any notes payable and drafts accepted
representing extensions of credit whether or not representing obligations for
borrowed money, and in any event shall include (a) any obligation owed for all
or any part of the purchase price of property or other assets or for the cost
of the property or other assets constructed or of improvements, other than
accounts payable included in current liabilities and incurred in respect of
property purchased in the ordinary course of business, (b) any obligation of
another Person of a type described in clause (a), (c) or (d) of this definition
which is secured by any Lien on or payable out of the proceeds of production
from property owned or held by such Person, even though such Person has not
assumed or become liable for the payment of such obligation, (c) any Capital
Lease Obligation of such Person, (d) any Guarantee by such Person of or with
respect to Debt of another Person, and (e) all preferred stock issued by such
Person which is redeemable, or for which mandatory sinking fund payments are
due, at any time on or before December 1, 2003. The Debt of the Company shall
in any event include (without duplication) all Debt of the Company to a
Subsidiary. The amount of Debt and assets of any Person shall not be affected
by deposits, trust arrangements or similar arrangements which, in accordance
with GAAP, extinguish debt for which such Person remains legally liable.
"Default" shall mean any default or other event which, with
notice or the lapse of time or both, would constitute an Event of Default.
"Effective Date" shall have the meaning specified in Section
1.3.
"Environmental Laws" shall mean any past, present or future
Federal, state, local or foreign statutory or common law, or any regulation,
code, plan, order, decree, judgment, permit, grant, franchise, concession,
restriction, agreement or injunction issued, entered, promulgated or approved
thereunder, relating to (a) the environment or human health or safety,
including, without limitation, any law relating to emissions, discharges,
releases or threatened
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releases of Hazardous Substances into the environment (including, without
limitation, air, surface water, groundwater or land), or (b) the manufacture,
generation, refining, processing, distribution, use, sale, treatment, receipt,
storage, disposal, transport, arranging for transport, or handling of Hazardous
Substances.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"Events of Default" shall have the meaning specified in
Section 9.1.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
and any similar or successor federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
"Existing Notes" shall have the meaning specified in Section 1.1.
"Existing Note Purchase Agreements" shall have the meaning
specified in Section 1.1.
"Fort Worth Plant" shall mean the real and personal property of
Industries located at the corner of Airport Freeway and Maxine, Fort Worth,
Texas.
"GAAP" shall mean generally accepted accounting principles as
in effect at the time of application to the provisions hereof, provided that
for all purposes of this Agreement it is understood and agreed that the Company
shall account for its Unrestricted Subsidiaries on the equity method.
"Governmental Body" shall have the meaning specified in
Section 2.7.
"Guarantee" of or by any Person shall mean any guarantee or other
contingent liability, direct or indirect, with respect to any Debt of another
Person, through an agreement or otherwise, including, without limitation, (a)
any endorsement (otherwise than for collection or deposit in the ordinary course
of business) or discount with recourse or undertaking substantially equivalent
to or having similar economic effect of a guarantee with respect to any such
Debt, (b) any contingent obligations of such Person in respect of letters of
credit, letter of credit facilities, bankers' acceptance facilities or similar
credit facilities (excluding in any event obligations in respect of (1) trade or
commercial letters of credit given in the ordinary course of business and (2)
stand-by letters of credit given to support obligations other than Debt
obligations) and (c) any
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agreement (1) to purchase, or to advance or supply funds for the payment or
purchase of, any such Debt, (2) to purchase, sell or lease property, products,
materials or supplies, or transportation or services, primarily for the purpose
of enabling such other Person to pay the Debt or to ensure the owner thereof
against loss regardless of the delivery or non-delivery of the property,
products, materials or supplies or transportation or services, or (3) to make
any loan, advance, capital contribution or other investment in such other
Person to assure a minimum equity, working capital or other balance sheet
condition for any date, or to provide funds for the payment of any liability,
dividend or stock liquidation payment, or otherwise to supply funds to or in
any manner invest in such other Person. The amount of any Guarantee shall
(subject to any limitation contained therein) be equal to the outstanding
principal amount of the Debt guaranteed.
"Hazardous Substance" shall mean any contaminant, pollutant or
toxic or hazardous substance, and any substance that is defined or listed as a
hazardous, toxic or dangerous substance under any Environmental Law or that is
otherwise regulated or prohibited under any Environmental Law as a hazardous,
toxic or dangerous substance.
"Heatcraft" shall have the meaning specified in Section 1.1.
"Holders" shall have the meaning specified in Section 1.3.
"Industries" shall have the meaning specified in Section 1.1.
"Investment" shall mean any investment in any Person made by
stock purchase, capital contribution, loan, advance or otherwise, provided that
the amount of any such investment in any Person shall be computed in accordance
with GAAP. Investments shall not on any date include notes receivable accepted
by the Company or any Restricted Subsidiary in settlement of trade accounts
receivable of non-Affiliates so long as the allowance for doubtful accounts of
the Company and its Restricted Subsidiaries includes the excess, if any, of (a)
the aggregate principal amount of all such notes on such date over (b) 5% of
the sum of (i) the aggregate principal amount of all such notes plus (ii) all
trade accounts receivable of the Company and its Restricted Subsidiaries on
such date, before allowances for doubtful accounts.
"Issuing Subsidiary" shall have the meaning specified in
Section 1.1.
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"Lien" shall mean, as to any Person, any mortgage, lien,
pledge, adverse claim, charge, other encumbrance in favor of any vendor,
lessor, lender or other secured party in or on, or any interest or title of any
such vendor, lessor, lender or other secured party under any conditional sale
or other title retention agreement or Capital Lease with respect to, any
property or asset of such Person, or the signing or filing of a financing
statement with respect to property owned by such Person which names such Person
as debtor, or the signing of any security agreement authorizing any other party
as the secured party thereunder to file any such financing statement.
"Multiemployer Plan" shall have the meaning specified in
Section 2.11.
"Net Income" of any Person for any period shall mean the net
income (or net loss) of such Person for such period, determined in accordance
with GAAP, excluding
(a) the proceeds of any life insurance policy;
(b) any gain arising from (1) the sale or other
disposition of any assets (other than current assets) to the extent
that the aggregate amount of gains exceeds the aggregate amount of
losses from the sale, abandonment or other disposition of assets
(other than current assets), (2) any write-up of assets, or (3) the
acquisition by such Person of its outstanding Debt securities;
(c) any amount representing the interest of such Person
in the undistributed earnings of any other Person;
(d) any earnings of any other Person accrued prior to the
date it becomes a Restricted Subsidiary or is merged into or
consolidated with the Company or a Restricted Subsidiary and any
earnings, prior to the date of acquisition, of any other Person
acquired in any other manner; and
(e) any deferred credit (or amortization of a deferred
credit) arising from the acquisition of any Person.
"Net Worth" shall mean, as of any date of determination
thereof, the total stockholders' equity of the Company and its Subsidiaries
determined in accordance with GAAP on a consolidated basis, provided that if
the portion of total stockholders' equity attributable to Unrestricted
Subsidiaries exceeds 15% of total stockholders' equity, Net Worth shall be
reduced by the amount of such excess.
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"New Owner" shall have the meaning specified in Section 7.12.
"Norris Family" shall have the meaning specified in Section 7.12.
"Note Register" shall have the meaning specified in Section 10.
"Order" shall have the meaning specified in Section 2.7.
"Other Agreements" shall have the meaning specified in Section 1.3.
"Other Holders" shall have the meaning specified in Section 1.3.
"outstanding" shall refer, when used with reference to the
Substitute Notes of any Series as of a particular time, to all Substitute Notes
of such Series theretofore issued or delivered as provided in the Agreements,
except (i) Substitute Notes of such Series theretofore reported as lost,
stolen, damaged or destroyed, or surrendered for transfer, exchange or
replacement, in respect of which replacement Substitute Notes have been issued,
(ii) Substitute Notes of such Series theretofore paid in full, and (iii)
Substitute Notes of such Series theretofore canceled by the Company; and except
that, for the purpose of determining whether holders of the requisite principal
amount of Substitute Notes have made or concurred in any waiver, consent,
approval, notice or other communication under the Agreements, Substitute Notes
owned by the Company or any Affiliate thereof shall not be deemed to be
outstanding.
"Person" shall include an individual, a corporation, an
association, a partnership, a trust or estate, a government, foreign or
domestic, and any agency or political subdivision thereof, or any other entity.
"Purchase Date" shall have the meaning specified in Section 7.12.
"Qualified Institutional Holder" shall mean any holder which is an
institutional investor (a) which holds at the time in question at least
$3,000,000 in aggregate principal amount of Substitute Notes or any lesser
principal amount thereof constituting at least 20% of the aggregate principal
amount of Substitute Notes then outstanding or (b)
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which purchases from a Holder 100% of the Substitute Notes of a Series held by
such Holder (after giving effect to any reduction in principal resulting from a
prepayment of Substitute Notes).
"Restricted Debt" shall mean any of (i) Debt (including,
without limitation, Capital Lease Obligations, purchase money obligations and
industrial revenue bonds) of the Company or a Restricted Subsidiary which is
secured by a Lien not otherwise permitted under clause (a), (b) or (c) of
Section 7.5; or (ii) Debt of a Restricted Subsidiary owing to any Person other
than the Company or a Wholly-owned Restricted Subsidiary.
"Restricted Debt Amount" shall mean as of any date of
determination, the sum (without duplication) of the aggregate principal amount
outstanding of all Restricted Debt.
"Restricted Investment" shall mean any Investment by the
Company or any Restricted Subsidiary other than
(a) any Investment in (1) a marketable obligation,
maturing within two years after acquisition thereof, issued or
guaranteed by the United States of America or an instrumentality or
agency thereof, and entitled to the full faith and credit of the
United States of America, (2) a demand deposit account with, or a
certificate of deposit or other obligation, maturing within one year
after acquisition thereof, either fully insured by the Federal Deposit
Insurance Corporation (or any successor Federal agency) or issued by a
national or state bank or trust company having capital, surplus and
undivided profits of at least $250,000,000, and having (or being the
wholly-owned subsidiary of a holding company having) a credit rating
in respect of its short-term obligations of A-2 or higher from
Standard & Poor's Corporation or P-2 or higher from Moody's Investors
Service, Inc., (3) open market commercial paper, maturing within 270
days after acquisition thereof, having a credit rating of A-2 or
higher from Standard & Poor's Corporation or P-2 or higher from
Moody's Investors Service, Inc. and (4) a demand deposit account
either fully insured by the Federal Deposit Insurance Corporation (or
any successor Federal Agency) or with a national or state bank or
trust company having capital, surplus and undivided profits of at
least $100,000,000, if such demand deposit account is required to
conduct operations of the Company or any Restricted Subsidiary in the
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same local area in which such bank or trust company is located and the
aggregate amount of Investments in all such demand deposit accounts
permitted by this clause (4) does not exceed 1% of Net Worth;
(b) any Investment existing on the date hereof, as set
forth in Exhibit D hereto, including any extensions or renewals of any
such Investment;
(c) any Investment hereafter acquired in exchange for, or
out of the net cash proceeds from the substantially concurrent sale
of, common shares of the Company;
(d) Investments in
(i) shares of adjustable rate or floating rate
preferred stock, variable rate notes or other Debt or equity
issues of business corporations, or
(ii) Debt issues of municipalities,
the Issuers of which Investments described in this subsection (d)
shall in any case have a credit rating in respect of their long-term
obligations of A- or higher from Standard & Poor's Corporation or A3
or higher from Moody's Investors Service, Inc., provided (i) that the
aggregate outstanding amount of Investments which shall at any time
not constitute Restricted Investments pursuant to this Subsection (d)
of the definition of Restricted Investments shall not exceed one-third
of the then aggregate outstanding amount of all Investments of the
Company and its Restricted Subsidiaries at such time (disregarding for
this purpose Investments in Restricted Subsidiaries or joint
ventures), and (ii) the aggregate outstanding amount of Investments
issued by a single issuer which shall at any time not constitute
Restricted Investments pursuant to this Subsection (d) shall not
exceed $5,000,000; and
(e) any Investment by the Company or any Restricted
Subsidiary in any Restricted Subsidiary or any Person which
simultaneously therewith becomes a Restricted Subsidiary.
For the purposes of this definition, the outstanding amount of any Investment
shall be the amount originally actually invested, net of any return of capital,
and disregarding any appreciation or decline in value, or write-up, write-down
or write-off, of the Investment concerned.
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"Restricted Payment," in respect of the Company, shall mean
(a) the declaration of any dividend on, or the incurrence of
any liability to make any other payment or distribution in respect of,
shares of the Company of any class (other than one payable solely in
its common shares); and
(b) any payment or distribution on account of the purchase,
redemption or other retirement of any shares of the Company of any
class, or of any warrant, option or other right to acquire such
shares, or any other payment or distribution (other than pursuant to a
dividend theretofore declared or liability theretofore incurred as
specified in the foregoing Subsection (a)), made in respect thereof,
either directly or indirectly except a purchase, redemption or other
retirement of shares of the Company out of the net cash proceeds from
the substantially concurrent sale of common shares of the Company.
The amount of any Restricted Payment in property shall be deemed to be the
greater of its fair value (as determined by the Board) or its net book value.
"Restricted Subsidiary" shall mean any Subsidiary of the Company
which (a) is listed as a Restricted Subsidiary on Exhibit B or (b) is organized
under the laws of, and conducts substantially all of its business and maintains
substantially all of its property and assets within, the continental United
States of America or any state thereof. Once a Subsidiary is or becomes a
Restricted Subsidiary it may not thereafter become an Unrestricted Subsidiary.
"Securities Act" shall mean the Securities Act of 1933, and any
similar or successor Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Series" shall have the meaning specified in Section 1.4.
"Series B Notes" shall have the meaning specified in Section 1.4.
"Series C Notes" shall have the meaning specified in Section 1.4.
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"Series D Notes" shall have the meaning specified in Section 1.4.
"Series E Notes" shall have the meaning specified in Section 1.4.
"Series F Notes" shall have the meaning specified in Section 1.4.
"Series G Notes" shall have the meaning specified in Section 1.4.
"Series H Notes" shall have the meaning specified in Section 1.4.
"Special Premium" shall mean, with respect to any purchase of
the principal amount of Notes of any Series pursuant to Section 7.12 or any
acceleration of the principal amount of any Substitute Note of any Series
pursuant to Section 9.1 (such purchased or accelerated principal amount being
hereinafter referred to as the "Prepaid Principal"), as at any date of
determination, an amount equal to the greater of (i) zero and (ii) the excess
of:
A. the sum of the respective present values as of the date
such Special Premium becomes due and payable of:
(1) each prepayment of principal (if any)
required to be made with respect to such Prepaid Principal
pursuant to Section 4.1 with respect to such Prepaid Principal
during the Discount Period,
(2) the payment of principal balance required to
be made at final maturity with respect to such Prepaid
Principal, and
(3) each payment of interest which would be
required to be paid during such Discount Period with respect
to such Prepaid Principal from time to time outstanding,
determined, in the case of each such required prepayment, principal
payment at final maturity and interest payment, by discounting the
amount thereof (on a semiannual basis) from the date fixed therefor
back to the date of payment of such Special Premium at the Reference
Rate (assuming for such purpose that all such payments and prepayments
of principal and payments of interest with respect to such Prepaid
Principal were made
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when due pursuant to the terms of the Agreements and the Substitute
Notes of such Series, and that no other payment or prepayment with
respect to such Prepaid Principal was made),
over
B. the amount of such Prepaid Principal.
For purposes of the foregoing definition of Special Premium, (1) "Discount
Period" shall mean the period beginning on the date of such payment of Special
Premium and ending on the stated final maturity of the Substitute Notes of the
accelerated or purchased Series; and (2) "Reference Rate" shall mean a per
annum rate determined by adding 0.50% to the annual yield for United States
Treasury securities having a term to maturity equal to the Weighted Average
Life to Maturity of the accelerated or purchased Series of Substitute Notes, as
determined by reference to Federal Reserve Statistical Release H.15(519)
("Release H.15") published most recently prior to the third day preceding the
date of such payment, or, if Release H.15 is no longer published, such annual
yield as determined, at the Company's expense, by an independent investment
banking firm acceptable to the Company and the holders of Substitute Notes of
such Series; provided that, if there shall be no actual United States Treasury
security having a term to maturity equal to such Weighted Average Life to
Maturity of such Series of Substitute Notes, the annual yield for a United
States Treasury security deemed to have such a term to maturity shall be
interpolated on a basis consistent with the annual yields of other United
States Treasury securities as determined by reference to Release H.15, or (if
Release H.15 is no longer published) as determined at the Company's expense by
such an independent investment banking firm.
"Subordinated Debt" of any Person shall mean Debt of such
Person which is expressly made subordinate and junior in right of payment to
the Substitute Notes pursuant to terms contained in the instrument or agreement
evidencing such Debt substantially in the form of Exhibit F.
"Subsidiary" shall mean any corporation of which the Company
and/or one or more of its Subsidiaries own more than 50% of the outstanding
stock having by its terms ordinary voting power to elect a majority of the
board of directors of such corporation, irrespective of whether at the time
stock of any other class or classes of such corporation shall have or might
have voting power by reason of the happening of any contingency, and, except as
otherwise expressly indicated herein, references to Subsidiaries shall refer to
Subsidiaries of the Company.
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"Substitute Notes" shall have the meaning specified in Section 1.4.
"Taxes" shall have the meaning specified in Section 15(d).
"this Agreement" shall mean this Agreement of Assumption and
Restatement (together with the Schedules and Exhibits hereto), as from time to
time amended, modified or supplemented in accordance with its terms.
"Total Capitalization" shall mean the sum of Net Worth and Total
Debt.
"Total Debt" shall mean, as at any date of determination, the
aggregate amount (without duplication) of Debt of the Company and its
Restricted Subsidiaries outstanding on such date, consolidated in accordance
with GAAP after eliminating all intercompany items. Total Debt of the Company
shall not in any event include Subordinated Debt of the Company to a
Wholly-owned Restricted Subsidiary or Debt of a Wholly-owned Restricted
Subsidiary to the Company or to another Wholly-owned Restricted Subsidiary.
"Unrestricted Subsidiary" shall mean any Subsidiary other than a
Restricted Subsidiary.
"Voting Rights" shall have the meaning specified in Section 7.12.
"Weighted Average Life to Maturity" as applied to any indebtedness
at any date, shall mean the number of years (or portions of years) obtained by
dividing (a) the then outstanding principal amount of such indebtedness into (b)
the total of the products obtained by multiplying (i) 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 (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the date on which such payment is to be made.
"Wholly-owned Restricted Subsidiary" shall mean any Restricted
Subsidiary, all of the equity securities (or all of the equity securities other
than directors' qualifying shares) of which are owned by the Company or another
Wholly-owned Restricted Subsidiary.
"Wilmington Plant" shall mean the real and personal property of
Heatcraft located at 602 Sunnyvale Drive, Wilmington, North Carolina.
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8.2. Accounting Terms. (a) All accounting terms used herein
which are not expressly defined in this Agreement have the meanings
respectively given to them in accordance with GAAP, all computations made
pursuant to this Agreement shall be made in accordance with GAAP, and all
balance sheets and other financial statements shall be prepared in accordance
with GAAP. Any reference herein, or in any document delivered in connection
herewith, to financial statements of the Company at a date prior to the merger
referred to in Section 2.1 shall be deemed references to the financial
statements of Lennox International Inc., an Iowa corporation.
(b) If any changes in accounting principles from those
used in the preparation of the most recent audited historical financial
statements delivered to you prior to the Effective Date are hereafter required
or permitted by the rules, regulations, pronouncements and opinions of the
Financial Accounting Standards Board or the American Institute of Certified
Public Accountants (or successors thereto or agencies with similar functions)
and are adopted by the Company with the agreement of its independent certified
public accountants and such changes result or could result (for any present or
future period) in a change in the method of calculation of any of the financial
covenants, standards or terms in or relating to such covenants, the parties
hereto agree to enter into discussions with a view to amending such provisions
so as to equitably reflect such changes with the desired result that the
criteria for evaluating the financial condition of the Company and its
Subsidiaries shall be the same after such changes as if such changes had not
been made, provided, that no change in GAAP that would affect or could affect
(for any present or future period) the method of calculation of any of said
financial covenants, standards or terms shall be given effect in such
calculations until such provisions are amended, in a manner satisfactory to the
Company and the holders of the Substitute Notes, to so reflect such change to
GAAP.
SECTION 9. EVENTS OF DEFAULT; REMEDIES.
9.1. Events of Default Defined; Acceleration of Maturity. If
any of the following events (herein called "Events of Default") shall have
occurred and be continuing (whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary or by operation of law or
otherwise), that is to say:
(a) default shall be made in the due and punctual payment
of all or any part of the principal of, or premium (if any) on, any
Substitute Note when and as the same shall become due and payable,
whether at stated maturity, by acceleration, by notice of prepayment
or otherwise;
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(b) default shall be made in the due and punctual payment
of any interest on any Substitute Note when and as such interest shall
become due and payable, and such default shall have continued for a
period of three Business Days;
(c) (i) default shall be made in the performance or
observance of any covenant, agreement or condition contained in
Section 5(f)(i), any of Sections 7.4 through (and including) Section
7.10, Section 7.12 or Section 7.15; or (ii) default shall be made in
the performance or observance of any other covenant, agreement or
condition contained in the Agreements or the Substitute Notes not
specified in Section 9.1(a) or Section 9.1 (b) or in the immediately
preceding clause (i) of this Section 9.1(c) and such default shall
have continued for a period of 30 days;
(d) any event shall occur or any condition shall exist in
respect of any Debt of the Company or any Restricted Subsidiary (other
than the Substitute Notes) in an aggregate unpaid principal amount of
$1,000,000 or more, or under any agreement securing or relating to any
of such Debt, the effect of which is to cause or to permit the
acceleration of the maturity of such Debt, or any such Debt shall not
have been paid at the final maturity date thereof (as renewed or
extended if such Debt shall have been renewed or extended) (provided
that the words "or to permit" contained in the seventh line of this
Section 9.1(d) shall be omitted from this Section 9.1(d) and of no
effect at any time that and so long as neither the Company nor any
Restricted Subsidiary shall any longer be a party to any agreement
(other than this Agreement, the Other Agreements and any other
agreement providing for automatic modification thereof in
substantially the same form as this Section 9.1(d)) providing that the
holder of any Debt of the Company or any Restricted Subsidiary may
declare such Debt to be due and payable prior to the scheduled
maturity thereof as a result of the occurrence of any default in the
performance of any term or condition contained in the agreement or
instrument evidencing any other Debt of the Company or any Restricted
Subsidiary and further providing for such declaration regardless of
whether such other Debt shall have been declared due and payable prior
to the stated maturity thereof);
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(e) the Company or any Restricted Subsidiary shall (1)
apply for or consent to the appointment of, or the taking of
possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its property, (2) be generally
unable to pay its debts as such debts become due, (3) make a general
assignment for the benefit of its creditors, (4) commence a voluntary
case under the Federal Bankruptcy Code (as now or hereafter in
effect), (5) file a petition seeking to take advantage of any
bankruptcy, insolvency, moratorium, reorganization or other similar
law affecting the enforcement of creditors' rights generally, (6) fail
to controvert in a timely or appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case under
such Bankruptcy Code, (7) take any action under the laws of its
jurisdiction of incorporation analogous to any of the foregoing, or
(8) take any corporate action for the purpose of effecting any of the
foregoing;
(f) a proceeding or case shall be commenced, without the
application or consent of the Company or any Restricted Subsidiary in
any court of competent jurisdiction, seeking (1) the liquidation,
reorganization, dissolution, winding up, or composition or
readjustment of its debts, (2) the appointment of a trustee, receiver,
custodian, liquidator or the like of it or of all or any substantial
part of its assets, or (3) similar relief in respect of it, under any
law providing for the relief of debtors, and such proceeding or case
shall continue undismissed, or unstayed and in effect, for a period of
90 days; or an order for relief shall be entered in an involuntary
case under such Bankruptcy Code, against the Company or any Restricted
Subsidiary; or action under the laws of the jurisdiction of
incorporation of the Company or any Restricted Subsidiary analogous to
any of the foregoing shall be taken with respect to the Company or any
Restricted Subsidiary and shall continue unstayed and in effect for
any period of 90 consecutive days;
(g) final judgment for the payment of money shall be
rendered by a court of competent jurisdiction against the Company or
any Restricted Subsidiary and the Company or any Restricted Subsidiary
shall not discharge the same or provide
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for its discharge in accordance with its terms, or procure a stay of
execution thereof within 60 days from the date of entry thereof and
within said period of 60 days, or such longer period during which
execution of such judgment shall have been stayed, appeal therefrom
and cause the execution thereof to be stayed during such appeal, and
such judgment together with all other such judgments shall exceed in
the aggregate U.S. $1,000,000 (or the equivalent amount of any other
currency); or
(h) any representation or warranty made by (i) the
Company in this Agreement or in any certificate or other instrument
delivered hereunder or pursuant hereto or in connection with any
provision hereof or (ii) any Issuing Subsidiary in any Existing Note
Purchase Agreement to which it is a party or in any certificate or
other instrument delivered thereunder or pursuant thereto or in
connection with any provision thereof shall prove to be false or
incorrect or breached in any material respect on the date as of which
made;
then (i) upon the occurrence of any Event of Default described in Subsection
(e) or (f) with respect to the Company, the unpaid principal amount of all
Substitute Notes, together with the interest accrued thereon which shall be
deemed matured, shall automatically become immediately due and payable, without
presentment, demand, protest or other requirements of any kind, all of which
are hereby expressly waived by the Company, or (ii) during the continuance of
any other Event of Default, the holder or holders of at least 66-2/3% of the
unpaid principal amount of all of the Substitute Notes at the time outstanding
may, by written notice to the Company, declare the unpaid principal amount of
all Substitute Notes to be, and the same shall forthwith become due and
payable, together with the interest accrued thereon which shall be deemed
matured, plus (to the full extent permitted by applicable law) a premium equal
to the Special Premium (determined with respect to such principal amount of
Substitute Notes as of the date of such declaration, separately for each Series
thereof), provided that, during the existence of an Event of Default described
in Subsection (a) or (b) with respect to any Substitute Note, the holder of
such Substitute Note may, by written notice to the Company, declare such
Substitute Note to be, and the same shall forthwith become, due and payable,
together with the interest accrued thereon which shall be deemed matured plus
(to the full extent permitted by applicable law) a premium equal to the Special
Premium determined as of the date of such declaration. If any holder of any
Substitute Note shall exercise the option
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specified in the proviso to the preceding sentence, the Company will forthwith
give written notice thereof to the holders of all other outstanding Substitute
Notes of each Series and each such holder may (whether or not such notice is
given or received), by written notice to the Company, declare the principal of
all Substitute Notes held by it to be, and the same shall forthwith become, due
and payable, together with the interest accrued thereon which shall be deemed
matured.
The provisions of this Section 9.1 are subject, however, to
the condition that if, at any time after any Substitute Note shall have so
become due and payable and prior to the entry of any final judgment for the
payment of any monies due on the Substitute Notes or pursuant to the
Agreements, the Company shall pay all arrears of interest on the Substitute
Notes and all payments on account of the principal of and premium (if any) on
the Substitute Notes which shall have become due otherwise than by acceleration
(with interest on such principal, premium (if any) and, to the extent permitted
by law, on overdue payments of interest, at the rate specified in the
Substitute Notes) and all Events of Default (other than nonpayment of principal
of and accrued interest on Substitute Notes due and payable solely by virtue of
acceleration) shall be remedied or waived pursuant to Section 12, then, and in
every such case, the holder or holders of at least 80% in unpaid principal
amount of all of the Substitute Notes at the time outstanding, by written
notice to the Company, may rescind and annul any such acceleration and its
consequences; but no such action shall affect any subsequent Default or Event
of Default or impair any right consequent thereon.
9.2. Suits for Enforcement. If any Event of Default shall
have occurred and be continuing, the holder of any Substitute Note may proceed
to protect and enforce its rights, either by suit in equity or by action at
law, or both, whether for the specific performance of any covenant or agreement
contained in this Agreement or in aid of the exercise of any power granted in
this Agreement, or the holder of any Substitute Note may proceed to enforce the
payment of all sums due upon such Substitute Note or to enforce any other legal
or equitable right of the holder of such Substitute Note.
The Company covenants that, if it shall default in the making
of any payment due under any Substitute Note or in the performance or
observance of any agreement contained in this Agreement, it will pay to the
holder thereof such further amounts, to the extent lawful, as shall be
sufficient to pay the costs and expenses of collection or of otherwise
enforcing such holder's rights, including reasonable counsel fees.
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9.3. Remedies Cumulative. No remedy herein conferred upon
you or the holder of any Substitute Note is intended to be exclusive of any
other remedy and each and every such remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing at
law or in equity or by statute or otherwise.
9.4. Remedies Not Waived. No course of dealing between the
Company and you or the holder of any Substitute Note and no delay or failure in
exercising any rights hereunder or under any Substitute Note in respect thereof
shall operate as a waiver of any of your rights or the rights of any holder of
such Substitute Note.
SECTION 10. REGISTRATION, TRANSFER AND EXCHANGE OF SUBSTITUTE
NOTES. The Company will keep at its address for notices under Section 16.4 a
register (herein sometimes referred to as the "Note Register"), in which,
subject to such reasonable regulations as it may prescribe, but at its expense
(other than transfer taxes, if any), it will provide for the registration and
registration of transfer of the Substitute Notes of each Series.
Whenever any Substitute Note or Notes shall be surrendered
either at such address for notices of the Company or at the place of payment
named in the Substitute Notes, for transfer or exchange, accompanied (if so
required by the Company) by an appropriate written instrument of transfer duly
executed by the registered holder of such Substitute Note or his attorney duly
authorized in writing, the Company will execute and deliver in exchange
therefor a Substitute Note or Notes, as may be requested by such holder, of the
same Series and in the same aggregate unpaid principal amount as the aggregate
unpaid principal amount of the Substitute Note or Notes so surrendered. Any
Substitute Note issued in exchange for any other Substitute Note or upon
transfer thereof shall carry the rights to unpaid interest and interest to
accrue which were carried by the Substitute Note so exchanged or transferred,
and neither gain nor loss of interest shall result from any such transfer or
exchange. Any transfer tax relating to such transaction shall be paid by the
holder requesting the exchange.
The Company and any agent of the Company may treat the Person
in whose name any Substitute Note is registered as the owner of such Note for
the purpose of receiving payment of the principal of and premium (if any) and
interest on such Substitute Note and for all other purposes whatsoever, whether
or not such Substitute Note be overdue.
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SECTION 11. LOST, ETC. NOTES. Upon receipt by the Company of
evidence satisfactory to it of the loss, theft, destruction or mutilation of
any Substitute Note, and (in case of loss, theft or destruction) of indemnity
satisfactory to it, and upon reimbursement to the Company of all reasonable
expenses incidental thereto, and upon surrender and cancellation of such
Substitute Note, if mutilated, the Company will deliver in lieu of such
Substitute Note a Substitute Note of the same Series in a like unpaid principal
amount, dated as of the date to which interest has been paid thereon.
Notwithstanding the foregoing provisions of this Section, if
any Substitute Note of which you or any other institutional holder having a net
worth of at least $50,000,000 is the owner is lost, stolen or destroyed, then
the affidavit of your or such holder's Treasurer or Assistant Treasurer (or
other responsible officials), setting forth the circumstances with respect to
such loss, theft or destruction, shall be accepted as satisfactory evidence
thereof, and no indemnity shall be required as a condition to the execution and
delivery by the Company of a Substitute Note in lieu of such Substitute Note
(or as a condition to the payment thereof, if due and payable) other than your
or such holder's unsecured written agreement to indemnify the Company.
SECTION 12. AMENDMENT AND WAIVER.
(a) Any term, covenant, agreement or condition of the
Agreements or of the Substitute Notes may, with the consent of the Company, be
amended, or compliance therewith may be waived (either generally or in a
particular instance and either retroactively or prospectively), by one or more
substantially concurrent written instruments signed by the holder or holders of
at least 66-2/3% in aggregate unpaid principal amount of all Substitute Notes
at the time outstanding, provided, however, that
(i) no such amendment or waiver shall
(A) reduce the rate or extend the time of payment
of interest on any of the Substitute Notes, without the
consent of the holder of each Substitute Note so affected, or
(B) modify any of the provisions of the
Agreements or of the Substitute Notes with respect to the
payment or prepayment thereof (including without limitation
Section 7.12, the definition of the term "Special Premium" and
any other related definitions), or extend
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the scheduled maturity of the Substitute Notes, or reduce the
percentage of holders of Substitute Notes required to approve
any such amendment or effectuate any such waiver, without the
consent of the holders of all the Substitute Notes then
outstanding, and
(ii) no such waiver shall extend to or affect any
obligation not expressly waived or impair any right consequent
thereon.
(b) Any amendment or waiver pursuant to Subsection (a) of
this Section 12 shall (except as provided in Clause (a)(i)(A)) apply
equally to all the holders of the Substitute Notes amended or waived
and shall be binding upon them, upon each future holder of any
Substitute Note and upon the Company, in each case whether or not a
notation thereof shall have been placed on any Substitute Note.
(c) The Company will not agree in writing to any amendment,
modification or waiver of any of the provisions of the Agreements or the
Substitute Notes unless each holder of Substitute Notes (irrespective of the
amount of Substitute Notes then owned by it) shall be informed thereof by the
Company and shall be afforded the opportunity of considering the same and shall
be supplied by the Company with sufficient information to enable it to make an
informed decision with respect thereto. The Company will not, and will not
permit any of its Subsidiaries or Affiliates to, offer or pay any remuneration,
whether by way of supplemental or additional interest, fee or otherwise, to any
holder of Substitute Notes in order to obtain such holder's consent to any
amendment, modification or waiver of any term or provision of the Agreements,
or the Substitute Notes or any annulment or rescission of acceleration pursuant
to Section 9.1, unless such remuneration or inducement is concurrently paid on
the same terms proportionately to each holder of Substitute Notes then
outstanding regardless of whether or not such holder consents to such waiver,
amendment, annulment or rescission.
SECTION 13. HOME OFFICE PAYMENT. Notwithstanding anything to
the contrary in this Agreement or the Substitute Notes, so long as you or any
nominee designated by you shall be the holder of any Substitute Note, the
Company shall punctually pay all amounts which become due and payable on such
Substitute Note to you by 11:00 a.m., New York City time, at your address and
in the manner set forth in Schedule I hereto, or at such other place within the
United States and in such other manner as you may designate by notice to the
Company, without presentation or surrender of such Substitute Note. You agree
that prior to the sale,
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transfer or other disposition of any such Substitute Note, you will make
notation thereon of the portion of the principal amount paid or prepaid and the
date to which interest has been paid thereon, or surrender the same in exchange
for a Substitute Note or Notes aggregating the same principal amount as the
unpaid principal amount of the Substitute Note so surrendered. The Company
shall enter into an agreement similar to that contained in the first sentence
of this Section 13 with any other institutional investor (or nominee thereof)
who shall hold any of the Substitute Notes and who shall make with the Company
an agreement similar to that contained in the second sentence of this Section.
SECTION 14. LIABILITIES OF THE HOLDERS. Neither this
Agreement nor any disposition of any of the Substitute Notes shall be deemed to
create any liability or obligation on your part or that of any other holder of
any Substitute Note of any Series to enforce any provision hereof or of any of
the Substitute Notes of any other Series for the benefit or on behalf of any
other Person who may be the holder of any Substitute Note.
SECTION 15. TAXES. (a) The Company will pay all taxes
(including interest and penalties) which may be payable in respect of the
execution and delivery of this Agreement or of the execution and delivery (but
not the transfer) of any of the Substitute Notes or of any amendment of, or
waiver or consent under or with respect to, the Agreements or of any of the
Substitute Notes and will save you and all subsequent holders of the Substitute
Notes harmless against any loss or liability resulting from nonpayment or delay
in payment of any such tax. The obligations of the Company under this Section
15 shall survive the payment of the Substitute Notes.
(b) In the event the assumption and amendment and restatement of
the Existing Note Purchase Agreements or the delivery of the Substitute Notes
to you as described herein are determined to result in any taxable income to
you and such determination results in additional Taxes (as hereinafter defined)
being due from you, the Company hereby agrees to indemnify you, and to hold you
harmless, on an After-Tax Basis, from and against any and all such additional
Taxes. You will pay to the Company an amount which, after deduction of all
federal, state and local tax savings realized by you as a result of any payment
made pursuant to this sentence, shall equal the federal, state and local tax
savings realized by you as a result of the adjustments giving rise to such
Taxes, promptly as and when the same are realized; provided, however, that such
payment shall not exceed the sum of all prior payments made by the Company to
you pursuant to this Section 15(b) reduced by all prior payments
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made by you to the Company pursuant to this sentence; and provided, further,
that no payment shall be made to the Company pursuant to this sentence if an
Event of Default shall have occurred and be continuing or prior to such time as
all amounts theretofore required and then due and payable to you hereunder or
under the Substitute Notes shall have been paid in full. Any payment due to
you from the Company under this Section 15 shall be payable within 5 days after
receipt of written demand therefor or, in the case of Taxes being contested
pursuant to Section 15(c), within 5 days after the final resolution of such
contest. In the event you receive a refund of any Taxes previously paid to you
by the Company, you shall promptly pay to the Company the amount of such
refund, together with any interest received thereon; provided, however, that
such payment shall not be made to the Company if an Event of Default shall have
occurred and be continuing or prior to such time as all amounts theretofore
required and then due and payable to you hereunder or under the Substitute
Notes shall have been paid in full. For purposes of this Section 15(b), any
tax savings in respect of which a payment is due to the Company shall be deemed
to be realized upon the first to occur of (i) a reduction in your federal,
state or local taxes resulting from the adjustments giving rise to Taxes as
reflected in a final return filed for the applicable period, (ii) the receipt
of an increased federal, state or local tax refund or credit resulting from the
adjustments giving rise to Taxes or (iii) an increase in a net operating loss
or capital loss or net operating loss or capital loss carryover for federal,
state or local tax purposes resulting from the adjustments giving rise to
Taxes. For purposes of determining the tax savings attributable to an increase
in a net operating loss or capital loss or net operating loss or capital loss
carryover, the amount of the increase shall be multiplied by the highest
applicable marginal federal, state or local income tax rate in effect for the
period of such reduction. The determination as to whether any tax savings with
respect to which a payment may be due to the Company under this Section 15(b)
are realized and the timing and amount thereof shall be made by you in your
sole good faith discretion (it being understood that the Company shall have no
right to inspect or examine any tax returns or other records or documents
relating to your tax situation).
(c) If any written claim shall be made against you or if any
proceeding shall be commenced against you (including a written notice of such
proceeding) for any Taxes, or if you shall determine that any Taxes may be
payable, you shall promptly notify the Company in writing and shall not take
any action with respect to such claim, proceeding or Tax without the consent of
the Company for 15 days after receipt of such notice by the Company; provided,
however, that if you are required by law or regulation to
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<PAGE> 77
take action with respect to any such claim, proceeding or Tax prior to the end
of such 15-day period, you shall, in such notice, so inform the Company, and
shall not take any action with respect to such claim, proceeding or Tax without
the consent of the Company before the date on which you are required to take
action. If, within 30 days after receipt of such notice (or such shorter
period referred to in the preceding sentence), the Company shall request in
writing that you contest the imposition of such Taxes, you shall, at the
Company's expense (including, without limitation, all costs, expenses and
reasonable attorneys' and accountants' fees and disbursements) in good faith,
contest (including, without limitation, by pursuit of appeals) the validity,
applicability or amount of such Taxes by, in your sole discretion, (i)
resisting payment thereof, (ii) not paying the same except under protest, if
protest shall be necessary and proper, or (iii) if payment shall be made, using
reasonable efforts to obtain a refund thereof or credit therefor in appropriate
administrative and judicial proceedings; provided, however, that you shall not
be required to contest the imposition of any Tax unless (x) the Company shall
have agreed to pay all reasonable costs and expenses that you may incur in
connection with contesting such claim (including, without limitation, all
costs, expenses, reasonable legal and accounting fees and disbursements) and
(y) if such contest shall involve payment of the claim, the Company shall
advance to you the amount thereof, plus interest, penalties and additions to
tax with respect thereto, on an interest-free basis and with no additional net
after-tax cost to you. Notwithstanding the foregoing, in no event will you be
required to contest the imposition of any Tax unless: (i) no Event of Default
shall have occurred and be continuing; (ii) the Company shall have acknowledged
in writing its obligation to indemnify you for such Taxes in the event the
contest is unsuccessful; (iii) you shall have received an opinion of your
independent tax counsel, at the Company's sole expense, to the effect that a
meritorious basis exists for contesting such claim or, in the event of an
appeal, it is more likely than not that such adverse determination would be
reversed or substantially modified in a manner favorable to the taxpayer (and
provided that no appeal shall be required to the United States Supreme Court);
and (iv) the amount of such claim alone, or if the subject matter thereof shall
be of a continuing or recurring nature, when aggregated with identical
potential claims asserted against you shall be in excess of $125,000. You
shall consult in good faith with the Company regarding the conduct of any
contest by you. Notwithstanding anything contained in Section 15, you will not
be required to contest the imposition of any Taxes if you shall waive your
right to indemnity under this Section 15 with respect to such Taxes and shall
pay to the Company any amount previously paid or advanced by the Company
pursuant to this Section 15 (by way
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<PAGE> 78
of indemnification or advance for the payment of any Taxes) with respect to
such Taxes. Notwithstanding anything contained in this Section 15 to the
contrary, you shall not be required to contest any claim if the subject matter
thereof shall be of a continuing nature and shall have previously been decided
adversely pursuant to the contest provisions of this Section 15 unless there
shall have been a change in law (including, without limitation, amendments to
statutes or regulations, administrative rulings and court decisions) enacted,
promulgated or decided after such claim shall have been so previously decided,
and you shall have received an opinion of your independent tax counsel
furnished at the Company's sole expense, to the effect that as a result of such
change in the law it is more likely than not that you will prevail in the
contest of such claim.
(d) For purposes of this Section 15: (i) "Taxes" shall mean
the sum of, without duplication, (A) the amount of the federal, state and local
taxes paid by you relating to the transactions contemplated by this Agreement;
(B) the reduction of your net operating loss or capital loss or net operating
or capital loss carryover for federal, state or local tax purposes relating to
the transactions contemplated by this Agreement multiplied by the highest
applicable marginal federal, state or local income tax rate in effect for the
period of such reduction; (C) the amount of any federal, state or local tax
refund or credit to which you would otherwise be entitled and which is offset
or reduced as a result of the transactions contemplated by this Agreement; (D)
the amount of any interest, penalties or other additions to tax paid by you as
a result of the transactions contemplated by this Agreement; and (E) the amount
of any interest to which you would have been entitled with respect to any
refund described in clause (C) above had such amount not been offset as a
result of the transactions contemplated by this Agreement. "After-Tax Basis",
when referring to any indemnity payment due to you hereunder, shall mean that
amount which, after reducing such amount by all federal, state and local taxes
attributable to the inclusion by you of such amount in gross income, and after
giving effect to any federal, state and local tax savings attributable to any
deductions (including any increase in a net operating or capital loss carryover
deduction) arising from your payment of any Taxes with respect to which such
indemnity payment is being made (such taxes or tax savings, as the case may be,
to be calculated at the highest applicable marginal income tax rate in effect
for each applicable jurisdiction for the period in which such indemnity payment
is made and after taking into account the deduction attributable to the
imposition of state and local income taxes imposed on the inclusion of such
amount in gross income) is equal to the Taxes with respect to which such
indemnity payment is being made. Any factual assumptions, tax rate assumptions
or
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<PAGE> 79
assumptions relating to the appropriate tax treatment of a particular item
(including assumptions as to timing) will be made by you in your sole good
faith discretion (it being understood that the Company shall have no right to
inspect or examine any tax returns or other records or documents relating to
your tax situation). At the request of the Company, the accuracy of the
calculation of any amount or amounts payable by the Company or you under
Section 15(b) shall be verified, at the Company's sole expense, by an
independent "big six" public accounting firm selected by you and reasonably
satisfactory to the Company, and such verification shall be binding on the
Company and you. The Company agrees that it shall have no right to review or
otherwise have access to any information or any tax or financial data used by
such independent public accountants, all such information and data to be
treated by such independent public accountants as confidential.
SECTION 16. MISCELLANEOUS.
16.1. Expenses. Whether or not the transactions contemplated
hereby are consummated, the Company shall: (a) pay the reasonable fees and
disbursements of your special counsel and of any local counsel for any services
rendered in connection with such transactions or in connection with any actual
or proposed amendment, waiver or consent (whether or not the same becomes
effective) with respect to this Agreement or the Substitute Notes, and all
other reasonable expenses in connection therewith (including, without
limitation, document production expenses and expenses incurred in connection
with obtaining a private placement number from Standard and Poor's CUSIP
Service Bureau); (b) reimburse you for your reasonable out-of-pocket expenses
in connection with such transactions, amendments, waivers or consents (whether
or not the same becomes effective), and any items of the character referred to
in clause (a) which shall have been paid by you, and pay the cost of
transmitting Substitute Notes (insured to your satisfaction) to your principal
office upon the issuance thereof; and (c) pay, and save you and each subsequent
holder of any Substitute Note harmless from and against, any and all liability
and loss with respect to or resulting from the non-payment or delayed payment
of any and all placement fees and other liability which the Company may be or
become obligated to pay any agent or finder in connection with such
transactions. The obligations of the Company under this Section 16.1 shall
survive payment of the Substitute Notes.
16.2. Reliance on and Survival of Representations. All
agreements, representations and warranties of the Company herein and in any
certificates or other instruments delivered pursuant to this Agreement shall
(a) be deemed to be material and to have been relied upon by
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<PAGE> 80
you, notwithstanding any investigation heretofore or hereafter made by you or
on your behalf, and (b) survive the execution and delivery of this Agreement
and the delivery of the Substitute Notes to you, and shall continue in effect
so long as any Substitute Note is outstanding and thereafter as provided in
Sections 15 and 16.1.
16.3. Successors and Assigns. All covenants and agreements
in this Agreement by or on behalf of the respective parties hereto shall bind
and inure to the benefit of their respective successors and assigns, except
that, in the case of a successor to the Company by consolidation or merger or a
transferee of its assets, this Agreement shall inure to the benefit of such
successor or transferee only if it becomes such in accordance with Section
7.10; provided, however, that you shall not be obligated to accept the
assumption of the Existing Notes held by you on the Effective Date by any
Person other than the existing Lennox International Inc., a Delaware
corporation. The provisions of this Agreement are intended to be for the
benefit of all holders, from time to time, of the Substitute Notes, and shall
be enforceable by any such holder, whether or not an express assignment to such
holder of rights under this Agreement has been made by you or your successor or
assign, provided, however, that the benefit of Sections 5, 6, 11 (as to
satisfactory indemnity) and 13 shall be limited as provided therein.
16.4. Notices. All notices, opinions and other communications
provided for in this Agreement shall be in writing and delivered or mailed,
first class postage prepaid, addressed (a) if to the Company, at the address set
forth at the head of this Agreement (marked for the attention of the Executive
Vice President, Chief Financial Officer and Treasurer), or at such other address
as the Company may hereafter designate by notice to you and to each other holder
of any Substitute Note at the time outstanding, or (b) if to you, at your
address as set forth in Schedule I hereto or at such other address as you may
hereafter designate by notice to the Company, or (c) if to any other holder of
any Substitute Note, at the address of such holder as it appears on the Note
Register.
16.5. Substitution of Your Wholly-Owned Subsidiary. You
shall have the right to substitute one of your wholly-owned subsidiaries as the
holder of any of the Substitute Notes to be delivered to you hereunder, by
written notice delivered to the Company, which notice shall be signed by you
and such subsidiary, shall contain such subsidiary's agreement to be bound by
this Agreement and shall contain a confirmation by such subsidiary of the
accuracy with respect to it of the representations contained in Section 1.5,
provided that such confirmation may contain
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<PAGE> 81
a statement to the effect that such subsidiary shall at all times have the
right to transfer the Substitute Notes being delivered to it to you. The
Company agrees that, upon receipt of any such notice, whenever the word "you"
is used in this Agreement (other than this Section) such word shall be deemed
to refer to such subsidiary in lieu of you. In the event that such subsidiary
is so substituted hereunder and thereafter transfers its Substitute Notes or
any portion thereof to you, upon receipt by the Company of notice of such
transfer, whenever the word "you" is used in this Agreement (other than in this
Section) such word shall be deemed to refer to such subsidiary only to the
extent it retains any portion of the Substitute Notes, and shall be deemed to
refer to you to the extent you own all or any portion of the Substitute Notes,
and you and such subsidiary to such extents shall each have all the rights of
an original holder of Substitute Notes under this Agreement.
16.6. LAW GOVERNING. THIS AGREEMENT AND THE SUBSTITUTE NOTES
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK.
16.7. Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of
the terms hereof.
16.8. Entire Agreement. This Agreement embodies the entire
agreement and understanding between you and the Company and supersedes all
prior agreements and understandings relating to the subject matter hereof.
16.9. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
16.10. Limitation on Interest. No provision of the
Agreements or of any Substitute Note shall require the payment or permit the
collection of interest in excess of the maximum which is permitted by
applicable law. If any such excess interest is provided for herein or in the
Other Agreements or shall be adjudicated to be so provided for, then the
Company shall not be obligated to pay such interest in excess of the maximum
permitted by applicable law, and the holders of the Substitute Notes shall have
no right to demand or receive payment of any such excess interest, any other
provisions in the Agreements or in any Substitute Note to the contrary
notwithstanding. To the extent that the Company is permitted by law to waive
any such applicable law limiting the payment or collection of interest, it
hereby does so.
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<PAGE> 82
16.11. Interpretation of Disclosures. In connection with the
representations, warranties and certifications made by the Company pursuant to
this Agreement, the Company is required to make certain disclosures to you with
respect to possible or contingent losses and liabilities. The Company shall be
free to make disclosures to you in addition to those required under this
Agreement, and the making of any disclosure by the Company pursuant to this
Agreement shall not constitute an admission by the Company that any such
possible or contingent loss or liability actually exists or is owed.
If you are in agreement with the foregoing, please sign the
form of acceptance in the space provided below whereupon this Agreement shall
become a binding agreement between you and the Company.
Very truly yours,
LENNOX INTERNATIONAL INC.
By /s/ Clyde Wyant
------------------------------------
Title: Executive Vice
President, Chief Financial Officer
and Treasurer
The foregoing Agreement is
hereby accepted as of the
date first above written:
[TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA*
By/s/ Roderic L. Eaton
---------------------------------
Title:]Managing Director - Private Placements
[CONNECTICUT GENERAL LIFE
INSURANCE COMPANY*
By CIGNA Investments, Inc.
By /s/ James G. Schelling
-------------------------------
Title:]Managing Director
- -------------
* NOTE: Each purchaser will execute a separate agreement.
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<PAGE> 83
[INA LIFE INSURANCE COMPANY
OF NEW YORK*
By CIGNA Investments, Inc.
By /s/ James G. Schelling
-------------------------------
Title:] Managing Director
[TANDEM INSURANCE GROUP, INC.*
By /s/ David M. Dunford
-------------------------------
Title:] Senior Vice President
[THE TRAVELERS INSURANCE COMPANY*
By /s/ Jordan M. Stitzer
-------------------------------
Title:] Second Vice President
[THE CHARTER OAK FIRE INSURANCE
COMPANY*
By /s/ Jordan M. Stitzer
-------------------------------
Title:] Second Vice President
[THE TRAVELERS LIFE AND ANNUITY
COMPANY*
By /s/ Jordan M. Stitzer
-------------------------------
Title:] Second Vice President
[THE PHOENIX INSURANCE COMPANY*
By /s/ Jordan M. Stitzer
-------------------------------
Title:] Second Vice President
[THE TRAVELERS INDEMNITY COMPANY*
By /s/ Jordan M. Stitzer
-------------------------------
Title:] Second Vice President
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<PAGE> 84
EXHIBIT A-1
LENNOX INTERNATIONAL INC.
9.55% SERIES B SENIOR PROMISSORY NOTE DUE DECEMBER 1, 1996
Note No. RB- New York, N.Y.
$ , 1991
Private Placement No. 52610* AA 1
FOR VALUE RECEIVED, the undersigned, LENNOX INTERNATIONAL
INC., a corporation organized and existing under the laws of the State of
Delaware (herein called the "Company"), hereby promises to pay to
or registered assigns, the principal sum of
DOLLARS (or so much thereof as shall not have been
prepaid) on December 1, 1996, with interest (computed on the basis of a 360-day
year of twelve 30-day months) on the unpaid principal hereof at the rate of
9.55% per annum from the date hereof, payable semiannually on June 1 and
December 1 in each year, commencing on June 1, 1992, until said principal shall
have become due and payable, and to pay interest (so computed) at the rate of
10.55% per annum on any overdue principal and premium and, to the extent
permitted by applicable law, on any overdue interest, until the same shall be
paid. Payments of principal, premium, if any, and interest are to be made in
lawful money of the United States of America at the office of Morgan Guaranty
Trust Company of New York, 23 Wall Street, New York, New York 10015, or at such
other place as may be provided pursuant to the Agreements of Assumption and
Restatement referred to below.
This Note is one of the 9.55% Series B Senior Promissory Notes
due 1996 of the Company (the "Series B Notes") issued, together with the
Company's 11.05% Series C Senior Promissory Notes due 1997, 9.60% Series D
Senior Promissory Notes due 1998, 10.15% Series E Senior Promissory Notes due
1998, 9.53% Series F Senior Promissory Notes due 2001, 9.50% Series G Senior
Promissory Notes due 2001 and 9.69% Series H Senior Promissory Notes due 2003
(collectively, together with the Series B Notes, the "Notes") pursuant to the
nine separate Agreements of Assumption and Restatement, each dated as of
December 1, 1991, between the Company and each of Teachers Insurance and
Annuity Association of America, The Travelers Insurance Company, The Travelers
Indemnity Company, The Travelers Life Insurance Company, The Charter Oak Fire
Insurance Company, Connecticut General Life Insurance Company, INA Life
<PAGE> 85
Insurance Company of New York, Tandem Insurance Group, Inc. and The Phoenix
Insurance Company and is subject thereto and entitled to the benefits thereof.
As provided in said Agreements, this Series B Note is subject to optional
prepayments in whole or in part, in certain cases with a premium, and also to
required prepayments, all as specified in said Agreements.
Upon surrender of this Series B Note for registration of
transfer, duly endorsed, or accompanied by a written instrument of transfer
duly executed, by the registered holder hereof or such holder's attorney duly
authorized in writing, a new Series B Note for a like principal amount will be
issued to, and, at the option of the holder, registered in the name of, the
transferee. Prior to due presentment for registration of transfer, the Company
may deem and treat the Person in whose name this Series B Note is registered as
the holder and owner hereof for the purpose of receiving payments and for all
other purposes whatsoever, and the Company shall not be affected by any notice
to the contrary.
Said Agreements provide that by acceptance of this Series B
Note the holder hereof shall be deemed to have agreed to certain obligations of
confidentiality in respect of certain information received by such holder
pursuant to said Agreements.
In case an Event of Default (as defined in said Agreements)
shall occur and be continuing, the principal of this Series B Note may become
or be declared due and payable in the manner and with the effect provided in
said Agreements.
LENNOX INTERNATIONAL INC.
By
-------------------------------
Title:
-2-
<PAGE> 86
EXHIBIT A-2
LENNOX INTERNATIONAL INC.
11.05% SERIES C SENIOR PROMISSORY NOTE DUE DECEMBER 1, 1997
Note No. RC- New York, N.Y.
$ , 1991
Private Placement No. 52610* AB 9
FOR VALUE RECEIVED, the undersigned, LENNOX INTERNATIONAL
INC., a corporation organized and existing under the laws of the State of
Delaware (herein called the "Company"), hereby promises to pay to
or registered assigns, the principal sum of
DOLLARS (or so much thereof as shall not have
been prepaid) on December 1, 1997, with interest (computed on the basis of a
360-day year of twelve 30-day months) on the unpaid principal hereof at the
rate of 11.05% per annum from the date hereof, payable semiannually on June 1
and December 1 in each year, commencing on June 1, 1992, until said principal
shall have become due and payable, and to pay interest (so computed) at the
rate of 12.05% per annum on any overdue principal and premium and, to the
extent permitted by applicable law, on any overdue interest, until the same
shall be paid. Payments of principal, premium, if any, and interest are to be
made in lawful money of the United States of America at the office of Morgan
Guaranty Trust Company of New York, 23 Wall Street, New York, New York 10015,
or at such other place as may be provided pursuant to the Agreements of
Assumption and Restatement referred to below.
This Note is one of the 11.05% Series C Senior Promissory
Notes due 1997 of the Company (the "Series C Notes") issued, together with the
Company's 9.55% Series B Senior Promissory Notes due 1996, 9.60% Series D
Senior Promissory Notes due 1998, 10.15% Series E Senior Promissory Notes due
1998, 9.53% Series F Senior Promissory Notes due 2001, 9.50% Series G Senior
Promissory Notes due 2001 and 9.69% Series H Senior Promissory Notes due 2003
(collectively, together with the Series C Notes, the "Notes") pursuant to the
nine separate Agreements of Assumption and Restatement, each dated as of
December 1, 1991, between the Company and each of Teachers Insurance and
Annuity Association of America, The Travelers Insurance Company, The Travelers
Indemnity Company, The Travelers Life Insurance Company, The Charter Oak Fire
Insurance Company, Connecticut General Life Insurance Company, INA Life
<PAGE> 87
Insurance Company of New York, Tandem Insurance Group, Inc. and The Phoenix
Insurance Company and is subject thereto and entitled to the benefits thereof.
As provided in said Agreements, this Series C Note is subject to optional
prepayments in whole or in part, in certain cases with a premium, and also to
required prepayments, all as specified in said Agreements.
Upon surrender of this Series C Note for registration of
transfer, duly endorsed, or accompanied by a written instrument of transfer
duly executed, by the registered holder hereof or such holder's attorney duly
authorized in writing, a new Series C Note for a like principal amount will be
issued to, and, at the option of the holder, registered in the name of, the
transferee. Prior to due presentment for registration of transfer, the Company
may deem and treat the Person in whose name this Series C Note is registered as
the holder and owner hereof for the purpose of receiving payments and for all
other purposes whatsoever, and the Company shall not be affected by any notice
to the contrary.
Said Agreements provide that by acceptance of this Series C
Note the holder hereof shall be deemed to have agreed to certain obligations of
confidentiality in respect of certain information received by such holder
pursuant to said Agreements.
In case an Event of Default (as defined in said Agreements)
shall occur and be continuing, the principal of this Series C Note may become
or be declared due and payable in the manner and with the effect provided in
said Agreements.
LENNOX INTERNATIONAL INC.
By
-------------------------------
Title:
-2-
<PAGE> 88
EXHIBIT A-3
LENNOX INTERNATIONAL INC.
9.60% SERIES D SENIOR PROMISSORY NOTE DUE DECEMBER 1, 1998
Note No. RD- New York, N.Y.
$ , 1991
Private Placement No. 52610* AC 7
FOR VALUE RECEIVED, the undersigned, LENNOX INTERNATIONAL
INC., a corporation organized and existing under the laws of the State of
Delaware (herein called the "Company"), hereby promises to pay to
or registered assigns, the principal sum of
DOLLARS (or so much thereof as shall not have
been prepaid) on December 1, 1998, with interest (computed on the basis of a
360-day year of twelve 30-day months) on the unpaid principal hereof at the
rate of 9.60% per annum from the date hereof, payable semiannually on June 1
and December 1 in each year, commencing on June 1, 1992, until said principal
shall have become due and payable, and to pay interest (so computed) at the
rate of 10.60% per annum on any overdue principal and premium and, to the
extent permitted by applicable law, on any overdue interest, until the same
shall be paid. Payments of principal, premium, if any, and interest are to be
made in lawful money of the United States of America at the office of Morgan
Guaranty Trust Company of New York, 23 Wall Street, New York, New York 10015,
or at such other place as may be provided pursuant to the Agreements of
Assumption and Restatement referred to below.
This Note is one of the 9.60% Series D Senior Promissory Notes
due 1998 of the Company (the "Series D Notes") issued, together with the
Company's 9.55% Series B Senior Promissory Notes due 1996, 11.05% Series C
Senior Promissory Notes due 1997, 10.15% Series E Senior Promissory Notes due
1998, 9.53% Series F Senior Promissory Notes due 2001, 9.50% Series G Senior
Promissory Notes due 2001 and 9.69% Series H Senior Promissory Notes due 2003
(collectively, together with the Series D Notes, the "Notes") pursuant to the
nine separate Agreements of Assumption and Restatement, each dated as of
December 1, 1991, between the Company and each of Teachers Insurance and
Annuity Association of America, The Travelers Insurance Company, The Travelers
Indemnity Company, The Travelers Life Insurance Company, The Charter Oak Fire
Insurance Company, Connecticut General Life Insurance Company, INA Life
<PAGE> 89
Insurance Company of New York, Tandem Insurance Group, Inc. and The Phoenix
Insurance Company and is subject thereto and entitled to the benefits thereof.
As provided in said Agreements, this Series D Note is subject to optional
prepayments in whole or in part, in certain cases with a premium, and also to
required prepayments, all as specified in said Agreements.
Upon surrender of this Series D Note for registration of
transfer, duly endorsed, or accompanied by a written instrument of transfer
duly executed, by the registered holder hereof or such holder's attorney duly
authorized in writing, a new Series D Note for a like principal amount will be
issued to, and, at the option of the holder, registered in the name of, the
transferee. Prior to due presentment for registration of transfer, the Company
may deem and treat the Person in whose name this Series D Note is registered as
the holder and owner hereof for the purpose of receiving payments and for all
other purposes whatsoever, and the Company shall not be affected by any notice
to the contrary.
Said Agreements provide that by acceptance of this Series D
Note the holder hereof shall be deemed to have agreed to certain obligations of
confidentiality in respect of certain information received by such holder
pursuant to said Agreements.
In case an Event of Default (as defined in said Agreements)
shall occur and be continuing, the principal of this Series D Note may become
or be declared due and payable in the manner and with the effect provided in
said Agreements.
LENNOX INTERNATIONAL INC.
By
-------------------------------
Title:
-2-
<PAGE> 90
EXHIBIT A-4
LENNOX INTERNATIONAL INC.
10.15% SERIES E PROMISSORY NOTE DUE DECEMBER 1, 1998
Note No. RE- New York, N.Y.
$ , 1991
Private Placement No. 52610* AD 5
FOR VALUE RECEIVED, the undersigned, LENNOX INTERNATIONAL
INC., a corporation organized and existing under the laws of the State of
Delaware (herein called the "Company"), hereby promises to
pay to or registered assigns, the principal sum of
DOLLARS (or so much thereof as shall not have
been prepaid) on December 1, 1998, with interest (computed on the basis of a
360-day year of twelve 30-day months) on the unpaid principal hereof at the
rate of 10.15% per annum from the date hereof, payable semiannually on June 1
and December 1 in each year, commencing on June 1, 1992, until said principal
shall have become due and payable, and to pay interest (so computed) at the
rate of 11.15% per annum on any overdue principal and premium and, to the
extent permitted by applicable law, on any overdue interest, until the same
shall be paid. Payments of principal, premium, if any, and interest are to be
made in lawful money of the United States of America at the office of Morgan
Guaranty Trust Company of New York, 23 Wall Street, New York, New York 10015,
or at such other place as may be provided pursuant to the Agreements of
Assumption and Restatement referred to below.
This Note is one of the 10.15% Series E Senior Promissory
Notes due 1998 of the Company (the "Series E Notes") issued, together with the
Company's 9.55% Series B Senior Promissory Notes due 1996, 11.05% Series C
Senior Promissory Notes due 1997, 9.60% Series D Senior Promissory Notes due
1998, 9.53% Series F Senior Promissory Notes due 2001, 9.50% Series G Senior
Promissory Notes due 2001 and 9.69% Series H Senior Promissory Notes due 2003
(collectively, together with the Series E Notes, the "Notes") pursuant to the
nine separate Agreements of Assumption and Restatement, each dated as of
December 1, 1991, between the Company and each of Teachers Insurance and
Annuity Association of America, The Travelers Insurance Company, The Travelers
Indemnity Company, The Travelers Life Insurance Company, The Charter Oak Fire
Insurance Company, Connecticut General Life Insurance Company, INA Life
<PAGE> 91
Insurance Company of New York, Tandem Insurance Group, Inc. and The Phoenix
Insurance Company and is subject thereto and entitled to the benefits thereof.
As provided in said Agreements, this Series E Note is subject to optional
prepayments in whole or in part, in certain cases with a premium, and also to
required prepayments, all as specified in said Agreements.
Upon surrender of this Series E Note for registration of
transfer, duly endorsed, or accompanied by a written instrument of transfer
duly executed, by the registered holder hereof or such holder's attorney duly
authorized in writing, a new Series E Note for a like principal amount will be
issued to, and, at the option of the holder, registered in the name of, the
transferee. Prior to due presentment for registration of transfer, the Company
may deem and treat the Person in whose name this Series E Note is registered as
the holder and owner hereof for the purpose of receiving payments and for all
other purposes whatsoever, and the Company shall not be affected by any notice
to the contrary.
Said Agreements provide that by acceptance of this Series E
Note the holder hereof shall be deemed to have agreed to certain obligations of
confidentiality in respect of certain information received by such holder
pursuant to said Agreements.
In case an Event of Default (as defined in said Agreements)
shall occur and be continuing, the principal of this Series E Note may become
or be declared due and payable in the manner and with the effect provided in
said Agreements.
LENNOX INTERNATIONAL INC.
By
-------------------------------
Title:
-2-
<PAGE> 92
EXHIBIT A-5
LENNOX INTERNATIONAL INC.
9.53% SERIES F SENIOR PROMISSORY NOTE DUE DECEMBER 1, 2001
Note No. RF- New York, N.Y.
$ , 1991
Private Placement No. 52610* AE 3
FOR VALUE RECEIVED, the undersigned, LENNOX INTERNATIONAL
INC., a corporation organized and existing under the laws of the State of
Delaware (herein called the "Company"), hereby promises to pay to
or registered assigns, the principal sum of
DOLLARS (or so much thereof as shall not have
been prepaid) on December 1, 2001, with interest (computed on the basis of a
360-day year of twelve 30-day months) on the unpaid principal hereof at the
rate of 9.53% per annum from the date hereof, payable semiannually on June 1
and December 1 in each year, commencing on June 1, 1992, until said principal
shall have become due and payable, and to pay interest (so computed) at the
rate of 10.53% per annum on any overdue principal and premium and, to the
extent permitted by applicable law, on any overdue interest, until the same
shall be paid. Payments of principal, premium, if any, and interest are to be
made in lawful money of the United States of America at the office of Morgan
Guaranty Trust Company of New York, 23 Wall Street, New York, New York 10015,
or at such other place as may be provided pursuant to the Agreements of
Assumption and Restatement referred to below.
This Note is one of the 9.53% Series F Senior Promissory Notes
due 2001 of the Company (the "Series F Notes") issued, together with the
Company's 9.55% Series B Senior Promissory Notes due 1996, 11.05% Series C
Senior Promissory Notes due 1997, 9.60% Series D Senior Promissory Notes due
1998, 10.15% Series E Senior Promissory Notes due 1998, 9.50% Series G Senior
Promissory Notes due 2001 and 9.69% Series H Senior Promissory Notes due 2003
(collectively, together with the Series F Notes, the "Notes") pursuant to the
nine separate Agreements of Assumption and Restatement, each dated as of
December 1, 1991, between the Company and each of Teachers Insurance and
Annuity Association of America, The Travelers Insurance Company, The Travelers
Indemnity Company, The Travelers Life Insurance Company, The Charter Oak Fire
Insurance Company, Connecticut General Life Insurance Company, INA Life
<PAGE> 93
Insurance Company of New York, Tandem Insurance Group, Inc. and The Phoenix
Insurance Company and is subject thereto and entitled to the benefits thereof.
As provided in said Agreements, this Series F Note is subject to optional
prepayments in whole or in part, in certain cases with a premium, and also to
required prepayments, all as specified in said Agreements.
Upon surrender of this Series F Note for registration of
transfer, duly endorsed, or accompanied by a written instrument of transfer
duly executed, by the registered holder hereof or such holder's attorney duly
authorized in writing, a new Series F Note for a like principal amount will be
issued to, and, at the option of the holder, registered in the name of, the
transferee. Prior to due presentment for registration of transfer, the Company
may deem and treat the Person in whose name this Series F Note is registered as
the holder and owner hereof for the purpose of receiving payments and for all
other purposes whatsoever, and the Company shall not be affected by any notice
to the contrary.
Said Agreements provide that by acceptance of this Series F
Note the holder hereof shall be deemed to have agreed to certain obligations of
confidentiality in respect of certain information received by such holder
pursuant to said Agreements.
In case an Event of Default (as defined in said Agreements)
shall occur and be continuing, the principal of this Series F Note may become
or be declared due and payable in the manner and with the effect provided in
said Agreements.
LENNOX INTERNATIONAL INC.
By
-------------------------------
Title:
-2-
<PAGE> 94
EXHIBIT A-6
LENNOX INTERNATIONAL INC.
9.50% SERIES G SENIOR PROMISSORY NOTE DUE DECEMBER 1, 2001
Note No. RG- New York, N.Y.
$ , 1991
Private Placement No. 52610* AF 0
FOR VALUE RECEIVED, the undersigned, LENNOX INTERNATIONAL
INC., a corporation organized and existing under the laws of the State of
Delaware (herein called the "Company"), hereby promises to
pay to or registered assigns, the principal sum of
DOLLARS (or so much thereof as shall not have
been prepaid) on December 1, 2001, with interest (computed on the basis of a
360-day year of twelve 30-day months) on the unpaid principal hereof at the
rate of 9.50% per annum from the date hereof, payable semiannually on June 1
and December 1 in each year, commencing on June 1, 1992, until said principal
shall have become due and payable, and to pay interest (so computed) at the
rate of 10.50% per annum on any overdue principal and premium and, to the
extent permitted by applicable law, on any overdue interest, until the same
shall be paid. Payments of principal, premium, if any, and interest are to be
made in lawful money of the United States of America at the office of Morgan
Guaranty Trust Company of New York, 23 Wall Street, New York, New York 10015,
or at such other place as may be provided pursuant to the Agreements of
Assumption and Restatement referred to below.
This Note is one of the 9.50% Series G Senior Promissory Notes
due 2001 of the Company (the "Series G Notes") issued, together with the
Company's 9.55% Series B Senior Promissory Notes due 1996, 11.05% Series C
Promissory Notes due 1997, 9.60% Series D Senior Promissory Notes due 1998,
10.15% Series E Senior Promissory Notes due 1998, 9.53% Series F Senior
Promissory Notes due 2001 and 9.69% Series H Senior Promissory Notes due 2003
(collectively, together with the Series G Notes, the "Notes") pursuant to the
nine separate Agreements of Assumption and Restatement, each dated as of
December 1, 1991, between the Company and each of Teachers Insurance and
Annuity Association of America, The Travelers Insurance Company, The Travelers
Indemnity Company, The Travelers Life Insurance Company, The Charter Oak Fire
Insurance Company, Connecticut General Life Insurance Company, INA Life
Insurance Company of New York,
<PAGE> 95
Tandem Insurance Group, Inc. and The Phoenix Insurance Company and is subject
thereto and entitled to the benefits thereof. As provided in said Agreements,
this Series G Note is subject to optional prepayments in whole or in part, in
certain cases with a premium, and also to required prepayments, all as
specified in said Agreements.
Upon surrender of this Series G Note for registration of
transfer, duly endorsed, or accompanied by a written instrument of transfer
duly executed, by the registered holder hereof or such holder's attorney duly
authorized in writing, a new Series G Note for a like principal amount will be
issued to, and, at the option of the holder, registered in the name of, the
transferee. Prior to due presentment for registration of transfer, the Company
may deem and treat the Person in whose name this Series G Note is registered as
the holder and owner hereof for the purpose of receiving payments and for all
other purposes whatsoever, and the Company shall not be affected by any notice
to the contrary.
Said Agreements provide that by acceptance of this Series G
Note the holder hereof shall be deemed to have agreed to certain obligations of
confidentiality in respect of certain information received by such holder
pursuant to said Agreements.
In case an Event of Default (as defined in said Agreements)
shall occur and be continuing, the principal of this Series G Note may become
or be declared due and payable in the manner and with the effect provided in
said Agreements.
LENNOX INTERNATIONAL INC.
By
-------------------------------
Title:
-2-
<PAGE> 96
EXHIBIT A-7
LENNOX INTERNATIONAL INC.
9.69% SERIES H SENIOR PROMISSORY NOTE DUE DECEMBER 1, 2003
Note No. RH- New York, N.Y.
$ , 1991
Private Placement No. 52610* AG 8
FOR VALUE RECEIVED, the undersigned, LENNOX INTERNATIONAL
INC., a corporation organized and existing under the laws of the State of
Delaware (herein called the "Company"), hereby promises to pay to
or registered assigns, the principal sum of
DOLLARS (or so much thereof as shall not have
been prepaid) on December 1, 2003, with interest (computed on the basis of a
360-day year of twelve 30-day months) on the unpaid principal hereof at the rate
of 9.69% per annum from the date hereof, payable semiannually on June 1 and
December 1 in each year, commencing on June 1, 1992, until said principal shall
have become due and payable, and to pay interest (so computed) at the rate of
10.69% per annum on any overdue principal and premium and, to the extent
permitted by applicable law, on any overdue interest, until the same shall be
paid. Payments of principal, premium, if any, and interest are to be made in
lawful money of the United States of America at the office of Morgan Guaranty
Trust Company of New York, 23 Wall Street, New York, New York 10015, or at such
other place as may be provided pursuant to the Agreements of Assumption and
Restatement referred to below.
This Note is one of the 9.69% Series H Senior Promissory Notes
due 2003 of the Company (the "Series H Notes") issued, together with the
Company's 9.55% Series B Senior Promissory Notes due 1996, 11.05% Series C
Senior Promissory Notes due 1997, 9.60% Series D Senior Promissory Notes due
1998, 10.15% Series E Senior Promissory Notes due 1998, 9.53% Series F Senior
Promissory Notes due 2001 and 9.50% Series G Senior Promissory Notes due 2001
(collectively, together with the Series H Notes, the "Notes") pursuant to the
nine separate Agreements of Assumption and Restatement, each dated as of
December 1, 1991, between the Company and each of Teachers Insurance and
Annuity Association of America, The Travelers Insurance Company, The Travelers
Indemnity Company, The Travelers Life Insurance Company, The Charter Oak Fire
Insurance Company, Connecticut General Life Insurance Company, INA Life
<PAGE> 97
Insurance Company of New York, Tandem Insurance Group, Inc. and The Phoenix
Insurance Company and is subject thereto and entitled to the benefits thereof.
As provided in said Agreements, this Series H Note is subject to optional
prepayments in whole or in part, in certain cases with a premium, and also to
required prepayments, all as specified in said Agreements.
Upon surrender of this Series H Note for registration of
transfer, duly endorsed, or accompanied by a written instrument of transfer
duly executed, by the registered holder hereof or such holder's attorney duly
authorized in writing, a new Series H Note for a like principal amount will be
issued to, and, at the option of the holder, registered in the name of, the
transferee. Prior to due presentment for registration of transfer, the Company
may deem and treat the Person in whose name this Series H Note is registered as
the holder and owner hereof for the purpose of receiving payments and for all
other purposes whatsoever, and the Company shall not be affected by any notice
to the contrary.
Said Agreements provide that by acceptance of this Series H
Note the holder hereof shall be deemed to have agreed to certain obligations of
confidentiality in respect of certain information received by such holder
pursuant to said Agreements.
In case an Event of Default (as defined in said Agreements)
shall occur and be continuing, the principal of this Series H Note may become
or be declared due and payable in the manner and with the effect provided in
said Agreements.
LENNOX INTERNATIONAL INC.
By
-------------------------------------
Title:
-2-
<PAGE> 1
EXHIBIT 10.2
- -------------------------------------------------------------------------------
LENNOX INTERNATIONAL INC.
----------------------
NOTE PURCHASE AGREEMENT
Dated as of December 1, 1993
----------------------
6.73% Senior Promissory Notes due 2008
- -------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
SECTION 1. PURCHASE OF NOTES............................................................................. 1
1.1. Authorization................................................................................. 1
1.2. Purchase and Sale of Notes; the Closing....................................................... 2
1.3. Investment Representation..................................................................... 2
1.4. Source of Funds............................................................................... 2
SECTION 2. REPRESENTATIONS OF THE COMPANY................................................................ 3
2.1. Organization and Authority of the Company..................................................... 3
2.2. Disclosure.................................................................................... 3
2.3. Incorporation, Good Standing and Ownership of Shares of
Subsidiaries.................................................................................. 3
2.4. Financial Statements.......................................................................... 4
2.5. Compliance with Other Instruments of the Company; No Dividend
Restriction................................................................................... 5
2.6. Governmental Authorizations, etc.............................................................. 5
2.7. Litigation; Observance of Statutes, Regulations and Orders.................................... 6
2.8. Taxes......................................................................................... 6
2.9. Title to Property............................................................................. 7
2.10. Licenses, Permits, etc........................................................................ 7
2.11. Compliance with ERISA......................................................................... 7
2.12. Private Offering by the Company............................................................... 8
2.13. Solvency...................................................................................... 8
2.14. Use of Proceeds; Margin Regulations........................................................... 8
2.15. Existing Debt................................................................................. 9
2.16. Existing Investments.......................................................................... 9
2.17. Foreign Assets Control Regulations, etc....................................................... 9
2.18. Status Under Certain Statutes................................................................. 10
2.19. Environmental Matters......................................................................... 10
SECTION 3. CONDITIONS OF CLOSING......................................................................... 10
3.1. Proceedings Satisfactory...................................................................... 10
3.2. Opinions of Counsel........................................................................... 10
3.3. Representations True, etc.; Officers' Certificate............................................. 10
3.4. Legality...................................................................................... 11
3.5. Absence of Certain Events..................................................................... 11
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
3.6. Other Agreements, etc......................................................................... 11
3.7. Private Placement Number...................................................................... 11
3.8. Fees Payable at Closing....................................................................... 11
3.9. Delivery of Letter Agreement.................................................................. 12
SECTION 4. PREPAYMENT, PAYMENT AND PURCHASE OF THE NOTES................................................. 12
4.1. Mandatory Prepayments of the Notes; Payment at Maturity....................................... 12
4.2. Optional Prepayment of the Notes.............................................................. 12
4.3. Special Purchase of Notes..................................................................... 13
4.4. Notice of Prepayment.......................................................................... 13
4.5. Allocation of Prepayments..................................................................... 13
4.6. Surrender of Notes............................................................................ 13
4.7. Purchase of Notes............................................................................. 13
4.8. Maturity...................................................................................... 13
SECTION 5. FINANCIAL STATEMENTS AND INFORMATION.......................................................... 13
SECTION 6. INSPECTION OF PROPERTIES AND BOOKS............................................................ 18
SECTION 7. COVENANTS..................................................................................... 19
7.1. Payment of Principal, Special Premium and Interest; Maintenance of Books
and Reserves.................................................................................. 19
7.2. Payment of Taxes; Corporate Existence; Maintenance of Properties;
Compliance with Laws.......................................................................... 20
7.3. Insurance..................................................................................... 20
7.4. Debt.......................................................................................... 21
7.5. Liens......................................................................................... 22
7.6. Dividends and Other Restricted Payments; Restricted Investments............................... 23
7.7. Sales and Leasebacks.......................................................................... 25
7.8. Maintenance of Certain Financial Conditions................................................... 25
7.9. Subsidiary Stock and Debt..................................................................... 25
7.10. Consolidation, Merger or Disposition of Assets................................................ 26
7.11. Issuance of Stock............................................................................. 28
7.12. Purchase of Notes Upon Change of Control...................................................... 28
7.13. Transactions with Affiliates.................................................................. 30
7.14. Change in Business............................................................................ 30
7.15. Environmental Matters......................................................................... 30
7.16. Limitation on Dividend Restrictions, etc...................................................... 30
7.17. Most Favored Lender's Status.................................................................. 30
SECTION 8. DEFINITIONS................................................................................... 31
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C> <C>
8.1. Definitions................................................................................... 31
8.2. Accounting Terms.............................................................................. 42
SECTION 9. EVENTS OF DEFAULT; REMEDIES................................................................... 43
9.1. Events of Default Defined; Acceleration of Maturity........................................... 43
9.2. Suits for Enforcement......................................................................... 46
9.3. Remedies Cumulative........................................................................... 46
9.4. Remedies Not Waived........................................................................... 46
SECTION 10. REGISTRATION, TRANSFER AND EXCHANGE OF NOTES....................................................... 46
SECTION 11. LOST, ETC. NOTES................................................................................... 47
SECTION 12. AMENDMENT AND WAIVER............................................................................... 47
SECTION 13. HOME OFFICE PAYMENT................................................................................ 48
SECTION 14. LIABILITIES OF THE HOLDERS......................................................................... 49
SECTION 15. TAXES.............................................................................................. 49
SECTION 16. MISCELLANEOUS...................................................................................... 49
16.1. Expenses...................................................................................... 49
16.2. Reliance on and Survival of Representations................................................... 50
16.3. Successors and Assigns........................................................................ 50
16.4. Notices....................................................................................... 50
16.5. Substitution of Your Wholly-Owned Subsidiary.................................................. 50
16.6. Law Governing................................................................................. 51
16.7. Headings...................................................................................... 51
16.8. Entire Agreement.............................................................................. 51
16.9. Counterparts.................................................................................. 51
16.10. Maximum Interest Payable...................................................................... 51
16.11. Interpretation of Disclosures................................................................. 52
16.12. Notice to Transferees......................................................................... 52
16.13. Consent to Jurisdiction; Service of Process................................................... 52
</TABLE>
-iii-
<PAGE> 5
SCHEDULE I -- Names and Addresses of Purchasers
EXHIBIT A -- Form of Notes
EXHIBIT B -- Subsidiaries
EXHIBIT C -- Debt
EXHIBIT D -- Investments
EXHIBIT E -- Form of Opinion of Company's Counsel
EXHIBIT F -- Form of Subordination Provisions
EXHIBIT G -- Letter Agreement
-iv-
<PAGE> 6
LENNOX INTERNATIONAL INC.
2100 Lake Park Boulevard
Richardson, Texas 75080
NOTE PURCHASE AGREEMENT
as of December 1, 1993
To the Noteholder Identified
on the Signature Page at
the End of this Agreement:
Ladies and Gentlemen:
LENNOX INTERNATIONAL INC., a Delaware corporation (together
with any successor or transferee which becomes such in the manner specified in
Section 7.10, the "Company"), hereby agrees with you as follows:
SECTION 1. PURCHASE OF NOTES.
1.1. Authorization. The Company has duly authorized an issue
of its 6.73% promissory notes due December 1, 2008 in the aggregate principal
amount of $100,000,000, each such Note to be substantially in the form of
Exhibit A. As used herein, the term "Notes" shall include all notes originally
issued pursuant to this Agreement and all Other Agreements referred to below and
all notes delivered in substitution or exchange for any of said notes and, where
applicable, shall include the singular number as well as the plural. The term
"Note" shall mean one of the Notes. Each Note is to (a) bear interest from the
date thereof on the unpaid principal amount thereof at the rate of 6.73% per
annum (computed on the basis of a 360-day year of twelve 30-day months) payable
semiannually on June 1 and December 1 of each year, commencing June 1, 1994, and
with interest (so computed) on any overdue principal (including any overdue
prepayment of principal) and the Special Premium and (to the extent permitted by
applicable law) on any overdue interest at the rate of 8.73% per annum until
paid, payable semiannually as aforesaid or, at the option of the registered
holder thereof, on demand and (b) mature and be due and payable as to the entire
remaining unpaid principal amount thereof on December 1, 2008.
Capitalized terms used and not otherwise defined herein shall
have the respective meanings assigned thereto in Section 8. Unless otherwise
specified, any reference in this Agreement to a particular section or other
subdivision, or a particular schedule or exhibit, shall be considered a
reference to that section or other subdivision of, or to that schedule or
exhibit to, this Agreement.
-1-
<PAGE> 7
1.2. Purchase and Sale of Notes; the Closing. The Company
shall issue and sell to you and, subject to the terms and conditions hereof, you
shall purchase from the Company, Notes in the aggregate principal amount set
forth opposite your name on Schedule I hereto, at a price equal to 100% of the
principal amount thereof. The closing of the purchase of the Notes shall be held
commencing at 9:00 A.M., Dallas time, on December 1, 1993 (the "Closing Date"),
at the offices of Baker & Botts, L.L.P., located at 2001 Ross Avenue, Dallas,
Texas. On the Closing Date the Company will deliver to you the Notes to be
purchased by you in the form of a single Note in the principal amount shown
opposite your name on Schedule I (or such greater number of Notes aggregating
such principal amount as you may request), dated the Closing Date and registered
in your name (or the name of your nominee) against delivery by you to the
Company or its order of immediately available funds in the amount of the
purchase price therefor by wire transfer to the Company's account number 849820
at The Northern Trust Company (ABA #071000152). If on the Closing Date the
Company shall fail to tender such Notes to you as provided in this Section 1.2,
or any of the conditions specified in Section 3 shall not have been fulfilled to
your satisfaction, you shall, at your election, be relieved of all further
obligations under this Agreement, without thereby waiving any other rights you
may have by reason of such failure or nonfulfillment.
The Company represents and warrants that contemporaneously
herewith it is entering into eight separate Note Purchase Agreements (the "Other
Agreements") identical with this Agreement (except for the signature of the
holder at the end thereof) with the other institutional purchasers (the "Other
Purchasers") named in Schedule I, providing for the issue and sale to the Other
Purchasers of the aggregate principal amount of Notes shown opposite their names
on said Schedule I. This Agreement and the Other Agreements are to be separate
agreements and the purchase of the Notes by you and the Other Purchasers are to
be separate and several purchases. This Agreement and the Other Agreements are
herein sometimes collectively referred to as the "Agreements".
1.3. Investment Representation. You represent to the Company
that on the Closing Date you will acquire the Notes being purchased by you for
your own account, or for a separate account managed by you, for investment and
not with a view to the distribution or sale of the Notes, subject, however, to
any requirement of law that the disposition of your property be at all times
within your control and without prejudice to your right to sell or otherwise
dispose of all or any part of the Notes held by you pursuant to an effective
registration under the Securities Act or under an exemption from such
registration available under the Securities Act.
1.4. Source of Funds. You represent to the Company that no
part of the funds to be used by you to pay the purchase price of the Notes to be
purchased by you hereunder constitutes assets allocated to any separate account
maintained by you in which any employee benefit plan (or its related trust),
other than employee benefit plans identified on a letter, if any, that has been
furnished by you to the Company, has any interest and that all such funds
constitute funds allocated to general accounts maintained by you. As used in
this Section
-2-
<PAGE> 8
1.4, the terms "employee benefit plan" and "separate account" shall have the
respective meanings assigned to them in Section 3 of ERISA.
SECTION 2. REPRESENTATIONS OF THE COMPANY. The Company represents and
warrants to you that:
2.1. Organization and Authority of the Company. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, and has all requisite power and authority to own
or hold under lease the property it purports to own or hold under lease, to
transact the business it transacts and proposes to transact, to execute and
deliver the Agreements and the Notes and to perform the provisions hereof and
thereof. The Company has, by all necessary corporate action (no action of
shareholders of the Company being required by law, by its charter or by-laws, or
otherwise), duly authorized the execution and delivery of this Agreement, the
Other Agreements and the Notes and the performance of its obligations under this
Agreement and the Notes. The Company is duly qualified as a foreign corporation
and is in good standing in each jurisdiction in which the character of the
properties owned or held under lease by it or the nature of the business
transacted by it requires such qualification and in which the failure so to
qualify would materially affect adversely the business, operations or properties
of the Company, or of the Company and its Subsidiaries taken as a whole, or the
ability of the Company to perform the Agreements and discharge its obligations
on the Notes.
2.2. Disclosure. The Company has caused to be delivered to you
an Offering Memorandum with respect to the Notes, dated October, 1993, prepared
on behalf of the Company by Dillon, Read & Co. Inc. (the "Memorandum"). The
Memorandum contains a complete summary description of the business and
properties of the Company and the conduct of its operations. Neither this
Agreement, the Memorandum, the financial statements referred to in Section 2.4
nor any other document, instrument or certificate delivered to you by or on
behalf of the Company in connection with the transactions contemplated by the
Agreements contains any untrue statement of a material fact, or omits to state
any fact necessary to make the statements contained herein or therein (taken as
a whole) not misleading. The Company does not know of any fact (other than
matters of a general economic nature) which materially affects adversely or, so
far as the Company can reasonably now foresee, will materially affect adversely,
the business, operations or properties of the Company, or of the Company and its
Subsidiaries taken as a whole, or the ability of the Company to perform the
Agreements and discharge its obligations on the Notes.
2.3. Incorporation, Good Standing and Ownership of Shares of
Subsidiaries. Annexed hereto as Exhibit B is a complete and correct list of the
Company's Subsidiaries, showing, as to each Subsidiary, the correct name
thereof, the jurisdiction of its incorporation, the jurisdictions in which
substantial operating assets are located and the percentage of shares of each
class outstanding owned by the Company and each other Subsidiary and specifying
whether such Subsidiary is designated a Restricted Subsidiary. All of the
outstanding shares of
-3-
<PAGE> 9
each of said Subsidiaries shown in Exhibit B as being owned by the Company and
its Subsidiaries have been validly issued, are fully paid and nonassessable and
are owned beneficially and of record by the Company or another Subsidiary free
and clear of any Lien. No Subsidiary owns any shares of the Company. Each
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, and is duly
qualified as a foreign corporation and is in good standing in each jurisdiction
in which the character of the properties owned or held under lease by it or the
nature of the business transacted by it requires such qualification and in which
the failure so to qualify would materially affect adversely the business,
operations or properties of the Company or of the Company and its Subsidiaries
taken as a whole, or the ability of the Company to perform the Agreements and
discharge its obligations on the Notes. Each Subsidiary has all requisite power
and authority to own or hold under lease the property it purports to own or hold
under lease and to transact the business it transacts and proposes to transact.
There are no outstanding rights, options, warrants, conversion rights or
agreements for the purchase or acquisition from the Company or any Subsidiary of
any shares of capital stock of any such Subsidiary.
2.4. Financial Statements. The Company has delivered to you copies of
(a) the audited balance sheets of the Company and its
Subsidiaries as at December 31 in each of the years 1988, 1989, 1990,
1991 and 1992 and the related statements of income, stockholders'
equity and cash flows for the annual periods ended December 31, 1989,
1990, 1991 and 1992, accompanied by the reports thereon by Coopers &
Lybrand, independent certified public accountants of the Company;
(b) the unaudited consolidated and consolidating balance
sheets of the Company and its Subsidiaries as at March 31, June 30 and
September 30, 1993 and the related unaudited consolidated and
consolidating statements of income, stockholders' equity and cash flows
for the quarters then ended; and
(c) the Company's Long-Term Debt Repayment Schedule (Present
Debt) as of December 1, 1993.
All the above-mentioned financial statements (including in
each case the related schedules and notes) are correct and complete and fairly
present the financial position of the Company as of the respective dates of said
balance sheets and the results of its operations for the respective periods
covered by said statements of income, stockholders' equity and cash flows
(subject, in the case of the unaudited financial statements, to year-end
adjustments) and have been prepared in accordance with GAAP consistently applied
throughout the periods involved, except as set forth in the notes thereto. There
are no material liabilities, contingent or otherwise, of the Company or any
Subsidiary (of any type required by GAAP to be reflected in a consolidated
balance sheet of the Company and its Subsidiaries or the footnotes thereto) as
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<PAGE> 10
of December 31, 1992 not reflected in the consolidated balance sheet of the
Company and its Subsidiaries as of said date described in paragraph (a) of this
Section 2.4 (or the footnotes thereto). Since December 31, 1992 there have been
no changes in the assets, liabilities or financial position of the Company from
that set forth in the audited balance sheets of the Company as of said date,
other than (i) expenses of approximately $9,200,000 after taxes accrued in
connection with the consolidation of the Columbus Plant into the Marshalltown
Plant, (ii) approximately $12,001,000 accrued as a result of the after-tax
charge in fiscal year 1993 to net income of the Company and its Restricted
Subsidiaries on a consolidated basis upon adoption of Financial Accounting
Standards Board Statement No. 106 and (iii) changes in the ordinary course of
business which have not, either individually or in the aggregate, been
materially adverse to the Company.
2.5. Compliance with Other Instruments of the Company; No
Dividend Restriction. The consummation of the transactions contemplated by this
Agreement and the performance of the terms and provisions of the Agreements and
the Notes will not result in any breach of, or constitute a default under, or
result in the creation of any Lien in respect of any property of the Company
under any indenture, mortgage, deed of trust, license, bank loan or credit
agreement, lease, corporate charter, by-law, or other agreement or instrument to
which the Company is a party or by which the Company or any of its properties is
or may be bound or affected, or violate any existing law, governmental rule or
regulation or any Order of any court, arbitrator or Governmental Body applicable
to the Company. Neither the Company nor any Subsidiary is a party to or bound by
any instrument or agreement which contains any restriction on the incurrence by
the Company of any Debt other than (i) the Agreements, (ii) the Agreements of
Assumption and Restatement dated as of December 1, 1991 shown on Exhibit C and
(iii) the Revolving Credit Agreement dated as of December 4, 1991, among the
Company, the banks named therein and The Northern Trust Company, as agent, under
each of which the Company is permitted to maintain outstanding the Debt
evidenced by the Notes. No Restricted Subsidiary is bound by or subject to any
contract or charter or by-law provision limiting the amount of, or otherwise
imposing restrictions on the declaration, payment or setting aside of funds for
the making of, dividends or other distributions in respect of the capital stock
of such Restricted Subsidiary to the Company or another Restricted Subsidiary.
2.6. Governmental Authorizations, etc. No consent, approval or
authorization of, or registration, filing or declaration with, any Governmental
Body or any other Person (including any trustee or holder of any indebtedness,
obligation or other securities of the Company or any of its Subsidiaries) is
required for the validity of the execution and delivery or for the performance
by the Company of the Agreements or the Notes or the discharge by the Company of
its obligations under the Agreements and the Notes.
2.7. Litigation; Observance of Statutes, Regulations and
Orders. There are no actions, suits or proceedings (including, without
limitation, actions, suits or proceedings under any statute or other law
relating to environmental protection or occupational health and safety
practices) pending or, to the knowledge of the Company, threatened against or
affecting
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<PAGE> 11
the Company or any Subsidiary or any property of the Company or any Subsidiary
in any court or before any arbitrator of any kind or before or by any
Governmental Body (except actions, suits or proceedings of the character
normally incident to the kind of business conducted by the Company or any
Subsidiary which (a) do not question the validity or legality of this Agreement
or the Notes or any action taken or to be taken pursuant hereto or thereto and
(b) in the aggregate, if adversely determined, would not materially affect
adversely the business, operations or properties of the Company, or of the
Company and its Subsidiaries taken as a whole or the ability of the Company to
perform the Agreements or discharge its obligations on the Notes). Neither the
Company nor any Subsidiary is in default under any Order of any court,
arbitrator or Governmental Body which default could have a materially adverse
effect on the Company or on the Company and its Subsidiaries taken as a whole;
and neither the Company nor any Subsidiary is subject to or a party to any Order
of any court or Governmental Body arising out of any action, suit or proceeding
under any statute or other law respecting antitrust, monopoly, restraint of
trade or unfair competition, or environmental protection or occupational health
and safety practices, or similar matters.
As used in this Agreement, the term "Governmental Body"
includes any Federal, State, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign; and
the term "Order" includes any order, writ, injunction, decree, judgment, award,
determination, direction or demand.
2.8. Taxes. The Company and its Subsidiaries have filed all
Federal tax returns required to have been filed by them and all tax returns
which are required to have been filed in each jurisdiction in which they are
qualified to do business, as aforesaid, and have paid all taxes shown to be due
and payable on such returns and all other material taxes and assessments payable
by them, to the extent the same have become due and payable and before they have
become delinquent, except for any taxes and assessments the amount,
applicability or validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which the Company or a Subsidiary,
as the case may be, has set aside on its books reserves (segregated to the
extent required by GAAP) deemed by it to be adequate. The Company does not know
of any proposed material tax assessment against the Company or any Subsidiary,
and in the opinion of the Company all tax liabilities are adequately provided
for on the books of the Company and its Subsidiaries. The Federal income tax
liabilities of the Company and its Subsidiaries have been determined by the
Internal Revenue Service (or the applicable statute of limitations has run) and
such liabilities have been paid for all fiscal years up to and including the
fiscal year ended December 31, 1987.
2.9. Title to Property. The Company and its Restricted
Subsidiaries have good title to their respective real properties and other
properties as reflected in the most recent audited consolidated balance sheet of
the Company and its Subsidiaries referred to in Section 2.4(a) or purported to
have been acquired by the Company or such Restricted Subsidiary after said date,
except as sold or otherwise disposed of in the ordinary course of business,
subject to no title defects which would not be acceptable in accordance with
good business practice to
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<PAGE> 12
similar companies engaged in a similar business. Except as permitted by Section
7.5, all properties of the Company and each Restricted Subsidiary are free and
clear of all Liens.
2.10. Licenses, Permits, etc. The Company and its Subsidiaries
possess all licenses, permits, franchises, authorizations, patents, copyrights,
trademarks and trade names, or rights thereto, required to conduct their
respective businesses substantially as now conducted and as currently proposed
to be conducted, without known conflict with the rights of others.
2.11. Compliance with ERISA. No employee benefit plan
established or maintained by the Company or by any Commonly Controlled Entity or
to which the Company or any Commonly Controlled Entity is required to make
contributions, which is subject to Part 3 of Subtitle B of Title 1 of ERISA, or
Section 412 of the Code, had, as of the last day of the most recent fiscal year
of such plan heretofore ended, an accumulated funding deficiency (as such term
is defined in Section 302 of ERISA or Section 412 of the Code). Except as set
forth in the audited consolidated financial statements of the Company and its
Subsidiaries for the fiscal year ended December 31, 1992 referred to in Section
2.4(a), the present value of all accrued benefits under each such employee
benefit plan (based on those assumptions used to fund such plan, which
assumptions are reasonable) did not, as of such date exceed the then current
value of the assets of such plan allocable to such benefits. The amount by which
the aggregate vested benefit obligations for the qualified pension plans of the
Company and its Subsidiaries, determined as of the end of the fiscal year ended
December 31, 1992, exceed the aggregate fair value of the assets of such plans
determined as of the end of such fiscal year, is less than $3,000,000. No
liability to the Pension Benefit Guaranty Corporation (other than required
insurance premiums, all of which, to the extent due and payable, have been paid)
has been incurred with respect to any such plan and there has not been any
reportable event within the meaning of ERISA, or any other event or condition,
which presents a material risk of termination of any such plan by the Pension
Benefit Guaranty Corporation. To the knowledge of the Company after reasonable
investigation, neither the Department of Labor, the Internal Revenue Service nor
any other Governmental Body has determined that any such plan or any trust
created thereunder, or any trustee or administrator thereof, has engaged in a
"prohibited transaction" (as defined in Section 4975 of the Code) with respect
to any such plan that could subject any such plan, trust, trustee,
administrator, the Company or any Commonly Controlled Entity to any material tax
or penalty on prohibited transactions imposed under said Section 4975 or Section
502(i) of ERISA, and the Company is not aware of any facts that would constitute
such a prohibited transaction. Neither the execution, delivery or performance by
the Company of the Agreements nor the issuance and sale by the Company of the
Notes will involve any prohibited transaction (as so defined). The
representation by the Company in the immediately preceding sentence is made in
reliance upon and subject to the accuracy of your representation contained in
Section 1.4 and the representation by the Company in the immediately preceding
sentence is expressly conditioned thereupon. Neither the Company nor any
Commonly Controlled Entity is making or accruing, or has made or accrued, an
obligation to make contributions to any Multiemployer Plan. For purposes hereof,
(i) "Commonly Con-
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<PAGE> 13
trolled Entity" shall mean any trade or business, whether or not incorporated,
which is under common control with the Company (within the meaning of Section
414(b) or (c) of the Code); and (ii) "Multiemployer Plan" shall mean a
"multiemployer plan," as defined in Section 4001(a)(3) of ERISA.
2.12. Private Offering by the Company. Neither the Company nor
Dillon, Read & Co. Inc. (the only Person authorized by the Company to act on its
behalf in connection with the offer and sale of the Notes) has offered the Notes
or any similar securities for sale to, or solicited any offer to buy any of the
same from, or otherwise approached or negotiated in respect thereof with, any
Person other than you, the Other Purchasers and no more than fifty other
institutional investors. Neither the Company nor anyone acting on its behalf has
taken, or will take, any action which would subject the issuance or sale of the
Notes to Section 5 of the Securities Act. As used in this Section 2.12, the term
"Notes" shall mean the Notes to be executed and delivered under the Agreements
and any similar security or securities.
2.13. Solvency. The Company is, and upon giving effect to the
issuance of the Notes will be, a "solvent institution," as said term is used in
Section 1405(c) of the New York Insurance Law, whose "obligations are not in
default as to principal or interest," as said terms are used in said Section
1405(c).
2.14. Use of Proceeds; Margin Regulations. The Company will
apply a portion of the proceeds of the sale of the Notes under the Agreements to
the repayment of $47,900,000 of the principal amount of existing notes listed on
Exhibit C as item one and will apply the remainder of the proceeds to general
corporate purposes. No part of the proceeds from the sale of the Notes will be
used, directly or indirectly, by the Company or any Subsidiary for the purpose
of purchasing or carrying any margin stock within the meaning of Regulation G of
the Board of Governors of the Federal Reserve System (12 CFR 207, as amended),
or for the purpose of purchasing or carrying or trading in any securities under
such circumstances as to involve the Company or any Subsidiary in a violation of
Regulation X of said Board (12 CFR 224, as amended) or to involve any broker or
dealer in a violation of Regulation T of said Board (12 CFR 220, as amended).
The assets of the Company and its Subsidiaries do not consist to the extent of
25% or more of margin stock, and the Company has no present intention of
acquiring margin stock to the extent of 25% or more of its assets, and in no
event under any circumstances during the term of the Agreements will 25% or more
of the assets of the Company and its Subsidiaries consist of margin stock. As
used in this Section, the term "margin stock" shall have the meaning assigned to
it in the aforesaid Regulation G.
2.15. Existing Debt. Annexed hereto as Exhibit C is a complete
and correct list of all secured and unsecured Debt of the Company and its
Restricted Subsidiaries (other than Debt of Restricted Subsidiaries to the
Company) as of the date hereof, showing as to each item of such Debt the
obligor, the aggregate principal amount outstanding on the date specified in
Exhibit C, the final maturity date of such Debt, and a brief description of any
security
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<PAGE> 14
therefor. With respect to each item of Debt of the Company listed in Exhibit C,
the Company has delivered to your special counsel named in Section 3.2 a true
and complete copy of each instrument evidencing any such Debt in excess of
$100,000 or pursuant to which any such Debt in excess of $100,000 was issued or
secured (including each amendment, consent, waiver or similar instrument in
respect thereof), as the same is in effect on the date hereof. Neither the
Company nor any Subsidiary is in default in the performance or observance of any
of the terms, covenants or conditions contained in any of said instruments and
neither the Company nor any Restricted Subsidiary is in default with respect to
any Debt listed in Exhibit C, and no event has occurred and is continuing which,
with notice or the lapse of time or both, would become such a default.
2.16. Existing Investments. Annexed hereto as Exhibit D is a
complete and correct list of Investments of the Company and its Restricted
Subsidiaries as of the date specified in Exhibit D, other than Investments of
the character specified in Subsection (a) of the definition of "Restricted
Investment" set forth in Section 8.1.
2.17. Foreign Assets Control Regulations, etc. Neither the
Company nor any of its Subsidiaries is a "national" of any foreign country
designated in the Foreign Assets Control Regulations, the Transaction Control
Regulations, the Foreign Funds Control Regulations, the Iranian Assets Control
Regulations, the Cuban Assets Control Regulations, the Nicaraguan Trade Control
Regulations or the Libyan Sanctions Regulations of the United States Treasury
Department (31 CFR Subtitle B, Chapter V, as amended). None of the proceeds of
the sale of the Notes under the Agreements will be used, directly or indirectly,
for the purpose of engaging in any transaction which violates any of said
Regulations or which violates the Foreign Funds Control Regulations or the
Transaction Control Regulations of the United States Treasury Department (31 CFR
Subtitle B, Chapter V, as amended), or any regulation or ruling issued
thereunder.
2.18. Status Under Certain Statutes. The Company is not an
"investment company" or a Person directly or indirectly "controlled" by or
"acting on behalf of" an investment company within the meaning of the Investment
Company Act of 1940, as amended. The Company is not a "holding company" or a
"subsidiary company" of a "holding company" or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company," as such terms are
defined in the Public Utility Holding Company Act of 1935, as amended.
2.19. Environmental Matters. (a) The Company and its
Subsidiaries currently are in compliance with all applicable Environmental Laws
except to the extent failure to comply has not had and will not have a material
adverse effect on the Company or the Company and its Subsidiaries, taken as a
whole.
(b) Neither the Company nor any Subsidiary has any knowledge
of any events, conditions or circumstances that could reasonably be expected to
give rise to any
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<PAGE> 15
liability on the part of the Company or any Subsidiary based on or related to
(i) a violation of any Environmental Law or (ii) the presence on, in, under or
above the Company Premises of any Hazardous Substance, other than any such
liabilities referred to in this Subdivision (b) that will not have, either in
any one case or in the aggregate, a material adverse effect on the Company or
the Company and its Subsidiaries, taken as a whole.
SECTION 3. CONDITIONS OF CLOSING. Your obligation to purchase and pay
for the Notes to be purchased by you hereunder shall be subject to the
conditions hereinafter set forth:
3.1. Proceedings Satisfactory. All proceedings taken in
connection with the issuance of the Notes and the consummation of the
transactions contemplated hereby and all documents and papers relating thereto
shall be satisfactory to you and your special counsel, and you and your special
counsel shall have received copies of such documents and papers, all in form and
substance satisfactory to you and your special counsel, as you or they may
reasonably request in connection therewith.
3.2. Opinions of Counsel. You shall have received opinions,
each dated the Closing Date, addressed to you and satisfactory in form, scope
and substance to you from (a) Anne W. Teeling, Esq., Assistant General Counsel
for the Company, substantially in the form of Exhibit E and covering such other
matters as you or your special counsel may reasonably request, and (b) Baker &
Botts, L.L.P., your special counsel in connection with the transactions
contemplated by this Agreement, covering such matters as you may reasonably
request.
3.3. Representations True, etc.; Officers' Certificate. All
representations and warranties of the Company contained in this Agreement or
otherwise made in writing by or on behalf of the Company in connection with the
transactions contemplated hereby shall (except as affected by the consummation
of such transactions) be true on and as of the Closing Date with the same effect
as though such representations and warranties had been made on and as of the
Closing Date; the Company shall have performed all agreements on its part
required to be performed under the Agreements on or prior to the Closing Date;
no Default or Event of Default shall have occurred and be continuing; since the
date of the most recent audited balance sheets referred to in Section 2.4,
neither the Company nor any Subsidiary shall have consolidated with, merged
into, or sold, leased or otherwise disposed of its properties as an entirety or
substantially as an entirety to any Person; and you shall have received a
certificate signed by the Chief Executive Officer, a Vice President or the
Treasurer of the Company and by the Secretary or an Assistant Secretary of the
Company, dated the Closing Date, certifying to the effects specified in this
Section.
3.4. Legality. On the Closing Date the Notes to be purchased
by you hereunder shall be a legal investment for you under the laws of each
jurisdiction to which you may be subject, without resort to any basket provision
of said laws such as New York
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<PAGE> 16
Insurance Law Section 1405(a)(8), and you shall have received such certificates
or other evidence as you may reasonably request demonstrating the legality of
such investment under such laws.
3.5. Absence of Certain Events. There shall not have occurred
any material adverse change in the assets, liabilities, business, operations,
properties or condition (financial or otherwise) of the Company or of the
Company and its Subsidiaries, taken as a whole, from that reflected in the most
recent audited financial statements referred to in Section 2.4, copies of which
shall have been delivered to you.
3.6. Other Agreements, etc. The Other Agreements shall have
been duly entered into and, contemporaneously with the purchase of the Notes to
be purchased by you at the Closing, the Other Purchasers shall have purchased
the Notes to be purchased by them pursuant to the Other Agreements and the
Company shall have received payment in full of the purchase price thereof.
3.7. Private Placement Number. The Notes shall have been
assigned a private placement number by Standard and Poor's CUSIP Service Bureau.
3.8. Fees Payable at Closing. Your special counsel shall have
received the legal fees and expenses required to be paid or reimbursed by the
Company, as provided in Section 16.1, in connection with their preparation and
review of the Agreements and documents and papers relating thereto and
negotiations and other matters in connection therewith, and for which the
Company shall have received invoices on or prior to the second Business Day
preceding the Closing Date.
3.9. Delivery of Letter Agreement. You shall have received a
copy of the Letter Agreement, as such term is defined in Section 8 of this
Agreement, substantially in the form of Exhibit G hereto, executed by the
Company and each Other Purchaser.
SECTION 4. PREPAYMENT, PAYMENT AND PURCHASE OF THE NOTES.
4.1. Mandatory Prepayments of the Notes; Payment at Maturity.
On December 1, 2000 and on each December 1 thereafter to and including December
1, 2007 (so long as any of the Notes shall be outstanding), the Company will
prepay $11,111,000.00 in aggregate principal amount of the Notes (or, if less,
the unpaid balance thereof). On December 1, 2008, the Company will in any event
pay the entire remaining unpaid principal amount of the Notes together with all
interest accrued thereon; provided, however, that if any Note or Notes (but less
than all the Notes) shall be purchased pursuant to Section 7.12, then the
aggregate principal amount of the Notes required to be prepaid on any December 1
thereafter pursuant to this Section 4.1 shall be reduced to that amount which
bears the same relation to the amount of such prepayment specified to be made on
such December 1 (or such lower amount to which such required prepayment shall
have theretofore been reduced in
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<PAGE> 17
accordance with this proviso) as the aggregate principal amount of the Notes
outstanding immediately following said purchase pursuant to Section 7.12 bears
to the aggregate principal amount of the Notes outstanding immediately prior to
said purchase pursuant to Section 7.12. The Company covenants and agrees that it
will, in the event of any reduction pursuant to the immediately preceding
proviso, promptly after the purchase giving rise to such reduction, give to each
holder of a Note or Notes written notice thereof, specifying in each such case
the amounts of the respective mandatory prepayments due thereafter in respect of
each Note held by such holder (giving effect to such reduction) and containing
calculations demonstrating the method by which such reduction was effected. Each
prepayment pursuant to this Section 4.1 shall be at 100% of the principal amount
so to be prepaid, together with accrued interest thereon to the date of such
prepayment, without the Special Premium.
4.2. Optional Prepayment of the Notes. Upon notice given as
provided in Section 4.4, the Company, at its option, may at any time or from
time to time prepay the Notes in whole or in part in multiples of $100,000, in
each case at the principal amount so to be prepaid, together with interest
accrued thereon to the date of such prepayment, plus a premium equal to the
Special Premium. No prepayment of less than all the Notes pursuant to this
Section 4.2 shall relieve the Company of its obligation to make (nor shall it
reduce the amount of) the prepayments of principal on the Notes required by
Section 4.1. Each partial prepayment made pursuant to this Section 4.2 shall be
allocated as provided in Section 4.5.
4.3. Special Purchase of Notes. The Company shall be required
to purchase Notes of each holder thereof which shall have replied affirmatively
to an offer to purchase the same given as contemplated by Section 7.12, such
purchase to be made at the price and on the date and otherwise as provided in
Section 7.12.
4.4. Notice of Prepayment. The Company shall call the Notes
for prepayment pursuant to Section 4.2 by giving written notice thereof to each
holder of an outstanding Note, which notice shall be given not less than 30 nor
more than 60 days prior to the date fixed for such prepayment in such notice and
shall specify the amount so to be prepaid and the date fixed for such
prepayment. Each such notice of prepayment shall be accompanied by a certificate
of an authorized financial officer of the Company stating the facts showing
compliance with the provisions of Section 4.2. Upon the giving of notice of any
prepayment as provided in this Section 4.4, the Company will prepay on the date
therein fixed for prepayment the principal amount of the Notes so to be prepaid
as specified in such notice, together with interest and the Special Premium, if
any, as specified in Section 4.2.
4.5. Allocation of Prepayments. In the event of any prepayment
pursuant to Section 4.1 or 4.2 of less than all of the outstanding Notes, the
Company will allocate the principal amount so to be prepaid (but only in units
of $1,000) among the Notes in proportion, as nearly as may be, to the respective
principal amounts thereof not theretofore called for prepayment.
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<PAGE> 18
4.6. Surrender of Notes. Any Note paid or prepaid in full
shall thereafter be surrendered to the Company upon its written request therefor
and canceled and not reissued.
4.7. Purchase of Notes. The Company will not, and will not
permit any Affiliate to, acquire directly or indirectly by purchase or
prepayment or otherwise any of the outstanding Notes except by way of payment,
prepayment or purchase in accordance with the provisions of the Notes and the
Agreements.
4.8. Maturity. In the case of each prepayment of Notes,
whether required or optional, the principal amount of each Note to be prepaid
shall become due and payable on the date fixed for such prepayment together with
interest as specified in Section 4.1 or 4.2, as the case may be.
SECTION 5. FINANCIAL STATEMENTS AND INFORMATION. The Company will
furnish to you and to any of your Affiliates, so long as you or such Affiliate
shall hold any of the Notes, and (upon request) to each other Qualified
Institutional Holder of any Notes, in duplicate:
(a) as soon as available and in any event within 45 days after
the end of the first, second and third quarterly accounting periods in each
fiscal year of the Company,
(i) copies of a consolidated and consolidating
balance sheet of the Company and its Restricted Subsidiaries
and of the Company and its Subsidiaries as of the end of such
accounting period and of the related consolidated and
consolidating statements of income and stockholder's equity
and cash flows of the Company and its Restricted Subsidiaries
and of the Company and its Subsidiaries for the portion of the
fiscal year ended with the last day of such quarterly
accounting period, all in reasonable detail and stating, in
the case of such consolidated statements, in comparative form
the respective figures for the corresponding date and period
in the previous fiscal year, and certified by the principal
financial officer of the Company, in the case of such
consolidated statements, as having been prepared in accordance
with GAAP and as presenting fairly the information contained
therein, subject to year-end and audit adjustments and, in the
case of such consolidating statements, as being fairly stated
in all material respects in relation to the consolidated
financial statements for such period as a whole, subject to
year-end and audit adjustments,
(ii) a written statement of such financial officer of
the Company setting forth computations in reasonable detail
showing, as of the date of such balance sheet, (A) the ratio
of Current Assets to Current Liabilities, (B) the amount of
Net Worth and Total Capitalization, (C) the maximum amount of
additional Debt and Restricted Debt which the Company could
have incurred
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<PAGE> 19
under Section 7.4 and the outstanding amount of Debt and
Restricted Debt of the Company and each Restricted Subsidiary
and (D) the amount available for Restricted Payments and
Restricted Investments in compliance with Section 7.6, and
(iii) a written discussion and analysis by management
of the financial condition and results of operations of the
line of business conducted by each material Restricted
Subsidiary for such accounting period;
(b) as soon as available and in any event within 120 days
after the end of each fiscal year of the Company,
(i) copies of a consolidated and consolidating
balance sheet of the Company and its Restricted Subsidiaries
and of the Company and its Subsidiaries as of the end of such
fiscal year and of the related consolidated and consolidating
statements of income and stockholder's equity and cash flows
of the Company and its Restricted Subsidiaries and of the
Company and its Subsidiaries for such fiscal year, all in
reasonable detail and stating in comparative form the
respective figures as of the end of and for the previous
fiscal year, accompanied, in the case of such consolidated
statements, by an unqualified report thereon of independent
certified public accountants of recognized national standing
selected by the Company (which report shall contain a
statement to the effect that such consolidated financial
statements present fairly the financial position of the
corporation or corporations being reported upon as at the
dates indicated and the results of operations and cash flows
of such corporation or corporations for the periods indicated
and have been prepared in accordance with GAAP applied on a
basis consistent with prior years (except for changes in
application in which such accountants concur and which are
noted in such financial statements) and that the audit by such
accountants in connection with such consolidated financial
statements has been made in accordance with generally accepted
auditing standards at the time in effect, and accordingly
included such tests of the accounting records and such other
auditing procedures as were considered necessary in the
circumstances) and, in the case of such consolidating
statements, either certified by the principal financial
officer of the Company as fairly stating, or accompanied by a
report thereon by such accountants containing a statement to
the effect that such consolidating financial statements fairly
state, the financial position and the results of operations
and cash flows of the corporations being reported on in all
material respects in relation to the consolidated financial
statements for the periods indicated as a whole,
(ii) a written statement of the principal financial
officer of the Company, setting forth computations in
reasonable detail showing, as of the date
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<PAGE> 20
of such balance sheet, (A) the ratio of Current Assets to
Current Liabilities, (B) the amount of Net Worth and Total
Capitalization, (C) the maximum amount of additional Debt and
Restricted Debt which the Company could have incurred under
Section 7.4 and the outstanding amount of Debt and Restricted
Debt of the Company and each Restricted Subsidiary, and (D)
the amount available for Restricted Payments and Restricted
Investments in compliance with Section 7.6, and
(iii) a written discussion and analysis by management
of the financial condition and results of operations of the
line of business conducted by each material Restricted
Subsidiary for such accounting period, and
(iv) a certificate of such accountants as shall
furnish a report pursuant to clause (i) of this Subsection (b)
of this Section 5 stating that in making the audit necessary
for such report, they have obtained no knowledge of any Event
of Default or Default, or, if they have obtained knowledge of
any Event of Default or Default, specifying the nature and
period of existence thereof and the action the Company has
taken or proposes to take with respect thereto;
(c) concurrently with the financial statements for each
quarterly accounting period and for each fiscal year of the Company
furnished pursuant to Subsections (a) and (b) of this Section,
(i) a certificate signed by the President or a Vice
President and by the Treasurer of the Company stating that,
based upon such examination or investigation and review of the
Agreements as in the opinion of the signers is necessary to
enable the signers to express an informed opinion with respect
thereto, to the best knowledge of said signers, the Company is
not and has not during such period been in default in the
performance or observance of any of the terms, covenants or
conditions hereof, or, if the Company shall be or shall have
been in default, specifying all such defaults, and the nature
and period of existence thereof, and what action the Company
has taken, is taking or proposes to take with respect thereto;
provided that it shall not be necessary for any such
certificate to be signed by more than one of the officers of
the Company listed in this Subsection (c)(i) if the officer so
signing shall have been approved for that purpose in writing
by the holder or holders of not less than 66-2/3% in aggregate
principal amount of all the Notes outstanding and Mr. Clyde
Wyant, Executive Vice President, Chief Financial Officer and
Treasurer of the Company is hereby approved by you for such
purpose,
(ii) a written statement of the principal financial
officer of the Company setting forth computations showing in
reasonable detail (A) the aggregate book value of property of
the Company and its Restricted Subsidiaries
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subject to sale-leaseback transactions permitted by Section
7.7, and (B) the book value of assets of the Company and its
Restricted Subsidiaries sold since the Closing Date and since
the first day of such fiscal year, and
(iii) a written statement of the principal financial
officer of the Company that, to the best of his knowledge
after due inquiry, except as otherwise disclosed in writing to
you, there is no litigation (including derivative actions),
arbitration proceeding or governmental proceeding pending to
which the Company or any Subsidiary is a party, or with
respect to the Company or any Subsidiary or their respective
properties, which has a significant possibility of materially
and adversely affecting the business, operations, properties
or condition of the Company or of the Company and its
Subsidiaries taken as a whole;
(d) promptly after the same are available and in any event
within 15 days thereafter (if the Company or any Subsidiary shall have
become registered under Section 12 of the Exchange Act) copies of all
such proxy statements, financial statements and reports as the Company
or such Subsidiary shall send or make available generally to any of its
security holders and copies of all regular and periodic reports and of
all registration statements (other than on Form S-8 or a similar form)
which the Company or such Subsidiary may file with the Commission or
with any securities exchange;
(e) within 15 days after the end of each fiscal month, a
complete copy of any written agreement entered into by the Company
during such fiscal month amending, modifying, waiving or supplementing
any financial covenant set forth in an agreement or instrument
evidencing Debt of the Company in an aggregate unpaid principal amount
of $10,000,000 or more (together with a copy of the agreement or
instrument so amended, modified, waived or supplemented if not
previously furnished by the Company), provided, that if the Company
shall be a party to any agreement providing a holder of Debt of the
Company with greater rights with respect to delivery of amendments,
modifications, waivers or supplements to agreements or instruments of
the Company evidencing Debt than are provided to you above in this
paragraph (e), the Company shall give prompt written notice of such
fact to each holder of a Note, each such holder shall be entitled to
the benefit of such greater rights and this Agreement shall be deemed
modified to the extent required to provide such greater rights;
(f) promptly upon any officer of the Company (i) obtaining
knowledge of any condition or event which constitutes a Default or an
Event of Default, or becoming aware that the holder of any Note has
given any written notice expressly asserting the occurrence of a
Default or Event of Default, a statement by the principal financial
officer of the Company specifying in reasonable detail the nature and
period of existence thereof and what action the Company has taken or is
taking or proposes to
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<PAGE> 22
take with respect thereto, or (ii) becoming aware that the holder of
any Note has taken any other action with respect to a claimed Default
or Event of Default or that any holder of any Debt referred to in
Section 9.1(d) has given any notice to the Company or any Restricted
Subsidiary or taken any other action with respect to a claimed default
under or in respect of any such Debt or with respect to the occurrence
or existence of any event or condition of the type referred to in
Section 9.1(e) or 9.1(f), a statement by the principal financial
officer of the Company specifying in reasonable detail the nature and
period of existence thereof and what action the Company has taken or is
taking or proposes to take with respect thereto, provided, that if the
Company shall be a party to any agreement providing a holder of Debt of
the Company with greater rights with respect to notices of the events
described above in this paragraph (f) than are provided to you above in
this paragraph (f) or in Section 9.1(c) with respect to this paragraph
(f), the Company shall give prompt written notice of such fact to each
holder of a Note, each such holder shall be entitled to the benefit of
such greater rights and this Agreement shall be deemed modified to the
extent required to provide such greater rights;
(g) promptly upon entering into, assuming or otherwise
becoming bound by or obligated under any agreement or instrument
evidencing Debt of the Company or any Restricted Subsidiary (other than
any agreement providing for automatic modification thereof in
substantially the same form as Section 9.1(d) of this Agreement) which
(i) provides that the holder of any such Debt may declare such Debt to
be due and payable prior to the scheduled maturity thereof as a result
of the occurrence of any default in the performance of any term or
condition contained in the agreement or instrument evidencing any other
Debt of the Company or any Restricted Subsidiary (regardless of whether
such other Debt shall have been declared due and payable prior to the
stated maturity thereof) or (ii) contains any Additional Covenants or
Additional Defaults (as defined in Section 7.17), written notice to
such effect, making reference in such notice to Section 9.1(d) or
Section 7.17 of this Agreement, as the case may be; and
(h) such other information, including financial statements and
computations relating to the performance of the provisions of this
Agreement and the affairs of the Company, as may from time to time be
reasonably requested by you or your Affiliates or a Qualified
Institutional Holder.
The Company will keep at its principal executive office true
copies of the Agreements (as from time to time in effect), and cause the same to
be available for inspection at said office during normal business hours by any
holder of a Note or any prospective purchaser of a Note designated by a holder
thereof.
SECTION 6. INSPECTION OF PROPERTIES AND BOOKS.
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<PAGE> 23
(a) So long as you or your nominee or any other Qualified
Institutional Holder holds any of the Notes, your or such Qualified
Institutional Holder's representatives shall have the right to visit and inspect
any of the properties of the Company and its Restricted Subsidiaries in the
presence of an officer of the Company, to examine the books of account and
records of the Company and its Restricted Subsidiaries, to make copies and
extracts therefrom, to discuss the affairs, finances and accounts of the Company
and its Restricted Subsidiaries with, and to be advised as to the same by, its
officers and (in the presence of an officer of the Company) key employees, and
its independent public accountants, all at such times and intervals as you or
such other Qualified Institutional Holder may reasonably desire. The Company
will likewise afford your and such Qualified Institutional Holder's
representatives the opportunity to obtain any information, to the extent the
Company or any Restricted Subsidiary possesses such information or can acquire
it without unreasonable effort or expense, necessary to verify the accuracy of
any of the representations and warranties made by the Company hereunder.
(b) You agree, and (by its acceptance of any Note) each other
holder of Notes shall be deemed to have agreed, to use your best efforts to hold
in confidence all information furnished pursuant to the Agreements and relating
to the Company or any of its Subsidiaries which was designated in writing as
"confidential" at the time the same was furnished, provided, however, that you
or such other holder may disclose any information, irrespective of whether or
not such information shall have been designated as "confidential", (i) to actual
or prospective purchasers of the Notes or any participations therein, (ii) to
prospective assignees pursuant to Section 16.3, (iii) pursuant to or in
connection with any action, suit or proceeding by, or any statute, rule or
regulation of, any Governmental Body, (iv) pursuant to any Order of any court,
arbitrator or Governmental Body or as otherwise required by law, (v) to your
auditors, to the extent required in the course of their audit, to your counsel
or to the National Association of Insurance Commissioners or similar
associations or authorities, or (vi) to the extent necessary in the enforcement
of your rights hereunder and under the Notes during the continuance of a Default
or Event of Default; and the Company, for itself and on behalf of its
Subsidiaries, expressly consents to the disclosure of any such information to
any of such Persons (and under any such circumstances) contemplated in this
Section; provided, further, however, that any Person to whom any such
information shall be disclosed pursuant to Clause (i) or (ii) of this Subsection
shall agree with you or such other holder of Notes to likewise be bound by and
subject to the provisions of this Section.
(c) Anything herein to the contrary notwithstanding, neither
the Company nor any of its Subsidiaries shall have any obligations to disclose
pursuant hereto any engineering, scientific, or other technical data without
significance to your analysis of the financial position of the Company and its
Subsidiaries.
SECTION 7. COVENANTS. The Company covenants and agrees that from the
date of the Agreements to the Closing Date and thereafter so long as any Note
shall be outstanding:
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<PAGE> 24
7.1. Payment of Principal, Special Premium and Interest;
Maintenance of Books and Reserves. The Company will duly and punctually pay the
principal of, the Special Premium (if any) and interest on the Notes in
accordance with the terms of the Notes and the Agreements. The Company will, and
will cause each of its Restricted Subsidiaries to, keep proper books of record
and account and set aside appropriate reserves, all in accordance with GAAP.
7.2. Payment of Taxes; Corporate Existence; Maintenance of
Properties; Compliance with Laws. The Company will, and will cause each of its
Subsidiaries to,
(a) subject to Section 7.10, do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate
existence and its licenses, rights (charter and statutory) and
franchises to the extent the same are material and the termination
thereof would be adverse to the Company, or to the Company and its
Restricted Subsidiaries taken as a whole, or to the ability of the
Company to perform the Agreements and discharge its obligations on the
Notes; and the Company will maintain its principal office at a location
in the United States of America where notices, presentations and
demands in respect of this Agreement and the Notes may be made upon it
and will notify, in writing, each holder of a Note of any change of
location of such office and such office shall be maintained at 2100
Lake Park Boulevard, Richardson, Texas, 75080, until such time as the
Company shall so notify the holders of the Notes of any such change;
(b) pay and discharge or cause to be paid and discharged all
taxes, assessments and governmental charges or levies imposed upon it
or upon its income or profits or upon any of its property, real,
personal or mixed, or upon any part thereof, when due, as well as all
lawful claims for labor, materials and supplies which, if unpaid, might
by law become a Lien upon its property; provided, however, that neither
the Company nor any Subsidiary shall be required to pay any such tax,
assessment, charge, levy or claim if the amount, applicability or
validity thereof shall currently be contested in good faith by
appropriate proceedings, and if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made
therefor;
(c) maintain and keep, or cause to be maintained and kept, all
material properties used or useful in the business of the Company and
its Subsidiaries in good repair, working order and condition, and from
time to time make or cause to be made all repairs, renewals,
replacements and improvements which are necessary in connection with
the proper and advantageous conduct of such business; and
(d) use its best efforts to comply in all material respects
with all applicable statutes, regulations and orders of, and all
applicable restrictions imposed by, any Governmental Body, in respect
of the conduct of its business and the ownership of its
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<PAGE> 25
properties (including, without limitation, applicable statutes,
regulations and orders relating to equal employment opportunities),
except such as are being contested in good faith by appropriate
proceedings.
7.3. Insurance. The Company will insure and keep insured, and
will cause each of its Subsidiaries to insure and keep insured, with financially
sound and reputable insurers, so much of their respective properties, and such
insurance shall be of such type and in such amounts (and with such deductibles),
as similarly situated manufacturing companies in accordance with good business
practice customarily insure properties of a similar character against loss by
fire and from other causes. In addition, the Company will, and will cause each
Subsidiary to, maintain public liability insurance with financially sound and
reputable insurers or maintain a program of self-insurance covering claims for
personal injury, death or property damage suffered by others upon or in or about
any premises occupied by it or occurring as a result of its ownership,
maintenance or operation of any automobiles, trucks or other vehicles, aircraft
or other facilities or as a result of the use of products manufactured,
constructed or sold by it or services rendered by it, in such amounts (and with
such deductibles) as such insurance is usually maintained by companies engaged
in a similar business and as is in accordance with good business practice,
provided that the aggregate annual amount of such self-insurance maintained by
the Company and its Subsidiaries shall not on any date exceed 5% of Net Worth as
at the end of the most recently completed fiscal quarter.
7.4. Debt. The Company will not and will not permit any
Restricted Subsidiary to, directly or indirectly, create, assume, incur, agree
to purchase or repurchase or provide funds in respect of, or otherwise become or
be directly or indirectly liable in respect of, by way of Guarantee or
otherwise, any Debt, except that, subject in any event to the last paragraph of
this Section 7.4:
(a) the Company may remain liable in respect of the Debt
evidenced by the Notes;
(b) the Company and its Restricted Subsidiaries may remain
liable in respect of the Debt described in Exhibit C, but may not
extend, renew, refund or refinance any thereof except as otherwise
permitted by another provision of this Section 7.4, provided that on
the Closing Date $47,900,000 of the Debt described in item one of
Exhibit C shall be repaid out of the proceeds of the Notes;
(c) any Restricted Subsidiary may become and remain liable in
respect of unsecured Debt of such Restricted Subsidiary owing to the
Company or a Wholly- owned Restricted Subsidiary, and the Company may
become and remain liable in respect of Subordinated Debt owing to a
Wholly-owned Restricted Subsidiary; and
(d) the Company and any Restricted Subsidiary may become and
remain liable in respect of additional Debt if on the date (the
"Incurrence Date") on which the
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Company or such Restricted Subsidiary proposes to incur any such Debt,
and after giving effect to such incurrence and the substantially
concurrent incurrence of any other Debt and to the substantially
concurrent retirement of any other Debt and to the application of the
proceeds of all such Debt, Total Debt shall not exceed 55% of Total
Capitalization; provided, however, that nothing in this Section 7.4(d)
shall permit the Company or any Restricted Subsidiary to incur any
Restricted Debt on any Incurrence Date unless, after giving effect to
any such incurrence and to the substantially concurrent incurrence of
any other Restricted Debt and to the substantially concurrent
retirement of any Restricted Debt and to the application of the
proceeds of all such Restricted Debt, the Restricted Debt Amount shall
not exceed 10% of Total Capitalization.
For all purposes of this Section 7.4, (i) any Person becoming
a Restricted Subsidiary after the date of this Agreement shall be deemed to have
incurred all of its then outstanding Debt at the time it becomes a Restricted
Subsidiary and (ii) in the event the Company or any Restricted Subsidiary shall
extend, renew, refund or refinance any Debt, the Company or such Restricted
Subsidiary shall be deemed to have incurred such Debt at the time of such
extension, renewal, refunding or refinancing. The Company will not in any event
incur or permit to exist any Debt of the Company to a Restricted Subsidiary
other than Subordinated Debt owing to a Wholly-owned Restricted Subsidiary.
7.5. Liens. The Company will not and will not permit any
Restricted Subsidiary to, directly or indirectly, create, assume, incur or
suffer to be created, assumed or incurred or to exist any Lien in respect of any
property of any character owned by the Company or any Restricted Subsidiary
(whether such property is held on the date hereof or hereafter acquired),
except, subject in any event to the last paragraph of this Section 7.5 and to
Subsection (d) of Section 7.4:
(a) Liens representing
(i) Liens for taxes or assessments or other
governmental charges or levies, either not yet due and payable
or to the extent that nonpayment thereof shall be permitted by
the proviso to Section 7.2(b),
(ii) Liens created by or resulting from any
litigation or legal proceeding which is currently being
contested in good faith by appropriate proceedings diligently
pursued, and
(iii) other Liens consisting of minor title defects
affecting real property or which are otherwise incidental to
the normal conduct of the business of the Company and its
Restricted Subsidiaries or the ownership of their respective
properties which do not secure Debt and which do not in the
aggregate materially impair the use of such property in the
operation of the
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business of the Company, or of the Company and its Restricted
Subsidiaries taken as a whole, or materially impair the value
of such property for the purposes of such business;
(b) Liens existing on the date of this Agreement specified in
Exhibit C and securing the item or items of Debt indicated thereon;
provided that the principal amount of the Debt secured by such Liens
shall not be increased, or refinanced or refunded except as permitted
under Section 7.4;
(c) Liens on assets of any Restricted Subsidiary securing Debt
or other obligations of such Restricted Subsidiary owing to the Company
or to a Wholly-owned Restricted Subsidiary; and
(d) Liens in addition to those permitted by the preceding
clauses (a), (b) and (c) if, immediately after giving effect to the
creation thereof, the Company shall be entitled to incur at least $1 of
additional Debt constituting Restricted Debt under the proviso to
Section 7.4(d).
For all purposes of this Section 7.5, any refunding or
refinancing of any Lien by the Company or any Restricted Subsidiary shall be
deemed to be an incurrence of such Lien at the time of such refunding or
refinancing, and any Lien existing on any property or assets at the time it or
the Person owning it is acquired by the Company or any Restricted Subsidiary
shall be deemed to have been created at the time of such acquisition. In the
event that any property or assets of the Company or any Restricted Subsidiary
shall become or be subject to a Lien not permitted by the foregoing clauses (a)
through (d) of this Section 7.5, the Company shall make or cause to be made
effective provision satisfactory to the holders of the outstanding Notes whereby
the Notes will be secured equally and ratably with all other obligations secured
thereby, and in any event, the Notes shall have the benefit, to the full extent
that (and with such priority as) the holders thereof may be entitled under
applicable law, of an equitable Lien on such property or asset; provided,
however, that any Lien created, assumed, incurred or suffered to exist in
violation of this Section 7.5 shall constitute an Event of Default whether or
not the Company shall have made effective provision to secure the Notes equally
and ratably with any such other obligations or the holders of Notes shall be
entitled to such equal and ratable security or any such equitable Lien.
7.6. Dividends and Other Restricted Payments; Restricted
Investments. The Company will not directly or indirectly (i) declare or pay any
dividend, or make any distribution, on the Company's shares of any class, other
than dividends or distributions payable in common shares of the Company, or (ii)
make any other Restricted Payment, and the Company will not make and will not
permit any Restricted Subsidiary to make any Restricted Investment, unless, on
the date of declaration in the case of any proposed dividend and on the date of
payment or distribution in the case of any proposed Restricted Payment
(including any dividend) or Restricted Investment (the "Computation Date"), and
after giving effect thereto,
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(a) the aggregate amount of all Restricted Payments made
during the period (taken as one accounting period) commencing on
January 1, 1991 and ending on and including the Computation Date (the
"Computation Period"), and of all Restricted Investments made during
the Computation Period and outstanding on the Computation Date, shall
not exceed an amount equal to the sum of
(i) $45,000,000, plus
(ii) 85% of the aggregate amount of Consolidated Net
Income for each full fiscal year in the Computation Period for
which Consolidated Net Income is positive, minus
(iii) 100% of the aggregate amount of Consolidated
Net Income for each full fiscal year in the Computation Period
for which there is a deficit,
plus 85% (or, in the case of a deficit, minus 100%) of Consolidated Net
Income for any period in the Computation Period not included in Clause
(ii) or (iii) above;
(b) no Event of Default or Default shall have occurred and be
continuing; and
(c) the Company shall be entitled to incur at least $1 of
additional Debt under Section 7.4(d).
The Company will not declare any dividend (other than dividends payable solely
in shares of its common stock) on any shares of any class of its stock which is
payable more than 90 days after the date of declaration thereof. For purposes of
this Section 7.6, Investments owned by any Person or for which it is obligated
at the time it becomes a Restricted Subsidiary shall be deemed to be made at the
time such Person becomes a Restricted Subsidiary.
Notwithstanding any other provision of this Section 7.6 to the
contrary, the Company may, at any time or from time to time, reacquire up to an
aggregate amount of $15,000,000 of shares of its common stock in transactions
qualifying as distributions under Section 303 of the Code if but only if (i)
such acquisitions are at prices not exceeding the fair market value of the
shares so acquired, in each case as determined in good faith by a resolution of
the Board, and (ii) no Event of Default or Default shall have occurred and be
continuing. The amount of said dividends shall not be subject to the limitations
of this Section 7.6 or included in any future computations pursuant to this
Section 7.6.
7.7. Sales and Leasebacks. The Company will not and will not
permit any Restricted Subsidiary to, as part of the same transaction or series
of related transactions, sell or otherwise transfer to any Person or Persons any
item or items of property, whether now owned or hereafter acquired, having a
book value in any one case or in the aggregate for all such
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<PAGE> 29
property so transferred from and including the date hereof through the date of
such transfer of $20,000,000 or more if the Company or such Restricted
Subsidiary shall then or thereafter, as part of the same transaction or series
of related transactions, rent or lease as lessee, or similarly acquire the right
to possession or use of such property, or one or more properties which it
intends to use for the same purpose or purposes as such property.
7.8. Maintenance of Certain Financial Conditions. The Company
will not permit:
(a) Current Assets as at the end of any fiscal quarter of the
Company to be less than 150% of Current Liabilities as at the end of
such fiscal quarter;
(b) Net Worth as at the last day of any fiscal quarter of the
Company to be less than the Minimum Amount for such fiscal quarter. For
purposes of this Section 7.8(b), the "Minimum Amount" shall be (i) for
the fiscal quarter ending December 31, 1991, $230,000,000, and (ii) for
each fiscal quarter thereafter, the sum of the Minimum Amount for the
immediately preceding fiscal quarter plus 15% (or 0% in the case of a
deficit) of Consolidated Net Income for such immediately preceding
fiscal quarter; or
(c) the aggregate vested benefit obligations for the qualified
pension plans of the Company and its Subsidiaries, determined in each
fiscal year by the Company's actuaries in the ordinary course of
business, to exceed the aggregate fair value of the assets of such
plans, also determined in each fiscal year by the Company's actuaries
in the ordinary course of business, by more than $3,000,000.
For purposes of paragraph (c) of this Section 7.8, obligations and assets of
pension plans of the Company and its Subsidiaries shall be determined as of the
end of each fiscal year in accordance with Statement No. 87 of the Financial
Accounting Standards Board.
7.9. Subsidiary Stock and Debt. The Company will not:
(a) directly or indirectly sell, assign, pledge or otherwise
transfer or dispose of any Debt of, or claim against, or any shares of
stock or similar interests or other securities of (or warrants, rights
or options to acquire stock or similar interests or other securities
of), any Restricted Subsidiary, except to a Wholly-owned Restricted
Subsidiary and except as directors' qualifying shares if required by
applicable law;
(b) permit any Restricted Subsidiary directly or indirectly to
sell, assign, pledge or otherwise transfer or dispose of any Debt of,
or claim against, or any shares of stock or similar interests or other
securities of (or warrants, rights or options to acquire stock or
similar interests or other securities of), any other Restricted
Subsidiary, except to the Company or a Wholly-owned Restricted
Subsidiary and
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except as directors' qualifying shares if required by applicable law;
(c) permit any Restricted Subsidiary to have outstanding any
shares of preferred stock other than shares of preferred stock which
are owned by the Company or a Wholly-owned Restricted Subsidiary; or
(d) permit any Restricted Subsidiary directly or indirectly to
issue or sell any shares of its stock or similar interests or other
securities (or warrants, rights or options to acquire stock or similar
interests or other securities) except to the Company or a Wholly-owned
Restricted Subsidiary or as directors' qualifying shares if required by
applicable law;
provided, however, that all stock or similar interests or other securities (or
warrants, rights or options to acquire stock or similar interests or other
securities) of any Restricted Subsidiary with annual sales for the immediately
preceding fiscal year less than $50,000,000 may be simultaneously sold as an
entirety for a cash consideration at least equal to the fair value thereof (as
determined in good faith by a resolution of the Board) at the time of such sale,
if (A) such Restricted Subsidiary being sold does not at the time own any Debt
or stock or similar interests or other securities of (or warrants, rights or
options to acquire stock or similar interests or other securities of) the
Company or of any other Restricted Subsidiary which is not also being
simultaneously sold as an entirety as permitted by this Section 7.9 or Section
7.10, (B) the assets of such Restricted Subsidiary being sold represented by the
equity interests to be so transferred are such that the sale of such assets
would be permitted by Section 7.10 (in which case such transaction shall be
considered and deemed a disposition of assets for the purposes of Section 7.10),
and (C) immediately after the consummation of such transaction, (x) the Company
shall then be permitted to incur $1.00 of additional Debt pursuant to Section
7.4(d), and (y) both prior to and immediately following such sale, no condition
or event shall exist which constitutes a Default or an Event of Default.
7.10. Consolidation, Merger or Disposition of Assets. The
Company will not and will not permit any Restricted Subsidiary to, directly or
indirectly, consolidate or merge with, or sell, lease or otherwise dispose of
any of its assets to, any Person, except, subject (to the extent hereinafter
provided) to the last paragraph of this Section 7.10:
(a) the Company may consolidate or merge with any other
corporation, provided that the Company shall be the continuing or
surviving corporation and, after giving effect to any such
consolidation or merger, no Change of Control shall have occurred;
(b) any Restricted Subsidiary may consolidate or merge with,
and any Restricted Subsidiary may sell, lease or otherwise dispose of
its assets to, the Company or a Wholly-owned Restricted Subsidiary;
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<PAGE> 31
(c) the Company may consolidate with or merge into, or sell,
lease or otherwise dispose of its assets as an entirety or
substantially as an entirety to, any solvent corporation, but only if
(i) such corporation (A) is duly organized and
validly existing in good standing under the laws of the United
States of America or a State thereof and (B) expressly
assumes, pursuant to a written agreement satisfactory in form,
scope and substance to the holders of the Notes, the due and
punctual payment of the principal of, the Special Premium (if
any) and interest on the Notes according to their tenor, and
the due and punctual performance and observance of the
obligations of the Company under the Agreements and the Notes,
an executed counterpart of which agreement shall have been
furnished to each holder of a Note together with a favorable
opinion of counsel satisfactory to each such holder covering
such matters relating to such corporation, such assumption and
such agreement as such holder may reasonably request, and
(ii) in the case of any such transaction which would
involve or result in a Change of Control, the Company shall
have offered to purchase all Notes held by each holder thereof
pursuant to Section 7.12 and, not later than the time of
consummation of such transaction, shall have purchased, in
compliance with Section 7.12, the full amount of all Notes of
each holder thereof which shall have accepted such offer;
(d) the Company and any Restricted Subsidiary may sell, lease
or otherwise dispose of any of its assets in the ordinary course of
business;
(e) Industries may sell the Columbus Plant and the Fort Worth
Plant, and Heatcraft may sell the Wilmington Plant, for a consideration
at least equal to the fair market value thereof (as determined in good
faith by the Board); and
(f) the Company and any Restricted Subsidiary may sell, lease
or otherwise dispose of any of its assets (other than in the ordinary
course of its business) for a consideration at least equal to the fair
market value thereof (as determined in good faith by the Board) at the
time of such sale, lease or other disposition, provided that the assets
so sold, leased, or otherwise disposed of on any date, when taken
together with all assets theretofore sold, leased, or otherwise
disposed of by the Company and its Restricted Subsidiaries (including
all deemed dispositions of assets pursuant to Section 7.9 and all
assets sold in connection with sale-leaseback transactions permitted
under Section 7.7), (i) during the fiscal year in which such date
occurs, (A) shall not have contributed more than 15% of Consolidated
Operating Income for the immediately preceding fiscal year and (B)
shall not have a book value exceeding 15% of the book value of
consolidated total assets of the Company and its Restricted
Subsidiaries as at the end of the immediately preceding fiscal year,
and (ii) during the period from and
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including the date hereof through the date of such disposition, shall
not have a book value exceeding 30% of the book value of consolidated
total assets of the Company and its Restricted Subsidiaries as at the
end of the immediately preceding fiscal year.
Immediately after any consolidation, merger or other
disposition under Subsection (a), (b), (c), (e) or (f) of this Section 7.10, (1)
no Event of Default or Default shall have occurred and be continuing, and (2)
the Company (which term, for the purpose of this sentence, shall not include the
corporation that originally executed this Agreement if any other Person has
become the Company pursuant to any assumption described in Subsection (c) of
this Section 7.10) shall be entitled to incur at least $1 of additional Debt
under Section 7.4(d). No disposition under Subsection (c) of this Section 7.10
shall release the corporation that originally executed this Agreement from its
liability as obligor on the Notes.
7.11. Issuance of Stock. The Company will not (either directly
or indirectly by the issuance of rights or options for, or securities
convertible into, such shares) issue, sell or otherwise dispose of any shares of
any class of its capital stock (other than directors' qualifying shares, if
required by applicable law) if any Change of Control shall thereby occur, unless
the Company shall have offered to purchase the Notes pursuant to Section 7.12.
7.12. Purchase of Notes Upon Change of Control. At least 15
Business Days (or, in the case of any transaction permitted by Section 7.10 or
7.11 resulting in a Change of Control, at least 45 days) and not more than 90
days prior to the occurrence of any Change of Control, the Company shall give
written notice thereof to each holder of an outstanding Note in the manner and
to the address specified for notices pursuant to this Section 7.12 for such
holder in Schedule I or as otherwise specified by such holder in writing to the
Company. Such notice shall contain (i) an offer by the Company to purchase, on
the date of such Change of Control or, if such notice shall be delivered less
than 35 days prior to the date of such Change of Control, on the date 35 days
after the date of such notice (the "Purchase Date"), all Notes held by each such
holder at a price equal to 100% of the principal amount thereof, together with
interest accrued thereon to the Purchase Date, plus a premium equal to the
Special Premium, (ii) the estimated respective amounts of accrued interest and
the Special Premium payable to such holder in respect of such purchase, showing
in each case in reasonable detail the calculation thereof and, with respect to
the estimated Special Premium, the Reference Rate used in such calculation and
(iii) the Company's estimate of the date on which such Change of Control shall
occur. Said offer shall be deemed to lapse as to any such holder which has not
replied affirmatively thereto in writing within 35 days of the giving of such
notice. As soon as practicable (and in any event at least 24 hours) prior to
such Change of Control, the Company shall give written confirmation of the date
thereof to each such holder which has affirmatively replied to the notice given
pursuant to the first sentence of this Section 7.12. In the event that the
Company shall purchase any Notes pursuant to this Section 7.12, the same shall
thereafter be canceled and not reissued and shall not be deemed "outstanding"
for any purpose of this Agreement.
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For the purposes of this Section 7.12, a "Change of Control"
shall be deemed to occur if any New Owner shall acquire beneficial ownership of
shares in the Company having Voting Rights pertaining thereto which would allow
such New Owner to elect more members of the Board than could be elected by the
exercise of all Voting Rights pertaining to shares in the Company then owned
beneficially by the Norris Family. As used in this Section 7.12:
(i) "Voting Rights" pertaining to shares of a corporation
means the rights to cast votes for the election of directors of such
corporation in ordinary circumstances (without consideration of voting
rights which exist only in the event of contingencies).
(ii) "Norris Family" means all persons who are lineal
descendants of D.W. Norris (by birth or adoption), all spouses of such
descendants, all estates of such descendants or spouses which are in
the course of administration, all trusts for the benefit of such
descendants or spouses, and all corporations or other entities in
which, directly or indirectly, such descendants or spouses (either
alone or in conjunction with other such descendants or spouses) have
the right, whether by ownership of stock or other equity interests or
otherwise, to direct the management and policies of such corporations
or other entities (each such person, spouse, estate, trust, corporation
or entity being referred to herein as a "member" of the Norris Family).
In addition, so long as any employee stock ownership plan exercises its
Voting Rights in the same manner as members of the Norris Family
(exclusive of employee stock ownership plans) who have a majority of
the Voting Rights exercised by all such members of the Norris Family,
such employee stock ownership plan shall be deemed a member of the
Norris Family.
(iii) "New Owner" means any person (other than a member of the
Norris Family), or any syndicate or group of persons (exclusive of all
members of the Norris Family) which would be deemed a "person" for the
purposes of Section 13(d) of the Exchange Act, who directly or
indirectly acquires shares in the Company.
Notwithstanding anything in this Section 7.12 to the contrary, if an Event of
Default exists following a Change of Control and the Notes are accelerated
pursuant to the provisions of Section 9.1, the holders of the Notes shall be
entitled to receive the Special Premium relating to such accelerated amount as
provided in Section 9.1.
7.13. Transactions with Affiliates. The Company will not and
will not permit any Restricted Subsidiary to engage in any material transaction
with an Affiliate on terms less favorable to the Company or such Restricted
Subsidiary than would have been obtainable at the time from any Person which is
not an Affiliate in arm's-length dealing provided, that the foregoing
restrictions shall not apply to any transaction between the Company and a
Wholly- owned Restricted Subsidiary or between a Wholly-owned Restricted
Subsidiary and another Wholly-owned Restricted Subsidiary.
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7.14. Change in Business. The Company will not either directly
or by or through a Subsidiary make or permit any substantial change in the
nature of the business in which the Company and its Subsidiaries, taken as a
whole, are engaged on the date of this Agreement except for such changes as are
natural extensions of the heating, cooling, refrigeration, copper tube
manufacturing and electronics businesses.
7.15. Environmental Matters. (a) The Company will and will
cause each of its Subsidiaries to comply in all material respects with all
applicable Environmental Laws if, individually or in the aggregate, failure to
comply therewith could reasonably be expected to have a material adverse effect
on the financial condition or results of operations of the Company or the
Company and its Subsidiaries, taken as a whole.
(b) The Company will not and will not permit any of its
Subsidiaries to cause or allow any Hazardous Substance to be present at any time
on, in, under or above any real property or any part thereof in which the
Company or any Subsidiary has a direct interest (including without limitation
ownership thereof or any arrangement for the lease, rental or other use thereof,
or the retention of any mortgage or security interest therein or thereon),
except in a manner and to an extent that is in compliance in all material
respects with all applicable Environmental Laws or that will not have a material
adverse effect on the financial condition or results of operations of the
Company or the Company and its Subsidiaries, taken as a whole.
7.16. Limitation on Dividend Restrictions, etc. The Company
will not permit any Restricted Subsidiary to enter into, adopt, create or
otherwise be or become bound by or subject to any contract or charter or by-law
provision limiting the amount of, or otherwise imposing restrictions on the
declaration, payment or setting aside of funds for the making of, dividends or
other distributions in respect of the capital stock of such Restricted
Subsidiary to the Company or another Restricted Subsidiary.
7.17. Most Favored Lender's Status. The Company will not and
will not permit any Restricted Subsidiary to enter into, assume or otherwise be
bound or obligated under any agreement creating or evidencing Debt or any
agreement executed and delivered in connection with any Debt containing one or
more Additional Covenants or Additional Defaults (as defined below), unless
prior written consent to such agreement shall have been obtained pursuant to
Section 12; provided, however, in the event the Company or any Restricted
Subsidiary shall enter into, assume or otherwise become bound by or obligated
under any such agreement without the prior written consent of the holders of the
Notes, the terms of this Agreement shall, without any further action on the part
of the Company or any of the holders of the Notes, be deemed to be amended
automatically to include each Additional Covenant and each Additional Default
contained in such agreement. The Company further covenants to promptly execute
and deliver at its expense an amendment to this Agreement in form and substance
satisfactory to the holders of at least 66-2/3% in aggregate unpaid principal
amount of all Notes at the time outstanding evidencing the amendment of this
Agreement to include
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such Additional Covenants and Additional Defaults, provided that the execution
and delivery of such amendment shall not be a precondition to the effectiveness
of such amendment as provided for in this Section 7.17, but shall merely be for
the convenience of the parties hereto.
For purposes of this Agreement, (i) the term "Additional
Covenant" shall mean any affirmative or negative covenant or similar restriction
applicable to the Company or any Restricted Subsidiary (regardless of whether
such provision is labeled or otherwise characterized as a covenant) the subject
matter of which either (A) is similar to that of the covenants in Section 7 of
this Agreement, or related definitions in Section 8 of this Agreement, but
contains one or more percentages, amounts or formulas that is more restrictive
than those set forth herein or more beneficial to the holder or holders of such
other Debt (and such covenant or similar restriction shall be deemed an
"Additional Covenant" only to the extent that it is more restrictive or more
beneficial) or (B) is different from the subject matter of the covenants in
Section 7 of this Agreement, or related definitions in Section 8 of this
Agreement; and (ii) the term "Additional Default" shall mean any provision which
permits the holder of such Debt to accelerate (with the passage of time or
giving of notice or both) the maturity thereof or otherwise require the Company
or any Restricted Subsidiary to purchase such Debt prior to the stated maturity
of such Debt and which either (A) is similar to the Defaults and Events of
Default contained in Section 9.1 of this Agreement, or related definitions in
Section 8 of this Agreement, but contains one or more percentages, amounts or
formulas that is more restrictive or has a shorter grace period than those set
forth herein or is more beneficial to the holder or holders of such other Debt
(and such provision shall be deemed an "Additional Default" only to the extent
that it is more restrictive, has a shorter grace period or is more beneficial)
or (B) is different from the subject matter of the Defaults and Events of
Default contained in Section 9.1 of this Agreement, or related definitions in
Section 8 of this Agreement.
SECTION 8. DEFINITIONS.
8.1. Definitions. Except as otherwise specified or as the
context may otherwise require, the following terms shall have the respective
meanings set forth below whenever used in this Agreement and such terms shall
include the singular as well as the plural:
"Affiliate" of any specified Person shall mean any other
Person controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, "control" when used with respect to
any specified Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agreements" shall have the meaning specified in Section 1.2.
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"Board" shall mean (i) in the case of determinations of value
under Section 7.10, the board of directors of the Restricted Subsidiary which
owns the relevant assets and (ii) in all other cases, either the board of
directors of the Company or any duly authorized committee of that board.
"Business Day" shall mean a day other than a Saturday or
Sunday or a day on which banks are required or authorized to close in New York,
New York, or Dallas, Texas.
"Capital Lease" shall mean any lease of property which in
accordance with GAAP should be capitalized on the lessee's balance sheet; and
"Capital Lease Obligation" shall mean the amount of the liability under a
Capital Lease which is or should be so capitalized in accordance with GAAP.
"Change of Control" shall have the meaning specified in
Section 7.12.
"Closing Date" shall have the meaning specified in Section
1.2.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and any successor statute thereto, together with the rules and
regulations issued thereunder, in each case as in effect from time to time.
"Columbus Plant" shall mean the real and personal property of
Industries located on Olentangy River Road in Columbus, Ohio.
"Commission" shall mean the Securities and Exchange Commission
and any other similar or successor agency of the Federal Government
administering the Securities Act.
"Commonly Controlled Entity" shall have the meaning specified
in Section 2.11.
"Company" shall have the meaning specified in the introductory
paragraph.
"Company Premises" shall mean real property in which the
Company or any Person which has at any time been or hereafter becomes a
Subsidiary of the Company at any time has or ever had any direct interest,
including, without limitation, ownership thereof, or any arrangement for the
lease, rental or other use thereof, or the retention or claim of any mortgage or
security interest therein or thereon.
"Computation Date" shall have the meaning specified in Section
7.6.
"Computation Period" shall have the meaning specified in
Section 7.6.
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"Consolidated Net Income" for any period shall mean the Net
Income of the Company and its Restricted Subsidiaries for such period
consolidated in accordance with GAAP.
"Consolidated Operating Income" for any period shall mean
Consolidated Net Income for such period plus the net amount deducted during such
period in determining the amount thereof in respect of interest expense
(including the interest equivalent in respect of Capital Lease Obligations) and
taxes imposed on or measured by income or excess profits.
"Current Assets" shall mean the current assets of the Company
and its Restricted Subsidiaries determined in accordance with GAAP on a
consolidated basis after eliminating all intercompany items.
"Current Liabilities" shall mean the current liabilities of
the Company and its Restricted Subsidiaries determined in accordance with GAAP
on a consolidated basis after eliminating all intercompany items and after
excluding current liabilities consisting of current maturities of long-term
debt.
"Debt" as applied to any Person (without duplication) shall
mean all obligations of such Person for borrowed money (whether short or
long-term and whether or not represented by bonds, debentures, notes, drafts or
other similar instruments) and any notes payable and drafts accepted
representing extensions of credit whether or not representing obligations for
borrowed money, and in any event shall include (a) any obligation owed for all
or any part of the purchase price of property or other assets or for the cost of
the property or other assets constructed or of improvements, other than accounts
payable included in current liabilities and incurred in respect of property
purchased in the ordinary course of business, (b) any obligation of another
Person of a type described in clause (a), (c) or (d) of this definition which is
secured by any Lien on or payable out of the proceeds of production from
property owned or held by such Person, even though such Person has not assumed
or become liable for the payment of such obligation, (c) any Capital Lease
Obligation of such Person, (d) any Guarantee by such Person of or with respect
to Debt of another Person, and (e) all preferred stock issued by such Person
which is redeemable, or for which mandatory sinking fund payments are due, at
any time on or before December 1, 2008. The Debt of the Company shall in any
event include (without duplication) all Debt of the Company to a Subsidiary. The
amount of Debt and assets of any Person shall not be affected by deposits, trust
arrangements or similar arrangements which, in accordance with GAAP, extinguish
debt for which such Person remains legally liable.
"Default" shall mean any default or other event which, with
notice or the lapse of time or both, would constitute an Event of Default.
"Environmental Laws" shall mean any past, present or future
Federal, state, local or foreign statutory or common law, or any regulation,
code, plan, order, decree,
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judgment, permit, grant, franchise, concession, restriction, agreement or
injunction issued, entered, promulgated or approved thereunder, relating to (a)
the environment or human health or safety, including, without limitation, any
law relating to emissions, discharges, releases or threatened releases of
Hazardous Substances into the environment (including, without limitation, air,
surface water, groundwater or land), or (b) the manufacture, generation,
refining, processing, distribution, use, sale, treatment, receipt, storage,
disposal, transport, arranging for transport, or handling of Hazardous
Substances.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"Events of Default" shall have the meaning specified in
Section 9.1.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
and any similar or successor Federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
"Fort Worth Plant" shall mean the real and personal property
of Industries located at the corner of Airport Freeway and Maxine, Fort Worth,
Texas.
