<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 27, 1999
REGISTRATION NO. 333-75725
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
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>
---------------------
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: [ ]
- ---------
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: [ ]
- ---------
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 May 27, 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.
------------------------
OUR COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK
EXCHANGE UNDER THE TRADING SYMBOL "LII," SUBJECT TO OFFICIAL NOTICE OF ISSUANCE.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 8.
------------------------
PRICE $ A SHARE
------------------------
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<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 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
<TABLE>
<S> <C>
[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.
</TABLE>
<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................................................ 8
Special Note Regarding Forward-Looking Statements........... 12
Use of Proceeds............................................. 13
Dividend Policy............................................. 13
Capitalization.............................................. 14
Dilution.................................................... 15
Selected Financial and Other Data........................... 16
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 17
Business.................................................... 30
Management.................................................. 46
Principal and Selling Stockholders.......................... 60
Certain Relationships and Related Party Transactions........ 62
Description of Capital Stock................................ 62
Shares Eligible for Future Sale............................. 69
Material Federal Income Tax Consequences for Non-U.S.
Holders................................................... 70
Underwriters................................................ 72
Legal Matters............................................... 76
Experts..................................................... 76
Where You Can Find More Information......................... 76
Index to Financial Statements............................... F-1
</TABLE>
---------------------
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
connection 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(TM),
Air-Ease(R), Concord(R), Magic-Pak(R), Superior(TM), Marco(R), Whitfield(R),
Security Chimneys(R), Alcair(TM), Friga-Bohn(TM) and Janka(TM), 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 and had 1998
net sales of $1.8 billion. 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 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.
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 approximately 6,000 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.
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
4
<PAGE> 8
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:
- expanding our market opportunities in North America through a series of
initiatives, including the acquisition of heating and air conditioning
dealers;
- exploiting international opportunities through acquisitions and internal
growth;
- increasing our presence in the hearth products market by selling in the
distribution channels we acquired and through our historical distribution
channels; and
- continuing to invest in research and new product development.
---------------------
We are located at 2100 Lake Park Blvd., Richardson, Texas 75080 and our
telephone number is (972) 497-5000.
5
<PAGE> 9
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 a portion of the amounts
borrowed under our revolving credit facility and
term credit agreement. 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."
6
<PAGE> 10
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. The summary financial and
other data for each of the three months ended March 31, 1998 and 1999 are
derived from our unaudited financial statements which, in our opinion, have been
prepared on the same basis as the audited financial statements and include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of this information. Our fiscal quarters are each comprised of 13
weeks. For convenience, the 13-week periods ended April 4, 1998 and April 3,
1999 are referred to as the three months ended March 31, 1998 and 1999,
respectively. 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 notes 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 described under "Use
of Proceeds."
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ -------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................. $1,364,546 $1,444,442 $1,821,836 $379,646 $489,059
Cost of goods sold........................................ 961,696 1,005,913 1,245,623 261,802 337,481
---------- ---------- ---------- -------- --------
Gross profit...................................... 402,850 438,529 576,213 117,844 151,578
Selling, general and administrative expenses.............. 298,049 326,280 461,143 97,255 129,268
Other operating expense, net.............................. 4,213 7,488 8,467 2,612 2,518
Product inspection charge(1).............................. -- 140,000 -- -- --
---------- ---------- ---------- -------- --------
Income (loss) from operations..................... 100,588 (35,239) 106,603 17,977 19,792
Interest expense, net..................................... 13,417 8,515 16,184 2,620 6,558
Other..................................................... (943) 1,955 1,602 230 (211)
Minority interest......................................... -- (666) (869) (502) (516)
---------- ---------- ---------- -------- --------
Income (loss) before income taxes................. 88,114 (45,043) 89,686 15,629 13,961
Provision (benefit) for income taxes...................... 33,388 (11,493) 37,161 7,323 7,331
---------- ---------- ---------- -------- --------
Net income (loss)................................. $ 54,726 $ (33,550) $ 52,525 $ 8,306 $ 6,630
========== ========== ========== ======== ========
Earnings (loss) per share:
Basic...................................................
Diluted.................................................
Weighted average shares outstanding:
Basic...................................................
Diluted.................................................
Dividends per share.......................................
OTHER DATA:
Depreciation and amortization............................. 34,149 33,430 43,545 9,787 13,502
Capital expenditures...................................... 31,903 34,581 52,435 12,316 20,050
Research and development expenses......................... 23,235 25,444 33,260 7,376 9,567
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
------------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 30,262
Working capital............................................. 215,279
Total assets................................................ 1,292,534
Total debt.................................................. 449,921
Stockholders' equity........................................ 374,319
</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 $13.6 million at March 31, 1999 will be adequate to
cover the remaining costs associated with this inspection program. This
program ends on June 30, 1999.
7
<PAGE> 11
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision.
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 WHICH WOULD NEGATIVELY IMPACT OUR PROFITABILITY
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 material costs that would have an adverse effect on
our future profitability. In addition, warranty claims are not covered by our
product liability insurance and there may be types of product liability claims
that are also not covered by our product liability insurance.
WE MAY NOT BE ABLE TO REALIZE OUR BUSINESS STRATEGY OF SUCCESSFULLY
COMPLETING OR OPERATING STRATEGIC ACQUISITIONS
We intend to grow in part through the acquisition of heating and air
conditioning dealers and other complementary businesses both in the U.S. and
internationally. This strategy will involve reviewing and potentially
reorganizing the operations, corporate infrastructure and systems and financial
controls of acquired businesses. The success of our acquisition strategy may be
limited because of unforeseen expenses, difficulties, complications and delays
encountered in connection with the expansion of our operations through
acquisitions. We may not be able to acquire or manage profitably additional
businesses or to integrate successfully any acquired businesses into our
business without substantial costs, delays or other operational or financial
difficulties. In addition, we may be required to incur additional debt or issue
equity to pay for future acquisitions.
WE ARE ENTERING NEW BUSINESSES IN WHICH WE HAVE LIMITED EXPERIENCE AND WE
MAY NOT BE ABLE TO SUCCESSFULLY MANAGE OR OPERATE THESE NEW BUSINESSES
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.
THE CONSOLIDATION OF DISTRIBUTORS AND DEALERS COULD FORCE US TO LOWER OUR
PRICES OR HURT OUR BRAND NAMES WHICH WOULD RESULT IN LOWER SALES
There is currently an effort underway in the U.S. by several 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 the consolidation among HVACR distributors and dealers could have an adverse
effect on our future sales and profitability.
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
8
<PAGE> 12
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.
COOLER THAN NORMAL SUMMERS AND WARMER THAN NORMAL WINTERS MAY DEPRESS OUR
SALES
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, in our new distribution channel in which 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 products or services at lower prices than we can.
WE MAY BE ADVERSELY AFFECTED BY PROBLEMS IN THE AVAILABILITY OF OR
INCREASES IN THE PRICES OF
COMPONENTS AND RAW MATERIALS
Increases in the prices of raw materials or components or problems in their
availability could depress our sales or increase the costs of our products. 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 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, either of which could have an adverse effect on
our gross profit. 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.
THE PROFITABILITY OF OUR INTERNATIONAL OPERATIONS COULD BE ADVERSELY
AFFECTED BY ECONOMIC TURMOIL, WAR OR CIVIL UNREST
Our international operations are subject to various economic, political and
other risks that are generally not present in our North American operations.
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.
We sell products in over 70 countries and have business units located in
Europe, Asia Pacific, Latin America and Mexico. Sales of our products outside of
the U.S. represented approximately 19.2% of our 1998 net sales. We anticipate
that, over time, international sales will continue to grow as a percentage of
our total sales.
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OUR OPERATIONS ARE SUBJECT TO INHERENT RISKS THAT COULD RESULT IN LOSS OF
LIFE OR SEVERE DAMAGE TO OUR PROPERTIES AND THE SUSPENSION OF OPERATIONS
Our operations are subject to hazards and risks inherent in operating large
manufacturing facilities, including 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 profitability.
SINCE A SIGNIFICANT PERCENTAGE OF OUR WORKFORCE IS UNIONIZED, WE FACE RISKS
OF WORK STOPPAGES AND OTHER LABOR RELATIONS PROBLEMS
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. Of our
significant manufacturing facilities, the contract at our Lynwood, California
facility expires in December 1999. Following the expiration of the collective
bargaining agreement in April 1999, we experienced a work stoppage at our
Bellevue, Ohio factory for three weeks in May 1999. This facility has a new
collective bargaining agreement that expires April 2002. Outside of the U.S., we
have 12 significant facilities that are represented by unions. The agreement for
our manufacturing facility in Toronto, Ontario expired in April 1999 and the
agreement for our facility in Laval, Quebec expires in December 1999. As has
been the case in the past, the employees at our Toronto facility are continuing
to work under the expired contract pending negotiation of a new agreement. 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.
EXPOSURE TO ENVIRONMENTAL LIABILITIES COULD ADVERSELY AFFECT OUR RESULTS OF
OPERATIONS
Our future profitability 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.
WE MAY BE ADVERSELY IMPACTED BY THE YEAR 2000 AND THE CONVERSION OF OUR
MANAGEMENT INFORMATION SYSTEMS TO DISTRIBUTED PROCESSING SYSTEMS
Year 2000 problems might require us to incur unanticipated expenses or
experience interruptions of operations that could have an adverse effect on our
future sales and profitability. 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.
10
<PAGE> 14
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
The ability of the Norris family to exercise significant control over
Lennox may discourage, delay or prevent a takeover attempt that a stockholder
might consider in his or her best interest and that might result in a
stockholder receiving a premium for his or her common stock. 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 all of 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 provisions that make it more difficult to
implement corporate actions that may have the effect of delaying, deterring or
preventing a change in control. A stockholder might consider a change in control
in his or her best interest because he or she might receive a premium for his or
her common stock. Examples of these provisions include:
- a vote of more than 80% of the outstanding voting stock is required for
stockholders to amend specified provisions of the governing documents;
- our board of directors is divided into three classes, each serving
three-year terms;
- members of our 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 specified transactions between us and any person or group that
owns at least 10% of our voting stock.
Our board of directors has the ability, without stockholder action, to
issue shares of preferred stock that could, depending on their terms, delay,
discourage or prevent a change in control of Lennox. In addition, the Delaware
General Corporation Law, under which we are incorporated, contains 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.
11
<PAGE> 15
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 the offering, we will have
outstanding shares of common stock. Of these shares, the shares sold
in this offering will be freely tradeable without restriction or further
registration under the Securities Act of 1933, except for any shares purchased
by our "affiliates" as that term is defined by Rule 144. The remaining
shares of common stock outstanding, which will represent % of the
total outstanding shares of common stock, will be "restricted" as that term is
defined by Rule 144. You should read the "Shares Eligible For Future Sale"
section for a more complete discussion of these matters.
BECAUSE THERE HAS BEEN NO PRIOR PUBLIC MARKET FOR OUR COMMON STOCK, 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.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," and elsewhere in this prospectus constitute
forward-looking statements. These statements relate to future events or our
future financial performance. In come cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential" or "continue" or
the negative of such terms or other comparable terminology. These statements are
only predictions. Actual events or results may differ materially. In evaluating
these statements, you should specifically consider various factors, including
the risks outlined under "Risk Factors." These factors may cause our actual
results to differ materially from any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of these
statements. We are under no duty to update any of the forward-looking statements
after the date of this prospectus to conform these statements to actual results.