"GAAP" shall mean generally accepted accounting principles as
in effect at the time of application to the provisions hereof, provided that for
all purposes of this Agreement it is understood and agreed that the Company
shall account for its Unrestricted Subsidiaries on the equity method.
"Governmental Body" shall have the meaning specified in
Section 2.7.
"Guarantee" of or by any Person shall mean any guarantee or
other contingent liability, direct or indirect, with respect to any Debt of
another Person, through an agreement or otherwise, including, without
limitation, (a) any endorsement (otherwise than for collection or deposit in the
ordinary course of business) or discount with recourse or undertaking
substantially equivalent to or having similar economic effect of a guarantee
with respect to any such Debt, (b) any contingent obligations of such Person in
respect of letters of credit, letter of credit facilities, bankers' acceptance
facilities or similar credit facilities (excluding in any event obligations in
respect of (1) trade or commercial letters of credit given in the ordinary
course of business and (2) stand-by letters of credit given to support
obligations other than Debt obligations) and (c) any agreement (1) to purchase,
or to advance or supply funds for the payment or purchase of, any such Debt, (2)
to purchase, sell or lease property, products, materials or supplies, or
transportation or services, primarily for the purpose of enabling such other
Person to pay the Debt or to ensure the owner thereof against loss regardless of
the delivery or non-delivery of the property, products, materials or supplies or
transportation or services, or (3) to make any loan, advance, capital
contribution or other investment in such other Person to assure a minimum
equity, working capital or other balance sheet condition for
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any date, or to provide funds for the payment of any liability, dividend or
stock liquidation payment, or otherwise to supply funds to or in any manner
invest in such other Person. The amount of any Guarantee shall (subject to any
limitation contained therein) be equal to the outstanding principal amount of
the Debt guaranteed.
"Hazardous Substance" shall mean any contaminant, pollutant or
toxic or hazardous substance, and any substance that is defined or listed as a
hazardous, toxic or dangerous substance under any Environmental Law or that is
otherwise regulated or prohibited under any Environmental Law as a hazardous,
toxic or dangerous substance.
"Heatcraft" shall mean Heatcraft Inc., a Mississippi
corporation.
"Industries" shall mean Lennox Industries Inc., an Iowa
corporation.
"Investment" shall mean any investment in any Person made by
stock purchase, capital contribution, loan, advance or otherwise, provided that
the amount of any such investment in any Person shall be computed in accordance
with GAAP. Investments shall not on any date include notes receivable accepted
by the Company or any Restricted Subsidiary in settlement of trade accounts
receivable of non-Affiliates so long as the allowance for doubtful accounts of
the Company and its Restricted Subsidiaries includes the excess, if any, of (a)
the aggregate principal amount of all such notes on such date over (b) 5% of the
sum of (i) the aggregate principal amount of all such notes plus (ii) all trade
accounts receivable of the Company and its Restricted Subsidiaries on such date,
before allowances for doubtful accounts.
"Letter Agreement" shall mean that certain letter agreement,
dated as of December 1, 1993, among the Company, you and the Other Purchasers,
substantially in the form of Exhibit G hereto.
"Lien" shall mean, as to any Person, any mortgage, lien,
pledge, adverse claim, charge, other encumbrance in favor of any vendor, lessor,
lender or other secured party in or on, or any interest or title of any such
vendor, lessor, lender or other secured party under any conditional sale or
other title retention agreement or Capital Lease with respect to, any property
or asset of such Person, or the signing or filing of a financing statement with
respect to property owned by such Person which names such Person as debtor, or
the signing of any security agreement authorizing any other party as the secured
party thereunder to file any such financing statement.
"Marshalltown Plant" shall mean the real and personal property
of Industries located on South 12th Avenue in Marshalltown,Iowa.
"Multiemployer Plan" shall have the meaning specified in
Section 2.11.
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"Net Income" of any Person for any period shall mean the net
income (or net loss) of such Person for such period, determined in accordance
with GAAP, excluding
(a) the proceeds of any life insurance policy;
(b) any gain arising from (1) the sale or other disposition of
any assets (other than current assets) to the extent that the aggregate
amount of gains exceeds the aggregate amount of losses from the sale,
abandonment or other disposition of assets (other than current assets),
(2) any write-up of assets, or (3) the acquisition by such Person of
its outstanding Debt securities;
(c) any amount representing the interest of such Person in the
undistributed earnings of any other Person;
(d) any earnings of any other Person accrued prior to the date
it becomes a Restricted Subsidiary or is merged into or consolidated
with the Company or a Restricted Subsidiary and any earnings, prior to
the date of acquisition, of any other Person acquired in any other
manner; and
(e) any deferred credit (or amortization of a deferred credit)
arising from the acquisition of any Person.
"Net Worth" shall mean, as of any date of determination
thereof, the total stockholders' equity of the Company and its Subsidiaries
determined in accordance with GAAP on a consolidated basis, provided that if the
portion of total stockholders' equity attributable to Unrestricted Subsidiaries
exceeds 15% of total stockholders' equity, Net Worth shall be reduced by the
amount of such excess.
"New Owner" shall have the meaning specified in Section 7.12.
"Norris Family" shall have the meaning specified in Section
7.12.
"Note" or "Notes" shall have the meaning specified in Section
1.1.
"Note Register" shall have the meaning specified in Section
10.
"Order" shall have the meaning specified in Section 2.7.
"Other Agreements" shall have the meaning specified in Section
1.2.
"Other Purchasers" shall have the meaning specified in Section
1.2.
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"outstanding" shall refer, when used with reference to the
Notes as of a particular time, to all Notes theretofore issued as provided in
the Agreements, except (i) Notes theretofore reported as lost, stolen, damaged
or destroyed, or surrendered for transfer, exchange or replacement, in respect
of which replacement Notes have been issued, (ii) Notes theretofore paid in
full, and (iii) Notes theretofore canceled by the Company; and except that, for
the purpose of determining whether holders of the requisite principal amount of
Notes have made or concurred in any waiver, consent, approval, notice or other
communication under the Agreements, Notes owned by the Company or any Affiliate
thereof shall not be deemed to be outstanding.
"Person" shall include an individual, a corporation, an
association, a partnership, a trust or estate, a government, foreign or
domestic, and any agency or political subdivision thereof, or any other entity.
"Purchase Date" shall have the meaning specified in Section
7.12.
"Qualified Institutional Holder" shall mean any holder which
is an institutional investor (a) which holds at the time in question at least
$3,000,000 in aggregate principal amount of Notes or any lesser principal amount
thereof constituting at least 20% of the aggregate principal amount of Notes
then outstanding or (b) which purchases from a holder 100% of the Notes held by
such holder (after giving effect to any reduction in principal resulting from a
prepayment of Notes).
"Restricted Debt" shall mean any of (i) Debt (including,
without limitation, Capital Lease Obligations, purchase money obligations and
industrial revenue bonds) of the Company or a Restricted Subsidiary which is
secured by a Lien not otherwise permitted under clause (a), (b) or (c) of
Section 7.5; or (ii) Debt of a Restricted Subsidiary owing to any Person other
than the Company or a Wholly-owned Restricted Subsidiary.
"Restricted Debt Amount" shall mean as of any date of
determination, the sum (without duplication) of the aggregate principal amount
outstanding of all Restricted Debt.
"Restricted Investment" shall mean any Investment by the
Company or any Restricted Subsidiary other than
(a) any Investment in (1) a marketable obligation, maturing
within two years after acquisition thereof, issued or guaranteed by the
United States of America or an instrumentality or agency thereof, and
entitled to the full faith and credit of the United States of America,
(2) a demand deposit account with, or a certificate of deposit or other
obligation, maturing within one year after acquisition thereof, either
fully insured by the Federal Deposit Insurance Corporation (or any
successor Federal agency) or issued by a national or State bank or
trust company having capital, surplus and undivided profits of at least
$250,000,000, and having (or being the wholly-owned
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subsidiary of a holding company having) a credit rating in respect of
its short-term obligations of A-2 or higher from Standard & Poor's
Corporation or P-2 or higher from Moody's Investors Service, Inc., (3)
open market commercial paper, maturing within 270 days after
acquisition thereof, having a credit rating of A-2 or higher from
Standard & Poor's Corporation or P-2 or higher from Moody's Investors
Service, Inc. and (4) a demand deposit account either fully insured by
the Federal Deposit Insurance Corporation (or any successor Federal
Agency) or with a national or State bank or trust company having
capital, surplus and undivided profits of at least $100,000,000, if
such demand deposit account is required to conduct operations of the
Company or any Restricted Subsidiary in the same local area in which
such bank or trust company is located and the aggregate amount of
Investments in all such demand deposit accounts permitted by this
clause (4) does not exceed 1% of Net Worth;
(b) any Investment existing on the date hereof, as set forth
in Exhibit D hereto, including any extensions or renewals of any such
Investment;
(c) any Investment hereafter acquired in exchange for, or out
of the net cash proceeds from the substantially concurrent sale of,
common shares of the Company;
(d) Investments in
(i) shares of adjustable rate or floating rate
preferred stock, variable rate notes or other Debt or equity
issues of business corporations, or
(ii) Debt issues of municipalities,
the issuers of which Investments described in this subsection (d) shall
in any case have a credit rating in respect of their long-term
obligations of A- or higher from Standard & Poor's Corporation or A3 or
higher from Moody's Investors Service, Inc., provided (i) that the
aggregate outstanding amount of Investments which shall at any time not
constitute Restricted Investments pursuant to this Subsection (d) of
the definition of Restricted Investments shall not exceed one-third of
the then aggregate outstanding amount of all Investments of the Company
and its Restricted Subsidiaries at such time (disregarding for this
purpose Investments in Restricted Subsidiaries or joint ventures), and
(ii) the aggregate outstanding amount of Investments issued by a single
issuer which shall at any time not constitute Restricted Investments
pursuant to this Subsection (d) shall not exceed $5,000,000; and
(e) any Investment by the Company or any Restricted Subsidiary
in any Restricted Subsidiary or any Person which simultaneously
therewith becomes a Restricted Subsidiary.
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For the purposes of this definition, the outstanding amount of any Investment
shall be the amount originally actually invested, net of any return of capital,
and disregarding any appreciation or decline in value, or write-up, write-down
or write-off, of the Investment concerned.
"Restricted Payment," in respect of the Company, shall mean
(a) the declaration of any dividend on, or the incurrence of
any liability to make any other payment or distribution in respect of,
shares of the Company of any class (other than one payable solely in
its common shares); and
(b) any payment or distribution on account of the purchase,
redemption or other retirement of any shares of the Company of any
class, or of any warrant, option or other right to acquire such shares,
or any other payment or distribution (other than pursuant to a dividend
theretofore declared or liability theretofore incurred as specified in
the foregoing Subsection (a)), made in respect thereof, either directly
or indirectly except a purchase, redemption or other retirement of
shares of the Company out of the net cash proceeds from the
substantially concurrent sale of common shares of the Company.
The amount of any Restricted Payment in property shall be deemed to be the
greater of its fair value (as determined by the Board) or its net book value.
"Restricted Subsidiary" shall mean any Subsidiary of the
Company which (a) is listed as a Restricted Subsidiary on Exhibit B or (b) is
organized under the laws of, and conducts substantially all of its business and
maintains substantially all of its property and assets within, the continental
United States of America or any State thereof. Once a Subsidiary is or becomes a
Restricted Subsidiary it may not thereafter become an Unrestricted Subsidiary.
"Securities Act" shall mean the Securities Act of 1933, and
any similar or successor Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Special Premium" shall mean, with respect to any principal
amount of Notes being prepaid pursuant to Section 4.2, any purchase of the
principal amount of Notes pursuant to Section 7.12 or any acceleration of the
principal amount of any Note pursuant to Section 9.1 (such prepaid, purchased or
accelerated principal amount being hereinafter referred to as the "Prepaid
Principal"), as at any date of determination, an amount equal to the greater of
(i) zero and (ii) the excess of:
(A) the sum of the respective present values as of the date
such Special Premium becomes due and payable of:
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(1) each prepayment of principal (if any) required to
be made with respect to such Prepaid Principal pursuant to
Section 4.1 with respect to such Prepaid Principal during the
Discount Period,
(2) the payment of principal balance required to be
made at final maturity with respect to such Prepaid Principal,
and
(3) each payment of interest which would be required
to be paid during such Discount Period with respect to such
Prepaid Principal from time to time outstanding,
determined, in the case of each such required prepayment, principal
payment at final maturity and interest payment, by discounting the
amount thereof (on a semiannual basis) from the date fixed therefor
back to the date of payment of such Special Premium at the Reference
Rate (assuming for such purpose that all such payments and prepayments
of principal and payments of interest with respect to such Prepaid
Principal were made when due pursuant to the terms of the Agreements
and the Notes, and that no other payment or prepayment with respect to
such Prepaid Principal was made),
over
(B) the amount of such Prepaid Principal.
For purposes of the foregoing definition of Special Premium, (1) "Discount
Period" shall mean the period beginning on the date of such payment of Special
Premium and ending on the stated final maturity of the Notes; and (2) "Reference
Rate" shall mean a per annum rate determined by adding 0.50% to the annual yield
implied for actively traded United States Treasury securities having a term to
maturity equal to the Weighted Average Life to Maturity of the portion of the
Notes being prepaid, purchased or accelerated as determined by reference to (i)
the yields reported, as of 10:00 a.m. (New York City time) on the Business Day
next preceding the date of such payment, on the display designated as "Page 678"
on the Telerate Service (or such other display as may replace "Page 678" on the
Telerate Service), or if such yields shall not be reported as of such time or
the yields reported as of such time shall not be ascertainable, (ii) the Federal
Reserve Statistical Release H.15(519) ("Release H.15") published most recently
prior to the third day preceding the date of such payment, or, if Release H.15
is no longer published, such annual yield as determined, at the Company's
expense, by an independent investment banking firm acceptable to the Company and
the holders of Notes; provided that, if there shall be no actual United States
Treasury security having a term to maturity equal to such Weighted Average Life
to Maturity of the Notes, the annual yield for a United States Treasury security
deemed to have such a term to maturity shall be interpolated on a basis
consistent with the annual yields of other United States Treasury securities as
determined by reference to Release H.15, or (if Release H.15 is no longer
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published) as determined at the Company's expense by such an independent
investment banking firm.
"Subordinated Debt" of any Person shall mean Debt of such
Person which is expressly made subordinate and junior in right of payment to the
Notes pursuant to terms contained in the instrument or agreement evidencing such
Debt substantially in the form of Exhibit F.
"Subsidiary" shall mean any corporation of which the Company
and/or one or more of its Subsidiaries own more than 50% of the outstanding
stock having by its terms ordinary voting power to elect a majority of the board
of directors of such corporation, irrespective of whether at the time stock of
any other class or classes of such corporation shall have or might have voting
power by reason of the happening of any contingency, and, except as otherwise
expressly indicated herein, references to Subsidiaries shall refer to
Subsidiaries of the Company.
"this Agreement" shall mean this Note Purchase Agreement
(together with the Schedules and Exhibits hereto), as from time to time amended,
modified or supplemented in accordance with its terms.
"Total Capitalization" shall mean the sum of Net Worth and
Total Debt.
"Total Debt" shall mean, as at any date of determination, the
aggregate amount (without duplication) of Debt of the Company and its Restricted
Subsidiaries outstanding on such date, consolidated in accordance with GAAP
after eliminating all intercompany items. Total Debt of the Company shall not in
any event include Subordinated Debt of the Company to a Wholly-owned Restricted
Subsidiary or Debt of a Wholly-owned Restricted Subsidiary to the Company or to
another Wholly-owned Restricted Subsidiary.
"Unrestricted Subsidiary" shall mean any Subsidiary other than
a Restricted Subsidiary.
"Voting Rights" shall have the meaning specified in Section
7.12.
"Weighted Average Life to Maturity" as applied to any
indebtedness at any date, shall mean the number of years (or portions of years)
obtained by dividing (a) the then outstanding principal amount of such
indebtedness into (b) the total of the products obtained by multiplying (i) 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 (ii) the number of years (calculated to the nearest
one-twelfth) which will elapse between such date and the date on which such
payment is to be made.
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"Wholly-owned Restricted Subsidiary" shall mean any Restricted
Subsidiary, all of the equity securities (or all of the equity securities other
than directors' qualifying shares) of which are owned by the Company or another
Wholly-owned Restricted Subsidiary.
"Wilmington Plant" shall mean the real and personal property
of Heatcraft located at 602 Sunnyvale Drive, Wilmington, North Carolina.
8.2. Accounting Terms. (a) All accounting terms used herein
which are not expressly defined in this Agreement have the meanings respectively
given to them in accordance with GAAP, all computations made pursuant to this
Agreement shall be made in accordance with GAAP, and all balance sheets and
other financial statements shall be prepared in accordance with GAAP. Any
reference herein, or in any document delivered in connection herewith, to
financial statements of the Company at a date prior to October 11, 1991 shall be
deemed references to the financial statements of Lennox International Inc., an
Iowa corporation.
(b) If any changes in accounting principles from those used in
the preparation of the most recent audited historical financial statements
delivered to you prior to the Closing Date are hereafter required or permitted
by the rules, regulations, pronouncements and opinions of the Financial
Accounting Standards Board or the American Institute of Certified Public
Accountants (or successors thereto or agencies with similar functions) and are
adopted by the Company with the agreement of its independent certified public
accountants and such changes result or could result (for any present or future
period) in a change in the method of calculation of any of the financial
covenants, standards or terms in or relating to such covenants, the parties
hereto agree to enter into discussions with a view to amending such provisions
so as to equitably reflect such changes with the desired result that the
criteria for evaluating the financial condition of the Company and its
Subsidiaries shall be the same after such changes as if such changes had not
been made, provided, that no change in GAAP that would affect or could affect
(for any present or future period) the method of calculation of any of said
financial covenants, standards or terms shall be given effect in such
calculations until such provisions are amended, in a manner satisfactory to the
Company and the holders of the Notes, to so reflect such change to GAAP.
SECTION 9. EVENTS OF DEFAULT; REMEDIES.
9.1. Events of Default Defined; Acceleration of Maturity. If
any of the following events (herein called "Events of Default") shall have
occurred and be continuing (whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary or by operation of law or
otherwise), that is to say:
(a) default shall be made in the due and punctual payment of
all or any part of the principal of, or the Special Premium (if any)
on, any Note when and as the same
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shall become due and payable, whether at stated maturity, by
acceleration, by notice of prepayment or otherwise;
(b) default shall be made in the due and punctual payment of
any interest on any Note when and as such interest shall become due and
payable, and such default shall have continued for a period of three
Business Days;
(c) (i) default shall be made in the performance or observance
of any covenant, agreement or condition contained in Section 5(f)(i),
any of Sections 7.4 through (and including) Section 7.10, Section 7.12,
or Section 7.16; or (ii) default shall be made in the performance or
observance of any other covenant, agreement or condition contained in
the Agreements or the Notes not specified in Section 9.1(a) or Section
9.1(b) or in the immediately preceding clause (i) of this Section
9.1(c) and such default shall have continued for a period of 30 days;
(d) any event shall occur or any condition shall exist in
respect of any Debt of the Company or any Restricted Subsidiary (other
than the Notes) in an aggregate unpaid principal amount of $1,000,000
or more, or under any agreement securing or relating to any of such
Debt, the effect of which is to cause or to permit the acceleration of
the maturity of such Debt, or any such Debt shall not have been paid at
the final maturity date thereof (as renewed or extended if such Debt
shall have been renewed or extended) (provided that the words "or to
permit" contained in the foregoing wording of this Section 9.1(d) shall
be omitted from this Section 9.1(d) and of no effect at any time that
and so long as neither the Company nor any Restricted Subsidiary shall
any longer be a party to any agreement (other than this Agreement, the
Other Agreements and any other agreement providing for automatic
modification thereof in substantially the same form as this Section
9.1(d)) providing that the holder of any Debt of the Company or any
Restricted Subsidiary may declare such Debt to be due and payable prior
to the scheduled maturity thereof as a result of the occurrence of any
default in the performance of any term or condition contained in the
agreement or instrument evidencing any other Debt of the Company or any
Restricted Subsidiary and further providing for such declaration
regardless of whether such other Debt shall have been declared due and
payable prior to the stated maturity thereof);
(e) the Company or any Restricted Subsidiary shall (1) apply
for or consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself or of all or a
substantial part of its property, (2) be generally unable to pay its
debts as such debts become due, (3) make a general assignment for the
benefit of its creditors, (4) commence a voluntary case under the
Federal Bankruptcy Code (as now or hereafter in effect), (5) file a
petition seeking to take advantage of any bankruptcy, insolvency,
moratorium, reorganization or other similar law affecting the
enforcement of creditors' rights generally, (6) fail to controvert in a
timely or appropriate manner, or acquiesce in writing to, any petition
filed against it in an
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involuntary case under such Bankruptcy Code, (7) take any action under
the laws of its jurisdiction of incorporation analogous to any of the
foregoing, or (8) take any corporate action for the purpose of
effecting any of the foregoing;
(f) a proceeding or case shall be commenced, without the
application or consent of the Company or any Restricted Subsidiary in
any court of competent jurisdiction, seeking (1) the liquidation,
reorganization, dissolution, winding up, or composition or readjustment
of its debts, (2) the appointment of a trustee, receiver, custodian,
liquidator or the like of it or of all or any substantial part of its
assets, or (3) similar relief in respect of it, under any law providing
for the relief of debtors, and such proceeding or case shall continue
undismissed, or unstayed and in effect, for a period of 90 days; or an
order for relief shall be entered in an involuntary case under such
Bankruptcy Code, against the Company or any Restricted Subsidiary; or
action under the laws of the jurisdiction of incorporation of the
Company or any Restricted Subsidiary analogous to any of the foregoing
shall be taken with respect to the Company or any Restricted Subsidiary
and shall continue unstayed and in effect for any period of 90
consecutive days;
(g) final judgment for the payment of money shall be rendered
by a court of competent jurisdiction against the Company or any
Restricted Subsidiary and the Company or any Restricted Subsidiary
shall not discharge the same or provide for its discharge in accordance
with its terms, or procure a stay of execution thereof within 60 days
from the date of entry thereof and within said period of 60 days, or
such longer period during which execution of such judgment shall have
been stayed, appeal therefrom and cause the execution thereof to be
stayed during such appeal, and such judgment together with all other
such judgments shall exceed in the aggregate U.S. $1,000,000 (or the
equivalent amount of any other currency); or
(h) any representation or warranty made by the Company in this
Agreement or in any certificate or other instrument delivered hereunder
or pursuant hereto or in connection with any provision hereof shall
prove to be false or incorrect or breached in any material respect on
the date as of which made;
then (i) upon the occurrence of any Event of Default described in Subsection (e)
or (f) with respect to the Company, the unpaid principal amount of all Notes,
together with the interest accrued thereon which shall be deemed matured, shall
automatically become immediately due and payable, without presentment, demand,
protest, notice of intent to accelerate, notice of actual acceleration or other
requirements of any kind, all of which are hereby expressly waived by the
Company, or (ii) during the continuance of any other Event of Default, the
holder or holders of at least 66-2/3% of the unpaid principal amount of all of
the Notes at the time outstanding may, by written notice to the Company, declare
the unpaid principal amount of all Notes to be, and the same shall forthwith
become due and payable, without further presentment, demand, protest, notice of
intent to accelerate, or notice of actual acceleration,
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together with the interest accrued thereon which shall be deemed matured, plus
(to the full extent permitted by applicable law) a premium equal to the Special
Premium (determined with respect to such principal amount of Notes as of the
date of such declaration), provided that, during the existence of an Event of
Default described in Subsection (a) or (b) with respect to any Note, the holder
of such Note may, by written notice to the Company, declare such Note to be, and
the same shall forthwith become, due and payable, without further presentment,
demand, protest, notice of intent to accelerate, or notice of actual
acceleration, together with the interest accrued thereon which shall be deemed
matured plus (to the full extent permitted by applicable law) a premium equal to
the Special Premium determined as of the date of such declaration. If any holder
of any Note shall exercise the option specified in the proviso to the preceding
sentence, the Company will forthwith give written notice thereof to the holders
of all other outstanding Notes and each such holder may (whether or not such
notice is given or received), by written notice to the Company, declare the
principal of all Notes held by it to be, and the same shall forthwith become,
due and payable, without further presentment, demand, protest, notice of intent
to accelerate, or notice of actual acceleration, together with the interest
accrued thereon which shall be deemed matured.
The provisions of this Section 9.1 are subject, however, to
the condition that if, at any time after any Note shall have so become due and
payable and prior to the entry of any final judgment for the payment of any
monies due on the Notes or pursuant to the Agreements, the Company shall pay all
arrears of interest on the Notes and all payments on account of the principal of
and the Special Premium (if any) on the Notes which shall have become due
otherwise than by acceleration (with interest on such principal, the Special
Premium (if any) and, to the extent permitted by law, on overdue payments of
interest, at the rate specified in the Notes) and all Events of Default (other
than nonpayment of principal of and accrued interest on Notes due and payable
solely by virtue of acceleration) shall be remedied or waived pursuant to
Section 12, then, and in every such case, the holder or holders of at least 80%
in unpaid principal amount of all of the Notes at the time outstanding, by
written notice to the Company, may rescind and annul any such acceleration and
its consequences; but no such action shall affect any subsequent Default or
Event of Default or impair any right consequent thereon.
9.2. Suits for Enforcement. If any Event of Default shall have
occurred and be continuing, the holder of any Note may proceed to protect and
enforce its rights, either by suit in equity or by action at law, or both,
whether for the specific performance of any covenant or agreement contained in
this Agreement or in aid of the exercise of any power granted in this Agreement,
or the holder of any Note may proceed to enforce the payment of all sums due
upon such Note or to enforce any other legal or equitable right of the holder of
such Note.
The Company covenants that, if it shall default in the making
of any payment due under any Note or in the performance or observance of any
agreement contained in this Agreement, it will pay to the holder thereof such
further amounts, to the extent lawful, as shall
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be sufficient to pay the costs and expenses of collection or of otherwise
enforcing such holder's rights, including reasonable counsel fees.
9.3. Remedies Cumulative. No remedy herein conferred upon you
or the holder of any Note is intended to be exclusive of any other remedy and
each and every such remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity or
by statute or otherwise.
9.4. Remedies Not Waived. No course of dealing between the
Company and you or the holder of any Note and no delay or failure in exercising
any rights hereunder or under any Note in respect thereof shall operate as a
waiver of any of your rights or the rights of any holder of such Note.
SECTION 10. REGISTRATION, TRANSFER AND EXCHANGE OF NOTES. The Company
will keep at its address for notices under Section 16.4 a register (herein
sometimes referred to as the "Note Register"), in which, subject to such
reasonable regulations as it may prescribe, but at its expense (other than
transfer taxes, if any), it will provide for the registration and registration
of transfer of the Notes.
Whenever any Note or Notes shall be surrendered either at such
address for notices of the Company or at the place of payment named in the
Notes, for transfer or exchange, accompanied (if so required by the Company) by
an appropriate written instrument of transfer duly executed by the registered
holder of such Note or his attorney duly authorized in writing, the Company will
execute and deliver in exchange therefor a Note or Notes, as may be requested by
such holder, in the same aggregate unpaid principal amount as the aggregate
unpaid principal amount of the Note or Notes so surrendered. Any Note issued in
exchange for any other Note or upon transfer thereof shall carry the rights to
unpaid interest and interest to accrue which were carried by the Note so
exchanged or transferred, and neither gain nor loss of interest shall result
from any such transfer or exchange. Any transfer tax relating to such
transaction shall be paid by the holder requesting the exchange.
The Company and any agent of the Company may treat the Person
in whose name any Note is registered as the owner of such Note for the purpose
of receiving payment of the principal of and the Special Premium (if any) and
interest on such Note and for all other purposes whatsoever, whether or not such
Note be overdue.
SECTION 11. LOST, ETC. NOTES. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of any Note,
and (in case of loss, theft or destruction) of indemnity satisfactory to it, and
upon reimbursement to the Company of all reasonable expenses incidental thereto,
and upon surrender and cancellation of such Note, if mutilated, the Company will
deliver in lieu of such Note a Note in a like unpaid principal amount, dated as
of the date to which interest has been paid thereon.
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Notwithstanding the foregoing provisions of this Section, if
any Note of which you or any other institutional holder having a net worth of at
least $50,000,000 is the owner is lost, stolen or destroyed, then the affidavit
of your or such holder's Treasurer or Assistant Treasurer (or other responsible
officials), setting forth the circumstances with respect to such loss, theft or
destruction, shall be accepted as satisfactory evidence thereof, and no
indemnity shall be required as a condition to the execution and delivery by the
Company of a Note in lieu of such Note (or as a condition to the payment
thereof, if due and payable) other than your or such holder's unsecured written
agreement to indemnify the Company.
SECTION 12. AMENDMENT AND WAIVER.
(a) Any term, covenant, agreement or condition of the
Agreements or of the Notes may, with the consent of the Company, be amended, or
compliance therewith may be waived (either generally or in a particular instance
and either retroactively or prospectively), by one or more substantially
concurrent written instruments signed by the holder or holders of at least
66-2/3% in aggregate unpaid principal amount of all Notes at the time
outstanding, provided, however, that
(i) no such amendment or waiver shall
(A) reduce the rate or extend the time of payment of
interest on any of the Notes, without the consent of the
holder of each Note so affected, or
(B) modify any of the provisions of the Agreements or
of the Notes with respect to the payment or prepayment thereof
(including without limitation the definition of the term
"Special Premium" and any other related definitions), or
extend the scheduled maturity of the Notes, or reduce the
percentage of holders of Notes required to approve any such
amendment or effectuate any such waiver, without the consent
of the holders of all the Notes then outstanding, and
(ii) no such waiver shall extend to or affect any obligation
not expressly waived or impair any right consequent thereon.
(b) Any amendment or waiver pursuant to Subsection (a) of this
Section 12 shall (except as provided in Clause (a)(i)(A)) apply equally to all
the holders of the Notes amended or waived and shall be binding upon them, upon
each future holder of any Note and upon the Company, in each case whether or not
a notation thereof shall have been placed on any Note.
(c) The Company will not agree in writing to any amendment,
modification or waiver of any of the provisions of the Agreements or the Notes
unless each holder of Notes (irrespective of the amount of Notes then owned by
it) shall be informed thereof by the
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Company and shall be afforded the opportunity of considering the same and shall
be supplied by the Company with sufficient information to enable it to make an
informed decision with respect thereto. The Company will not, and will not
permit any of its Subsidiaries or Affiliates to, offer or pay any remuneration,
whether by way of supplemental or additional interest, fee or otherwise, to any
holder of Notes in order to obtain such holder's consent to any amendment,
modification or waiver of any term or provision of the Agreements, or the Notes
or any annulment or rescission of acceleration pursuant to Section 9.1, unless
such remuneration or inducement is concurrently paid on the same terms
proportionately to each holder of Notes then outstanding regardless of whether
or not such holder consents to such waiver, amendment, annulment or rescission.
SECTION 13. HOME OFFICE PAYMENT. Notwithstanding anything to the
contrary in this Agreement or the Notes, so long as you or any nominee
designated by you shall be the holder of any Note, the Company shall punctually
pay all amounts which become due and payable on such Note to you by 11:00 a.m.,
New York City time, at your address and in the manner set forth in Schedule I
hereto, or at such other place within the United States and in such other manner
as you may designate by notice to the Company, without presentation or surrender
of such Note. You agree that prior to the sale, transfer or other disposition of
any such Note, you will make notation thereon of the portion of the principal
amount paid or prepaid and the date to which interest has been paid thereon, or
surrender the same in exchange for a Note or Notes aggregating the same
principal amount as the unpaid principal amount of the Note so surrendered. The
Company shall enter into an agreement similar to that contained in the first
sentence of this Section 13 with any other institutional investor (or nominee
thereof) who shall hold any of the Notes and who shall make with the Company an
agreement similar to that contained in the second sentence of this Section.
SECTION 14. LIABILITIES OF THE HOLDERS. Neither this Agreement nor any
disposition of any of the Notes shall be deemed to create any liability or
obligation on your part or that of any other holder of any Note to enforce any
provision hereof or of any of the Notes for the benefit or on behalf of any
other Person who may be the holder of any Note.
SECTION 15. TAXES. The Company will pay all taxes (including interest
and penalties) which may be payable in respect of the execution and delivery of
this Agreement or the execution and delivery (but not the transfer) of any of
the Notes or of any amendment of, or waiver or consent under or with respect to,
the Agreements or of any of the Notes and will save you and all subsequent
holders of the Notes harmless against any loss or liability resulting from
nonpayment or delay in payment of any such tax. The obligations of the Company
under this Section 15 shall survive the payment of the Notes.
SECTION 16. MISCELLANEOUS.
16.1. Expenses. Whether or not the transactions contemplated
hereby are consummated, the Company shall: (a) pay the reasonable fees and
disbursements of your
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special counsel and of any local counsel for any services rendered in connection
with such transactions or in connection with any actual or proposed amendment,
waiver or consent (whether or not the same becomes effective) with respect to
this Agreement or the Notes, and all other reasonable expenses in connection
therewith (including, without limitation, document production expenses and
expenses incurred in connection with obtaining a private placement number from
Standard and Poor's CUSIP Service Bureau); (b) reimburse you for your reasonable
out-of-pocket expenses in connection with such transactions, amendments, waivers
or consents (whether or not the same becomes effective), and any items of the
character referred to in clause (a) which shall have been paid by you, and pay
the cost of transmitting Notes (insured to your satisfaction) to your principal
office upon the issuance thereof; (c) pay, and save you and each subsequent
holder of any Note harmless from and against, any and all liability and loss
with respect to or resulting from the non-payment or delayed payment of any and
all placement fees and other liability which the Company may be or become
obligated to pay any agent or finder in connection with such transactions; (d)
pay the expenses described in Section 9.2 of this Agreement; and (e) pay, and
save you and each subsequent holder of any Note harmless from and against
liability for the payment of, all out-of-pocket expenses, including without
limitation reasonable attorneys' fees, incurred in connection with responding to
any subpoena or other legal process or informal investigative demand involving
the Company or any of its Affiliates. The obligations of the Company under this
Section 16.1 shall survive payment of the Notes.
16.2. Reliance on and Survival of Representations. All
agreements, representations and warranties of the Company herein and in any
certificates or other instruments delivered pursuant to this Agreement shall (a)
be deemed to be material and to have been relied upon by you, notwithstanding
any investigation heretofore or hereafter made by you or on your behalf, and (b)
survive the execution and delivery of this Agreement and the delivery of the
Notes to you, and shall continue in effect so long as any Note is outstanding
and thereafter as provided in Sections 15 and 16.1.
16.3. Successors and Assigns. All covenants and agreements in
this Agreement by or on behalf of the respective parties hereto shall bind and
inure to the benefit of their respective successors and assigns, except that, in
the case of a successor to the Company by consolidation or merger or a
transferee of its assets, this Agreement shall inure to the benefit of such
successor or transferee only if it becomes such in accordance with Section 7.10;
provided, however, that you shall not be obligated to purchase any Notes on the
Closing Date from any Person other than the existing Lennox International Inc.,
a Delaware corporation. The provisions of this Agreement are intended to be for
the benefit of all holders, from time to time, of the Notes, and shall be
enforceable by any such holder, whether or not an express assignment to such
holder of rights under this Agreement has been made by you or your successor or
assign, provided, however, that the benefit of Sections 5, 6, 11 (as to
satisfactory indemnity) and 13 shall be limited as provided therein.
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16.4. Notices. All notices, opinions and other communications
provided for in this Agreement shall be in writing and delivered or mailed,
first class postage prepaid, addressed (a) if to the Company, at the address set
forth at the head of this Agreement (marked for the attention of the Executive
Vice President, Chief Financial Officer and Treasurer), or at such other address
as the Company may hereafter designate by notice to you and to each other holder
of any Note at the time outstanding, or (b) if to you, at your address as set
forth in Schedule I hereto or at such other address as you may hereafter
designate by notice to the Company, or (c) if to any other holder of any Note,
at the address of such holder as it appears on the Note Register.
16.5. Substitution of Your Wholly-Owned Subsidiary. You shall
have the right to substitute one of your wholly-owned subsidiaries as the holder
of any of the Notes to be delivered to you hereunder, by written notice
delivered to the Company, which notice shall be signed by you and such
subsidiary, shall contain such subsidiary's agreement to be bound by this
Agreement and shall contain a confirmation by such subsidiary of the accuracy
with respect to it of the representations contained in Sections 1.3 and 1.4,
provided that such confirmation may contain a statement to the effect that such
subsidiary shall at all times have the right to transfer the Notes being
delivered to it to you. The Company agrees that, upon receipt of any such
notice, whenever the word "you" is used in this Agreement (other than this
Section) such word shall be deemed to refer to such subsidiary in lieu of you.
In the event that such subsidiary is so substituted hereunder and thereafter
transfers its Notes or any portion thereof to you, upon receipt by the Company
of notice of such transfer, whenever the word "you" is used in this Agreement
(other than in this Section) such word shall be deemed to refer to such
subsidiary only to the extent it retains any portion of the Notes, and shall be
deemed to refer to you to the extent you own all or any portion of the Notes,
and you and such subsidiary to such extent shall each have all the rights of an
original holder of Notes under this Agreement.
16.6. LAW GOVERNING. THIS AGREEMENT AND THE NOTES SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
16.7. Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of the
terms hereof.
16.8. Entire Agreement. This Agreement embodies the entire
agreement and understanding between you and the Company and supersedes all prior
agreements and understandings relating to the subject matter hereof.
16.9. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
-49-
<PAGE> 55
16.10. Maximum Interest Payable. The Company, you, and any
other holders of any of the Notes, specifically intend and agree to limit
contractually the amount of interest payable under this Agreement, the Notes,
the Letter Agreement, and all other instruments and agreements executed in
connection with the foregoing to the maximum amount of interest lawfully
permitted to be charged under applicable law. Therefore, none of the terms of
this Agreement, the Notes, the Letter Agreement, or any instrument pertaining to
or relating to or executed in connection with such documents shall ever be
construed to create a contract to pay interest (or amounts deemed to be interest
under applicable law) at a rate in excess of the maximum rate permitted to be
charged under applicable law, and none of the Company or any other party liable
or to become liable hereunder, under the Notes, under the Letter Agreement, or
under any other instruments and agreements related hereto and thereto shall ever
be liable for interest in excess of the amount determined at such maximum rate,
and the provisions of this Section 16.10 shall control over all other provisions
of this Agreement, the Notes, the Letter Agreement, or any other instrument
pertaining to or relating to the transactions herein or therein contemplated. If
any amount of interest taken or received by you or any holder of a Note shall be
in excess of said maximum amount of interest that, under applicable law, could
lawfully have been collected incident to such transactions, then such excess
shall be deemed to have been the result of a mathematical error by all parties
hereto and shall be automatically applied to the reduction of the principal
amount owing under the Notes or if such excessive interest exceeds the unpaid
principal balance of the Notes, such excess shall be refunded promptly by the
Person receiving such amount to the party paying such amount. All amounts paid
or agreed to be paid in connection with such transactions that would under
applicable law be deemed "interest" shall, to the extent permitted by such
applicable law, be amortized, prorated, allocated and spread throughout the
stated term of the Notes. "Applicable law" as used in this paragraph means that
law in effect from time to time that permits the charging and collection of the
highest permissible lawful, nonusurious rate of interest on the transaction
herein contemplated including, without limitation, the laws of each State which
may be held to be applicable, and of the United States of America, if
applicable, and "maximum rate" as used in this paragraph means, with respect to
each of the Notes, the maximum lawful, nonusurious rates of interest (if any)
that under such applicable law may be charged to the Company from time to time
with respect thereto.
16.11. Interpretation of Disclosures. In connection with the
representations, warranties and certifications made by the Company pursuant to
this Agreement, the Company is required to make certain disclosures to you with
respect to possible or contingent losses and liabilities. The Company shall be
free to make disclosures to you in addition to those required under this
Agreement, and the making of any disclosure by the Company pursuant to this
Agreement shall not constitute an admission by the Company that any such
possible or contingent loss or liability actually exists or is owed.
16.12. Notice to Transferees. You agree that on or prior to
any transfer by you of any Note, you will provide each transferee thereof a copy
of the Letter Agreement.
-50-
<PAGE> 56
16.13. Consent to Jurisdiction; Service of Process.
(a) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT, THE NOTES, THE LETTER AGREEMENT, OR ANY OTHER DOCUMENTS OR
TRANSACTIONS IN CONNECTION WITH OR RELATING HERETO OR THERETO, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS OR ACTIONS OF YOU, ANY OTHER PURCHASER,
ANY SUBSEQUENT HOLDER OF A NOTE, OR THE COMPANY MAY BE BROUGHT IN THE COURTS OF
THE STATE OF NEW YORK OR THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT
OF NEW YORK, AND THE COMPANY HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE
AFORESAID COURTS. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY OBJECTIONS,
INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON
THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS.
(b) In the case of the courts of the State of New York or of
the United States sitting in the City of New York, State of New York, the
Company hereby irrevocably designates, appoints, and empowers CT Corporation
System (the "Process Agent") (which has consented thereto) with offices on the
date hereof at 1633 Broadway, New York, New York 10019, as agent to receive for
and on behalf of the Company service of process in the State of New York. The
Company further agrees that such service of process may be made on the Process
Agent by personal service of a copy of the summons and complaint or other legal
process in any such legal suit, action or proceeding on the Process Agent, or by
any other method of service provided for under the applicable laws in effect in
the County of New York, State of New York, and the Process Agent hereby is
authorized and directed to accept such service for and on behalf of the Company,
and to admit service with respect thereto.
(c) Upon service of process being made on the Process Agent as
aforesaid, a copy of the summons and complaint or other legal process served
shall be mailed by the Process Agent to the Company by air courier, at its
address set forth at the top of page 1 of this Agreement, or to such other
address as the Company may notify the Process Agent in writing. Service upon the
Process Agent as aforesaid shall be deemed to be personal service on the Company
and shall be legal and binding upon the Company for all purposes,
notwithstanding any failure of the Process Agent to mail copies of such legal
process thereto, or any failure on the part of the Company to receive the same.
(d) The Company agrees that it will at all times continuously
maintain an agent to receive service of process in the County of New York on its
behalf. In the event that for any reason the Process Agent or any successor
thereto shall no longer serve as agent for the Company to receive service of
process in the County of New York on its behalf or the
-51-
<PAGE> 57
Company shall have changed its address without notification thereof to the
Process Agent, the Company, immediately after having knowledge thereof, will
irrevocably designate and appoint a substitute agent in the City of New York,
New York and advise you, or any subsequent holder of a Note, thereof, or shall
notify the Process Agent of its then current correct address.
(e) Nothing contained in this section shall preclude you, or
any subsequent holder of a Note, from bringing any legal suit, action or
proceeding against the Company in the courts of any jurisdiction where the
Company or any of its property or assets may be found or located.
If you are in agreement with the foregoing, please sign the
form of acceptance in the space provided below whereupon this Agreement shall
become a binding agreement between you and the Company.
Very truly yours,
LENNOX INTERNATIONAL INC.
By: /s/ CLYDE WYANT
--------------------------------
Clyde Wyant
Executive Vice President,
Chief Financial Officer
and Treasurer
The foregoing Agreement is
hereby accepted as of the
date first above written:
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By: /s/ CRAIG S. WILSON
----------------------------------
Name: Craig S. Wilson
Title: Vice President
-52-
<PAGE> 58
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By CIGNA Investments, Inc.
By: /s/ EDWARD LEWIS
--------------------------------
Name: Edward Lewis
Title: Managing Director
-53-
<PAGE> 59
CONNECTICUT GENERAL LIFE INSURANCE COMPANY,
ON BEHALF OF ONE OR MORE SEPARATE ACCOUNTS
By CIGNA Investments, Inc.
By: /s/ EDWARD LEWIS
------------------------------------
Name: Edward Lewis
Title: Managing Director
LIFE INSURANCE COMPANY OF NORTH AMERICA
By CIGNA Investments, Inc.
By: /s/ EDWARD LEWIS
-------------------------------------
Name: Edward Lewis
Title: Managing Director
UNITED OF OMAHA LIFE INSURANCE COMPANY
By: /s/ RODNEY P. WALKER
----------------------------------------------
Name: Rodney P. Walker
Title: Vice President Investments
MUTUAL OF OMAHA INSURANCE COMPANY
By: /s/ RODNEY P. WALKER
----------------------------------------------
Name: Rodney P. Walker
Title: Vice President Investments
-54-
<PAGE> 60
COMPANION LIFE INSURANCE COMPANY
By: /s/ JOHN L. MAGINN
----------------------------------------------
Name: John L. Maginn
Title: Vice President and Assistant Treasurer
By: /s/ RICHARD A. WITT
----------------------------------------------
Name: Richard A. Witt
Title: Second Vice President and
Assistant Treasurer
UNITED WORLD LIFE INSURANCE COMPANY
By: /s/ RODNEY P. WALKER
----------------------------------------------
Name: Rodney P. Walker
Title: Authorized Signer
FIRST COLONY LIFE INSURANCE COMPANY
By: /s/ J. ALDEN BUTLER
----------------------------------------------
Name: J. Alden Butler
Title: Senior Vice President
-55-
<PAGE> 61
SCHEDULE I
----------
<TABLE>
<CAPTION>
Principal
Amount of Notes
Name of Purchasers to be Purchased
- ------------------ ---------------
<S> <C>
A. THE PRUDENTIAL INSURANCE COMPANY $50,000,000
OF AMERICA
Note Denomination(s): $50,000,000
1. All payments on account of Notes held by such purchaser shall
be made by wire transfer of immediately available funds for
credit to:
Account No. 050-54-526
Morgan Guaranty Trust Company of New York
23 Wall Street
New York, New York 10015
(ABA No.: 021-000-238)
Each such wire transfer shall set forth the name of the
Company, a reference to "6.73% Senior Notes due December 1,
2008, Security No. !INV4622!", and the due date and
application (as among principal, interest and the Special
Premium, if any) of the
payment being made.
2. Address for all notices relating to payments:
The Prudential Insurance Company of America
c/o The Prudential Capital Group
Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102-4077
Attention: Manager, Private Placement Accounting
</TABLE>
<PAGE> 62
<TABLE>
<S> <C>
3. Address for all other communications and notices:
The Prudential Insurance Company of America
c/o The Prudential Capital Group
1201 Elm Street, Suite 4900
Dallas, Texas 75270
Attention: Managing Director
4. Recipient of telephonic prepayment notices:
Manager, Private Placement Accounting
(201) 802-6429
5. Tax Identification Number: 22-1211670
B. CONNECTICUT GENERAL LIFE $16,000,000
INSURANCE COMPANY
(Note(s) to be registered in the name of CIG & CO.)
Note Denomination(s): $7,800,000
$5,200,000
$3,000,000
1. All payments on account of Notes held by such purchaser shall
be made by wire transfer of immediately available funds for
credit to:
FED ABA #021000021 CHASE
NYC/CTR/BNF = CIGNA PRIVATE
PLACEMENTS/AC = 9009001802
OBI = [ISSUE NAME, PRIVATE PLACEMENT NUMBER, DESCRIPTION OF
SECURITY WITH RATE AND MATURITY, THE AMOUNT OF INTEREST AND/OR
PRINCIPAL, THE AMOUNT OF ANY PREPAYMENT, THE PAYABLE DATE, THE
ORIGINATOR'S CONTACT NAME AND TELEPHONE NUMBER]
</TABLE>
-2-
<PAGE> 63
<TABLE>
<S> <C>
Together with a notice of each payment to:
Chase Manhattan Bank, N.A.
Private Placement Servicing
P.O. Box 1508, Bowling Green Station
New York, New York 10081
Attention: CIGNA Private Placements
Fax: 212-552-3107/1005
2. Address for all notices relating to payments:
CIG & CO.
c/o CIGNA Investments, Inc.
Hartford, CT 06152*
Attention: Securities Accounting Department (S-206)
CIG & CO.
c/o CIGNA Investments, Inc.
Hartford, CT 06152*
Attention: Private Securities Division (S-307)
* For notices sent by overnight courier, express mail
or messenger, substitute "900 Cottage Grove Road,
Bloomfield, CT 06002" in place of "Hartford, CT
06152."
3. Address for all other communications and notices:
CIG & CO.
c/o CIGNA Investments, Inc.
Hartford, CT 06152*
Attention: Private Securities Division (S-307)
* For notices sent by overnight courier, express mail
or messenger, substitute "900 Cottage Grove Road,
Bloomfield, CT 06002" in place of "Hartford, CT
06152."
4. Recipient of telephonic prepayment notices:
None
</TABLE>
-3-
<PAGE> 64
<TABLE>
<S> <C>
5. Tax Identification Number: 13-3574027
C. CONNECTICUT GENERAL LIFE INSURANCE COMPANY
ON BEHALF OF ONE OR MORE SEPARATE ACCOUNTS $ 1,000,000
(Note(s) to be registered in the name of CIG & CO.)
Note Denomination(s): $1,000,000
1. All payments on account of Notes held by such purchaser shall
be made by wire transfer of immediately available funds for
credit to:
FED ABA #021000021 CHASE
NYC/CTR/BNF = CIGNA PRIVATE
PLACEMENTS/AC = 9009001802
OBI = [ISSUE NAME, PRIVATE PLACEMENT NUMBER, DESCRIPTION OF
SECURITY WITH RATE AND MATURITY, THE AMOUNT OF INTEREST AND/OR
PRINCIPAL, THE AMOUNT OF ANY PREPAYMENT, THE PAYABLE DATE, THE
ORIGINATOR'S CONTACT NAME AND TELEPHONE NUMBER]
Together with a notice of each payment to:
Chase Manhattan Bank, N.A.
Private Placement Servicing
P.O. Box 1508, Bowling Green Station
New York, New York 10081
Attention: CIGNA Private Placements
Fax: 212-552-3107/1005
2. Address for all notices relating to payments:
CIG & CO.
c/o CIGNA Investments, Inc.
Hartford, CT 06152*
Attention: Securities Accounting Department (S-206)
</TABLE>
-4-
<PAGE> 65
<TABLE>
<S> <C>
CIG & CO.
c/o CIGNA Investments, Inc.
Hartford, CT 06152*
Attention: Private Securities Division (S-307)
* For notices sent by overnight courier, express mail
or messenger, substitute "900 Cottage Grove Road,
Bloomfield, CT 06002" in place of "Hartford, CT
06152."
3. Address for all other communications and notices:
CIG & CO.
c/o CIGNA Investments, Inc.
Hartford, CT 06152*
Attention: Private Securities Division (S-307)
* For notices sent by overnight courier, express mail
or messenger, substitute "900 Cottage Grove Road,
Bloomfield, CT 06002" in place of "Hartford, CT
06152."
4. Recipient of telephonic prepayment notices:
None
5. Tax Identification Number: 13-3574027
D. LIFE INSURANCE COMPANY OF $ 3,000,000
NORTH AMERICA
(Note(s) to be registered in the name of ZANDE & CO.)
Note Denomination(s): $3,000,000
1. All payments on account of Notes held by such purchaser shall
be made by wire transfer of immediately available funds for
credit to:
Morgan Guaranty Trust Company of New York
ABA #0210-0023-8
BTR/BNF = CUSTZ/AC-99999024/Z
ATTN: CUST. SVC. Life Insurance
Company of North America
</TABLE>
-5-
<PAGE> 66
<TABLE>
<S> <C>
a/c 35001
Providing sufficient information to identify the source of the
transfer and the amount of interest or principal.
2. Address for all notices relating to payments:
ZANDE & CO.
c/o CIGNA Investments, Inc.
Hartford, CT 06152*
Attention: Securities Accounting Department (S-206)
ZANDE & CO.
c/o CIGNA Investments, Inc.
Hartford, CT 06152*
Attention: Private Securities Division (S-307)
* For notices sent by overnight courier, express mail
or messenger, substitute "900 Cottage Grove Road,
Bloomfield, CT 06002" in place of "Hartford, CT
06152."
3. Address for all other communications and notices:
ZANDE & CO.
c/o CIGNA Investments, Inc.
Hartford, CT 06152*
Attention: Private Securities Division (S-307)
* For notices sent by overnight courier, express mail
or messenger, substitute "900 Cottage Grove Road,
Bloomfield, CT 06002" in place of "Hartford, CT
06152."
4. Recipient of telephonic prepayment notices:
None
5. Tax Identification Number: 13-6020804
</TABLE>
-6-
<PAGE> 67
<TABLE>
<S> <C>
E. UNITED OF OMAHA LIFE INSURANCE COMPANY $ 8,500,000
Note Denomination(s): $8,500,000
1. All payments on account of Notes held by such purchaser shall
be made by wire transfer of immediately available funds for
credit to:
FirsTier Bank - Omaha
ABA No.: 1040-0002-9
17th & Farnam Streets
Omaha, Nebraska 68102
For credit to:
United of Omaha Life Insurance Company
Account #144-7-076
For payment on:
Interest Amount:
Principal Amount:
2. Address for all notices relating to payments:
United of Omaha Life Insurance Company
Mutual of Omaha Plaza
Omaha, Nebraska 68175
Attention: Investment/Securities Accounting
3. Address for all other communications and notices:
United of Omaha Life Insurance Company
Mutual of Omaha Plaza
Omaha, Nebraska 68175
Attention: Investment Division
4. Recipient of telephonic prepayment notices:
None
5. Tax Identification Number: 47-0322111
</TABLE>
-7-
<PAGE> 68
<TABLE>
<S> <C>
F. MUTUAL OF OMAHA INSURANCE COMPANY $ 5,000,000
Note Denomination(s): $5,000,000
1. All payments on account of Notes held by such purchaser shall
be made by wire transfer of immediately available funds for
credit to:
First National Bank Omaha
ABA No.: 1040-00016
16th & Dodge Street
Omaha, Nebraska 68102
For credit to:
Mutual of Omaha Insurance Company
Account #26-743587
For payment on:
Interest Amount:
Principal Amount:
2. Address for all notices relating to payments:
Mutual of Omaha Insurance Company
Mutual of Omaha Plaza
Omaha, Nebraska 68175
Attention: Investments/Securities Accounting
3. Address for all other communications and notices:
Mutual of Omaha Insurance Company
Mutual of Omaha Plaza
Omaha, Nebraska 68175
Attention: Investment Division
4. Recipient of telephonic prepayment notices:
None
5. Tax Identification Number: 47-0246511
</TABLE>
-8-
<PAGE> 69
<TABLE>
<S> <C>
G. COMPANION LIFE INSURANCE COMPANY $ 1,000,000
(Note(s) to be registered in the name of HARE & CO.)
Note Denomination(s): $1,000,000
1. All payments on account of Notes held by such purchaser shall
be made by wire transfer of immediately available funds for
credit to:
Companion Life Insurance Company
c/o The Bank of New York
ABA #02100018
Account #111566 Income Collection
Attention: P&I Department
For payment on:
-----------------
Interest Amount:
-----------------
Principal Amount:
-----------------
Payable Date:
-----------------
CLICO
2. Address for all notices relating to payments:
Companion Life Insurance Company
Mutual of Omaha Plaza
Omaha, Nebraska 68175
Attention: Investment Securities Accounting
With duplicate notice to:
Companion Life Insurance Company
401 Theodore Fremd Avenue
Rye, New York 10580-1493
Attention: Financial Division
3. Address for all other communications and notices:
</TABLE>
-9-
<PAGE> 70
<TABLE>
<S> <C>
Companion Life Insurance Company
Mutual of Omaha Plaza
Omaha, Nebraska 68175
Attention: Investment Division
With duplicate notice to:
Companion Life Insurance Company
401 Theodore Fremd Avenue
Rye, New York 10580-1493
Attention: Financial Division
4. Recipient of telephonic prepayment notices:
None
5. Tax Identification Number: 13-6062916
H. UNITED WORLD LIFE INSURANCE COMPANY $ 500,000
Note Denomination(s): $500,000
1. All payments on account of Notes held by such purchaser shall
be made by wire transfer of immediately available funds for
credit to:
FirsTier Bank - Omaha
ABA No.: 1040-0002-9
17th & Farnam Streets
Omaha, Nebraska 68102
For credit to:
United World Life Insurance Company
Account #016-7-039
For payment on:
-----------------
Interest Amount:
-----------------
Principal Amount:
-----------------
</TABLE>
-10-
<PAGE> 71
<TABLE>
<S> <C>
2. Address for all notices relating to payments:
United World Life Insurance Company
c/o Mutual of Omaha Insurance Company
Mutual of Omaha Plaza
Omaha, Nebraska 68175
Attention: Investment/Securities Accounting
3. Address for all other communications and notices:
United World Life Insurance Company
c/o Mutual of Omaha Insurance Company
Mutual of Omaha Plaza
Omaha, Nebraska 68175
Attention: Investment Division
4. Recipient of telephonic prepayment notices:
None
5. Tax Identification Number: 75-6010770
I. FIRST COLONY LIFE INSURANCE COMPANY $15,000,000
Note Denomination(s): $15,000,000
1. All payments on account of Notes held by such purchaser shall
be made by wire transfer of immediately available funds for
credit to:
Account No. 10765400
Crestar Bank
Richmond, Virginia
ABA No.: 0510-0002-0
Credit - 2111
Attention: Income Processing Unit Number 27955
</TABLE>
-11-
<PAGE> 72
<TABLE>
<S> <C>
Each such wire transfer shall identify each payment as "Lennox
International, Inc., Series 6.73% Senior Promissory Notes, due
December 1, 2008, PPN 52610*AH 6, principal or interest".
2. Address for all notices relating to payments:
First Colony Life Insurance Company
700 Main Street
Lynchburg, Virginia 24504
Attention: Mr. J. Alden Butler
3. Address for all other communications and notices:
First Colony Life Insurance Company
700 Main Street
Lynchburg, Virginia 24504
Attention: Mr. J. Alden Butler
4. Recipient of telephonic prepayment notices:
None
5. Tax Identification Number: 540 596 414
</TABLE>
-12-
<PAGE> 73
EXHIBIT A
LENNOX INTERNATIONAL INC.
6.73% SENIOR PROMISSORY NOTE DUE 2008
Note No. R-
$ December 1, 1993
Private Placement No. 52610* AH 6
FOR VALUE RECEIVED, the undersigned, LENNOX INTERNATIONAL
INC., a corporation organized and existing under the laws of the State of
Delaware (herein called the "Company"), hereby promises to pay to
or registered assigns, the principal sum of
DOLLARS (or so much thereof as shall not
have been prepaid) on December 1, 2008, with interest (computed on the basis of
a 360-day year of twelve 30-day months) on the unpaid principal hereof at the
rate of 6.73% per annum from the date hereof, payable semiannually on June 1 and
December 1 in each year, commencing on June 1, 1994, until said principal shall
have become due and payable, and to pay interest (so computed) at the rate of
8.73% per annum on any overdue principal and premium and, to the extent
permitted by applicable law, on any overdue interest, until the same shall be
paid. Payments of principal, premium, if any, and interest are to be made in
lawful money of the United States of America at the office of Morgan Guaranty
Trust Company of New York, 23 Wall Street, New York, New York 10015, or at such
other place as may be provided pursuant to the Note Purchase Agreements referred
to below.
This Note is one of the 6.73% Senior Promissory Notes due 2008
of the Company (the "Notes") issued pursuant to the nine separate Note Purchase
Agreements, each dated as of December 1, 1993, between the Company and each of
The Prudential Insurance Company of America, Connecticut General Life Insurance
Company, Connecticut General Life Insurance Company, on behalf of one or more
separate accounts, Life Insurance Company of North America, United of Omaha Life
Insurance Company, Mutual of Omaha Insurance Company, Companion Life Insurance
Company, United World Life Insurance Company, and First Colony Life Insurance
Company and is subject thereto and entitled to the benefits thereof. As provided
in said Agreements, this Note is subject to optional prepayments in whole or in
part, in certain cases with a premium, and also to required prepayments, all as
specified in said Agreements.
A-1
<PAGE> 74
Upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and, at the
option of the holder, registered in the name of, the transferee. Prior to due
presentment for registration of transfer, the Company may deem and treat the
Person in whose name this Note is registered as the holder and owner hereof for
the purpose of receiving payments and for all other purposes whatsoever, and the
Company shall not be affected by any notice to the contrary.
Said Agreements provide that by acceptance of this Note the
holder hereof shall be deemed to have agreed to certain obligations of
confidentiality in respect of certain information received by such holder
pursuant to said Agreements.
In case an Event of Default (as defined in said Agreements)
shall occur and be continuing, the principal of this Note may become or be
declared due and payable in the manner and with the effect provided in said
Agreements.
LENNOX INTERNATIONAL INC.
By:
--------------------------------
Clyde Wyant
Executive Vice President,
Chief Financial Officer
and Treasurer
A-2
<PAGE> 75
EXHIBIT B
LENNOX INTERNATIONAL INC. SUBSIDIARIES
SEPTEMBER 30, 1993
<TABLE>
<CAPTION>
Location of
Jurisdiction No. of Substantial
of Shares Operating Restricted or
Name Ownership Incorporation Outstanding Assets Unrestricted
---- --------- ------------- ----------- ------ ------------
<S> <C> <C> <C> <C> <C>
(1) Lennox Industries Inc. Wholly-owned Iowa 994,394 Common United States Restricted
(a) Products Acceptance
Corp. Wholly-owned Iowa 3,500 Common N/A Restricted
(b) Lennox Industries
(Canada) Ltd. Wholly-owned Canada 5,250 Pref. Ontario Unrestricted
36,210 Common
(c) Lennox Industries Wholly-owned United 300,000 Pref. United Kingdom Unrestricted
Ltd. Kingdom 13,900 Ordinary
(i) Environheat Wholly-owned United
Limited Kingdom 32,765 Ordinary N/A Unrestricted
(d) Lennox Southwest
Leasing, Inc. Wholly-owned Iowa 1,000 Common N/A Restricted
(e) Lennox Australia
Pty. Ltd. Wholly-owned Australia 500,000 Common Australia Unrestricted
(2) Heatcraft, Inc. Wholly-owned Mississippi 20 Common United States Restricted
(3) Armstrong Air
Conditioning Inc. Wholly-owned Ohio 1,030 Common United States Restricted
(4) Lennox Foreign Sales Wholly-owned U.S. Virgin 10 Common N/A Unrestricted
Corp. Islands
(5) Lennox Commercial
Realty Inc. Wholly-owned Iowa 10 Common United States Restricted
</TABLE>
B-1
<PAGE> 76
EXHIBIT C
LENNOX INTERNATIONAL INC.
DEBT
BEFORE AND AFTER PAYMENTS DUE DECEMBER 1, 1993
<TABLE>
<CAPTION>
Before Payments After Payments
A. LENNOX INTERNATIONAL INC. Due 12/01/93 Due 12/01/93
------------------------- ------------ ------------
<S> <C> <C>
(1) Agreement of Assumption and Restatement dated as of December 1, 1991
between Lennox International Inc. and the Noteholders identified at the
end thereof, pursuant to which Lennox International delivered its:
9.55% Series B Promissory Notes due 1996 $ 6,000,000 $ -0-
11.05% Series C Promissory Notes due 1997 25,000,000 -0-
9.60% Series D Promissory Notes due 1998 35,000,000 25,000,000
10.15% Series E Promissory Notes due 1998 7,142,858 5,142,858
9.53% Series F Promissory Notes due 2001 21,000,000 21,000,000
9.50% Series G Promissory Notes due 2001 31,000,000 31,000,000
9.69% Series H Promissory Notes due 2003 54,000,000 49,100,000
----------- -----------
$179,142,858 $131,242,858
(2) Revolving Credit Agreement dated as of
December 1, 1991 among Lennox International
Inc. and the Banks named on the signature pages
thereof and The Northern Trust Company, as
Agent
Total Outstanding $ -0- $ -0-
------------ -----------
(3) Note Purchase Agreement dated as of December 1, 1993 among Lennox
International Inc. and the Noteholders identified at the end thereof,
pursuant to which Lennox International delivered its 6.73% Senior
Promissory Notes
due 2008 $ -0- $100,000,000
------------ ------------
</TABLE>
C-1
<PAGE> 77
<TABLE>
<S> <C> <C>
B. LENNOX INDUSTRIES INC.
(1) Promissory Note dated December 22, 1992
issued to Texas Housing Opportunity Fund, Ltd.
$ 539,811 $ 539,811
------------ -----------
C. LENNOX COMMERCIAL REALTY, INC. ("LCRI")
(1) 11.1% Mortgage Note Agreement with Texas
Commerce Bank, N.A. due January 1, 2000,
secured by mortgage on headquarters building
and an assignment of the Lease between LCRI
and Lennox Industries $ 10,640,266 $ 10,640,266
------------ ------------
TOTAL OUTSTANDING DEBT $190,322,935 $242,422,935
============ ============
</TABLE>
C-2
<PAGE> 78
EXHIBIT D
LENNOX INTERNATIONAL INC.
INVESTMENTS
DECEMBER 1, 1993
<TABLE>
<S> <C> <C>
A. Investments in Wholly-Owned Subsidiaries:
See Exhibit B
B. Investments in Joint Venture:
Friga-Bohn S.A. (France) - stock, at cost
(20% of outstanding stock held by
Heatcraft Inc.) $4,000,000
C. Investments in Adjustable Rate
Preferred Stock:
Sara Lee Auction Preferred Stock,
Series C* $5,000,000
</TABLE>
- ---------------
* The Company expects to sell this preferred stock on December 1, 1993.
D-1
<PAGE> 79
EXHIBIT E
FORM OF OPINION OF COMPANY'S COUNSEL
December 1, 1993
To Each Note Holder
Named on the Attached Schedule I
Lennox International Inc.
6.73% Senior Promissory Notes due 2008
Ladies and Gentlemen:
I am an Assistant General Counsel for Lennox International
Inc., a Delaware corporation (the "Company"), and as such have acted as counsel
to the Company in connection with (i) the issuance and sale by the Company of
$100,000,000 in aggregate principal amount of its 6.73% Senior Promissory Notes
due 2008 (the "Notes"), pursuant to the nine separate Note Purchase Agreements,
each dated as of December 1, 1993 (the "Agreements"), between the Company and
each of you, respectively, and (ii) the purchase by each of you today of the
aggregate principal amount of Notes set forth opposite your name in Schedule I
to the Agreements. This opinion is being furnished to you pursuant to Section
3.2 of the Agreements with the understanding that it will be relied upon by you
in connection with the consummation of the transactions contemplated by the
Agreements. Capitalized terms used herein without definition have the respective
meanings attributed thereto in the Agreements.
In so acting, I have participated in the preparation of the
Agreements and the Notes being delivered to you today. As to various factual
matters relevant to this opinion, I have made such inquiries as I have deemed
appropriate of other employees of the Company and its Subsidiaries and I have
relied upon the information given to me by such employees. I have also examined
and relied upon the representations and warranties as to factual matters
contained in or made pursuant to the Agreements and have examined and relied
upon the originals, or copies certified or otherwise identified to my
satisfaction, of such records, documents, certificates and other instruments as
in my judgment are necessary or appropriate to enable me to render the opinion
expressed below. In such examination, I have assumed the genuineness of all
signatures (other than signatures of officers of the Company), the due
authorization, execution and delivery of the Agreements by parties thereto other
than the Company, the authenticity of all documents submitted to me as originals
(other than the Agreements and the Notes), the conformity to original documents
of all documents submitted to me as photostatic or certified copies and the
authenticity of the originals of such latter documents.
E-1
<PAGE> 80
Based upon the foregoing, I am of the opinion that:
1. Each of the Company and Lennox Industries Inc., Heatcraft
Inc., and Armstrong Air Conditioning Inc. (the latter three together, the
"Primary Operating Subsidiaries") is a corporation duly incorporated, validly
existing and in good standing under the laws of the state of its incorporation
and has the corporate power and authority to own or hold under lease the
property it purports to own or hold under lease, and to transact the business it
transacts and proposes to transact, and, in the case of the Company, to execute
and deliver the Agreements and the Notes and to perform the provisions of the
Agreements and the Notes.
2. Each of the Company and the Primary Operating Subsidiaries
is duly qualified as a foreign corporation and in good standing in each
jurisdiction (other than the jurisdiction of its incorporation) in which the
character of the properties owned or held under lease by it or the nature of the
business transacted by it requires such qualification and in which the failure
to so qualify would materially affect adversely the business, operations or
properties of the Company and its Subsidiaries taken as a whole, or the ability
of the Company to perform the Agreements and discharge its obligations on the
Notes.
3. The execution, delivery and performance by the Company of
the Agreements and the Notes have been duly authorized by all necessary
corporate action on the part of the Company (no action of shareholders being
required therefor) and the Agreements and the Notes purchased by and delivered
to you today have been duly executed and delivered by the Company.
4. The Agreements and the Notes constitute legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, except that such enforceability may be
limited by (a) general principles of equity (regardless of whether relief is
sought in an action at law or in equity) and (b) applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws from time to time in
effect affecting enforcement of creditors' rights generally.
5. There are no actions, suits or proceedings pending or, to
the best of my knowledge, threatened against or affecting the Company or any
Subsidiary or any of their respective properties in any court or before any
arbitrator of any kind or before or by any Governmental Body (except actions,
suits or proceedings of the character normally incident to the kind of business
conducted by the Company and its Subsidiaries which in the aggregate, if
adversely determined, would not materially affect adversely the business,
operations or properties of the Company and its Subsidiaries taken as a whole,
or the ability of the Company to perform the Agreements or discharge its
obligations on the Notes).
6. The execution and delivery by the Company of the Agreements
and the Notes, the consummation of the transactions contemplated by the
Agreements and the performance of the terms and provisions of the Agreements and
the Notes will not result in any breach of, or
E-2
<PAGE> 81
constitute a default under, or result in the creation of any Lien in respect of
any property of the Company under its certificate of incorporation or by-laws or
any indenture, mortgage, deed of trust, bank loan or credit agreement, or other
material agreement or instrument to which the Company is a party or by which the
Company or any of its properties may be bound or affected, or violate any
existing law, governmental rule or regulation or any Order of any court,
arbitrator or Governmental Body applicable to the Company.
7. No consent, approval or authorization of, or registration,
filing or declaration with, any Governmental Body is required for the valid
execution and delivery or for the performance by the Company of the Agreements
or the Notes.
8. The offer, issue, sale and delivery of the Notes purchased
by and delivered to you today, under the circumstances contemplated by the
Agreements, constitute exempted transactions under the Securities Act, and
neither the registration of such Notes thereunder nor the qualification of an
indenture under the Trust Indenture Act of 1939, as amended, is required in
connection with such offer, issue, sale and delivery of the Notes.
9. The issuance and sale of the Notes as contemplated by the
Agreements will not involve any violations of Regulation G, T or X or any other
rule or regulation of the Board of Governors of the Federal Reserve System
pursuant to Section 7 of the Exchange Act.
10. The Company is not an investment company, or a person
directly or indirectly controlled by or acting on behalf of an investment
company, within the meaning of the Investment Company Act of 1940, as amended.
11. The Company is not a "holding company" or a "subsidiary
company" of a "holding company", or an "affiliate" of a "holding company" or of
a "subsidiary company" of a "holding company," as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended.
I express no opinion as to any laws other than the Federal
laws of the United States of America, the General Corporation Law of the State
of Delaware and the laws of the State of New York.
Very truly yours,
Anne W. Teeling
E-3
<PAGE> 82
SCHEDULE I TO EXHIBIT E
Name and Address of Purchasers
- ------------------------------
The Prudential Insurance Company
of America
1201 Elm Street, Suite 4900
Dallas, TX 75270
Connecticut General Life Insurance Company
c/o CIGNA Investments, Inc.
Hartford, CT 06152
Attention: Private Securities Division (S-307)
Connecticut General Life Insurance Company,
on behalf of one or more separate accounts
c/o CIGNA Investments, Inc.
Hartford, CT 06152
Attention: Private Securities Division (S-307)
Life Insurance Company of North America
c/o CIGNA Investments, Inc.
Hartford, CT 06152
Attention: Private Securities Division (S-307)
United of Omaha Life Insurance Company
Attention: Investment Division
Mutual of Omaha Plaza
Omaha, Nebraska 68175
Mutual of Omaha Insurance Company
Attention: Investment Division
Mutual of Omaha Plaza
Omaha, Nebraska 68175
Companion Life Insurance Company
Attention: Investment Division
Mutual of Omaha Plaza
Omaha, Nebraska 68175
<PAGE> 83
United World Life Insurance Company
c/o Mutual of Omaha Insurance Company
Attention: Investment Division
Mutual of Omaha Plaza
Omaha, Nebraska 68175
First Colony Life Insurance Company
700 Main Street
Lynchburg, VA 24504
<PAGE> 84
EXHIBIT F
FORM OF SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT, dated as of __, (this
"Agreement"), is entered into by Lennox International Inc., a Delaware
corporation (the "Company"), and [__________, a __________ corporation] (the
"Subsidiary").
W I T N E S S E T H
WHEREAS, the Company has entered into the nine separate
Agreements of Assumption and Restatement, each dated as of December 1, 1991 (the
"Assumption Agreements"), between the Company and each of Teachers Insurance and
Annuity Association of America, The Travelers Insurance Company, The Travelers
Indemnity Company, The Travelers Life and Annuity Company, The Charter Oak Fire
Insurance Company, Connecticut General Life Insurance Company, INA Life
Insurance Company of New York, Tandem Insurance Group, Inc. and The Phoenix
Insurance Company (the "Holders") pursuant to which the Company's Series B-H
Senior Promissory Notes due 1996-2003 (the "Notes") were delivered;
WHEREAS, the Subsidiary is a subsidiary of the Company; and
WHEREAS, the Company and the Subsidiary desire to provide for
the subordination described herein, for the benefit of the Holders and each
holder from time to time of Senior Debt;
NOW THEREFORE, in consideration of the mutual covenants
contained herein, the parties hereto agree for the benefit of the Holders and
each holder from time to time of Senior Debt:
1. Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
Debt: shall have the meaning given such term in the Assumption
Agreements.
Senior Debt: shall mean
(i) all principal of, premium (if any) and interest on the following
Senior Promissory Notes outstanding pursuant to the Assumption
Agreements:
F-1
<PAGE> 85
9.55% Series B Senior Promissory Notes due 1996,
11.05% Series C Senior Promissory Notes due 1997,
9.60% Series D Senior Promissory Notes due 1998,
10.15% Series E Senior Promissory Notes due 1998,
9.53% Series F Senior Promissory Notes due 2001,
9.50% Series G Senior Promissory Notes due 2001, and
9.69% Series H Senior Promissory Notes due 2003,
as the same may be from time to time amended, and any modification,
extension, renewal, refunding or refinancing of any of the foregoing,
and all other amounts payable under the Assumption Agreements;
(ii) all principal of, premium (if any) and interest on the Commitment
Notes and the Offered Rate Notes outstanding from time to time pursuant
to the Revolving Credit Agreement, dated as of December 4, 1991, among
the Company, the banks named therein and The Northern Trust Company, as
agent as the same may be from time to time amended, and any
modification, extension, renewal, refunding or refinancing of any of
the foregoing, and all other amounts payable under such Revolving
Credit Agreement;
(iii) all principal of, premium (if any) and interest on the 6.73%
Senior Promissory Notes outstanding pursuant to the nine separate Note
Purchase Agreements dated December 1, 1993 between the Company and each
of The Prudential Insurance Company of America, Connecticut General
Life Insurance Company, Connecticut General Life Insurance Company, on
behalf of one or more separate accounts, Life Insurance Company of
North America, United of Omaha Life Insurance Company, Mutual of Omaha
Insurance Company, Companion Life Insurance Company, United World Life
Insurance Company and First Colony Life Insurance Company, as the same
may be from time to time amended, and any modification, extension,
renewal, refunding or refinancing of any of the foregoing, and all
other amounts payable under such Note Purchase Agreements; and
(iv) for the purposes of Sections 4 and 5 hereof, any other
indebtedness, not prohibited by Section 7.4 of the Assumption
Agreements, designated by the Company or the Subsidiary as "Senior
Debt" in any other subordination agreement.
Subordinated Debt: shall mean all Debt at any time owing by
the Company to the Subsidiary.
2. Subordination. Payment of principal, premium, if any, and
interest in respect of the Subordinated Debt shall be junior and subordinate and
subject in right of payment to all Senior Debt as provided in this Agreement.
The Company and the Subsidiary will mark their respective books of account to
show that the Subordinated Debt is subordinated to Senior Debt in the manner and
to the extent set forth in this Agreement.
F-2
<PAGE> 86
3. Payments on Account of Subordinated Debt. Unless and until
all Senior Debt shall have been paid in full, the Company will not make, and the
Subsidiary will not demand, accept or receive, any direct or indirect payment
(in cash, property, by set-off or otherwise) of or on account of any
Subordinated Debt and no such payment shall be due, provided that if and so long
as no Default or Event of Default (as defined in the Assumption Agreements)
shall exist or would exist after giving effect to such payment, nothing
contained in this Section 3 shall prevent the Company from making, or the
Subsidiary from accepting and receiving, any payment of interest or of principal
on the Subordinated Debt. Unless and until all Senior Debt shall have been paid
in full, the Subsidiary will not declare any part of the Subordinated Debt to be
due before its stated maturity, or commence any proceeding against the Company,
or join with any creditor in any such proceeding, under any bankruptcy,
reorganization, readjustment of debt, arrangement of debt, receivership,
liquidation or insolvency law or statute of the Federal or any state government,
unless the holders of Senior Debt shall also join in bringing such proceeding.
4. Insolvency, etc. In the event of (i) any insolvency or
bankruptcy proceeding, or any receivership, liquidation, reorganization or other
similar proceeding in connection therewith, relative to the Company or its
creditors or property, or (ii) any proceeding for voluntary liquidation,
dissolution or other winding up of the Company, whether or not involving
insolvency or bankruptcy, or (iii) any assignment for the benefit of creditors
of the Company, or (iv) any distribution, division, marshalling or application
of any of the properties or assets of the Company or the proceeds thereof, to
creditors, voluntary or involuntary, and whether or not involving legal
proceedings, then and in any such event:
4.1. all Senior Debt (including any interest thereon accruing
after the commencement of such proceedings) shall first be paid in full
before any payment or distribution of any character, whether in cash,
securities or other property, shall be made by the Company in respect
of any Subordinated Debt;
4.2. all principal of, premium (if any) and interest on
Subordinated Debt shall forthwith (notwithstanding the terms of Section
3) become due and payable, and any payment or distribution of any
character, whether in cash, securities or other property, which would
otherwise (but for the terms hereof) be payable or deliverable by the
Company in respect of any Subordinated Debt (including any payment or
distribution in respect of any Subordinated Debt by reason of any other
indebtedness of the Company being subordinated to the Subordinated
Debt) and any distribution of cash, property, stock or obligations
which are issued pursuant to any order or decree of any court, or
pursuant to reorganization, dissolution or liquidation proceedings
(whether or not purporting to give effect to the subordination of the
Subordinated Debt to the Senior Debt), shall be paid or delivered
directly to the holders of Senior Debt at the time outstanding (or
their respective representatives), ratably according to the respective
aggregate amounts remaining unpaid thereon, until all Senior Debt shall
have been paid in full, and the Subsidiary irrevocably authorizes,
empowers and directs all receivers, trustees, liquidators, conservators
and others having authority in the premises to effect all such payments
and deliveries;
F-3
<PAGE> 87
4.3. the Subsidiary irrevocably authorizes and empowers
(without imposing any obligation on) each holder of Senior Debt at the
time outstanding and such holder's representatives to demand, sue for,
collect and receive such holder's ratable share of all such payments
and distributions and to receipt therefor, and to file and prove all
claims therefor and take all such other action (including the right to
vote such Senior Debt holder's ratable share of the Subordinated Debt)
in the name of the Subsidiary or otherwise, as such Senior Debt holder
or such holder's representatives may determine to be necessary or
appropriate for the enforcement of this Section 4; and
4.4. the Subsidiary shall execute and deliver to each holder
of Senior Debt and such holder's representatives all such further
instruments confirming the above authorization, and all such powers of
attorney, proofs of claim, assignments of claim and other instruments,
and shall take all such other action, as may be reasonably requested by
such holder or such holder's representatives in order to enable such
holder to enforce all claims upon or in respect of such holder's
ratable share of the Subordinated Debt.
5. Payments and Distributions Received. If the Subsidiary
shall at any time receive any payment or distribution of any character on any
Subordinated Debt (whether in cash, securities or other property) or any
security for any Subordinated Debt in contravention of any of the terms hereof
and before all Senior Debt shall have been paid in full, such payment or
distribution or security shall be held in trust for the benefit of, and shall be
paid over or delivered and transferred to, the holders of the Senior Debt at the
time outstanding (or their respective representatives) for application to the
payment of all Senior Debt remaining unpaid, ratably according to the respective
aggregate amounts remaining unpaid thereon, to the extent necessary to pay all
such Senior Debt in full. In the event of the failure of the Subsidiary to
endorse or assign any such payment or distribution or security, each holder of
Senior Debt and each such holder's representative are hereby irrevocably
authorized to endorse or assign the same.
6. Excess Senior Debt Payment, Subrogation, etc. If cash,
securities or other property otherwise payable or deliverable to the Subsidiary
shall have been applied, pursuant to Section 4 or 5, to the payment of Senior
Debt and all Senior Debt shall have been paid in full, then and in such case,
the Subsidiary (i) shall be entitled to receive from the holders of the Senior
Debt at the time outstanding any payments or distributions received by such
Senior Debt holders in excess of the amount sufficient to pay all Senior Debt in
full, and (ii) shall be subrogated to any rights of the holders of Senior Debt
to receive all further payments or distributions applicable to the Senior Debt,
until all principal of, premium (if any) and interest on the Subordinated Debt
shall have been paid in full. No payments or distributions received by the
Subsidiary of cash, securities or other property, which otherwise would be paid
or distributed to the holders of Senior Debt, shall, as between the Company and
its creditors (other than the holders of the Senior Debt), on the one hand, and
the Subsidiary, on the other hand, be deemed to be a payment by the Company on
account of the Subordinated Debt.
F-4
<PAGE> 88
7. No Security. So long as any of the Senior Debt shall not
have been paid in full, the Company shall not, nor shall it permit any of its
other subsidiaries to, give, and the Subsidiary shall not demand, accept or
receive, any security, direct or indirect, for any Subordinated Debt.
8. Obligations Not Impaired. Nothing contained in this
Agreement shall impair, as between the Company and the Subsidiary, the
obligation of the Company, which is absolute and unconditional, to pay to the
Subsidiary the principal thereof and the premium, if any, and interest on
Subordinated Debt, all subject to the rights of the holders of Senior Debt under
this Agreement.
9. Subordination Not Affected, etc. The terms of this
Agreement, the subordination effected thereby and the rights of the holders of
Senior Debt, shall not be affected by (i) any sale, assignment or other transfer
of, or any amendment of or addition or supplement to any Senior Debt or any
instrument or agreement relating thereto; (ii) any exercise or non-exercise of
any right, power or remedy under or in respect of any Senior Debt or any
instrument or agreement relating thereto; (iii) any sale, exchange, release or
other transaction affecting all or any part of any property at any time pledged
or mortgaged to secure, or however securing, Senior Debt; (iv) any waiver,
consent, release, indulgence, extension, renewal, modification, delay or other
action, inaction or omission, in respect of any Senior Debt or any instrument or
agreement relating thereto; or (v) any application by any holder or holders of
Senior Debt thereof of any amount or sum (by whomsoever paid or however
realized) to Senior Debt, whether or not the Subsidiary shall have had notice or
knowledge of any of the foregoing.
10. Payment in Full. For all purposes of this Agreement,
Senior Debt shall not be deemed to have been paid in full unless the holders
thereof (or their duly authorized representatives) shall have received cash or
readily marketable securities, taken at their then market value, equal to the
amount of Senior Debt at the time outstanding. This Agreement shall continue to
be effective, or be reinstated, as the case may be, to the extent that payment
of any of the Senior Debt is at any time rescinded or must otherwise be restored
or returned by any holder of Senior Debt upon the occurrence of any event
described in Section 4, or otherwise, all as though such payment had not been
made.
11. Subordination a Condition to Consent to Holders of Senior
Debt to Debt. The Subsidiary, by its acceptance hereof, agrees that the consent
of each of the holders of the Senior Debt to the incurrence and/or maintenance
outstanding by the Company of such indebtedness has been given in reliance upon
the subordination of such indebtedness to the Senior Debt. The provisions of
this Agreement are intended for the benefit of, and shall be directly
enforceable by, the holders of Senior Debt.
12. Amendments, Waivers, etc. This Agreement may not be
changed or waived except with the prior written consent of the holders of
66-2/3% in aggregate principal amount of the Notes at the time outstanding.
F-5
<PAGE> 89
13. Law Governing. This Agreement shall be governed by and
construed in accordance with the substantive laws of the State of New York
without reference to the conflicts of law rules thereof.
14. Headings, etc. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of the
terms hereof. Unless otherwise specified, any reference in this Agreement to a
particular section or other subdivision shall be considered a reference to that
section or other subdivision of this Agreement.
15. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as of the date first written above.
LENNOX INTERNATIONAL INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
[SUBSIDIARY]
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
F-6
<PAGE> 90
EXHIBIT G
[LETTERHEAD OF LENNOX INTERNATIONAL INC.]
December 1, 1993
The Prudential Insurance Company of America
Prudential Capital Group
1201 Elm Street, Suite 4900
Dallas, TX 75270
Connecticut General Life Insurance Company
c/o CIGNA Investments, Inc.
Hartford, CT 06152
Attention: Private Securities Division (S-307)
Connecticut General Life Insurance Company,
on behalf of one or more separate accounts
c/o CIGNA Investments, Inc.
Hartford, CT 06152
Attention: Private Securities Division (S-307)
Life Insurance Company of North America
c/o CIGNA Investments, Inc.
Hartford, CT 06152
Attention: Private Securities Division (S-307)
United of Omaha Life Insurance Company
Mutual of Omaha Plaza
Omaha, NE 68175
Mutual of Omaha Insurance Company
Mutual of Omaha Plaza
Omaha, NE 68175
G-1
<PAGE> 91
Companion Life Insurance Company
Mutual of Omaha Plaza
Omaha, NE 68175
United World Life Insurance Company
c/o Mutual of Omaha Insurance Company
Mutual of Omaha Plaza
Omaha, NE 68175
First Colony Life Insurance Company
700 Main Street
Lynchburg, VA 24504
6.73% Senior Promissory Notes of Lennox International Inc. due 2008
Ladies and Gentlemen:
Reference is made to the nine separate Note Purchase
Agreements, dated as of December 1, 1993 (the "Note Agreements"), between Lennox
International Inc. (the "Company") and each of The Prudential Insurance Company
of America, Connecticut General Life Insurance Company, Connecticut General Life
Insurance Company, on behalf of one or more separate accounts, Life Insurance
Company of North America, United of Omaha Life Insurance Company, Mutual of
Omaha Insurance Company, Companion Life Insurance Company, United World Life
Insurance Company, and First Colony Life Insurance Company (collectively, and
together with their respective successors and assigns, the "Holders").
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Note Agreements.
To induce the Holders and the Company to enter into the Note
Agreements and in consideration thereof, the Holders and the Company hereby
agree as follows:
(a) Amendment to Section 7.6 of the Note Agreements. Each of
the Holders agrees that, in the event (a) an amendment of (i) Section 7.6 of all
of the nine separate Agreements of Assumption and Restatement, dated as of
December 1, 1991, among the Company and each of the Noteholders named therein
(the "Assumption Agreements") and (ii) any correlative terms in the Revolving
Credit Agreement, dated as of December 4, 1991, among the Company, the Banks
named therein, and The Northern Trust Company, as Agent (the "Revolving Credit
Agreement"), whether by incorporation therein of Section 7.6 of the Assumption
Agreements or otherwise, is effected so that the text thereof conforms to the
text set forth in Annex 1 hereto, or (b) such provisions of the Assumption
Agreements and the Revolving Credit Agreement cease to remain in effect, then
upon receipt by the holders of two-thirds of the aggregate principal amount of
the Notes outstanding at such time (the "Requisite Holders") of evidence
satisfactory to such holders of execution and delivery of such amendment or of
such cessation of effect of said provisions, as the case may be, the terms of
the Note Agreements shall, without any further action on the part
G-2
<PAGE> 92
of the Company or any of the Holders, be deemed to be amended automatically so
that the text set forth in Annex 1 hereto is substituted for Section 7.6 of each
of the Note Agreements.
(b) Amendment to Section 7.7 of the Note Agreements. Each of
the Holders agrees that, in the event (a) an amendment of (i) Section 7.7 of all
of the Assumption Agreements and (ii) any correlative terms in the Revolving
Credit Agreement, whether by incorporation therein of Section 7.7 of the
Assumption Agreements or otherwise, is effected so that the text thereof
conforms to the text set forth in Annex 2 hereto, or (b) such provisions of the
Assumption Agreements and the Revolving Credit Agreement cease to remain in
effect, then upon receipt by the Requisite Holders of evidence satisfactory to
such holders of execution and delivery of such amendment of or such cessation of
effect of said provisions, as the case may be, the terms of the Note Agreements
shall, without any further action on the part of the Company or any of the
Holders, be deemed to be amended automatically so that the text set forth in
Annex 2 hereto is substituted for Section 7.7 of each of the Note Agreements.
(c) Amendment to Section 7.12 of the Note Agreements. Each of
the Holders agrees that, in the event (a) an amendment of (i) Section 7.12 of
all of the Assumption Agreements and (ii) any correlative terms in the Revolving
Credit Agreement, whether by incorporation therein of Section 7.12 of the
Assumption Agreements or otherwise, is effected so that the text thereof
conforms to the text set forth in Annex 3 hereto, or (b) such provisions of the
Assumption Agreements and the Revolving Credit Agreement cease to remain in
effect, then upon receipt by the Requisite Holders of evidence satisfactory to
such holders of execution and delivery of such amendment or of such cessation of
effect of said provisions, as the case may be, the terms of the Note Agreements
shall, without any further action on the part of the Company or any of the
Holders, be deemed to be amended automatically so that the text set forth in
Annex 3 hereto is substituted for Section 7.12 of each of the Note Agreements.
(d) Amendment to Definition of "Net Worth" in Section 8.1 of
the Note Agreements. Each of the Holders agrees that, in the event (a) an
amendment of (i) the paragraph defining "Net Worth" within Section 8.1 of all of
the Assumption Agreements and (ii) any correlative terms in the Revolving Credit
Agreement, whether by incorporation therein of the paragraph defining Net Worth
within Section 8.1 of the Assumption Agreement or otherwise, is effected so that
the text thereof conforms to the text set forth in Annex 4 hereto, or (b) such
provisions of the Assumption Agreements and the Revolving Credit Agreement cease
to remain in effect, then upon receipt by the Requisite Holders of evidence
satisfactory to such holders of execution and delivery of such amendment or of
such cessation of effect of said provisions, as the case may be, the terms of
the Note Agreements shall, without any further action on the part of the Company
or any of the Holders, be deemed to be amended automatically so that the text
set forth in Annex 4 hereto is substituted for the paragraph defining "Net
Worth" within Section 8.1 of each of the Note Agreements.
(e) Amendment to Provide Definition of "FASB 106 Adjustment"
in Section 8.1 of the Note Agreements. Each of the Holders agrees that, in the
event (a) an amendment of
G-3
<PAGE> 93
(i) Section 8.1 of all of the Assumption Agreements and (ii) any correlative
terms in the Revolving Credit Agreement, whether by incorporation therein of
Section 8.1 of the Assumption Agreement or otherwise, is effected so that the
text thereof includes text conforming to the text set forth in Annex 5 hereto,
or (b) such provisions of the Assumption Agreements and the Revolving Credit
Agreement cease to remain in effect, then upon receipt by the Requisite Holders
of evidence satisfactory to such holders of execution and delivery of such
amendment or of such cessation of effect of said provisions, as the case may be,
the terms of the Note Agreements shall, without any further action on the part
of the Company or any of the Holders, be deemed to be amended automatically so
that the text set forth in Annex 5 hereto is inserted into Section 8.1 of each
of the Note Agreements.
THIS LETTER AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
This Letter Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. This
Letter Agreement may be signed in any number of counterparts, each of which
shall be an original but all of which together shall constitute one instrument.
Nothing in this Letter Agreement shall be construed to
contravene any of the rights of any of the Holders under Section 7.17 of each of
the Note Agreements.
If the foregoing correctly describes our understanding with
respect to the subject matter of this Letter Agreement, please execute this
letter in the place indicated below.
Very truly yours,
LENNOX INTERNATIONAL INC.
By:
--------------------------------------
Clyde Wyant
Executive Vice President,
Chief Financial Officer
and Treasurer
G-4
<PAGE> 94
ACCEPTED AND AGREED:
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By CIGNA Investments, Inc.
By:
---------------------------------
Name:
----------------------
Title:
---------------------
CONNECTICUT GENERAL LIFE INSURANCE COMPANY,
ON BEHALF OF ONE OR MORE SEPARATE ACCOUNTS
By CIGNA Investments, Inc.
By:
---------------------------------
Name:
----------------------
Title:
---------------------
LIFE INSURANCE COMPANY OF NORTH AMERICA
By CIGNA Investments, Inc.
By:
---------------------------------
Name:
----------------------
Title:
---------------------
G-5
<PAGE> 95
UNITED OF OMAHA LIFE INSURANCE COMPANY
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
MUTUAL OF OMAHA INSURANCE COMPANY
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
COMPANION LIFE INSURANCE COMPANY
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
UNITED WORLD LIFE INSURANCE COMPANY
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
FIRST COLONY LIFE INSURANCE COMPANY
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
G-6
<PAGE> 96
ANNEX 1
-------
7.6 Dividends and Other Restricted Payments; Restricted
Investments. The Company will not directly or indirectly (i) declare or pay any
dividend, or make any distribution, on the Company's shares of any class, other
than dividends or distributions payable in common shares of the Company, or (ii)
make any other Restricted Payment, and the Company will not make and will not
permit any Restricted Subsidiary to make any Restricted Investment, unless, on
the date of declaration in the case of any proposed dividend and on the date of
payment or distribution in the case of any proposed Restricted Payment
(including any dividend) or Restricted Investment (the "Computation Date"), and
after giving effect thereto,
(a) the aggregate amount of all Restricted Payments made
during the period (taken as one accounting period) commencing on
January 1, 1991 and ending on and including the Computation Date (the
"Computation Period"), and of all Restricted Investments made during
the Computation Period and outstanding on the Computation Date, shall
not exceed an amount equal to the sum of
(i) $45,000,000 plus 85% of the amount of the FASB
106 Adjustment, plus
(ii) 85% of the aggregate amount of Consolidated Net
Income for each full fiscal year in the Computation Period for
which Consolidated Net Income is positive, minus
(iii) 100% of the aggregate amount of Consolidated
Net Income for each full fiscal year in the Computation Period
for which there is a deficit,
plus 85% (or, in the case of a deficit, minus 100%) of Consolidated Net
Income for any period in the Computation Period not included in Clause
(ii) or (iii) above;
(b) no Event of Default or Default shall have occurred and be
continuing; and
(c) the Company shall be entitled to incur at least $1 of
additional Debt under Section 7.4(d).
Annex 1-1
<PAGE> 97
The Company will not declare any dividend (other than dividends payable solely
in shares of its common stock) on any shares of any class of its stock which is
payable more than 90 days after the date of declaration thereof. For purposes of
this Section 7.6, Investments owned by any Person or for which it is obligated
at the time it becomes a Restricted Subsidiary shall be deemed to be made at the
time such Person becomes a Restricted Subsidiary.
Notwithstanding any other provision of this Section 7.6 to the
contrary, the Company may, at any time or from time to time, reacquire up to an
aggregate amount of $15,000,000 of shares of its common stock in transactions
qualifying as distributions under Section 303 of the Code if but only if (i)
such acquisitions are at prices not exceeding the fair market value of the
shares so acquired, in each case as determined in good faith by a resolution of
the Board, and (ii) no Event of Default or Default shall have occurred and be
continuing. The amount of said dividends shall not be subject to the limitations
of this Section 7.6 or included in any future computations pursuant to this
Section 7.6.
Annex 1-2
<PAGE> 98
ANNEX 2
7.7. Sales and Leasebacks. The Company will not and will not
permit any Restricted Subsidiary to, as part of the same transaction or series
of related transactions, sell or otherwise transfer to any Person or Persons any
item or items of property, whether now owned or hereafter acquired, having a
book value in any one case or in the aggregate for all such property so
transferred from and including the date hereof through the date of such transfer
of more than fifteen percent (15%) of Net Worth if the Company or such
Restricted Subsidiary shall then or thereafter, as part of the same transaction
or series of related transactions, rent or lease as lessee, or similarly acquire
the right to possession or use of such property, or one or more properties which
it intends to use for the same purpose or purposes as such property.
Annex 2-1
<PAGE> 99
ANNEX 3
7.12. Purchase of Notes Upon Change of Control. At least 15
Business Days (or, in the case of any transaction permitted by Section 7.10 or
7.11 resulting in a Change of Control, at least 45 days) and not more than 90
days prior to the occurrence of any Change of Control, the Company shall give
written notice thereof to each holder of an outstanding Note in the manner and
to the address specified for notices pursuant to this Section 7.12 for such
holder in Schedule I or as otherwise specified by such holder in writing to the
Company. Such notice shall contain (i) an offer by the Company to purchase, on
the date of such Change of Control or, if such notice shall be delivered less
than 35 days prior to the date of such Change of Control, on the date 35 days
after the date of such notice (the "Purchase Date"), all Notes held by each such
holder at a price equal to 100% of the principal amount thereof, together with
interest accrued thereon to the Purchase Date, (ii) the estimated respective
amounts of accrued interest payable to such holder in respect of such purchase,
showing in each case in reasonable detail the calculation thereof and (iii) the
Company's estimate of the date on which such Change of Control shall occur. Said
offer shall be deemed to lapse as to any such holder which has not replied
affirmatively thereto in writing within 35 days of the giving of such notice. As
soon as practicable (and in any event at least 24 hours) prior to such Change of
Control, the Company shall give written confirmation of the date thereof to each
such holder which has affirmatively replied to the notice given pursuant to the
first sentence of this Section 7.12. In the event that the Company shall
purchase any Notes pursuant to this Section 7.12, the same shall thereafter be
canceled and not reissued and shall not be deemed "outstanding" for any purpose
of this Agreement.
For the purposes of this Section 7.12, a "Change of Control"
shall be deemed to occur if any New Owner shall acquire beneficial ownership of
shares in the Company having Voting Rights pertaining thereto which would allow
such New Owner to elect more members of the Board than could be elected by the
exercise of all Voting Rights pertaining to shares in the Company then owned
beneficially by the Norris Family. As used in this Section 7.12:
(i) "Voting Rights" pertaining to shares of a corporation
means the rights to cast votes for the election of directors of such
corporation in ordinary circumstances (without consideration of voting
rights which exist only in the event of contingencies).
(ii) "Norris Family" means all persons who are lineal
descendants of D.W. Norris (by birth or adoption), all spouses of such
descendants, all estates of such descendants or spouses which are in
the course of administration, all trusts for the benefit of such
descendants or spouses, and all corporations or other entities in
which, directly or indirectly, such descendants or spouses (either
alone or in conjunction with other such descendants or spouses) have
the right, whether by ownership of stock or other equity interests or
otherwise, to direct the management and policies of such corporations
or other entities (each such person, spouse, estate, trust, corporation
or entity being referred to herein as a "member" of the Norris Family).
In addition, so long as any employee stock
Annex 3-1
<PAGE> 100
ownership plan exercises its Voting Rights in the same manner as
members of the Norris Family (exclusive of employee stock ownership
plans) who have a majority of the Voting Rights exercised by all such
members of the Norris Family, such employee stock ownership plan shall
be deemed a member of the Norris Family.
(iii) "New Owner" means any person (other than a member of the
Norris Family), or any syndicate or group of persons (exclusive of all
members of the Norris Family) which would be deemed a "person" for the
purposes of Section 13(d) of the Exchange Act, who directly or
indirectly acquires shares in the Company.
Notwithstanding anything in this Section 7.12 to the contrary, if an Event of
Default exists following a Change of Control and the Notes are accelerated
pursuant to the provisions of Section 9.1, the holders of the Notes shall be
entitled to receive the Special Premium relating to such accelerated amount as
provided in Section 9.1.
Annex 3-2
<PAGE> 101
ANNEX 4
"Net Worth" shall mean, as of any date of determination
thereof, the total stockholders' equity of the Company and its Subsidiaries
determined in accordance with GAAP on a consolidated basis, provided that (i)
Net Worth shall be increased by the amount of the FASB 106 Adjustment and (ii)
if the portion of total stockholders' equity attributable to Unrestricted
Subsidiaries exceeds 15% of total stockholders' equity, Net Worth shall be
reduced by the amount of such excess.
Annex 4-1
<PAGE> 102
ANNEX 5
"FASB 106 Adjustment" shall mean the after-tax charge in
fiscal year 1993 to net income of the Company and its Restricted Subsidiaries on
a consolidated basis upon adoption of Financial Accounting Standards Board
Statement No. 106.
Annex 5-1
<PAGE> 1
EXHIBIT 10.3
________________________________________________________________________________
LENNOX INTERNATIONAL INC.
____________________
NOTE PURCHASE AGREEMENT
Dated as of July 6, 1995
____________________
7.06% Senior Promissory Notes due 2005
________________________________________________________________________________
<PAGE> 2
TABLE OF CONTENTS
Page
____
<TABLE>
<S> <C> <C>
SECTION 1. PURCHASE OF NOTES . . . . . . . . . . . . . . . . . . . . . 1
1.1. Authorization . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Purchase and Sale of Notes; the Closing . . . . . . . . . . 1
1.3. Investment Representation . . . . . . . . . . . . . . . . . 2
1.4. Source of Funds . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 2. REPRESENTATIONS OF THE COMPANY . . . . . . . . . . . . . . . 2
2.1. Organization and Authority of the Company . . . . . . . . . 2
2.2. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3. Incorporation, Good Standing and Ownership of Shares of
Subsidiaries . . . . . . . . . . . . . . . . . . . 3
2.4. Financial Statements . . . . . . . . . . . . . . . . . . . . 3
2.5. Compliance with Other Instruments of the Company;
No Dividend Restriction . . . . . . . . . . . . . . 4
2.6. Governmental Authorizations, etc. . . . . . . . . . . . . . 5
2.7. Litigation; Observance of Statutes, Regulations and
Orders. . . . . . . . . . . . . . . . . . . . . . . 5
2.8. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.9. Title to Property . . . . . . . . . . . . . . . . . . . . . 6
2.10. Licenses, Permits, etc. . . . . . . . . . . . . . . . . . . 6
2.11. Compliance with ERISA . . . . . . . . . . . . . . . . . . . 6
2.12. Private Offering by the Company . . . . . . . . . . . . . . 7
2.13. Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.14. Use of Proceeds; Margin Regulations . . . . . . . . . . . . 7
2.15. Existing Debt . . . . . . . . . . . . . . . . . . . . . . . 8
2.16. Existing Investments . . . . . . . . . . . . . . . . . . . . 8
2.17. Foreign Assets Control Regulations, etc. . . . . . . . . . . 8
2.18. Status Under Certain Statutes . . . . . . . . . . . . . . . 8
2.19. Environmental Matters . . . . . . . . . . . . . . . . . . . 9
SECTION 3. CONDITIONS OF CLOSING . . . . . . . . . . . . . . . . . . . 9
3.1. Proceedings Satisfactory . . . . . . . . . . . . . . . . . . 9
3.2. Opinions of Counsel . . . . . . . . . . . . . . . . . . . . 9
3.3. Representations True, etc.; Officers' Certificate . . . . . 9
3.4. Legality . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.5. Absence of Certain Events . . . . . . . . . . . . . . . . 10
3.6. Private Placement Number . . . . . . . . . . . . . . . . . 10
3.7. Fees Payable at Closing . . . . . . . . . . . . . . . . . 10
3.8. Delivery of Letter Agreement . . . . . . . . . . . . . . . 10
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 4. PREPAYMENT, PAYMENT AND PURCHASE OF THE NOTES . . . . . . . . 10
4.1. Mandatory Prepayments of the Notes; Payment at Maturity . . . 10
4.2. Optional Prepayment of the Notes . . . . . . . . . . . . . . . 11
4.3. Special Purchase of Notes . . . . . . . . . . . . . . . . . . 11
4.4. Notice of Prepayment . . . . . . . . . . . . . . . . . . . . . 11
4.5. Allocation of Prepayments . . . . . . . . . . . . . . . . . . 11
4.6. Surrender of Notes . . . . . . . . . . . . . . . . . . . . . . 11
4.7. Purchase of Notes . . . . . . . . . . . . . . . . . . . . . . 11
4.8. Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 5. FINANCIAL STATEMENTS AND INFORMATION . . . . . . . . . . . . . 12
SECTION 6. INSPECTION OF PROPERTIES AND BOOKS . . . . . . . . . . . . . . 16
SECTION 7. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.1. Payment of Principal, Special Premium and Interest;
Maintenance of Books and Reserves . . . . . . . . . . 17
7.2. Payment of Taxes; Corporate Existence; Maintenance of
Properties; Compliance with Laws . . . . . . . . . . 17
7.3. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.4. Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.5. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.6. Dividends and Other Restricted Payments; Restricted
Investments . . . . . . . . . . . . . . . . . . . . . 21
7.7. Sales and Leasebacks . . . . . . . . . . . . . . . . . . . . . 22
7.8. Maintenance of Certain Financial Conditions . . . . . . . . . 22
7.9. Subsidiary Stock and Debt . . . . . . . . . . . . . . . . . . 23
7.10. Consolidation, Merger or Disposition of Assets . . . . . . . . 23
7.11. Issuance of Stock . . . . . . . . . . . . . . . . . . . . . . 25
7.12. Purchase of Notes Upon Change of Control . . . . . . . . . . . 25
7.13. Transactions with Affiliates . . . . . . . . . . . . . . . . . 27
7.14. Change in Business . . . . . . . . . . . . . . . . . . . . . . 27
7.15. Environmental Matters . . . . . . . . . . . . . . . . . . . . 27
7.16. Limitation on Dividend Restrictions, etc. . . . . . . . . . . 27
7.17. Most Favored Lender's Status. . . . . . . . . . . . . . . . . 27
SECTION 8. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.2. Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
SECTION 9. EVENTS OF DEFAULT; REMEDIES . . . . . . . . . . . . . . . . . . . 39
9.1. Events of Default Defined; Acceleration of Maturity . . . . . . . 39
9.2. Suits for Enforcement . . . . . . . . . . . . . . . . . . . . . . 41
9.3. Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . 42
9.4. Remedies Not Waived . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 10. REGISTRATION, TRANSFER AND EXCHANGE OF NOTES. . . . . . . . . . . 42
SECTION 11. LOST, ETC. NOTES . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 12. AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 13. HOME OFFICE PAYMENT . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 14. LIABILITIES OF THE HOLDERS . . . . . . . . . . . . . . . . . . . 44
SECTION 15. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 16. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . 45
16.1. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
16.2. Reliance on and Survival of Representations . . . . . . . . . . 45
16.3. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . 45
16.4. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
16.5. Substitution of Your Wholly-Owned Subsidiary . . . . . . . . . . 46
16.6. LAW GOVERNING . . . . . . . . . . . . . . . . . . . . . . . . . 46
16.7. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
16.8. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . 46
16.9. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 46
16.10. Maximum Interest Payable . . . . . . . . . . . . . . . . . . . . 46
16.11. Interpretation of Disclosures . . . . . . . . . . . . . . . . . 47
16.12. Notice to Transferees . . . . . . . . . . . . . . . . . . . . . 47
16.13. Consent to Jurisdiction; Service of Process . . . . . . . . . . 47
SCHEDULE I -- Names and Addresses of Purchasers
EXHIBIT A -- Form of Notes
EXHIBIT B -- Subsidiaries
EXHIBIT C -- Debt
EXHIBIT D -- Investments
EXHIBIT E -- Form of Opinion of Company's Counsel
EXHIBIT F -- Form of Subordination Provisions
EXHIBIT G -- Letter Agreement
</TABLE>
-iii-
<PAGE> 5
LENNOX INTERNATIONAL INC.
2100 Lake Park Boulevard
Richardson, Texas 75080
NOTE PURCHASE AGREEMENT
as of July 6, 1995
To the Noteholder Identified
on the Signature Page at
the End of this Agreement:
Ladies and Gentlemen:
LENNOX INTERNATIONAL INC., a Delaware corporation (together with
any successor or transferee which becomes such in the manner specified in
Section 7.10, the "Company"), hereby agrees with you as follows:
SECTION 1. PURCHASE OF NOTES.
1.1. Authorization. The Company has duly authorized an issue
of its 7.06% promissory notes due July 6, 2005 in the aggregate principal
amount of $20,000,000, each such Note to be substantially in the form of
Exhibit A. As used herein, the term "Notes" shall include all notes originally
issued pursuant to this Agreement and all notes delivered in substitution or
exchange for any of said notes and, where applicable, shall include the
singular number as well as the plural. The term "Note" shall mean one of the
Notes. Each Note is to (a) bear interest from the date thereof on the unpaid
principal amount thereof at the rate of 7.06% per annum (computed on the basis
of a 360-day year of twelve 30-day months) payable semiannually on June 1 and
December 1 of each year, commencing December 1, 1995, and with interest (so
computed) on any overdue principal (including any overdue prepayment of
principal) and the Special Premium and (to the extent permitted by applicable
law) on any overdue interest at the rate of 9.06% per annum until paid, payable
semiannually as aforesaid or, at the option of the registered holder thereof,
on demand and (b) mature and be due and payable as to the entire remaining
unpaid principal amount thereof on July 6, 2005.
Capitalized terms used and not otherwise defined herein shall have
the respective meanings assigned thereto in Section 8. Unless otherwise
specified, any reference in this Agreement to a particular section or other
subdivision, or a particular schedule or exhibit, shall be considered a
reference to that section or other subdivision of, or to that schedule or
exhibit to, this Agreement.
1.2. Purchase and Sale of Notes; the Closing. The Company
shall issue and sell to you and, subject to the terms and conditions hereof,
you shall purchase from the Company, Notes
-1-
<PAGE> 6
in the aggregate principal amount set forth opposite your name on Schedule I
hereto, at a price equal to 100% of the principal amount thereof. The closing
of the purchase of the Notes shall be held commencing at 9:00 A.M., Dallas
time, on July 6, 1995 (the "Closing Date"), at the offices of Baker & Botts,
L.L.P., located at 2001 Ross Avenue, Dallas, Texas. On the Closing Date the
Company will deliver to you the Notes to be purchased by you in the form of a
single Note in the principal amount shown opposite your name on Schedule I (or
such greater number of Notes aggregating such principal amount as you may
request), dated the Closing Date and registered in your name (or the name of
your nominee) against delivery by you to the Company or its order of
immediately available funds in the amount of the purchase price therefor by
wire transfer to the Company's account number 849820 at The Northern Trust
Company (ABA #071000152). If on the Closing Date the Company shall fail to
tender such Notes to you as provided in this Section 1.2, or any of the
conditions specified in Section 3 shall not have been fulfilled to your
satisfaction, you shall, at your election, be relieved of all further
obligations under this Agreement, without thereby waiving any other rights you
may have by reason of such failure or nonfulfillment.
1.3. Investment Representation. You represent to the Company
that on the Closing Date you will acquire the Notes being purchased by you for
your own account, or for a separate account managed by you, for investment and
not with a view to the distribution or sale of the Notes, subject, however, to
any requirement of law that the disposition of your property be at all times
within your control and without prejudice to your right to sell or otherwise
dispose of all or any part of the Notes held by you pursuant to an effective
registration under the Securities Act or under an exemption from such
registration available under the Securities Act.
1.4. Source of Funds. You represent to the Company that no
part of the funds to be used by you to pay the purchase price of the Notes to
be purchased by you hereunder constitutes assets allocated to any separate
account maintained by you in which any employee benefit plan (or its related
trust), other than employee benefit plans identified on a letter, if any, that
has been furnished by you to the Company, has any interest and that all such
funds constitute funds allocated to general accounts maintained by you. As
used in this Section 1.4, the terms "employee benefit plan" and "separate
account" shall have the respective meanings assigned to them in Section 3 of
ERISA.
SECTION 2. REPRESENTATIONS OF THE COMPANY. The Company represents
and warrants to you that:
2.1. Organization and Authority of the Company. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, and has all requisite power and authority to own
or hold under lease the property it purports to own or hold under lease, to
transact the business it transacts and proposes to transact, to execute and
deliver this Agreement and the Notes and to perform the provisions hereof and
thereof. The Company has, by all necessary corporate action (no action of
shareholders of the Company being required by law, by its charter or by-laws,
or otherwise), duly authorized the execution and delivery of this Agreement and
the Notes and the performance of its obligations under this Agreement and the
Notes. The
-2-
<PAGE> 7
Company is duly qualified as a foreign corporation and is in good standing in
each jurisdiction in which the character of the properties owned or held under
lease by it or the nature of the business transacted by it requires such
qualification and in which the failure so to qualify would materially affect
adversely the business, operations or properties of the Company, or of the
Company and its Subsidiaries taken as a whole, or the ability of the Company to
perform this Agreement and discharge its obligations on the Notes.
2.2. Disclosure. Neither this Agreement, the financial
statements referred to in Section 2.4 nor any other document, instrument or
certificate delivered to you by or on behalf of the Company in connection with
the transactions contemplated by this Agreement contains any untrue statement
of a material fact, or omits to state any fact necessary to make the statements
contained herein or therein (taken as a whole) not misleading. The Company
does not know of any fact (other than matters of a general economic nature)
which materially affects adversely or, so far as the Company can reasonably now
foresee, will materially affect adversely, the business, operations or
properties of the Company, or of the Company and its Subsidiaries taken as a
whole, or the ability of the Company to perform this Agreement and discharge
its obligations on the Notes.
2.3. Incorporation, Good Standing and Ownership of Shares of
Subsidiaries. Annexed hereto as Exhibit B is a complete and correct list of
the Company's Subsidiaries, showing, as to each Subsidiary, the correct name
thereof, the jurisdiction of its incorporation, the jurisdictions in which
substantial operating assets are located and the percentage of shares of each
class outstanding owned by the Company and each other Subsidiary and specifying
whether such Subsidiary is designated a Restricted Subsidiary. All of the
outstanding shares of each of said Subsidiaries shown in Exhibit B as being
owned by the Company and its Subsidiaries have been validly issued, are fully
paid and nonassessable and are owned beneficially and of record by the Company
or another Subsidiary free and clear of any Lien. No Subsidiary owns any
shares of the Company. Each Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, and is duly qualified as a foreign corporation and is in good
standing in each jurisdiction in which the character of the properties owned or
held under lease by it or the nature of the business transacted by it requires
such qualification and in which the failure so to qualify would materially
affect adversely the business, operations or properties of the Company or of
the Company and its Subsidiaries taken as a whole, or the ability of the
Company to perform this Agreement and discharge its obligations on the Notes.
Each Subsidiary has all requisite power and authority to own or hold under
lease the property it purports to own or hold under lease and to transact the
business it transacts and proposes to transact. There are no outstanding
rights, options, warrants, conversion rights or agreements for the purchase or
acquisition from the Company or any Subsidiary of any shares of capital stock
of any such Subsidiary.
2.4. Financial Statements. The Company has delivered to you
copies of
(a) the audited balance sheets of the Company and its
Subsidiaries as at December 31 in each of the years 1990, 1991, 1992,
1993 and 1994 and the related
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statements of income, stockholders' equity and cash flows for the
annual periods ended December 31, 1991, 1992, 1993 and 1994,
accompanied by the reports thereon by Coopers & Lybrand or Arthur
Andersen & Co., independent certified public accountants of the
Company;
(b) the unaudited consolidated and consolidating balance
sheets of the Company and its Subsidiaries as at March 31, 1995 and
the related unaudited consolidated and consolidating statements of
income, stockholders' equity and cash flows for the quarters then
ended; and
(c) the Company's Long-Term Debt Repayment Schedule (Present
Debt) as of June 1, 1995.
All the above-mentioned financial statements (including in each
case the related schedules and notes) are correct and complete and fairly
present the financial position of the Company as of the respective dates of
said balance sheets and the results of its operations for the respective
periods covered by said statements of income, stockholders' equity and cash
flows (subject, in the case of the unaudited financial statements, to year-end
adjustments) and have been prepared in accordance with GAAP consistently
applied throughout the periods involved, except as set forth in the notes
thereto. There are no material liabilities, contingent or otherwise, of the
Company or any Subsidiary (of any type required by GAAP to be reflected in a
consolidated balance sheet of the Company and its Subsidiaries or the footnotes
thereto) as of December 31, 1994 not reflected in the consolidated balance
sheet of the Company and its Subsidiaries as of said date described in
paragraph (a) of this Section 2.4 (or the footnotes thereto). Since December
31, 1994 there have been no changes in the assets, liabilities or financial
position of the Company from that set forth in the audited balance sheets of
the Company as of said date, other than (i) the sale of the Fort Worth Plant at
a purchase price of $3,200,000 for a pre-tax gain of approximately $882,000 and
(ii) changes in the ordinary course of business which have not, either
individually or in the aggregate, been materially adverse to the Company.
2.5. Compliance with Other Instruments of the Company; No
Dividend Restriction. The consummation of the transactions contemplated by
this Agreement and the performance of the terms and provisions of this
Agreement and the Notes will not result in any breach of, or constitute a
default under, or result in the creation of any Lien in respect of any property
of the Company under any indenture, mortgage, deed of trust, license, bank loan
or credit agreement, lease, corporate charter, by-law, or other agreement or
instrument to which the Company is a party or by which the Company or any of
its properties is or may be bound or affected, or violate any existing law,
governmental rule or regulation or any Order of any court, arbitrator or
Governmental Body applicable to the Company. Neither the Company nor any
Subsidiary is a party to or bound by any instrument or agreement which contains
any restriction on the incurrence by the Company of any Debt other than (i)
this Agreement, (ii) the Agreements of Assumption and Restatement dated as of
December 1, 1991 shown on Exhibit C, (iii) the Revolving Credit Agreement dated
as of December 4, 1991, among the Company, the banks named therein and The
Northern Trust Company,
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as agent, and (iv) the Note Purchase Agreements dated as of December 1, 1993
shown on Exhibit C, under each of which the Company is permitted to maintain
outstanding the Debt evidenced by the Notes. No Restricted Subsidiary is bound
by or subject to any contract or charter or by-law provision limiting the
amount of, or otherwise imposing restrictions on the declaration, payment or
setting aside of funds for the making of, dividends or other distributions in
respect of the capital stock of such Restricted Subsidiary to the Company or
another Restricted Subsidiary.
2.6. Governmental Authorizations, etc. No consent, approval or
authorization of, or registration, filing or declaration with, any Governmental
Body or any other Person (including any trustee or holder of any indebtedness,
obligation or other securities of the Company or any of its Subsidiaries) is
required for the validity of the execution and delivery or for the performance
by the Company of this Agreement or the Notes or the discharge by the Company
of its obligations under this Agreement and the Notes.
2.7. Litigation; Observance of Statutes, Regulations and Orders.
There are no actions, suits or proceedings (including, without limitation,
actions, suits or proceedings under any statute or other law relating to
environmental protection or occupational health and safety practices) pending
or, to the knowledge of the Company, threatened against or affecting the
Company or any Subsidiary or any property of the Company or any Subsidiary in
any court or before any arbitrator of any kind or before or by any Governmental
Body (except actions, suits or proceedings of the character normally incident
to the kind of business conducted by the Company or any Subsidiary which (a) do
not question the validity or legality of this Agreement or the Notes or any
action taken or to be taken pursuant hereto or thereto and (b) in the
aggregate, if adversely determined, would not materially affect adversely the
business, operations or properties of the Company, or of the Company and its
Subsidiaries taken as a whole or the ability of the Company to perform this
Agreement or discharge its obligations on the Notes). Neither the Company nor
any Subsidiary is in default under any Order of any court, arbitrator or
Governmental Body which default could have a materially adverse effect on the
Company or on the Company and its Subsidiaries taken as a whole; and neither
the Company nor any Subsidiary is subject to or a party to any Order of any
court or Governmental Body arising out of any action, suit or proceeding under
any statute or other law respecting antitrust, monopoly, restraint of trade or
unfair competition, or environmental protection or occupational health and
safety practices, or similar matters.
As used in this Agreement, the term "Governmental Body" includes any
Federal, State, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign; and the term "Order"
includes any order, writ, injunction, decree, judgment, award, determination,
direction or demand.
2.8. Taxes. The Company and its Subsidiaries have filed all Federal
tax returns required to have been filed by them and all tax returns which are
required to have been filed in each jurisdiction in which they are qualified to
do business, as aforesaid, and have paid all taxes shown to be due and payable
on such returns and all other material taxes and assessments payable by them,
to the extent the same have become due and payable and before they have become
delinquent, except
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for any taxes and assessments the amount, applicability or validity of which is
currently being contested in good faith by appropriate proceedings and with
respect to which the Company or a Subsidiary, as the case may be, has set aside
on its books reserves (segregated to the extent required by GAAP) deemed by it
to be adequate. The Company does not know of any proposed material tax
assessment against the Company or any Subsidiary, and in the opinion of the
Company all tax liabilities are adequately provided for on the books of the
Company and its Subsidiaries. The Federal income tax liabilities of the
Company and its Subsidiaries have been determined by the Internal Revenue
Service (or the applicable statute of limitations has run) and such liabilities
have been paid for all fiscal years up to and including the fiscal year ended
December 31, 1990.
2.9. Title to Property. The Company and its Restricted Subsidiaries
have good title to their respective real properties and other properties as
reflected in the most recent audited consolidated balance sheet of the Company
and its Subsidiaries referred to in Section 2.4(a) or purported to have been
acquired by the Company or such Restricted Subsidiary after said date, except
for the Fort Worth Plant, which was sold as described in Section 2.4, and as
sold or otherwise disposed of in the ordinary course of business, subject to no
title defects which would not be acceptable in accordance with good business
practice to similar companies engaged in a similar business. Except as
permitted by Section 7.5, all properties of the Company and each Restricted
Subsidiary are free and clear of all Liens.
2.10. Licenses, Permits, etc. The Company and its Subsidiaries
possess all licenses, permits, franchises, authorizations, patents, copyrights,
trademarks and trade names, or rights thereto, required to conduct their
respective businesses substantially as now conducted and as currently proposed
to be conducted, without known conflict with the rights of others.
2.11. Compliance with ERISA. No employee benefit plan established or
maintained by the Company or by any Commonly Controlled Entity or to which the
Company or any Commonly Controlled Entity is required to make contributions,
which is subject to Part 3 of Subtitle B of Title 1 of ERISA, or Section 412 of
the Code, had, as of the last day of the most recent fiscal year of such plan
heretofore ended, an accumulated funding deficiency (as such term is defined in
Section 302 of ERISA or Section 412 of the Code). Except as set forth in the
audited consolidated financial statements of the Company and its Subsidiaries
for the fiscal year ended December 31, 1994 referred to in Section 2.4(a), the
present value of all accrued benefits under each such employee benefit plan
(based on those assumptions used to fund such plan, which assumptions are
reasonable) did not, as of such date exceed the then current value of the
assets of such plan allocable to such benefits. The amount by which the
aggregate vested benefit obligations for the qualified pension plans of the
Company and its Subsidiaries, determined as of the end of the fiscal year ended
December 31, 1994, exceed the aggregate fair value of the assets of such plans
determined as of the end of such fiscal year, is less than $3,000,000. No
liability to the Pension Benefit Guaranty Corporation (other than required
insurance premiums, all of which, to the extent due and payable, have been
paid) has been incurred with respect to any such plan and there has not been
any reportable event within the meaning of ERISA, or any other event or
condition, which presents a material risk of termination of any such plan by
the Pension Benefit Guaranty Corporation. To the knowledge of the Company
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<PAGE> 11
after reasonable investigation, neither the Department of Labor, the Internal
Revenue Service nor any other Governmental Body has determined that any such
plan or any trust created thereunder, or any trustee or administrator thereof,
has engaged in a "prohibited transaction" (as defined in Section 4975 of the
Code) with respect to any such plan that could subject any such plan, trust,
trustee, administrator, the Company or any Commonly Controlled Entity to any
material tax or penalty on prohibited transactions imposed under said Section
4975 or Section 502(i) of ERISA, and the Company is not aware of any facts that
would constitute such a prohibited transaction. Neither the execution,
delivery or performance by the Company of this Agreement nor the issuance and
sale by the Company of the Notes will involve any prohibited transaction (as so
defined). The representation by the Company in the immediately preceding
sentence is made in reliance upon and subject to the accuracy of your
representation contained in Section 1.4 and the representation by the Company
in the immediately preceding sentence is expressly conditioned thereupon.
Neither the Company nor any Commonly Controlled Entity is making or accruing,
or has made or accrued, an obligation to make contributions to any
Multiemployer Plan. For purposes hereof, (i) "Commonly Controlled Entity"
shall mean any trade or business, whether or not incorporated, which is under
common control with the Company (within the meaning of Section 414(b) or (c) of
the Code); and (ii) "Multiemployer Plan" shall mean a "multiemployer plan," as
defined in Section 4001(a)(3) of ERISA.
2.12. Private Offering by the Company. Neither the Company, nor any
Person authorized by the Company to act on its behalf in connection with the
offer and sale of the Notes, has offered the Notes or any similar securities
for sale to, or solicited any offer to buy any of the same from, or otherwise
approached or negotiated in respect thereof with, any Person other than you.
Neither the Company nor anyone acting on its behalf has taken, or will take,
any action which would subject the issuance or sale of the Notes to Section 5
of the Securities Act. As used in this Section 2.12, the term "Notes" shall
mean the Notes to be executed and delivered under this Agreement and any
similar security or securities.
2.13. Solvency. The Company is, and upon giving effect to the
issuance of the Notes will be, a "solvent institution," as said term is used in
Section 1405(c) of the New York Insurance Law, whose "obligations are not in
default as to principal or interest," as said terms are used in said Section
1405(c).
2.14. Use of Proceeds; Margin Regulations. The Company will apply a
portion of the proceeds of the sale of the Notes under this Agreement to the
repayment of $3,714,287 of the principal amount of the 10.15% Series E
Promissory Notes due 1998 listed on Exhibit C as item one and will apply the
remainder of the proceeds to general corporate purposes. No part of the
proceeds from the sale of the Notes will be used, directly or indirectly, by
the Company or any Subsidiary for the purpose of purchasing or carrying any
margin stock within the meaning of Regulation G of the Board of Governors of
the Federal Reserve System (12 CFR 207, as amended), or for the purpose of
purchasing or carrying or trading in any securities under such circumstances as
to involve the Company or any Subsidiary in a violation of Regulation X of said
Board (12 CFR 224, as amended) or to involve any broker or dealer in a
violation of Regulation T of said Board (12 CFR 220, as
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<PAGE> 12
amended). The assets of the Company and its Subsidiaries do not consist to the
extent of 25% or more of margin stock, and the Company has no present intention
of acquiring margin stock to the extent of 25% or more of its assets, and in no
event under any circumstances during the term of this Agreement will 25% or
more of the assets of the Company and its Subsidiaries consist of margin stock.
As used in this Section, the term "margin stock" shall have the meaning
assigned to it in the aforesaid Regulation G.
2.15. Existing Debt. Annexed hereto as Exhibit C is a complete and
correct list of all secured and unsecured Debt of the Company and its
Restricted Subsidiaries (other than Debt of Restricted Subsidiaries to the
Company) as of the date hereof, showing as to each item of such Debt the
obligor, the aggregate principal amount outstanding on the date specified in
Exhibit C, the final maturity date of such Debt, and a brief description of any
security therefor. With respect to each item of Debt of the Company listed in
Exhibit C, the Company has delivered to your special counsel named in Section
3.2 a true and complete copy of each instrument evidencing any such Debt in
excess of $500,000 or pursuant to which any such Debt in excess of $500,000 was
issued or secured (including each amendment, consent, waiver or similar
instrument in respect thereof), as the same is in effect on the date hereof.
Neither the Company nor any Subsidiary is in default in the performance or
observance of any of the terms, covenants or conditions contained in any of
said instruments and neither the Company nor any Restricted Subsidiary is in
default with respect to any Debt listed in Exhibit C, and no event has occurred
and is continuing which, with notice or the lapse of time or both, would become
such a default.
2.16. Existing Investments. Annexed hereto as Exhibit D is a
complete and correct list of Investments of the Company and its Restricted
Subsidiaries as of the date specified in Exhibit D, other than Investments of
the character specified in Subsection (a) of the definition of "Restricted
Investment" set forth in Section 8.1.
2.17. Foreign Assets Control Regulations, etc. Neither the Company
nor any of its Subsidiaries is a "national" of any foreign country designated
in the Foreign Assets Control Regulations, the Transaction Control Regulations,
the Foreign Funds Control Regulations, the Iranian Assets Control Regulations,
the Cuban Assets Control Regulations, the Nicaraguan Trade Control Regulations
or the Libyan Sanctions Regulations of the United States Treasury Department
(31 CFR Subtitle B, Chapter V, as amended). None of the proceeds of the sale
of the Notes under this Agreement will be used, directly or indirectly, for the
purpose of engaging in any transaction which violates any of said Regulations
or which violates the Foreign Funds Control Regulations or the Transaction
Control Regulations of the United States Treasury Department (31 CFR Subtitle
B, Chapter V, as amended), or any regulation or ruling issued thereunder.
2.18. Status Under Certain Statutes. The Company is not an
"investment company" or a Person directly or indirectly "controlled" by or
"acting on behalf of" an investment company within the meaning of the
Investment Company Act of 1940, as amended. The Company is not a "holding
company" or a "subsidiary company" of a "holding company" or an "affiliate" of
a "holding
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<PAGE> 13
company" or of a "subsidiary company" of a "holding company," as such terms are
defined in the Public Utility Holding Company Act of 1935, as amended.
2.19. Environmental Matters. (a) The Company and its Subsidiaries
currently are in compliance with all applicable Environmental Laws except to
the extent failure to comply has not had and will not have a material adverse
effect on the Company or the Company and its Subsidiaries, taken as a whole.
(b) Neither the Company nor any Subsidiary has any knowledge of any
events, conditions or circumstances that could reasonably be expected to give
rise to any liability on the part of the Company or any Subsidiary based on or
related to (i) a violation of any Environmental Law or (ii) the presence on,
in, under or above the Company Premises of any Hazardous Substance, other than
any such liabilities referred to in this Subdivision (b) that will not have,
either in any one case or in the aggregate, a material adverse effect on the
Company or the Company and its Subsidiaries, taken as a whole.
SECTION 3. CONDITIONS OF CLOSING. Your obligation to purchase and pay for
the Notes to be purchased by you hereunder shall be subject to the conditions
hereinafter set forth:
3.1. Proceedings Satisfactory. All proceedings taken in connection
with the issuance of the Notes and the consummation of the transactions
contemplated hereby and all documents and papers relating thereto shall be
satisfactory to you and your special counsel, and you and your special counsel
shall have received copies of such documents and papers, all in form and
substance satisfactory to you and your special counsel, as you or they may
reasonably request in connection therewith.
3.2. Opinions of Counsel. You shall have received opinions, each
dated the Closing Date, addressed to you and satisfactory in form, scope and
substance to you from (a) Anne W. Teeling, Esq., Assistant General Counsel for
the Company, substantially in the form of Exhibit E and covering such other
matters as you or your special counsel may reasonably request, and (b) Baker &
Botts, L.L.P., your special counsel in connection with the transactions
contemplated by this Agreement, covering such matters as you may reasonably
request.
3.3. Representations True, etc.; Officers' Certificate. All
representations and warranties of the Company contained in this Agreement or
otherwise made in writing by or on behalf of the Company in connection with the
transactions contemplated hereby shall (except as affected by the consummation
of such transactions) be true on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
the Closing Date; the Company shall have performed all agreements on its part
required to be performed under this Agreement on or prior to the Closing Date;
no Default or Event of Default shall have occurred and be continuing; since the
date of the most recent audited balance sheets referred to in Section 2.4,
neither the Company nor any Subsidiary shall have consolidated with, merged
into, or sold, leased or otherwise disposed of its properties as an entirety or
substantially as an entirety to any Person; and
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<PAGE> 14
you shall have received a certificate signed by the Chief Executive Officer, a
Vice President or the Treasurer of the Company and by the Secretary or an
Assistant Secretary of the Company, dated the Closing Date, certifying to the
effects specified in this Section.
3.4 Legality. On the Closing Date the Notes to be purchased by you
hereunder shall be a legal investment for you under the laws of each
jurisdiction to which you may be subject, without resort to any basket
provision of said laws such as New York Insurance Law Section 1405(a)(8), and
you shall have received such certificates or other evidence as you may
reasonably request demonstrating the legality of such investment under such
laws.
3.5 Absence of Certain Events. There shall not have occurred any
material adverse change in the assets, liabilities, business, operations,
properties or condition (financial or otherwise) of the Company or of the
Company and its Subsidiaries, taken as a whole, from that reflected in the most
recent audited financial statements referred to in Section 2.4, copies of which
shall have been delivered to you.
3.6 Private Placement Number. The Notes shall have been assigned a
private placement number by Standard and Poor's CUSIP Service Bureau.
3.7 Fees Payable at Closing. Your special counsel shall have
received the legal fees and expenses required to be paid or reimbursed by the
Company, as provided in Section 16.1, in connection with their preparation and
review of this Agreement and documents and papers relating thereto and
negotiations and other matters in connection therewith, and for which the
Company shall have received invoices on or prior to the second Business Day
preceding the Closing Date.
3.8 Delivery of Letter Agreement. You shall have received a copy
of the Letter Agreement, as such term is defined in Section 8 of this
Agreement, substantially in the form of Exhibit G hereto, executed by the
Company and you.
SECTION 4. PREPAYMENT, PAYMENT AND PURCHASE OF THE NOTES.
4.1. Mandatory Prepayments of the Notes; Payment at Maturity. On
July 6, 2004 the Company will prepay $10,000,000.00 in aggregate principal
amount of the Notes (or, if less, the unpaid balance thereof). On July 6,
2005, the Company will in any event pay the entire remaining unpaid principal
amount of the Notes together with all interest accrued thereon; provided,
however, that if any Note or Notes (but less than all the Notes) shall be
purchased pursuant to Section 7.12, then the aggregate principal amount of the
Notes required to be prepaid on any July 6 thereafter pursuant to this Section
4.1 shall be reduced to that amount which bears the same relation to the amount
of such prepayment specified to be made on such July 6 (or such lower amount to
which such required prepayment shall have theretofore been reduced in
accordance with this proviso) as the aggregate principal amount of the Notes
outstanding immediately following said purchase pursuant to Section 7.12 bears
to the aggregate principal amount of the Notes outstanding immediately prior to
said purchase pursuant to Section 7.12. The Company covenants and agrees
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<PAGE> 15
that it will, in the event of any reduction pursuant to the immediately
preceding proviso, promptly after the purchase giving rise to such reduction,
give to each holder of a Note or Notes written notice thereof, specifying in
each such case the amounts of the respective mandatory prepayments due
thereafter in respect of each Note held by such holder (giving effect to such
reduction) and containing calculations demonstrating the method by which such
reduction was effected. Each prepayment pursuant to this Section 4.1 shall be
at 100% of the principal amount so to be prepaid, together with accrued
interest thereon to the date of such prepayment, without the Special Premium.
4.2. Optional Prepayment of the Notes. Upon notice given as
provided in Section 4.4, the Company, at its option, may at any time or from
time to time prepay the Notes in whole or in part in multiples of $100,000, in
each case at the principal amount so to be prepaid, together with interest
accrued thereon to the date of such prepayment, plus a premium equal to the
Special Premium. No prepayment of less than all the Notes pursuant to this
Section 4.2 shall relieve the Company of its obligation to make (nor shall it
reduce the amount of) the prepayments of principal on the Notes required by
Section 4.1. Each partial prepayment made pursuant to this Section 4.2 shall
be allocated as provided in Section 4.5.
4.3. Special Purchase of Notes. The Company shall be required to
purchase Notes of each holder thereof which shall have replied affirmatively to
an offer to purchase the same given as contemplated by Section 7.12, such
purchase to be made at the price and on the date and otherwise as provided in
Section 7.12.
4.4. Notice of Prepayment. The Company shall call the Notes for
prepayment pursuant to Section 4.2 by giving written notice thereof to each
holder of an outstanding Note, which notice shall be given not less than 30 nor
more than 60 days prior to the date fixed for such prepayment in such notice
and shall specify the amount so to be prepaid and the date fixed for such
prepayment. Each such notice of prepayment shall be accompanied by a
certificate of an authorized financial officer of the Company stating the facts
showing compliance with the provisions of Section 4.2. Upon the giving of
notice of any prepayment as provided in this Section 4.4, the Company will
prepay on the date therein fixed for prepayment the principal amount of the
Notes so to be prepaid as specified in such notice, together with interest and
the Special Premium, if any, as specified in Section 4.2.
4.5. Allocation of Prepayments. In the event of any prepayment
pursuant to Section 4.1 or 4.2 of less than all of the outstanding Notes, the
Company will allocate the principal amount so to be prepaid (but only in units
of $1,000) among the Notes in proportion, as nearly as may be, to the
respective principal amounts thereof not theretofore called for prepayment.
4.6. Surrender of Notes. Any Note paid or prepaid in full shall
thereafter be surrendered to the Company upon its written request therefor and
canceled and not reissued.
4.7. Purchase of Notes. The Company will not, and will not permit
any Affiliate to, acquire directly or indirectly by purchase or prepayment or
otherwise any of the outstanding
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<PAGE> 16
Notes except by way of payment, prepayment or purchase in accordance with the
provisions of the Notes and this Agreement.
4.8. Maturity. In the case of each prepayment of Notes, whether
required or optional, the principal amount of each Note to be prepaid shall
become due and payable on the date fixed for such prepayment together with
interest as specified in Section 4.1 or 4.2, as the case may be.
SECTION 5. FINANCIAL STATEMENTS AND INFORMATION. The Company will furnish
to you and to any of your Affiliates, so long as you or such Affiliate shall
hold any of the Notes, and (upon request) to each other Qualified Institutional
Holder of any Notes, in duplicate:
(a) as soon as available and in any event within 45 days after the end
of the first, second and third quarterly accounting periods in each fiscal year
of the Company,
(i) copies of a consolidated and consolidating balance sheet
of the Company and its Restricted Subsidiaries and of the Company and
its Subsidiaries as of the end of such accounting period and of the
related consolidated and consolidating statements of income and
stockholder's equity and cash flows of the Company and its Restricted
Subsidiaries and of the Company and its Subsidiaries for the portion
of the fiscal year ended with the last day of such quarterly
accounting period, all in reasonable detail and stating, in the case
of such consolidated statements, in comparative form the respective
figures for the corresponding date and period in the previous fiscal
year, and certified by the principal financial officer of the Company,
in the case of such consolidated statements, as having been prepared
in accordance with GAAP and as presenting fairly the information
contained therein, subject to year-end and audit adjustments and, in
the case of such consolidating statements, as being fairly stated in
all material respects in relation to the consolidated financial
statements for such period as a whole, subject to year-end and audit
adjustments,
(ii) a written statement of such financial officer of the
Company setting forth computations in reasonable detail showing, as of
the date of such balance sheet, (A) the ratio of Current Assets to
Current Liabilities, (B) the amount of Net Worth and Total
Capitalization, (C) the maximum amount of additional Debt and
Restricted Debt which the Company could have incurred under Section
7.4 and the outstanding amount of Debt and Restricted Debt of the
Company and each Restricted Subsidiary and (D) the amount available
for Restricted Payments and Restricted Investments in compliance with
Section 7.6, and
(iii) a written discussion and analysis by management of the
financial condition and results of operations of the line of business
conducted by each material Restricted Subsidiary for such accounting
period;
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(b) as soon as available and in any event within 120 days after the
end of each fiscal year of the Company,
(i) copies of a consolidated and consolidating balance sheet
of the Company and its Restricted Subsidiaries and of the Company and
its Subsidiaries as of the end of such fiscal year and of the related
consolidated and consolidating statements of income and stockholder's
equity and cash flows of the Company and its Restricted Subsidiaries
and of the Company and its Subsidiaries for such fiscal year, all in
reasonable detail and stating in comparative form the respective
figures as of the end of and for the previous fiscal year,
accompanied, in the case of such consolidated statements, by an
unqualified report thereon of independent certified public accountants
of recognized national standing selected by the Company (which report
shall contain a statement to the effect that such consolidated
financial statements present fairly the financial position of the
corporation or corporations being reported upon as at the dates
indicated and the results of operations and cash flows of such
corporation or corporations for the periods indicated and have been
prepared in accordance with GAAP applied on a basis consistent with
prior years (except for changes in application in which such
accountants concur and which are noted in such financial statements)
and that the audit by such accountants in connection with such
consolidated financial statements has been made in accordance with
generally accepted auditing standards at the time in effect, and
accordingly included such tests of the accounting records and such
other auditing procedures as were considered necessary in the
circumstances) and, in the case of such consolidating statements,
either certified by the principal financial officer of the Company as
fairly stating, or accompanied by a report thereon by such accountants
containing a statement to the effect that such consolidating financial
statements fairly state, the financial position and the results of
operations and cash flows of the corporations being reported on in all
material respects in relation to the consolidated financial statements
for the periods indicated as a whole,
(ii) a written statement of the principal financial officer of
the Company, setting forth computations in reasonable detail showing,
as of the date of such balance sheet, (A) the ratio of Current Assets
to Current Liabilities, (B) the amount of Net Worth and Total
Capitalization, (C) the maximum amount of additional Debt and
Restricted Debt which the Company could have incurred under Section
7.4 and the outstanding amount of Debt and Restricted Debt of the
Company and each Restricted Subsidiary, and (D) the amount available
for Restricted Payments and Restricted Investments in compliance with
Section 7.6, and
(iii) a written discussion and analysis by management of the
financial condition and results of operations of the line of business
conducted by each material Restricted Subsidiary for such accounting
period, and
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(iv) a certificate of such accountants as shall furnish a
report pursuant to clause (i) of this Subsection (b) of this Section 5
stating that in making the audit necessary for such report, they have
obtained no knowledge of any Event of Default or Default, or, if they
have obtained knowledge of any Event of Default or Default, specifying
the nature and period of existence thereof and the action the Company
has taken or proposes to take with respect thereto;
(c) concurrently with the financial statements for each quarterly
accounting period and for each fiscal year of the Company furnished pursuant to
Subsections (a) and (b) of this Section,
(i) a certificate signed by the President or a Vice President
and by the Treasurer of the Company stating that, based upon such
examination or investigation and review of this Agreement as in the
opinion of the signers is necessary to enable the signers to express
an informed opinion with respect thereto, to the best knowledge of
said signers, the Company is not and has not during such period been
in default in the performance or observance of any of the terms,
covenants or conditions hereof, or, if the Company shall be or shall
have been in default, specifying all such defaults, and the nature and
period of existence thereof, and what action the Company has taken, is
taking or proposes to take with respect thereto; provided that it
shall not be necessary for any such certificate to be signed by more
than one of the officers of the Company listed in this Subsection
(c)(i) if the officer so signing shall have been approved for that
purpose in writing by the holder or holders of not less than 66-2/3%
in aggregate principal amount of all the Notes outstanding and Mr.
Clyde Wyant, Executive Vice President, Chief Financial Officer and
Treasurer of the Company is hereby approved by you for such purpose,
(ii) a written statement of the principal financial officer of
the Company setting forth computations showing in reasonable detail
(A) the aggregate book value of property of the Company and its
Restricted Subsidiaries subject to sale-leaseback transactions
permitted by Section 7.7, and (B) the book value of assets of the
Company and its Restricted Subsidiaries sold since the Closing Date
and since the first day of such fiscal year, and
(iii) a written statement of the principal financial officer of
the Company that, to the best of his knowledge after due inquiry,
except as otherwise disclosed in writing to you, there is no
litigation (including derivative actions), arbitration proceeding or
governmental proceeding pending to which the Company or any Subsidiary
is a party, or with respect to the Company or any Subsidiary or their
respective properties, which has a significant possibility of
materially and adversely affecting the business, operations,
properties or condition of the Company or of the Company and its
Subsidiaries taken as a whole;
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<PAGE> 19
(d) promptly after the same are available and in any event within 15
days thereafter (if the Company or any Subsidiary shall have become
registered under Section 12 of the Exchange Act) copies of all such proxy
statements, financial statements and reports as the Company or such
Subsidiary shall send or make available generally to any of its security
holders and copies of all regular and periodic reports and of all
registration statements (other than on Form S-8 or a similar form) which the
Company or such Subsidiary may file with the Commission or with any
securities exchange;
(e) within 15 days after the end of each fiscal month, a complete copy
of any written agreement entered into by the Company during such fiscal
month amending, modifying, waiving or supplementing any financial covenant
set forth in an agreement or instrument evidencing Debt of the Company in an
aggregate unpaid principal amount of $10,000,000 or more (together with a
copy of the agreement or instrument so amended, modified, waived or
supplemented if not previously furnished by the Company), provided, that if
the Company shall be a party to any agreement providing a holder of Debt of
the Company with greater rights with respect to delivery of amendments,
modifications, waivers or supplements to agreements or instruments of the
Company evidencing Debt than are provided to you above in this paragraph
(e), the Company shall give prompt written notice of such fact to each
holder of a Note, each such holder shall be entitled to the benefit of such
greater rights and this Agreement shall be deemed modified to the extent
required to provide such greater rights;
(f) promptly upon any officer of the Company (i) obtaining knowledge
of any condition or event which constitutes a Default or an Event of
Default, or becoming aware that the holder of any Note has given any written
notice expressly asserting the occurrence of a Default or Event of Default,
a statement by the principal financial officer of the Company specifying in
reasonable detail the nature and period of existence thereof and what action
the Company has taken or is taking or proposes to take with respect thereto,
or (ii) becoming aware that the holder of any Note has taken any other
action with respect to a claimed Default or Event of Default or that any
holder of any Debt referred to in Section 9.1(d) has given any notice to the
Company or any Restricted Subsidiary or taken any other action with respect
to a claimed default under or in respect of any such Debt or with respect to
the occurrence or existence of any event or condition of the type referred
to in Section 9.1(e) or 9.1(f), a statement by the principal financial
officer of the Company specifying in reasonable detail the nature and period
of existence thereof and what action the Company has taken or is taking or
proposes to take with respect thereto, provided, that if the Company shall
be a party to any agreement providing a holder of Debt of the Company with
greater rights with respect to notices of the events described above in this
paragraph (f) than are provided to you above in this paragraph (f) or in
Section 9.1(c) with respect to this paragraph (f), the Company shall give
prompt written notice of such fact to each holder of a Note, each such
holder shall be entitled to the benefit of such greater rights and this
Agreement shall be deemed modified to the extent required to provide such
greater rights;
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<PAGE> 20
(g) promptly upon entering into, assuming or otherwise becoming bound
by or obligated under any agreement or instrument evidencing Debt of the
Company or any Restricted Subsidiary (other than any agreement providing for
automatic modification thereof in substantially the same form as Section
9.1(d) of this Agreement) which (i) provides that the holder of any such
Debt may declare such Debt to be due and payable prior to the scheduled
maturity thereof as a result of the occurrence of any default in the
performance of any term or condition contained in the agreement or
instrument evidencing any other Debt of the Company or any Restricted
Subsidiary (regardless of whether such other Debt shall have been declared
due and payable prior to the stated maturity thereof) or (ii) contains any
Additional Covenants or Additional Defaults (as defined in Section 7.17),
written notice to such effect, making reference in such notice to Section
9.1(d) or Section 7.17 of this Agreement, as the case may be; and
(h) such other information, including financial statements and
computations relating to the performance of the provisions of this Agreement
and the affairs of the Company, as may from time to time be reasonably
requested by you or your Affiliates or a Qualified Institutional Holder.
The Company will keep at its principal executive office true copies of
this Agreement (as from time to time in effect), and cause the same to be
available for inspection at said office during normal business hours by any
holder of a Note or any prospective purchaser of a Note designated by a holder
thereof.
SECTION 6. INSPECTION OF PROPERTIES AND BOOKS.
(a) So long as you or your nominee or any other Qualified
Institutional Holder holds any of the Notes, your or such Qualified
Institutional Holder's representatives shall have the right to visit and
inspect any of the properties of the Company and its Restricted Subsidiaries
in the presence of an officer of the Company, to examine the books of
account and records of the Company and its Restricted Subsidiaries, to make
copies and extracts therefrom, to discuss the affairs, finances and accounts
of the Company and its Restricted Subsidiaries with, and to be advised as to
the same by, its officers and (in the presence of an officer of the Company)
key employees, and its independent public accountants, all at such times and
intervals as you or such other Qualified Institutional Holder may reasonably
desire. The Company will likewise afford your and such Qualified
Institutional Holder's representatives the opportunity to obtain any
information, to the extent the Company or any Restricted Subsidiary
possesses such information or can acquire it without unreasonable effort or
expense, necessary to verify the accuracy of any of the representations and
warranties made by the Company hereunder.
(b) You agree, and (by its acceptance of any Note) each other holder
of Notes shall be deemed to have agreed, to use your best efforts to hold in
confidence all information furnished pursuant to this Agreement and relating
to the Company or any of its Subsidiaries which was designated in writing as
"confidential" at the time the same was furnished, provided, however,
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<PAGE> 21
that you or such other holder may disclose any information, irrespective of
whether or not such information shall have been designated as
"confidential", (i) to actual or prospective purchasers of the Notes or any
participations therein, (ii) to prospective assignees pursuant to Section
16.3, (iii) pursuant to or in connection with any action, suit or proceeding
by, or any statute, rule or regulation of, any Governmental Body, (iv)
pursuant to any Order of any court, arbitrator or Governmental Body or as
otherwise required by law, (v) to your auditors, to the extent required in
the course of their audit, to your counsel or to the National Association of
Insurance Commissioners or similar associations or authorities, or (vi) to
the extent necessary in the enforcement of your rights hereunder and under
the Notes during the continuance of a Default or Event of Default; and the
Company, for itself and on behalf of its Subsidiaries, expressly consents to
the disclosure of any such information to any of such Persons (and under any
such circumstances) contemplated in this Section; provided, further,
however, that any Person to whom any such information shall be disclosed
pursuant to Clause (i) or (ii) of this Subsection shall agree with you or
such other holder of Notes to likewise be bound by and subject to the
provisions of this Section.
(c) Anything herein to the contrary notwithstanding, neither the
Company nor any of its Subsidiaries shall have any obligations to disclose
pursuant hereto any engineering, scientific, or other technical data without
significance to your analysis of the financial position of the Company and
its Subsidiaries.
SECTION 7. COVENANTS. The Company covenants and agrees that from the date
of this Agreement to the Closing Date and thereafter so long as any Note shall
be outstanding:
7.1. Payment of Principal, Special Premium and Interest; Maintenance
of Books and Reserves. The Company will duly and punctually pay the principal
of, the Special Premium (if any) and interest on the Notes in accordance with
the terms of the Notes and this Agreement. The Company will, and will cause
each of its Restricted Subsidiaries to, keep proper books of record and account
and set aside appropriate reserves, all in accordance with GAAP.
7.2. Payment of Taxes; Corporate Existence; Maintenance of
Properties; Compliance with Laws. The Company will, and will cause each of its
Subsidiaries to,
(a) subject to Section 7.10, do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate
existence and its licenses, rights (charter and statutory) and franchises to
the extent the same are material and the termination thereof would be
adverse to the Company, or to the Company and its Restricted Subsidiaries
taken as a whole, or to the ability of the Company to perform this Agreement
and discharge its obligations on the Notes; and the Company will maintain
its principal office at a location in the United States of America where
notices, presentations and demands in respect of this Agreement and the
Notes may be made upon it and will notify, in writing, each holder of a Note
of any change of location of such office and such office shall be maintained
at 2100 Lake Park Boulevard, Richardson, Texas, 75080, until such time as
the Company shall so notify the holders of the Notes of any such change;
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<PAGE> 22
(b) pay and discharge or cause to be paid and discharged all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits or upon any of its property, real, personal or mixed, or
upon any part thereof, when due, as well as all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a Lien upon its
property; provided, however, that neither the Company nor any Subsidiary
shall be required to pay any such tax, assessment, charge, levy or claim if
the amount, applicability or validity thereof shall currently be contested
in good faith by appropriate proceedings, and if such reserve or other
appropriate provision, if any, as shall be required by GAAP shall have been
made therefor;
(c) maintain and keep, or cause to be maintained and kept, all
material properties used or useful in the business of the Company and its
Subsidiaries in good repair, working order and condition, and from time to
time make or cause to be made all repairs, renewals, replacements and
improvements which are necessary in connection with the proper and
advantageous conduct of such business; and
(d) use its best efforts to comply in all material respects with all
applicable statutes, regulations and orders of, and all applicable
restrictions imposed by, any Governmental Body, in respect of the conduct of
its business and the ownership of its properties (including, without
limitation, applicable statutes, regulations and orders relating to equal
employment opportunities), except such as are being contested in good faith
by appropriate proceedings.
7.3. Insurance. The Company will insure and keep insured, and will
cause each of its Subsidiaries to insure and keep insured, with financially
sound and reputable insurers, so much of their respective properties, and such
insurance shall be of such type and in such amounts (and with such
deductibles), as similarly situated manufacturing companies in accordance with
good business practice customarily insure properties of a similar character
against loss by fire and from other causes. In addition, the Company will, and
will cause each Subsidiary to, maintain public liability insurance with
financially sound and reputable insurers or maintain a program of
self-insurance covering claims for personal injury, death or property damage
suffered by others upon or in or about any premises occupied by it or occurring
as a result of its ownership, maintenance or operation of any automobiles,
trucks or other vehicles, aircraft or other facilities or as a result of the
use of products manufactured, constructed or sold by it or services rendered by
it, in such amounts (and with such deductibles) as such insurance is usually
maintained by companies engaged in a similar business and as is in accordance
with good business practice, provided that the aggregate annual amount of such
self-insurance maintained by the Company and its Subsidiaries shall not on any
date exceed 5% of Net Worth as at the end of the most recently completed fiscal
quarter.
7.4. Debt. The Company will not and will not permit any Restricted
Subsidiary to, directly or indirectly, create, assume, incur, agree to purchase
or repurchase or provide funds in respect of, or otherwise become or be
directly or indirectly liable in respect of, by way of Guarantee or otherwise,
any Debt, except that, subject in any event to the last paragraph of this
Section 7.4:
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(a) the Company may remain liable in respect of the Debt evidenced by
the Notes;
(b) the Company and its Restricted Subsidiaries may remain liable in
respect of the Debt described in Exhibit C, but may not extend, renew,
refund or refinance any thereof except as otherwise permitted by another
provision of this Section 7.4, provided that on the Closing Date $3,714,287
of the Debt described in item one of Exhibit C as the 10.15% Series E
Promissory Notes due 1998 shall be repaid out of the proceeds of the Notes;
(c) any Restricted Subsidiary may become and remain liable in respect
of unsecured Debt of such Restricted Subsidiary owing to the Company or a
Wholly-owned Restricted Subsidiary, and the Company may become and remain
liable in respect of Subordinated Debt owing to a Wholly-owned Restricted
Subsidiary; and
(d) the Company and any Restricted Subsidiary may become and remain
liable in respect of additional Debt if on the date (the "Incurrence Date")
on which the Company or such Restricted Subsidiary proposes to incur any
such Debt, and after giving effect to such incurrence and the substantially
concurrent incurrence of any other Debt and to the substantially concurrent
retirement of any other Debt and to the application of the proceeds of all
such Debt, Total Debt shall not exceed 55% of Total Capitalization;
provided, however, that nothing in this Section 7.4(d) shall permit the
Company or any Restricted Subsidiary to incur any Restricted Debt on any
Incurrence Date unless, after giving effect to any such incurrence and to
the substantially concurrent incurrence of any other Restricted Debt and to
the substantially concurrent retirement of any Restricted Debt and to the
application of the proceeds of all such Restricted Debt, the Restricted Debt
Amount shall not exceed 10% of Total Capitalization.
For all purposes of this Section 7.4, (i) any Person becoming a
Restricted Subsidiary after the date of this Agreement shall be deemed to have
incurred all of its then outstanding Debt at the time it becomes a Restricted
Subsidiary and (ii) in the event the Company or any Restricted Subsidiary shall
extend, renew, refund or refinance any Debt, the Company or such Restricted
Subsidiary shall be deemed to have incurred such Debt at the time of such
extension, renewal, refunding or refinancing. The Company will not in any
event incur or permit to exist any Debt of the Company to a Restricted
Subsidiary other than Subordinated Debt owing to a Wholly-owned Restricted
Subsidiary.
7.5. Liens. The Company will not and will not permit any Restricted
Subsidiary to, directly or indirectly, create, assume, incur or suffer to be
created, assumed or incurred or to exist any Lien in respect of any property of
any character owned by the Company or any Restricted Subsidiary (whether such
property is held on the date hereof or hereafter acquired), except, subject in
any event to the last paragraph of this Section 7.5 and to Subsection (d) of
Section 7.4:
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(a) Liens representing
(i) Liens for taxes or assessments or other governmental
charges or levies, either not yet due and payable or to the extent
that nonpayment thereof shall be permitted by the proviso to Section
7.2(b),
(ii) Liens created by or resulting from any litigation or legal
proceeding which is currently being contested in good faith by
appropriate proceedings diligently pursued, and
(iii) other Liens consisting of minor title defects affecting
real property or which are otherwise incidental to the normal conduct
of the business of the Company and its Restricted Subsidiaries or the
ownership of their respective properties which do not secure Debt and
which do not in the aggregate materially impair the use of such
property in the operation of the business of the Company, or of the
Company and its Restricted Subsidiaries taken as a whole, or
materially impair the value of such property for the purposes of such
business;
(b) Liens existing on the date of this Agreement specified in Exhibit
C and securing the item or items of Debt indicated thereon; provided that
the principal amount of the Debt secured by such Liens shall not be
increased, or refinanced or refunded except as permitted under Section 7.4;
(c) Liens on assets of any Restricted Subsidiary securing Debt or
other obligations of such Restricted Subsidiary owing to the Company or to a
Wholly-owned Restricted Subsidiary; and
(d) Liens in addition to those permitted by the preceding clauses (a),
(b) and (c) if, immediately after giving effect to the creation thereof, the
Company shall be entitled to incur at least $1 of additional Debt
constituting Restricted Debt under the proviso to Section 7.4(d).
For all purposes of this Section 7.5, any refunding or refinancing of
any Lien by the Company or any Restricted Subsidiary shall be deemed to be an
incurrence of such Lien at the time of such refunding or refinancing, and any
Lien existing on any property or assets at the time it or the Person owning it
is acquired by the Company or any Restricted Subsidiary shall be deemed to have
been created at the time of such acquisition. In the event that any property
or assets of the Company or any Restricted Subsidiary shall become or be
subject to a Lien not permitted by the foregoing clauses (a) through (d) of
this Section 7.5, the Company shall make or cause to be made effective
provision satisfactory to the holders of the outstanding Notes whereby the
Notes will be secured equally and ratably with all other obligations secured
thereby, and in any event, the Notes shall have the benefit, to the full extent
that (and with such priority as) the holders thereof may be entitled under
applicable law, of an equitable Lien on such property or asset; provided,
however, that any Lien
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<PAGE> 25
created, assumed, incurred or suffered to exist in violation of this Section
7.5 shall constitute an Event of Default whether or not the Company shall have
made effective provision to secure the Notes equally and ratably with any such
other obligations or the holders of Notes shall be entitled to such equal and
ratable security or any such equitable Lien.
7.6. Dividends and Other Restricted Payments; Restricted
Investments. The Company will not directly or indirectly (i) declare or pay
any dividend, or make any distribution, on the Company's shares of any class,
other than dividends or distributions payable in common shares of the Company,
or (ii) make any other Restricted Payment, and the Company will not make and
will not permit any Restricted Subsidiary to make any Restricted Investment,
unless, on the date of declaration in the case of any proposed dividend and on
the date of payment or distribution in the case of any proposed Restricted
Payment (including any dividend) or Restricted Investment (the "Computation
Date"), and after giving effect thereto,
(a) the aggregate amount of all Restricted Payments made during the
period (taken as one accounting period) commencing on January 1, 1991 and
ending on and including the Computation Date (the "Computation Period"), and
of all Restricted Investments made during the Computation Period and
outstanding on the Computation Date, shall not exceed an amount equal to the
sum of
(i) $45,000,000 plus 85% of the amount of the FASB 106
Adjustment, plus
(ii) 85% of the aggregate amount of Consolidated Net Income for
each full fiscal year in the Computation Period for which Consolidated
Net Income is positive, minus
(iii) 100% of the aggregate amount of Consolidated Net Income
for each full fiscal year in the Computation Period for which there is
a deficit,
plus 85% (or, in the case of a deficit, minus 100%) of Consolidated Net
Income for any period in the Computation Period not included in Clause (ii)
or (iii) above;
(b) no Event of Default or Default shall have occurred and be
continuing; and
(c) the Company shall be entitled to incur at least $1 of additional
Debt under Section 7.4(d).
The Company will not declare any dividend (other than dividends payable solely
in shares of its common stock) on any shares of any class of its stock which is
payable more than 90 days after the date of declaration thereof. For purposes
of this Section 7.6, Investments owned by any Person or for which it is
obligated at the time it becomes a Restricted Subsidiary shall be deemed to be
made at the time such Person becomes a Restricted Subsidiary.
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Notwithstanding any other provision of this Section 7.6 to the
contrary, the Company may, at any time or from time to time, reacquire up to an
aggregate amount of $15,000,000 of shares of its common stock in transactions
qualifying as distributions under Section 303 of the Code if but only if (i)
such acquisitions are at prices not exceeding the fair market value of the
shares so acquired, in each case as determined in good faith by a resolution of
the Board, and (ii) no Event of Default or Default shall have occurred and be
continuing. The amount of said dividends shall not be subject to the
limitations of this Section 7.6 or included in any future computations pursuant
to this Section 7.6.
7.7. Sales and Leasebacks. The Company will not and will not permit
any Restricted Subsidiary to, as part of the same transaction or series of
related transactions, sell or otherwise transfer to any Person or Persons any
item or items of property, whether now owned or hereafter acquired, having a
book value in any one case or in the aggregate for all such property so
transferred from and including the date hereof through the date of such
transfer of $20,000,000 or more if the Company or such Restricted Subsidiary
shall then or thereafter, as part of the same transaction or series of related
transactions, rent or lease as lessee, or similarly acquire the right to
possession or use of such property, or one or more properties which it intends
to use for the same purpose or purposes as such property.
7.8. Maintenance of Certain Financial Conditions. The Company will
not permit:
(a) Current Assets as at the end of any fiscal quarter of the Company
to be less than 150% of Current Liabilities as at the end of such fiscal
quarter;
(b) Net Worth as at the last day of any fiscal quarter of the Company
to be less than the Minimum Amount for such fiscal quarter. For purposes of
this Section 7.8(b), the "Minimum Amount" shall be (i) for the fiscal
quarter ending December 31, 1991, $230,000,000, and (ii) for each fiscal
quarter thereafter, the sum of the Minimum Amount for the immediately
preceding fiscal quarter plus 15% (or 0% in the case of a deficit) of
Consolidated Net Income for such immediately preceding fiscal quarter; or
(c) the aggregate vested benefit obligations for the qualified pension
plans of the Company and its Subsidiaries, determined in each fiscal year by
the Company's actuaries in the ordinary course of business, to exceed the
aggregate fair value of the assets of such plans, also determined in each
fiscal year by the Company's actuaries in the ordinary course of business,
by more than $3,000,000.
For purposes of paragraph (c) of this Section 7.8, obligations and assets of
pension plans of the Company and its Subsidiaries shall be determined as of the
end of each fiscal year in accordance with Statement No. 87 of the Financial
Accounting Standards Board.
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<PAGE> 27
7.9. Subsidiary Stock and Debt. The Company will not:
(a) directly or indirectly sell, assign, pledge or otherwise transfer
or dispose of any Debt of, or claim against, or any shares of stock or
similar interests or other securities of (or warrants, rights or options to
acquire stock or similar interests or other securities of), any Restricted
Subsidiary, except to a Wholly-owned Restricted Subsidiary and except as
directors' qualifying shares if required by applicable law;
(b) permit any Restricted Subsidiary directly or indirectly to sell,
assign, pledge or otherwise transfer or dispose of any Debt of, or claim
against, or any shares of stock or similar interests or other securities of
(or warrants, rights or options to acquire stock or similar interests or
other securities of), any other Restricted Subsidiary, except to the Company
or a Wholly-owned Restricted Subsidiary and except as directors' qualifying
shares if required by applicable law;
(c) permit any Restricted Subsidiary to have outstanding any shares of
preferred stock other than shares of preferred stock which are owned by the
Company or a Wholly-owned Restricted Subsidiary; or
(d) permit any Restricted Subsidiary directly or indirectly to issue
or sell any shares of its stock or similar interests or other securities (or
warrants, rights or options to acquire stock or similar interests or other
securities) except to the Company or a Wholly-owned Restricted Subsidiary or
as directors' qualifying shares if required by applicable law;
provided, however, that all stock or similar interests or other securities (or
warrants, rights or options to acquire stock or similar interests or other
securities) of any Restricted Subsidiary with annual sales for the immediately
preceding fiscal year less than $50,000,000 may be simultaneously sold as an
entirety for a cash consideration at least equal to the fair value thereof (as
determined in good faith by a resolution of the Board) at the time of such
sale, if (A) such Restricted Subsidiary being sold does not at the time own any
Debt or stock or similar interests or other securities of (or warrants, rights
or options to acquire stock or similar interests or other securities of) the
Company or of any other Restricted Subsidiary which is not also being
simultaneously sold as an entirety as permitted by this Section 7.9 or Section
7.10, (B) the assets of such Restricted Subsidiary being sold represented by
the equity interests to be so transferred are such that the sale of such assets
would be permitted by Section 7.10 (in which case such transaction shall be
considered and deemed a disposition of assets for the purposes of Section
7.10), and (C) immediately after the consummation of such transaction, (x) the
Company shall then be permitted to incur $1.00 of additional Debt pursuant to
Section 7.4(d), and (y) both prior to and immediately following such sale, no
condition or event shall exist which constitutes a Default or an Event of
Default.
7.10. Consolidation, Merger or Disposition of Assets. The Company
will not and will not permit any Restricted Subsidiary to, directly or
indirectly, consolidate or merge with, or sell,
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lease or otherwise dispose of any of its assets to, any Person, except, subject
(to the extent hereinafter provided) to the last paragraph of this Section
7.10:
(a) the Company may consolidate or merge with any other corporation,
provided that the Company shall be the continuing or surviving corporation
and, after giving effect to any such consolidation or merger, no Change of
Control shall have occurred;
(b) any Restricted Subsidiary may consolidate or merge with, and any
Restricted Subsidiary may sell, lease or otherwise dispose of its assets to,
the Company or a Wholly-owned Restricted Subsidiary;
(c) the Company may consolidate with or merge into, or sell, lease or
otherwise dispose of its assets as an entirety or substantially as an
entirety to, any solvent corporation, but only if
(i) such corporation (A) is duly organized and validly
existing in good standing under the laws of the United States of
America or a State thereof and (B) expressly assumes, pursuant to a
written agreement satisfactory in form, scope and substance to the
holders of the Notes, the due and punctual payment of the principal
of, the Special Premium (if any) and interest on the Notes according
to their tenor, and the due and punctual performance and observance of
the obligations of the Company under this Agreement and the Notes, an
executed counterpart of which agreement shall have been furnished to
each holder of a Note together with a favorable opinion of counsel
satisfactory to each such holder covering such matters relating to
such corporation, such assumption and such agreement as such holder
may reasonably request, and
(ii) in the case of any such transaction which would involve or
result in a Change of Control, the Company shall have offered to
purchase all Notes held by each holder thereof pursuant to Section
7.12 and, not later than the time of consummation of such transaction,
shall have purchased, in compliance with Section 7.12, the full amount
of all Notes of each holder thereof which shall have accepted such
offer;
(d) the Company and any Restricted Subsidiary may sell, lease or
otherwise dispose of any of its assets in the ordinary course of business;
(e) Industries may sell the Columbus Plant and the Atlanta Warehouse,
and Heatcraft may sell the Wilmington Plant, the Bossier City Plant and its
line-set business (that is, its business of manufacturing links of insulated
copper tubing with fittings on the ends thereof), for a consideration at
least equal to the fair market value thereof (as determined in good faith by
the Board); and
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(f) the Company and any Restricted Subsidiary may sell, lease or
otherwise dispose of any of its assets (other than in the ordinary course of
its business) for a consideration at least equal to the fair market value
thereof (as determined in good faith by the Board) at the time of such sale,
lease or other disposition, provided that the assets so sold, leased, or
otherwise disposed of on any date, when taken together with all assets
theretofore sold, leased, or otherwise disposed of by the Company and its
Restricted Subsidiaries (including all deemed dispositions of assets
pursuant to Section 7.9 and all assets sold in connection with
sale-leaseback transactions permitted under Section 7.7), (i) during the
fiscal year in which such date occurs, (A) shall not have contributed more
than 15% of Consolidated Operating Income for the immediately preceding
fiscal year and (B) shall not have a book value exceeding 15% of the book
value of consolidated total assets of the Company and its Restricted
Subsidiaries as at the end of the immediately preceding fiscal year, and
(ii) during the period from and including the date hereof through the date
of such disposition, shall not have a book value exceeding 30% of the book
value of consolidated total assets of the Company and its Restricted
Subsidiaries as at the end of the immediately preceding fiscal year.
Immediately after any consolidation, merger or other disposition under
Subsection (a), (b), (c), (e) or (f) of this Section 7.10, (1) no Event of
Default or Default shall have occurred and be continuing, and (2) the Company
(which term, for the purpose of this sentence, shall not include the
corporation that originally executed this Agreement if any other Person has
become the Company pursuant to any assumption described in Subsection (c) of
this Section 7.10) shall be entitled to incur at least $1 of additional Debt
under Section 7.4(d). No disposition under Subsection (c) of this Section 7.10
shall release the corporation that originally executed this Agreement from its
liability as obligor on the Notes.
7.11. Issuance of Stock. The Company will not (either directly or
indirectly by the issuance of rights or options for, or securities convertible
into, such shares) issue, sell or otherwise dispose of any shares of any class
of its capital stock (other than directors' qualifying shares, if required by
applicable law) if any Change of Control shall thereby occur, unless the
Company shall have offered to purchase the Notes pursuant to Section 7.12.
7.12. Purchase of Notes Upon Change of Control. At least 15 Business
Days (or, in the case of any transaction permitted by Section 7.10 or 7.11
resulting in a Change of Control, at least 45 days) and not more than 90 days
prior to the occurrence of any Change of Control, the Company shall give
written notice thereof to each holder of an outstanding Note in the manner and
to the address specified for notices pursuant to this Section 7.12 for such
holder in Schedule I or as otherwise specified by such holder in writing to the
Company. Such notice shall contain (i) an offer by the Company to purchase, on
the date of such Change of Control or, if such notice shall be delivered less
than 35 days prior to the date of such Change of Control, on the date 35 days
after the date of such notice (the "Purchase Date"), all Notes held by each
such holder at a price equal to 100% of the principal amount thereof, together
with interest accrued thereon to the Purchase Date, plus a premium equal to the
Special Premium, (ii) the estimated respective amounts of accrued
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interest and the Special Premium payable to such holder in respect of such
purchase, showing in each case in reasonable detail the calculation thereof
and, with respect to the estimated Special Premium, the Reference Rate used in
such calculation and (iii) the Company's estimate of the date on which such
Change of Control shall occur. Said offer shall be deemed to lapse as to any
such holder which has not replied affirmatively thereto in writing within 35
days of the giving of such notice. As soon as practicable (and in any event at
least 24 hours) prior to such Change of Control, the Company shall give written
confirmation of the date thereof to each such holder which has affirmatively
replied to the notice given pursuant to the first sentence of this Section
7.12. In the event that the Company shall purchase any Notes pursuant to this
Section 7.12, the same shall thereafter be canceled and not reissued and shall
not be deemed "outstanding" for any purpose of this Agreement.
For the purposes of this Section 7.12, a "Change of Control" shall be
deemed to occur if any New Owner shall acquire beneficial ownership of shares
in the Company having Voting Rights pertaining thereto which would allow such
New Owner to elect more members of the Board than could be elected by the
exercise of all Voting Rights pertaining to shares in the Company then owned
beneficially by the Norris Family. As used in this Section 7.12:
(i) "Voting Rights" pertaining to shares of a corporation means the
rights to cast votes for the election of directors of such corporation in
ordinary circumstances (without consideration of voting rights which exist
only in the event of contingencies).
(ii) "Norris Family" means all persons who are lineal descendants of
D.W. Norris (by birth or adoption), all spouses of such descendants, all
estates of such descendants or spouses which are in the course of
administration, all trusts for the benefit of such descendants or spouses,
and all corporations or other entities in which, directly or indirectly,
such descendants or spouses (either alone or in conjunction with other such
descendants or spouses) have the right, whether by ownership of stock or
other equity interests or otherwise, to direct the management and policies
of such corporations or other entities (each such person, spouse, estate,
trust, corporation or entity being referred to herein as a "member" of the
Norris Family). In addition, so long as any employee stock ownership plan
exercises its Voting Rights in the same manner as members of the Norris
Family (exclusive of employee stock ownership plans) who have a majority of
the Voting Rights exercised by all such members of the Norris Family, such
employee stock ownership plan shall be deemed a member of the Norris Family.
(iii) "New Owner" means any person (other than a member of the Norris
Family), or any syndicate or group of persons (exclusive of all members of
the Norris Family) which would be deemed a "person" for the purposes of
Section 13(d) of the Exchange Act, who directly or indirectly acquires
shares in the Company.
Notwithstanding anything in this Section 7.12 to the contrary, if an Event of
Default exists following a Change of Control and the Notes are accelerated
pursuant to the provisions of Section 9.1, the
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holders of the Notes shall be entitled to receive the Special Premium relating
to such accelerated amount as provided in Section 9.1.
7.13. Transactions with Affiliates. The Company will not and will
not permit any Restricted Subsidiary to engage in any material transaction with
an Affiliate on terms less favorable to the Company or such Restricted
Subsidiary than would have been obtainable at the time from any Person which is
not an Affiliate in arm's-length dealing provided, that the foregoing
restrictions shall not apply to any transaction between the Company and a
Wholly-owned Restricted Subsidiary or between a Wholly-owned Restricted
Subsidiary and another Wholly-owned Restricted Subsidiary.
7.14. Change in Business. The Company will not either directly or by
or through a Subsidiary make or permit any substantial change in the nature of
the business in which the Company and its Subsidiaries, taken as a whole, are
engaged on the date of this Agreement except for such changes as are natural
extensions of the heating, cooling, refrigeration, copper tube manufacturing
and electronics businesses.
7.15. Environmental Matters. (a) The Company will and will cause
each of its Subsidiaries to comply in all material respects with all applicable
Environmental Laws if, individually or in the aggregate, failure to comply
therewith could reasonably be expected to have a material adverse effect on the
financial condition or results of operations of the Company or the Company and
its Subsidiaries, taken as a whole.
(b) The Company will not and will not permit any of its Subsidiaries
to cause or allow any Hazardous Substance to be present at any time on, in,
under or above any real property or any part thereof in which the Company or
any Subsidiary has a direct interest (including without limitation ownership
thereof or any arrangement for the lease, rental or other use thereof, or the
retention of any mortgage or security interest therein or thereon), except in a
manner and to an extent that is in compliance in all material respects with all
applicable Environmental Laws or that will not have a material adverse effect
on the financial condition or results of operations of the Company or the
Company and its Subsidiaries, taken as a whole.
7.16. Limitation on Dividend Restrictions, etc. The Company will not
permit any Restricted Subsidiary to enter into, adopt, create or otherwise be
or become bound by or subject to any contract or charter or by-law provision
limiting the amount of, or otherwise imposing restrictions on the declaration,
payment or setting aside of funds for the making of, dividends or other
distributions in respect of the capital stock of such Restricted Subsidiary to
the Company or another Restricted Subsidiary.
7.17. Most Favored Lender's Status. The Company will not and will
not permit any Restricted Subsidiary to enter into, assume or otherwise be
bound or obligated under any agreement creating or evidencing Debt or any
agreement executed and delivered in connection with any Debt containing one or
more Additional Covenants or Additional Defaults (as defined below), unless
prior written consent to such agreement shall have been obtained pursuant to
Section 12; provided,
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however, in the event the Company or any Restricted Subsidiary shall enter
into, assume or otherwise become bound by or obligated under any such agreement
without the prior written consent of the holders of the Notes, the terms of
this Agreement shall, without any further action on the part of the Company or
any of the holders of the Notes, be deemed to be amended automatically to
include each Additional Covenant and each Additional Default contained in such
agreement. The Company further covenants to promptly execute and deliver at
its expense an amendment to this Agreement in form and substance satisfactory
to the holders of at least 66-2/3% in aggregate unpaid principal amount of all
Notes at the time outstanding evidencing the amendment of this Agreement to
include such Additional Covenants and Additional Defaults, provided that the
execution and delivery of such amendment shall not be a precondition to the
effectiveness of such amendment as provided for in this Section 7.17, but shall
merely be for the convenience of the parties hereto.
For purposes of this Agreement, (i) the term "Additional Covenant"
shall mean any affirmative or negative covenant or similar restriction
applicable to the Company or any Restricted Subsidiary (regardless of whether
such provision is labeled or otherwise characterized as a covenant) the subject
matter of which either (A) is similar to that of the covenants in Section 7 of
this Agreement, or related definitions in Section 8 of this Agreement, but
contains one or more percentages, amounts or formulas that is more restrictive
than those set forth herein or more beneficial to the holder or holders of such
other Debt (and such covenant or similar restriction shall be deemed an
"Additional Covenant" only to the extent that it is more restrictive or more
beneficial) or (B) is different from the subject matter of the covenants in
Section 7 of this Agreement, or related definitions in Section 8 of this
Agreement; and (ii) the term "Additional Default" shall mean any provision
which permits the holder of such Debt to accelerate (with the passage of time
or giving of notice or both) the maturity thereof or otherwise require the
Company or any Restricted Subsidiary to purchase such Debt prior to the stated
maturity of such Debt and which either (A) is similar to the Defaults and
Events of Default contained in Section 9.1 of this Agreement, or related
definitions in Section 8 of this Agreement, but contains one or more
percentages, amounts or formulas that is more restrictive or has a shorter
grace period than those set forth herein or is more beneficial to the holder or
holders of such other Debt (and such provision shall be deemed an "Additional
Default" only to the extent that it is more restrictive, has a shorter grace
period or is more beneficial) or (B) is different from the subject matter of
the Defaults and Events of Default contained in Section 9.1 of this Agreement,
or related definitions in Section 8 of this Agreement.
SECTION 8. DEFINITIONS.
8.1. Definitions. Except as otherwise specified or as the context
may otherwise require, the following terms shall have the respective meanings
set forth below whenever used in this Agreement and such terms shall include
the singular as well as the plural:
"Affiliate" of any specified Person shall mean any other Person
controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, "control" when used with respect
to any specified Person means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of
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voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Atlanta Warehouse" shall mean the real property and fixtures of
Industries located at 2915 East Ponce de Leon Avenue, Decatur, Georgia 30030.
"Board" shall mean (i) in the case of determinations of value under
Section 7.10, the board of directors of the Restricted Subsidiary which owns
the relevant assets and (ii) in all other cases, either the board of directors
of the Company or any duly authorized committee of that board.
"Bossier City Plant" shall mean the real and personal property of
Heatcraft located at 5007 Hazel Jones Road in Bossier City, Louisiana.
"Business Day" shall mean a day other than a Saturday or Sunday or a
day on which banks are required or authorized to close in New York, New York,
or Dallas, Texas.
"Capital Lease" shall mean any lease of property which in accordance
with GAAP should be capitalized on the lessee's balance sheet; and "Capital
Lease Obligation" shall mean the amount of the liability under a Capital Lease
which is or should be so capitalized in accordance with GAAP.
"Change of Control" shall have the meaning specified in Section 7.12.
"Closing Date" shall have the meaning specified in Section 1.2.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
any successor statute thereto, together with the rules and regulations issued
thereunder, in each case as in effect from time to time.
"Columbus Plant" shall mean the real and personal property of
Industries located on Olentangy River Road in Columbus, Ohio.
"Commission" shall mean the Securities and Exchange Commission and any
other similar or successor agency of the Federal Government administering the
Securities Act.
"Commonly Controlled Entity" shall have the meaning specified in
Section 2.11.
"Company" shall have the meaning specified in the introductory
paragraph.
"Company Premises" shall mean real property in which the Company or
any Person which has at any time been or hereafter becomes a Subsidiary of the
Company at any time has or ever had any direct interest, including, without
limitation, ownership thereof, or any arrangement for
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the lease, rental or other use thereof, or the retention or claim of any
mortgage or security interest therein or THEREON.
"Computation Date" shall have the meaning specified in Section 7.6.
"Computation Period" shall have the meaning specified in Section 7.6.
"Consolidated Net Income" for any period shall mean the Net Income of
the Company and its Restricted Subsidiaries for such period consolidated in
accordance with GAAP.
"Consolidated Operating Income" for any period shall mean Consolidated
Net Income for such period plus the net amount deducted during such period in
determining the amount thereof in respect of interest expense (including the
interest equivalent in respect of Capital Lease Obligations) and taxes imposed
on or measured by income or excess profits.
"Current Assets" shall mean the current assets of the Company and its
Restricted Subsidiaries determined in accordance with GAAP on a consolidated
basis after eliminating all intercompany items.
"Current Liabilities" shall mean the current liabilities of the
Company and its Restricted Subsidiaries determined in accordance with GAAP on a
consolidated basis after eliminating all intercompany items and after excluding
current liabilities consisting of current maturities of long-term debt.
"Debt" as applied to any Person (without duplication) shall mean all
obligations of such Person for borrowed money (whether short or long-term and
whether or not represented by bonds, debentures, notes, drafts or other similar
instruments) and any notes payable and drafts accepted representing extensions
of credit whether or not representing obligations for borrowed money, and in
any event shall include (a) any obligation owed for all or any part of the
purchase price of property or other assets or for the cost of the property or
other assets constructed or of improvements, other than accounts payable
included in current liabilities and incurred in respect of property purchased
in the ordinary course of business, (b) any obligation of another Person of a
type described in clause (a), (c) or (d) of this definition which is secured by
any Lien on or payable out of the proceeds of production from property owned or
held by such Person, even though such Person has not assumed or become liable
for the payment of such obligation, (c) any Capital Lease Obligation of such
Person, (d) any Guarantee by such Person of or with respect to Debt of another
Person, and (e) all preferred stock issued by such Person which is redeemable,
or for which mandatory sinking fund payments are due, at any time on or before
December 1, 2008. The Debt of the Company shall in any event include (without
duplication) all Debt of the Company to a Subsidiary. The amount of Debt and
assets of any Person shall not be affected by deposits, trust arrangements or
similar arrangements which, in accordance with GAAP, extinguish debt for which
such Person remains legally liable.
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"Default" shall mean any default or other event which, with notice or
the lapse of time or both, would constitute an Event of Default.
"Environmental Laws" shall mean any past, present or future Federal,
state, local or foreign statutory or common law, or any regulation, code, plan,
order, decree, judgment, permit, grant, franchise, concession, restriction,
agreement or injunction issued, entered, promulgated or approved thereunder,
relating to (a) the environment or human health or safety, including, without
limitation, any law relating to emissions, discharges, releases or threatened
releases of Hazardous Substances into the environment (including, without
limitation, air, surface water, groundwater or land), or (b) the manufacture,
generation, refining, processing, distribution, use, sale, treatment, receipt,
storage, disposal, transport, arranging for transport, or handling of Hazardous
Substances.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Events of Default" shall have the meaning specified in Section 9.1.
"Exchange Act" shall mean the Securities Exchange Act of 1934, and any
similar or successor Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Fort Worth Plant" shall mean the real and personal property of
Industries located at the corner of Airport Freeway and Maxine, Fort Worth,
Texas.
"FASB 106 Adjustment" shall mean the after-tax charge in fiscal year
1993 to net income of the Company and its Restricted Subsidiaries on a
consolidated basis upon adoption of Financial Accounting Standards Board
Statement No. 106.
"GAAP" shall mean generally accepted accounting principles as in
effect at the time of application to the provisions hereof, provided that for
all purposes of this Agreement it is understood and agreed that the Company
shall account for its Unrestricted Subsidiaries on the equity method.
"Governmental Body" shall have the meaning specified in Section 2.7.
"Guarantee" of or by any Person shall mean any guarantee or other
contingent liability, direct or indirect, with respect to any Debt of another
Person, through an agreement or otherwise, including, without limitation, (a)
any endorsement (otherwise than for collection or deposit in the ordinary
course of business) or discount with recourse or undertaking substantially
equivalent to or having similar economic effect of a guarantee with respect to
any such Debt, (b) any contingent obligations of such Person in respect of
letters of credit, letter of credit facilities, bankers' acceptance facilities
or similar credit facilities (excluding in any event obligations in respect of
(1) trade or commercial letters of credit given in the ordinary course of
business and (2) stand-by letters
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of credit given to support obligations other than Debt obligations) and (c) any
agreement (1) to purchase, or to advance or supply funds for the payment or
purchase of, any such Debt, (2) to purchase, sell or lease property, products,
materials or supplies, or transportation or services, primarily for the purpose
of enabling such other Person to pay the Debt or to ensure the owner thereof
against loss regardless of the delivery or non-delivery of the property,
products, materials or supplies or transportation or services, or (3) to make
any loan, advance, capital contribution or other investment in such other
Person to assure a minimum equity, working capital or other balance sheet
condition for any date, or to provide funds for the payment of any liability,
dividend or stock liquidation payment, or otherwise to supply funds to or in
any manner invest in such other Person. The amount of any Guarantee shall
(subject to any limitation contained therein) be equal to the outstanding
principal amount of the Debt guaranteed.
"Hazardous Substance" shall mean any contaminant, pollutant or toxic
or hazardous substance, and any substance that is defined or listed as a
hazardous, toxic or dangerous substance under any Environmental Law or that is
otherwise regulated or prohibited under any Environmental Law as a hazardous,
toxic or dangerous substance.
"Heatcraft" shall mean Heatcraft Inc., a Mississippi corporation.
"Industries" shall mean Lennox Industries Inc., an Iowa corporation.
"Investment" shall mean any investment in any Person made by stock
purchase, capital contribution, loan, advance or otherwise, provided that the
amount of any such investment in any Person shall be computed in accordance
with GAAP. Investments shall not on any date include notes receivable accepted
by the Company or any Restricted Subsidiary in settlement of trade accounts
receivable of non-Affiliates so long as the allowance for doubtful accounts of
the Company and its Restricted Subsidiaries includes the excess, if any, of (a)
the aggregate principal amount of all such notes on such date over (b) 5% of
the sum of (i) the aggregate principal amount of all such notes plus (ii) all
trade accounts receivable of the Company and its Restricted Subsidiaries on
such date, before allowances for doubtful accounts.
"Letter Agreement" shall mean that certain letter agreement, dated as
of the date hereof, between the Company and you, substantially in the form of
Exhibit G hereto.
"Lien" shall mean, as to any Person, any mortgage, lien, pledge,
adverse claim, charge, other encumbrance in favor of any vendor, lessor, lender
or other secured party in or on, or any interest or title of any such vendor,
lessor, lender or other secured party under any conditional sale or other title
retention agreement or Capital Lease with respect to, any property or asset of
such Person, or the signing or filing of a financing statement with respect to
property owned by such Person which names such Person as debtor, or the signing
of any security agreement authorizing any other party as the secured party
thereunder to file any such financing statement.
"Multiemployer Plan" shall have the meaning specified in Section 2.11.
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"Net Income" of any Person for any period shall mean the net income
(or net loss) of such Person for such period, determined in accordance with
GAAP, excluding
(a) the proceeds of any life insurance policy;
(b) any gain arising from (1) the sale or other disposition of any
assets (other than current assets) to the extent that the aggregate amount
of gains exceeds the aggregate amount of losses from the sale, abandonment
or other disposition of assets (other than current assets), (2) any write-up
of assets, or (3) the acquisition by such Person of its outstanding Debt
securities;
(c) any amount representing the interest of such Person in the
undistributed earnings of any other Person;
(d) any earnings of any other Person accrued prior to the date it
becomes a Restricted Subsidiary or is merged into or consolidated with the
Company or a Restricted Subsidiary and any earnings, prior to the date of
acquisition, of any other Person acquired in any other manner; and
(e) any deferred credit (or amortization of a deferred credit) arising
from the acquisition of any Person.
"Net Worth" shall mean, as of any date of determination thereof, the
total stockholders' equity of the Company and its Subsidiaries determined in
accordance with GAAP on a consolidated basis, provided that (i) Net Worth shall
be increased by the amount of the FASB 106 Adjustment and (ii) if the portion
of total stockholders' equity attributable to Unrestricted Subsidiaries exceeds
15% of total stockholders' equity, Net Worth shall be reduced by the amount of
such excess.
"New Owner" shall have the meaning specified in Section 7.12.
"Norris Family" shall have the meaning specified in Section 7.12.
"Note" or "Notes" shall have the meaning specified in Section 1.1.
"Note Register" shall have the meaning specified in Section 10.
"Order" shall have the meaning specified in Section 2.7.
"outstanding" shall refer, when used with reference to the Notes as of
a particular time, to all Notes theretofore issued as provided in this
Agreement, except (i) Notes theretofore reported as lost, stolen, damaged or
destroyed, or surrendered for transfer, exchange or replacement, in respect of
which replacement Notes have been issued, (ii) Notes theretofore paid in full,
and
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(iii) Notes theretofore canceled by the Company; and except that, for the
purpose of determining whether holders of the requisite principal amount of
Notes have made or concurred in any waiver, consent, approval, notice or other
communication under this Agreement, Notes owned by the Company or any Affiliate
thereof shall not be deemed to be outstanding.
"Person" shall include an individual, a corporation, an association, a
partnership, a trust or estate, a government, foreign or domestic, and any
agency or political subdivision thereof, or any other entity.
"Purchase Date" shall have the meaning specified in Section 7.12.
"Qualified Institutional Holder" shall mean any holder which is an
institutional investor (a) which holds at the time in question at least
$3,000,000 in aggregate principal amount of Notes or any lesser principal
amount thereof constituting at least 20% of the aggregate principal amount of
Notes then outstanding or (b) which purchases from a holder 100% of the Notes
held by such holder (after giving effect to any reduction in principal
resulting from a prepayment of Notes).
"Restricted Debt" shall mean any of (i) Debt (including, without
limitation, Capital Lease Obligations, purchase money obligations and
industrial revenue bonds) of the Company or a Restricted Subsidiary which is
secured by a Lien not otherwise permitted under clause (a), (b) or (c) of
Section 7.5; or (ii) Debt of a Restricted Subsidiary owing to any Person other
than the Company or a Wholly-owned Restricted Subsidiary.
"Restricted Debt Amount" shall mean as of any date of determination,
the sum (without duplication) of the aggregate principal amount outstanding of
all Restricted Debt.
"Restricted Investment" shall mean any Investment by the Company or
any Restricted Subsidiary other than
(a) any Investment in (1) a marketable obligation, maturing within two
years after acquisition thereof, issued or guaranteed by the United States
of America or an instrumentality or agency thereof, and entitled to the full
faith and credit of the United States of America, (2) a demand deposit
account with, or a certificate of deposit or other obligation, maturing
within one year after acquisition thereof, either fully insured by the
Federal Deposit Insurance Corporation (or any successor Federal agency) or
issued by a national or State bank or trust company having capital, surplus
and undivided profits of at least $250,000,000, and having (or being the
wholly-owned subsidiary of a holding company having) a credit rating in
respect of its short-term obligations of A-2 or higher from Standard &
Poor's Corporation or P-2 or higher from Moody's Investors Service, Inc.,
(3) open market commercial paper, maturing within 270 days after acquisition
thereof, having a credit rating of A-2 or higher from Standard & Poor's
Corporation or P-2 or higher from Moody's Investors Service, Inc. and (4) a
demand deposit account either fully insured by the Federal Deposit Insurance
Corporation (or any successor Federal Agency) or with a national or State
bank or trust
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company having capital, surplus and undivided profits of at least
$100,000,000, if such demand deposit account is required to conduct
operations of the Company or any Restricted Subsidiary in the same local
area in which such bank or trust company is located and the aggregate amount
of Investments in all such demand deposit accounts permitted by this clause
(4) does not exceed 1% of Net Worth;
(b) any Investment existing on the date hereof, as set forth in
Exhibit D hereto, including any extensions or renewals of any such
Investment;
(c) any Investment hereafter acquired in exchange for, or out of the
net cash proceeds from the substantially concurrent sale of, common shares
of the Company;
(d) Investments in
(i) shares of adjustable rate or floating rate preferred
stock, variable rate notes or other Debt or equity issues of business
corporations, or
(ii) Debt issues of municipalities,
the issuers of which Investments described in this subsection (d) shall in
any case have a credit rating in respect of their long-term obligations of
A- or higher from Standard & Poor's Corporation or A3 or higher from Moody's
Investors Service, Inc., provided (i) that the aggregate outstanding amount
of Investments which shall at any time not constitute Restricted Investments
pursuant to this Subsection (d) of the definition of Restricted Investments
shall not exceed one-third of the then aggregate outstanding amount of all
Investments of the Company and its Restricted Subsidiaries at such time
(disregarding for this purpose Investments in Restricted Subsidiaries or
joint ventures), and (ii) the aggregate outstanding amount of Investments
issued by a single issuer which shall at any time not constitute Restricted
Investments pursuant to this Subsection (d) shall not exceed $5,000,000; and
(e) any Investment by the Company or any Restricted Subsidiary in any
Restricted Subsidiary or any Person which simultaneously therewith becomes a
Restricted Subsidiary.
For the purposes of this definition, the outstanding amount of any Investment
shall be the amount originally actually invested, net of any return of capital,
and disregarding any appreciation or decline in value, or write-up, write-down
or write-off, of the Investment concerned.
"Restricted Payment," in respect of the Company, shall mean
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(a) the declaration of any dividend on, or the incurrence of any
liability to make any other payment or distribution in respect of, shares of
the Company of any class (other than one payable solely in its common
shares); and
(b) any payment or distribution on account of the purchase, redemption
or other retirement of any shares of the Company of any class, or of any
warrant, option or other right to acquire such shares, or any other payment
or distribution (other than pursuant to a dividend theretofore declared or
liability theretofore incurred as specified in the foregoing Subsection
(a)), made in respect thereof, either directly or indirectly except a
purchase, redemption or other retirement of shares of the Company out of the
net cash proceeds from the substantially concurrent sale of common shares of
the Company.
The amount of any Restricted Payment in property shall be deemed to be the
greater of its fair value (as determined by the Board) or its net book value.
"Restricted Subsidiary" shall mean any Subsidiary of the Company which
(a) is listed as a Restricted Subsidiary on Exhibit B or (b) is organized under
the laws of, and conducts substantially all of its business and maintains
substantially all of its property and assets within, the continental United
States of America or any State thereof. Once a Subsidiary is or becomes a
Restricted Subsidiary it may not thereafter become an Unrestricted Subsidiary.
"Securities Act" shall mean the Securities Act of 1933, and any
similar or successor Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Special Premium" shall mean, with respect to any principal amount of
Notes being prepaid pursuant to Section 4.2, any purchase of the principal
amount of Notes pursuant to Section 7.12 or any acceleration of the principal
amount of any Note pursuant to Section 9.1 (such prepaid, purchased or
accelerated principal amount being hereinafter referred to as the "Prepaid
Principal"), as at any date of determination, an amount equal to the greater of
(i) zero and (ii) the excess of:
(A) the sum of the respective present values as of the date such
Special Premium becomes due and payable of:
(1) each prepayment of principal (if any) required to be made
with respect to such Prepaid Principal pursuant to Section 4.1 with
respect to such Prepaid Principal during the Discount Period,
(2) the payment of principal balance required to be made at
final maturity with respect to such Prepaid Principal, and
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(3) each payment of interest which would be required to be
paid during such Discount Period with respect to such Prepaid Principal
from time to time outstanding,
determined, in the case of each such required prepayment, principal payment
at final maturity and interest payment, by discounting the amount thereof
(on a semiannual basis) from the date fixed therefor back to the date of
payment of such Special Premium at the Reference Rate (assuming for such
purpose that all such payments and prepayments of principal and payments of
interest with respect to such Prepaid Principal were made when due pursuant
to the terms of this Agreement and the Notes, and that no other payment or
prepayment with respect to such Prepaid Principal was made),
over
(B) the amount of such Prepaid Principal.
For purposes of the foregoing definition of Special Premium, (1) "Discount
Period" shall mean the period beginning on the date of such payment of Special
Premium and ending on the stated final maturity of the Notes; and (2)
"Reference Rate" shall mean a per annum rate determined by adding 0.50% to the
annual yield implied for actively traded United States Treasury securities
having a term to maturity equal to the Weighted Average Life to Maturity of the
portion of the Notes being prepaid, purchased or accelerated as determined by
reference to (i) the yields reported, as of 10:00 a.m. (New York City time) on
the Business Day next preceding the date of such payment, on the display
designated as "Page 678" on the Telerate Service (or such other display as may
replace "Page 678" on the Telerate Service), or if such yields shall not be
reported as of such time or the yields reported as of such time shall not be
ascertainable, (ii) the Federal Reserve Statistical Release H.15(519) ("Release
H.15") published most recently prior to the third day preceding the date of
such payment, or, if Release H.15 is no longer published, such annual yield as
determined, at the Company's expense, by an independent investment banking firm
acceptable to the Company and the holders of Notes; provided that, if there
shall be no actual United States Treasury security having a term to maturity
equal to such Weighted Average Life to Maturity of the Notes, the annual yield
for a United States Treasury security deemed to have such a term to maturity
shall be interpolated on a basis consistent with the annual yields of other
United States Treasury securities as determined by reference to Release H.15,
or (if Release H.15 is no longer published) as determined at the Company's
expense by such an independent investment banking firm.
"Subordinated Debt" of any Person shall mean Debt of such Person which
is expressly made subordinate and junior in right of payment to the Notes
pursuant to terms contained in the instrument or agreement evidencing such Debt
substantially in the form of Exhibit F.
"Subsidiary" shall mean any corporation of which the Company and/or
one or more of its Subsidiaries own more than 50% of the outstanding stock
having by its terms ordinary voting power to elect a majority of the board of
directors of such corporation, irrespective of whether at the time stock of any
other class or classes of such corporation shall have or might have voting
power by reason of the happening of any contingency, and, except as otherwise
expressly indicated herein, references to Subsidiaries shall refer to
Subsidiaries of the Company.
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"this Agreement" shall mean this Note Purchase Agreement (together
with the Schedules and Exhibits hereto), as from time to time amended, modified
or supplemented in accordance with its terms.
"Total Capitalization" shall mean the sum of Net Worth and Total Debt.
"Total Debt" shall mean, as at any date of determination, the
aggregate amount (without duplication) of Debt of the Company and its
Restricted Subsidiaries outstanding on such date, consolidated in accordance
with GAAP after eliminating all intercompany items. Total Debt of the Company
shall not in any event include Subordinated Debt of the Company to a
Wholly-owned Restricted Subsidiary or Debt of a Wholly-owned Restricted
Subsidiary to the Company or to another Wholly-owned Restricted Subsidiary.
"Unrestricted Subsidiary" shall mean any Subsidiary other than a
Restricted Subsidiary.
"Voting Rights" shall have the meaning specified in Section 7.12.
"Weighted Average Life to Maturity" as applied to any indebtedness at
any date, shall mean the number of years (or portions of years) obtained by
dividing (a) the then outstanding principal amount of such indebtedness into
(b) the total of the products obtained by multiplying (i) 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 (ii) the number of years (calculated to the nearest one-twelfth) which will
elapse between such date and the date on which such payment is to be made.
"Wholly-owned Restricted Subsidiary" shall mean any Restricted
Subsidiary, all of the equity securities (or all of the equity securities other
than directors' qualifying shares) of which are owned by the Company or another
Wholly- owned Restricted Subsidiary.
"Wilmington Plant" shall mean the real and personal property of
Heatcraft located at 602 Sunnyvale Drive, Wilmington, North Carolina.
8.2. Accounting Terms. (a) All accounting terms used herein which
are not expressly defined in this Agreement have the meanings respectively
given to them in accordance with GAAP, all computations made pursuant to this
Agreement shall be made in accordance with GAAP, and all balance sheets and
other financial statements shall be prepared in accordance with GAAP. Any
reference herein, or in any document delivered in connection herewith, to
financial
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statements of the Company at a date prior to October 11, 1991 shall be deemed
references to the financial statements of Lennox International Inc., an Iowa
corporation.
(b) If any changes in accounting principles from those used in the
preparation of the most recent audited historical financial statements
delivered to you prior to the Closing Date are hereafter required or permitted
by the rules, regulations, pronouncements and opinions of the Financial
Accounting Standards Board or the American Institute of Certified Public
Accountants (or successors thereto or agencies with similar functions) and are
adopted by the Company with the agreement of its independent certified public
accountants and such changes result or could result (for any present or future
period) in a change in the method of calculation of any of the financial
covenants, standards or terms in or relating to such covenants, the parties
hereto agree to enter into discussions with a view to amending such provisions
so as to equitably reflect such changes with the desired result that the
criteria for evaluating the financial condition of the Company and its
Subsidiaries shall be the same after such changes as if such changes had not
been made, provided, that no change in GAAP that would affect or could affect
(for any present or future period) the method of calculation of any of said
financial covenants, standards or terms shall be given effect in such
calculations until such provisions are amended, in a manner satisfactory to the
Company and the holders of the Notes, to so reflect such change to GAAP.
SECTION 9. EVENTS OF DEFAULT; REMEDIES.
9.1. Events of Default Defined; Acceleration of Maturity. If any of
the following events (herein called "Events of Default") shall have occurred
and be continuing (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or by operation of law or otherwise), that is
to say:
(a) default shall be made in the due and punctual payment of all or
any part of the principal of, or the Special Premium (if any) on, any Note
when and as the same shall become due and payable, whether at stated
maturity, by acceleration, by notice of prepayment or otherwise;
(b) default shall be made in the due and punctual payment of any
interest on any Note when and as such interest shall become due and payable,
and such default shall have continued for a period of three Business Days;
(c) (i) default shall be made in the performance or observance of
any covenant, agreement or condition contained in Section 5(f)(i), any of
Sections 7.4 through (and including) Section 7.10, Section 7.12, or Section
7.16; or (ii) default shall be made in the performance or observance of any
other covenant, agreement or condition contained in this Agreement or the
Notes not specified in Section 9.1(a) or Section 9.1(b) or in the
immediately preceding clause (i) of this Section 9.1(c) and such default
shall have continued for a period of 30 days;
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(d) any event shall occur or any condition shall exist in respect of
any Debt of the Company or any Restricted Subsidiary (other than the Notes)
in an aggregate unpaid principal amount of $1,000,000 or more, or under any
agreement securing or relating to any of such Debt, the effect of which is
to cause or to permit the acceleration of the maturity of such Debt, or any
such Debt shall not have been paid at the final maturity date thereof (as
renewed or extended if such Debt shall have been renewed or extended)
(provided that the words "or to permit" contained in the foregoing wording
of this Section 9.1(d) shall be omitted from this Section 9.1(d) and of no
effect at any time that and so long as neither the Company nor any
Restricted Subsidiary shall any longer be a party to any agreement (other
than this Agreement and any other agreement providing for automatic
modification thereof in substantially the same form as this Section 9.1(d))
providing that the holder of any Debt of the Company or any Restricted
Subsidiary may declare such Debt to be due and payable prior to the
scheduled maturity thereof as a result of the occurrence of any default in
the performance of any term or condition contained in the agreement or
instrument evidencing any other Debt of the Company or any Restricted
Subsidiary and further providing for such declaration regardless of whether
such other Debt shall have been declared due and payable prior to the stated
maturity thereof);
(e) the Company or any Restricted Subsidiary shall (1) apply for or
consent to the appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a substantial part
of its property, (2) be generally unable to pay its debts as such debts
become due, (3) make a general assignment for the benefit of its creditors,
(4) commence a voluntary case under the Federal Bankruptcy Code (as now or
hereafter in effect), (5) file a petition seeking to take advantage of any
bankruptcy, insolvency, moratorium, reorganization or other similar law
affecting the enforcement of creditors' rights generally, (6) fail to
controvert in a timely or appropriate manner, or acquiesce in writing to,
any petition filed against it in an involuntary case under such Bankruptcy
Code, (7) take any action under the laws of its jurisdiction of
incorporation analogous to any of the foregoing, or (8) take any corporate
action for the purpose of effecting any of the foregoing;
(f) a proceeding or case shall be commenced, without the application
or consent of the Company or any Restricted Subsidiary in any court of
competent jurisdiction, seeking (1) the liquidation, reorganization,
dissolution, winding up, or composition or readjustment of its debts, (2)
the appointment of a trustee, receiver, custodian, liquidator or the like of
it or of all or any substantial part of its assets, or (3) similar relief in
respect of it, under any law providing for the relief of debtors, and such
proceeding or case shall continue undismissed, or unstayed and in effect,
for a period of 90 days; or an order for relief shall be entered in an
involuntary case under such Bankruptcy Code, against the Company or any
Restricted Subsidiary; or action under the laws of the jurisdiction of
incorporation of the Company or any Restricted Subsidiary analogous to any
of the foregoing shall be taken with respect to the Company or any
Restricted Subsidiary and shall continue unstayed and in effect for any
period of 90 consecutive days;
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(g) final judgment for the payment of money shall be rendered by a
court of competent jurisdiction against the Company or any Restricted
Subsidiary and the Company or any Restricted Subsidiary shall not discharge
the same or provide for its discharge in accordance with its terms, or
procure a stay of execution thereof within 60 days from the date of entry
thereof and within said period of 60 days, or such longer period during
which execution of such judgment shall have been stayed, appeal therefrom
and cause the execution thereof to be stayed during such appeal, and such
judgment together with all other such judgments shall exceed in the
aggregate U.S. $1,000,000 (or the equivalent amount of any other currency);
or
(h) any representation or warranty made by the Company in this
Agreement or in any certificate or other instrument delivered hereunder or
pursuant hereto or in connection with any provision hereof shall prove to be
false or incorrect or breached in any material respect on the date as of
which made;
then (i) upon the occurrence of any Event of Default described in Subsection
(e) or (f) with respect to the Company, the unpaid principal amount of all
Notes, together with the interest accrued thereon which shall be deemed
matured, shall automatically become immediately due and payable, without
presentment, demand, protest, notice of intent to accelerate, notice of actual
acceleration or other requirements of any kind, all of which are hereby
expressly waived by the Company, or (ii) during the continuance of any other
Event of Default, the holder or holders of at least 66-2/3% of the unpaid
principal amount of all of the Notes at the time outstanding may, by written
notice to the Company, declare the unpaid principal amount of all Notes to be,
and the same shall forthwith become due and payable, without further
presentment, demand, protest, notice of intent to accelerate, or notice of
actual acceleration, together with the interest accrued thereon which shall be
deemed matured, plus (to the full extent permitted by applicable law) a premium
equal to the Special Premium (determined with respect to such principal amount
of Notes as of the date of such declaration), provided that, during the
existence of an Event of Default described in Subsection (a) or (b) with
respect to any Note, the holder of such Note may, by written notice to the
Company, declare such Note to be, and the same shall forthwith become, due and
payable, without further presentment, demand, protest, notice of intent to
accelerate, or notice of actual acceleration, together with the interest
accrued thereon which shall be deemed matured plus (to the full extent
permitted by applicable law) a premium equal to the Special Premium determined
as of the date of such declaration. If any holder of any Note shall exercise
the option specified in the proviso to the preceding sentence, the Company will
forthwith give written notice thereof to the holders of all other outstanding
Notes and each such holder may (whether or not such notice is given or
received), by written notice to the Company, declare the principal of all Notes
held by it to be, and the same shall forthwith become, due and payable, without
further presentment, demand, protest, notice of intent to accelerate, or notice
of actual acceleration, together with the interest accrued thereon which shall
be deemed matured.
The provisions of this Section 9.1 are subject, however, to the
condition that if, at any time after any Note shall have so become due and
payable and prior to the entry of any final judgment for the payment of any
monies due on the Notes or pursuant to this Agreement, the
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Company shall pay all arrears of interest on the Notes and all payments on
account of the principal of and the Special Premium (if any) on the Notes which
shall have become due otherwise than by acceleration (with interest on such
principal, the Special Premium (if any) and, to the extent permitted by law, on
overdue payments of interest, at the rate specified in the Notes) and all
Events of Default (other than nonpayment of principal of and accrued interest
on Notes due and payable solely by virtue of acceleration) shall be remedied or
waived pursuant to Section 12, then, and in every such case, the holder or
holders of at least 80% in unpaid principal amount of all of the Notes at the
time outstanding, by written notice to the Company, may rescind and annul any
such acceleration and its consequences; but no such action shall affect any
subsequent Default or Event of Default or impair any right consequent thereon.
9.2. Suits for Enforcement. If any Event of Default shall have
occurred and be continuing, the holder of any Note may proceed to protect and
enforce its rights, either by suit in equity or by action at law, or both,
whether for the specific performance of any covenant or agreement contained in
this Agreement or in aid of the exercise of any power granted in this
Agreement, or the holder of any Note may proceed to enforce the payment of all
sums due upon such Note or to enforce any other legal or equitable right of the
holder of such Note.
The Company covenants that, if it shall default in the making of any
payment due under any Note or in the performance or observance of any agreement
contained in this Agreement, it will pay to the holder thereof such further
amounts, to the extent lawful, as shall be sufficient to pay the costs and
expenses of collection or of otherwise enforcing such holder's rights,
including reasonable counsel fees.
9.3. Remedies Cumulative. No remedy herein conferred upon you or
the holder of any Note is intended to be exclusive of any other remedy and each
and every such remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity
or by statute or otherwise.
9.4. Remedies Not Waived. No course of dealing between the Company
and you or the holder of any Note and no delay or failure in exercising any
rights hereunder or under any Note in respect thereof shall operate as a waiver
of any of your rights or the rights of any holder of such Note.
SECTION 10. REGISTRATION, TRANSFER AND EXCHANGE OF NOTES. The Company will
keep at its address for notices under Section 16.4 a register (herein sometimes
referred to as the "Note Register"), in which, subject to such reasonable
regulations as it may prescribe, but at its expense (other than transfer taxes,
if any), it will provide for the registration and registration of transfer of
the Notes.
Whenever any Note or Notes shall be surrendered either at such address
for notices of the Company or at the place of payment named in the Notes, for
transfer or exchange, accompanied (if so required by the Company) by an
appropriate written instrument of transfer duly
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executed by the registered holder of such Note or his attorney duly authorized
in writing, the Company will execute and deliver in exchange therefor a Note or
Notes, as may be requested by such holder, in the same aggregate unpaid
principal amount as the aggregate unpaid principal amount of the Note or Notes
so surrendered. Any Note issued in exchange for any other Note or upon
transfer thereof shall carry the rights to unpaid interest and interest to
accrue which were carried by the Note so exchanged or transferred, and neither
gain nor loss of interest shall result from any such transfer or exchange. Any
transfer tax relating to such transaction shall be paid by the holder
requesting the exchange.
The Company and any agent of the Company may treat the Person in whose
name any Note is registered as the owner of such Note for the purpose of
receiving payment of the principal of and the Special Premium (if any) and
interest on such Note and for all other purposes whatsoever, whether or not
such Note be overdue.
SECTION 11. LOST, ETC. NOTES. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of any Note,
and (in case of loss, theft or destruction) of indemnity satisfactory to it,
and upon reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of such Note, if mutilated, the
Company will deliver in lieu of such Note a Note in a like unpaid principal
amount, dated as of the date to which interest has been paid thereon.
Notwithstanding the foregoing provisions of this Section, if any Note
of which you or any other institutional holder having a net worth of at least
$50,000,000 is the owner is lost, stolen or destroyed, then the affidavit of
your or such holder's Treasurer or Assistant Treasurer (or other responsible
officials), setting forth the circumstances with respect to such loss, theft or
destruction, shall be accepted as satisfactory evidence thereof, and no
indemnity shall be required as a condition to the execution and delivery by the
Company of a Note in lieu of such Note (or as a condition to the payment
thereof, if due and payable) other than your or such holder's unsecured written
agreement to indemnify the Company.
SECTION 12. AMENDMENT AND WAIVER.
(a) Any term, covenant, agreement or condition of this Agreement or of
the Notes may, with the consent of the Company, be amended, or compliance
therewith may be waived (either generally or in a particular instance and
either retroactively or prospectively), by one or more substantially concurrent
written instruments signed by the holder or holders of at least 66-2/3% in
aggregate unpaid principal amount of all Notes at the time outstanding,
provided, however, that
(i) no such amendment or waiver shall
(A) reduce the rate or extend the time of payment of interest
on any of the Notes, without the consent of the holder of each Note so
affected, or
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(B) modify any of the provisions of this Agreement or of the
Notes with respect to the payment or prepayment thereof (including
without limitation the definition of the term "Special Premium" and
any other related definitions), or extend the scheduled maturity of
the Notes, or reduce the percentage of holders of Notes required to
approve any such amendment or effectuate any such waiver, without the
consent of the holders of all the Notes then outstanding, and
(ii) no such waiver shall extend to or affect any obligation not
expressly waived or impair any right consequent thereon.
(b) Any amendment or waiver pursuant to Subsection (a) of this Section
12 shall (except as provided in Clause (a)(i)(A)) apply equally to all the
holders of the Notes amended or waived and shall be binding upon them, upon
each future holder of any Note and upon the Company, in each case whether or
not a notation thereof shall have been placed on any Note.
(c) The Company will not agree in writing to any amendment,
modification or waiver of any of the provisions of this Agreement or the Notes
unless each holder of Notes (irrespective of the amount of Notes then owned by
it) shall be informed thereof by the Company and shall be afforded the
opportunity of considering the same and shall be supplied by the Company with
sufficient information to enable it to make an informed decision with respect
thereto. The Company will not, and will not permit any of its Subsidiaries or
Affiliates to, offer or pay any remuneration, whether by way of supplemental or
additional interest, fee or otherwise, to any holder of Notes in order to
obtain such holder's consent to any amendment, modification or waiver of any
term or provision of this Agreement, or the Notes or any annulment or
rescission of acceleration pursuant to Section 9.1, unless such remuneration or
inducement is concurrently paid on the same terms proportionately to each
holder of Notes then outstanding regardless of whether or not such holder
consents to such waiver, amendment, annulment or rescission.
SECTION 13. HOME OFFICE PAYMENT. Notwithstanding anything to the contrary
in this Agreement or the Notes, so long as you or any nominee designated by you
shall be the holder of any Note, the Company shall punctually pay all amounts
which become due and payable on such Note to you by 11:00 a.m., New York City
time, at your address and in the manner set forth in Schedule I hereto, or at
such other place within the United States and in such other manner as you may
designate by notice to the Company, without presentation or surrender of such
Note. You agree that prior to the sale, transfer or other disposition of any
such Note, you will make notation thereon of the portion of the principal
amount paid or prepaid and the date to which interest has been paid thereon, or
surrender the same in exchange for a Note or Notes aggregating the same
principal amount as the unpaid principal amount of the Note so surrendered.
The Company shall enter into an agreement similar to that contained in the
first sentence of this Section 13 with any other institutional investor (or
nominee thereof) who shall hold any of the Notes and who shall make with the
Company an agreement similar to that contained in the second sentence of this
Section.
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SECTION 14. LIABILITIES OF THE HOLDERS. Neither this Agreement nor any
disposition of any of the Notes shall be deemed to create any liability or
obligation on your part or that of any other holder of any Note to enforce any
provision hereof or of any of the Notes for the benefit or on behalf of any
other Person who may be the holder of any Note.
SECTION 15. TAXES. The Company will pay all taxes (including interest and
penalties) which may be payable in respect of the execution and delivery of
this Agreement or the execution and delivery (but not the transfer) of any of
the Notes or of any amendment of, or waiver or consent under or with respect
to, this Agreement or of any of the Notes and will save you and all subsequent
holders of the Notes harmless against any loss or liability resulting from
nonpayment or delay in payment of any such tax. The obligations of the Company
under this Section 15 shall survive the payment of the Notes.
SECTION 16. MISCELLANEOUS.
16.1. Expenses. Whether or not the transactions contemplated hereby
are consummated, the Company shall: (a) pay the reasonable fees and
disbursements of your special counsel and of any local counsel for any services
rendered in connection with such transactions or in connection with any actual
or proposed amendment, waiver or consent (whether or not the same becomes
effective) with respect to this Agreement or the Notes, and all other
reasonable expenses in connection therewith (including, without limitation,
document production expenses and expenses incurred in connection with obtaining
a private placement number from Standard and Poor's CUSIP Service Bureau); (b)
reimburse you for your reasonable out-of-pocket expenses in connection with
such transactions, amendments, waivers or consents (whether or not the same
becomes effective), and any items of the character referred to in clause (a)
which shall have been paid by you, and pay the cost of transmitting Notes
(insured to your satisfaction) to your principal office upon the issuance
thereof; (c) pay, and save you and each subsequent holder of any Note harmless
from and against, any and all liability and loss with respect to or resulting
from the non-payment or delayed payment of any and all placement fees and other
liability which the Company may be or become obligated to pay any agent or
finder in connection with such transactions; (d) pay the expenses described in
Section 9.2 of this Agreement; and (e) pay, and save you and each subsequent
holder of any Note harmless from and against liability for the payment of, all
out-of-pocket expenses, including without limitation reasonable attorneys'
fees, incurred in connection with responding to any subpoena or other legal
process or informal investigative demand involving the Company or any of its
Affiliates. The obligations of the Company under this Section 16.1 shall
survive payment of the Notes.
16.2. Reliance on and Survival of Representations. All agreements,
representations and warranties of the Company herein and in any certificates or
other instruments delivered pursuant to this Agreement shall (a) be deemed to
be material and to have been relied upon by you, notwithstanding any
investigation heretofore or hereafter made by you or on your behalf, and (b)
survive the execution and delivery of this Agreement and the delivery of the
Notes to you, and shall continue in effect so long as any Note is outstanding
and thereafter as provided in Sections 15 and 16.1.
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16.3. Successors and Assigns. All covenants and agreements in this
Agreement by or on behalf of the respective parties hereto shall bind and inure
to the benefit of their respective successors and assigns, except that, in the
case of a successor to the Company by consolidation or merger or a transferee
of its assets, this Agreement shall inure to the benefit of such successor or
transferee only if it becomes such in accordance with Section 7.10; provided,
however, that you shall not be obligated to purchase any Notes on the Closing
Date from any Person other than the existing Lennox International Inc., a
Delaware corporation. The provisions of this Agreement are intended to be for
the benefit of all holders, from time to time, of the Notes, and shall be
enforceable by any such holder, whether or not an express assignment to such
holder of rights under this Agreement has been made by you or your successor or
assign, provided, however, that the benefit of Sections 5, 6, 11 (as to
satisfactory indemnity) and 13 shall be limited as provided therein.
16.4. Notices. All notices, opinions and other communications
provided for in this Agreement shall be in writing and delivered or mailed,
first class postage prepaid, addressed (a) if to the Company, at the address
set forth at the head of this Agreement (marked for the attention of the
Executive Vice President, Chief Financial Officer and Treasurer), or at such
other address as the Company may hereafter designate by notice to you and to
each other holder of any Note at the time outstanding, or (b) if to you, at
your address as set forth in Schedule I hereto or at such other address as you
may hereafter designate by notice to the Company, or (c) if to any other holder
of any Note, at the address of such holder as it appears on the Note Register.
16.5. Substitution of Your Wholly-Owned Subsidiary. You shall have
the right to substitute one of your wholly-owned subsidiaries as the holder of
any of the Notes to be delivered to you hereunder, by written notice delivered
to the Company, which notice shall be signed by you and such subsidiary, shall
contain such subsidiary's agreement to be bound by this Agreement and shall
contain a confirmation by such subsidiary of the accuracy with respect to it of
the representations contained in Sections 1.3 and 1.4, provided that such
confirmation may contain a statement to the effect that such subsidiary shall
at all times have the right to transfer the Notes being delivered to it to you.
The Company agrees that, upon receipt of any such notice, whenever the word
"you" is used in this Agreement (other than this Section) such word shall be
deemed to refer to such subsidiary in lieu of you. In the event that such
subsidiary is so substituted hereunder and thereafter transfers its Notes or
any portion thereof to you, upon receipt by the Company of notice of such
transfer, whenever the word "you" is used in this Agreement (other than in this
Section) such word shall be deemed to refer to such subsidiary only to the
extent it retains any portion of the Notes, and shall be deemed to refer to you
to the extent you own all or any portion of the Notes, and you and such
subsidiary to such extent shall each have all the rights of an original holder
of Notes under this Agreement.
16.6. LAW GOVERNING. THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
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<PAGE> 51
16.7. Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect any of the terms
hereof.
16.8. Entire Agreement. This Agreement embodies the entire agreement
and understanding between you and the Company and supersedes all prior
agreements and understandings relating to the subject matter hereof.
16.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
16.10 Maximum Interest Payable. The Company, you, and any other
holders of any of the Notes, specifically intend and agree to limit
contractually the amount of interest payable under this Agreement, the Notes,
the Letter Agreement, and all other instruments and agreements executed in
connection with the foregoing to the maximum amount of interest lawfully
permitted to be charged under applicable law. Therefore, none of the terms of
this Agreement, the Notes, the Letter Agreement, or any instrument pertaining
to or relating to or executed in connection with such documents shall ever be
construed to create a contract to pay interest (or amounts deemed to be
interest under applicable law) at a rate in excess of the maximum rate
permitted to be charged under applicable law, and none of the Company or any
other party liable or to become liable hereunder, under the Notes, under the
Letter Agreement, or under any other instruments and agreements related hereto
and thereto shall ever be liable for interest in excess of the amount
determined at such maximum rate, and the provisions of this Section 16.10 shall
control over all other provisions of this Agreement, the Notes, the Letter
Agreement, or any other instrument pertaining to or relating to the
transactions herein or therein contemplated. If any amount of interest taken
or received by you or any holder of a Note shall be in excess of said maximum
amount of interest that, under applicable law, could lawfully have been
collected incident to such transactions, then such excess shall be deemed to
have been the result of a mathematical error by all parties hereto and shall be
automatically applied to the reduction of the principal amount owing under the
Notes or if such excessive interest exceeds the unpaid principal balance of the
Notes, such excess shall be refunded promptly by the Person receiving such
amount to the party paying such amount. All amounts paid or agreed to be paid
in connection with such transactions that would under applicable law be deemed
"interest" shall, to the extent permitted by such applicable law, be amortized,
prorated, allocated and spread throughout the stated term of the Notes.
"Applicable law" as used in this paragraph means that law in effect from time
to time that permits the charging and collection of the highest permissible
lawful, nonusurious rate of interest on the transaction herein contemplated
including, without limitation, the laws of each State which may be held to be
applicable, and of the United States of America, if applicable, and "maximum
rate" as used in this paragraph means, with respect to each of the Notes, the
maximum lawful, nonusurious rates of interest (if any) that under such
applicable law may be charged to the Company from time to time with respect
thereto.
16.11 Interpretation of Disclosures. In connection with the
representations, warranties and certifications made by the Company pursuant to
this Agreement, the Company is
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required to make certain disclosures to you with respect to possible or
contingent losses and liabilities. The Company shall be free to make
disclosures to you in addition to those required under this Agreement, and the
making of any disclosure by the Company pursuant to this Agreement shall not
constitute an admission by the Company that any such possible or contingent
loss or liability actually exists or is owed.
16.12 Notice to Transferees. You agree that on or prior to any
transfer by you of any Note, you will provide each transferee thereof a copy of
the Letter Agreement.
16.13 Consent to Jurisdiction; Service of Process.
(a) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, THE
NOTES, THE LETTER AGREEMENT, OR ANY OTHER DOCUMENTS OR TRANSACTIONS IN
CONNECTION WITH OR RELATING HERETO OR THERETO, OR ANY COURSE OF CONDUCT, COURSE
OF DEALING, STATEMENTS OR ACTIONS OF YOU, ANY OTHER PURCHASER, ANY SUBSEQUENT
HOLDER OF A NOTE, OR THE COMPANY MAY BE BROUGHT IN THE COURTS OF THE STATE OF
NEW YORK OR THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK,
AND THE COMPANY HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY,
GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY OBJECTIONS, INCLUDING,
WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE
GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS.
(b) In the case of the courts of the State of New York or of the
United States sitting in the City of New York, State of New York, the Company
hereby irrevocably designates, appoints, and empowers CT Corporation System
(the "Process Agent") (which has consented thereto) with offices on the date
hereof at 1633 Broadway, New York, New York 10019, as agent to receive for and
on behalf of the Company service of process in the State of New York. The
Company further agrees that such service of process may be made on the Process
Agent by personal service of a copy of the summons and complaint or other legal
process in any such legal suit, action or proceeding on the Process Agent, or
by any other method of service provided for under the applicable laws in effect
in the County of New York, State of New York, and the Process Agent hereby is
authorized and directed to accept such service for and on behalf of the
Company, and to admit service with respect thereto.
(c) Upon service of process being made on the Process Agent as
aforesaid, a copy of the summons and complaint or other legal process served
shall be mailed by the Process Agent to the Company by air courier, at its
address set forth at the top of page 1 of this Agreement, or to such other
address as the Company may notify the Process Agent in writing. Service upon
the Process Agent as aforesaid shall be deemed to be personal service on the
Company and shall be legal
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<PAGE> 53
and binding upon the Company for all purposes, notwithstanding any failure of
the Process Agent to mail copies of such legal process thereto, or any failure
on the part of the Company to receive the same.
(d) The Company agrees that it will at all times continuously maintain
an agent to receive service of process in the County of New York on its behalf.
In the event that for any reason the Process Agent or any successor thereto
shall no longer serve as agent for the Company to receive service of process in
the County of New York on its behalf or the Company shall have changed its
address without notification thereof to the Process Agent, the Company,
immediately after having knowledge thereof, will irrevocably designate and
appoint a substitute agent in the City of New York, New York and advise you, or
any subsequent holder of a Note, thereof, or shall notify the Process Agent of
its then current correct address.
(e) Nothing contained in this section shall preclude you, or any
subsequent holder of a Note, from bringing any legal suit, action or proceeding
against the Company in the courts of any jurisdiction where the Company or any
of its property or assets may be found or located.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
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<PAGE> 54
If you are in agreement with the foregoing, please sign the form of
acceptance in the space provided below whereupon this Agreement shall become a
binding agreement between you and the Company.
Very truly yours,
LENNOX INTERNATIONAL INC.
By: /s/ Clyde Wyant
--------------------------------
Clyde Wyant
Executive Vice President, Chief
Financial Officer and Treasurer
The foregoing Agreement is
hereby accepted as of the
date first above written:
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By: /s/ Gregory W. MacCordy
------------------------------------------
Name: Gregory W. MacCordy
----------------------------------------
Title: Associate Director - Private Placement
---------------------------------------
<PAGE> 55
SCHEDULE I
Principal
Amount of Notes
Name of Purchaser
to be Purchased
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA $20,000,000
Note Denomination(s): $20,000,000
1. All payments on account of Notes held by such purchaser shall be made in
immediately available funds at the opening of business on the due date by
electronic funds transfer, properly identified, through the Automated
Clearing House system to the following account:
Morgan Guaranty Trust Company of New York
23 Wall Street
New York, New York 10015
(ABA No.: 021-000-238)
For deposit to the account of
Teachers Insurance and Annuity
Association of America
Account Number 121-85-001
Each such wire transfer shall set forth the name
of the Company, a reference to "7.06% Senior Notes
due July 6, 2005, Security No. _________", and
the due date and application (as among principal,
interest and the Special Premium, if any) of the
payment being made.
2. Address for all other communications and notices:
Teachers Insurance and Annuity
Association of America
730 Third Avenue
New York, New York 10017
Attention: Securities Division
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<PAGE> 56
3. All notices pursuant to Section 7.12 shall be made to the address specified
in paragraph 2 of this Schedule I with copies sent via facsimile transmission
to each of the following:
Teachers Insurance and Annuity
Association of America
730 Third Avenue
New York, New York 10017
Attention: Investment Law Department
Fax No.: (212) 953-9879 or 986-8375
Teachers Insurance and Annuity
Association of America
730 Third Avenue
New York, New York 10017
Attention: Securities Division
Fax No.: (212) 986-1525
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<PAGE> 57
EXHIBIT A
LENNOX INTERNATIONAL INC.
7.06% SENIOR PROMISSORY NOTE DUE 2005
Note No. R-
$ July 6, 1995
Private Placement No. 52610* AJ 2
FOR VALUE RECEIVED, the undersigned, LENNOX INTERNATIONAL INC., a
corporation organized and existing under the laws of the State of Delaware
(herein called the "Company"), hereby promises to pay to
or registered assigns, the principal sum of
DOLLARS (or so much thereof as shall not have been prepaid) on
July 6, 2005, with interest (computed on the basis of a 360-day year of twelve
30-day months) on the unpaid principal hereof at the rate of 7.06% per annum
from the date hereof, payable semiannually on June 1 and December 1 in each
year, commencing on December 1, 1995, until said principal shall have become due
and payable, and to pay interest (so computed) at the rate of 9.06% per annum on
any overdue principal and premium and, to the extent permitted by applicable
law, on any overdue interest, until the same shall be paid. Payments of
principal, premium, if any, and interest are to be made in lawful money of the
United States of America at the office of Morgan Guaranty Trust Company of New
York, 23 Wall Street, New York, New York 10015, or at such other place as may be
provided pursuant to the Note Purchase Agreements referred to below.
This Note is one of the 7.06% Senior Promissory Notes due 2005 of the
Company (the "Notes") issued pursuant to the Note Purchase Agreement, dated as
of July 6, 1995, between the Company and Teachers Insurance Annuity Association
of America and is subject thereto and entitled to the benefits thereof. As
provided in said Agreement, this Note is subject to optional prepayments in
whole or in part, in certain cases with a premium, and also to required
prepayments, all as specified in said Agreement.
Upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and, at the
option of the holder, registered in the name of, the transferee. Prior to due
presentment for registration of transfer, the Company may deem and treat the
Person in whose name
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<PAGE> 58
this Note is registered as the holder and owner hereof for the purpose of
receiving payments and for all other purposes whatsoever, and the Company shall
not be affected by any notice to the contrary.
Said Agreement provides that by acceptance of this Note the holder
hereof shall be deemed to have agreed to certain obligations of confidentiality
in respect of certain information received by such holder pursuant to said
Agreement.
In case an Event of Default (as defined in said Agreement) shall occur
and be continuing, the principal of this Note may become or be declared due and
payable in the manner and with the effect provided in said Agreement.
LENNOX INTERNATIONAL INC.
By:
-----------------------------------
Clyde Wyant
Executive Vice President, Chief
Financial Officer and Treasurer
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<PAGE> 59
EXHIBIT B
LENNOX INTERNATIONAL INC. SUBSIDIARIES
JUNE 1, 1995
<TABLE>
<CAPTION>
Location of
Jurisdiction No. of Substantial
of Shares Operating Restricted or
Name Ownership Incorporation Outstanding Assets Unrestricted
---- --------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
(1) Lennox Industries Inc. Wholly-owned Iowa 994,394 Common United States Restricted
(a) Products Acceptance
Corp. Wholly-owned Iowa 3,500 Common N/A Restricted
(b) Lennox Industries
(Canada) Ltd. Wholly-owned Canada 5,250 Pref. Ontario Unrestricted
36,210 Common
(c) Lennox Industries Wholly-owned United 300,000 Pref. United Kingdom Unrestricted
Ltd. Kingdom 13,900 Ordinary
(i) Environheat Wholly-owned United
Limited Kingdom 32,765 Ordinary N/A Unrestricted
(d) Lennox Industries
SW Inc. Wholly-owned Iowa 1,000 Common N/A Restricted
(e) Lennox Australia
Pty. Ltd. Wholly-owned Australia 500,000 Common Australia Unrestricted
(2) Heatcraft, Inc. Wholly-owned Mississippi 20 Common United States Restricted
(a) Heatcraft Technologies
Inc. Wholly-owned Delaware 1,000 Common United States Restricted
(3) Armstrong Air
Conditioning Inc. Wholly-owned Ohio 1,030 Common United States Restricted
(4) Lennox Foreign Sales Wholly-owned U.S. Virgin 10 Common N/A Unrestricted
Corp. Islands
(5) Lennox Commercial
Realty Inc. Wholly-owned Iowa 10 Common United States Restricted
(6) Lennox Global Ltd. Wholly-owned Delaware 1,000 Common United States Restricted
</TABLE>
B-1
<PAGE> 60
EXHIBIT C
LENNOX INTERNATIONAL INC.
DEBT
JULY 5, 1995
A. LENNOX INTERNATIONAL INC.
(1) Agreement of Assumption and Restatement dated as of
December 1, 1991 between Lennox International Inc. and
the Noteholders identified at the end thereof, pursuant
to which Lennox International delivered its:
9.60% Series D Promissory Notes due 1998 $ 16,250,000
10.15% Series E Promissory Notes due 1998 3,714,287
9.53% Series F Promissory Notes due 2001 21,000,000
9.50% Series G Promissory Notes due 2001 23,250,000
9.69% Series H Promissory Notes due 2003 44,200,000
------------
108,414,287
(2) Revolving Credit Agreement dated as of December 1, 1991
among Lennox International Inc. and the Banks named on
the signature pages thereof and The Northern Trust
Company, as Agent
Total Outstanding 94,000,000
(3) Note Purchase Agreement dated as of December 1, 1993
among Lennox International Inc. and the Noteholders
identified at the end thereof, pursuant to which Lennox
International delivered its 6.73% Senior Promissory Notes
due 2008 100,000,000
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<PAGE> 61
B. LENNOX INDUSTRIES INC.
(1) Promissory Note dated December 22, 1992 issued to Texas
Housing Opportunity Fund, Ltd. 383,829
(2) 11.2% Promissory Note due December 31, 1996 to CIBC,
Inc. (remaining balance due C$6,000,000), guaranteed by
Lennox International Inc. 4,374,000
C. LENNOX COMMERCIAL REALTY, INC. ("LCRI")
11.1% Mortgage Note Agreement with Texas Commerce Bank,
N.A. due January 1, 2000, secured by mortgage on
headquarters building and an assignment of the Lease
between LCRI and Lennox Industries Inc. 9,598,678
D. HEATCRAFT TECHNOLOGIES INC.
Non-interest bearing promissory notes, assigned and now
payable to American Standard Inc. in connection with the
Alliance Compressors joint venture; payment contingent
upon the occurrence of certain future events. 20,000,000
TOTAL OUTSTANDING DEBT $336,770,794
============
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<PAGE> 62
EXHIBIT D
LENNOX INTERNATIONAL INC.
INVESTMENTS
JULY 5, 1995
A. Investments in Wholly-Owned Subsidiaries:
See Exhibit B
B. Investments in Joint Ventures:
(1) Friga-Bohn S.A. (France) - stock, at cost
(20% of outstanding stock held by
Heatcraft Inc.) $ 4,000,000
(2) Frigus-Therme, S.A. de C.V. (Mexico) -
stock, at cost (50% of outstanding stock
held by Heatcraft Inc.) $ 2,100,000
(3) Alliance Compressors - 50% general
partnership interest held by Heatcraft
Technologies Inc., at cost $22,500,000
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<PAGE> 63
EXHIBIT E
FORM OF OPINION OF COMPANY'S COUNSEL
July 6, 1995
Teachers Insurance and Annuity
Association
730 Third Avenue
New York, New York 10017
Attn: Securities Division
Lennox International Inc.
7.06% Senior Promissory Notes due 2005
Ladies and Gentlemen:
I am the Assistant General Counsel for Lennox International Inc., a
Delaware corporation (the "Company"), and as such have acted as counsel to the
Company in connection with (i) the issuance and sale by the Company of
$20,000,000 in aggregate principal amount of its 7.06% Senior Promissory Notes
due 2005 (the "Notes"), pursuant to the Note Purchase Agreement, dated as of
July 6, 1995 (the "Agreement"), between the Company and you, and (ii) the
purchase by you today of the Notes. This opinion is being furnished to you
pursuant to Section 3.2 of the Agreement with the understanding that it will be
relied upon by you in connection with the consummation of the transactions
contemplated by the Agreement. Capitalized terms used herein without
definition have the respective meanings attributed thereto in the Agreement.
In so acting, I have participated in the preparation of the Agreement
and the Notes being delivered to you today. As to various factual matters
relevant to this opinion, I have made such inquiries as I have deemed
appropriate of other employees of the Company and its Subsidiaries and I have
relied upon the information given to me by such employees. I have also
examined and relied upon the representations and warranties as to factual
matters contained in or made pursuant to this Agreement and have examined and
relied upon the originals, or copies certified or otherwise identified to my
satisfaction, of such records, documents, certificates and other instruments as
in my judgment are necessary or appropriate to enable me to render the opinion
expressed below. In such examination, I have assumed the genuineness of all
signatures (other than signatures of officers of the Company), the due
authorization, execution and delivery of the Agreement by you, the authenticity
of all documents submitted to me as originals (other than the Agreement and the
Notes), the conformity to original documents of all documents submitted to me
as photostatic or certified copies and the authenticity of the originals of
such latter documents.
E-1
<PAGE> 64
Based upon the foregoing, I am of the opinion that:
1. Each of the Company and Lennox Industries Inc., Heatcraft Inc., and
Armstrong Air Conditioning Inc. (the latter three together, the "Primary
Operating Subsidiaries") is a corporation duly incorporated, validly existing
and in good standing under the laws of the state of its incorporation and has
the corporate power and authority to own or hold under lease the property it
purports to own or hold under lease, and to transact the business it transacts
and proposes to transact, and, in the case of the Company, to execute and
deliver the Agreement and the Notes and to perform the provisions of the
Agreement and the Notes.
2. Each of the Company and the Primary Operating Subsidiaries is duly
qualified as a foreign corporation and in good standing in each jurisdiction
(other than the jurisdiction of its incorporation) in which the character of
the properties owned or held under lease by it or the nature of the business
transacted by it requires such qualification and in which the failure to so
qualify would materially affect adversely the business, operations or
properties of the Company and its Subsidiaries taken as a whole, or the ability
of the Company to perform the Agreement and discharge its obligations on the
Notes.
3. The execution, delivery and performance by the Company of the
Agreement and the Notes have been duly authorized by all necessary corporate
action on the part of the Company (no action of shareholders being required
therefor) and the Agreement and the Notes purchased by and delivered to you
today have been duly executed and delivered by the Company.
4. The Agreement and the Notes constitute legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except that such enforceability may be limited by (a)
general principles of equity (regardless of whether relief is sought in an
action at law or in equity) and (b) applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws from time to time in effect
affecting enforcement of creditors' rights generally.
5. There are no actions, suits or proceedings pending or, to the best
of my knowledge, threatened against or affecting the Company or any Subsidiary
or any of their respective properties in any court or before any arbitrator of
any kind or before or by any Governmental Body (except actions, suits or
proceedings of the character normally incident to the kind of business
conducted by the Company and its Subsidiaries which in the aggregate, if
adversely determined, would not materially affect adversely the business,
operations or properties of the Company and its Subsidiaries taken as a whole,
or the ability of the Company to perform the Agreement or discharge its
obligations on the Notes).
6. The execution and delivery by the Company of the Agreement and the
Notes, the consummation of the transactions contemplated by the Agreement and
the performance of the terms and provisions of the Agreement and the Notes will
not result in any breach of, or constitute a default under, or result in the
creation of any Lien in respect of any property of the Company under
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<PAGE> 65
its certificate of incorporation or by-laws or any indenture, mortgage, deed of
trust, bank loan or credit agreement, or other material agreement or instrument
to which the Company is a party or by which the Company or any of its properties
may be bound or affected, or violate any existing law, governmental rule or
regulation or any Order of any court, arbitrator or Governmental Body applicable
to the Company.
7. No consent, approval or authorization of, or registration, filing
or declaration with, any Governmental Body is required for the valid execution
and delivery or for the performance by the Company of the Agreement or the
Notes.
8. The offer, issue, sale and delivery of the Notes purchased by and
delivered to you today, under the circumstances contemplated by the Agreement,
constitute exempted transactions under the Securities Act, and neither the
registration of such Notes thereunder nor the qualification of an indenture
under the Trust Indenture Act of 1939, as amended, is required in connection
with such offer, issue, sale and delivery of the Notes.
9. The issuance and sale of the Notes as contemplated by the Agreement
will not involve any violations of Regulation G, T or X or any other rule or
regulation of the Board of Governors of the Federal Reserve System pursuant to
Section 7 of the Exchange Act.
10. The Company is not an investment company, or a person directly or
indirectly controlled by or acting on behalf of an investment company, within
the meaning of the Investment Company Act of 1940, as amended.
11. The Company is not a "holding company" or a "subsidiary company" of
a "holding company", or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company," as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended.
I express no opinion as to any laws other than the Federal laws of the
United States of America, the General Corporation Law of the State of Delaware
and the laws of the State of New York.
Very truly yours,
Anne W. Teeling
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<PAGE> 66
EXHIBIT F
FORM OF SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT, dated as of ____________, _____ (this
"Agreement"), is entered into by Lennox International Inc., a Delaware
corporation (the "Company"), and [__________, a __________ corporation] (the
"Subsidiary").
W I T N E S S E T H
WHEREAS, the Company has entered into the nine separate Agreements
of Assumption and Restatement, each dated as of December 1, 1991 (the
"Assumption Agreements"), between the Company and each of Teachers Insurance
and Annuity Association of America, The Travelers Insurance Company, The
Travelers Indemnity Company, The Travelers Life and Annuity Company, The
Charter Oak Fire Insurance Company, Connecticut General Life Insurance Company,
INA Life Insurance Company of New York, Tandem Insurance Group, Inc. and The
Phoenix Insurance Company (the "Holders") pursuant to which the Company's
Series B-H Senior Promissory Notes due 1996-2003 (the "Notes") were delivered;
WHEREAS, the Subsidiary is a subsidiary of the Company; and
WHEREAS, the Company and the Subsidiary desire to provide for the
subordination described herein, for the benefit of the Holders and each holder
from time to time of Senior Debt;
NOW THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree for the benefit of the Holders and each holder
from time to time of Senior Debt:
1. Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
Debt: shall have the meaning given such term in the Assumption
Agreements.
Senior Debt: shall mean
(i) all principal of, premium (if any) and interest on the following
Senior Promissory Notes outstanding pursuant to the Assumption
Agreements:
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<PAGE> 67
9.60% Series D Senior Promissory Notes due 1998,
10.15% Series E Senior Promissory Notes due 1998,
9.53% Series F Senior Promissory Notes due 2001,
9.50% Series G Senior Promissory Notes due 2001, and
9.69% Series H Senior Promissory Notes due 2003,
as the same may be from time to time amended, and any modification,
extension, renewal, refunding or refinancing of any of the foregoing,
and all other amounts payable under the Assumption Agreements;
(ii) all principal of, premium (if any) and interest on the Commitment
Notes and the Offered Rate Notes outstanding from time to time pursuant
to the Revolving Credit Agreement, dated as of December 4, 1991, among
the Company, the banks named therein and The Northern Trust Company, as
agent as the same may be from time to time amended, and any
modification, extension, renewal, refunding or refinancing of any of the
foregoing, and all other amounts payable under such Revolving Credit
Agreement;
(iii) all principal of, premium (if any) and interest on the 6.73%
Senior Promissory Notes outstanding pursuant to the nine separate Note
Purchase Agreements dated December 1, 1993 between the Company and each
of The Prudential Insurance Company of America, Connecticut General Life
Insurance Company, Connecticut General Life Insurance Company, on behalf
of one or more separate accounts, Life Insurance Company of North
America, United of Omaha Life Insurance Company, Mutual of Omaha
Insurance Company, Companion Life Insurance Company, United World Life
Insurance Company and First Colony Life Insurance Company, as the same
may be from time to time amended, and any modification, extension,
renewal, refunding or refinancing of any of the foregoing, and all other
amounts payable under such Note Purchase Agreements;
(iv) all principal of, premium (if any) and interest on the 7.06% Senior
Promissory Notes outstanding pursuant to the Note Purchase Agreement
dated July 6, 1995 between the Company and Teachers Insurance and
Annuity Association of America, as the same may be from time to time
amended, and any modification, extension, renewal, refunding or
refinancing of any of the foregoing, and all other amounts payable under
such Note Purchase Agreements; and
(v) for the purposes of Sections 4 and 5 hereof, any other indebtedness,
not prohibited by Section 7.4 of the Assumption Agreements, designated
by the Company or the Subsidiary as "Senior Debt" in any other
subordination agreement.
Subordinated Debt: shall mean all Debt at any time owing by the
Company to the Subsidiary.
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<PAGE> 68
2. Subordination. Payment of principal, premium, if any, and interest
in respect of the Subordinated Debt shall be junior and subordinate and subject
in right of payment to all Senior Debt as provided in this Agreement. The
Company and the Subsidiary will mark their respective books of account to show
that the Subordinated Debt is subordinated to Senior Debt in the manner and to
the extent set forth in this Agreement.
3. Payments on Account of Subordinated Debt. Unless and until all
Senior Debt shall have been paid in full, the Company will not make, and the
Subsidiary will not demand, accept or receive, any direct or indirect payment
(in cash, property, by set-off or otherwise) of or on account of any
Subordinated Debt and no such payment shall be due, provided that if and so
long as no Default or Event of Default (as defined in the Assumption
Agreements) shall exist or would exist after giving effect to such payment,
nothing contained in this Section 3 shall prevent the Company from making, or
the Subsidiary from accepting and receiving, any payment of interest or of
principal on the Subordinated Debt. Unless and until all Senior Debt shall
have been paid in full, the Subsidiary will not declare any part of the
Subordinated Debt to be due before its stated maturity, or commence any
proceeding against the Company, or join with any creditor in any such
proceeding, under any bankruptcy, reorganization, readjustment of debt,
arrangement of debt, receivership, liquidation or insolvency law or statute of
the Federal or any state government, unless the holders of Senior Debt shall
also join in bringing such proceeding.
4. Insolvency, etc. In the event of (i) any insolvency or bankruptcy
proceeding, or any receivership, liquidation, reorganization or other similar
proceeding in connection therewith, relative to the Company or its creditors or
property, or (ii) any proceeding for voluntary liquidation, dissolution or
other winding up of the Company, whether or not involving insolvency or
bankruptcy, or (iii) any assignment for the benefit of creditors of the
Company, or (iv) any distribution, division, marshalling or application of any
of the properties or assets of the Company or the proceeds thereof, to
creditors, voluntary or involuntary, and whether or not involving legal
proceedings, then and in any such event:
4.1 all Senior Debt (including any interest thereon accruing after the
commencement of such proceedings) shall first be paid in full before any
payment or distribution of any character, whether in cash, securities or
other property, shall be made by the Company in respect of any Subordinated
Debt;
4.2 all principal of, premium (if any) and interest on Subordinated
Debt shall forthwith (notwithstanding the terms of Section 3) become due and
payable, and any payment or distribution of any character, whether in cash,
securities or other property, which would otherwise (but for the terms
hereof) be payable or deliverable by the Company in respect of any
Subordinated Debt (including any payment or distribution in respect of any
Subordinated Debt by reason of any other indebtedness of the Company being
subordinated to the Subordinated Debt) and any distribution of cash,
property, stock or obligations which are issued pursuant to any order or
decree of any court, or pursuant to reorganization, dissolution or
liquidation proceedings (whether or not purporting to give effect to the
subordination of
F-3
<PAGE> 69
the Subordinated Debt to the Senior Debt), shall be paid or delivered
directly to the holders of Senior Debt at the time outstanding (or their
respective representatives), ratably according to the respective aggregate
amounts remaining unpaid thereon, until all Senior Debt shall have been paid
in full, and the Subsidiary irrevocably authorizes, empowers and directs all
receivers, trustees, liquidators, conservators and others having authority
in the premises to effect all such payments and deliveries;
4.3 the Subsidiary irrevocably authorizes and empowers (without
imposing any obligation on) each holder of Senior Debt at the time
outstanding and such holder's representatives to demand, sue for, collect
and receive such holder's ratable share of all such payments and
distributions and to receipt therefor, and to file and prove all claims
therefor and take all such other action (including the right to vote such
Senior Debt holder's ratable share of the Subordinated Debt) in the name of
the Subsidiary or otherwise, as such Senior Debt holder or such holder's
representatives may determine to be necessary or appropriate for the
enforcement of this Section 4; and
4.4 the Subsidiary shall execute and deliver to each holder of Senior
Debt and such holder's representatives all such further instruments
confirming the above authorization, and all such powers of attorney, proofs
of claim, assignments of claim and other instruments, and shall take all
such other action, as may be reasonably requested by such holder or such
holder's representatives in order to enable such holder to enforce all
claims upon or in respect of such holder's ratable share of the Subordinated
Debt.
5. Payments and Distributions Received. If the Subsidiary shall at
any time receive any payment or distribution of any character on any
Subordinated Debt (whether in cash, securities or other property) or any
security for any Subordinated Debt in contravention of any of the terms hereof
and before all Senior Debt shall have been paid in full, such payment or
distribution or security shall be held in trust for the benefit of, and shall
be paid over or delivered and transferred to, the holders of the Senior Debt at
the time outstanding (or their respective representatives) for application to
the payment of all Senior Debt remaining unpaid, ratably according to the
respective aggregate amounts remaining unpaid thereon, to the extent necessary
to pay all such Senior Debt in full. In the event of the failure of the
Subsidiary to endorse or assign any such payment or distribution or security,
each holder of Senior Debt and each such holder's representative are hereby
irrevocably authorized to endorse or assign the same.
6. Excess Senior Debt Payment, Subrogation, etc. If cash, securities
or other property otherwise payable or deliverable to the Subsidiary shall have
been applied, pursuant to Section 4 or 5, to the payment of Senior Debt and all
Senior Debt shall have been paid in full, then and in such case, the Subsidiary
(i) shall be entitled to receive from the holders of the Senior Debt at the
time outstanding any payments or distributions received by such Senior Debt
holders in excess of the amount sufficient to pay all Senior Debt in full, and
(ii) shall be subrogated to any rights of the holders of Senior Debt to receive
all further payments or distributions applicable to the Senior Debt, until all
principal of, premium (if any) and interest on the Subordinated Debt shall have
been paid
F-4
<PAGE> 70
in full. No payments or distributions received by the Subsidiary of cash,
securities or other property, which otherwise would be paid or distributed to
the holders of Senior Debt, shall, as between the Company and its creditors
(other than the holders of the Senior Debt), on the one hand, and the
Subsidiary, on the other hand, be deemed to be a payment by the Company on
account of the Subordinated Debt.
7. No Security. So long as any of the Senior Debt shall not have been
paid in full, the Company shall not, nor shall it permit any of its other
subsidiaries to, give, and the Subsidiary shall not demand, accept or receive,
any security, direct or indirect, for any Subordinated Debt.
8. Obligations Not Impaired. Nothing contained in this Agreement shall
impair, as between the Company and the Subsidiary, the obligation of the
Company, which is absolute and unconditional, to pay to the Subsidiary the
principal thereof and the premium, if any, and interest on Subordinated Debt,
all subject to the rights of the holders of Senior Debt under this Agreement.
9. Subordination Not Affected, etc. The terms of this Agreement, the
subordination effected thereby and the rights of the holders of Senior Debt,
shall not be affected by (i) any sale, assignment or other transfer of, or any
amendment of or addition or supplement to any Senior Debt or any instrument or
agreement relating thereto; (ii) any exercise or non-exercise of any right,
power or remedy under or in respect of any Senior Debt or any instrument or
agreement relating thereto; (iii) any sale, exchange, release or other
transaction affecting all or any part of any property at any time pledged or
mortgaged to secure, or however securing, Senior Debt; (iv) any waiver,
consent, release, indulgence, extension, renewal, modification, delay or other
action, inaction or omission, in respect of any Senior Debt or any instrument
or agreement relating thereto; or (v) any application by any holder or holders
of Senior Debt thereof of any amount or sum (by whomsoever paid or however
realized) to Senior Debt, whether or not the Subsidiary shall have had notice
or knowledge of any of the foregoing.
10. Payment in Full. For all purposes of this Agreement, Senior Debt
shall not be deemed to have been paid in full unless the holders thereof (or
their duly authorized representatives) shall have received cash or readily
marketable securities, taken at their then market value, equal to the amount of
Senior Debt at the time outstanding. This Agreement shall continue to be
effective, or be reinstated, as the case may be, to the extent that payment of
any of the Senior Debt is at any time rescinded or must otherwise be restored
or returned by any holder of Senior Debt upon the occurrence of any event
described in Section 4, or otherwise, all as though such payment had not been
made.
11. Subordination a Condition to Consent to Holders of Senior Debt to
Debt. The Subsidiary, by its acceptance hereof, agrees that the consent of
each of the holders of the Senior Debt to the incurrence and/or maintenance
outstanding by the Company of such indebtedness has been given in reliance upon
the subordination of such indebtedness to the Senior Debt. The provisions of
this Agreement are intended for the benefit of, and shall be directly
enforceable by, the holders of Senior Debt.
F-5
<PAGE> 71
12. Amendments, Waivers, etc. This Agreement may not be changed or
waived except with the prior written consent of the holders of 66-2/3% in
aggregate principal amount of the Notes at the time outstanding.
13. Law Governing. This Agreement shall be governed by and construed in
accordance with the substantive laws of the State of New York without reference
to the conflicts of law rules thereof.
14. Headings, etc. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect any of the terms
hereof. Unless otherwise specified, any reference in this Agreement to a
particular section or other subdivision shall be considered a reference to that
section or other subdivision of this Agreement.
15. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first written above.
LENNOX INTERNATIONAL INC.
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
[SUBSIDIARY]
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
F-6
<PAGE> 72
EXHIBIT G
[LETTERHEAD OF LENNOX INTERNATIONAL INC.]
July 6, 1995
Teachers Insurance and Annuity
Association of America
730 Third Avenue
New York, New York 10017
Attn: Securities Division
7.06% Senior Promissory Notes of Lennox International Inc. due 2005
Ladies and Gentlemen:
Reference is made to the Note Purchase Agreement dated as of July 6,
1995 (the "Note Agreement"), between Lennox International Inc. (the "Company")
and Teachers Insurance and Annuity Association of America (together with its
successors and assigns, the "Holders"). Capitalized terms used herein and not
otherwise defined herein shall have the respective meanings set forth in the
Note Agreement.
To induce the Holders and the Company to enter into the Note Agreement
and in consideration thereof, the Holders and the Company hereby agree as
follows:
(a) Amendment to Section 7.7 of the Note Agreement. Each of the
Holders agrees that, in the event (a) an amendment of (i) Section 7.7 of all of
the nine separate Agreements of Assumption and Restatement, dated as of
December 1, 1991, among the Company and each of the Noteholders named therein
(the "Assumption Agreements"), and (ii) any correlative terms in the Revolving
Credit Agreement, dated as of December 4, 1991, among the Company, the Banks
named therein, and The Northern Trust Company, as Agent (the "Revolving Credit
Agreement"), whether by incorporation therein of Section 7.7 of the Assumption
Agreements or otherwise, is effected so that the text thereof conforms to the
text set forth in Annex 1 hereto, or (b) such provisions of the Assumption
Agreements and the Revolving Credit Agreement cease to remain in effect, then
upon receipt by the holders of two-thirds of the aggregate principal amount of
the Notes outstanding at such time (the "Requisite Holders") of evidence
satisfactory to such holders of execution and delivery of such amendment or of
such cessation of effect of said provisions, as the case may be, the terms of
the Note Agreement shall, without any further action on the part of the Company
or any of the Holders, be deemed to be amended automatically so that the text
set forth in Annex 1 hereto is substituted for Section 7.7 of the Note
Agreement.
G-1
<PAGE> 73
(b) Amendment to Section 7.12 of the Note Agreement. Each of the
Holders agrees that, in the event (a) an amendment of (i) Section 7.12 of all
of the Assumption Agreements and (ii) any correlative terms in the Revolving
Credit Agreement, whether by incorporation therein of Section 7.12 of the
Assumption Agreements or otherwise, is effected so that the text thereof
conforms to the text set forth in Annex 2 hereto, or (b) such provisions of the
Assumption Agreements and the Revolving Credit Agreement cease to remain in
effect, then upon receipt by the Requisite Holders of evidence satisfactory to
such holders of execution and delivery of such amendment or of such cessation
of effect of said provisions, as the case may be, the terms of the Note
Agreement shall, without any further action on the part of the Company or any
of the Holders, be deemed to be amended automatically so that the text set
forth in Annex 2 hereto is substituted for Section 7.12 of the Note Agreement.
THIS LETTER AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK. This Letter Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. This Letter Agreement may be signed in any
number of counterparts, each of which shall be an original but all of which
together shall constitute one instrument.
Nothing in this Letter Agreement shall be construed to contravene any of
the rights of any of the Holders under Section 7.17 of the Note Agreement.
If the foregoing correctly describes our understanding with respect to
the subject matter of this Letter Agreement, please execute this letter in the
place indicated below.
Very truly yours,
LENNOX INTERNATIONAL INC.
By:
------------------------------
Clyde Wyant
Executive Vice President,
Chief Financial Officer
and Treasurer
G-2
<PAGE> 74
ACCEPTED AND AGREED:
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
G-3
<PAGE> 75
ANNEX 1
7.7. Sales and Leasebacks. The Company will not and will not permit
any Restricted Subsidiary to, as part of the same transaction or series of
related transactions, sell or otherwise transfer to any Person or Persons any
item or items of property, whether now owned or hereafter acquired, having a
book value in any one case or in the aggregate for all such property so
transferred from and including the date hereof through the date of such
transfer of more than fifteen percent (15%) of Net Worth if the Company or such
Restricted Subsidiary shall then or thereafter, as part of the same transaction
or series of related transactions, rent or lease as lessee, or similarly
acquire the right to possession or use of such property, or one or more
properties which it intends to use for the same purpose or purposes as such
property.
Annex 1-1
<PAGE> 76
ANNEX 2
7.12. Purchase of Notes Upon Change of Control. At least 15 Business
Days (or, in the case of any transaction permitted by Section 7.10 or 7.11
resulting in a Change of Control, at least 45 days) and not more than 90 days
prior to the occurrence of any Change of Control, the Company shall give
written notice thereof to each holder of an outstanding Note in the manner and
to the address specified for notices pursuant to this Section 7.12 for such
holder in Schedule I or as otherwise specified by such holder in writing to the
Company. Such notice shall contain (i) an offer by the Company to purchase, on
the date of such Change of Control or, if such notice shall be delivered less
than 35 days prior to the date of such Change of Control, on the date 35 days
after the date of such notice (the "Purchase Date"), all Notes held by each
such holder at a price equal to 100% of the principal amount thereof, together
with interest accrued thereon to the Purchase Date, (ii) the estimated
respective amounts of accrued interest payable to such holder in respect of
such purchase, showing in each case in reasonable detail the calculation
thereof and (iii) the Company's estimate of the date on which such Change of
Control shall occur. Said offer shall be deemed to lapse as to any such holder
which has not replied affirmatively thereto in writing within 35 days of the
giving of such notice. As soon as practicable (and in any event at least 24
hours) prior to such Change of Control, the Company shall give written
confirmation of the date thereof to each such holder which has affirmatively
replied to the notice given pursuant to the first sentence of this Section
7.12. In the event that the Company shall purchase any Notes pursuant to this
Section 7.12, the same shall thereafter be canceled and not reissued and shall
not be deemed "outstanding" for any purpose of this Agreement.
For the purposes of this Section 7.12, a "Change of Control" shall be
deemed to occur if any New Owner shall acquire beneficial ownership of shares
in the Company having Voting Rights pertaining thereto which would allow such
New Owner to elect more members of the Board than could be elected by the
exercise of all Voting Rights pertaining to shares in the Company then owned
beneficially by the Norris Family. As used in this Section 7.12:
(i) "Voting Rights" pertaining to shares of a corporation means the
rights to cast votes for the election of directors of such corporation in
ordinary circumstances (without consideration of voting rights which exist
only in the event of contingencies).
(ii) "Norris Family" means all persons who are lineal descendants of
D.W. Norris (by birth or adoption), all spouses of such descendants, all
estates of such descendants or spouses which are in the course of
administration, all trusts for the benefit of such descendants or spouses,
and all corporations or other entities in which, directly or indirectly,
such descendants or spouses (either alone or in conjunction with other such
descendants or spouses) have the right, whether by ownership of stock or
other equity interests or otherwise, to direct the management and policies
of such corporations or other entities (each such person, spouse, estate,
trust, corporation or entity being referred to herein as a "member" of the
Norris Family). In addition, so long as any employee stock ownership plan
exercises its
Annex 2-1
<PAGE> 77
Voting Rights in the same manner as members of the Norris Family (exclusive
of employee stock ownership plans) who have a majority of the Voting Rights
exercised by all such members of the Norris Family, such employee stock
ownership plan shall be deemed a member of the Norris Family.
(iii) "New Owner" means any person (other than a member of the Norris
Family), or any syndicate or group of persons (exclusive of all members of
the Norris Family) which would be deemed a "person" for the purposes of
Section 13(d) of the Exchange Act, who directly or indirectly acquires
shares in the Company.
Notwithstanding anything in this Section 7.12 to the contrary, if an Event of
Default exists following a Change of Control and the Notes are accelerated
pursuant to the provisions of Section 9.1, the holders of the Notes shall be
entitled to receive the Special Premium relating to such accelerated amount as
provided in Section 9.1.
Annex 2-2
<PAGE> 1
EXHIBIT 10.4
[EXECUTION COUNTERPART]
LENNOX INTERNATIONAL INC.
6.56% Senior Notes due April 3, 2005
PPN 52610* AK 9
($25,000,000)
6.75% Senior Notes due April 3, 2008
PPN 52610* AL 7
($50,000,000)
NOTE PURCHASE AGREEMENT
Dated April 3,1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
1. AUTHORIZATION OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. SALE AND PURCHASE OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.1. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.2. PERFORMANCE; NO DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.3. COMPLIANCE CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.4. OPINIONS OF COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.5. PURCHASE PERMITTED BY APPLICABLE LAW, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.6. SALE OF OTHER NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.7. PAYMENT OF SPECIAL COUNSEL FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.8. PRIVATE PLACEMENT NUMBER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.9. CHANGES IN CORPORATE STRUCTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.10. PROCEEDINGS AND DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.11 AMENDMENT OF EXISTING NOTE PURCHASE AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.1. ORGANIZATION; POWER AND AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.2. AUTHORIZATION, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.3. DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.4. ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.5. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.6. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.7. GOVERNMENTAL AUTHORIZATIONS, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
5.8. LITIGATION; OBSERVANCE OF STATUTES AND ORDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.9. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.10. TITLE TO PROPERTY; LEASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.11. LICENSES, PERMITS, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.12. COMPLIANCE WITH ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.13. PRIVATE OFFERING BY THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.14. USE OF PROCEEDS; MARGIN REGULATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.15. EXISTING INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.16. FOREIGN ASSETS CONTROL REGULATIONS, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.17. STATUS UNDER CERTAIN STATUTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6. REPRESENTATIONS OF THE PURCHASER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.1. PURCHASE FOR INVESTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.2. SOURCE OF FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7. INFORMATION AS TO COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.1. FINANCIAL AND BUSINESS INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.2. OFFICER'S CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.3. INSPECTION; CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8. PREPAYMENT OF THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.1. REQUIRED PREPAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.2. . OPTIONAL PREPAYMENTS WITH MAKE-WHOLE AMOUNT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.3 ALLOCATION OF PARTIAL PREPAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.4 MATURITY; SURRENDER, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.5 PURCHASE OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.6 MAKE-WHOLE AMOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.1 COMPLIANCE WITH LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
9.2. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.3. MAINTENANCE OF PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.4. PAYMENT OF TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.5. CORPORATE EXISTENCE, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.6 PURCHASE OF NOTE UPON CHANGE OF CONTROL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.7. MOST FAVORED LENDER'S STATUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.8. TRANSACTIONS WITH AFFILIATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
9.9. ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
10. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
10.1. TRANSACTIONS WITH AFFILIATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
10.2. MERGER, CONSOLIDATION, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
10.3. SALE OF ASSETS, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
10.4. INCURRENCE OF DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10.5. LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.6. RESTRICTED PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
10.7. CONSOLIDATED NET WORTH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
10.8. LIMITATION ON DIVIDEND RESTRICTIONS, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.9. LIMITATION ON RESTRICTED INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.10. PREFERRED STOCK OF RESTRICTED SUBSIDIARIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.11. NO REDESIGNATION OF RESTRICTED SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
12. REMEDIES ON DEFAULT, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
12.1. ACCELERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
12.2. OTHER REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
12.3. RESCISSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
12.4. NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
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<TABLE>
<S> <C>
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
13.1. REGISTRATION OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
13.2. TRANSFER AND EXCHANGE OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
13.3. REPLACEMENT OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
14. PAYMENTS ON NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
14.1. PLACE OF PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
14.2. HOME OFFICE PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
15. EXPENSES, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
15.1. TRANSACTION EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
15.2. SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 32
17. AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
17.1. REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
17.2. SOLICITATION OF HOLDERS OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
17.3. BINDING EFFECT, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
17.4. NOTES HELD BY COMPANY, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
18. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
19. REPRODUCTION OF DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
20. CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
21. SUBSTITUTION OF PURCHASER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
22. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
22.1. SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
22.2. PAYMENTS DUE ON NON-BUSINESS DAYS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
22.3. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
22.4. CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
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<TABLE>
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22.5. COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
22.6. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
SCHEDULE A -- INFORMATION RELATING TO PURCHASERS
SCHEDULE B -- DEFINED TERMS
SCHEDULE 5.4 -- Subsidiaries of the Company and Ownership of Subsidiary Stock
SCHEDULE 5.5 -- Financial Statements
SCHEDULE 5.14 -- Use of Proceeds
SCHEDULE 5.15 -- Existing Indebtedness
EXHIBIT 1-A -- Form of 6.56% Senior Note due April 3, 2005
EXHIBIT 1-B -- Form of 6.75% Senior Note due April 3, 2008
EXHIBIT 4.4(a) -- Form of Opinion of Counsel for the Company
EXHIBIT 4.4(b) -- Form of Opinion of Special Counsel for the Purchasers
EXHIBIT 4.11 -- Form of Amendment to Existing Note Purchase Agreements
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6.56% Senior Notes due April 3, 2005
6.75% Senior Notes due April 3, 2008
April 3, 1998
TO EACH OF THE PURCHASERS LISTED IN
THE ATTACHED SCHEDULE A:
Ladies and Gentlemen:
Lennox International Inc., a Delaware corporation (the "COMPANY"),
agrees with you as follows:
1. AUTHORIZATION OF NOTES
The Company will authorize the issue and sale of $25,000,000
aggregate principal amount of its 6.56% Senior Notes due April 3, 2005 (the
"6.56% NOTES") and $50,000,000 aggregate principal amount of its 6.75% Senior
Notes due April 3, 2008 (the "6.75% NOTES" and, together with the 6.56% Notes,
collectively, the "NOTES"; the terms "6.56% NOTES," "6.75% NOTES" and "NOTES"
to include any notes issued in substitution therefor pursuant to Section 13 of
this Agreement or the Other Agreements (as hereinafter defined)). The 6.56%
Notes and the 6.75% Notes shall be substantially in the forms set out in
Exhibits 1-A and 1-B, respectively, with such changes therefrom, if any, as may
be approved by you and the Company. Certain capitalized terms used in this
Agreement are defined in Schedule B; references to a "SCHEDULE" or an "EXHIBIT"
are, unless otherwise specified, to a Schedule or an Exhibit attached to this
Agreement.
2. SALE AND PURCHASE OF NOTES
Subject to the terms and conditions of this Agreement, the Company
will issue and sell to you and you will purchase from the Company, at the
Closing provided for in Section 3, Notes of the Series and in the principal
amount specified opposite your name in Schedule A at the purchase price of 100%
of the principal amount thereof. Contemporaneously with entering into this
Agreement, the Company is entering into separate Note Purchase Agreements (the
"OTHER AGREEMENTS") identical with this Agreement with each of the other
purchasers named in Schedule A (the "OTHER PURCHASERS"), providing for the sale
at such Closing to each of the Other Purchasers of Notes of the Series and in
the principal amount specified opposite its name in Schedule A. Your
obligation hereunder and the obligations of the Other Purchasers under the
Other Agreements are several and not joint obligations and you shall have no
obligation under
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<PAGE> 8
any Other Agreement and no liability to any Person for the performance or
non-performance by any Other Purchaser thereunder.
3. CLOSING
The sale and purchase of the Notes to be purchased by you and the
Other Purchasers shall occur at the offices of Baker & Botts, L.L.P., 2001 Ross
Avenue, Dallas, Texas 75201, at 10:00 a.m., Dallas time, at a closing (the
"CLOSING") on April 3, 1998 or on such other Business Day thereafter on or
prior to April 8, 1998 as may be agreed upon by the Company and you and the
Other Purchasers. At the Closing the Company will deliver to you the Notes to
be purchased by you in the form of a single Note of the Series specified
opposite your name in Schedule A (or such greater number of Notes in
denominations of at least $5,000,000 as you may request) dated the date of the
Closing and registered in your name (or in the name of your nominee), against
delivery by you to the Company or its order of immediately available funds in
the amount of the purchase price therefor by wire transfer of immediately
available funds for the account of the Company to account number 849820 at The
Northern Trust Company, Chicago, Illinois, ABA #071000152. If at the Closing
the Company shall fail to tender such Notes to you as provided above in this
Section 3, or any of the conditions specified in Section 4 shall not have been
fulfilled to your satisfaction, you shall, at your election, be relieved of all
further obligations under this Agreement, without thereby waiving any rights
you may have by reason of such failure or such nonfulfillment.
4. CONDITIONS TO CLOSING.
Your obligation to purchase and pay for the Notes to be sold to
you at the Closing is subject to the fulfillment to your satisfaction, prior to
or at the Closing, of the following conditions:
4.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company in this
Agreement shall be correct when made and at the time of the Closing.
4.2. PERFORMANCE; NO DEFAULT.
The Company shall have performed and complied with all agreements
and conditions contained in this Agreement required to be performed or complied
with by it prior to or at the Closing and after giving effect to the issue and
sale of the Notes (and the application of the proceeds thereof as contemplated
by Schedule 5.14) no Default or Event of Default shall have occurred and be
continuing.
4.3. COMPLIANCE CERTIFICATES.
(a) Officer's Certificate. The Company shall have delivered
to you an Officer's Certificate, dated the date of the Closing, certifying that
the conditions specified in Sections 4.1, 4.2 and 4.9 have been fulfilled.
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<PAGE> 9
(b) Secretary's Certificate. The Company shall have delivered
to you a certificate certifying as to the resolutions attached thereto and
other corporate proceedings relating to the authorization, execution and
delivery of the Notes and the Agreements.
4.4. OPINIONS OF COUNSEL.
You shall have received opinions in form and substance
satisfactory to you, dated the date of the Closing (a) from Anne W. Teeling,
Assistant General Counsel for the Company, covering the matters set forth in
Exhibit 4.4(a) and covering such other matters incident to the transactions
contemplated hereby as you or your counsel may reasonably request (and the
Company hereby instructs its counsel to deliver such opinion to you) and (b)
from Baker & Botts, L.L.P., your special counsel in connection with such
transactions, substantially in the form set forth in Exhibit 4.4(b) and
covering such other matters incident to such transactions as you may reasonably
request.
4.5. PURCHASE PERMITTED BY APPLICABLE LAW, ETC.
On the date of the Closing your purchase of Notes shall (i) be
permitted by the laws and regulations of each jurisdiction to which you are
subject, without recourse to provisions (such as Section 1405(a)(8) of the New
York Insurance Law) permitting limited investments by insurance companies
without restriction as to the character of the particular investment, (ii) not
violate any applicable law or regulation (including, without limitation,
Regulation T, U or X of the Board of Governors of the Federal Reserve System)
and (iii) not subject you to any tax, penalty or liability under or pursuant to
any applicable law or regulation, which law or regulation was not in effect on
the date hereof. If requested by you, you shall have received an Officer's
Certificate certifying as to such matters of fact as you may reasonably specify
to enable you to determine whether such purchase is so permitted.
4.6. SALE OF OTHER NOTES.
Contemporaneously with the Closing the Company shall sell to the
Other Purchasers and the Other Purchasers shall purchase the Notes to be
purchased by them at the Closing as specified in Schedule A.
4.7. PAYMENT OF SPECIAL COUNSEL FEES
Without limiting the provisions of Section 15.1, the Company shall
have paid on or before the Closing the fees, charges and disbursements of your
special counsel referred to in Section 4.4 to the extent reflected in a
statement of such counsel rendered to the Company at least one Business Day
prior to the Closing.
4.8. PRIVATE PLACEMENT NUMBER.
A Private Placement number issued by Standard & Poor's CUSIP
Service Bureau (in cooperation with the Securities Valuation Office of the
National Association of Insurance Commissioners) shall have been obtained for
each Series of Notes.
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<PAGE> 10
4.9. CHANGES IN CORPORATE STRUCTURE
The Company shall not have changed its jurisdiction of
incorporation or been a party to any merger or consolidation and shall not have
succeeded to all or any substantial part of the liabilities of any other
entity, at any time following the date of the most recent financial statements
referred to in Schedule 5.5.
4.10. PROCEEDINGS AND DOCUMENTS.
All corporate and other proceedings in connection with the
transactions contemplated by this Agreement and all documents and instruments
incident to such transactions shall be satisfactory to you and your special
counsel, and you and your special counsel shall have received all such
counterpart originals or certified or other copies of such documents as you or
they may reasonably request.
4.11 AMENDMENT OF EXISTING NOTE PURCHASE AGREEMENTS.
The Company, you and each of the Other Purchasers shall have
executed and delivered at the Closing an amendment to the Existing Note
Purchase Agreements, substantially in the form of Exhibit 4.11.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to you that:
5.1. ORGANIZATION; POWER AND AUTHORITY
The Company is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation, and is
duly qualified as a foreign corporation and is in good standing in each
jurisdiction in which such qualification is required by law, other than those
jurisdictions as to which the failure to be so qualified or in good standing
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. The Company has the corporate power and authority to
own or hold under lease the properties it purports to own or hold under lease,
to transact the business it transacts and proposes to transact, to execute and
deliver this Agreement and the Other Agreements and the Notes and to perform
the provisions hereof and thereof.
5.2. AUTHORIZATION, ETC.
This Agreement and the Other Agreements and the Notes have been
duly authorized by all necessary corporate action on the part of the Company,
and this Agreement constitutes, and upon execution and delivery thereof each
Note will constitute, a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (ii) general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at
law).
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<PAGE> 11
5.3. DISCLOSURE.
The Company, through its agent, SBC Warburg Dillon Read Inc., has
delivered to you and each Other Purchaser a copy of a Confidential Private
Placement Memorandum, dated February 1998 (the "MEMORANDUM"), relating to the
transactions contemplated hereby. The Memorandum fairly describes, in all
material respects, the general nature of the business and properties of the
Company and its Restricted Subsidiaries. This Agreement, the Memorandum and
the financial statements listed in Schedule 5.5, taken as a whole, do not
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading in light of the
circumstances under which they were made. Except as disclosed in the
Memorandum or in the financial statements listed in Schedule 5.5, since
December 31, 1997, there has been no change in the financial condition,
operations, business, properties or prospects of the Company or any of its
Subsidiaries except changes that individually or in the aggregate would not
reasonably be expected to have a Material Adverse Effect. There is no fact
known to the Company that could reasonably be expected to have a Material
Adverse Effect that has not been set forth herein or in the Memorandum or in
the financial statements listed in Schedule 5.5.
5.4. ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES
(a) Schedule 5.4 is (except as noted therein) a complete and
correct list of the Company's Subsidiaries, showing, as to each Subsidiary, the
correct name thereof, the jurisdiction of its organization, the percentage of
shares of each class of its capital stock or similar equity interests
outstanding owned by the Company and each other Subsidiary, and specifying
whether such Subsidiary is designated a Restricted Subsidiary.
(b) All of the outstanding shares of capital stock or similar
equity interests of each Subsidiary shown in Schedule 5.4 as being owned by the
Company and its Subsidiaries have been validly issued, are fully paid and
nonassessable and are owned by the Company or another Subsidiary free and clear
of any Lien (except as otherwise disclosed in Schedule 5.4).
(c) Each Subsidiary identified in Schedule 5.4 is a
corporation or other legal entity duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization, and is duly
qualified as a foreign corporation or other legal entity and is in good
standing in each jurisdiction in which such qualification is required by law,
other than those jurisdictions as to which the failure to be so qualified or in
good standing would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. Each such Subsidiary has the
corporate or other power and authority to own or hold under lease the
properties it purports to own or hold under lease and to transact the business
it transacts and proposes to transact.
5.5. FINANCIAL STATEMENTS.
The Company has delivered to each Purchaser copies of the
financial statements of the Company and its Subsidiaries listed on Schedule
5.5. All of said financial statements (including in each case the related
schedules and notes) fairly present in all material respects the consolidated
financial position of the Company and its Subsidiaries, and of the Company and
its Restricted Subsidiaries, as of the respective dates specified in such
Schedule and the consolidated
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results of their operations and cash flows for the respective periods so
specified and have been prepared in accordance with GAAP consistently applied
throughout the periods involved except as set forth in the notes thereto
(subject, in the case of any interim financial statements, to normal year-end
adjustments).
5.6. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC.
The execution, delivery and performance by the Company of this
Agreement and the Notes will not (i) contravene, result in any breach of, or
constitute a default under, or result in the creation of any Lien in respect of
any property of the Company or any Subsidiary under, any indenture, mortgage,
deed of trust, loan, purchase or credit agreement, lease, corporate charter or
by-laws, or any other Material agreement or instrument to which the Company or
any Subsidiary is bound or by which the Company or any Subsidiary or any of
their respective properties may be bound or affected, (ii) conflict with or
result in a breach of any of the terms, conditions or provisions of any order,
judgment, decree, or ruling of any court, arbitrator or Governmental Authority
applicable to the Company or any Subsidiary or (iii) violate any provision of
any statute or other rule or regulation of any Governmental Authority
applicable to the Company or any Subsidiary.
5.7. GOVERNMENTAL AUTHORIZATIONS, ETC.
No consent, approval or authorization of, or registration, filing
or declaration with, any Governmental Authority is required in connection with
the execution, delivery or performance by the Company of this Agreement or the
Notes.
5.8. LITIGATION; OBSERVANCE OF STATUTES AND ORDERS
(a) There are no actions, suits or proceedings pending or, to
the knowledge of the Company, threatened against or affecting the Company or
any Subsidiary or any property of the Company or any Subsidiary in any court or
before any arbitrator of any kind or before or by any Governmental Authority
that, individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect.
(b) Neither the Company nor any Subsidiary is in default under
any agreement or instrument to which it is a party or by which it is bound, or
any order, judgment, decree or ruling of any court, arbitrator or Governmental
Authority or is in violation of any applicable law, ordinance, rule or
regulation (including without limitation Environmental Laws) of any
Governmental Authority, which default or violation, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect.
5.9. TAXES.
The Company and its Subsidiaries have filed all income tax returns
that are required to have been filed in any jurisdiction, and have paid all
taxes shown to be due and payable on such returns and all other taxes and
assessments payable by them, to the extent such taxes and assessments have
become due and payable and before they have become delinquent, except for any
taxes and assessments (i) the amount of which is not individually or in the
aggregate Material or (ii) the amount, applicability or validity of which is
currently being contested in good
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<PAGE> 13
faith by appropriate proceedings and with respect to which the Company or a
Subsidiary, as the case may be, has established adequate reserves in accordance
with GAAP. The Federal income tax liabilities of the Company and its
Subsidiaries have been determined by the Internal Revenue Service and paid for
all fiscal years up to and including the fiscal year ended December 31, 1992.
5.10. TITLE TO PROPERTY; LEASES.
The Company and its Subsidiaries have good and sufficient title to
their respective Material properties, including all such properties reflected
in the most recent audited balance sheet referred to in Section 5.5 or
purported to have been acquired by the Company or any Subsidiary after said
date (except as sold or otherwise disposed of in the ordinary course of
business), in each case free and clear of Liens prohibited by this Agreement,
except for those defects in title and Liens that, individually or in the
aggregate, would not have a Material Adverse Effect. All Material leases are
valid and subsisting and are in full force and effect in all material respects.
5.11. LICENSES, PERMITS, ETC.
The Company and its Subsidiaries own or possess all licenses,
permits, franchises, authorizations, patents, copyrights, service marks,
trademarks and trade names, or rights thereto, that are Material, without known
conflict with the rights of others, except for those conflicts that,
individually or in the aggregate, would not have a Material Adverse Effect.
5.12. COMPLIANCE WITH ERISA.
(a) The Company and each ERISA Affiliate have operated and
administered each Plan in compliance with all applicable laws except for such
instances of noncompliance as have not resulted in and could not reasonably be
expected to result in a Material Adverse Effect. Neither the Company nor any
ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA
or the penalty or excise tax provisions of the Code relating to employee
benefit plans (as defined in Section 3 of ERISA), and no event, transaction or
condition has occurred or exists that would reasonably be expected to result in
the incurrence of any such liability by the Company or any ERISA Affiliate, or
in the imposition of any Lien on any of the rights, properties or assets of the
Company or any ERISA Affiliate, in either case pursuant to Title I or IV of
ERISA or to such penalty or excise tax provisions or to Section 401(a)(29) or
412 of the Code, other than such liabilities or Liens as would not be
individually or in the aggregate Material.
(b) The present value of the aggregate accrued plan benefit
liabilities under each of the Plans that are subject to Title IV of ERISA
(other than Multiemployer Plans), determined in accordance with Financial
Accounting Standards Board Statement No. 87 as of the end of such Plan's most
recently ended plan year on the basis of the actuarial assumptions specified
for funding purposes in such Plan's most recent actuarial valuation report, did
not exceed the aggregate current value of the assets of such Plan allocable to
such benefit liabilities by more than $3,000,000 in the case of any single Plan
and by more than $3,000,000 in the aggregate for all Plans.
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<PAGE> 14
(c) The Company and its ERISA Affiliates have not incurred
withdrawal liabilities (and are not subject to contingent withdrawal
liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer
Plans that individually or in the aggregate are Material.
(d) The expected postretirement benefit obligation (determined
as of the last day of the Company's most recently ended fiscal year in
accordance with Financial Accounting Standards Board Statement No. 106, without
regard to liabilities attributable to continuation coverage mandated by section
4980B of the Code) of the Company and its Subsidiaries was approximately
$18,733,000 as of December 31, 1997.
(e) The execution and delivery of this Agreement and the
issuance and sale of the Notes hereunder will not involve any transaction that
is subject to the prohibitions of section 406 of ERISA or in connection with
which a tax could be imposed pursuant to section 4975(c)(1)(A)-(D) of the Code.
The representation by the Company in the first sentence of this Section 5.12(e)
is made in reliance upon and subject to the accuracy of your representation in
Section 6.2 as to the sources of the funds to be used to pay the purchase price
of the Notes to be purchased by you.
5.13. PRIVATE OFFERING BY THE COMPANY
Neither the Company nor anyone acting on its behalf has offered
the Notes or any similar securities for sale to, or solicited any offer to buy
any of the same from, or otherwise approached or negotiated in respect thereof
with, any person other than you, the Other Purchasers and not more than five
other Institutional Investors, each of which has been offered the Notes at a
private sale for investment. Neither the Company nor anyone acting on its
behalf has taken, or will take, any action that would subject the issuance or
sale of the Notes to the registration requirements of Section 5 of the
Securities Act.
5.14. USE OF PROCEEDS; MARGIN REGULATIONS
The Company will apply the proceeds of the sale of the Notes as
set forth in Schedule 5.14. No part of the proceeds from the sale of the Notes
hereunder will be used, directly or indirectly, for the purpose of buying or
carrying any margin stock within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System (12 CFR 221), or for the purpose of
buying or carrying or trading in any securities under such circumstances as to
involve the Company in a violation of Regulation X of said Board (12 CFR 224)
or to involve any broker or dealer in a violation of Regulation T of said Board
(12 CFR 220). Margin stock does not constitute more than 5% of the value of
the consolidated assets of the Company and its Restricted Subsidiaries and the
Company does not have any present intention that margin stock will constitute
more than 5% of the value of such assets. As used in this Section, the terms
"MARGIN STOCK" and "PURPOSE OF BUYING OR CARRYING" shall have the meanings
assigned to them in said Regulation U.
5.15. EXISTING INDEBTEDNESS.
Except as described therein, Schedule 5.15 sets forth a complete
and correct list of all outstanding Indebtedness of the Company and its
Restricted Subsidiaries (other than Indebtedness of Restricted Subsidiaries to
the Company or other Wholly-Owned Restricted Subsidiaries) as of January 31,
1998, since which date there has been no Material change in the
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<PAGE> 15
amounts, interest rates, sinking funds, installment payments or maturities of
the Indebtedness of the Company or its Restricted Subsidiaries. Neither the
Company nor any Restricted Subsidiary is in default, and no waiver of default
is currently in effect, in the payment of any principal or interest on any
Indebtedness of the Company or such Restricted Subsidiary, and no event or
condition exists with respect to any Indebtedness of the Company or any
Restricted Subsidiary the outstanding principal amount of which exceeds
$3,000,000 in the aggregate that would permit (or that with notice or the lapse
of time, or both, would permit) one or more Persons to cause such Indebtedness
to become due and payable before its stated maturity or before its regularly
scheduled dates of payment. To the knowledge of the Responsible Officers of
the Company, no event or condition exists with respect to any Indebtedness of
the Company or any Restricted Subsidiary that would permit (or that with notice
or the lapse of time, or both, would permit) one or more Persons to cause such
Indebtedness to become due and payable before its stated maturity or before its
regularly scheduled dates of payment.
5.16. FOREIGN ASSETS CONTROL REGULATIONS, ETC.
Neither the sale of the Notes by the Company hereunder nor its use
of the proceeds thereof will violate the Trading with the Enemy Act, as
amended, or any of the foreign assets control regulations of the United States
Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto.
5.17. STATUS UNDER CERTAIN STATUTES.
Neither the Company nor any Subsidiary is subject to regulation
under the Investment Company Act of 1940, as amended, the Public Utility
Holding Company Act of 1935, as amended, the Interstate Commerce Act, as
amended, or the Federal Power Act, as amended.
6. REPRESENTATIONS OF THE PURCHASER.
6.1. PURCHASE FOR INVESTMENT.
You represent that you are purchasing the Notes for your own
account or for one or more separate accounts maintained by you or for the
account of one or more pension or trust funds and not with a view to the
distribution thereof, provided that the disposition of your or their property
shall at all times be within your or their control. You understand that the
Notes have not been registered under the Securities Act and may be resold only
if registered pursuant to the provisions of the Securities Act or if an
exemption from registration is available, except under circumstances where
neither such registration nor such an exemption is required by law, and that
the Company is not required to register the Notes.
6.2. SOURCE OF FUNDS.
You represent that at least one of the following statements is an
accurate representation as to each source of funds (a "SOURCE") to be used by
you to pay the purchase price of the Notes to be purchased by you hereunder:
(a) the Source is an "INSURANCE COMPANY GENERAL ACCOUNT" (as
the term is defined in PTCE 95-60 (issued July 12, 1995)) in respect of which
the reserves and liabilities (as
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<PAGE> 16
defined by the annual statement for life insurance companies approved by the
National Association of Insurance Commissioners (the "NAIC ANNUAL STATEMENT"))
for the general account contract(s) held by or on behalf of any employee
benefit plan together with the amount of the reserves and liabilities for the
general account contract(s) held by or on behalf of any other employee benefit
plans maintained by the same employer (or affiliate thereof as defined in PTCE
95- 60) or by the same employee organization in the general account do not
exceed 10% of the total reserves and liabilities of the general account
(exclusive of separate account liabilities) plus surplus as set forth in the
NAIC Annual Statement filed with your state of domicile; or
(b) the Source is a separate account that is maintained solely
in connection with your fixed contractual obligations under which the amounts
payable, or credited, to any employee benefit plan (or its related trust) that
has any interest in such separate account or to any participant or beneficiary
of such plan (including any annuitant), are not affected in any manner by the
investment performance of the separate account; or
(c) the Source is either (i) an insurance company pooled
separate account, within the meaning of PTCE 90-1 (issued January 29, 1990), or
(ii) a bank collective investment fund, within the meaning of the PTCE 91-38
(issued July 12, 1991) and, except as you have disclosed to the Company in
writing pursuant to this paragraph (c), no employee benefit plan or group of
plans maintained by the same employer or employee organization beneficially
owns more than 10% of all assets allocated to such pooled separate account or
collective investment fund; or
(d) the Source constitutes assets of an "INVESTMENT FUND"
(within the meaning of Part V of the QPAM Exemption) managed by a "QUALIFIED
PROFESSIONAL ASSET MANAGER" or "QPAM" (within the meaning of Part V of the QPAM
Exemption), no employee benefit plan's assets that are included in such
investment fund, when combined with the assets of all other employee benefit
plans established or maintained by the same employer or by an affiliate (within
the meaning of Section V(c)(1) of the QPAM Exemption) of such employer or by
the same employee organization and managed by such QPAM, exceed 20% of the
total client assets managed by such QPAM, the conditions of Part I(c) and (g)
of the QPAM Exemption are satisfied, neither the QPAM nor a person controlling
or controlled by the QPAM (applying the definition of "CONTROL" in Section V(e)
of the QPAM Exemption) owns a 5% or more interest in the Company and (i) the
identity of such QPAM and (ii) the names of all employee benefit plans whose
assets are included in such investment fund have been disclosed to the Company
in writing pursuant to this paragraph (d); or
(e) the Source is a governmental plan; or
(f) the Source is one or more employee benefit plans, or a
separate account or trust fund comprised of one or more employee benefit plans,
each of which has been identified to the Company in writing pursuant to this
paragraph (f); or
(g) the Source does not include assets of any employee benefit
plan, other than a plan exempt from the coverage of ERISA.
As used in this Section 6.2, the terms "EMPLOYEE BENEFIT PLAN", "GOVERNMENTAL
PLAN", "PARTY IN INTEREST" and "SEPARATE ACCOUNT" shall have the respective
meanings assigned to such terms in Section 3 of ERISA.
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<PAGE> 17
7. INFORMATION AS TO COMPANY.
7.1. FINANCIAL AND BUSINESS INFORMATION.
The Company shall deliver to each holder of Notes that is an
Institutional Investor:
(a) Quarterly Statements -- within 60 days after the end of
each quarterly fiscal period in each fiscal year of the Company (other than the
last quarterly fiscal period of each such fiscal year), duplicate copies of
(i) consolidated and consolidating balance sheets of the
Company and its Restricted Subsidiaries and of the Company and its Subsidiaries
as at the end of such quarter, and
(ii) consolidated and consolidating statements of income,
changes in shareholders' equity and cash flows of the Company and its
Restricted Subsidiaries and of the Company and its Subsidiaries, for such
quarter and (in the case of the second and third quarters) for the portion of
the fiscal year ending with such quarter,
all in reasonable detail and setting forth, in the case of such consolidated
statements, in comparative form the figures for the corresponding periods in
the previous fiscal year, prepared in accordance with GAAP applicable to
quarterly financial statements generally, and certified by a Senior Financial
Officer as fairly presenting, in all material respects, the financial position
of the companies being reported on and their results of operations and cash
flows, subject to changes resulting from year-end adjustments, provided that
delivery within the time period specified above of copies of the Company's
Quarterly Report on Form 10-Q prepared in compliance with the requirements
therefor and filed with the Securities and Exchange Commission shall be deemed
to satisfy the requirements of this Section 7.1(a); provided further that if
such Form 10-Q does not contain consolidating information for the Company and
its Restricted Subsidiaries, the Company shall also deliver to each such holder
the consolidating information described in this Section 7.1(a);
(b) Annual Statements -- within 120 days after the end of each
fiscal year of the Company, duplicate copies of
(i) consolidated and consolidating balance sheets of the
Company and its Restricted Subsidiaries and of the Company and its
Subsidiaries, as at the end of such year, and
(ii) consolidated and consolidating statements of income,
changes in shareholders' equity and cash flows of the Company and its
Restricted Subsidiaries and of the Company and its Subsidiaries, for such year;
setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail, prepared in accordance with GAAP, and
accompanied, (1) in the case of the consolidated statements, by an opinion
thereon of independent certified public accountants of recognized national
standing, which opinion shall state that such financial statements present
fairly, in all material respects, the financial position of the companies being
reported upon and their results of operations and cash flows and have been
prepared in conformity with GAAP, and that the examination of such accountants
in connection with such financial statements has been made in accordance with
generally accepted auditing standards, and that such audit provides a
reasonable basis for such opinion in the circumstances, and (2) in the case of
the consolidating
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<PAGE> 18
statements, either certified by a Senior Financial Officer as fairly stating,
or accompanied by a report thereon by such accountants containing a statement
to the effect that such consolidating financial statements fairly state, the
financial position and the results of operations and cash flows of the
companies being reported upon in all material respects in relation to the
consolidated financial statements for the periods indicated as a whole;
provided that the delivery within the time period specified above of the
Company's Annual Report on Form 10-K for such fiscal year (together with the
Company's annual report to shareholders, if any, prepared pursuant to Rule
14a-3 under the Exchange Act) prepared in accordance with the requirements
therefor and filed with the Securities and Exchange Commission shall be deemed
to satisfy the requirements of clauses (i) and (ii) of this Section 7.1(b);
provided further that if such Form 10-K does not contain consolidating
information for the Company and its Restricted Subsidiaries, the Company shall
also deliver to each such holder the consolidating information described in
this Section 7.1(b); and
(iii) a certificate of such accountants stating that in making
the examination for such report, they have obtained no knowledge of any Default
or Event of Default, or, if they have obtained knowledge of any Default or
Event of Default, specifying the nature and period of existence thereof and the
action the Company has taken or proposes to take with respect thereto.
(c) SEC and Other Reports - if the Company or any Restricted
Subsidiary shall be required to file reports with the Securities and Exchange
Commission, promptly upon their becoming available, one copy of (i) each
financial statement, report, notice or proxy statement sent by the Company or
any Restricted Subsidiary to public securities holders generally, and (ii) each
regular or periodic report, each registration statement that shall have become
effective (without exhibits except as expressly requested by such holder), and
each final prospectus and all amendments thereto filed by the Company or any
Restricted Subsidiary with the Securities and Exchange Commission;
(d) Notice of Default or Event of Default -- promptly, and in
any event within five days after a Responsible Officer becoming aware of the
existence of any Default or Event of Default, a written notice specifying the
nature and period of existence thereof and what action the Company is taking or
proposes to take with respect thereto;
(e) ERISA Matters -- promptly, and in any event within five
days after a Responsible Officer becomes aware of any of the following, a
written notice setting forth the nature thereof and the action, if any, that
the Company or an ERISA Affiliate proposes to take with respect thereto:
(i) with respect to any Plan, any reportable event, as defined
in section 4043(b) of ERISA and the regulations thereunder, for which notice
thereof has not been waived pursuant to such regulations as in effect on the
date hereof and the potential cost to the Company or such ERISA Affiliate
resulting therefrom exceeds $500,000; or
(ii) the taking by the PBGC of steps to institute, or the
threatening in writing by the PBGC of the institution of, proceedings under
section 4042 of ERISA for the termination of, or the appointment of a trustee
to administer, any Plan, or the receipt by the Company or any ERISA Affiliate
of a notice from a Multiemployer Plan that such action has been taken by the
PBGC with respect to such Multiemployer Plan; or
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(iii) any event, transaction or condition that could result in
the incurrence of any liability by the Company or any ERISA Affiliate pursuant
to Title I or IV of ERISA or the penalty or excise tax provisions of the Code
relating to employee benefit plans, or in the imposition of any Lien on any of
the rights, properties or assets of the Company or any ERISA Affiliate pursuant
to Title I or IV of ERISA or such penalty or excise tax provisions, if such
liability or Lien, taken together with any other such liabilities or Liens then
existing, would reasonably be expected to have a Material Adverse Effect; and
(f) Requested Information -- with reasonable promptness, such
other data and information relating to the business, operations, affairs,
financial condition, assets or properties of the Company or any of its
Restricted Subsidiaries or relating to the ability of the Company to perform
its obligations hereunder and under the Notes as from time to time may be
reasonably requested by any such holder of Notes.
7.2. OFFICER'S CERTIFICATE.
Each set of financial statements delivered to a holder of Notes
pursuant to Section 7.1(a) or Section 7.1(b) hereof shall be accompanied by a
certificate of a Senior Financial Officer setting forth:
(a) Covenant Compliance -- the information (including detailed
calculations) required in order to establish whether the Company was in
compliance with the requirements of Section 10.3 through Section 10.9 hereof,
inclusive, and with all Additional Covenants, if any, that involve calculations
during the quarterly or annual period covered by the statements then being
furnished (including with respect to each such Section or Additional Covenant,
as the case may be, where applicable, the calculations of the maximum or
minimum amount, ratio or percentage, as the case may be, permissible under the
terms of such Sections or Additional Covenants, as the case may be, and the
calculation of the amount, ratio or percentage then in existence);
(b) Event of Default -- a statement that such officer has
reviewed the relevant terms hereof and has made, or caused to be made, under
his or her supervision, a review of the transactions and conditions of the
Company and its Subsidiaries from the beginning of the quarterly or annual
period covered by the statements then being furnished to the date of the
certificate and that such review shall not have disclosed the existence during
such period of any condition or event that constitutes a Default or an Event of
Default or, if any such condition or event existed or exists (including,
without limitation, any such event or condition resulting from the failure of
the Company or any Subsidiary to comply with any Environmental Law), specifying
the nature and period of existence thereof and what action the Company shall
have taken or proposes to take with respect thereto;
(c) Management's Discussion and Analysis -- a written
discussion and analysis by management of the financial condition and results of
operations of the lines of business conducted by each material Restricted
Subsidiary for such accounting period; and
(d) Litigation -- a written statement that, to the best of
such Officer's knowledge after due inquiry, except as otherwise disclosed in
writing to you, there is no litigation (including derivative actions),
arbitration proceeding or governmental proceeding pending to which the
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Company or any Subsidiary is a party, or with respect to the Company or any
Subsidiary or their respective properties, which has a significant possibility
of materially and adversely affecting the business, operations, properties or
condition of the Company or of the Company and its Subsidiaries taken as a
whole.
7.3. INSPECTION; CONFIDENTIALITY.
The Company shall permit the representatives of each holder of
Notes that is an Institutional Investor:
(a) No Default -- if no Default or Event of Default then
exists, at the expense of such holder and upon reasonable prior notice to the
Company, to visit the principal executive office of the Company, to discuss the
affairs, finances and accounts of the Company and its Restricted Subsidiaries
with the Company's officers and (with the consent of the Company, which consent
will not be unreasonably withheld) its independent public accountants, and
(with the consent of the Company, which consent will not be unreasonably
withheld) to visit the other offices and properties of the Company and each
Restricted Subsidiary, all at such reasonable times and as often as may be
reasonably requested in writing;
(b) Default -- if a Default or Event of Default then exists,
at the expense of the Company to visit and inspect any of the offices or
properties of the Company or any Subsidiary, to examine all their respective
books of account, records, reports and other papers, to make copies and
extracts therefrom, and to discuss their respective affairs, finances and
accounts with their respective officers and independent public accountants (and
by this provision the Company authorizes said accountants to discuss the
affairs, finances and accounts of the Company and its Subsidiaries), all at
such times and as often as may be requested; and
(c) Technical Data - anything herein to the contrary
notwithstanding, neither the Company nor any of its Subsidiaries shall have any
obligations to disclose pursuant to this Agreement any engineering, scientific,
or other technical data without significance to your analysis of the financial
position of the Company and its Subsidiaries.
8. PREPAYMENT OF THE NOTES.
8.1. REQUIRED PREPAYMENTS.
There are no required prepayments with respect to the Notes.
8.2. OPTIONAL PREPAYMENTS WITH MAKE-WHOLE AMOUNT.
The Company may, at its option, upon notice as provided below,
prepay at any time all, or from time to time any part of, the Notes, in an
amount not less than $5,000,000 of the aggregate principal amount of the Notes
then outstanding in the case of a partial prepayment, at 100% of the principal
amount so prepaid, plus the Make-Whole Amount determined for the prepayment
date with respect to such principal amount. The Company will give each holder
of Notes written notice of each optional prepayment under this Section 8.2 not
less than 30 days and not more than 60 days prior to the date fixed for such
prepayment. Each such notice shall specify such date, the aggregate principal
amount of the Notes to be prepaid on such date, the principal amount of each
Note held by such holder to be prepaid (determined in accordance with
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<PAGE> 21
Section 8.3), and the interest to be paid on the prepayment date with respect
to such principal amount being prepaid, and shall be accompanied by a
certificate of a Senior Financial Officer as to the estimated Make-Whole Amount
due in connection with such prepayment (calculated as if the date of such
notice were the date of the prepayment), setting forth the details of such
computation. Two Business Days prior to such prepayment, the Company shall
deliver to each holder of Notes a certificate of a Senior Financial Officer
specifying the calculation of such Make-Whole Amount as of the specified
prepayment date.
8.3. ALLOCATION OF PARTIAL PREPAYMENTS.
In the case of each partial prepayment of the Notes, the principal
amount of the Notes to be prepaid shall be allocated among all of the Notes at
the time outstanding in proportion, as nearly as practicable, to the respective
unpaid principal amounts thereof not theretofore called for prepayment.
8.4. MATURITY; SURRENDER, ETC.
In the case of each prepayment of Notes pursuant to this Section
8, the principal amount of each Note to be prepaid shall mature and become due
and payable on the date fixed for such prepayment, together with interest on
such principal amount accrued to such date and the applicable Make-Whole
Amount, if any. From and after such date, unless the Company shall fail to pay
such principal amount when so due and payable, together with the interest and
Make-Whole Amount, if any, as aforesaid, interest on such principal amount
shall cease to accrue. Any Note paid or prepaid in full shall be surrendered
to the Company and canceled and shall not be reissued, and no Note shall be
issued in lieu of any prepaid principal amount of any Note.
8.5. PURCHASE OF NOTES.
The Company will not and will not permit any Affiliate to
purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of
the outstanding Notes except (a) upon the payment or prepayment of the Notes in
accordance with the terms of this Agreement and the Notes or (b) pursuant to
Section 9.6. The Company will promptly cancel all Notes acquired by it or any
Affiliate pursuant to any payment, prepayment or purchase of Notes pursuant to
Section 9.6 or any other provision of this Agreement and no Notes may be issued
in substitution or exchange for any such Notes.
8.6. MAKE-WHOLE AMOUNT.
The term "MAKE-WHOLE AMOUNT" means, with respect to any Note, an
amount equal to the excess, if any, of the Discounted Value of the Remaining
Scheduled Payments with respect to the Called Principal of such Note over the
amount of such Called Principal, provided that the Make-Whole Amount may in no
event be less than zero, and provided, further, that separate calculations of
the Make-Whole Amount shall be made for the 6.56% Notes and the 6.75% Notes.
For the purposes of determining the Make-Whole Amount, the following terms have
the following meanings:
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"CALLED PRINCIPAL" means, with respect to any Note, the principal
of such Note that is to be prepaid pursuant to Section 8.2 or has become or is
declared to be immediately due and payable pursuant to Section 12.1, as the
context requires.
"DISCOUNTED VALUE" means, with respect to the Called Principal of
any Note, the amount obtained by discounting all Remaining Scheduled Payments
with respect to such Called Principal from their respective scheduled due dates
to the Settlement Date with respect to such Called Principal, in accordance
with accepted financial practice and at a discount factor (applied on the same
periodic basis as that on which interest on the Notes is payable) equal to the
Reinvestment Yield with respect to such Called Principal.
"REINVESTMENT YIELD" means, with respect to the Called Principal
of any Note, 0.50% over the yield to maturity implied by (i) the yields
reported, as of 10:00 A.M. (New York City time) on the second Business Day
preceding the Settlement Date with respect to such Called Principal, on the
display designated as "PAGE 678" on the Telerate Access Service (or such other
display as may replace Page 678 on Telerate Access Service) for actively traded
U.S. Treasury securities having a maturity equal to the Remaining Average Life
of such Called Principal as of such Settlement Date, or (ii) if such yields are
not reported as of such time or the yields reported as of such time are not
ascertainable, the Treasury Constant Maturity Series Yields reported, for the
latest day for which such yields have been so reported as of the second
Business Day preceding the Settlement Date with respect to such Called
Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable
successor publication) for actively traded U.S. Treasury securities having a
constant maturity equal to the Remaining Average Life of such Called Principal
as of such Settlement Date. Such implied yield will be determined, if
necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent
yields in accordance with accepted financial practice and (b) interpolating
linearly between (1) the actively traded U.S. Treasury security with the
duration closest to and greater than the Remaining Average Life and (2) the
actively traded U.S. Treasury security with the duration closest to and less
than the Remaining Average Life.
"REMAINING AVERAGE LIFE" means, with respect to any Called
Principal, the number of years (calculated to the nearest one-twelfth year)
obtained by dividing (i) such Called Principal into (ii) the sum of the
products obtained by multiplying (a) the principal component of each Remaining
Scheduled Payment with respect to such Called Principal by (b) the number of
years (calculated to the nearest one-twelfth year) that will elapse between the
Settlement Date with respect to such Called Principal and the scheduled due
date of such Remaining Scheduled Payment.
"REMAINING SCHEDULED PAYMENTS" means, with respect to the Called
Principal of any Note, all payments of such Called Principal and interest
thereon that would be due after the Settlement Date with respect to such Called
Principal if no payment of such Called Principal were made prior to its
scheduled due date, provided that if such Settlement Date is not a date on
which interest payments are due to be made under the terms of the Notes, then
the amount of the next succeeding scheduled interest payment will be reduced by
the amount of interest accrued to such Settlement Date and required to be paid
on such Settlement Date pursuant to Section 8.2 or 12.1.
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"SETTLEMENT DATE" means, with respect to the Called Principal of
any Note, the date on which such Called Principal is to be prepaid pursuant to
Section 8.2 or has become or is declared to be immediately due and payable
pursuant to Section 12.1, as the context requires.
9. AFFIRMATIVE COVENANTS.
The Company covenants that so long as any of the Notes are
outstanding:
9.1. COMPLIANCE WITH LAW.
The Company will and will cause each of its Subsidiaries to comply
with all laws, ordinances or governmental rules or regulations to which each of
them is subject, including, without limitation, Environmental Laws, and will
obtain and maintain in effect all licenses, certificates, permits, franchises
and other governmental authorizations necessary to the ownership of their
respective properties or to the conduct of their respective businesses, in each
case to the extent necessary to ensure that non-compliance with such laws,
ordinances or governmental rules or regulations or failures to obtain or
maintain in effect such licenses, certificates, permits, franchises and other
governmental authorizations would not reasonably be expected, individually or
in the aggregate, to have a materially adverse effect on the business,
operations, affairs, financial condition, properties or assets of the Company
and its Restricted Subsidiaries taken as a whole.
9.2. INSURANCE.
The Company will and will cause each of its Subsidiaries to
maintain, with financially sound and reputable insurers, insurance with respect
to their respective properties and businesses against such casualties and
contingencies, of such types, on such terms and in such amounts (including
deductibles, co-insurance and self-insurance, if adequate reserves are
maintained with respect thereto) as is customary in the case of entities of
established reputations engaged in the same or a similar business and similarly
situated.
9.3. MAINTENANCE OF PROPERTIES.
The Company will and will cause each of its Subsidiaries to
maintain and keep, or cause to be maintained and kept, their respective
properties in good repair, working order and condition (other than ordinary
wear and tear), so that the business carried on in connection therewith may be
properly conducted at all times, provided that this Section shall not prevent
the Company or any Subsidiary from discontinuing the operation and the
maintenance of any of its properties if such discontinuance is desirable in the
conduct of its business and the Company has concluded that such discontinuance
would not, individually or in the aggregate, have a materially adverse effect
on the business, operations, affairs, financial condition, properties or assets
of the Company and its Restricted Subsidiaries taken as a whole.
9.4. PAYMENT OF TAXES.
The Company will and will cause each of its Subsidiaries to file
all income tax or similar tax returns required to be filed in any jurisdiction
and to pay and discharge all taxes shown to be due and payable on such returns
and all other taxes, assessments, governmental
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<PAGE> 24
charges, or levies payable by any of them, to the extent such taxes and
assessments have become due and payable and before they have become delinquent,
provided that neither the Company nor any Subsidiary need pay any such tax or
assessment if (i) the amount, applicability or validity thereof is contested by
the Company or such Subsidiary on a timely basis in good faith and in
appropriate proceedings, and the Company or a Subsidiary has established
adequate reserves therefor in accordance with GAAP on the books of the Company
or such Subsidiary or (ii) the nonpayment of all such taxes and assessments in
the aggregate would not reasonably be expected to have a materially adverse
effect on the business, operations, affairs, financial condition, properties or
assets of the Company and its Restricted Subsidiaries taken as a whole.
9.5. CORPORATE EXISTENCE, ETC.
The Company will at all times preserve and keep in full force and
effect its corporate existence. Subject to Sections 10.2 and 10.3, the Company
will at all times preserve and keep in full force and effect the corporate
existence of each of its Restricted Subsidiaries (unless merged into the
Company or a Restricted Subsidiary) and all rights and franchises of the
Company and its Restricted Subsidiaries unless, in the good faith judgment of
the Company, the termination of or failure to preserve and keep in full force
and effect such corporate existence, right or franchise would not, individually
or in the aggregate, have a materially adverse effect on the business,
operations, affairs, financial condition, properties or assets of the Company
and its Restricted Subsidiaries taken as a whole.
9.6 PURCHASE OF NOTE UPON CHANGE OF CONTROL.
At least 15 Business Days (or, in the case of any transaction
permitted by Section 10.2 resulting in a Change of Control, at least 45 days)
and not more than 90 days prior to the occurrence of any Change of Control, the
Company will give written notice thereof to each holder of an outstanding Note
in the manner and to the address specified for notices pursuant to this Section
9.6 for such holder in Schedule A or as otherwise specified by such holder in
writing to the Company. Such notice shall contain (i) an offer by the Company
to purchase, on the date of such Change of Control or, if such notice shall be
delivered less than 35 days prior to the date of such Change of Control, on the
date 35 days after the date of such notice (the "PURCHASE DATE"), all Notes
held by each such holder at a price equal to 100% of the principal amount
thereof, together with interest accrued thereon to the Purchase Date, (ii) the
estimated amount of accrued interest, showing in reasonable detail the
calculation thereof and (iii) the Company's estimate of the date on which such
Change of Control shall occur. Said offer shall be deemed to lapse as to any
such holder which has not replied affirmatively thereto in writing within 35
days of the giving of such notice. As soon as practicable (and in any event at
least 24 hours) prior to such Change of Control, the Company shall give written
confirmation of the date thereof to each such holder which has affirmatively
replied to the notice given pursuant to the first sentence of this Section 9.6.
In the event that the Company shall purchase any Notes pursuant to this Section
9.6, the same shall thereafter be canceled and not reissued and shall not be
deemed "OUTSTANDING" for any purpose of this Agreement.
For the purposes of this Section 9.6, a "CHANGE OF CONTROL" shall
be deemed to occur if any New Owner shall acquire beneficial ownership of
shares in the Company having Voting Rights pertaining thereto which would allow
such New Owner to elect more members of the
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board of directors than could be elected by the exercise of all Voting Rights
pertaining to shares in the Company then owned beneficially by the Norris
Family. As used in this Section 9.6:
(i) "VOTING RIGHTS" pertaining to shares of a
corporation means the rights to cast votes for the election of
directors of such corporation in ordinary circumstances (without
consideration of voting rights which exist only in the event of
contingencies).
(ii) "NORRIS FAMILY" means all persons who are lineal
descendants of D.W. Norris (by birth or adoption), all spouses of
such descendants, all estates of such descendants or spouses
which are in the course of administration, all trusts for the
benefit of such descendants or spouses, and all corporations or
other entities in which, directly or indirectly, such descendants
or spouses (either alone or in conjunction with other such
descendants or spouses) have the right, whether by ownership of
stock or other equity interests or otherwise, to direct the
management and policies of such corporations or other entities
(each such person, spouse, estate, trust, corporation or entity
being referred to herein as a "MEMBER" of the Norris Family). In
addition, so long as any employee stock ownership plan exercises
its Voting Rights in the same manner as members of the Norris
Family (exclusive of employee stock ownership plans) who have a
majority of the Voting Rights exercised by all such members of
the Norris Family, such employee stock ownership plan shall be
deemed a member of the Norris Family.
(iii) "NEW OWNER" means any person (other than a member
of the Norris Family), or any syndicate or group of persons
(exclusive of all members of the Norris Family) which would be
deemed a "PERSON" for the purposes of Section 13(d) of the
Exchange Act, who directly or indirectly acquires shares in the
Company.
Notwithstanding anything in this Section 9.6 to the contrary, if an Event of
Default exists following a Change of Control and the Notes are accelerated
pursuant to the provisions of Section 12.1, the holders of the Notes shall be
entitled to receive the Make-Whole Amount relating to such accelerated amount
as provided in Section 12.1.
9.7. MOST FAVORED LENDER'S STATUS.
The Company will not and will not permit any Restricted Subsidiary
to enter into, assume or otherwise be bound or obligated under any agreement
creating or evidencing Indebtedness or any agreement executed and delivered in
connection with any Indebtedness containing one or more Additional Covenants or
Additional Defaults (as defined below), unless prior written consent to such
agreement shall have been obtained pursuant to Section 17; provided, however,
in the event the Company or any Restricted Subsidiary shall enter into, assume
or otherwise become bound by or obligated under any such agreement without the
prior written consent of the holders of the Notes, the terms of this Agreement
shall, without any further action on the part of the Company or any of the
holders of the Notes, be deemed to be amended automatically to include each
Additional Covenant and each Additional Default contained in such agreement.
The Company further covenants to promptly execute and deliver at its expense an
amendment to this Agreement in form and substance satisfactory to the Required
Holders
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evidencing the amendment of this Agreement to include such Additional Covenants
and Additional Defaults, provided that the execution and delivery of such
amendment shall not be a precondition to the effectiveness of such amendment as
provided for in this Section 9.7, but shall merely be for the convenience of
the parties hereto.
For purposes of this Agreement, (i) the term "ADDITIONAL
COVENANT" shall mean any affirmative or negative covenant or similar
restriction applicable to the Company or any Restricted Subsidiary (regardless
of whether such provision is labeled or otherwise characterized as a covenant)
the subject matter of which either (A) is similar to that of the covenants in
Section 9 or 10 of this Agreement, or related definitions in Schedule B to this
Agreement, but contains one or more percentages, amounts or formulas that is
more restrictive than those set forth herein or more beneficial to the holder
or holders of such other Indebtedness (and such covenant or similar restriction
shall be deemed an "ADDITIONAL COVENANT" only to the extent that it is more
restrictive or more beneficial) or (B) is different from the subject matter of
the covenants in Section 9 or 10 of this Agreement, or related definitions in
Schedule B to this Agreement; and (ii) the term "ADDITIONAL DEFAULT" shall mean
any provision which permits the holder of such Indebtedness to accelerate (with
the passage of time or giving of notice or both) the maturity thereof or
otherwise require the Company or any Restricted Subsidiary to purchase such
Indebtedness prior to the stated maturity of such Indebtedness and which either
(A) is similar to the Defaults and Events of Default contained in Section 11 of
this Agreement, or related definitions in Schedule B to this Agreement, but
contains one or more percentages, amounts or formulas that is more restrictive
or has a shorter grace period than those set forth herein or is more beneficial
to the holder or holders of such other Indebtedness (and such provision shall
be deemed an "ADDITIONAL DEFAULT" only to the extent that it is more
restrictive, has a shorter grace period or is more beneficial) or (B) is
different from the subject matter of the Defaults and Events of Default
contained in Section 11 of this Agreement, or related definitions in Schedule B
to this Agreement.
Notwithstanding anything herein to the contrary, until the earlier
of (a) July 1, 1998 or (b) the amendment of such Revolving Credit Agreement on
or after the date hereof, this Section 9.7 shall not apply to the Revolving
Credit Agreement dated as of December 4, 1991, as amended prior to the date
hereof, among the Company, the banks named on the signature pages thereof, and
The Northern Trust Company, as agent.
9.8. COVENANT TO SECURE NOTES EQUALLY.
If the Company shall create, assume or permit to exist any Lien
upon any of its property or assets, or permit any Restricted Subsidiary to
create, assume or permit to exist any Lien upon any of its property or assets,
whether now owned or hereafter acquired, other than those Liens permitted by
the provisions of Section 10.5, the Company shall make or cause to be made
effective provision whereby the Notes will be secured equally and ratably with
any and all other obligations thereby secured, with the documentation for such
security to be reasonably satisfactory to the Required Holders and, in any such
case, the Notes shall have the benefit, to the fullest extent that, and with
such priority as, the holders of the Notes may be entitled under applicable
law, of an equitable Lien on such property. Any violation of Section 10.5 will
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constitute an Event of Default, whether or not provision is made for an equal
and ratable Lien pursuant to this Section 9.8.
9.9. ENVIRONMENTAL MATTERS.
(a) The Company will and will cause each of its Subsidiaries
to comply in all material respects with all applicable Environmental Laws if,
individually or in the aggregate, failure to comply therewith could reasonably
be expected to have a material adverse effect on the financial condition or
results of operations of the Company or the Company and its Subsidiaries, taken
as a whole.
(b) The Company will not and will not permit any of its
Subsidiaries to cause or allow any Hazardous Substance to be present at any
time on, in, under or above any real property or any part thereof in which the
Company or any Subsidiary has a direct interest (including without limitation
ownership thereof or any arrangement for the lease, rental or other use
thereof, or the retention of any mortgage or security interest therein or
thereon), except in a manner and to an extent that is in compliance in all
material respects with all applicable Environmental Laws or that will not have
a material adverse effect on the financial condition or results of operations
of the Company or the Company and its Subsidiaries, taken as a whole.