12
<PAGE> 16
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 all
of the proceeds from the offering to repay a portion of the borrowings under our
revolving credit facility and term credit agreement. Borrowing availability
under our revolving credit facility will be used:
- 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.
As of May 20, 1999, approximately $125 million was outstanding under our
revolving credit facility at an average interest rate of 5.2% and approximately
$80 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, along with cash flow from operations, 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.;
- the acquisition of Livernois Engineering Holding Company and its licensed
patents; 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 other factors as our
board of directors may consider. In addition, our revolving credit facility,
term credit agreement and our other debt instruments prohibit the payment of
dividends unless we can incur $1.00 of additional indebtedness according to the
terms of these 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."
13
<PAGE> 17
CAPITALIZATION
The following table presents our cash and cash equivalents, short-term debt
and capitalization as of March 31, 1999 and as adjusted to give effect to the
offering and the use of the net proceeds as described under "Use of Proceeds."
The outstanding share information excludes shares of common stock
issuable upon the exercise of outstanding options as of March 31, 1999. You
should read the information presented below together with our consolidated
financial statements and notes, "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>
MARCH 31, 1999
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 30,262
========
Short-term debt (including current maturities of long-term
debt)..................................................... $216,426
========
Long-term debt.............................................. $233,495
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................................ 33,431
Retained earnings......................................... 354,444
Currency translation adjustments.......................... (13,567)
--------
Total stockholders' equity........................ 374,319
--------
Total capitalization.............................. $607,814
========
</TABLE>
14
<PAGE> 18
DILUTION
Our net tangible book value as of March 31, 1999 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 described under "Use of Proceeds", our pro forma net tangible book
value as of March 31, 1999 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 March 31, 1999,
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."
15
<PAGE> 19
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. The summary
financial and other data for each of the three months ended March 31, 1998 and
1999 are derived from our unaudited financial statements which, in our opinion,
have been prepared on the same basis as the audited financial statements and
include all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of such information. Our fiscal quarters are each
comprised of 13 weeks. For convenience, the 13-week periods ended April 4, 1998
and April 3, 1999 are referred to as the three months ended March 31, 1998 and
1999, respectively. 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 notes included elsewhere in this prospectus for a further
explanation of the financial data summarized here.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <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 $ 379,646 $ 489,059
Cost of goods sold................... 815,511 946,881 961,696 1,005,913 1,245,623 261,802 337,481
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit................. 352,588 360,118 402,850 438,529 576,213 117,844 151,578
Selling, general and administrative
expenses........................... 273,421 285,938 298,049 326,280 461,143 97,255 129,268
Other operating expense, net......... 7,460 2,555 4,213 7,488 8,467 2,612 2,518
Product inspection charge(1)......... -- -- -- 140,000 -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from
operations................. 71,707 71,625 100,588 (35,239) 106,603 17,977 19,792
Interest expense, net................ 20,830 20,615 13,417 8,515 16,184 2,620 6,558
Other................................ 836 (622) (943) 1,955 1,602 230 (211)
Minority interest.................... -- -- -- (666) (869) (502) (516)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income
taxes...................... 50,041 51,632 88,114 (45,043) 89,686 15,629 13,961
Provision (benefit) for income
taxes.............................. 19,286 17,480 33,388 (11,493) 37,161 7,323 7,331
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)............ $ 30,755 $ 34,152 $ 54,726 $ (33,550) $ 52,525 $ 8,306 $ 6,630
========== ========== ========== ========== ========== ========== ==========
Earnings (loss) per share:
Basic..............................
Diluted............................
Weighted average shares outstanding:
Basic..............................
Diluted............................
Dividends per share..................
OTHER DATA:
Depreciation and amortization........ 32,896 32,212 34,149 33,430 43,545 9,787 13,502
Capital expenditures................. 36,189 26,675 31,903 34,581 52,435 12,316 20,050
Research and development expenses.... 22,773 22,682 23,235 25,444 33,260 7,376 9,567
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............ $ 2,980 $ 73,811 $ 151,877 $ 147,802 $ 28,389 $ 171,624 $ 30,262
Working capital...................... 252,301 307,502 325,956 335,891 263,289 404,738 215,279
Total assets......................... 737,528 768,517 820,653 970,892 1,152,952 1,043,581 1,292,534
Total debt........................... 243,480 219,346 184,756 198,530 317,441 272,120 449,921
Stockholders' equity................. 286,849 315,313 361,464 325,478 376,440 333,734 374,319
</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 $13.6 million at March 31, 1999 will be adequate to
cover the remaining costs associated with this inspection program. This
program ends on June 30, 1999.
16
<PAGE> 20
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 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.
Following the expiration of the collective bargaining agreement in April
1999, we experienced a work stoppage at our Bellevue, Ohio factory for three
weeks in May 1999. This factory manufactures our "Armstrong Air" brand of
residential heating and air conditioning products for the North American market.
We had accumulated additional inventory levels in anticipation of a possible
work stoppage. Through the use of management personnel we continued limited
production from this factory during this period. As a result, we were generally
able to meet the majority of our customer orders. We do not believe that we
suffered any damage to our relationships with our customers. On May 20, 1999,
the union at the Bellevue, Ohio factory ratified a new collective bargaining
agreement that expires April 2002 and this factory resumed full production
within two business days.
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 1997, 1998 and the first quarter of 1999,
primarily due to the performance of the commercial air conditioning business. In
the second half of 1998, we
17
<PAGE> 21
commenced and substantially completed the installation of a new management team
for our European operations. We are in the process of 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 and
permit 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 May 18, 1999, we had acquired 43 dealers in Canada for an
aggregate purchase price of approximately $62 million and had signed letters of
intent to acquire ten additional Canadian dealers and two U.S. dealers for an
aggregate purchase price of approximately $27 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 and the
three months ended March 31, 1998 and 1999.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------- ----------------
1996 1997 1998 1998 1999
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Net sales.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold......................... 70.5 69.6 68.4 69.0 69.0
----- ----- ----- ----- -----
Gross profit..................... 29.5 30.4 31.6 31.0 31.0
----- ----- ----- ----- -----
Selling, general and administrative
expenses................................. 21.8 22.6 25.3 25.6 26.5
Other operating expense, net............... 0.3 0.5 0.4 0.7 0.5
Product inspection charge.................. -- 9.7 -- -- --
----- ----- ----- ----- -----
Income (loss) from operations.... 7.4 (2.4) 5.9 4.7 4.0
Interest expense, net...................... 1.0 0.6 0.9 0.6 1.2
Other...................................... (0.1) 0.1 0.1 0.1 0.0
Minority interest.......................... -- 0.0 0.0 (0.1) (0.1)
----- ----- ----- ----- -----
Income (loss) before income
taxes.......................... 6.5 (3.1) 4.9 4.1 2.9
Provision (benefit) for income taxes....... 2.5 (0.8) 2.0 1.9 1.5
----- ----- ----- ----- -----
Net income (loss)................ 4.0% (2.3)% 2.9% 2.2% 1.4%
===== ===== ===== ===== =====
</TABLE>
18
<PAGE> 22
The following table sets forth net sales by business segment and geographic
market (dollars in millions):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------------------------ -------------------------------
1996 1997 1998 1998 1999
---------------- ---------------- ---------------- -------------- --------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
-------- ----- -------- ----- -------- ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BUSINESS SEGMENT:
North American residential........... $ 857.1 62.8% $ 865.1 59.9% $1,013.7 55.7% $203.6 53.6% $284.9 58.3%
Commercial air conditioning.......... 228.9 16.8 278.8 19.3 392.1 21.5 81.8 21.6 92.5 18.9
Commercial refrigeration............. 135.6 9.9 154.3 10.7 237.3 13.0 47.9 12.6 61.6 12.6
Heat transfer........................ 142.9 10.5 146.2 10.1 178.7 9.8 46.3 12.2 50.0 10.2
-------- ----- -------- ----- -------- ----- ------ ----- ------ -----
Total net sales............... $1,364.5 100.0% $1,444.4 100.0% $1,821.8 100.0% $379.6 100.0% $489.0 100.0%
======== ===== ======== ===== ======== ===== ====== ===== ====== =====
GEOGRAPHIC MARKET:
U.S.................................. $1,252.5 91.8% $1,274.9 88.3% $1,472.3 80.8% $304.8 80.3% $383.1 78.3%
International........................ 112.0 8.2 169.5 11.7 349.5 19.2 74.8 19.7 105.9 21.7
-------- ----- -------- ----- -------- ----- ------ ----- ------ -----
Total net sales............... $1,364.5 100.0% $1,444.4 100.0% $1,821.8 100.0% $379.6 100.0% $489.0 100.0%
======== ===== ======== ===== ======== ===== ====== ===== ====== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31,
1998
Net sales. Net sales increased $109.4 million, or 28.8%, to $489.0 million
for the three months ended March 31, 1999 from $379.6 million for the three
months ended March 31, 1998.
Net sales related to the North American residential segment were $284.9
million during the three months ended March 31, 1999, an increase of $81.3
million, or 39.9%, from $203.6 million for the corresponding three months in
1998. Of the $81.3 million increase, $35.9 million was due to sales from the
hearth products acquisitions which occurred in the third quarter of 1998 and the
first quarter of 1999, $16.7 million was due to sales from our Canadian dealers
and $5.5 million was due to sales from acquired heating and air conditioning
distributors. The remaining $23.2 million increase in North American residential
net sales was primarily due to an 11.4% increase in sales of our existing
businesses, almost all of which resulted from increased sales volumes,
principally caused by three factors. First, the hot summer in 1998 depleted the
inventory levels at our distributors and they increased their purchases in the
first quarter of 1999 to refill their inventories. Second, we offered our
Armstrong distributors preferential credit terms to encourage them to accumulate
inventory in anticipation of a possible work stoppage at our Bellevue, Ohio
factory. Third, our volume increased as a result of sales to new dealers, which
were added as a result of programs to expand our dealer base.
Commercial air conditioning net sales increased $10.7 million, or 13.1%, to
$92.5 million for the three months ended March 31, 1999 compared to the
corresponding three months in 1998. Of this increase, $8.5 million was due to
increased sales volumes in North America primarily due to the effectiveness of
recently established commercial sales districts. Net sales related to the
commercial refrigeration segment were $61.6 million during the three months
ended March 31, 1999, an increase of $13.7 million, or 28.6%, from $47.9 million
for the corresponding three months in 1998. McQuay do Brasil, which we acquired
in September 1998, contributed $3.3 million to commercial refrigeration revenues
in the first quarter of 1999 and Lovelock Luke Pty. Limited, which we acquired
in December 1998, contributed $10.5 million. North American commercial
refrigeration sales increased $3.3 million primarily due to strong sales volumes
to our supermarket customers and increased activity with our large distributors,
while sales in Europe decreased $3.4 million as compared to the prior period
principally due to reduced sales in Russia and Eastern Europe. Heat transfer
revenues increased $3.7 million, or 8.0%, to $50.0 million for the three months
ended March 31, 1999 compared to the corresponding three months in 1998. This
increase was primarily due to increased sales volumes to original equipment
manufacturers in North America.