10. NEGATIVE COVENANTS.
The Company covenants that so long as any of the Notes are
outstanding:
10.1. TRANSACTIONS WITH AFFILIATES.
The Company will not permit any Restricted Subsidiary to enter
into directly or indirectly any Material transaction or Material group of
related transactions (including without limitation the purchase, lease, sale or
exchange of properties of any kind or the rendering of any service) with any
Affiliate (other than the Company or another Restricted Subsidiary), except
pursuant to the reasonable requirements of the Company's or such Restricted
Subsidiary's business and upon fair and reasonable terms no less favorable to
the Company or such Restricted Subsidiary than would be obtainable in a
comparable arm's-length transaction with a Person not an Affiliate.
10.2. MERGER, CONSOLIDATION, ETC.
The Company will not consolidate with or merge with any other
corporation or convey, transfer or lease substantially all of its assets in a
single transaction or series of transactions to any Person unless:
(a) the successor formed by such consolidation or the survivor
of such merger or the Person that acquires by conveyance, transfer or lease
substantially all of the assets of the Company as an entirety, as the case may
be, shall be a solvent corporation organized and existing under the laws of the
United States or any State thereof (including the District of Columbia), and,
if the Company is not such corporation, such corporation shall have executed
and delivered to each holder of any Notes its assumption of the due and
punctual performance and observance of each covenant and condition of this
Agreement, the Other Agreements and the Notes, together
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with a favorable opinion of counsel satisfactory to each such holder covering
such matters relating to such corporation and such assumption as such holder
may reasonably request; and
(b) immediately after giving effect to such transaction, no
Default or Event of Default would exist;
(c) immediately prior to and after giving effect to such
transaction, the Company or such successor, as the case may be, would be
permitted by the provisions of Sections 10.4 and 10.9 to incur at least $1.00
of additional Indebtedness and $1.00 of additional Restricted Indebtedness,
respectively; and
(d) in the case of any such transaction which would involve or
result in a Change of Control, the Company shall have complied with Section
9.6.
No such conveyance, transfer or lease of substantially all of the
assets of the Company shall have the effect of releasing the Company or any
successor corporation that shall theretofore have become such in the manner
prescribed in this Section 10.2 from its liability under this Agreement or the
Notes.
10.3. SALE OF ASSETS, ETC.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, make any Transfer, provided that the foregoing restriction
does not apply to a Transfer if:
(a) the property that is the subject of such Transfer
constitutes either (i) inventory held for sale, or (ii) equipment, fixtures,
supplies or materials no longer required in the operation of the business of
the Company or such Restricted Subsidiary or that is obsolete, and, in the case
of any Transfer described in clause (i) or (ii), such Transfer is in the
ordinary course of business (each such Transfer, an "ORDINARY COURSE
TRANSFER"); or
(b) such Transfer is from
(i) a Restricted Subsidiary to the Company or another
Restricted Subsidiary, or
(ii) the Company to a Restricted Subsidiary, or
(iii) the Company to a Subsidiary (other than a Restricted
Subsidiary) or from a Restricted Subsidiary to another
Subsidiary (other than a Restricted Subsidiary) and in
either case is for Fair Market Value, so long as
immediately before and immediately after the consummation
of such transaction, and after giving effect thereto, no
Default or Event of Default exists or would exist (each
such Transfer, an "INTERGROUP TRANSFER");
(c) such Transfer is not an Ordinary Course Transfer or an
Intergroup Transfer (such Transfers collectively referred to as "EXCLUDED
TRANSFERS"), and all of the following conditions shall have been satisfied with
respect thereto (the date of the consummation of such Transfer being referred
to herein as the "PROPERTY DISPOSITION DATE"):
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(i) the book value of the assets included in such Transfer,
together with the book value of the assets included in all
other Transfers (other than Excluded Transfers) during the
fiscal year which includes the Property Disposition Date,
shall not exceed fifteen percent (15%) of Consolidated
Assets as of the end of the most recent fiscal year;
(ii) the book value of the assets included in such Transfer,
together with the book value of the assets included in all
other Transfers (other than Excluded Transfers) from
January 1, 1998 through the Property Disposition Date,
shall not exceed thirty percent (30%) of Consolidated
Assets as of the end of the most recent fiscal year; and
(iii) immediately after giving effect to such Transfer, no
Default or Event of Default would exist and the Company
would be permitted by the provisions of Sections 10.4 and
10.9 to incur at least $1.00 of additional Indebtedness
and $1.00 of additional Restricted Indebtedness,
respectively.
If, within twelve (12) months after the Property Disposition Date, the Company
or a Restricted Subsidiary acquires assets similar to the assets included in
the Transfer, then, only for the purpose of determining compliance with
Sections 10.3(c)(i) and (ii), the lesser of the book value of the assets
acquired or the book value of the assets included in the Transfer shall not be
taken into account.
10.4. INCURRENCE OF INDEBTEDNESS.
The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create, incur, assume, guarantee, or
otherwise become directly or indirectly liable with respect to any
Indebtedness, unless on the date the Company or such Restricted Subsidiary
becomes liable with respect to any such Indebtedness and immediately after
giving effect thereto and to the substantially concurrent retirement of any
other Indebtedness,
(a) no Default or Event of Default would exist, and
(b) Consolidated Indebtedness would not exceed sixty percent
(60%) of Consolidated Capitalization.
For purposes of this Section 10.4, any Person becoming a
Restricted Subsidiary after the date of this Agreement shall be deemed to have
incurred all of its then outstanding Indebtedness at the time it becomes a
Restricted Subsidiary.
10.5. LIENS.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly create, incur, assume or permit to
exist (upon the happening of a contingency or otherwise) any Lien on or with
respect to any property or asset (including, without limitation, any document
or instrument in respect of goods or accounts receivable) of the Company or any
such Restricted Subsidiary, whether now owned or held or hereafter acquired, or
any income or profits therefrom, or assign or otherwise convey any right to
receive income or profits, except:
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(a) Liens for taxes, assessments or other governmental charges
the payment of which is not at the time required by Section 9.4;
(b) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other similar Liens, in each case,
incurred in the ordinary course of business for sums not yet due;
(c) Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business (i) in connection with
workers' compensation, unemployment insurance and other types of social
security or retirement benefits, or (ii) to secure (or to obtain letters of
credit that secure) the performance of tenders, statutory obligations, surety
bonds, appeal bonds, bids, leases (other than Capital Leases), performance
bonds, purchase, construction or sales contracts and other similar obligations,
in each case not incurred or made in connection with the borrowing of money,
the obtaining of advances or credit or the payment of the deferred purchase
price of property;
(d) any attachment or judgment Lien, unless the judgment or
other obligation it secures (i) shall not, within ninety (90) days after the
entry thereof, have been discharged or execution thereof stayed pending appeal,
or shall not have been discharged within ninety (90) days after the expiration
of any such stay or (ii) exceeds, together with the amounts of all other
obligations secured by attachment or judgment Liens at the time existing in
respect of property of the Company and its Restricted Subsidiaries, $5,000,000;
(e) leases or subleases granted to others, easements,
rights-of-way, restrictions and other similar charges or encumbrances, in each
case incidental to, and not interfering with, the ordinary conduct of the
business of the Company or any of its Restricted Subsidiaries, provided that
such Liens do not, in the aggregate, materially detract from the value of such
property;
(f) Liens on property or assets of the Company or any of its
Restricted Subsidiaries securing Indebtedness or other obligations owing to the
Company or to a Wholly Owned Restricted Subsidiary;
(g) Liens existing on the date of this Agreement on the
building referred to in item C of Schedule 5.15 and securing the Indebtedness
referred to in item C of Schedule 5.15;
(h) any Lien renewing, extending or refunding any Lien
permitted by Subsection (g) above, provided that (i) the principal amount of
Indebtedness secured by such Lien immediately prior to such extension, renewal
or refunding is not increased or the maturity thereof reduced, (ii) such Lien
is not extended to any other property, and (iii) immediately after such
extension, renewal or refunding no Default or Event of Default would exist and
the Company would be permitted by the provisions of Sections 10.4 and 10.9 to
incur at least $1.00 of additional Indebtedness and $1.00 of additional
Restricted Indebtedness, respectively; and
(i) other Liens not otherwise permitted by Subsections (a)
through (h) above, provided that (i) the total obligations secured by such
other Liens shall not exceed 10% of Consolidated Capitalization and (ii)
immediately after giving effect to the creation thereof, the Company would be
permitted by the provisions of Sections 10.4 and 10.9 to incur at least $1.00
of additional Indebtedness and $1.00 of additional Restricted Indebtedness,
respectively.
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For purposes of this Section 10.5, any Person becoming a
Restricted Subsidiary after the date of this Agreement shall be deemed to have
incurred all of its then outstanding Liens at the time it becomes a Restricted
Subsidiary, and any Person extending, renewing or refunding any Indebtedness
secured by any Lien shall be deemed to have incurred such Lien at the time of
such extension, renewal or refunding.
10.6. RESTRICTED PAYMENTS.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, declare or make, or incur any liability to declare or make,
any Restricted Payment, unless immediately after giving effect to such action:
(a) no Default or Event of Default would exist; and
(b) the Company would be permitted by the provisions of
Sections 10.4 and 10.9 to incur at least $1.00 of additional Indebtedness and
$1.00 of additional Restricted Indebtedness, respectively.
10.7. CONSOLIDATED NET WORTH.
The Company will not permit Consolidated Net Worth as at the last
day of any fiscal quarter of the Company to be less than the sum of (a)
$261,000,000, plus (b) 15% of its aggregate Consolidated Net Income (but only
if a positive number) for the period beginning April 1, 1998 and ending at the
end of each fiscal quarter thereafter.
10.8. LIMITATION ON DIVIDEND RESTRICTIONS, ETC.
The Company will not permit any Restricted Subsidiary to enter
into, adopt, create or otherwise be or become bound by or subject to any
contract or charter or by-law provision limiting the amount of, or otherwise
imposing restrictions on the declaration, payment or setting aside of funds for
the making of, dividends or other distributions in respect of the capital stock
of such Restricted Subsidiary to the Company or another Restricted Subsidiary.
10.9. LIMITATION ON RESTRICTED INDEBTEDNESS.
The Company will not at any time permit the aggregate amount of
Restricted Indebtedness to exceed 10% of Consolidated Capitalization.
10.10. PREFERRED STOCK OF RESTRICTED SUBSIDIARIES.
The Company will not permit any Restricted Subsidiary to issue or
permit to remain outstanding any Preferred Stock unless such Preferred Stock is
issued to and at all times owned and held by the Company or a Wholly- Owned
Restricted Subsidiary.
10.11. NO REDESIGNATION OF RESTRICTED SUBSIDIARIES.
The Company will not designate any Restricted Subsidiary as, or
take or permit to be taken any action that would cause any Restricted
Subsidiary to become, an Unrestricted Subsidiary.
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11. EVENTS OF DEFAULT.
An "EVENT OF DEFAULT" shall exist if any of the following
conditions or events shall occur and be continuing:
(a) the Company defaults in the payment of any principal or
Make-Whole Amount, if any, on any Note when the same becomes due and payable,
whether at maturity or at a date fixed for prepayment or by declaration or
otherwise; or
(b) the Company defaults in the payment of any interest on any
Note for more than five Business Days after the same becomes due and payable;
or
(c) the Company defaults in the performance of or compliance
with any term contained in Section 7.1(d), 9.6 or 10.2 through 10.11; or
(d) the Company defaults in the performance of or compliance
with any term contained herein (other than those referred to in paragraphs (a),
(b) and (c) of this Section 11) or any Additional Covenant and such default is
not remedied within 30 days after the earlier of (i) a Responsible Officer
obtaining actual knowledge of such default and (ii) the Company receiving
written notice of such default from any holder of a Note (any such written
notice to be identified as a "NOTICE OF DEFAULT" and to refer specifically to
this paragraph (d) of Section 11); or
(e) any representation or warranty made in writing by or on
behalf of the Company or by any officer of the Company in this Agreement or in
any writing furnished in connection with the transactions contemplated hereby
proves to have been false or incorrect in any material respect on the date as
of which made; or
(f) (i) the Company or any Restricted Subsidiary is in default
(as principal or as guarantor or other surety) in the payment of any principal
of or premium or make-whole amount or interest on any Indebtedness that is
outstanding in an aggregate principal amount of at least $5,000,000 beyond any
period of grace provided with respect thereto, or (ii) the Company or any
Restricted Subsidiary is in default in the performance of or compliance with
any term of any evidence of any Indebtedness in an aggregate outstanding
principal amount of at least $5,000,000 or of any mortgage, indenture or other
agreement relating thereto or any other condition exists, and as a consequence
of such default or condition such Indebtedness has become, or has been declared
due and payable before its stated maturity or before its regularly scheduled
dates of payment; or
(g) the Company or any Restricted Subsidiary (i) is generally
not paying, or admits in writing its inability to pay, its debts as they become
due, (ii) files, or consents by answer or otherwise to the filing against it
of, a petition for relief or reorganization or arrangement or any other
petition in bankruptcy, for liquidation or to take advantage of any bankruptcy,
insolvency, reorganization, moratorium or other similar law of any
jurisdiction, (iii) makes an assignment for the benefit of its creditors, (iv)
consents to the appointment of a custodian, receiver, trustee or other officer
with similar powers with respect to it or with respect to any substantial part
of its property, (v) is adjudicated as insolvent or to be liquidated, or (vi)
takes corporate action for the purpose of any of the foregoing; or
(h) a court or governmental authority of competent
jurisdiction enters an order appointing, without consent by the Company or any
of its Restricted Subsidiaries, a custodian,
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receiver, trustee or other officer with similar powers with respect to it or
with respect to any substantial part of its property, or constituting an order
for relief or approving a petition for relief or reorganization or any other
petition in bankruptcy or for liquidation or to take advantage of any
bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution,
winding-up or liquidation of the Company or any of its Restricted Subsidiaries,
or any such petition shall be filed against the Company or any of its
Restricted Subsidiaries and such petition shall not be dismissed within 60
days; or
(i) a final judgment or judgments for the payment of money
aggregating in excess of $5,000,000 are rendered against one or more of the
Company and its Restricted Subsidiaries and which judgments are not, within 60
days after entry thereof, bonded, discharged or stayed pending appeal, or are
not discharged within 60 days after the expiration of such stay; or
(j) if (i) any Plan subject to the minimum funding standards
of ERISA or the Code shall fail to satisfy such standards for any plan year or
part thereof or a waiver of such standards or extension of any amortization
period is sought or granted under section 412 of the Code, (ii) a notice of
intent to terminate any Plan shall have been or is reasonably expected to be
filed with the PBGC or the PBGC shall have instituted proceedings under ERISA
section 4042 to terminate or appoint a trustee to administer any Plan or the
PBGC shall have notified the Company or any ERISA Affiliate that a Plan may
become a subject of any such proceedings, (iii) the aggregate amount of
unfunded accrued plan benefit liabilities under all Plans subject to Title IV
of ERISA, determined in accordance with Financial Accounting Standards Board
Statement No. 87 or 132, as the case may be, as of the end of such Plans' most
recently ended plan year on the basis of actuarial assumptions specified for
funding purposes in such Plans' most recent actuarial valuation report, shall
exceed $5,000,000, (iv) the Company or any ERISA Affiliate shall have incurred
or is reasonably expected to incur any liability pursuant to Title I or IV of
ERISA or the penalty or excise tax provisions of the Code relating to employee
benefit plans, (v) the Company or any ERISA Affiliate withdraws from any
Multiemployer Plan, or (vi) the Company or any Restricted Subsidiary
establishes or amends any employee welfare benefit plan that provides post-
employment welfare benefits in a manner that would increase the liability of
the Company or any Restricted Subsidiary thereunder; and any such event or
events described in clauses (i) through (vi) above, either individually or
together with any other such event or events, would reasonably be expected to
have a Materially Adverse Effect.
As used in Section 11(j), the terms "EMPLOYEE BENEFIT PLAN" and "EMPLOYEE
WELFARE BENEFIT PLAN" shall have the respective meanings assigned to such terms
in Section 3 of ERISA.
12. REMEDIES ON DEFAULT, ETC.
12.1. ACCELERATION.
(a) If an Event of Default with respect to the Company
described in paragraph (g) or (h) of Section 11 (other than an Event of Default
described in clause (i) of paragraph (g) or described in clause (vi) of
paragraph (g) by virtue of the fact that such clause encompasses clause (i) of
paragraph (g)) has occurred, all the Notes then outstanding shall automatically
become immediately due and payable.
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(b) If any other Event of Default has occurred and is
continuing, any holder or holders of more than 66 2/3% in principal amount of
the Notes at the time outstanding may at any time at its or their option, by
notice or notices to the Company, declare all the Notes then outstanding to be
immediately due and payable.
(c) If any Event of Default described in paragraph (a) or (b)
of Section 11 has occurred and is continuing, any holder or holders of Notes at
the time outstanding affected by such Event of Default may at any time, at its
or their option, by notice or notices to the Company, declare all the Notes
held by it or them to be immediately due and payable.
Upon any Notes becoming due and payable under this Section 12.1,
whether automatically or by declaration, such Notes will forthwith mature and
the entire unpaid principal amount of such Notes, plus (x) all accrued and
unpaid interest thereon and (y) the Make-Whole Amount determined in respect of
such principal amount, shall all be immediately due and payable, in each and
every case without presentment, demand, protest or further notice, all of which
are hereby waived. The Company acknowledges, and the parties hereto agree,
that each holder of a Note has the right to maintain its investment in the
Notes free from repayment by the Company (except as herein specifically
provided for) and that the provision for payment of a Make-Whole Amount by the
Company in the event that the Notes are prepaid or are accelerated as a result
of an Event of Default, is intended to provide compensation for the deprivation
of such right under such circumstances.
12.2. OTHER REMEDIES.
If any Default or Event of Default has occurred and is continuing,
and irrespective of whether any Notes have become or have been declared
immediately due and payable under Section 12.1, the holder of any Note at the
time outstanding may proceed to protect and enforce the rights of such holder
by an action at law, suit in equity or other appropriate proceeding, whether
for the specific performance of any agreement contained herein or in any Note,
or for an injunction against a violation of any of the terms hereof or thereof,
or in aid of the exercise of any power granted hereby or thereby or by law or
otherwise.
12.3. RESCISSION.
At any time after any Notes have been declared due and payable
pursuant to clause (b) or (c) of Section 12.1, the holders of not less than 66
2/3% in principal amount of the Notes then outstanding, by written notice to
the Company, may rescind and annul any such declaration and its consequences if
(a) the Company has paid all overdue interest on the Notes, all principal of
and Make-Whole Amount, if any, on any Notes that are due and payable and are
unpaid other than by reason of such declaration, and all interest on such
overdue principal and Make-Whole Amount, if any, and any overdue interest in
respect of the Notes, at the Default Rate, (b) all Events of Default and
Defaults, other than non-payment of amounts that have become due solely by
reason of such declaration, have been cured or have been waived pursuant to
Section 17, and (c) no judgment or decree has been entered for the payment of
any monies due pursuant hereto or to the Notes. No rescission and annulment
under this Section 12.3 will extend to or affect any subsequent Event of
Default or Default or impair any right consequent thereon.
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<PAGE> 35
12.4. WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC.
No course of dealing and no delay on the part of any holder of any
Note in exercising any right, power or remedy shall operate as a waiver thereof
or otherwise prejudice such holder's rights, powers or remedies. No right,
power or remedy conferred by this Agreement or by any Note upon any holder
thereof shall be exclusive of any other right, power or remedy referred to
herein or therein or now or hereafter available at law, in equity, by statute
or otherwise. Without limiting the obligations of the Company under Section
15, the Company will pay to the holder of each Note on demand such further
amount as shall be sufficient to cover all costs and expenses of such holder
incurred in any enforcement or collection under this Section 12, including,
without limitation, reasonable attorneys' fees, expenses and disbursements.
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
13.1. REGISTRATION OF NOTES.
The Company shall keep at its principal executive office a
register for the registration and registration of transfers of Notes. The name
and address of each holder of one or more Notes, each transfer thereof and the
name and address of each transferee of one or more Notes shall be registered in
such register. Prior to due presentment for registration of transfer, the
Person in whose name any Note shall be registered shall be deemed and treated
as the owner and holder thereof for all purposes hereof, and the Company shall
not be affected by any notice or knowledge to the contrary. The Company shall
give to any holder of a Note that is an Institutional Investor promptly upon
request therefor, a complete and correct copy of the names and addresses of all
registered holders of Notes.
13.2. TRANSFER AND EXCHANGE OF NOTES.
Upon surrender of any Note at the principal executive office of
the Company for registration of transfer or exchange (and in the case of a
surrender for registration of transfer, duly endorsed or accompanied by a
written instrument of transfer duly executed by the registered holder of such
Note or his attorney duly authorized in writing and accompanied by the address
for notices of each transferee of such Note or part thereof), the Company shall
execute and deliver, at the Company's expense (except as provided below), one
or more new Notes (as requested by the holder thereof) of the same Series in
exchange therefor, in an aggregate principal amount equal to the unpaid
principal amount of the surrendered Note. Each such new Note shall be payable
to such Person as such holder may request and shall be substantially in the
form of Exhibit 1-A or Exhibit 1-B, as the case may be. Each such new Note
shall be dated and bear interest from the date to which interest shall have
been paid on the surrendered Note or dated the date of the surrendered Note if
no interest shall have been paid thereon. The Company may require payment of a
sum sufficient to cover any stamp tax or governmental charge imposed in respect
of any such transfer of Notes. Notes shall not be transferred in denominations
of less than $2,000,000, provided that if necessary to enable the registration
of transfer by a holder of its entire holding of Notes, one Note may be in a
denomination of less than $2,000,000. Any transferee, by its acceptance of a
Note registered in its name (or the name of its nominee), shall be deemed to
have made the representation set forth in Section 6.2.
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<PAGE> 36
13.3. REPLACEMENT OF NOTES.
Upon receipt by the Company of evidence reasonably satisfactory to
it of the ownership of and the loss, theft, destruction or mutilation of any
Note (which evidence shall be, in the case of an Institutional Investor, notice
from such Institutional Investor of such ownership and such loss, theft,
destruction or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (provided that if the holder of such Note is, or
is a nominee for, an original Purchaser or another holder of a Note with a
minimum net worth of at least $100,000,000, such Person's own unsecured
agreement of indemnity shall be deemed to be satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof,
the Company at its own expense shall execute and deliver, in lieu thereof, a
new Note of the same Series, dated and bearing interest from the date to which
interest shall have been paid on such lost, stolen, destroyed or mutilated Note
or dated the date of such lost, stolen, destroyed or mutilated Note if no
interest shall have been paid thereon.
14. PAYMENTS ON NOTES.
14.1. PLACE OF PAYMENT.
Subject to Section 14.2, payments of principal, Make-Whole Amount,
if any, and interest becoming due and payable on the Notes shall be made in New
York, New York, at the principal office of The Chase Manhattan Bank in such
jurisdiction. The Company may at any time, by notice to each holder of a Note,
change the place of payment of the Notes so long as such place of payment shall
be either the principal office of the Company in such jurisdiction or the
principal office of a bank or trust company in such jurisdiction.
14.2. HOME OFFICE PAYMENT.
So long as you or your nominee shall be the holder of any Note,
and notwithstanding anything contained in Section 14.1 or in such Note to the
contrary, the Company will pay all sums becoming due on such Note for
principal, purchase price, Make-Whole Amount, if any, and interest by the
method and at the address specified for such purpose below your name in
Schedule A, or by such other method or at such other address as you shall have
from time to time specified to the Company in writing for such purpose, without
the presentation or surrender of such Note or the making of any notation
thereon, except that upon written request of the Company made concurrently with
or reasonably promptly after payment or prepayment in full of any Note, you
shall surrender such Note for cancellation, reasonably promptly after any such
request, to the Company at its principal executive office or at the place of
payment most recently designated by the Company pursuant to Section 14.1.
Prior to any sale or other disposition of any Note held by you or your nominee
you will, at your election, either endorse thereon the amount of principal paid
thereon and the last date to which interest has been paid thereon or surrender
such Note to the Company in exchange for a new Note or Notes pursuant to
Section 13.2. The Company will afford the benefits of this Section 14.2 to any
Institutional Investor that is the direct or indirect transferee of any Note
purchased by you under this Agreement and that has made the same agreement
relating to such Note as you have made in this Section 14.2.
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<PAGE> 37
15. EXPENSES, ETC.
15.1. TRANSACTION EXPENSES.
Whether or not the transactions contemplated hereby are
consummated, the Company will pay all costs and expenses (including reasonable
attorneys' fees of a special counsel and, if reasonably required, local or
other counsel) incurred by you and each Other Purchaser or holder of a Note in
connection with such transactions and in connection with any amendments,
waivers or consents under or in respect of this Agreement or the Notes (whether
or not such amendment, waiver or consent becomes effective), including, without
limitation: (a) the costs and expenses incurred in enforcing or defending (or
determining whether or how to enforce or defend) any rights under this
Agreement or the Notes or in responding to any subpoena or other legal process
or informal investigative demand issued in connection with this Agreement or
the Notes, or by reason of being a holder of any Note, and (b) the costs and
expenses, including financial advisors' fees, incurred in connection with the
insolvency or bankruptcy of the Company or any Subsidiary or in connection with
any work-out or restructuring of the transactions contemplated hereby and by
the Notes. The Company will pay, and will save you and each other holder of a
Note harmless from, all claims in respect of any fees, costs or expenses if
any, of brokers and finders (other than those retained by you).
15.2. SURVIVAL.
The obligations of the Company under this Section 15 will survive
the payment or transfer of any Note, the enforcement, amendment or waiver of
any provision of this Agreement or the Notes, and the termination of this
Agreement.
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein shall survive
the execution and delivery of this Agreement and the Notes, the purchase or
transfer by you of any Note or portion thereof or interest therein and the
payment of any Note, and may be relied upon by any subsequent holder of a Note,
regardless of any investigation made at any time by or on behalf of you or any
other holder of a Note. All statements contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant to this Agreement
shall be deemed representations and warranties of the Company under this
Agreement. Subject to the preceding sentence, this Agreement and the Notes
embody the entire agreement and understanding between you and the Company and
supersede all prior agreements and understandings relating to the subject
matter hereof.
17. AMENDMENT AND WAIVER.
17.1. REQUIREMENTS.
This Agreement and the Notes may be amended, and the observance of
any term hereof or of the Notes may be waived (either retroactively or
prospectively), with (and only with) the written consent of the Company and the
Required Holders, except that (a) no amendment or waiver of any of the
provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any defined term (as it
31
<PAGE> 38
is used therein), will be effective as to you unless consented to by you in
writing, and (b) no such amendment or waiver may, without the written consent
of the holder of each Note at the time outstanding affected thereby, (i)
subject to the provisions of Section 12 relating to acceleration or rescission,
change the amount or time of any prepayment or payment of principal or purchase
price of, or reduce the rate or change the time of payment or method of
computation of interest or purchase price of, or of the Make-Whole Amount on,
the Notes, (ii) change the percentage of the principal amount of the Notes the
holders of which are required to consent to any such amendment or waiver, or
(iii) amend any of Sections 8, 9.6, 11(a), 11(b), 12, 17 or 20.
17.2. SOLICITATION OF HOLDERS OF NOTES.
(a) Solicitation. The Company will provide each holder of the
Notes (irrespective of the amount of Notes then owned by it) with sufficient
information, sufficiently far in advance of the date a decision is required, to
enable such holder to make an informed and considered decision with respect to
any proposed amendment, waiver or consent in respect of any of the provisions
hereof or of the Notes. The Company will deliver executed or true and correct
copies of each amendment, waiver or consent effected pursuant to the provisions
of this Section 17 to each holder of outstanding Notes promptly following the
date on which it is executed and delivered by, or receives the consent or
approval of, the requisite holders of Notes.
(b) Payment. The Company will not directly or indirectly pay
or cause to be paid any remuneration, whether by way of supplemental or
additional interest, fee or otherwise, or grant any security, to any holder of
Notes as consideration for or as an inducement to the entering into by any
holder of Notes or any waiver or amendment of any of the terms and provisions
hereof unless such remuneration is concurrently paid, or security is
concurrently granted, on the same terms, ratably to each holder of Notes then
outstanding even if such holder did not consent to such waiver or amendment.
17.3. BINDING EFFECT, ETC.
Any amendment or waiver consented to as provided in this Section
17 applies equally to all holders of Notes and is binding upon them and upon
each future holder of any Note and upon the Company without regard to whether
such Note has been marked to indicate such amendment or waiver. No such
amendment or waiver will extend to or affect any obligation, covenant,
agreement, Default or Event of Default not expressly amended or waived or
impair any right consequent thereon. No course of dealing between the Company
and the holder of any Note nor any delay in exercising any rights hereunder or
under any Note shall operate as a waiver of any rights of any holder of such
Note. As used herein, the term "THIS AGREEMENT" and references thereto shall
mean this Agreement as it may from time to time be amended or supplemented.
17.4. NOTES HELD BY COMPANY, ETC.
Solely for the purpose of determining whether the holders of the
requisite percentage of the aggregate principal amount of Notes then
outstanding approved or consented to any amendment, waiver or consent to be
given under this Agreement or the Notes, or have directed the taking of any
action provided herein or in the Notes to be taken upon the direction of the
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<PAGE> 39
holders of a specified percentage of the aggregate principal amount of Notes
then outstanding, Notes directly or indirectly owned by the Company or any of
its Affiliates shall be deemed not to be outstanding.
18. NOTICES.
All notices and communications provided for hereunder shall be in
writing and sent (a) by telecopy if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), or (b) by registered or certified mail with return receipt
requested (postage prepaid), or (c) by a recognized overnight delivery service
(with charges prepaid). Any such notice must be sent:
(i) if to you or your nominee, to you or it at the address
specified for such communications in Schedule A, or at such
other address as you or it shall have specified to the
Company in writing,
(ii) if to any other holder of any Note, to such holder at such
address as such other holder shall have specified to the
Company in writing, or
(iii) if to the Company, to the Company at its principal executive
offices at 2100 Lake Park Blvd., Richardson, Texas 75080, to
the attention of Chief Financial Officer, or at such other
address as the Company shall have specified to the holder of
each Note in writing.
Notices under this Section 18 will be deemed given only when actually received.
19. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating thereto, including,
without limitation, (a) consents, waivers and modifications that may hereafter
be executed, (b) documents received by you at the Closing (except the Notes
themselves), and (c) financial statements, certificates and other information
previously or hereafter furnished to you, may be reproduced by you by any
photographic, photostatic, microfilm, microcard, miniature photographic or
other similar process and you may destroy any original document so reproduced.
The Company agrees and stipulates that, to the extent permitted by applicable
law, any such reproduction shall be admissible in evidence as the original
itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made by you
in the regular course of business) and any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
This Section 19 shall not prohibit the Company or any other holder of Notes
from contesting any such reproduction to the same extent that it could contest
the original, or from introducing evidence to demonstrate the inaccuracy of any
such reproduction.
20. CONFIDENTIAL INFORMATION.
For the purposes of this Section 20, "CONFIDENTIAL INFORMATION"
means information delivered to you by or on behalf of the Company or any
Subsidiary in connection with the transactions contemplated by or otherwise
pursuant to this Agreement that is proprietary in nature and that was clearly
marked or labeled or otherwise adequately identified when received
33
<PAGE> 40
by you as being confidential information of the Company or such Subsidiary,
provided that such term does not include information that (a) was publicly
known or otherwise known to you prior to the time of such disclosure, (b)
subsequently becomes publicly known through no act or omission by you or any
person acting on your behalf, (c) otherwise becomes known to you other than
through disclosure by the Company or any Subsidiary or (d) constitutes
financial statements delivered to you under Section 7.1 that are otherwise
publicly available. You will maintain the confidentiality of such Confidential
Information in accordance with procedures adopted by you in good faith to
protect confidential information of third parties delivered to you, provided
that you may deliver or disclose Confidential Information to (i) your
directors, officers, employees, agents, attorneys and affiliates (to the extent
such disclosure reasonably relates to the administration of the investment
represented by your Notes), (ii) your financial advisors and other professional
advisors who agree to hold confidential the Confidential Information
substantially in accordance with the terms of this Section 20, (iii) any other
holder of any Note, (iv) any Institutional Investor to which you sell or offer
to sell such Note or any part thereof or any participation therein (if such
Person has agreed in writing prior to its receipt of such Confidential
Information to be bound by the provisions of this Section 20), (v) any Person
from which you offer to purchase any security of the Company or a Subsidiary
(if such Person has agreed in writing prior to its receipt of such Confidential
Information to be bound by the provisions of this Section 20), (vi) any federal
or state regulatory authority having jurisdiction over you, (vii) the National
Association of Insurance Commissioners or any similar organization, or any
nationally recognized rating agency that requires access to information about
your investment portfolio, or (viii) any other Person to which such delivery or
disclosure may be necessary or appropriate (w) to effect compliance with any
law, rule, regulation or order applicable to you, (x) in response to any
subpoena or other legal process, (y) in connection with any litigation to which
you are a party or (z) if an Event of Default has occurred and is continuing,
to the extent you may reasonably determine such delivery and disclosure to be
necessary or appropriate in the enforcement or for the protection of the rights
and remedies under your Notes and this Agreement. Each holder of a Note, by
its acceptance of a Note, will be deemed to have agreed to be bound by and to
be entitled to the benefits of this Section 20 as though it were a party to
this Agreement. On reasonable request by the Company in connection with the
delivery to any holder of a Note of information required to be delivered to
such holder under this Agreement or requested by such holder (other than a
holder that is a party to this Agreement or its nominee), such holder will
enter into an agreement with the Company embodying the provisions of this
Section 20.
21. SUBSTITUTION OF PURCHASER.
You shall have the right to substitute any one of your Affiliates
as the purchaser of the Notes that you have agreed to purchase hereunder, by
written notice to the Company, which notice shall be signed by both you and
such Affiliate, shall contain such Affiliate's agreement to be bound by this
Agreement and shall contain a confirmation by such Affiliate of the accuracy
with respect to it of the representations set forth in Section 6. Upon receipt
of such notice, wherever the word "YOU" is used in this Agreement (other than
in this Section 21), such word shall be deemed to refer to such Affiliate in
lieu of you. In the event that such Affiliate is so substituted as a purchaser
hereunder and such Affiliate thereafter transfers to you all of the Notes
34
<PAGE> 41
then held by such Affiliate, upon receipt by the Company of notice of such
transfer, wherever the word "YOU" is used in this Agreement (other than in this
Section 21), such word shall no longer be deemed to refer to such Affiliate,
but shall refer to you, and you shall have all the rights of an original holder
of the Notes under this Agreement.
22. MISCELLANEOUS.
22.1. SUCCESSORS AND ASSIGNS.
All covenants and other agreements contained in this Agreement by
or on behalf of any of the parties hereto bind and inure to the benefit of
their respective successors and assigns (including, without limitation, any
subsequent holder of a Note) whether so expressed or not.
22.2. PAYMENTS DUE ON NON-BUSINESS DAYS.
Anything in this Agreement or the Notes to the contrary
notwithstanding, any payment of principal or purchase price of or Make-Whole
Amount or interest on any Note that is due on a date other than a Business Day
shall be made on the next succeeding Business Day without including the
additional days elapsed in the computation of the interest payable on such next
succeeding Business Day.
22.3. SEVERABILITY.
Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall (to the full extent permitted by
law) not invalidate or render unenforceable such provision in any other
jurisdiction.
22.4. CONSTRUCTION.
Each covenant contained herein shall be construed (absent express
provision to the contrary) as being independent of each other covenant
contained herein, so that compliance with any one covenant shall not (absent
such an express contrary provision) be deemed to excuse compliance with any
other covenant. Where any provision herein refers to action to be taken by any
Person, or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person.
22.5. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each
of which shall be an original but all of which together shall constitute one
instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.
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<PAGE> 42
22.6. GOVERNING LAW.
This Agreement shall be construed and enforced in accordance with,
and the rights of the parties shall be governed by, the law of the State of New
York.
* * * * *
36
<PAGE> 43
If you are in agreement with the foregoing, please sign the form
of agreement on the accompanying counterpart of this Agreement and return it to
the Company, whereupon the foregoing shall become a binding agreement between
you and the Company.
Very truly yours,
LENNOX INTERNATIONAL INC.
By /s/ Clyde Wyant
---------------
Clyde Wyant
Executive Vice President,
Chief Financial Officer and Treasurer
The foregoing is hereby
agreed to as of the
date hereof.
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By: CIGNA Investments, Inc.
By: /s/ Edward Lewis
----------------
Title: Managing Director
-----------------
37
<PAGE> 44
Very truly yours,
LENNOX INTERNATIONAL INC.
By /s/ Clyde Wyant
---------------
Clyde Wyant
Executive Vice President,
Chief Financial Officer and Treasurer
The foregoing is hereby
agreed to as of the
date hereof.
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
on Behalf of One or More Separate Accounts
By: CIGNA Investments, Inc.
By: /s/ Edward Lewis
----------------
Title: Managing Director
-----------------
38
<PAGE> 45
Very truly yours,
LENNOX INTERNATIONAL INC.
By /s/ Clyde Wyant
---------------
Clyde Wyant
Executive Vice President,
Chief Financial Officer and Treasurer
The foregoing is hereby
agreed to as of the
date hereof.
CIGNA PROPERTY AND CASUALTY INSURANCE COMPANY
By: CIGNA Investments, Inc.
By: /s/ Edward Lewis
----------------
Title: Managing Director
-----------------
39
<PAGE> 46
Very truly yours,
LENNOX INTERNATIONAL INC.
By /s/ Clyde Wyant
---------------
Clyde Wyant
Executive Vice President,
Chief Financial Officer and Treasurer
The foregoing is hereby
agreed to as of the
date hereof.
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By: /s/ Charles C. Thompson III
----------------------------
Title: Managing Director - Private Placements
---------------------------------------
40
<PAGE> 47
Very truly yours,
LENNOX INTERNATIONAL INC.
By /s/ Clyde Wyant
---------------
Clyde Wyant
Executive Vice President,
Chief Financial Officer and Treasurer
The foregoing is hereby
agreed to as of the
date hereof.
UNITED OF OMAHA LIFE INSURANCE COMPANY
By: /s/ Kent Knudsen
-----------------
Title: Vice President
---------------
41
<PAGE> 48
Very truly yours,
LENNOX INTERNATIONAL INC.
By /s/ Clyde Wyant
---------------
Clyde Wyant
Executive Vice President,
Chief Financial Officer and Treasurer
The foregoing is hereby
agreed to as of the
date hereof.
COMPANION LIFE INSURANCE COMPANY
By: /s/ Jeffry F. Sailer
---------------------
Title: Assistant Treasurer
By: /s/ Richard A. Witt
--------------------
Title: Second Vice President and Assistant Treasurer
42
<PAGE> 49
Very truly yours,
LENNOX INTERNATIONAL INC.
By /s/ Clyde Wyant
---------------
Clyde Wyant
Executive Vice President,
Chief Financial Officer and Treasurer
The foregoing is hereby
agreed to as of the
date hereof.
U.S. PRIVATE PLACEMENT FUND
By: Prudential Private Placement
Investors, L.P., Investment Advisor
By: Prudential Private Placement Investors, Inc., its
General Partner
By: /s/ Randall M. Kob
-------------------
Vice President
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<PAGE> 50
Very truly yours,
LENNOX INTERNATIONAL INC.
By /s/ Clyde Wyant
---------------
Clyde Wyant
Executive Vice President,
Chief Financial Officer and Treasurer
The foregoing is hereby
agreed to as of the
date hereof.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
By: /s/ Randall M. Kob
-------------------
Title: Vide President
----------------
44
<PAGE> 51
SCHEDULE A
INFORMATION RELATING TO PURCHASERS
Principal Amount, Series and No.
Name and Address of Purchaser of Note(s) to be Purchased
CONNECTICUT GENERAL LIFE INSURANCE COMPANY $7,700,000 -- 6.56% Senior Notes;
No. RA-1
(1) All payments by wire transfer of $3,000,000 -- 6.56% Senior Notes;
immediately available funds to: No. RA-2
The Chase Manhattan Bank
ABA#021000021
CIGNA Private Placements
a/c 9009001802
with sufficient information to identify the source
and application of such funds.
(2) All notices of payments and written confirmations
of such wire transfers:
Connecticut General Life Insurance Company
c/o CIGNA Investments, Inc.
Attention: Securities Processing S-309
900 Cottage Grove Road
Hartford, CT 06152-2309
Connecticut General Life Insurance Company
c/o CIGNA Investments, Inc.
Attention: Private Securities - S307
Operations Group
900 Cottage Grove Road
Hartford, CT 06152-7203
Fax: 860-726-7203
with a copy to:
Chase Manhattan Bank, N.A.
Private Placement Servicing
P.O. Box 1508
Bowling Green Station
New York, NY 10081
Attention: CIGNA Private Placements
Fax: 212-552-3107/1005
(3) All other communications:
Connecticut General Life Insurance Company
c/o CIGNA Investments, Inc.
Attention: Private Securities Division - S-307
900 Cottage Grove Road
Hartford, CT 06152-2307
Fax: 860-726-7203
(4) Tax I.D. No. 13-3574027
A-1
<PAGE> 52
Principal Amount, Series and No.
Name and Address of Purchaser of Note(s) to be Purchased
CONNECTICUT GENERAL LIFE INSURANCE COMPANY $3,000,000 -- 6.56% Senior Notes;
on behalf of One or More Separate Accounts No. RA-3
$2,000,000 -- 6.56% Senior Notes;
(1) All payments by wire transfer of No. RA-4
immediately available funds to:
The Chase Manhattan Bank
ABA#021000021
CIGNA Private Placements
a/c 9009001802
with sufficient information to identify the source
and application of such funds.
(2) All notices of payments and written confirmations
of such wire transfers:
Connecticut General Life Insurance Company
on behalf of One or More Separate Accounts
c/o CIGNA Investments, Inc.
Attention: Securities Processing S-309
900 Cottage Grove Road
Hartford, CT 06152-2309
Connecticut General Life Insurance Company
on behalf of One or More Separate Accounts
c/o CIGNA Investments, Inc.
Attention: Private Securities - S307
Operations Group
900 Cottage Grove Road
Hartford, CT 06152-7203
Fax: 860-726-7203
with a copy to:
Chase Manhattan Bank, N.A.
Private Placement Servicing
P.O. Box 1508
Bowling Green Station
New York, NY 10081
Attention: CIGNA Private Placements
Fax: 212-552-3107/1005
(3) All other communications:
Connecticut General Life Insurance Company
on behalf of One or More Separate Accounts
c/o CIGNA Investments, Inc.
Attention: Private Securities Division - S-307
900 Cottage Grove Road
Hartford, CT 06152-2307
Fax: 860-726-7203
(4) Tax I.D. No. 13-3574027
A-2
<PAGE> 53
Principal Amount, Series and No.
Name and Address of Purchaser of Note(s) to be Purchased
CIGNA PROPERTY AND CASUALTY INSURANCE COMPANY $3,300,000 -- 6.56% Senior Notes;
No. RA-5
(1) All payments by wire transfer of immediately
available funds to:
The Chase Manhattan Bank
ABA#021000021
CIGNA Private Placements
a/c 9009001802
with sufficient information to identify the source
and application of such funds.
(2) All notices of payments and written confirmations
of such wire transfers:
CIGNA Property and Casualty Insurance Company
c/o CIGNA Investments, Inc.
Attention: Securities Processing S-309
900 Cottage Grove Road
Hartford, CT 06152-2309
CIGNA Property and Casualty Insurance Company
c/o CIGNA Investments, Inc.
Attention: Private Securities - S307
Operations Group
900 Cottage Grove Road
Hartford, CT 06152-7203
Fax: 860-726-7203
with a copy to:
Chase Manhattan Bank, N.A.
Private Placement Servicing
P.O. Box 1508
Bowling Green Station
New York, NY 10081
Attention: CIGNA Private Placements
Fax: 212-552-3107/1005
(3) All other communications:
CIGNA Property and Casualty Insurance Company
c/o CIGNA Investments, Inc.
Attention: Private Securities Division - S-307
900 Cottage Grove Road
Hartford, CT 06152-2307
Fax: 860-726-7203
(4) Tax I.D. No. 13-3574027
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Principal Amount, Series and No.
Name and Address of Purchaser of Note(s) to be Purchased
UNITED OF OMAHA LIFE INSURANCE COMPANY $4,000,000 -- 6.56% Senior Notes;
No. RA-6
(1) All payments by wire transfer of immediately
available funds to:
The Chase Manhattan Bank
ABA# 021000021
Private Income Processing
For credit to:
United of Omaha Life Insurance Company
Account #900-9000200
a/c: G07097
Cusip/PPN: 52610* AK 9
Interest Amount: 6.56%
Principal Amount: $4,000,000
with sufficient information to identify the source
and application of such funds.
(2) All notices of payments and written confirmations
of such wire transfers:
The Chase Manhattan Bank
North America Insurance - 6th Floor
Attn: Ann Marie Mazza
3 Chase Metrotech Center
Brooklyn, NY 11245
The Chase Manhattan Bank
4 New York Plaza - 13th Floor
New York, NY 10004
Attn: Income Processing - J. Pipperato
a/c: G07097
(3) All other communications:
4 - Investment Loan Administration=
United of Omaha Life Insurance Company
Mutual of Omaha Plaza
Omaha, NE 68175-1011
(4) Tax I.D. No. 47-0322111
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Principal Amount, Series and No.
Name and Address of Purchaser of Note(s) to be Purchased
COMPANION LIFE INSURANCE COMPANY $2,000,000 -- 6.56% Senior Notes;
No. RA-7
(1) All payments by wire transfer of immediately
available funds to:
Companion Life Insurance Company
c/o The Bank of New York
ABA# 021000018
Acct.# 111566 Income Collection
Attention: P&I Department
For payment on: Lennox International Inc. 6.56% Senior Notes due April 3, 2005
Interest Amount: $____________ [enter amount of payment that is interest]
Principal Amount: $____________ [enter amount of payment that is principal]
Payable Date: _______________ [enter date such payment is made] CLICO
with sufficient information to identify the source
and application of such funds.
(2) All notices of payments and written confirmations
of such wire transfers:
The Bank of New York
Trust Department 4th Floor
Attention: Victoria Scimeca
Custodian Account #068-310
123 Main Street
White Plains, NY 10602
Companion Life Insurance Company
Attention: Investment Securities Accounting
Mutual of Omaha Plaza
Omaha, NE 68175
with duplicate notice to:
Companion Life Insurance Company
Attention: Financial Division
401 Theodore Fremd Avenue
Rye, NY 10580-1493
(3) All other communications:
Companion Life Insurance Company
Attention: Investment Division
Mutual of Omaha Plaza
Omaha, NE 68175
with duplicate notice to:
Companion Life Insurance Company
Attention: Financial Division
401 Theodore Fremd Avenue
Rye, NY 10580-1493
(4) Tax I.D. No. 13-6062916
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Principal Amount, Series and No.
Name and Address of Purchaser of Note(s) to be Purchased
TEACHERS INSURANCE AND ANNUITY $25,000,000 -- 6.75% Senior Notes;
ASSOCIATION OF AMERICA No. RB-1
(1) All payments by electronic funds transfer to:
The Chase Manhattan Bank
ABA No. 021-000-021
New York, New York
Account Number: 900-9-000200
Reference: PPN 52610* AL 7/Lennox International Inc./
April 3, 2008/6.75%/P&I Breakdown
For further credit to account no. G07040
with sufficient information to identify the source
and application of such funds.
(2) All notices of payments and written confirmations
of such electronic funds transfers:
Teachers Insurance and Annuity Association of America
730 Third Avenue
New York, NY 10017
Attention: Securities Accounting Division
Phone: (212)916-4188
Facsimile: (212)916-6955
(3) All other communications:
Teachers Insurance and Annuity Association of America
730 Third Avenue
New York, NY 10017
Attention: Securities Division, Private Placements
Phone: (212) 916-4683 (Deidre McDonald) or (212)490-9000 (general number)
Facsimile: (212)916-6901
(4) Tax I.D. No. 13-1624203
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Principal Amount, Series and No.
Name and Address of Purchaser of Note(s) to be Purchased
THE PRUDENTIAL INSURANCE COMPANY $15,000,000 -- 6.75% Senior Notes;
OF AMERICA No. RB-2
(1) All payments on account of Notes held by such $ 5,000,000 -- 6.75%
purchaser shall be made by wire transfer of Senior Notes; No. RB-3
immediately available funds for credit to:
Account No. 890-0304-391 (in the case of payments
on account of the Note originally issued in
the principal amount of $15,000,000)
Account No. 890-0304-944 (in the case of payments
on account of the Note originally issued in
the principal amount of $5,000,000)
The Bank of New York
New York, New York
ABA No.: 021-000-018
Each such wire transfer shall set forth the name of the
Company, a reference to "6.75% Senior Notes due April 3,
2005, PPN 52610* AL 7, !INV 5921! (in the case of payments
on account of the Note originally issued in the principal
amount of $15,000,000) or !INV 5922! (in the case of payments
on account of the Note originally issued in the principal
amount of $5,000,000)", and the due date and application
(as among principal, interest and Make-Whole Amount) of the
payment being made.
with sufficient information to identify the source
and application of such funds.
(2) All notices of payments and written confirmations
of such wire transfers:
The Prudential Insurance Company of America
c/o Prudential Capital Group
Four Gateway Center, 7th Floor
100 Mulberry Street
Newark, NJ 07102-4077
Attention: Trade Management Group
(3) All other communications:
The Prudential Insurance Company of America
c/o Prudential Capital Group
2200 Ross Avenue, Suite 4200E
Dallas, TX 75201
Attention: Managing Director
Recipient of telephonic prepayment notices:
Manager, Trade Management Group
(973)802-7398
(4) Tax I.D. No. 22-1211670
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Principal Amount, Series and No.
Name and Address of Purchaser of Note(s) to be Purchased
U.S. PRIVATE PLACEMENT FUND $5,000,000 -- 6.75% Senior Notes;
No. RB-4
(1) All payments on account of Notes held by such
purchaser shall be made by wire transfer of
immediately available funds for credit to:
Account No. : U1FF1000002
Boston Safe Deposit and Trust Company
One Boston Place
Boston, MA 02108
ABA No.: 011-001-234
DDA No.: 108111
Account Name: U.S. Private Placement Fund
Each such wire transfer shall set forth the name of
the Company, a reference to "6.75% Senior Notes
due April 3, 2008, PPN 52610* AL 7", and
the due date and application (as among principal,
interest and Make-Whole Amount) of the
payment being made.
with sufficient information to identify the source
and application of such funds.
(2) All notices of payments and written confirmations
of such wire transfers:
Mellon Trust
One Cabot Road
Mail Stop #028-003C
Medford, MA 02155-5159
Attention: Derek von Vliet
Telephone: (617)382-4850
Facsimile: (617)382-4003
(3) All other communications:
Prudential Private Placement Investors, Inc.
Four Gateway Center
100 Mulberry Street
Newark, NJ 07102-4069
Telephone: (973)802-8608
Facsimile: (973)802-7045
(4) Tax I.D. No. _______________________
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SCHEDULE B
DEFINED TERMS
As used herein, the following terms have the respective meanings
set forth below or set forth in the Section hereof following such term:
"ADDITIONAL COVENANT" is defined in Section 9.7.
"AFFILIATE" means, at any time, and with respect to any Person,
any other Person that at such time directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common Control with,
such first Person. As used in this definition, "CONTROL" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise. Unless the context otherwise clearly
requires, any reference to an "AFFILIATE" is a reference to an Affiliate of the
Company.
"AGREEMENT" is defined in Section 17.3 hereof.
"BUSINESS DAY" means (a) for the purposes of Section 8.6 only, any
day other than a Saturday, a Sunday or a day on which commercial banks in New
York City are required or authorized to be closed, and (b) for the purposes of
any other provision of this Agreement, any day other than a Saturday, a Sunday
or a day on which commercial banks in New York, New York, Chicago, Illinois or
Dallas, Texas are required or authorized to be closed.
"CAPITAL LEASE" means, at any time, a lease with respect to which
the lessee is required concurrently to recognize the acquisition of an asset
and the incurrence of a liability in accordance with GAAP.
"CAPITAL LEASE OBLIGATION" means, with respect to any Person and a
Capital Lease, the amount of the obligation of such Person as the lessee under
such Capital Lease which would, in accordance with GAAP, appear as a liability
on a balance sheet of such Person.
"CHANGE OF CONTROL" is defined in Section 9.6.
"CLOSING" is defined in Section 3.
"CODE" means the Internal Revenue Code of 1986, as amended from
time to time, and the rules and regulations promulgated thereunder from time to
time.
"COMPANY" means Lennox International Inc., a Delaware corporation.
"CONFIDENTIAL INFORMATION" is defined in Section 20.
"CONSOLIDATED ASSETS" means the total assets of the Company and
its Restricted Subsidiaries which would be shown as assets on a consolidated
balance sheet of the Company and its Restricted Subsidiaries prepared in
accordance with GAAP, after eliminating all amounts
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properly attributable to minority interests, if any, in the stock and surplus
of Restricted Subsidiaries.
"CONSOLIDATED CAPITALIZATION" means, at any time, the sum of
Consolidated Net Worth and Consolidated Indebtedness.
"CONSOLIDATED INDEBTEDNESS" means, as of any date of
determination, the total of all Indebtedness of the Company and its Restricted
Subsidiaries outstanding on such date, after eliminating all offsetting debits
and credits between the Company and its Restricted Subsidiaries and all other
items required to be eliminated in the course of the preparation of
consolidated financial statements of the Company and its Restricted
Subsidiaries in accordance with GAAP.
"CONSOLIDATED NET INCOME" for any period means the net income (or
net loss) of the Company and its Restricted Subsidiaries for such period,
determined in accordance with GAAP, excluding
(a) the proceeds of any life insurance policy;
(b) any gain arising from (1) the sale or other disposition of
any assets (other than current assets) to the extent that the aggregate amount
of gains exceeds the aggregate amount of losses from the sale, abandonment or
other disposition of assets (other than current assets), (2) any write-up of
assets, or (3) the acquisition by the Company or any Restricted Subsidiary of
its outstanding securities constituting Indebtedness;
(c) any amount representing the interest of the Company or any
Restricted Subsidiary in the undistributed earnings of any other Person;
(d) any earnings of any other Person accrued prior to the date
it becomes a Restricted Subsidiary or is merged into or consolidated with the
Company or a Restricted Subsidiary and any earnings, prior to the date of
acquisition, of any other Person acquired in any other manner; and
(e) any deferred credit (or amortization of a deferred credit)
arising from the acquisition of any Person.
"CONSOLIDATED NET WORTH" means, at any time,
(a) the sum of (i) the par value (or value stated on the books
of the Company) of the capital stock (but excluding treasury stock and capital
stock subscribed and unissued) of the Company and its Restricted Subsidiaries
at such time plus (ii) the amount of paid-in-capital and retained earnings of
the Company and its Restricted Subsidiaries at such time, in each case as such
amounts would be shown on a consolidated balance sheet of the Company and its
Restricted Subsidiaries as of such time prepared in accordance with GAAP, minus
(b) to the extent included in clause (a), all amounts properly
attributable to minority interests, if any, in the stock and surplus of
Restricted Subsidiaries.
"DEFAULT" means an event or condition the occurrence or existence
of which would, with the lapse of time or the giving of notice or both, become
an Event of Default.
"DEFAULT RATE" means that rate of interest that is the greater of
(i) 2% per annum above the rate of interest stated in clause (a) of the first
paragraph of the Notes or (ii) 2% over the
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rate of interest publicly announced by The Chase Manhattan Bank in New York,
New York as its "BASE" or "PRIME" rate.
"DISTRIBUTION" means, in respect of any corporation, association
or other business entity:
(a) dividends or other distributions or payments on capital
stock or other equity interest of such corporation, association or other
business entity (except distributions in such stock or other equity interests);
and
(b) the redemption or acquisition of such stock or other
equity interests or of warrants, rights or other options to purchase such stock
or other equity interests (except when solely in exchange for such stock or
other equity interests) unless made, contemporaneously, from the net proceeds
of a sale of such stock or other equity interests.
"ENVIRONMENTAL LAWS" means any and all Federal, state, local, and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment or the release of any materials into the environment, including but
not limited to those related to hazardous substances or wastes, air emissions
and discharges to waste or public systems.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the rules and regulations promulgated
thereunder from time to time in effect.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the Company
under section 414 of the Code.
"EVENT OF DEFAULT" is defined in Section 11.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXCLUDED TRANSFERS" is defined in Section 10.3.
"EXISTING NOTE PURCHASE AGREEMENTS" means (i) the Agreements of
Assumption and Restatement dated as of December 1, 1991 shown on Schedule 5.15,
(ii) the Note Purchase Agreements dated as of December 1, 1993 shown on
Schedule 5.15, and (iii) the Note Purchase Agreement dated as of July 6, 1995
shown on Schedule 5.15.
"FAIR MARKET VALUE" means, at any time and with respect to any
property, the sale value of such property that would be realized in an arm's
length sale at such time between an informed and willing buyer and an informed
and willing seller (neither being under a compulsion to buy or sell).
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States of America.
"GOVERNMENTAL AUTHORITY" means
(a) the government of
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(i) the United States of America or any State or other
political subdivision thereof, or
(ii) any jurisdiction in which the Company or any Subsidiary
conducts all or any part of its business, or which asserts jurisdiction over
any properties of the Company or any Subsidiary, or
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.
"GUARANTY" means, with respect to any Person, any obligation
(except the endorsement in the ordinary course of business of negotiable
instruments for deposit or collection) of such Person guaranteeing or in effect
guaranteeing any Indebtedness, dividend or other obligation of any other Person
in any manner, whether directly or indirectly, including (without limitation)
obligations incurred through an agreement, contingent or otherwise, by such
Person:
(a) to purchase such Indebtedness or obligation or any
property constituting security therefor;
(b) to advance or supply funds (i) for the purchase or payment
of such Indebtedness or obligation, or (ii) to maintain any working capital or
other balance sheet condition or any income statement condition of any other
Person or otherwise to advance or make available funds for the purchase or
payment of such Indebtedness or obligation;
(c) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such Indebtedness or
obligation of the ability of any other Person to make payment of the
Indebtedness or obligation; or
(d) otherwise to assure the owner of such Indebtedness or
obligation against loss in respect thereof. In any computation of the
Indebtedness or other liabilities of the obligor under any Guaranty, the
Indebtedness or other obligations that are the subject of such Guaranty shall
be assumed to be direct obligations of such obligor.
"HAZARDOUS SUBSTANCE" means any contaminant, pollutant or toxic or
hazardous substance, and any substance that is defined or listed as a
hazardous, toxic or dangerous substance under any Environmental Law or that is
otherwise regulated or prohibited under any Environmental Law as a hazardous,
toxic or dangerous substance.
"HOLDER" means, with respect to any Note, the Person in whose name
such Note is registered in the register maintained by the Company pursuant to
Section 13.1.
"INDEBTEDNESS" with respect to any Person means, at any time,
without duplication,
(a) its liabilities for borrowed money and its redemption
obligations in respect of mandatorily redeemable Preferred Stock;
(b) its liabilities for the deferred purchase price of
property acquired by such Person (excluding accounts payable arising in the
ordinary course of business but including all
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liabilities created or arising under any conditional sale or other title
retention agreement with respect to any such property);
(c) all liabilities appearing on its balance sheet in
accordance with GAAP in respect of Capital Leases;
(d) all liabilities for borrowed money secured by any Lien
with respect to any property owned by such Person (whether or not it has
assumed or otherwise become liable for such liabilities);
(e) all its liabilities in respect of letters of credit or
instruments serving a similar function issued or accepted for its account by
banks and other financial institutions (whether or not representing obligations
for borrowed money, but excluding in any event obligations in respect of (1)
trade or commercial letters of credit issued for the account of such Person in
the ordinary course of its business and (2) stand-by letters of credit issued
to support obligations of such Person that do not constitute Indebtedness);
(f) Swaps of such Person; and
(g) any Guaranty of such Person with respect to liabilities of
a type described in any of clauses (a) through (f) hereof.
Indebtedness of any Person shall include all obligations of such
Person of the character described in clauses (a) through (g) above to the
extent such Person remains legally liable in respect thereof notwithstanding
that any such obligation is deemed to be extinguished under GAAP.
"INSTITUTIONAL INVESTOR" means (a) any original purchaser of a
Note, (b) any holder of a Note holding more than 10% of the aggregate principal
amount of the Notes then outstanding, and (c) any bank, trust company, savings
and loan association or other financial institution, any pension plan, any
investment company, any insurance company, any broker or dealer, or any other
similar financial institution or entity, regardless of legal form.
"INTERGROUP TRANSFER" is defined in Section 10.3.
"LIEN" means, with respect to any Person, any mortgage, lien,
pledge, charge, security interest or other encumbrance, or any interest or
title of any vendor, lessor, lender or other secured party to or of such Person
under any conditional sale or other title retention agreement or Capital Lease,
upon or with respect to any property or asset of such Person (including in the
case of stock, stockholder agreements, voting trust agreements and all similar
arrangements).
"MAKE-WHOLE AMOUNT" is defined in Section 8.6.
"MATERIAL" means material in relation to the business, operations,
affairs, financial condition, assets, or properties of the Company and its
Subsidiaries taken as a whole.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a)
the business, operations, affairs, financial condition, assets or properties of
the Company and its Restricted Subsidiaries taken as a whole, or (b) the
ability of the Company to perform its obligations under this Agreement and the
Notes, or (c) the validity or enforceability of this Agreement or the Notes.
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"MEMORANDUM" is defined in Section 5.3.
"MULTIEMPLOYER PLAN" means any Plan that is a "MULTIEMPLOYER PLAN"
(as such term is defined in section 4001(a)(3) of ERISA).
"NEW OWNER" is defined in Section 9.6.
"NORRIS FAMILY" is defined in Section 9.6.
"NOTES" is defined in Section 1.
"OFFICER'S CERTIFICATE" means a certificate of a Senior Financial
Officer or of any other officer of the Company whose responsibilities extend to
the subject matter of such certificate.
"ORDINARY COURSE TRANSFER" is defined in Section 10.3.
"OTHER AGREEMENTS" is defined in Section 2.
"OTHER PURCHASERS" is defined in Section 2.
"PBGC" means the Pension Benefit Guaranty Corporation referred to
and defined in ERISA or any successor thereto.
"PERSON" means an individual, partnership, corporation, limited
liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
"PLAN" means an "EMPLOYEE BENEFIT PLAN" (as defined in section
3(3) of ERISA) that is or, within the preceding five years, has been
established or maintained, or to which contributions are or, within the
preceding five years, have been made or required to be made, by the Company or
any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate
may have any liability.
"PREFERRED STOCK" means any class of capital stock of a
corporation that is preferred over any other class of capital stock of such
corporation as to the payment of dividends or the payment of any amount upon
liquidation or dissolution of such corporation.
"PROPERTY" or "PROPERTIES" means, unless otherwise specifically
limited, real or personal property of any kind, tangible or intangible, choate
or inchoate.
"PROPERTY DISPOSITION DATE" is defined in Section 10.3.
"PURCHASE DATE" is defined in Section 9.6.
"QPAM EXEMPTION" means Prohibited Transaction Class Exemption
84-14 issued by the United States Department of Labor.
"REQUIRED HOLDERS" means, at any time, the holders of at least 51%
in principal amount of the Notes at the time outstanding (exclusive of Notes
then owned by the Company or any of its Affiliates).
"RESPONSIBLE OFFICER" means any Senior Financial Officer and any
other officer of the Company with responsibility for the administration of the
relevant portion of this agreement.
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"RESTRICTED INDEBTEDNESS" means, without duplication, (i)
Indebtedness of the Company or any Restricted Subsidiary which is secured by a
Lien not otherwise permitted under subsections (a) through (h) of Section 10.5,
and (ii) Indebtedness of a Restricted Subsidiary owing to any Person other than
the Company or a Wholly-Owned Subsidiary.
"RESTRICTED PAYMENT" means any Distribution in respect of the
Company or any Restricted Subsidiary (other than on account of capital stock or
other equity interests of a Restricted Subsidiary owned legally and
beneficially by the Company or another Restricted Subsidiary), including,
without limitation, any Distribution resulting in the acquisition by the
Company of Securities which would constitute treasury stock. For purposes of
this Agreement, the amount of any Restricted Payment made in property shall be
the greater of (x) the Fair Market Value of such property (as determined in
good faith by the board of directors (or equivalent governing body) of the
Person making such Restricted Payment) and (y) the net book value thereof on
the books of such Person, in each case determined as of the date on which such
Restricted Payment is made.
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company which
is (a) listed as a Restricted Subsidiary in Schedule 5.4 or (b) organized under
the laws of, and conducts substantially all of its business and maintains
substantially all of its property and assets within, the United States or any
state thereof (including the District of Columbia).
"SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time.
"SECURITY" has the meaning set forth in Section 2(1) of the
Securities Act.
"SENIOR FINANCIAL OFFICER" means the chief financial officer,
principal accounting officer, treasurer or comptroller of the Company.
"SERIES" means either the 6.56% Notes or the 6.75% Notes.
"6.56% NOTES" is defined in Section 1.
"6.75% NOTES" is defined in Section 1.
"SUBSIDIARY" means, as to any Person, any corporation, association
or other business entity in which such Person or one or more of its
Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient
equity or voting interests to enable it or them (as a group) ordinarily, in the
absence of contingencies, to elect a majority of the directors (or Persons
performing similar functions) of such entity, and any partnership or joint
venture if more than a 50% interest in the profits or capital thereof is owned
by such Person or one or more of its Subsidiaries or such Person and one or
more of its Subsidiaries (unless such partnership can and does ordinarily take
major business actions without the prior approval of such Person or one or more
of its Subsidiaries). Unless the context otherwise clearly requires, any
reference to a "SUBSIDIARY" is a reference to a Subsidiary of the Company.
"SWAPS" means, with respect to any Person, payment obligations
with respect to interest rate swaps, currency swaps and similar obligations
obligating such Person to make payments, whether periodically or upon the
happening of a contingency. For the purposes of this Agreement, the amount of
the obligation under any Swap shall be the amount determined in respect thereof
as of the end of the then most recently ended fiscal quarter of such Person,
based
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on the assumption that such Swap had terminated at the end of such fiscal
quarter, and in making such determination, if any agreement relating to such
Swap provides for the netting of amounts payable by and to such Person
thereunder or if any such agreement provides for the simultaneous payment of
amounts by and to such Person, then in each such case, the amount of such
obligation shall be the net amount so determined.
"TRANSFER" means, with respect to any Person, any transaction in
which such Person sells, conveys, transfers or leases (as lessor) any of its
property, including capital stock of, or a Security issued by, a Subsidiary.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary other than a
Restricted Subsidiary.
"VOTING RIGHTS" is defined in Section 9.6.
"WHOLLY-OWNED RESTRICTED SUBSIDIARY" or "WHOLLY-OWNED SUBSIDIARY"
means, at any time, any Restricted Subsidiary or Subsidiary, respectively, one
hundred percent (100%) of all of the equity interests (except directors'
qualifying shares) and voting interests of which are owned by any one or more
of the Company and the Company's other Wholly-Owned Restricted Subsidiaries or
Wholly-Owned Subsidiaries, respectively, at such time.
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SCHEDULE 5.4
LENNOX INTERNATIONAL INC. SUBSIDIARIES
AS OF JANUARY 31, 1998
PAGE 1
<TABLE>
<CAPTION>
LOCATION OF
SUBSTANTIAL
NAME OWNERSHIP JURISDICTION OF INC. RESTRICTED/UNRESTRICTED OPERATING ASSETS
- ----------- --------- -------------------- ----------------------- ----------------
<S> <C> <C> <C> <C>
(1) LENNOX INDUSTRIES INC. 100% Iowa Restricted United States
SEE ATTACHED CHART
(2) HEATCRAFT INC. 100% Mississippi Restricted United States
(3) HEATCRAFT TECHNOLOGIES INC. 100% Delaware Restricted United States
(4) ARMSTRONG AIR CONDITIONING INC. 100% Ohio Restricted United States
(5) LENNOX FOREIGN SALES CORP. 100% U.S. Virgin Islands Unrestricted N/A
(6) LENNOX COMMERCIAL REALTY INC. 100% Iowa Restricted United States
(7) LENNOX GLOBAL LTD. 100% Delaware Unrestricted United States
See Attached Chart
</TABLE>
5.4 - 1
<PAGE> 68
LENNOX INTERNATIONAL INC. SUBSIDIARIES
AS OF JANUARY 31, 1998
PAGE 2
<TABLE>
<CAPTION>
LOCATION OF
SUBSTANTIAL
NAME OWNERSHIP JURISDICTION OF INC. RESTRICTED/UNRESTRICTED OPERATING ASSETS
- ----------- --------- -------------------- ----------------------- ----------------
<S> <C> <C> <C> <C>
LENNOX INDUSTRIES INC.
(a) Products Acceptance Corporation 100% Iowa Restricted N/A
(b) Lennox Industries (Canada) Ltd. 100% Canada Unrestricted Canada
(c) Lennox Industries SW Inc. 100% Iowa Restricted N/A
(d) Lennox Manufacturing Inc. 100% Delaware Restricted United States
</TABLE>
5.4 - 2
<PAGE> 69
LENNOX INTERNATIONAL INC. SUBSIDIARIES
AS OF JANUARY 31, 1998
PAGE 3
<TABLE>
<CAPTION>
LOCATION OF
SUBSTANTIAL
NAME OWNERSHIP JURISDICTION OF INC. RESTRICTED/UNRESTRICTED OPERATING ASSETS
- ----------- --------- -------------------- ----------------------- ----------------
<S> <C> <C> <C> <C>
LENNOX GLOBAL LTD.
(a) UK Industries Inc. 100% Delaware Unrestricted N/A
(b) UK Global Ltd. 100% Delaware Unrestricted N/A
(c) Lennox Australia Pty. Ltd. 100% Australia Unrestricted Australia
(d) LGL Asia-Pacific Pte. Ltd. 100% Rep. of Singapore Unrestricted Singapore
(e) LGL (Australia) Pty. Ltd. 100% Australia Unrestricted Australia
(f) LGL de Mexico, S.A. de C.V. 99% Mexico Unrestricted Mexico
(g) Ets. Brancher S.A. 70% France Unrestricted France
(1) SEE ATTACHED CHART
</TABLE>
5.4 - 3
<PAGE> 70
LENNOX INTERNATIONAL INC. SUBSIDIARIES
AS OF JANUARY 31, 1998
PAGE 4
<TABLE>
<CAPTION>
LOCATION OF
SUBSTANTIAL
NAME OWNERSHIP JURISDICTION OF INC. RESTRICTED/UNRESTRICTED OPERATING ASSETS
- ----------- --------- -------------------- ----------------------- ----------------
<S> <C> <C> <C> <C>
ETS. BRANCHER S.A.
(a) HCF-Lennox Limited 100% United Kingdom Unrestricted United Kingdom
(1) Lennox Industries 100% United Kingdom Unrestricted United Kingdom
(A) Environheat Limited 100% United Kingdom Unrestricted N/A
(b) HCF Lennox S.A. 100% France Unrestricted France
(1) SEE ATTACHED CHART
(c) Frinotech S.A. 99.68% France Unrestricted N/A
(d) Friga-Bohn S.A. 100% France Unrestricted France
(1) Friga-Bohn
Warmeauslauscher GmbH 100% Germany Unrestricted Germany
(2) ERSA 79.5% Spain Unrestricted Spain
(3) West 80% Italy Unrestricted Italy
(4) Friga-Coil 50% Czech Republic Unrestricted Czech Republic
(5) Herac Ltd. 100% United Kingdom Unrestricted N/A
(e) SCI Geraval 99.83% France Unrestricted France
(f) SCI Groupe Brancher 76% France Unrestricted France
</TABLE>
5.4 - 4
<PAGE> 71
LENNOX INTERNATIONAL INC. SUBSIDIARIES
AS OF JANUARY 31, 1998
PAGE 5
<TABLE>
<CAPTION>
LOCATION OF
SUBSTANTIAL
NAME OWNERSHIP JURISDICTION OF INC. RESTRICTED/UNRESTRICTED OPERATING ASSETS
- ----------- --------- -------------------- ----------------------- ----------------
<S> <C> <C> <C> <C>
HCF LENNOX S.A.
(a) Refac B.V. 100% Netherlands Unrestricted Netherlands
(1) Refac NV 100% Belgium Unrestricted Belgium
(2) Refac Nord GmbH 100% Germany Unrestricted N/A
(A) Refac West GmbH 100% Germany Unrestricted N/A
(3) Refac Kalte-Klima
Technik Vertriebs GmbH 50% Germany Unrestricted N/A
(4) Refac UK Ltd. 100% United Kingdom Unrestricted United Kingdom
(b) Hyfra GmbH 100% Germany Unrestricted Germany
(c) Lennox-Refac S.A. 100% Spain Unrestricted Spain
(1) Redi Andalucia S.A. 70% Spain Unrestricted N/A
(2) Lennox Refac 100% Portugal Unrestricted N/A
(3) Redi Sur Andalucia S.A. 70% Spain Unrestricted N/A
(4) Deutsche Bronswerk GmbH 100% Germany Unrestricted Germany
(5) Bronswerk Refac GmbH 100% Germany Unrestricted Germany
</TABLE>
5.4 - 5
<PAGE> 72
SCHEDULE 5.5
FINANCIAL STATEMENTS
1. Consolidated and consolidating financial statements for the Company and its
Subsidiaries for the fiscal years ended December 31, 1992 through December
31, 1997.
2. Quarterly consolidated and consolidating financial statements for the
Company and its Subsidiaries for the periods ended March 31, June 30, and
September 30 for 1992-97.
5.5 - 1
<PAGE> 73
SCHEDULE 5.14
USE OF PROCEEDS
Proceeds of the Notes will be used to finance the Company's growth through
acquisitions and for general corporate purposes.
5.14 - 1
<PAGE> 74
SCHEDULE 5.15
LENNOX INTERNATIONAL INC.
AND RESTRICTED SUBSIDIARIES
JANUARY 31, 1998
<TABLE>
<CAPTION>
A. LENNOX INTERNATIONAL INC.
-------------------------
<S> <C>
(1) Agreement of Assumption and Restatement
dated as of December 1, 1991 between Lennox
International Inc. and the Noteholders identified at
the end thereof, pursuant to which Lennox
International Inc. delivered its:
9.53% Series F Promissory Notes due 2001 $ 21,000,000
9.69% Series H Promissory Notes due 2003 29,500,000
(2) Revolving Credit Agreement dated as of
December 1, 1991 among Lennox International Inc. and
the Banks named on the signature pages thereof and
The Northern Trust Company, as Agent -0-
(3) Note Purchase Agreement dated as of December
1, 1993 among Lennox International Inc. and the
Noteholders identified at the end thereof, pursuant
to which Lennox International Inc. delivered its
6.73% Senior Promissory Notes due 2008 100,000,000
(4) Note Purchase Agreement dated as of July 6,
1995 between Lennox International Inc. and Teachers
Insurance and Annuity Association of America,
pursuant to which Lennox International Inc.
delivered its 7.06% Senior Promissory Notes due 2005 20,000,000
(5) Guaranty dated September 19, 1995 from
Lennox International Inc. to First Bank of
Natchitoches & Trust Company and Regions Bank of
Louisiana guaranteeing 50% of debt of Alliance
Compressors to such Banks under a Promissory Note
dated September 19, 1995 1,303,166*
</TABLE>
5.15 - 1
<PAGE> 75
<TABLE>
<C> <C>
(6) Guaranty of 50% of amounts due from Alliance
Compressors under a Master Equipment Lease Agreement
dated March 28, 1995 with NationsBanc Leasing
Corporation 463,598*
(7) Letter of Credit guaranteeing debt of Refac
B.V. to Stork N.V. in connection with purchase of
stock of Refac B.V. from Stork N.V. 3,102,720
(8) Guaranty of 50% of Frigus-Bohn S.A. de C.V.
Line of Credit from Bank One, Texas, N.A., in the
maximum amount of $500,000 (expected to increase to
$1,500,000 maximum amount by March 15, 1998) 250,000
(9) Letter of Credit guaranteeing debt of Lennox
Australia Pty Ltd. to Alcair Industries Pty Ltd. in
connection with purchase of assets of Alcair
Industries Pty Ltd. 916,962
(10) Letters of Credit guaranteeing to various
insurance companies amounts accrued for workers
compensation and general liability claims 12,628,942
B. LENNOX INDUSTRIES INC.
----------------------
Promissory Note dated December 22, 1992 issued to
Texas Housing Opportunity Fund, Ltd. 205,031
C. LENNOX COMMERCIAL REALTY INC.
-----------------------------
11.1% Mortgage Note Agreement with Texas Commerce
Bank, N.A. due January 1, 2000, secured by mortgage
on headquarters building and an assignment of the
Lease between Lennox Commercial Realty Inc. and
Lennox Industries Inc. 7,936,631
---------
</TABLE>
5.15 - 2
<PAGE> 76
<TABLE>
<S> <C>
TOTAL OUTSTANDING INDEBTEDNESS OF LENNOX INTERNATIONAL INC. $197,307,050
============
AND RESTRICTED SUBSIDIARIES
</TABLE>
*50% as of September 30, 1997
5.15 - 3
<PAGE> 77
EXHIBIT 1-A
[FORM OF 6.56% NOTE]
LENNOX INTERNATIONAL INC.
6.56% SENIOR NOTE DUE APRIL 3, 2005
No. RA-__ [DATE]
$[_______] PPN 52610* AK 9
FOR VALUE RECEIVED, the undersigned, Lennox International Inc.
(herein called the "COMPANY"), a corporation organized and existing under the
laws of the State of Delaware, hereby promises to pay to
[___________________________], or registered assigns, the principal sum of
[___________________________] DOLLARS on April 3, 2005, with interest
(computed on the basis of a 360-day year of twelve 30-day months) (a) on the
unpaid balance thereof at the rate of 6.56% per annum from the date hereof,
payable semiannually, on the first day of June and December in each year,
commencing with June 1 or December 1 next succeeding the date hereof, until the
principal hereof shall have become due and payable, and on the maturity of this
Note, and (b) to the extent permitted by law on any overdue payment (including
any overdue prepayment) of principal, any overdue payment of interest and any
overdue payment of any Make-Whole Amount (as defined in the Note Purchase
Agreements referred to below), payable semiannually as aforesaid (or, at the
option of the registered holder hereof, on demand), at a rate per annum from
time to time equal to the greater of (i) 8.56% or (ii) 2% over the rate of
interest publicly announced by The Chase Manhattan Bank from time to time in
New York, New York as its "BASE" or "PRIME" rate.
Payments of principal of, interest on and any Make-Whole Amount
with respect to this Note are to be made in lawful money of the United States
of America at The Chase Manhattan Bank, New York, New York, or at such other
place as the Company shall have designated by written notice to the holder of
this Note as provided in the Note Purchase Agreements referred to below.
This Note is one of a series of Senior Notes (herein called the
"NOTES") issued pursuant to separate Note Purchase Agreements, dated as of
April 3, 1998 (as from time to time amended, the "NOTE PURCHASE AGREEMENTS"),
between the Company and the respective Purchasers named therein and is entitled
to the benefits thereof. Each holder of this Note will be deemed, by its
acceptance hereof, (i) to have agreed to the confidentiality provisions set
forth in Section 20 of the Note Purchase Agreements and (ii) to have made the
representation set forth in Section 6.2 of the Note Purchase Agreements.
1-A - 1
<PAGE> 78
This Note is a registered Note and, as provided in the Note
Purchase Agreements, upon surrender of this Note for registration of transfer,
duly endorsed, or accompanied by a written instrument of transfer duly
executed, by the registered holder hereof or such holder's attorney duly
authorized in writing, a new Note of the same series for a like principal
amount will be issued to, and registered in the name of, the transferee. Prior
to due presentment for registration of transfer, the Company may treat the
person in whose name this Note is registered as the owner hereof for the
purpose of receiving payment and for all other purposes, and the Company will
not be affected by any notice to the contrary.
This Note is subject to optional prepayment, in whole or from
time to time in part, at the times and on the terms specified in the Note
Purchase Agreements, but not otherwise.
If an Event of Default, as defined in the Note Purchase
Agreements, occurs and is continuing, the principal of this Note may be
declared or otherwise become due and payable in the manner, at the price
(including any applicable Make-Whole Amount) and with the effect provided in
the Note Purchase Agreements.
This Note shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the law of the State of New
York.
LENNOX INTERNATIONAL INC.
By
--------------------------------
Executive Vice President,
Chief Financial Officer and Treasurer
1-A - 2
<PAGE> 79
EXHIBIT 1-B
[FORM OF 6.75% NOTE]
LENNOX INTERNATIONAL INC.
6.75% SENIOR NOTE DUE APRIL 3, 2008
No. RB-__ [DATE]
$[_______] PPN 52610* AL 7
FOR VALUE RECEIVED, the undersigned, Lennox International Inc.
(herein called the "COMPANY"), a corporation organized and existing under the
laws of the State of Delaware, hereby promises to pay to
[___________________________], or registered assigns, the principal sum of
[___________________________] DOLLARS on April 3, 2008, with interest
(computed on the basis of a 360-day year of twelve 30-day months) (a) on the
unpaid balance thereof at the rate of 6.75% per annum from the date hereof,
payable semiannually, on the first day of June and December in each year,
commencing with June 1 or December 1 next succeeding the date hereof, until the
principal hereof shall have become due and payable, and on the maturity of this
Note, and (b) to the extent permitted by law on any overdue payment (including
any overdue prepayment) of principal, any overdue payment of interest and any
overdue payment of any Make-Whole Amount (as defined in the Note Purchase
Agreements referred to below), payable semiannually as aforesaid (or, at the
option of the registered holder hereof, on demand), at a rate per annum from
time to time equal to the greater of (i) 8.75% or (ii) 2% over the rate of
interest publicly announced by The Chase Manhattan Bank from time to time in
New York, New York as its "BASE" or "PRIME" rate.
Payments of principal of, interest on and any Make-Whole Amount
with respect to this Note are to be made in lawful money of the United States
of America at The Chase Manhattan Bank, New York, New York, or at such other
place as the Company shall have designated by written notice to the holder of
this Note as provided in the Note Purchase Agreements referred to below.
This Note is one of a series of Senior Notes (herein called the
"NOTES") issued pursuant to separate Note Purchase Agreements, dated as of
April 3, 1998 (as from time to time amended, the "NOTE PURCHASE AGREEMENTS"),
between the Company and the respective Purchasers named therein and is entitled
to the benefits thereof. Each holder of this Note will be deemed, by its
acceptance hereof, (i) to have agreed to the confidentiality provisions set
forth in Section 20 of the Note Purchase Agreements and (ii) to have made the
representation set forth in Section 6.2 of the Note Purchase Agreements.
This Note is a registered Note and, as provided in the Note
Purchase Agreements, upon surrender of this Note for registration of transfer,
duly endorsed, or accompanied by a written instrument of transfer duly
executed, by the registered holder hereof or such holder's
1-B - 1
<PAGE> 80
attorney duly authorized in writing, a new Note of the same series for a like
principal amount will be issued to, and registered in the name of, the
transferee. Prior to due presentment for registration of transfer, the Company
may treat the person in whose name this Note is registered as the owner hereof
for the purpose of receiving payment and for all other purposes, and the
Company will not be affected by any notice to the contrary.
This Note is subject to optional prepayment, in whole or from time
to time in part, at the times and on the terms specified in the Note Purchase
Agreements, but not otherwise.
If an Event of Default, as defined in the Note Purchase
Agreements, occurs and is continuing, the principal of this Note may be
declared or otherwise become due and payable in the manner, at the price
(including any applicable Make-Whole Amount) and with the effect provided in
the Note Purchase Agreements.
This Note shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the law of the State of New
York.
LENNOX INTERNATIONAL INC.
By
--------------------------------------
Executive Vice President,
Chief Financial Officer and Treasurer
1-B - 2
<PAGE> 81
EXHIBIT 4.4(a)
FORM OF OPINION OF COUNSEL TO THE COMPANY
Matters To Be Covered In
Opinion of Counsel To the Company
1. Each of the Company and Lennox Industries Inc., Heatcraft
Inc. and Armstrong Air Conditioning Inc. being duly incorporated, validly
existing and in good standing and the Company having requisite corporate power
and authority to issue and sell the Notes and to execute and deliver the
documents.
2. Each of the Company and Lennox Industries Inc., Heatcraft
Inc. and Armstrong Air Conditioning Inc. being duly qualified and in good
standing as a foreign corporation in appropriate jurisdictions.
3. Due authorization and execution of the documents and such
documents being legal, valid, binding and enforceable.
4. No conflicts with charter documents, laws or other
agreements.
5. All consents required to issue and sell the Notes and to
execute and deliver the documents having been obtained.
6. No litigation questioning validity of documents or as to
which there is otherwise the reasonable likelihood of a Material Adverse
Effect.
7. The Notes not requiring registration under the Securities
Act of 1933, as amended; no need to qualify an indenture under the Trust
Indenture Act of 1939, as amended.
8. No violation of Regulations T, U or X of the Federal
Reserve Board.
9. Company not an "INVESTMENT COMPANY", or a company
"CONTROLLED" by an "INVESTMENT COMPANY", under the Investment Company Act of
1940, as amended.
4.4(a) - 1
<PAGE> 82
EXHIBIT 4.4(b)
FORM OF OPINION OF SPECIAL COUNSEL TO THE PURCHASERS
Matters To Be Covered In
Opinion of Special Counsel to the Purchasers
1. The Company being duly incorporated, validly existing, in
good standing and having requisite corporate power and authority to issue and
sell the Notes and to execute and deliver this Agreement, the Other Agreement
and the Notes.
2. Due authorization and execution of this Agreement, the
Other Agreement and the Notes and such documents being legal, valid, binding
and enforceable.
3. No conflicts with charter documents or bylaws of the
Company.
4. The Notes not requiring registration under the Securities
Act of 1933, as amended; no need to qualify an indenture under the Trust
Indenture Act of 1939, as amended.
5. The opinion of counsel to the Company being satisfactory
in form and scope and the Purchasers of the Notes being justified in relying
thereon.
4.4(b) - 1
<PAGE> 83
[EXHIBIT 4.11]
Amendment
April 3, 1998
The Prudential Insurance Company of America
c/o Prudential Capital Group
2200 Ross Avenue, Suite 4200
Dallas, TX 75201
Teachers Insurance and Annuity
Association of America
730 Third Avenue
New York, New York 10017
Attention: Securities Division
Connecticut General Life Insurance Company
INA Life Insurance Company of New York
Life Insurance Company of North America
c/o CIGNA Investments, Inc.
Hartford, Connecticut 06152
Attention: Private Securities Division
United of Omaha Life Insurance Company
Mutual of Omaha Insurance Company
Companion Life Insurance Company
United World Life Insurance Company
Mutual of Omaha Plaza
Omaha, NE 68175
First Colony Life Insurance Company
700 Main Street
Lynchburg, VA 24504
Lincoln National Life Insurance Company
c/o Lincoln Investment Management, Inc.
200 East Berry Street, Renaissance Square
Fort Wayne, IN 46802
Re: Lennox International Inc.
9.53% Senior Promissory Notes due 2001; 9.69% Senior
Promissory Notes due 2003; 7.06% Senior Promissory Notes due
2005; and 6.73% Senior Promissory Notes due 2008
<PAGE> 84
Ladies and Gentlemen:
Reference is made to:
(i) three separate Agreements of Assumption and Restatement,
dated as of December 1, 1991 (the "1991 AGREEMENTS"), between Lennox
International Inc. (the "COMPANY") and each of Teachers Insurance and Annuity
Association of America, Connecticut General Life Insurance Company and INA Life
Insurance Company of New York (collectively, and together with their respective
successors and assigns, the "1991 HOLDERS");
(ii) nine separate Note Purchase Agreements, dated as of December
1, 1993 (the "1993 NOTE AGREEMENTS"), between the Company and each of The
Prudential Insurance Company of America, Connecticut General Life Insurance
Company, Connecticut General Life Insurance Company, on behalf of One or More
Separate Accounts, Life Insurance Company of North America, United of Omaha
Life Insurance Company, Mutual of Omaha Insurance Company, Companion Life
Insurance Company, United World Life Insurance Company, and First Colony Life
Insurance Company (collectively, and together with their respective successors
and assigns, the "1993 HOLDERS");
(iii) the Note Purchase Agreement, dated as of July 6, 1995 (the
"1995 NOTE AGREEMENT"), between the Company and Teachers Insurance and Annuity
Association of America (together with its successors and assigns, the "1995
HOLDER"); and
(iv) eight separate Note Purchase Agreements, dated as of April 3,
1998 (as in effect on the date of execution and delivery thereof, and without
giving effect to any amendment to or waiver of any term or provision thereof,
the "1998 NOTE AGREEMENTS"), between the Company and each of The Prudential
Insurance Company of America, U.S. Private Placement Fund, Teachers Insurance
and Annuity Association of America, Connecticut General Life Insurance Company,
Connecticut General Life Insurance Company, on behalf of One or More Separate
Accounts, CIGNA Property and Casualty Insurance Company, United of Omaha Life
Insurance Company and Companion Life Insurance Company.
The 1991 Note Agreements, 1993 Note Agreements and 1995 Note Agreement are
collectively referred to herein as the "EXISTING NOTE AGREEMENTS". The 1991
Holders, 1993 Holders and 1995 Holder are collectively referred to herein as
the "EXISTING HOLDERS". The senior notes issued and outstanding under each of
the Existing Note Agreements are collectively referred to herein as the
"EXISTING NOTES". Capitalized terms used in the body of this letter agreement
and not otherwise defined herein shall have the respective meanings set forth
in the Existing Note Agreements.
The Company has requested the Existing Holders to enter into this
letter agreement (this "AMENDMENT AGREEMENT") in order to make certain
modifications to the Existing Note Agreements for the purpose of conforming the
covenants, Events of Default and remedies of the Existing Note Agreements to
those of the 1998 Note Agreements, and the Existing Holders have agreed to such
modifications, subject to the conditions set forth herein. Therefore, the
Existing Holders and the Company hereby agree as follows:
1. The provisions of Sections 5, 6, 7 and 9 of the Existing Note
Agreements are hereby superseded by the provisions of Schedule A attached
hereto, the related definitions set forth in Schedule B attached hereto and the
list of Subsidiaries set forth in Schedule C attached hereto.
2
<PAGE> 85
Capitalized terms used in Schedule A, Schedule B or Schedule C but not defined
in Schedule A or Schedule B are used with the meanings specified in the
Existing Note Agreements. Section references that appear in Schedule A and
Schedule B and that refer to Section numbers used in Schedule A constitute
references to the Section numbers used in Schedule A and not to those in the
portions of the Existing Note Agreements that are not being superseded by the
provisions of this Amendment Agreement, notwithstanding the fact that the same
numbers may also be used in such other portions of the Existing Note
Agreements. The defined terms contained in Section 8 of the Existing Note
Agreements shall continue to apply to such other portions of the Existing Note
Agreements. References in the Existing Note Agreements to Section 7.12 thereof
shall hereafter be deemed to refer to Section 9.6 of Schedule A.
2. Section 8 of the Existing Note Agreements is amended by (a)
deleting the definitions of "Computation Date" and "Computation Period"
therefrom, (b) modifying the definition of "Event of Default" to refer to
Section 11 of Schedule A to this Amendment Agreement and (c) amending the
definition of "Special Premium" by replacing the reference to Section 9.1
therein with a reference to Section 12.1 of Schedule A of this Amendment
Agreement.
3. Effectiveness of Amendment Agreement. This Amendment
Agreement shall be effective when holders of at least 66-2/3% in aggregate
unpaid principal amount of all Existing Notes under each of the 1991 Note
Agreements, the 1993 Note Agreements and the 1995 Note Agreement at the time
outstanding shall have executed a counterpart of this Amendment Agreement, and
(ii) the Company shall have furnished to each of the Existing Holders evidence
of the satisfaction of clause (i).
4. Representations and Warranties. The Company hereby represents
and warrants that:
(a) Upon the effectiveness of this Amendment Agreement,
no Default or Event of Default shall have occurred and be continuing.
(b) The Company has the corporate power and authority to
execute and deliver this Amendment Agreement and to perform the Existing Note
Agreements, as amended hereby.
(c) This Amendment Agreement has been duly authorized by
all necessary corporate action on the part of the Company, and the Existing
Note Agreements, as amended hereby, constitute legal, valid and binding
obligations of the Company enforceable against the Company in accordance with
their respective terms, except as such enforceability may be limited by
(i)applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and (ii)
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(d) The execution and delivery of this Amendment
Agreement by the Company and the performance by the Company of the Existing
Note Agreements, as amended hereby, will not (i) contravene, result in any
breach of, or constitute a default under, or result in the creation of any Lien
in respect of any property of the Company or any Subsidiary under, any
indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease,
corporate charter or by-laws, or any other material agreement or instrument to
which the Company or any Subsidiary is bound or by which the Company or any
Subsidiary or any of their respective properties may be bound or affected, (ii)
conflict with or result in a breach of any of the terms, conditions or
provisions of any order, judgment, decree, or ruling of any
3
<PAGE> 86
court, arbitrator or Governmental Body applicable to the Company or any
Subsidiary or (iii) violate any provision of any statute or other rule or
regulation of any Governmental Body applicable to the Company or any
Subsidiary.
(e) No consent, approval or authorization of, or
registration, filing or declaration with, any Governmental Body is required in
connection with the execution and delivery of this Amendment Agreement by the
Company or the performance by the Company of this Amendment Agreement or the
Existing Note Agreements, as amended hereby.
(f) There are no actions, suits or proceedings pending
or, to the knowledge of the Company, threatened against or affecting the
Company or any Subsidiary or any property of the Company or any Subsidiary in
any court or before any arbitrator of any kind or before or by any Governmental
Body that, individually or in the aggregate, would reasonably be expected to
have a material adverse effect upon the ability of the Company to perform its
obligations under the Existing Note Agreements, as amended hereby, or upon the
validity or enforceability of the Existing Note Agreements, as amended hereby.
5. Miscellaneous. Except as expressly amended by this Amendment
Agreement, the Existing Note Agreements shall remain in full force and effect.
No amendment to, or waiver of, any provision of the 1998 Note Agreements will
constitute an amendment to, or waiver of, any provision of the Existing Note
Agreements, which Existing Note Agreements will continue to be subject to the
amendment and waiver provisions contained in Section 12 thereof. This
Amendment Agreement shall be binding upon and inure to the benefit of the
Existing Holders and their respective successors and permitted assigns. This
Amendment Agreement may be signed in any number of counterparts, each of which
shall constitute an original.
4
<PAGE> 87
If the foregoing correctly describes our understanding with respect to
the subject matter of this Amendment Agreement, please execute this letter in
the place indicated below.
Very truly yours,
LENNOX INTERNATIONAL INC.
By: /s/ Clyde Wyant
-------------------------------
Clyde Wyant
Executive Vice President,
Chief Financial Officer
and Treasurer
ACCEPTED AND AGREED:
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By: /s/ Randall M. Kob
-----------------------------
Name: Randall M. Kob
---------------------------
Title: Vice President
--------------------------
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By: /s/ Charles C. Thompson III
--------------------------------------------
Name: Charles C. Thompson III
------------------------------------------
Title: Managing Director - Private Placements
-----------------------------------------
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By: CIGNA Investments, Inc.
By: /s/ Edward Lewis
-----------------------------
Name: Edward Lewis
---------------------------
Title: Managing Director
--------------------------
5
<PAGE> 88
CONNECTICUT GENERAL LIFE INSURANCE COMPANY,
on behalf of One or More Separate Accounts
By: CIGNA Investments, Inc.
By /s/ Edward Lewis
-----------------------------
Name: Edward Lewis
---------------------------
Title: Managing Director
--------------------------
INA LIFE INSURANCE COMPANY OF NEW YORK
By: CIGNA Investments, Inc.
By: /s/ Edward Lewis
-----------------------------
Name: Edward Lewis
---------------------------
Title: Managing Director
--------------------------
LIFE INSURANCE COMPANY OF NORTH AMERICA
By: CIGNA Investments, Inc.
By /s/ Edward Lewis
-----------------------------
Name: Edward Lewis
---------------------------
Title: Managing Director
--------------------------
UNITED OF OMAHA LIFE INSURANCE COMPANY
By: /s/ Edwin H. Garrison, Jr.
-----------------------------
Name: Edwin H. Garrison, Jr.
---------------------------
Title: First Vice President
--------------------------
MUTUAL OF OMAHA INSURANCE COMPANY
By: /s/ Edwin H. Garrison, Jr.
-----------------------------
Name: Edwin H. Garrison, Jr.
---------------------------
Title: First Vice President
--------------------------
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COMPANION LIFE INSURANCE COMPANY
By: /s/ Edwin H. Garrison, Jr.
------------------------------
Name: Edwin H. Garrison, Jr.
----------------------------
Title: First Vice President
---------------------------
By: /s/ Jeffry F. Sailer
------------------------------
Name: Jeffry F. Sailer
----------------------------
Title: Assistant Treasurer
---------------------------
UNITED WORLD LIFE INSURANCE COMPANY
By: /s/ Edwin H. Garrison, Jr.
------------------------------
Name: Edwin H. Garrison, Jr.
----------------------------
Title: First Vice President
---------------------------
FIRST COLONY LIFE INSURANCE COMPANY
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
LINCOLN NATIONAL LIFE INSURANCE COMPANY
By:
------------------------------
Name:
----------------------------
Title:
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7
<PAGE> 90
SCHEDULE A
7. INFORMATION AS TO COMPANY.
7.1. FINANCIAL AND BUSINESS INFORMATION.
The Company shall deliver to each holder of Notes that is an
Institutional Investor:
(a) Quarterly Statements -- within 60 days after the end of
each quarterly fiscal period in each fiscal year of the Company (other than the
last quarterly fiscal period of each such fiscal year), duplicate copies of
(i) consolidated and consolidating balance sheets of the
Company and its Restricted Subsidiaries and of the Company and its Subsidiaries
as at the end of such quarter, and
(ii) consolidated and consolidating statements of income,
changes in shareholders' equity and cash flows of the Company and its
Restricted Subsidiaries and of the Company and its Subsidiaries, for such
quarter and (in the case of the second and third quarters) for the portion of
the fiscal year ending with such quarter,
all in reasonable detail and setting forth, in the case of such consolidated
statements, in comparative form the figures for the corresponding periods in
the previous fiscal year, prepared in accordance with GAAP applicable to
quarterly financial statements generally, and certified by a Senior Financial
Officer as fairly presenting, in all material respects, the financial position
of the companies being reported on and their results of operations and cash
flows, subject to changes resulting from year-end adjustments, provided that
delivery within the time period specified above of copies of the Company's
Quarterly Report on Form 10-Q prepared in compliance with the requirements
therefor and filed with the Securities and Exchange Commission shall be deemed
to satisfy the requirements of this Section 7.1(a); provided further that if
such Form 10-Q does not contain consolidating information for the Company and
its Restricted Subsidiaries, the Company shall also deliver to each such holder
the consolidating information described in this Section 7.1(a);
(b) Annual Statements -- within 120 days after the end of each
fiscal year of the Company, duplicate copies of
(i) consolidated and consolidating balance sheets of the
Company and its Restricted Subsidiaries and of the Company and its
Subsidiaries, as at the end of such year, and
(ii) consolidated and consolidating statements of income,
changes in shareholders' equity and cash flows of the Company and its
Restricted Subsidiaries and of the Company and its Subsidiaries, for such year;
setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail, prepared in accordance with GAAP, and
accompanied, (1) in the case of the consolidated statements, by an opinion
thereon of independent certified public accountants of recognized national
standing, which opinion shall state that such financial statements present
fairly, in all material respects, the financial position of the companies being
reported upon and their results of operations and cash flows and have been
prepared in conformity with GAAP, and that the examination of such accountants
in
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connection with such financial statements has been made in accordance with
generally accepted auditing standards, and that such audit provides a
reasonable basis for such opinion in the circumstances, and (2) in the case of
the consolidating statements, either certified by a Senior Financial Officer as
fairly stating, or accompanied by a report thereon by such accountants
containing a statement to the effect that such consolidating financial
statements fairly state, the financial position and the results of operations
and cash flows of the companies being reported upon in all material respects in
relation to the consolidated financial statements for the periods indicated as
a whole; provided that the delivery within the time period specified above of
the Company's Annual Report on Form 10-K for such fiscal year (together with
the Company's annual report to shareholders, if any, prepared pursuant to Rule
14a-3 under the Exchange Act) prepared in accordance with the requirements
therefor and filed with the Securities and Exchange Commission shall be deemed
to satisfy the requirements of clauses (i) and (ii) of this Section 7.1(b);
provided further that if such Form 10-K does not contain consolidating
information for the Company and its Restricted Subsidiaries, the Company shall
also deliver to each such holder the consolidating information described in
this Section 7.1(b); and
(iii) a certificate of such accountants stating that in making
the examination for such report, they have obtained no knowledge of any Default
or Event of Default, or, if they have obtained knowledge of any Default or
Event of Default, specifying the nature and period of existence thereof and the
action the Company has taken or proposes to take with respect thereto.
(c) SEC and Other Reports - if the Company or any Restricted
Subsidiary shall be required to file reports with the Securities and Exchange
Commission, promptly upon their becoming available, one copy of (i) each
financial statement, report, notice or proxy statement sent by the Company or
any Restricted Subsidiary to public securities holders generally, and (ii) each
regular or periodic report, each registration statement that shall have become
effective (without exhibits except as expressly requested by such holder), and
each final prospectus and all amendments thereto filed by the Company or any
Restricted Subsidiary with the Securities and Exchange Commission;
(d) Notice of Default or Event of Default -- promptly, and in
any event within five days after a Responsible Officer becoming aware of the
existence of any Default or Event of Default, a written notice specifying the
nature and period of existence thereof and what action the Company is taking or
proposes to take with respect thereto;
(e) ERISA Matters -- promptly, and in any event within five
days after a Responsible Officer becomes aware of any of the following, a
written notice setting forth the nature thereof and the action, if any, that
the Company or an ERISA Affiliate proposes to take with respect thereto:
(i) with respect to any Plan, any reportable event, as defined
in section 4043(b) of ERISA and the regulations thereunder, for which notice
thereof has not been waived pursuant to such regulations as in effect on the
date hereof and the potential cost to the Company or such ERISA Affiliate
resulting therefrom exceeds $500,000; or
(ii) the taking by the PBGC of steps to institute, or the
threatening in writing by the PBGC of the institution of, proceedings under
section 4042 of ERISA for the termination of, or the appointment of a trustee
to administer, any Plan, or the receipt by the Company or any ERISA Affiliate
of a notice from a Multiemployer Plan that such action has been taken by the
PBGC with respect to such Multiemployer Plan; or
(iii) any event, transaction or condition that could result in
the incurrence of any liability by the Company or any ERISA Affiliate pursuant
to Title I or IV of ERISA or the penalty or excise tax
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provisions of the Code relating to employee benefit plans, or in the imposition
of any Lien on any of the rights, properties or assets of the Company or any
ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty or excise
tax provisions, if such liability or Lien, taken together with any other such
liabilities or Liens then existing, would reasonably be expected to have a
Material Adverse Effect; and
(f) Requested Information -- with reasonable promptness, such
other data and information relating to the business, operations, affairs,
financial condition, assets or properties of the Company or any of its
Restricted Subsidiaries or relating to the ability of the Company to perform
its obligations hereunder and under the Notes as from time to time may be
reasonably requested by any such holder of Notes.
7.2. OFFICER'S CERTIFICATE.
Each set of financial statements delivered to a holder of Notes
pursuant to Section 7.1(a) or Section 7.1(b) hereof shall be accompanied by a
certificate of a Senior Financial Officer setting forth:
(a) Covenant Compliance -- the information (including detailed
calculations) required in order to establish whether the Company was in
compliance with the requirements of Section 10.3 through Section 10.9 hereof,
inclusive, and with all Additional Covenants, if any, that involve calculations
during the quarterly or annual period covered by the statements then being
furnished (including with respect to each such Section or Additional Covenant,
as the case may be, where applicable, the calculations of the maximum or
minimum amount, ratio or percentage, as the case may be, permissible under the
terms of such Sections or Additional Covenants, as the case may be, and the
calculation of the amount, ratio or percentage then in existence);
(b) Event of Default -- a statement that such officer has
reviewed the relevant terms hereof and has made, or caused to be made, under
his or her supervision, a review of the transactions and conditions of the
Company and its Subsidiaries from the beginning of the quarterly or annual
period covered by the statements then being furnished to the date of the
certificate and that such review shall not have disclosed the existence during
such period of any condition or event that constitutes a Default or an Event of
Default or, if any such condition or event existed or exists (including,
without limitation, any such event or condition resulting from the failure of
the Company or any Subsidiary to comply with any Environmental Law), specifying
the nature and period of existence thereof and what action the Company shall
have taken or proposes to take with respect thereto;
(c) Management's Discussion and Analysis -- a written
discussion and analysis by management of the financial condition and results of
operations of the lines of business conducted by each material Restricted
Subsidiary for such accounting period; and
(d) Litigation -- a written statement that, to the best of
such Officer's knowledge after due inquiry, except as otherwise disclosed in
writing to you, there is no litigation (including derivative actions),
arbitration proceeding or governmental proceeding pending to which the Company
or any Subsidiary is a party, or with respect to the Company or any Subsidiary
or their respective properties, which has a significant possibility of
materially and adversely affecting the business, operations, properties or
condition of the Company or of the Company and its Subsidiaries taken as a
whole.
7.3. INSPECTION; CONFIDENTIALITY.
The Company shall permit the representatives of each holder of
Notes that is an Institutional Investor:
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(a) No Default -- if no Default or Event of Default then
exists, at the expense of such holder and upon reasonable prior notice to the
Company, to visit the principal executive office of the Company, to discuss the
affairs, finances and accounts of the Company and its Restricted Subsidiaries
with the Company's officers and (with the consent of the Company, which consent
will not be unreasonably withheld) its independent public accountants, and
(with the consent of the Company, which consent will not be unreasonably
withheld) to visit the other offices and properties of the Company and each
Restricted Subsidiary, all at such reasonable times and as often as may be
reasonably requested in writing;
(b) Default -- if a Default or Event of Default then exists,
at the expense of the Company to visit and inspect any of the offices or
properties of the Company or any Subsidiary, to examine all their respective
books of account, records, reports and other papers, to make copies and
extracts therefrom, and to discuss their respective affairs, finances and
accounts with their respective officers and independent public accountants (and
by this provision the Company authorizes said accountants to discuss the
affairs, finances and accounts of the Company and its Subsidiaries), all at
such times and as often as may be requested; and
(c) Technical Data - anything herein to the contrary
notwithstanding, neither the Company nor any of its Subsidiaries shall have any
obligations to disclose pursuant to this Agreement any engineering, scientific,
or other technical data without significance to your analysis of the financial
position of the Company and its Subsidiaries.
9. AFFIRMATIVE COVENANTS.
The Company covenants that so long as any of the Notes are
outstanding:
9.1. COMPLIANCE WITH LAW.
The Company will and will cause each of its Subsidiaries to comply
with all laws, ordinances or governmental rules or regulations to which each of
them is subject, including, without limitation, Environmental Laws, and will
obtain and maintain in effect all licenses, certificates, permits, franchises
and other governmental authorizations necessary to the ownership of their
respective properties or to the conduct of their respective businesses, in each
case to the extent necessary to ensure that non-compliance with such laws,
ordinances or governmental rules or regulations or failures to obtain or
maintain in effect such licenses, certificates, permits, franchises and other
governmental authorizations would not reasonably be expected, individually or
in the aggregate, to have a materially adverse effect on the business,
operations, affairs, financial condition, properties or assets of the Company
and its Restricted Subsidiaries taken as a whole.
9.2. INSURANCE.
The Company will and will cause each of its Subsidiaries to
maintain, with financially sound and reputable insurers, insurance with respect
to their respective properties and businesses against such casualties and
contingencies, of such types, on such terms and in such amounts (including
deductibles, co-insurance and self-insurance, if adequate reserves are
maintained with respect thereto) as is customary in the case of entities of
established reputations engaged in the same or a similar business and similarly
situated.
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9.3. MAINTENANCE OF PROPERTIES.
The Company will and will cause each of its Subsidiaries to
maintain and keep, or cause to be maintained and kept, their respective
properties in good repair, working order and condition (other than ordinary
wear and tear), so that the business carried on in connection therewith may be
properly conducted at all times, provided that this Section shall not prevent
the Company or any Subsidiary from discontinuing the operation and the
maintenance of any of its properties if such discontinuance is desirable in the
conduct of its business and the Company has concluded that such discontinuance
would not, individually or in the aggregate, have a materially adverse effect
on the business, operations, affairs, financial condition, properties or assets
of the Company and its Restricted Subsidiaries taken as a whole.
9.4. PAYMENT OF TAXES.
The Company will and will cause each of its Subsidiaries to file
all income tax or similar tax returns required to be filed in any jurisdiction
and to pay and discharge all taxes shown to be due and payable on such returns
and all other taxes, assessments, governmental charges, or levies payable by
any of them, to the extent such taxes and assessments have become due and
payable and before they have become delinquent, provided that neither the
Company nor any Subsidiary need pay any such tax or assessment if (i) the
amount, applicability or validity thereof is contested by the Company or such
Subsidiary on a timely basis in good faith and in appropriate proceedings, and
the Company or a Subsidiary has established adequate reserves therefor in
accordance with GAAP on the books of the Company or such Subsidiary or (ii) the
nonpayment of all such taxes and assessments in the aggregate would not
reasonably be expected to have a materially adverse effect on the business,
operations, affairs, financial condition, properties or assets of the Company
and its Restricted Subsidiaries taken as a whole.
9.5. CORPORATE EXISTENCE, ETC.
The Company will at all times preserve and keep in full force and
effect its corporate existence. Subject to Sections 10.2 and 10.3, the Company
will at all times preserve and keep in full force and effect the corporate
existence of each of its Restricted Subsidiaries (unless merged into the
Company or a Restricted Subsidiary) and all rights and franchises of the
Company and its Restricted Subsidiaries unless, in the good faith judgment of
the Company, the termination of or failure to preserve and keep in full force
and effect such corporate existence, right or franchise would not, individually
or in the aggregate, have a materially adverse effect on the business,
operations, affairs, financial condition, properties or assets of the Company
and its Restricted Subsidiaries taken as a whole.
9.6 PURCHASE OF NOTE UPON CHANGE OF CONTROL.
At least 15 Business Days (or, in the case of any transaction
permitted by Section 10.2 resulting in a Change of Control, at least 45 days)
and not more than 90 days prior to the occurrence of any Change of Control, the
Company will give written notice thereof to each holder of an outstanding Note
in the manner and to the address specified for notices pursuant to this Section
9.6 for such holder in Schedule A or as otherwise specified by such holder in
writing to the Company. Such notice shall contain (i) an offer by the Company
to purchase, on the date of such Change of Control or, if such notice shall be
delivered less than 35 days prior to the date of such Change of Control, on the
date 35 days after the date of such notice (the "PURCHASE DATE"), all Notes
held by each such holder at a price equal to 100% of the principal amount
thereof, together with interest accrued thereon to the Purchase Date, (ii) the
estimated amount of accrued interest, showing in reasonable detail the
calculation thereof and (iii)
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the Company's estimate of the date on which such Change of Control shall occur.
Said offer shall be deemed to lapse as to any such holder which has not replied
affirmatively thereto in writing within 35 days of the giving of such notice.
As soon as practicable (and in any event at least 24 hours) prior to such
Change of Control, the Company shall give written confirmation of the date
thereof to each such holder which has affirmatively replied to the notice given
pursuant to the first sentence of this Section 9.6. In the event that the
Company shall purchase any Notes pursuant to this Section 9.6, the same shall
thereafter be canceled and not reissued and shall not be deemed "OUTSTANDING"
for any purpose of this Agreement.
For the purposes of this Section 9.6, a "CHANGE OF CONTROL" shall
be deemed to occur if any New Owner shall acquire beneficial ownership of
shares in the Company having Voting Rights pertaining thereto which would allow
such New Owner to elect more members of the board of directors than could be
elected by the exercise of all Voting Rights pertaining to shares in the
Company then owned beneficially by the Norris Family. As used in this Section
9.6:
(i) "VOTING RIGHTS" pertaining to shares of a corporation means
the rights to cast votes for the election of directors of
such corporation in ordinary circumstances (without
consideration of voting rights which exist only in the event
of contingencies).
(ii) "NORRIS FAMILY" means all persons who are lineal descendants
of D.W. Norris (by birth or adoption), all spouses of such
descendants, all estates of such descendants or spouses
which are in the course of administration, all trusts for
the benefit of such descendants or spouses, and all
corporations or other entities in which, directly or
indirectly, such descendants or spouses (either alone or in
conjunction with other such descendants or spouses) have the
right, whether by ownership of stock or other equity
interests or otherwise, to direct the management and
policies of such corporations or other entities (each such
person, spouse, estate, trust, corporation or entity being
referred to herein as a "MEMBER" of the Norris Family). In
addition, so long as any employee stock ownership plan
exercises its Voting Rights in the same manner as members of
the Norris Family (exclusive of employee stock ownership
plans) who have a majority of the Voting Rights exercised by
all such members of the Norris Family, such employee stock
ownership plan shall be deemed a member of the Norris
Family.
(iii) "NEW OWNER" means any person (other than a member of the
Norris Family), or any syndicate or group of persons
(exclusive of all members of the Norris Family) which would
be deemed a "PERSON" for the purposes of Section 13(d) of the
Exchange Act, who directly or indirectly acquires shares in
the Company.
Notwithstanding anything in this Section 9.6 to the contrary, if an Event of
Default exists following a Change of Control and the Notes are accelerated
pursuant to the provisions of Section 12.1, the holders of the Notes shall be
entitled to receive the Make-Whole Amount relating to such accelerated amount
as provided in Section 12.1.
9.7. MOST FAVORED LENDER'S STATUS.
The Company will not and will not permit any Restricted Subsidiary
to enter into, assume or otherwise be bound or obligated under any agreement
creating or evidencing Indebtedness or any agreement executed and delivered in
connection with any Indebtedness containing one or more
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Additional Covenants or Additional Defaults (as defined below), unless prior
written consent to such agreement shall have been obtained pursuant to Section
12 of the Existing Note Purchase Agreements; provided, however, in the event
the Company or any Restricted Subsidiary shall enter into, assume or otherwise
become bound by or obligated under any such agreement without the prior written
consent of the holders of the Notes, the terms of this Agreement shall, without
any further action on the part of the Company or any of the holders of the
Notes, be deemed to be amended automatically to include each Additional
Covenant and each Additional Default contained in such agreement. The Company
further covenants to promptly execute and deliver at its expense an amendment
to this Agreement in form and substance satisfactory to the Required Holders
evidencing the amendment of this Agreement to include such Additional Covenants
and Additional Defaults, provided that the execution and delivery of such
amendment shall not be a precondition to the effectiveness of such amendment as
provided for in this Section 9.7, but shall merely be for the convenience of
the parties hereto.
For purposes of this Agreement, (i) the term "ADDITIONAL COVENANT"
shall mean any affirmative or negative covenant or similar restriction
applicable to the Company or any Restricted Subsidiary (regardless of whether
such provision is labeled or otherwise characterized as a covenant) the subject
matter of which either (A) is similar to that of the covenants in Section 9 or
10 of this Agreement, or related definitions in Schedule B to this Agreement,
but contains one or more percentages, amounts or formulas that is more
restrictive than those set forth herein or more beneficial to the holder or
holders of such other Indebtedness (and such covenant or similar restriction
shall be deemed an "ADDITIONAL COVENANT" only to the extent that it is more
restrictive or more beneficial) or (B) is different from the subject matter of
the covenants in Section 9 or 10 of this Agreement, or related definitions in
Schedule B to this Agreement; and (ii) the term "ADDITIONAL DEFAULT" shall mean
any provision which permits the holder of such Indebtedness to accelerate (with
the passage of time or giving of notice or both) the maturity thereof or
otherwise require the Company or any Restricted Subsidiary to purchase such
Indebtedness prior to the stated maturity of such Indebtedness and which either
(A) is similar to the Defaults and Events of Default contained in Section 11 of
this Agreement, or related definitions in Schedule B to this Agreement, but
contains one or more percentages, amounts or formulas that is more restrictive
or has a shorter grace period than those set forth herein or is more beneficial
to the holder or holders of such other Indebtedness (and such provision shall
be deemed an "ADDITIONAL DEFAULT" only to the extent that it is more
restrictive, has a shorter grace period or is more beneficial) or (B) is
different from the subject matter of the Defaults and Events of Default
contained in Section 11 of this Agreement, or related definitions in Schedule B
to this Agreement.
Notwithstanding anything herein to the contrary, until the earlier
of (a) July 1, 1998 or (b) the amendment of such Revolving Credit Agreement on
or after the date hereof, this Section 9.7 shall not apply to the Revolving
Credit Agreement dated as of December 4, 1991, as amended prior to the date
hereof, among the Company, the banks named on the signature pages thereof, and
The Northern Trust Company, as agent.
9.8. COVENANT TO SECURE NOTES EQUALLY.
If the Company shall create, assume or permit to exist any Lien
upon any of its property or assets, or permit any Restricted Subsidiary to
create, assume or permit to exist any Lien upon any of its property or assets,
whether now owned or hereafter acquired, other than those Liens permitted by
the provisions of Section 10.5, the Company shall make or cause to be made
effective provision whereby the Notes will be secured equally and ratably with
any and all other obligations thereby secured, with the documentation for such
security to be reasonably satisfactory to the Required Holders and, in any such
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case, the Notes shall have the benefit, to the fullest extent that, and with
such priority as, the holders of the Notes may be entitled under applicable
law, of an equitable Lien on such property. Any violation of Section 10.5 will
constitute an Event of Default, whether or not provision is made for an equal
and ratable Lien pursuant to this Section 9.8.
9.9. ENVIRONMENTAL MATTERS.
(a) The Company will and will cause each of its Subsidiaries
to comply in all material respects with all applicable Environmental Laws if,
individually or in the aggregate, failure to comply therewith could reasonably
be expected to have a material adverse effect on the financial condition or
results of operations of the Company or the Company and its Subsidiaries, taken
as a whole.
(b) The Company will not and will not permit any of its
Subsidiaries to cause or allow any Hazardous Substance to be present at any
time on, in, under or above any real property or any part thereof in which the
Company or any Subsidiary has a direct interest (including without limitation
ownership thereof or any arrangement for the lease, rental or other use
thereof, or the retention of any mortgage or security interest therein or
thereon), except in a manner and to an extent that is in compliance in all
material respects with all applicable Environmental Laws or that will not have
a material adverse effect on the financial condition or results of operations
of the Company or the Company and its Subsidiaries, taken as a whole.
10. NEGATIVE COVENANTS.
The Company covenants that so long as any of the Notes are
outstanding:
10.1. TRANSACTIONS WITH AFFILIATES.
The Company will not permit any Restricted Subsidiary to enter
into directly or indirectly any Material transaction or Material group of
related transactions (including without limitation the purchase, lease, sale or
exchange of properties of any kind or the rendering of any service) with any
Affiliate (other than the Company or another Restricted Subsidiary), except
pursuant to the reasonable requirements of the Company's or such Restricted
Subsidiary's business and upon fair and reasonable terms no less favorable to
the Company or such Restricted Subsidiary than would be obtainable in a
comparable arm's-length transaction with a Person not an Affiliate.
10.2. MERGER, CONSOLIDATION, ETC.
The Company will not consolidate with or merge with any other
corporation or convey, transfer or lease substantially all of its assets in a
single transaction or series of transactions to any Person unless:
(a) the successor formed by such consolidation or the survivor
of such merger or the Person that acquires by conveyance, transfer or lease
substantially all of the assets of the Company as an entirety, as the case may
be, shall be a solvent corporation organized and existing under the laws of the
United States or any State thereof (including the District of Columbia), and,
if the Company is not such corporation, such corporation shall have executed
and delivered to each holder of any Notes its assumption of the due and
punctual performance and observance of each covenant and condition of this
Agreement, the Other Agreements and the Notes, together with a favorable
opinion of counsel satisfactory to each such holder covering such matters
relating to such corporation and such assumption as such holder may reasonably
request; and
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(b) immediately after giving effect to such transaction, no
Default or Event of Default would exist;
(c) immediately prior to and after giving effect to such
transaction, the Company or such successor, as the case may be, would be
permitted by the provisions of Sections 10.4 and 10.9 to incur at least $1.00
of additional Indebtedness and $1.00 of additional Restricted Indebtedness,
respectively; and
(d) in the case of any such transaction which would involve or
result in a Change of Control, the Company shall have complied with Section
9.6.
No such conveyance, transfer or lease of substantially all of the
assets of the Company shall have the effect of releasing the Company or any
successor corporation that shall theretofore have become such in the manner
prescribed in this Section 10.2 from its liability under this Agreement or the
Notes.
10.3. SALE OF ASSETS, ETC.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, make any Transfer, provided that the foregoing restriction
does not apply to a Transfer if:
(a) the property that is the subject of such Transfer
constitutes either (i) inventory held for sale, or (ii) equipment, fixtures,
supplies or materials no longer required in the operation of the business of
the Company or such Restricted Subsidiary or that is obsolete, and, in the case
of any Transfer described in clause (i) or (ii), such Transfer is in the
ordinary course of business (each such Transfer, an "ORDINARY COURSE
TRANSFER"); or
(b) such Transfer is from
(i) a Restricted Subsidiary to the Company or another
Restricted Subsidiary, or
(ii) the Company to a Restricted Subsidiary, or
(iii) the Company to a Subsidiary (other than a Restricted
Subsidiary) or from a Restricted Subsidiary to another
Subsidiary (other than a Restricted Subsidiary) and in
either case is for Fair Market Value, so long as
immediately before and immediately after the consummation
of such transaction, and after giving effect thereto, no
Default or Event of Default exists or would exist (each
such Transfer, an "INTERGROUP TRANSFER"); or
(c) such Transfer is not an Ordinary Course Transfer or an
Intergroup Transfer (such Transfers collectively referred to as "EXCLUDED
TRANSFERS"), and all of the following conditions shall have been satisfied with
respect thereto (the date of the consummation of such Transfer being referred
to herein as the "PROPERTY DISPOSITION DATE"):
(i) the book value of the assets included in such Transfer,
together with the book value of the assets included in all
other Transfers (other than Excluded Transfers) during the
fiscal year which includes the Property Disposition Date,
shall not exceed fifteen percent (15%) of Consolidated
Assets as of the end of the most recent fiscal year;
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(ii) the book value of the assets included in such Transfer,
together with the book value of the assets included in all
other Transfers (other than Excluded Transfers) from
January 1, 1998 through the Property Disposition Date,
shall not exceed thirty percent (30%) of Consolidated
Assets as of the end of the most recent fiscal year; and
(iii) immediately after giving effect to such Transfer, no
Default or Event of Default would exist and the Company
would be permitted by the provisions of Sections 10.4 and
10.9 to incur at least $1.00 of additional Indebtedness
and $1.00 of additional Restricted Indebtedness,
respectively.
If, within twelve (12) months after the Property Disposition Date, the Company
or a Restricted Subsidiary acquires assets similar to the assets included in
the Transfer, then, only for the purpose of determining compliance with
Sections 10.3(c)(i) and (ii), the lesser of the book value of the assets
acquired or the book value of the assets included in the Transfer shall not be
taken into account.
10.4. INCURRENCE OF INDEBTEDNESS.
The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create, incur, assume, guarantee, or
otherwise become directly or indirectly liable with respect to any
Indebtedness, unless on the date the Company or such Restricted Subsidiary
becomes liable with respect to any such Indebtedness and immediately after
giving effect thereto and to the substantially concurrent retirement of any
other Indebtedness,
(a) no Default or Event of Default would exist, and
(b) Consolidated Indebtedness would not exceed sixty percent
(60%) of Consolidated Capitalization.
For purposes of this Section 10.4, any Person becoming a
Restricted Subsidiary after the date of this Agreement shall be deemed to have
incurred all of its then outstanding Indebtedness at the time it becomes a
Restricted Subsidiary.
10.5. LIENS.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly create, incur, assume or permit to
exist (upon the happening of a contingency or otherwise) any Lien on or with
respect to any property or asset (including, without limitation, any document
or instrument in respect of goods or accounts receivable) of the Company or any
such Restricted Subsidiary, whether now owned or held or hereafter acquired, or
any income or profits therefrom, or assign or otherwise convey any right to
receive income or profits, except:
(a) Liens for taxes, assessments or other governmental charges
the payment of which is not at the time required by Section 9.4;
(b) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other similar Liens, in each case,
incurred in the ordinary course of business for sums not yet due;
(c) Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business (i) in connection with
workers' compensation, unemployment insurance and other types of social
security or retirement benefits, or (ii) to secure (or to obtain letters of
credit that
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secure) the performance of tenders, statutory obligations, surety bonds, appeal
bonds, bids, leases (other than Capital Leases), performance bonds, purchase,
construction or sales contracts and other similar obligations, in each case not
incurred or made in connection with the borrowing of money, the obtaining of
advances or credit or the payment of the deferred purchase price of property;
(d) any attachment or judgment Lien, unless the judgment or
other obligation it secures (i) shall not, within ninety (90) days after the
entry thereof, have been discharged or execution thereof stayed pending appeal,
or shall not have been discharged within ninety (90) days after the expiration
of any such stay or (ii) exceeds, together with the amounts of all other
obligations secured by attachment or judgment Liens at the time existing in
respect of property of the Company and its Restricted Subsidiaries, $5,000,000;
(e) leases or subleases granted to others, easements,
rights-of-way, restrictions and other similar charges or encumbrances, in each
case incidental to, and not interfering with, the ordinary conduct of the
business of the Company or any of its Restricted Subsidiaries, provided that
such Liens do not, in the aggregate, materially detract from the value of such
property;
(f) Liens on property or assets of the Company or any of its
Restricted Subsidiaries securing Indebtedness or other obligations owing to the
Company or to a Wholly Owned Restricted Subsidiary;
(g) Liens existing on April 1, 1998 on the headquarters
building owned by Lennox Commercial Realty Inc. and leased to Lennox
Industries Inc. securing Indebtedness of Lennox Commercial Realty Inc. in the
principal amount of $7,936,631 as of January 31, 1998;
(h) any Lien renewing, extending or refunding any Lien
permitted by Subsection (g) above, provided that (i) the principal amount of
Indebtedness secured by such Lien immediately prior to such extension, renewal
or refunding is not increased or the maturity thereof reduced, (ii) such Lien
is not extended to any other property, and (iii) immediately after such
extension, renewal or refunding no Default or Event of Default would exist and
the Company would be permitted by the provisions of Sections 10.4 and 10.9 to
incur at least $1.00 of additional Indebtedness and $1.00 of additional
Restricted Indebtedness, respectively; and
(i) other Liens not otherwise permitted by Subsections (a)
through (h) above, provided that (i) the total obligations secured by such
other Liens shall not exceed 10% of Consolidated Capitalization and (ii)
immediately after giving effect to the creation thereof, the Company would be
permitted by the provisions of Sections 10.4 and 10.9 to incur at least $1.00
of additional Indebtedness and $1.00 of additional Restricted Indebtedness,
respectively.
For purposes of this Section 10.5, any Person becoming a
Restricted Subsidiary after the date of this Agreement shall be deemed to have
incurred all of its then outstanding Liens at the time it becomes a Restricted
Subsidiary, and any Person extending, renewing or refunding any Indebtedness
secured by any Lien shall be deemed to have incurred such Lien at the time of
such extension, renewal or refunding.
10.6. RESTRICTED PAYMENTS.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, declare or make, or incur any liability to declare or make,
any Restricted Payment, unless immediately after giving effect to such action:
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(a) no Default or Event of Default would exist; and
(b) the Company would be permitted by the provisions of
Sections 10.4 and 10.9 to incur at least $1.00 of additional Indebtedness and
$1.00 of additional Restricted Indebtedness, respectively.
10.7. CONSOLIDATED NET WORTH.
The Company will not permit Consolidated Net Worth as at the last
day of any fiscal quarter of the Company to be less than the sum of (a)
$261,000,000, plus (b) 15% of its aggregate Consolidated Net Income (but only
if a positive number) for the period beginning April 1, 1998 and ending at the
end of each fiscal quarter thereafter.
10.8. LIMITATION ON DIVIDEND RESTRICTIONS, ETC.
The Company will not permit any Restricted Subsidiary to enter
into, adopt, create or otherwise be or become bound by or subject to any
contract or charter or by-law provision limiting the amount of, or otherwise
imposing restrictions on the declaration, payment or setting aside of funds for
the making of, dividends or other distributions in respect of the capital stock
of such Restricted Subsidiary to the Company or another Restricted Subsidiary.
10.9. LIMITATION ON RESTRICTED INDEBTEDNESS.
The Company will not at any time permit the aggregate amount of
Restricted Indebtedness to exceed 10% of Consolidated Capitalization.
10.10. PREFERRED STOCK OF RESTRICTED SUBSIDIARIES.
The Company will not permit any Restricted Subsidiary to issue or
permit to remain outstanding any Preferred Stock unless such Preferred Stock is
issued to and at all times owned and held by the Company or a Wholly- Owned
Restricted Subsidiary.
10.11. NO REDESIGNATION OF RESTRICTED SUBSIDIARIES.
The Company will not designate any Restricted Subsidiary as, or
take or permit to be taken any action that would cause any Restricted
Subsidiary to become, an Unrestricted Subsidiary.
11. EVENTS OF DEFAULT.
An "EVENT OF DEFAULT" shall exist if any of the following
conditions or events shall occur and be continuing:
(a) the Company defaults in the payment of any principal or
Special Premium, if any, on any Note when the same becomes due and payable,
whether at maturity or at a date fixed for prepayment or by declaration or
otherwise; or
(b) the Company defaults in the payment of any interest on any
Note for more than five Business Days after the same becomes due and payable;
or
(c) the Company defaults in the performance of or compliance
with any term contained in Section 7.1(d), 9.6 or 10.2 through 10.11; or
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(d) the Company defaults in the performance of or compliance
with any term contained herein (other than those referred to in paragraphs (a),
(b) and (c) of this Section 11) or any Additional Covenant and such default is
not remedied within 30 days after the earlier of (i) a Responsible Officer
obtaining actual knowledge of such default and (ii) the Company receiving
written notice of such default from any holder of a Note (any such written
notice to be identified as a "NOTICE OF DEFAULT" and to refer specifically to
this paragraph (d) of Section 11); or
(e) any representation or warranty made in writing by or on
behalf of the Company or by any officer of the Company in this Agreement or in
any writing furnished in connection with the transactions contemplated hereby
proves to have been false or incorrect in any material respect on the date as
of which made; or
(f) (i) the Company or any Restricted Subsidiary is in default
(as principal or as guarantor or other surety) in the payment of any principal
of or premium or make-whole amount or interest on any Indebtedness that is
outstanding in an aggregate principal amount of at least $5,000,000 beyond any
period of grace provided with respect thereto, or (ii) the Company or any
Restricted Subsidiary is in default in the performance of or compliance with
any term of any evidence of any Indebtedness in an aggregate outstanding
principal amount of at least $5,000,000 or of any mortgage, indenture or other
agreement relating thereto or any other condition exists, and as a consequence
of such default or condition such Indebtedness has become, or has been declared
due and payable before its stated maturity or before its regularly scheduled
dates of payment; or
(g) the Company or any Restricted Subsidiary (i) is generally not
paying, or admits in writing its inability to pay, its debts as they become
due, (ii) files, or consents by answer or otherwise to the filing against it
of, a petition for relief or reorganization or arrangement or any other
petition in bankruptcy, for liquidation or to take advantage of any bankruptcy,
insolvency, reorganization, moratorium or other similar law of any
jurisdiction, (iii) makes an assignment for the benefit of its creditors, (iv)
consents to the appointment of a custodian, receiver, trustee or other officer
with similar powers with respect to it or with respect to any substantial part
of its property, (v) is adjudicated as insolvent or to be liquidated, or (vi)
takes corporate action for the purpose of any of the foregoing; or
(h) a court or governmental authority of competent jurisdiction
enters an order appointing, without consent by the Company or any of its
Restricted Subsidiaries, a custodian, receiver, trustee or other officer with
similar powers with respect to it or with respect to any substantial part of
its property, or constituting an order for relief or approving a petition for
relief or reorganization or any other petition in bankruptcy or for liquidation
or to take advantage of any bankruptcy or insolvency law of any jurisdiction,
or ordering the dissolution, winding-up or liquidation of the Company or any of
its Restricted Subsidiaries, or any such petition shall be filed against the
Company or any of its Restricted Subsidiaries and such petition shall not be
dismissed within 60 days; or
(i) a final judgment or judgments for the payment of money
aggregating in excess of $5,000,000 are rendered against one or more of the
Company and its Restricted Subsidiaries and which judgments are not, within 60
days after entry thereof, bonded, discharged or stayed pending appeal, or are
not discharged within 60 days after the expiration of such stay; or
(j) if (i) any Plan subject to the minimum funding standards of
ERISA or the Code shall fail to satisfy such standards for any plan year or
part thereof or a waiver of such standards or extension of any amortization
period is sought or granted under section 412 of the Code, (ii) a notice of
intent to terminate any Plan shall have been or is reasonably expected to be
filed with the PBGC or the PBGC
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shall have instituted proceedings under ERISA section 4042 to terminate or
appoint a trustee to administer any Plan or the PBGC shall have notified the
Company or any ERISA Affiliate that a Plan may become a subject of any such
proceedings, (iii) the aggregate amount of unfunded accrued plan benefit
liabilities under all Plans subject to Title IV of ERISA, determined in
accordance with Financial Accounting Standards Board Statement No. 87 or 132,
as the case may be, as of the end of such Plans' most recently ended plan year
on the basis of actuarial assumptions specified for funding purposes in such
Plans' most recent actuarial valuation report, shall exceed $5,000,000, (iv)
the Company or any ERISA Affiliate shall have incurred or is reasonably
expected to incur any liability pursuant to Title I or IV of ERISA or the
penalty or excise tax provisions of the Code relating to employee benefit
plans, (v) the Company or any ERISA Affiliate withdraws from any Multiemployer
Plan, or (vi) the Company or any Restricted Subsidiary establishes or amends
any employee welfare benefit plan that provides post-employment welfare
benefits in a manner that would increase the liability of the Company or any
Restricted Subsidiary thereunder; and any such event or events described in
clauses (i) through (vi) above, either individually or together with any other
such event or events, would reasonably be expected to have a Materially Adverse
Effect.
As used in Section 11(j), the terms "EMPLOYEE BENEFIT PLAN" and "EMPLOYEE
WELFARE BENEFIT PLAN" shall have the respective meanings assigned to such terms
in Section 3 of ERISA.
12. REMEDIES ON DEFAULT, ETC.
12.1. ACCELERATION.
(a) If an Event of Default with respect to the Company described
in paragraph (g) or (h) of Section 11 (other than an Event of Default described
in clause (i) of paragraph (g) or described in clause (vi) of paragraph (g) by
virtue of the fact that such clause encompasses clause (i) of paragraph (g))
has occurred, all the Notes then outstanding shall automatically become
immediately due and payable.
(b) If any other Event of Default has occurred and is continuing,
any holder or holders of more than 66 2/3% in principal amount of the Notes at
the time outstanding may at any time at its or their option, by notice or
notices to the Company, declare all the Notes then outstanding to be
immediately due and payable.
(c) If any Event of Default described in paragraph (a) or (b) of
Section 11 has occurred and is continuing, any holder or holders of Notes at
the time outstanding affected by such Event of Default may at any time, at its
or their option, by notice or notices to the Company, declare all the Notes
held by it or them to be immediately due and payable.
Upon any Notes becoming due and payable under this Section 12.1,
whether automatically or by declaration, such Notes will forthwith mature and
the entire unpaid principal amount of such Notes, plus (x) all accrued and
unpaid interest thereon and (y) the Special Premium determined in respect of
such principal amount, shall all be immediately due and payable, in each and
every case without presentment, demand, protest or further notice, all of which
are hereby waived. The Company acknowledges, and the parties hereto agree,
that each holder of a Note has the right to maintain its investment in the
Notes free from repayment by the Company (except as herein specifically
provided for) and that the provision for payment of Special Premium by the
Company in the event that the Notes are prepaid or are accelerated as a result
of an Event of Default, is intended to provide compensation for the deprivation
of such right under such circumstances.
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12.2. OTHER REMEDIES.
If any Default or Event of Default has occurred and is continuing,
and irrespective of whether any Notes have become or have been declared
immediately due and payable under Section 12.1, the holder of any Note at the
time outstanding may proceed to protect and enforce the rights of such holder
by an action at law, suit in equity or other appropriate proceeding, whether
for the specific performance of any agreement contained herein or in any Note,
or for an injunction against a violation of any of the terms hereof or thereof,
or in aid of the exercise of any power granted hereby or thereby or by law or
otherwise.
12.3. RESCISSION.
At any time after any Notes have been declared due and payable
pursuant to clause (b) or (c) of Section 12.1, the holders of not less than 66
2/3% in principal amount of the Notes then outstanding, by written notice to
the Company, may rescind and annul any such declaration and its consequences if
(a) the Company has paid all overdue interest on the Notes, all principal of
and the Special Premium, if any, on any Notes that are due and payable and are
unpaid other than by reason of such declaration, and all interest on such
overdue principal and Special Premium, if any, and any overdue interest in
respect of the Notes, at the Default Rate, (b) all Events of Default and
Defaults, other than non-payment of amounts that have become due solely by
reason of such declaration, have been cured or have been waived pursuant to the
amendment and waiver provisions hereof, and (c) no judgment or decree has been
entered for the payment of any monies due pursuant hereto or to the Notes. No
rescission and annulment under this Section 12.3 will extend to or affect any
subsequent Event of Default or Default or impair any right consequent thereon.
12.4. WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC.
No course of dealing and no delay on the part of any holder of any
Note in exercising any right, power or remedy shall operate as a waiver thereof
or otherwise prejudice such holder's rights, powers or remedies. No right,
power or remedy conferred by this Agreement or by any Note upon any holder
thereof shall be exclusive of any other right, power or remedy referred to
herein or therein or now or hereafter available at law, in equity, by statute
or otherwise. Without limiting the obligations of the Company under Section
16.1, the Company will pay to the holder of each Note on demand such further
amount as shall be sufficient to cover all costs and expenses of such holder
incurred in any enforcement or collection under this Section 12, including,
without limitation, reasonable attorneys' fees, expenses and disbursements.
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SCHEDULE B
DEFINED TERMS
As used herein, the following terms have the respective meanings
set forth below or set forth in the Section hereof following such term:
"ADDITIONAL COVENANT" is defined in Section 9.7.
"AFFILIATE" means, at any time, and with respect to any Person,
any other Person that at such time directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common Control with,
such first Person. As used in this definition, "CONTROL" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise. Unless the context otherwise clearly
requires, any reference to an "AFFILIATE" is a reference to an Affiliate of the
Company.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a
day on which commercial banks in New York, New York, Chicago, Illinois or
Dallas, Texas are required or authorized to be closed.
"CAPITAL LEASE" means, at any time, a lease with respect to which
the lessee is required concurrently to recognize the acquisition of an asset
and the incurrence of a liability in accordance with GAAP.
"CAPITAL LEASE OBLIGATION" means, with respect to any Person and a
Capital Lease, the amount of the obligation of such Person as the lessee under
such Capital Lease which would, in accordance with GAAP, appear as a liability
on a balance sheet of such Person.
"CHANGE OF CONTROL" is defined in Section 9.6.
"CODE" means the Internal Revenue Code of 1986, as amended from
time to time, and the rules and regulations promulgated thereunder from time to
time.
"CONSOLIDATED ASSETS" means the total assets of the Company and
its Restricted Subsidiaries which would be shown as assets on a consolidated
balance sheet of the Company and its Restricted Subsidiaries prepared in
accordance with GAAP, after eliminating all amounts properly attributable to
minority interests, if any, in the stock and surplus of Restricted
Subsidiaries.
"CONSOLIDATED CAPITALIZATION" means, at any time, the sum of
Consolidated Net Worth and Consolidated Indebtedness.
"CONSOLIDATED INDEBTEDNESS" means, as of any date of
determination, the total of all Indebtedness of the Company and its Restricted
Subsidiaries outstanding on such date, after eliminating all offsetting debits
and credits between the Company and its Restricted Subsidiaries and all other
items required to be eliminated in the course of the preparation of
consolidated financial statements of the Company and its Restricted
Subsidiaries in accordance with GAAP.
"CONSOLIDATED NET INCOME" for any period means the net income (or
net loss) of the Company and its Restricted Subsidiaries for such period,
determined in accordance with GAAP, excluding
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(a) the proceeds of any life insurance policy;
(b) any gain arising from (1) the sale or other disposition of
any assets (other than current assets) to the extent that the aggregate amount
of gains exceeds the aggregate amount of losses from the sale, abandonment or
other disposition of assets (other than current assets), (2) any write-up of
assets, or (3) the acquisition by the Company or any Restricted Subsidiary of
its outstanding securities constituting Indebtedness;
(c) any amount representing the interest of the Company or any
Restricted Subsidiary in the undistributed earnings of any other Person;
(d) any earnings of any other Person accrued prior to the date
it becomes a Restricted Subsidiary or is merged into or consolidated with the
Company or a Restricted Subsidiary and any earnings, prior to the date of
acquisition, of any other Person acquired in any other manner; and
(e) any deferred credit (or amortization of a deferred credit)
arising from the acquisition of any Person.
"CONSOLIDATED NET WORTH" means, at any time,
(a) the sum of (i) the par value (or value stated on the books
of the Company) of the capital stock (but excluding treasury stock and capital
stock subscribed and unissued) of the Company and its Restricted Subsidiaries
at such time plus (ii) the amount of paid-in-capital and retained earnings of
the Company and its Restricted Subsidiaries at such time, in each case as such
amounts would be shown on a consolidated balance sheet of the Company and its
Restricted Subsidiaries as of such time prepared in accordance with GAAP, minus
(b) to the extent included in clause (a), all amounts properly
attributable to minority interests, if any, in the stock and surplus of
Restricted Subsidiaries.
"DEFAULT" means an event or condition the occurrence or existence
of which would, with the lapse of time or the giving of notice or both, become
an Event of Default.
"DEFAULT RATE" means that rate of interest that is the greater of
(i) 2% per annum above the rate of interest stated in clause (a) of the first
paragraph of the Notes or (ii) 2% over the rate of interest publicly announced
by The Chase Manhattan Bank in New York, New York as its "BASE" or "PRIME"
rate.
"DISTRIBUTION" means, in respect of any corporation, association
or other business entity:
(a) dividends or other distributions or payments on capital
stock or other equity interest of such corporation, association or other
business entity (except distributions in such stock or other equity interests);
and
(b) the redemption or acquisition of such stock or other
equity interests or of warrants, rights or other options to purchase such stock
or other equity interests (except when solely in exchange for such stock or
other equity interests) unless made, contemporaneously, from the net proceeds
of a sale of such stock or other equity interests.
"ENVIRONMENTAL LAWS" means any and all Federal, state, local, and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment or the release of any materials into the environment, including but
not limited to those related to hazardous substances or wastes, air emissions
and discharges to waste or public systems.
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"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the rules and regulations promulgated
thereunder from time to time in effect.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the Company
under section 414 of the Code.
"EVENT OF DEFAULT" is defined in Section 11.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXCLUDED TRANSFERS" is defined in Section 10.3.
"EXISTING NOTE PURCHASE AGREEMENTS" means (i) the Agreements of
Assumption and Restatement dated as of December 1, 1991 between the Company and
the institutional investors parties thereto, (ii) the Note Purchase Agreements
dated as of December 1, 1993 between the Company and the institutional
investors parties thereto, and (iii) the Note Purchase Agreement dated as of
July 6, 1995 between the Company and the institutional investors parties
thereto.
"FAIR MARKET VALUE" means, at any time and with respect to any
property, the sale value of such property that would be realized in an arm's
length sale at such time between an informed and willing buyer and an informed
and willing seller (neither being under a compulsion to buy or sell).
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States of America.
"GOVERNMENTAL AUTHORITY" means
(a) the government of
(i) the United States of America or any State or other
political subdivision thereof, or
(ii) any jurisdiction in which the Company or any Subsidiary
conducts all or any part of its business, or which asserts jurisdiction over
any properties of the Company or any Subsidiary, or
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.
"GUARANTY" means, with respect to any Person, any obligation
(except the endorsement in the ordinary course of business of negotiable
instruments for deposit or collection) of such Person guaranteeing or in effect
guaranteeing any Indebtedness, dividend or other obligation of any other Person
in any manner, whether directly or indirectly, including (without limitation)
obligations incurred through an agreement, contingent or otherwise, by such
Person:
(a) to purchase such Indebtedness or obligation or any
property constituting security therefor;
(b) to advance or supply funds (i) for the purchase or payment
of such Indebtedness or obligation, or (ii) to maintain any working capital or
other balance sheet condition or any income statement condition of any other
Person or otherwise to advance or make available funds for the purchase or
payment of such Indebtedness or obligation;
(c) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such Indebtedness or
obligation of the ability of any other Person to make payment of the
Indebtedness or obligation; or
(d) otherwise to assure the owner of such Indebtedness or
obligation against loss in respect thereof. In any computation of the
Indebtedness or other liabilities of the obligor under any
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Guaranty, the Indebtedness or other obligations that are the subject of such
Guaranty shall be assumed to be direct obligations of such obligor.
"HAZARDOUS SUBSTANCE" means any contaminant, pollutant or toxic or
hazardous substance, and any substance that is defined or listed as a
hazardous, toxic or dangerous substance under any Environmental Law or that is
otherwise regulated or prohibited under any Environmental Law as a hazardous,
toxic or dangerous substance.
"HOLDER" means, with respect to any Note, the Person in whose name
such Note is registered in the register maintained by the Company pursuant to
Section 10 of the Existing Note Purchase Agreements.
"INDEBTEDNESS" with respect to any Person means, at any time,
without duplication,
(a) its liabilities for borrowed money and its redemption
obligations in respect of mandatorily redeemable Preferred Stock;
(b) its liabilities for the deferred purchase price of
property acquired by such Person (excluding accounts payable arising in the
ordinary course of business but including all liabilities created or arising
under any conditional sale or other title retention agreement with respect to
any such property);
(c) all liabilities appearing on its balance sheet in
accordance with GAAP in respect of Capital Leases;
(d) all liabilities for borrowed money secured by any Lien
with respect to any property owned by such Person (whether or not it has
assumed or otherwise become liable for such liabilities);
(e) all its liabilities in respect of letters of credit or
instruments serving a similar function issued or accepted for its account by
banks and other financial institutions (whether or not representing obligations
for borrowed money, but excluding in any event obligations in respect of (1)
trade or commercial letters of credit issued for the account of the Company or
a Restricted Subsidiary in the ordinary course of its business and (2) stand-by
letters of credit issued to support obligations of the Company or a Restricted
Subsidiary that do not constitute Indebtedness);
(f) Swaps of such Person; and
(g) any Guaranty of such Person with respect to liabilities of
a type described in any of clauses (a) through (f) hereof.
Indebtedness of any Person shall include all obligations of such
Person of the character described in clauses (a) through (g) above to the
extent such Person remains legally liable in respect thereof notwithstanding
that any such obligation is deemed to be extinguished under GAAP.
"INSTITUTIONAL INVESTOR" means (a) any original purchaser of a
Note, (b) any holder of a Note holding more than 10% of the aggregate principal
amount of the Notes then outstanding, and (c) any bank, trust company, savings
and loan association or other financial institution, any pension plan, any
investment company, any insurance company, any broker or dealer, or any other
similar financial institution or entity, regardless of legal form.
"INTERGROUP TRANSFER" is defined in Section 10.3.
"LIEN" means, with respect to any Person, any mortgage, lien,
pledge, charge, security interest or other encumbrance, or any interest or
title of any vendor, lessor, lender or other secured party to or of such Person
under any conditional sale or other title retention agreement or Capital Lease,
upon
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or with respect to any property or asset of such Person (including in the case
of stock, stockholder agreements, voting trust agreements and all similar
arrangements).
"MATERIAL" means material in relation to the business, operations,
affairs, financial condition, assets, or properties of the Company and its
Subsidiaries taken as a whole.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a)
the business, operations, affairs, financial condition, assets or properties of
the Company and its Restricted Subsidiaries taken as a whole, or (b) the
ability of the Company to perform its obligations under this Agreement and the
Notes, or (c) the validity or enforceability of this Agreement or the Notes.
"MULTIEMPLOYER PLAN" means any Plan that is a "MULTIEMPLOYER PLAN"
(as such term is defined in section 4001(a)(3) of ERISA).
"NEW OWNER" is defined in Section 9.6.
"NORRIS FAMILY" is defined in Section 9.6.
"OFFICER'S CERTIFICATE" means a certificate of a Senior Financial
Officer or of any other officer of the Company whose responsibilities extend to
the subject matter of such certificate.
"OTHER AGREEMENTS" means, when used in the case of an Existing
Note Purchase Agreement referred to in clause (i) or (ii) of the definition
thereof, the other substantially identical agreements entered into by the
Company and other institutional investors in connection therewith.
"ORDINARY COURSE TRANSFER" is defined in Section 10.3.
"PBGC" means the Pension Benefit Guaranty Corporation referred to
and defined in ERISA or any successor thereto.
"PERSON" means an individual, partnership, corporation, limited
liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
"PLAN" means an "EMPLOYEE BENEFIT PLAN" (as defined in section
3(3) of ERISA) that is or, within the preceding five years, has been
established or maintained, or to which contributions are or, within the
preceding five years, have been made or required to be made, by the Company or
any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate
may have any liability.
"PREFERRED STOCK" means any class of capital stock of a
corporation that is preferred over any other class of capital stock of such
corporation as to the payment of dividends or the payment of any amount upon
liquidation or dissolution of such corporation.
"PROPERTY" or "PROPERTIES" means, unless otherwise specifically
limited, real or personal property of any kind, tangible or intangible, choate
or inchoate.
"PROPERTY DISPOSITION DATE" is defined in Section 10.3.
"PURCHASE DATE" is defined in Section 9.6.
"QPAM EXEMPTION" means Prohibited Transaction Class Exemption
84-14 issued by the United States Department of Labor.
"REQUIRED HOLDERS" means, at any time, the holders of at least 51%
in principal amount of the Notes at the time outstanding (exclusive of Notes
then owned by the Company or any of its Affiliates).
B-5
<PAGE> 110
"RESPONSIBLE OFFICER" means any Senior Financial Officer and any
other officer of the Company with responsibility for the administration of the
relevant portion of this agreement.
"RESTRICTED INDEBTEDNESS" means, without duplication, (i)
Indebtedness of the Company or any Restricted Subsidiary which is secured by a
Lien not otherwise permitted under subsections (a) through (h) of Section 10.5,
and (ii) Indebtedness of a Restricted Subsidiary owing to any Person other than
the Company or a Wholly-Owned Subsidiary.
"RESTRICTED PAYMENT" means any Distribution in respect of the
Company or any Restricted Subsidiary (other than on account of capital stock or
other equity interests of a Restricted Subsidiary owned legally and
beneficially by the Company or another Restricted Subsidiary), including,
without limitation, any Distribution resulting in the acquisition by the
Company of Securities which would constitute treasury stock. For purposes of
this Agreement, the amount of any Restricted Payment made in property shall be
the greater of (x) the Fair Market Value of such property (as determined in
good faith by the board of directors (or equivalent governing body) of the
Person making such Restricted Payment) and (y) the net book value thereof on
the books of such Person, in each case determined as of the date on which such
Restricted Payment is made.
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company which
is (a) listed as a Restricted Subsidiary in Schedule C attached hereto or (b)
organized under the laws of, and conducts substantially all of its business and
maintains substantially all of its property and assets within, the United
States or any state thereof (including the District of Columbia).
"SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time.
"SECURITY" has the meaning set forth in Section 2(1) of the
Securities Act.
"SENIOR FINANCIAL OFFICER" means the chief financial officer,
principal accounting officer, treasurer or comptroller of the Company.
"SUBSIDIARY" means, as to any Person, any corporation, association
or other business entity in which such Person or one or more of its
Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient
equity or voting interests to enable it or them (as a group) ordinarily, in the
absence of contingencies, to elect a majority of the directors (or Persons
performing similar functions) of such entity, and any partnership or joint
venture if more than a 50% interest in the profits or capital thereof is owned
by such Person or one or more of its Subsidiaries or such Person and one or
more of its Subsidiaries (unless such partnership can and does ordinarily take
major business actions without the prior approval of such Person or one or more
of its Subsidiaries). Unless the context otherwise clearly requires, any
reference to a "SUBSIDIARY" is a reference to a Subsidiary of the Company.
"SWAPS" means, with respect to any Person, payment obligations
with respect to interest rate swaps, currency swaps and similar obligations
obligating such Person to make payments, whether periodically or upon the
happening of a contingency. For the purposes of this Agreement, the amount of
the obligation under any Swap shall be the amount determined in respect thereof
as of the end of the then most recently ended fiscal quarter of such Person,
based on the assumption that such Swap had terminated at the end of such fiscal
quarter, and in making such determination, if any agreement relating to such
Swap provides for the netting of amounts payable by and to such Person
thereunder or if any such agreement provides for the simultaneous payment of
amounts by and to such Person, then in each such case, the amount of such
obligation shall be the net amount so determined.
B-6
<PAGE> 111
"TRANSFER" means, with respect to any Person, any transaction in
which such Person sells, conveys, transfers or leases (as lessor) any of its
property, including capital stock of, or a Security issued by, a Subsidiary.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary other than a
Restricted Subsidiary.
"VOTING RIGHTS" is defined in Section 9.6.
"WHOLLY-OWNED RESTRICTED SUBSIDIARY" or "WHOLLY-OWNED SUBSIDIARY"
means, at any time, any Restricted Subsidiary or Subsidiary, respectively, one
hundred percent (100%) of all of the equity interests (except directors'
qualifying shares) and voting interests of which are owned by any one or more
of the Company and the Company's other Wholly-Owned Restricted Subsidiaries or
Wholly-Owned Subsidiaries, respectively, at such time.
B-7
<PAGE> 112
SCHEDULE C
LENNOX INTERNATIONAL INC. SUBSIDIARIES
AS OF JANUARY 31, 1998
PAGE 1
<TABLE>
<CAPTION>
LOCATION OF
SUBSTANTIAL
NAME OWNERSHIP JURISDICTION OF INC. RESTRICTED/UNRESTRICTED OPERATING ASSETS
- ---- --------- -------------------- ----------------------- -----------------
<S> <C> <C> <C> <C>
(1) LENNOX INDUSTRIES INC. 100% Iowa Restricted United States
SEE ATTACHED CHART
(2) HEATCRAFT INC. 100% Mississippi Restricted United States
(3) HEATCRAFT TECHNOLOGIES INC. 100% Delaware Restricted United States
(4) ARMSTRONG AIR CONDITIONING INC. 100% Ohio Restricted United States
(5) LENNOX FOREIGN SALES CORP. 100% U.S. Virgin Islands Unrestricted N/A
(6) LENNOX COMMERCIAL REALTY INC. 100% Iowa Restricted United States
(7) LENNOX GLOBAL LTD. 100% Delaware Unrestricted United States
See Attached Chart
</TABLE>
C-1
<PAGE> 113
LENNOX INTERNATIONAL INC. SUBSIDIARIES
AS OF JANUARY 31, 1998
PAGE 2
<TABLE>
<CAPTION>
LOCATION OF
SUBSTANTIAL
NAME OWNERSHIP JURISDICTION OF INC. RESTRICTED/UNRESTRICTED OPERATING ASSETS
- ---- --------- -------------------- ----------------------- -----------------
<S> <C> <C> <C> <C>
LENNOX INDUSTRIES INC.
(a) Products Acceptance Corporation 100% Iowa Restricted N/A
(b) Lennox Industries (Canada) Ltd. 100% Canada Unrestricted Canada
(c) Lennox Industries SW Inc. 100% Iowa Restricted N/A
(d) Lennox Manufacturing Inc. 100% Delaware Restricted United States
</TABLE>
C-2
<PAGE> 114
LENNOX INTERNATIONAL INC. SUBSIDIARIES
AS OF JANUARY 31, 1998
PAGE 3
<TABLE>
<CAPTION>
LOCATION OF
SUBSTANTIAL
NAME OWNERSHIP JURISDICTION OF INC. RESTRICTED/UNRESTRICTED OPERATING ASSETS
- ---- --------- -------------------- ----------------------- -----------------
<S> <C> <C> <C> <C>
LENNOX GLOBAL LTD.
(a) UK Industries Inc. 100% Delaware Unrestricted N/A
(b) UK Global Ltd. 100% Delaware Unrestricted N/A
(c) Lennox Australia Pty. Ltd. 100% Australia Unrestricted Australia
(d) LGL Asia-Pacific Pte. Ltd. 100% Rep. of Singapore Unrestricted Singapore
(e) LGL (Australia) Pty. Ltd. 100% Australia Unrestricted Australia
(f) LGL de Mexico, S.A. de C.V. 99% Mexico Unrestricted Mexico
(g) Ets. Brancher S.A. 70% France Unrestricted France
(1) SEE ATTACHED CHART
</TABLE>
C-3
<PAGE> 115
LENNOX INTERNATIONAL INC. SUBSIDIARIES
AS OF JANUARY 31, 1998
PAGE 4
<TABLE>
<CAPTION>
LOCATION OF
SUBSTANTIAL
NAME OWNERSHIP JURISDICTION OF INC. RESTRICTED/UNRESTRICTED OPERATING ASSETS
- ---- --------- -------------------- ----------------------- -----------------
<S> <C> <C> <C> <C>
ETS. BRANCHER S.A.
(a) HCF-Lennox Limited 100% United Kingdom Unrestricted United Kingdom
(1) Lennox Industries 100% United Kingdom Unrestricted United Kingdom
(A) Environheat Limited 100% United Kingdom Unrestricted N/A
(b) HCF Lennox S.A. 100% France Unrestricted France
(1) SEE ATTACHED CHART
(c) Frinotech S.A. 99.68% France Unrestricted N/A
(d) Friga-Bohn S.A. 100% France Unrestricted France
(1) Friga-Bohn
Warmeauslauscher GmbH 100% Germany Unrestricted Germany
(2) ERSA 79.5% Spain Unrestricted Spain
(3) West 80% Italy Unrestricted Italy
(4) Friga-Coil 50% Czech Republic Unrestricted Czech Republic
(5) Herac Ltd. 100% United Kingdom Unrestricted N/A
(e) SCI Geraval 99.83% France Unrestricted France
(f) SCI Groupe Brancher 76% France Unrestricted France
</TABLE>
C-4
<PAGE> 116
LENNOX INTERNATIONAL INC. SUBSIDIARIES
AS OF JANUARY 31, 1998
PAGE 5
<TABLE>
<CAPTION>
LOCATION OF
SUBSTANTIAL
NAME OWNERSHIP JURISDICTION OF INC. RESTRICTED/UNRESTRICTED OPERATING ASSETS
- ---- --------- -------------------- ----------------------- -----------------
<S> <C> <C> <C> <C>
HCF LENNOX S.A.
(a) Refac B.V. 100% Netherlands Unrestricted Netherlands
(1) Refac NV 100% Belgium Unrestricted Belgium
(2) Refac Nord GmbH 100% Germany Unrestricted N/A
(A) Refac West GmbH 100% Germany Unrestricted N/A
(3) Refac Kalte-Klima
Technik Vertriebs GmbH 50% Germany Unrestricted N/A
(4) Refac UK Ltd. 100% United Kingdom Unrestricted United Kingdom
(b) Hyfra GmbH 100% Germany Unrestricted Germany
(c) Lennox-Refac S.A. 100% Spain Unrestricted Spain
(1) Redi Andalucia S.A. 70% Spain Unrestricted N/A
(2) Lennox Refac 100% Portugal Unrestricted N/A
(3) Redi Sur Andalucia S.A. 70% Spain Unrestricted N/A
(4) Deutsche Bronswerk GmbH 100% Germany Unrestricted Germany
(5) Bronswerk Refac GmbH 100% Germany Unrestricted Germany
</TABLE>
C-5
<PAGE> 1
EXHIBIT 10.5
April 3, 1998
The Prudential Insurance Company of America
c/o Prudential Capital Group
2200 Ross Avenue, Suite 4200
Dallas, TX 75201
Teachers Insurance and Annuity
Association of America
730 Third Avenue
New York, New York 10017
Attention: Securities Division
Connecticut General Life Insurance Company
INA Life Insurance Company of New York
Life Insurance Company of North America
c/o CIGNA Investments, Inc.
Hartford, Connecticut 06152
Attention: Private Securities Division
United of Omaha Life Insurance Company
Mutual of Omaha Insurance Company
Companion Life Insurance Company
United World Life Insurance Company
Mutual of Omaha Plaza
Omaha, NE 68175
First Colony Life Insurance Company
700 Main Street
Lynchburg, VA 24504
Lincoln National Life Insurance Company
c/o Lincoln Investment Management, Inc.
200 East Berry Street, Renaissance Square
Fort Wayne, IN 46802
Re: Lennox International Inc.
9.53% Senior Promissory Notes due 2001; 9.69% Senior Promissory
Notes due 2003; 7.06% Senior Promissory Notes due 2005; and
6.73% Senior Promissory Notes due 2008
<PAGE> 2
Ladies and Gentlemen:
Reference is made to:
(i) three separate Agreements of Assumption and Restatement, dated as
of December 1, 1991 (the "1991 AGREEMENTS"), between Lennox International Inc.
(the "COMPANY") and each of Teachers Insurance and Annuity Association of
America, Connecticut General Life Insurance Company and INA Life Insurance
Company of New York (collectively, and together with their respective successors
and assigns, the "1991 HOLDERS");
(ii) nine separate Note Purchase Agreements, dated as of December 1,
1993 (the "1993 NOTE Agreements"), between the Company and each of The
Prudential Insurance Company of America, Connecticut General Life Insurance
Company, Connecticut General Life Insurance Company, on behalf of One or More
Separate Accounts, Life Insurance Company of North America, United of Omaha Life
Insurance Company, Mutual of Omaha Insurance Company, Companion Life Insurance
Company, United World Life Insurance Company, and First Colony Life Insurance
Company (collectively, and together with their respective successors and
assigns, the "1993 HOLDERS");
(iii) the Note Purchase Agreement, dated as of July 6, 1995 (the "1995
NOTE AGREEMENT"), between the Company and Teachers Insurance and Annuity
Association of America (together with its successors and assigns, the "1995
HOLDER"); and
(iv) eight separate Note Purchase Agreements, dated as of April 3, 1998
(as in effect on the date of execution and delivery thereof, and without giving
effect to any amendment to or waiver of any term or provision thereof, the "1998
NOTE AGREEMENTS"), between the Company and each of The Prudential Insurance
Company of America, U.S. Private Placement Fund, Teachers Insurance and Annuity
Association of America, Connecticut General Life Insurance Company, Connecticut
General Life Insurance Company, on behalf of One or More Separate Accounts,
CIGNA Property and Casualty Insurance Company, United of Omaha Life Insurance
Company and Companion Life Insurance Company.
The 1991 Note Agreements, 1993 Note Agreements and 1995 Note Agreement are
collectively referred to herein as the "EXISTING NOTE AGREEMENTS". The 1991
Holders, 1993 Holders and 1995 Holder are collectively referred to herein as the
"EXISTING HOLDERS". The senior notes issued and outstanding under each of the
Existing Note Agreements are collectively referred to herein as the "EXISTING
NOTES". Capitalized terms used in the body of this letter agreement and not
otherwise defined herein shall have the respective meanings set forth in the
Existing Note Agreements.
The Company has requested the Existing Holders to enter into this
letter agreement (this "AMENDMENT AGREEMENT") in order to make certain
modifications to the Existing Note Agreements for the purpose of conforming the
covenants, Events of Default and remedies of the Existing Note Agreements to
those of the 1998 Note Agreements, and the Existing Holders have agreed to such
modifications, subject to the conditions set forth herein. Therefore, the
Existing Holders and the Company hereby agree as follows:
1. The provisions of Sections 5, 6, 7 and 9 of the Existing Note
Agreements are hereby superseded by the provisions of Schedule A attached
hereto, the related definitions set forth in Schedule B attached hereto and the
list of Subsidiaries set forth in Schedule C attached hereto.
2
<PAGE> 3
Capitalized terms used in Schedule A, Schedule B or Schedule C but not defined
in Schedule A or Schedule B are used with the meanings specified in the Existing
Note Agreements. Section references that appear in Schedule A and Schedule B and
that refer to Section numbers used in Schedule A constitute references to the
Section numbers used in Schedule A and not to those in the portions of the
Existing Note Agreements that are not being superseded by the provisions of this
Amendment Agreement, notwithstanding the fact that the same numbers may also be
used in such other portions of the Existing Note Agreements. The defined terms
contained in Section 8 of the Existing Note Agreements shall continue to apply
to such other portions of the Existing Note Agreements. References in the
Existing Note Agreements to Section 7.12 thereof shall hereafter be deemed to
refer to Section 9.6 of Schedule A.
2. Section 8 of the Existing Note Agreements is amended by (a) deleting
the definitions of "Computation Date" and "Computation Period" therefrom, (b)
modifying the definition of "Event of Default" to refer to Section 11 of
Schedule A to this Amendment Agreement and (c) amending the definition of
"Special Premium" by replacing the reference to Section 9.1 therein with a
reference to Section 12.1 of Schedule A of this Amendment Agreement.
3. Effectiveness of Amendment Agreement. This Amendment Agreement shall
be effective when holders of at least 66-2/3% in aggregate unpaid principal
amount of all Existing Notes under each of the 1991 Note Agreements, the 1993
Note Agreements and the 1995 Note Agreement at the time outstanding shall have
executed a counterpart of this Amendment Agreement, and (ii) the Company shall
have furnished to each of the Existing Holders evidence of the satisfaction of
clause (i).
4. Representations and Warranties. The Company hereby represents and
warrants that:
(a) Upon the effectiveness of this Amendment Agreement, no Default
or Event of Default shall have occurred and be continuing.
(b) The Company has the corporate power and authority to execute and
deliver this Amendment Agreement and to perform the Existing Note Agreements, as
amended hereby.
(c) This Amendment Agreement has been duly authorized by all
necessary corporate action on the part of the Company, and the Existing Note
Agreements, as amended hereby, constitute legal, valid and binding obligations
of the Company enforceable against the Company in accordance with their
respective terms, except as such enforceability may be limited by (i)applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and (ii) general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
(d) The execution and delivery of this Amendment Agreement by the
Company and the performance by the Company of the Existing Note Agreements, as
amended hereby, will not (i) contravene, result in any breach of, or constitute
a default under, or result in the creation of any Lien in respect of any
property of the Company or any Subsidiary under, any indenture, mortgage, deed
of trust, loan, purchase or credit agreement, lease, corporate charter or
by-laws, or any other material agreement or instrument to which the Company or
any Subsidiary is bound or by which the Company or any Subsidiary or any of
their respective properties may be bound or affected, (ii) conflict with or
result in a breach of any of the terms, conditions or provisions of any order,
judgment, decree, or ruling of any
3
<PAGE> 4
court, arbitrator or Governmental Body applicable to the Company or any
Subsidiary or (iii) violate any provision of any statute or other rule or
regulation of any Governmental Body applicable to the Company or any Subsidiary.
(e) No consent, approval or authorization of, or registration,
filing or declaration with, any Governmental Body is required in connection with
the execution and delivery of this Amendment Agreement by the Company or the
performance by the Company of this Amendment Agreement or the Existing Note
Agreements, as amended hereby.
(f) There are no actions, suits or proceedings pending or, to the
knowledge of the Company, threatened against or affecting the Company or any
Subsidiary or any property of the Company or any Subsidiary in any court or
before any arbitrator of any kind or before or by any Governmental Body that,
individually or in the aggregate, would reasonably be expected to have a
material adverse effect upon the ability of the Company to perform its
obligations under the Existing Note Agreements, as amended hereby, or upon the
validity or enforceability of the Existing Note Agreements, as amended hereby.
5. Miscellaneous. Except as expressly amended by this Amendment
Agreement, the Existing Note Agreements shall remain in full force and effect.
No amendment to, or waiver of, any provision of the 1998 Note Agreements will
constitute an amendment to, or waiver of, any provision of the Existing Note
Agreements, which Existing Note Agreements will continue to be subject to the
amendment and waiver provisions contained in Section 12 thereof. This Amendment
Agreement shall be binding upon and inure to the benefit of the Existing Holders
and their respective successors and permitted assigns. This Amendment Agreement
may be signed in any number of counterparts, each of which shall constitute an
original.
4
<PAGE> 5
If the foregoing correctly describes our understanding with respect to
the subject matter of this Amendment Agreement, please execute this letter in
the place indicated below.
Very truly yours,
LENNOX INTERNATIONAL INC.
By: /s/ Clyde Wyant
--------------------------------
Clyde Wyant
Executive Vice President,
Chief Financial Officer
and Treasurer
ACCEPTED AND AGREED:
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By: /s/ Randall M. Kob
------------------------------------------
Name: Randall M. Kob
----------------------------------------
Title: Vice President
---------------------------------------
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By: /s/ Charles C. Thompson III
------------------------------------------
Name: Charles C. Thompson III
----------------------------------------
Title: Managing Director - Private Placements
---------------------------------------
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By: CIGNA Investments, Inc.
By: /s/ Edward Lewis
-----------------------------------
Name: Edward Lewis
---------------------------------
Title: Managing Director
--------------------------------
5
<PAGE> 6
CONNECTICUT GENERAL LIFE INSURANCE COMPANY,
on behalf of One or More Separate Accounts
By: CIGNA Investments, Inc.
By: /s/ Edward Lewis
---------------------------
Name: Edward Lewis
Title: Managing Director
INA LIFE INSURANCE COMPANY OF NEW YORK
By: CIGNA Investments, Inc.
By: /s/ Edward Lewis
---------------------------
Name: Edward Lewis
Title: Managing Director
LIFE INSURANCE COMPANY OF NORTH AMERICA
By: CIGNA Investments, Inc.
By: /s/ Edward Lewis
---------------------------
Name: Edward Lewis
Title: Managing Director
UNITED OF OMAHA LIFE INSURANCE COMPANY
By: /s/ Edwin H. Garrison, Jr.
---------------------------
Name: Edwin H. Garrison, Jr.
Title: First Vice President
MUTUAL OF OMAHA INSURANCE COMPANY
By: /s/ Edwin H. Garrison, Jr.
---------------------------
Name: Edwin H. Garrison, Jr.
Title: First Vice President
6
<PAGE> 7
COMPANION LIFE INSURANCE COMPANY
By: /s/ Edwin H. Garrison, Jr.
---------------------------
Name: Edwin H. Garrison, Jr.
Title: First Vice President
By: /s/ Jeffry F. Sailer
---------------------------
Name: Jeffry F. Sailer
Title: Assistant Treasurer
UNITED WORLD LIFE INSURANCE COMPANY
By: /s/ Edwin H. Garrison, Jr.
---------------------------
Name: Edwin H. Garrison, Jr.
Title: First Vice President
FIRST COLONY LIFE INSURANCE COMPANY
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
LINCOLN NATIONAL LIFE INSURANCE COMPANY
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
7
<PAGE> 8
SCHEDULE A
7. INFORMATION AS TO COMPANY.
7.1. FINANCIAL AND BUSINESS INFORMATION.
The Company shall deliver to each holder of Notes that is an
Institutional Investor:
(a) Quarterly Statements -- within 60 days after the end of each
quarterly fiscal period in each fiscal year of the Company (other than the last
quarterly fiscal period of each such fiscal year), duplicate copies of
(i) consolidated and consolidating balance sheets of the Company
and its Restricted Subsidiaries and of the Company and its Subsidiaries as at
the end of such quarter, and
(ii) consolidated and consolidating statements of income, changes
in shareholders' equity and cash flows of the Company and its Restricted
Subsidiaries and of the Company and its Subsidiaries, for such quarter and (in
the case of the second and third quarters) for the portion of the fiscal year
ending with such quarter,
all in reasonable detail and setting forth, in the case of such consolidated
statements, in comparative form the figures for the corresponding periods in the
previous fiscal year, prepared in accordance with GAAP applicable to quarterly
financial statements generally, and certified by a Senior Financial Officer as
fairly presenting, in all material respects, the financial position of the
companies being reported on and their results of operations and cash flows,
subject to changes resulting from year-end adjustments, provided that delivery
within the time period specified above of copies of the Company's Quarterly
Report on Form 10-Q prepared in compliance with the requirements therefor and
filed with the Securities and Exchange Commission shall be deemed to satisfy the
requirements of this Section 7.1(a); provided further that if such Form 10-Q
does not contain consolidating information for the Company and its Restricted
Subsidiaries, the Company shall also deliver to each such holder the
consolidating information described in this Section 7.1(a);
(b) Annual Statements -- within 120 days after the end of each
fiscal year of the Company, duplicate copies of
(i) consolidated and consolidating balance sheets of the Company
and its Restricted Subsidiaries and of the Company and its Subsidiaries, as at
the end of such year, and
(ii) consolidated and consolidating statements of income, changes
in shareholders' equity and cash flows of the Company and its Restricted
Subsidiaries and of the Company and its Subsidiaries, for such year;
setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail, prepared in accordance with GAAP, and
accompanied, (1) in the case of the consolidated statements, by an opinion
thereon of independent certified public accountants of recognized national
standing, which opinion shall state that such financial statements present
fairly, in all material respects, the financial position of the companies being
reported upon and their results of operations and cash flows and have been
prepared in conformity with GAAP, and that the examination of such accountants
in
A-1
<PAGE> 9
connection with such financial statements has been made in accordance with
generally accepted auditing standards, and that such audit provides a reasonable
basis for such opinion in the circumstances, and (2) in the case of the
consolidating statements, either certified by a Senior Financial Officer as
fairly stating, or accompanied by a report thereon by such accountants
containing a statement to the effect that such consolidating financial
statements fairly state, the financial position and the results of operations
and cash flows of the companies being reported upon in all material respects in
relation to the consolidated financial statements for the periods indicated as a
whole; provided that the delivery within the time period specified above of the
Company's Annual Report on Form 10-K for such fiscal year (together with the
Company's annual report to shareholders, if any, prepared pursuant to Rule 14a-3
under the Exchange Act) prepared in accordance with the requirements therefor
and filed with the Securities and Exchange Commission shall be deemed to satisfy
the requirements of clauses (i) and (ii) of this Section 7.1(b); provided
further that if such Form 10-K does not contain consolidating information for
the Company and its Restricted Subsidiaries, the Company shall also deliver to
each such holder the consolidating information described in this Section 7.1(b);
and
(iii) a certificate of such accountants stating that in making the
examination for such report, they have obtained no knowledge of any Default or
Event of Default, or, if they have obtained knowledge of any Default or Event of
Default, specifying the nature and period of existence thereof and the action
the Company has taken or proposes to take with respect thereto.
(c) SEC and Other Reports - if the Company or any Restricted
Subsidiary shall be required to file reports with the Securities and Exchange
Commission, promptly upon their becoming available, one copy of (i) each
financial statement, report, notice or proxy statement sent by the Company or
any Restricted Subsidiary to public securities holders generally, and (ii) each
regular or periodic report, each registration statement that shall have become
effective (without exhibits except as expressly requested by such holder), and
each final prospectus and all amendments thereto filed by the Company or any
Restricted Subsidiary with the Securities and Exchange Commission;
(d) Notice of Default or Event of Default -- promptly, and in any
event within five days after a Responsible Officer becoming aware of the
existence of any Default or Event of Default, a written notice specifying the
nature and period of existence thereof and what action the Company is taking or
proposes to take with respect thereto;
(e) ERISA Matters -- promptly, and in any event within five days
after a Responsible Officer becomes aware of any of the following, a written
notice setting forth the nature thereof and the action, if any, that the Company
or an ERISA Affiliate proposes to take with respect thereto:
(i) with respect to any Plan, any reportable event, as defined in
section 4043(b) of ERISA and the regulations thereunder, for which notice
thereof has not been waived pursuant to such regulations as in effect on the
date hereof and the potential cost to the Company or such ERISA Affiliate
resulting therefrom exceeds $500,000; or
(ii) the taking by the PBGC of steps to institute, or the
threatening in writing by the PBGC of the institution of, proceedings under
section 4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a
notice from a Multiemployer Plan that such action has been taken by the PBGC
with respect to such Multiemployer Plan; or
(iii) any event, transaction or condition that could result in the
incurrence of any liability by the Company or any ERISA Affiliate pursuant to
Title I or IV of ERISA or the penalty or excise tax
A-2
<PAGE> 10
provisions of the Code relating to employee benefit plans, or in the imposition
of any Lien on any of the rights, properties or assets of the Company or any
ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty or excise tax
provisions, if such liability or Lien, taken together with any other such
liabilities or Liens then existing, would reasonably be expected to have a
Material Adverse Effect; and
(f) Requested Information -- with reasonable promptness, such
other data and information relating to the business, operations, affairs,
financial condition, assets or properties of the Company or any of its
Restricted Subsidiaries or relating to the ability of the Company to perform its
obligations hereunder and under the Notes as from time to time may be reasonably
requested by any such holder of Notes.
7.2. OFFICER'S CERTIFICATE.
Each set of financial statements delivered to a holder of Notes
pursuant to Section 7.1(a) or Section 7.1(b) hereof shall be accompanied by a
certificate of a Senior Financial Officer setting forth:
(a) Covenant Compliance -- the information (including detailed
calculations) required in order to establish whether the Company was in
compliance with the requirements of Section 10.3 through Section 10.9 hereof,
inclusive, and with all Additional Covenants, if any, that involve calculations
during the quarterly or annual period covered by the statements then being
furnished (including with respect to each such Section or Additional Covenant,
as the case may be, where applicable, the calculations of the maximum or minimum
amount, ratio or percentage, as the case may be, permissible under the terms of
such Sections or Additional Covenants, as the case may be, and the calculation
of the amount, ratio or percentage then in existence);
(b) Event of Default -- a statement that such officer has reviewed
the relevant terms hereof and has made, or caused to be made, under his or her
supervision, a review of the transactions and conditions of the Company and its
Subsidiaries from the beginning of the quarterly or annual period covered by the
statements then being furnished to the date of the certificate and that such
review shall not have disclosed the existence during such period of any
condition or event that constitutes a Default or an Event of Default or, if any
such condition or event existed or exists (including, without limitation, any
such event or condition resulting from the failure of the Company or any
Subsidiary to comply with any Environmental Law), specifying the nature and
period of existence thereof and what action the Company shall have taken or
proposes to take with respect thereto;
(c) Management's Discussion and Analysis -- a written discussion
and analysis by management of the financial condition and results of operations
of the lines of business conducted by each material Restricted Subsidiary for
such accounting period; and
(d) Litigation -- a written statement that, to the best of such
Officer's knowledge after due inquiry, except as otherwise disclosed in writing
to you, there is no litigation (including derivative actions), arbitration
proceeding or governmental proceeding pending to which the Company or any
Subsidiary is a party, or with respect to the Company or any Subsidiary or their
respective properties, which has a significant possibility of materially and
adversely affecting the business, operations, properties or condition of the
Company or of the Company and its Subsidiaries taken as a whole.
7.3. INSPECTION; CONFIDENTIALITY.
The Company shall permit the representatives of each holder of
Notes that is an Institutional Investor:
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(a) No Default -- if no Default or Event of Default then exists,
at the expense of such holder and upon reasonable prior notice to the Company,
to visit the principal executive office of the Company, to discuss the affairs,
finances and accounts of the Company and its Restricted Subsidiaries with the
Company's officers and (with the consent of the Company, which consent will not
be unreasonably withheld) its independent public accountants, and (with the
consent of the Company, which consent will not be unreasonably withheld) to
visit the other offices and properties of the Company and each Restricted
Subsidiary, all at such reasonable times and as often as may be reasonably
requested in writing;
(b) Default -- if a Default or Event of Default then exists, at
the expense of the Company to visit and inspect any of the offices or properties
of the Company or any Subsidiary, to examine all their respective books of
account, records, reports and other papers, to make copies and extracts
therefrom, and to discuss their respective affairs, finances and accounts with
their respective officers and independent public accountants (and by this
provision the Company authorizes said accountants to discuss the affairs,
finances and accounts of the Company and its Subsidiaries), all at such times
and as often as may be requested; and
(c) Technical Data - anything herein to the contrary
notwithstanding, neither the Company nor any of its Subsidiaries shall have any
obligations to disclose pursuant to this Agreement any engineering, scientific,
or other technical data without significance to your analysis of the financial
position of the Company and its Subsidiaries.
9. AFFIRMATIVE COVENANTS
The Company covenants that so long as any of the Notes are
outstanding:
9.1. COMPLIANCE WITH LAW
The Company will and will cause each of its Subsidiaries to comply
with all laws, ordinances or governmental rules or regulations to which each of
them is subject, including, without limitation, Environmental Laws, and will
obtain and maintain in effect all licenses, certificates, permits, franchises
and other governmental authorizations necessary to the ownership of their
respective properties or to the conduct of their respective businesses, in each
case to the extent necessary to ensure that non-compliance with such laws,
ordinances or governmental rules or regulations or failures to obtain or
maintain in effect such licenses, certificates, permits, franchises and other
governmental authorizations would not reasonably be expected, individually or in
the aggregate, to have a materially adverse effect on the business, operations,
affairs, financial condition, properties or assets of the Company and its
Restricted Subsidiaries taken as a whole.
9.2. INSURANCE
The Company will and will cause each of its Subsidiaries to
maintain, with financially sound and reputable insurers, insurance with respect
to their respective properties and businesses against such casualties and
contingencies, of such types, on such terms and in such amounts (including
deductibles, co-insurance and self-insurance, if adequate reserves are
maintained with respect thereto) as is customary in the case of entities of
established reputations engaged in the same or a similar business and similarly
situated.
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9.3. MAINTENANCE OF PROPERTIES
The Company will and will cause each of its Subsidiaries to
maintain and keep, or cause to be maintained and kept, their respective
properties in good repair, working order and condition (other than ordinary wear
and tear), so that the business carried on in connection therewith may be
properly conducted at all times, provided that this Section shall not prevent
the Company or any Subsidiary from discontinuing the operation and the
maintenance of any of its properties if such discontinuance is desirable in the
conduct of its business and the Company has concluded that such discontinuance
would not, individually or in the aggregate, have a materially adverse effect on
the business, operations, affairs, financial condition, properties or assets of
the Company and its Restricted Subsidiaries taken as a whole.
9.4. PAYMENT OF TAXES
The Company will and will cause each of its Subsidiaries to file
all income tax or similar tax returns required to be filed in any jurisdiction
and to pay and discharge all taxes shown to be due and payable on such returns
and all other taxes, assessments, governmental charges, or levies payable by any
of them, to the extent such taxes and assessments have become due and payable
and before they have become delinquent, provided that neither the Company nor
any Subsidiary need pay any such tax or assessment if (i) the amount,
applicability or validity thereof is contested by the Company or such Subsidiary
on a timely basis in good faith and in appropriate proceedings, and the Company
or a Subsidiary has established adequate reserves therefor in accordance with
GAAP on the books of the Company or such Subsidiary or (ii) the nonpayment of
all such taxes and assessments in the aggregate would not reasonably be expected
to have a materially adverse effect on the business, operations, affairs,
financial condition, properties or assets of the Company and its Restricted
Subsidiaries taken as a whole.
9.5. CORPORATE EXISTENCE, ETC.
The Company will at all times preserve and keep in full force and
effect its corporate existence. Subject to Sections 10.2 and 10.3, the Company
will at all times preserve and keep in full force and effect the corporate
existence of each of its Restricted Subsidiaries (unless merged into the Company
or a Restricted Subsidiary) and all rights and franchises of the Company and its
Restricted Subsidiaries unless, in the good faith judgment of the Company, the
termination of or failure to preserve and keep in full force and effect such
corporate existence, right or franchise would not, individually or in the
aggregate, have a materially adverse effect on the business, operations,
affairs, financial condition, properties or assets of the Company and its
Restricted Subsidiaries taken as a whole.
9.6 PURCHASE OF NOTE UPON CHANGE OF CONTROL.
At least 15 Business Days (or, in the case of any transaction
permitted by Section 10.2 resulting in a Change of Control, at least 45 days)
and not more than 90 days prior to the occurrence of any Change of Control, the
Company will give written notice thereof to each holder of an outstanding Note
in the manner and to the address specified for notices pursuant to this Section
9.6 for such holder in Schedule A or as otherwise specified by such holder in
writing to the Company. Such notice shall contain (i) an offer by the Company to
purchase, on the date of such Change of Control or, if such notice shall be
delivered less than 35 days prior to the date of such Change of Control, on the
date 35 days after the date of such notice (the "PURCHASE DATE"), all Notes held
by each such holder at a price equal to 100% of the principal amount thereof,
together with interest accrued thereon to the Purchase Date, (ii) the estimated
amount of accrued interest, showing in reasonable detail the calculation thereof
and (iii)
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the Company's estimate of the date on which such Change of Control shall occur.
Said offer shall be deemed to lapse as to any such holder which has not replied
affirmatively thereto in writing within 35 days of the giving of such notice. As
soon as practicable (and in any event at least 24 hours) prior to such Change of
Control, the Company shall give written confirmation of the date thereof to each
such holder which has affirmatively replied to the notice given pursuant to the
first sentence of this Section 9.6. In the event that the Company shall purchase
any Notes pursuant to this Section 9.6, the same shall thereafter be canceled
and not reissued and shall not be deemed "OUTSTANDING" for any purpose of this
Agreement.
For the purposes of this Section 9.6, a "CHANGE OF CONTROL" shall
be deemed to occur if any New Owner shall acquire beneficial ownership of shares
in the Company having Voting Rights pertaining thereto which would allow such
New Owner to elect more members of the board of directors than could be elected
by the exercise of all Voting Rights pertaining to shares in the Company then
owned beneficially by the Norris Family. As used in this Section 9.6:
(i) "VOTING RIGHTS" pertaining to shares of a corporation means
the rights to cast votes for the election of directors of
such corporation in ordinary circumstances (without
consideration of voting rights which exist only in the event
of contingencies).
(ii) "NORRIS FAMILY" means all persons who are lineal descendants
of D.W. Norris (by birth or adoption), all spouses of such
descendants, all estates of such descendants or spouses which
are in the course of administration, all trusts for the
benefit of such descendants or spouses, and all corporations
or other entities in which, directly or indirectly, such
descendants or spouses (either alone or in conjunction with
other such descendants or spouses) have the right, whether by
ownership of stock or other equity interests or otherwise, to
direct the management and policies of such corporations or
other entities (each such person, spouse, estate, trust,
corporation or entity being referred to herein as a "MEMBER"
of the Norris Family). In addition, so long as any employee
stock ownership plan exercises its Voting Rights in the same
manner as members of the Norris Family (exclusive of employee
stock ownership plans) who have a majority of the Voting
Rights exercised by all such members of the Norris Family,
such employee stock ownership plan shall be deemed a member
of the Norris Family.
(iii) "NEW OWNER" means any person (other than a member of the
Norris Family), or any syndicate or group of persons
(exclusive of all members of the Norris Family) which would
be deemed a "PERSON" for the purposes of Section 13(d) of
the Exchange Act, who directly or indirectly acquires shares
in the Company.
Notwithstanding anything in this Section 9.6 to the contrary, if an Event of
Default exists following a Change of Control and the Notes are accelerated
pursuant to the provisions of Section 12.1, the holders of the Notes shall be
entitled to receive the Make-Whole Amount relating to such accelerated amount as
provided in Section 12.1.
9.7. MOST FAVORED LENDER'S STATUS.
The Company will not and will not permit any Restricted Subsidiary
to enter into, assume or otherwise be bound or obligated under any agreement
creating or evidencing Indebtedness or any agreement executed and delivered in
connection with any Indebtedness containing one or more
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Additional Covenants or Additional Defaults (as defined below), unless prior
written consent to such agreement shall have been obtained pursuant to Section
12 of the Existing Note Purchase Agreements; provided, however, in the event the
Company or any Restricted Subsidiary shall enter into, assume or otherwise
become bound by or obligated under any such agreement without the prior written
consent of the holders of the Notes, the terms of this Agreement shall, without
any further action on the part of the Company or any of the holders of the
Notes, be deemed to be amended automatically to include each Additional Covenant
and each Additional Default contained in such agreement. The Company further
covenants to promptly execute and deliver at its expense an amendment to this
Agreement in form and substance satisfactory to the Required Holders evidencing
the amendment of this Agreement to include such Additional Covenants and
Additional Defaults, provided that the execution and delivery of such amendment
shall not be a precondition to the effectiveness of such amendment as provided
for in this Section 9.7, but shall merely be for the convenience of the parties
hereto.
For purposes of this Agreement, (i) the term "ADDITIONAL COVENANT"
shall mean any affirmative or negative covenant or similar restriction
applicable to the Company or any Restricted Subsidiary (regardless of whether
such provision is labeled or otherwise characterized as a covenant) the subject
matter of which either (A) is similar to that of the covenants in Section 9 or
10 of this Agreement, or related definitions in Schedule B to this Agreement,
but contains one or more percentages, amounts or formulas that is more
restrictive than those set forth herein or more beneficial to the holder or
holders of such other Indebtedness (and such covenant or similar restriction
shall be deemed an "ADDITIONAL COVENANT" only to the extent that it is more
restrictive or more beneficial) or (B) is different from the subject matter of
the covenants in Section 9 or 10 of this Agreement, or related definitions in
Schedule B to this Agreement; and (ii) the term "ADDITIONAL DEFAULT" shall mean
any provision which permits the holder of such Indebtedness to accelerate (with
the passage of time or giving of notice or both) the maturity thereof or
otherwise require the Company or any Restricted Subsidiary to purchase such
Indebtedness prior to the stated maturity of such Indebtedness and which either
(A) is similar to the Defaults and Events of Default contained in Section 11 of
this Agreement, or related definitions in Schedule B to this Agreement, but
contains one or more percentages, amounts or formulas that is more restrictive
or has a shorter grace period than those set forth herein or is more beneficial
to the holder or holders of such other Indebtedness (and such provision shall be
deemed an "ADDITIONAL DEFAULT" only to the extent that it is more restrictive,
has a shorter grace period or is more beneficial) or (B) is different from the
subject matter of the Defaults and Events of Default contained in Section 11 of
this Agreement, or related definitions in Schedule B to this Agreement.
Notwithstanding anything herein to the contrary, until the earlier
of (a) July 1, 1998 or (b) the amendment of such Revolving Credit Agreement on
or after the date hereof, this Section 9.7 shall not apply to the Revolving
Credit Agreement dated as of December 4, 1991, as amended prior to the date
hereof, among the Company, the banks named on the signature pages thereof, and
The Northern Trust Company, as agent.
9.8. COVENANT TO SECURE NOTES EQUALLY
If the Company shall create, assume or permit to exist any Lien
upon any of its property or assets, or permit any Restricted Subsidiary to
create, assume or permit to exist any Lien upon any of its property or assets,
whether now owned or hereafter acquired, other than those Liens permitted by the
provisions of Section 10.5, the Company shall make or cause to be made effective
provision whereby the Notes will be secured equally and ratably with any and all
other obligations thereby secured, with the documentation for such security to
be reasonably satisfactory to the Required Holders and, in any such
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case, the Notes shall have the benefit, to the fullest extent that, and with
such priority as, the holders of the Notes may be entitled under applicable law,
of an equitable Lien on such property. Any violation of Section 10.5 will
constitute an Event of Default, whether or not provision is made for an equal
and ratable Lien pursuant to this Section 9.8.
9.9. ENVIRONMENTAL MATTERS
(a) The Company will and will cause each of its Subsidiaries to
comply in all material respects with all applicable Environmental Laws if,
individually or in the aggregate, failure to comply therewith could reasonably
be expected to have a material adverse effect on the financial condition or
results of operations of the Company or the Company and its Subsidiaries, taken
as a whole.
(b) The Company will not and will not permit any of its
Subsidiaries to cause or allow any Hazardous Substance to be present at any time
on, in, under or above any real property or any part thereof in which the
Company or any Subsidiary has a direct interest (including without limitation
ownership thereof or any arrangement for the lease, rental or other use thereof,
or the retention of any mortgage or security interest therein or thereon),
except in a manner and to an extent that is in compliance in all material
respects with all applicable Environmental Laws or that will not have a material
adverse effect on the financial condition or results of operations of the
Company or the Company and its Subsidiaries, taken as a whole.
10. NEGATIVE COVENANTS
The Company covenants that so long as any of the Notes are
outstanding:
10.1. TRANSACTIONS WITH AFFILIATES
The Company will not permit any Restricted Subsidiary to enter
into directly or indirectly any Material transaction or Material group of
related transactions (including without limitation the purchase, lease, sale or
exchange of properties of any kind or the rendering of any service) with any
Affiliate (other than the Company or another Restricted Subsidiary), except
pursuant to the reasonable requirements of the Company's or such Restricted
Subsidiary's business and upon fair and reasonable terms no less favorable to
the Company or such Restricted Subsidiary than would be obtainable in a
comparable arm's-length transaction with a Person not an Affiliate.
10.2. MERGER, CONSOLIDATION, ETC.
The Company will not consolidate with or merge with any other
corporation or convey, transfer or lease substantially all of its assets in a
single transaction or series of transactions to any Person unless:
(a) the successor formed by such consolidation or the survivor of
such merger or the Person that acquires by conveyance, transfer or lease
substantially all of the assets of the Company as an entirety, as the case may
be, shall be a solvent corporation organized and existing under the laws of the
United States or any State thereof (including the District of Columbia), and, if
the Company is not such corporation, such corporation shall have executed and
delivered to each holder of any Notes its assumption of the due and punctual
performance and observance of each covenant and condition of this Agreement, the
Other Agreements and the Notes, together with a favorable opinion of counsel
satisfactory to each such holder covering such matters relating to such
corporation and such assumption as such holder may reasonably request; and
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(b) immediately after giving effect to such transaction, no
Default or Event of Default would exist;
(c) immediately prior to and after giving effect to such
transaction, the Company or such successor, as the case may be, would be
permitted by the provisions of Sections 10.4 and 10.9 to incur at least $1.00 of
additional Indebtedness and $1.00 of additional Restricted Indebtedness,
respectively; and
(d) in the case of any such transaction which would involve or
result in a Change of Control, the Company shall have complied with Section 9.6.
No such conveyance, transfer or lease of substantially all of the
assets of the Company shall have the effect of releasing the Company or any
successor corporation that shall theretofore have become such in the manner
prescribed in this Section 10.2 from its liability under this Agreement or the
Notes.
10.3. SALE OF ASSETS, ETC.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, make any Transfer, provided that the foregoing restriction does
not apply to a Transfer if:
(a) the property that is the subject of such Transfer constitutes
either (i) inventory held for sale, or (ii) equipment, fixtures, supplies or
materials no longer required in the operation of the business of the Company or
such Restricted Subsidiary or that is obsolete, and, in the case of any Transfer
described in clause (i) or (ii), such Transfer is in the ordinary course of
business (each such Transfer, an "ORDINARY COURSE TRANSFER"); or
(b) such Transfer is from
(i) a Restricted Subsidiary to the Company or another
Restricted Subsidiary, or
(ii) the Company to a Restricted Subsidiary, or
(iii) the Company to a Subsidiary (other than a Restricted
Subsidiary) or from a Restricted Subsidiary to another
Subsidiary (other than a Restricted Subsidiary) and in
either case is for Fair Market Value, so long as
immediately before and immediately after the consummation
of such transaction, and after giving effect thereto, no
Default or Event of Default exists or would exist (each
such Transfer, an "INTERGROUP TRANSFER"); or
(c) such Transfer is not an Ordinary Course Transfer or an
Intergroup Transfer (such Transfers collectively referred to as "EXCLUDED
TRANSFERS"), and all of the following conditions shall have been satisfied with
respect thereto (the date of the consummation of such Transfer being referred to
herein as the "PROPERTY DISPOSITION DATE"):
(i) the book value of the assets included in such Transfer,
together with the book value of the assets included in all
other Transfers (other than Excluded Transfers) during the
fiscal year which includes the Property Disposition Date,
shall not exceed fifteen percent (15%) of Consolidated
Assets as of the end of the most recent fiscal year;
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(ii) the book value of the assets included in such Transfer,
together with the book value of the assets included in all
other Transfers (other than Excluded Transfers) from
January 1, 1998 through the Property Disposition Date,
shall not exceed thirty percent (30%) of Consolidated
Assets as of the end of the most recent fiscal year; and
(iii) immediately after giving effect to such Transfer, no
Default or Event of Default would exist and the Company
would be permitted by the provisions of Sections 10.4 and
10.9 to incur at least $1.00 of additional Indebtedness
and $1.00 of additional Restricted Indebtedness,
respectively.
If, within twelve (12) months after the Property Disposition Date, the Company
or a Restricted Subsidiary acquires assets similar to the assets included in the
Transfer, then, only for the purpose of determining compliance with Sections
10.3(c)(i) and (ii), the lesser of the book value of the assets acquired or the
book value of the assets included in the Transfer shall not be taken into
account.
10.4. INCURRENCE OF INDEBTEDNESS
The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create, incur, assume, guarantee, or
otherwise become directly or indirectly liable with respect to any Indebtedness,
unless on the date the Company or such Restricted Subsidiary becomes liable with
respect to any such Indebtedness and immediately after giving effect thereto and
to the substantially concurrent retirement of any other Indebtedness,
(a) no Default or Event of Default would exist, and
(b) Consolidated Indebtedness would not exceed sixty percent
(60%) of Consolidated Capitalization.
For purposes of this Section 10.4, any Person becoming a
Restricted Subsidiary after the date of this Agreement shall be deemed to have
incurred all of its then outstanding Indebtedness at the time it becomes a
Restricted Subsidiary.
10.5. LIENS
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly create, incur, assume or permit to exist
(upon the happening of a contingency or otherwise) any Lien on or with respect
to any property or asset (including, without limitation, any document or
instrument in respect of goods or accounts receivable) of the Company or any
such Restricted Subsidiary, whether now owned or held or hereafter acquired, or
any income or profits therefrom, or assign or otherwise convey any right to
receive income or profits, except:
(a) Liens for taxes, assessments or other governmental charges the
payment of which is not at the time required by Section 9.4;
(b) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other similar Liens, in each case,
incurred in the ordinary course of business for sums not yet due;
(c) Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business (i) in connection with workers'
compensation, unemployment insurance and other types of social security or
retirement benefits, or (ii) to secure (or to obtain letters of credit that
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secure) the performance of tenders, statutory obligations, surety bonds, appeal
bonds, bids, leases (other than Capital Leases), performance bonds, purchase,
construction or sales contracts and other similar obligations, in each case not
incurred or made in connection with the borrowing of money, the obtaining of
advances or credit or the payment of the deferred purchase price of property;
(d) any attachment or judgment Lien, unless the judgment or other
obligation it secures (i) shall not, within ninety (90) days after the entry
thereof, have been discharged or execution thereof stayed pending appeal, or
shall not have been discharged within ninety (90) days after the expiration of
any such stay or (ii) exceeds, together with the amounts of all other
obligations secured by attachment or judgment Liens at the time existing in
respect of property of the Company and its Restricted Subsidiaries, $5,000,000;
(e) leases or subleases granted to others, easements,
rights-of-way, restrictions and other similar charges or encumbrances, in each
case incidental to, and not interfering with, the ordinary conduct of the
business of the Company or any of its Restricted Subsidiaries, provided that
such Liens do not, in the aggregate, materially detract from the value of such
property;
(f) Liens on property or assets of the Company or any of its
Restricted Subsidiaries securing Indebtedness or other obligations owing to the
Company or to a Wholly Owned Restricted Subsidiary;
(g) Liens existing on April 1, 1998 on the headquarters building
owned by Lennox Commercial Realty Inc. and leased to Lennox Industries Inc.
securing Indebtedness of Lennox Commercial Realty Inc. in the principal amount
of $7,936,631 as of January 31, 1998;
(h) any Lien renewing, extending or refunding any Lien permitted
by Subsection (g) above, provided that (i) the principal amount of Indebtedness
secured by such Lien immediately prior to such extension, renewal or refunding
is not increased or the maturity thereof reduced, (ii) such Lien is not extended
to any other property, and (iii) immediately after such extension, renewal or
refunding no Default or Event of Default would exist and the Company would be
permitted by the provisions of Sections 10.4 and 10.9 to incur at least $1.00 of
additional Indebtedness and $1.00 of additional Restricted Indebtedness,
respectively; and
(i) other Liens not otherwise permitted by Subsections (a) through
(h) above, provided that (i) the total obligations secured by such other Liens
shall not exceed 10% of Consolidated Capitalization and (ii) immediately after
giving effect to the creation thereof, the Company would be permitted by the
provisions of Sections 10.4 and 10.9 to incur at least $1.00 of additional
Indebtedness and $1.00 of additional Restricted Indebtedness, respectively.
For purposes of this Section 10.5, any Person becoming a
Restricted Subsidiary after the date of this Agreement shall be deemed to have
incurred all of its then outstanding Liens at the time it becomes a Restricted
Subsidiary, and any Person extending, renewing or refunding any Indebtedness
secured by any Lien shall be deemed to have incurred such Lien at the time of
such extension, renewal or refunding.
10.6. RESTRICTED PAYMENTS
The Company will not, and will not permit any of its Restricted
Subsidiaries to, declare or make, or incur any liability to declare or make, any
Restricted Payment, unless immediately after giving effect to such action:
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(a) no Default or Event of Default would exist; and
(b) the Company would be permitted by the provisions of Sections
10.4 and 10.9 to incur at least $1.00 of additional Indebtedness and $1.00 of
additional Restricted Indebtedness, respectively.
10.7. CONSOLIDATED NET WORTH.
The Company will not permit Consolidated Net Worth as at the last
day of any fiscal quarter of the Company to be less than the sum of (a)
$261,000,000, plus (b) 15% of its aggregate Consolidated Net Income (but only if
a positive number) for the period beginning April 1, 1998 and ending at the end
of each fiscal quarter thereafter.
10.8. LIMITATION ON DIVIDEND RESTRICTIONS, ETC.
The Company will not permit any Restricted Subsidiary to enter
into, adopt, create or otherwise be or become bound by or subject to any
contract or charter or by-law provision limiting the amount of, or otherwise
imposing restrictions on the declaration, payment or setting aside of funds for
the making of, dividends or other distributions in respect of the capital stock
of such Restricted Subsidiary to the Company or another Restricted Subsidiary.
10.9. LIMITATION ON RESTRICTED INDEBTEDNESS.
The Company will not at any time permit the aggregate amount of
Restricted Indebtedness to exceed 10% of Consolidated Capitalization.
10.10. PREFERRED STOCK OF RESTRICTED SUBSIDIARIES.
The Company will not permit any Restricted Subsidiary to issue or
permit to remain outstanding any Preferred Stock unless such Preferred Stock is
issued to and at all times owned and held by the Company or a Wholly-Owned
Restricted Subsidiary.
10.11. NO REDESIGNATION OF RESTRICTED SUBSIDIARIES.
The Company will not designate any Restricted Subsidiary as, or
take or permit to be taken any action that would cause any Restricted Subsidiary
to become, an Unrestricted Subsidiary.
10.12. EVENTS OF DEFAULT
An "EVENT OF DEFAULT" shall exist if any of the following
conditions or events shall occur and be continuing:
(a) the Company defaults in the payment of any principal or
Special Premium, if any, on any Note when the same becomes due and payable,
whether at maturity or at a date fixed for prepayment or by declaration or
otherwise; or
(b) the Company defaults in the payment of any interest on any
Note for more than five Business Days after the same becomes due and payable; or
(c) the Company defaults in the performance of or compliance with
any term contained in Section 7.1(d), 9.6 or 10.2 through 10.11; or
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<PAGE> 20
(d) the Company defaults in the performance of or compliance with
any term contained herein (other than those referred to in paragraphs (a), (b)
and (c) of this Section 11) or any Additional Covenant and such default is not
remedied within 30 days after the earlier of (i) a Responsible Officer obtaining
actual knowledge of such default and (ii) the Company receiving written notice
of such default from any holder of a Note (any such written notice to be
identified as a "NOTICE OF DEFAULT" and to refer specifically to this paragraph
(d) of Section 11); or
(e) any representation or warranty made in writing by or on behalf
of the Company or by any officer of the Company in this Agreement or in any
writing furnished in connection with the transactions contemplated hereby proves
to have been false or incorrect in any material respect on the date as of which
made; or
(f) (i) the Company or any Restricted Subsidiary is in default (as
principal or as guarantor or other surety) in the payment of any principal of or
premium or make-whole amount or interest on any Indebtedness that is outstanding
in an aggregate principal amount of at least $5,000,000 beyond any period of
grace provided with respect thereto, or (ii) the Company or any Restricted
Subsidiary is in default in the performance of or compliance with any term of
any evidence of any Indebtedness in an aggregate outstanding principal amount of
at least $5,000,000 or of any mortgage, indenture or other agreement relating
thereto or any other condition exists, and as a consequence of such default or
condition such Indebtedness has become, or has been declared due and payable
before its stated maturity or before its regularly scheduled dates of payment;
or
(g) the Company or any Restricted Subsidiary (i) is generally not
paying, or admits in writing its inability to pay, its debts as they become due,
(ii) files, or consents by answer or otherwise to the filing against it of, a
petition for relief or reorganization or arrangement or any other petition in
bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency,
reorganization, moratorium or other similar law of any jurisdiction, (iii) makes
an assignment for the benefit of its creditors, (iv) consents to the appointment
of a custodian, receiver, trustee or other officer with similar powers with
respect to it or with respect to any substantial part of its property, (v) is
adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for
the purpose of any of the foregoing; or
(h) a court or governmental authority of competent jurisdiction
enters an order appointing, without consent by the Company or any of its
Restricted Subsidiaries, a custodian, receiver, trustee or other officer with
similar powers with respect to it or with respect to any substantial part of its
property, or constituting an order for relief or approving a petition for relief
or reorganization or any other petition in bankruptcy or for liquidation or to
take advantage of any bankruptcy or insolvency law of any jurisdiction, or
ordering the dissolution, winding-up or liquidation of the Company or any of its
Restricted Subsidiaries, or any such petition shall be filed against the Company
or any of its Restricted Subsidiaries and such petition shall not be dismissed
within 60 days; or
(i) a final judgment or judgments for the payment of money
aggregating in excess of $5,000,000 are rendered against one or more of the
Company and its Restricted Subsidiaries and which judgments are not, within 60
days after entry thereof, bonded, discharged or stayed pending appeal, or are
not discharged within 60 days after the expiration of such stay; or
(j) if (i) any Plan subject to the minimum funding standards of
ERISA or the Code shall fail to satisfy such standards for any plan year or part
thereof or a waiver of such standards or extension of any amortization period is
sought or granted under section 412 of the Code, (ii) a notice of intent to
terminate any Plan shall have been or is reasonably expected to be filed with
the PBGC or the PBGC
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<PAGE> 21
shall have instituted proceedings under ERISA section 4042 to terminate or
appoint a trustee to administer any Plan or the PBGC shall have notified the
Company or any ERISA Affiliate that a Plan may become a subject of any such
proceedings, (iii) the aggregate amount of unfunded accrued plan benefit
liabilities under all Plans subject to Title IV of ERISA, determined in
accordance with Financial Accounting Standards Board Statement No. 87 or 132, as
the case may be, as of the end of such Plans' most recently ended plan year on
the basis of actuarial assumptions specified for funding purposes in such Plans'
most recent actuarial valuation report, shall exceed $5,000,000, (iv) the
Company or any ERISA Affiliate shall have incurred or is reasonably expected to
incur any liability pursuant to Title I or IV of ERISA or the penalty or excise
tax provisions of the Code relating to employee benefit plans, (v) the Company
or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the
Company or any Restricted Subsidiary establishes or amends any employee welfare
benefit plan that provides post-employment welfare benefits in a manner that
would increase the liability of the Company or any Restricted Subsidiary
thereunder; and any such event or events described in clauses (i) through (vi)
above, either individually or together with any other such event or events,
would reasonably be expected to have a Materially Adverse Effect.
As used in Section 11(j), the terms "EMPLOYEE BENEFIT PLAN" and "EMPLOYEE
WELFARE BENEFIT PLAN" shall have the respective meanings assigned to such terms
in Section 3 of ERISA.
12. REMEDIES ON DEFAULT, ETC.
12.1. ACCELERATION
(a) If an Event of Default with respect to the Company described
in paragraph (g) or (h) of Section 11 (other than an Event of Default described
in clause (i) of paragraph (g) or described in clause (vi) of paragraph (g) by
virtue of the fact that such clause encompasses clause (i) of paragraph (g)) has
occurred, all the Notes then outstanding shall automatically become immediately
due and payable.
(b) If any other Event of Default has occurred and is continuing,
any holder or holders of more than 66 2/3% in principal amount of the Notes at
the time outstanding may at any time at its or their option, by notice or
notices to the Company, declare all the Notes then outstanding to be immediately
due and payable.
(c) If any Event of Default described in paragraph (a) or (b) of
Section 11 has occurred and is continuing, any holder or holders of Notes at the
time outstanding affected by such Event of Default may at any time, at its or
their option, by notice or notices to the Company, declare all the Notes held by
it or them to be immediately due and payable.
Upon any Notes becoming due and payable under this Section 12.1,
whether automatically or by declaration, such Notes will forthwith mature and
the entire unpaid principal amount of such Notes, plus (x) all accrued and
unpaid interest thereon and (y) the Special Premium determined in respect of
such principal amount, shall all be immediately due and payable, in each and
every case without presentment, demand, protest or further notice, all of which
are hereby waived. The Company acknowledges, and the parties hereto agree, that
each holder of a Note has the right to maintain its investment in the Notes free
from repayment by the Company (except as herein specifically provided for) and
that the provision for payment of Special Premium by the Company in the event
that the Notes are prepaid or are accelerated as a result of an Event of
Default, is intended to provide compensation for the deprivation of such right
under such circumstances.
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<PAGE> 22
12.2. OTHER REMEDIES
If any Default or Event of Default has occurred and is continuing,
and irrespective of whether any Notes have become or have been declared
immediately due and payable under Section 12.1, the holder of any Note at the
time outstanding may proceed to protect and enforce the rights of such holder by
an action at law, suit in equity or other appropriate proceeding, whether for
the specific performance of any agreement contained herein or in any Note, or
for an injunction against a violation of any of the terms hereof or thereof, or
in aid of the exercise of any power granted hereby or thereby or by law or
otherwise.
12.3. RESCISSION
At any time after any Notes have been declared due and payable
pursuant to clause (b) or (c) of Section 12.1, the holders of not less than 66
2/3% in principal amount of the Notes then outstanding, by written notice to the
Company, may rescind and annul any such declaration and its consequences if (a)
the Company has paid all overdue interest on the Notes, all principal of and the
Special Premium, if any, on any Notes that are due and payable and are unpaid
other than by reason of such declaration, and all interest on such overdue
principal and Special Premium, if any, and any overdue interest in respect of
the Notes, at the Default Rate, (b) all Events of Default and Defaults, other
than non-payment of amounts that have become due solely by reason of such
declaration, have been cured or have been waived pursuant to the amendment and
waiver provisions hereof, and (c) no judgment or decree has been entered for the
payment of any monies due pursuant hereto or to the Notes. No rescission and
annulment under this Section 12.3 will extend to or affect any subsequent Event
of Default or Default or impair any right consequent thereon.
12.4. WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC.
No course of dealing and no delay on the part of any holder of any
Note in exercising any right, power or remedy shall operate as a waiver thereof
or otherwise prejudice such holder's rights, powers or remedies. No right, power
or remedy conferred by this Agreement or by any Note upon any holder thereof
shall be exclusive of any other right, power or remedy referred to herein or
therein or now or hereafter available at law, in equity, by statute or
otherwise. Without limiting the obligations of the Company under Section 16.1,
the Company will pay to the holder of each Note on demand such further amount as
shall be sufficient to cover all costs and expenses of such holder incurred in
any enforcement or collection under this Section 12, including, without
limitation, reasonable attorneys' fees, expenses and disbursements.
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<PAGE> 23
SCHEDULE B
DEFINED TERMS
As used herein, the following terms have the respective meanings
set forth below or set forth in the Section hereof following such term:
"ADDITIONAL COVENANT" is defined in Section 9.7.
"AFFILIATE" means, at any time, and with respect to any Person,
any other Person that at such time directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common Control with,
such first Person. As used in this definition, "CONTROL" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise. Unless the context otherwise clearly
requires, any reference to an "AFFILIATE" is a reference to an Affiliate of the
Company.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a
day on which commercial banks in New York, New York, Chicago, Illinois or
Dallas, Texas are required or authorized to be closed.
"CAPITAL LEASE" means, at any time, a lease with respect to which
the lessee is required concurrently to recognize the acquisition of an asset and
the incurrence of a liability in accordance with GAAP.
"CAPITAL LEASE OBLIGATION" means, with respect to any Person and a
Capital Lease, the amount of the obligation of such Person as the lessee under
such Capital Lease which would, in accordance with GAAP, appear as a liability
on a balance sheet of such Person.
"CHANGE OF CONTROL" is defined in Section 9.6.
"CODE" means the Internal Revenue Code of 1986, as amended from
time to time, and the rules and regulations promulgated thereunder from time to
time.
"CONSOLIDATED ASSETS" means the total assets of the Company and
its Restricted Subsidiaries which would be shown as assets on a consolidated
balance sheet of the Company and its Restricted Subsidiaries prepared in
accordance with GAAP, after eliminating all amounts properly attributable to
minority interests, if any, in the stock and surplus of Restricted Subsidiaries.
"CONSOLIDATED CAPITALIZATION" means, at any time, the sum of
Consolidated Net Worth and Consolidated Indebtedness.
"CONSOLIDATED INDEBTEDNESS" means, as of any date of
determination, the total of all Indebtedness of the Company and its Restricted
Subsidiaries outstanding on such date, after eliminating all offsetting debits
and credits between the Company and its Restricted Subsidiaries and all other
items required to be eliminated in the course of the preparation of consolidated
financial statements of the Company and its Restricted Subsidiaries in
accordance with GAAP.
"CONSOLIDATED NET INCOME" for any period means the net income (or
net loss) of the Company and its Restricted Subsidiaries for such period,
determined in accordance with GAAP, excluding
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(a) the proceeds of any life insurance policy;
(b) any gain arising from (1) the sale or other disposition of any
assets (other than current assets) to the extent that the aggregate amount of
gains exceeds the aggregate amount of losses from the sale, abandonment or other
disposition of assets (other than current assets), (2) any write-up of assets,
or (3) the acquisition by the Company or any Restricted Subsidiary of its
outstanding securities constituting Indebtedness;
(c) any amount representing the interest of the Company or any
Restricted Subsidiary in the undistributed earnings of any other Person;
(d) any earnings of any other Person accrued prior to the date it
becomes a Restricted Subsidiary or is merged into or consolidated with the
Company or a Restricted Subsidiary and any earnings, prior to the date of
acquisition, of any other Person acquired in any other manner; and
(e) any deferred credit (or amortization of a deferred credit)
arising from the acquisition of any Person.
"CONSOLIDATED NET WORTH" means, at any time,
(a) the sum of (i) the par value (or value stated on the books of
the Company) of the capital stock (but excluding treasury stock and capital
stock subscribed and unissued) of the Company and its Restricted Subsidiaries at
such time plus (ii) the amount of paid-in-capital and retained earnings of the
Company and its Restricted Subsidiaries at such time, in each case as such
amounts would be shown on a consolidated balance sheet of the Company and its
Restricted Subsidiaries as of such time prepared in accordance with GAAP, minus
(b) to the extent included in clause (a), all amounts properly
attributable to minority interests, if any, in the stock and surplus of
Restricted Subsidiaries.
"DEFAULT" means an event or condition the occurrence or existence
of which would, with the lapse of time or the giving of notice or both, become
an Event of Default.
"DEFAULT RATE" means that rate of interest that is the greater of
(i) 2% per annum above the rate of interest stated in clause (a) of the first
paragraph of the Notes or (ii) 2% over the rate of interest publicly announced
by The Chase Manhattan Bank in New York, New York as its "BASE" or "PRIME" rate.
"DISTRIBUTION" means, in respect of any corporation, association
or other business entity:
(a) dividends or other distributions or payments on capital stock
or other equity interest of such corporation, association or other business
entity (except distributions in such stock or other equity interests); and
(b) the redemption or acquisition of such stock or other equity
interests or of warrants, rights or other options to purchase such stock or
other equity interests (except when solely in exchange for such stock or other
equity interests) unless made, contemporaneously, from the net proceeds of a
sale of such stock or other equity interests.
"ENVIRONMENTAL LAWS" means any and all Federal, state, local, and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment or the release of any materials into the environment, including but
not limited to those related to hazardous substances or wastes, air emissions
and discharges to waste or public systems.
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"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the rules and regulations promulgated
thereunder from time to time in effect.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the Company
under section 414 of the Code.
"EVENT OF DEFAULT" is defined in Section 11.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXCLUDED TRANSFERS" is defined in Section 10.3.
"EXISTING NOTE PURCHASE AGREEMENTS" means (i) the Agreements of
Assumption and Restatement dated as of December 1, 1991 between the Company and
the institutional investors parties thereto, (ii) the Note Purchase Agreements
dated as of December 1, 1993 between the Company and the institutional investors
parties thereto, and (iii) the Note Purchase Agreement dated as of July 6, 1995
between the Company and the institutional investors parties thereto.
"FAIR MARKET VALUE" means, at any time and with respect to any
property, the sale value of such property that would be realized in an arm's
length sale at such time between an informed and willing buyer and an informed
and willing seller (neither being under a compulsion to buy or sell).
"GAAP" means generally accepted accounting principles as in effect
from time to time in the United States of America.
"GOVERNMENTAL AUTHORITY" means
(a) the government of
(i) the United States of America or any State or other political
subdivision thereof, or
(ii) any jurisdiction in which the Company or any Subsidiary
conducts all or any part of its business, or which asserts jurisdiction over any
properties of the Company or any Subsidiary, or
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.
"GUARANTY" means, with respect to any Person, any obligation
(except the endorsement in the ordinary course of business of negotiable
instruments for deposit or collection) of such Person guaranteeing or in effect
guaranteeing any Indebtedness, dividend or other obligation of any other Person
in any manner, whether directly or indirectly, including (without limitation)
obligations incurred through an agreement, contingent or otherwise, by such
Person:
(a) to purchase such Indebtedness or obligation or any property
constituting security therefor;
(b) to advance or supply funds (i) for the purchase or payment of
such Indebtedness or obligation, or (ii) to maintain any working capital or
other balance sheet condition or any income statement condition of any other
Person or otherwise to advance or make available funds for the purchase or
payment of such Indebtedness or obligation;
(c) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such Indebtedness or
obligation of the ability of any other Person to make payment of the
Indebtedness or obligation; or
(d) otherwise to assure the owner of such Indebtedness or
obligation against loss in respect thereof. In any computation of the
Indebtedness or other liabilities of the obligor under any
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Guaranty, the Indebtedness or other obligations that are the subject of such
Guaranty shall be assumed to be direct obligations of such obligor.
"HAZARDOUS SUBSTANCE" means any contaminant, pollutant or toxic or
hazardous substance, and any substance that is defined or listed as a hazardous,
toxic or dangerous substance under any Environmental Law or that is otherwise
regulated or prohibited under any Environmental Law as a hazardous, toxic or
dangerous substance.
"HOLDER" means, with respect to any Note, the Person in whose name
such Note is registered in the register maintained by the Company pursuant to
Section 10 of the Existing Note Purchase Agreements.
"INDEBTEDNESS" with respect to any Person means, at any time,
without duplication,
(a) its liabilities for borrowed money and its redemption
obligations in respect of mandatorily redeemable Preferred Stock;
(b) its liabilities for the deferred purchase price of property
acquired by such Person (excluding accounts payable arising in the ordinary
course of business but including all liabilities created or arising under any
conditional sale or other title retention agreement with respect to any such
property);
(c) all liabilities appearing on its balance sheet in accordance
with GAAP in respect of Capital Leases;
(d) all liabilities for borrowed money secured by any Lien with
respect to any property owned by such Person (whether or not it has assumed or
otherwise become liable for such liabilities);
(e) all its liabilities in respect of letters of credit or
instruments serving a similar function issued or accepted for its account by
banks and other financial institutions (whether or not representing obligations
for borrowed money, but excluding in any event obligations in respect of (1)
trade or commercial letters of credit issued for the account of the Company or a
Restricted Subsidiary in the ordinary course of its business and (2) stand-by
letters of credit issued to support obligations of the Company or a Restricted
Subsidiary that do not constitute Indebtedness);
(f) Swaps of such Person; and
(g) any Guaranty of such Person with respect to liabilities of a
type described in any of clauses (a) through (f) hereof.
Indebtedness of any Person shall include all obligations of such
Person of the character described in clauses (a) through (g) above to the extent
such Person remains legally liable in respect thereof notwithstanding that any
such obligation is deemed to be extinguished under GAAP.
"INSTITUTIONAL INVESTOR" means (a) any original purchaser of a
Note, (b) any holder of a Note holding more than 10% of the aggregate principal
amount of the Notes then outstanding, and (c) any bank, trust company, savings
and loan association or other financial institution, any pension plan, any
investment company, any insurance company, any broker or dealer, or any other
similar financial institution or entity, regardless of legal form.
"INTERGROUP TRANSFER" is defined in Section 10.3.
"LIEN" means, with respect to any Person, any mortgage, lien,
pledge, charge, security interest or other encumbrance, or any interest or title
of any vendor, lessor, lender or other secured party to or of such Person under
any conditional sale or other title retention agreement or Capital Lease, upon
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<PAGE> 27
or with respect to any property or asset of such Person (including in the case
of stock, stockholder agreements, voting trust agreements and all similar
arrangements).
"MATERIAL" means material in relation to the business, operations,
affairs, financial condition, assets, or properties of the Company and its
Subsidiaries taken as a whole.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a)
the business, operations, affairs, financial condition, assets or properties of
the Company and its Restricted Subsidiaries taken as a whole, or (b) the ability
of the Company to perform its obligations under this Agreement and the Notes, or
(c) the validity or enforceability of this Agreement or the Notes.
"MULTIEMPLOYER PLAN" means any Plan that is a "MULTIEMPLOYER PLAN"
(as such term is defined in section 4001(a)(3) of ERISA).
"NEW OWNER" is defined in Section 9.6.
"NORRIS FAMILY" is defined in Section 9.6.
"OFFICER'S CERTIFICATE" means a certificate of a Senior Financial
Officer or of any other officer of the Company whose responsibilities extend to
the subject matter of such certificate.
"OTHER AGREEMENTS" means, when used in the case of an Existing
Note Purchase Agreement referred to in clause (i) or (ii) of the definition
thereof, the other substantially identical agreements entered into by the
Company and other institutional investors in connection therewith.
"ORDINARY COURSE TRANSFER" is defined in Section 10.3.
"PBGC" means the Pension Benefit Guaranty Corporation referred to
and defined in ERISA or any successor thereto.
"PERSON" means an individual, partnership, corporation, limited
liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
"PLAN" means an "EMPLOYEE BENEFIT PLAN" (as defined in section
3(3) of ERISA) that is or, within the preceding five years, has been established
or maintained, or to which contributions are or, within the preceding five
years, have been made or required to be made, by the Company or any ERISA
Affiliate or with respect to which the Company or any ERISA Affiliate may have
any liability.
"PREFERRED STOCK" means any class of capital stock of a
corporation that is preferred over any other class of capital stock of such
corporation as to the payment of dividends or the payment of any amount upon
liquidation or dissolution of such corporation.
"PROPERTY" or "PROPERTIES" means, unless otherwise specifically
limited, real or personal property of any kind, tangible or intangible, choate
or inchoate.
"PROPERTY DISPOSITION DATE" is defined in Section 10.3.
"PURCHASE DATE" is defined in Section 9.6.
"QPAM EXEMPTION" means Prohibited Transaction Class Exemption
84-14 issued by the United States Department of Labor.
"REQUIRED HOLDERS" means, at any time, the holders of at least 51%
in principal amount of the Notes at the time outstanding (exclusive of Notes
then owned by the Company or any of its Affiliates).
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<PAGE> 28
"RESPONSIBLE OFFICER" means any Senior Financial Officer and any
other officer of the Company with responsibility for the administration of the
relevant portion of this agreement.
"RESTRICTED INDEBTEDNESS" means, without duplication, (i)
Indebtedness of the Company or any Restricted Subsidiary which is secured by a
Lien not otherwise permitted under subsections (a) through (h) of Section 10.5,
and (ii) Indebtedness of a Restricted Subsidiary owing to any Person other than
the Company or a Wholly-Owned Subsidiary.
"RESTRICTED PAYMENT" means any Distribution in respect of the
Company or any Restricted Subsidiary (other than on account of capital stock or
other equity interests of a Restricted Subsidiary owned legally and beneficially
by the Company or another Restricted Subsidiary), including, without limitation,
any Distribution resulting in the acquisition by the Company of Securities which
would constitute treasury stock. For purposes of this Agreement, the amount of
any Restricted Payment made in property shall be the greater of (x) the Fair
Market Value of such property (as determined in good faith by the board of
directors (or equivalent governing body) of the Person making such Restricted
Payment) and (y) the net book value thereof on the books of such Person, in each
case determined as of the date on which such Restricted Payment is made.
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company which
is (a) listed as a Restricted Subsidiary in Schedule C attached hereto or (b)
organized under the laws of, and conducts substantially all of its business and
maintains substantially all of its property and assets within, the United States
or any state thereof (including the District of Columbia).
"SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time.
"SECURITY" has the meaning set forth in Section 2(1) of the
Securities Act.
"SENIOR FINANCIAL OFFICER" means the chief financial officer,
principal accounting officer, treasurer or comptroller of the Company.
"SUBSIDIARY" means, as to any Person, any corporation, association
or other business entity in which such Person or one or more of its Subsidiaries
or such Person and one or more of its Subsidiaries owns sufficient equity or
voting interests to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership or joint venture if more
than a 50% interest in the profits or capital thereof is owned by such Person or
one or more of its Subsidiaries or such Person and one or more of its
Subsidiaries (unless such partnership can and does ordinarily take major
business actions without the prior approval of such Person or one or more of its
Subsidiaries). Unless the context otherwise clearly requires, any reference to a
"SUBSIDIARY" is a reference to a Subsidiary of the Company.
"SWAPS" means, with respect to any Person, payment obligations
with respect to interest rate swaps, currency swaps and similar obligations
obligating such Person to make payments, whether periodically or upon the
happening of a contingency. For the purposes of this Agreement, the amount of
the obligation under any Swap shall be the amount determined in respect thereof
as of the end of the then most recently ended fiscal quarter of such Person,
based on the assumption that such Swap had terminated at the end of such fiscal
quarter, and in making such determination, if any agreement relating to such
Swap provides for the netting of amounts payable by and to such Person
thereunder or if any such agreement provides for the simultaneous payment of
amounts by and to such Person, then in each such case, the amount of such
obligation shall be the net amount so determined.
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<PAGE> 29
"TRANSFER" means, with respect to any Person, any transaction in
which such Person sells, conveys, transfers or leases (as lessor) any of its
property, including capital stock of, or a Security issued by, a Subsidiary.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary other than a
Restricted Subsidiary.
"VOTING RIGHTS" is defined in Section 9.6.
"WHOLLY-OWNED RESTRICTED SUBSIDIARY" or "WHOLLY-OWNED SUBSIDIARY"
means, at any time, any Restricted Subsidiary or Subsidiary, respectively, one
hundred percent (100%) of all of the equity interests (except directors'
qualifying shares) and voting interests of which are owned by any one or more of
the Company and the Company's other Wholly-Owned Restricted Subsidiaries or
Wholly-Owned Subsidiaries, respectively, at such time.
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SCHEDULE C
LENNOX INTERNATIONAL INC. SUBSIDIARIES
AS OF JANUARY 31, 1998
PAGE 1
<TABLE>
<CAPTION>
SUBSTANTIAL LOCATION OF
NAME OWNERSHIP JURISDICTION OF INC. RESTRICTED/UNRESTRICTED OPERATING ASSETS
- ---- --------- -------------------- ----------------------- ----------------
<S> <C> <C> <C> <C>
(1) LENNOX INDUSTRIES INC. 100% Iowa Restricted United States
SEE ATTACHED CHART
(2) HEATCRAFT INC. 100% Mississippi Restricted United States
(3) HEATCRAFT TECHNOLOGIES INC. 100% Delaware Restricted United States
(4) ARMSTRONG AIR CONDITIONING INC. 100% Ohio Restricted United States
(5) LENNOX FOREIGN SALES CORP. 100% U.S. Virgin Islands Unrestricted N/A
(6) LENNOX COMMERCIAL REALTY INC. 100% Iowa Restricted United States
(7) LENNOX GLOBAL LTD. 100% Delaware Unrestricted United States
See Attached Chart
</TABLE>
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<PAGE> 31
LENNOX INTERNATIONAL INC. SUBSIDIARIES
AS OF JANUARY 31, 1998
PAGE 2
<TABLE>
<CAPTION>
SUBSTANTIAL LOCATION OF
NAME OWNERSHIP JURISDICTION OF INC. RESTRICTED/UNRESTRICTED OPERATING ASSETS
- ---- --------- -------------------- ----------------------- ----------------
<S> <C> <C> <C> <C>
LENNOX INDUSTRIES INC.
(a) Products Acceptance Corporation 100% Iowa Restricted N/A
(b) Lennox Industries (Canada) Ltd. 100% Canada Unrestricted Canada
(c) Lennox Industries SW Inc. 100% Iowa Restricted N/A
(d) Lennox Manufacturing Inc. 100% Delaware Restricted United States
</TABLE>
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<PAGE> 32
LENNOX INTERNATIONAL INC. SUBSIDIARIES
AS OF JANUARY 31, 1998
PAGE 3
<TABLE>
<CAPTION>
SUBSTANTIAL LOCATION OF
NAME OWNERSHIP JURISDICTION OF INC. RESTRICTED/UNRESTRICTED OPERATING ASSETS
- ---- --------- -------------------- ----------------------- ----------------
<S> <C> <C> <C> <C>
LENNOX GLOBAL LTD.
(a) UK Industries Inc. 100% Delaware Unrestricted N/A
(b) UK Global Ltd. 100% Delaware Unrestricted N/A
(c) Lennox Australia Pty. Ltd. 100% Australia Unrestricted Australia
(d) LGL Asia-Pacific Pte. Ltd. 100% Rep. of Singapore Unrestricted Singapore
(e) LGL (Australia) Pty. Ltd. 100% Australia Unrestricted Australia
(f) LGL de Mexico, S.A. de C.V. 99% Mexico Unrestricted Mexico
(g) Ets. Brancher S.A. 70% France Unrestricted France
(1) SEE ATTACHED CHART
</TABLE>
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<PAGE> 33
LENNOX INTERNATIONAL INC. SUBSIDIARIES
AS OF JANUARY 31, 1998
PAGE 4
<TABLE>
<CAPTION>
SUBSTANTIAL LOCATION OF
NAME OWNERSHIP JURISDICTION OF INC. RESTRICTED/UNRESTRICTED OPERATING ASSETS
- ---- --------- -------------------- ----------------------- ----------------
<S> <C> <C> <C> <C>
ETS. BRANCHER S.A.
(a) HCF-Lennox Limited 100% United Kingdom Unrestricted United Kingdom
(1) Lennox Industries 100% United Kingdom Unrestricted United Kingdom
(A) Environheat Limited 100% United Kingdom Unrestricted N/A
(b) HCF Lennox S.A. 100% France Unrestricted France
(1) SEE ATTACHED CHART
(c) Frinotech S.A. 99.68% France Unrestricted N/A
(d) Friga-Bohn S.A. 100% France Unrestricted France
(1) Friga-Bohn
Warmeauslauscher GmbH 100% Germany Unrestricted Germany
(2) ERSA 79.5% Spain Unrestricted Spain
(3) West 80% Italy Unrestricted Italy
(4) Friga-Coil 50% Czech Republic Unrestricted Czech Republic
(5) Herac Ltd. 100% United Kingdom Unrestricted N/A
(e) SCI Geraval 99.83% France Unrestricted France
(f) SCI Groupe Brancher 76% France Unrestricted France
</TABLE>
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<PAGE> 34
LENNOX INTERNATIONAL INC. SUBSIDIARIES
AS OF JANUARY 31, 1998
PAGE 5
<TABLE>
<CAPTION>
SUBSTANTIAL LOCATION OF
NAME OWNERSHIP JURISDICTION OF INC. RESTRICTED/UNRESTRICTED OPERATING ASSETS
- ---- --------- -------------------- ----------------------- ----------------
<S> <C> <C> <C> <C>
HCF LENNOX S.A.
(a) Refac B.V. 100% Netherlands Unrestricted Netherlands
(1) Refac NV 100% Belgium Unrestricted Belgium
(2) Refac Nord GmbH 100% Germany Unrestricted N/A
(A) Refac West GmbH 100% Germany Unrestricted N/A
(3) Refac Kalte-Klima
Technik Vertriebs GmbH 50% Germany Unrestricted N/A
(4) Refac UK Ltd. 100% United Kingdom Unrestricted United Kingdom
(b) Hyfra GmbH 100% Germany Unrestricted Germany
(c) Lennox-Refac S.A. 100% Spain Unrestricted Spain
(1) Redi Andalucia S.A. 70% Spain Unrestricted N/A
(2) Lennox Refac 100% Portugal Unrestricted N/A
(3) Redi Sur Andalucia S.A. 70% Spain Unrestricted N/A
(4) Deutsche Bronswerk GmbH 100% Germany Unrestricted Germany
(5) Bronswerk Refac GmbH 100% Germany Unrestricted Germany
</TABLE>
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<PAGE> 1
EXHIBIT 10.6
================================================================================
LENNOX INTERNATIONAL INC.
-----------------------------------------------
REVOLVING CREDIT FACILITY AGREEMENT
Dated as of July 13, 1998
-----------------------------------------------
CHASE BANK TEXAS, NATIONAL ASSOCIATION,
as Administrative Agent
and
WACHOVIA BANK, N.A.,
as Documentation Agent
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I. DEFINITIONS..........................................................................................1
SECTION 1.01. Defined Terms.............................................................................1
SECTION 1.02. Terms Generally..........................................................................12
ARTICLE II. THE CREDITS.........................................................................................13
SECTION 2.01. Commitments..............................................................................13
SECTION 2.02. Loans....................................................................................13
SECTION 2.03. Offered Rate Procedure and Loan Terms....................................................15
SECTION 2.04. Standby Borrowing Procedure..............................................................16
SECTION 2.05. Fees.....................................................................................16
SECTION 2.06. Repayment of Loans; Evidence of Indebtedness.............................................17
SECTION 2.07. Interest on Loans; Margin and Fees.......................................................17
SECTION 2.08. Default Interest.........................................................................19
SECTION 2.09. Alternate Rate of Interest...............................................................19
SECTION 2.10. Termination and Reduction of Commitments.................................................20
SECTION 2.11. Prepayment...............................................................................20
SECTION 2.12. Reserve Requirements; Change in Circumstances............................................22
SECTION 2.13. Change in Legality.......................................................................23
SECTION 2.14. Pro Rata Treatment.......................................................................24
SECTION 2.15. Sharing of Setoffs........................................................................24
SECTION 2.16. Payments..................................................................................25
SECTION 2.17. Taxes.....................................................................................25
SECTION 2.18. Assignment of Commitments Under Certain Circumstances....................................28
SECTION 2.19. Payments by Agent to the Lenders.........................................................28
ARTICLE III. REPRESENTATIONS AND WARRANTIES.....................................................................29
SECTION 3.01. Organization; Powers......................................................................29
SECTION 3.02. Authorization.............................................................................29
SECTION 3.03. Enforceability...........................................................................29
SECTION 3.04. Governmental Approvals...................................................................29
SECTION 3.05. Organization and Ownership of Shares of Subsidiaries.....................................29
SECTION 3.06. Financial Statements.....................................................................30
SECTION 3.07. Litigation; Observance of Statutes and Orders............................................30
SECTION 3.08. Taxes....................................................................................31
SECTION 3.09. Title to Property; Leases................................................................31
SECTION 3.10. Licenses, Permits, etc...................................................................31
SECTION 3.11. Compliance with ERISA....................................................................31
SECTION 3.12. Use of Proceeds; Margin Regulation.......................................................32
SECTION 3.13. Existing Indebtedness....................................................................32
SECTION 3.14. Foreign Assets Control Regulations, etc..................................................33
SECTION 3.15. Status under Certain Statutes............................................................33
SECTION 3.16. No Material Misstatements................................................................33
SECTION 3.17. Year 2000 Matters........................................................................33
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE IV. CONDITIONS OF LENDING...............................................................................33
SECTION 4.01. All Borrowings...........................................................................33
SECTION 4.02. Effective Date...........................................................................34
ARTICLE V. AFFIRMATIVE AND NEGATIVE COVENANTS...................................................................35
SECTION 5.01. Compliance with Law......................................................................35
SECTION 5.02. Insurance................................................................................35
SECTION 5.03. Maintenance of Properties................................................................35
SECTION 5.04. Payment of Taxes.........................................................................35
SECTION 5.05. Corporate Existence, etc.................................................................36
SECTION 5.06. Most Favored Lender Status...............................................................36
SECTION 5.07. Covenant to Secure Loans Equally.........................................................37
SECTION 5.08. Environmental Matters....................................................................37
SECTION 5.09. Transactions with Affiliates.............................................................37
SECTION 5.10. Merger, Consolidation, etc...............................................................38
SECTION 5.11. Sale of Assets, etc......................................................................38
SECTION 5.12. Incurrence of Indebtedness...............................................................39
SECTION 5.13. Liens....................................................................................40
SECTION 5.14. Restricted Payments......................................................................41
SECTION 5.15. Consolidated Net Worth...................................................................41
SECTION 5.16. Limitation on Dividend Restrictions, etc.................................................41
SECTION 5.17. Limitation on Restricted Indebtedness....................................................42
SECTION 5.18. Preferred Stock of Restricted Subsidiaries...............................................42
SECTION 5.19. No Redesignation of Restricted Subsidiaries..............................................42
SECTION 5.20. Financial and Business Information.......................................................42
SECTION 5.21 Inspection; Confidentiality...............................................................45
ARTICLE VI. EVENTS OF DEFAULT...................................................................................46
ARTICLE VII. THE ADMINISTRATIVE AGENT...........................................................................48
ARTICLE VIII. MISCELLANEOUS.....................................................................................50
SECTION 8.01. Notices..................................................................................51
SECTION 8.02. Survival of Agreement.....................................................................51
SECTION 8.03. Binding Effect...........................................................................51
SECTION 8.04. Successors and Assigns...................................................................52
SECTION 8.05. Expenses; Indemnity......................................................................54
SECTION 8.06. Right of Setoff..........................................................................56
SECTION 8.07. Applicable Law...........................................................................56
SECTION 8.08. Waivers; Amendment.......................................................................56
SECTION 8.09. Entire Agreement.........................................................................57
SECTION 8.10. Severability.............................................................................57
SECTION 8.11. Counterparts.............................................................................57
SECTION 8.12. Headings.................................................................................57
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
SECTION 8.13. Interest Rate Limitation.................................................................57
SECTION 8.14. Confidentiality..........................................................................58
SECTION 8.15. Non-Application of Chapter 346 of the Texas Finance Code..................................59
</TABLE>
EXHIBITS AND SCHEDULES
<TABLE>
<S> <C>
Exhibit A-1 Form of Offered Rate Loan Confirmation
Exhibit A-2 Form of Standby Borrowing Request
Exhibit B Administrative Questionnaire
Exhibit C Form of Assignment and Acceptance
Exhibit D Matters to be addressed by Opinion of Counsel
Exhibit E Joinder Agreement
Schedule 2.01 Commitments
Schedule 3.05 Subsidiaries
Schedule 3.06 Financial Statements
Schedule 3.13 Indebtedness
</TABLE>
iii
<PAGE> 5
REVOLVING CREDIT FACILITY AGREEMENT
REVOLVING CREDIT FACILITY AGREEMENT (the "Agreement") dated as of July
13, 1998, and effective as of the Effective Date, among LENNOX INTERNATIONAL
INC., a Delaware corporation ("Borrower"); the lenders listed in Schedule 2.01
(together with their successors and assigns, the "Lenders"), CHASE BANK TEXAS,
NATIONAL ASSOCIATION, a national banking association, ("Chase"), as
administrative agent for the Lenders (in such capacity, the "Administrative
Agent"), and WACHOVIA BANK, N.A., a national banking association ("Wachovia"),
as documentation agent for the Lenders (in such capacity, the "Documentation
Agent"). (The Administrative Agent and the Documentation Agent are referred to
herein together as the "Agents").
The Lenders have been requested to extend credit to the Borrower to
enable it, upon the terms and subject to the conditions set forth herein, to
borrow on a revolving credit basis on and after the Effective Date and at any
time prior to the Maturity Date (as hereinafter defined) an aggregate principal
amount not in excess of the amount set forth herein at any time outstanding. The
Lenders have also been requested to provide a procedure pursuant to which the
Borrower may invite the Lenders to offer to make loans to the Borrower on an
uncommitted and offered rate basis. The proceeds of any such borrowings are to
be used for working capital and other corporate purposes. The Lenders are
willing to extend such credit on the terms and subject to the conditions herein
set forth.
Accordingly, the parties hereto agree as follows:
ARTICLE I.DEFINITIONS
SECTION 1.01. Defined Terms. As used in this Agreement, the following
terms shall have the meanings specified below:
"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.
"ABR Loan" shall mean any Standby Loan bearing interest at a rate
determined by reference to the Alternate Base Rate in accordance with the
provisions of Article II.
"Additional Covenant" shall have the meaning assigned in Section 5.06.
"Additional Default" shall have the meaning assigned in Section 5.06.
"Adjustment Date" shall have the meaning assigned to it in Section
2.07(e).
"Administrative Fees" shall have the meaning assigned to such term in
Section 2.05(b).
"Administrative Questionnaire" shall mean an Administrative
Questionnaire in the form of Exhibit B hereto.
REVOLVING CREDIT FACILITY AGREEMENT - Page 1
<PAGE> 6
"Affiliate" shall mean, at any time, and with respect to any Person,
any other Person that at such time directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common Control with,
such first Person. As used in this definition, "Control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise. Unless the context otherwise clearly
requires, any reference to an "Affiliate" is a reference to an Affiliate of the
Borrower.
"Alternate Base Rate" shall mean, for any day, a rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of
(a) the Federal Funds Effective Rate in effect on such day plus 2 of 1%, and (b)
the Prime Rate in effect on such day. For purposes hereof, "Prime Rate" shall
mean the rate of interest per annum publicly announced from time to time by
Chase as its prime rate in effect at its principal office in Houston, Texas;
each change in the Prime Rate shall be effective on the date such change is
publicly announced as effective; and "Federal Funds Effective Rate" shall mean,
for any day, the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as released on the next succeeding Business Day by the Federal
Reserve Bank of Dallas, or, if such rate is not so released for any day which is
a Business Day, the arithmetic average (rounded upwards to the next 1/100th of
1%), as determined by Chase, of the quotations for the day of such transactions
received by Chase from three Federal funds brokers of recognized standing
selected by it. If for any reason Chase shall have determined (which
determination shall be conclusive absent manifest error; provided that Chase,
shall, upon request, provide to the applicable Borrower a certificate setting
forth in reasonable detail the basis for such determination) that it is unable
to ascertain the Federal Funds Effective Rate for any reason, including the
inability of Chase to obtain sufficient quotations in accordance with the terms
hereof, the Alternate Base Rate shall be determined without regard to clause (a)
of the first sentence of this definition until the circumstances giving rise to
such inability no longer exist. Any change in the Alternate Base Rate due to a
change in the Prime Rate or the Federal Funds Effective Rate shall be effective
on the effective date of such change in the Prime Rate or the Federal Funds
Effective Rate, respectively.
"Applicable Margin" shall have the meaning assigned in Section 2.07(e).
"Assignment and Acceptance" shall mean an assignment and acceptance
entered into by a Lender and an assignee in the form of Exhibit C.
"Board" shall mean the Board of Governors of the Federal Reserve System
of the United States.
"Board of Directors" shall mean the Board of Directors of Borrower or
any duly authorized committee thereof.
"Borrower" shall have the meaning given such term in the preamble
hereto.
"Borrower Payments" shall have the meaning given such term in Section
2.17 (a).
REVOLVING CREDIT FACILITY AGREEMENT - Page 2
<PAGE> 7
"Borrowing" shall mean a group of Loans of a single Type made by the
Lenders on a single date and as to which a single Interest Period is in effect.
"Business Day" shall mean any day (other than a day which is a
Saturday, Sunday or legal holiday in the State of New York or the State of
Texas) on which banks are open for business in New York City, New York and
Houston, Texas; provided, however, that, when used in connection with a
Eurodollar Loan, the term "Business Day" shall also exclude any day on which
banks are not open for dealings in dollar deposits in the London interbank
market.
"Calculation Period" shall have the meaning assigned it in Section
2.07(e).
"Capital Lease Obligation" shall mean, with respect to any Person and a
Capital Lease, the amount of the obligation of such Person as the lessee under
such Capital Lease which would, in accordance with GAAP, appear as a liability
on a balance sheet of such Person.
"Capital Leases" shall mean, at any time, a lease with respect to which
the lessee is required concurrently to recognize the acquisition of an asset and
the incurrence of a liability in accordance with GAAP.
"Change of Control" shall have the meaning assigned it in Section
2.11(c).
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the rules and regulations promulgated thereunder from time to
time.
"Commitment" shall mean, with respect to each Lender, the Commitment of
such Lender set forth in Schedule 2.01 hereto, or in the most recent Assignment
and Acceptance executed by such Lender, as such Commitment may be permanently
terminated or reduced from time to time pursuant to Section 2.10. The Commitment
of each Lender shall automatically and permanently terminate on the Maturity
Date if not terminated earlier pursuant to the terms hereof.
"Compliance Certificate" shall mean the certificate delivered pursuant
to Section 5.20(g).
"Confidential Information" shall have the meaning assigned it in
Section 8.14.
"Consolidated Assets" shall mean the total assets of the Borrower and
its Restricted Subsidiaries which would be shown as assets on a consolidated
balance sheet of the Borrower and its Restricted Subsidiaries prepared in
accordance with GAAP, after eliminating all amounts properly attributable to
minority interests, if any, in the stock and surplus of Restricted Subsidiaries.
"Consolidated Capitalization" shall mean, at any time, the sum of
Consolidated Net Worth and Consolidated Indebtedness.
"Consolidated Indebtedness" shall mean, as of any date of
determination, the total of all Indebtedness of the Borrower and its Restricted
Subsidiaries outstanding on such date, after
REVOLVING CREDIT FACILITY AGREEMENT - Page 3
<PAGE> 8
eliminating all offsetting debits and credits between the Borrower and its
Restricted Subsidiaries and all other items required to be eliminated in the
course of the preparation of consolidated financial statements of the Borrower
and its Restricted Subsidiaries in accordance with GAAP.
"Consolidated Net Income" shall mean, for any period, the net income
(or net loss) of the Borrower and its Restricted Subsidiaries for such period,
determined in accordance with GAAP, excluding
(a) the proceeds of any life insurance policy;
(b) any gain arising from (1) the sale or other disposition of any
assets (other than current assets) to the extent that the aggregate amount of
gains exceeds the aggregate amount of losses from the sale, abandonment or other
disposition of assets (other than current assets), (2) any write-up of assets,
or (3) the acquisition by the Borrower or any Restricted Subsidiary of its
outstanding securities constituting Indebtedness;
(c) any amount representing the interest of the Borrower or any
Restricted Subsidiary in the undistributed earnings of any other Person;
(d) any earnings of any other Person accrued prior to the date it
becomes a Restricted Subsidiary or is merged into or consolidated with the
Borrower or a Restricted Subsidiary and any earnings, prior to the date of
acquisition, of any other Person acquired in any other manner; and
(e) any deferred credit (or amortization of a deferred credit) arising
from the acquisition of any Person.
"Consolidated Net Worth" shall mean, at any time,
(a) the sum of (i) the par value (or value stated on the books of the
Borrower) of the capital stock (but excluding treasury stock and capital stock
subscribed and unissued) of the Borrower and its Restricted Subsidiaries at such
time plus (ii) the amount of paid-in-capital and retained earnings of the
Borrower and its Restricted Subsidiaries at such time, in each case as such
amounts would be shown on a consolidated balance sheet of the Borrower and its
Restricted Subsidiaries as of such time prepared in accordance with GAAP, minus
(b) to the extent included in clause (a), all amounts properly
attributable to minority interests, if any, in the stock and surplus of
Restricted Subsidiaries.
"Continue", "Continuation", and "Continued" shall refer to the
continuation pursuant to Section 2.02 (d) of a Eurodollar Borrowing as a
Eurodollar Borrowing from one Interest Period to the next Interest Period.
"Convert", "Conversion", and "Converted" shall refer to a conversion
pursuant to Section 2.02 (d) or Section 2.13 of one Type of Borrowing into
another Type of Borrowing.
REVOLVING CREDIT FACILITY AGREEMENT - Page 4
<PAGE> 9
"Debt to Total Capitalization Ratio" shall mean, as of the end of any
quarterly fiscal period, the ratio expressed as a percentage, equal to the ratio
of Consolidated Indebtedness to Consolidated Capitalization calculated as of the
end of such fiscal period.
"Default" shall mean any event or condition which upon notice, lapse of
time or both would constitute an Event of Default.
"Distribution" shall mean, in respect of any corporation, association
or other business entity:
(a) dividends or other distributions or payments on capital stock or
other equity interest of such corporation, association or other business entity
(except distributions in such stock or other equity interests); and
(b) the redemption or acquisition of such stock or other equity
interests or of warrants, rights or other options to purchase such stock or
other equity interests (except when solely in exchange for such stock or other
equity interests) unless made, contemporaneously, from the net proceeds of a
sale of such stock or other equity interests.
"dollars" or "$" shall mean lawful money of the United States of
America.
"Effective Date" shall mean the date on which each condition set forth
in Section 4.02 has been satisfied.
"Environmental Laws" shall mean any and all Federal, state, local, and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment or the release of any materials into the environment, including but
not limited to those related to hazardous substances or wastes, air emissions
and discharges to waste or public systems.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the rules and regulations promulgated
thereunder from time to time in effect.
"ERISA Affiliate" shall mean any trade or business (whether or not
incorporated) that is treated as a single employer together with the Borrower
under section 414 of the Code.
"Eurodollar Borrowing" shall mean a Standby Borrowing comprised of
Eurodollar Loans.
"Eurodollar Loan" shall mean any Standby Loan bearing interest at a
rate determined by reference to the LIBO Rate in accordance with the provisions
of Article II.
"Event of Default" shall have the meaning assigned to such term in
Article VI.
REVOLVING CREDIT FACILITY AGREEMENT - Page 5
<PAGE> 10
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Excluded Transfer" shall have the meaning assigned to it in Section
5.11.
"Facility Fee" shall have the meaning assigned to such term in Section
2.05(a).
"Facility Fee Percentage" shall have the meaning assigned to it in
Section 2.07(e).
"Fair Market Value" shall mean, at any time and with respect to any
property, the sale value of such property that would be realized in an arm=s
length sale at such time between an informed and willing buyer and an informed
and willing seller (neither being under a compulsion to buy or sell).
"Federal Funds Effective Rate" shall have the meaning specified in the
definition of Alternate Base Rate.
"Fee Letters" shall mean, collectively, each of the letter between the
Borrower and Chase dated June 29, 1998, and the letter between Borrower and
Wachovia Bank, N.A. dated June 29, 1998.
"Fees" shall mean the Facility Fee and the Administrative Fees.
"GAAP" shall mean generally accepted accounting principles as in effect
from time to time in the United States of America.
"Governmental Authority" shall mean:
(a) the government of
(i) the United States of America or any State or other political
subdivision thereof, or
(ii) any jurisdiction in which the Borrower or any Subsidiary
conducts all or any part of its business, or which asserts
jurisdiction over any properties of the Borrower or any
Subsidiary, or
(b) any entity exercising executive, legislative, judicial, regulatory
or administrative functions of, or pertaining to, any such
government.
"Guaranty" shall mean, with respect to any Person, any obligation
(except the endorsement in the ordinary course of business of negotiable
instruments for deposit or collection) of such Person guaranteeing or in effect
guaranteeing any Indebtedness, dividend or other obligation of any other Person
in any manner, whether directly or indirectly, including (without limitation)
obligations incurred through an agreement, contingent or otherwise, by such
Person:
REVOLVING CREDIT FACILITY AGREEMENT - Page 6
<PAGE> 11
(a) to purchase such Indebtedness or obligation or any property
constituting security therefor;
(b) to advance or supply funds (i) for the purchase or payment of such
Indebtedness or obligation, or (ii) to maintain any working capital or other
balance sheet condition or any income statement condition of any other Person or
otherwise to advance or make available funds for the purchase or payment of such
Indebtedness or obligation;
(c) to lease properties or to purchase properties or services primarily
for the purpose of assuring the owner of such Indebtedness or obligation of the
ability of any other Person to make payment of the Indebtedness or obligation;
or
(d) otherwise to assure the owner of such Indebtedness or obligation
against loss in respect thereof. In any computation of the Indebtedness or other
liabilities of the obligor under any Guaranty, the Indebtedness or other
obligations that are the subject of such Guaranty shall be assumed to be direct
obligations of such obligor.
"Hazardous Substance" shall mean any contaminant, pollutant or toxic or
hazardous substance, and any substance that is defined or listed as a hazardous,
toxic or dangerous substance under any Environmental Law or that is otherwise
regulated or prohibited under any Environmental Law as a hazardous, toxic or
dangerous substance.
"Indebtedness" with respect to any Person shall mean, at any time,
without duplication:
(a) its liabilities for borrowed money and its redemption obligations
in respect of mandatorily redeemable Preferred Stock;
(b) its liabilities for the deferred purchase price of property
acquired by such Person (excluding accounts payable arising in the ordinary
course of business but including all liabilities created or arising under any
conditional sale or other title retention agreement with respect to any such
property);
(c) all liabilities appearing on its balance sheet in accordance with
GAAP in respect of Capital Leases;
(d) all liabilities for borrowed money secured by any Lien with respect
to any property owned by such Person (whether or not it has assumed or otherwise
become liable for such liabilities);
(e) all its liabilities in respect of letters of credit or instruments
serving a similar function issued or accepted for its account by banks and other
financial institutions (whether or not representing obligations for borrowed
money, but excluding in any event obligations in respect of (1) trade or
commercial letters of credit issued for the account of such Person in the
ordinary course of its business and (2) stand-by letters of credit issued to
support obligations of such Person that do not constitute Indebtedness);
REVOLVING CREDIT FACILITY AGREEMENT - Page 7
<PAGE> 12
(f) Swaps of such Person; and
(g) any Guaranty of such Person with respect to liabilities of a type
described in any of clauses (a) through (f) hereof.
Indebtedness of any Person shall include all obligations of such Person
of the character described in clauses (a) through (g) above to the extent such
Person remains legally liable in respect thereof notwithstanding that any such
obligation is deemed to be extinguished under GAAP.
"Interest Payment Date" shall mean (a) with respect to any ABR
Borrowing, each March 31, June 30, September 30 and December 31, beginning on
the first such date after the date hereof; (b) with respect to any Eurodollar
Loan or Offered Rate Loan, the last day of the Interest Period applicable
thereto and, in the case of such a Loan with an Interest Period of more than
three months or 90 day duration, each day that would have been an Interest
Payment Date for such Loan had successive Interest Periods of three months
duration or 90 days duration, as the case may be, been applicable to such Loan;
and (c) in addition, with respect to all Loans, the date of any prepayment
thereof and the Maturity Date.
"Interest Period" shall mean (a) as to any Eurodollar Borrowing, the
period commencing on the date of such Borrowing and ending on the numerically
corresponding day (or, if there is no numerically corresponding day, on the last
day) in the calendar month that is 1, 2, 3 or 6 months thereafter, or, in
addition, in the case of any Eurodollar Borrowing made during the 30-day period
ending on the Maturity Date, the period commencing on the date of such Borrowing
and ending on the seventh or fourteenth day thereafter, as the Borrower may
elect, and (b) as to any Offered Rate Loan, the period commencing on the date of
such Loan and ending on the maturity date of such Offered Rate Loan specified in
the Offered Rate Loan Confirmation; provided, however, that if any Interest
Period would end on a day other than a Business Day, such Interest Period shall
be extended to the next succeeding Business Day unless, in the case of
Eurodollar Loans only, such next succeeding Business Day would fall in the next
calendar month, in which case such Interest Period shall end on the next
preceding Business Day. Interest shall accrue from and including the first day
of an Interest Period to but excluding the last day of such Interest Period.
"Intergroup Transfer" shall have the meaning assigned it in Section
5.11.
"LIBO Rate" shall mean, with respect to any Eurodollar Borrowing for
any Interest Period, an interest rate per annum (rounded upwards, if necessary,
to the next 1/16 of 1%) equal to the rate at which dollar deposits approximately
equal in principal amount to the Administrative Agent's portion of such
Eurodollar Borrowing and for a maturity comparable to such Interest Period are
offered to the principal London offices of Chase or one of its Affiliates in
immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period.
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"Lien" shall mean, with respect to any Person, any mortgage, lien,
pledge, charge, security interest or other encumbrance, or any interest or title
of any vendor, lessor, lender or other secured party to or of such Person under
any conditional sale or other title retention agreement or Capital Lease, upon
or with respect to any property or asset of such Person (including in the case
of stock, stockholder agreements, voting trust agreements and all similar
arrangements).
"Loan" shall mean an Offered Rate Loan or a Standby Loan, whether made
as a Eurodollar Loan or an ABR Loan as permitted hereby.
"Material" shall mean material in relation to the business, operations,
affairs, financial condition, assets, or properties of the Borrower and its
Subsidiaries taken as a whole.
"Material Adverse Effect" shall mean a material adverse effect on (a)
the business, operations, affairs, financial condition, assets or properties of
the Borrower and its Restricted Subsidiaries taken as a whole, or (b) the
ability of the Borrower to perform its obligations under this Agreement, or (c)
the validity or enforceability of this Agreement.
"Maturity Date" shall mean July 13, 2001.
"Multiemployer Plan" shall mean any Plan that is a "multiemployer plan"
(as such term is defined in section 4001(a)(3) of ERISA).
"New Lending Office" shall have the meaning assigned it in Section
2.17(g).
"New Owner" shall have the meaning assigned it in Section 2.11(c).
"Non-U.S. Agent" shall have the meaning assigned it in Section 2.17(g).
"Norris Family" shall have the meaning assigned it in Section 2.11(c).
"Offered Rate Loan" shall mean a Loan made pursuant to the procedure
described in Section 2.03.
"Offered Rate Loan Confirmation" shall mean a confirmation made by the
Borrower and a Lender pursuant to Section 2.03 in the form of Exhibit A-1.
"Ordinary Course Transfer" shall have the meaning assigned it in
Section 5.11.
"Other Taxes" shall have the meaning assigned it in Section 2.17(b).
"Prepayment Date" shall have the meaning assigned it in Section
2.11(c).
"PBGC" shall mean the Pension Benefit Guaranty Corporation referred to
and defined in ERISA or any successor thereto.
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"Person" shall mean an individual, partnership, corporation, limited
liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
"Plan" shall mean an "employee benefit plan" (as defined in section
3(3) of ERISA) that is or, within the preceding five years, has been established
or maintained, or to which contributions are or, within the preceding five
years, have been made or required to be made, by the Borrower or any ERISA
Affiliate or with respect to which the Borrower or any ERISA Affiliate may have
any liability.
"Preferred Stock" shall mean any class of capital stock of a
corporation that is preferred over any other class of capital stock of such
corporation as to the payment of dividends or the payment of any amount upon
liquidation or dissolution of such corporation.
"property" or "properties" shall mean, unless otherwise specifically
limited, real or personal property of any kind, tangible or intangible, choate
or inchoate.
"Property Disposition Date" shall have the meaning assigned to it in
Section 5.11.
"Register" shall have the meaning given such term in Section 8.04 (d) .
"Remaining Commitment" shall mean, as to any Lender and at any time of
determination, such Lender's Commitment minus the outstanding Offered Rate Loans
made by such Lender.
"Required Lenders" shall mean, at any time, Lenders having Commitments
representing at least 66 2/3% of the Total Commitment or, for purposes of
acceleration pursuant to clause (ii) of Article VI, Lenders holding Loans
representing at least 66 2/3% of the aggregate principal amount of the Loans
outstanding.
"Responsible Officer" shall mean any Senior Financial Officer and any
other officer of the Borrower with responsibility for the administration of the
relevant portion of this agreement.
"Restricted Indebtedness" shall mean, without duplication, (i)
Indebtedness of the Borrower or any Restricted Subsidiary which is secured by a
Lien not otherwise permitted under subsections (a) through (h) of Section 5.13,
and (ii) Indebtedness of a Restricted Subsidiary owing to any Person other than
the Borrower or a Wholly-Owned Subsidiary.
"Restricted Payment" shall mean any Distribution in respect of the
Borrower or any Restricted Subsidiary (other than on account of capital stock or
other equity interests of a Restricted Subsidiary owned legally and beneficially
by the Borrower or another Restricted Subsidiary), including, without
limitation, any Distribution resulting in the acquisition by the Borrower of
Securities which would constitute treasury stock. For purposes of this
Agreement, the amount of any Restricted Payment made in property shall be the
greater of (x) the Fair Market Value of such property (as determined in good
faith by the board of directors (or equivalent governing body) of the Person
making such Restricted Payment) and (y) the net book value thereof
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on the books of such Person, in each case determined as of the date on which
such Restricted Payment is made.
"Restricted Subsidiary" shall mean any Subsidiary of the Borrower which
is (a) listed as a Restricted Subsidiary in Schedule 3.05 or (b) organized under
the laws of, and conducts substantially all of its business and maintains
substantially all of its property and assets within, the United States or any
state thereof (including the District of Columbia).
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time.
"Security" shall have the meaning set forth in Section 2(1) of the
Securities Act.
"Senior Financial Officer" shall mean the chief financial officer,
principal accounting officer, treasurer or comptroller of the Borrower; provided
that any executive vice president or the corporate controller of Borrower is
authorized by Borrower to execute and deliver any Offered Rate Loan Confirmation
or any Standby Borrowing Request.
"Senior Note Purchase Agreements" shall mean those certain Note
Purchase Agreements dated April 3, 1998 pursuant to which Borrower issued its
6.56% Senior Notes due April 3, 2005 and its 6.75% Senior Notes due April 3,
2008.
"Standby Borrowing" shall mean a Borrowing consisting of simultaneous
Standby Loans from each of the Lenders.
"Standby Borrowing Request" shall mean a request made pursuant to
Section 2.04 in the form of Exhibit A-2.
"Standby Loans" shall have the meaning assigned it in Section 2.01.
Each Standby Loan shall be a Eurodollar Loan or an ABR Loan.
"Subsidiary" shall mean, as to any Person, any corporation, association
or other business entity in which such Person or one or more of its Subsidiaries
or such Person and one or more of its Subsidiaries owns sufficient equity or
voting interests to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership or joint venture if more
than a 50% interest in the profits or capital thereof is owned by such Person or
one or more of its Subsidiaries or such Person and one or more of its
Subsidiaries (unless such partnership can and does ordinarily take major
business actions without the prior approval of such Person or one or more of its
Subsidiaries). Unless the context otherwise clearly requires, any reference to a
"Subsidiary" is a reference to a Subsidiary of the Borrower.
"Swaps" shall mean, with respect to any Person, payment obligations
with respect to interest rate swaps, currency swaps and similar obligations
obligating such Person to make payments, whether periodically or upon the
happening of a contingency. For the purposes of this Agreement, the amount of
the obligation under any Swap shall be the amount determined in
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respect thereof as of the end of the then most recently ended fiscal quarter of
such Person, based on the assumption that such Swap had terminated at the end of
such fiscal quarter, and in making such determination, if any agreement relating
to such Swap provides for the netting of amounts payable by and to such Person
thereunder or if any such agreement provides for the simultaneous payment of
amounts by and to such Person, then in each such case, the amount of such
obligation shall be the net amount so determined.
"Taxes" shall have the meaning assigned it in Section 2.17 (a).
"Total Commitment" shall mean, at any time, the aggregate amount of
Commitments of all the Lenders, as in effect at such time.
"Transactions" shall have the meaning assigned it in Section 3.02.
"Transfer" shall mean, with respect to any Person, any transaction in
which such Person sells, conveys, transfers or leases (as lessor) any of its
property, including capital stock of, or a Security issued by, a Subsidiary.
"Transferee" shall have the meaning assigned to it in Section 2.17(a).
"Type", when used in respect of any Loan or Borrowing, shall refer to
the Rate by reference to which interest on such Loan or on the Loans comprising
such Borrowing is determined. For purposes hereof, "Rate" shall include the LIBO
Rate and the Alternate Base Rate.
"U.S. Lender" shall have the meaning assigned it in Section 2.17.
"Unrestricted Subsidiary" shall mean any Subsidiary other than a
Restricted Subsidiary.
"Voting Rights" shall have the meaning assigned it in Section 2.11.
"Wholly-Owned Restricted Subsidiary" or "Wholly-Owned Subsidiary"
means, at any time, any Restricted Subsidiary or Subsidiary, respectively, one
hundred percent (100%) of all of the equity interests (except directors=
qualifying shares) and voting interests of which are owned by any one or more of
the Borrower and the Borrower=s other Wholly-Owned Restricted Subsidiaries or
Wholly-Owned Subsidiaries, respectively, at such time.
SECTION 1.02. Terms Generally. The definitions in Section 1.01 shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include," "includes" and
"including" shall be deemed to be followed by the phrase "without limitation."
All references herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement unless the context shall otherwise require. Except as otherwise
expressly provided herein, all terms of an
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accounting or financial nature shall be construed in accordance with GAAP, as in
effect from time to time.
ARTICLE II. THE CREDITS
SECTION 2.01. Commitments. Subject to the terms and conditions and
relying upon the representations and warranties herein set forth, each Lender
agrees, severally and not jointly, to make advances (each such advance a
"Standby Loan") to the Borrower, at any time and from time to time on and after
the date hereof and until the earlier of the Maturity Date or the termination of
the Commitment of such Lender, in an aggregate principal amount at any time
outstanding not to exceed such Lender's Remaining Commitment, subject, however,
to the conditions that (i) at no time shall (A) the sum of (x) the outstanding
aggregate principal amount of all Standby Loans plus (y) the outstanding
aggregate principal amount of all Offered Rate Loans exceed (B) the Total
Commitment and (ii) at no time shall the outstanding aggregate principal amount
of all Standby Loans and all Offered Rate Loans made by any Lender exceed the
amount of such Lender's Commitment.
As of the date hereof, the aggregate amount of the Commitments of all
Lenders who are parties to this Agreement on the date hereof is $120,000,000.
The parties to this Agreement hereby agree that the aggregate of all Commitments
may be increased to a maximum of $135,000,000 by the addition of Compass Bank as
a Lender hereunder upon Compass Bank=s execution of a Joinder Agreement, in
substantially the form of Exhibit E hereto, on or before July 31, 1998. The
increase in the aggregate amount of the Commitments and the Joinder Agreement
shall be effective, without further action by any party hereto, as of the first
Business Day after execution of the Joinder Agreement by Compass Bank on which
either (a) there are no outstanding Standby Loans that are Eurodollar Loans or
(b) all outstanding Standby Loans that are Eurodollar Loans are being Converted
or Continued. If Compass Bank should become a party hereto by execution of a
Joinder Agreement, such joinder shall not affect the amount of the Commitments
of the other Lenders who are party hereto, which amounts shall remain as
described on Schedule 2.01. If any Standby Loans are outstanding on the
effective date of the Joinder Agreement, Compass Bank shall make available to
the Administrative Agent for the benefit of the Borrower, and the Administrative
Agent shall, on behalf of the Borrower, transfer to each Lender as a repayment
of its Standby Loan such amounts equal to the amounts necessary to cause (after
giving effect to such transfers) the ratio of each such Lender=s (including
Compass Bank=s) Standby Loans to the outstanding principal amount of all Standby
Loans to be the same as the ratio of each such Lender=s Remaining Commitment to
the aggregate Remaining Commitments on such date.
Within the foregoing limits, the Borrower may borrow, pay or prepay and
reborrow Standby Loans hereunder, on and after the Effective Date and prior to
the Maturity Date, subject to the terms, conditions and limitations set forth
herein.
SECTION 2.02. Loans.
(a) Each Standby Loan shall be made as part of a Borrowing consisting
of Loans made by the Lenders ratably in accordance with their respective
Remaining Commitments calculated at
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the date the Loan is made; provided, however, that the failure of any Lender to
make any Standby Loan shall not in itself relieve any other Lender of its
obligation to lend hereunder (it being understood, however, that no Lender shall
be responsible for the failure of any other Lender to make any Loan required to
be made by such other Lender). Each Offered Rate Loan shall be made in
accordance with the procedures set forth in Section 2.03. The Standby Loans or
Offered Rate Loans comprising any Borrowing shall be (i) in the case of Offered
Rate Loans, in such aggregate principal amount as the Lender or Lenders making
the Offered Rate Loans in question may agree to in accordance with Section 2.03
and (ii) in the case of Standby Loans, in an aggregate principal amount which is
an integral multiple of $1,000,000 and not less than $5,000,000 (or an aggregate
principal amount equal to the remaining balance of the available Remaining
Commitments).
(b) Each Standby Borrowing shall be comprised entirely of Eurodollar
Loans or ABR Loans, as the Borrower may request pursuant to Section 2.04. Each
Lender may at its option make any Eurodollar Loan by causing any domestic or
foreign branch or Affiliate of such Lender to make such Loan; provided that any
exercise of such option shall not affect the obligation of the Borrower to repay
such Loan in accordance with the terms of this Agreement. Borrowings of more
than one Type may be outstanding at the same time.
(c) Subject to paragraph (d) below, each Lender shall make each Standby
Loan to be made by it hereunder on the proposed date thereof by wire transfer of
immediately available funds to the Administrative Agent in Houston, Texas, not
later than 11:00 a.m., Houston time, and the Administrative Agent shall by 2:00
p.m., Houston time, credit the amounts so received to the account or accounts
specified from time to time in one or more notices delivered by the Borrower to
the Administrative Agent or, if a Borrowing shall not occur on such date because
any condition precedent herein specified shall not have been met, return the
amounts so received to the respective Lenders. Standby Loans shall be made by
the Lenders pro rata in accordance with Section 2.14. Unless the Administrative
Agent shall have received notice from a Lender prior to the date of any Standby
Borrowing that such Lender will not make available to the Administrative Agent
such Lender's portion of such Standby Borrowing, the Administrative Agent may
assume that such Lender has made such portion available to the Administrative
Agent on the date of such Standby Borrowing in accordance with this paragraph
(c) and the Administrative Agent may, in reliance upon such assumption, make
available to the Borrower on such date a corresponding amount. If and to the
extent that such Lender shall not have made such portion available to the
Administrative Agent, such Lender and the Borrower (without waiving any claim
against such Lender for such Lender's failure to make such portion available)
severally agree to repay to the Administrative Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the date
such amount is made available to the Borrower until the date such amount is
repaid to the Administrative Agent at (i) in the case of the Borrower, the
interest rate applicable at the time to the Standby Loans comprising such
Standby Borrowing and (ii) in the case of such Lender, the Federal Funds
Effective Rate. If such Lender shall repay to the Administrative Agent such
corresponding amount, such amount shall constitute such Lender's Standby Loan as
part of such Borrowing for purposes of this Agreement.
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(d) Borrower may Convert all or any part of any Standby Borrowing to a
Standby Borrowing of a different Type and Borrower may Continue all or any part
of any Eurodollar Borrowing as a Borrowing of the same Type, by giving the Agent
written notice on the Business Day of the Conversion into an ABR Borrowing and
on the Business Day at least three Business Days before Conversion into or
Continuation of a Eurodollar Borrowing specifying: (i) the Conversion or
Continuation date, (ii) the amount of the Borrowing to be Converted or
Continued, (iii) in the case of Conversions, the Type of Borrowing to be
Converted into, and (iv) in the case of a Continuation of or Conversion into a
Eurodollar Borrowing, the duration of the Interest Period applicable thereto;
provided that (a) Eurodollar Borrowings may only be Converted on the last day of
the Interest Period; (b) except for Conversions to ABR Borrowings, no
Conversions shall be made while an Event of Default has occurred and is
continuing; (c) only five (5) Eurodollar Borrowings may be in existence at any
one time; and (d) no Interest Period may end after the Maturity Date. All
notices given under this Section shall be irrevocable and shall be given not
later than 10:00 a.m. Houston, Texas time on the day which is not less than the
number of Business Days specified above for such notice. If the Borrower shall
fail to give the Agent the notice as specified above for Continuation or
Conversion of a Eurodollar Borrowing prior to the end of the Interest Period
with respect thereto, such Eurodollar Borrowing shall automatically be continued
as a Eurodollar Borrowing with an Interest Period of one month=s duration. The
Agent shall promptly advise the Lenders of any notice given pursuant to this
Section 2.02. Each Eurodollar Borrowing must be in an aggregate principal amount
which is an integral multiple of $1,000,000 and not less than $5,000,000.
SECTION 2.03. Offered Rate Procedure and Loan Terms.
(a) The Borrower may from time to time and on any Business Day request
that one or more Lenders provide Borrower with the terms on which such Lender or
Lenders would offer to make a short term loan to the Borrower. A Lender may in
its sole and absolute discretion determine whether to make such an offer to
Borrower. If a Lender determines to make such an offer, in order to constitute a
valid offer, the Lender must provide the Borrower with the following terms: (a)
the maturity date for the proposed Offered Rate Loan; (b) the amount of the
Offered Rate Loan; (c) the fixed interest rate per annum at which the Offered
Rate Loan will bear interest; and (d) the date on which such Offered Rate Loan
is to be made. The Borrower=s request for offers to make Offered Rate Loans and
a Lender=s offer to make an Offered Rate Loan may be made verbally but must be
confirmed by the execution and delivery of an Offered Rate Loan Confirmation by
Borrower and the Lender making the Offered Rate Loan or by such other means as
the Lender making the Offered Rate Loan may require. No Lender will be obligated
to make any Offered Rate Loan which is offered to Borrower unless and until the
terms of such Offered Rate Loan are confirmed by the execution and delivery of
an Offered Rate Loan Confirmation by Borrower and the Lender making the Offered
Rate Loan or by such other means as the Lender making the Offered Rate Loan may
require. The Borrower may in its sole and absolute discretion accept or reject
any or all offers to make Offered Rate Loans. Any offer by a Lender to make an
Offered Rate Loan shall expire if not accepted by the earlier of the date the
proposed Offered Rate Loan is to be made or five (5) days after the offer is
made. No Offered Rate Loan shall be requested or made hereunder if any of the
conditions set forth in Section 4.01 are not satisfied or
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if after giving effect thereto any of the conditions set forth in clauses (i) or
(ii) of Section 2.01 would not be met.
(b) A Lender that has agreed to make an Offered Rate Loan shall make
such Loan on the proposed date thereof by wire transfer of immediately available
funds directly to the Borrower or as the Borrower may otherwise direct not later
than 2:00 p.m., Houston time.
SECTION 2.04. Standby Borrowing Procedure. In order to request a
Standby Borrowing, the Borrower shall hand deliver or telecopy to the
Administrative Agent a duly completed Standby Borrowing Request (a) in the case
of a Eurodollar Borrowing, not later than 10:00 a.m., Houston, Texas time, three
Business Days before such Borrowing, and (b) in the case of an ABR Borrowing,
not later than 10:00 a.m., Houston, Texas time, on the day of such Borrowing.
Such notice shall be irrevocable and shall in each case specify (i) whether the
Borrowing then being requested is to be a Eurodollar Borrowing or an ABR
Borrowing; (ii) the date of such Standby Borrowing (which shall be a Business
Day) and the amount thereof; and (iii) if such Borrowing is to be a Eurodollar
Borrowing, the Interest Period with respect thereto, which shall not end after
the Maturity Date. If no election as to the Type of Standby Borrowing is
specified in any such notice, then the requested Standby Borrowing shall be an
ABR Borrowing. If no Interest Period with respect to any Eurodollar Borrowing is
specified in any such notice, then the Borrower shall be deemed to have selected
an Interest Period of one month's duration. Notwithstanding any other provision
of this Agreement to the contrary, no Standby Borrowing shall be requested if
the Interest Period with respect thereto would end after the Maturity Date. The
Administrative Agent shall promptly advise the Lenders of any notice given
pursuant to this Section 2.04 and of each Lender's portion of the requested
Borrowing.
SECTION 2.05. Fees.
(a) The Borrower agrees to pay to each Lender, through the
Administrative Agent, on each March 31, June 30, September 30 and December 31
(with the first payment being due on September 30, 1998) and on each date on
which the Commitment of such Lender shall be terminated as provided herein, a
facility fee (a "Facility Fee"), at a rate per annum equal to the Facility Fee
Percentage from time to time in effect on the amount of the Commitment of such
Lender, whether used or unused, during the preceding quarter (or other period
commencing on the Effective Date or ending with the Maturity Date or any date on
which the Commitment of such Lender shall be terminated). All Facility Fees
shall be computed on the basis of the actual number of days elapsed in a year of
365 or 366 days, as the case may be. The Facility Fee due to each Lender shall
commence to accrue on the Effective Date, and shall cease to accrue on the
earlier of the Maturity Date and the termination of the Commitment of such
Lender as provided herein.
(b) The Borrower agrees to pay the Agents, for their own account, the
fees provided for in the Fee Letters (the "Administrative Fees").
(c) All Fees shall be paid on the dates due, in immediately available
funds, to the Administrative Agent for distribution, if and as appropriate,
among the Lenders or to the Agents. Once paid, none of the Fees shall be
refundable under any circumstances.
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SECTION 2.06. Repayment of Loans; Evidence of Indebtedness.
(a) The outstanding principal balance of each Standby Loan shall be due
and payable on the Maturity Date. The outstanding principal balance of each
Offered Rate Loan shall be due and payable on the last day of the Interest
Period applicable thereto and, if earlier, on the Maturity Date.
(b) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness to such Lender resulting from
each Loan made by such Lender from time to time, including the amounts of
principal and interest payable and paid to such Lender from time to time under
this Agreement.
(c) The Administrative Agent shall maintain accounts in which it will
record (i) the amount of each Standby Loan made hereunder, the Type of each
Standby Loan made and the Interest Period applicable thereto, if any, (ii) the
amount of any principal or interest due and payable or to become due and payable
from the Borrower to each Lender hereunder in respect of Standby Loans and (iii)
the amount of any sum received by the Administrative Agent hereunder from the
Borrower and each Lender's share thereof. Each Lender shall maintain accounts in
which it will record (i) the amount of each Offered Rate Loan made by it
hereunder and the Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower in respect of such Offered Rate Loans and (iii) the amount of any sum
received by it hereunder in respect of the Offered Rate Loans made by it.
(d) The entries made in the accounts maintained pursuant to paragraphs
(b) and (c) of this Section 2.06 shall, to the extent permitted by applicable
law, be prima facie evidence of the existence and amounts of the obligations
therein recorded; provided, however, that the failure of any Lender or the
Administrative Agent to maintain such accounts or any error therein shall not in
any manner affect the obligations of the Borrower to repay the Loans in
accordance with their terms.
(e) Each set of financial statements delivered pursuant to Section
5.20(a) or Section 5.20(b) hereof shall be accompanied by a certificate of a
Senior Financial Officer setting forth a listing of the Offered Rate Loans
outstanding as of the date of the delivery of such certificate identifying for
each Offered Rate Loan the aggregate amount thereof and the Lender that holds
such Offered Rate Loan.
SECTION 2.07. Interest on Loans; Margin and Fees.
(a) Subject to the provisions of Section 2.08, the Standby Loans
comprising each Eurodollar Borrowing shall bear interest (computed on the basis
of the actual number of days elapsed over a year of 360 days) at a rate per
annum equal to the LIBO Rate for the Interest Period in effect for such
Borrowing plus the Applicable Margin from time to time in effect.
(b) Subject to the provisions of Section 2.08, the Loans comprising
each ABR Borrowing shall bear interest (computed on the basis of the actual
number of days elapsed over
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<PAGE> 22
a year of 365 or 366 days, as the case may be, for periods during which the
Alternate Base Rate is determined by reference to the Prime Rate and 360 days
for other periods and including for all calculations the first day of any period
but excluding the last) at a rate per annum equal to the Alternate Base Rate.
(c) Subject to the provisions of Section 2.08, each Offered Rate Loan
shall bear interest at a rate per annum (computed on the basis of the actual
number of days elapsed over a year of 360 days) equal to the fixed rate of
interest offered by the Lender making such Loan and accepted by the Borrower
pursuant to Section 2.03.
(d) Interest on each Loan shall be payable on each Interest Payment
Date applicable to such Loan except as otherwise provided in this Agreement. The
applicable LIBO Rate or Alternate Base Rate shall be determined by the
Administrative Agent, and such determination shall be conclusive absent manifest
error; provided that the Administrative Agent shall, upon request, provide to
the Borrower a certificate setting forth in reasonable detail the basis for such
determination.
(e) The Applicable Margin identified in this Section 2.07 and the
Facility Fee Percentage identified in Section 2.05 shall be defined and
determined as follows:
"Applicable Margin" shall mean (i) during the period
commencing on the Effective Date and ending on but not including the
first Adjustment Date, 0.225% per annum with respect to Eurodollar
Loans and (ii) during each period from and including one Adjustment
Date to but excluding the next Adjustment Date (herein a "Calculation
Period"), the percent per annum set forth in the table below under the
heading "Margin" opposite the Debt to Total Capitalization Ratio which
corresponds to the Debt to Total Capitalization Ratio set forth in, and
as calculated in accordance with, the applicable Compliance
Certificate.
"Facility Fee Percentage" shall mean (1) during the period
commencing on the Effective Date and ending on but not including the
first Adjustment Date, 0.15% per annum and (2) during each period, from
and including one Adjustment Date to but excluding the next Adjustment
Date, the percent per annum set forth in the table below under the
heading "Facility Fee Percentage" opposite the Debt to Total
Capitalization Ratio which corresponds to the Debt to Total
Capitalization Ratio set forth in, and as calculated in accordance
with, the applicable Compliance Certificate.
<TABLE>
<CAPTION>
==============================================================================================
Facility Fee
Debt to Total Capitalization Ratio Margin Percentage
---------------------------------- ------ ----------
-------------------------------------------------------- --------------- ---------------------
<S> <C> <C>
Less than 30% 0.150% 0.100%
-------------------------------------------------------- --------------- ---------------------
Greater than or equal to 30% but less than 40% 0.175% 0.125%
-------------------------------------------------------- --------------- ---------------------
Greater than or equal to 40% but less than 50% 0.225% 0.150%
-------------------------------------------------------- --------------- ---------------------
</TABLE>
REVOLVING CREDIT FACILITY AGREEMENT - Page 18
<PAGE> 23
<TABLE>
==============================================================================================
Facility Fee
Debt to Total Capitalization Ratio Margin Percentage
---------------------------------- ------ ----------
-------------------------------------------------------- --------------- ---------------------
<S> <C> <C>
Greater than or equal to 50% but less than or equal to 0.405% 0.220%
60%
-------------------------------------------------------- --------------- ---------------------
</TABLE>
Upon delivery of the Compliance Certificate pursuant to Section 5.20(g) in
connection with the financial statements of the Borrower and its Subsidiaries
required to be delivered pursuant to Sections 5.20(a) and (b) commencing with
such Compliance Certificate delivered at the end of the quarter ending on
December 31, 1998, the Applicable Margin (for Interest Periods commencing after
the applicable Adjustment Date) and the Facility Fee Percentage shall
automatically be adjusted in accordance with the Debt to Total Capitalization
Ratio set forth therein and the table set forth above, such automatic adjustment
to take effect as of the first Business Day after the receipt by the Agent of
the related Compliance Certificate pursuant to Section 5.20(g) (each such
Business Day when such margin or fees change pursuant to this sentence or the
next following sentence, herein an "Adjustment Date"). If the Borrower fails to
deliver such Compliance Certificate which so sets forth the Debt to Total
Capitalization Ratio within the period of time required by Section 5.20(g): (i)
the Applicable Margin (for Interest Periods commencing after the applicable
Adjustment Date) shall automatically be adjusted to .405% per annum; and (ii)
the Facility Fee Percentage shall automatically be adjusted to 0.22% per annum,
such automatic adjustments to take effect as of the first Business Day after the
last day on which the Borrower was required to deliver the applicable Compliance
Certificate in accordance with Section 5.20(g) and to remain in effect until
subsequently adjusted in accordance herewith upon the delivery of a Compliance
Certificate.
SECTION 2.08. Default Interest. If the Borrower shall default in the
payment of the principal of or interest on any Loan or any other amount becoming
due hereunder, whether by scheduled maturity, notice of prepayment, acceleration
or otherwise, the Borrower shall on demand from time to time from the
Administrative Agent (or with respect to principal and interest due in respect
of an Offered Rate Loan, the Lender that has made the Offered Rate Loan) pay
interest, to the extent permitted by law, on such defaulted amount up to (but
not including) the date of actual payment (after as well as before judgment) at
a rate per annum (computed as provided in Section 2.07(b)) equal to the
Alternate Base Rate plus 1%.
SECTION 2.09. Alternate Rate of Interest. In the event, and on each
occasion, that on the day two Business Days prior to the commencement of any
Interest Period for a Eurodollar Borrowing the Administrative Agent shall have
determined (i) that dollar deposits in the principal amounts of the Eurodollar
Loans comprising such Borrowing are not generally available in the London
interbank market or (ii) that reasonable means do not exist for ascertaining the
LIBO Rate, the Administrative Agent shall, as soon as practicable thereafter,
give telecopy notice of such determination to the Borrower and the Lenders. In
the event of any such determination under clauses (i) or (ii) above, until the
Administrative Agent shall have advised the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, any request by the
Borrower for a Eurodollar Borrowing pursuant to Section 2.04 shall be deemed to
be a request for an ABR Borrowing. In the event the Required Lenders notify the
Administrative Agent that the
REVOLVING CREDIT FACILITY AGREEMENT - Page 19
<PAGE> 24
rates at which dollar deposits are being offered will not adequately and fairly
reflect the cost to such Lenders of making or maintaining Eurodollar Loans
during such Interest Period, the Administrative Agent shall notify the Borrower
of such notice and until the Required Lenders shall have advised the
Administrative Agent that the circumstances giving rise to such notice no longer
exist, any request by the Borrower for a Eurodollar Borrowing shall be deemed a
request for an ABR Borrowing. Each determination by the Administrative Agent
hereunder shall be made in good faith and shall be conclusive absent manifest
error; provided that the Administrative Agent, shall, upon request, provide to
the Borrower a certificate setting forth in reasonable detail the basis for such
determination.
SECTION 2.10. Termination and Reduction of Commitments.
(a) The Commitments shall be automatically terminated on the Maturity
Date. A Commitment of a Lender may also terminate as provided in Section
2.11(c).
(b) Upon at least three Business Days' prior irrevocable written notice
to the Administrative Agent, the Borrower may, at any time, in whole permanently
terminate, or, from time to time, in part permanently reduce, the Total
Commitment; provided, however, that (i) each partial reduction of the Total
Commitment shall be in an integral multiple of $5,000,000 and in a minimum
principal amount of $5,000,000 and (ii) no such termination or reduction shall
be made which would reduce the Total Commitment to an amount (1) less than the
aggregate outstanding principal amount of all Offered Rate Loans or (2) less
than $50,000,000, unless the result of such termination or reduction referred to
in this clause (2) is to reduce the Total Commitment to $0. The Administrative
Agent shall advise the Lenders of any notice given pursuant to this Section
2.10(b) and of each Lender's portion of any such termination or reduction of the
Commitments.
(c) Each reduction in the Total Commitment hereunder shall be made
ratably among the Lenders in accordance with their respective Commitments. The
Borrower shall pay to the Administrative Agent for the account of the Lenders,
on the date of each termination or reduction of the Total Commitment, the
Facility Fees on the amount of the Commitments so terminated or reduced accrued
through the date of such termination or reduction.
SECTION 2.11. Prepayment Including Prepayment as a Result of a Change
of Control.
(a) The Borrower shall have the right at any time and from time to time
to prepay any Standby Borrowing, in whole or in part, upon giving telecopy
notice (or telephone notice promptly confirmed by telecopy) to the
Administrative Agent: (i) before 10:00 a.m., Houston, Texas time, three Business
Days prior to prepayment, in the case of Eurodollar Loans which prepayment shall
be accompanied by any amount owed under Section 8.05(b), and (ii) before 10:00
a.m., Houston, Texas time, one Business Day prior to prepayment, in the case of
ABR Loans; provided, however, that each partial prepayment shall be in an amount
which is an integral multiple of $1,000,000 and not less than $3,000,000. No
prepayment may be made in respect of any Offered Rate Loan unless accompanied by
the amount owed in respect to such prepayment under Section 8.05(b).
REVOLVING CREDIT FACILITY AGREEMENT - Page 20
<PAGE> 25
(b) On the date of any termination or reduction of the Commitments
pursuant to Section 2.10, the Borrower shall pay or prepay so much of the
Standby Borrowings as shall be necessary in order that the aggregate principal
amount of the Offered Rate Loans and Standby Loans outstanding will not exceed
the Total Commitment, after giving effect to such termination or reduction.
(c) At least 15 Business Days (or, in the case of any transaction
permitted by Section 5.10 resulting in a Change of Control, at least 45 days)
and not more than 90 days prior to the occurrence of any Change of Control, the
Borrower will give written notice thereof to each Lender. Such notice shall
contain (i) an offer by the Borrower to prepay, on the date of such Change of
Control or, if such notice shall be delivered less than 35 days prior to the
date of such Change of Control, on the date 35 days after the date of such
notice (the "Prepayment Date"), all Loans made by each Lender, together with
interest accrued thereon to the Prepayment Date and all other obligations owed
to such Lender under the terms hereof, (ii) the estimated amount of accrued
interest, showing in reasonable detail the calculation thereof and (iii) the
Borrower's estimate of the date on which such Change of Control shall occur.
Said offer shall be deemed to lapse as to any such Lender which has not replied
affirmatively thereto in writing within 35 days of the giving of such notice. As
soon as practicable (and in any event at least 24 hours) prior to such Change of
Control, the Borrower shall give written confirmation of the date thereof to
each such Lender that has affirmatively replied to the notice given pursuant to
the first sentence of this Section 2.11(c). Borrower shall, on the Prepayment
Date, prepay to each Lender that has affirmatively replied to the notice given
pursuant to the first sentence of this Section 2.11(c) all Loans then held by
such Lender together with accrued interest thereon and all other obligations
owed to such Lender under the terms hereof. Upon such payment, the Commitment of
each Lender that shall have received such prepayment shall terminate.
For the purposes of this Section 2.11(c), a "Change of Control" shall
be deemed to occur if any New Owner shall acquire beneficial ownership of shares
in the Borrower having Voting Rights pertaining thereto which would allow such
New Owner to elect more members of the Board of Directors than could be elected
by the exercise of all Voting Rights pertaining to shares in the Borrower then
owned beneficially by the Norris Family. As used in this Section 2.11(c):
(i) "Voting Rights" pertaining to shares of a corporation
means the rights to cast votes for the election of directors of such
corporation in ordinary circumstances (without consideration of voting
rights which exist only in the event of contingencies).
(ii) "Norris Family" means all persons who are lineal
descendants of D.W. Norris (by birth or adoption), all spouses of such
descendants, all estates of such descendants or spouses which are in
the course of administration, all trusts for the benefit of such
descendants or spouses, and all corporations or other entities in
which, directly or indirectly, such descendants or spouses (either
alone or in conjunction with other such descendants or spouses) have
the right, whether by ownership of stock or other equity interests or
otherwise, to direct the management and policies of such corporations
or other entities (each such person, spouse, estate, trust, corporation
or entity being referred to herein as a "member" of the Norris Family).
In addition, so long as any employee stock
REVOLVING CREDIT FACILITY AGREEMENT - Page 21
<PAGE> 26
ownership plan exercises its Voting Rights in the same manner as
members of the Norris Family (exclusive of employee stock ownership
plans) who have a majority of the Voting Rights exercised by all such
members of the Norris Family, such employee stock ownership plan shall
be deemed a member of the Norris Family.
(iii) "New Owner" means any person (other than a member of the
Norris Family), or any syndicate or group of persons (exclusive of all
members of the Norris Family) which would be deemed a "person" for the
purposes of Section 13(d) of the Exchange Act, who directly or
indirectly acquires shares in the Borrower.
(d)Each notice of prepayment shall specify the prepayment date and the
principal amount of each Borrowing (or portion thereof) to be prepaid, shall be
irrevocable and shall commit the Borrower to prepay such Borrowing (or portion
thereof) by the amount stated therein on the date stated therein. All
prepayments under this Section 2.11 shall be subject to Section 8.05 but
otherwise without premium or penalty. All prepayments under this Section 2.11
shall be accompanied by accrued interest on the principal amount being prepaid
to the date of payment.
SECTION 2.12. Reserve Requirements; Change in Circumstances.
(a) Notwithstanding any other provision herein, if after the date of
this Agreement any change in applicable law or regulation or in the
interpretation or administration thereof by any Governmental Authority charged
with the interpretation or administration thereof (whether or not having the
force of law) shall change the basis of taxation of payments to any Lender
hereunder (except for changes in respect of taxes on the overall net income of
such Lender or its lending office imposed by the jurisdiction in which such
Lender's principal executive office or lending office is located), or shall
result in the imposition, modification or applicability of any reserve, special
deposit or similar requirement against assets of, deposits with or for the
account of or credit extended by any Lender, or shall result in the imposition
on any Lender or the London interbank market of any other condition affecting
this Agreement, such Lender's Commitment or any Eurodollar Loan or Offered Rate
Loan made by such Lender, and the result of any of the foregoing shall be to
increase the cost to such Lender of making or maintaining any Eurodollar Loan or
Offered Rate Loan or to reduce the amount of any sum received or receivable by
such Lender hereunder (whether of principal, interest or otherwise) by an amount
deemed by such Lender to be material, then the Borrower shall, upon receipt of
the notice and certificate provided for in Section 2.12(c), promptly pay to such
Lender such additional amount or amounts as will compensate such Lender for such
additional costs incurred or reduction suffered. Notwithstanding the foregoing,
no Lender shall be entitled to request compensation under this paragraph with
respect to any Offered Rate Loan if the change giving rise to such request was
applicable to such Lender at the time of submission of the offer pursuant to
which such Offered Rate Loan was made.
(b) If any Lender shall have determined that the adoption of any law,
rule, regulation or guideline arising out of the July 1988 report of the Basle
Committee on Banking Regulations and Supervisory Practices entitled
"International Convergence of Capital Measurement and Capital Standards," or the
adoption after the date hereof of any other law, rule, regulation or guideline
regarding capital adequacy, or any change in any of the foregoing or in the
interpretation or
REVOLVING CREDIT FACILITY AGREEMENT - Page 22
<PAGE> 27
administration of any of the foregoing by any Governmental Authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Lender (or any lending office of such Lender) or
any Lender's holding company with any request or directive regarding capital
adequacy (whether or not having the force of law) of any such authority, central
bank or comparable agency, has or would have the effect of reducing the rate of
return on such Lender's capital or on the capital of such Lender's holding
company, if any, as a consequence of this Agreement, such Lender's Commitment or
the Loans made by such Lender pursuant hereto to a level below that which such
Lender or such Lender's holding company could have achieved but for such
adoption, change or compliance (taking into consideration such Lender's policies
and the policies of such Lender's holding company with respect to capital
adequacy) by an amount deemed by such Lender to be material, then from time to
time such additional amount or amounts as will compensate such Lender for any
such reduction suffered will be paid by the Borrower to such Lender.
(c) A certificate of each Lender setting forth such amount or amounts
as shall be necessary to compensate such Lender or its holding company as
specified in paragraph (a) or (b) above, as the case may be, and containing an
explanation in reasonable detail of the manner in which such amount or amounts
shall have been determined, shall be delivered to the Borrower, and shall be
conclusive absent manifest error. The Borrower shall pay each Lender the amount
shown as due on any such certificate delivered by it within 10 days after its
receipt of the same. Each Lender shall give prompt notice to the Borrower of any
event of which it has knowledge, occurring after the date hereof, that it has
determined will require compensation by the Borrower pursuant to this Section;
provided, however, that failure by such Lender to give such notice shall not
constitute a waiver of such Lender's right to demand compensation hereunder.
(d) Failure on the part of any Lender to demand compensation for any
increased costs or reduction in amounts received or receivable or reduction in
return on capital of the type described in paragraph (a) or (b) of this Section
2.12 with respect to any period shall not constitute a waiver of such Lender's
right to demand compensation with respect to such period or any other period;
provided, however, that no Lender shall be entitled to compensation under this
Section 2.12 for any costs incurred or reductions suffered with respect to any
date unless it shall have notified the Borrower that it will demand compensation
for such costs or reductions under paragraph (c) above not more than 90 days
after the later of (i) such date and (ii) the date on which it shall have become
aware of such costs or reductions. The protection of this Section shall be
available to each Lender regardless of any possible contention of the invalidity
or inapplicability of the law, rule, regulation, guideline or other change or
condition which shall have occurred or been imposed.
(e) Each Lender agrees that it will designate a different lending
office if such designation will avoid the need for, or reduce the amount of,
such compensation and will not, in the reasonable judgment of such Lender, be
disadvantageous to such Lender.
SECTION 2.13. Change in Legality.
REVOLVING CREDIT FACILITY AGREEMENT - Page 23
<PAGE> 28
(a) Notwithstanding any other provision herein, if any change in any
law or regulation or in the interpretation thereof by any Governmental Authority
charged with the administration or interpretation thereof shall make it unlawful
for any Lender to make or maintain any Eurodollar Loan or to give effect to its
obligations as contemplated hereby with respect to any Eurodollar Loan, then, by
written notice to the Borrower and to the Administrative Agent, such Lender may:
(i) declare that Eurodollar Loans will not thereafter be made
by such Lender hereunder, whereupon any request for a Eurodollar
Borrowing shall, as to such Lender only, be deemed a request for an ABR
Loan unless such declaration shall be subsequently withdrawn (any
Lender delivering such a declaration hereby agreeing to withdraw such
declaration promptly upon determining that such event of illegality no
longer exists); and
(ii) require that all outstanding Eurodollar Loans made by it
be converted to ABR Loans, in which event all such Eurodollar Loans
shall be automatically converted to ABR Loans as of the effective date
of such notice as provided in paragraph (b) below.
In the event any Lender shall exercise its rights under (i) or (ii) above, all
payments and prepayments of principal which would otherwise have been applied to
repay the Eurodollar Loans that would have been made by such Lender or the
Converted Eurodollar Loans of such Lender shall instead be applied to repay the
ABR Loans made by such Lender in lieu of, or resulting from the Conversion of,
such Eurodollar Loans.
(b) For purposes of this Section 2.13, a notice by any Lender shall be
effective as to each Eurodollar Loan, if lawful, on the last day of the Interest
Period currently applicable to such Eurodollar Loan; in all other cases such
notice shall be effective on the date of receipt.
SECTION 2.14. Pro Rata Treatment. Except as required under Sections
2.13 and 2.18, (i) each Standby Borrowing shall be allocated pro rata among the
Lenders in accordance with their respective Remaining Commitments, (ii) each
payment of the Facility Fees and each reduction of the Commitments, shall be
allocated pro rata among the Lenders in accordance with their respective
Commitments, (iii) each payment of interest on the Standby Loans shall be
allocated pro rata among the Lenders in accordance with their respective amounts
of interest due thereon, and (iv) each payment or prepayment of principal of any
Standby Borrowing and each Conversion or Continuation of any Standby Borrowing
to a Standby Borrowing of any Type shall be allocated pro rata among the Lenders
in accordance with the principal amounts of their outstanding Standby Loans.
Each payment of principal of or interest on any Offered Rate Loan shall be made
to the Lender that made such Offered Rate Loan. Each Lender agrees that in
computing such Lender's portion of any Borrowing to be made hereunder, the
Administrative Agent may, in its discretion, round each Lender's percentage of
such Borrowing to the next higher or lower whole dollar amount.
SECTION 2.15. Sharing of Setoffs. Each Lender agrees that if it shall,
through the exercise of a right of banker's lien, setoff or counterclaim, or
pursuant to a secured claim under Section 506 of Title 11 of the United States
Code or other security or interest arising from, or in lieu of, such secured
claim, received by such Lender under any applicable bankruptcy, insolvency
REVOLVING CREDIT FACILITY AGREEMENT - Page 24
<PAGE> 29
or other similar law or otherwise, or by any other means, obtain payment
(voluntary or involuntary) in respect of any Standby Loan or Standby Loans as a
result of which the unpaid principal portion of its Standby Loans shall be
proportionately less than the unpaid principal portion of the Standby Loans of
any other Lender, it shall be deemed simultaneously to have purchased from such
other Lender at face value, and shall promptly pay to such other Lender the
purchase price for, a participation in the Standby Loans of such other Lender,
so that the aggregate unpaid principal amount of the Standby Loans and
participations in the Standby Loans held by each Lender shall be in the same
proportion to the aggregate unpaid principal amount of all Standby Loans then
outstanding as the principal amount of its Standby Loans prior to such exercise
of banker's lien, setoff or counterclaim or other event was to the principal
amount of all Standby Loans outstanding prior to such exercise of banker's lien,
setoff or counterclaim or other event; provided, however, that, if any such
purchase or purchases or adjustments shall be made pursuant to this Section 2.15
and the payment giving rise thereto shall thereafter be recovered, such purchase
or purchases or adjustments shall be rescinded to the extent of such recovery
and the purchase price or prices or adjustment restored without interest. The
Borrower expressly consents to the foregoing arrangements and agrees that any
Lender holding a participation in a Standby Loan deemed to have been so
purchased may exercise any and all rights of banker's lien, setoff or
counterclaim with respect to any and all moneys owing by the Borrower to such
Lender by reason thereof as fully as if such Lender had made a Standby Loan in
the amount of such participation.
SECTION 2.16. Payments.
(a) The Borrower shall make each payment (including principal of or
interest on any Standby Borrowing or any Fees or other amounts but excluding any
principal of or interest on each Offered Rate Loan) hereunder from an account in
the United States not later than 12:00 noon, Houston, Texas time, on the date
when due in dollars to the Administrative Agent at its offices at 1111 Fannin
Street, 9th floor, MS 46, Houston, Texas 77002, in immediately available funds.
The Borrower shall make each payment of any principal of or interest on an
Offered Rate Loan from an account in the United States on the date when due in
dollars and immediately available funds to the Lender that made such Offered
Rate Loan to the Borrower at such time of day and at such location as such
Lender may require by notice to the Borrower at the time such Offered Rate Loan
is made or as otherwise directed by such Lender.
(b) Whenever any payment (including principal of or interest on any
Borrowing or any Fees or other amounts) hereunder shall become due, or otherwise
would occur, on a day that is not a Business Day, such payment may be made on
the next succeeding Business Day, and such extension of time shall in such case
be included in the computation of interest or Fees, if applicable.
SECTION 2.17. Taxes.
(a) Any and all payments of principal and interest on any Borrowings,
or of any Fees or indemnity or expense reimbursements by the Borrower hereunder
("Borrower Payments") shall be made, in accordance with Section 2.16, free and
clear of and without deduction for any and all
REVOLVING CREDIT FACILITY AGREEMENT - Page 25
<PAGE> 30
current or future United States Federal, state and local taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect to the
Borrower Payments, but only to the extent reasonably attributable to the
Borrower Payments, excluding (i) income taxes imposed on the net income of
either Agent or any Lender (or any transferee or assignee thereof, including a
participation holder (any such entity a "Transferee")) and (ii) franchise taxes
imposed on the net income of either Agent or any Lender (or Transferee), in each
case by the jurisdiction under the laws of which either Agent or such Lender (or
Transferee) is organized or doing business through offices or branches located
therein, or any political subdivision thereof (all such nonexcluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities, collectively
or individually, "Taxes"). If the Borrower shall be required to deduct any Taxes
from or in respect of any sum payable hereunder to any Lender (or any
Transferee) or the Agents, (i) the sum payable shall be increased by the amount
(an "additional amount") necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
2.17) such Lender (or Transferee) or Agent (as the case may be) shall receive an
amount equal to the sum it would have received had no such deductions been made,
(ii) the Borrower shall make such deductions and (iii) the Borrower shall pay
the full amount deducted to the relevant Governmental Authority in accordance
with applicable law.
(b) In addition, the Borrower shall pay to the relevant United States
Governmental Authority in accordance with applicable law any current or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies that arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement or the
Fee Letters ("Other Taxes").
(c) The Borrower shall indemnify each Lender (or Transferee thereof)
and each Agent for the full amount of Taxes and Other Taxes with respect to
Borrower Payments paid by such Lender (or Transferee) or such Agent, as the case
may be, and any liability (including penalties, interest and expenses (including
reasonable attorney's fees and expenses)) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or legally
asserted by the relevant United States Governmental Authority. A certificate
setting forth and containing an explanation in reasonable detail of the manner
in which such amount shall have been determined and the amount of such payment
or liability prepared by a Lender or an Agent on their behalf, absent manifest
error, shall be final, conclusive and binding for all purposes. Such
indemnification shall be made within 30 days after the date the Lender (or
Transferee) or any Agent, as the case may be, makes written demand therefor.
(d) If a Lender (or Transferee) or any Agent shall become aware that it
is entitled to claim a refund from a United States Governmental Authority in
respect of Taxes or Other Taxes as to which it has been indemnified by the
Borrower, or with respect to which the Borrower has paid additional amounts,
pursuant to this Section 2.17, it shall promptly notify the Borrower of the
availability of such refund claim and shall, within 30 days after receipt of a
request by the Borrower, make a claim to such United States Governmental
Authority for such refund at the Borrower's expense. If a Lender (or Transferee)
or any Agent receives a refund (including pursuant to a claim for refund made
pursuant to the preceding sentence) in respect of any Taxes or Other Taxes as to
which it has been indemnified by the Borrower or with respect to which the
REVOLVING CREDIT FACILITY AGREEMENT - Page 26
<PAGE> 31
Borrower had paid additional amounts pursuant to this Section 2.17, it shall
within 30 days from the date of such receipt pay over such refund to the
Borrower (but only to the extent of indemnity payments made, or additional
amounts paid, by the Borrower under this Section 2.17 with respect to the Taxes
or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of
such Lender (or Transferee) or such Agent and without interest (other than
interest paid by the relevant United States Governmental Authority with respect
to such refund); provided, however, that the Borrower, upon the request of such
Lender (or Transferee) or such Agent, agrees to repay the amount paid over to
the Borrower (plus penalties, interest or other charges) to such Lender (or
Transferee) or such Agent in the event such Lender (or Transferee) or such Agent
is required to repay such refund to such United States Governmental Authority.
(e) As soon as practicable, but in any event within 30 days, after the
date of any payment of Taxes or Other Taxes by the Borrower to the relevant
United States Governmental Authority, the Borrower will deliver to the
Administrative Agent, at its address referred to in Section 8.01, the original
or a certified copy of a receipt issued by such United States Governmental
Authority evidencing payment thereof.
(f) Without prejudice to the survival of any other agreement contained
herein, the agreements and obligations contained in this Section 2.17 shall
survive the payment in full of the principal of and interest on all Loans made
hereunder.
(g) Each Lender or Agent (or Transferee) that is organized under the
laws of a jurisdiction other than the United States, any State thereof or the
District of Columbia (a "Non-U.S. Lender" or "Non U.S. Agent", as applicable)
shall deliver to the Borrower and the Administrative Agent two copies of either
United States Internal Revenue Service Form 1001 or Form 4224, properly
completed and duly executed by such Non-U.S. Lender claiming complete exemption
from, or reduced rate of, United States Federal withholding tax on payments by
the Borrower under this Agreement. Such forms shall be delivered by each
Non-U.S. Lender on or before the date it becomes a party to this Agreement (or,
in the case of a Transferee that is a participation holder, on or before the
date such participation holder becomes a Transferee hereunder) and on or before
the date, if any, such Non-U.S. Lender changes its applicable lending office by
designating a different lending office (a "New Lending Office"). In addition,
each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or
invalidity of any form previously delivered by such Non-U.S. Lender.
Notwithstanding any other provision of this Section 2.17(g), a Non-U.S. Lender
shall not be required to deliver any form pursuant to this Section 2.17(g) that
such Non-U.S. Lender is not legally able to deliver.
(h) The Borrower shall not be required to indemnify any Non-U.S. Lender
or Non-U.S. Agent (including any Transferee), or to pay any additional amounts
to any Non-U.S. Lender or Non-U.S. Agent (including any Transferee), in respect
of United States Federal, state or local withholding tax pursuant to paragraph
(a) or (c) above to the extent that (i) the obligation to withhold amounts with
respect to United States Federal, state or local withholding tax existed on the
date such Non-U.S. Lender became a party to this Agreement (or, in the case of a
Transferee that is a participation holder, on the date such participation holder
became a Transferee hereunder) or, with respect to payments to a New Lending
Office, the date such Non-U.S. Lender designated
REVOLVING CREDIT FACILITY AGREEMENT - Page 27
<PAGE> 32
such New Lending Office with respect to a Loan; provided, however, that this
clause (i) shall not apply to any Transferee or New Lending Office that becomes
a Transferee or New Lending Office as a result of an assignment, participation,
transfer or designation made at the request of the Borrower; and provided
further, however, that this clause (i) shall not apply to the extent the
indemnity payment or additional amounts any Transferee, or Lender (or
Transferee) through a New Lending Office, would be entitled to receive (without
regard to this clause (h)) do not exceed the indemnity payment or additional
amounts that the Person making the assignment, participation or transfer to such
Transferee, or Lender (or Transferee) making the designation of such New Lending
Office, would have been entitled to receive in the absence of such assignment,
participation, transfer or designation or (ii) the obligation to pay such
additional amounts or such indemnity payments would not have arisen but for a
failure by such Non-U.S. Lender (including any Transferee) to comply with time
provisions of paragraph (g) above and (i) below.
(i) Any Lender (or Transferee) claiming any indemnity payment or
additional amounts payable pursuant to this Section 2.17 shall use reasonable
efforts (consistent with legal and regulatory restrictions) to file any
certificate or document reasonably requested in writing by the Borrower or to
change the jurisdiction of its applicable lending office if the making of such a
filing or change would avoid the need for or reduce the amount of any such
indemnity payment or additional amounts that may thereafter accrue and would
not, in the good faith determination of such Lender (or Transferee), be
otherwise disadvantageous to such Lender (or Transferee).
(j) Nothing contained in this Section 2.17 shall require any Lender (or
Transferee) or any Agent to make available to the Borrower any of its tax return
(or any other information) that it deems to be confidential or proprietary.
SECTION 2.18. Assignment of Commitments Under Certain Circumstances. In
the event that any Lender shall have delivered a notice or certificate pursuant
to Section 2.12 or 2.13, or the Borrower shall be required to make additional
payments to any Lender under Section 2.17, the Borrower shall have the right, at
its own expense, upon notice to such Lender and the Agents, to require such
Lender to transfer and assign without recourse (in accordance with and subject
to the restrictions contained in Section 8.04) all such Lender's interests,
rights and obligations contained hereunder to another financial institution
approved by the Agents and the Borrower (which approval shall not be
unreasonably withheld) which shall assume such obligations; provided that (i) no
such assignment shall conflict with any law, rule or regulation or order of any
Governmental Authority and (ii) the assignee or the Borrower, as the case may
be, shall pay to the affected Lender in immediately available funds on the date
of such assignment the principal of and interest accrued to the date of payment
on the Loan made by it hereunder and all other amounts accrued for its account
or owed to it hereunder.
SECTION 2.19. Payments by Agent to the Lenders. Any payment received by
the Agent hereunder for the account of a Lender shall be paid to such Lender by
4:00 p.m. Houston time on (a) the Business Day the payment is received in
immediately available funds, if such payment is received by 10:00 a.m. Houston
time and (b) if such payment is received after 10:00 a.m. Houston time, on the
next Business Day.
REVOLVING CREDIT FACILITY AGREEMENT - Page 28
<PAGE> 33
ARTICLE III. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to each of the Lenders as follows:
SECTION 3.01. Organization; Powers. Borrower (a) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, (b) has all requisite power and authority to
own its property and assets and to carry on its business as now conducted and as
proposed to be conducted, (c) is qualified to do business in every jurisdiction
where such qualification is required, except where the failure so to qualify
would not result in a Material Adverse Effect, and (d) has the corporate power
and authority to execute, deliver and perform its obligations under this
Agreement and to borrow hereunder.
SECTION 3.02. Authorization. The execution, delivery and performance by
the Borrower of this Agreement and the Borrowings hereunder (collectively, the
"Transactions") (a) have been duly authorized by all requisite corporate action
and (b) will not (i) violate (A) any provision of any law, statute, rule or
regulation to which the Borrower is subject or of the certificate of
incorporation or other constituent documents or by-laws of the Borrower or any
of its Subsidiaries, (B) any order of any Governmental Authority or (C) any
provision of any Material indenture, agreement or other instrument to which the
Borrower or any of its Subsidiaries is a party or by which it or any of its
property is or may be bound (including the Senior Note Purchase Agreements and
the Indebtedness limitations set forth in Sections 10.4 and 10.9 thereof), (ii)
be in conflict with, result in a breach of or constitute (alone or with notice
or lapse of time or both) a default under any such indenture, agreement or other
instrument or (iii) result in the creation or imposition of any Lien upon any
property or assets of the Borrower.
SECTION 3.03. Enforceability. This Agreement constitutes a legal, valid
and binding obligation of the Borrower enforceable in accordance with its terms,
as such enforceability may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (ii) general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
SECTION 3.04. Governmental Approvals. No action, consent or approval
of, registration or filing with or other action by any Governmental Authority is
or will be required in connection with the Transactions, to the extent they
relate to the Borrower.
SECTION 3.05. Organization and Ownership of Shares of Subsidiaries.
(a) Schedule 3.05 is (except as noted therein) a complete and correct
list of the Borrower's Subsidiaries, showing, as to each Subsidiary, the correct
name thereof, the jurisdiction of its organization, the percentage of shares of
each class of its capital stock or similar equity interests outstanding owned by
the Borrower and each other Subsidiary, and specifying whether such Subsidiary
is designated a Restricted Subsidiary.
(b) All of the outstanding shares of capital stock or similar equity
interests of each Subsidiary shown in Schedule 3.05 as being owned by the
Borrower and its Subsidiaries have been
REVOLVING CREDIT FACILITY AGREEMENT - Page 29
<PAGE> 34
validly issued, are fully paid and nonassessable and are owned by the Borrower
or another Subsidiary free and clear of any Lien (except as otherwise disclosed
in Schedule 3.05).
(c) Each Subsidiary identified in Schedule 3.05 is a corporation or
other legal entity duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization, and is duly qualified as a foreign
corporation or other legal entity and is in good standing in each jurisdiction
in which such qualification is required by law, other than those jurisdictions
as to which the failure to be so qualified or in good standing would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Each such Subsidiary has the corporate or other power and
authority to own or hold under lease the properties it purports to own or hold
under lease and to transact the business it transacts and proposes to transact.
SECTION 3.06. Financial Statements. The Borrower has delivered to each
Lender copies of the financial statements of the Borrower and its Subsidiaries
listed on Schedule 3.06. All of said financial statements (including in each
case the related schedules and notes) fairly present in all material respects
the consolidated financial position of the Borrower and its Subsidiaries, and of
the Borrower and its Restricted Subsidiaries, as of the respective dates
specified in such Schedule and the consolidated results of their operations and
cash flows for the respective periods so specified and have been prepared in
accordance with GAAP consistently applied throughout the periods involved except
as set forth in the notes thereto (subject, in the case of any interim financial
statements, to normal year-end adjustments). Except as disclosed in the
financial statements listed in Schedule 3.06, since December 31, 1997, there has
been no change in the financial condition, operations, business, properties or
prospects of the Borrower or any of its Subsidiaries except changes that
individually or in the aggregate would not reasonably be expected to have a
Material Adverse Effect. There is no fact known to the Borrower that could
reasonably be expected to have a Material Adverse Effect that has not been set
forth herein or in the financial statements listed in Schedule 3.06
SECTION 3.07. Litigation; Observance of Statutes and Orders.
(a) There are no actions, suits or proceedings pending or, to the
knowledge of the Borrower, threatened against or affecting the Borrower or any
Subsidiary or any property of the Borrower or any Subsidiary in any court or
before any arbitrator of any kind or before or by any Governmental Authority
that, individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect.
(b)Neither the Borrower nor any Subsidiary is in default under any
agreement or instrument to which it is a party or by which it is bound, or any
order, judgment, decree or ruling of any court, arbitrator or Governmental
Authority or is in violation of any applicable law, ordinance, rule or
regulation (including without limitation Environmental Laws) of any Governmental
Authority, which default or violation, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect.
REVOLVING CREDIT FACILITY AGREEMENT - Page 30
<PAGE> 35
SECTION 3.08. Taxes. The Borrower and its Subsidiaries have filed all
income tax returns that are required to have been filed in any jurisdiction, and
have paid all taxes shown to be due and payable on such returns and all other
taxes and assessments payable by them, to the extent such taxes and assessments
have become due and payable and before they have become delinquent, except for
any taxes and assessments (i) the amount of which is not individually or in the
aggregate Material or (ii) the amount, applicability or validity of which is
currently being contested in good faith by appropriate proceedings and with
respect to which the Borrower or a Subsidiary, as the case may be, has
established adequate reserves in accordance with GAAP. The Federal income tax
liabilities of the Borrower and its Subsidiaries have been determined by the
Internal Revenue Service and paid for all fiscal years up to and including the
fiscal year ended December 31, 1992.
SECTION 3.09. Title to Property; Leases. The Borrower and its
Subsidiaries have good and sufficient title to their respective Material
properties, including all such properties reflected in the most recent audited
balance sheet referred to in Section 3.06 or purported to have been acquired by
the Borrower or any Subsidiary after said date (except as sold or otherwise
disposed of in the ordinary course of business), in each case free and clear of
Liens prohibited by this Agreement, except for those defects in title and Liens
that, individually or in the aggregate, would not have a Material Adverse
Effect. All Material leases are valid and subsisting and are in full force and
effect in all material respects.