Domestic sales increased $78.3 million, or 25.7%, to $383.1 million for the
first quarter of 1999 from $304.8 million for the first quarter of 1998.
International sales increased $31.1 million, or 41.6%, to $105.9 million for the
first quarter of 1999 from $74.8 million for the first quarter of 1998. Sales in
Brazil for the first quarter of 1999 were $3.3 million but would have been
approximately $6.5 million if devaluation of the Brazilian currency had not
occurred in this quarter. As a result of the devaluation, we had to reduce the
carrying value of our Brazilian investment by $5.9 million.
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Gross profit. Gross profit was $151.6 million for the three months ended
March 31, 1999 as compared to $117.8 million for the three months ended March
31, 1998, an increase of $33.8 million. Gross profit margin was 31.0% for both
the three months ended March 31, 1999 and 1998. The increase of $33.8 million in
gross profit was primarily attributable to increased sales in the 1999 period as
compared to 1998. Gross profit margin remained unchanged for the 1999 period
because there were no substantive price increases for our products for the 1999
period, and improvements due to lower raw material costs, improved manufacturing
processes and increased overhead absorption associated with higher volumes of
sales were offset by increases in labor and overhead costs.
Selling, general and administrative expenses. Selling, general and
administrative expenses were $129.3 million for the three months ended March 31,
1999, an increase of $32.0 million, or 32.9%, from $97.3 million for the three
months ended March 31, 1998. Selling, general and administrative expenses
represented 26.5% and 25.6% of total net revenues for the first three months of
1999 and 1998, respectively. Of the $32.0 million increase, $18.5 million, or
57.8%, was related to increased infrastructure associated with acquisitions. Of
the remaining $13.5 million increase, $9.5 million was due to increases in
selling, general and administrative expenses for the North American residential
segment which was primarily comprised of increases in costs due to additions of
personnel, increased information technology costs and increased sales and
marketing expenses. The remaining $4.0 million increase in selling, general and
administrative expenses for the 1999 period related primarily to infrastructure
investments in Europe and Asia and normal inflationary adjustments.
Other operating expense, net. Other operating expense, net totaled $2.5
million for the three months ended March 31, 1999, a decrease of $0.1 million
from $2.6 million for the corresponding three months in 1998. Other operating
expense, net is comprised of (income) loss from joint ventures, amortization of
goodwill, and other intangibles and miscellaneous items. Increases in goodwill
amortization were generally offset by decreases in miscellaneous expenses and a
slight reduction in losses from joint ventures.
Income from operations. Income from operations was $19.8 million for the
three months ended March 31, 1999 compared to $18.0 million for the three months
ended March 31, 1998. Income from operations represented 4.0% and 4.7% of net
sales for the three months ended March 31, 1999 and 1998, respectively.
Domestic income from operations was $21.8 million during the three months
ended March 31, 1999, an increase of 16.0% from $18.8 million during the
corresponding period in 1998. International income (loss) from operations was
$(2.0) million during the 1999 period and $(0.8) million during the 1998 period.
Interest expense, net. Interest expense, net for the three months ended
March 31, 1999 increased to $6.6 million from $2.6 million for the same period
in 1998. Of the $4.0 million increase in interest expense, $1.7 million was due
to the incurrence of $75 million in additional long-term borrowings in April
1998 and $2.3 million was due to increased usage of our credit lines. Short-term
borrowing increased in the first quarter of 1999 as a result of acquisitions,
payments related to the Pulse inspection program and increased working capital
for seasonal needs.
Other. Other expense (income) was $(0.2) million for the three months ended
March 31, 1999 and $0.2 million for the three months ended March 31, 1998. Other
expense is primarily comprised of currency exchange gains or losses. The
majority of the improvement in other expense (income) was due to the
strengthening of the Canadian dollar.
Minority interest. Minority interest in subsidiaries' net losses of $(0.5)
million for both the three months ended March 31, 1999 and 1998 represents the
minority interest in Ets. Brancher and, for 1999, McQuay do Brasil.
Provision for income taxes. The provision for income taxes was $7.3 million
for both the three months ended March 31, 1999 and 1998. The effective tax rate
of 52.5% and 46.9% for the three months ended March 31, 1999 and 1998,
respectively, differs from the statutory federal rate of 35.0% principally due
to state and local taxes and valuation reserves provided for foreign operating
losses. No tax benefits are being
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recognized for our tax loss carryforwards in Europe, which will not be used
until our operations in Europe are profitable.
Net income. Net income was $6.6 million and $8.3 million for the three
months ended March 31, 1999 and 1998, respectively. Net income represented 1.4%
and 2.2% of net sales for the three months ended March 31, 1999 and 1998,
respectively.
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 increased unit sales of "Lennox" and "Armstrong
Air" brands of heating and air conditioning equipment 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 volumes of rooftop air
conditioner sales 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 caused by sales volume increases
due to hot weather in North America in 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 caused by sales volume increases due to hot
weather in North America in 1998.
Domestic sales increased $197.4 million, or 15.5%, to $1,472.3 million for
1998 from $1,274.9 million for 1997. Of this increase, $68.6 million is due to
the inclusion of the hearth products companies and the balance was caused
primarily by increased unit sales of "Lennox" and "Armstrong Air" brands due to
the hot weather in 1998 and an expanded dealer and distributor base for these
brands. International sales increased $180.0 million, or 106.2%, to $349.5
million for 1998 from $169.5 million for 1997. Of this increase, $150.7 million
is due to the consolidation of Ets. Brancher and the remainder is primarily due
to the acquisition of McQuay do Brasil and Lovelock Luke.
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 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
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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.
Domestic income from operations was $108.7 million during 1998 as compared
to a loss of $(38.8) million during 1997. International income (loss) from
operations was $(2.1) million during 1998 and $3.6 million for 1997.
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.
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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 $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
volumes of rooftop air conditioner sales 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.
Domestic sales increased $22.4 million, or 1.8%, to $1,274.9 million for
1997 from $1,252.5 million for 1996 primarily due to the factors discussed
above. International sales increased $57.5 million, or 51.3%, to $169.5 million
for 1997 from $112.0 million for 1996. This increase is primarily due to the
consolidation of Ets. Brancher in the last quarter of 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
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$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.
Domestic income (loss) from operations was $(38.8) million during 1997 as
compared to $98.0 million during 1996. International income from operations was
$3.6 million during 1997 and $2.6 million for 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.
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.
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 provided
by (used in) operating activities was $(57.2) million for the three months ended
March 31, 1999 compared to $(31.7) million for the three months ended March 31,
1998. The increase in cash used in operating activities is primarily due to
increases in accounts and notes receivable resulting from higher first quarter
1999 sales. Net cash used in investing activities totaled $37.1 million, $44.6
million, $212.4 million, $13.7 million and $71.2 million for 1996, 1997 and 1998
and the three months ended March 31, 1998 and 1999, respectively. The greater
use of cash for investing relates primarily to increased acquisition activity as
we spent $14.3 million, $160.5 million, $1.4 million and $51.1 million for
acquisitions in 1997 and 1998 and the three months ended March 31, 1998 and
1999, respectively. Net cash provided by (used in) financing activities was
($44.0) million, ($17.3) million, $89.5 million, $69.2 million and $130.9
million for 1996, 1997 and 1998 and the three months ended March 31, 1998 and
1999, respectively. In 1998, we issued $75.0 million principal amount of notes
and increased short term borrowings by $36.7 million. In the first quarter of
1999, we increased short-term borrowings by $134.5 million primarily to fund
acquisitions. 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. Accordingly, we do not believe it is
appropriate to compare interim periods to the full fiscal 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.
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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 May 18, 1999, we had
acquired 43 dealers in Canada for an aggregate purchase price of approximately
$62 million and had signed letters of intent to acquire ten additional Canadian
dealers and two U.S. dealers for an aggregate purchase price of approximately
$27 million.
Our capital expenditures were $31.9 million, $34.6 million, $52.4 million
and $20.0 million for 1996, 1997 and 1998 and the three months ended March 31,
1999, respectively. We have budgeted $80 million for capital expenditures for
1999. These expenditures primarily relate to production equipment (including
tooling), training facilities, leasehold improvements 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 March 31, 1999, we had long-term debt obligations outstanding of $260.2
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
restrictive covenants, including covenants that place limitations on our ability
to incur additional indebtedness, encumber our assets, sell our assets or pay
dividends. Our ability to incur debt is limited to 60.0% of our consolidated
capitalization. As of March 31, 1999, our consolidated indebtedness as a percent
of consolidated capitalization was 51.8%. Generally, the aggregate sale of
assets outside the ordinary course of business cannot exceed 15% of our
consolidated assets during any fiscal year and all transfers after January 1,
1998 cannot exceed 30% of our consolidated assets. In addition, in order to pay
dividends or make a sale of assets outside the ordinary course of business, we
must be able to 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 March 31,
1999, the required consolidated net worth was $270.2 million and we had a
consolidated net worth of $374.3 million. Upon a change of control, we must make
an offer to repurchase the notes at a price equal to 100% of the principal
amount of the notes, plus accrued and unpaid interest. 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 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) 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 according 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 fees, including (a) a quarterly commitment fee equal to 0.15%
of the unused portion of the commitment and (b) administrative fees to the
administrative agent. We are required to
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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 expires upon completion of this
offering. 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. We may pursue
additional debt or equity financing in connection with acquisitions.
QUARTERLY RESULTS OF OPERATIONS
The following table presents certain of our quarterly information for the
years ended December 31, 1997 and 1998 and the three months ended March 31,
1999. 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 1999
-------------------------------------- -------------------------------------- -------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31
------- ------- -------- ------- ------- ------- -------- ------- -------
(IN MILLIONS)
<S> <C> <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 $489.0
Cost of goods sold.................. 211.6 252.0 265.2 277.1 261.8 309.0 359.6 315.2 337.5
------ ------ ------ ------- ------ ------ ------ ------ ------
Gross profit........................ 95.5 113.4 116.7 112.9 117.8 147.0 169.6 141.8 151.5
------ ------ ------ ------- ------ ------ ------ ------ ------
Selling, general and administrative
expenses.......................... 76.1 79.8 80.1 90.3 97.3 108.4 125.7 129.8 129.3
Other operating expense, net........ 3.0 0.5 0.9 3.0 2.6 4.6 (1.1) 2.3 2.5
Product inspection charge........... -- -- -- 140.0 -- -- -- -- --
------ ------ ------ ------- ------ ------ ------ ------ ------
Income (loss) from operations....... 16.4 33.1 35.7 (120.4) 17.9 34.0 45.0 9.7 19.7
------ ------ ------ ------- ------ ------ ------ ------ ------
Net income (loss)................... $ 7.9 $ 17.6 $ 18.5 $(77.6) $ 8.3 $ 17.2 $ 24.5 $ 2.5 $ 6.6
</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 1999
-------------------------------------- -------------------------------------- -------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31
------- ------- -------- ------- ------- ------- -------- ------- -------
<S> <C> <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% 100.0%
Cost of goods sold.................. 68.9 69.0 69.4 71.1 69.0 67.8 68.0 69.0 69.0
----- ----- ----- ------ ----- ----- ----- ----- -----
Gross profit........................ 31.1 31.0 30.6 28.9 31.0 32.2 32.0 31.0 31.0
----- ----- ----- ------ ----- ----- ----- ----- -----
Selling, general and administrative
expenses.......................... 24.8 21.8 21.0 23.1 25.6 23.8 23.7 28.4 26.5
Other operating expense, net........ 1.0 0.2 0.2 0.8 0.7 1.0 (0.2) 0.5 0.5
Product inspection charge........... -- -- -- 35.9 -- -- -- -- --
----- ----- ----- ------ ----- ----- ----- ----- -----
Income (loss) from operations....... 5.3 9.0 9.4 (30.9) 4.7 7.4 8.5 2.1 4.0
----- ----- ----- ------ ----- ----- ----- ----- -----
Net income (loss)................... 2.6% 4.8% 4.8% (19.9)% 2.2% 3.8% 4.6% .5% 1.4%
</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.
26
<PAGE> 30
MARKET RISK
The estimated fair values of our financial instruments approximate their
respective carrying amounts at March 31, 1999, except as follows (in thousands):
<TABLE>
<CAPTION>
FAIR VALUE
-------------------
CARRYING INTEREST
AMOUNT AMOUNT RATE
-------- ------- --------
<S> <C> <C> <C>
9.69% promissory notes.................................. $24,600 $26,500 6.75%
9.53% promissory notes.................................. 21,000 21,800 6.75
11.10% promissory notes................................. 7,135 7,300 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. The fair values are
estimates as of March 31, 1999, 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 8.2%, 11.7% and 19.2%, 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 March 31, 1999, we had
entered into foreign currency exchange contracts with a nominal value of 165.5
million French francs (approximately $27.0 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 March 31, 1999, we had obligations to deliver the equivalent of $61.7
million of various foreign currencies by June 30, 1999, for which the
counterparties to the contracts will pay fixed contract amounts.
We have contracts with various suppliers to purchase copper and aluminum
for use in our manufacturing processes. As of March 31, 1999, we had contracts
to purchase 17.1 million pounds of copper over the next 24 months at fixed
prices that average $0.75 per pound ($12.8 million) and contracts to purchase
six million pounds of copper at a variable price equal to the COMEX copper price
(0.63 per pound at March 31, 1999) over the next 12 months. We also had
contracts to purchase 19.3 million pounds of aluminum at $0.61 per pound ($11.8
million) over the next 12 months. The fair value of the copper and aluminum
purchase commitments was a liability of $2.6 million at March 31, 1999.
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.
27
<PAGE> 31
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's 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 upgrades for some 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 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, which are referred to as "critical systems,"
and address the areas of our business which would have otherwise been
significantly affected by the Year 2000. As of April 30, 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 April 30, 1999,
we were more than 60% 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 by September 1999
expect to have developed solutions that will minimize the impact on us. Lennox
Industries distributed surveys to approximately 200 of its major suppliers in
January 1999 and over half of these suppliers have responded. All of these
respondents stated that they are either compliant or are planning to be
compliant. In April 1999, a follow-up survey was sent to the suppliers who had
not yet responded. We expect to resolve any identified problems with critical or
non-responding suppliers or to develop contingency plans where needed. We depend
on third-party trucking companies to deliver finished products from our
factories to our customers. None of Lennox Industries' trucking contractors is
individually critical to our business. About 125 different trucking companies
handle 95% of Lennox Industries' distribution. We have communicated with
approximately 50 of the largest trucking contractors and received assurances
that they will not have service disruptions due to the Year 2000. Our
manufacturing facilities are highly dependent on public utilities, especially
electrical power, natural gas, water and communications companies. 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,
and we have not developed adequate contingency plans, then there could be an
adverse effect on our results of operations at any facility affected by these
problems. 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.
28
<PAGE> 32
We believe that our most reasonably likely worst case scenario is some
short-term, localized disruptions of systems, transportation or suppliers that
will affect an individual business operation, rather than broad-based and
long-term problems that affect operating segments or our operations as a whole.
For the most part, our manufacturing processes are not affected by Year 2000
issues. The most significant uncertainties relate to critical suppliers,
particularly electrical power, water, natural gas and communications companies,
and suppliers of parts that are vital to the continuity of our operations. Where
possible, contingency plans are being formulated and put into place for all
critical suppliers. These plans include developing the necessary safety stock
levels for single source items. These contingency plans should be completed by
October 1999.
Our estimated cost to become Year 2000 compliant is approximately $7.5
million, of which we have already spent approximately $3.4 million. All of these
expenses will reduce our net income. Of the $7.5 million in total costs,
approximately $5.1 million relates to application software, including consulting
and training relating to the software, of which approximately $2.8 million has
been spent to date. The remaining $2.3 million in total estimated costs relates
to infrastructure and hardware, of which approximately $0.7 million has been
spent and the remaining $1.6 million is expected to be expensed over a
three-year period. The costs of application and infrastructure changes made for
reasons other than the Year 2000 and which were not accelerated are not included
in these estimates. We have not deferred any significant information technology
projects because of our response to Year 2000 issues. All Year 2000 costs are
being funded from our operating cash flows. These costs are generally not
incremental to existing information technology budgets.
The total costs, anticipated impact and the expected dates to complete the
various phases of the project are based on our best estimates using assumptions
about future events. However, no assurance can be given that actual results will
be consistent with such estimates and, therefore, actual costs, completion dates
and impact may differ materially from the plans. See "Special Note Regarding
Forward-Looking Statements."
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.
29
<PAGE> 33
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
30
<PAGE> 34
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
31
<PAGE> 35
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
32
<PAGE> 36
- 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, 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
33
<PAGE> 37
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
acquired Livernois Engineering Holding Company and related patents in May 1999
which provides 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 implemented advanced manufacturing
techniques and created programs to incentivize our employees to reduce
production cycle lead times to a week in many of our manufacturing facilities,
compared to lead times of 90 days or more before the introduction of such
concepts. These programs have not only led to improvements in inventory
turnover, but also reductions in controllable working capital, which we define
as inventories plus trade accounts receivables less accounts payable. From
January 1996 to December 1998, controllable working capital as a percent of
sales has declined from 36.1% to 26.7%, a reduction of 9.4%. If controllable
working capital management had not improved, we estimate that our investment in
working capital would have been approximately $170 million higher at December
31, 1998, which is based on the 9.4% improvement multiplied by 1998 net sales.
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. We continually review acquisition
candidates but do not have any agreements or commitments with respect to any
significant acquisitions except for the acquisition of North American heating
and air conditioning dealers described below. 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
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<PAGE> 38
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 May 18, 1999 we had acquired 43
dealers in Canada for an aggregate purchase price of approximately $62 million
and had signed letters of intent to acquire ten additional Canadian and two U.S.
dealers for an aggregate purchase price of approximately $27 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 retirement and other benefits in exchange for agreeing that
at least 75% of their residential heating and air conditioning purchases will be
of our products and for granting us a right of first refusal to acquire their
businesses. As of May 18, 1999, 382 dealers in the U.S. and Canada were
participating in our associate dealer program. 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 $112.0 million in 1996 to
$349.5 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.
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<PAGE> 39
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 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 a number 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 connection 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
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<PAGE> 40
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.
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 102.5 million
French francs, or 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 these countries and in 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.
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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 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
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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 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.
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 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
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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 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. No patent which we consider
material will expire in the next five years. We own several trademarks that we
consider important in the marketing of our products, including Lennox(R),
Heatcraft(R), CompleteHeat(R), Raised Lance(TM), 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(TM),
Alcair(TM) and Friga-Bohn(TM). These trademarks have no fixed expiration dates
and we believe our rights in these trademarks are adequately protected.
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
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consolidators and utility companies. Our 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. At our significant manufacturing facilities, one collective
bargaining agreement expires in December 1999 -- Lynwood, California. Three
collective bargaining agreements expire in 2000 -- Marshalltown, Iowa,
Burlington, Washington and Atlanta, Georgia -- and three expire in
2002 -- Bellevue, Ohio, Danville, Illinois and Union City, Tennessee. Following
the expiration of the collective bargaining agreement in April 1999, we
experienced a work stoppage at our Bellevue, Ohio factory for three weeks in May
1999. This facility has a new collective bargaining agreement that expires April
2002. 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 agreement at our facility in Laval, Quebec expires in
December 1999 and the agreement at our facility in Burgos, Spain expires in
2000. The agreement at our facility in Toronto, Ontario expired in April 1999
and, as has been the case in the past, the employees at this facility are
continuing to work under the expired contract pending negotiation of a new
agreement. 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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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 Owned
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 55 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 specified
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, together 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> 47
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 under 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, under 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.
From time to time we have 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, the Envirochem Third Site in Illinois and the Operating
Industries site in California. 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 at the site over the next few years. Total estimated exposure
costs at the Envirochem Third Site are approximately $30,000. Marco Mfg., an
indirect subsidiary of Lennox, is one of more than 4,000 companies identified as
potentially responsible parties for the Operating Industries site. In June 1998,
Marco Mfg. received a settlement offer from the Operating Industries steering
committee to settle its liability as a de minimis party for approximately
$60,000. Marco rejected the settlement offer and has no reason to believe that
its ultimate liability will exceed the proposed settlement amount. Based on the
facts presently known, we do not believe that environmental cleanup costs
associated with these three Superfund sites will have a material adverse effect
on our financial position or results of operations.
44
<PAGE> 48
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.
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> 49
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
Thomas W. Booth........................... 41 Director
David V. Brown............................ 51 Director
James J. Byrne............................ 63 Director
Janet K. Cooper........................... 44 Director
Thomas B. Howard, Jr. .................... 70 Director
John E. Major............................. 53 Director
Donald E. Miller.......................... 68 Director
Terry D. Stinson.......................... 57 Director
Richard L. Thompson....................... 59 Director
</TABLE>
There is currently one vacancy on our board of directors which we expect to
fill with a non-employee director. 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., a
subsidiary of Lennox, 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., a life insurance and annuity company, and Metroplex Regional
Advisory Board of Chase Bank of Texas, NA.
H. E. French is the President and Chief Operating Officer of Heatcraft
Inc., a subsidiary of Lennox. 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., a subsidiary of Lennox. 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., a subsidiary of Lennox, 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
46
<PAGE> 50
subsidiary. From 1991 to 1995 he 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, a HVACR manufacturer, 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., a subsidiary of Lennox, and President, European Operations. Prior
to joining Lennox, Mr. Boxer spent 26 years with York International Corporation,
a HVACR manufacturer, 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., a worldwide
supplier of specialized building products and engineering services for the
commercial construction industry, 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.), a manufacturer of filtration equipment, from 1985 to 1990. In 1965, Mr.
Wyant began his career with Helmerich & Payne Inc., an oil service company,
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, a diversified mining company, US West Communications,
Inc., a telecommunications company, Englehard Corporation, a commercial catalyst
and pigments company, and Pitney Bowes Inc., an office equipment and services
company, and is part owner of the Colorado Rockies Baseball Club.
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<PAGE> 51
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.
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, a casualty insurance company, and is a member
of the board of trustees of Grinnell College.