SECTION 3.10. Licenses, Permits, etc. The Borrower and its Subsidiaries
own or possess all licenses, permits, franchises, authorizations, patents,
copyrights, service marks, trademarks and trade names, or rights thereto, that
are Material, without known conflict with the rights of others, except for those
conflicts that, individually or in the aggregate, would not have a Material
Adverse Effect.
SECTION 3.11. Compliance with ERISA.
(a)The Borrower and each ERISA Affiliate have operated and administered
each Plan in compliance with all applicable laws except for such instances of
noncompliance as have not resulted in and could not reasonably be expected to
result in a Material Adverse Effect. Neither the Borrower nor any ERISA
Affiliate has incurred any liability pursuant to Title I or IV of ERISA or the
penalty or excise tax provisions of the Code relating to employee benefit plans
(as defined in Section 3 of ERISA), and no event, transaction or condition has
occurred or exists that would reasonably be expected to result in the incurrence
of any such liability by the Borrower or any ERISA Affiliate, or in the
imposition of any Lien on any of the rights, properties or assets of the
Borrower or any ERISA Affiliate, in either case pursuant to Title I or IV of
ERISA or to such penalty or excise tax provisions or to Section 401(a)(29) or
412 of the Code, other than such liabilities or Liens as would not be
individually or in the aggregate Material.
(b) The present value of the aggregate accrued plan benefit liabilities
under each of the Plans that are subject to Title IV of ERISA (other than
Multiemployer Plans), determined in accordance with Financial Accounting
Standards Board Statement No. 87 as of the end of such Plan's most recently
ended plan year on the basis of the actuarial assumptions specified for funding
REVOLVING CREDIT FACILITY AGREEMENT - Page 31
<PAGE> 36
purposes in such Plan's most recent actuarial valuation report, did not exceed
the aggregate current value of the assets of such Plan allocable to such benefit
liabilities by more than $3,000,000 in the case of any single Plan and by more
than $3,000,000 in the aggregate for all Plans.
(c) The Borrower and its ERISA Affiliates have not incurred withdrawal
liabilities (and are not subject to contingent withdrawal liabilities) under
section 4201 or 4204 of ERISA in respect of Multiemployer Plans that
individually or in the aggregate are Material.
(d) The expected post-retirement benefit obligation (determined as of
the last day of the Borrower's most recently ended fiscal year in accordance
with Financial Accounting Standards Board Statement No. 106, without regard to
liabilities attributable to continuation coverage mandated by section 4980B of
the Code) of the Borrower and its Subsidiaries was approximately $18,733,000 as
of December 31, 1997.
SECTION 3.12. Use of Proceeds; Margin Regulation. The Borrower will
apply the proceeds of the Loans for working capital and other general corporate
purposes. No part of the proceeds from the Loans will be used, directly or
indirectly, for the purpose of buying or carrying any margin stock within the
meaning of Regulation U of the Board (12 CFR 221), or for the purpose of buying
or carrying or trading in any securities under such circumstances as to involve
the Borrower in a violation of Regulation X of the Board (12 CFR 224) or to
involve any broker or dealer in a violation of Regulation T of the Board (12 CFR
220). Margin stock does not constitute more than 5% of the value of the
consolidated assets of the Borrower and its Restricted Subsidiaries and the
Borrower does not have any present intention that margin stock will constitute
more than 5% of the value of such assets. As used in this Section, the terms
"margin stock" and "purpose of buying or carrying" shall have the meanings
assigned to them in said Regulation U.
SECTION 3.13. Existing Indebtedness. Except for the Indebtedness
outstanding in connection with the Senior Note Purchase Agreements and except as
described therein, Schedule 3.13 sets forth a complete and correct list of all
outstanding Indebtedness of the Borrower and its Restricted Subsidiaries (other
than Indebtedness of Restricted Subsidiaries to the Borrower or other
Wholly-Owned Restricted Subsidiaries) as of January 31, 1998, since which date
there has been no Material change in the amounts, interest rates, sinking funds,
installment payments or maturities of the Indebtedness of the Borrower or its
Restricted Subsidiaries. Neither the Borrower nor any Restricted Subsidiary is
in default, and no waiver of default is currently in effect, in the payment of
any principal or interest on any Indebtedness of the Borrower or such Restricted
Subsidiary, and no event or condition exists with respect to any Indebtedness of
the Borrower or any Restricted Subsidiary the outstanding principal amount of
which exceeds $3,000,000 in the aggregate that would permit (or that with notice
or the lapse of time, or both, would permit) one or more Persons to cause such
Indebtedness to become due and payable before its stated maturity or before its
regularly scheduled dates of payment. To the knowledge of the Responsible
Officers of the Borrower, no event or condition exists with respect to any
Indebtedness of the Borrower or any Restricted Subsidiary that would permit (or
that with notice or the lapse of time, or both, would permit) one or more
Persons to cause such Indebtedness to become due and payable before its stated
maturity or before its regularly scheduled dates of payment.
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SECTION 3.14. Foreign Assets Control Regulations, etc. The use of the
proceeds of the Loans will not violate the Trading with the Enemy Act, as
amended, or any of the foreign assets control regulations of the United States
Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto.
SECTION 3.15. Status under Certain Statutes. Neither the Borrower nor
any Subsidiary is subject to regulation under the Investment Company Act of
1940, as amended, the Public Utility Holding Company Act of 1935, as amended,
the Interstate Commerce Act, as amended, or the Federal Power Act, as amended.
SECTION 3.16. No Material Misstatements. No report, financial statement
or other information furnished by or on behalf of the Borrower to the Agents or
any Lender pursuant to or in connection with this Agreement contains or will
contain any material misstatement of fact or omits or will omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were or will be made, not misleading.
SECTION 3.17. Year 2000 Matters. Any programming required to permit the
proper functioning, in and following the year 2000, of the Borrower=s and its
Subsidiaries= Material (i) computer systems and (ii) equipment containing
imbedded microchips (including systems and equipment supplied by others or with
which the Borrower=s or its Subsidiaries= systems interface) and the testing of
all such systems and equipment, as so reprogrammed, is expected to be completed
by August 1, 1999. The cost to the Borrower and its Subsidiaries of such
reprogramming and testing and of the reasonably foreseeable consequences of year
2000 to the Borrower and its Subsidiaries (including, without limitation,
reprogramming errors and the failure of others= systems or equipment) will not
result in a Default or a Material Adverse Effect. Except for such of the
reprogramming referred to in the preceding sentence as may be necessary, the
computer and management information systems of the Borrower and its Subsidiaries
are, and with ordinary course upgrading and maintenance, will continue for the
term of this Agreement to be, sufficient to permit the Borrower and its
Subsidiaries to conduct its business without Material Adverse Effect.
ARTICLE IV. CONDITIONS OF LENDING
The obligations of the Lenders to make Loans hereunder are subject to
the satisfaction of the following conditions:
SECTION 4.01. All Borrowings. On the date of each Borrowing:
(a) The Administrative Agent shall have received a notice of
such Borrowing as required by Section 2.03 or Section 2.04, as
applicable.
(b) The representations and warranties set forth in Article
III hereof shall be true and correct in all material respects on and as
of the date of such Borrowing with the same effect as though made on
and as of such date, except to the extent such representations and
warranties expressly relate to an earlier date.
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(c) At the time of and immediately after such Borrowing no
Event of Default or Default shall have occurred and be continuing.
Each Borrowing shall be deemed to constitute a representation and warranty by
the Borrower on the date of such Borrowing as to the matters specified in
paragraphs (b) and (c) of this Section 4.01.
SECTION 4.02. Effective Date. On the Effective Date:
(a) The Administrative Agent shall have received a favorable
written opinion from Anne W. Teeling, Assistant General Counsel to the
Borrower, dated the Effective Date and addressed to the Lenders and
satisfactory to Jenkens & Gilchrist, a Professional Corporation,
counsel for the Administrative Agent, to the effect set forth in
Exhibit D hereto (and the Borrower hereby instructs its counsel to
deliver such opinion to the Administrative Agent for the benefit of the
Lenders).
(b) The Administrative Agent shall have received (i) a copy of
the certificate of incorporation, including all amendments thereto, of
the Borrower, certified as of a recent date by the Secretary of State
of its state of incorporation, and a certificate as to the good
standing of the Borrower as of a recent date from such Secretary of
State; (ii) a certificate of the Secretary or an Assistant Secretary of
the Borrower dated the Effective Date and certifying (A) that attached
thereto is a true and complete copy of the by-laws of the Borrower as
in effect on the Effective Date and at all times since a date prior to
the date of the resolutions described in clause (B) below, (B) that
attached thereto is a true and complete copy of resolutions, duly
adopted by the Board of Directors authorizing the execution, delivery
and performance of this Agreement and the Transactions, and that such
resolutions have not been modified, rescinded or amended and are in
full force and effect, (C) that the certificate of incorporation
referred to in clause (i) above has not been amended since the date of
the last amendment thereto shown on the certificate of good standing
furnished pursuant to such clause (i) and (D) as to the incumbency and
specimen signature of each officer executing this Agreement or any
other document delivered in connection herewith on behalf of the
Borrower; (iii) a certificate of another officer of the Borrower as to
the incumbency and specimen signature of the Secretary or Assistant
Secretary executing the certificate pursuant to (ii) above; (iv)
evidence satisfactory to the Administrative Agent that the requisite
approvals, if any, referred to in Section 3.04 hereof have been
obtained; and (v) such other documents as the Lenders or Jenkens &
Gilchrist, a Professional Corporation, counsel for the Administrative
Agent, shall reasonably request.
(c) The Administrative Agent shall have received a
certificate, dated the Effective Date and signed by a Senior Financial
Officer of the Borrower, (i) confirming compliance with the conditions
precedent set forth in paragraphs (b) and (c) of Section 4.01 and (ii)
providing the calculations demonstrating compliance with Sections 10.4
and 10.9 of the Senior Note Purchase Agreements.
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<PAGE> 39
(d) The Agents shall have received all Fees and other amounts
due and payable on or prior to the Effective Date.
ARTICLE V. AFFIRMATIVE AND NEGATIVE COVENANTS
The Borrower agrees that, so long as any Lender has any Commitment
hereunder or any amount payable hereunder remains unpaid:
SECTION 5.01. Compliance with Law. The Borrower will and will cause
each of its Subsidiaries to comply with all laws, ordinances or governmental
rules or regulations to which each of them is subject, including, without
limitation, Environmental Laws, and will obtain and maintain in effect all
licenses, certificates, permits, franchises and other governmental
authorizations necessary to the ownership of their respective properties or to
the conduct of their respective businesses, in each case to the extent necessary
to ensure that non-compliance with such laws, ordinances or governmental rules
or regulations or failures to obtain or maintain in effect such licenses,
certificates, permits, franchises and other governmental authorizations would
not reasonably be expected, individually or in the aggregate, to have a
materially adverse effect on the business, operations, affairs, financial
condition, properties or assets of the Borrower and its Restricted Subsidiaries
taken as a whole.
SECTION 5.02. Insurance. The Borrower will and will cause each of its
Subsidiaries to maintain, with financially sound and reputable insurers,
insurance with respect to their respective properties and businesses against
such casualties and contingencies, of such types, on such terms and in such
amounts (including deductibles, co-insurance and self-insurance, if adequate
reserves are maintained with respect thereto) as is customary in the case of
entities of established reputations engaged in the same or a similar business
and similarly situated.
SECTION 5.03. Maintenance of Properties. The Borrower will and will
cause each of its Subsidiaries to maintain and keep, or cause to be maintained
and kept, their respective properties in good repair, working order and
condition (other than ordinary wear and tear), so that the business carried on
in connection therewith may be properly conducted at all times, provided that
this Section shall not prevent the Borrower or any Subsidiary from discontinuing
the operation and the maintenance of any of its properties if such
discontinuance is desirable in the conduct of its business and the Borrower has
concluded that such discontinuance would not, individually or in the aggregate,
have a materially adverse effect on the business, operations, affairs, financial
condition, properties or assets of the Borrower and its Restricted Subsidiaries
taken as a whole.
SECTION 5.04. Payment of Taxes. The Borrower will and will cause each
of its Subsidiaries to file all income tax or similar tax returns required to be
filed in any jurisdiction and to pay and discharge all taxes shown to be due and
payable on such returns and all other taxes, assessments, governmental charges,
or levies payable by any of them, to the extent such taxes and assessments have
become due and payable and before they have become delinquent, provided that
neither the Borrower nor any Subsidiary need pay any such tax or assessment if
(i) the amount, applicability or validity thereof is contested by the Borrower
or such Subsidiary on a timely basis
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<PAGE> 40
in good faith and in appropriate proceedings, and the Borrower or a Subsidiary
has established adequate reserves therefor in accordance with GAAP on the books
of the Borrower or such Subsidiary or (ii) the nonpayment of all such taxes and
assessments in the aggregate would not reasonably be expected to have a
materially adverse effect on the business, operations, affairs, financial
condition, properties or assets of the Borrower and its Restricted Subsidiaries
taken as a whole.
SECTION 5.05. Corporate Existence, etc. The Borrower will at all times
preserve and keep in full force and effect its corporate existence. Subject to
Sections 5.10 and 5.11, the Borrower will at all times preserve and keep in full
force and effect the corporate existence of each of its Restricted Subsidiaries
(unless merged into the Borrower or a Restricted Subsidiary) and all rights and
franchises of the Borrower and its Restricted Subsidiaries unless, in the good
faith judgment of the Borrower, the termination of or failure to preserve and
keep in full force and effect such corporate existence, right or franchise would
not, individually or in the aggregate, have a materially adverse effect on the
business, operations, affairs, financial condition, properties or assets of the
Borrower and its Restricted Subsidiaries taken as a whole.
SECTION 5.06. Most Favored Lender Status. The Borrower will not and
will not permit any Restricted Subsidiary to enter into, assume or otherwise be
bound or obligated under any agreement creating or evidencing Indebtedness or
any agreement executed and delivered in connection with any Indebtedness
containing one or more Additional Covenants or Additional Defaults (as defined
below), unless prior written consent to such agreement shall have been obtained
from the Required Lenders; provided, however, in the event the Borrower or any
Restricted Subsidiary shall enter into, assume or otherwise become bound by or
obligated under any such agreement without the prior written consent of the
Lenders, the terms of this Agreement shall, without any further action on the
part of the Borrower or any of the Lenders, be deemed to be amended
automatically to include each Additional Covenant and each Additional Default
contained in such agreement. The Borrower further covenants to promptly execute
and deliver at its expense an amendment to this Agreement in form and substance
satisfactory to the Required Lenders evidencing the amendment of this Agreement
to include such Additional Covenants and Additional Defaults, provided that the
execution and delivery of such amendment shall not be a precondition to the
effectiveness of such amendment as provided for in this Section 5.06, but shall
merely be for the convenience of the parties hereto.
For purposes of this Agreement, (i) the term "Additional Covenant"
shall mean any affirmative or negative covenant or similar restriction
applicable to the Borrower or any Restricted Subsidiary (regardless of whether
such provision is labeled or otherwise characterized as a covenant) the subject
matter of which either (A) is similar to that of the covenants in Article V of
this Agreement, but contains one or more percentages, amounts or formulas that
is more restrictive than those set forth herein or more beneficial to the holder
or holders of such other Indebtedness (and such covenant or similar restriction
shall be deemed an "Additional Covenant" only to the extent that it is more
restrictive or more beneficial) or (B) is different from the subject matter of
the covenants in Article V of this Agreement; and (ii) the term "Additional
Default" shall mean any provision which permits the holder of such Indebtedness
to accelerate (with the passage of time or giving of notice or both) the
maturity thereof or otherwise require the Borrower or any
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<PAGE> 41
Restricted Subsidiary to purchase such Indebtedness prior to the stated maturity
of such Indebtedness and which either (A) is similar to the Defaults and Events
of Default contained in Article VI of this Agreement, but contains one or more
percentages, amounts or formulas that is more restrictive or has a shorter grace
period than those set forth herein or is more beneficial to the holder or
holders of such other Indebtedness (and such provision shall be deemed an
"Additional Default" only to the extent that it is more restrictive, has a
shorter grace period or is more beneficial) or (B) is different from the subject
matter of the Defaults and Events of Default contained in Article VI of this
Agreement.
SECTION 5.07. Covenant to Secure Loans Equally. If the Borrower shall
create, assume or permit to exist any Lien upon any of its property or assets,
or permit any Restricted Subsidiary to create, assume or permit to exist any
Lien upon any of its property or assets, whether now owned or hereafter
acquired, other than those Liens permitted by the provisions of Section 5.13 the
Borrower shall make or cause to be made effective provision whereby the Loans
will be secured equally and ratably with any and all other obligations thereby
secured, with the documentation for such security to be reasonably satisfactory
to the Required Lenders and, in any such case, the Loans shall have the benefit,
to the fullest extent that, and with such priority as, the holders thereof may
be entitled under applicable law, of an equitable Lien on such property. Any
violation of Section 5.13 will constitute an Event of Default, whether or not
provision is made for an equal and ratable Lien pursuant to this Section 5.07.
SECTION 5.08. Environmental Matters.
(a) The Borrower will and will cause each of its Subsidiaries to comply
in all material respects with all applicable Environmental Laws if, individually
or in the aggregate, failure to comply therewith could reasonably be expected to
have a material adverse effect on the financial condition or results of
operations of the Borrower or the Borrower and its Subsidiaries, taken as a
whole.
(b) The Borrower will not and will not permit any of its Subsidiaries
to cause or allow any Hazardous Substance to be present at any time on, in,
under or above any real property or any part thereof in which the Borrower or
any Subsidiary has a direct interest (including without limitation ownership
thereof or any arrangement for the lease, rental or other use thereof, or the
retention of any mortgage or security interest therein or thereon), except in a
manner and to an extent that is in compliance in all material respects with all
applicable Environmental Laws or that will not have a material adverse effect on
the financial condition or results of operations of the Borrower or the Borrower
and its Subsidiaries, taken as a whole.
SECTION 5.09. Transactions with Affiliates. The Borrower will not
permit any Restricted Subsidiary to enter into directly or indirectly any
Material transaction or Material group of related transactions (including
without limitation the purchase, lease, sale or exchange of properties of any
kind or the rendering of any service) with any Affiliate (other than the
Borrower or another Restricted Subsidiary), except pursuant to the reasonable
requirements of the Borrower's or such Restricted Subsidiary's business and upon
fair and reasonable terms no less
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<PAGE> 42
favorable to the Borrower or such Restricted Subsidiary than would be obtainable
in a comparable arm's-length transaction with a Person not an Affiliate.
SECTION 5.10. Merger, Consolidation, etc. The Borrower will not
consolidate with or merge with any other corporation or convey, transfer or
lease substantially all of its assets in a single transaction or series of
transactions to any Person unless:
(a) the successor formed by such consolidation or the survivor of such
merger or the Person that acquires by conveyance, transfer or lease
substantially all of the assets of the Borrower as an entirety, as the case may
be, shall be a solvent corporation organized and existing under the laws of the
United States or any State thereof (including the District of Columbia), and, if
the Borrower is not such corporation, such corporation shall have executed and
delivered to each Lender its assumption of the due and punctual performance and
observance of each covenant and condition of this Agreement, together with a
favorable opinion of counsel satisfactory to each such Lender covering such
matters relating to such corporation and such assumption as such Lender may
reasonably request; and
(b) immediately after giving effect to such transaction, no Default or
Event of Default would exist; and
(c) immediately prior to and after giving effect to such transaction,
the Borrower or such successor, as the case may be, would be permitted by the
provisions of Sections 5.12 and 5.17 to incur at least $1.00 of additional
Indebtedness and $1.00 of additional Restricted Indebtedness, respectively.
No such conveyance, transfer or lease of substantially all of the
assets of the Borrower shall have the effect of releasing the Borrower or any
successor corporation that shall theretofore have become such in the manner
prescribed in this Section 5.10 from its liability under this Agreement.
SECTION 5.11. Sale of Assets, etc. The Borrower will not, and will not
permit any of its Restricted Subsidiaries to, make any Transfer, provided that
the foregoing restriction does not apply to a Transfer if:
(a) the property that is the subject of such Transfer constitutes
either (i) inventory held for sale, or (ii) equipment, fixtures, supplies or
materials no longer required in the operation of the business of the Borrower or
such Restricted Subsidiary or that is obsolete, and, in the case of any Transfer
described in clause (i) or (ii), such Transfer is in the ordinary course of
business (each such Transfer, an ?Ordinary Course Transfer@); or
(b) such Transfer is from
(i) a Restricted Subsidiary to the Borrower or another Restricted
Subsidiary, or
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<PAGE> 43
(ii) the Borrower to a Restricted Subsidiary, or
(iii) the Borrower to a Subsidiary (other than a Restricted
Subsidiary) or from a Restricted Subsidiary to
another Subsidiary (other than a Restricted
Subsidiary) and in either case is for Fair Market
Value, so long as immediately before and immediately
after the consummation of such transaction, and after
giving effect thereto, no Default or Event of Default
exists or would exist (each such Transfer, an
?Intergroup Transfer@);
(c) such Transfer is not an Ordinary Course Transfer or an Intergroup
Transfer (such Transfers collectively referred to as ?Excluded Transfers@), and
all of the following conditions shall have been satisfied with respect thereto
(the date of the consummation of such Transfer being referred to herein as the
?Property Disposition Date@):
(i) the book value of the assets included in such
Transfer, together with the book value of the assets
included in all other Transfers (other than Excluded
Transfers) during the fiscal year which includes the
Property Disposition Date, shall not exceed fifteen
percent (15%) of Consolidated Assets as of the end of
the most recent fiscal year;
(ii) the book value of the assets included in such
Transfer, together with the book value of the assets
included in all other Transfers (other than Excluded
Transfers) from January 1, 1998 through the Property
Disposition Date, shall not exceed thirty percent
(30%) of Consolidated Assets as of the end of the
most recent fiscal year; and
(iii) immediately after giving effect to such Transfer, no
Default or Event of Default would exist and the
Borrower would be permitted by the provisions of
Sections 5.12 and 5.17 to incur at least $1.00 of
additional Indebtedness and $1.00 of additional
Restricted Indebtedness, respectively.
If, within twelve (12) months after the Property Disposition Date, the Borrower
or a Restricted Subsidiary acquires assets similar to the assets included in the
Transfer, then, only for the purpose of determining compliance with Sections
5.11(c)(i) and (ii), the lesser of the book value of the assets acquired or the
book value of the assets included in the Transfer shall not be taken into
account.
SECTION 5.12. Incurrence of Indebtedness. The Borrower will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, create,
incur, assume, guarantee, or otherwise become directly or indirectly liable with
respect to any Indebtedness, unless on the date the Borrower or such Restricted
Subsidiary becomes liable with respect to any such Indebtedness and immediately
after giving effect thereto and to the substantially concurrent retirement of
any other Indebtedness,
(a) no Default or Event of Default would exist, and
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<PAGE> 44
(b) Consolidated Indebtedness would not exceed sixty percent (60%) of
Consolidated Capitalization.
For purposes of this Section 5.12 any Person becoming a Restricted
Subsidiary after the date of this Agreement shall be deemed to have incurred all
of its then outstanding Indebtedness at the time it becomes a Restricted
Subsidiary.
SECTION 5.13. Liens. The Borrower will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly create, incur, assume or
permit to exist (upon the happening of a contingency or otherwise) any Lien on
or with respect to any property or asset (including, without limitation, any
document or instrument in respect of goods or accounts receivable) of the
Borrower or any such Restricted Subsidiary, whether now owned or held or
hereafter acquired, or any income or profits therefrom, or assign or otherwise
convey any right to receive income or profits, except:
(a) Liens for taxes, assessments or other governmental charges the
payment of which is not at the time required by Section 5.04;
(b) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and other similar Liens, in each case, incurred in the
ordinary course of business for sums not yet due;
(c) Liens (other than any Lien imposed by ERISA) incurred or deposits
made in the ordinary course of business (i) in connection with workers=
compensation, unemployment insurance and other types of social security or
retirement benefits, or (ii) to secure (or to obtain letters of credit that
secure) the performance of tenders, statutory obligations, surety bonds, appeal
bonds, bids, leases (other than Capital Leases), performance bonds, purchase,
construction or sales contracts and other similar obligations, in each case not
incurred or made in connection with the borrowing of money, the obtaining of
advances or credit or the payment of the deferred purchase price of property;
(d) any attachment or judgment Lien, unless the judgment or other
obligation it secures (i) shall not, within ninety (90) days after the entry
thereof, have been discharged or execution thereof stayed pending appeal, or
shall not have been discharged within ninety (90) days after the expiration of
any such stay or (ii) exceeds, together with the amounts of all other
obligations secured by attachment or judgment Liens at the time existing in
respect of property of the Borrower and its Restricted Subsidiaries, $5,000,000;
(e) leases or subleases granted to others, easements, rights-of-way,
restrictions and other similar charges or encumbrances, in each case incidental
to, and not interfering with, the ordinary conduct of the business of the
Borrower or any of its Restricted Subsidiaries, provided that such Liens do not,
in the aggregate, materially detract from the value of such property;
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<PAGE> 45
(f) Liens on property or assets of the Borrower or any of its
Restricted Subsidiaries securing Indebtedness or other obligations owing to the
Borrower or to a Wholly Owned Restricted Subsidiary;
(g) Liens existing on the date of this Agreement on the building
referred to in item C of Schedule 3.13 and securing the Indebtedness referred to
in item C of Schedule 3.13;
(h) any Lien renewing, extending or refunding any Lien permitted by
Subsection (g) above, provided that (i) the principal amount of Indebtedness
secured by such Lien immediately prior to such extension, renewal or refunding
is not increased or the maturity thereof reduced, (ii) such Lien is not extended
to any other property, and (iii) immediately after such extension, renewal or
refunding no Default or Event of Default would exist and the Borrower would be
permitted by the provisions of Sections 5.12 and 5.17 to incur at least $1.00 of
additional Indebtedness and $1.00 of additional Restricted Indebtedness,
respectively; and
(i) other Liens not otherwise permitted by Subsections (a) through (h)
above, provided that (i) the total obligations secured by such other Liens shall
not exceed 10% of Consolidated Capitalization and (ii) immediately after giving
effect to the creation thereof, the Borrower would be permitted by the
provisions of Sections 5.12 and 5.17 to incur at least $1.00 of additional
Indebtedness and $1.00 of additional Restricted Indebtedness, respectively.
For purposes of this Section 5.13, any Person becoming a Restricted
Subsidiary after the date of this Agreement shall be deemed to have incurred all
of its then outstanding Liens at the time it becomes a Restricted Subsidiary,
and any Person extending, renewing or refunding any Indebtedness secured by any
Lien shall be deemed to have incurred such Lien at the time of such extension,
renewal or refunding.
SECTION 5.14. Restricted Payments. The Borrower will not, and will not
permit any of its Restricted Subsidiaries to, declare or make, or incur any
liability to declare or make, any Restricted Payment, unless immediately after
giving effect to such action:
(a) no Default or Event of Default would exist; and
(b) the Borrower would be permitted by the provisions of Sections 5.12
and 5.17 to incur at least $1.00 of additional Indebtedness and $1.00 of
additional Restricted Indebtedness, respectively.
SECTION 5.15. Consolidated Net Worth. The Borrower will not permit
Consolidated Net Worth as at the last day of any fiscal quarter of the Borrower
to be less than the sum of (a) $261,000,000, plus (b) 15% of its aggregate
Consolidated Net Income (but only if a positive number) for the period beginning
April 1, 1998 and ending at the end of each fiscal quarter thereafter.
SECTION 5.16. Limitation on Dividend Restrictions, etc. The Borrower
will not permit any Restricted Subsidiary to enter into, adopt, create or
otherwise be or become bound by or
REVOLVING CREDIT FACILITY AGREEMENT - Page 41
<PAGE> 46
subject to any contract or charter or by-law provision limiting the amount of,
or otherwise imposing restrictions on the declaration, payment or setting aside
of funds for the making of, any Distributions in respect of the capital stock of
such Restricted Subsidiary to the Borrower or another Restricted Subsidiary.
SECTION 5.17. Limitation on Restricted Indebtedness. The Borrower will
not at any time permit the aggregate amount of Restricted Indebtedness to exceed
10% of Consolidated Capitalization.
SECTION 5.18. Preferred Stock of Restricted Subsidiaries. The Borrower
will not permit any Restricted Subsidiary to issue or permit to remain
outstanding any Preferred Stock unless such Preferred Stock is issued to and at
all times owned and held by the Borrower or a Wholly-Owned Restricted
Subsidiary.
SECTION 5.19. No Redesignation of Restricted Subsidiaries. The Borrower
will not designate any Restricted Subsidiary as, or take or permit to be taken
any action that would cause any Restricted Subsidiary to become, an Unrestricted
Subsidiary.
SECTION 5.20. Financial and Business Information. The Borrower will
furnish to the Agents and each Lender:
(a) Quarterly Statements. Within 60 days after the end of each
quarterly fiscal period in each fiscal year of the Borrower (other than the last
quarterly fiscal period of each such fiscal year), duplicate copies of
(i) consolidated and consolidating balance sheets of the
Borrower and its Restricted Subsidiaries and of the Borrower and its
Subsidiaries as at the end of such quarter, and
(ii) consolidated and consolidating statements of income,
changes in shareholders' equity and cash flows of the Borrower and its
Restricted Subsidiaries and of the Borrower and its Subsidiaries, for
such quarter and (in the case of the second and third quarters) for the
portion of the fiscal year ending with such quarter,
all in reasonable detail and setting forth, in the case of such consolidated
statements, in comparative form the figures for the corresponding periods in the
previous fiscal year, prepared in accordance with GAAP applicable to quarterly
financial statements generally, and certified by a Senior Financial Officer as
fairly presenting, in all material respects, the financial position of the
companies being reported on and their results of operations and cash flows,
subject to changes resulting from year-end adjustments, provided that delivery
within the time period specified above of copies of the Borrower's Quarterly
Report on Form 10-Q prepared in compliance with the requirements therefor and
filed with the Securities and Exchange Commission shall be deemed to satisfy the
requirements of this Section 5.20(a); provided further that if such Form 10-Q
does not contain consolidating information for the Borrower and its Restricted
Subsidiaries, the Borrower
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<PAGE> 47
shall also deliver to each such holder the consolidating information described
in this Section 5.20(a);
(b) Annual Statements. Within 120 days after the end of each fiscal
year of the Borrower, duplicate copies of
(i) consolidated and consolidating balance sheets of the
Borrower and its Restricted Subsidiaries and of the Borrower and its
Subsidiaries, as at the end of such year, and
(ii) consolidated and consolidating statements of income,
changes in shareholders' equity and cash flows of the Borrower and its
Restricted Subsidiaries and of the Borrower and its Subsidiaries, for
such year;
setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail, prepared in accordance with GAAP, and
accompanied, (1) in the case of the consolidated statements, by an opinion
thereon of independent certified public accountants of recognized national
standing, which opinion shall state that such financial statements present
fairly, in all material respects, the financial position of the companies being
reported upon and their results of operations and cash flows and have been
prepared in conformity with GAAP, and that the examination of such accountants
in connection with such financial statements has been made in accordance with
generally accepted auditing standards, and that such audit provides a reasonable
basis for such opinion in the circumstances, and (2) in the case of the
consolidating statements, either certified by a Senior Financial Officer as
fairly stating, or accompanied by a report thereon by such accountants
containing a statement to the effect that such consolidating financial
statements fairly state, the financial position and the results of operations
and cash flows of the companies being reported upon in all material respects in
relation to the consolidated financial statements for the periods indicated as a
whole; provided that the delivery within the time period specified above of the
Borrower's Annual Report on Form 10-K for such fiscal year (together with the
Borrower's annual report to shareholders, if any, prepared pursuant to Rule
14a-3 under the Exchange Act) prepared in accordance with the requirements
therefor and filed with the Securities and Exchange Commission shall be deemed
to satisfy the requirements of clauses (i) and (ii) of this Section 5.20(b);
provided further that if such Form 10-K does not contain consolidating
information for the Borrower and its Restricted Subsidiaries, the Borrower shall
also deliver to each such holder the consolidating information described in this
Section 5.20(b); and
(iii) a certificate of such accountants stating that in making
the examination for such report, they have obtained no knowledge of any
Default or Event of Default, or, if they have obtained knowledge of any
Default or Event of Default, specifying the nature and period of
existence thereof and the action the Borrower has taken or proposes to
take with respect thereto.
(c) SEC and Other Reports. If the Borrower or any Restricted Subsidiary
shall be required to file reports with the Securities and Exchange Commission,
promptly upon their
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<PAGE> 48
becoming available, one copy of (i) each financial
statement, report, notice or proxy statement sent by the Borrower or any
Restricted Subsidiary to public securities holders generally, and (ii) each
regular or periodic report, each registration statement that shall have become
effective (without exhibits except as expressly requested by such holder), and
each final prospectus and all amendments thereto filed by the Borrower or any
Restricted Subsidiary with the Securities and Exchange Commission;
(d) Notice of Default or Event of Default. Promptly, and in any event
within five days after a Responsible Officer becoming aware of the existence of
any Default or Event of Default, a written notice specifying the nature and
period of existence thereof and what action the Borrower is taking or proposes
to take with respect thereto;
(e) ERISA Matters. Promptly, and in any event within five days after a
Responsible Officer becomes aware of any of the following, a written notice
setting forth the nature thereof and the action, if any, that the Borrower or an
ERISA Affiliate proposes to take with respect thereto:
(i) with respect to any Plan, any reportable event, as defined
in section 4043(b) of ERISA and the regulations thereunder, for which
notice thereof has not been waived pursuant to such regulations as in
effect on the date hereof and the potential cost to the Borrower or
such ERISA Affiliate resulting therefrom exceeds $500,000; or
(ii) the taking by the PBGC of steps to institute, or the
threatening in writing by the PBGC of the institution of, proceedings
under section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Plan, or the receipt by the Borrower or
any ERISA Affiliate of a notice from a Multiemployer Plan that such
action has been taken by the PBGC with respect to such Multiemployer
Plan; or
(iii) any event, transaction or condition that could result in
the incurrence of any liability by the Borrower or any ERISA Affiliate
pursuant to Title I or IV of ERISA or the penalty or excise tax
provisions of the Code relating to employee benefit plans, or in the
imposition of any Lien on any of the rights, properties or assets of
the Borrower or any ERISA Affiliate pursuant to Title I or IV of ERISA
or such penalty or excise tax provisions, if such liability or Lien,
taken together with any other such liabilities or Liens then existing,
would reasonably be expected to have a Material Adverse Effect; and
(f) Requested Information. With reasonable promptness, such other data
and information relating to the business, operations, affairs, financial
condition, assets or properties of the Borrower or any of its Restricted
Subsidiaries or relating to the ability of the Borrower to perform its
obligations hereunder as from time to time may be reasonably requested by any
Lender.
(g) Officer=s Certificate. Each set of financial statements delivered
pursuant to Section 5.20(a) or Section 5.20(b) hereof shall be accompanied by a
certificate of a Senior Financial Officer setting forth:
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<PAGE> 49
(i) Covenant Compliance. The information (including detailed
calculations) required in order to establish the Debt to Total
Capitalization Ratio, the Applicable Margin, the Facility Fee
Percentage and whether the Borrower was in compliance with the
requirements of Section 5.11 through Section 5.17 hereof, inclusive,
and with all Additional Covenants, if any, that involve calculations
during the quarterly or annual period covered by the statements then
being furnished (including with respect to each such Section or
Additional Covenant, as the case may be, where applicable, the
calculations of the maximum or minimum amount, ratio or percentage, as
the case may be, permissible under the terms of such Sections or
Additional Covenants, as the case may be, and the calculation of the
amount, ratio or percentage then in existence);
(ii) Event of Default. A statement that such officer has
reviewed the relevant terms hereof and has made, or caused to be made,
under his or her supervision, a review of the transactions and
conditions of the Borrower and its Subsidiaries from the beginning of
the quarterly or annual period covered by the statements then being
furnished to the date of the certificate and that such review shall not
have disclosed the existence during such period of any condition or
event that constitutes a Default or an Event of Default or, if any such
condition or event existed or exists (including, without limitation,
any such event or condition resulting from the failure of the Borrower
or any Subsidiary to comply with any Environmental Law), specifying the
nature and period of existence thereof and what action the Borrower
shall have taken or proposes to take with respect thereto;
(iii) Management=s Discussion and Analysis. A written
discussion and analysis by management of the financial condition and
results of operations of the lines of business conducted by each
material Restricted Subsidiary for such accounting period; and
(iv) Litigation. A written statement that, to the best of such
Officer=s knowledge after due inquiry, except as otherwise disclosed in
writing to you, there is no litigation (including derivative actions),
arbitration proceeding or governmental proceeding pending to which the
Borrower or any Subsidiary is a party, or with respect to the Borrower
or any Subsidiary or their respective properties, which has a
significant possibility of materially and adversely affecting the
business, operations, properties or condition of the Borrower or of the
Borrower and its Subsidiaries taken as a whole.
SECTION 5.21 Inspection; Confidentiality. The Borrower shall permit the
representatives of each Agent and each Lender:
(a) No Default. If no Default or Event of Default then exists, at the
expense of such Agent or Lender and upon reasonable prior notice to the
Borrower, to visit the principal executive office of the Borrower, to discuss
the affairs, finances and accounts of the Borrower and its Restricted
Subsidiaries with the Borrower's officers and (with the consent of the Borrower,
which consent will not be unreasonably withheld) its independent public
accountants, and (with the consent of the Borrower, which consent will not be
unreasonably withheld) to visit the other offices and properties of the Borrower
and each Restricted Subsidiary, all at such reasonable times and as often as may
be reasonably requested in writing;
REVOLVING CREDIT FACILITY AGREEMENT - Page 45
<PAGE> 50
(b) Default. If a Default or Event of Default then exists, at the
expense of the Borrower to visit and inspect any of the offices or properties of
the Borrower or any Subsidiary, to examine all their respective books of
account, records, reports and other papers, to make copies and extracts
therefrom, and to discuss their respective affairs, finances and accounts with
their respective officers and independent public accountants (and by this
provision the Borrower authorizes said accountants to discuss the affairs,
finances and accounts of the Borrower and its Subsidiaries), all at such times
and as often as may be requested; and
(c) Technical Data. Anything herein to the contrary notwithstanding,
neither the Borrower nor any of its Subsidiaries shall have any obligations to
disclose pursuant to this Agreement any engineering, scientific, or other
technical data without significance to the analysis of the financial position of
the Borrower and its Subsidiaries.
ARTICLE VI. EVENTS OF DEFAULT
In case of the happening of any of the following events (each an "Event
of Default"):
(a) the Borrower defaults in the payment of any principal on any Loan
when the same becomes due and payable, whether at maturity or at a date fixed
for prepayment or by declaration or otherwise; or
(b) the Borrower defaults in the payment of any interest on any Loan
for more than five Business Days after the same becomes due and payable; or
(c) the Borrower defaults in the performance of or compliance with any
term contained in Section 5.20(d) or 5.10 through 5.19; or
(d) the Borrower defaults in the performance of or compliance with any
term contained herein (other than those referred to in paragraphs (a), (b) and
(c) of this Article VI) or any Additional Covenant and such default is not
remedied within 30 days after the earlier of (i) a Responsible Officer obtaining
actual knowledge of such default and (ii) the Borrower receiving written notice
of such default from either Agent or any Lender (any such written notice to be
identified as a "notice of default" and to refer specifically to this paragraph
(d) of Article VI); or
(e) any representation or warranty made in writing by or on behalf of
the Borrower or by any officer of the Borrower in this Agreement or in any
writing furnished in connection with the transactions contemplated hereby proves
to have been false or incorrect in any material respect on the date as of which
made; or
(f) (i) the Borrower or any Restricted Subsidiary is in default (as
principal or as guarantor or other surety) in the payment of any principal of or
premium or make-whole amount or interest on any Indebtedness that is outstanding
in an aggregate principal amount of at least $5,000,000 beyond any period of
grace provided with respect thereto, or (ii) the Borrower or any Restricted
Subsidiary is in default in the performance of or compliance with any term of
any evidence of any Indebtedness in an aggregate outstanding principal amount of
at least $5,000,000
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<PAGE> 51
or of any mortgage, indenture or other agreement relating thereto or any other
condition exists, and as a consequence of such default or condition such
Indebtedness has become, or has been declared due and payable before its stated
maturity or before its regularly scheduled dates of payment; or
(g) the Borrower or any Restricted Subsidiary (i) is generally not
paying, or admits in writing its inability to pay, its debts as they become due,
(ii) files, or consents by answer or otherwise to the filing against it of, a
petition for relief or reorganization or arrangement or any other petition in
bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency,
reorganization, moratorium or other similar law of any jurisdiction, (iii) makes
an assignment for the benefit of its creditors, (iv) consents to the appointment
of a custodian, receiver, trustee or other officer with similar powers with
respect to it or with respect to any substantial part of its property, (v) is
adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for
the purpose of any of the foregoing; or
(h) a court or governmental authority of competent jurisdiction enters
an order appointing, without consent by the Borrower or any of its Restricted
Subsidiaries, a custodian, receiver, trustee or other officer with similar
powers with respect to it or with respect to any substantial part of its
property, or constituting an order for relief or approving a petition for relief
or reorganization or any other petition in bankruptcy or for liquidation or to
take advantage of any bankruptcy or insolvency law of any jurisdiction, or
ordering the dissolution, winding-up or liquidation of the Borrower or any of
its Restricted Subsidiaries, or any such petition shall be filed against the
Borrower or any of its Restricted Subsidiaries and such petition shall not be
dismissed within 60 days; or
(i) a final judgment or judgments for the payment of money aggregating
in excess of $5,000,000 are rendered against one or more of the Borrower and its
Restricted Subsidiaries and which judgments are not, within 60 days after entry
thereof, bonded, discharged or stayed pending appeal, or are not discharged
within 60 days after the expiration of such stay; or
(j) if (i) any Plan subject to the minimum funding standards of ERISA
or the Code shall fail to satisfy such standards for any plan year or part
thereof or a waiver of such standards or extension of any amortization period is
sought or granted under section 412 of the Code, (ii) a notice of intent to
terminate any Plan shall have been or is reasonably expected to be filed with
the PBGC or the PBGC shall have instituted proceedings under ERISA section 4042
to terminate or appoint a trustee to administer any Plan or the PBGC shall have
notified the Borrower or any ERISA Affiliate that a Plan may become a subject of
any such proceedings, (iii) the aggregate amount of unfunded accrued plan
benefit liabilities under all Plans subject to Title IV of ERISA, determined in
accordance with Financial Accounting Standards Board Statement No. 87 or 132, as
the case may be, as of the end of such Plans= most recently ended plan year on
the basis of actuarial assumptions specified for funding purposes in such Plans=
most recent actuarial valuation report, shall exceed $5,000,000, (iv) the
Borrower or any ERISA Affiliate shall have incurred or is reasonably expected to
incur any liability pursuant to Title I or IV of ERISA or the penalty or excise
tax provisions of the Code relating to employee benefit plans, (v) the Borrower
or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the
Borrower or any Restricted Subsidiary establishes or amends any employee welfare
benefit plan that provides post-employment welfare benefits in a manner that
would increase the liability of the Borrower or any Restricted
REVOLVING CREDIT FACILITY AGREEMENT - Page 47
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Subsidiary thereunder; and any such event or events described in clauses (i)
through (vi) above, either individually or together with any other such event or
events, would reasonably be expected to have a Materially Adverse Effect (as
used in Article VI, the terms "employee benefit plan" and "employee welfare
benefit plan" shall have the respective meanings assigned to such terms in
Section 3 of ERISA);
then, and in every such event, and at any time thereafter during the continuance
of such event, the Administrative Agent, at the request of the Required Lenders,
shall, by notice to the Borrower, take either or both of the following actions,
at the same or different times: (i) terminate forthwith the right of the
Borrower to borrow pursuant to the Commitments and (ii) declare the Loans of the
Borrower then outstanding to be forthwith due and payable in whole or in part,
whereupon the principal of the Loans so declared to be due and payable, together
with accrued interest thereon and any unpaid accrued Fees and all other
liabilities of the Borrower accrued hereunder, shall become forthwith due and
payable, without presentment, demand, protest, notice of intent to accelerate,
notice of acceleration or any other notice of any kind, all of which are hereby
expressly waived, anything contained herein to the contrary notwithstanding;
provided that in the case of any event described in paragraph (g) or (h) above
with respect to the Borrower, the Commitments of the Lenders with respect to the
Borrower shall automatically terminate and the principal of the Loans then
outstanding of the Borrower with respect to which such event has occurred,
together with accrued interest thereon and any unpaid accrued Fees and all other
liabilities of the Borrower accrued hereunder shall automatically become due and
payable, without presentment, demand, protest, notice of intent to accelerate,
notice of acceleration or any other notice of any kind, all of which are hereby
expressly waived by the Borrower, anything contained herein to the contrary
notwithstanding.
ARTICLE VII. THE ADMINISTRATIVE AGENT
In order to expedite the transactions contemplated by this Agreement,
Chase Bank Texas, National Association is hereby appointed to act as
Administrative Agent, on behalf of the Lenders. Each of the Lenders hereby
irrevocably authorizes the Administrative Agent to take such actions on behalf
of such Lender or holder and to exercise such powers as are specifically
delegated to the Administrative Agent by the terms and provisions hereof,
together with such actions and powers as are reasonably incidental thereto. The
Administrative Agent is hereby expressly authorized by the Lenders, without
hereby limiting any implied authority, (a) to receive on behalf of the Lenders
all payments of principal of and interest on the Standby Loans and all other
amounts due to the Lenders hereunder (except amounts due in respect of any
Offered Rate Loan which is to be paid to the Lender that made the Offered Rate
Loan directly), and promptly to distribute to each Lender its share of each
payment so received; (b) to give notice on behalf of each of the Lenders to the
Borrower of any Event of Default of which the Administrative Agent has actual
knowledge acquired in connection with its agency hereunder; and (c) to
distribute to each Lender copies of all notices, financial statements and other
materials delivered by the Borrower pursuant to this Agreement as received by
the Administrative Agent.
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Neither Administrative Agent nor any of its directors, officers,
employees or agents shall be liable as such for any action taken or omitted by
any of them except for its or his or her own gross negligence or willful
misconduct, or be responsible for any statement, warranty or representation
herein or the contents of any document delivered in connection herewith, or be
required to ascertain or to make any inquiry concerning the performance or
observance by the Borrower of any of the terms, conditions, covenants or
agreements contained in this Agreement. The Administrative Agent shall not be
responsible to the Lenders for the due execution, genuineness, validity,
enforceability or effectiveness of this Agreement or other instruments or
agreements. The Administrative Agent may deem and treat the Lender which makes
any Loan as the holder of the indebtedness resulting therefrom for all purposes
hereof until it shall have received notice from such Lender, given as provided
herein, of the transfer thereof. The Administrative Agent shall in all cases be
fully protected in acting, or refraining from acting, in accordance with written
instructions signed by the Required Lenders and, except as otherwise
specifically provided herein, such instructions and any action or inaction
pursuant thereto shall be binding on all the Lenders. The Administrative Agent
shall, in the absence of knowledge to the contrary, be entitled to rely on any
instrument or document believed by it in good faith to be genuine and correct
and to have been signed or sent by the proper Person or Persons. Neither the
Administrative Agent nor any of its directors, officers, employees or agents
shall have any responsibility to the Borrower on account of the failure of or
delay in performance or breach by any Lender of any of its obligations hereunder
or any Lender on account of the failure of or delay in performance or breach by
any Lender or the Borrower of any of their respective obligations hereunder or
in connection herewith. The Administrative Agent may execute any and all duties
hereunder by or through agents or employees and shall be entitled to rely upon
the advice of legal counsel selected by it with respect to all matters arising
hereunder and shall not be liable for any action taken or suffered in good faith
by it in accordance with the advice of such counsel.
The Lenders hereby acknowledge that the Administrative Agent shall be
under no duty to take any discretionary action permitted to be taken by it
pursuant to the provisions of this Agreement unless it shall be requested in
writing to do so by the Required Lenders.
Subject to the appointment and acceptance of a successor Administrative
Agent as provided below, the Administrative Agent may resign at any time by
notifying the Lenders and the Borrower. Upon any such resignation, the Required
Lenders shall have the right to appoint a successor Administrative Agent
acceptable to the Borrower. If no successor shall have been so appointed by the
Required Lenders and shall have accepted such appointment within 30 days after
the retiring Administrative Agent gives notice of its resignation, then the
retiring Administrative Agent may, on behalf of the Lenders, appoint a successor
Agent, having a combined capital and surplus of at least $500,000,000 or an
Affiliate of any such bank. Upon the acceptance of any appointment as
Administrative Agent hereunder by a successor bank, such successor shall succeed
to and become vested with all the rights, powers, privileges and duties of the
retiring Administrative Agent and the retiring Administrative Agent shall be
discharged from its duties and obligations hereunder. After the Administrative
Agent's resignation hereunder, the provisions of this Article and Section 8.05
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as Administrative Agent.
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With respect to the Loans made by it hereunder, the Administrative
Agent, in its individual capacity and not as Administrative Agent shall have the
same rights and powers as any other Lender and may exercise the same as though
it were not the Administrative Agent, and the Administrative Agent and its
Affiliates may accept deposits from, lend money to and generally engage in any
kind of business with the Borrower or any Subsidiary or other Affiliate thereof
as if it were not the Administrative Agent.
Each Lender agrees (i) to reimburse the Administrative Agent, on
demand, in the amount of its pro rata share (based on its Commitment hereunder
or, if the Commitments shall have been terminated, the amount of its outstanding
Loans) of any expenses incurred for the benefit of the Lenders in its role as
Administrative Agent, including counsel fees and compensation of agents and
employees paid for services rendered on behalf of the Lenders, which shall not
have been reimbursed by the Borrower AND (II) TO INDEMNIFY AND HOLD HARMLESS THE
ADMINISTRATIVE AGENT AND ANY OF ITS DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS, ON
DEMAND, IN THE AMOUNT OF SUCH PRO RATA SHARE, FROM AND AGAINST ANY AND ALL
LIABILITIES, TAXES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS,
SUITS, COSTS, EXPENSES OR DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH
MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST IT IN ANY WAY RELATING TO OR
ARISING OUT OF THIS AGREEMENT OR ANY ACTION TAKEN OR OMITTED BY IT UNDER THIS
AGREEMENT TO THE EXTENT THE SAME SHALL NOT HAVE BEEN REIMBURSED BY THE BORROWER
(INCLUDING WITHOUT LIMITATION, ALL LIABILITIES, TAXES, OBLIGATIONS, LOSSES,
DAMAGES, PENALTIES, ACTIONS, JUDGEMENTS, SUITS, COSTS, EXPENSES, OR
DISBURSEMENTS ARISING FROM THE SOLE CONTRIBUTORY NEGLIGENCE OF THE
ADMINISTRATIVE AGENT); PROVIDED THAT NO LENDER SHALL BE LIABLE TO THE
ADMINISTRATIVE AGENT FOR ANY PORTION OF SUCH LIABILITIES, OBLIGATIONS, LOSSES,
DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS
RESULTING FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE ADMINISTRATIVE
AGENT OR ANY OF ITS DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS.
Each Lender acknowledges that it has, independently and without
reliance upon the Administrative Agent or any other Lender and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement
or any related agreement or any document furnished hereunder or thereunder.
Wachovia Bank, N.A. has been designated as a Documentation Agent
hereunder in recognition of the level of its Commitment. Wachovia Bank, N.A. is
not an agent for the Lenders and shall not have any obligation hereunder other
than those existing in its capacity as Lender.
ARTICLE VIII. MISCELLANEOUS
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SECTION 8.01. Notices. Notices and other communications provided for
herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed or sent by telecopy, as follows:
(a) if to Borrower, at its principal executive offices at 2100
Lake Park Blvd., Richardson, Texas 75080, to the attention of Chief
Financial Officer, telecopy number 972-497-6042 with a copy to the
Corporate Controller, Telecopy 972- 497- 5015;
(b) if to the Administrative Agent, to Chase Bank Texas,
National Association, 2200 Ross Avenue, 3rd Floor, Dallas, TX 75201,
Attention of Mae Kantipong (Telecopy No. 214-965-2044), with a copy to
Chase Bank Texas, National Association, Loan Syndications Services, 712
Main Street 8 TCB-N 96, Houston, TX 77002, telecopy number (713) 216
2093;
(c) if to the Documentation Agent, to Wachovia Bank, N.A., 191
Peachtree Street, N.E., Atlanta, Georgia 30303, Attention: Paige
Mesaros, telecopy number (404) 332-6898; and
(d) if to a Lender, to it at its address (or telecopy number)
set forth in the Administrative Questionnaire delivered to the
Administrative Agent by such Lender in connection with the execution of
this Agreement or in the Assignment and Acceptance pursuant to which
such Lender became a party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telecopy to such party as provided in this Section or in accordance with the
latest unrevoked direction from such party given in accordance with this
Section.
SECTION 8.02. Survival of Agreement. All covenants, agreements,
representations and warranties made by the Borrower herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement shall be considered to have been relied upon by the
Lenders and shall survive the making by the Lenders of the Loans regardless of
any investigation made by the Lenders or on their behalf, and shall continue in
full force and effect as long as the principal of or any accrued interest on any
Loan or any Fee or any other amount payable under this Agreement is outstanding
and unpaid or the Commitments have not been terminated.
SECTION 8.03. Binding Effect. This Agreement shall become effective
when it shall have been executed by the Borrower and each Agent and when the
Administrative Agent shall have received copies hereof (telecopied or otherwise)
which, when taken together, bear the signature of each Lender, and thereafter
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the Borrower shall not have the
right to assign any rights hereunder or any interest herein without the prior
consent of all the Lenders (except as a consequence of a transaction expressly
permitted under Section 5.10).
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<PAGE> 56
SECTION 8.04. Successors and Assigns.
(a) Whenever in this Agreement any of the parties hereto is referred
to, such reference shall be deemed to include the successors and assigns of such
party; and all covenants, promises and agreements by or on behalf of any party
that are contained in this Agreement shall bind and inure to the benefit of its
successors and assigns.
(b) Each Lender may assign to one or more assignees all or a portion of
its interests, rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans at the time owing to it); provided,
however, that (i) except in the case of an assignment to a Lender or an
Affiliate of such Lender or an assignment to a Federal Reserve Bank, the
Borrower and the Agents must give their prior written consent to such assignment
(which consent shall not be unreasonably withheld), (ii) the amount of the
Commitment of the assigning Lender subject to each such assignment (determined
as of the date the Assignment and Acceptance with respect to such assignment is
delivered to the Administrative Agent) shall not be less than $10,000,000, (iii)
each such assignment shall be of a constant, and not a varying, percentage of
all the assigning Lender's rights and obligations under this Agreement, (iv) the
parties to each such assignment shall execute and deliver to the Administrative
Agent an Assignment and Acceptance, and a processing and recordation fee of
$3,000, and the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an Administrative Questionnaire. Upon acceptance and
recording pursuant to Section 8.04(e), from and after the effective date
specified in each Assignment and Acceptance, which effective date shall be at
least five Business Days after the execution thereof unless otherwise agreed by
the Administrative Agent (the Borrower to be given reasonable notice of any
shorter period), (A) the assignee thereunder shall be a party hereto and, to the
extent of the interest assigned by such Assignment and Acceptance, have the
rights and obligations of a Lender under this Agreement and (B) the assigning
Lender thereunder shall, to the extent of the interest assigned by such
Assignment and Acceptance, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all or the remaining
portion of an assigning Lender's rights and obligations under this Agreement,
such Lender shall cease to be a party hereto (but shall continue to be entitled
to the benefits of Sections 2.12, 2.17 and 8.05 afforded to such Lender prior to
its assignment as well as to any Fees accrued for its account hereunder and not
yet paid)). Notwithstanding the foregoing, any Lender assigning its rights and
obligations under this Agreement may retain any Offered Rate Loans made by it
outstanding at such time, and in such case shall retain its rights hereunder in
respect of any Loans so retained until such Loans have been repaid in full in
accordance with this Agreement.
(c) By executing and delivering an Assignment and Acceptance, the
assigning Lender thereunder and the assignee thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:
(i) such assigning Lender warrants that it is the legal and beneficial owner of
the interest being assigned thereby free and clear of any adverse claim, (ii)
except as set forth in (i) above, such assigning Lender makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement, or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto or the financial condition of the Borrower or the performance or
observance by
REVOLVING CREDIT FACILITY AGREEMENT - Page 52
<PAGE> 57
the Borrower of any obligations under this Agreement or any other instrument or
document furnished pursuant hereto; (iii) such assignee represents and warrants
that it is legally authorized to enter into such Assignment and Acceptance; (iv)
such assignee confirms that it has received a copy of this Agreement, together
with copies of the most recent financial statements delivered pursuant to
Section 5.03 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; such assignee will independently and without reliance
upon the Agents, such assigning Lender or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement; (vi) such assignee appoints and authorizes each Agent to take such
action as agent on its behalf and to exercise such powers under this Agreement
as are delegated to such Agent by the terms hereof, together with such powers as
are reasonably incidental thereto; and (vii) such assignee agrees that it will
perform in accordance with their terms all the obligations which by the terms of
this Agreement are required to be performed by it as a Lender.
(d) The Administrative Agent shall maintain at one of its offices in
the City of Houston a copy of each Assignment and Acceptance delivered to it and
a register for the recordation of the names and addresses of the Lenders, and
the Commitment of, and the principal amount of the Loans owing to, each Lender
pursuant to the terms hereof from time to time (the "Register"). The entries in
the Register shall be conclusive in the absence of manifest error and the
Borrower, the Agents and the Lenders may treat each Person whose name is
recorded in the Register pursuant to the terms hereof as a Lender hereunder for
all purposes of this Agreement. The Register shall be available for inspection
by each party hereto, at any reasonable time and from time to time upon
reasonable prior notice.
(e) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee together with an Administrative
Questionnaire completed in respect of the assignee (unless the assignee shall
already be a Lender hereunder), the processing and recordation fee referred to
in paragraph (b) above and, if required, the written consent of the Borrower and
the Agents to such assignment, the Administrative Agent shall (i) accept such
Assignment and Acceptance and (ii) record the information contained therein in
the Register.
(f) Each Lender may without the consent of the Borrower or the Agents
sell participations to one or more banks or other entities in all or a portion
of its rights and obligations under this Agreement (including all or a portion
of its Commitment and the Loans owing to it); provided, however, that (i) such
Lender's obligations under this Agreement shall remain unchanged, (ii) such
Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) each participating bank or other entity
shall be entitled to the benefit of the cost protection provisions contained in
Sections 2.12, 2.17 and 8.05 to the same extent as if it were the selling Lender
(and limited to the amount that could have been claimed by the selling Lender
had it continued to hold the interest of such participating bank or other
entity), except that all claims made pursuant to such Sections shall be made
through such selling Lender, and (iv) the Borrower, the Agents, and the other
Lenders shall continue to deal solely and directly with such selling Lender in
connection with such Lender's rights and obligations under this Agreement.
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(g) Any Lender or participant may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section,
disclose to the assignee or participant or proposed assignee or participant any
information relating to the Borrower furnished to such Lender by or on behalf of
the Borrower; provided that, prior to any such disclosure, each such assignee or
participant or proposed assignee or participant shall execute an agreement
whereby such assignee or participant shall agree (subject to customary
exceptions) to preserve the confidentiality of any such information in
accordance with Section 8.14.
(h) The Borrower shall not assign or delegate any rights and duties
hereunder without the prior written consent of all Lenders, and any attempted
assignment or delegation (except as a consequence of a transaction expressly
permitted under Section 5.10) by the Borrower without such consent shall be
void.
(i) Any Lender may at any time pledge all or any portion of its rights
under this Agreement to a Federal Reserve Bank; provided that no such pledge
shall release any Lender from its obligations hereunder or substitute any such
Bank for such Lender as a party hereto. In order to facilitate such an
assignment to a Federal Reserve Bank, the Borrower shall, at the request of the
assigning Lender, duly execute and deliver to the assigning Lender a promissory
note or notes evidencing the Loans made to the Borrower by the assigning Lender
hereunder.
SECTION 8.05. Expenses; Indemnity.
(a) The Borrower agrees to pay all reasonable out-of-pocket expenses
incurred by the Administrative Agent in connection with entering into this
Agreement or in connection with any amendments, modifications or waivers of the
provisions hereof (but only if such amendments, modifications or waivers are
requested by the Borrower) (whether or not the transactions hereby contemplated
are consummated), or incurred by the Administrative Agent or any Lender in
connection with the enforcement of their rights in connection with this
Agreement or in connection with the Loans made hereunder, including the
reasonable fees and disbursements of counsel for the Administrative Agent or, in
the case of enforcement following an Event of Default, the Lenders.
(b) THE BORROWER AGREES TO INDEMNIFY EACH LENDER AGAINST ANY LOSS,
CALCULATED IN ACCORDANCE WITH THE NEXT SENTENCE, OR REASONABLE EXPENSE WHICH
SUCH LENDER MAY SUSTAIN OR INCUR AS A CONSEQUENCE OF (A) ANY FAILURE BY THE
BORROWER TO BORROW OR TO CONVERT OR CONTINUE ANY LOAN HEREUNDER (INCLUDING AS A
RESULT OF THE BORROWER'S FAILURE TO FULFILL ANY OF THE APPLICABLE CONDITIONS SET
FORTH IN ARTICLE IV) AFTER IRREVOCABLE NOTICE OF SUCH BORROWING, CONVERSION OR
CONTINUATION HAS BEEN GIVEN PURSUANT TO SECTION 2.03 OR 2.04, (B) ANY PAYMENT,
PREPAYMENT OR CONVERSION, OR ASSIGNMENT OF A EURODOLLAR LOAN OR OFFERED RATE
LOAN OF THE BORROWER REQUIRED BY ANY OTHER PROVISION OF THIS AGREEMENT OR
OTHERWISE MADE OR DEEMED MADE ON A DATE OTHER THAN THE LAST DAY OF THE INTEREST
PERIOD, IF ANY, APPLICABLE THERETO, (C) ANY DEFAULT IN PAYMENT OR PREPAYMENT OF
THE
REVOLVING CREDIT FACILITY AGREEMENT - Page 54
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PRINCIPAL AMOUNT OF ANY LOAN OR ANY PART THEREOF OR INTEREST ACCRUED THEREON, AS
AND WHEN DUE AND PAYABLE (AT THE DUE DATE THEREOF, WHETHER BY SCHEDULED
MATURITY, ACCELERATION, IRREVOCABLE NOTICE OF PREPAYMENT OR OTHERWISE) OR (D)
THE OCCURRENCE OF ANY EVENT OF DEFAULT, INCLUDING, IN EACH SUCH CASE, ANY LOSS
OR REASONABLE EXPENSE SUSTAINED OR INCURRED OR TO BE SUSTAINED OR INCURRED BY
SUCH LENDER IN LIQUIDATING OR EMPLOYING DEPOSITS FROM THIRD PARTIES, OR WITH
RESPECT TO COMMITMENTS MADE OR OBLIGATIONS UNDERTAKEN WITH THIRD PARTIES, TO
EFFECT OR MAINTAIN ANY LOAN HEREUNDER OR ANY PART THEREOF AS A EURODOLLAR LOAN
OR AN OFFERED RATE LOAN. SUCH LOSS SHALL INCLUDE AN AMOUNT EQUAL TO THE EXCESS,
IF ANY, AS REASONABLY DETERMINED BY SUCH LENDER, OF (I) ITS COST OF OBTAINING
THE FUNDS FOR THE LOAN BEING PAID, PREPAID, CONVERTED OR NOT BORROWED (ASSUMED
TO BE THE LIBO RATE OR, IN THE CASE OF AN OFFERED RATE LOAN, THE FIXED RATE OF
INTEREST APPLICABLE THERETO) FOR THE PERIOD FROM THE DATE OF SUCH PAYMENT,
PREPAYMENT OR FAILURE TO BORROW TO THE LAST DAY OF THE INTEREST PERIOD FOR SUCH
LOAN (OR, IN THE CASE OF A FAILURE TO BORROW THE INTEREST PERIOD FOR SUCH LOAN
WHICH WOULD HAVE COMMENCED ON THE DATE OF SUCH FAILURE) OVER (II) THE AMOUNT OF
INTEREST (AS REASONABLY DETERMINED BY SUCH LENDER) THAT WOULD BE REALIZED BY
SUCH LENDER IN REEMPLOYING THE FUNDS SO PAID, PREPAID OR NOT BORROWED FOR SUCH
PERIOD OR INTEREST PERIOD, AS THE CASE MAY BE.
(c) THE BORROWER AGREES TO INDEMNIFY THE AGENTS, EACH LENDER, EACH OF
THEIR AFFILIATES AND THE DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS OF, THE
FOREGOING (EACH SUCH PERSON BEING CALLED AN "INDEMNITEE") AGAINST, AND TO HOLD
EACH INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES
AND RELATED EXPENSES, INCLUDING REASONABLE COUNSEL FEES AND EXPENSES, INCURRED
BY OR ASSERTED AGAINST ANY INDEMNITEE ARISING OUT OF (I) THE CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, (II) THE USE OF THE PROCEEDS OF THE
LOANS OR (III) ANY CLAIM, LITIGATION, INVESTIGATION OR PROCEEDING RELATING TO
ANY OF THE FOREGOING, WHETHER OR NOT ANY INDEMNITEE IS A PARTY THERETO
(INCLUDING, WITHOUT LIMITATION, ANY LOSSES, CLAIMS, DAMAGES, LIABILITIES AND
RELATED EXPENSES ARISING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF THE
INDEMNITEE); PROVIDED THAT SUCH INDEMNITY SHALL NOT, AS TO ANY INDEMNITEE, BE
AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS, DAMAGES, LIABILITIES OR
RELATED EXPENSES (I) ARE DETERMINED TO HAVE RESULTED FROM THE GROSS NEGLIGENCE
OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE OR (II) RESULT FROM ANY LITIGATION
BROUGHT BY SUCH INDEMNITEE AGAINST THE BORROWER OR BY THE BORROWER AGAINST SUCH
INDEMNITEE, IN WHICH THE BORROWER IS THE PREVAILING PARTY.
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(d) The provisions of this Section shall remain operative and in full
force and effect regardless of the expiration of the term of this Agreement, the
consummation of the transactions contemplated hereby, the repayment of any of
the Loans, the invalidity or unenforceability of any term or provision of this
Agreement or any investigation made by or on behalf of any Agent or any Lender.
All amounts due under this Section shall be payable on written demand therefor.
SECTION 8.06. Right of Setoff. If an Event of Default shall have
occurred and be continuing, each Lender is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Lender to or
for the credit or the account of the Borrower against any of and all the
obligations of the Borrower now or hereafter existing under this Agreement held
by such Lender, irrespective of whether or not such Lender shall have made any
demand under this Agreement and although such obligations may be unmatured. The
rights of each Lender under this Section are in addition to other rights and
remedies (including other rights of setoff) which such Lender may have.
SECTION 8.07. Applicable Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
SECTION 8.08. Waivers; Amendment.
(a) No failure or delay of Borrower, any Agent or any Lender in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Agents and the Lenders hereunder
are cumulative and are not exclusive of any rights or remedies which they would
otherwise have. No waiver of any provision of this Agreement or consent to any
departure therefrom shall in any event be effective unless the same shall be
permitted by paragraph (b) below, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice or demand on the Borrower or any Subsidiary in any case shall entitle
such party to any other or further notice or demand in similar or other
circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Borrower and the Required Lenders; provided, however, that
no such agreement shall (i) decrease the principal amount of, or extend the
maturity of or any scheduled principal payment date or date for the payment of
any interest on any Loan, or waive or excuse any such payment or any part
thereof, or decrease the rate of interest on any Loan, without the prior written
consent of each Lender affected thereby, (ii) increase any Commitment or
decrease the Facility Fee of any Lender without the prior written consent of
such Lender, or (iii) amend or modify the provisions of Section 2.14 or Section
8.04(h), the provisions of this Section or the definition of the "Required
Lenders", without the prior written consent of each Lender; provided further,
however, that no such agreement shall amend, modify or otherwise affect the
rights or duties of the Administrative Agent hereunder without the prior written
consent of the Administrative Agent. Each Lender shall
REVOLVING CREDIT FACILITY AGREEMENT - Page 56
<PAGE> 61
be bound by any waiver, amendment or modification authorized by this Section and
any consent by any Lender pursuant to this Section shall bind any assignee of
its rights and interests hereunder. A Lender that has made an Offered Rate Loan
to Borrower may without the consent of the other Lenders amend or otherwise
modify the payment terms and interest rate provisions of its Offered Rate Loans
without the consent of any other Lender or Agent.
SECTION 8.09. Entire Agreement. THIS AGREEMENT (INCLUDING THE SCHEDULES
AND EXHIBITS HERETO) AND THE FEE LETTERS CONSTITUTE A "LOAN AGREEMENT" AS
DEFINED IN SECTION 26.03(A) OF THE TEXAS BUSINESS AND COMMERCE CODE, AND
REPRESENT THE ENTIRE CONTRACT AMONG THE PARTIES RELATIVE TO THE SUBJECT MATTER
HEREOF AND THEREOF. ANY PREVIOUS AGREEMENT AMONG THE PARTIES WITH RESPECT TO THE
SUBJECT MATTER HEREOF IS SUPERSEDED BY THIS AGREEMENT AND THE FEE LETTERS. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. NOTHING IN THIS AGREEMENT,
EXPRESSED OR IMPLIED, IS INTENDED TO CONFER UPON ANY PARTY OTHER THAN THE
PARTIES HERETO ANY RIGHTS, REMEDIES, OBLIGATIONS OR LIABILITIES UNDER OR BY
REASON OF THIS AGREEMENT.
SECTION 8.10. Severability. In the event any one or more of the
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby. The parties shall endeavor in good-faith negotiations to
replace the invalid, illegal or unenforceable provisions with valid provisions
the economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
SECTION 8.11. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one contract, and shall become
effective as provided in Section 8.03.
SECTION 8.12. Headings. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
SECTION 8.13. Interest Rate Limitation.
(a) Notwithstanding anything herein to the contrary, if at any time the
applicable interest rate, together with all fees and charges which are treated
as interest under applicable law (collectively the "Charges"), as provided for
herein or in any other document executed in connection herewith, or otherwise
contracted for, charged, received, taken or reserved by any Lender, shall exceed
the maximum lawful rate (the "Maximum Rate") which may be contracted for,
charged, taken, received or reserved by such Lender in accordance with
applicable law, the rate of interest payable on the Loans of such Lender,
together with all Charges payable to such Lender, shall be limited to the
Maximum Rate.
REVOLVING CREDIT FACILITY AGREEMENT - Page 57
<PAGE> 62
(b) If the amount of interest, together with all Charges, payable for
the account of any Lender in respect of any interest computation period is
reduced pursuant to paragraph (a) of this Section and the amount of interest,
together with all Charges, payable for such Lender's account in respect of any
subsequent interest computation period, computed pursuant to Section 2.07, would
be less than the Maximum Rate, then the amount of interest, together with all
Charges, payable for such Lender's account in respect of such subsequent
interest computation period shall, to the extent permitted by applicable law, be
automatically increased to such Maximum Rate; provided that at no time shall the
aggregate amount by which interest paid for the account of any Lender has been
increased pursuant to this paragraph (b) exceed the aggregate amount by which
interest, together with all Charges, paid for its account has theretofore been
reduced pursuant to paragraph (a) of this Section.
(c) No provision of this Agreement shall require the payment or the
collection of interest in excess of the maximum amount permitted by applicable
law. If any excess of interest in such respect is hereby provided for, or shall
be adjudicated to be so provided, in this Agreement or otherwise in connection
with this loan transaction, the provisions of this Section shall govern and
prevail and neither the Borrower nor the sureties, guarantors, successors, or
assigns of the Borrower shall be obligated to pay the excess amount of such
interest or any other excess sum paid for the use, forbearance, or detention of
sums loaned pursuant hereto. In the event any Lender ever receives, collects, or
applies as interest any such sum, such amount which would be in excess of the
maximum amount permitted by applicable law shall be applied as a payment and
reduction of the principal of the Loans; and, if the principal of the Loans has
been paid in full, any remaining excess shall forthwith be paid to the Borrower.
In determining whether or not the interest paid or payable exceeds the Maximum
Rate, the Borrower and each Lender shall, to the extent permitted by applicable
law, (a) characterize any non-principal payment as an expense, fee, or premium
rather than as interest, (b) exclude voluntary prepayments and the effects
thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal
parts the total amount of interest throughout the entire contemplated term of
the Loans so that interest for the entire term does not exceed the Maximum Rate.
SECTION 8.14. Confidentiality. For the purposes of this Section 8.14,
"Confidential Information" means information delivered to an Agent or a Lender
by or on behalf of the Borrower or any Subsidiary in connection with the
transactions contemplated by or otherwise pursuant to this Agreement that is
proprietary in nature and that was clearly marked or labeled or otherwise
adequately identified when received by an Agent or a Lender as being
confidential information of the Borrower or such Subsidiary, provided that such
term does not include information that (a) was publicly known or otherwise known
to an Agent or a Lender prior to the time of such disclosure, (b) subsequently
becomes publicly known through no act or omission by an Agent or a Lender or any
Person acting on their behalf, (c) otherwise becomes known to an Agent or a
Lender other than through disclosure by the Borrower or any Subsidiary or (d)
constitutes financial statements delivered to you under Section 5.20 that are
otherwise publicly available. Each Agent and each Lender agree that they will
maintain the confidentiality of such Confidential Information in accordance with
procedures adopted by them in good faith to protect confidential information of
third parties delivered to them, provided that an Agent or a Lender may deliver
or disclose Confidential Information to (i) its directors, officers, employees,
agents,
REVOLVING CREDIT FACILITY AGREEMENT - Page 58
<PAGE> 63
attorneys and affiliates (to the extent such disclosure reasonably relates to
the administration of this Agreement), (ii) its financial advisors and other
professional advisors who agree to hold confidential the Confidential
Information substantially in accordance with the terms of this Section 8.14,
(iii) any other Agent or Lender, (iv) any Transferee (if such Person has agreed
in writing prior to its receipt of such Confidential Information to be bound by
the provisions of this Section 8.14), (v) any Person from which it offers to
purchase any security of the Borrower or a Subsidiary (if such Person has agreed
in writing prior to its receipt of such Confidential Information to be bound by
the provisions of this Section 8.14), (vi) any federal or state regulatory
authority having jurisdiction over it, (vii) any nationally recognized rating
agency that requires access to information about its investment portfolio, or
(viii) any other Person to which such delivery or disclosure may be necessary or
appropriate (w) to effect compliance with any law, rule, regulation or order
applicable to it, (x) in response to any subpoena or other legal process, (y) in
connection with any litigation to which it is a party or (z) if an Event of
Default has occurred and is continuing, to the extent an Agent or a Lender may
reasonably determine such delivery and disclosure to be necessary or appropriate
in the enforcement or for the protection of the rights and remedies under this
Agreement.
SECTION 8.15. Non-Application of Chapter 346 of the Texas Finance Code.
The provisions of Chapter 346 of the Texas Finance Code are specifically
declared by the parties hereto not to be applicable to this Agreement or to the
transactions contemplated hereby.
REVOLVING CREDIT FACILITY AGREEMENT - Page 59
<PAGE> 64
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
LENNOX INTERNATIONAL INC.,
as Borrower
By: /s/ CLYDE WYANT
--------------------------------------
Clyde Wyant
Executive Vice President,
Chief Financial Officer and Treasurer
CHASE BANK TEXAS,
NATIONAL ASSOCIATION,
individually and as Administrative Agent
By: /s/ MAE KANTIPONG
--------------------------------------
Mae Kantipong
Vice President
WACHOVIA BANK, N.A.,
individually and as Documentation Agent
By: /s/ PAIGE D. MESAROS
--------------------------------------
Name: Paige D. Mesaros
Title: Vice President
THE NORTHERN TRUST COMPANY
By: /s/ JOHN E. BURDA
--------------------------------------
Name: John E. Burda
Title: Second Vice President
REVOLVING CREDIT FACILITY AGREEMENT - Page 60
<PAGE> 65
KEYBANK NATIONAL ASSOCIATION
By: /s/ FRANK E.JANCAR
---------------------------
Name: Frank E. Jancar
-------------------------
Title: Vice President
------------------------
REVOLVING CREDIT FACILITY AGREEMENT - Page 61
<PAGE> 66
<TABLE>
<CAPTION>
EXHIBITS AND SCHEDULES
----------------------
<S> <C>
Exhibit A-1 Form of Offered Rate Loan Confirmation
Exhibit A-2 Form of Standby Borrowing Request
Exhibit B Administrative Questionnaire
Exhibit C Form of Assignment and Acceptance
Exhibit D Matters to be addressed by Opinion of Counsel
Exhibit E Joinder Agreement
Schedule 2.01 Commitments
Schedule 3.05 Subsidiaries
Schedule 3.06 Financial Statements
Schedule 3.13 Indebtedness
</TABLE>
<PAGE> 67
EXHIBIT A-1
FORM OF OFFERED RATE LOAN CONFIRMATION
- ------------------------------------
- ------------------------------------
Attention:
-------------------------
Telecopy:
--------------------------
Ladies and Gentlemen:
The undersigned, Lennox International Inc. (the "Borrower"), refers to
the Revolving Credit Facility Agreement dated as of July 13, 1998 (as it may
hereafter be amended, modified, extended or restated from time to time, the
"Agreement"), among the Borrower, the Lenders named therein, Chase Bank of
Texas, National Association, as Administrative Agent, and Wachovia Bank, N.A.,
as Documentation Agent. Capitalized terms used herein and not otherwise defined
herein shall have the meanings assigned to such terms in the Agreement. The
Borrower hereby confirms with you pursuant to Section 2.03 of the Agreement the
terms of an Offered Rate Loan under the Agreement, as set forth below:
(A) Date of Offered Rate Loan (which is a Business Day)
------------------
(B) Principal amount of Offered Rate Loan
------------------
(C) Interest rate %
------------------
(D) Interest Period and the last day thereof(1)
------------------
Please execute this confirmation in the space indicated below to
confirm your agreement to the foregoing terms of the Offered Rate Loan to be
made by you on the date set forth above.
To induce you to make the Offered Rate Loan described herein, the
Borrower represents and warrants that the conditions to lending specified in
Section 4.01(b) and (c) of the Agreement have been satisfied as of the date of
the proposed Offered Rate Loan described above.
- ---------------------------
(1)Payments must be received by____p.m. on a Business Day or will be deemed
received on the next Business Day.
EXHIBIT A - FORM OF OFFERED RATE BORROWING CONFIRMATION - 1 OF 2
<PAGE> 68
Very truly yours,
LENNOX INTERNATIONAL INC.
By:
-------------------------------
Name:
--------------------------
Title:
-------------------------
[Senior Financial Officer]
ACCEPTED AND AGREED TO AS OF
THE DATE OF THE PROPOSED OFFERED
RATE LOAN:
- ----------------------------------
By:
---------------------------------
Name:
----------------------------
Title:
---------------------------
<PAGE> 69
EXHIBIT A-2
FORM OF STANDBY BORROWING REQUEST
Chase Bank of Texas, National Association, [Date]
as Administrative Agent for the Lenders referred to below
2200 Ross Avenue, 3rd floor
Dallas, TX 77002
Attention: Mae Kantipong
Telecopy: 214-965-2044
and
Chase Bank of Texas, National Association
Loan Syndications Services
712 Main Street, 8 TCB-N 96
Houston, Texas 77002
Telecopy: 713-216-2093
Ladies and Gentlemen:
The undersigned, Lennox International Inc. (the "Borrower"), refers to
the Revolving Credit Facility Agreement dated as of July 13, 1998 (as it may
hereafter be amended, modified, extended or restated from time to time, the
"Agreement"), among the Borrower, the Lenders named therein, Chase Bank of
Texas, National Association, as Administrative Agent, and Wachovia Bank, N.A.,
as Documentation Agent. Capitalized terms used herein and not otherwise defined
herein shall have the meanings assigned to such terms in the Agreement. The
Borrower hereby gives you notice pursuant to Section 2.04 of the Agreement that
it requests a Standby Borrowing under the Agreement, and in that connection sets
forth on Schedule A hereto a listing of all outstanding Offered Rate Loans and
the Lenders to whom such Loans are payable and sets forth below the terms on
which such Standby Borrowing is requested to be made:
(A) Date of Standby Borrowing (which is a Business Day)
--------------
(B) Principal amount of Standby Borrowing(1)
--------------
(C) Interest rate basis(2)
--------------
- ------------------------------
(1)Not less than $3,000,000 (and in integral multiples of $1,000,000)
or greater than the Total Commitment then available.
(2)Eurodollar Loan or ABR Loan.
EXHIBIT A-2 - FORM OF STANDBY BORROWING REQUEST - Page 1 of 2
<PAGE> 70
(D) Interest Period and the last day thereof (3)
Upon acceptance of any or all of the Loans made by the Lenders in
response to this request, the Borrower shall be deemed to have represented and
warranted that the conditions to lending specified in Section 4.01(b) and (c) of
the Agreement have been satisfied.
Very truly yours,
LENNOX INTERNATIONAL INC.
By:
--------------------------------
Name:
---------------------------
Title:
--------------------------
[Senior Financial Officer]
- ---------------------------
(3) Which shall be subject or the definition of "Interest Period" and
end not later than the Maturity Date.
EXHIBIT A-2 - FORM OF STANDBY BORROWING REQUEST - Page 2 of 2
<PAGE> 71
EXHIBIT B
ADMINISTRATIVE QUESTIONNAIRE
LENNOX INTERNATIONAL INC.
PLEASE FORWARD THIS COMPLETED
FORM AS SOON AS POSSIBLE TO:
Gina Hardwick FAX (713) 216-2291
PLEASE TYPE ALL INFORMATION.
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Agent: Chase Bank of Texas, National Association
712 Main Street 8 TCB-N 96
Houston, Texas 77002
- --------------------------------------------------------------------------------
Telex:
- --------------------------------------------------------------------------------
Syndications Telecopier:
- --------------------------------------------------------------------------------
Syndications Contacts: (713)
---------------------- --------
Ann Krevis Baumgartner (713) 216-7582
Gina Hardwick (713) 216-2093
- --------------------------------------------------------------------------------
Operations: Gale Manning (713) 750-2784
- --------------------------------------------------------------------------------
Letters of Credit: Gale Manning (713) 750-2784
- --------------------------------------------------------------------------------
Full Legal Name of your Institution:
- --------------------------------------------------------------------------------
Hard-copy documents, notices and periodic financial statements of the Borrower
should be sent to the following account officer designated by your bank:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Officer's Name:
- --------------------------------------------------------------------------------
Title:
- --------------------------------------------------------------------------------
Street Address (No P.O. Boxes
please):
- --------------------------------------------------------------------------------
City, State, Zip:
- --------------------------------------------------------------------------------
Phone #:
- --------------------------------------------------------------------------------
Telefax #:
- --------------------------------------------------------------------------------
</TABLE>
PRIMARY CONTACT INFORMATION
EXHIBIT B ADMINISTRATIVE QUESTIONNAIRE - Page 1 of 3
<PAGE> 72
We will send all telecopies regarding time-critical information (drawdowns,
option changes, payments, etc.) to the Primary or Alternate Contact at the
banking location you designate.
1. Your bank's primary contact for telefaxes concerning borrowings, options on
interest rates, etc.:
<TABLE>
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
Primary Telex Alternate
Primary Name/ Department Primary Telex No. & Alternate Telex No. &
Phone No. Telefax No. Answerback Telefax No. Answerback
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Primary Telex Alternate
Primary Name/ Department Primary Telex No. & Alternate Telex No. &
Phone No. Telefax No. Answerback Telefax No. Answerback
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
If at any time any of the above information changes, please advise.
Publicity: Under what name would you prefer your Institution to appear in
any further advertisements?
--------------------------------------------------------------
EXHIBIT B - ADMINISTRATIVE QUESTIONNAIRE - Page 2 of 3
<PAGE> 73
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
Movement of Funds: TO US: Wire Fed Funds to:
- --------------------------------------------------------------------------------
Chase Bank of Texas, National Association
ABA #113000609
for account number #
---------------
Attention: Loan syndication Svcs./ Gale Manning
Reference:
- --------------------------------------------------------------------------------
TO YOU: Wire Fed Funds to:
- --------------------------------------------------------------------------------
NAME:
ABA #
For Credit To:
Attention:
Reference:
- --------------------------------------------------------------------------------
Other:
- --------------------------------------------------------------------------------
If buyer is purchasing Letter of Credit facility as part of this participation/
syndication, please provide the information below:
- --------------------------------------------------------------------------------
L/C contact name:
- --------------------------------------------------------------------------------
Street Address:
- --------------------------------------------------------------------------------
City, State, Zip:
- --------------------------------------------------------------------------------
Phone #:
- --------------------------------------------------------------------------------
Telefax #:
- --------------------------------------------------------------------------------
Wire Fed Funds to:
- --------------------------------------------------------------------------------
NAME:
ABA #
For Credit To:
Attention:
Reference:
- --------------------------------------------------------------------------------
</TABLE>
EXHIBIT B - ADMINISTRATIVE QUESTIONNAIRE - Page 3 of 3
<PAGE> 74
EXHIBIT C
ASSIGNMENT AND ACCEPTANCE
Dated: ______________, 19__
Reference is made to the Revolving Credit Facility Agreement dated as
of July 13, 1998 (as amended, modified, extended or restated from time to time,
the "Agreement"), among Lennox International Inc. (the "Borrower"), the lenders
listed in Schedule 2.01 thereto (the "Lenders"), Wachovia Bank, N.A., as
Documentation Agent and Chase Bank of Texas, National Association, as
Administrative Agent for the Lenders. Terms defined in the Agreement are used
herein with the same meanings.
1. The Assignor hereby sells and assigns, without recourse, to the
Assignee, and the Assignee hereby purchases and assumes, without recourse, from
the Assignor, effective as of the [Effective Date of Assignment set forth
below], the interests set forth below (the "Assigned Interest") in the
Assignor's rights and obligations under the Agreement, including, without
limitation, the interests set forth below in the Commitment of the Assignor on
the [Effective Date of Assignment] and the Offered Rate Loans and Standby Loans
owing to the Assignor which are outstanding on the [Effective Date of
Assignment], together with unpaid interest accrued on the assigned Loans to the
[Effective Date of Assignment] and the amount, if any, set forth below of the
Fees accrued to the [Effective Date of Assignment] for the account of the
Assignor. Each of the Assignor and the Assignee hereby makes and agrees to be
bound by all the representations, warranties and agreements set forth in Section
8.04 of the Agreement, a copy of which has been received by each such party.
From and after the [Effective Date of Assignment], (i) the Assignee shall be a
party to and be bound by the provisions of the Agreement and, to the extent of
the interests assigned by this Assignment and Acceptance, have the rights and
obligations of a Lender thereunder and (ii) the Assignor shall, to the extent of
the interests assigned by this Assignment and Acceptance, relinquish its rights
and be released from its obligations under the Agreement. After giving effect to
this Assignment and Acceptance, Assignor=s Commitment shall be $_____________.
2. This Assignment and Acceptance is being delivered to the Agent
together with (i) if the Assignee is organized under the laws of a jurisdiction
outside the United States, the forms specified in Section 2.16(g) of the
Agreement, duly completed and executed by such Assignee, (ii) if the Assignee is
not already a Lender under the Agreement, an Administrative Questionnaire in the
form of Exhibit B to the Agreement and (iii) a processing and recordation fee of
$3,000.
3. This Assignment and Acceptance shall be governed by and construed in
accordance with the laws of the State of Texas.
Date of Assignment:
-------------------------------------------------------------
Legal Name of Assignor:
---------------------------------------------------------
EXHIBIT C - ASSIGNMENT AND ACCEPTANCE - Page 1 of 2
<PAGE> 75
Legal Name of Assignee:
---------------------------------------------------------
Assignee's Address for Notices:
-------------------------------------------------
Effective Date of Assignment (may not be fewer than 5 Business Days after the
Date of Assignment unless otherwise agreed by the Agent):
------------------------------------------
<TABLE>
<S> <C> <C>
Percentage Assigned of
Facility/Commitment
(set forth, to at least
8 decimals, as a
percentage of the Facility
and the aggregate
Commitments of all
Facility Principal Amount Assigned Lender thereunder)
- ----------------- --------------------------- ---------------------------
Commitment Assigned: $_______________ _______________%
Standby Loans: $_______________ _______________%
Offered Rate Loans: $_______________ _______________%
Fees Assigned (if any): $_______________ _______________%
</TABLE>
The terms set forth herein are hereby agreed to: Accepted:
, as
- ------------------------------
Assignor, LENNOX INTERNATIONAL INC.
By:
-------------------------------
By:
----------------------------
Name:
--------------------------
Name:
Title: -----------------------
-------------------------
Title:
----------------------
, as CHASE BANK OF TEXAS,
- ------------------------------ NATIONAL ASSOCIATION,
Assignee, as Administrative Agent
By:
-------------------------------
By:
----------------------------
Name:
--------------------------
Name:
Title: -----------------------
-------------------------
Title:
----------------------
EXHIBIT C - ASSIGNMENT AND ACCEPTANCE - Page 2 of 2
<PAGE> 76
EXHIBIT D
Matters To Be Covered In
Opinion of Counsel to Borrower
1. Each of the Borrower and Lennox Industries Inc., Heatcraft
Inc. and Armstrong Air Conditioning Inc. being duly incorporated, validly
existing and in good standing and the Borrower having requisite corporate power
and authority to execute, deliver and perform the Agreement.
2. Each of the Borrower and Lennox Industries Inc., Heatcraft Inc. and
Armstrong Air Conditioning Inc. being duly qualified and in good standing as a
foreign corporation in appropriate jurisdictions.
3. Due authorization and execution of the Agreement and the Agreement
being legal, valid, binding and enforceable.
4. No conflicts with charter documents, laws or other agreements.
5. All consents required to execute, deliver or perform the Agreement
having been obtained.
6. No litigation questioning validity of the Agreement or as to which
there is otherwise the reasonable likelihood of a Material Adverse Effect.
7. No violation of Regulations T, U or X of the Federal Reserve Board.
8. borrower not an "investment company", or a company "controlled" by
an "investment company", under the Investment Company Act of 1940, as amended.
EXHIBIT D - FORM OF OPINION OF COUNSEL TO THE BORROWER - Solo Page
<PAGE> 77
EXHIBIT E
Joinder Agreement
[attached hereto]
EXHIBIT E - JOINDER AGREEMENT - Cover Page
<PAGE> 78
SCHEDULE 2.01
<TABLE>
<CAPTION>
Lender Commitment
- ------ ----------
<S> <C>
a. Chase Bank of Texas, $35,000,000
National Association
b. Wachovia Bank, N.A. $35,000,000
c. The Northern Trust Company $25,000,000
d. Key Corp. $25,000,000
- ------------------------------------------------------------------------------
TOTAL $120,000,000
</TABLE>
Note: This Schedule 2.01 is subject to change, as provided in Section 2.01.
SCHEDULE 2.01 - Solo Page
<PAGE> 79
SCHEDULE 3.05
Lennox International Inc. Subsidiaries
as of June 30, 1998
<TABLE>
<CAPTION>
Location of
Name Ownership Jurisdiction of Inc. Restricted/Unrestricted Operating Assets
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(1) Lennox Industries Inc. 100% Iowa Restricted United States
SEE ATTACHED CHART
(2) Heatcraft Inc. 100% Mississippi Restricted United States
(a) Frigus-Bohn S.A. de C.V. 50% Mexico Unrestricted Mexico
(3) Heatcraft Technologies Inc. 100% Delaware Restricted United States
(4) Armstrong Air Conditioning Inc. 100% Ohio Restricted United States
(a) JOA Industries, Inc. 100% Nebraska Restricted United States
(i) Albert O. Jensen Wholesale 100% Nebraska Restricted United States
Furnace & Supply Co.,
d/b/a Jensen-Klich Supply Co.
(5) Lennox Foreign Sales Corp. 100% U.S. Virgin Islands Unrestricted N/A
(6) Lennox Commercial Realty Inc. 100% Iowa Restricted United States
(7) Lennox Global Ltd. 100% Delaware Unrestricted United States
SEE ATTACHED CHART
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SCHEDULE 3.05 - Subsidiaries - Page 1 of 5
<PAGE> 80
Lennox International Inc. Subsidiaries
as of June 30, 1998
<TABLE>
<CAPTION>
Location of
Name Ownership Jurisdiction of Inc. Restricted/Unrestricted Operating Assets
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lennox Industries, Inc.
(a) Products Acceptance Corporation 100% Iowa Restricted N/A
(b) Lennox Industries (Canada) Ltd. 100% Canada Unrestricted Canada
(c) Lennox Industries SW Inc. 100% Iowa Restricted N/A
(d) Lennox Manufacturing Inc. 100% Delaware Restricted United States
(e) Hearth Products Inc. 100% Delaware Restricted United States
(i) SFC Holdings Inc. 100% Delaware Restricted United States
</TABLE>
SCHEDULE 3.05 - Subsidiaries - Page 2 of 5
<PAGE> 81
Lennox International Inc. Subsidiaries
as of June 30, 1998
<TABLE>
<CAPTION>
Name Ownership Jurisdiction of Inc. Restricted/Unrestricted Location of
Substantial
Operating Assets
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lennox Global Ltd.
(a) UK Industries Inc. 100% Delaware Unrestricted N/A
(b) UK Global Ltd. 100% Delaware Unrestricted N/A
(c) Lennox Australia Pty. Ltd. 100% Australia Unrestricted Australia
(d) LGL Asia-Pacific Pte. Ltd. 100% Rep. of Singapore Unrestricted Singapore
(e) LGL (Australia) Pty. Ltd. 100% Australia Unrestricted Australia
(f) LGL de Mexico, S.A. de C.V. 99% Mexico Unrestricted Mexico
(g) Ets. Brancher S.A. 70% France Unrestricted France
(1) SEE ATTACHED CHART
(h) Fairco S.A. 50% Argentina Unrestricted Argentina
</TABLE>
SCHEDULE 3.05 - Subsidiaries - Page 3 of 5
<PAGE> 82
Lennox International Inc. Subsidiaries
as of June 30, 1998
<TABLE>
<CAPTION>
Name Ownership Jurisdiction of Inc. Restricted/Unrestricted Location of
Operating Assets
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ets. Brancher S.A.
(a) HCF-Lennox Limited 99% United Kingdom Unrestricted United Kingdom
(1) Lennox Industries 100% United Kingdom Unrestricted United Kingdom
(A) Environheat Limited 100% United Kingdom Unrestricted N/A
(b) HCF Lennox S.A. 100% France Unrestricted France
(1) SEE ATTACHED CHART
(c) Frinotech S.A. 99.68% France Unrestricted N/A
(d) Friga-Bohn S.A. 100% France Unrestricted France
(1) Friga-Bohn Warmeauslauscher GmbH 100% Germany Unrestricted Germany
(2) ERSA 79.5% Spain Unrestricted Spain
(3) West 80% Italy Unrestricted Italy
(4) Friga-Coil 50% Czech Republic Unrestricted Czech Republic
(5) Herac Ltd. 100% United Kingdom Unrestricted N/A
(e) SCI Geraval 99.83% France Unrestricted France
(f) SCI Groupe Brancher 76% France Unrestricted France
</TABLE>
SCHEDULE 3.05 - Subsidiaries - Page 4 of 5
<PAGE> 83
Lennox International Inc. Subsidiaries
as of June 30, 1998
<TABLE>
<CAPTION>
Name Ownership Jurisdiction of Inc. Restricted/Unrestricted Location of
Operating Assets
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HCF Lennox S.A.
(a) Refac B.V. 100% Netherlands Unrestricted Netherlands
(1) Refac NV 100% Belgium Unrestricted Belgium
(2) Refac Nord GmbH 100% Germany Unrestricted N/A
(A) Refac West GmbH 100% Germany Unrestricted N/A
(3) Refac Kalte-Klima Technik Vertriebs GmbH 50% Germany Unrestricted N/A
(4) Refac UK Ltd. 100% United Kingdom Unrestricted United Kingdom
(b) Hyfra GmbH 100% Germany Unrestricted Germany
(c) Lennox-Refac S.A. 100% Spain Unrestricted Spain
(1) Redi Andalucia S.A. 70% Spain Unrestricted N/A
(2) Lennox Refac 100% Portugal Unrestricted N/A
(3) Deutsche Bronswerk GmbH 100% Germany Unrestricted Germany
(4) Bronswerk Refac GmbH 100% Germany Unrestricted Germany
</TABLE>
SCHEDULE 3.05 - Subsidiaries - Page 5 of 5
<PAGE> 84
SCHEDULE 3.06
FINANCIAL STATEMENTS
1. Consolidated and consolidating financial statements for the
Borrower and its Subsidiaries for the fiscal years ended
December 31, 1992 through December 31, 1997.
2. Quarterly consolidated and consolidating financial statements
for the Borrower and its Subsidiaries for the periods ended
March 31, June 30, and September 30 for 1992-97 and for the
period ended March 31, 1998.
SCHEDULE 3.06 - FINANCIAL STATEMENTS - Solo Page
<PAGE> 85
SCHEDULE 3.13
LENNOX INTERNATIONAL INC.
AND RESTRICTED SUBSIDIARIES
INDEBTEDNESS AS OF
JULY 2, 1998 (EXCEPT AS NOTED)
<TABLE>
<CAPTION>
A. LENNOX INTERNATIONAL INC.
-------------------------
<S> <C>
(1) Agreement of Assumption and Restatement dated as of December 1,
1991 between Lennox International Inc. and the Noteholders identified
at the end thereof, pursuant to which Lennox International Inc.
delivered its:
9.53% Series F Promissory Notes due 2001 $21,000,000
9.69% Series H Promissory Notes due 2003 29,500,000
(2) Note Purchase Agreement dated as of December 1, 1993 among Lennox
International Inc. and the Noteholders identified at the end thereof,
pursuant to which Lennox International Inc. delivered its 6.73% Senior
Promissory Notes due 2008 100,000,000
(3) Note Purchase Agreement dated as of July 6, 1995 between Lennox
International Inc. and Teachers Insurance and Annuity Association of
America, pursuant to which Lennox
International Inc. delivered its 7.06% Senior Promissory Notes 20,000,000
due 2005
(4) Guaranty dated September 19, 1995 from Lennox International Inc. to
First Bank of Natchitoches & Trust Company and Regions Bank of
Louisiana guaranteeing 50% of debt of Alliance Compressors to such
Banks under a Promissory Note dated
September 19, 1995 1,303,166*
(5) Guaranty of 50% of amounts due from Alliance Compressors under a
Master Equipment Lease Agreement dated March
28, 1995 with NationsBanc Leasing Corporation 463,598*
(6) Letter of Credit guaranteeing debt of Refac B.V. to Stork N.V. in
connection with purchase of stock of Refac B.V.
from Stork N.V. 1,537,427
(7) Guaranty of 50% of Frigus-Bohn S.A. de C.V. Line of Credit from
Bank One, Texas, N.A., in the maximum amount of
$1,500,000 750,000
</TABLE>
SCHEDULE 5.15 - LENNOX INTERNATIONAL INC. AND RESTRICTED SUBSIDIARIES -
Page 1 of 2
<PAGE> 86
<TABLE>
<S> <C>
(8) Letter of Credit guaranteeing debt of Lennox Australia Pty Ltd.
to Alcair Industries Pty Ltd. in connection with purchase of assets of
Alcair Industries Pty Ltd. 992,002
(9) Note Purchase Agreement dated as of April 3, 1998, between Lennox
International Inc. and the Noteholders identified therein, pursuant to
which Lennox International Inc. delivered its:
6.56% Senior Notes due April 3, 2005 25,000,000
6.75% Senior Notes due April 3, 2008 50,000,000
B. LENNOX INDUSTRIES INC.
Promissory Note dated December 22, 1992 issued to Texas Housing
Opportunity Fund, Ltd. 109,358
C. LENNOX COMMERCIAL REALTY INC.
11.1% Mortgage Note Agreement with Texas Commerce Bank, N.A. due
January 1, 2000, secured by mortgage on headquarters building
and an assignment of the Lease between Lennox Commercial Realty
Inc. and Lennox Industries Inc. 7,546,885
TOTAL OUTSTANDING INDEBTEDNESS OF LENNOX
INTERNATIONAL INC. AND RESTRICTED SUBSIDIARIES $258,202,436
</TABLE>
*50% as of September 30, 1997
SCHEDULE 5.15 - LENNOX INTERNATIONAL INC. AND RESTRICTED SUBSIDIARIES -
Page 2 of 2
<PAGE> 1
EXHIBIT 10.7
================================================================================
LENNOX INTERNATIONAL INC.
------------------------------------------------
ADVANCE TERM CREDIT AGREEMENT
Dated as of March 16, 1999
------------------------------------------------
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION,
as Administrative Agent
and
WACHOVIA BANK, N.A.,
as Documentation Agent
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I. DEFINITIONS..........................................................1
SECTION 1.01. Defined Terms..................................................1
SECTION 1.02. Terms Generally...............................................12
ARTICLE II. THE CREDITS.........................................................12
SECTION 2.01. Commitments...................................................12
SECTION 2.02. Loans.........................................................12
SECTION 2.03. Borrowing Procedure...........................................13
SECTION 2.04. Fees..........................................................14
SECTION 2.05. Repayment of Loans; Evidence of Indebtedness..................14
SECTION 2.06. Interest on Loans.............................................15
SECTION 2.07. Default Interest..............................................15
SECTION 2.08. Alternate Rate of Interest....................................16
SECTION 2.09. Termination and Reduction of Commitments......................16
SECTION 2.10. Prepayment....................................................17
SECTION 2.11. Reserve Requirements; Change in Circumstances.................18
SECTION 2.12. Change in Legality............................................20
SECTION 2.13. Pro Rata Treatment............................................21
SECTION 2.14. Sharing of Setoffs............................................21
SECTION 2.15. Payments......................................................21
SECTION 2.16. Taxes.........................................................22
SECTION 2.17. Assignment of Commitments Under Certain Circumstances.........24
SECTION 2.18. Payments by Agent to the Lenders..............................25
ARTICLE III. REPRESENTATIONS AND WARRANTIES......................................25
SECTION 3.01. Organization; Powers..........................................25
SECTION 3.02. Authorization.................................................25
SECTION 3.03. Enforceability................................................25
SECTION 3.04. Governmental Approvals........................................25
SECTION 3.05. Organization and Ownership of Shares of Subsidiaries..........26
SECTION 3.06. Financial Statements..........................................26
SECTION 3.07. Litigation; Observance of Statutes and Orders.................26
SECTION 3.08. Taxes.........................................................27
SECTION 3.09. Title to Property; Leases.....................................27
SECTION 3.10. Licenses, Permits, etc........................................27
SECTION 3.11. Compliance with ERISA.........................................27
SECTION 3.12. Use of Proceeds; Margin Regulation............................28
SECTION 3.13. Existing Indebtedness.........................................28
SECTION 3.14. Foreign Assets Control Regulations, etc.......................29
SECTION 3.15. Status under Certain Statutes.................................29
SECTION 3.16. No Material Misstatements.....................................29
SECTION 3.17. Year 2000 Matters.............................................29
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
ARTICLE IV. CONDITIONS OF LENDING................................................30
SECTION 4.01. All Borrowings................................................30
SECTION 4.02. Effective Date................................................30
ARTICLE V. AFFIRMATIVE AND NEGATIVE COVENANTS..................................31
SECTION 5.01. Compliance with Law...........................................31
SECTION 5.02. Insurance.....................................................31
SECTION 5.03. Maintenance of Properties.....................................31
SECTION 5.04. Payment of Taxes..............................................32
SECTION 5.05. Corporate Existence, etc......................................32
SECTION 5.06. Most Favored Lender Status....................................32
SECTION 5.07. Covenant to Secure Loans Equally..............................33
SECTION 5.08. Environmental Matters.........................................33
SECTION 5.09. Transactions with Affiliates..................................34
SECTION 5.10. Merger, Consolidation, etc....................................34
SECTION 5.11. Sale of Assets, etc...........................................35
SECTION 5.12. Incurrence of Indebtedness....................................36
SECTION 5.13. Liens.........................................................36
SECTION 5.14. Restricted Payments...........................................37
SECTION 5.15. Consolidated Net Worth........................................38
SECTION 5.16. Limitation on Dividend Restrictions, etc......................38
SECTION 5.17. Limitation on Restricted Indebtedness.........................38
SECTION 5.18. Preferred Stock of Restricted Subsidiaries....................38
SECTION 5.19. No Redesignation of Restricted Subsidiaries...................38
SECTION 5.20. Financial and Business Information............................38
SECTION 5.21 Inspection; Confidentiality...................................42
ARTICLE VI. EVENTS OF DEFAULT...................................................42
ARTICLE VII. THE ADMINISTRATIVE AGENT............................................45
ARTICLE VIII. MISCELLANEOUS.......................................................47
SECTION 8.01. Notices.......................................................47
SECTION 8.02. Survival of Agreement.........................................48
SECTION 8.03. Binding Effect................................................48
SECTION 8.04. Successors and Assigns........................................48
SECTION 8.05. Expenses; Indemnity...........................................50
SECTION 8.06. Right of Setoff...............................................52
SECTION 8.07. Applicable Law................................................52
SECTION 8.08. Waivers; Amendment............................................52
SECTION 8.09. Entire Agreement..............................................53
SECTION 8.10. Severability..................................................53
SECTION 8.11. Counterparts..................................................53
SECTION 8.12. Headings......................................................53
SECTION 8.13. Interest Rate Limitation......................................53
SECTION 8.14. Confidentiality...............................................54
SECTION 8.15. Non-Application of Chapter 346 of the Texas Finance Code......55
</TABLE>
ii
<PAGE> 4
EXHIBITS AND SCHEDULES
Exhibit A Form of Borrowing Request
Exhibit B Administrative Questionnaire
Exhibit C Form of Assignment and Acceptance
Exhibit D Matters to be addressed by Opinion of Counsel
Schedule 2.01 Commitments
Schedule 3.05 Subsidiaries
Schedule 3.06 Financial Statements
Schedule 3.13 Indebtedness
iii
<PAGE> 5
ADVANCE TERM CREDIT AGREEMENT
ADVANCE TERM CREDIT AGREEMENT (the "Agreement") dated as of March 16
1999, and effective as of the Effective Date, among LENNOX INTERNATIONAL INC., a
Delaware corporation ("Borrower"); the lenders listed in Schedule 2.01 (together
with their successors and assigns, the "Lenders"), CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, a national banking association, ("Chase"), as administrative agent
for the Lenders (in such capacity, the "Administrative Agent"), and WACHOVIA
BANK, N.A., a national banking association ("Wachovia"), as documentation agent
for the Lenders (in such capacity, the "Documentation Agent"). (The
Administrative Agent and the Documentation Agent are referred to herein together
as the "Agents").
The Lenders have been requested to extend credit to the Borrower to
enable it, upon the terms and subject to the conditions set forth herein, to
borrow on and after the Effective Date and at any time prior to the Maturity
Date (as hereinafter defined) an aggregate principal amount not in excess of the
amount set forth herein. The proceeds of any such borrowings are to be used for
acquisitions, working capital and other corporate purposes. The Lenders are
willing to extend such credit on the terms and subject to the conditions herein
set forth.
Accordingly, the parties hereto agree as follows:
ARTICLE I. DEFINITIONS
SECTION 1.01. Defined Terms. As used in this Agreement, the following
terms shall have the meanings specified below:
"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.
"ABR Loan" shall mean any Loan bearing interest at a rate determined by
reference to the Alternate Base Rate in accordance with the provisions of
Article II.
"Additional Covenant" shall have the meaning assigned in Section 5.06.
"Additional Default" shall have the meaning assigned in Section 5.06.
"Administrative Questionnaire" shall mean an Administrative
Questionnaire in the form of Exhibit B hereto.
"Affiliate" shall mean, at any time, and with respect to any Person,
any other Person that at such time directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common Control with,
such first Person. As used in this definition, "Control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise. Unless the context otherwise clearly
requires, any reference to an "Affiliate" is a reference to an Affiliate of the
Borrower.
ADVANCE TERM CREDIT AGREEMENT - Page 1
<PAGE> 6
"Alternate Base Rate" shall mean, for any day, a rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of
(a) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%, and
(b) the Prime Rate in effect on such day. For purposes hereof, "Prime Rate"
shall mean the rate of interest per annum publicly announced from time to time
by Chase as its prime rate in effect at its principal office in Houston, Texas;
each change in the Prime Rate shall be effective on the date such change is
publicly announced as effective; and "Federal Funds Effective Rate" shall mean,
for any day, the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as released on the next succeeding Business Day by the Federal
Reserve Bank of Dallas, or, if such rate is not so released for any day which is
a Business Day, the arithmetic average (rounded upwards to the next 1/100th of
1%), as determined by Chase, of the quotations for the day of such transactions
received by Chase from three Federal funds brokers of recognized standing
selected by it. If for any reason Chase shall have determined (which
determination shall be conclusive absent manifest error; provided that Chase,
shall, upon request, provide to the applicable Borrower a certificate setting
forth in reasonable detail the basis for such determination) that it is unable
to ascertain the Federal Funds Effective Rate for any reason, including the
inability of Chase to obtain sufficient quotations in accordance with the terms
hereof, the Alternate Base Rate shall be determined without regard to clause (a)
of the first sentence of this definition until the circumstances giving rise to
such inability no longer exist. Any change in the Alternate Base Rate due to a
change in the Prime Rate or the Federal Funds Effective Rate shall be effective
on the effective date of such change in the Prime Rate or the Federal Funds
Effective Rate, respectively.
"Applicable Margin" shall have the meaning assigned in Section 2.06(d).
"Assignment and Acceptance" shall mean an assignment and acceptance
entered into by a Lender and an assignee in the form of Exhibit C.
"Board" shall mean the Board of Governors of the Federal Reserve System
of the United States.
"Board of Directors" shall mean the Board of Directors of Borrower or
any duly authorized committee thereof.
"Borrower" shall have the meaning given such term in the preamble
hereto.
"Borrower Payments" shall have the meaning given such term in Section
2.16 (a).
"Borrowing" shall mean a group of Loans of a single Type made by the
Lenders on a single date and, with respect to Eurodollar Loans made on a single
date, as to which a single Interest Period is in effect.
"Borrowing Request" shall mean a request made pursuant to Section 2.03
in the form of Exhibit A.
ADVANCE TERM CREDIT AGREEMENT - Page 2
<PAGE> 7
"Business Day" shall mean any day (other than a day which is a
Saturday, Sunday or legal holiday in the State of New York or the State of
Texas) on which banks are open for business in New York City, New York and
Houston, Texas; provided, however, that, when used in connection with a
Eurodollar Loan, the term "Business Day" shall also exclude any day on which
banks are not open for dealings in dollar deposits in the London interbank
market.
"Capital Lease Obligation" shall mean, with respect to any Person and a
Capital Lease, the amount of the obligation of such Person as the lessee under
such Capital Lease which would, in accordance with GAAP, appear as a liability
on a balance sheet of such Person.
"Capital Leases" shall mean, at any time, a lease with respect to which
the lessee is required concurrently to recognize the acquisition of an asset and
the incurrence of a liability in accordance with GAAP.
"Change of Control" shall have the meaning assigned it in Section
2.10(c).
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the rules and regulations promulgated thereunder from time to
time.
"Commitment" shall mean, with respect to each Lender, the Commitment of
such Lender set forth in Schedule 2.01 hereto, or in the most recent Assignment
and Acceptance executed by such Lender, as such Commitment may be permanently
terminated or reduced from time to time pursuant to Section 2.9. The Commitment
of each Lender shall automatically and permanently terminate on the Maturity
Date if not terminated earlier pursuant to the terms hereof.
"Commitment Fee" shall have the meaning assigned to such term in
Section 2.04(a).
"Compliance Certificate" shall mean the certificate delivered pursuant
to Section 5.20(g).
"Confidential Information" shall have the meaning assigned it in
Section 8.14.
"Consolidated Assets" shall mean the total assets of the Borrower and
its Restricted Subsidiaries which would be shown as assets on a consolidated
balance sheet of the Borrower and its Restricted Subsidiaries prepared in
accordance with GAAP, after eliminating all amounts properly attributable to
minority interests, if any, in the stock and surplus of Restricted Subsidiaries.
"Consolidated Capitalization" shall mean, at any time, the sum of
Consolidated Net Worth and Consolidated Indebtedness.
"Consolidated Indebtedness" shall mean, as of any date of
determination, the total of all Indebtedness of the Borrower and its Restricted
Subsidiaries outstanding on such date, after eliminating all offsetting debits
and credits between the Borrower and its Restricted Subsidiaries and all other
items required to be eliminated in the course of the preparation of consolidated
financial statements of the Borrower and its Restricted Subsidiaries in
accordance with GAAP.
ADVANCE TERM CREDIT AGREEMENT - Page 3
<PAGE> 8
"Consolidated Net Income" shall mean, for any period, the net income
(or net loss) of the Borrower and its Restricted Subsidiaries for such period,
determined in accordance with GAAP, excluding
(a) the proceeds of any life insurance policy;
(b) any gain arising from (1) the sale or other disposition of any
assets (other than current assets) to the extent that the aggregate amount of
gains exceeds the aggregate amount of losses from the sale, abandonment or other
disposition of assets (other than current assets), (2) any write-up of assets,
or (3) the acquisition by the Borrower or any Restricted Subsidiary of its
outstanding securities constituting Indebtedness;
(c) any amount representing the interest of the Borrower or any
Restricted Subsidiary in the undistributed earnings of any other Person;
(d) any earnings of any other Person accrued prior to the date it
becomes a Restricted Subsidiary or is merged into or consolidated with the
Borrower or a Restricted Subsidiary and any earnings, prior to the date of
acquisition, of any other Person acquired in any other manner; and
(e) any deferred credit (or amortization of a deferred credit) arising
from the acquisition of any Person.
"Consolidated Net Worth" shall mean, at any time,
(a) the sum of (i) the par value (or value stated on the books of the
Borrower) of the capital stock (but excluding treasury stock and capital stock
subscribed and unissued) of the Borrower and its Restricted Subsidiaries at such
time plus (ii) the amount of paid-in-capital and retained earnings of the
Borrower and its Restricted Subsidiaries at such time, in each case as such
amounts would be shown on a consolidated balance sheet of the Borrower and its
Restricted Subsidiaries as of such time prepared in accordance with GAAP, minus
(b) to the extent included in clause (a), all amounts properly
attributable to minority interests, if any, in the stock and surplus of
Restricted Subsidiaries.
"Continue", "Continuation", and "Continued" shall refer to the
continuation pursuant to Section 2.02 (d) of a Eurodollar Borrowing as a
Eurodollar Borrowing from one Interest Period to the next Interest Period.
"Convert", "Conversion", and "Converted" shall refer to a conversion
pursuant to Section 2.02 (d) or Section 2.12 of one Type of Borrowing into
another Type of Borrowing.
"Debt to Total Capitalization Ratio" shall mean, as of the end of any
quarterly fiscal period, the ratio expressed as a percentage, equal to the ratio
of Consolidated Indebtedness to Consolidated Capitalization calculated as of the
end of such fiscal period.
ADVANCE TERM CREDIT AGREEMENT - Page 4
<PAGE> 9
"Default" shall mean any event or condition which upon notice, lapse of
time or both would constitute an Event of Default.
"Distribution" shall mean, in respect of any corporation, association
or other business entity:
(a) dividends or other distributions or payments on capital stock or
other equity interest of such corporation, association or other business entity
(except distributions in such stock or other equity interests); and
(b) the redemption or acquisition of such stock or other equity
interests or of warrants, rights or other options to purchase such stock or
other equity interests (except when solely in exchange for such stock or other
equity interests) unless made, contemporaneously, from the net proceeds of a
sale of such stock or other equity interests.
"dollars" or "$" shall mean lawful money of the United States of
America.
"Effective Date" shall mean the date on which each condition set forth
in Section 4.02 has been satisfied.
"Environmental Laws" shall mean any and all Federal, state, local, and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment or the release of any materials into the environment, including but
not limited to those related to hazardous substances or wastes, air emissions
and discharges to waste or public systems.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the rules and regulations promulgated
thereunder from time to time in effect.
"ERISA Affiliate" shall mean any trade or business (whether or not
incorporated) that is treated as a single employer together with the Borrower
under section 414 of the Code.
"Eurodollar Borrowing" shall mean a Borrowing comprised of Eurodollar
Loans.
"Eurodollar Loan" shall mean any Loan bearing interest at a rate
determined by reference to the LIBO Rate in accordance with the provisions of
Article II.
"Event of Default" shall have the meaning assigned to such term in
Article VI.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Excluded Transfer" shall have the meaning assigned to it in Section
5.11.
"Existing Credit Agreement" shall mean that certain Revolving Credit
Facility Agreement dated as of July 13, 1998, among Borrower, certain lenders,
Administrative Agent, as
ADVANCE TERM CREDIT AGREEMENT - Page 5
<PAGE> 10
administrative agent for such lenders, and Documentation Agent, as documentation
agent for such lenders, as such agreement has been or may be amended from time
to time.
"Facility Fee" shall have the meaning assigned to such term in Section
2.04(c).
"Fair Market Value" shall mean, at any time and with respect to any
property, the sale value of such property that would be realized in an arm's
length sale at such time between an informed and willing buyer and an informed
and willing seller (neither being under a compulsion to buy or sell).
"Federal Funds Effective Rate" shall have the meaning specified in the
definition of Alternate Base Rate.
"GAAP" shall mean generally accepted accounting principles as in effect
from time to time in the United States of America.
"Governmental Authority" shall mean:
(a) the government of
(i) the United States of America or any State or other
political subdivision thereof, or
(ii) any jurisdiction in which the Borrower or any
Subsidiary conducts all or any part of its business,
or which asserts jurisdiction over any properties of
the Borrower or any Subsidiary, or
(b) any entity exercising executive, legislative, judicial, regulatory
or administrative functions of, or pertaining to, any such
government.
"Guaranty" shall mean, with respect to any Person, any obligation
(except the endorsement in the ordinary course of business of negotiable
instruments for deposit or collection) of such Person guaranteeing or in effect
guaranteeing any Indebtedness, dividend or other obligation of any other Person
in any manner, whether directly or indirectly, including (without limitation)
obligations incurred through an agreement, contingent or otherwise, by such
Person:
(a) to purchase such Indebtedness or obligation or any property
constituting security therefor;
(b) to advance or supply funds (i) for the purchase or payment of such
Indebtedness or obligation, or (ii) to maintain any working capital or other
balance sheet condition or any income statement condition of any other Person or
otherwise to advance or make available funds for the purchase or payment of such
Indebtedness or obligation;
ADVANCE TERM CREDIT AGREEMENT - Page 6
<PAGE> 11
(c) to lease properties or to purchase properties or services primarily
for the purpose of assuring the owner of such Indebtedness or obligation of the
ability of any other Person to make payment of the Indebtedness or obligation;
or
(d) otherwise to assure the owner of such Indebtedness or obligation
against loss in respect thereof. In any computation of the Indebtedness or other
liabilities of the obligor under any Guaranty, the Indebtedness or other
obligations that are the subject of such Guaranty shall be assumed to be direct
obligations of such obligor.
"Hazardous Substance" shall mean any contaminant, pollutant or toxic or
hazardous substance, and any substance that is defined or listed as a hazardous,
toxic or dangerous substance under any Environmental Law or that is otherwise
regulated or prohibited under any Environmental Law as a hazardous, toxic or
dangerous substance.
"Indebtedness" with respect to any Person shall mean, at any time,
without duplication:
(a) its liabilities for borrowed money and its redemption obligations
in respect of mandatorily redeemable Preferred Stock;
(b) its liabilities for the deferred purchase price of property
acquired by such Person (excluding accounts payable arising in the ordinary
course of business but including all liabilities created or arising under any
conditional sale or other title retention agreement with respect to any such
property);
(c) all liabilities appearing on its balance sheet in accordance with
GAAP in respect of Capital Leases;
(d) all liabilities for borrowed money secured by any Lien with respect
to any property owned by such Person (whether or not it has assumed or otherwise
become liable for such liabilities);
(e) all its liabilities in respect of letters of credit or instruments
serving a similar function issued or accepted for its account by banks and other
financial institutions (whether or not representing obligations for borrowed
money, but excluding in any event obligations in respect of (1) trade or
commercial letters of credit issued for the account of such Person in the
ordinary course of its business and (2) stand-by letters of credit issued to
support obligations of such Person that do not constitute Indebtedness);
(f) Swaps of such Person; and
(g) any Guaranty of such Person with respect to liabilities of a type
described in any of clauses (a) through (f) hereof.
Indebtedness of any Person shall include all obligations of such Person
of the character described in clauses (a) through (g) above to the extent such
Person remains legally liable in respect thereof notwithstanding that any such
obligation is deemed to be extinguished under GAAP.
ADVANCE TERM CREDIT AGREEMENT - Page 7
<PAGE> 12
"Interest Payment Date" shall mean (a) with respect to any ABR
Borrowing, each March 31, June 30, September 30 and December 31, beginning on
the first such date after the date hereof; (b) with respect to any Eurodollar
Loan, the last day of the Interest Period applicable thereto and, in the case of
such a Loan with an Interest Period of more than three months or 90 day
duration, each day that would have been an Interest Payment Date for such Loan
had successive Interest Periods of three months duration or 90 days duration, as
the case may be, been applicable to such Loan; and (c) in addition, with respect
to all Loans, the date of any prepayment thereof and the Maturity Date.
"Interest Period" shall mean the period commencing on the date of a
Eurodollar Borrowing and ending on the numerically corresponding day (or, if
there is no numerically corresponding day, on the last day) in the calendar
month that is 1, 2, 3 or 6 months thereafter, or, in addition, in the case of
any Eurodollar Borrowing made during the 30-day period ending on the Maturity
Date, the period commencing on the date of such Borrowing and ending on the
seventh or fourteenth day thereafter, as the Borrower may elect, provided,
however, that if any Interest Period would end on a day other than a Business
Day, such Interest Period shall be extended to the next succeeding Business Day
unless such next succeeding Business Day would fall in the next calendar month,
in which case such Interest Period shall end on the next preceding Business Day.
Interest shall accrue from and including the first day of an Interest Period to
but excluding the last day of such Interest Period.
"Intergroup Transfer" shall have the meaning assigned it in Section
5.11.
"LIBO Rate" shall mean, with respect to any Eurodollar Borrowing for
any Interest Period, an interest rate per annum (rounded upwards, if necessary,
to the next 1/16 of 1%) equal to the rate at which dollar deposits approximately
equal in principal amount to the Administrative Agent's portion of such
Eurodollar Borrowing and for a maturity comparable to such Interest Period are
offered to the principal London offices of Chase or one of its Affiliates in
immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period.
"Lien" shall mean, with respect to any Person, any mortgage, lien,
pledge, charge, security interest or other encumbrance, or any interest or title
of any vendor, lessor, lender or other secured party to or of such Person under
any conditional sale or other title retention agreement or Capital Lease, upon
or with respect to any property or asset of such Person (including in the case
of stock, stockholder agreements, voting trust agreements and all similar
arrangements).
"Loans" shall have the meaning assigned it in Section 2.01. Each Loan
shall be a Eurodollar Loan or an ABR Loan.
"Material" shall mean material in relation to the business, operations,
affairs, financial condition, assets, or properties of the Borrower and its
Subsidiaries taken as a whole.
"Material Adverse Effect" shall mean a material adverse effect on (a)
the business, operations, affairs, financial condition, assets or properties of
the Borrower and its Restricted Subsidiaries taken as a whole, or (b) the
ability of the Borrower to perform its obligations under this Agreement, or (c)
the validity or enforceability of this Agreement.
ADVANCE TERM CREDIT AGREEMENT - Page 8
<PAGE> 13
"Maturity Date" shall mean December 31, 1999.
"Multiemployer Plan" shall mean any Plan that is a "multiemployer plan"
(as such term is defined in section 4001(a)(3) of ERISA).
"New Lending Office" shall have the meaning assigned it in Section
2.16(g).
"New Owner" shall have the meaning assigned it in Section 2.10(c).
"Non-U.S. Agent" shall have the meaning assigned it in Section 2.16(g).
"Norris Family" shall have the meaning assigned it in Section 2.10(c).
"Ordinary Course Transfer" shall have the meaning assigned it in
Section 5.11.
"Other Taxes" shall have the meaning assigned it in Section 2.16(b).
"Prepayment Date" shall have the meaning assigned it in Section
2.10(c).
"PBGC" shall mean the Pension Benefit Guaranty Corporation referred to
and defined in ERISA or any successor thereto.
"Person" shall mean an individual, partnership, corporation, limited
liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
"Plan" shall mean an "employee benefit plan" (as defined in section
3(3) of ERISA) that is or, within the preceding five years, has been established
or maintained, or to which contributions are or, within the preceding five
years, have been made or required to be made, by the Borrower or any ERISA
Affiliate or with respect to which the Borrower or any ERISA Affiliate may have
any liability.
"Preferred Stock" shall mean any class of capital stock of a
corporation that is preferred over any other class of capital stock of such
corporation as to the payment of dividends or the payment of any amount upon
liquidation or dissolution of such corporation.
"property" or "properties" shall mean, unless otherwise specifically
limited, real or personal property of any kind, tangible or intangible, choate
or inchoate.
"Property Disposition Date" shall have the meaning assigned to it in
Section 5.11.
"Register" shall have the meaning given such term in Section 8.04 (d).
"Required Lenders" shall mean, at any time, Lenders having Commitments
representing at least 51% of the Total Commitment or, for purposes of
acceleration pursuant to clause (ii) of
ADVANCE TERM CREDIT AGREEMENT - Page 9
<PAGE> 14
Article VI, Lenders holding Loans representing at least 51% of the aggregate
principal amount of the Loans outstanding.
"Responsible Officer" shall mean any Senior Financial Officer and any
other officer of the Borrower with responsibility for the administration of the
relevant portion of this agreement.
"Restricted Indebtedness" shall mean, without duplication, (i)
Indebtedness of the Borrower or any Restricted Subsidiary which is secured by a
Lien not otherwise permitted under subsections (a) through (h) of Section 5.13,
and (ii) Indebtedness of a Restricted Subsidiary owing to any Person other than
the Borrower or a Wholly-Owned Subsidiary.
"Restricted Payment" shall mean any Distribution in respect of the
Borrower or any Restricted Subsidiary (other than on account of capital stock or
other equity interests of a Restricted Subsidiary owned legally and beneficially
by the Borrower or another Restricted Subsidiary), including, without
limitation, any Distribution resulting in the acquisition by the Borrower of
Securities which would constitute treasury stock. For purposes of this
Agreement, the amount of any Restricted Payment made in property shall be the
greater of (x) the Fair Market Value of such property (as determined in good
faith by the board of directors (or equivalent governing body) of the Person
making such Restricted Payment) and (y) the net book value thereof on the books
of such Person, in each case determined as of the date on which such Restricted
Payment is made.
"Restricted Subsidiary" shall mean any Subsidiary of the Borrower which
is (a) listed as a Restricted Subsidiary in Schedule 3.05 or (b) organized under
the laws of, and conducts substantially all of its business and maintains
substantially all of its property and assets within, the United States or any
state thereof (including the District of Columbia).
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time.
"Security" shall have the meaning set forth in Section 2(1) of the
Securities Act.
"Senior Financial Officer" shall mean the chief financial officer,
principal accounting officer, treasurer or comptroller of the Borrower; provided
that any executive vice president or the corporate controller of Borrower is
authorized by Borrower to execute and deliver any Borrowing Request.
"Senior Note Purchase Agreements" shall mean those certain Note
Purchase Agreements dated April 3, 1998 pursuant to which Borrower issued its
6.56% Senior Notes due April 3, 2005 and its 6.75% Senior Notes due April 3,
2008.
"Subsidiary" shall mean, as to any Person, any corporation, association
or other business entity in which such Person or one or more of its Subsidiaries
or such Person and one or more of its Subsidiaries owns sufficient equity or
voting interests to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership or joint venture if more
than a 50% interest in the profits or capital thereof is owned by such Person or
one or more of its Subsidiaries or such Person
ADVANCE TERM CREDIT AGREEMENT - Page 10
<PAGE> 15
and one or more of its Subsidiaries (unless such partnership can and does
ordinarily take major business actions without the prior approval of such Person
or one or more of its Subsidiaries). Unless the context otherwise clearly
requires, any reference to a "Subsidiary" is a reference to a Subsidiary of the
Borrower.
"Swaps" shall mean, with respect to any Person, payment obligations
with respect to interest rate swaps, currency swaps and similar obligations
obligating such Person to make payments, whether periodically or upon the
happening of a contingency. For the purposes of this Agreement, the amount of
the obligation under any Swap shall be the amount determined in respect thereof
as of the end of the then most recently ended fiscal quarter of such Person,
based on the assumption that such Swap had terminated at the end of such fiscal
quarter, and in making such determination, if any agreement relating to such
Swap provides for the netting of amounts payable by and to such Person
thereunder or if any such agreement provides for the simultaneous payment of
amounts by and to such Person, then in each such case, the amount of such
obligation shall be the net amount so determined.
"Taxes" shall have the meaning assigned it in Section 2.16 (a).
"Total Commitment" shall mean, at any time, the aggregate amount of
Commitments of all the Lenders, as in effect at such time.
"Transactions" shall have the meaning assigned it in Section 3.02.
"Transfer" shall mean, with respect to any Person, any transaction in
which such Person sells, conveys, transfers or leases (as lessor) any of its
property, including capital stock of, or a Security issued by, a Subsidiary.
"Transferee" shall have the meaning assigned to it in Section 2.16(a).
"Type", when used in respect of any Loan or Borrowing, shall refer to
the Rate by reference to which interest on such Loan or on the Loans comprising
such Borrowing is determined. For purposes hereof, "Rate" shall include the LIBO
Rate and the Alternate Base Rate.
"U.S. Lender" shall have the meaning assigned it in Section 2.16.
"Unrestricted Subsidiary"shall mean any Subsidiary other than a
Restricted Subsidiary.
"Voting Rights" shall have the meaning assigned it in Section 2.10.
"Wholly-Owned Restricted Subsidiary" or "Wholly-Owned Subsidiary"
means, at any time, any Restricted Subsidiary or Subsidiary, respectively, one
hundred percent (100%) of all of the equity interests (except directors'
qualifying shares) and voting interests of which are owned by any one or more of
the Borrower and the Borrower's other Wholly-Owned Restricted Subsidiaries or
Wholly-Owned Subsidiaries, respectively, at such time.
ADVANCE TERM CREDIT AGREEMENT - Page 11
<PAGE> 16
SECTION 1.02. Terms Generally. The definitions in Section 1.01 shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include," "includes" and
"including" shall be deemed to be followed by the phrase "without limitation."
All references herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement unless the context shall otherwise require. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP, as in effect from time to time.
ARTICLE II. THE CREDITS
SECTION 2.01. Commitments. Subject to the terms and conditions and
relying upon the representations and warranties herein set forth, each Lender
agrees, severally and not jointly, to make advances (each such advance a "Loan")
to the Borrower, at any time and from time to time on and after the date hereof
and until the earlier of the Maturity Date or the termination of the Commitment
of such Lender, in a maximum principal amount not to exceed such Lender's
Commitment, subject, however, to the conditions that (i) the aggregate principal
amount of all Loans shall not exceed the Total Commitment and (ii) the aggregate
principal amount of all Loans made by any Lender shall not exceed the amount of
such Lender's Commitment. Within the foregoing limits, the Borrower may borrow,
pay or prepay Loans hereunder, on and after the Effective Date and prior to the
Maturity Date, subject to the terms, conditions and limitations set forth
herein. Once a Loan has been paid or prepaid, it may not be reborrowed.
SECTION 2.02. Loans.
(a) Each Loan shall be made as part of a Borrowing consisting of Loans
made by the Lenders ratably in accordance with their respective Commitments;
provided, however, that the failure of any Lender to make any Loan shall not in
itself relieve any other Lender of its obligation to lend hereunder (it being
understood, however, that no Lender shall be responsible for the failure of any
other Lender to make any Loan required to be made by such other Lender). The
Loans comprising any Borrowing shall be in an aggregate principal amount which
is an integral multiple of $1,000,000 and not less than $5,000,000 (or an
aggregate principal amount equal to the remaining balance of the available
Commitments).
(b) Each Borrowing shall be comprised entirely of Eurodollar Loans or
ABR Loans, as the Borrower may request pursuant to Section 2.03. Each Lender may
at its option make any Eurodollar Loan by causing any domestic or foreign branch
or Affiliate of such Lender to make such Loan; provided that any exercise of
such option shall not affect the obligation of the Borrower to repay such Loan
in accordance with the terms of this Agreement. Borrowings of more than one Type
may be outstanding at the same time.
(c) Subject to paragraph (d) below, each Lender shall make each Loan to
be made by it hereunder on the proposed date thereof by wire transfer of
immediately available funds to the Administrative Agent in Houston, Texas, not
later than 11:00 a.m., Houston time, and the
ADVANCE TERM CREDIT AGREEMENT - Page 12
<PAGE> 17
Administrative Agent shall by 2:00 p.m., Houston time, credit the amounts so
received to the account or accounts specified from time to time in one or more
notices delivered by the Borrower to the Administrative Agent or, if a Borrowing
shall not occur on such date because any condition precedent herein specified
shall not have been met, return the amounts so received to the respective
Lenders. Loans shall be made by the Lenders pro rata in accordance with Section
2.13. Unless the Administrative Agent shall have received notice from a Lender
prior to the date of any Borrowing that such Lender will not make available to
the Administrative Agent such Lender's portion of such Borrowing, the
Administrative Agent may assume that such Lender has made such portion available
to the Administrative Agent on the date of such Borrowing in accordance with
this paragraph (c) and the Administrative Agent may, in reliance upon such
assumption, make available to the Borrower on such date a corresponding amount.
If and to the extent that such Lender shall not have made such portion available
to the Administrative Agent, such Lender and the Borrower (without waiving any
claim against such Lender for such Lender's failure to make such portion
available) severally agree to repay to the Administrative Agent forthwith on
demand such corresponding amount together with interest thereon, for each day
from the date such amount is made available to the Borrower until the date such
amount is repaid to the Administrative Agent at (i) in the case of the Borrower,
the interest rate applicable at the time to the Loans comprising such Borrowing
and (ii) in the case of such Lender, the Federal Funds Effective Rate. If such
Lender shall repay to the Administrative Agent such corresponding amount, such
amount shall constitute such Lender's Loan as part of such Borrowing for
purposes of this Agreement.
(d) Borrower may Convert all or any part of any Borrowing to a
Borrowing of a different Type and Borrower may Continue all or any part of any
Eurodollar Borrowing as a Borrowing of the same Type, by giving the Agent
written notice on the Business Day of the Conversion into an ABR Borrowing and
on the Business Day at least three Business Days before Conversion into or
Continuation of a Eurodollar Borrowing specifying: (i) the Conversion or
Continuation date, (ii) the amount of the Borrowing to be Converted or
Continued, (iii) in the case of Conversions, the Type of Borrowing to be
Converted into, and (iv) in the case of a Continuation of or Conversion into a
Eurodollar Borrowing, the duration of the Interest Period applicable thereto;
provided that (a) Eurodollar Borrowings may only be Converted on the last day of
the Interest Period; (b) except for Conversions to ABR Borrowings, no
Conversions shall be made while an Event of Default has occurred and is
continuing; (c) only ten (10) Eurodollar Borrowings may be in existence at any
one time; and (d) no Interest Period may end after the Maturity Date. All
notices given under this Section shall be irrevocable and shall be given not
later than 10:00 a.m. Houston, Texas time on the day which is not less than the
number of Business Days specified above for such notice. If the Borrower shall
fail to give the Agent the notice as specified above for Continuation or
Conversion of a Eurodollar Borrowing prior to the end of the Interest Period
with respect thereto, such Eurodollar Borrowing shall automatically be continued
as a Eurodollar Borrowing with an Interest Period of one month's duration. The
Agent shall promptly advise the Lenders of any notice given pursuant to this
Section 2.02. Each Eurodollar Borrowing must be in an aggregate principal amount
which is an integral multiple of $1,000,000 and not less than $5,000,000.
SECTION 2.03. Borrowing Procedure. In order to request a Borrowing, the
Borrower shall hand deliver or telecopy to the Administrative Agent a duly
completed Borrowing Request (a) in the case of a Eurodollar Borrowing, not later
than 10:00 a.m., Houston, Texas time, three Business Days
ADVANCE TERM CREDIT AGREEMENT - Page 13
<PAGE> 18
before such Borrowing, and (b) in the case of an ABR Borrowing, not later than
10:00 a.m., Houston, Texas time, on the day of such Borrowing. Such notice shall
be irrevocable and shall in each case specify (i) whether the Borrowing then
being requested is to be a Eurodollar Borrowing or an ABR Borrowing; (ii) the
date of such Borrowing (which shall be a Business Day) and the amount thereof;
and (iii) if such Borrowing is to be a Eurodollar Borrowing, the Interest Period
with respect thereto, which shall not end after the Maturity Date. If no
election as to the Type of Borrowing is specified in any such notice, then the
requested Borrowing shall be an ABR Borrowing. If no Interest Period with
respect to any Eurodollar Borrowing is specified in any such notice, then the
Borrower shall be deemed to have selected an Interest Period of one month's
duration. Notwithstanding any other provision of this Agreement to the contrary,
no Borrowing shall be requested if the Interest Period with respect thereto
would end after the Maturity Date. The Administrative Agent shall promptly
advise the Lenders of any notice given pursuant to this Section 2.03 and of each
Lender's portion of the requested Borrowing.
SECTION 2.04. Fees.
(a) The Borrower agrees to pay to each Lender, through the
Administrative Agent, on each March 31, June 30, September 30 and December 31
(with the first payment being due on March 31, 1999) and on each date on which
the Commitment of such Lender shall be terminated as provided herein, a
commitment fee (a "Commitment Fee"), at a rate equal to 0.15% per annum on the
amount of the daily average of the unused Commitment of such Lender during the
preceding quarter (or other period commencing on the Effective Date or ending
with the Maturity Date or any date on which the Commitment of such Lender shall
be terminated). All Commitment Fees shall be computed on the basis of the actual
number of days elapsed in a year of 365 or 366 days, as the case may be. The
Commitment Fee due to each Lender shall commence to accrue on the Effective
Date, and shall cease to accrue on the earlier of the Maturity Date and the
termination of the Commitment of such Lender as provided herein.
(b) All Commitment Fees shall be paid on the dates due, in immediately
available funds, to the Administrative Agent for distribution, as appropriate,
among the Lenders or to the Agents. Once paid, the Commitment Fees shall not be
refundable under any circumstances.
SECTION 2.05. Repayment of Loans; Evidence of Indebtedness.
(a) The outstanding principal balance of each Loan shall be due and
payable on the Maturity Date.
(b) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness to such Lender resulting from
each Loan made by such Lender from time to time, including the amounts of
principal and interest payable and paid to such Lender from time to time under
this Agreement.
(c) The Administrative Agent shall maintain accounts in which it will
record (i) the amount of each Loan made hereunder, the Type of each Loan made
and the Interest Period applicable thereto, if any, (ii) the amount of any
principal or interest due and payable or to become due and
ADVANCE TERM CREDIT AGREEMENT - Page 14
<PAGE> 19
payable from the Borrower to each Lender hereunder and (iii) the amount of any
sum received by the Administrative Agent hereunder from the Borrower and each
Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to paragraphs
(b) and (c) of this Section 2.05 shall, to the extent permitted by applicable
law, be prima facie evidence of the existence and amounts of the obligations
therein recorded; provided, however, that the failure of any Lender or the
Administrative Agent to maintain such accounts or any error therein shall not in
any manner affect the obligations of the Borrower to repay the Loans in
accordance with their terms.
SECTION 2.06. Interest on Loans.
(a) Subject to the provisions of Section 2.07, the Loans comprising
each Eurodollar Borrowing shall bear interest (computed on the basis of the
actual number of days elapsed over a year of 360 days) at a rate per annum equal
to the LIBO Rate for the Interest Period in effect for such Borrowing plus the
Applicable Margin from time to time in effect.
(b) Subject to the provisions of Section 2.07, the Loans comprising
each ABR Borrowing shall bear interest (computed on the basis of the actual
number of days elapsed over a year of 365 or 366 days, as the case may be, for
periods during which the Alternate Base Rate is determined by reference to the
Prime Rate and 360 days for other periods and including for all calculations the
first day of any period but excluding the last) at a rate per annum equal to the
Alternate Base Rate plus the Applicable Margin.
(c) Interest on each Loan shall be payable on each Interest Payment
Date applicable to such Loan except as otherwise provided in this Agreement. The
applicable LIBO Rate or Alternate Base Rate shall be determined by the
Administrative Agent, and such determination shall be conclusive absent manifest
error; provided that the Administrative Agent shall, upon request, provide to
the Borrower a certificate setting forth in reasonable detail the basis for such
determination.
(d) As used in this Section 2.06, "Applicable Margin" shall mean,
during each of the periods set forth below and with respect to each Type of
Loan, the percent per annum set forth in the following chart below the
applicable Type of Loan and opposite the applicable period:
<TABLE>
<CAPTION>
================================================================================
Period Eurodollar Loans ABR Loans
- --------------------------------------------------------------------------------
<S> <C> <C>
From the Effective Date through 1.00% 0.00%
and including July 15, 1999
- --------------------------------------------------------------------------------
From July 16, 1999, through and 1.25% 0.25%
including September 30, 1999
- --------------------------------------------------------------------------------
From October 1, 1999, through 1.75% 0.75%
the Maturity Date
================================================================================
</TABLE>
SECTION 2.07. Default Interest. If the Borrower shall default in the
payment of the principal of or interest on any Loan or any other amount becoming
due hereunder, whether by
ADVANCE TERM CREDIT AGREEMENT - Page 15
<PAGE> 20
scheduled maturity, notice of prepayment, acceleration or otherwise, the
Borrower shall on demand from time to time from the Administrative Agent pay
interest, to the extent permitted by law, on such defaulted amount up to (but
not including) the date of actual payment (after as well as before judgment) at
a rate per annum (computed as provided in Section 2.06(b)) equal to the
Alternate Base Rate plus 2%.
SECTION 2.08. Alternate Rate of Interest. In the event, and on each
occasion, that on the day two Business Days prior to the commencement of any
Interest Period for a Eurodollar Borrowing the Administrative Agent shall have
determined (i) that dollar deposits in the principal amounts of the Eurodollar
Loans comprising such Borrowing are not generally available in the London
interbank market or (ii) that reasonable means do not exist for ascertaining the
LIBO Rate, the Administrative Agent shall, as soon as practicable thereafter,
give telecopy notice of such determination to the Borrower and the Lenders. In
the event of any such determination under clauses (i) or (ii) above, until the
Administrative Agent shall have advised the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, any request by the
Borrower for a Eurodollar Borrowing pursuant to Section 2.03 shall be deemed to
be a request for an ABR Borrowing. In the event the Required Lenders notify the
Administrative Agent that the rates at which dollar deposits are being offered
will not adequately and fairly reflect the cost to such Lenders of making or
maintaining Eurodollar Loans during such Interest Period, the Administrative
Agent shall notify the Borrower of such notice and until the Required Lenders
shall have advised the Administrative Agent that the circumstances giving rise
to such notice no longer exist, any request by the Borrower for a Eurodollar
Borrowing shall be deemed a request for an ABR Borrowing. Each determination by
the Administrative Agent hereunder shall be made in good faith and shall be
conclusive absent manifest error; provided that the Administrative Agent, shall,
upon request, provide to the Borrower a certificate setting forth in reasonable
detail the basis for such determination.
SECTION 2.09. Termination and Reduction of Commitments.
(a) The Commitments shall be automatically terminated on the Maturity
Date. A Commitment of a Lender may also terminate as provided in Section
2.10(c).
(b) Upon at least three Business Days' prior irrevocable written notice
to the Administrative Agent, the Borrower may, at any time, in whole permanently
terminate, or, from time to time, in part permanently reduce, the Total
Commitment; provided, however, that (i) each partial reduction of the Total
Commitment shall be in an integral multiple of $5,000,000 and in a minimum
principal amount of $5,000,000 and (ii) no such termination or reduction shall
be made which would reduce the Total Commitment to an amount less than
$25,000,000, unless the result of such termination or reduction is to reduce the
Total Commitment to $0. The Administrative Agent shall advise the Lenders of any
notice given pursuant to this Section 2.09(b) and of each Lender's portion of
any such termination or reduction of the Commitments.
(c) Each reduction in the Total Commitment hereunder shall be made
ratably among the Lenders in accordance with their respective Commitments. The
Borrower shall pay to the Administrative Agent for the account of the Lenders,
on the date of each termination or reduction
ADVANCE TERM CREDIT AGREEMENT - Page 16
<PAGE> 21
of the Total Commitment, the Commitment Fees that have accrued through the date
of such termination or reduction on the amount of the Commitments so terminated
or reduced.
SECTION 2.10. Prepayment Including Prepayment as a Result of a Change
of Control.
(a) The Borrower shall have the right at any time and from time to time
to prepay any Borrowing, in whole or in part, upon giving telecopy notice (or
telephone notice promptly confirmed by telecopy) to the Administrative Agent:
(i) before 10:00 a.m., Houston, Texas time, three Business Days prior to
prepayment, in the case of Eurodollar Loans which prepayment shall be
accompanied by any amount owed under Section 8.05(b), and (ii) before 10:00
a.m., Houston, Texas time, one Business Day prior to prepayment, in the case of
ABR Loans; provided, however, that each partial prepayment shall be in an amount
which is an integral multiple of $1,000,000 and not less than $3,000,000.
(b) On the date of any termination or reduction of the Commitments
pursuant to Section 2.09, the Borrower shall pay or prepay so much of the
Borrowings as shall be necessary in order that the aggregate principal amount of
the Loans outstanding will not exceed the Total Commitment, after giving effect
to such termination or reduction.
(c) At least 15 Business Days (or, in the case of any transaction
permitted by Section 5.10 resulting in a Change of Control, at least 45 days)
and not more than 90 days prior to the occurrence of any Change of Control, the
Borrower will give written notice thereof to each Lender. Such notice shall
contain (i) an offer by the Borrower to prepay, on the date of such Change of
Control or, if such notice shall be delivered less than 35 days prior to the
date of such Change of Control, on the date 35 days after the date of such
notice (the "Prepayment Date"), all Loans made by each Lender, together with
interest accrued thereon to the Prepayment Date and all other obligations owed
to such Lender under the terms hereof, (ii) the estimated amount of accrued
interest, showing in reasonable detail the calculation thereof and (iii) the
Borrower's estimate of the date on which such Change of Control shall occur.
Said offer shall be deemed to lapse as to any such Lender which has not replied
affirmatively thereto in writing within 35 days of the giving of such notice. As
soon as practicable (and in any event at least 24 hours) prior to such Change of
Control, the Borrower shall give written confirmation of the date thereof to
each such Lender that has affirmatively replied to the notice given pursuant to
the first sentence of this Section 2.10(c). Borrower shall, on the Prepayment
Date, prepay to each Lender that has affirmatively replied to the notice given
pursuant to the first sentence of this Section 2.10(c) all Loans then held by
such Lender together with accrued interest thereon and all other obligations
owed to such Lender under the terms hereof. Upon such payment, the Commitment of
each Lender that shall have received such prepayment shall terminate.
For the purposes of this Section 2.10(c), a "Change of Control" shall
be deemed to occur if any New Owner shall acquire beneficial ownership of shares
in the Borrower having Voting Rights pertaining thereto which would allow such
New Owner to elect more members of the Board of Directors than could be elected
by the exercise of all Voting Rights pertaining to shares in the Borrower then
owned beneficially by the Norris Family. As used in this Section 2.10(c):
ADVANCE TERM CREDIT AGREEMENT - Page 17
<PAGE> 22
(i) "Voting Rights" pertaining to shares of a corporation
means the rights to cast votes for the election of directors of such
corporation in ordinary circumstances (without consideration of voting
rights which exist only in the event of contingencies).
(ii) "Norris Family" means all persons who are lineal
descendants of D.W. Norris (by birth or adoption), all spouses of such
descendants, all estates of such descendants or spouses which are in
the course of administration, all trusts for the benefit of such
descendants or spouses, and all corporations or other entities in
which, directly or indirectly, such descendants or spouses (either
alone or in conjunction with other such descendants or spouses) have
the right, whether by ownership of stock or other equity interests or
otherwise, to direct the management and policies of such corporations
or other entities (each such person, spouse, estate, trust, corporation
or entity being referred to herein as a "member" of the Norris Family).
In addition, so long as any employee stock ownership plan exercises its
Voting Rights in the same manner as members of the Norris Family
(exclusive of employee stock ownership plans) who have a majority of
the Voting Rights exercised by all such members of the Norris Family,
such employee stock ownership plan shall be deemed a member of the
Norris Family.
(iii) "New Owner" means any person (other than a member of
the Norris Family), or any syndicate or group of persons (exclusive of
all members of the Norris Family) which would be deemed a "person" for
the purposes of Section 13(d) of the Exchange Act, who directly or
indirectly acquires shares in the Borrower.
(d) In the event that the Borrower or any of its Subsidiaries issues
any Securities (as defined below), no later than the tenth (10th) Business Day
following the date of receipt of the proceeds from any such issuance, the
Borrower shall prepay the Loans in an amount equal to the lessor of (a) all
amounts owed to the Agents and the Lenders under this Agreement, including,
without limitation, all outstanding loans, interest and fees or (b) one-hundred
percent (100%) of the proceeds of such issuance, net of underwriting discounts
and commissions and other reasonable costs associated therewith. "Securities"
means any stock, shares, options, warrants, voting trust certificates, or other
instruments evidencing an ownership interest or a right to acquire an ownership
interest in a Person or any bonds, debentures, notes or other evidences of
indebtedness, secured or unsecured. Immediately upon any such issuance of
Securities, each Lender's Commitment shall permanently terminate.
(e) Each notice of prepayment shall specify the prepayment date and the
principal amount of each Borrowing (or portion thereof) to be prepaid, shall be
irrevocable and shall commit the Borrower to prepay such Borrowing (or portion
thereof) by the amount stated therein on the date stated therein. All
prepayments under this Section 2.10 shall be subject to Section 8.05 but
otherwise without premium or penalty. All prepayments under this Section 2.10
shall be accompanied by accrued interest on the principal amount being prepaid
to the date of payment.
ADVANCE TERM CREDIT AGREEMENT - Page 18
<PAGE> 23
SECTION 2.11. Reserve Requirements; Change in Circumstances.
(a) Notwithstanding any other provision herein, if after the date of
this Agreement any change in applicable law or regulation or in the
interpretation or administration thereof by any Governmental Authority charged
with the interpretation or administration thereof (whether or not having the
force of law) shall change the basis of taxation of payments to any Lender
hereunder (except for changes in respect of taxes on the overall net income of
such Lender or its lending office imposed by the jurisdiction in which such
Lender's principal executive office or lending office is located), or shall
result in the imposition, modification or applicability of any reserve, special
deposit or similar requirement against assets of, deposits with or for the
account of or credit extended by any Lender, or shall result in the imposition
on any Lender or the London interbank market of any other condition affecting
this Agreement, such Lender's Commitment or any Eurodollar Loan made by such
Lender, and the result of any of the foregoing shall be to increase the cost to
such Lender of making or maintaining any Eurodollar Loan or to reduce the amount
of any sum received or receivable by such Lender hereunder (whether of
principal, interest or otherwise) by an amount deemed by such Lender to be
material, then the Borrower shall, upon receipt of the notice and certificate
provided for in Section 2.11(c), promptly pay to such Lender such additional
amount or amounts as will compensate such Lender for such additional costs
incurred or reduction suffered.
(b) If any Lender shall have determined that the adoption of any law,
rule, regulation or guideline arising out of the July 1988 report of the Basle
Committee on Banking Regulations and Supervisory Practices entitled
"International Convergence of Capital Measurement and Capital Standards," or the
adoption after the date hereof of any other law, rule, regulation or guideline
regarding capital adequacy, or any change in any of the foregoing or in the
interpretation or administration of any of the foregoing by any Governmental
Authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Lender (or any lending office of
such Lender) or any Lender's holding company with any request or directive
regarding capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return on such Lender's capital or on the capital of such
Lender's holding company, if any, as a consequence of this Agreement, such
Lender's Commitment or the Loans made by such Lender pursuant hereto to a level
below that which such Lender or such Lender's holding company could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's policies and the policies of such Lender's holding company with
respect to capital adequacy) by an amount deemed by such Lender to be material,
then from time to time such additional amount or amounts as will compensate such
Lender for any such reduction suffered will be paid by the Borrower to such
Lender.
(c) A certificate of each Lender setting forth such amount or amounts
as shall be necessary to compensate such Lender or its holding company as
specified in paragraph (a) or (b) above, as the case may be, and containing an
explanation in reasonable detail of the manner in which such amount or amounts
shall have been determined, shall be delivered to the Borrower, and shall be
conclusive absent manifest error. The Borrower shall pay each Lender the amount
shown as due on any such certificate delivered by it within 10 days after its
receipt of the same. Each Lender shall give prompt notice to the Borrower of any
event of which it has knowledge, occurring after the date hereof, that it has
determined will require compensation by the Borrower
ADVANCE TERM CREDIT AGREEMENT - Page 19
<PAGE> 24
pursuant to this Section; provided, however, that failure by such Lender to give
such notice shall not constitute a waiver of such Lender's right to demand
compensation hereunder.
(d) Failure on the part of any Lender to demand compensation for any
increased costs or reduction in amounts received or receivable or reduction in
return on capital of the type described in paragraph (a) or (b) of this Section
2.11 with respect to any period shall not constitute a waiver of such Lender's
right to demand compensation with respect to such period or any other period;
provided, however, that no Lender shall be entitled to compensation under this
Section 2.11 for any costs incurred or reductions suffered with respect to any
date unless it shall have notified the Borrower that it will demand compensation
for such costs or reductions under paragraph (c) above not more than 90 days
after the later of (i) such date and (ii) the date on which it shall have become
aware of such costs or reductions. The protection of this Section shall be
available to each Lender regardless of any possible contention of the invalidity
or inapplicability of the law, rule, regulation, guideline or other change or
condition which shall have occurred or been imposed.
(e) Each Lender agrees that it will designate a different lending
office if such designation will avoid the need for, or reduce the amount of,
such compensation and will not, in the reasonable judgment of such Lender, be
disadvantageous to such Lender.
SECTION 2.12. Change in Legality.
(a) Notwithstanding any other provision herein, if any change in any
law or regulation or in the interpretation thereof by any Governmental Authority
charged with the administration or interpretation thereof shall make it unlawful
for any Lender to make or maintain any Eurodollar Loan or to give effect to its
obligations as contemplated hereby with respect to any Eurodollar Loan, then, by
written notice to the Borrower and to the Administrative Agent, such Lender may:
(i) declare that Eurodollar Loans will not thereafter be
made by such Lender hereunder, whereupon any request for a Eurodollar
Borrowing shall, as to such Lender only, be deemed a request for an ABR
Loan unless such declaration shall be subsequently withdrawn (any
Lender delivering such a declaration hereby agreeing to withdraw such
declaration promptly upon determining that such event of illegality no
longer exists); and
(ii) require that all outstanding Eurodollar Loans made by
it be converted to ABR Loans, in which event all such Eurodollar Loans
shall be automatically converted to ABR Loans as of the effective date
of such notice as provided in paragraph (b) below.
In the event any Lender shall exercise its rights under (i) or (ii) above, all
payments and prepayments of principal which would otherwise have been applied to
repay the Eurodollar Loans that would have been made by such Lender or the
Converted Eurodollar Loans of such Lender shall instead be applied to repay the
ABR Loans made by such Lender in lieu of, or resulting from the Conversion of,
such Eurodollar Loans.
ADVANCE TERM CREDIT AGREEMENT - Page 20
<PAGE> 25
(b) For purposes of this Section 2.12, a notice by any Lender shall be
effective as to each Eurodollar Loan, if lawful, on the last day of the Interest
Period currently applicable to such Eurodollar Loan; in all other cases such
notice shall be effective on the date of receipt.
SECTION 2.13. Pro Rata Treatment. Except as required under Sections
2.13 and 2.18, each Borrowing, each payment or prepayment of principal of any
Borrowing, each payment of interest on the Loans, each payment of the Commitment
Fees, each Conversion or Continuation of any Loans, and each reduction of the
Commitments, shall be allocated pro rata among the Lenders in accordance with
their respective Commitments (or, if such Commitments shall have expired or been
terminated, in accordance with the respective principal amounts of their
outstanding Loans).
SECTION 2.14. Sharing of Setoffs. Each Lender agrees that if it shall,
through the exercise of a right of banker's lien, setoff or counterclaim, or
pursuant to a secured claim under Section 506 of Title 11 of the United States
Code or other security or interest arising from, or in lieu of, such secured
claim, received by such Lender under any applicable bankruptcy, insolvency or
other similar law or otherwise, or by any other means, obtain payment (voluntary
or involuntary) in respect of any Loan or Loans as a result of which the unpaid
principal portion of its Loans shall be proportionately less than the unpaid
principal portion of the Loans of any other Lender, it shall be deemed
simultaneously to have purchased from such other Lender at face value, and shall
promptly pay to such other Lender the purchase price for, a participation in the
Loans of such other Lender, so that the aggregate unpaid principal amount of the
Loans and participations in the Loans held by each Lender shall be in the same
proportion to the aggregate unpaid principal amount of all Loans then
outstanding as the principal amount of its Loans prior to such exercise of
banker's lien, setoff or counterclaim or other event was to the principal amount
of all Loans outstanding prior to such exercise of banker's lien, setoff or
counterclaim or other event; provided, however, that, if any such purchase or
purchases or adjustments shall be made pursuant to this Section 2.14 and the
payment giving rise thereto shall thereafter be recovered, such purchase or
purchases or adjustments shall be rescinded to the extent of such recovery and
the purchase price or prices or adjustment restored without interest. The
Borrower expressly consents to the foregoing arrangements and agrees that any
Lender holding a participation in a Loan deemed to have been so purchased may
exercise any and all rights of banker's lien, setoff or counterclaim with
respect to any and all moneys owing by the Borrower to such Lender by reason
thereof as fully as if such Lender had made a Loan in the amount of such
participation.
SECTION 2.15. Payments.
(a) The Borrower shall make each payment (including principal of or
interest on any Borrowing or any fees or other amounts hereunder) from an
account in the United States not later than 12:00 noon, Houston, Texas time, on
the date when due in dollars to the Administrative Agent at its offices at 1111
Fannin Street, 9th floor, MS 46, Houston, Texas 77002, in immediately available
funds.
(b) Whenever any payment (including principal of or interest on any
Borrowing or any fees or other amounts) hereunder shall become due, or otherwise
would occur, on a day that is not
ADVANCE TERM CREDIT AGREEMENT - Page 21
<PAGE> 26
a Business Day, such payment may be made on the next succeeding Business Day,
and such extension of time shall in such case be included in the computation of
interest or fees, if applicable.
SECTION 2.16. Taxes.