Thomas W. Booth has served as a director of Lennox since April 1999. Since
1997, Mr. Booth has been the Director, Business Development of Heatcraft Inc.
Mr. Booth joined Lennox in 1984 and has served in various capacities including
the District Manager for the Baltimore/Virginia sales branch of Lennox
Industries from 1994 to 1997.
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, an
educational organization for training camp advisors.
James J. Byrne has served as a director of Lennox since 1990. He has been a
managing partner of Byrne Technology Partners, Ltd., a management services
company for technology companies, since January 1996. Prior to his current role,
he held a number of positions in the technology industry including President of
Harris Adacom Corporation, a network products and services company, Senior Vice
President of United Technologies Corporation's Semiconductor Operation and
President of North American group of Mohawk Data Sciences, a manufacturer of
distributed computer products. Mr. Byrne began his career with General Electric
Company. Mr. Byrne is a Director of STB Systems Inc., a developer of video
boards for personal computer manufacturers, and ICARUS International, Inc., a
developer of engineering software.
Janet K. Cooper has served as a director of Lennox since April 1999. Ms.
Cooper has been the Vice President and Treasurer of US West, Inc., a regional
Bell operating company, since 1998. From 1978 to 1998, Ms. Cooper served in
various capacities with The Quaker Oats Company, including its Vice President,
Treasurer & Tax from 1992 to 1998. Ms. Cooper serves on the board of directors
of The TORO Company, a manufacturer of equipment for lawn and turf care
maintenance.
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.), a manufacturer of
construction materials. 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 which operates a network
operation center, 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., a manufacturer of telecommunications equipment, 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., a manufacturer of fuses, and Verilink Corporation, a
manufacturer of network access devices.
Donald E. Miller has served as a director of Lennox since 1987. Mr. Miller
spent his 35 year career with The Gates Corporation, an industrial and
automotive rubber products manufacturer. He retired as Vice
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<PAGE> 52
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, a mutual
insurance company, OEA, Inc., a company engaged in specialized automotive and
aerospace technologies, and Chateau Communities Inc., a real estate investment
trust, and is the President of the Board of Colorado School of Mines Foundation.
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., the aircraft segment of Textron Inc., a multi-industry corporation, 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, a
defense supply company, since 1986.
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., a manufacturer of construction and
mining equipment. 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 and manufacturer of gas turbines. 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, a manufacturer of electrical distribution
products.
John W. Norris, Jr., Richard W. Booth, David H. Anderson and David V. Brown
are all grandchildren of D.W. Norris, and Thomas W. Booth is a great grandchild
of D.W. Norris. John W. Norris, Jr., David V. Brown, Richard W. Booth and David
H. Anderson are first cousins. Richard W. Booth is the father of Thomas W.
Booth.
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 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 Janet K. Cooper, Terry D. Stinson and Richard L.
Thompson. The class whose term of office will expire at our 2002 Annual Meeting
of Stockholders consists of David H. Anderson, Thomas W. Booth, James J. Byrne,
Donald E. Miller and John W. Norris, Jr.
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, Janet K. Cooper, Donald E. Miller and Terry D.
Stinson.
The acquisition committee is responsible for evaluating potential
acquisitions and making recommendations on proposed acquisitions. The following
directors currently serve on the acquisition committee: Donald E. Miller
(chair), David H. Anderson, Janet K. Cooper, Thomas B. Howard, Jr., Terry D.
Stinson and Richard L. Thompson.
The board operations committee is responsible for making recommendations on
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), David V. Brown, James J. Byrne, Janet K. Cooper and Terry D. Stinson.
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
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<PAGE> 53
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 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, John E. Major 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, Thomas W. Booth and
Donald E. Miller.
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 of the board. 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 of the board. In addition, each non-employee
director may receive, under 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. 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>
50
<PAGE> 54
- ---------------
(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 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 about performance share awards made under
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 its profit sharing retirement plan
and to 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 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 using 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> 55
The following table provides 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 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 performance targets based on the average return
on equity for a three year period. Information about the portion of the award
that becomes vested regardless of whether the performance goals are met is
presented under the Restricted Stock Awards column in the table titled "Summary
Compensation Table." Presented 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 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 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 or performance awards or any combination of these awards. 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> 56
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.
Our compensation committee will have the exclusive authority to administer
the 1998 incentive plan as it relates to employee awards 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 under 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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<PAGE> 57
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. 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 to any award may be made without the consent of such employee or
non-employee director; and
- no amendment requiring stockholder approval under 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 our
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
- the limitations in the 1998 incentive plan regarding the number of awards
which may be made to any employee in a given year.
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<PAGE> 58
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 of the awards.
RETIREMENT PLANS
The named executive officers participate in four Lennox-sponsored
retirement plans. The plans are as follows: the pension plan for salaried
employees, the profit sharing retirement plan, the supplemental retirement plan,
and the 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 specified 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 our 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.
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.
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<PAGE> 59
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 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 afterwards for a series of
one-year terms. On January 1 of each year after the end of the first term and
for each year afterwards, 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, 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 by the existing
employment agreements. 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 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.
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<PAGE> 60
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 specified 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 specified 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 specified 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 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 specified 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.
If an officer terminates employment during the term of the change of
control agreement for good reason 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;
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<PAGE> 61
- a lump-sum benefit equal to the sum of three times the officer's annual
base salary and three times the annual bonus 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 of these
awards 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:
- we have no right of offset;
- the officer is not required to mitigate damages; and
- 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 specified 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 a
number 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 at a future time
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;
- 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
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<PAGE> 62
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. In some cases, the nature of the
procedures specified in the indemnification agreements varies depending on
whether we have undergone a change in control.
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<PAGE> 63
PRINCIPAL AND SELLING STOCKHOLDERS
The following table contains information regarding the beneficial ownership
of our common stock as of April 30, 1999 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 of their shares unless otherwise
indicated.
The information contained in this table reflects "beneficial ownership" as
defined in Rule 13d-3 of the Securities Exchange Act of 1934. 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 April 30, 1999 or became exercisable within 60 days
following April 30, 1999 are considered outstanding. However, such shares are
not considered 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 over 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 April 30, 1999 and shares of common stock outstanding
after the completion of the offering assuming no exercise of the underwriters'
over-allotment option. As of April 30, 1999, we had approximately
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)................ 14.4
Thomas W. Booth(6)................. 7.8
David V. Brown(7).................. 3.7
James J. Byrne(8).................. *
Janet K. Cooper.................... --
Thomas B. Howard, Jr.(9)........... *
John E. Major(10).................. *
Donald E. Miller(11)............... *
Terry D. Stinson................... --
Richard L. Thompson(12)............ *
All executive officers and
directors as a group (22
persons)(13)..................... 46.9
Robert W. Norris(14)............... 7.0
A.O.C. Corporation(15)............. 7.6
</TABLE>
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<PAGE> 64
- ---------------
* 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 a trust for the benefit of Richard W. Booth of which
Thomas W. Booth is a co-trustee;
(b) shares held by a trust for the benefit of Richard W. Booth of which
Thomas W. Booth is a co-trustee.
(c) shares held by the Thomas W. Booth Trust of which Thomas W. Booth is
the trustee; and
(d) shares held by Thomas W. Booth's children.
(7) Includes:
(a) shares held by David V. Brown's children; and
(b) shares subject to options.
(8) Includes shares subject to options.
(9) 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.
(10) Includes shares subject to options.
(11) 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.
(12) Includes shares subject to options.
(13) Includes shares subject to options.
(14) 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.
(15) 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.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
John W. Norris, Jr., our Chairman and Chief Executive Officer, and David H.
Anderson, Richard W. Booth and David V. Brown, each one of our directors, as
well as some 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 as 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 our 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 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 completion of
the offering.
These 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 under our 1998
incentive plan. See "Management -- 1998 Incentive Plan" for a description of the
1998 incentive plan. None of the preferred stock is outstanding.
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 specified business combinations
and amendments to specified 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.
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.
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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, for the series, the designations,
powers, preferences and rights of such series, and the qualifications,
limitations and restrictions of the series, 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 the series;
- the voting rights, if any, of the holders of shares of the 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 our board of directors, an acquisition
attempt through which such acquiror may be able to change the composition of our
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 specified business combinations between us and an "interested
stockholder" or its affiliates or associates for a period of three years
following the time that the stockholder becomes an "interested stockholder." In
general, an "interested stockholder" is defined as a stockholder owning 15% or
more of our outstanding voting stock. 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;
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- upon completion 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 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 some 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 under Section 203. 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 below describes provisions of our certificate of incorporation
and bylaws. 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.
Our bylaws provide that the number of directors will be fixed from time to
time by 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, our 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
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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 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 our board of directors by
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 under 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 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. However, 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
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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 our board of directors an opportunity to consider
the qualifications of the proposed nominees and, to the extent considered
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 considered
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 regarding 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 specified 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 specified 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, which is referred to as 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;
- 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
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- 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; 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 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 specified 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
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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 of them 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
Our common stock has been approved for listing on the New York Stock
Exchange under the trading symbol "LII," subject to official notice of issuance.
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, except that shares
purchased by an "affiliate" of ours, as that term is defined in Rule 144 under
the Securities Act of 1933, 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 these 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 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 above 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.
This 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 a number of other 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 written consent of Morgan Stanley & Co.
Incorporated. See "Underwriters" for a discussion of these prohibitions.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES FOR NON-U.S. HOLDERS
The following is a summary of the 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,
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 a
lower rate that is specified by an applicable income tax treaty. However, if
dividends are effectively connected with the conduct of a trade or business by
the Non-U.S. Holder in the U.S. they may be taxed at ordinary U.S. federal
income tax rates and will not be subject to the withholding tax described above.
In order for this treatment to apply, the Non-U.S. Holder must provide the
dividend payor with proper documentation, consisting generally of I.R.S. Form
4224 and, if an income tax treaty is applicable, must maintain a U.S. permanent
establishment to which the dividends are attributable. 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 a lower rate that is 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
70
<PAGE> 74
- 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, 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 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 it will not apply to
dividends paid to Non-U.S. Holders if such dividends are subject to the 30% or
lower treaty rate withholding discussed above. 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, 2001
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, 2001, if certain certification procedures or documentation
requirements 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 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, but, prior to January 1,
2001, the broker need not withhold. 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 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.
71
<PAGE> 75
UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, 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 number of shares
indicated 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, and the U.S.
representatives and the international representatives, are collectively referred
to as the "underwriters" and the "representatives", respectively. The
underwriters are offering the shares of common stock subject to their acceptance
of the shares from us and the selling stockholders and subject to prior sale.
The underwriting agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the shares of common stock
offered
72
<PAGE> 76
by this prospectus 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 common stock offered by this prospectus, other
than those covered by the U.S. underwriters' over-allotment option described
below, if any such shares are taken.
In the agreement between U.S. and international underwriters, each U.S.
underwriter has represented and agreed that:
- it is not purchasing any shares for the account of anyone other than a
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 outside the U.S. or Canada or to anyone other than a U.S. or
Canadian person.
In the agreement between U.S. and international underwriters, each
international underwriter has represented and agreed that:
- 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, any shares or
distribute any prospectus relating to the shares in the U.S. or Canada or
to any U.S. or Canadian person.
For any underwriter that is both a U.S. underwriter and an international
underwriter, the 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 limitations described above do not
apply to stabilization transactions or to certain other transactions specified
in the agreement between U.S. and international underwriters. As used in this
section, "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 of the U.S. or Canada (other than a branch located outside the U.S.
and Canada of any U.S. or Canadian person). U.S. or Canadian person includes any
U.S. or Canadian branch of a person who is otherwise not a U.S. or Canadian
person.
In the agreement between U.S. and international underwriters, sales may be
made between U.S. underwriters and international underwriters of any number of
shares as may be mutually agreed. The per share price of any shares sold by the
underwriters shall be the public offering price listed on the cover page of this
prospectus, in U.S. dollars, less an amount not greater than the per share
amount of the concession to dealers described below.
In 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 of Canada. Each
U.S. underwriter 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 the 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 that, by purchasing such shares, the dealer
represents and agrees that it has not offered or sold, and will not offer or
sell, directly or indirectly, any 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
the offer or sale is made. Each dealer will deliver to any other dealer to whom
it sells any of the shares a notice containing substantially the same Canadian
restrictions.
In 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
73
<PAGE> 77
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 and will distribute any document relating to the shares in the
United Kingdom only 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.
In 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 in Japan or to or for the account of
any resident of Japan, any of the shares. This limitation does not apply to
offers or sales to Japanese international underwriters or dealers and to offers
and sales 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 the shares, the dealer agrees that any offer or
sales of shares in Japan will be made only to Japanese international
underwriters or dealers or under an exemption from the registration requirements
of the Securities and Exchange Law and otherwise in compliance with applicable
provisions of Japanese law. Each dealer will send to any other dealer to whom it
sells any shares a notice containing substantially the same Japanese selling
restrictions.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price listed on the cover
page of this prospectus 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 listed on the
cover page of this prospectus, less underwriting discounts and commissions. The
U.S. underwriters may exercise this option solely for the purpose of covering
over-allotments, if any, made in connection with the offering of the shares of
common stock offered by this prospectus. To the extent the option is exercised,
each U.S. underwriter will become obligated, subject to certain conditions, to
purchase about the same percentage of the additional shares of common stock as
the number listed next to such U.S. underwriter's name in the preceding table
bears to the total number of shares of common stock listed 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 would be $ , the total
underwriters' discounts and commissions would be $ and 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 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 these persons purchase 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 under this prospectus.
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.
Our common stock has been approved for listing on the New York Stock
Exchange under the trading symbol "LII," subject to official notice of issuance.
74
<PAGE> 78
Each of Lennox and the directors, executive officers, the selling
stockholders and certain other stockholders of Lennox 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 transaction described above is to be settled by delivery of common
stock or such other securities, in cash or otherwise. However, any such person
or entity may make a bona fide gift of shares during the restricted period if
the 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 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 of the shares;
- the issuance or sale of shares of common stock pursuant to Lennox stock
option plans existing on the date of completion of the offering; or
- the issuance of up to shares of common stock in connection with
acquisitions.
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 over-allot in
connection with the offering, creating a short position in the common stock for
their own account. In addition, to cover 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.
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 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
75
<PAGE> 79
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 offering 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 which is included in this prospectus, and are included in this prospectus
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 for
the common stock offered by this prospectus. This prospectus does not contain
all of the information included in the registration statement and the exhibits
and schedules of the registration statement. 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 with the
registration statement. Statements contained in this prospectus as to the
contents of any contract or other document that is required to be summarized or
outlined in the prospectus 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 its exhibits and schedules, 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 its exhibits and
schedules.
As a result of the offering, we will become subject to the full
informational requirements of the Securities Exchange Act of 1934. We will
fulfill our obligations under 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.
76
<PAGE> 80
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTERIM FINANCIAL STATEMENTS OF LENNOX INTERNATIONAL INC.
(unaudited)
Consolidated Balance Sheets as of December 31, 1998 and
March 31, 1999......................................... F-2
Consolidated Statements of Income for the Three Months
Ended March 31, 1998 and 1999.......................... F-3
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1998
and 1999............................................... F-4
Notes to Consolidated Financial Statements -- Three Months
Ended March 31, 1998
and 1999............................................... F-5
ANNUAL FINANCIAL STATEMENTS OF LENNOX INTERNATIONAL INC.
Report of Independent Public Accountants.................. F-10
Consolidated Balance Sheets as of December 31, 1997 and
1998................................................... F-11
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1997 and 1998....................... F-12
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1996, 1997 and 1998........... F-13
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998....................... F-14
Notes to Consolidated Financial Statements................ F-15
</TABLE>
F-1
<PAGE> 81
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND MARCH 31, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 28,389 $ 30,262
Accounts and notes receivable, net........................ 318,858 374,574
Inventories............................................... 274,679 323,962
Deferred income taxes..................................... 37,426 36,953
Other assets.............................................. 36,183 31,454
---------- ----------
Total current assets.............................. 695,535 797,205
INVESTMENTS IN JOINT VENTURES............................... 17,261 12,848
PROPERTY, PLANT, AND EQUIPMENT, net......................... 255,125 265,903
GOODWILL, net............................................... 155,290 186,630
OTHER ASSETS................................................ 29,741 29,948
---------- ----------
TOTAL ASSETS...................................... $1,152,952 $1,292,534
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt........................................... $ 56,070 $ 189,766
Current maturities of long-term debt...................... 18,778 26,660
Accounts payable.......................................... 149,824 175,308
Accrued expenses.......................................... 207,040 188,473
Income taxes payable...................................... 534 1,719
---------- ----------
Total current liabilities......................... 432,246 581,926
LONG-TERM DEBT.............................................. 242,593 233,495
DEFERRED INCOME TAXES....................................... 11,628 12,179
POSTRETIREMENT BENEFITS, OTHER THAN PENSIONS................ 16,511 16,706
OTHER LIABILITIES........................................... 60,845 61,318
---------- ----------
Total liabilities................................. 763,823 905,624
---------- ----------
MINORITY INTEREST........................................... 12,689 12,591
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 25 million shares
authorized, no shares issued or outstanding............ -- --
Common stock, $.01 par value, 200 million shares
authorized, 1,077,180 shares and 1,077,629 shares
issued and outstanding for 1998 and 1999,
respectively........................................... 11 11
Additional paid-in capital................................ 33,233 33,431
Retained earnings......................................... 350,851 354,444
Currency translation adjustments.......................... (7,655) (13,567)
---------- ----------
Total stockholders' equity........................ 376,440 374,319
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $1,152,952 $1,292,534
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE> 82
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
MARCH 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
NET SALES................................................... $379,646 $489,059
COST OF GOODS SOLD.......................................... 261,802 337,481
-------- --------
Gross profit...................................... 117,844 151,578
OPERATING EXPENSES:
Selling, general and administrative....................... 97,255 129,268
Other operating expense, net.............................. 2,612 2,518
-------- --------
Income from operations............................ 17,977 19,792
INTEREST EXPENSE, net....................................... 2,620 6,558
OTHER....................................................... 230..... (211)
MINORITY INTEREST........................................... (502) (516)
-------- --------
Income before income taxes........................ 15,629 13,961
PROVISION FOR INCOME TAXES.................................. 7,323 7,331
-------- --------
Net income........................................ $ 8,306 $ 6,630
======== ========
EARNINGS PER SHARE:
Basic..................................................... $ 7.96 $ 6.16
Diluted................................................... $ 7.81 $ 6.02
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 83
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
MARCH 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 8,306 $ 6,630
Adjustments to reconcile net income to net cash used in
operating activities --
Minority interest..................................... (502) (516)
Joint venture losses.................................. 1,158 1,088
Depreciation and amortization......................... 9,787 13,502
Loss on disposal of equipment......................... 27 18
Other................................................. 6,457 1,969
Changes in assets and liabilities, net of effects of
acquisitions --
Accounts and notes receivable......................... (11,272) (45,900)
Inventories........................................... (37,466) (38,763)
Other current assets.................................. 1,706 (2,660)
Accounts payable...................................... 30,385 22,004
Accrued expenses...................................... (35,136) (16,540)
Deferred income taxes................................. (718) 1,145
Income taxes payable and receivable................... 5,281 7,048
Long-term warranty, deferred income and other
liabilities.......................................... (9,702) (6,269)
-------- --------
Net cash used in operating activities.............. (31,689) (57,244)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the disposal of property, plant and
equipment............................................... 8 35
Purchases of property, plant and equipment................ (12,316) (20,050)
Acquisitions, net of cash acquired........................ (1,360) (51,145)
-------- --------
Net cash used in investing activities.............. (13,668) (71,160)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings..................................... 2,575 134,536
Repayments of long-term debt.............................. (4,723) (701)
Long-term borrowings...................................... 75,000 --
Sales of common stock..................................... 932 249
Repurchases of common stock............................... (2,050) (131)
Cash dividends paid....................................... (2,569) (3,038)
-------- --------
Net cash provided by financing activities.......... 69,165 130,915
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS....................... 23,808 2,511
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS....... 14 (638)
CASH AND CASH EQUIVALENTS, beginning of period.............. 147,802 28,389
-------- --------
CASH AND CASH EQUIVALENTS, end of period.................... $171,624 $ 30,262
======== ========
Supplementary disclosures of cash flow information:
Cash paid during the period for:
Interest................................................ $ 2,238 $ 2,487
======== ========
Income taxes............................................ $ 2,760 $ 38
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 84
LENNOX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1999
(UNAUDITED)
1. BASIS OF PRESENTATION AND OTHER ACCOUNTING INFORMATION
The accompanying unaudited consolidated balance sheet as of March 31, 1999,
and the consolidated statements of income and cash flows for the three months
ended March 31, 1998 and 1999 should be read in conjunction with Lennox
International Inc.'s (the "Company") consolidated financial statements and
accompanying footnotes as of December 31, 1997 and 1998 and for each of the
three years in the period ended December 31, 1998 included elsewhere herein. In
the opinion of management, the accompanying consolidated financial statements
contain all material adjustments, consisting principally of normal recurring
adjustments, necessary for a fair presentation of the Company's financial
position, results of operations, and cash flows. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to applicable rules and regulations, although the Company
believes that the disclosures herein are adequate to make the information
presented not misleading. The operating results for the interim periods are not
necessarily indicative of the results to be expected for a full year.
The Company's fiscal year ends on December 31 of each year, and the
Company's fiscal quarters are each comprised of 13 weeks. For convenience,
throughout these financial statements, the 13 weeks comprising each three month
period are denoted by the last day of the respective calendar quarter.
2. 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 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, 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 March 31, 1999, the Company had incurred approximately $126.4 million
in costs related to the product inspection program. Consequently, there is a
current liability of $13.6 million recorded on the accompanying consolidated
balance sheet as of March 31, 1999 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 $13.6 million is adequate to cover the
remaining costs of the program.