(a) Any and all payments of principal and interest on any Borrowings,
or of any fees or indemnity or expense reimbursements by the Borrower hereunder
("Borrower Payments") shall be made, in accordance with Section 2.15, free and
clear of and without deduction for any and all current or future United States
Federal, state and local taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect to the Borrower Payments, but
only to the extent reasonably attributable to the Borrower Payments, excluding
(i) income taxes imposed on the net income of either Agent or any Lender (or any
transferee or assignee thereof, including a participation holder (any such
entity a "Transferee")) and (ii) franchise taxes imposed on the net income of
either Agent or any Lender (or Transferee), in each case by the jurisdiction
under the laws of which either Agent or such Lender (or Transferee) is organized
or doing business through offices or branches located therein, or any political
subdivision thereof (all such nonexcluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities, collectively or individually, "Taxes").
If the Borrower shall be required to deduct any Taxes from or in respect of any
sum payable hereunder to any Lender (or any Transferee) or the Agents, (i) the
sum payable shall be increased by the amount (an "additional amount") necessary
so that after making all required deductions (including deductions applicable to
additional sums payable under this Section 2.16) such Lender (or Transferee) or
Agent (as the case may be) shall receive an amount equal to the sum it would
have received had no such deductions been made, (ii) the Borrower shall make
such deductions and (iii) the Borrower shall pay the full amount deducted to the
relevant Governmental Authority in accordance with applicable law.
(b) In addition, the Borrower shall pay to the relevant United States
Governmental Authority in accordance with applicable law any current or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies that arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement
("Other Taxes").
(c) The Borrower shall indemnify each Lender (or Transferee thereof)
and each Agent for the full amount of Taxes and Other Taxes with respect to
Borrower Payments paid by such Lender (or Transferee) or such Agent, as the case
may be, and any liability (including penalties, interest and expenses (including
reasonable attorney's fees and expenses)) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or legally
asserted by the relevant United States Governmental Authority. A certificate
setting forth and containing an explanation in reasonable detail of the manner
in which such amount shall have been determined and the amount of such payment
or liability prepared by a Lender or an Agent on their behalf, absent manifest
error, shall be final, conclusive and binding for all purposes. Such
indemnification shall be made within 30 days after the date the Lender (or
Transferee) or any Agent, as the case may be, makes written demand therefor.
(d) If a Lender (or Transferee) or any Agent shall become aware that it
is entitled to claim a refund from a United States Governmental Authority in
respect of Taxes or Other Taxes as to
ADVANCE TERM CREDIT AGREEMENT - Page 22
<PAGE> 27
which it has been indemnified by the Borrower, or with respect to which the
Borrower has paid additional amounts, pursuant to this Section 2.16, it shall
promptly notify the Borrower of the availability of such refund claim and shall,
within 30 days after receipt of a request by the Borrower, make a claim to such
United States Governmental Authority for such refund at the Borrower's expense.
If a Lender (or Transferee) or any Agent receives a refund (including pursuant
to a claim for refund made pursuant to the preceding sentence) in respect of any
Taxes or Other Taxes as to which it has been indemnified by the Borrower or with
respect to which the Borrower had paid additional amounts pursuant to this
Section 2.16, it shall within 30 days from the date of such receipt pay over
such refund to the Borrower (but only to the extent of indemnity payments made,
or additional amounts paid, by the Borrower under this Section 2.16 with respect
to the Taxes or Other Taxes giving rise to such refund), net of all
out-of-pocket expenses of such Lender (or Transferee) or such Agent and without
interest (other than interest paid by the relevant United States Governmental
Authority with respect to such refund); provided, however, that the Borrower,
upon the request of such Lender (or Transferee) or such Agent, agrees to repay
the amount paid over to the Borrower (plus penalties, interest or other charges)
to such Lender (or Transferee) or such Agent in the event such Lender (or
Transferee) or such Agent is required to repay such refund to such United States
Governmental Authority.
(e) As soon as practicable, but in any event within 30 days, after the
date of any payment of Taxes or Other Taxes by the Borrower to the relevant
United States Governmental Authority, the Borrower will deliver to the
Administrative Agent, at its address referred to in Section 8.01, the original
or a certified copy of a receipt issued by such United States Governmental
Authority evidencing payment thereof.
(f) Without prejudice to the survival of any other agreement contained
herein, the agreements and obligations contained in this Section 2.16 shall
survive the payment in full of the principal of and interest on all Loans made
hereunder.
(g) Each Lender or Agent (or Transferee) that is organized under the
laws of a jurisdiction other than the United States, any State thereof or the
District of Columbia (a "Non-U.S. Lender" or "Non U.S. Agent", as applicable)
shall deliver to the Borrower and the Administrative Agent two copies of either
United States Internal Revenue Service Form 1001 or Form 4224, properly
completed and duly executed by such Non-U.S. Lender claiming complete exemption
from, or reduced rate of, United States Federal withholding tax on payments by
the Borrower under this Agreement. Such forms shall be delivered by each
Non-U.S. Lender on or before the date it becomes a party to this Agreement (or,
in the case of a Transferee that is a participation holder, on or before the
date such participation holder becomes a Transferee hereunder) and on or before
the date, if any, such Non-U.S. Lender changes its applicable lending office by
designating a different lending office (a "New Lending Office"). In addition,
each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or
invalidity of any form previously delivered by such Non-U.S. Lender.
Notwithstanding any other provision of this Section 2.16(g), a Non-U.S. Lender
shall not be required to deliver any form pursuant to this Section 2.16(g) that
such Non-U.S. Lender is not legally able to deliver.
ADVANCE TERM CREDIT AGREEMENT - Page 23
<PAGE> 28
(h) The Borrower shall not be required to indemnify any Non-U.S. Lender
or Non-U.S. Agent (including any Transferee), or to pay any additional amounts
to any Non-U.S. Lender or Non- U.S. Agent (including any Transferee), in respect
of United States Federal, state or local withholding tax pursuant to paragraph
(a) or (c) above to the extent that (i) the obligation to withhold amounts with
respect to United States Federal, state or local withholding tax existed on the
date such Non- U.S. Lender became a party to this Agreement (or, in the case of
a Transferee that is a participation holder, on the date such participation
holder became a Transferee hereunder) or, with respect to payments to a New
Lending Office, the date such Non-U.S. Lender designated such New Lending Office
with respect to a Loan; provided, however, that this clause (i) shall not apply
to any Transferee or New Lending Office that becomes a Transferee or New Lending
Office as a result of an assignment, participation, transfer or designation made
at the request of the Borrower; and provided further, however, that this clause
(i) shall not apply to the extent the indemnity payment or additional amounts
any Transferee, or Lender (or Transferee) through a New Lending Office, would be
entitled to receive (without regard to this clause (h)) do not exceed the
indemnity payment or additional amounts that the Person making the assignment,
participation or transfer to such Transferee, or Lender (or Transferee) making
the designation of such New Lending Office, would have been entitled to receive
in the absence of such assignment, participation, transfer or designation or
(ii) the obligation to pay such additional amounts or such indemnity payments
would not have arisen but for a failure by such Non-U.S. Lender (including any
Transferee) to comply with time provisions of paragraph (g) above and (i) below.
(i) Any Lender (or Transferee) claiming any indemnity payment or
additional amounts payable pursuant to this Section 2.16 shall use reasonable
efforts (consistent with legal and regulatory restrictions) to file any
certificate or document reasonably requested in writing by the Borrower or to
change the jurisdiction of its applicable lending office if the making of such a
filing or change would avoid the need for or reduce the amount of any such
indemnity payment or additional amounts that may thereafter accrue and would
not, in the good faith determination of such Lender (or Transferee), be
otherwise disadvantageous to such Lender (or Transferee).
(j) Nothing contained in this Section 2.16 shall require any Lender (or
Transferee) or any Agent to make available to the Borrower any of its tax return
(or any other information) that it deems to be confidential or proprietary.
SECTION 2.17. Assignment of Commitments Under Certain Circumstances. In
the event that any Lender shall have delivered a notice or certificate pursuant
to Section 2.11 or 2.12, or the Borrower shall be required to make additional
payments to any Lender under Section 2.16, the Borrower shall have the right, at
its own expense, upon notice to such Lender and the Agents, to require such
Lender to transfer and assign without recourse (in accordance with and subject
to the restrictions contained in Section 8.04) all such Lender's interests,
rights and obligations contained hereunder to another financial institution
approved by the Agents and the Borrower (which approval shall not be
unreasonably withheld) which shall assume such obligations; provided that (i) no
such assignment shall conflict with any law, rule or regulation or order of any
Governmental Authority and (ii) the assignee or the Borrower, as the case may
be, shall pay to the affected Lender in immediately available funds on the date
of such assignment the principal of and interest accrued to
ADVANCE TERM CREDIT AGREEMENT - Page 24
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the date of payment on the Loan made by it hereunder and all other amounts
accrued for its account or owed to it hereunder.
SECTION 2.18. Payments by Agent to the Lenders. Any payment received by
the Agent hereunder for the account of a Lender shall be paid to such Lender by
4:00 p.m. Houston time on (a) the Business Day the payment is received in
immediately available funds, if such payment is received by 10:00 a.m. Houston
time and (b) if such payment is received after 10:00 a.m. Houston time, on the
next Business Day.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to each of the Lenders as follows:
SECTION 3.01. Organization; Powers. Borrower (a) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, (b) has all requisite power and authority to
own its property and assets and to carry on its business as now conducted and as
proposed to be conducted, (c) is qualified to do business in every jurisdiction
where such qualification is required, except where the failure so to qualify
would not result in a Material Adverse Effect, and (d) has the corporate power
and authority to execute, deliver and perform its obligations under this
Agreement and to borrow hereunder.
SECTION 3.02. Authorization. The execution, delivery and performance by
the Borrower of this Agreement and the Borrowings hereunder (collectively, the
"Transactions") (a) have been duly authorized by all requisite corporate action
and (b) will not (i) violate (A) any provision of any law, statute, rule or
regulation to which the Borrower is subject or of the certificate of
incorporation or other constituent documents or by-laws of the Borrower or any
of its Subsidiaries, (B) any order of any Governmental Authority or (C) any
provision of any Material indenture, agreement or other instrument to which the
Borrower or any of its Subsidiaries is a party or by which it or any of its
property is or may be bound (including the Senior Note Purchase Agreements and
the Indebtedness limitations set forth in Sections 10.4 and 10.9 thereof and the
Existing Credit Agreement and the Indebtedness limitations set forth in Sections
5.12 and 5.17 thereof), (ii) be in conflict with, result in a breach of or
constitute (alone or with notice or lapse of time or both) a default under any
such indenture, agreement or other instrument or (iii) result in the creation or
imposition of any Lien upon any property or assets of the Borrower.
SECTION 3.03. Enforceability. This Agreement constitutes a legal, valid
and binding obligation of the Borrower enforceable in accordance with its terms,
as such enforceability may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (ii) general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
SECTION 3.04. Governmental Approvals. No action, consent or approval
of, registration or filing with or other action by any Governmental Authority is
or will be required in connection with the Transactions, to the extent they
relate to the Borrower.
ADVANCE TERM CREDIT AGREEMENT - Page 25
<PAGE> 30
SECTION 3.05. Organization and Ownership of Shares of Subsidiaries.
(a) Schedule 3.05 is (except as noted therein) a complete and correct
list of the Borrower's Subsidiaries, showing, as to each Subsidiary, the correct
name thereof, the jurisdiction of its organization, the percentage of shares of
each class of its capital stock or similar equity interests outstanding owned by
the Borrower and each other Subsidiary, and specifying whether such Subsidiary
is designated a Restricted Subsidiary.
(b) All of the outstanding shares of capital stock or similar equity
interests of each Subsidiary shown in Schedule 3.05 as being owned by the
Borrower and its Subsidiaries have been validly issued, are fully paid and
nonassessable and are owned by the Borrower or another Sub sidiary free and
clear of any Lien (except as otherwise disclosed in Schedule 3.05).
(c) Each Subsidiary identified in Schedule 3.05 is a corporation or
other legal entity duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization, and is duly qualified as a foreign
corporation or other legal entity and is in good standing in each jurisdiction
in which such qualification is required by law, other than those jurisdictions
as to which the failure to be so qualified or in good standing would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Each such Sub sidiary has the corporate or other power and
authority to own or hold under lease the properties it purports to own or hold
under lease and to transact the business it transacts and proposes to transact.
SECTION 3.06. Financial Statements. The Borrower has delivered to each
Lender copies of the financial statements of the Borrower and its Subsidiaries
listed on Schedule 3.06. All of said financial statements (including in each
case the related schedules and notes) fairly present in all material respects
the consolidated financial position of the Borrower and its Subsidiaries, and of
the Borrower and its Restricted Subsidiaries, as of the respective dates
specified in such Schedule and the consolidated results of their operations and
cash flows for the respective periods so specified and have been prepared in
accordance with GAAP consistently applied throughout the periods involved except
as set forth in the notes thereto (subject, in the case of any interim financial
statements, to normal year-end adjustments). Except as disclosed in the
financial statements listed in Schedule 3.06, since December 31, 1998, there has
been no change in the financial condition, operations, business, properties or
prospects of the Borrower or any of its Subsidiaries except changes that
individually or in the aggregate would not reasonably be expected to have a
Material Adverse Effect. There is no fact known to the Borrower that could
reasonably be expected to have a Material Adverse Effect that has not been set
forth herein or in the financial statements listed in Schedule 3.06
SECTION 3.07. Litigation; Observance of Statutes and Orders.
(a) There are no actions, suits or proceedings pending or, to the
knowledge of the Borrower, threatened against or affecting the Borrower or any
Subsidiary or any property of the Borrower or any Subsidiary in any court or
before any arbitrator of any kind or before or by any
ADVANCE TERM CREDIT AGREEMENT - Page 26
<PAGE> 31
Governmental Authority that, individually or in the aggregate, would reasonably
be expected to have a Material Adverse Effect.
(b) Neither the Borrower nor any Subsidiary is in default under any
agreement or instrument to which it is a party or by which it is bound, or any
order, judgment, decree or ruling of any court, arbitrator or Governmental
Authority or is in violation of any applicable law, ordinance, rule or
regulation (including without limitation Environmental Laws) of any Governmental
Authority, which default or violation, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect.
SECTION 3.08. Taxes. The Borrower and its Subsidiaries have filed all
income tax returns that are required to have been filed in any jurisdiction, and
have paid all taxes shown to be due and payable on such returns and all other
taxes and assessments payable by them, to the extent such taxes and assessments
have become due and payable and before they have become delinquent, except for
any taxes and assessments (i) the amount of which is not individually or in the
aggregate Material or (ii) the amount, applicability or validity of which is
currently being contested in good faith by appropriate proceedings and with
respect to which the Borrower or a Subsidiary, as the case may be, has
established adequate reserves in accordance with GAAP. The Federal income tax
liabilities of the Borrower and its Subsidiaries have been determined by the
Internal Revenue Service and paid for all fiscal years up to and including the
fiscal year ended December 31, 1992.
SECTION 3.09. Title to Property; Leases. The Borrower and its
Subsidiaries have good and sufficient title to their respective Material
properties, including all such properties reflected in the most recent audited
balance sheet referred to in Section 3.06 or purported to have been acquired by
the Borrower or any Subsidiary after said date (except as sold or otherwise
disposed of in the ordinary course of business), in each case free and clear of
Liens prohibited by this Agreement, except for those defects in title and Liens
that, individually or in the aggregate, would not have a Material Adverse
Effect. All Material leases are valid and subsisting and are in full force and
effect in all material respects.
SECTION 3.10. Licenses, Permits, etc. The Borrower and its Subsidiaries
own or possess all licenses, permits, franchises, authorizations, patents,
copyrights, service marks, trademarks and trade names, or rights thereto, that
are Material, without known conflict with the rights of others, except for those
conflicts that, individually or in the aggregate, would not have a Material
Adverse Effect.
SECTION 3.11. Compliance with ERISA.
(a) The Borrower and each ERISA Affiliate have operated and
administered each Plan in compliance with all applicable laws except for such
instances of noncompliance as have not resulted in and could not reasonably be
expected to result in a Material Adverse Effect. Neither the Borrower nor any
ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA or
the penalty or excise tax provisions of the Code relating to employee benefit
plans (as defined in Section 3 of ERISA), and no event, transaction or condition
has occurred or exists that would
ADVANCE TERM CREDIT AGREEMENT - Page 27
<PAGE> 32
reasonably be expected to result in the incurrence of any such liability by the
Borrower or any ERISA Affiliate, or in the imposition of any Lien on any of the
rights, properties or assets of the Borrower or any ERISA Affiliate, in either
case pursuant to Title I or IV of ERISA or to such penalty or excise tax
provisions or to Section 401(a)(29) or 412 of the Code, other than such
liabilities or Liens as would not be individually or in the aggregate Material.
(b) The present value of the aggregate accrued plan benefit liabilities
under each of the Plans that are subject to Title IV of ERISA (other than
Multiemployer Plans), determined in accordance with Financial Accounting
Standards Board Statement No. 87 as of the end of such Plan's most recently
ended plan year on the basis of the actuarial assumptions specified for funding
purposes in such Plan's most recent actuarial valuation report, did not exceed
the aggregate current value of the assets of such Plan allocable to such benefit
liabilities by more than $3,000,000 in the case of any single Plan and by more
than $3,000,000 in the aggregate for all Plans.
(c) The Borrower and its ERISA Affiliates have not incurred withdrawal
liabilities (and are not subject to contingent withdrawal liabilities) under
section 4201 or 4204 of ERISA in respect of Multiemployer Plans that
individually or in the aggregate are Material.
(d) The expected post-retirement benefit obligation (determined as of
the last day of the Borrower's most recently ended fiscal year in accordance
with Financial Accounting Standards Board Statement No. 106, without regard to
liabilities attributable to continuation coverage mandated by section 4980B of
the Code) of the Borrower and its Subsidiaries was approximately $17,955,591 as
of December 31, 1998.
SECTION 3.12. Use of Proceeds; Margin Regulation. The Borrower will
apply the proceeds of the Loans for acquisitions, working capital and other
general corporate purposes. No part of the proceeds from the Loans will be used,
directly or indirectly, for the purpose of buying or carrying any margin stock
within the meaning of Regulation U of the Board (12 CFR 221), or for the purpose
of buying or carrying or trading in any securities under such circumstances as
to involve the Borrower in a violation of Regulation X of the Board (12 CFR 224)
or to involve any broker or dealer in a violation of Regulation T of the Board
(12 CFR 220). Margin stock does not constitute more than 5% of the value of the
consolidated assets of the Borrower and its Restricted Subsidiaries and the
Borrower does not have any present intention that margin stock will constitute
more than 5% of the value of such assets. As used in this Section, the terms
"margin stock" and "purpose of buying or carrying" shall have the meanings
assigned to them in said Regulation U.
SECTION 3.13. Existing Indebtedness. Except for the Indebtedness
outstanding in connection with the Senior Note Purchase Agreements and the
Existing Credit Agreement and except as described therein, Schedule 3.13 sets
forth a complete and correct list of all outstanding Indebtedness of the
Borrower and its Restricted Subsidiaries (other than Indebtedness of Restricted
Subsidiaries to the Borrower or other Wholly-Owned Restricted Subsidiaries) as
of December 31, 1998, since which date there has been no Material change in the
amounts, interest rates, sinking funds, installment payments or maturities of
the Indebtedness of the Borrower or its Restricted Subsidiaries. Neither the
Borrower nor any Restricted Subsidiary is in default, and no waiver of default
is currently in effect, in the payment of any principal or interest on any
Indebtedness of
ADVANCE TERM CREDIT AGREEMENT - Page 28
<PAGE> 33
the Borrower or such Restricted Subsidiary, and no event or condition exists
with respect to any Indebtedness of the Borrower or any Restricted Subsidiary
the outstanding principal amount of which exceeds $3,000,000 in the aggregate
that would permit (or that with notice or the lapse of time, or both, would
permit) one or more Persons to cause such Indebtedness to become due and payable
before its stated maturity or before its regularly scheduled dates of payment.
To the knowledge of the Responsible Officers of the Borrower, no event or
condition exists with respect to any Indebtedness of the Borrower or any
Restricted Subsidiary that would permit (or that with notice or the lapse of
time, or both, would permit) one or more Persons to cause such Indebtedness to
become due and payable before its stated maturity or before its regularly
scheduled dates of payment.
SECTION 3.14. Foreign Assets Control Regulations, etc. The use of the
proceeds of the Loans will not violate the Trading with the Enemy Act, as
amended, or any of the foreign assets control regulations of the United States
Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto.
SECTION 3.15. Status under Certain Statutes. Neither the Borrower nor
any Subsidiary is subject to regulation under the Investment Company Act of
1940, as amended, the Public Utility Holding Company Act of 1935, as amended,
the Interstate Commerce Act, as amended, or the Federal Power Act, as amended.
SECTION 3.16. No Material Misstatements. No report, financial statement
or other information furnished by or on behalf of the Borrower to the Agents or
any Lender pursuant to or in connection with this Agreement contains or will
contain any material misstatement of fact or omits or will omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were or will be made, not misleading.
SECTION 3.17. Year 2000 Matters. Any programming required to permit the
proper functioning, in and following the year 2000, of the Borrower's and its
Subsidiaries' Material (i) computer systems and (ii) equipment containing
imbedded microchips (including systems and equipment supplied by others or with
which the Borrower's or its Subsidiaries' systems interface) and the testing of
all such systems and equipment, as so reprogrammed, is expected to be completed
by August 1, 1999. The cost to the Borrower and its Subsidiaries of such
reprogramming and testing and of the reasonably foreseeable consequences of year
2000 to the Borrower and its Subsidiaries (including, without limitation,
reprogramming errors and the failure of others' systems or equipment) will not
result in a Default or a Material Adverse Effect. Except for such of the
reprogramming referred to in the preceding sentence as may be necessary, the
computer and management information systems of the Borrower and its Subsidiaries
are, and with ordinary course upgrading and maintenance, will continue for the
term of this Agreement to be, sufficient to permit the Borrower and its
Subsidiaries to conduct its business without Material Adverse Effect.
ADVANCE TERM CREDIT AGREEMENT - Page 29
<PAGE> 34
ARTICLE IV. CONDITIONS OF LENDING
The obligations of the Lenders to make Loans hereunder are subject to
the satisfaction of the following conditions:
SECTION 4.01. All Borrowings. On the date of each Borrowing:
(a) The Administrative Agent shall have received a notice of
such Borrowing as required by Section 2.03.
(b) The representations and warranties set forth in Article
III hereof shall be true and correct in all material respects on and as
of the date of such Borrowing with the same effect as though made on
and as of such date, except to the extent such representations and
warranties expressly relate to an earlier date.
(c) At the time of and immediately after such Borrowing no
Event of Default or Default shall have occurred and be continuing.
Each Borrowing shall be deemed to constitute a representation and warranty by
the Borrower on the date of such Borrowing as to the matters specified in
paragraphs (b) and (c) of this Section 4.01.
SECTION 4.02. Effective Date. On the Effective Date:
(a) The Administrative Agent shall have received a favorable
written opinion from Anne W. Teeling, Assistant General Counsel to the
Borrower, dated the Effective Date and addressed to the Lenders and
satisfactory to Jenkens & Gilchrist, a Professional Corporation,
counsel for the Administrative Agent, to the effect set forth in
Exhibit D hereto (and the Borrower hereby instructs its counsel to
deliver such opinion to the Administrative Agent for the benefit of the
Lenders).
(b) The Administrative Agent shall have received (i) a copy of
the certificate of incorporation, including all amendments thereto, of
the Borrower, certified as of a recent date by the Secretary of State
of its state of incorporation, and a certificate as to the good
standing of the Borrower as of a recent date from such Secretary of
State; (ii) a certificate of the Secretary or an Assistant Secretary of
the Borrower dated the Effective Date and certifying (A) that attached
thereto is a true and complete copy of the by-laws of the Borrower as
in effect on the Effective Date and at all times since a date prior to
the date of the resolutions described in clause (B) below, (B) that
attached thereto is a true and complete copy of resolutions, duly
adopted by the Board of Directors authorizing the execution, delivery
and performance of this Agreement and the Transactions, and that such
resolutions have not been modified, rescinded or amended and are in
full force and effect, (C) that the certificate of incorporation
referred to in clause (i) above has not been amended since the date of
the last amendment thereto shown on the certificate of good standing
furnished pursuant to such clause (i) and (D) as to the incumbency and
specimen
ADVANCE TERM CREDIT AGREEMENT - Page 30
<PAGE> 35
signature of each officer executing this Agreement or any other
document delivered in connection herewith on behalf of the Borrower;
(iii) a certificate of another officer of the Borrower as to the
incumbency and specimen signature of the Secretary or Assistant
Secretary executing the certificate pursuant to (ii) above; (iv)
evidence satisfactory to the Administrative Agent that the requisite
approvals, if any, referred to in Section 3.04 hereof have been
obtained; and (v) such other documents as the Lenders or Jenkens &
Gilchrist, a Professional Corporation, counsel for the Administrative
Agent, shall reasonably request.
(c) The Administrative Agent shall have received a
certificate, dated the Effective Date and signed by a Senior Financial
Officer of the Borrower, (i) confirming compliance with the conditions
precedent set forth in paragraphs (b) and (c) of Section 4.01 and (ii)
providing the calculations demonstrating compliance with Sections 10.4
and 10.9 of the Senior Note Purchase Agreements and Sections 5.12 and
5.17 of the Existing Credit Agreement.
(d) The Agents shall have received all fees and other amounts
due and payable on or prior to the Effective Date.
ARTICLE V. AFFIRMATIVE AND NEGATIVE COVENANTS
The Borrower agrees that, so long as any Lender has any Commitment
hereunder or any amount payable hereunder remains unpaid:
SECTION 5.01. Compliance with Law. The Borrower will and will cause
each of its Subsidiaries to comply with all laws, ordinances or governmental
rules or regulations to which each of them is subject, including, without
limitation, Environmental Laws, and will obtain and maintain in effect all
licenses, certificates, permits, franchises and other governmental
authorizations necessary to the ownership of their respective properties or to
the conduct of their respective businesses, in each case to the extent necessary
to ensure that non-compliance with such laws, ordinances or governmental rules
or regulations or failures to obtain or maintain in effect such licenses,
certificates, permits, franchises and other governmental authorizations would
not reasonably be expected, individually or in the aggregate, to have a
materially adverse effect on the business, operations, affairs, financial
condition, properties or assets of the Borrower and its Restricted Subsidiaries
taken as a whole.
SECTION 5.02. Insurance. The Borrower will and will cause each of its
Subsidiaries to maintain, with financially sound and reputable insurers,
insurance with respect to their respective properties and businesses against
such casualties and contingencies, of such types, on such terms and in such
amounts (including deductibles, co-insurance and self-insurance, if adequate
reserves are maintained with respect thereto) as is customary in the case of
entities of established reputations engaged in the same or a similar business
and similarly situated.
SECTION 5.03. Maintenance of Properties. The Borrower will and will
cause each of its Subsidiaries to maintain and keep, or cause to be maintained
and kept, their respective
ADVANCE TERM CREDIT AGREEMENT - Page 31
<PAGE> 36
properties in good repair, working order and condition (other than ordinary wear
and tear), so that the business carried on in connection therewith may be
properly conducted at all times, provided that this Section shall not prevent
the Borrower or any Subsidiary from discontinuing the operation and the
maintenance of any of its properties if such discontinuance is desirable in the
conduct of its business and the Borrower has concluded that such discontinuance
would not, individually or in the aggregate, have a materially adverse effect on
the business, operations, affairs, financial condition, properties or assets of
the Borrower and its Restricted Subsidiaries taken as a whole.
SECTION 5.04. Payment of Taxes. The Borrower will and will cause each
of its Subsidiaries to file all income tax or similar tax returns required to be
filed in any jurisdiction and to pay and discharge all taxes shown to be due and
payable on such returns and all other taxes, assessments, governmental charges,
or levies payable by any of them, to the extent such taxes and assessments have
become due and payable and before they have become delinquent, provided that
neither the Borrower nor any Subsidiary need pay any such tax or assessment if
(i) the amount, applicability or validity thereof is contested by the Borrower
or such Subsidiary on a timely basis in good faith and in appropriate
proceedings, and the Borrower or a Subsidiary has established adequate reserves
therefor in accordance with GAAP on the books of the Borrower or such Subsidiary
or (ii) the nonpayment of all such taxes and assessments in the aggregate would
not reasonably be expected to have a materially adverse effect on the business,
operations, affairs, financial condition, properties or assets of the Borrower
and its Restricted Subsidiaries taken as a whole.
SECTION 5.05. Corporate Existence, etc. The Borrower will at all times
preserve and keep in full force and effect its corporate existence. Subject to
Sections 5.10 and 5.11, the Borrower will at all times preserve and keep in full
force and effect the corporate existence of each of its Restricted Subsidiaries
(unless merged into the Borrower or a Restricted Subsidiary) and all rights and
franchises of the Borrower and its Restricted Subsidiaries unless, in the good
faith judgment of the Borrower, the termination of or failure to preserve and
keep in full force and effect such corporate existence, right or franchise would
not, individually or in the aggregate, have a materially adverse effect on the
business, operations, affairs, financial condition, properties or assets of the
Borrower and its Restricted Subsidiaries taken as a whole.
SECTION 5.06. Most Favored Lender Status. The Borrower will not and
will not permit any Restricted Subsidiary to enter into, assume or otherwise be
bound or obligated under any agreement creating or evidencing Indebtedness or
any agreement executed and delivered in connection with any Indebtedness
containing one or more Additional Covenants or Additional Defaults (as defined
below), unless prior written consent to such agreement shall have been obtained
from the Required Lenders; provided, however, in the event the Borrower or any
Restricted Subsidiary shall enter into, assume or otherwise become bound by or
obligated under any such agreement without the prior written consent of the
Lenders, the terms of this Agreement shall, without any further action on the
part of the Borrower or any of the Lenders, be deemed to be amended
automatically to include each Additional Covenant and each Additional Default
contained in such agreement. The Borrower further covenants to promptly execute
and deliver at its expense an amendment to this Agreement in form and substance
satisfactory to the Required Lenders evidencing the amendment of this Agreement
to include such Additional Covenants and
ADVANCE TERM CREDIT AGREEMENT - Page 32
<PAGE> 37
Additional Defaults, provided that the execution and delivery of such amendment
shall not be a precondition to the effectiveness of such amendment as provided
for in this Section 5.06, but shall merely be for the convenience of the parties
hereto.
For purposes of this Agreement, (i) the term "Additional Covenant"
shall mean any affirmative or negative covenant or similar restriction
applicable to the Borrower or any Restricted Subsidiary (regardless of whether
such provision is labeled or otherwise characterized as a covenant) the subject
matter of which either (A) is similar to that of the covenants in Article V of
this Agreement, but contains one or more percentages, amounts or formulas that
is more restrictive than those set forth herein or more beneficial to the holder
or holders of such other Indebtedness (and such covenant or similar restriction
shall be deemed an "Additional Covenant" only to the extent that it is more
restrictive or more beneficial) or (B) is different from the subject matter of
the covenants in Article V of this Agreement; and (ii) the term "Additional
Default" shall mean any provision which permits the holder of such Indebtedness
to accelerate (with the passage of time or giving of notice or both) the
maturity thereof or otherwise require the Borrower or any Restricted Subsidiary
to purchase such Indebtedness prior to the stated maturity of such Indebtedness
and which either (A) is similar to the Defaults and Events of Default contained
in Article VI of this Agreement, but contains one or more percentages, amounts
or formulas that is more restrictive or has a shorter grace period than those
set forth herein or is more beneficial to the holder or holders of such other
Indebtedness (and such provision shall be deemed an "Additional Default" only to
the extent that it is more restrictive, has a shorter grace period or is more
beneficial) or (B) is different from the subject matter of the Defaults and
Events of Default contained in Article VI of this Agreement.
SECTION 5.07. Covenant to Secure Loans Equally. If the Borrower shall
create, assume or permit to exist any Lien upon any of its property or assets,
or permit any Restricted Subsidiary to create, assume or permit to exist any
Lien upon any of its property or assets, whether now owned or hereafter
acquired, other than those Liens permitted by the provisions of Section 5.13 the
Borrower shall make or cause to be made effective provision whereby the Loans
will be secured equally and ratably with any and all other obligations thereby
secured, with the documentation for such security to be reasonably satisfactory
to the Required Lenders and, in any such case, the Loans shall have the benefit,
to the fullest extent that, and with such priority as, the holders thereof may
be entitled under applicable law, of an equitable Lien on such property. Any
violation of Section 5.13 will constitute an Event of Default, whether or not
provision is made for an equal and ratable Lien pursuant to this Section 5.07.
SECTION 5.08. Environmental Matters.
(a) The Borrower will and will cause each of its Subsidiaries to comply
in all material respects with all applicable Environmental Laws if, individually
or in the aggregate, failure to comply therewith could reasonably be expected to
have a material adverse effect on the financial condition or results of
operations of the Borrower or the Borrower and its Subsidiaries, taken as a
whole.
ADVANCE TERM CREDIT AGREEMENT - Page 33
<PAGE> 38
(b) The Borrower will not and will not permit any of its Subsidiaries
to cause or allow any Hazardous Substance to be present at any time on, in,
under or above any real property or any part thereof in which the Borrower or
any Subsidiary has a direct interest (including without limitation ownership
thereof or any arrangement for the lease, rental or other use thereof, or the
retention of any mortgage or security interest therein or thereon), except in a
manner and to an extent that is in compliance in all material respects with all
applicable Environmental Laws or that will not have a material adverse effect on
the financial condition or results of operations of the Borrower or the Borrower
and its Subsidiaries, taken as a whole.
SECTION 5.09. Transactions with Affiliates. The Borrower will not
permit any Restricted Subsidiary to enter into directly or indirectly any
Material transaction or Material group of related transactions (including
without limitation the purchase, lease, sale or exchange of properties of any
kind or the rendering of any service) with any Affiliate (other than the
Borrower or another Restricted Subsidiary), except pursuant to the reasonable
requirements of the Borrower's or such Restricted Subsidiary's business and upon
fair and reasonable terms no less favorable to the Borrower or such Restricted
Subsidiary than would be obtainable in a comparable arm's-length transaction
with a Person not an Affiliate.
SECTION 5.10. Merger, Consolidation, etc. The Borrower will not
consolidate with or merge with any other corporation or convey, transfer or
lease substantially all of its assets in a single transaction or series of
transactions to any Person unless:
(a) the successor formed by such consolidation or the survivor of such
merger or the Person that acquires by conveyance, transfer or lease
substantially all of the assets of the Borrower as an entirety, as the case may
be, shall be a solvent corporation organized and existing under the laws of the
United States or any State thereof (including the District of Columbia), and, if
the Borrower is not such corporation, such corporation shall have executed and
delivered to each Lender its assumption of the due and punctual performance and
observance of each covenant and condition of this Agreement, together with a
favorable opinion of counsel satisfactory to each such Lender covering such
matters relating to such corporation and such assumption as such Lender may
reasonably request; and
(b) immediately after giving effect to such transaction, no Default or
Event of Default would exist; and
(c) immediately prior to and after giving effect to such transaction,
the Borrower or such successor, as the case may be, would be permitted by the
provisions of Sections 5.12 and 5.17 to incur at least $1.00 of additional
Indebtedness and $1.00 of additional Restricted Indebtedness, respectively.
No such conveyance, transfer or lease of substantially all of the
assets of the Borrower shall have the effect of releasing the Borrower or any
successor corporation that shall theretofore have become such in the manner
prescribed in this Section 5.10 from its liability under this Agreement.
ADVANCE TERM CREDIT AGREEMENT - Page 34
<PAGE> 39
SECTION 5.11. Sale of Assets, etc. The Borrower will not, and will not
permit any of its Restricted Subsidiaries to, make any Transfer, provided that
the foregoing restriction does not apply to a Transfer if:
(a) the property that is the subject of such Transfer constitutes
either (i) inventory held for sale, or (ii) equipment, fixtures, supplies or
materials no longer required in the operation of the business of the Borrower or
such Restricted Subsidiary or that is obsolete, and, in the case of any Transfer
described in clause (i) or (ii), such Transfer is in the ordinary course of
business (each such Transfer, an "Ordinary Course Transfer"); or
(b) such Transfer is from
(i) a Restricted Subsidiary to the Borrower or another
Restricted Subsidiary, or
(ii) the Borrower to a Restricted Subsidiary, or
(iii) the Borrower to a Subsidiary (other than a Restricted
Subsidiary) or from a Restricted Subsidiary to
another Subsidiary (other than a Restricted
Subsidiary) and in either case is for Fair Market
Value, so long as immediately before and immediately
after the consummation of such transaction, and after
giving effect thereto, no Default or Event of Default
exists or would exist (each such Transfer, an
"Intergroup Transfer");
(c) such Transfer is not an Ordinary Course Transfer or an Intergroup
Transfer (such Transfers collectively referred to as "Excluded Transfers"), and
all of the following conditions shall have been satisfied with respect thereto
(the date of the consummation of such Transfer being referred to herein as the
"Property Disposition Date"):
(i) the book value of the assets included in such
Transfer, together with the book value of the assets
included in all other Transfers (other than Excluded
Transfers) during the fiscal year which includes the
Property Disposition Date, shall not exceed fifteen
percent (15%) of Consolidated Assets as of the end of
the most recent fiscal year;
(ii) the book value of the assets included in such
Transfer, together with the book value of the assets
included in all other Transfers (other than Excluded
Transfers) from January 1, 1998 through the Property
Disposition Date, shall not exceed thirty percent
(30%) of Consolidated Assets as of the end of the
most recent fiscal year; and
(iii) immediately after giving effect to such Transfer, no
Default or Event of Default would exist and the
Borrower would be permitted by the provisions of
Sections 5.12 and 5.17 to incur at least $1.00 of
additional Indebtedness and $1.00 of additional
Restricted Indebtedness, respectively.
ADVANCE TERM CREDIT AGREEMENT - Page 35
<PAGE> 40
If, within twelve (12) months after the Property Disposition Date, the Borrower
or a Restricted Subsidiary acquires assets similar to the assets included in the
Transfer, then, only for the purpose of determining compliance with Sections
5.11(c)(i) and (ii), the lesser of the book value of the assets acquired or the
book value of the assets included in the Transfer shall not be taken into
account.
SECTION 5.12. Incurrence of Indebtedness. The Borrower will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, create,
incur, assume, guarantee, or otherwise become directly or indirectly liable with
respect to any Indebtedness, unless on the date the Borrower or such Restricted
Subsidiary becomes liable with respect to any such Indebtedness and immediately
after giving effect thereto and to the substantially concurrent retirement of
any other Indebtedness,
(a) no Default or Event of Default would exist, and
(b) Consolidated Indebtedness would not exceed sixty percent (60%) of
Consolidated Capitalization.
For purposes of this Section 5.12 any Person becoming a Restricted
Subsidiary after the date of this Agreement shall be deemed to have incurred all
of its then outstanding Indebtedness at the time it becomes a Restricted
Subsidiary.
SECTION 5.13. Liens. The Borrower will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly create, incur, assume or
permit to exist (upon the happening of a contingency or otherwise) any Lien on
or with respect to any property or asset (including, without limitation, any
document or instrument in respect of goods or accounts receivable) of the
Borrower or any such Restricted Subsidiary, whether now owned or held or
hereafter acquired, or any income or profits therefrom, or assign or otherwise
convey any right to receive income or profits, except:
(a) Liens for taxes, assessments or other governmental charges the
payment of which is not at the time required by Section 5.04;
(b) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and other similar Liens, in each case, incurred in the
ordinary course of business for sums not yet due;
(c) Liens (other than any Lien imposed by ERISA) incurred or deposits
made in the ordinary course of business (i) in connection with workers'
compensation, unemployment insurance and other types of social security or
retirement benefits, or (ii) to secure (or to obtain letters of credit that
secure) the performance of tenders, statutory obligations, surety bonds, appeal
bonds, bids, leases (other than Capital Leases), performance bonds, purchase,
construction or sales contracts and other similar obligations, in each case not
incurred or made in connection with the borrowing of money, the obtaining of
advances or credit or the payment of the deferred purchase price of property;
ADVANCE TERM CREDIT AGREEMENT - Page 36
<PAGE> 41
(d) any attachment or judgment Lien, unless the judgment or other
obligation it secures (i) shall not, within ninety (90) days after the entry
thereof, have been discharged or execution thereof stayed pending appeal, or
shall not have been discharged within ninety (90) days after the expiration of
any such stay or (ii) exceeds, together with the amounts of all other
obligations secured by attachment or judgment Liens at the time existing in
respect of property of the Borrower and its Restricted Subsidiaries, $5,000,000;
(e) leases or subleases granted to others, easements, rights-of-way,
restrictions and other similar charges or encumbrances, in each case incidental
to, and not interfering with, the ordinary conduct of the business of the
Borrower or any of its Restricted Subsidiaries, provided that such Liens do not,
in the aggregate, materially detract from the value of such property;
(f) Liens on property or assets of the Borrower or any of its
Restricted Subsidiaries securing Indebtedness or other obligations owing to the
Borrower or to a Wholly Owned Restricted Subsidiary;
(g) Liens existing on the date of this Agreement on the building
referred to in item C of Schedule 3.13 and securing the Indebtedness referred to
in item C of Schedule 3.13;
(h) any Lien renewing, extending or refunding any Lien permitted by
Subsection (g) above, provided that (i) the principal amount of Indebtedness
secured by such Lien immediately prior to such extension, renewal or refunding
is not increased or the maturity thereof reduced, (ii) such Lien is not extended
to any other property, and (iii) immediately after such extension, renewal or
refunding no Default or Event of Default would exist and the Borrower would be
permitted by the provisions of Sections 5.12 and 5.17 to incur at least $1.00 of
additional Indebtedness and $1.00 of additional Restricted Indebtedness,
respectively; and
(i) other Liens not otherwise permitted by Subsections (a) through (h)
above, provided that (i) the total obligations secured by such other Liens shall
not exceed 10% of Consolidated Capitalization and (ii) immediately after giving
effect to the creation thereof, the Borrower would be permitted by the
provisions of Sections 5.12 and 5.17 to incur at least $1.00 of additional
Indebtedness and $1.00 of additional Restricted Indebtedness, respectively.
For purposes of this Section 5.13, any Person becoming a Restricted
Subsidiary after the date of this Agreement shall be deemed to have incurred all
of its then outstanding Liens at the time it becomes a Restricted Subsidiary,
and any Person extending, renewing or refunding any Indebtedness secured by any
Lien shall be deemed to have incurred such Lien at the time of such extension,
renewal or refunding.
SECTION 5.14. Restricted Payments. The Borrower will not, and will not
permit any of its Restricted Subsidiaries to, declare or make, or incur any
liability to declare or make, any Restricted Payment, unless immediately after
giving effect to such action:
(a) no Default or Event of Default would exist; and
ADVANCE TERM CREDIT AGREEMENT - Page 37
<PAGE> 42
(b) the Borrower would be permitted by the provisions of Sections 5.12
and 5.17 to incur at least $1.00 of additional Indebtedness and $1.00 of
additional Restricted Indebtedness, respectively.
SECTION 5.15. Consolidated Net Worth. The Borrower will not permit
Consolidated Net Worth as at the last day of any fiscal quarter of the Borrower
to be less than the sum of (a) $261,000,000, plus (b) 15% of its aggregate
Consolidated Net Income (but only if a positive number) for the period beginning
April 1, 1998 and ending at the end of each fiscal quarter thereafter.
SECTION 5.16. Limitation on Dividend Restrictions, etc. The Borrower
will not permit any Restricted Subsidiary to enter into, adopt, create or
otherwise be or become bound by or subject to any contract or charter or by-law
provision limiting the amount of, or otherwise imposing restrictions on the
declaration, payment or setting aside of funds for the making of, any
Distributions in respect of the capital stock of such Restricted Subsidiary to
the Borrower or another Restricted Subsidiary.
SECTION 5.17. Limitation on Restricted Indebtedness. The Borrower will
not at any time permit the aggregate amount of Restricted Indebtedness to exceed
10% of Consolidated Capitalization.
SECTION 5.18. Preferred Stock of Restricted Subsidiaries. The Borrower
will not permit any Restricted Subsidiary to issue or permit to remain
outstanding any Preferred Stock unless such Preferred Stock is issued to and at
all times owned and held by the Borrower or a Wholly-Owned Restricted
Subsidiary.
SECTION 5.19. No Redesignation of Restricted Subsidiaries. The Borrower
will not designate any Restricted Subsidiary as, or take or permit to be taken
any action that would cause any Restricted Subsidiary to become, an Unrestricted
Subsidiary.
SECTION 5.20. Financial and Business Information. The Borrower will
furnish to the Agents and each Lender:
(a) Quarterly Statements. Within 60 days after the end of each
quarterly fiscal period in each fiscal year of the Borrower (other than the last
quarterly fiscal period of each such fiscal year), duplicate copies of
(i) consolidated and consolidating balance sheets of the
Borrower and its Restricted Subsidiaries and of the Borrower and its
Subsidiaries as at the end of such quarter, and
(ii) consolidated and consolidating statements of income,
changes in shareholders' equity and cash flows of the Borrower and its
Restricted Subsidiaries and of the Borrower and its Subsidiaries, for
such quarter and (in the case of the second and third quarters) for the
portion of the fiscal year ending with such quarter,
ADVANCE TERM CREDIT AGREEMENT - Page 38
<PAGE> 43
all in reasonable detail and setting forth, in the case of such consolidated
statements, in comparative form the figures for the corresponding periods in the
previous fiscal year, prepared in accordance with GAAP applicable to quarterly
financial statements generally, and certified by a Senior Financial Officer as
fairly presenting, in all material respects, the financial position of the
companies being reported on and their results of operations and cash flows,
subject to changes resulting from year-end adjustments, provided that delivery
within the time period specified above of copies of the Borrower's Quarterly
Report on Form 10-Q prepared in compliance with the requirements therefor and
filed with the Securities and Exchange Commission shall be deemed to satisfy the
requirements of this Section 5.20(a); provided further that if such Form 10-Q
does not contain consolidating information for the Borrower and its Restricted
Subsidiaries, the Borrower shall also deliver to each such holder the
consolidating information described in this Section 5.20(a);
(b) Annual Statements. Within 120 days after the end of each fiscal
year of the Borrower, duplicate copies of
(i) consolidated and consolidating balance sheets of the
Borrower and its Restricted Subsidiaries and of the Borrower and its
Subsidiaries, as at the end of such year, and
(ii) consolidated and consolidating statements of income,
changes in shareholders' equity and cash flows of the Borrower and its
Restricted Subsidiaries and of the Borrower and its Subsidiaries, for
such year;
setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail, prepared in accordance with GAAP, and
accompanied, (1) in the case of the consolidated statements, by an opinion
thereon of independent certified public accountants of recognized national
standing, which opinion shall state that such financial statements present
fairly, in all material respects, the financial position of the companies being
reported upon and their results of operations and cash flows and have been
prepared in conformity with GAAP, and that the examination of such accountants
in connection with such financial statements has been made in accordance with
generally accepted auditing standards, and that such audit provides a reasonable
basis for such opinion in the circumstances, and (2) in the case of the
consolidating statements, either certified by a Senior Financial Officer as
fairly stating, or accompanied by a report thereon by such accountants
containing a statement to the effect that such consolidating financial
statements fairly state, the financial position and the results of operations
and cash flows of the companies being reported upon in all material respects in
relation to the consolidated financial statements for the periods indicated as a
whole; provided that the delivery within the time period specified above of the
Borrower's Annual Report on Form 10-K for such fiscal year (together with the
Borrower's annual report to shareholders, if any, prepared pursuant to Rule
14a-3 under the Exchange Act) prepared in accordance with the requirements
therefor and filed with the Securities and Exchange Commission shall be deemed
to satisfy the requirements of clauses (i) and (ii) of this Section 5.20(b);
provided further that if such Form 10-K does not contain consolidating
information for the Borrower and its Restricted Subsidiaries, the Borrower
ADVANCE TERM CREDIT AGREEMENT - Page 39
<PAGE> 44
shall also deliver to each such holder the consolidating information described
in this Section 5.20(b); and
(iii) a certificate of such accountants stating that in
making the examination for such report, they have obtained no knowledge
of any Default or Event of Default, or, if they have obtained knowledge
of any Default or Event of Default, specifying the nature and period of
existence thereof and the action the Borrower has taken or proposes to
take with respect thereto.
(c) SEC and Other Reports. If the Borrower or any Restricted Subsidiary
shall be required to file reports with the Securities and Exchange Commission,
promptly upon their becoming available, one copy of (i) each financial
statement, report, notice or proxy statement sent by the Borrower or any
Restricted Subsidiary to public securities holders generally, and (ii) each
regular or periodic report, each registration statement that shall have become
effective (without exhibits except as expressly requested by such holder), and
each final prospectus and all amendments thereto filed by the Borrower or any
Restricted Subsidiary with the Securities and Exchange Commission;
(d) Notice of Default or Event of Default. Promptly, and in any event
within five days after a Responsible Officer becoming aware of the existence of
any Default or Event of Default, a written notice specifying the nature and
period of existence thereof and what action the Borrower is taking or proposes
to take with respect thereto;
(e) ERISA Matters. Promptly, and in any event within five days after a
Responsible Officer becomes aware of any of the following, a written notice
setting forth the nature thereof and the action, if any, that the Borrower or an
ERISA Affiliate proposes to take with respect thereto:
(i) with respect to any Plan, any reportable event, as
defined in section 4043(b) of ERISA and the regulations thereunder, for
which notice thereof has not been waived pursuant to such regulations
as in effect on the date hereof and the potential cost to the Borrower
or such ERISA Affiliate resulting therefrom exceeds $500,000; or
(ii) the taking by the PBGC of steps to institute, or the
threatening in writing by the PBGC of the institution of, proceedings
under section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Plan, or the receipt by the Borrower or
any ERISA Affiliate of a notice from a Multiemployer Plan that such
action has been taken by the PBGC with respect to such Multiemployer
Plan; or
(iii) any event, transaction or condition that could result
in the incurrence of any liability by the Borrower or any ERISA
Affiliate pursuant to Title I or IV of ERISA or the penalty or excise
tax provisions of the Code relating to employee benefit plans, or in
the imposition of any Lien on any of the rights, properties or assets
of the Borrower or any ERISA Affiliate pursuant to Title I or IV of
ERISA or such penalty or excise tax provisions, if such liability or
Lien, taken together with any other such liabilities or Liens then
existing, would reasonably be expected to have a Material Adverse
Effect; and
ADVANCE TERM CREDIT AGREEMENT - Page 40
<PAGE> 45
(f) Requested Information. With reasonable promptness, such other data
and information relating to the business, operations, affairs, financial
condition, assets or properties of the Borrower or any of its Restricted
Subsidiaries or relating to the ability of the Borrower to perform its
obligations hereunder as from time to time may be reasonably requested by any
Lender.
(g) Officer's Certificate. Each set of financial statements delivered
pursuant to Section 5.20(a) or Section 5.20(b) hereof shall be accompanied by a
certificate of a Senior Financial Officer setting forth:
(i) Covenant Compliance. The information (including
detailed calculations) required in order to establish the Debt to Total
Capitalization Ratio and whether the Borrower was in compliance with
the requirements of Section 5.11 through Section 5.17 hereof,
inclusive, and with all Additional Covenants, if any, that involve
calculations during the quarterly or annual period covered by the
statements then being furnished (including with respect to each such
Section or Additional Covenant, as the case may be, where applicable,
the calculations of the maximum or minimum amount, ratio or percentage,
as the case may be, permissible under the terms of such Sections or
Additional Covenants, as the case may be, and the calculation of the
amount, ratio or percentage then in existence);
(ii) Event of Default. A statement that such officer has
reviewed the relevant terms hereof and has made, or caused to be made,
under his or her supervision, a review of the transactions and
conditions of the Borrower and its Subsidiaries from the beginning of
the quarterly or annual period covered by the statements then being
furnished to the date of the certificate and that such review shall not
have disclosed the existence during such period of any condition or
event that constitutes a Default or an Event of Default or, if any such
condition or event existed or exists (including, without limitation,
any such event or condition resulting from the failure of the Borrower
or any Subsidiary to comply with any Environmental Law), specifying the
nature and period of existence thereof and what action the Borrower
shall have taken or proposes to take with respect thereto;
(iii) Management's Discussion and Analysis. A written
discussion and analysis by management of the financial condition and
results of operations of the lines of business conducted by each
material Restricted Subsidiary for such accounting period; and
(iv) Litigation. A written statement that, to the best of
such Officer's knowledge after due inquiry, except as otherwise
disclosed in writing to you, there is no litigation (including
derivative actions), arbitration proceeding or governmental proceeding
pending to which the Borrower or any Subsidiary is a party, or with
respect to the Borrower or any Subsidiary or their respective
properties, which has a significant possibility of materially and
adversely affecting the business, operations, properties or condition
of the Borrower or of the Borrower and its Subsidiaries taken as a
whole.
ADVANCE TERM CREDIT AGREEMENT - Page 41
<PAGE> 46
SECTION 5.21 Inspection; Confidentiality. The Borrower shall permit the
representatives of each Agent and each Lender:
(a) No Default. If no Default or Event of Default then exists, at the
expense of such Agent or Lender and upon reasonable prior notice to the
Borrower, to visit the principal executive office of the Borrower, to discuss
the affairs, finances and accounts of the Borrower and its Restricted
Subsidiaries with the Borrower's officers and (with the consent of the Borrower,
which consent will not be unreasonably withheld) its independent public
accountants, and (with the consent of the Borrower, which consent will not be
unreasonably withheld) to visit the other offices and properties of the Borrower
and each Restricted Subsidiary, all at such reasonable times and as often as may
be reasonably requested in writing;
(b) Default. If a Default or Event of Default then exists, at the
expense of the Borrower to visit and inspect any of the offices or properties of
the Borrower or any Subsidiary, to examine all their respective books of
account, records, reports and other papers, to make copies and extracts
therefrom, and to discuss their respective affairs, finances and accounts with
their respective officers and independent public accountants (and by this
provision the Borrower authorizes said accountants to discuss the affairs,
finances and accounts of the Borrower and its Subsidiaries), all at such times
and as often as may be requested; and
(c) Technical Data. Anything herein to the contrary notwithstanding,
neither the Borrower nor any of its Subsidiaries shall have any obligations to
disclose pursuant to this Agreement any engineering, scientific, or other
technical data without significance to the analysis of the financial position of
the Borrower and its Subsidiaries.
ARTICLE VI. EVENTS OF DEFAULT
In case of the happening of any of the following events (each an "Event
of Default"):
(a) the Borrower defaults in the payment of any principal on any Loan
when the same becomes due and payable, whether at maturity or at a date fixed
for prepayment or by declaration or otherwise; or
(b) the Borrower defaults in the payment of any interest on any Loan or
the payment of any fees due with respect to this Agreement for more than five
Business Days after the same becomes due and payable; or
(c) the Borrower defaults in the performance of or compliance with any
term contained in Section 5.20(d) or 5.10 through 5.19; or
(d) the Borrower defaults in the performance of or compliance with any
term contained herein (other than those referred to in paragraphs (a), (b) and
(c) of this Article VI) or any Additional Covenant and such default is not
remedied within 30 days after the earlier of (i) a Responsible Officer obtaining
actual knowledge of such default and (ii) the Borrower receiving
ADVANCE TERM CREDIT AGREEMENT - Page 42
<PAGE> 47
written notice of such default from either Agent or any Lender (any such written
notice to be identified as a "notice of default" and to refer specifically to
this paragraph (d) of Article VI); or
(e) any representation or warranty made in writing by or on behalf of
the Borrower or by any officer of the Borrower in this Agreement or in any
writing furnished in connection with the transactions contemplated hereby proves
to have been false or incorrect in any material respect on the date as of which
made; or
(f) (i) the Borrower or any Restricted Subsidiary is in default (as
principal or as guarantor or other surety) in the payment of any principal of or
premium or make-whole amount or interest on any Indebtedness that is outstanding
in an aggregate principal amount of at least $5,000,000 beyond any period of
grace provided with respect thereto, or (ii) the Borrower or any Restricted
Subsidiary is in default in the performance of or compliance with any term of
any evidence of any Indebtedness in an aggregate outstanding principal amount of
at least $5,000,000 or of any mortgage, indenture or other agreement relating
thereto or any other condition exists, and as a consequence of such default or
condition such Indebtedness has become, or has been declared due and payable
before its stated maturity or before its regularly scheduled dates of payment;
or
(g) the Borrower or any Restricted Subsidiary (i) is generally not
paying, or admits in writing its inability to pay, its debts as they become due,
(ii) files, or consents by answer or otherwise to the filing against it of, a
petition for relief or reorganization or arrangement or any other petition in
bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency,
reorganization, moratorium or other similar law of any jurisdiction, (iii) makes
an assignment for the benefit of its creditors, (iv) consents to the appointment
of a custodian, receiver, trustee or other officer with similar powers with
respect to it or with respect to any substantial part of its property, (v) is
adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for
the purpose of any of the foregoing; or
(h) a court or governmental authority of competent jurisdiction enters
an order appointing, without consent by the Borrower or any of its Restricted
Subsidiaries, a custodian, receiver, trustee or other officer with similar
powers with respect to it or with respect to any substantial part of its
property, or constituting an order for relief or approving a petition for relief
or reorganization or any other petition in bankruptcy or for liquidation or to
take advantage of any bankruptcy or insolvency law of any jurisdiction, or
ordering the dissolution, winding-up or liquidation of the Borrower or any of
its Restricted Subsidiaries, or any such petition shall be filed against the
Borrower or any of its Restricted Subsidiaries and such petition shall not be
dismissed within 60 days; or
(i) a final judgment or judgments for the payment of money aggregating
in excess of $5,000,000 are rendered against one or more of the Borrower and its
Restricted Subsidiaries and which judgments are not, within 60 days after entry
thereof, bonded, discharged or stayed pending appeal, or are not discharged
within 60 days after the expiration of such stay; or
ADVANCE TERM CREDIT AGREEMENT - Page 43
<PAGE> 48
(j) if (i) any Plan subject to the minimum funding standards of ERISA
or the Code shall fail to satisfy such standards for any plan year or part
thereof or a waiver of such standards or extension of any amortization period is
sought or granted under section 412 of the Code, (ii) a notice of intent to
terminate any Plan shall have been or is reasonably expected to be filed with
the PBGC or the PBGC shall have instituted proceedings under ERISA section 4042
to terminate or appoint a trustee to administer any Plan or the PBGC shall have
notified the Borrower or any ERISA Affiliate that a Plan may become a subject of
any such proceedings, (iii) the aggregate amount of unfunded accrued plan
benefit liabilities under all Plans subject to Title IV of ERISA, determined in
accordance with Financial Accounting Standards Board Statement No. 87 or 132, as
the case may be, as of the end of such Plans' most recently ended plan year on
the basis of actuarial assumptions specified for funding purposes in such Plans'
most recent actuarial valuation report, shall exceed $5,000,000, (iv) the
Borrower or any ERISA Affiliate shall have incurred or is reasonably expected to
incur any liability pursuant to Title I or IV of ERISA or the penalty or excise
tax provisions of the Code relating to employee benefit plans, (v) the Borrower
or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the
Borrower or any Restricted Subsidiary establishes or amends any employee welfare
benefit plan that provides post-employment welfare benefits in a manner that
would increase the liability of the Borrower or any Restricted Subsidiary
thereunder; and any such event or events described in clauses (i) through (vi)
above, either individually or together with any other such event or events,
would reasonably be expected to have a Materially Adverse Effect (as used in
Article VI, the terms "employee benefit plan" and "employee welfare benefit
plan" shall have the respective meanings assigned to such terms in Section 3 of
ERISA);
then, and in every such event, and at any time thereafter during the continuance
of such event, the Administrative Agent, at the request of the Required Lenders,
shall, by notice to the Borrower, take either or both of the following actions,
at the same or different times: (i) terminate forthwith the right of the
Borrower to borrow pursuant to the Commitments and (ii) declare the Loans of the
Borrower then outstanding to be forthwith due and payable in whole or in part,
whereupon the principal of the Loans so declared to be due and payable, together
with accrued interest thereon and any unpaid accrued fees and all other
liabilities of the Borrower accrued hereunder, shall become forthwith due and
payable, without presentment, demand, protest, notice of intent to accelerate,
notice of acceleration or any other notice of any kind, all of which are hereby
expressly waived, anything contained herein to the contrary notwithstanding;
provided that in the case of any event described in paragraph (g) or (h) above
with respect to the Borrower, the Commitments of the Lenders with respect to the
Borrower shall automatically terminate and the principal of the Loans then
outstanding of the Borrower with respect to which such event has occurred,
together with accrued interest thereon and any unpaid accrued fees and all other
liabilities of the Borrower accrued hereunder shall automatically become due and
payable, without presentment, demand, protest, notice of intent to accelerate,
notice of acceleration or any other notice of any kind, all of which are hereby
expressly waived by the Borrower, anything contained herein to the contrary
notwithstanding.
ADVANCE TERM CREDIT AGREEMENT - Page 44
<PAGE> 49
ARTICLE VII. THE ADMINISTRATIVE AGENT
In order to expedite the transactions contemplated by this Agreement,
Chase Bank of Texas, National Association is hereby appointed to act as
Administrative Agent, on behalf of the Lenders. Each of the Lenders hereby
irrevocably authorizes the Administrative Agent to take such actions on behalf
of such Lender or holder and to exercise such powers as are specifically
delegated to the Administrative Agent by the terms and provisions hereof,
together with such actions and powers as are reasonably incidental thereto. The
Administrative Agent is hereby expressly authorized by the Lenders, without
hereby limiting any implied authority, (a) to receive on behalf of the Lenders
all payments of principal of and interest on the Loans and all other amounts due
to the Lenders hereunder and promptly to distribute to each Lender its share of
each payment so received; (b) to give notice on behalf of each of the Lenders to
the Borrower of any Event of Default of which the Administrative Agent has
actual knowledge acquired in connection with its agency hereunder; and (c) to
distribute to each Lender copies of all notices, financial statements and other
materials delivered by the Borrower pursuant to this Agreement as received by
the Administrative Agent.
Neither Administrative Agent nor any of its directors, officers,
employees or agents shall be liable as such for any action taken or omitted by
any of them except for its or his or her own gross negligence or willful
misconduct, or be responsible for any statement, warranty or representation
herein or the contents of any document delivered in connection herewith, or be
required to ascertain or to make any inquiry concerning the performance or
observance by the Borrower of any of the terms, conditions, covenants or
agreements contained in this Agreement. The Administrative Agent shall not be
responsible to the Lenders for the due execution, genuineness, validity,
enforceability or effectiveness of this Agreement or other instruments or
agreements. The Administrative Agent may deem and treat the Lender which makes
any Loan as the holder of the indebtedness resulting therefrom for all purposes
hereof until it shall have received notice from such Lender, given as provided
herein, of the transfer thereof. The Administrative Agent shall in all cases be
fully protected in acting, or refraining from acting, in accordance with written
instructions signed by the Required Lenders and, except as otherwise
specifically provided herein, such instructions and any action or inaction
pursuant thereto shall be binding on all the Lenders. The Administrative Agent
shall, in the absence of knowledge to the contrary, be entitled to rely on any
instrument or document believed by it in good faith to be genuine and correct
and to have been signed or sent by the proper Person or Persons. Neither the
Administrative Agent nor any of its directors, officers, employees or agents
shall have any responsibility to the Borrower on account of the failure of or
delay in performance or breach by any Lender of any of its obligations hereunder
or any Lender on account of the failure of or delay in performance or breach by
any Lender or the Borrower of any of their respective obligations hereunder or
in connection herewith. The Administrative Agent may execute any and all duties
hereunder by or through agents or employees and shall be entitled to rely upon
the advice of legal counsel selected by it with respect to all matters arising
hereunder and shall not be liable for any action taken or suffered in good faith
by it in accordance with the advice of such counsel.
ADVANCE TERM CREDIT AGREEMENT - Page 45
<PAGE> 50
The Lenders hereby acknowledge that the Administrative Agent shall be
under no duty to take any discretionary action permitted to be taken by it
pursuant to the provisions of this Agreement unless it shall be requested in
writing to do so by the Required Lenders.
Subject to the appointment and acceptance of a successor Administrative
Agent as provided below, the Administrative Agent may resign at any time by
notifying the Lenders and the Borrower. Upon any such resignation, the Required
Lenders shall have the right to appoint a successor Administrative Agent
acceptable to the Borrower. If no successor shall have been so appointed by the
Required Lenders and shall have accepted such appointment within 30 days after
the retiring Administrative Agent gives notice of its resignation, then the
retiring Administrative Agent may, on behalf of the Lenders, appoint a successor
Agent, having a combined capital and surplus of at least $500,000,000 or an
Affiliate of any such bank. Upon the acceptance of any appointment as
Administrative Agent hereunder by a successor bank, such successor shall succeed
to and become vested with all the rights, powers, privileges and duties of the
retiring Administrative Agent and the retiring Administrative Agent shall be
discharged from its duties and obligations hereunder. After the Administrative
Agent's resignation hereunder, the provisions of this Article and Section 8.05
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as Administrative Agent.
With respect to the Loans made by it hereunder, the Administrative
Agent, in its individual capacity and not as Administrative Agent shall have the
same rights and powers as any other Lender and may exercise the same as though
it were not the Administrative Agent, and the Administrative Agent and its
Affiliates may accept deposits from, lend money to and generally engage in any
kind of business with the Borrower or any Subsidiary or other Affiliate thereof
as if it were not the Administrative Agent.
Each Lender agrees (i) to reimburse the Administrative Agent, on
demand, in the amount of its pro rata share (based on its Commitment hereunder
or, if the Commitments shall have been terminated, the amount of its outstanding
Loans) of any expenses incurred for the benefit of the Lenders in its role as
Administrative Agent, including counsel fees and compensation of agents and
employees paid for services rendered on behalf of the Lenders, which shall not
have been reimbursed by the Borrower AND (II) TO INDEMNIFY AND HOLD HARMLESS THE
ADMINISTRATIVE AGENT AND ANY OF ITS DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS, ON
DEMAND, IN THE AMOUNT OF SUCH PRO RATA SHARE, FROM AND AGAINST ANY AND ALL
LIABILITIES, TAXES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS,
SUITS, COSTS, EXPENSES OR DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH
MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST IT IN ANY WAY RELATING TO OR
ARISING OUT OF THIS AGREEMENT OR ANY ACTION TAKEN OR OMITTED BY IT UNDER THIS
AGREEMENT TO THE EXTENT THE SAME SHALL NOT HAVE BEEN REIMBURSED BY THE BORROWER
(INCLUDING WITHOUT LIMITATION, ALL LIABILITIES, TAXES, OBLIGATIONS, LOSSES,
DAMAGES, PENALTIES, ACTIONS, JUDGEMENTS, SUITS, COSTS, EXPENSES, OR
DISBURSEMENTS ARISING FROM THE SOLE CONTRIBUTORY NEGLIGENCE OF THE
ADMINISTRATIVE AGENT); PROVIDED THAT NO LENDER SHALL BE LIABLE TO THE
ADMINISTRATIVE AGENT FOR ANY PORTION OF SUCH
ADVANCE TERM CREDIT AGREEMENT - Page 46
<PAGE> 51
LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS,
COSTS, EXPENSES OR DISBURSEMENTS RESULTING FROM THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF THE ADMINISTRATIVE AGENT OR ANY OF ITS DIRECTORS, OFFICERS,
EMPLOYEES OR AGENTS.
Each Lender acknowledges that it has, independently and without
reliance upon the Administrative Agent or any other Lender and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement
or any related agreement or any document furnished hereunder or thereunder.
Wachovia Bank, N.A. has been designated as a Documentation Agent
hereunder in recognition of the level of its Commitment. Wachovia Bank, N.A. is
not an agent for the Lenders and shall not have any obligation hereunder other
than those existing in its capacity as Lender.
ARTICLE VIII. MISCELLANEOUS
SECTION 8.01. Notices. Notices and other communications provided for
herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed or sent by telecopy, as follows:
(a) if to Borrower, at its principal executive offices at 2100
Lake Park Blvd., Richardson, Texas 75080, to the attention of Chief
Financial Officer, telecopy number 972-497-6042 with a copy to the
Corporate Controller, Telecopy 972- 497- 5015;
(b) if to the Administrative Agent, to Chase Bank of Texas,
National Association, 2200 Ross Avenue, 3rd Floor, Dallas, TX 75201,
Attention of Mae Kantipong (Telecopy No. 214-965-2044), with a copy to
Chase Bank of Texas, National Association, Loan Syndications Services,
1 Chase Manhattan Plaza, 8th Floor, New York, New York, 10081, telecopy
number (212) 552-5777;
(c) if to the Documentation Agent, to Wachovia Bank, N.A., 191
Peachtree Street, N.E., Atlanta, Georgia 30303, Attention: Paige
Mesaros, telecopy number (404) 332- 6898; and
(d) if to a Lender, to it at its address (or telecopy number)
set forth in the Administrative Questionnaire delivered to the
Administrative Agent by such Lender in connection with the execution of
this Agreement or in the Assignment and Acceptance pursuant to which
such Lender became a party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or
ADVANCE TERM CREDIT AGREEMENT - Page 47
<PAGE> 52
overnight courier service or sent by telecopy to such party as provided in this
Section or in accordance with the latest unrevoked direction from such party
given in accordance with this Section.
SECTION 8.02. Survival of Agreement. All covenants, agreements,
representations and warranties made by the Borrower herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement shall be considered to have been relied upon by the
Lenders and shall survive the making by the Lenders of the Loans regardless of
any investigation made by the Lenders or on their behalf, and shall continue in
full force and effect as long as the principal of or any accrued interest on any
Loan or any Fee or any other amount payable under this Agreement is outstanding
and unpaid or the Commitments have not been terminated.
SECTION 8.03. Binding Effect. This Agreement shall become effective
when it shall have been executed by the Borrower and each Agent and when the
Administrative Agent shall have received copies hereof (telecopied or otherwise)
which, when taken together, bear the signature of each Lender, and thereafter
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the Borrower shall not have the
right to assign any rights hereunder or any interest herein without the prior
consent of all the Lenders (except as a consequence of a transaction expressly
permitted under Section 5.10).
SECTION 8.04. Successors and Assigns.
(a) Whenever in this Agreement any of the parties hereto is referred
to, such reference shall be deemed to include the successors and assigns of such
party; and all covenants, promises and agreements by or on behalf of any party
that are contained in this Agreement shall bind and inure to the benefit of its
successors and assigns.
(b) Each Lender may assign to one or more assignees all or a portion of
its interests, rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans at the time owing to it); provided,
however, that (i) except in the case of an assignment to a Lender or an
Affiliate of such Lender or an assignment to a Federal Reserve Bank, the
Borrower and the Agents must give their prior written consent to such assignment
(which consent shall not be unreasonably withheld), (ii) the amount of the
Commitment of the assigning Lender subject to each such assignment (determined
as of the date the Assignment and Acceptance with respect to such assignment is
delivered to the Administrative Agent) shall not be less than $10,000,000, (iii)
each such assignment shall be of a constant, and not a varying, percentage of
all the assigning Lender's rights and obligations under this Agreement, (iv) the
parties to each such assignment shall execute and deliver to the Administrative
Agent an Assignment and Acceptance, and a processing and recordation fee of
$3,000, and the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an Administrative Questionnaire. Upon acceptance and
recording pursuant to Section 8.04(e), from and after the effective date
specified in each Assignment and Acceptance, which effective date shall be at
least five Business Days after the execution thereof unless otherwise agreed by
the Administrative Agent (the Borrower to be given reasonable notice of any
shorter period), (A) the assignee thereunder shall be a party hereto and, to the
extent of the interest assigned by such Assignment and Acceptance, have the
rights and obligations of a Lender under this
ADVANCE TERM CREDIT AGREEMENT - Page 48
<PAGE> 53
Agreement and (B) the assigning Lender thereunder shall, to the extent of the
interest assigned by such Assignment and Acceptance, be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement, such Lender shall cease to be a party
hereto (but shall continue to be entitled to the benefits of Sections 2.11, 2.16
and 8.05 afforded to such Lender prior to its assignment as well as to any fees
accrued for its account hereunder and not yet paid)).
(c) By executing and delivering an Assignment and Acceptance, the
assigning Lender thereunder and the assignee thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:
(i) such assigning Lender warrants that it is the legal and beneficial owner of
the interest being assigned thereby free and clear of any adverse claim, (ii)
except as set forth in (i) above, such assigning Lender makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement, or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto or the financial condition of the Borrower or the performance or
observance by the Borrower of any obligations under this Agreement or any other
instrument or document furnished pursuant hereto; (iii) such assignee represents
and warrants that it is legally authorized to enter into such Assignment and
Acceptance; (iv) such assignee confirms that it has received a copy of this
Agreement, together with copies of the most recent financial statements
delivered pursuant to Section 5.03 and such other documents and information as
it has deemed appropriate to make its own credit analysis and decision to enter
into such Assignment and Acceptance; such assignee will independently and
without reliance upon the Agents, such assigning Lender or any other Lender and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Agreement; (vi) such assignee appoints and authorizes each Agent to
take such action as agent on its behalf and to exercise such powers under this
Agreement as are delegated to such Agent by the terms hereof, together with such
powers as are reasonably incidental thereto; and (vii) such assignee agrees that
it will perform in accordance with their terms all the obligations which by the
terms of this Agreement are required to be performed by it as a Lender.
(d) The Administrative Agent shall maintain at one of its offices in
the City of Houston a copy of each Assignment and Acceptance delivered to it and
a register for the recordation of the names and addresses of the Lenders, and
the Commitment of, and the principal amount of the Loans owing to, each Lender
pursuant to the terms hereof from time to time (the "Register"). The entries in
the Register shall be conclusive in the absence of manifest error and the
Borrower, the Agents and the Lenders may treat each Person whose name is
recorded in the Register pursuant to the terms hereof as a Lender hereunder for
all purposes of this Agreement. The Register shall be available for inspection
by each party hereto, at any reasonable time and from time to time upon
reasonable prior notice.
(e) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee together with an Administrative
Questionnaire completed in respect of the assignee (unless the assignee shall
already be a Lender hereunder), the processing and recordation fee referred to
in paragraph (b) above and, if required, the written consent of the
ADVANCE TERM CREDIT AGREEMENT - Page 49
<PAGE> 54
Borrower and the Agents to such assignment, the Administrative Agent shall (i)
accept such Assignment and Acceptance and (ii) record the information contained
therein in the Register.
(f) Each Lender may without the consent of the Borrower or the Agents
sell participations to one or more banks or other entities in all or a portion
of its rights and obligations under this Agreement (including all or a portion
of its Commitment and the Loans owing to it); provided, however, that (i) such
Lender's obligations under this Agreement shall remain unchanged, (ii) such
Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) each participating bank or other entity
shall be entitled to the benefit of the cost protection provisions contained in
Sections 2.11, 2.16 and 8.05 to the same extent as if it were the selling Lender
(and limited to the amount that could have been claimed by the selling Lender
had it continued to hold the interest of such participating bank or other
entity), except that all claims made pursuant to such Sections shall be made
through such selling Lender, and (iv) the Borrower, the Agents, and the other
Lenders shall continue to deal solely and directly with such selling Lender in
connection with such Lender's rights and obligations under this Agreement.
(g) Any Lender or participant may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section,
disclose to the assignee or participant or proposed assignee or participant any
information relating to the Borrower furnished to such Lender by or on behalf of
the Borrower; provided that, prior to any such disclosure, each such assignee or
participant or proposed assignee or participant shall execute an agreement
whereby such assignee or participant shall agree (subject to customary
exceptions) to preserve the confidentiality of any such information in
accordance with Section 8.14.
(h) The Borrower shall not assign or delegate any rights and duties
hereunder without the prior written consent of all Lenders, and any attempted
assignment or delegation (except as a consequence of a transaction expressly
permitted under Section 5.10) by the Borrower without such consent shall be
void.
(i) Any Lender may at any time pledge all or any portion of its rights
under this Agreement to a Federal Reserve Bank; provided that no such pledge
shall release any Lender from its obligations hereunder or substitute any such
Bank for such Lender as a party hereto. In order to facilitate such an
assignment to a Federal Reserve Bank, the Borrower shall, at the request of the
assigning Lender, duly execute and deliver to the assigning Lender a promissory
note or notes evidencing the Loans made to the Borrower by the assigning Lender
hereunder.
SECTION 8.05. Expenses; Indemnity.
(a) The Borrower agrees to pay all reasonable out-of-pocket expenses
incurred by the Administrative Agent in connection with entering into this
Agreement or in connection with any amendments, modifications or waivers of the
provisions hereof (but only if such amendments, modifications or waivers are
requested by the Borrower) (whether or not the transactions hereby contemplated
are consummated), or incurred by the Administrative Agent or any Lender in
connection with the enforcement of their rights in connection with this
Agreement or in connection
ADVANCE TERM CREDIT AGREEMENT - Page 50
<PAGE> 55
with the Loans made hereunder, including the reasonable fees and disbursements
of counsel for the Administrative Agent or, in the case of enforcement following
an Event of Default, the Lenders.
(b) THE BORROWER AGREES TO INDEMNIFY EACH LENDER AGAINST ANY LOSS,
CALCULATED IN ACCORDANCE WITH THE NEXT SENTENCE, OR REASONABLE EXPENSE WHICH
SUCH LENDER MAY SUSTAIN OR INCUR AS A CONSEQUENCE OF (A) ANY FAILURE BY THE
BORROWER TO BORROW OR TO CONVERT OR CONTINUE ANY LOAN HEREUNDER (INCLUDING AS A
RESULT OF THE BORROWER'S FAILURE TO FULFILL ANY OF THE APPLICABLE CONDITIONS SET
FORTH IN ARTICLE IV) AFTER IRREVOCABLE NOTICE OF SUCH BORROWING, CONVERSION OR
CONTINUATION HAS BEEN GIVEN PURSUANT TO SECTION 2.03, (B) ANY PAYMENT,
PREPAYMENT OR CONVERSION, OR ASSIGNMENT OF A EURODOLLAR LOAN OF THE BORROWER
REQUIRED BY ANY OTHER PROVISION OF THIS AGREEMENT OR OTHERWISE MADE OR DEEMED
MADE ON A DATE OTHER THAN THE LAST DAY OF THE INTEREST PERIOD, IF ANY,
APPLICABLE THERETO, (C) ANY DEFAULT IN PAYMENT OR PREPAYMENT OF THE PRINCIPAL
AMOUNT OF ANY LOAN OR ANY PART THEREOF OR INTEREST ACCRUED THEREON, AS AND WHEN
DUE AND PAYABLE (AT THE DUE DATE THEREOF, WHETHER BY SCHEDULED MATURITY,
ACCELERATION, IRREVOCABLE NOTICE OF PREPAYMENT OR OTHERWISE) OR (D) THE
OCCURRENCE OF ANY EVENT OF DEFAULT, INCLUDING, IN EACH SUCH CASE, ANY LOSS OR
REASONABLE EXPENSE SUSTAINED OR INCURRED OR TO BE SUSTAINED OR INCURRED BY SUCH
LENDER IN LIQUIDATING OR EMPLOYING DEPOSITS FROM THIRD PARTIES, OR WITH RESPECT
TO COMMITMENTS MADE OR OBLIGATIONS UNDERTAKEN WITH THIRD PARTIES, TO EFFECT OR
MAINTAIN ANY LOAN HEREUNDER OR ANY PART THEREOF AS A EURODOLLAR LOAN. SUCH LOSS
SHALL INCLUDE AN AMOUNT EQUAL TO THE EXCESS, IF ANY, AS REASONABLY DETERMINED BY
SUCH LENDER, OF (I) ITS COST OF OBTAINING THE FUNDS FOR THE LOAN BEING PAID,
PREPAID, CONVERTED OR NOT BORROWED (ASSUMED TO BE THE LIBO RATE FOR THE PERIOD
FROM THE DATE OF SUCH PAYMENT, PREPAYMENT OR FAILURE TO BORROW TO THE LAST DAY
OF THE INTEREST PERIOD FOR SUCH LOAN (OR, IN THE CASE OF A FAILURE TO BORROW THE
INTEREST PERIOD FOR SUCH LOAN WHICH WOULD HAVE COMMENCED ON THE DATE OF SUCH
FAILURE) OVER (II) THE AMOUNT OF INTEREST (AS REASONABLY DETERMINED BY SUCH
LENDER) THAT WOULD BE REALIZED BY SUCH LENDER IN REEMPLOYING THE FUNDS SO PAID,
PREPAID OR NOT BORROWED FOR SUCH PERIOD OR INTEREST PERIOD, AS THE CASE MAY BE.
(c) THE BORROWER AGREES TO INDEMNIFY THE AGENTS, EACH LENDER, EACH OF
THEIR AFFILIATES AND THE DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS OF, THE
FOREGOING (EACH SUCH PERSON BEING CALLED AN "INDEMNITEE") AGAINST, AND TO HOLD
EACH INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES
AND RELATED EXPENSES, INCLUDING REASONABLE COUNSEL FEES AND EXPENSES, INCURRED
BY OR ASSERTED AGAINST ANY INDEMNITEE ARISING OUT OF (I) THE CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, (II) THE USE OF THE
ADVANCE TERM CREDIT AGREEMENT - Page 51
<PAGE> 56
PROCEEDS OF THE LOANS OR (III) ANY CLAIM, LITIGATION, INVESTIGATION OR
PROCEEDING RELATING TO ANY OF THE FOREGOING, WHETHER OR NOT ANY INDEMNITEE IS A
PARTY THERETO (INCLUDING, WITHOUT LIMITATION, ANY LOSSES, CLAIMS, DAMAGES,
LIABILITIES AND RELATED EXPENSES ARISING FROM THE SOLE OR CONTRIBUTORY
NEGLIGENCE OF THE INDEMNITEE); PROVIDED THAT SUCH INDEMNITY SHALL NOT, AS TO ANY
INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS, DAMAGES,
LIABILITIES OR RELATED EXPENSES (I) ARE DETERMINED TO HAVE RESULTED FROM THE
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE OR (II) RESULT FROM
ANY LITIGATION BROUGHT BY SUCH INDEMNITEE AGAINST THE BORROWER OR BY THE
BORROWER AGAINST SUCH INDEMNITEE, IN WHICH THE BORROWER IS THE PREVAILING PARTY.
(d) The provisions of this Section shall remain operative and in full
force and effect regardless of the expiration of the term of this Agreement, the
consummation of the transactions contemplated hereby, the repayment of any of
the Loans, the invalidity or unenforceability of any term or provision of this
Agreement or any investigation made by or on behalf of any Agent or any Lender.
All amounts due under this Section shall be payable on written demand therefor.
SECTION 8.06. Right of Setoff. If an Event of Default shall have
occurred and be continuing, each Lender is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Lender to or
for the credit or the account of the Borrower against any of and all the
obligations of the Borrower now or hereafter existing under this Agreement held
by such Lender, irrespective of whether or not such Lender shall have made any
demand under this Agreement and although such obligations may be unmatured. The
rights of each Lender under this Section are in addition to other rights and
remedies (including other rights of setoff) which such Lender may have.
SECTION 8.07. Applicable Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
SECTION 8.08. Waivers; Amendment.
(a) No failure or delay of Borrower, any Agent or any Lender in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Agents and the Lenders hereunder
are cumulative and are not exclusive of any rights or remedies which they would
otherwise have. No waiver of any provision of this Agreement or consent to any
departure therefrom shall in any event be effective unless the same shall be
permitted by paragraph (b) below, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice or demand on the Borrower or any Subsidiary in any case shall entitle
such party to any other or further notice or demand in similar or other
circumstances.
ADVANCE TERM CREDIT AGREEMENT - Page 52
<PAGE> 57
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Borrower and the Required Lenders; provided, however, that
no such agreement shall (i) decrease the principal amount of, or extend the
maturity of or any scheduled principal payment date or date for the payment of
any interest on any Loan, or waive or excuse any such payment or any part
thereof, or decrease the rate of interest on any Loan, without the prior written
consent of each Lender affected thereby, (ii) increase any Commitment or
decrease the fees payable to any Lender without the prior written consent of
such Lender, or (iii) amend or modify the provisions of Section 2.13 or Section
8.04(h), the provisions of this Section or the definition of the "Required
Lenders", without the prior written consent of each Lender; provided further,
however, that no such agreement shall amend, modify or otherwise affect the
rights or duties of the Administrative Agent hereunder without the prior written
consent of the Administrative Agent. Each Lender shall be bound by any waiver,
amendment or modification authorized by this Section and any consent by any
Lender pursuant to this Section shall bind any assignee of its rights and
interests hereunder.
SECTION 8.09. Entire Agreement. THIS AGREEMENT (INCLUDING THE SCHEDULES
AND EXHIBITS HERETO) AND THE FEE LETTERS CONSTITUTE A "LOAN AGREEMENT" AS
DEFINED IN SECTION 26.03(A) OF THE TEXAS BUSINESS AND COMMERCE CODE, AND
REPRESENT THE ENTIRE CONTRACT AMONG THE PARTIES RELATIVE TO THE SUBJECT MATTER
HEREOF AND THEREOF. ANY PREVIOUS AGREEMENT AMONG THE PARTIES WITH RESPECT TO THE
SUBJECT MATTER HEREOF IS SUPERSEDED BY THIS AGREEMENT AND THE FEE LETTERS,
PROVIDED THAT THE EXISTING CREDIT AGREEMENT WILL REMAIN IN EFFECT. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. NOTHING IN THIS AGREEMENT,
EXPRESSED OR IMPLIED, IS INTENDED TO CONFER UPON ANY PARTY OTHER THAN THE
PARTIES HERETO ANY RIGHTS, REMEDIES, OBLIGATIONS OR LIABILITIES UNDER OR BY
REASON OF THIS AGREEMENT.
SECTION 8.10. Severability. In the event any one or more of the
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby. The parties shall endeavor in good-faith negotiations to
replace the invalid, illegal or unenforceable provisions with valid provisions
the economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
SECTION 8.11. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one contract, and shall become
effective as provided in Section 8.03.
SECTION 8.12. Headings. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
SECTION 8.13. Interest Rate Limitation.
ADVANCE TERM CREDIT AGREEMENT - Page 53
<PAGE> 58
(a) Notwithstanding anything herein to the contrary, if at any time the
applicable interest rate, together with all fees and charges which are treated
as interest under applicable law (collectively the "Charges"), as provided for
herein or in any other document executed in connection herewith, or otherwise
contracted for, charged, received, taken or reserved by any Lender, shall exceed
the maximum lawful rate (the "Maximum Rate") which may be contracted for,
charged, taken, received or reserved by such Lender in accordance with
applicable law, the rate of interest payable on the Loans of such Lender,
together with all Charges payable to such Lender, shall be limited to the
Maximum Rate.
(b) If the amount of interest, together with all Charges, payable for
the account of any Lender in respect of any interest computation period is
reduced pursuant to paragraph (a) of this Section and the amount of interest,
together with all Charges, payable for such Lender's account in respect of any
subsequent interest computation period, computed pursuant to Section 2.06, would
be less than the Maximum Rate, then the amount of interest, together with all
Charges, payable for such Lender's account in respect of such subsequent
interest computation period shall, to the extent permitted by applicable law, be
automatically increased to such Maximum Rate; provided that at no time shall the
aggregate amount by which interest paid for the account of any Lender has been
increased pursuant to this paragraph (b) exceed the aggregate amount by which
interest, together with all Charges, paid for its account has theretofore been
reduced pursuant to paragraph (a) of this Section.
(c) No provision of this Agreement shall require the payment or the
collection of interest in excess of the maximum amount permitted by applicable
law. If any excess of interest in such respect is hereby provided for, or shall
be adjudicated to be so provided, in this Agreement or otherwise in connection
with this loan transaction, the provisions of this Section shall govern and
prevail and neither the Borrower nor the sureties, guarantors, successors, or
assigns of the Borrower shall be obligated to pay the excess amount of such
interest or any other excess sum paid for the use, forbearance, or detention of
sums loaned pursuant hereto. In the event any Lender ever receives, collects, or
applies as interest any such sum, such amount which would be in excess of the
maximum amount permitted by applicable law shall be applied as a payment and
reduction of the principal of the Loans; and, if the principal of the Loans has
been paid in full, any remaining excess shall forthwith be paid to the Borrower.
In determining whether or not the interest paid or payable exceeds the Maximum
Rate, the Borrower and each Lender shall, to the extent permitted by applicable
law, (a) characterize any non-principal payment as an expense, fee, or premium
rather than as interest, (b) exclude voluntary prepayments and the effects
thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal
parts the total amount of interest throughout the entire contemplated term of
the Loans so that interest for the entire term does not exceed the Maximum Rate.
SECTION 8.14. Confidentiality. For the purposes of this Section 8.14,
"Confidential Information" means information delivered to an Agent or a Lender
by or on behalf of the Borrower or any Subsidiary in connection with the
transactions contemplated by or otherwise pursuant to this Agreement that is
proprietary in nature and that was clearly marked or labeled or otherwise
adequately identified when received by an Agent or a Lender as being
confidential information of the Borrower or such Subsidiary, provided that such
term does not include information that (a) was
ADVANCE TERM CREDIT AGREEMENT - Page 54
<PAGE> 59
publicly known or otherwise known to an Agent or a Lender prior to the time of
such disclosure, (b) subsequently becomes publicly known through no act or
omission by an Agent or a Lender or any Person acting on their behalf, (c)
otherwise becomes known to an Agent or a Lender other than through disclosure by
the Borrower or any Subsidiary or (d) constitutes financial statements delivered
to you under Section 5.20 that are otherwise publicly available. Each Agent and
each Lender agree that they will maintain the confidentiality of such
Confidential Information in accordance with procedures adopted by them in good
faith to protect confidential information of third parties delivered to them,
provided that an Agent or a Lender may deliver or disclose Confidential
Information to (i) its directors, officers, employees, agents, attorneys and
affiliates (to the extent such disclosure reasonably relates to the
administration of this Agreement), (ii) its financial advisors and other
professional advisors who agree to hold confidential the Confidential
Information substantially in accordance with the terms of this Section 8.14,
(iii) any other Agent or Lender, (iv) any Transferee (if such Person has agreed
in writing prior to its receipt of such Confidential Information to be bound by
the provisions of this Section 8.14), (v) any Person from which it offers to
purchase any security of the Borrower or a Subsidiary (if such Person has agreed
in writing prior to its receipt of such Confidential Information to be bound by
the provisions of this Section 8.14), (vi) any federal or state regulatory
authority having jurisdiction over it, (vii) any nationally recognized rating
agency that requires access to information about its investment portfolio, or
(viii) any other Person to which such delivery or disclosure may be necessary or
appropriate (w) to effect compliance with any law, rule, regulation or order
applicable to it, (x) in response to any subpoena or other legal process, (y) in
connection with any litigation to which it is a party or (z) if an Event of
Default has occurred and is continuing, to the extent an Agent or a Lender may
reasonably determine such delivery and disclosure to be necessary or appropriate
in the enforcement or for the protection of the rights and remedies under this
Agreement.
SECTION 8.15. Non-Application of Chapter 346 of the Texas Finance Code.
The provisions of Chapter 346 of the Texas Finance Code are specifically
declared by the parties hereto not to be applicable to this Agreement or to the
transactions contemplated hereby.
ADVANCE TERM CREDIT AGREEMENT - Page 55
<PAGE> 60
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
LENNOX INTERNATIONAL INC.,
as Borrower
By: /s/ Clyde Wyant
----------------------------------------
Clyde Wyant
Executive Vice President,
Chief Financial Officer and Treasurer
CHASE BANK OF TEXAS,
NATIONAL ASSOCIATION,
individually and as Administrative Agent
By: /s/ Mae Kantipong
----------------------------------------
Mae Kantipong
Vice President
WACHOVIA BANK, N.A.,
individually and as Documentation Agent
By: /s/ Paige D. Mesaros
----------------------------------------
Paige D. Mesaros
Vice President
ADVANCE TERM CREDIT AGREEMENT - Page 56
<PAGE> 61
EXHIBITS AND SCHEDULES
Exhibit A Form of Borrowing Request
Exhibit B Administrative Questionnaire
Exhibit C Form of Assignment and Acceptance
Exhibit D Matters to be addressed by Opinion of Counsel
Schedule 2.01 Commitments
Schedule 3.05 Subsidiaries
Schedule 3.06 Financial Statements
Schedule 3.13 Indebtedness
<PAGE> 62
EXHIBIT A
FORM OF BORROWING REQUEST
Chase Bank of Texas, National Association, [Date]
as Administrative Agent for the Lenders referred to below
2200 Ross Avenue, 3rd floor
Dallas, TX 77002
Attention: Brenda Harris
Telecopy: 214-965-2044
and
Chase Bank of Texas, National Association
Loan Syndications Services
1 Chase Manhattan Plaza, 8th Floor
New York, New York 10081
Telecopy: 212-552-5777
Ladies and Gentlemen:
The undersigned, Lennox International Inc. (the "Borrower"), refers to
the Advance Term Credit Agreement dated as of March 16, 1999 (as it may
hereafter be amended, modified, extended or restated from time to time, the
"Agreement"), among the Borrower, the Lenders named therein, Chase Bank of
Texas, National Association, as Administrative Agent, and Wachovia Bank, N.A.,
as Documentation Agent. Capitalized terms used herein and not otherwise defined
herein shall have the meanings assigned to such terms in the Agreement. The
Borrower hereby gives you notice pursuant to Section 2.03 of the Agreement that
it requests a Borrowing under the Agreement, and in that connection sets forth
below the terms on which such Borrowing is requested to be made:
(A) Date of Borrowing (which is a Business Day)
-------------
(B) Principal amount of Borrowing (1)
-------------
(C) Interest rate basis (2)
-------------
- ---------------------
(1) Not less than $5,000,000 (and in integral multiples of $1,000,000)
or greater than the Total Commitment then available.
(2) Eurodollar Loan or ABR Loan.
EXHIBIT A - FORM OF BORROWING REQUEST - Page 1 of 2
<PAGE> 63
(D) Interest Period and the last day thereof (3)
-------------
Upon acceptance of any or all of the Loans made by the Lenders in
response to this request, the Borrower shall be deemed to have represented and
warranted that the conditions to lending specified in Section 4.01(b) and (c) of
the Agreement have been satisfied.
Very truly yours,
LENNOX INTERNATIONAL INC.
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
[Senior Financial Officer]
- ---------------------
(3) Which shall be subject to the definition of "Interest Period" and
end not later than the Maturity Date.
EXHIBIT A - FORM OF BORROWING REQUEST - Page 2 of 2
<PAGE> 64
EXHIBIT B
ADMINISTRATIVE QUESTIONNAIRE
LENNOX INTERNATIONAL INC.
PLEASE FORWARD THIS COMPLETED
FORM AS SOON AS POSSIBLE TO:
Gina Hardwick FAX (713) 216-2291
PLEASE TYPE ALL INFORMATION.
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
Agent: Chase Bank of Texas, National Association
712 Main Street 8 TCB-N 96
Houston, Texas 77002
- --------------------------------------------------------------------------------
Telex:
- --------------------------------------------------------------------------------
Syndications Telecopier:
- --------------------------------------------------------------------------------
Syndications Contacts: _____________________ (713) ____________
Ann Krevis Baumgartner (713) 216-7582
Gina Hardwick (713) 216-2093
- --------------------------------------------------------------------------------
Operations: Gale Manning (713) 750-2784
- --------------------------------------------------------------------------------
Letters of Credit: Gale Manning (713) 750-2784
- --------------------------------------------------------------------------------
Full Legal Name of your
Institution:
- --------------------------------------------------------------------------------
Hard-copy documents, notices and periodic financial statements of the Borrower
should be sent to the following account officer designated by your bank:
- --------------------------------------------------------------------------------
Officer's Name:
- --------------------------------------------------------------------------------
Title:
- --------------------------------------------------------------------------------
Street Address (No P.O.
Boxes please):
- --------------------------------------------------------------------------------
City, State, Zip:
- --------------------------------------------------------------------------------
Phone #:
- --------------------------------------------------------------------------------
Telefax #:
- --------------------------------------------------------------------------------
PRIMARY CONTACT INFORMATION
</TABLE>
EXHIBIT B - ADMINISTRATIVE QUESTIONNAIRE - Page 1 of 3
<PAGE> 65
We will send all telecopies regarding time-critical information (drawdowns,
option changes, payments, etc.) to the Primary or Alternate Contact at the
banking location you designate.
1. Your bank's primary contact for telefaxes concerning borrowings,
options on interest rates, etc.:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Primary Primary Alternate
Name/ Primary Telex No. & Alternate Telex No. &
Phone No. Department Telefax No. Answerback Telefax No. Answerback
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Primary Primary Alternate
Name/ Primary Telex No. & Alternate Telex No. &
Phone No. Department Telefax No. Answerback Telefax No. Answerback
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
If at any time any of the above information changes, please advise.
Publicity: Under what name would you prefer your Institution to appear
in any further advertisements?
------------------------------------------------------------
EXHIBIT B - ADMINISTRATIVE QUESTIONNAIRE - Page 2 of 3
<PAGE> 66
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
Movement of Funds: TO US: Wire Fed Funds to:
Chase Bank of Texas, National Association
ABA #113000609
for account number #________________
Attention: Loan syndication Svcs./ Gale Manning
Reference:
- --------------------------------------------------------------------------------
TO YOU: Wire Fed Funds to:
- --------------------------------------------------------------------------------
NAME:
ABA #
For Credit To:
Attention:
Reference:
- --------------------------------------------------------------------------------
Other:
- --------------------------------------------------------------------------------
If buyer is purchasing Letter of Credit facility as part of this
participation/syndication, please provide the information below:
- --------------------------------------------------------------------------------
L/C contact name:
- --------------------------------------------------------------------------------
Street Address:
- --------------------------------------------------------------------------------
City, State, Zip:
- --------------------------------------------------------------------------------
Phone #:
- --------------------------------------------------------------------------------
Telefax #:
- --------------------------------------------------------------------------------
Wire Fed Funds to:
- --------------------------------------------------------------------------------
NAME:
ABA #
For Credit To:
Attention:
Reference:
- -------------------------------------------------------------------------------
</TABLE>
EXHIBIT B - ADMINISTRATIVE QUESTIONNAIRE - Page 3 of 3
<PAGE> 67
EXHIBIT C
ASSIGNMENT AND ACCEPTANCE
Dated: ______________, 19__
Reference is made to the Advance Term Credit Agreement dated as of
March 16, 1999 (as amended, modified, extended or restated from time to time,
the "Agreement"), among Lennox International Inc. (the "Borrower"), the lenders
listed in Schedule 2.01 thereto (the "Lenders"), Wachovia Bank, N.A., as
Documentation Agent and Chase Bank of Texas, National Association, as
Administrative Agent for the Lenders. Terms defined in the Agreement are used
herein with the same meanings.
1. The Assignor hereby sells and assigns, without recourse, to the
Assignee, and the Assignee hereby purchases and assumes, without recourse, from
the Assignor, effective as of the [Effective Date of Assignment set forth
below], the interests set forth below (the "Assigned Interest") in the
Assignor's rights and obligations under the Agreement, including, without
limitation, the interests set forth below in the Commitment of the Assignor on
the [Effective Date of Assignment] and the Loans owing to the Assignor which are
outstanding on the [Effective Date of Assignment], together with unpaid interest
accrued on the assigned Loans to the [Effective Date of Assignment] and the
amount, if any, set forth below of the fees accrued to the [Effective Date of
Assignment] for the account of the Assignor. Each of the Assignor and the
Assignee hereby makes and agrees to be bound by all the representations,
warranties and agreements set forth in Section 8.04 of the Agreement, a copy of
which has been received by each such party. From and after the [Effective Date
of Assignment], (i) the Assignee shall be a party to and be bound by the
provisions of the Agreement and, to the extent of the interests assigned by this
Assignment and Acceptance, have the rights and obligations of a Lender
thereunder and (ii) the Assignor shall, to the extent of the interests assigned
by this Assignment and Acceptance, relinquish its rights and be released from
its obligations under the Agreement. After giving effect to this Assignment and
Acceptance, Assignor's Commitment shall be $_____________.
2. This Assignment and Acceptance is being delivered to the Agent
together with (i) if the Assignee is organized under the laws of a jurisdiction
outside the United States, the forms specified in Section 2.15(g) of the
Agreement, duly completed and executed by such Assignee, (ii) if the Assignee is
not already a Lender under the Agreement, an Administrative Questionnaire in the
form of Exhibit B to the Agreement and (iii) a processing and recordation fee of
$3,000.
3. This Assignment and Acceptance shall be governed by and construed in
accordance with the laws of the State of Texas.
Date of Assignment:
-------------------------------------------------------------
Legal Name of Assignor:
---------------------------------------------------------
Legal Name of Assignee:
---------------------------------------------------------
EXHIBIT C - ASSIGNMENT AND ACCEPTANCE - Page 1 of 2
<PAGE> 68
Assignee's Address for Notices:
-------------------------------------------------
Effective Date of Assignment (may not be fewer than 5 Business Days after the
Date of Assignment unless otherwise agreed by the Agent):
<TABLE>
<CAPTION>
Percentage Assigned of
Facility/Commitment (set forth, to at least
8 decimals, as a percentage of the Facility
and the aggregate Commitments of all
Facility Principal Amount Assigned Lender thereunder)
- ----------------------- ------------------------- -------------------------------------------
<S> <C> <C>
Commitment Assigned: $ %
-------------- --------------
Loans: $ %
-------------- --------------
Fees Assigned (if any): $ %
-------------- --------------
</TABLE>
The terms set forth herein are hereby agreed to: Accepted:
as
- ---------------------------------------,
Assignor, LENNOX INTERNATIONAL INC.
By:
----------------------------------
Name: By:
------------------------------ -------------------------------
Title: Name:
------------------------------ ------------------------------
Title:
-----------------------------
, as
- ---------------------------------------- CHASE BANK OF TEXAS,
Assignee, NATIONAL ASSOCIATION,
as Administrative Agent
By:
----------------------------------
Name: By:
------------------------------ -------------------------------
Title: Name:
------------------------------ ------------------------------
Title:
-----------------------------
EXHIBIT C - ASSIGNMENT AND ACCEPTANCE - Page 2 of 2
<PAGE> 69
EXHIBIT D
Matters To Be Covered In
Opinion of Counsel to Borrower
1. Each of the Borrower and Lennox Industries Inc., Heatcraft Inc. and
Armstrong Air Conditioning Inc. being duly incorporated, validly existing and in
good standing and the Borrower having requisite corporate power and authority to
execute, deliver and perform the Agreement.
2. Each of the Borrower and Lennox Industries Inc., Heatcraft Inc. and
Armstrong Air Conditioning Inc. being duly qualified and in good standing as a
foreign corporation in appropriate jurisdictions.
3. Due authorization and execution of the Agreement and the Agreement
being legal, valid, binding and enforceable.
4. No conflicts with charter documents, laws or other agreements.
5. All consents required to execute, deliver or perform the Agreement
having been obtained.
6. No litigation questioning validity of the Agreement or as to which
there is otherwise the reasonable likelihood of a Material Adverse Effect.
7. No violation of Regulations T, U or X of the Federal Reserve Board.
8. borrower not an "investment company", or a company "controlled" by
an "investment company", under the Investment Company Act of 1940, as amended.
EXHIBIT D - FORM OF OPINION OF COUNSEL TO THE BORROWER - Solo Page
<PAGE> 70
SCHEDULE 2.01
<TABLE>
<CAPTION>
Lender Commitment
- ------ ------------
<S> <C>
a. Chase Bank of Texas, $ 57,500,000
National Association
b. Wachovia Bank, N.A. $ 57,500,000
============
TOTAL $115,000,000
</TABLE>
EXHIBIT E - JOINDER AGREEMENT - Cover Page
<PAGE> 71
SCHEDULE 3.05
Lennox International Inc. Subsidiaries
as of June 30, 1999
<TABLE>
<CAPTION>
Location of
Name Ownership Jurisdiction of Inc. Restricted/Unrestricted Operating Assets
- -------------------------------------------- --------- -------------------- ----------------------- ----------------
<S> <C> <C> <C> <C>
(1) Lennox Industries Inc. 100% Iowa Restricted United States
SEE ATTACHED CHART
(2) Heatcraft Inc. 100% Mississippi Restricted United States
(a) Frigus-Bohn S.A. de C.V. 50% Mexico Unrestricted Mexico
(3) Heatcraft Technologies Inc. 100% Delaware Restricted United States
(4) Armstrong Air Conditioning Inc. 100% Ohio Restricted United States
(a) JOA Industries, Inc. 100% Nebraska Restricted United States
(i) Albert O. Jensen Wholesale 100% Nebraska Restricted United States
Furnace & Supply Co., d/b/a
Jensen-Klich Supply Co.
(5) Lennox Foreign Sales Corp. 100% U.S. Virgin Islands Unrestricted N/A
(6) Lennox Commercial Realty Inc. 100% Iowa Restricted United States
(7) Lennox Global Ltd. 100% Delaware Unrestricted United States
SEE ATTACHED CHART
</TABLE>
SCHEDULE 3.05 - Subsidiaries - Page 1 of 5
<PAGE> 72
Lennox International Inc. Subsidiaries
as of June 30, 1999
<TABLE>
<CAPTION>
Location of
Name Ownership Jurisdiction of Inc. Restricted/Unrestricted Operating Assets
- -------------------------------------------- --------- -------------------- ----------------------- ----------------
<S> <C> <C> <C> <C>
Lennox Industries, Inc.
(a) Products Acceptance Corporation 100% Iowa Restricted N/A
(b) Lennox Industries (Canada) Ltd. 100% Canada Unrestricted Canada
(c) Lennox Industries SW Inc. 100% Iowa Restricted N/A
(d) Lennox Manufacturing Inc. 100% Delaware Restricted United States
(e) Hearth Products Inc. 100% Delaware Restricted United States
(i) SFC Holdings Inc. 100% Delaware Restricted United States
</TABLE>
SCHEDULE 3.05 - Subsidiaries - Page 2 of 5
<PAGE> 73
Lennox International Inc. Subsidiaries
as of June 30, 1999
<TABLE>
<CAPTION>
Location of
Name Ownership Jurisdiction of Inc. Restricted/Unrestricted Operating Assets
- -------------------------------------------- --------- -------------------- ----------------------- ----------------
<S> <C> <C> <C> <C>
Lennox Global Ltd.
(a) UK Industries Inc. 100% Delaware Unrestricted N/A
(b) UK Global Ltd. 100% Delaware Unrestricted N/A
(c) Lennox Australia Pty. Ltd. 100% Australia Unrestricted Australia
(d) LGL Asia-Pacific Pte. Ltd. 100% Rep. of Singapore Unrestricted Singapore
(e) LGL (Australia) Pty. Ltd. 100% Australia Unrestricted Australia
(f) LGL de Mexico, S.A. de C.V. 99% Mexico Unrestricted Mexico
(g) Ets. Brancher S.A. 70% France Unrestricted France
(1) SEE ATTACHED CHART
(h) Fairco S.A. 50% Argentina Unrestricted Argentina
</TABLE>
SCHEDULE 3.05 - Subsidiaries - Page 3 of 5
<PAGE> 74
Lennox International Inc. Subsidiaries
as of June 30, 1999
<TABLE>
<CAPTION>
Location of
Name Ownership Jurisdiction of Inc. Restricted/Unrestricted Operating Assets
- -------------------------------------------- --------- -------------------- ----------------------- ----------------
<S> <C> <C> <C> <C>
Ets. Brancher S.A.
(a) HCF-Lennox Limited 99% United Kingdom Unrestricted United Kingdom
(1) Lennox Industries 100% United Kingdom Unrestricted United Kingdom
(A) Environheat Limited 100% United Kingdom Unrestricted N/A
(b) HCF Lennox S.A. 100% France Unrestricted France
(1) SEE ATTACHED CHART
(c) Frinotech S.A. 99.68% France Unrestricted N/A
(d) Friga-Bohn S.A. 100% France Unrestricted France
(1) Friga-Bohn Warmeauslauscher GmbH 100% Germany Unrestricted Germany
(2) ERSA 79.5% Spain Unrestricted Spain
(3) West 80% Italy Unrestricted Italy
(4) Friga-Coil 50% Czech Republic Unrestricted Czech Republic
(5) Herac Ltd. 100% United Kingdom Unrestricted N/A
(e) SCI Geraval 99.83% France Unrestricted France
(f) SCI Groupe Brancher 76% France Unrestricted France
</TABLE>
SCHEDULE 3.05 - Subsidiaries - Page 4 of 5
<PAGE> 75
Lennox International Inc. Subsidiaries
as of June 30, 1999
<TABLE>
<CAPTION>
Location of
Name Ownership Jurisdiction of Inc. Restricted/Unrestricted Operating Assets
- -------------------------------------------- --------- -------------------- ----------------------- ----------------
<S> <C> <C> <C> <C>
HCF Lennox S.A.
(a) Refac B.V. 100% Netherlands Unrestricted Netherlands
(1) Refac NV 100% Belgium Unrestricted Belgium
(2) Refac Nord GmbH 100% Germany Unrestricted N/A
(A) Refac West GmbH 100% Germany Unrestricted N/A
(3) Refac Kalte-Klima Technik 50% Germany Unrestricted N/A
Vertriebs GmbH
(4) Refac UK Ltd. 100% United Kingdom Unrestricted United Kingdom
(b) Hyfra GmbH 100% Germany Unrestricted Germany
(c) Lennox-Refac S.A. 100% Spain Unrestricted Spain
(1) Redi Andalucia S.A. 70% Spain Unrestricted N/A
(2) Lennox Refac 100% Portugal Unrestricted N/A
(3) Deutsche Bronswerk GmbH 100% Germany Unrestricted Germany
(4) Bronswerk Refac GmbH 100% Germany Unrestricted Germany
</TABLE>
SCHEDULE 3.05 - Subsidiaries - Page 5 of 5
<PAGE> 76
SCHEDULE 3.06
FINANCIAL STATEMENTS
1. Consolidated and consolidating financial statements for the Borrower
and its Subsidiaries for the fiscal years ended December 31, 1992
through December 31, 1997.
2. Quarterly consolidated and consolidating financial statements for the
Borrower and its Subsidiaries for the periods ended March 31, June 30,
and September 30 for 1992-98.
SCHEDULE 3.06 - FINANCIAL STATEMENTS - Solo Page
<PAGE> 77
SCHEDULE 3.13
LENNOX INTERNATIONAL INC.
AND RESTRICTED SUBSIDIARIES
INDEBTEDNESS AS OF
DECEMBER 31, 1998 (EXCEPT AS NOTED)
<TABLE>
<S> <C>
A. LENNOX INTERNATIONAL INC.
(1) Agreement of Assumption and Restatement dated as
of December 1, 1991 between Lennox International Inc.
and the Noteholders identified at the end thereof,
pursuant to which Lennox International Inc. delivered
its:
9.53% Series F Promissory Notes due 2001 $21,000,000
9.69% Series H Promissory Notes due 2003 24,600,000
(2) Note Purchase Agreement dated as of December 1,
1993 among Lennox International Inc. and the
Noteholders identified at the end thereof, pursuant
to which Lennox International Inc. delivered its
6.73% Senior Promissory Notes due 2008 100,000,000
(3) Note Purchase Agreement dated as of July
6, 1995 between Lennox International Inc.
and Teachers Insurance and Annuity
Association of America, pursuant to which
Lennox International Inc. delivered its
7.06% Senior Promissory Notes due 2005 20,000,000
(4) Guaranty dated September 19, 1995 from
Lennox International Inc. to First Bank of
Natchitoches & Trust Company and Regions
Bank of Louisiana guaranteeing 50% of debt
of Alliance Compressors to such Banks under
a Promissory Note dated September 19, 1995 1,070,586*
(5) Guaranty of 50% of amounts due from
Alliance Compressors under a Master
Equipment Lease Agreement dated March 28,
1995 with NationsBanc Leasing Corporation 343,844*
(6) Letter of Credit guaranteeing debt of
Refac B.V. to Stork N.V. in connection with
purchase of stock of Refac B.V. from Stork
N.V. 1,701,440
(7) Guaranty of 50% of Frigus-Bohn S.A. de
C.V. Line of Credit from Bank One, Texas,
N.A., in the maximum amount of $1,500,000 750,000
</TABLE>
SCHEDULE 5.15 - LENNOX INTERNATIONAL INC. AND RESTRICTED
SUBSIDIARIES - Page 1 of 2
<PAGE> 78
<TABLE>
<S> <C>
(8) Letter of Credit guaranteeing debt of
Lennox Australia Pty Ltd. to Alcair
Industries Pty Ltd. in connection with
purchase of assets of Alcair Industries Pty
Ltd. 547,000
(9) Note Purchase Agreement dated as of
April 3, 1998, between Lennox International
Inc. and the Noteholders identified therein,
pursuant to which Lennox International Inc.
delivered its:
6.56% Senior Notes due April 3, 2005 25,000,000
6.75% Senior Notes due April 3, 2008 50,000,000
(10) Existing Credit Agreement 38,000,000
B. LENNOX INDUSTRIES INC.
Promissory Note dated December 22, 1992 issued to Texas
Housing Opportunity Fund, Ltd. 109,358
Balance Due for deferred price payment for Pyro 3,763,182
Industries, Inc.
C. LENNOX COMMERCIAL REALTY INC.
11.1% Mortgage Note Agreement with Texas
Commerce Bank, N.A. due January 1, 2000,
secured by mortgage on headquarters building
and an assignment of the Lease between
Lennox Commercial Realty Inc. and Lennox
Industries Inc. 7,546,885
D. MISCELLANEOUS CAPITAL LEASES 280,954
------------
TOTAL OUTSTANDING INDEBTEDNESS OF LENNOX
INTERNATIONAL INC. AND RESTRICTED SUBSIDIARIES $294,713,249
============
*50% AS OF DECEMBER 31, 1998
</TABLE>
SCHEDULE 5.15 - LENNOX INTERNATIONAL INC. AND RESTRICTED
SUBSIDIARIES - Page 2 of 2
<PAGE> 1
1998 INCENTIVE PLAN
OF
LENNOX INTERNATIONAL INC.
1. Plan. This 1998 Incentive Plan of Lennox International Inc. (the
"Plan") is an amendment and restatement of the Lennox International Inc. 1994
Stock Option and Restricted Stock Plan (the "Existing Plan"), which was adopted
by Lennox International Inc. to reward certain corporate officers and key
employees of Lennox International Inc. and its Subsidiaries (as herein defined)
by enabling them to acquire shares of common stock of Lennox International Inc.
Upon the Amendment Effective Date (as hereinafter defined), the Existing Plan
shall be amended and restated in its entirety as set forth herein. At the same
time the Plan shall replace and incorporate herein certain provisions of the
Company's existing incentive compensation plans.
2. Objectives. This Plan is designed to attract and retain employees of
the Company and its Subsidiaries, to attract and retain qualified directors of
the Company, to attract and retain consultants and other independent
contractors, to encourage the sense of proprietorship of such employees,
directors and independent contractors and to stimulate the active interest of
such persons in the development and financial success of the Company and its
Subsidiaries. These objectives are to be accomplished by making Awards (as
hereinafter defined) under this Plan and thereby providing Participants (as
hereinafter defined) with a proprietary interest in the growth and performance
of the Company and its Subsidiaries.
3. Definitions. As used herein, the terms set forth below shall have
the following respective meanings:
"Amendment Effective Date" has the meaning set forth in paragraph 19
hereof.
"Authorized Officer" means the Chairman of the Board or the Chief
Executive Officer of the Company (or any other senior officer of the Company to
whom either of them shall delegate the authority to execute any Award
Agreement).
"Award" means an Employee Award, a Director Award or an Independent
Contractor Award.
"Award Agreement" means any Employee Award Agreement, Director Award
Agreement or Independent Contractor Award Agreement.
"Board" means the Board of Directors of the Company.
"Cash Award" means an award denominated in cash.
1
<PAGE> 2
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means the Compensation Committee of the Board or such other
committee of the Board as is designated by the Board to administer the Plan.
"Common Stock" means the Common Stock, par value $.01 per share, of the
Company.
"Company" means Lennox International Inc., a Delaware corporation.
"Director" means an individual serving as a member of the Board.
"Director Award" means the grant of a Director Option.
"Director Award Agreement" means a written agreement between the
Company and a Participant who is a Nonemployee Director setting forth the terms,
conditions and limitations applicable to a Director Award.
"Director Options" means Nonqualified Options granted to Nonemployee
Directors pursuant to the applicable terms, conditions and limitations specified
in paragraph 9 hereof.
"Disability" means, with respect to a Nonemployee Director, the
inability to perform the duties of a Director for a continuous period of more
than three months by reason of any medically determinable physical or mental
impairment.
"Dividend Equivalents" means, with respect to shares of Restricted
Stock that are to be issued at the end of the Restriction Period, an amount
equal to all dividends and other distributions (or the economic equivalent
thereof) that are payable to stockholders of record during the Restriction
Period on a like number of shares of Common Stock.
"Employee" means an employee of the Company or any of its Subsidiaries
and an individual who has agreed to become an Employee of the Company or any of
its Subsidiaries and actually becomes such an Employee within the following six
months.
"Employee Award" means the grant of any Option, SAR, Stock Award, Cash
Award or Performance Award, whether granted singly, in combination or in tandem,
to a Participant who is an Employee pursuant to such applicable terms,
conditions and limitations as the Committee may establish in order to fulfill
the objectives of the Plan.
"Employee Award Agreement" means a written agreement between the
Company and a Participant who is an Employee setting forth the terms, conditions
and limitations applicable to an Employee Award.
2
<PAGE> 3
"Fair Market Value" of a share of Common Stock means, as of a
particular date, (i) if shares of Common Stock are listed on a national
securities exchange, the mean between the highest and lowest sales price per
share of Common Stock on the consolidated transaction reporting system for the
principal national securities exchange on which shares of Common Stock are
listed on that date, or, if there shall have been no such sale so reported on
that date, on the last preceding date on which such a sale was so reported, (ii)
if shares of Common Stock are not so listed but are quoted on the Nasdaq
National Market, the mean between the highest and lowest sales price per share
of Common Stock reported by the Nasdaq National Market on that date, or, if
there shall have been no such sale so reported on that date, on the last
preceding date on which such a sale was so reported, (iii) if the Common Stock
is not so listed or quoted, the mean between the closing bid and asked price on
that date, or, if there are no quotations available for such date, on the last
preceding date on which such quotations shall be available, as reported by the
Nasdaq Stock Market, or, if not reported by the Nasdaq Stock Market, by the
National Quotation Bureau Incorporated or (iv) if shares of Common Stock are not
publicly traded, the most recent value determined by an independent appraiser
appointed by the Company for such purpose; provided, however, that,
notwithstanding the foregoing, "Fair Market Value" in the case of any Award
granted in connection with the IPO means the price per share of Common Stock set
on the IPO Pricing Date, as set forth in the final prospectus relating to the
IPO.
"Incentive Option" means an Option that is intended to comply with the
requirements set forth in Section 422 of the Code.
"Independent Contractor" means a person providing services to the
Company or any of its Subsidiaries except an Employee or Nonemployee Director.
"Independent Contractor Award" means the grant of any Nonqualified
Stock Option, SAR, Stock Award, Cash Award or Performance Award, whether granted
singly, in combination or in tandem, to a Participant who is an Independent
Contractor pursuant to such applicable terms, conditions and limitations as the
Committee may establish in order to fulfill the objectives of the Plan.
"Independent Contractor Award Agreement" means a written agreement
between the Company and a Participant who is an Independent Contractor setting
forth the terms, conditions and limitations applicable to an Independent
Contractor Award.
"IPO" means the first time a registration statement filed under the
Securities Act of 1933 and respecting, in whole or in part, an underwritten
primary offering by the Company of shares of Common Stock is declared effective
under that Act and the shares registered by that registration statement are
issued and sold by the Company (otherwise than pursuant to the exercise of any
overallotment option).
"IPO Closing Date" means the date on which the Company first receives
payment for the shares of Common Stock it sells in the IPO.
3
<PAGE> 4
"IPO Pricing Date" means the date of the execution and delivery of an
underwriting or other purchase agreement among the Company and the underwriters
relating to the IPO setting forth the price at which shares of Common Stock will
be issued and sold by the Company to the underwriters and the terms and
conditions thereof.
"Nonemployee Director" has the meaning set forth in paragraph 4(b)
hereof.
"Nonqualified Stock Option" means an Option that is not an Incentive
Option.
"Option" means a right to purchase a specified number of shares of
Common Stock at a specified price.
"Participant" means an Employee, Director or Independent Contractor to
whom an Award has been made under this Plan.
"Performance Award" means an award made pursuant to this Plan to a
Participant who is an Employee or Independent Contractor who is subject to the
attainment of one or more Performance Goals.
"Performance Goal" means one or more standards established by the
Committee, to determine in whole or in part whether a Performance Award shall be
earned.
"Restricted Stock" means any Common Stock that is restricted or subject
to forfeiture provisions.
"Restriction Period" means a period of time beginning as of the date
upon which an Award of Restricted Stock is made pursuant to this Plan and ending
as of the date upon which the Common Stock subject to such Award is no longer
restricted or subject to forfeiture provisions.
"SAR" means a right to receive a payment, in cash or Common Stock,
equal to the excess of the Fair Market Value or other specified valuation of a
specified number of shares of Common Stock on the date the right is exercised
over a specified strike price, in each case, as determined by the Committee.
"Stock Award" means an award in the form of shares of Common Stock or
units denominated in shares of Common Stock.
"Subsidiary" means (i) in the case of a corporation, any corporation of
which the Company directly or indirectly owns shares representing more than 50%
of the combined voting power of the shares of all classes or series of capital
stock of such corporation which have the right to vote generally on matters
submitted to a vote of the stockholders of such corporation and (ii) in the case
of a partnership or other business entity not organized as a corporation, any
such business
4
<PAGE> 5
entity of which the Company directly or indirectly owns more than 50% of the
voting, capital or profits interests (whether in the form of partnership
interests, membership interests or otherwise).
4. Eligibility.
(a) Employees. Employees eligible for Employee Awards under
this Plan are (i) those who hold positions of responsibility and whose
performance, in the judgment of the Committee, can have a significant
effect on the success of the Company and its Subsidiaries, including
those individuals who are expected to become Employees within six
months, and (ii) in the sole discretion of the Committee, salaried
Employees generally who can be expected to be motivated by Performance
Goals to work toward the achievement of Company profitability
objectives.
(b) Directors. Directors eligible for Director Awards under this Plan
are those who are not employees of the Company or any of its Subsidiaries
("Nonemployee Directors").
(c) Independent Contractors. Independent Contractors eligible for
Independent Contractor Awards under this Plan are those Independent
Contractors providing services to, or who will provide services to, the
Company or any of its Subsidiaries.
5. Common Stock Available for Awards. Subject to the provisions of
paragraph 15 hereof, there shall be available for Awards under this Plan granted
wholly or partly in Common Stock (including rights or options that may be
exercised for or settled in Common Stock) an aggregate of 139,500 shares of
Common Stock, of which an aggregate of not more than 20,000 shares shall be
available for Director Awards and the remainder shall be available for Employee
Awards and Independent Contractor Awards. The number of shares of Common Stock
that are the subject of Awards under this Plan, that are forfeited or
terminated, expire unexercised, are settled in cash in lieu of Common Stock or
in a manner such that all or some of the shares covered by an Award are not
issued to a Participant or are exchanged for Awards that do not involve Common
Stock, shall again immediately become available for Awards hereunder. The
Committee may from time to time adopt and observe such procedures concerning the
counting of shares against the Plan maximum as it may deem appropriate. The
Board and the appropriate officers of the Company shall from time to time take
whatever actions are necessary to file any required documents with governmental
authorities, stock exchanges and transaction reporting systems to ensure that
shares of Common Stock are available for issuance pursuant to Awards.
6. Administration.
(a) This Plan, as it applies to Participants who are Employees or
Independent Contractors but not with respect to Participants who are
Nonemployee Directors, shall be administered by the Committee.
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<PAGE> 6
(b) Subject to the provisions hereof, insofar as this Plan relates to
the Employee Awards or Independent Contractor Awards, the Committee
shall have full and exclusive power and authority to administer this
Plan and to take all actions that are specifically contemplated hereby
or are necessary or appropriate in connection with the administration
hereof. Insofar as this Plan relates to Employee Awards or Independent
Contractor Awards, the Committee shall also have full and exclusive
power to interpret this Plan and to adopt such rules, regulations and
guidelines for carrying out this Plan as it may deem necessary or
proper, all of which powers shall be exercised in the best interests of
the Company and in keeping with the objectives of this Plan. The
Committee may, in its discretion, provide for the extension of the
exercisability of an Employee Award or Independent Contractor Award,
accelerate the vesting or exercisability of an Employee Award or
Independent Contractor Award, eliminate or make less restrictive any
restrictions contained in an Employee Award or Independent Contractor
Award, waive any restriction or other provision of this Plan or an
Employee Award or Independent Contractor Award or otherwise amend or
modify an Employee Award or Independent Contractor Award in any manner
that is either (i) not adverse to the Participant to whom such Employee
Award or Independent Contractor Award was granted or (ii) consented to
by such Participant. The Committee may make an award to an individual
who it expects to become an Employee of the Company or any of its
Subsidiaries within the next six months, with such award being subject
to the individual's actually becoming an Employee within such time
period, and subject to such other terms and conditions as may be
established by the Committee. The Committee may correct any defect or
supply any omission or reconcile any inconsistency in this Plan or in
any Employee Award or Independent Contractor Award in the manner and to
the extent the Committee deems necessary or desirable to further the
Plan purposes. Any decision of the Committee in the interpretation and
administration of this Plan shall lie within its sole and absolute
discretion and shall be final, conclusive and binding on all parties
concerned.
(c) No member of the Committee or officer of the Company to
whom the Committee has delegated authority in accordance with the
provisions of paragraph 7 of this Plan shall be liable for anything
done or omitted to be done by him or her, by any member of the
Committee or by any officer of the Company in connection with the
performance of any duties under this Plan, except for his or her own
willful misconduct or as expressly provided by statute.
7. Delegation of Authority. The Committee may delegate to the Chief
Executive Officer and to other senior officers of the Company its duties under
this Plan pursuant to such conditions or limitations as the Committee may
establish.
8. Employee and Independent Contractor Awards.
(a) The Committee shall determine the type or types of
Employee Awards to be made under this Plan and shall designate from
time to time the Employees who are to be the recipients of such Awards.
Each Employee Award may be embodied in an Employee Award
6
<PAGE> 7
Agreement, which shall contain such terms, conditions and limitations
as shall be determined by the Committee in its sole discretion and
shall be signed by the Participant to whom the Employee Award is made
and by an Authorized Officer for and on behalf of the Company. Employee
Awards may consist of those listed in this paragraph 8(a) hereof and
may be granted singly, in combination or in tandem. Employee Awards may
also be made in combination or in tandem with, in replacement of, or as
alternatives to, grants or rights under this Plan or any other employee
plan of the Company or any of its Subsidiaries, including the plan of
any acquired entity. An Employee Award may provide for the grant or
issuance of additional, replacement or alternative Employee Awards upon
the occurrence of specified events, including the exercise of the
original Employee Award granted to a Participant. All or part of an
Employee Award may be subject to conditions established by the
Committee, which may include, but are not limited to, continuous
service with the Company and its Subsidiaries, achievement of specific
business objectives, increases in specified indices, attainment of
specified growth rates and other comparable measurements of
performance. Upon the termination of employment by a Participant who is
an Employee, any unexercised, deferred, unvested or unpaid Employee
Awards shall be treated as set forth in the applicable Employee Award
Agreement.
(i) Stock Option. An Employee Award may be in the form of an
Option. An Option awarded pursuant to this Plan may consist of an
Incentive Option or a Nonqualified Option. The price at which shares of
Common Stock may be purchased upon the exercise of an Incentive Option
shall be not less than the Fair Market Value of the Common Stock on the
date of grant. The price at which shares of Common Stock may be
purchased upon the exercise of a Nonqualified Option shall be not less
than the Fair Market Value of the Common Stock on the date of grant.
Subject to the foregoing provisions, the terms, conditions and
limitations applicable to any Options awarded pursuant to this Plan,
including the term of any Options and the date or dates upon which they
become exercisable, shall be determined by the Committee.
(ii) Stock Appreciation Right. An Employee Award may be in the
form of an SAR. The terms, conditions and limitations applicable to any
SARs awarded pursuant to this Plan, including the term of any SARs and
the date or dates upon which they become exercisable, shall be
determined by the Committee.
(iii) Stock Award. An Employee Award may be in the form of a
Stock Award. The terms, conditions and limitations applicable to any
Stock Awards granted pursuant to this Plan shall be determined by the
Committee.
(iv) Cash Award. An Employee Award may be in the form of a
Cash Award. The terms, conditions and limitations applicable to any
Cash Awards granted pursuant to this Plan shall be determined by the
Committee.
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<PAGE> 8
(v) Performance Award. Without limiting the type or number of Employee
Awards that may be made under the other provisions of this Plan, an
Employee Award may be in the form of a Performance Award. A Performance
Award shall be paid, vested or otherwise deliverable solely on account
of the attainment of one or more pre-established, objective Performance
Goals established by the Committee prior to the earlier to occur of (x)
90 days after the commencement of the period of service to which the
Performance Goal relates and (y) the lapse of 25% of the period of
service (as scheduled in good faith at the time the goal is
established), and in any event while the outcome is substantially
uncertain. A Performance Goal is objective if a third party having
knowledge of the relevant facts could determine whether the goal is
met. Such a Performance Goal may be based on one or more business
criteria that apply to the individual, one or more business units of
the Company, or the Company as a whole, and may include one or more of
the following: increased revenue, net income, earnings before interest
and taxes, operating income, stock price, market share, earnings per
share, improvement of working capital ratios, return on equity, return
on assets, sales growth or decrease in costs. Unless otherwise stated,
such a Performance Goal need not be based upon an increase or positive
result under a particular business criterion and could include, for
example, maintaining the status quo or limiting economic losses
(measured, in each case, by reference to specific business criteria).
In interpreting Plan provisions applicable to Performance Goals and
Performance Awards, it is the intent of the Plan to conform with the
standards of Section 162(m) of the Code and Treasury Regulation
Sections. 1.162-27(e)(2)(i), and the Committee in establishing such
goals and interpreting the Plan shall be guided by such provisions.
Prior to the payment of any compensation based on the achievement of
Performance Goals, the Committee must certify in writing that
applicable Performance Goals and any of the material terms thereof
were, in fact, satisfied. Subject to the foregoing provisions, the
terms, conditions and limitations applicable to any Performance Awards
made pursuant to this Plan shall be determined by the Committee.
(b) Notwithstanding anything to the contrary contained in this
Plan, the following limitations shall apply to any Employee Awards made
hereunder:
(i) no Participant may be granted, during any one-year period,
Employee Awards consisting of Options or SARs that are exercisable for
more than 5,000 shares of Common Stock;
(ii) no Participant may be granted, during any one-year
period, Stock Awards covering or relating to more than 5,000 shares of
Common Stock (the limitation set forth in this clause (ii), together
with the limitation set forth in clause (i) above, being hereinafter
collectively referred to as the "Stock Based Awards Limitations"); and
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<PAGE> 9
(iii) no Participant may be granted Employee Awards consisting
of cash or in any other form permitted under this Plan (other than
Employee Awards consisting of Options or SARs or otherwise consisting
of shares of Common Stock or units denominated in such shares) in
respect of any one-year period having a value determined on the date of
grant in excess of $5,000,000.
(c) Prior to the Amendment Effective Date, certain awards consisting
of options on 85,610 shares of Common Stock (the "Existing Options") have
been granted under the Existing Plan as in effect from time to time. As of
the Amendment Effective Date, each Existing Option shall continue to be
outstanding and the shares of Common Stock that are the subject of such
Existing Options shall be subject to adjustment in accordance with Section
15 and to the other provisions of the Plan.
(d) The Committee shall have the sole responsibility an authority to
determine the type or types of Independent Contractor Awards to be made
under this Plan and may make any such Awards as could be made to an
Employee, other than Incentive Options; provided that the limitations
described in paragraph 8(b) shall be inapplicable to Independent Contractor
Awards.
9. Director Awards. Each Nonemployee Director of the Company shall be
granted Director Options in accordance with this paragraph 9 and subject to the
applicable terms, conditions and limitations set forth in this Plan and the
applicable Director Award Agreement. Notwithstanding anything to the contrary
contained herein, Director Awards shall not be made in any year in which a
sufficient number of shares of Common Stock are not available to make such
Awards under this Plan. The Board may determine annually, or at such other time
or times it deems appropriate, in its sole discretion, to award Director Options
to Nonemployee Directors. No such Director Option made in any year shall provide
for the purchase of more than 500 shares of Common Stock. Each Director Option
shall have a term of ten years from the date of grant, notwithstanding any
earlier termination of the status of the holder as a Nonemployee Director. The
purchase price of each share of Common Stock subject to a Director Option shall
be equal to the Fair Market Value of the Common Stock on the date of grant. All
Director Options shall vest and become exercisable in increments of one-third of
the total number of shares of Common Stock that are subject thereto (rounded up
to the nearest whole number) on the first and second anniversaries of the date
of grant and of all remaining shares of Common Stock that are subject thereto on
the third anniversary of the date of grant. All unvested Director Options shall
be forfeited if the Nonemployee Director resigns as a Director without the
consent of a majority of the other Directors.
Any Award of Director Options shall be embodied in a Director Award
Agreement, which shall contain the terms, conditions and limitations set forth
above and shall be signed by the Participant to whom the Director Options are
granted and by an Authorized Officer for and on behalf of the Company.
9
<PAGE> 10
10. Payment of Awards.
(a) General. Payment of Employee Awards or Independent Contractor
Awards may be made in the form of cash or Common Stock, or a
combination thereof, and may include such restrictions as the Committee
shall determine, including, in the case of Common Stock, restrictions
on transfer and forfeiture provisions. If payment of an Employee Award
or Independent Contractor Award is made in the form of Restricted
Stock, the applicable Award Agreement relating to such shares shall
specify whether they are to be issued at the beginning or end of the
Restriction Period. In the event that shares of Restricted Stock are to
be issued at the beginning of the Restriction Period, the certificates
evidencing such shares (to the extent that such shares are so
evidenced) shall contain appropriate legends and restrictions that
describe the terms and conditions of the restrictions applicable
thereto. In the event that shares of Restricted Stock are to be issued
at the end of the Restricted Period, the right to receive such shares
shall be evidenced by book entry registration or in such other manner
as the Committee may determine.
(b) Deferral. With the approval of the Committee amounts
payable in respect of Employee Awards or Independent Contractor Awards
may be deferred and paid either in the form of installments or as a
lump-sum payment. The Committee may permit selected Participants to
elect to defer payments of some or all types of Awards in accordance
with procedures established by the Committee. Any deferred payment of
an Award, whether elected by the Participant or specified by the Award
Agreement or by the Committee, may be forfeited if and to the extent
that the Award Agreement so provides.
(c) Dividends and Interest. Rights to dividends or Dividend Equivalents
may be extended to and made part of any Employee Award or Independent
Contractor Award consisting of shares of Common Stock or units denominated
in shares of Common Stock, subject to such terms, conditions and
restrictions as the Committee may establish. The Committee may also
establish rules and procedures for the crediting of interest on deferred
cash payments and Dividend Equivalents for Employee Awards or Independent
Contractor Awards consisting of shares of Common Stock or units
denominated in shares of Common Stock.
(d) Substitution of Awards. At the discretion of the Committee, a
Participant who is an Employee or Independent Contractor may be offered an
election to substitute an Employee Award or Independent Contractor Award
for another Employee Award or Independent Contractor Award or Employee
Awards or Independent Contractor Awards of the same or different type.
11. Stock Option Exercise. The price at which shares of Common Stock
may be purchased under an Option shall be paid in full at the time of exercise
in cash or, if elected by the optionee, the optionee may purchase such shares by
means of tendering Common Stock or surrendering another Award, including
Restricted Stock, valued at Fair Market Value on the date of
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<PAGE> 11
exercise, or any combination thereof. The Committee shall determine acceptable
methods for Participants who are Employees or Independent Contractors to tender
Common Stock or other Employee Awards or Independent Contractor Awards; provided
that any Common Stock that is or was the subject of an Employee Award or
Independent Contractor Award may be so tendered only if it has been held by the
Participant for six months. The Committee may provide for procedures to permit
the exercise or purchase of such Awards by use of the proceeds to be received
from the sale of Common Stock issuable pursuant to an Employee Award or
Independent Contractor Award. Unless otherwise provided in the applicable Award
Agreement, in the event shares of Restricted Stock are tendered as consideration
for the exercise of an Option, a number of the shares issued upon the exercise
of the Option, equal to the number of shares of Restricted Stock used as
consideration therefor, shall be subject to the same restrictions as the
Restricted Stock so submitted as well as any additional restrictions that may be
imposed by the Committee.
12. Taxes. The Company shall have the right to deduct applicable taxes
from any Employee Award payment and withhold, at the time of delivery or vesting
of cash or shares of Common Stock under this Plan, an appropriate amount of cash
or number of shares of Common Stock or a combination thereof for payment of
taxes required by law or to take such other action as may be necessary in the
opinion of the Company to satisfy all obligations for withholding of such taxes.
The Committee may also permit withholding to be satisfied by the transfer to the
Company of shares of Common Stock theretofore owned by the holder of the
Employee Award with respect to which withholding is required. If shares of
Common Stock are used to satisfy tax withholding, such shares shall be valued
based on the Fair Market Value when the tax withholding is required to be made.
The Committee may provide for loans, on either a short term or demand basis,
from the Company to a Participant who is an Employee or Independent Contractor
to permit the payment of taxes required by law.
13. Amendment, Modification, Suspension or Termination. The Board may
amend, modify, suspend or terminate this Plan for the purpose of meeting or
addressing any changes in legal requirements or for any other purpose permitted
by law, except that (i) no amendment or alteration that would adversely affect
the rights of any Participant under any Award previously granted to such
Participant shall be made without the consent of such Participant and (ii) no
amendment or alteration shall be effective prior to its approval by the
stockholders of the Company to the extent such approval is required by
applicable legal requirements.
14. Assignability. Unless otherwise determined by the Committee and
provided in the Award Agreement, no Award or any other benefit under this Plan
shall be assignable or otherwise transferable except by will or the laws of
descent and distribution or pursuant to a qualified domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act,
or the rules thereunder. The Committee may prescribe and include in applicable
Award Agreements other restrictions on transfer. Any attempted assignment of an
Award or any other benefit under this Plan in violation of this paragraph 14
shall be null and void.
11
<PAGE> 12
15. Adjustments.
(a) The existence of outstanding Awards shall not affect in any manner
the right or power of the Company or its stockholders to make or authorize
any or all adjustments, recapitalizations, reorganizations or other changes
in the capital stock of the Company or its business or any merger or
consolidation of the Company, or any issue of bonds, debentures, preferred
or prior preference stock (whether or not such issue is prior to, on a
parity with or junior to the Common Stock) or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of
its assets or business, or any other corporate act or proceeding of any
kind, whether or not of a character similar to that of the acts or
proceedings enumerated above.
(b) In the event of any subdivision or consolidation of outstanding
shares of Common Stock, declaration of a dividend payable in shares of
Common Stock or other stock split (including in connection with the IPO),
then, (i) the number of shares of Common Stock reserved under this Plan,
(ii) the number of shares of Common Stock covered by outstanding Awards in
the form of Common Stock or units denominated in Common Stock, (iii) the
exercise or other price in respect of such Awards, (iv) the appropriate
Fair Market Value and other price determinations for such Awards, and (v)
the Stock Based Awards Limitations shall each be proportionately adjusted
by the Board to reflect such transaction. In the event of any other
recapitalization or capital reorganization of the Company, any
consolidation or merger of the Company with another corporation or entity,
the adoption by the Company of any plan of exchange affecting the Common
Stock or any distribution to holders of Common Stock of securities or
property (other than normal cash dividends or dividends payable in Common
Stock), the Board shall make appropriate adjustments to (i) the number
of shares of Common Stock covered by Awards in the form of Common Stock
or units denominated in Common Stock, (ii) the exercise or other price
in respect of such Awards, (iii) the appropriate Fair Market Value and
other price determinations for such Awards, and (iv) the Stock Based
Awards Limitations to give effect to such transaction shall each be
proportionately adjusted by the Board to reflect such transaction;
provided that such adjustments shall only be such as are necessary to
maintain the proportionate interest of the holders of the Awards and
preserve, without exceeding, the value of such Awards. In the event of
a corporate merger, consolidation, acquisition of property or stock,
separation, reorganization or liquidation, the Board shall be
authorized to issue or assume Awards by means of substitution of new
Awards, as appropriate, for previously issued Awards or to assume
previously issued Awards as part of such adjustment.
16. Restrictions. No Common Stock or other form of payment shall be
issued with respect to any Award unless the Company shall be satisfied based on
the advice of its counsel that such issuance will be in compliance with
applicable federal and state securities laws. Certificates evidencing shares of
Common Stock delivered under this Plan (to the extent that such shares are so
evidenced) may be subject to such stop transfer orders and other restrictions as
the
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<PAGE> 13
Committee may deem advisable under the rules, regulations and other requirements
of the Securities and Exchange Commission, any securities exchange or
transaction reporting system upon which the Common Stock is then listed or to
which it is admitted for quotation and any applicable federal or state
securities law. The Committee may cause a legend or legends to be placed upon
such certificates (if any) to make appropriate reference to such restrictions.
17. Unfunded Plan. Insofar as it provides for Awards of cash, Common
Stock or rights thereto, this Plan shall be unfunded. Although bookkeeping
accounts may be established with respect to Participants who are entitled to
cash, Common Stock or rights thereto under this Plan, any such accounts shall be
used merely as a bookkeeping convenience. The Company shall not be required to
segregate any assets that may at any time be represented by cash, Common Stock
or rights thereto, nor shall this Plan be construed as providing for such
segregation, nor shall the Company, the Board or the Committee be deemed to be a
trustee of any cash, Common Stock or rights thereto to be granted under this
Plan. Any liability or obligation of the Company to any Participant with respect
to an Award of cash, Common Stock or rights thereto under this Plan shall be
based solely upon any contractual obligations that may be created by this Plan
and any Award Agreement, and no such liability or obligation of the Company
shall be deemed to be secured by any pledge or other encumbrance on any property
of the Company. Neither the Company nor the Board nor the Committee shall be
required to give any security or bond for the performance of any obligation that
may be created by this Plan.
18. Governing Law. This Plan and all determinations made and actions
taken pursuant hereto, to the extent not otherwise governed by mandatory
provisions of the Code or the securities laws of the United States, shall be
governed by and construed in accordance with the laws of the State of Delaware.
19. Effectiveness. The Existing Plan shall be amended and restated in
its entirety as set forth herein as of the effective date of the Board action
approving this Plan, subject only to approval of the Plan by the stockholders of
the Company (the "Amendment Effective Date").
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<PAGE> 1
EXHIBIT 10.9
LENNOX INTERNATIONAL INC.
PROFIT SHARING RESTORATION PLAN
THIS PROFIT SHARING RESTORATION PLAN, made and executed at Richardson,
Texas, by LENNOX INTERNATIONAL INC., a Delaware corporation (the "Company"),
WITNESSETH THAT:
WHEREAS, Lennox International Inc., an Iowa corporation, heretofore
established an unfunded employee benefit plan known as the Lennox International
Inc. Profit Sharing Restoration Plan (the "Plan") to supplement the benefits
payable under the Lennox Industries Inc. Profit Sharing Retirement Plan to or
with respect to any participant therein whose interest under the Lennox
Industries Inc. Profit Sharing Retirement Plan has been limited because of (a)
the maximum annual addition limitation imposed by Section 415 of the Internal
Revenue Code of 1986, as amended (the "Code"), and/or (b) the annual
compensation limitation imposed by Section 401(a)(17) of the Code; and
WHEREAS, said Lennox International Inc. subsequently merged into the
Company and the Company thereupon approved, adopted and assumed the sponsorship
of the Plan; and
WHEREAS, effective as of January 1, 1991, Lennox Industries Inc.
amended by restatement in its entirety the Lennox Industries Inc. Profit
Sharing Retirement Plan, renaming it the Lennox International Inc. Profit
Sharing Retirement Plan; and
WHEREAS, the Company now desires to amend the Plan to reflect the
provisions of the restated Lennox Industries Inc. Profit Sharing Retirement
Plan and to make certain other changes;
NOW, THEREFORE, pursuant to the provisions of Section 5 thereof, the
Plan is hereby amended by restatement in its entirety to read as follows:
Section 1. Defined Terms. As used herein, (a) the term "Profit
Sharing Plan" means the Lennox International Inc. Profit Sharing Retirement
Plan, except that for periods of time prior to January 1, 1991, such term means
the Lennox Industries Inc. Profit Sharing Retirement Plan, (b) the term
"Employers" means the Company and any other incorporated or unincorporated
trade or business which may adopt both the Profit Sharing Plan and this Plan,
and (c) the term "Executive" means any employee in the employ of an Employer
assigned an executive labor grade of 8 or above. Unless the context clearly
indicates otherwise, the other words and phrases used in this Plan shall have
the meanings assigned to them under the provisions of the Profit Sharing Plan.
Section 2. Administration. This Plan shall be administered by the
Company in a manner consistent with the administration of
<PAGE> 2
the Profit Sharing Plan, except that this Plan shall be administered as an
unfunded plan which is not intended to qualify under the provisions of Section
401(a) of the Code. The Company shall interpret the provisions of this Plan
and perform and exercise all of the duties and powers granted to it under the
terms of this Plan by action of its Chief Executive Officer or his delegate
(or, in the case of any matters relating to benefits payable under the Plan to
or on behalf of its Chief Executive Officer, by action of its Board of
Directors). The Company may adopt such rules and regulations for the
administration of this Plan as are consistent with the terms hereof and shall
keep adequate records of its proceedings and acts with respect to the Plan.
All interpretations and decisions made and other action taken by the Company
shall be conclusive and binding upon all parties having or claiming to have an
interest under this Plan.
Section 3. Deferred Compensation Accounts. Each Employer shall
establish and maintain on its books a deferred compensation account for each
Executive in its employ whose allocable share of Employer contributions and/or
forfeitures under the Profit Sharing Plan has been limited in a Plan Year
commencing after December 31, 1982 by the maximum annual addition limitation
imposed by Section 415 of the Code and/or the annual compensation limitation
imposed by Section 401(a)(17) of the Code. Such account shall be designated by
the name of the Executive for whom established and shall be credited as of the
end of each such Plan Year with an amount equal to the excess of (a) the total
amount of Employer contributions and forfeitures which would have been
allocated to such Executive under the Profit Sharing Plan for such year in the
absence of said maximum annual addition limitation and annual compensation
limitation, over (b) the amount of Employer contributions and forfeitures
actually allocated to such Executive under the Profit Sharing Plan for such
year. In addition, as of the date of each valuation and adjustment of Accounts
under the Profit Sharing Plan (including any such date within a period during
which installment distributions are being made pursuant to Section 4 of this
Plan), such Executive's deferred compensation account shall be adjusted to
reflect the same rate of increase or decrease in value as is used to adjust his
or her Employer Account under the Profit Sharing Plan for the valuation and
adjustment period ending as of such date.
Section 4. Account Payments. Upon the termination of an Executive's
employment with an Employer the amount credited to such Executive's deferred
compensation account shall be paid to such Executive (or, in the event of his
or her death, to the beneficiary or beneficiaries designated by such Executive
for the purposes of the Profit Sharing Plan) in approximately equal annual
installments over a period of ten years; provided, however, that with the
consent of the Company, such Executive (or, in the event of his or her death,
the beneficiary or
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<PAGE> 3
beneficiaries of such Executive) may elect to receive such amount either in a
single lump sum payment or in approximately equal annual installments over a
period of five years; provided further, however, that if such Executive is not
fully vested in the amount credited to his or her Employer Account under the
Profit Sharing Plan at the time of such termination of employment, then the
amount credited to such Executive's deferred compensation account under this
Plan shall be reduced at the time of such termination of employment to an
amount equal to (y) the amount then credited to his or her deferred
compensation account under this Plan, multiplied by (z) the vested percentage
applicable to such Executive's Employer Account under Section 4.2 of the Profit
Sharing Plan as of the date of such termination of employment. For the
purposes of this Plan, an Executive's employment with an Employer shall not be
considered to have terminated so long as such Executive is in the employ of any
Employer or Affiliated Company.
Section 5. Amendment and Termination. The Company shall have the
right and power at any time and from time to time to amend this Plan, in whole
or in part, on behalf of all Employers, and at any time to terminate this Plan
or any Employer's participation hereunder; provided, however, that no such
amendment or termination shall reduce the amount actually credited to an
Executive's deferred compensation account under this Plan on the date of such
amendment or termination, or further defer the due date for the payment of such
amount, without the consent of the affected Executive.
Section 6. Nature of Plan and Rights. This Plan is unfunded and
maintained by the Employers primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
of the Employers. The deferred compensation accounts established and
maintained under this Plan by an Employer are for accounting purposes only and
shall not be deemed or construed to create a trust fund of any kind or to grant
a property interest of any kind to any Executive or his or her beneficiaries.
The amounts credited by an Employer to said accounts are and for all purposes
shall continue to be a part of the general assets of such Employer and, to the
extent that an Executive or beneficiary acquires a right to receive payments
from such Employer pursuant to this Plan, such right shall be no greater than
the right of any unsecured general creditor of such Employer.
Section 7. Spendthrift Provision. No account balance or other right
or interest of an Executive or beneficiary under this Plan may be assigned,
transferred or alienated, in whole or in part, either directly or by operation
of law, and no such balance, right or interest shall be liable for or subject
to any debt, obligation or liability of such Executive or beneficiary.
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<PAGE> 4
Section 8. Employment Noncontractual. The establishment of this Plan
shall not enlarge or otherwise affect the terms of any Executive's employment
with his or her Employer, and such Employer may terminate the employment of
such Executive as freely and with the same effect as if this Plan had not been
established.
Section 9. Adoption of Other Employers. This Plan may be adopted by
any Employer participating under the Profit Sharing Plan, such adoption to be
effective as of the date specified by such Employer at the time of adoption.
Section 10. Applicable Law. This Plan shall be governed by and
construed in accordance with the laws of the State of Texas.
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<PAGE> 5
EXHIBIT 10.9
LENNOX INTERNATIONAL INC.
SUPPLEMENTAL RETIREMENT PLAN
THIS SUPPLEMENTAL RETIREMENT PLAN, made and executed in Richardson,
Texas, by Lennox International Inc., a Delaware corporation, Lennox Industries
Inc., an Iowa corporation, Heatcraft Inc., a Mississippi corporation, and
Armstrong Air Conditioning Inc., an Ohio corporation (collectively the
"Employers"),
WITNESSETH THAT:
WHEREAS, effective as of September 30, 1981, Lennox Industries Inc.
established an unfunded supplemental retirement plan known as the Lennox
Industries Inc. Supplemental Retirement Plan (the "Plan") to supplement the
benefits provided by the Lennox Industries Inc. Pension Plan for Salaried
Employees to certain executives of Lennox Industries Inc. in its employ on or
after September 30, 1981 and their beneficiaries; and
WHEREAS, Lennox Industries Inc. now desires to amend and restate the
Plan to change the plan sponsor of the Plan to Lennox International Inc., to
enable certain executives of all Employers to participate in the Plan, to modify
the formula for calculating supplemental retirement benefits provided under the
Plan and to make certain other changes;
NOW, THEREFORE, pursuant to Section 8.2 thereof, the Plan is hereby
renamed as the Lennox International Inc. Supplemental Retirement Plan and
amended and restated in its entirety to read as follows:
Article 1. Definitions
1.1 Definitions. Whenever used in the Plan, the following terms shall
have the respective meanings set forth below unless otherwise expressly provided
herein, and when the defined meaning is intended the term is capitalized:
(a) "Company" means Lennox International Inc., a Delaware
corporation.
(b) "Covered Compensation" shall have the meaning assigned to the
term under the Qualified Pension Plan.
(c) "Early Retirement Date" of a Participant means the earlier of
(i) the first day on or after his 62nd birthday that he has
completed 10 or more Years of Vesting Service, or (ii) the
first day on or after his 55th birthday that his age and Years
of Vesting Service total 80 or more.
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(d) "Employer" means the Company, Lennox Industries Inc.,
Heatcraft Inc., Armstrong Air Conditioning Inc. and any other
trade or business which may subsequently adopt the Plan with
the consent of the Board of Directors of the Company.
(e) "Executive" means any employee in the employ of an Employer
assigned an executive labor grade of 8 or above, John Dugan
and David Chase.
(f) "Final Average Compensation" shall have the meaning
assigned to the term under the Qualified Pension Plan,
except that in determining Final Average Compensation
for purposes of this Plan (i) the dollar limitation
imposed by Section 401(a)(17) of the Internal Revenue
Code shall not apply, and (ii) any bonus paid to a
Participant during 1991 for personal services rendered
to an Employer during 1990 shall be included in
determining the compensation paid to the Participant
for both 1990 and 1991.
(g) "Normal Retirement Date" of a Participant means his 65th
birthday.
(h) "Participant" means any individual who has become a
Participant in the Plan under Article 2 and whose benefits
under the Plan have not been fully distributed.
(i) "Plan" means this Lennox International Inc. Supplemental
Retirement Plan as amended and restated effective as of
January 1, 1991 and as from time to time in effect thereafter.
(j) "Qualified Pension Plan" means the Lennox International
Inc. Pension Plan for Salaried Employees effective as
of January 1, 1991 and as from time to time in effect
thereafter, except that the supplements to the
Qualified Pension Plan shall be disregarded for
purposes of determining actuarial equivalence, forms of
benefits and benefit commencement dates under this
Plan.
(k) "Year of Credited Service" shall have the meaning
assigned to the term under the Qualified Pension Plan,
except that for purposes of determining the Years of
Credited Service under this Plan, (i) if the
Participant is a Participant in the Plan on January 1,
1991, periods of his employment after December 31, 1990
while not an Executive shall be disregarded, and (ii)
if the Participant becomes a Participant in the Plan
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after January 1, 1991, all periods of his employment while not
an Executive shall be disregarded.
(l) "Year of Vesting Service" shall have the meaning assigned to
the term under the Qualified Pension Plan.
1.2 Gender and Number. Except when otherwise indicated by the
context, any masculine terminology herein shall also include the feminine and
neuter, and the definition of any term herein in the singular may also include
the plural.
Article 2. Participation
2.1 Participation. Each Executive shall become a Participant in
this Plan on the later of January 1, 1991 or the date he becomes an Executive.
Article 3. Benefits
3.1 Normal Retirement Benefit.
(a) Eligibility. Subject to Section 3.4, a Participant shall be
eligible for a normal retirement benefit under the Plan upon
termination of employment from the Employers and their
affiliates on or after his Normal Retirement Date.
(b) Amount. A Participant eligible for a normal retirement benefit
under the Plan shall be entitled to a monthly normal
retirement benefit calculated as follows:
Step (1). There shall first be determined 2.0% of one-
twelfth of the Participant's Final Average
Compensation.
Step (2). To the amount determined under Step (1) above, there
shall be added 1.2% of one-twelfth of the excess of the
Participant's Final Average Compensation
over his Covered Compensation.
Step (3). The sum determined under Step (2) above shall be
multiplied by the Years of Credited Service (not in excess of
15) credited to the Participant at his termination of
employment.
Step (4). From the amount thus determined, there shall be
deducted the actuarial equivalence (determined in accordance
with the Qualified Pension Plan) of the monthly benefit under
a single-premium nontransferable single-life annuity which
could be provided by the sum
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of (i) the vested balance in the Participant's Employer
Account in the Lennox International Inc. Profit Sharing
Retirement Plan and (ii) the vested balance in the
Participant's deferred compensation account, if any, in the
Lennox International Inc. Profit Sharing Restoration Plan, as
of the date the Participant terminated employment.
Step (5). From the amount thus determined, there shall be
deducted the monthly normal retirement benefit the Participant
is entitled to receive in the form of a single-life annuity
under the Qualified Pension Plan, and the remainder shall be
the monthly normal retirement benefit in the form of a
single-life annuity under this Plan.
(c) Commencement. Normal retirement benefit payments under
this Plan to a Participant shall commence at the same
time that his normal retirement benefit payments
commence under the Qualified Pension Plan, or if no
normal retirement benefit payments are payable to him
under the Qualified Pension Plan, at the earliest time
such payments would commence under the Qualified
Pension Plan if such payments were payable to him.
3.2 Early Retirement Benefit.
(a) Eligibility. Subject to Section 3.4, a Participant shall be
eligible for an early retirement benefit under the Plan upon
termination of employment from the Employers and their
affiliates on or after his Early Retirement Date but prior to
his Normal Retirement Date.
(b) Amount. A Participant eligible for an early retirement
benefit under the Plan shall be entitled to a monthly
early retirement benefit calculated in the same manner
as a monthly normal retirement benefit under Section
3.1(b), except that (i) prior to the deduction
described in Step (5), the amount determined under Step
(4) shall be reduced by 0.5% for each month (or any
fraction thereof) that the Participant's early
retirement benefit under the Plan commences prior to
his 60th birthday, and (ii) instead of the monthly
normal retirement benefit under the Qualified Pension
Plan, there shall be deducted under Step (5) the
monthly early retirement benefit the Participant is
entitled to receive in the form of a single-life
annuity under the Qualified Pension Plan, determined
assuming that the early retirement benefit commences
under the Qualified Pension Plan on the same day that
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<PAGE> 9
the Participant's early retirement benefit commences
under this Plan.
(c) Commencement. Early retirement benefit payments under
the Plan to a Participant shall commence on the first
day of the month following the later of his 60th
birthday or his termination of employment. However, in
the case of a Participant who terminated employment
prior to his 60th birthday, (i) if he elected to
commence receiving early retirement benefit payments
under the Qualified Pension Plan on some day prior to
his 60th birthday, with the consent of the Company he
may elect to commence receiving his early retirement
benefit payments under this Plan on that same day, or
(ii) if no early retirement benefit payments are
payable to him under the Qualified Pension Plan, with
the consent of the Company he may elect to commence
receiving his early retirement benefit payments under
this Plan on any day prior to his 60th birthday that
early retirement benefit payments to him could commence
under the Qualified Pension Plan if such payments were
payable to him.
3.3 Deferred Vested Retirement Benefit.
(a) Eligibility. Subject to Section 3.4, a Participant shall be
eligible for a deferred vested retirement benefit under the
Plan upon termination of employment from the Employers and
their affiliates after completion of five Years of Vesting
Service but prior to his Early Retirement Date.
(b) Amount. A Participant eligible for a deferred vested
retirement benefit under the Plan shall be entitled to
a monthly deferred vested retirement benefit calculated
in the same manner as a monthly normal retirement
benefit under Section 3.1(b), except that instead of
the monthly normal retirement benefit under the
Qualified Pension Plan, there shall be deducted under
Step (5) the monthly deferred vested retirement benefit
the Participant is entitled to receive in the form of a
single-life annuity under the Qualified Pension Plan.
(c) Commencement. Deferred vested retirement benefit
payments under this Plan to a Participant shall
commence at the same time that his deferred vested
retirement benefit payments commence under the
Qualified Pension Plan, or if no deferred vested
retirement benefit payments are payable to him under
the Qualified Pension Plan, at the earliest time such
payments would commence under the Qualified Pension
Plan if such payments were payable to him.
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3.4 Form of Retirement Benefits.
(a) Single Participant. If a Participant is not married on
the date his retirement benefit payments commence under
this Plan, his payments shall be made in the form of a
single-life annuity, except that if he is entitled to
early retirement benefit payments under this Plan and
he elected a temporary annuity form of payment for his
early retirement benefit payments under the Qualified
Pension Plan, with the consent of the Company he may
elect a temporary annuity form of payment for his early
retirement benefit payments under this Plan.