3. 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
F-5
<PAGE> 85
LENNOX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 THREE MONTHS
ENDED MARCH 31,
---------------------
NET SALES 1998 1999
- --------- --------- ---------
<S> <C> <C>
North American residential.............................. $203,646 $284,924
Commercial air conditioning............................. 81,800 92,468
Commercial refrigeration................................ 47,900 61,598
Heat transfer*.......................................... 46,300 50,069
-------- --------
$379,646 $489,059
======== ========
</TABLE>
- ---------------
* The Heat Transfer segment had intersegment sales of $6,662 and $6,587 in 1998
and 1999, respectively.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
INCOME (LOSS) FROM OPERATIONS 1998 1999
- ----------------------------- --------- ---------
<S> <C> <C>
North American residential................................ $20,900 $24,589
Commercial air conditioning............................... (3,400) (1,934)
Commercial refrigeration.................................. 4,100 2,306
Heat transfer............................................. 3,400 3,239
Corporate and other....................................... (7,023) (8,408)
------- -------
$17,977 $19,792
======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
IDENTIFIABLE ASSETS 1998 1999
- ------------------- ------------------ ---------------
<S> <C> <C>
North American residential.................... $ 528,660 $ 625,411
Commercial air conditioning................... 198,982 218,521
Commercial refrigeration...................... 194,601 198,755
Heat transfer................................. 88,633 102,875
Corporate and other........................... 142,076 146,972
---------- ----------
$1,152,952 $1,292,534
========== ==========
</TABLE>
4. INVENTORIES:
Components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ---------
<S> <C> <C>
Finished goods....................................... $177,490 $226,258
Repair parts......................................... 31,674 31,093
Work in process...................................... 15,574 17,431
Raw materials........................................ 102,876 97,747
-------- --------
327,614 372,529
Reduction for last-in, first-out..................... 52,935 48,567
-------- --------
$274,679 $323,962
======== ========
</TABLE>
F-6
<PAGE> 86
LENNOX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT AND LINES OF CREDIT:
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ---------
<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.................... 24,600 24,600
5.75% promissory note, payable in 1999............... 951 876
5.84% promissory note, payable in 2000............... 2,275 2,113
4.80% promissory note, payable annually through
2004............................................... 1,119 1,031
6.50% promissory note, payable annually 1999 through
2005............................................... 1,382 1,259
5.50% promissory note, payable annually through
2004............................................... 639 582
6.50% promissory note, payable annually through
2003............................................... 371 341
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 25,000
6.75% promissory note, payable in 2008............... 50,000 50,000
11.10% mortgage note, payable semiannually through
2000............................................... 7,547 7,135
Texas Housing Opportunity Fund, Ltd. note, payable
in 1999............................................ 109 --
Capitalized lease obligations and other.............. 6,378 6,218
-------- --------
261,371 260,155
Less current maturities.............................. 18,778 26,660
-------- --------
$242,593 $233,495
======== ========
</TABLE>
On March 16, 1999, the Company entered into a short-term loan agreement
with a bank pursuant to which the Company may borrow up to $115 million. On
March 31, 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 short-term loan
agreement expires upon the earlier of the completion of the Company's initial
public offering or December 31, 1999.
The Company has bank lines of credit and short-term loans aggregating $279
million, of which $190 million was outstanding at March 31, 1999. 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.
6. 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-7
<PAGE> 87
LENNOX INTERNATIONAL INC.
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 amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1998 1999
------- -------
<S> <C> <C>
Net income................................................. $8,306 $6,630
====== ======
Weighted average shares outstanding........................ 1,044 1,077
Effect of assumed exercise of options...................... 20 25
------ ------
Weighted average shares outstanding, as adjusted......... 1,064 1,102
====== ======
Diluted earnings per share................................. $ 7.81 $ 6.02
====== ======
</TABLE>
7. INVESTMENTS IN SUBSIDIARIES
SECURITY CHIMNEY
In January 1999, the Company acquired the outstanding stock of Security
Chimney International LTD, a Canadian company engaged in the manufacture and
sale of sheet metal products for the hearth products industry and also wood
burning stoves. The purchase price of $13.0 million was paid in cash has been
allocated to the acquired assets and liabilities based upon fair market value
with $3.5 million allocated to goodwill. The goodwill will be amortized over 40
years. The acquisition was accounted for in accordance with the purchase method
of accounting. The results of operations have been fully consolidated with those
of the Company since the date of acquisition.
CANADIAN DEALERS
During the first quarter of 1999, the Company acquired the outstanding
stock of 22 dealers (the "Dealers") in Canada that had been independent retail
outlets of the Company's products. The aggregate purchase price of the Dealers
was $34.1 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 based upon fair
market value, and the excess of $24.8 million has been allocated to goodwill,
which is being amortized over 40 years. The results of operations for the
Dealers have been fully consolidated with those of the Company since the dates
of acquisition.
HART-GREER
During January of 1999, the Company acquired the assets of Hart-Greer Ltd.,
Inc. which had been an independent distributor of the Company's products. The
purchase price of $4.9 million in cash has been allocated to the assets and
liabilities based upon fair market value, and there was no goodwill recorded in
conjunction with the acquisition. This acquisition was accounted for in
accordance with the purchase method of accounting. The results of operations
have been fully consolidated with those of the Company since the date of
acquisition.
F-8
<PAGE> 88
LENNOX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents the pro forma results as if the above
companies had been acquired on January 1, 1998 (in thousands, except per share
data):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
--------------------------
1998 1999
-------- --------
<S> <C> <C>
Net sales........................................ $416,346 $493,259
Net income....................................... 10,306 6,730
Basic earnings per share......................... 9.87 6.25
Diluted earnings per share....................... 9.69 6.11
</TABLE>
8. SUBSEQUENT EVENTS
The Company experienced a work stoppage at the Bellevue, Ohio factory for
three weeks in May 1999. This factory manufactures the Company's "Armstrong Air"
brand of residential heating and air conditioning products for the North
American market. On May 20, 1999, the union at the Bellevue, Ohio factory
ratified a new collective bargaining agreement that expires April 2002, and this
factory resumed full production within two business days.
Subsequent to March 31, 1999, the Company acquired Livernois Engineering
Holding Company and its licensed patents for approximately $21 million.
Livernois produces heat transfer manufacturing equipment for the HVACR and
automotive industries.
Between April 1, 1999, and May 18, 1999, the Company had acquired 7 dealers
in Canada for an aggregate purchase price of approximately $5 million in cash.
The Company also signed letters of intent to acquire ten additional Canadian
dealers and two U.S. dealers for an aggregate purchase price of approximately
$27 million.
The Company has entered into an agreement to buy the remaining 30% interest
in Ets. Brancher for 102.5 million French francs (approximately $17 million) on
March 31, 2000.
F-9
<PAGE> 89
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-10
<PAGE> 90
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-11
<PAGE> 91
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-12
<PAGE> 92
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-13
<PAGE> 93
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
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)
Deferred income taxes................................ (5,103) (42,195) 26,424
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-14
<PAGE> 94
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-15
<PAGE> 95
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>
Buildings and improvements.................................. 10 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.
The Company periodically reviews long-lived assets and identifiable
intangibles for impairment as events or changes in circumstances indicate that
the carrying amount of such assets may not be recoverable. In order to assess
recoverability, the Company compares the estimated expected future cash flows
(undiscounted and without interest charges) identified with each long-lived
asset or related asset grouping to the carrying amount of such assets. For
purposes of such comparisons, portions of goodwill are attributed to related
long-lived assets and identifiable intangible assets based upon relative fair
values of such assets at acquisition. If the expected future cash flows do not
exceed the carrying value of the asset or assets being reviewed, an impairment
loss is recognized based on the excess of the carrying amount of the impaired
assets over their fair value. As a result of these periodic reviews, there have
been no adjustments to the carrying value of long-lived assets, identifiable
intangibles, or goodwill 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 Company
recorded warranty expense of $14.6 million, $17.7 million and $15.6 million for
the years ended December 31, 1996, 1997, and 1998, respectively.
The Company's estimate of future warranty costs is determined for each
product line. The number of units that are expected to be repaired or replaced
is determined by applying the estimated failure rate, which is generally based
on historical experience, to the number of units that have been sold and are
still under warranty. The estimated units to be repaired under warranty are
multiplied by the average cost (undiscounted) to repair or replace such products
to determine the Company's estimated future warranty cost. The Company's
estimated future warranty cost is subject to adjustment from time to time
depending on actual experience.
F-16
<PAGE> 96
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. 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.
F-17
<PAGE> 97
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. The
Company has entered into contracts to sell 165.5 million French francs on May 7,
2003 for $31.7 million. The fair value of these contracts was approximately $4.1
million and $2.1 million as of December 31, 1997 and 1998, respectively.
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. The fair values of such contracts
were insignificant as of December 31, 1998.
PURCHASE COMMITMENTS
The Company has contracts with various suppliers to purchase copper and
aluminum for use in its manufacturing processes. As of December 31, 1998, the
Company had contracts to purchase 19.8 million pounds of copper over the next 24
months at fixed prices that average $0.76 per pound ($15.1 million) and
contracts to purchase 6 million pounds of copper at a variable price equal to
the COMEX copper price ($0.72 per pound at December 31, 1998) over the next 12
months. The Company also had contracts to purchase 23.4 million pounds of
aluminum at $0.68 per pound ($15.9 million) over the next 12 months. The fair
value of the copper and aluminum purchase commitments was insignificant as of
December 31, 1997 and was a liability of $2.6 million at December 31, 1998.
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
F-18
<PAGE> 98
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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(1)....................... 142,914 146,211 178,772
---------- ---------- ----------
$1,364,546 $1,444,442 $1,821,836
========== ========== ==========
</TABLE>
<TABLE>
<S> <C> <C> <C>
Income (Loss) from Operations
North American residential(2)........ $ 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(3)............... (20,621) (24,508) (43,327)
---------- ---------- ----------
$ 100,588 $ (35,239) $ 106,603
========== ========== ==========
</TABLE>
<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(4).............................. 248,890 142,076
-------- ----------
$970,892 $1,152,952
======== ==========
</TABLE>
- ---------------
(1) The Heat transfer segment had intersegment sales of $34,911, $23,571, and
$32,307 in 1996, 1997, and 1998, respectively.
(2) Includes a $140.0 million charge in 1997 related to a product inspection
program (see Note 3).
(3) The increase in corporate and other from 1997 to 1998 is primarily due to
$7.1 million of expense for the settlement of a lawsuit in 1998 and $4.6
million associated with increased expenses of the Company's Performance
Plan.
(4) The decrease in corporate and other is primarily due to a reduction in cash
and cash equivalents of approximately $120 million.
F-19
<PAGE> 99
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<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(1)........................ 533 2,285 11,810
------- ------- -------
$31,903 $34,581 $52,435
======= ======= =======
</TABLE>
- ---------------
(1) The increase in corporate and other is primarily due to an increase in
expenditures related to the implementation of SAP.