(b) Married Participant. If a Participant is married on
the date his retirement benefit payments commence under
this Plan, his payments shall be made in the form of a
joint and 100% survivor annuity, except that (i) if he
has elected any other annuity form of payment for his
retirement benefit payments under the Qualified Pension
Plan, with the consent of the Company but without
spousal consent he may elect that other form of payment
for his retirement benefit payments under this Plan,
and (ii) if no retirement benefit payments are payable
to him under the Qualified Pension Plan in an annuity
form, with the consent of the Company but without
spousal consent he may elect any other joint and
survivor annuity form of payment available under the
Qualified Pension Plan for his retirement benefit
payments under this Plan, or with the consent of the
Company and with spousal consent he may elect a single-
life annuity for such benefit payments.
(c) Actuarial Equivalence. Whenever the amount of
retirement benefit payments under this Plan is
calculated in the form of a single-life annuity but
such payments commence in any other annuity form, the
amount so calculated shall be adjusted on the basis of
actuarial equivalence (as determined in accordance with
the Qualified Pension Plan) and the adjusted amount
shall be the amount of the payments made in the other
annuity form.
3.5 Death Benefit.
(a) Eligibility. If a Participant dies on or after either his
Normal Retirement Date or his completion of five Years of
Vesting Service but prior to the date his retirement benefit
commences under the Plan, and if he had been married during
the entire one-year period ending on the date of his death,
his surviving spouse shall be eligible for a death benefit
under the Plan.
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<PAGE> 11
(b) Amount. A surviving spouse eligible for a death
benefit under the Plan shall be entitled to a monthly
death benefit calculated as the monthly retirement
benefit that would have been payable under the Plan to
the surviving spouse under a joint and 50% survivor
annuity had the Participant (i) terminated employment
on the date of his death (unless he was no longer in
the employ of the Employers and their affiliates on
such date), (ii) subsequently commenced receiving a
deferred vested retirement benefit, early retirement
benefit or normal retirement benefit, whichever would
be applicable, under the Plan in the form of a joint
and 50% survivor annuity with his surviving spouse, and
(iii) then died immediately thereafter. The monthly
payment of the retirement benefit described in clause
(ii) of the preceding sentence shall be calculated as
if the Participant had survived until the commencement
of a retirement benefit of the same type under the
Qualified Pension Plan. Any early retirement death
benefit payable to a surviving spouse shall be
calculated assuming that an early retirement benefit to
the Participant under the Qualified Pension Plan
commenced on the day that the surviving spouse's early
retirement death benefit commences under this Plan.
(c) Commencement. Death benefit payments under the Plan to
a surviving spouse shall be paid during the spouse's
lifetime, commencing at the time the deceased
Participant would have commenced receiving the
retirement benefit described in clause (ii) of Section
3.5(b). However, in the case of a retirement benefit
described in clause (ii) of Section 3.5(b) that is an
early retirement benefit for a Participant who died
prior to his 60th birthday, (i) if the surviving spouse
elected to commence receiving early retirement death
benefit payments under the Qualified Pension Plan on
some day prior to the Participant's 60th birthday, with
the consent of the Company the surviving spouse may
elect to commence receiving early retirement death
benefit payments under this Plan on that same day, or
(ii) if no early retirement death benefit payments are
payable to the surviving spouse under the Qualified
Pension Plan, with the consent of the Company the
surviving spouse may elect to commence receiving early
retirement death benefit payments under this Plan on
any day prior to the Participant's 60th birthday that
early retirement death benefit payments to the
surviving spouse could commence under the Qualified
Pension Plan if such payments were payable.
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Article 4. Financing
4.1 Financing. The benefits under the Plan shall be paid out of the
general assets of the Employers. The benefits shall not be funded in advance of
payment in any way.
4.2 No Trust Created. No provision of the Plan and no action taken
under the Plan shall create or be construed to create either a trust of any kind
or a fiduciary relationship between the Employers and any Participant, spouse of
a Participant or any other person.
4.3 Unsecured Interest. No Participant shall have any interest
whatsoever in any specific asset of the Employers. To the extent that any person
acquires a right to receive payments under the Plan, the right shall be no
greater than the right of any unsecured general creditor of the Employers.
Article 5. Administration
5.1 Administration. The Plan shall be administered by the Company. The
Company shall be authorized to construe and interpret all of the provisions of
the Plan, to adopt rules and practices concerning the administration of the same
and to make any determinations necessary hereunder, which shall be binding and
conclusive on all parties. The Company may appoint one or more persons from
members of management whose functions shall be to act for the Company in the
administration of the Plan and to establish rules and regulations for such
administration.
5.2 Company Consent. Whenever the consent of the Company is required
under the terms of this Plan, such consent may be given only by the Chief
Executive Officer of the Company in his sole discretion, except that with
respect to any matters relating to the benefits payable under the Plan to or on
behalf of the Chief Executive Officer, such consent may be given only by the
Board of Directors of the Company in its sole discretion.
5.3 Expenses. The cost of payments from the Plan and the expenses of
administering the Plan shall be borne by the Employers.
5.4 Tax Withholding. Each Employer may withhold, or require the
withholding, from any payment which it is required to make, any federal, state
or local taxes required by law to be withheld with respect to such payment and
such sum as the Employer may reasonably estimate as necessary to cover any taxes
for which the Employer may be liable and which may be assessed with regard to
such payment. Upon discharge or settlement of such tax liability, the Employer
shall distribute the balance of such sum, if any, to the Participant for whose
payment it was
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<PAGE> 13
withheld, or if such Participant is then deceased, to the surviving spouse of
such Participant. Prior to making any payment hereunder, each Employer may
require such documents from any taxing authority, or may require such
indemnities or surety bond as the Employer shall reasonably deem necessary for
its protection.
Article 6. Miscellaneous
6.1 Nontransferability. In no event shall an Employer make any payment
under the Plan to any assignee or creditor of a Participant or his spouse. Prior
to the time of a payment under the Plan, a Participant or his spouse shall have
no rights by way of anticipation or otherwise to assign or otherwise dispose of
any interest under the Plan, nor shall rights be assigned or transferred by
operation of law.
6.2 Amendment or Termination. The Plan may be amended or terminated at
any time by the Company. Notice of any such amendment or termination shall be
given in writing to each Participant and surviving spouse of a deceased
Participant having an interest in the Plan.
6.3 Superseded Plan Benefits. If a participant in the Lennox Industries
Inc. Supplemental Retirement Plan retired from Lennox Industries Inc. prior to
January 1, 1991, any supplemental retirement benefit payments to which he and
his spouse may be entitled shall be governed solely by the provisions of that
plan as in effect on the date he retired.
6.4 Employment Noncontractual. The establishment of the Plan shall not
enlarge or otherwise affect the terms of any Executive's employment with his
Employer, and any Employer may terminate the employment of an Executive as
freely and with the same effect as if the Plan had not been established.
6.5 Applicable Law. This instrument shall be construed in accordance
with and governed by the laws of the State of Texas to the extent not superseded
by the laws of the United States.
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AMENDMENT NO. 1 TO THE
LENNOX INTERNATIONAL INC.
SUPPLEMENTAL RETIREMENT PLAN
Pursuant to Section 6.2 thereof, the Lennox International Inc.
Supplemental Retirement Plan (the "Plan") is hereby amended in the following
respects only:
FIRST: Section 3.3(b) of the Plan is hereby amended by
restatement in its entirety to read as follows:
(b) Amount. A Participant eligible for a deferred vested
retirement benefit under the Plan shall be entitled to
a monthly deferred vested retirement benefit calculated
in the same manner as a monthly normal retirement
benefit under Section 3.1(b), except that (i) prior to
the deduction described in Step (5), the amount
determined under Step (4) shall be reduced by 0.5% for
each month (or any fraction thereof) that the
Participant's deferred vested retirement benefit under
the Plan commences prior to his 62nd birthday, and
(ii) instead of the monthly normal retirement benefit
under the Qualified Pension Plan, there shall be
deducted under Step (5) the monthly deferred vested
retirement benefit the Participant is entitled to
receive in the form of a single-life annuity under the
Qualified Pension Plan, determined assuming that the
deferred vested retirement benefit commences under the
Qualified Pension Plan on the same day that the
Participant's deferred vested retirement benefit
commences under this Plan.
SECOND: Section 3.3(c) of the Plan is hereby amended by restatement in
its entirety to read as follows:
(c) Commencement. Deferred vested retirement benefit
payments under the Plan to a Participant shall commence
on the first day of the month following the later of
his 62nd birthday or his termination of employment.
However, in the case of a Participant who terminated
employment prior to his 62nd birthday, (i) if he
elected to commence receiving deferred vested
retirement benefit payments under the Qualified Pension
Plan on some day prior to his 62nd birthday, with the
consent of the Company he may elect to commence
receiving his deferred vested retirement benefit
payments under this Plan on that same day, or (ii) if
no deferred vested retirement benefit payments are
payable to him under the Qualified Pension Plan, with
the consent of the Company he may elect to commence
<PAGE> 15
receiving his deferred vested retirement benefit payments
under this Plan on any day prior to his 62nd birthday that
deferred vested retirement benefit payments to him could
commence under the Qualified Pension Plan if such payments
were payable to him.
THIRD: Article 3 of the Plan is hereby amended by adding to the end
thereof sections to read as follows:
3.6 Continuation of Normal Retirement Benefit. If a
Participant receiving a normal retirement benefit under the Plan dies
survived by a spouse and/or minor children prior to attaining the age
of 70 years, and if such Participant was receiving such benefit in the
form of a single-life annuity, the monthly normal retirement benefit
payments that had been payable to him under the Plan shall be continued
to such spouse and/or minor children until the date the Participant
would have attained the age of 70 years.
3.7 Continuation of Early or Deferred Vested Retirement
Benefit. If a Participant receiving either an early retirement benefit
or a deferred vested retirement benefit under the Plan dies survived by
a spouse and/or minor children prior to attaining the age specified in
the following table that corresponds to such Participant's age at the
commencement of such benefit, and if he was receiving such benefit in
the form of a single-life annuity, the monthly retirement benefit
payments that had been payable to him under the Plan shall be continued
to such spouse and/or minor children until the date the Participant
would have attained the age specified in the following table that
corresponds to his age at the commencement of such benefit:
Benefit Commencement Age Participant's Age
62 or less 64
63 66
64 68
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AMENDMENT NO. 2 TO THE
LENNOX INTERNATIONAL INC.
SUPPLEMENTAL RETIREMENT PLAN
Pursuant to Section 6.2 thereof, the Lennox International Inc.
Supplemental Retirement Plan is hereby amended by restating Section 1.1(k)
thereof in its entirety to read as follows:
(k) "Year of Credited Service" shall have the meaning
assigned to the term under the Qualified Pension Plan,
except that for purposes of determining the Years of
Credited Service under this Plan, (i) if the
Participant is a Participant in the Plan on January 1,
1991, periods of his employment after December 31, 1990
while not an Executive shall be disregarded, and (ii)
if the Participant becomes a Participant in the Plan
after January 1, 1991, all periods of his employment
while not an Executive shall be disregarded. For
purposes of the preceding sentence, a Participant shall
be considered a Participant in the Plan on January 1,
1991 only if on such date he was a participant in the
Lennox Industries Inc. Supplemental Retirement Plan as
that plan existed prior to the adoption of this Plan.
<PAGE> 1
EXHIBIT 10.10
June 23, 1998
Mr. Jean-Jacques Brancher
Ets. Brancher S.A.
11, rue d'Alsace-Lorraine
69500 Bron, France
Re: Letter of Intent
Dear Jean-Jacques:
This Letter of Intent will confirm the intentions of Lennox Global Ltd., a
Delaware corporation ("Global"), and you, to further amend the existing
agreements between various parties described below regarding the joint venture
for the manufacturing, marketing and sale of heating, ventilating, air
conditioning and refrigeration equipment ("HVAC") in Europe (the "Business"). On
13 May 1996, Global, Ets. Brancher S.A., its subsidiary Fibel S.A. and you
entered into an agreement to form a joint venture to engage in the Business in
Europe and other areas (the "Venture Agreement"). The Venture Agreement included
provisions for Global to purchase a part of the shares of the companies involved
in the Business which were owned, directly or indirectly, by you. The Venture
Agreement was subsequently amended on 13 and 24 May 1996 and amended and
completely restated on 20 October 1997 (all agreements relating to the Venture
as amended and existing at the time of this Letter of Intent are collectively
referred to as the "Prior Agreements"). This Letter of Intent is to describe the
principles by which the parties will further amend the Prior Agreements to allow
for the most efficient operational, fiscal and tax structure for the Business
while preserving the rights of the parties under the Prior Agreements ("Proposed
Restructure"). Upon acceptance by you, this Letter of Intent shall represent the
binding agreement of you and Global, and will allow the Proposed Restructure of
the Business to proceed while the final detailed terms of the necessary
amendments to the Prior Agreements are prepared and agreed to by the parties.
The Prior Agreements
The Prior Agreements provided for: (i) the transfer of all companies and assets
necessary for the operation of the Business to Ets. Brancher S.A. (the "Venture
Holding Company"); (ii) the purchase by Global of approximately Seventy Percent
(70%) of the outstanding shares of Ets. Brancher S.A. (the "Shares") and (iii)
the eventual purchase by Global of all of the remaining Shares from you under
agreed upon terms and conditions. The future purchases of Shares were to be
based on a price calculated based on the book
<PAGE> 2
value and net income of the Venture Holding Company using the formula described
on EXHIBIT "A". The Prior Agreements also described any other applicable terms
and the timing of the purchases by Global.
Proposed Restructure
On such dates and under such terms as the parties may agree, the Business will
be restructured according to the following principles:
1. Creation of a European Holding Company. To allow for certain fiscal and tax
benefits, a holding company or holding companies will be created for the
Business in those countries where the Business operates which providing the best
fiscal and tax arrangements while not adversely effecting the operations of the
Business. Certain of the companies of the Business will be transferred to this
Company (the "European Holding Company"). It is agreed that operating companies
of the Business will remain as subsidiaries of Ets. Brancher S.A. for so long as
Jean-Jacques Brancher owns more than Twenty-Five Percent (25%) of Ets. Brancher.
Global or its affiliated companies will own One Hundred Percent (100%) of the
European Holding Company. The parties agree to prepare and execute any necessary
documents to transfer title to the companies of the Business as required.
2. Creation of Country Holding Companies. The parties further agree, where
appropriate, to create holding companies in each country where more than one
company of the Business exists regardless of the type of business of those
companies where there are fiscal, tax, operational or other justifications for
such structure.
3. Merger of the Operating Companies in France. The parties have agreed to
undertake the merger of the operational companies of the Business, HCF Lennox
S.A., Friga Bohn S.A. and SCI Geraval, in France to accomplish certain
operational objectives.
Proposed Amendments
The parties agree to amend the Prior Agreements according to the following:
1. General Principles. The parties have agreed to amend the Prior Agreements to
achieve the following: (i) allow for the restructuring of the companies of the
Business as described above even though it may result in a different proportion
of ownership among the parties of the individual companies of the Business from
the present; (ii) preserve intact your ownership of Ets. Brancher in accordance
with the Prior Agreements; (iii) amend the formula for the future purchase of
your Shares so as to base it on the book value and income of those companies
which are a part of the Business as of 31 December 1997(as represented in the
financial statements of the Business attached hereto as EXHIBIT "B") regardless
of whether such companies are owned in the future by Ets Brancher S.A. or the
European Holding Company at the time of such purchase; (iv) allow for the free
introduction and removal of capital in the European or Country Holding Companies
by
<PAGE> 3
Global with an appropriate adjustment to the formula to allow for the adjustment
of your proportion of ownership in the companies of the Business to reflect the
change in capital; and (v) take no action which would diminish the value of the
Shares or the rights of either party under the Prior Agreements.
2. Specific Provisions. The specific amendments will address the following:
a. The price paid by Global for the Shares is to be calculated based on
the net book value ("Net Book Value") and net income or loss ("Net Income") of
the European Holding Company as calculated according to its books and records
maintained based on the applicable generally accepted accounting principles at
the time of the sale of the Shares.
b. The price to be paid will be adjusted to reflect the impact of any
capital in flow or out flow which is disproportionate to the ownership
percentage of the parties. This adjustment will be based on two ratios of
ownership. The first ratio is percentage of ownership which you own of Ets.
Brancher S.A. at any given time ("Brancher Ownership Percentage" or "BOP"). The
second is the effective ownership percentage ("EOP") of the European Holding
Company which is based on any capital in-flow to or out-flow from the European
Holding Company to or from the parties in a proportion different the ownership
percentage of the parties. The EOP will initially be the BOP. Thereafter, the
EOP will be adjusted when capital adjustments are made disproportionate to the
existing EOP. In the event of a disproportionate capital in-flow or out-flow to
or from the European Holding Company the EOP will be re-calculated based on the
following:
(i). Determine the Net Book Value of the European Holding
Company immediately prior to any disproportionate capital in-flow or out-flow.
(ii) Each party will be assigned a part of this net book value
equal to the party's then applicable EOP.
(iii) Each party's allocation of capital will be adjusted
based on this change of capital.
(iv) The new EOP for each party will equal the ratio of that
party's capital (allocation of capital adjusted for the change) to the total
capital of the European Holding Company after the adjustment.
For example: At the effective date of the Letter of Intent, Global's EOP is 70%
and yours ("JJB") is 30%.
Assume Global makes 20 French Francs ("FF") capital contribution and JJB makes
no capital contribution to the European Holding Company on 1/1/99.
<PAGE> 4
On 1/1/99, prior to the capital contributions the Net Book Value of the European
Holding Company is 100 FF and the respective capital allocations are:
Global = 70% of 100 or 70 FF JJB = 30% of 100 or 30 FF
20 FF of capital is contributed by Global resulting in the following changes to
the respective capital allocations:
Global = 90 FF JJB = 30 FF Total = 120 FF
The resulting Effective Ownership Percentage after the capital contribution will
be:
Global = 90/120 = 75% JJB = 30/120 = 25%
c. In the event of a future purchase, the price for the Shares will be
calculated using the existing formula based on the Net Book Value and Net Income
of the European Holding Company as defined above. If the EOP is different than
the actual ownership of JJB, the price for the Shares will be further adjusted
as follows:
The aggregate Price for the Shares being purchased will be multiplied by an
adjustment factor equal to the EOP times the ratio of the Shares being sold to
the total number of Shares you own. The EOP will be then reduced by the actual
percentage of Ets. Brancher which has been sold times this same adjustment
factor and the your BOP will be reduced by the percentage sold.
EXAMPLE ONE:
Assume Global has made the 20 FF capital contribution described above and JJB
wishes to sell all of his shares. In addition assume that the formula produces a
company value or CV of 200 FF using the European Holding Company financial data.
The price paid for the shares will be:
Price = CV*(EOP for JJB)
Price = 200 FF * (25%) = 50 FF
EXAMPLE TWO:
Assume Global has made the 20 FF capital contribution described above and JJB
wishes to sell an additional 5% of Ets Brancher S.A. and retain 25% BOP interest
in Ets. Brancher S. A. In addition assume that the formula produces a company
value or CV of 200 FF using the European Holding Company financial data.
The price paid by Global for the additional 5% of for Ets. Brancher S.A. will
be:
<PAGE> 5
Price = CV *( # Shares sold by JJB)/(total # Shares owned by JJB) * (EOP for
JJB)
Price = 200 FF * (5%/30%) * (25%) = 200 FF * 0.1667 * 0.25 = 200 FF * 0.04167
Price = 8.3335 FF
d. The parties further agree to modify the existing agreements in such
a way so as to provide for the planned conversion to the European-currency
without altering the basic intent of the parties with respect to such
agreements.
Conditions to Closing
The parties have further agreed to the following to complete this transaction:
1. Definitive Agreement. The negotiation and execution of an
appropriate Amendment to the existing agreements with terms and conditions
satisfactory to each party.
2. Corporate Approvals. The Boards of Directors of Global and its
parent company shall have approved the execution and delivery of this Letter of
Intent and the Amendments to Prior Agreement.
Please indicate your acceptance and approval of the foregoing by signing below
and returning a copy of this letter to Global.
Very truly yours,
LENNOX GLOBAL LTD.
By: /s/ Robert L. Jenkins
Robert L. Jenkins
President and Chief Operating Officer
ACCEPTED AND APPROVED:
Jean-Jacques Brancher
Signature: /s/ Jean-Jacques Brancher
Date: July 7, 1998
<PAGE> 6
EXHIBIT "A"
SECTION 3.3. PHASED ACQUISITION OF REMAINING OWNERSHIP OF ETS.
BRANCHER.
At the times specified below for a change in the Lennox percentage
ownership in Ets. Brancher, Lennox will purchase the amount of additional
Company Stock of Ets. Brancher prescribed below using the Company Stock Price
defined below.
A. STOCK PRICE. The stock price for any specified purchase
shall be calculated by dividing the Ets. Brancher yearly Company Value for the
applicable year by the number of shares of Ets. Brancher Company Stock issued
and outstanding at time of the calculation (the "Stock Price").
(i) Yearly Ets. Brancher Company Value. The yearly
Ets. Brancher Company value (Ets. Brancher Company Value or "CV") shall
be calculated using its consolidated Net Book Value as defined below at
the close of each business year ("Yearly Book Value" or "YBV"). The
Yearly Book Value will be the consolidated Net Book Value of Ets.
Brancher as of 30 September 1997 after taking into account all
restructuring steps and as adjusted for any consolidated profits or
losses accumulated through the business year just ended. The Ets.
Brancher Company Value is computed as follows:
CV = [YBV + 9*{(Y-2+2 * Y-1+3 * Y-0)/6}]/2
Where:
YBV = its Yearly Book Value for the business year
just ended.
Y-2 = its consolidated Net Income or loss for the
business year two years before the year just ended.
Y-1 = its consolidated Net Income or loss for the
business year one year before the year just ended.
Y-0 = its consolidated Net Income or loss for the
business year just ended.
<PAGE> 7
CV = the Company Value will never be less than its
Yearly Book Value for any business year.
(ii) The Effect of Goodwill on Ets. Brancher Company
Value. In the event assets or companies are acquired by Ets. Brancher
for a cost greater than their net book value, the amortization of
goodwill will be over a period of not less than thirty (30) years or in
the event changes in generally accepted accounting practices, the
goodwill will be accounted for so as not to materially damage the CV of
Ets. Brancher.
B. SALE OF ETS. BRANCHER COMPANY STOCK. The further sale of
Ets. Brancher Company Stock shall take place using the stock price (as defined
above) within thirty (30) days after adequate audited financial data is
available in the year of purchase to calculate the Ets. Brancher Company Value,
Lennox will pay to Brancher an amount equal to the Ets. Brancher Company Stock
Price defined above times the number of additional shares necessary for Lennox
to achieve the Lennox Percentage of Ownership applicable at that time. In
exchange for this payment, Brancher agrees to transfer to Lennox sufficient
shares of the Ets. Brancher Company Stock to represent the Additional Percentage
of Ownership (as defined below) being acquired by Lennox for that specified
year.
C. ADDITIONAL PERCENTAGE OF OWNERSHIP AND SCHEDULE. In the
event that Brancher has not sold and Lennox has not purchased at least 74% of
Ets. Brancher by the end of calendar year 2005, Lennox will acquire sufficient
additional ownership of the Ets. Brancher to allow the percentage then owned by
Lennox to equal 74%. Further, in the event that Brancher has not sold and Lennox
has not purchased all the remaining ownership of Ets. Brancher by the end of
calendar year 2006, Lennox will acquire all the remaining ownership of the Ets.
Brancher. These purchases may be accelerated as described below.
D. ACCELERATION OF PURCHASE. The Lennox purchases described
above may be accelerated in any of the following circumstances:
(i) Death of Jean-Jacques Brancher. In the event of the death
of Jean-Jacques Brancher, Lennox will purchase and Brancher shall sell
all of the remaining Additional Percentage of Ownership of Ets.
Brancher for a purchase price equal to the greater of (1) the number of
shares representing the remaining Additional
<PAGE> 8
Percentage of Ownership times the applicable Ets. Brancher Company
Stock Price or (2) the minimum company value described in Section
3.3.A(ii). Jean-Jacques Brancher agrees to comply with any reasonable
request of Lennox to take any action which, under French Law, will
increase the enforceability of the agreement to sell Ets. Brancher
Company Stock as described in this Section 3.3.D(i). The purchase will
be completed within three (3) months of the notice to Lennox of the
date of the death of Jean-Jacques Brancher.
(ii) Option of Brancher. In addition, Brancher shall have the
right but not the obligation, at any time, to require Lennox to
purchase all or any portion of the remaining shares in Ets. Brancher at
a purchase price per share equal to Stock Price. The accelerated
purchase will be completed within ninety (90) days of the date of the
exercise of this option in writing by Brancher.
<PAGE> 9
EXHIBIT "B"
FINANCIAL STATEMENTS
<PAGE> 10
1. ETS BRANCHER US GAAP UNAUDITED BALANCE SHEET AS AT SEPTEMBER 30, 1997 AND
DECEMBER 31, 1997 AND PROFIT AND LOSS STATEMENT AS OF DECEMBER 31, 1997 (3
MONTHS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1997
# ASSETS UNAUDITED UNAUDITED
- --- ------ ------------- ------------
<S> <C> <C> <C>
1 Cash and cash equivalents 18.216 10.483
2 Trade accounts & notes receivables - Gross 330.887 295.248
3 Less - reserve for doubtful accounts (33.072) (29.757)
4 Net trade accounts & notes receivables 297.815 265.491
5 Inventories 196.366 186.661
6 Loans to affiliate 1.173 592
7 Current deferred taxes 12.239 10.827
8 Other current assets 30.496 20.877
------- -------
9 TOTAL CURRENT ASSETS 556.305 494.931
------- -------
10 Investments in subsidiaries and affiliates 1.312 1.057
11 Less allowances for decrease in value (214) (238)
------- -------
12 NET INVESTMENTS IN AFFILIATES 1.098 819
------- -------
13 Property plant and equipment 416.644 425.566
14 Accumulated depreciation (230.452) (236.825)
------- -------
15 NET PROPERTY PLANT AND EQUIPMENT 186.192 188.741
------- -------
16 Goodwill (West) 0 2.121
17 Amortizable long term assets 12.954 13.131
18 Other non current assets 1.362 2.133
------- -------
19 TOTAL NON CURRENT ASSETS 201.606 206.945
------- -------
20 TOTAL ASSETS 757.911 701.876
------- -------
</TABLE>
Such statement is based on the work of Ets Brancher chartered accountant and
includes some restatements we considered necessary as described in Section 2 and
3.
<PAGE> 11
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1997
# LIABILITIES AND EQUITY UNAUDITED UNAUDITED
- -- ---------------------- --------- ---------
<S> <C> <C> <C>
21 Short-term loans from banks 55.670 41.392
22 Current long term debt to banks 5.532 8.874
23 Account payables - Non affiliates 178.196 146.001
24 Account payables - Affiliates 93 0
25 Current warranty liability 6.685 7.167
26 Accrued expenses 126.803 96.554
27 Current income taxes payable 2.598 8.413
28 Other 1.976 2.764
------- -------
29 TOTAL CURRENT LIABILITIES 377.553 311.165
------- -------
30 Long term loans from banks 41.033 62.096
31 Long term loans from affiliates 59 0
32 Non current warranty liability 3.157 3.102
33 Non current deferred taxes 8.797 6.987
34 Other non current liabilities 56.953 62.926
------- -------
35 TOTAL LONG TERM LIABILITIES 109.999 135.111
------- -------
36 TOTAL LIABILITIES 487.552 446.276
------- -------
37 NET ASSETS AND LIABILITIES 270.359 255.600
------- -------
38 Retained earnings 270.359 270.753
39 Exchange variances (1.076)
40 Net Income (loss) (14.077)
------- -------
41 TOTAL NET EQUITY 270.359 255.600
------- -------
42 TOTAL LIABILITIES AND EQUITY 757.911 701.876
------- -------
</TABLE>
Such statement is based on the work of Ets Brancher chartered accountant and
includes some restatements we considered necessary as described in Section 2 and
3.
<PAGE> 12
<TABLE>
<CAPTION>
DECEMBER 31, 1997
3 MONTHS
-----------------
<S> <C>
Gross sales trade 241.007
Less cash discounts (871)
NET SALES TRADE 240.136
COST OF SALES (146.606)
VARIABLE MARGIN 93.530
Outbound freight (3.537)
Commissions (3.854)
Replacements and allowances (5.410)
Bad debt expenses (693)
Other variable costs 194
SUB TOTAL VARIABLE OPERATING EXPENSES (13.300)
CONTRIBUTION MARGIN 80.230
Manufacturing overhead (22.347)
Distribution and selling (31.341)
Administration expenses (26.629)
Research and development (5.687)
SUB TOTAL PERIOD EXPENSES (86.004)
OPERATING INCOME (LOSS) (5.774)
Amortization of intangibles (206)
Goodwill amortization (38)
Currency exchange (12)
Miscellaneous (4.107)
EARNINGS BEFORE INTEREST AND TAXES (10.137)
Interest income/expenses (1.170)
INCOME (LOSS) BEFORE TAX (11.307)
Income tax (3.333)
NET INCOME (LOSS) (14.640)
Minority interest (563)
NET INCOME (LOSS) OF THE GROUP (14.077)
</TABLE>
Such statement is based on the work of Ets Brancher chartered accountant and
includes some restatements we considered necessary as described in Section 2 and
3.
<PAGE> 1
EXHIBIT 10.11
Ets. Brancher S.A. Lennox Global Ltd.
11 rue d'Alsace-Lorraine 2100 Lake Park Blvd.
69500 Bron, France Richardson, Texas 75080 U.S.A.
This is the First Amendment to the Amended and Restated Venture Agreement (the
"Amendment") entered into by and between Lennox Global Ltd. and Lennox
International Inc. (collectively referred to as "Lennox") and Ets. Brancher S.A.
and its subsidiary, Fibel S.A. (collectively referred to as "Brancher")(Lennox
and Brancher collectively referred to as "Shareholders"), dated 11 October 1997
(the "Prior Agreement").
The effective date of the Amendment is 27 December 1997.
This Amendment is to amend and modify the Prior Agreement as set forth below:
1. In the Prior Agreement, the Shareholders agreed to sell the assets of
Lennox Industries ("Lennox UK") to HCF Lennox S.A., a subsidiary of
Brancher ("HCF"), on or about 31 December 1997, for a purchase price of
Thirty Million French Francs (30,000,000Ffs) and subject to the condition
that Lennox UK will have a net book value of at least Thirty Million French
Francs (30,000,000Ffs) at the time of the transfer.
2. The Shareholders have agreed to further modify the Prior Agreement as
follows:
a. the purchase price for Lennox UK is agreed to be Twenty-Five
Million, Ten Thousand, Eight Hundred and Eighty Eight French
Francs (25,010,888Ffs) which will be paid to Lennox as agreed
by the parties to be completed no later than 1 May 1998;
b. the Shareholders have further agreed that the transfer will be
to Brancher rather than HCF;
c. with respect to the tax loss carried forward of Lennox UK, the
Shareholders further agree as follows:
(i) no portion of the losses, expenses or deductions
incurred by Lennox UK prior to 1 January 1998 shall
be used to offset income for non-U.S. foreign tax
purposes for any entity or person other than Lennox
UK, under the laws of any country other than the U.S.
at any time after 1 January 1998;
(ii) Brancher agrees that the agreements set out above in
subparagraph 2.c(i) shall remain in effect until the
year 2010 and that it will supply Lennox, or any
third party, any documentation requested by Lennox to
substantiate the terms of this Amendment;
<PAGE> 2
2
(iii) Brancher further agrees that the failure of Brancher
to comply with the terms of the agreements set out
above in subparagraph 2.c(i) may result in
substantial damage, and Brancher agrees to indemnify
or otherwise provide any remedies available under the
applicable law to any party damaged as a result of
this noncompliance.
3. The Shareholders agree that all remaining terms of the Prior Agreement
shall remain in full force and effect as written.
Lennox and Brancher agree to act and vote as Shareholders of Ets. Brancher S.A.
consistent with the terms of this Amendment and the Prior Agreement.
Ets. Brancher S.A. Lennox Global Ltd.
By: /s/ Jean-Jacques Brancher By: /s/ Clyde Wyant
------------------------- ---------------
Title: President Title: Executive Vice President
<PAGE> 1
EXHIBIT 10.15
LENNOX INTERNATIONAL INC.
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is entered into as of March 12, 1999
("Agreement"), between Lennox International Inc., a Delaware corporation (the
"Company"), and ________________________ ("Indemnitee").
BACKGROUND STATEMENT AND RECITALS
Highly competent and experienced persons are becoming more
reluctant to serve corporations as directors or in other capacities unless they
are provided with adequate protection through insurance and adequate
indemnification against inordinate risks of claims and actions against them
arising out of their service to and activities on behalf of the corporation.
The Board of Directors of the Company (the "Board") has
determined that the inability to attract and retain such persons would be
detrimental to the best interests of the Company and its stockholders and that
the Company should act to assure such persons that there will be increased
certainty of such protection in the future.
The Board has also determined that it is reasonable, prudent
and necessary for the Company, in addition to purchasing and maintaining
directors' and officers' liability insurance (or otherwise providing for
adequate arrangements of self-insurance), contractually to obligate itself to
indemnify such persons to the fullest extent permitted by applicable law so
that they will serve or continue to serve the Company free from undue concern
that they will not be so indemnified.
Indemnitee is willing to serve, continue to serve and to take
on additional service for or on behalf of the Company on the condition that he
be so indemnified.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants herein contained, and other good and valuable consideration,
the sufficiency and receipt of which are hereby acknowledged, the parties
hereby agree as follows:
<PAGE> 2
ARTICLE I
CERTAIN DEFINITIONS
As used herein, the following words and terms shall have the
following respective meanings:
"Beneficial Owner" means, with reference to any securities,
any Entity if:
1. such Entity is the "beneficial owner" of (as
determined pursuant to Rule 13d-3 of the General Rules and Regulations
under the Exchange Act, as in effect on the date of this Agreement)
such securities; provided, however, that a Entity shall not be deemed
the "Beneficial Owner" of, or to "beneficially own," any security
under this subsection (i) as a result of an agreement, arrangement or
understanding to vote such security if such agreement, arrangement or
understanding: (x) arises solely from a revocable proxy or consent
given in response to a public (i.e., not including a solicitation
exempted by Rule 14a- 2(b)(2) of the General Rules and Regulations
under the Exchange Act) proxy or consent solicitation made pursuant
to, and in accordance with, the applicable provisions of the General
Rules and Regulations under the Exchange Act and (y) is not then
reportable by such Entity on Schedule 13D under the Exchange Act (or
any comparable or successor report); or
2. such Entity is a member of a group (as that term
is used in Rule 13d- 5(b) of the General Rules and Regulations under
the Exchange Act) that includes any other Entity that beneficially
owns such securities;
provided, however, that a Entity shall not be deemed the "Beneficial Owner" of,
or to "beneficially own" any security held by a Norris Family Trust with
respect to which such Entity acts in the capacity of trustee, personal
representative, custodian, administrator, executor or other fiduciary;
provided, further, that nothing in this definition shall cause a Entity engaged
in business as an underwriter of securities to be the Beneficial Owner of, or
to "beneficially own," any securities acquired through such Entity's
participation in good faith in a firm commitment underwriting until the
expiration of forty days after the date of such acquisition. For purposes
hereof, "voting" a security shall include voting, granting a proxy, consenting
or making a request or demand relating to corporate action (including, without
limitation, a demand for a stockholder list, to call a stockholder meeting or
to inspect corporate books and records) or otherwise giving an authorization
(within the meaning of Section 14(a) of the Exchange Act) in respect of such
security.
The terms "beneficially own" and "beneficially owning" shall
have meanings that are correlative to this definition of the term "Beneficial
Owner."
"Change of Control" means any of the following occurring on
or after the date hereof:
2
<PAGE> 3
(i) Any Entity (other than an Exempt Person) shall
become the Beneficial Owner of 35% or more of the shares of Common
Stock then outstanding or 35% or more of the combined voting power of
the Voting Stock of the Company then outstanding; provided, however,
that no Change of Control shall be deemed to occur for purposes of
this subsection (i) if such Entity shall become a Beneficial Owner of
35% or more of the shares of Common Stock or 35% or more of the
combined voting power of the Voting Stock of the Company solely as a
result of (x) an Exempt Transaction or (y) an acquisition by a Entity
pursuant to a reorganization, merger or consolidation, if, following
such reorganization, merger or consolidation, the conditions described
in clauses (x), (y) and (z) of subsection (iii) of this definition are
satisfied;
(ii) Individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that
any individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's shareholders,
was approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board; provided, further,
that there shall be excluded, for this purpose, any such individual
whose initial assumption of office occurs as a result of any actual or
threatened election contest that is subject to the provisions of Rule
14a-11 under the Exchange Act;
(iii) Approval by the shareholders of the Company of
a reorganization, merger or consolidation, in each case, unless,
following such reorganization, merger or consolidation, (x) more than
65% of the then outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation and the
combined voting power of the then outstanding Voting Stock of such
corporation is beneficially owned, directly or indirectly, by all or
substantially all of the Entities who were the Beneficial Owners of
the outstanding Common Stock immediately prior to such reorganization,
merger or consolidation (ignoring, for purposes of this clause (x),
the first proviso in the definition of "Beneficial Owner" set forth in
this Article I) in substantially the same proportions as their
ownership immediately prior to such reorganization, merger or
consolidation of the outstanding Common Stock, (y) no Entity
(excluding any Exempt Person or any Entity beneficially owning,
immediately prior to such reorganization, merger or consolidation,
directly or indirectly, 35% or more of the Common Stock then
outstanding or 35% or more of the combined voting power of the Voting
Stock of the Company then outstanding) beneficially owns, directly or
indirectly, 35% or more of the then outstanding shares of common stock
of the corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then outstanding
Voting Stock of such corporation and (z) at least a majority of the
members of the board of directors of the corporation resulting from
such reorganization, merger or consolidation were members of the
Incumbent Board at the time of the execution of the initial agreement
or initial action by the Board providing for such reorganization,
merger or consolidation; or
3
<PAGE> 4
(iv) Approval by the shareholders of the Company of
(x) a complete liquidation or dissolution of the Company, unless such
liquidation or dissolution is approved as part of a plan of
liquidation and dissolution involving a sale or disposition of all or
substantially all of the assets of the Company to a corporation with
respect to which, following such sale or other disposition, all of the
requirements of clauses (y)(A), (B) and (C) of this subsection (iv)
are satisfied, or (y) the sale or other disposition of all or
substantially all of the assets of the Company, other than to a
corporation, with respect to which, following such sale or other
disposition, (A) more than 65% of the then outstanding shares of
common stock of such corporation and the combined voting power of the
Voting Stock of such corporation is then beneficially owned, directly
or indirectly, by all or substantially all of the Entities who were
the Beneficial Owners of the outstanding Common Stock immediately
prior to such sale or other disposition (ignoring, for purposes of
this clause (y)(A), the first proviso in the definition of "Beneficial
Owner" set forth in this Article I) in substantially the same
proportions as their ownership, immediately prior to such sale or
other disposition, of the outstanding Common Stock, (B) no Entity
(excluding any Exempt Person and any Entity beneficially owning,
immediately prior to such sale or other disposition, directly or
indirectly, 35% or more of the Common Stock then outstanding or 35% or
more of the combined voting power of the Voting Stock of the Company
then outstanding) beneficially owns, directly or indirectly, 35% or
more of the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding
Voting Stock of such corporation and (C) at least a majority of the
members of the board of directors of such corporation were members of
the Incumbent Board at the time of the execution of the initial
agreement or initial action of the Board providing for such sale or
other disposition of assets of the Company.
"Claim" means an actual or threatened claim or request for
relief.
"Common Stock" means the common stock, par value $0.01 per
share, of the Company.
"Corporate Status" means the status of a person who is or was
a director, nominee for director, officer, employee, agent or fiduciary of the
Company (including any predecessors to the Company), or of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise which such person is or was serving at the request of the Company.
"Disinterested Director," with respect to any request by
Indemnitee for indemnification hereunder, means a director of the Company who
neither is nor was a party to the Proceeding or subject to a Claim, issue or
matter in respect of which indemnification is sought by Indemnitee.
"DGCL" means the Delaware General Corporation Law and any
successor statute thereto as either of them may be amended from time to time.
4
<PAGE> 5
"Entity" means any individual, firm, corporation,
partnership, association, trust, unincorporated organization or other entity.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exempt Person" means (i) the Company, any subsidiary of the
Company, any employee benefit plan of the Company or any subsidiary of the
Company, and any Entity organized, appointed or established by the Company for
or pursuant to the terms of any such plan and (ii) any Person who is shown
under the caption "Principal and Selling Stockholders" in the Company's
Registration Statement on Form S-1 related to the initial public offering of
the Common Stock as beneficially owning (as determined pursuant to Rule 13d-3
of the General Rules and Regulations under the Exchange Act, as in effect on
the date of this Agreement) five percent or more of the Common Stock unless and
until such Person individually becomes the Beneficial Owner, other than as a
result of a distribution from a Norris Family Trust, of an amount of Common
Stock that is 103% or more of the amount of such Common Stock beneficially
owned by such Person on the date the Registration Statement is declared
effective by the Securities and Exchange Commission.
"Exempt Transaction" means an increase in the percentage of
the outstanding shares of Common Stock or the percentage of the combined voting
power of the outstanding Voting Stock of the Company beneficially owned by any
Entity solely as a result of a reduction in the number of shares of Common
Stock then outstanding due to the repurchase of Common Stock by the Company,
unless and until such time as such Entity shall purchase or otherwise become
the Beneficial Owner of additional shares of Common Stock constituting 3% or
more of the then outstanding shares of Common Stock or additional Voting Stock
representing 3% or more of the combined voting power of the then outstanding
Voting Stock.
"Expenses" means all attorneys' fees, retainers, court costs,
transcript costs, fees of experts, witness fees, travel expenses, duplicating
costs, printing and binding costs, telephone charges, postage, delivery service
fees and all other disbursements or expenses of the types customarily incurred
in connection with prosecuting, defending, preparing to prosecute or defend,
investigating, being or preparing to be a witness in, or participating in
(including on appeal), a Proceeding.
"Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither
contemporaneously is, nor in the five years theretofore has been, retained to
represent (a) the Company or Indemnitee in any matter material to either such
party, (b) any other party to the Proceeding giving rise to a claim for
indemnification hereunder or (c) the beneficial owner, directly or indirectly,
of securities of the Company representing 20% or more of the combined voting
power of the Company's then outstanding voting securities (other than, in each
such case, with respect to matters concerning the rights of Indemnitee under
this Agreement, or of other indemnitees under similar indemnification
5
<PAGE> 6
agreements). Notwithstanding the foregoing, the term "Independent Counsel"
shall not include any person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest in
representing either the Company or Indemnitee in an action to determine
Indemnitee's rights under this Agreement.
"Norris Family Trust" means any trust, estate, custodianship
or other fiduciary arrangement (collectively, a "Family Entity") formed, owned,
held or existing primarily for the benefit of the lineal descendants of D.W.
Norris, but only if such Family Entity shall not at any time hold Common Stock
or Voting Stock of the Company with the primary purpose of effecting with
respect to the Company (i) an extraordinary corporate transaction, such as a
merger, reorganization or liquidation (ii) a sale or transfer of a material
amount of assets, (iii) any material change in capitalization, (iv) any other
material change in business or corporate structure or operations, (v) changes
in corporate charter or bylaws, or (vi) a change in the composition of the
Board or of the members of senior management.
"person" shall have the meaning ascribed to such term in
Sections 13(d) and 14(d) of the Exchange Act.
"Proceeding" means any threatened, pending or completed
action, suit, arbitration, alternate dispute resolution mechanism,
administrative hearing or any other proceeding, whether civil, criminal,
administrative or investigative and whether or not based upon events occurring,
or actions taken, before the date hereof (except any of the foregoing initiated
by Indemnitee pursuant to Article VI or Section 7.8 to enforce his rights under
this Agreement), and any inquiry or investigation that could lead to, and any
appeal in or related to, any such action, suit, arbitration, alternative
dispute resolution mechanism, hearing or proceeding.
"Voting Stock" means, with respect to a corporation, all
securities of such corporation of any class or series that are entitled to vote
generally in the election of directors of such corporation (excluding any class
or series that would be entitled so to vote by reason of the occurrence of any
contingency, so long as such contingency has not occurred).
ARTICLE II
SERVICES BY INDEMNITEE
Section 2.1 Services. Indemnitee agrees to serve, or continue
to serve, as a director of the Company and, as the Company has requested or may
request from time to time, as a director, officer, employee, agent or fiduciary
of another corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise. Indemnitee and Company each acknowledge that they
have entered into this Agreement as a means of inducing Indemnitee to serve, or
continue to serve, the Company in such capacities. Indemnitee may at any time
and for any reason resign from such position or positions (subject to any other
contractual obligation or
6
<PAGE> 7
any obligation imposed by operation of law). The Company shall have no
obligation under this Agreement to continue Indemnitee in any such position or
positions.
ARTICLE III
INDEMNIFICATION
Section 3.1 General. The Company shall indemnify, and advance
Expenses to, Indemnitee to the fullest extent permitted by applicable law in
effect on the date hereof and to such greater extent as applicable law may
thereafter from time to time permit. The rights of Indemnitee provided under
the preceding sentence shall include, but shall not be limited to, the right to
be indemnified and to have Expenses advanced in all Proceedings to the fullest
extent permitted by Section 145 of the DGCL. The provisions set forth in this
Agreement are provided in addition to and as a means of furtherance and
implementation of, and not in limitation of, the obligations expressed in this
Article III.
Section 3.2 Proceedings Other Than by or in Right of the
Company. Indemnitee shall be entitled to indemnification pursuant to this
Section 3.2 if, by reason of his Corporate Status, he was, is or is threatened
to be made, a party to any Proceeding, other than a Proceeding by or in the
right of the Company. Pursuant to this Section 3.2, the Company shall indemnify
Indemnitee against Expenses, judgments, penalties, fines and amounts paid in
settlement (including all interest, assessments and other charges paid or
payable in connection with any such Expenses, judgments, penalties, fines and
amounts paid in settlement) actually and reasonably incurred by him or on his
behalf in connection with such Proceeding or any Claim, issue or matter
therein, if he acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the Company, and with respect to any
criminal Proceeding, had no reasonable cause to believe his conduct was
unlawful. Nothing in this Section 3.2 shall limit the benefits of Section 3.1
or any other Section hereunder.
Section 3.3 Proceedings by or in Right of the Company.
Indemnitee shall be entitled to indemnification pursuant to this Section 3.3
if, by reason of his Corporate Status, he was, is or is threatened to be made,
a party to any Proceeding brought by or in the right of the Company to procure
a judgment in its favor. Pursuant to this Section 3.3, the Company shall
indemnify Indemnitee against Expenses actually and reasonably incurred by him
or on his behalf in connection with such Proceeding or any Claim, issue or
matter therein, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company.
Notwithstanding the foregoing, no indemnification against such Expenses shall
be made in respect of any Claim, issue or matter in such Proceeding as to which
Indemnitee shall have been adjudged to be liable to the Company if applicable
law prohibits such indemnification; provided, however, that, if applicable law
so permits, indemnification against such Expenses shall nevertheless be made by
the Company in such event if and only to the extent that the Court of
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Chancery of the State of Delaware or other court of competent jurisdiction (the
"Court"), or the court in which such Proceeding shall have been brought or is
pending, shall so determine. Nothing in this Section 3.3 shall limit the
benefits of Section 3.1 or any other Section hereunder.
ARTICLE IV
EXPENSES
Section 4.1 Expenses of a Party Who Is Wholly or Partly
Successful. Notwithstanding any other provision of this Agreement to the
contrary (except as set forth in Section 7.2(c) or 7.6), and without a
requirement for any determination described in Section 5.2, the Company shall
indemnify Indemnitee against all Expenses actually and reasonably incurred by
him or on his behalf in connection with any Proceeding to which Indemnitee was
or is a party by reason of his Corporate Status and in which Indemnitee is
successful, on the merits or otherwise. If Indemnitee is not wholly successful,
on the merits or otherwise, in a Proceeding but is successful, on the merits or
otherwise, as to any Claim, issue or matter in such Proceeding, the Company
shall indemnify Indemnitee against all Expenses actually and reasonably
incurred by him or on his behalf relating to each successfully resolved Claim,
issue or matter. For purposes of this Section 4.1 and without limitation, the
termination of a Claim, issue or matter in a Proceeding by dismissal, with or
without prejudice, shall be deemed to be a successful result as to such Claim,
issue or matter.
Section 4.2 Expenses of a Witness or Non-Party.
Notwithstanding any other provision of this Agreement to the contrary, to the
extent that Indemnitee is, by reason of his Corporate Status, a witness or
otherwise participates in any Proceeding at a time when he is not a party in
the Proceeding, the Company shall indemnify him against all Expenses actually
and reasonably incurred by him or on his behalf in connection therewith.
Section 4.3 Advancement of Expenses. The Company shall pay
all reasonable Expenses incurred by or on behalf of Indemnitee in connection
with any Proceeding, whether brought by or in the right of the Company or
otherwise, in advance of any determination with respect to entitlement to
indemnification pursuant to Article V within 15 days after the receipt by the
Company of a written request from Indemnitee requesting such payment or
payments from time to time, whether prior to or after final disposition of such
Proceeding. Such statement or statements shall reasonably evidence the Expenses
incurred by Indemnitee. Indemnitee hereby undertakes and agrees that he will
reimburse and repay the Company for any Expenses so advanced to the extent that
it shall ultimately be determined (in a final adjudication by a court from
which there is no further right of appeal or in a final adjudication of an
arbitration pursuant to Section 6.1 if Indemnitee elects to seek such
arbitration) that Indemnitee is not entitled to be indemnified by the Company
against such Expenses.
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ARTICLE V
PROCEDURE FOR DETERMINATION OF ENTITLEMENT
TO INDEMNIFICATION
Section 5.1 Request by Indemnitee. To obtain indemnification
under this Agreement, Indemnitee shall submit to the Company a written request,
including therein or therewith such documentation and information as is
reasonably available to Indemnitee and is reasonably necessary to determine
whether and to what extent Indemnitee is entitled to indemnification. The
Secretary or an Assistant Secretary of the Company shall, promptly upon receipt
of such a request for indemnification, advise the members of the Board in
writing that Indemnitee has requested indemnification.
Section 5.2 Determination of Request. Upon written request by
Indemnitee for indemnification pursuant to Section 5.1, a determination, if
required by applicable law, with respect to Indemnitee's entitlement thereto
shall be made in the specific case as follows:
(a) If a Change in Control shall have occurred, by
Independent Counsel in a written opinion to the Board, a copy of which
shall be delivered to Indemnitee unless Indemnitee shall request that
such determination be made by the Disinterested Directors, in which
case in the manner provided for in clause (i) or (ii) of paragraph (b)
below;
(b) If a Change in Control shall not have occurred,
(i) by a majority vote of the Disinterested Directors, even though
less than a quorum of the Board, (ii) by a committee of Disinterested
Directors designated by majority vote of the Disinterested Directors,
even though less than a quorum of the Board, (iii) if there are no
Disinterested Directors, or if such Disinterested Directors so direct,
by Independent Counsel in a written opinion to the Board, a copy of
which shall be delivered to the Indemnitee, or (iv) if Indemnitee and
the Company mutually agree, by the stockholders of the Company; or
(c) As provided in Section 5.4(b).
If it is so determined that Indemnitee is entitled to indemnification
hereunder, payment to Indemnitee shall be made within 15 days after such
determination. Indemnitee shall cooperate with the person or persons making
such determination with respect to Indemnitee's entitlement to indemnification,
including providing to such person upon reasonable advance request any
documentation or information that is not privileged or otherwise protected from
disclosure and that is reasonably available to Indemnitee and reasonably
necessary for such determination. Any costs or expenses (including attorneys'
fees and disbursements) incurred by Indemnitee in so cooperating with the
person or persons making such determination shall be borne by the Company
(irrespective of the determination as to Indemnitee's entitlement to
indemnification), and the Company shall indemnify and hold harmless Indemnitee
therefrom.
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Section 5.3 Independent Counsel. If a Change in Control shall
not have occurred and the determination of entitlement to indemnification is to
be made by Independent Counsel, the Independent Counsel shall be selected by
(a) a majority vote of the Disinterested Directors, even though less than a
quorum of the Board or (b) if there are no Disinterested Directors, by a
majority vote of the Board, and the Company shall give written notice to
Indemnitee, within 10 days after receipt by the Company of Indemnitee's request
for indemnification, specifying the identity and address of the Independent
Counsel so selected. If a Change in Control shall have occurred and the
determination of entitlement to indemnification is to be made by Independent
Counsel, the Independent Counsel shall be selected by Indemnitee, and
Indemnitee shall give written notice to the Company, within 10 days after
submission of Indemnitee's request for indemnification, specifying the identity
and address of the Independent Counsel so selected (unless Indemnitee shall
request that such selection be made by the Disinterested Directors, in which
event the Company shall give written notice to Indemnitee, within 10 days after
receipt of Indemnitee's request for the Disinterested Directors to make such
selection, specifying the identity and address of the Independent Counsel so
selected). In either event, (i) such notice to Indemnitee or the Company, as
the case may be, shall be accompanied by a written affirmation of the
Independent Counsel so selected that it satisfies the requirements of the
definition of "Independent Counsel" in Article I and that it agrees to serve in
such capacity and (ii) Indemnitee or the Company, as the case may be, may,
within seven days after such written notice of selection shall have been given,
deliver to the Company or to Indemnitee, as the case may be, a written
objection to such selection. Any objection to selection of Independent Counsel
pursuant to this Section 5.3 may be asserted only on the ground that the
Independent Counsel so selected does not meet the requirements of the
definition of "Independent Counsel" in Article I, and the objection shall set
forth with particularity the factual basis of such assertion. If such written
objection is timely made, the Independent Counsel so selected may not serve as
Independent Counsel unless and until the Court has determined that such
objection is without merit. In the event of a timely written objection to a
choice of Independent Counsel, the party originally selecting the Independent
Counsel shall have seven days to make an alternate selection of Independent
Counsel and to give written notice of such selection to the other party, after
which time such other party shall have five days to make a written objection to
such alternate selection. If, within 30 days after submission of Indemnitee's
request for indemnification pursuant to Section 5.1, no Independent Counsel
shall have been selected and not objected to, either the Company or Indemnitee
may petition the Court for resolution of any objection that shall have been
made by the Company or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by the Court or by such other person as the Court shall designate, and the
person with respect to whom an objection is so resolved or the person so
appointed shall act as Independent Counsel under Section 5.2. The Company shall
pay any and all reasonable fees and expenses incurred by such Independent
Counsel in connection with acting pursuant to Section 5.2, and the Company
shall pay all reasonable fees and expenses incident to the procedures of this
Section 5.3, regardless of the manner in which such Independent Counsel was
selected or appointed. Upon the due commencement of any judicial proceeding or
arbitration pursuant to Section 6.1, Independent
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Counsel shall be discharged and relieved of any further responsibility in such
capacity (subject to the applicable standards of professional conduct then
prevailing).
Section 5.4 Presumptions and Effect of Certain Proceedings.
(a) Indemnitee shall be presumed to be entitled to
indemnification under this Agreement upon submission of a request for
indemnification pursuant to Section 5.1, and the Company shall have
the burden of proof in overcoming that presumption in reaching a
determination contrary to that presumption. Such presumption shall be
used by Independent Counsel (or other person or persons determining
entitlement to indemnification) as a basis for a determination of
entitlement to indemnification unless the Company provides information
sufficient to overcome such presumption by clear and convincing
evidence.
(b) If the person or persons empowered or selected
under this Article V to determine whether Indemnitee is entitled to
indemnification shall not have made a determination within 60 days
after receipt by the Company of Indemnitee's request for
indemnification, the requisite determination of entitlement to
indemnification shall be deemed to have been made and Indemnitee shall
be entitled to such indemnification, absent (i) a knowing misstatement
by Indemnitee of a material fact, or knowing omission of a material
fact necessary to make Indemnitee's statement not materially
misleading, in connection with Indemnitee's request for
indemnification, or (ii) a prohibition of such indemnification under
applicable law; provided, however, that such 60-day period may be
extended for a reasonable time, not to exceed an additional 30 days,
if the person making the determination with respect to entitlement to
indemnification in good faith requires such additional time for the
obtaining or evaluating of documentation and/or information relating
to such determination; provided further, that the 60-day limitation
set forth in this Section 5.4(b) shall not apply and such period shall
be extended as necessary (i) if within 30 days after receipt by the
Company of Indemnitee's request for indemnification under Section 5.1
Indemnitee and the Company have agreed, and the Board has resolved, to
submit such determination to the stockholders of the Company pursuant
to Section 5.2(b) for their consideration at an annual meeting of
stockholders to be held within 90 days after such agreement and such
determination is made thereat, or a special meeting of stockholders
for the purpose of making such determination to be held within 60 days
after such agreement and such determination is made thereat, or (ii)
if the determination of entitlement to indemnification is to be made
by Independent Counsel, in which case the applicable period shall be
as set forth in clause (c) of Section 6.1.
(c) The termination of any Proceeding or of any
Claim, issue or matter by judgment, order, settlement (whether with or
without court approval) or conviction, or upon a plea of nolo
contendere or its equivalent, shall not by itself adversely affect the
rights of Indemnitee to indemnification or create a presumption that
Indemnitee did not act
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in good faith or in a manner that he reasonably believed to be in or
not opposed to the best interests of the Company or, with respect to
any criminal Proceeding, that Indemnitee had reasonable cause to
believe that his conduct was unlawful. Indemnitee shall be deemed to
have been found liable in respect of any Claim, issue or matter only
after he shall have been so adjudged by the Court after exhaustion of
all appeals therefrom.
ARTICLE VI
CERTAIN REMEDIES OF INDEMNITEE
Section 6.1 Indemnitee Entitled to Adjudication in an
Appropriate Court. If (a) a determination is made pursuant to Article V that
Indemnitee is not entitled to indemnification under this Agreement, (b) there
has been any failure by the Company to make timely payment or advancement of
any amounts due hereunder, or (c) the determination of entitlement to
indemnification is to be made by Independent Counsel and such determination
shall not have been made and delivered in a written opinion within 90 days
after the latest of (i) such Independent Counsel's being appointed, (ii) the
overruling by the Court of objections to such counsel's selection or (iii)
expiration of all periods for the Company or Indemnitee to object to such
counsel's selection, Indemnitee shall be entitled to commence an action seeking
an adjudication in the Court of his entitlement to such indemnification or
advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an
award in arbitration to be conducted by a single arbitrator pursuant to the
commercial arbitration rules of the American Arbitration Association.
Indemnitee shall commence such action seeking an adjudication or an award in
arbitration within 180 days following the date on which Indemnitee first has
the right to commence such action pursuant to this Section 6.1, or such right
shall expire. The Company shall not oppose Indemnitee's right to seek any such
adjudication or award in arbitration.
Section 6.2 Adverse Determination Not to Affect any Judicial
Proceeding. If a determination shall have been made pursuant to Article V that
Indemnitee is not entitled to indemnification under this Agreement, any
judicial proceeding or arbitration commenced pursuant to this Article VI shall
be conducted in all respects as a de novo trial or arbitration on the merits,
and Indemnitee shall not be prejudiced by reason of such initial adverse
determination. In any judicial proceeding or arbitration commenced pursuant to
this Article VI, Indemnitee shall be presumed to be entitled to indemnification
or advancement of Expenses, as the case may be, under this Agreement and the
Company shall have the burden of proof in overcoming such presumption and to
show by clear and convincing evidence that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
Section 6.3 Company Bound by Determination Favorable to
Indemnitee in any Judicial Proceeding or Arbitration. If a determination shall
have been made or deemed to have been made pursuant to Article V that
Indemnitee is entitled to indemnification, the Company shall be irrevocably
bound by such determination in any judicial proceeding or arbitration commenced
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pursuant to this Article VI and shall be precluded from asserting that such
determination has not been made or that the procedure by which such
determination was made is not valid, binding and enforceable, in each such case
absent (a) a knowing misstatement by Indemnitee of a material fact, or a
knowing omission of a material fact necessary to make a statement by Indemnitee
not materially misleading, in connection with Indemnitee's request for
indemnification or (b) a prohibition of such indemnification under applicable
law.
Section 6.4 Company Bound by the Agreement. The Company shall
be precluded from asserting in any judicial proceeding or arbitration commenced
pursuant to this Article VI that the procedures and presumptions of this
Agreement are not valid, binding and enforceable and shall stipulate in any
such court or before any such arbitrator that the Company is bound by all the
provisions of this Agreement.
Section 6.5 Indemnitee Entitled to Expenses of Judicial
Proceeding. If Indemnitee seeks a judicial adjudication of or an award in
arbitration to enforce his rights under, or to recover damages for breach of,
this Agreement, Indemnitee shall be entitled to recover from the Company, and
the Company shall indemnify Indemnitee against, any and all expenses (of the
types described in the definition of Expenses in Article I) actually and
reasonably incurred by him in such judicial adjudication or arbitration but
only if Indemnitee prevails therein. If it shall be determined in such judicial
adjudication or arbitration that Indemnitee is entitled to receive part but not
all of the indemnification or advancement of expenses or other benefit sought,
the expenses incurred by Indemnitee in connection with such judicial
adjudication or arbitration shall be equitably allocated between the Company
and Indemnitee. Notwithstanding the foregoing, if a Change in Control shall
have occurred, Indemnitee shall be entitled to indemnification under this
Section 6.5 regardless of whether Indemnitee ultimately prevails in such
judicial adjudication or arbitration.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Non-Exclusivity. The rights of Indemnitee to
receive indemnification and advancement of Expenses under this Agreement shall
not be deemed exclusive of any other rights to which Indemnitee may at any time
be entitled under applicable law, the Certificate of Incorporation or Bylaws of
the Company, any other agreement, vote of stockholders or a resolution of
directors, or otherwise. No amendment or alteration of the Certificate of
Incorporation or Bylaws of the Company or any provision thereof shall adversely
affect Indemnitee's rights hereunder and such rights shall be in addition to
any rights Indemnitee may have under the Company's Certificate of
Incorporation, Bylaws and the DGCL or otherwise. To the extent that there is a
change in the DGCL or other applicable law (whether by statute or judicial
decision) that allows greater indemnification by agreement than would be
afforded currently under the Company's Certificate of Incorporation or Bylaws
and this Agreement, it is
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the intent of the parties hereto that the Indemnitee shall enjoy by virtue of
this Agreement the greater benefit so afforded by such change.
Section 7.2 Insurance and Subrogation.
(a) To the extent the Company maintains an insurance
policy or policies providing liability insurance for directors,
officers, employees, agents or fiduciaries of the Company or of any
other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise that such person serves at the request of the
Company, Indemnitee shall be covered by such policy or policies in
accordance with its or their terms to the maximum extent of the
coverage available for any such director, officer, employee, agent or
fiduciary under such policy or policies.
(b) In the event of any payment by the Company under
this Agreement, the Company shall be subrogated to the extent of such
payment to all of the rights of recovery of Indemnitee, who shall
execute all papers required and take all action necessary to secure
such rights, including execution of such documents as are necessary to
enable the Company to bring suit to enforce such rights.
(c) The Company shall not be liable under this
Agreement to make any payment of amounts otherwise indemnifiable
hereunder if and to the extent that Indemnitee has otherwise actually
received such payment under the Company's Certificate of Incorporation
or Bylaws or any insurance policy, contract, agreement or otherwise.
Section 7.3 Certain Settlement Provisions. The Company shall
have no obligation to indemnify Indemnitee under this Agreement for amounts
paid in settlement of a Proceeding or Claim without the Company's prior written
consent. The Company shall not settle any Proceeding or Claim in any manner
that would impose any fine or other obligation on Indemnitee without
Indemnitee's prior written consent. Neither the Company nor Indemnitee shall
unreasonably withhold their consent to any proposed settlement.
Section 7.4 Duration of Agreement. This Agreement shall
continue for so long as Indemnitee serves as a director, nominee for director,
officer, employee, agent or fiduciary of the Company or, at the request of the
Company, as a director, nominee for director, officer, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, and thereafter shall survive until and
terminate upon the latest to occur of (a) the expiration of 10 years after the
latest date that Indemnitee shall have ceased to serve in any such capacity;
(b) the final termination of all pending Proceedings in respect of which
Indemnitee is granted rights of indemnification or advancement of Expenses
hereunder and of any proceeding commenced by Indemnitee pursuant to Article VI
relating thereto; or (c) the expiration of all statutes of limitation
applicable to possible Claims arising out of Indemnitee's Corporate Status.
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Section 7.5 Notice by Each Party. Indemnitee shall promptly
notify the Company in writing upon being served with any summons, citation,
subpoena, complaint, indictment, information or other document or communication
relating to any Proceeding or Claim for which Indemnitee may be entitled to
indemnification or advancement of Expenses hereunder; provided, however, that
any failure of Indemnitee to so notify the Company shall not adversely affect
Indemnitee's rights under this Agreement except to the extent the Company shall
have been materially prejudiced as a direct result of such failure. The Company
shall notify promptly Indemnitee in writing, as to the pendency of any
Proceeding or Claim that may involve a claim against the Indemnitee for which
Indemnitee may be entitled to indemnification or advancement of Expenses
hereunder.
Section 7.6 Certain Persons Not Entitled to Indemnification.
Notwithstanding any other provision of this Agreement to the contrary,
Indemnitee shall not be entitled to indemnification or advancement of Expenses
hereunder with respect to any Proceeding or any Claim, issue or matter therein,
brought or made by Indemnitee against the Company or any affiliate of the
Company, except as specifically provided in Article V or Article VI.
Section 7.7 Indemnification for Negligence, Gross Negligence,
etc. Without limiting the generality of any other provision hereunder, it is
the express intent of this Agreement that Indemnitee be indemnified and
Expenses be advanced regardless of Indemnitee's acts of negligence, gross
negligence or intentional or willful misconduct to the extent that
indemnification and advancement of Expenses is allowed pursuant to the terms of
this Agreement and under applicable law.
Section 7.8 Enforcement. The Company agrees that its
execution of this Agreement shall constitute a stipulation by which it shall be
irrevocably bound in any court or arbitration in which a proceeding by
Indemnitee for enforcement of his rights hereunder shall have been commenced,
continued or appealed, that its obligations set forth in this Agreement are
unique and special, and that failure of the Company to comply with the
provisions of this Agreement will cause irreparable and irremediable injury to
Indemnitee, for which a remedy at law will be inadequate. As a result, in
addition to any other right or remedy he may have at law or in equity with
respect to breach of this Agreement, Indemnitee shall be entitled to injunctive
or mandatory relief directing specific performance by the Company of its
obligations under this Agreement.
Section 7.9 Successors and Assigns. All of the terms and
provisions of this Agreement shall be binding upon, shall inure to the benefit
of and shall be enforceable by the parties hereto and their respective
successors, assigns, heirs, executors, administrators, legal representatives.
The Company shall require and cause any direct or indirect successor (whether
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business or assets of the Company, by written agreement in form and
substance reasonably satisfactory to Indemnitee, expressly to assume and agree
to perform this Agreement in the same manner and to
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the same extent that the Company would be required to perform if no such
succession had taken place.
Section 7.10 Amendment. This Agreement may not be modified or
amended except by a written instrument executed by or on behalf of each of the
parties hereto.
Section 7.11 Waivers. The observance of any term of this
Agreement may be waived (either generally or in a particular instance and
either retroactively or prospectively) by the party entitled to enforce such
term only by a writing signed by the party against which such waiver is to be
asserted. Unless otherwise expressly provided herein, no delay on the part of
any party hereto in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any waiver on the part of any party
hereto of any right, power or privilege hereunder operate as a waiver of any
other right, power or privilege hereunder nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder.
Section 7.12 Entire Agreement. This Agreement and the
documents expressly referred to herein constitute the entire agreement between
the parties hereto with respect to the matters covered hereby, and any other
prior or contemporaneous oral or written understandings or agreements with
respect to the matters covered hereby are expressly superseded by this
Agreement.
Section 7.13 Severability. If any provision of this Agreement
(including any provision within a single section, paragraph or sentence) or the
application of such provision to any person or circumstance, shall be
judicially declared to be invalid, unenforceable or void, such decision will
not have the effect of invalidating or voiding the remainder of this Agreement
or affect the application of such provision to other persons or circumstances,
it being the intent and agreement of the parties that this Agreement shall be
deemed amended by modifying such provision to the extent necessary to render it
valid, legal and enforceable while preserving its intent, or if such
modification is not possible, by substituting therefor another provision that
is valid, legal and enforceable and that achieves the same objective. Any such
finding of invalidity or unenforceability shall not prevent the enforcement of
such provision in any other jurisdiction to the maximum extent permitted by
applicable law.
Section 7.14 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given upon (a) transmitter's
confirmation of a receipt of a facsimile transmission, (b) confirmed delivery
of a standard overnight courier or when delivered by hand or (c) the expiration
of five business days after the date mailed by certified or registered mail
(return receipt requested), postage prepaid, to the parties at the following
addresses (or at such other addresses for a party as shall be specified by like
notice):
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If to the Company, to:
Lennox International Inc.
2100 Lake Park Blvd.
Richardson, Texas 75080
Attention: Carl E. Edwards, Jr., Secretary
Facsimile: (972) 497-5268
If to Indemnitee, to:
--------------------------
--------------------------
--------------------------
Facsimile:
----------------
Section 7.15 Certain Construction Rules.
(a) The article and section headings contained in
this Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Agreement. As used in
this Agreement, unless otherwise provided to the contrary, (i) all
references to days shall be deemed references to calendar days and
(ii) any reference to a "Section" or "Article" shall be deemed to
refer to a section or article of this Agreement. The words "hereof,"
"herein" and "hereunder" and words of similar import referring to this
Agreement refer to this Agreement as a whole and not to any particular
provision of this Agreement. Whenever the words "include," "includes"
or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." Unless otherwise
specifically provided for herein, the term "or" shall not be deemed to
be exclusive. Whenever the context may require, any pronoun used in
this Agreement shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns, pronouns and verbs shall
include the plural and vice versa.
(b) For purposes of this Agreement, references to
"other enterprises" shall include employee benefit plans; references
to "fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; references to "serving at the
request of the Company" shall include any service as a director,
nominee for director, officer, employee or agent of the Company which
imposes duties on, or involves services by, such director, nominee,
officer, employee or agent with respect to an employee benefit plan,
its participants or beneficiaries; and a person who acted in good
faith and in a manner he reasonably believed to be in the interest of
the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests
of the Company" as referred to in this Agreement.
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Section 7.16 Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Delaware,
without giving effect to the conflicts of laws principles thereof.
Section 7.17 Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed to be an original and
all of which together shall be deemed to be one and the same instrument,
notwithstanding that both parties are not signatories to the original or same
counterpart.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered to be effective as of the date first above written.
LENNOX INTERNATIONAL INC.
By:
------------------------------------
John W. Norris, Jr.
Chairman of the Board and
Chief Executive Officer
INDEMNITEE
---------------------------------------
Signature
Printed Name:
18
<PAGE> 1
EXHIBIT 10.16
CHANGE OF CONTROL
EMPLOYMENT AGREEMENT
September 3, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
1. Employment Period........................................................................................1
2. Terms of Employment......................................................................................2
(a) Position and Duties.............................................................................2
(b) Compensation....................................................................................3
(i) Base Salary............................................................................3
(ii) Annual Bonus...........................................................................3
(iii) Qualified Plans........................................................................3
(iv) Welfare Benefit Plans..................................................................4
(v) Expenses...............................................................................4
(vi) Fringe Benefits and Perquisites........................................................4
(vii) Office and Support Staff...............................................................4
(viii) Vacation...............................................................................4
(ix) Equity and Performance Based Awards....................................................5
3. Termination of Employment................................................................................5
(a) Death or Disability.............................................................................5
(b) Cause...........................................................................................5
(c) Good Reason.....................................................................................5
(d) Notice of Termination...........................................................................6
(e) Date of Termination.............................................................................6
4. Obligations of the Company Upon Termination..............................................................7
(a) Good Reason; Other than for Cause, Death or Disability..........................................7
(b) Death...........................................................................................9
(c) Disability.....................................................................................10
(d) Cause; Other than for Good Reason..............................................................10
5. Non-exclusivity of Rights...............................................................................10
6. Full Settlement; Resolution of Disputes.................................................................11
7. Certain Additional Payments by the Company..............................................................11
8. Confidential Information; Certain Prohibited Activities.................................................14
9. Change of Control; Potential Change of Control..........................................................15
</TABLE>
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September 3, 1998
<PAGE> 3
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
10. Successors..............................................................................................20
11. Miscellaneous...........................................................................................21
</TABLE>
-ii-
September 3, 1998
<PAGE> 4
CHANGE OF CONTROL
EMPLOYMENT AGREEMENT
This AGREEMENT (the "Agreement") by and between Lennox International
Inc., a Delaware corporation (the "Company"), and (the "Executive"), dated as of
the _____ day of _____________, 1998, to be effective as of the Agreement
Effective Date (as defined in Section 11(h) hereof).
The Board of Directors of the Company (the "Board") has determined that
it is in the best interests of the Company and its shareholders to assure that,
in the event of a Change of Control or Potential Change of Control (in each case
as defined in Section 9 hereof), the Company will have the continued services of
the Executive and the Executive will be provided with compensation and benefits
arrangements that meet his expectations. Therefore, in order to accomplish these
objectives, the Board has caused the Company to enter into this Agreement. It is
understood that the Executive has an existing employment agreement (the
"Existing Agreement") with the Company. This Agreement is intended to provide
certain protections to Executive that are not afforded by the Existing
Agreement. This Agreement is not, however, intended to provide benefits that are
duplicative of the Executive's current benefits. To the extent that this
Agreement provides benefits of the same types as those provided under the
Existing Agreement, the Company shall provide the better of the benefits in each
case during the Employment Period. If Executive remains employed by the Company
at the conclusion of an Employment Period, the Existing Agreement shall continue
in effect in accordance with its terms thereafter, except that Executive's Base
Salary for purposes of the Existing Agreement shall be equal to the Executive's
Annual Base Salary under this Agreement at the conclusion of the Employment
Period.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Employment Period. Upon a Change of Control or Potential Change of
Control, the Company hereby agrees to continue the Executive in its employ, and
the Executive hereby agrees to remain in the employ of the Company, in
accordance with, and subject to, the terms and provisions of this Agreement, for
the period (the "Employment Period") commencing on the date upon which there
occurs a Change of Control or a Potential Change of Control and ending on (i) if
a Change of Control has occurred, the second anniversary of the Employment
Effective Date or (ii) if a Potential Change of Control has occurred but a
Change of Control has not occurred, the earliest of (x) the date upon which the
Board determines in good faith that a Change of Control is unlikely to occur,
(y) any anniversary of the Potential Change of Control, if at least 30 days
prior to such anniversary the Executive notifies the Company in writing that he
elects to terminate his employment with the Company as of such anniversary and
(z) the second anniversary of the Employment Effective Date. If the Employment
Period commences by reason of a
September 3, 1998
<PAGE> 5
Potential Change of Control and the Employment Period is thereafter terminated
pursuant to clause (ii) (x) of the preceding sentence, this Agreement shall
nevertheless remain in effect and a new Employment Period shall commence upon a
subsequent Change of Control or Potential Change of Control. The Company shall
promptly notify the Executive in writing of the occurrence of a Change of
Control or Potential Change of Control and of any determination made by the
Board pursuant to clause (ii)(x) above that a Change of Control is unlikely to
occur. As used herein, the term "Employment Effective Date" shall mean, with
respect to any Employment Period, the date upon which such Employment Period
commences in accordance with this Section 1.
2. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 90-day period
immediately preceding the Employment Effective Date, and (B) the
Executive's services shall be performed at the location where the
Executive was employed immediately preceding the Employment Effective
Date or at another location within 35 miles thereof, unless, in
accordance with the normal business practice of the Company, Executive
is asked to move to another business location in connection with a
promotion or other improvement in Executive's status with the Company
or an affiliated Company.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled,
the Executive agrees to devote reasonable attention and time during
normal business hours to the business and affairs of the Company and,
to the extent necessary to discharge the responsibilities assigned to
the Executive hereunder, to use the Executive's reasonable best efforts
to perform faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for the
Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or teach
at educational institutions and (C) manage personal investments, so
long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement. It is expressly understood
and agreed that to the extent that any such activities have been
conducted by the Executive prior to the Employment Effective Date, the
continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Employment
Effective Date shall not thereafter be
2
September 3, 1998
<PAGE> 6
deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary equal to the base salary
in effect immediately prior to the Employment Effective Date ("Annual
Base Salary"), which shall be paid in accordance with the normal
business practice of the Company. During the Employment Period, the
Annual Base Salary shall be reviewed at least annually and shall be
increased at any time and from time to time as shall be substantially
consistent with increases in base salary generally awarded in the
ordinary course of business to executives of the Company and its
affiliated companies. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive under
this Agreement. Annual Base Salary shall not be reduced after any such
increase and the term "Annual Base Salary" as utilized in this
Agreement shall refer to Annual Base Salary as so increased. As used in
this Agreement, the term "affiliated companies" shall include, when
used with reference to the Company, any company controlled by,
controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary,
the Executive shall be awarded, for each fiscal year or portion thereof
during the Employment Period, an annual bonus (the "Annual Bonus") in
cash equal to the greater of (A) the greatest dollar amount of annual
bonus paid or awarded to or for the benefit of the Executive in respect
of any of the preceding three fiscal years or (B) an amount comparable
to the annual bonus awarded to other Company executives taking into
account Executive's position and responsibilities with the Company,
prorated in the case of either (A) or (B) for any period consisting of
less than twelve full months. The Annual Bonus awarded for a particular
fiscal year shall (unless the Executive elects to defer receipt
thereof) be paid no later than the last day of the third month after
the end of such year.
(iii) Qualified Plans. During the Employment Period,
the Executive shall be entitled to participate in all profit-sharing,
savings and retirement plans that are tax-qualified under Section
401(a) of the Internal Revenue Code of 1986, as amended ("Code"), and
all plans that are supplemental to any such tax-qualified plans, in
each case to the extent that such plans are applicable generally to
other executives of the Company and its affiliated companies, but in no
event shall such plans provide the Executive with incentive
opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction
is applicable), savings opportunities and retirement benefit
opportunities that are, in each case, less favorable, in the aggregate,
than the most
3
September 3, 1998
<PAGE> 7
favorable plans of the Company and its affiliated companies. As used in
this Agreement, the term "most favorable" shall, when used with
reference to any plans, practices, policies or programs of the Company
and its affiliated companies, be deemed to refer to the most favorable
plans, practices, policies or programs of the Company and its
affiliated companies as in effect at any time during the three months
preceding the Employment Effective Date or, if more favorable to the
Executive, provided generally at any time after the Employment
Effective Date to other executives of the Company and its affiliated
companies.
(iv) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case may
be, shall be eligible for participation in and shall receive all
benefits under welfare benefit plans, practices, policies and programs
provided by the Company and its affiliated companies (including,
without limitation, medical, prescription, dental, vision, disability,
salary continuance, group life and supplemental group life, accidental
death and travel accident insurance plans and programs) to the extent
applicable generally to other executives of the Company and its
affiliated companies, but in no event shall such plans, practices,
policies and programs provide the Executive with benefits that are less
favorable, in the aggregate, than the most favorable such plans,
practices, policies and programs of the Company and its affiliated
companies.
(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance with the
most favorable policies, practices and procedures of the Company and
its affiliated companies.
(vi) Fringe Benefits and Perquisites. During the
Employment Period, the Executive shall be entitled to fringe benefits
and perquisites in accordance with the most favorable plans, practices,
programs and policies of the Company and its affiliated companies
applicable to similarly situated executives, which, in the aggregate,
shall not be less than Executive's benefits and perquisites in effect
prior to the commencement of the Employment Period.
(vii) Office and Support Staff. During the Employment
Period, the Executive shall be entitled to an office or offices of a
size and with furnishings and other appointments, and to exclusive
personal secretarial and other assistance, at least equal to the most
favorable of the foregoing provided to the Executive by the Company and
its affiliated companies at any time during the three months preceding
the Employment Effective Date.
(viii) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the
most favorable plans, policies, programs and practices of the Company
and its affiliated companies, but
4
September 3, 1998
<PAGE> 8
not less than the amount of vacation time to which Executive was
entitled prior to the commencement of the Employment Period.
(ix) Equity and Performance Based Awards. During the
Employment Period, the Executive shall be granted on an annual basis a
long-term incentive package consisting of stock options, restricted
stock or restricted stock units and other equity-based awards and
performance grants, as selected by the Company, with an aggregate value
(as determined by an independent consulting firm selected by Executive
and reasonably acceptable to the Company) that shall be not less than
the aggregate value of the long-term incentive package awarded the
Executive in any of the three years immediately preceding such
Employment Period.
3. Termination of Employment.
(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 11(d) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative (such
agreement as to acceptability not to be withheld unreasonably).
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean (i) dishonesty by Executive which results in
substantial personal enrichment at the expense of the Company or (ii)
demonstratively willful repeated violations of Executive's obligations under
this Agreement which are intended to result and do result in material injury to
the Company.
(c) Good Reason. The Executive's employment may be terminated
during the Employment Period by the Executive for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean:
5
September 3, 1998
<PAGE> 9
(i) the assignment to the Executive of any duties
inconsistent in any material respect with the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties or responsibilities as contemplated by Section 2 of
this Agreement, other than any such assignment that would clearly
constitute a promotion or other improvement in Executive's position, or
any other action by the Company which results in a significant
diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent
action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of
the provisions of this Agreement, other than an isolated, insubstantial
and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given
by the Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than that described in Section
2(a)(i)(B) hereof;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement;
(v) any failure by the Company to comply with and
satisfy the requirements of Section 10 of this Agreement, provided that
(A) the successor described in Section 10(c) has received, at least ten
days prior to the Date of Termination (as defined in subparagraph (e)
below), written notice from the Company or the Executive of the
requirements of such provision and (B) such failure to be in compliance
and satisfy the requirements of Section 10 shall continue as of the
Date of Termination; or
(vi) in the event that the Executive is serving as a
member of the Board immediately prior to the Employment Effective Date,
any failure to reelect Executive as a member of the Board, unless such
reelection would be prohibited by the Company's By-laws as in effect at
the beginning of the Employment Period.
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 11(d) of
this Agreement. The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Executive or the Company
hereunder or preclude the Executive or the Company from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
6
September 3, 1998
<PAGE> 10
(e) Date of Termination. For purposes of this Agreement, the
term "Date of Termination" means (i) if the Executive's employment is terminated
by the Company for Cause, or by the Executive for Good Reason, the date of
receipt of the Notice of Termination or any later date specified therein, as the
case may be, (ii) if the Executive's employment is terminated by the Company
other than for Cause or Disability, the Date of Termination shall be the date on
which the Company notifies the Executive of such termination and (iii) if the
Executive's employment is terminated by reason of death or Disability, the Date
of Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
4. Obligations of the Company Upon Termination.
(a) Good Reason; Other than for Cause, Death or
Disability. If, during the Employment Period, the Company shall terminate the
Executive's employment other than for Cause or Disability or the Executive shall
terminate employment for Good Reason:
(i) the Company shall pay or provide to or in
respect of the Executive the following amounts and benefits:
A. in a lump sum in cash within 10 days
after the Date of Termination, an amount equal to the sum of
(1) the Executive's Annual Base Salary through the Date of
Termination, (2) the product of (x) the highest Annual Bonus
paid or awarded to or for the benefit of Executive during the
three fiscal years preceding the Date of Termination and (y) a
fraction, the numerator of which is the number of days in the
current fiscal year through the Date of Termination and the
denominator of which is 365, (3) any deferred compensation
previously awarded to or earned by the Executive (together
with any accrued interest or earnings thereon) and (4) any
compensation for unused vacation time for which the Executive
is eligible in accordance with the most favorable plans,
policies, programs and practices of the Company and its
affiliated companies, in each case to the extent not
theretofore paid (the sum of the amounts described in clauses
(1), (2), (3) and (4) shall be hereinafter referred to as the
"Accrued Obligation");
B. in a lump sum in cash, undiscounted,
within 10 days after the Date of Termination, an amount equal
to the sum of (1) three times the Annual Base Salary and (2)
three times the Annual Bonus that would have been paid or
awarded to or for the benefit of the Executive during the
fiscal year that includes the Date of Termination;
C. an additional three Years of Vesting
Service and Years of Credited Service, as well as an
incremental three years added to
7
September 3, 1998
<PAGE> 11
Executive's age, for purposes of the Company's Supplemental
Retirement Plan and Profit Sharing Restoration Plan;
D. effective as of the Date of Termination,
(x) immediate vesting and exercisability of, termination of
any restrictions on sale or transfer (other than any such
restriction arising by operation of law) with respect to and
treatment of any performance goals as having been satisfied at
the highest possible level with respect to each and every
stock option, restricted stock award, restricted stock unit
award and other equity-based award and performance award
(each, a "Compensatory Award") that is outstanding as of a
time immediately prior to the Date of Termination, (y) the
extension of the term during which each and every Compensatory
Award may be exercised by the Executive until the earlier of
(1) the first anniversary of the Date of Termination or (2)
the date upon which the right to exercise any Compensatory
Award would have expired if the Executive had continued to be
employed by the Company under the terms of this Agreement
until the second anniversary of the Employment Effective Date
and (z) at the sole election of Executive, in exchange for any
or all Compensatory Awards that are either denominated in or
payable in Common Stock, an amount in cash equal to the number
of shares of Common Stock that are subject to the Compensatory
Award multiplied by the excess of (i) the Highest Price Per
Share (as defined below) over (ii) the exercise or purchase
price, if any, of such Compensatory Awards. As used herein,
the term "Highest Price Per Share" shall mean the highest
price per share that can be determined to have been paid or
agreed to be paid for any share of Common Stock by a Covered
Person (as defined below) at any time during the Employment
Period or the six-month period immediately preceding the
Employment Effective Date. As used herein, the term "Covered
Person" shall mean any Person other than an Exempt Person (in
each case as defined in Section 9 hereof) who (i) is the
Beneficial Owner (as defined in Section 9 hereof) of 35% or
more of the outstanding shares of Common Stock or 35% or more
of the combined voting power of the outstanding Voting Stock
(as defined in Section 9 hereof) of the Company at any time
during the Employment Period or the two-year period
immediately prior to the Employment Effective Date, or (ii) is
a Person who has any material involvement in proposing or
effecting the Change of Control or Potential Change of Control
(but excluding any Person whose involvement in proposing or
effecting the Change of Control or Potential Change of Control
resulted solely from such Person's voting or selling of Common
Stock in connection with the Change of Control or Potential
Change of Control, from such Person's status as a director or
officer of the Company in evaluating and/or approving a Change
of Control or Potential Change of Control or both). In
determining the Highest Price Per Share, the
8
September 3, 1998
<PAGE> 12
price paid or agreed to be paid by a Covered Person will be
appropriately adjusted to take into account (W) distributions
paid or payable in stock, (X) subdivisions of outstanding
stock, (Y) combinations of shares of stock into a smaller
number of shares and (Z) similar events.
(ii) for the three-year period commencing with the
Date of Termination, and for the COBRA continuation period commencing
thereafter, the Company shall continue medical and health benefits to
the Executive and/or the Executive's family at least equal to those
that would have been provided to them in accordance with the medical
plans, programs, practices and policies described in Section 2(b)(iv)
of this Agreement if the Executive's employment had not been terminated
(such continuation of such benefits for the applicable period herein
set forth shall be hereinafter referred to as "Welfare Benefit
Continuation"). For purposes of determining eligibility of the
Executive for retiree benefits pursuant to such plans, practices,
programs and policies, the Executive shall be considered to have
remained employed until the third anniversary of Executive's Date of
Termination and to have retired on such date; and
(iii) the Company shall timely pay or provide to the
Executive and/or the Executive's family any other amounts or benefits
required to be paid or provided or which the Executive and/or the
Executive's family is eligible to receive pursuant to this Agreement
and under any plan, program, policy or practice or contract or
agreement of the Company and its affiliated companies as in effect and
applicable generally to other executives and their families on the
Employment Effective Date (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate and the Company shall be obligated to pay to the Executive's
legal representatives under this Agreement the greater of (i) such benefits as
would be provided to Executive under the Existing Agreement or (ii)(A) the
payment of the Accrued Obligations (which shall be paid to the Executive's
estate or beneficiary, as applicable, in a lump sum in cash within 30 days of
the Date of Termination), (B) the payment of an amount equal to the Annual
Salary that would have been paid to the Executive pursuant to this Agreement for
the period beginning on the Date of Termination and ending on the first
anniversary thereof if the Executive's employment had not terminated by reason
of death (which shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination),
(C) the timely payment or provision of the Welfare Benefit Continuation and
Other Benefits and (D) effective as of the Date of Termination, (x) immediate
vesting and exercisability of, and termination of any restrictions on sale or
transfer (other than any such restriction arising by operation of law) with
respect to, each and every Compensatory Award outstanding as of a time
immediately prior to the Date of Termination, (y) the
9
September 3, 1998
<PAGE> 13
extension of the term during which each and every Compensatory Award may be
exercised or purchased by the Executive until the earlier of (I) the first
anniversary of the Date of Termination or (II) the date upon which the right to
exercise or purchase any Compensatory Award would have expired if the Executive
had continued to be employed by the Company under the terms of this Agreement
until the second anniversary of the Employment Effective Date and (z) at the
sole election of Executive's legal representative, in exchange for any
Compensatory Award that is either denominated in or payable in Common Stock, an
amount in cash equal to the excess of (I) the Highest Price Per Share over (II)
the exercise or purchase price, if any, of such Compensatory Award.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate and the Company shall be obligated to pay to the
Executive, the greater of (i) such benefits as would be provided to Executive
under the Existing Agreement or (ii)(A) the payment of the Accrued Obligations
(which shall be paid to the Executive in a lump sum in cash within 30 days of
the Date of Termination), (B) the payment of an amount equal to the Annual
Salary that would have been paid to the Executive pursuant to this Agreement for
the period beginning on the Date of Termination and ending on the first
anniversary thereof if the Executive's employment had not terminated by reason
of Disability (which shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination), (C) the timely payment or provision of the
Welfare Benefit Continuation and Other Benefits and (D) effective as of the Date
of Termination, (x) immediate vesting and exercisability of, and termination of
any restrictions on sale or transfer (other than any such restriction arising by
operation of law) with respect to, each and every Compensatory Award outstanding
as of a time immediately prior to the Date of Termination, (y) the extension of
the term during which each and every Compensatory Award may be exercised or
purchased by the Executive until the earlier of (I) the first anniversary of the
Date of Termination or (II) the date upon which the right to exercise or
purchase any Compensatory Award would have expired if the Executive had
continued to be employed by the Company under the terms of this Agreement until
the second anniversary of the Employment Effective Date and (z) at the sole
election of Executive, in exchange for any Compensatory Award that is either
denominated in or payable in Common Stock, an amount in cash equal to the excess
of (I) the Highest Price Per Share over (II) the exercise or purchase price, if
any, of such Compensatory Award.
(d) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations under this Agreement to
the Executive other than for Accrued Obligations. If the Executive terminates
employment during the Employment Period other than for Good Reason, this
Agreement shall terminate without further obligations to the Executive, other
than for the payment of Accrued Obligations. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
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September 3, 1998
<PAGE> 14
5. Non-exclusivity of Rights. Except as provided in Section 4 of this
Agreement, nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any plan, program, policy or practice
provided by the Company or any of its affiliated companies and for which the
Executive may qualify, nor shall anything herein limit or otherwise affect such
rights as the Executive may have under any contract or agreement with the
Company or any of its affiliated companies. Amounts which are vested benefits or
which the Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Company or any of
its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as such plan, policy, practice or program is superseded by this
Agreement.
6. Full Settlement; Resolution of Disputes.
(a) The Company's obligation to make payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense, mitigation or other
claim, right or action which the Company may have against the Executive or
others. The Company agrees to pay promptly as incurred, to the full extent
permitted by law, all legal fees and expenses which the Executive may reasonably
incur as a result of any contest (in which the Executive is successful, in whole
or in part, on the merits) by the Company, the Executive or others of the
validity or enforceability of, or liability under, any provision of this
Agreement (other than Section 8 hereof) or any guarantee of performance thereof
(including as a result of any contest by the Executive about the amount of any
such payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the Applicable Federal Rate provided for in Section
7872(f)(2)(A) of the Code.
(b) If there shall be any dispute between the Company and the
Executive concerning (i) in the event of any termination of the Executive's
employment by the Company, whether such termination was for Cause, or (ii) in
the event of any termination of employment by the Executive, whether Good Reason
existed, then, unless and until there is a final, nonappealable judgment by a
court of competent jurisdiction declaring that such termination was for Cause or
that Good Reason did not exist, the Company shall pay all amounts, and provide
all benefits, to the Executive and/or the Executive's family or other
beneficiaries, as the case may be, that the Company would be required to pay or
provide pursuant to Section 4(a) hereof as though such termination were by the
Company without Cause or by the Executive with Good Reason; provided, however,
that the Company shall not be required to pay any disputed amounts pursuant to
this paragraph except upon receipt of an undertaking by or on behalf of the
Executive to repay all such amounts to which the Executive is ultimately
adjudged by such court not to be entitled.
11
September 3, 1998
<PAGE> 15
7. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 7) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, hereinafter collectively referred to as the "Excise
Tax"), then the Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by the Executive of all
taxes (including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Section 7(c), all
determinations required to be made under this Section 7, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Arthur Andersen LLP (the "Accounting Firm"); provided, however, that the
Accounting Firm shall not determine that no Excise Tax is payable by the
Executive unless it delivers to the Executive a written opinion (the "Accounting
Opinion") that failure to report the Excise Tax on the Executive's applicable
Federal income tax return would not result in the imposition of a negligence or
similar penalty. In the event that Arthur Andersen LLP has served, at any time
during the two years immediately preceding a Change of Control Date, as
accountant or auditor for the individual, entity or group that is involved in
effecting or has any material interest in the Change of Control, the Executive,
at his option, shall appoint another nationally recognized accounting firm to
make the determinations and perform the other functions specified in this
Section 7 (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Within 15 business days of the receipt of notice from the
Executive that there has been a Payment, or such earlier time as is requested by
the Company, the Accounting Firm shall make all determinations required under
this Section 7, shall provide to the Company and the Executive a written report
setting forth such determinations, together with detailed supporting
calculations, and, if the Accounting Firm determines that no Excise Tax is
payable, shall deliver the Accounting Opinion to the Executive. Any Gross-Up
Payment, as determined pursuant to this Section 7, shall be paid by the Company
to the Executive within five days of the receipt of the Accounting Firm's
determination. Subject to the remainder of this Section 7, any determination by
the Accounting Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the
12
September 3, 1998
<PAGE> 16
Accounting Firm hereunder, it is possible that a Gross-Up Payment that will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that it is
ultimately determined in accordance with the procedures set forth in Section
7(c) that the Executive is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
(c) The Executive shall notify the Company in writing of
any claims by the Internal Revenue Service that, if successful, would require
the payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but not later than 30 days after the Executive
actually receives notice in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to be
paid; provided, however, that the failure of the Executive to notify the Company
of such claim (or to provide any required information with respect thereto)
shall not affect any rights granted to the Executive under this Section 7 except
to the extent that the Company is materially prejudiced in the defense of such
claim as a direct result of such failure. The Executive shall not pay such claim
prior to the expiration of the 30-day period following the date on which he
gives such notice to the Company (or such shorter period ending on the date that
any payment of taxes with respect to such claim is due). If the Company notifies
the Executive in writing prior to the expiration of such period that it desires
to contest such claim, the Executive shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim;
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time
to time, including, without limitation, accepting legal representation
with respect to such claim by an attorney selected by the Company and
reasonably acceptable to the Executive;
(iii) cooperate with the Company in good faith in
order effectively to contest such claim; and
(iv) if the Company elects not to assume and control
the defense of such claim, permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the
13
September 3, 1998
<PAGE> 17
foregoing provisions of this Section 7(c), the Company shall have the right, at
its sole option, to assume the defense of and control all proceedings in
connection with such contest, in which case it may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may either direct the Executive to pay
the tax claimed and sue for a refund or contest the claim in any permissible
manner, and the Executive agrees to prosecute such contest to a determination
before any administrative tribunal, in a court of initial jurisdiction and in
one or more appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to the Executive,
on an interest-free basis, and shall indemnify and hold the Executive harmless,
on an after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's right to assume the defense of and control the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 7(c), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 7(c)) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 7(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
8. Confidential Information; Certain Prohibited Activities.
(a) The Executive shall hold in a fiduciary capacity for the
benefit of the Company all secret or confidential information, knowledge or data
relating to the Company or any of its affiliated companies, and their respective
businesses, which shall have been obtained by the Executive during the
Executive's employment by the Company or any of its affiliated companies and
which shall not be or become public knowledge (other than by acts by the
Executive or representatives of the Executive in violation of this Agreement).
After the Executive's Date of Termination, the Executive shall not, without the
prior written
14
September 3, 1998
<PAGE> 18
consent of the Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone other
than the Company and those designated by it. Except as provided in subsection
(c) below, in no event shall an asserted violation of the provisions of this
Section 8 constitute a basis for deferring or withholding any amounts otherwise
payable to Executive under this Agreement. Also, within 14 days of the
termination of Executive's employment for any reason, Executive shall return to
the Company all documents and other tangible items of or containing Company
information which are in Executive's possession, custody or control.
(b) Executive agrees that for a period of 24 complete
calendar months following his Date of Termination, Executive will not, either
directly or indirectly, call on, solicit, induce or attempt to induce any of the
employees or officers of the Company whom Executive had knowledge of or
association with during Executive's employment with the Company to terminate
their association with the Company either personally or through the efforts of
his or her subordinates.
(c) In the event of a breach by Executive of any
provision of this Section 8, the Company shall be entitled to (i) cease any
Welfare Benefit Contribution entitlement provided pursuant to Section 4(a)(ii)
hereof, (ii) relief by temporary restraining order, temporary injunction and/or
permanent injunction, (iii) recovery of all attorneys' fees and costs incurred
in obtaining such relief and (iv) any other legal and equitable relief to which
it may be entitled, including monetary damages.
9. Change of Control; Potential Change of Control.
(a) As used in this Agreement, the terms set forth below
shall have the following respective meanings:
"Beneficial Owner" shall mean, with reference to any
securities, any Person if:
(i) such Person is the "beneficial owner" of (as
determined pursuant to Rule 13d-3 of the General Rules and Regulations
under the Exchange Act, as in effect on the date of this Agreement)
such securities; provided, however, that a Person shall not be deemed
the "Beneficial Owner" of, or to "beneficially own," any security under
this subsection (i) as a result of an agreement, arrangement or
understanding to vote such security if such agreement, arrangement or
understanding: (x) arises solely from a revocable proxy or consent
given in response to a public (i.e., not including a solicitation
exempted by Rule 14a-2(b)(2) of the General Rules and Regulations under
the Exchange Act) proxy or consent solicitation made pursuant to, and
in accordance with, the applicable provisions of the General Rules and
Regulations under the Exchange Act and (y) is not then
15
September 3, 1998
<PAGE> 19
reportable by such Person on Schedule 13D under the Exchange Act (or
any comparable or successor report); or
(ii) such Person is a member of a group (as that term
is used in Rule 13d-5(b) of the General Rules and Regulations under the
Exchange Act) that includes any other Person that beneficially owns
such securities; provided, however, that no Person who is shown in the
Registration Statement on Form S-1 ("Registration Statement") under the
Securities Act of 1933 related to the initial public offering of the
Common Stock as beneficially owning (as determined pursuant to Rule
13d-3 of the General Rules and Regulations under the Exchange Act, as
in effect on the date of this Agreement) five percent or more of the
Common Stock shall be deemed a member of any group that includes as its
sole members Persons who also are shown in the Registration Statement
as beneficially owning five percent or more of the Common Stock unless
and until such time as each such Person individually becomes the
Beneficial Owner, other than as a result of a distribution from a
Norris Family Trust, of an amount of Common Stock that is 103% or more
of the amount of such Common Stock beneficially owned by such Person on
the date the Registration Statement is declared effective by the
Securities and Exchange Commission;
provided, however, that a Person shall not be deemed the "Beneficial Owner" of,
or to "beneficially own" any security held by a Norris Family Trust with respect
to which such Person acts in the capacity of trustee, executor or other
fiduciary; provided, further, that nothing in this definition shall cause a
Person engaged in business as an underwriter of securities to be the Beneficial
Owner of, or to "beneficially own," any securities acquired through such
Person's participation in good faith in a firm commitment underwriting until the
expiration of forty days after the date of such acquisition. For purposes
hereof, "voting" a security shall include voting, granting a proxy, consenting
or making a request or demand relating to corporate action (including, without
limitation, a demand for a stockholder list, to call a stockholder meeting or to
inspect corporate books and records) or otherwise giving an authorization
(within the meaning of Section 14(a) of the Exchange Act) in respect of such
security.
The terms "beneficially own" and "beneficially owning" shall
have meanings that are correlative to this definition of the term "Beneficial
Owner."
"Change of Control" shall mean any of the following occurring
on or after the Agreement Effective Date:
(i) Any Person (other than an Exempt Person) shall
become the Beneficial Owner of 35% or more of the shares of Common
Stock then outstanding or 35% or more of the combined voting power of
the Voting Stock of the Company then outstanding; provided, however,
that no Change of Control shall be deemed
16
September 3, 1998
<PAGE> 20
to occur for purposes of this subsection (i) if such Person shall
become a Beneficial Owner of 35% or more of the shares of Common Stock
or 35% or more of the combined voting power of the Voting Stock of the
Company solely as a result of (x) an Exempt Transaction or (y) an
acquisition by a Person pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or
consolidation, the conditions described in clauses (x), (y) and (z) of
subsection (iii) of this definition are satisfied;
(ii) Individuals who, as of the Agreement Effective
Date, constitute the Board (the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board; provided, however, that
any individual becoming a director subsequent to the Agreement
Effective Date whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent
Board; provided, further, that there shall be excluded, for this
purpose, any such individual whose initial assumption of office occurs
as a result of any actual or threatened election contest that is
subject to the provisions of Rule 14a-11 under the Exchange Act;
(iii) Approval by the shareholders of the Company of
a reorganization, merger or consolidation, in each case, unless,
following such reorganization, merger or consolidation, (x) more than
65% of the then outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation and the
combined voting power of the then outstanding Voting Stock of such
corporation is beneficially owned, directly or indirectly, by all or
substantially all of the Persons who were the Beneficial Owners of the
outstanding Common Stock immediately prior to such reorganization,
merger or consolidation in substantially the same proportions as their
ownership immediately prior to such reorganization, merger or
consolidation of the outstanding Common Stock, (y) no Person (excluding
any Exempt Person or any Person beneficially owning, immediately prior
to such reorganization, merger or consolidation, directly or
indirectly, 35% or more of the Common Stock then outstanding or 35% or
more of the combined voting power of the Voting Stock of the Company
then outstanding) beneficially owns, directly or indirectly, 35% or
more of the then outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation or the
combined voting power of the then outstanding Voting Stock of such
corporation and (z) at least a majority of the members of the board of
directors of the corporation resulting from such reorganization, merger
or consolidation were members of the Incumbent Board at the time of the
execution of the initial agreement or initial action by the Board
providing for such reorganization, merger or consolidation; or
17
September 3, 1998
<PAGE> 21
(iv) Approval by the shareholders of the Company of
(x) a complete liquidation or dissolution of the Company, unless such
liquidation or dissolution is approved as part of a plan of liquidation
and dissolution involving a sale or disposition of all or substantially
all of the assets of the Company to a corporation with respect to
which, following such sale or other disposition, all of the
requirements of clauses (y)(A), (B) and (C) of this subsection (iv) are
satisfied, or (y) the sale or other disposition of all or substantially
all of the assets of the Company, other than to a corporation, with
respect to which, following such sale or other disposition, (A) more
than 65% of the then outstanding shares of common stock of such
corporation and the combined voting power of the Voting Stock of such
corporation is then beneficially owned, directly or indirectly, by all
or substantially all of the Persons who were the Beneficial Owners of
the outstanding Common Stock immediately prior to such sale or other
disposition in substantially the same proportions as their ownership,
immediately prior to such sale or other disposition, of the outstanding
Common Stock, (B) no Person (excluding any Exempt Person and any Person
beneficially owning, immediately prior to such sale or other
disposition, directly or indirectly, 35% or more of the Common Stock
then outstanding or 35% or more of the combined voting power of the
Voting Stock of the Company then outstanding) beneficially owns,
directly or indirectly, 35% or more of the then outstanding shares of
common stock of such corporation and the combined voting power of the
then outstanding Voting Stock of such corporation and (C) at least a
majority of the members of the board of directors of such corporation
were members of the Incumbent Board at the time of the execution of the
initial agreement or initial action of the Board providing for such
sale or other disposition of assets of the Company.
"Common Stock" shall mean the common stock, par value $.01 per
share, of the Company, and shall include, for purposes of Section 4 hereof,
stock of any successor, within the meaning of Section 10(c).
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Exempt Person" shall mean the Company, any subsidiary of the
Company, any employee benefit plan of the Company or any subsidiary of the
Company, and any Person organized, appointed or established by the Company for
or pursuant to the terms of any such plan.
"Exempt Transaction" shall mean an increase in the percentage
of the outstanding shares of Common Stock or the percentage of the combined
voting power of the outstanding Voting Stock of the Company beneficially owned
by any Person solely as a result of a reduction in the number of shares of
Common Stock then outstanding due to the repurchase of Common Stock by the
Company, unless and until such time as such
18
September 3, 1998
<PAGE> 22
Person shall purchase or otherwise become the Beneficial Owner of additional
shares of Common Stock constituting 3% or more of the then outstanding shares of
Common Stock or additional Voting Stock representing 3% or more of the combined
voting power of the then outstanding Voting Stock.
"Norris Family Trust" shall mean any trust, other fiduciary
arrangement or family planning device formed or existing for the benefit of the
descendants of D.W. Norris but only if such entity shall not at any time act
with the primary purpose of effecting with respect to the Company (i) an
extraordinary corporate transaction, such as a merger, reorganization or
liquidation (ii) a sale or transfer of a material amount of assets, (iii) any
material change in capitalization, (iv) any other material change in business or
corporate structure or operations, (v) changes in corporate charter or bylaws,
or (vi) a change in the composition of the Board or of the members of senior
management.
"Person" shall mean any individual, firm, corporation,
partnership, association, trust, unincorporated organization or other entity.
"Potential Change of Control" shall mean any of the following:
(i) a tender offer or exchange offer is commenced by
any Person which, if consummated, would constitute a Change of Control;
(ii) an agreement is entered into by the Company
providing for a transaction which, if consummated, would constitute a
Change of Control;
(iii) any election contest is commenced that is
subject to the provisions of Rule 14a-11 under the Exchange Act; or
(iv) any proposal is made, or any other event or
transaction occurs or is continuing, which the Board determines, if
consummated, would result in a Change of Control.
"Voting Stock" shall mean, with respect to a corporation, all
securities of such corporation of any class or series that are entitled to vote
generally in the election of directors of such corporation (excluding any class
or series that would be entitled so to vote by reason of the occurrence of any
contingency, so long as such contingency has not occurred).
(b) In the event that the Company is a party to a transaction
that is otherwise intended to qualify for "pooling of interests" accounting
treatment, such transaction constitutes a Change of Control within the meaning
of this Agreement and individuals who satisfy the requirements in clauses (i)
and (ii) below constitute at least 51%
19
September 3, 1998
<PAGE> 23
of the number of directors of the entity surviving such transaction or any
parent thereof: individuals who (i) immediately prior to such transaction
constituted the Board and (ii) on the date hereof constitute the Board and any
new director (other than a director whose initial assumption of office is in
connection with an actual or threatened election contest relating to the
election of directors of the Company) whose appointment or election by the Board
or nomination for election by the Company's stockholders was approved or
recommended by a vote of at least 51% of the directors then still in office who
either were directors on the date hereof or whose appointment, election or
nomination for election was previously so approved or recommended, then this
Section 9 and other Agreement provisions concerning a Change of Control shall,
to the extent practicable, be interpreted so as to permit such accounting
treatment, and to the extent that the application of this sentence does not
preserve the availability of such accounting treatment, then, to the extent that
any provision or combination of provisions of this Section 9 and other Agreement
provisions concerning a Change of Control disqualifies the transaction as a
"pooling" transaction (including, if applicable, all provisions of the Agreement
relating to a Change of Control), the Board shall amend such provision or
provisions if and to the extent necessary (including declaring such provision or
provisions to be null and void as of the date hereof, which declaration shall be
binding on Executive) so that such transaction may be accounted for as a
"pooling of interests." All determinations with respect to this paragraph shall
be made by the Company, based upon the advice of the accounting firm whose
opinion with respect to "pooling of interests" is required as a condition to the
consummation of such transaction.
10. Successors.
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
heirs, executors and other legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and may only be assigned to a successor described in
Section 10(c).
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
20
<PAGE> 24
11. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without reference to
principles of conflict of laws that would require the application of the laws of
any other state or jurisdiction.
(b) The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
(c) This Agreement may not be amended or modified otherwise
than by a written agreement executed by the parties hereto or their respective
successors and heirs, executors and other legal representatives.
(d) All notices and other communications hereunder shall be in
writing and shall be given, if by the Executive to the Company, by telecopy or
facsimile transmission at the telecommunications number set forth below and, if
by either the Company or the Executive, either by hand delivery to the other
party or by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to the Executive:
-----------------------------------
-----------------------------------
If to the Company:
Lennox International Inc.
2100 Lake Park Blvd.
Richardson, Texas 75080-2254
Telecommunications Number: (972) ______________
Attention: Corporate Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(e) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(f) The Company may withhold from any amounts payable under
this Agreement such Federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
21
<PAGE> 25
(g) The Executive's or the Company's failure to insist upon
strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 3(c) of this Agreement,
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
(h) This Agreement shall become effective as of
_________________ (the "Agreement Effective Date ").
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
LENNOX INTERNATIONAL INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
EXECUTIVE
-------------------------------------
Signature
22
September 3, 1998
<PAGE> 1
EXHIBIT 10.17
CHANGE OF CONTROL
EMPLOYMENT AGREEMENT
April ___, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Employment Period.............................................................................1
2. Terms of Employment...........................................................................2
(a) Position and Duties..................................................................2
(b) Compensation.........................................................................3
(i) Base Salary.................................................................3
(ii) Annual Bonus................................................................3
(iii) Qualified Plans.............................................................3
(iv) Welfare Benefit Plans.......................................................4
(v) Expenses....................................................................4
(vi) Fringe Benefits and Perquisites.............................................4
(vii) Office and Support Staff....................................................4
(viii) Vacation....................................................................4
(ix) Equity and Performance Based Awards.........................................5
3. Termination of Employment.....................................................................5
(a) Death or Disability..................................................................5
(b) Cause................................................................................5
(c) Good Reason..........................................................................5
(d) Notice of Termination................................................................6
(e) Date of Termination..................................................................7
4. Obligations of the Company Upon Termination...................................................7
(a) Good Reason; Other than for Cause, Death or Disability...............................7
(b) Death................................................................................9
(c) Disability..........................................................................10
(d) Cause; Other than for Good Reason...................................................10
5. Non-exclusivity of Rights....................................................................11
6. Full Settlement; Resolution of Disputes......................................................11
7. Certain Additional Payments by the Company...................................................12
8. Confidential Information; Certain Prohibited Activities......................................14
9. Change of Control; Potential Change of Control...............................................15
</TABLE>
April ___, 1999
-i-
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
10. Successors...................................................................................20
11. Miscellaneous................................................................................21
</TABLE>
April ___, 1999
-ii-
<PAGE> 4
CHANGE OF CONTROL
EMPLOYMENT AGREEMENT
This AGREEMENT (the "Agreement") by and between Lennox International
Inc., a Delaware corporation (the "Company"), and ________ (the "Executive"),
dated as of the _____ day of _____________, 1999, to be effective as of the
Agreement Effective Date (as defined in Section 11(h) hereof).
The Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its shareholders to assure
that, in the event of a Change of Control or Potential Change of Control (in
each case as defined in Section 9 hereof), the Company will have the continued
services of the Executive and the Executive will be provided with compensation
and benefits arrangements that meet his expectations. Therefore, in order to
accomplish these objectives, the Board has caused the Company to enter into
this Agreement. It is understood that the Executive has an existing employment
agreement (the "Existing Agreement") with the Company. This Agreement is
intended to provide certain protections to Executive that are not afforded by
the Existing Agreement. This Agreement is not, however, intended to provide
benefits that are duplicative of the Executive's current benefits. To the
extent that this Agreement provides benefits of the same types as those
provided under the Existing Agreement, the Company shall provide the better of
the benefits in each case during the Employment Period. If Executive remains
employed by the Company at the conclusion of an Employment Period, the Existing
Agreement shall continue in effect in accordance with its terms thereafter,
except that Executive's Base Salary for purposes of the Existing Agreement
shall be equal to the Executive's Annual Base Salary under this Agreement at
the conclusion of the Employment Period.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Employment Period. Upon a Change of Control or Potential Change of
Control, the Company hereby agrees to continue the Executive in its employ, and
the Executive hereby agrees to remain in the employ of the Company, in
accordance with, and subject to, the terms and provisions of this Agreement,
for the period (the "Employment Period") commencing on the date upon which
there occurs a Change of Control or a Potential Change of Control and ending on
(i) if a Change of Control has occurred, the second anniversary of the
Employment Effective Date or (ii) if a Potential Change of Control has occurred
but a Change of Control has not occurred, the earliest of (x) the date upon
which the Board determines in good faith that a Change of Control is unlikely
to occur, (y) any anniversary of the Potential Change of Control, if at least
30 days prior to such anniversary the Executive notifies the Company in writing
that he elects to terminate his employment with the Company as of such
anniversary and (z) the second anniversary of the Employment Effective Date. If
the Employment Period commences by reason of a
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Potential Change of Control and the Employment Period is thereafter terminated
pursuant to clause (ii) (x) of the preceding sentence, this Agreement shall
nevertheless remain in effect and a new Employment Period shall commence upon a
subsequent Change of Control or Potential Change of Control. The Company shall
promptly notify the Executive in writing of the occurrence of a Change of
Control or Potential Change of Control and of any determination made by the
Board pursuant to clause (ii)(x) above that a Change of Control is unlikely to
occur. As used herein, the term "Employment Effective Date" shall mean, with
respect to any Employment Period, the date upon which such Employment Period
commences in accordance with this Section 1.
2. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the
Executive's position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at
least commensurate in all material respects with the most significant
of those held, exercised and assigned at any time during the 90-day
period immediately preceding the Employment Effective Date, and (B)
the Executive's services shall be performed at the location where the
Executive was employed immediately preceding the Employment Effective
Date or at another location within 35 miles thereof, unless, in
accordance with the normal business practice of the Company, Executive
is asked to move to another business location in connection with a
promotion or other improvement in Executive's status with the Company
or an affiliated Company.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled,
the Executive agrees to devote reasonable attention and time during
normal business hours to the business and affairs of the Company and,
to the extent necessary to discharge the responsibilities assigned to
the Executive hereunder, to use the Executive's reasonable best
efforts to perform faithfully and efficiently such responsibilities.
During the Employment Period it shall not be a violation of this
Agreement for the Executive to (A) serve on corporate, civic or
charitable boards or committees, (B) deliver lectures, fulfill
speaking engagements or teach at educational institutions and (C)
manage personal investments, so long as such activities do not
significantly interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with this
Agreement. It is expressly understood and agreed that to the extent
that any such activities have been conducted by the Executive prior to
the Employment Effective Date, the continued conduct of such
activities (or the conduct of activities similar in nature and scope
thereto) subsequent to the Employment Effective Date shall not
thereafter be
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deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary equal to the base salary
in effect immediately prior to the Employment Effective Date ("Annual
Base Salary"), which shall be paid in accordance with the normal
business practice of the Company. During the Employment Period, the
Annual Base Salary shall be reviewed at least annually and shall be
increased at any time and from time to time as shall be substantially
consistent with increases in base salary generally awarded in the
ordinary course of business to executives of the Company and its
affiliated companies. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive under
this Agreement. Annual Base Salary shall not be reduced after any such
increase and the term "Annual Base Salary" as utilized in this
Agreement shall refer to Annual Base Salary as so increased. As used
in this Agreement, the term "affiliated companies" shall include, when
used with reference to the Company, any company controlled by,
controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base
Salary, the Executive shall be awarded, for each fiscal year or
portion thereof during the Employment Period, an annual bonus (the
"Annual Bonus") in cash equal to the greater of (A) the greatest
dollar amount of annual bonus paid or awarded to or for the benefit of
the Executive in respect of any of the preceding three fiscal years or
(B) an amount comparable to the annual bonus awarded to other Company
executives taking into account Executive's position and
responsibilities with the Company, prorated in the case of either (A)
or (B) for any period consisting of less than twelve full months. The
Annual Bonus awarded for a particular fiscal year shall (unless the
Executive elects to defer receipt thereof) be paid no later than the
last day of the third month after the end of such year.
(iii) Qualified Plans. During the Employment Period,
the Executive shall be entitled to participate in all profit-sharing,
savings and retirement plans that are tax-qualified under Section
401(a) of the Internal Revenue Code of 1986, as amended ("Code"), and
all plans that are supplemental to any such tax-qualified plans, in
each case to the extent that such plans are applicable generally to
other executives of the Company and its affiliated companies, but in
no event shall such plans provide the Executive with incentive
opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction
is applicable), savings opportunities and retirement benefit
opportunities that are, in each case, less favorable, in the
aggregate, than the most
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favorable plans of the Company and its affiliated companies. As used
in this Agreement, the term "most favorable" shall, when used with
reference to any plans, practices, policies or programs of the Company
and its affiliated companies, be deemed to refer to the most favorable
plans, practices, policies or programs of the Company and its
affiliated companies as in effect at any time during the three months
preceding the Employment Effective Date or, if more favorable to the
Executive, provided generally at any time after the Employment
Effective Date to other executives of the Company and its affiliated
companies.
(iv) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case may
be, shall be eligible for participation in and shall receive all
benefits under welfare benefit plans, practices, policies and programs
provided by the Company and its affiliated companies (including,
without limitation, medical, prescription, dental, vision, disability,
salary continuance, group life and supplemental group life, accidental
death and travel accident insurance plans and programs) to the extent
applicable generally to other executives of the Company and its
affiliated companies, but in no event shall such plans, practices,
policies and programs provide the Executive with benefits that are
less favorable, in the aggregate, than the most favorable such plans,
practices, policies and programs of the Company and its affiliated
companies.
(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance with the
most favorable policies, practices and procedures of the Company and
its affiliated companies.
(vi) Fringe Benefits and Perquisites. During the
Employment Period, the Executive shall be entitled to fringe benefits
and perquisites in accordance with the most favorable plans,
practices, programs and policies of the Company and its affiliated
companies applicable to similarly situated executives, which, in the
aggregate, shall not be less than Executive's benefits and perquisites
in effect prior to the commencement of the Employment Period.
(vii) Office and Support Staff. During the
Employment Period, the Executive shall be entitled to an office or
offices of a size and with furnishings and other appointments, and to
exclusive personal secretarial and other assistance, at least equal to
the most favorable of the foregoing provided to the Executive by the
Company and its affiliated companies at any time during the three
months preceding the Employment Effective Date.
(viii) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the
most favorable plans, policies, programs and practices of the Company
and its affiliated companies, but
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not less than the amount of vacation time to which Executive was
entitled prior to the commencement of the Employment Period.
(ix) Equity and Performance Based Awards. During the
Employment Period, the Executive shall be granted on an annual basis a
long-term incentive package consisting of stock options, restricted
stock or restricted stock units and other equity-based awards and
performance grants, as selected by the Company, with an aggregate
value (as determined by an independent consulting firm selected by
Executive and reasonably acceptable to the Company) that shall be not
less than the aggregate value of the long-term incentive package
awarded the Executive in any of the three years immediately preceding
such Employment Period.
3. Termination of Employment.
(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment
Period. If the Company determines in good faith that the Disability of the
Executive has occurred during the Employment Period (pursuant to the definition
of Disability set forth below), it may give to the Executive written notice in
accordance with Section 11(d) of this Agreement of its intention to terminate
the Executive's employment. In such event, the Executive's employment with the
Company shall terminate effective on the 30th day after receipt of such notice
by the Executive (the "Disability Effective Date"), provided that, within the
30 days after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's
duties with the Company on a full-time basis for 180 consecutive business days
as a result of incapacity due to mental or physical illness which is determined
to be total and permanent by a physician selected by the Company or its
insurers and acceptable to the Executive or the Executive's legal
representative (such agreement as to acceptability not to be withheld
unreasonably).
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean (i) dishonesty by Executive which results in
substantial personal enrichment at the expense of the Company or (ii)
demonstratively willful repeated violations of Executive's obligations under
this Agreement which are intended to result and do result in material injury to
the Company.
(c) Good Reason. The Executive's employment may be terminated
during the Employment Period by the Executive for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean:
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(i) the assignment to the Executive of any duties
inconsistent in any material respect with the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties or responsibilities as contemplated by Section 2 of
this Agreement, other than any such assignment that would clearly
constitute a promotion or other improvement in Executive's position,
or any other action by the Company which results in a significant
diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent
action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any
of the provisions of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than that described in Section
2(a)(i)(B) hereof;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement;
(v) any failure by the Company to comply with and
satisfy the requirements of Section 10 of this Agreement, provided
that (A) the successor described in Section 10(c) has received, at
least ten days prior to the Date of Termination (as defined in
subparagraph (e) below), written notice from the Company or the
Executive of the requirements of such provision and (B) such failure
to be in compliance and satisfy the requirements of Section 10 shall
continue as of the Date of Termination; or
(vi) in the event that the Executive is serving as a
member of the Board immediately prior to the Employment Effective
Date, any failure to reelect Executive as a member of the Board,
unless such reelection would be prohibited by the Company's By-laws as
in effect at the beginning of the Employment Period.
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 11(d) of
this Agreement. The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing
of Good Reason or Cause shall not waive any right of the Executive or the
Company hereunder or preclude the Executive or the Company from asserting such
fact or circumstance in enforcing the Executive's or the Company's rights
hereunder.
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(e) Date of Termination. For purposes of this Agreement, the
term "Date of Termination" means (i) if the Executive's employment is
terminated by the Company for Cause, or by the Executive for Good Reason, the
date of receipt of the Notice of Termination or any later date specified
therein, as the case may be, (ii) if the Executive's employment is terminated
by the Company other than for Cause or Disability, the Date of Termination
shall be the date on which the Company notifies the Executive of such
termination and (iii) if the Executive's employment is terminated by reason of
death or Disability, the Date of Termination shall be the date of death of the
Executive or the Disability Effective Date, as the case may be.
4. Obligations of the Company Upon Termination.
(a) Good Reason; Other than for Cause, Death or Disability.
If, during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause or Disability or the Executive shall terminate
employment for Good Reason:
(i) the Company shall pay or provide to or in
respect of the Executive the following amounts and benefits:
A. in a lump sum in cash within 10 days
after the Date of Termination, an amount equal to the sum of
(1) the Executive's Annual Base Salary through the Date of
Termination, (2) the product of (x) the highest Annual Bonus
paid or awarded to or for the benefit of Executive during the
three fiscal years preceding the Date of Termination and (y)
a fraction, the numerator of which is the number of days in
the current fiscal year through the Date of Termination and
the denominator of which is 365, (3) any deferred
compensation previously awarded to or earned by the Executive
(together with any accrued interest or earnings thereon) and
(4) any compensation for unused vacation time for which the
Executive is eligible in accordance with the most favorable
plans, policies, programs and practices of the Company and
its affiliated companies, in each case to the extent not
theretofore paid (the sum of the amounts described in clauses
(1), (2), (3) and (4) shall be hereinafter referred to as the
"Accrued Obligation");
B. in a lump sum in cash, undiscounted,
within 10 days after the Date of Termination, an amount equal
to the sum of (1) three times the Annual Base Salary and (2)
three times the Annual Bonus that would have been paid or
awarded to or for the benefit of the Executive during the
fiscal year that includes the Date of Termination;
C. an additional three Years of Vesting
Service and Years of Credited Service, as well as an
incremental three years added to
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Executive's age, for purposes of the Company's Supplemental
Retirement Plan and Profit Sharing Restoration Plan;
D. effective as of the Date of Termination,
(x) immediate vesting and exercisability of, termination of
any restrictions on sale or transfer (other than any such
restriction arising by operation of law) with respect to and
treatment of any performance goals as having been satisfied
at the highest possible level with respect to each and every
stock option, restricted stock award, restricted stock unit
award and other equity- based award and performance award
(each, a "Compensatory Award") that is outstanding as of a
time immediately prior to the Date of Termination, (y) the
extension of the term during which each and every
Compensatory Award may be exercised by the Executive until
the earlier of (1) the first anniversary of the Date of
Termination or (2) the date upon which the right to exercise
any Compensatory Award would have expired if the Executive
had continued to be employed by the Company under the terms
of this Agreement until the second anniversary of the
Employment Effective Date and (z) at the sole election of
Executive, in exchange for any or all Compensatory Awards
that are either denominated in or payable in Common Stock, an
amount in cash equal to the number of shares of Common Stock
that are subject to the Compensatory Award multiplied by the
excess of (i) the Highest Price Per Share (as defined below)
over (ii) the exercise or purchase price, if any, of such
Compensatory Awards. As used herein, the term "Highest Price
Per Share" shall mean the highest price per share that can be
determined to have been paid or agreed to be paid for any
share of Common Stock by a Covered Person (as defined below)
at any time during the Employment Period or the six-month
period immediately preceding the Employment Effective Date.
As used herein, the term "Covered Person" shall mean any
Person other than an Exempt Person (in each case as defined
in Section 9 hereof) who (i) is the Beneficial Owner (as
defined in Section 9 hereof) of 35% or more of the
outstanding shares of Common Stock or 35% or more of the
combined voting power of the outstanding Voting Stock (as
defined in Section 9 hereof) of the Company at any time
during the Employment Period or the two-year period
immediately prior to the Employment Effective Date, or (ii)
is a Person who has any material involvement in proposing or
effecting the Change of Control or Potential Change of
Control (but excluding any Person whose involvement in
proposing or effecting the Change of Control or Potential
Change of Control resulted solely from such Person's voting
or selling of Common Stock in connection with the Change of
Control or Potential Change of Control, from such Person's
status as a director or officer of the Company in evaluating
and/or approving a Change of Control or Potential Change of
Control or both). In determining the Highest Price Per Share,
the
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price paid or agreed to be paid by a Covered Person will be
appropriately adjusted to take into account (W) distributions
paid or payable in stock, (X) subdivisions of outstanding
stock, (Y) combinations of shares of stock into a smaller
number of shares and (Z) similar events.
(ii) for the three-year period commencing with the
Date of Termination, and for the COBRA continuation period commencing
thereafter, the Company shall continue medical and health benefits to
the Executive and/or the Executive's family at least equal to those
that would have been provided to them in accordance with the medical
plans, programs, practices and policies described in Section 2(b)(iv)
of this Agreement if the Executive's employment had not been
terminated (such continuation of such benefits for the applicable
period herein set forth shall be hereinafter referred to as "Welfare
Benefit Continuation"). For purposes of determining eligibility of the
Executive for retiree benefits pursuant to such plans, practices,
programs and policies, the Executive shall be considered to have
remained employed until the third anniversary of Executive's Date of
Termination and to have retired on such date; and
(iii) the Company shall timely pay or provide to the
Executive and/or the Executive's family any other amounts or benefits
required to be paid or provided or which the Executive and/or the
Executive's family is eligible to receive pursuant to this Agreement
and under any plan, program, policy or practice or contract or
agreement of the Company and its affiliated companies as in effect and
applicable generally to other executives and their families on the
Employment Effective Date (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate and the Company shall be obligated to pay to the Executive's
legal representatives under this Agreement the greater of (i) such benefits as
would be provided to Executive under the Existing Agreement or (ii)(A) the
payment of the Accrued Obligations (which shall be paid to the Executive's
estate or beneficiary, as applicable, in a lump sum in cash within 30 days of
the Date of Termination), (B) the payment of an amount equal to the Annual
Salary that would have been paid to the Executive pursuant to this Agreement
for the period beginning on the Date of Termination and ending on the first
anniversary thereof if the Executive's employment had not terminated by reason
of death (which shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination),
(C) the timely payment or provision of the Welfare Benefit Continuation and
Other Benefits and (D) effective as of the Date of Termination, (x) immediate
vesting and exercisability of, and termination of any restrictions on sale or
transfer (other than any such restriction arising by operation of law) with
respect to, each and every Compensatory Award outstanding as of a time
immediately prior to the Date of Termination, (y) the
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extension of the term during which each and every Compensatory Award may be
exercised or purchased by the Executive until the earlier of (I) the first
anniversary of the Date of Termination or (II) the date upon which the right to
exercise or purchase any Compensatory Award would have expired if the Executive
had continued to be employed by the Company under the terms of this Agreement
until the second anniversary of the Employment Effective Date and (z) at the
sole election of Executive's legal representative, in exchange for any
Compensatory Award that is either denominated in or payable in Common Stock, an
amount in cash equal to the excess of (I) the Highest Price Per Share over (II)
the exercise or purchase price, if any, of such Compensatory Award.
(c) Disability. If the Executive's employment is terminated
by reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate and the Company shall be obligated to pay to the
Executive, the greater of (i) such benefits as would be provided to Executive
under the Existing Agreement or (ii)(A) the payment of the Accrued Obligations
(which shall be paid to the Executive in a lump sum in cash within 30 days of
the Date of Termination), (B) the payment of an amount equal to the Annual
Salary that would have been paid to the Executive pursuant to this Agreement
for the period beginning on the Date of Termination and ending on the first
anniversary thereof if the Executive's employment had not terminated by reason
of Disability (which shall be paid to the Executive in a lump sum in cash
within 30 days of the Date of Termination), (C) the timely payment or provision
of the Welfare Benefit Continuation and Other Benefits and (D) effective as of
the Date of Termination, (x) immediate vesting and exercisability of, and
termination of any restrictions on sale or transfer (other than any such
restriction arising by operation of law) with respect to, each and every
Compensatory Award outstanding as of a time immediately prior to the Date of
Termination, (y) the extension of the term during which each and every
Compensatory Award may be exercised or purchased by the Executive until the
earlier of (I) the first anniversary of the Date of Termination or (II) the
date upon which the right to exercise or purchase any Compensatory Award would
have expired if the Executive had continued to be employed by the Company under
the terms of this Agreement until the second anniversary of the Employment
Effective Date and (z) at the sole election of Executive, in exchange for any
Compensatory Award that is either denominated in or payable in Common Stock, an
amount in cash equal to the excess of (I) the Highest Price Per Share over (II)
the exercise or purchase price, if any, of such Compensatory Award.
(d) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations under this Agreement to
the Executive other than for Accrued Obligations. If the Executive terminates
employment during the Employment Period other than for Good Reason, this
Agreement shall terminate without further obligations to the Executive, other
than for the payment of Accrued Obligations. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
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5. Non-exclusivity of Rights. Except as provided in Section 4 of
this Agreement, nothing in this Agreement shall prevent or limit the
Executive's continuing or future participation in any plan, program, policy or
practice provided by the Company or any of its affiliated companies and for
which the Executive may qualify, nor shall anything herein limit or otherwise
affect such rights as the Executive may have under any contract or agreement
with the Company or any of its affiliated companies. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any
plan, policy, practice or program of or any contract or agreement with the
Company or any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice or
program or contract or agreement except as such plan, policy, practice or
program is superseded by this Agreement.
6. Full Settlement; Resolution of Disputes.
(a) The Company's obligation to make payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense, mitigation or other
claim, right or action which the Company may have against the Executive or
others. The Company agrees to pay promptly as incurred, to the full extent
permitted by law, all legal fees and expenses which the Executive may
reasonably incur as a result of any contest (in which the Executive is
successful, in whole or in part, on the merits) by the Company, the Executive
or others of the validity or enforceability of, or liability under, any
provision of this Agreement (other than Section 8 hereof) or any guarantee of
performance thereof (including as a result of any contest by the Executive
about the amount of any such payment pursuant to this Agreement), plus in each
case interest on any delayed payment at the Applicable Federal Rate provided
for in Section 7872(f)(2)(A) of the Code.
(b) If there shall be any dispute between the Company and the
Executive concerning (i) in the event of any termination of the Executive's
employment by the Company, whether such termination was for Cause, or (ii) in
the event of any termination of employment by the Executive, whether Good
Reason existed, then, unless and until there is a final, nonappealable judgment
by a court of competent jurisdiction declaring that such termination was for
Cause or that Good Reason did not exist, the Company shall pay all amounts, and
provide all benefits, to the Executive and/or the Executive's family or other
beneficiaries, as the case may be, that the Company would be required to pay or
provide pursuant to Section 4(a) hereof as though such termination were by the
Company without Cause or by the Executive with Good Reason; provided, however,
that the Company shall not be required to pay any disputed amounts pursuant to
this paragraph except upon receipt of an undertaking by or on behalf of the
Executive to repay all such amounts to which the Executive is ultimately
adjudged by such court not to be entitled.
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7. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 7) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income taxes (and
any interest and penalties imposed with respect thereto) and Excise Tax imposed
upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 7(c), all
determinations required to be made under this Section 7, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Arthur Andersen LLP (the "Accounting Firm"); provided, however, that the
Accounting Firm shall not determine that no Excise Tax is payable by the
Executive unless it delivers to the Executive a written opinion (the
"Accounting Opinion") that failure to report the Excise Tax on the Executive's
applicable Federal income tax return would not result in the imposition of a
negligence or similar penalty. In the event that Arthur Andersen LLP has
served, at any time during the two years immediately preceding a Change of
Control Date, as accountant or auditor for the individual, entity or group that
is involved in effecting or has any material interest in the Change of Control,
the Executive, at his option, shall appoint another nationally recognized
accounting firm to make the determinations and perform the other functions
specified in this Section 7 (which accounting firm shall then be referred to as
the Accounting Firm hereunder). All fees and expenses of the Accounting Firm
shall be borne solely by the Company. Within 15 business days of the receipt of
notice from the Executive that there has been a Payment, or such earlier time
as is requested by the Company, the Accounting Firm shall make all
determinations required under this Section 7, shall provide to the Company and
the Executive a written report setting forth such determinations, together with
detailed supporting calculations, and, if the Accounting Firm determines that
no Excise Tax is payable, shall deliver the Accounting Opinion to the
Executive. Any Gross-Up Payment, as determined pursuant to this Section 7,
shall be paid by the Company to the Executive within five days of the receipt
of the Accounting Firm's determination. Subject to the remainder of this
Section 7, any determination by the Accounting Firm shall be binding upon the
Company and the Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
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Accounting Firm hereunder, it is possible that a Gross-Up Payment that will not
have been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that it is ultimately determined in accordance with the procedures set forth in
Section 7(c) that the Executive is required to make a payment of any Excise
Tax, the Accounting Firm shall determine the amount of the Underpayment that
has occurred and any such Underpayment shall be promptly paid by the Company to
or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claims by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but not later than 30 days after the Executive
actually receives notice in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to be
paid; provided, however, that the failure of the Executive to notify the
Company of such claim (or to provide any required information with respect
thereto) shall not affect any rights granted to the Executive under this
Section 7 except to the extent that the Company is materially prejudiced in the
defense of such claim as a direct result of such failure. The Executive shall
not pay such claim prior to the expiration of the 30-day period following the
date on which he gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is
due). If the Company notifies the Executive in writing prior to the expiration
of such period that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim;
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney selected by
the Company and reasonably acceptable to the Executive;
(iii) cooperate with the Company in good faith in
order effectively to contest such claim; and
(iv) if the Company elects not to assume and control
the defense of such claim, permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the
April ___, 1999
13
<PAGE> 17
foregoing provisions of this Section 7(c), the Company shall have the right, at
its sole option, to assume the defense of and control all proceedings in
connection with such contest, in which case it may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may either direct the Executive to pay
the tax claimed and sue for a refund or contest the claim in any permissible
manner, and the Executive agrees to prosecute such contest to a determination
before any administrative tribunal, in a court of initial jurisdiction and in
one or more appellate courts, as the Company shall determine; provided,
however, that if the Company directs the Executive to pay such claim and sue
for a refund, the Company shall advance the amount of such payment to the
Executive, on an interest-free basis, and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such
advance; and further provided that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Executive with respect
to which such contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's right to assume the defense of and
control the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 7(c), the Executive becomes
entitled to receive any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of Section 7(c))
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after
the receipt by the Executive of an amount advanced by the Company pursuant to
Section 7(c), a determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
8. Confidential Information; Certain Prohibited Activities.
(a) The Executive shall hold in a fiduciary capacity for the
benefit of the Company all secret or confidential information, knowledge or
data relating to the Company or any of its affiliated companies, and their
respective businesses, which shall have been obtained by the Executive during
the Executive's employment by the Company or any of its affiliated companies
and which shall not be or become public knowledge (other than by acts by the
Executive or representatives of the Executive in violation of this Agreement).
After the Executive's Date of Termination, the Executive shall not, without the
prior written
April ___, 1999
14
<PAGE> 18
consent of the Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone other
than the Company and those designated by it. Except as provided in subsection
(c) below, in no event shall an asserted violation of the provisions of this
Section 8 constitute a basis for deferring or withholding any amounts otherwise
payable to Executive under this Agreement. Also, within 14 days of the
termination of Executive's employment for any reason, Executive shall return to
the Company all documents and other tangible items of or containing Company
information which are in Executive's possession, custody or control.
(b) Executive agrees that for a period of 24 complete
calendar months following his Date of Termination, Executive will not, either
directly or indirectly, call on, solicit, induce or attempt to induce any of
the employees or officers of the Company whom Executive had knowledge of or
association with during Executive's employment with the Company to terminate
their association with the Company either personally or through the efforts of
his or her subordinates.
(c) In the event of a breach by Executive of any provision of
this Section 8, the Company shall be entitled to (i) cease any Welfare Benefit
Contribution entitlement provided pursuant to Section 4(a)(ii) hereof, (ii)
relief by temporary restraining order, temporary injunction and/or permanent
injunction, (iii) recovery of all attorneys' fees and costs incurred in
obtaining such relief and (iv) any other legal and equitable relief to which it
may be entitled, including monetary damages.
9. Change of Control; Potential Change of Control.
(a) As used in this Agreement, the terms set forth below
shall have the following respective meanings:
"Beneficial Owner" shall mean, with reference to any
securities, any Person if:
(i) such Person is the "beneficial owner" of (as
determined pursuant to Rule 13d-3 of the General Rules and Regulations
under the Exchange Act, as in effect on the date of this Agreement)
such securities; provided, however, that a Person shall not be deemed
the "Beneficial Owner" of, or to "beneficially own," any security
under this subsection (i) as a result of an agreement, arrangement or
understanding to vote such security if such agreement, arrangement or
understanding: (x) arises solely from a revocable proxy or consent
given in response to a public (i.e., not including a solicitation
exempted by Rule 14a-2(b)(2) of the General Rules and Regulations
under the Exchange Act) proxy or consent solicitation made pursuant
to, and in accordance with, the applicable provisions of the General
Rules and Regulations under the Exchange Act and (y) is not then
April ___, 1999
15
<PAGE> 19
reportable by such Person on Schedule 13D under the Exchange Act (or
any comparable or successor report); or
(ii) such Person is a member of a group (as that
term is used in Rule 13d-5(b) of the General Rules and Regulations
under the Exchange Act) that includes any other Person that
beneficially owns such securities;
provided, however, that a Person shall not be deemed the "Beneficial Owner" of,
or to "beneficially own" any security held by a Norris Family Trust with
respect to which such Person acts in the capacity of trustee, personal
representative, custodian, administrator, executor or other fiduciary;
provided, further, that nothing in this definition shall cause a Person engaged
in business as an underwriter of securities to be the Beneficial Owner of, or
to "beneficially own," any securities acquired through such Person's
participation in good faith in a firm commitment underwriting until the
expiration of forty days after the date of such acquisition. For purposes
hereof, "voting" a security shall include voting, granting a proxy, consenting
or making a request or demand relating to corporate action (including, without
limitation, a demand for a stockholder list, to call a stockholder meeting or
to inspect corporate books and records) or otherwise giving an authorization
(within the meaning of Section 14(a) of the Exchange Act) in respect of such
security.
The terms "beneficially own" and "beneficially owning" shall
have meanings that are correlative to this definition of the term "Beneficial
Owner."
"Change of Control" shall mean any of the following occurring
on or after the Agreement Effective Date:
(i) Any Person (other than an Exempt Person) shall
become the Beneficial Owner of 35% or more of the shares of Common
Stock then outstanding or 35% or more of the combined voting power of
the Voting Stock of the Company then outstanding; provided, however,
that no Change of Control shall be deemed to occur for purposes of
this subsection (i) if such Person shall become a Beneficial Owner of
35% or more of the shares of Common Stock or 35% or more of the
combined voting power of the Voting Stock of the Company solely as a
result of (x) an Exempt Transaction or (y) an acquisition by a Person
pursuant to a reorganization, merger or consolidation, if, following
such reorganization, merger or consolidation, the conditions described
in clauses (x), (y) and (z) of subsection (iii) of this definition are
satisfied;
(ii) Individuals who, as of the Agreement Effective
Date, constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to the
Agreement Effective Date whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a
April ___, 1999
16
<PAGE> 20
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent
Board; provided, further, that there shall be excluded, for this
purpose, any such individual whose initial assumption of office occurs
as a result of any actual or threatened election contest that is
subject to the provisions of Rule 14a-11 under the Exchange Act;
(iii) Approval by the shareholders of the Company of
a reorganization, merger or consolidation, in each case, unless,
following such reorganization, merger or consolidation, (x) more than
65% of the then outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation and the
combined voting power of the then outstanding Voting Stock of such
corporation is beneficially owned, directly or indirectly, by all or
substantially all of the Persons who were the Beneficial Owners of the
outstanding Common Stock immediately prior to such reorganization,
merger or consolidation (ignoring, for purposes of this clause (x),
the first proviso in the definition of "Beneficial Owner" set forth in
Section 9(a)) in substantially the same proportions as their ownership
immediately prior to such reorganization, merger or consolidation of
the outstanding Common Stock, (y) no Person (excluding any Exempt
Person or any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 35%
or more of the Common Stock then outstanding or 35% or more of the
combined voting power of the Voting Stock of the Company then
outstanding) beneficially owns, directly or indirectly, 35% or more of
the then outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation or the
combined voting power of the then outstanding Voting Stock of such
corporation and (z) at least a majority of the members of the board of
directors of the corporation resulting from such reorganization,
merger or consolidation were members of the Incumbent Board at the
time of the execution of the initial agreement or initial action by
the Board providing for such reorganization, merger or consolidation;
or
(iv) Approval by the shareholders of the Company of
(x) a complete liquidation or dissolution of the Company, unless such
liquidation or dissolution is approved as part of a plan of
liquidation and dissolution involving a sale or disposition of all or
substantially all of the assets of the Company to a corporation with
respect to which, following such sale or other disposition, all of the
requirements of clauses (y)(A), (B) and (C) of this subsection (iv)
are satisfied, or (y) the sale or other disposition of all or
substantially all of the assets of the Company, other than to a
corporation, with respect to which, following such sale or other
disposition, (A) more than 65% of the then outstanding shares of
common stock of such corporation and the combined voting power of the
Voting Stock of such corporation is then beneficially owned, directly
or indirectly, by all or substantially all of the Persons who were the
Beneficial Owners of the outstanding
April ___, 1999
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<PAGE> 21
Common Stock immediately prior to such sale or other disposition
(ignoring, for purposes of this clause (y)(A), the first proviso in
the definition of "Beneficial Owner" set forth in Section 9(a)) in
substantially the same proportions as their ownership, immediately
prior to such sale or other disposition, of the outstanding Common
Stock, (B) no Person (excluding any Exempt Person and any Person
beneficially owning, immediately prior to such sale or other
disposition, directly or indirectly, 35% or more of the Common Stock
then outstanding or 35% or more of the combined voting power of the
Voting Stock of the Company then outstanding) beneficially owns,
directly or indirectly, 35% or more of the then outstanding shares of
common stock of such corporation and the combined voting power of the
then outstanding Voting Stock of such corporation and (C) at least a
majority of the members of the board of directors of such corporation
were members of the Incumbent Board at the time of the execution of
the initial agreement or initial action of the Board providing for
such sale or other disposition of assets of the Company.
"Common Stock" shall mean the common stock, par value $.01
per share, of the Company, and shall include, for purposes of Section 4 hereof,
stock of any successor, within the meaning of Section 10(c).
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
"Exempt Person" shall mean (i) the Company, any subsidiary of
the Company, any employee benefit plan of the Company or any subsidiary of the
Company, and any Person organized, appointed or established by the Company for
or pursuant to the terms of any such plan and (ii) any Person who is shown
under the caption "Principal and Selling Stockholders" in the Company's
Registration Statement on Form S-1 related to the initial public offering of
the Common Stock as beneficially owning (as determined pursuant to Rule 13d-3
of the General Rules and Regulations under the Exchange Act, as in effect on
the date of this Agreement) five percent or more of the Common Stock unless and
until such Person individually becomes the Beneficial Owner, other than as a
result of a distribution from a Norris Family Trust, of an amount of Common
Stock that is 103% or more of the amount of such Common Stock beneficially
owned by such Person on the date the Registration Statement is declared
effective by the Securities and Exchange Commission.
"Exempt Transaction" shall mean an increase in the percentage
of the outstanding shares of Common Stock or the percentage of the combined
voting power of the outstanding Voting Stock of the Company beneficially owned
by any Person solely as a result of a reduction in the number of shares of
Common Stock then outstanding due to the repurchase of Common Stock by the
Company, unless and until such time as such Person shall purchase or otherwise
become the Beneficial Owner of additional shares of
April ___, 1999
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<PAGE> 22
Common Stock constituting 3% or more of the then outstanding shares of Common
Stock or additional Voting Stock representing 3% or more of the combined voting
power of the then outstanding Voting Stock.
"Norris Family Trust" shall mean any trust, estate,
custodianship or other fiduciary arrangement (collectively, a "Family Entity")
formed, owned, held, or existing primarily for the benefit of the lineal
descendants of D.W. Norris, but only if such Family Entity shall not at any
time hold Common Stock or Voting Stock of the Company with the primary purpose
of effecting with respect to the Company (i) an extraordinary corporate
transaction, such as a merger, reorganization or liquidation (ii) a sale or
transfer of a material amount of assets, (iii) any material change in
capitalization, (iv) any other material change in business or corporate
structure or operations, (v) changes in corporate charter or bylaws, or (vi) a
change in the composition of the Board or of the members of senior management.
"Person" shall mean any individual, firm, corporation,
partnership, association, trust, unincorporated organization or other entity.
"Potential Change of Control" shall mean any of the following:
(i) a tender offer or exchange offer is commenced by
any Person which, if consummated, would constitute a Change of
Control;
(ii) an agreement is entered into by the Company
providing for a transaction which, if consummated, would constitute a
Change of Control;
(iii) any election contest is commenced that is
subject to the provisions of Rule 14a-11 under the Exchange Act; or
(iv) any proposal is made, or any other event or
transaction occurs or is continuing, which the Board determines, if
consummated, would result in a Change of Control.
"Voting Stock" shall mean, with respect to a corporation, all
securities of such corporation of any class or series that are entitled to vote
generally in the election of directors of such corporation (excluding any class
or series that would be entitled so to vote by reason of the occurrence of any
contingency, so long as such contingency has not occurred).
(b) In the event that the Company is a party to a transaction
that is otherwise intended to qualify for "pooling of interests" accounting
treatment, such transaction constitutes a Change of Control within the meaning
of this Agreement and individuals who satisfy the requirements in clauses (i)
and (ii) below constitute at least 51%
April ___, 1999
19
<PAGE> 23
of the number of directors of the entity surviving such transaction or any
parent thereof: individuals who (i) immediately prior to such transaction
constituted the Board and (ii) on the date hereof constitute the Board and any
new director (other than a director whose initial assumption of office is in
connection with an actual or threatened election contest relating to the
election of directors of the Company) whose appointment or election by the
Board or nomination for election by the Company's stockholders was approved or
recommended by a vote of at least 51% of the directors then still in office who
either were directors on the date hereof or whose appointment, election or
nomination for election was previously so approved or recommended, then this
Section 9 and other Agreement provisions concerning a Change of Control shall,
to the extent practicable, be interpreted so as to permit such accounting
treatment, and to the extent that the application of this sentence does not
preserve the availability of such accounting treatment, then, to the extent
that any provision or combination of provisions of this Section 9 and other
Agreement provisions concerning a Change of Control disqualifies the
transaction as a "pooling" transaction (including, if applicable, all
provisions of the Agreement relating to a Change of Control), the Board shall
amend such provision or provisions if and to the extent necessary (including
declaring such provision or provisions to be null and void as of the date
hereof, which declaration shall be binding on Executive) so that such
transaction may be accounted for as a "pooling of interests." All
determinations with respect to this paragraph shall be made by the Company,
based upon the advice of the accounting firm whose opinion with respect to
"pooling of interests" is required as a condition to the consummation of such
transaction.
10. Successors.
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
heirs, executors and other legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and may only be assigned to a successor described in
Section 10(c).
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its business and/or assets
as aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
April ___, 1999
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<PAGE> 24
11. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without reference to
principles of conflict of laws that would require the application of the laws
of any other state or jurisdiction.
(b) The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
(c) This Agreement may not be amended or modified otherwise
than by a written agreement executed by the parties hereto or their respective
successors and heirs, executors and other legal representatives.
(d) All notices and other communications hereunder shall be
in writing and shall be given, if by the Executive to the Company, by telecopy
or facsimile transmission at the telecommunications number set forth below and,
if by either the Company or the Executive, either by hand delivery to the other
party or by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to the Executive:
-----------------------------------------
-----------------------------------------
If to the Company:
Lennox International Inc.
2100 Lake Park Blvd.
Richardson, Texas 75080-2254
Telecommunications Number: (972) 497-5075
Attention: Corporate Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(e) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(f) The Company may withhold from any amounts payable under
this Agreement such Federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
April ___, 1999
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<PAGE> 25
(g) The Executive's or the Company's failure to insist upon
strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 3(c) of this
Agreement, shall not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement.
(h) This Agreement shall become effective as of
_________________ (the "Agreement Effective Date ").
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
LENNOX INTERNATIONAL INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
EXECUTIVE
--------------------------------------------
Signature
22
<PAGE> 1
EXHIBIT 21.1
LENNOX INTERNATIONAL INC. SUBSIDIARIES
AS OF MARCH 3, 1999
PAGE 1
<TABLE>
<CAPTION>
NO. OF SHARES LOCATION OF SUBSTANTIAL
NAME OWNERSHIP JURISDICTION OF INC. OUTSTANDING OPERATING ASSETS
- ---- --------- -------------------- ------------- -----------------------
<S> <C> <C> <C> <C>
Lennox Industries Inc. 100% Iowa 994,394 Common United States
SEE ATTACHED CHART
Heatcraft Inc. 100% Mississippi 20 Common United States
Frigus-Bohn S.A. de C.V. 50% Mexico Mexico
LGL de Mexico, S.A. de C.V. 1% Mexico 50,000 Common Mexico
Lennox Participacoes Ltda. 1% Brazil
Frigo-Bohn do Brasil Ltda. 99% Brazil
Armstrong Air Conditioning Inc. 100% Ohio 1,030 Common United States
Jensen-Klich Supply Co. 100% Nebraska 1,750 Common United States
Armstrong Distributors Inc. 100% Delaware 1,000 Common United States
Lennox Global Ltd. 100% Delaware 1,000 Common United States
SEE ATTACHED CHART
Lennox Commercial Realty Inc. 100% Iowa 10 Common United States
Heatcraft Technologies Inc. 100% Delaware 1,000 Common United States
Lennox Industries 1% United Kingdom 300,00 Cum. Preference United Kingdom
13,900 Ordinary
Strong LGL Colombia Ltda. 50% Colombia 10,000 Colombia
Alliance Compressor Partnership 24.5%
</TABLE>
<PAGE> 2
LENNOX INTERNATIONAL INC. SUBSIDIARIES
AS OF MARCH 3, 1999
PAGE 2
<TABLE>
<CAPTION>
NO. OF SHARES LOCATION OF SUBSTANTIAL
NAME OWNERSHIP JURISDICTION OF INC. OUTSTANDING OPERATING ASSETS
- ---- --------- -------------------- ------------- -----------------------
<S> <C> <C> <C> <C>
Lennox Industries Inc.
Lennox Industries (Canada) Ltd. 100% Canada 5,250 Pref. Canada
SEE ATTACHED CHART 35,031 Common
Lennox Industries SW Inc. 100% Iowa 1,000 Common N/A
Hearth Products Inc. 100% Delaware 1,000 Common United States
Superior Fireplace Company 100% Delaware 1,000 Common United States
Marco Mfg., Inc. Marcomp 100% California United States
Pyro Industries, Inc. 100% Washington United States
SecuriteCheminees International Ltee 100% Canada Canada
-Security Chimneys International USA Ltd. 100% United States
-Cheminees Securite SARL 100% France France
Products Acceptance Corporation 100% Iowa 3,500 Common N/A
Lennox Manufacturing Inc. 100% Delaware 1,000 Common United States
LXR Acquisition Inc. 100% Delaware 1,000 Common United States
</TABLE>
<PAGE> 3
LENNOX INTERNATIONAL INC. SUBSIDIARIES
AS OF MARCH 3, 1999
PAGE 3
Lennox Industries (Canada) Ltd.
The following are all in Canada and are all owned 100% by Lennox Industries
(Canada) unless otherwise noted:
A+ Heating and Air Conditioning
1054413 Ontario Inc.
Cronin-Emery Mechanical Ltd.
C-E-V Heating-Cooling Service Ltd.
Tri-Energy Heating Ltd.
Tomahdia Associates Inc.
Overland Plumbing & Heating
Accent Heating & Cooling Services, Inc.
Lexington Electric Ltd.
1069395 Ontario Ltd.
1068312 Ontario Ltd.
K&M Combustion Services Limited
Peel Gas Services Limited
Peel Heating & Air Conditioning Ltd.
Peel Duct Cleaning Services Ltd. (Inactive)
1057664 Ontario Inc.
Bering Inc.
Bering Refrigeration Ltd.
Kimian Mechanical Corp.
Mersey Gas Services Limited
Goldberg Heating Ltd.
MKG Precision Mechanical Inc.
1149530 Ontario Inc.
Debruyn Enterprises Ltd.
The Home Environment Centre Ltd.
Francis H.E.C. Protection Services Ltd.
Home Environment Appliance Technologies Distribution Limited
Fahrhall Mechanical Contractors Limited
510799 Ontario Ltd. (dba Campeau Heating)
M&T Heating Company Limited
Bryant Heating & Cooling Company - 90%
413899 Ontario Limited (Limcan Heating & Air Conditioning Sales)
M. & L. Development Limited
Foster Air Conditioning Company, Limited - 50%
DAC Holdings Limited
Foster Air Conditioning Company, Limited - 50%
Roy Inch & Sons Limited
McRae Heating & Air Conditioning Limited
<PAGE> 4
LENNOX INTERNATIONAL INC. SUBSIDIARIES
AS OF MARCH 3, 1999
PAGE 4
<TABLE>
<CAPTION>
NO. OF SHARES LOCATION OF SUBSTANTIAL
NAME OWNERSHIP JURISDICTION OF INC. OUTSTANDING OPERATING ASSETS
- ---- --------- -------------------- ------------- -----------------------
<S> <C> <C> <C> <C>
Lennox Global Ltd.
Lennox Australia Pty. Ltd. 100% Australia 1,575,000 Com/Cl.A Australia
1,575,000 Com/Cl.B
LGL Asia-Pacific Pte. Ltd. 100% Rep. of Singapore 2 Ordinary Singapore
Fairco S.A. 50% Argentina Argentina
LGL Europe Holding Co. 100% Delaware 1,000 Common N/A
SEE ATTACHED CHART
LGL (Australia) Pty. Ltd. 100% Australia Australia
UK Industries Inc. 100% Delaware 1,000 Common N/A
LGL de Mexico, S.A. de C.V. 99% Mexico 50,000 Common Mexico
Lennox Participacoes Ltda. 99% Brazil
Frigo-Bohn do Brasil Ltda. 1% Brazil Brazil
McQuay do Brasil 79% Brazil Brazil
SIWA S.A. 100% Uruguay Uruguay
Str. LGL Dominicana S.A. 100% Dominican Republic
Strong LGL Colombia Ltda. 50% Colombia
LGL Belgium S.P.R.L. .4% Belgium 1 Common Belgium
LGL Refrigeration Pty. Ltd. 100% Australia Australia
LGL (Thailand) Ltd. 100% Thailand Thailand
</TABLE>
<PAGE> 5
LENNOX INTERNATIONAL INC. SUBSIDIARIES
AS OF MARCH 3, 1999
PAGE 5
<TABLE>
<CAPTION>
NO. OF SHARES LOCATION OF SUBSTANTIAL
NAME OWNERSHIP JURISDICTION OF INC. OUTSTANDING OPERATING ASSETS
- ---- --------- -------------------- ------------- -----------------------
<S> <C> <C> <C> <C>
LGL Europe Holding Co.
- -LGL Holland B.V. 100% Holland Holland
-Ets. Brancher S.A. 70% France France
-Frinotec S.A. 99.68% France France
-LGL France 100% France France
-Herac Ltd. 100% United Kingdom N/A
-Friga-Coil S.R.O 50% Czech Republic Czech Republic
-LGL Netherlands B.V. 100% Netherlands Netherlands
-LGL Germany GmbH 100% Germany 500 Common Germany
-Friga-Bohn Warmeaustauscher GmbH 100% Germany
-Hyfra Ind. GmbH 99.9% Germany Germany
-Ruhaak 100% Germany Germany
-Refac Nord GmbH 100% Germany Germany
-Refac West 100% Germany Germany
-Lennox Global Spain S.L. 100% Spain
-ERSA 90.1% Spain
-Aldo Marine 70% Spain
-Lennox Refac, S.A. 100% Spain
-Redi sur Andalucia 70% Spain Spain
-RefacPortugal Lda. 50% Portugal Portugal
-LGL Belgium S.P.R.L. 99.6% Belgium 249 Common Belgium
-Refac B.V. 100% Netherlands Netherlands
-Refac N.V 100% Belgium Belgium
-Refac Kalte-Klima Technik
Vertriebs GmbH 50%
-HCF Lennox Ltd. 100% United Kingdom 100 Ordinary United Kingdom
-Lennox Industries 99% United Kingdom 300,000 Cum.Preference United Kingdom
13,900 Ordinary
-Environheat Limited 100% United Kingdom 32,765 Ordinary N/A
-West S.R.L. 100% Italy Italy
- -Janka Radotin a.s. 100% Czech Republic Czech Republic
-Friga Coil S.R.O. 50% Czech Republic Czech Republic
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<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Dallas, Texas
April 5, 1999
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