<TABLE>
<S> <C> <C> <C>
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.......................... $1,252,515 $1,274,875 $1,472,342
International.......................... 112,031 169,567 349,494
---------- ---------- ----------
Total net sales to external
customers.................... $1,364,546 $1,444,442 $1,821,836
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1997 1998
-------- --------
<S> <C> <C>
Long-Lived Assets
United States......................................... $246,133 $344,137
International......................................... 54,254 113,280
-------- --------
Total long-lived assets....................... $300,387 $457,417
======== ========
</TABLE>
F-20
<PAGE> 100
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
-------- --------
239,278 327,614
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.................................................. $ 9,478 $ 18,531
Buildings and improvements............................ 150,866 162,916
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
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
F-21
<PAGE> 101
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. In conjunction with the purchase, the
stock of HCF-Lennox and Friga-Bohn was combined into an existing holding
company, Ets. Brancher S.A. Ets. Brancher also owns certain land and buildings
that were leased to HCF-Lennox and Friga-Bohn. As a result of the acquisition,
Lennox Global Ltd. owns 70% of HCF-Lennox and Friga-Bohn as well as a 70%
interest in the land and buildings through its ownership of 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
(19,133 shares). 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 has entered into an agreement to acquire the remaining 30%
interest in Ets. Brancher S.A. on March 31, 2000 for 102.5 million French
francs, or approximately $17 million.
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.
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 Mfg. 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
F-22
<PAGE> 102
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
The following table presents the pro forma results as if the Dealers, the
Hearth companies, and McQuay do Brasil had been acquired on January 1, 1997 (in
thousands, except per share data).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
Net Sales............................................ $1,648,642 $1,944,036
Net income (loss).................................... (37,750) 47,325
Basic earnings per share............................. (36.72) 44.73
Diluted earnings per share........................... (36.72) 43.70
</TABLE>
F-23
<PAGE> 103
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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
F-24
<PAGE> 104
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 1997 and 1998,
except as follows (in thousands):
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------------------
1997 1998
-------------------------------- --------------------------------
CARRYING INTEREST CARRYING INTEREST
AMOUNT FAIR VALUE RATE AMOUNT FAIR VALUE RATE
-------- ---------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
9.69% promissory
notes.............. $29,500 $32,068 6.75% $24,600 $26,601 6.75%
9.53% promissory
notes.............. 21,000 22,375 6.75% 21,000 21,923 6.75%
11.10% mortgage
note............... 8,306 8,498 9.00% 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, 1997 and 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.
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>
F-25
<PAGE> 105
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-26
<PAGE> 106
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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
F-27
<PAGE> 107
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
======== ======== ======== ========
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>
F-28
<PAGE> 108
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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>
F-29
<PAGE> 109
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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>
F-30
<PAGE> 110
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
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 $439.35 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
F-31
<PAGE> 111
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
F-32
<PAGE> 112
<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> 113
[LENNOX LOGO]
<PAGE> 114
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 May 27, 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.
------------------------
OUR COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK
EXCHANGE UNDER THE TRADING SYMBOL "LII," SUBJECT TO OFFICIAL NOTICE OF ISSUANCE.
------------------------
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> 115
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> 116
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> 117
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> 118
Between May 27, 1996 and May 27, 1999, Lennox sold the following securities
pursuant to its various benefit programs: (a) 39,343 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) 443 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 3,045 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. In May 1999, Lennox issued 9,241
shares of common stock to nine individuals and five trusts in connection with
the acquisition of Livernois Engineering Holding Company. The value allocated to
such shares of common stock was approximately $7.4 million. The shares issued in
all 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.
</TABLE>
II-4
<PAGE> 119
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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
(includes a schedule identifying the various parties to
such agreement and the applicable dates of execution).
10.16 -- Form of Employment Agreement entered into between Lennox
and certain executive officers (includes a schedule
identifying the various parties to such agreement and the
applicable dates of execution).
10.17 -- Form of Change of Control Employment Agreement entered
into between Lennox and certain executive officers
(includes a schedule identifying the various parties to
such agreement and the applicable dates of execution).
10.18 -- Stock Disposition Agreement, dated as of June 2, 1997,
among Lennox, A.O.C. Corporation and Compass Bank.
10.19 -- Stock Disposition Agreement, dated as of January 22,
1998, among Lennox, A.O.C. Corporation and Compass Bank.
10.20 -- Stock Disposition Agreement, dated as of May 7, 1998,
among Lennox and Northern Trust Bank of Florida, N.A.
10.21 -- Master Stock Disposition Agreement, dated as of August
10, 1998, among Lennox, Chase Bank of Texas, N.A., and
various executive officers and directors.
10.22 -- Stock Disposition Agreement, dated as of November 19,
1998, among Lennox, John E. Major and Harry Trust &
Savings Bank.
10.23 -- Stock Disposition Agreement, dated as of November 19,
1998, among Lennox, John E. Major and Susan M. Major and
Harry Trust & Savings Bank.
10.24 -- Stock Disposition Agreement, dated as of February 10,
1999, among Lennox, David H. Anderson and Northern Trust
Bank of Texas, N.A.
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).
</TABLE>
II-5
<PAGE> 120
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
24.1** -- Powers of Attorney.
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
(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 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> 121
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Richardson, State of Texas, on May 27, 1999.
LENNOX INTERNATIONAL INC.
By: /s/ JOHN W. NORRIS, JR.
----------------------------------
John W. Norris, Jr.
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to 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 May 27, 1999
- ----------------------------------------------------- Executive Officer (Principal
John W. Norris, Jr. Executive Officer)
/s/ CLYDE W. WYANT Executive Vice President, Chief May 27, 1999
- ----------------------------------------------------- Financial Officer and
Clyde W. Wyant Treasurer (Principal Financial
Officer)
/s/ JOHN J. HUBBUCH Vice President, Controller and May 27, 1999
- ----------------------------------------------------- Chief Accounting Officer
John J. Hubbuch (Principal Accounting Officer)
* Director May 27, 1999
- -----------------------------------------------------
Linda G. Alvarado
* Director May 27, 1999
- -----------------------------------------------------
David H. Anderson
* Director May 27, 1999
- -----------------------------------------------------
David V. Brown
* Director May 27, 1999
- -----------------------------------------------------
Richard W. Booth
Director
- -----------------------------------------------------
Thomas W. Booth
* Director May 27, 1999
- -----------------------------------------------------
James J. Byrne
Director
- -----------------------------------------------------
Janet K. Cooper
</TABLE>
II-7
<PAGE> 122
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director May 27, 1999
- -----------------------------------------------------
Thomas B. Howard, Jr.
* Director May 27, 1999
- -----------------------------------------------------
John E. Major
* Director May 27, 1999
- -----------------------------------------------------
Donald E. Miller
* Director May 27, 1999
- -----------------------------------------------------
Terry D. Stinson
* Director May 27, 1999
- -----------------------------------------------------
Richard L. Thompson
*By: /s/ JOHN W. NORRIS, JR.
- -----------------------------------------------------
John W. Norris, Jr.
Attorney-in-Fact for such persons
pursuant to the powers of attorney
dated April 6, 1999 filed as an
exhibit to the Registration Statement
</TABLE>
II-8
<PAGE> 123
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> 124
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> 125
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
(includes a schedule identifying the various parties to
such agreement and the applicable dates of execution).
</TABLE>
<PAGE> 126
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.16 -- Form of Employment Agreement entered into between Lennox
and certain executive officers (includes a schedule
identifying the various parties to such agreement and the
applicable dates of execution).
10.17 -- Form of Change of Control Employment Agreement entered
into between Lennox and certain executive officers
(includes a schedule identifying the various parties to
such agreement and the applicable dates of execution).
10.18 -- Stock Disposition Agreement, dated as of June 2, 1997,
among Lennox, A.O.C. Corporation and Compass Bank.
10.19 -- Stock Disposition Agreement, dated as of January 22,
1998, among Lennox, A.O.C. Corporation and Compass Bank.
10.20 -- Stock Disposition Agreement, dated as of May 7, 1998,
among Lennox and Northern Trust Bank of Florida, N.A.
10.21 -- Master Stock Disposition Agreement, dated as of August
10, 1998, among Lennox, Chase Bank of Texas, N.A., and
various executive officers and directors.
10.22 -- Stock Disposition Agreement, dated as of November 19,
1998, among Lennox, John E. Major and Harry Trust &
Savings Bank.
10.23 -- Stock Disposition Agreement, dated as of November 19,
1998, among Lennox, John E. Major and Susan M. Major and
Harry Trust & Savings Bank.
10.24 -- Stock Disposition Agreement, dated as of February 10,
1999, among Lennox, David H. Anderson and Northern Trust
Bank of Texas, N.A.
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.
** Previously filed.
<PAGE> 1
EXHIBIT 10.12
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 10.13
AMENDED AND RESTATED
VENTURE AGREEMENT
This Amended and Restated Venture Agreement (the "Amended Agreement")
is entered into by and between Lennox Global Ltd., a Delaware corporation and
Lennox International Inc., a Delaware corporation (to the extent necessary to
bind its subsidiaries and affiliates to the terms of this Agreement), with
principal offices at 2100 Lake Park Blvd., Richardson, Texas 75080 (collectively
referred to as "Lennox"), and Ets. Brancher S.A. and its subsidiary, Fibel S.A.,
both French corporations with their principal place of business at 11 rue
d'Alsace Lorraine, 69500 Bron, France (collectively referred to as "Brancher
Co."), to amend and restate the Venture Agreement entered into by and among the
Parties as of the 13th day of May, 1996 which was amended by letter agreement of
13 May 1996 and the amendment of 24 May 1996 (the "Original Agreement").
WITNESSETH:
WHEREAS, Brancher Co. and Mr. Jean-Jacques Brancher ("Brancher"), and
Lennox, entered into the Original Agreement to form a joint venture by combining
the designated assets of a company owned by Lennox and certain companies owned,
in whole or in part, by Brancher for the purpose of creating a heating,
ventilating, air conditioning and refrigeration ("HVAC/R") business
headquartered in France (the "Venture"); and
WHEREAS, the Parties have agreed to amend the Original Agreement to
restructure the Venture as described in the Restructure Agreement ("Restructure
Agreement") by and among the Parties which is entered into on the same date as
this Amended Agreement.
NOW, THEREFORE, in consideration of the covenants set forth in this
Amended Agreement, the Parties hereby agree as follows:
I. DEFINITIONS: When capitalized and used in this Amended Agreement and
on any attached schedules or exhibits hereto, the following terms and phrases
shall have the following meanings:
"Amended Agreement" shall refer to this Amended and Restated Venture
Agreement and all its attached schedules and exhibits.
"Applicable Law" shall mean any statute or law or any judgment, order,
decree, rule, or regulation of any Governmental Entity to which a specified
person or property is subject.
"Brancher Companies" shall mean the companies owned, in whole or in
part, by Brancher to be included in the Venture consisting of HCF Lennox S.A.
and all subsidiaries ("HCF") and Friga-Bohn S.A. and all subsidiaries
("Friga-Bohn).
"Closing" and "Closing Date" shall have the meanings assigned to such
terms in Section 9.2.
1
<PAGE> 2
"Company Statutes" shall mean the bylaws, articles of incorporation or
statutes which under the laws of the jurisdiction of a company prescribe the
rules of its operation and governance.
"Company Stock", with respect to any one of the Venture Company,
Brancher Companies or Lennox U.K. (as hereafter defined), shall mean all of the
issued and outstanding shares of all stock, common or otherwise, representing
the entire ownership interest in and control of such company.
"Encumbrances" shall mean liens, charges, pledges, options, mortgages,
security interests, claims, restrictions (whether on voting, sale, transfer or
disposition or otherwise) and other encumbrances of every type and description,
whether imposed by law, agreement, understanding or otherwise.
"Ets. Brancher" shall mean Ets. Brancher S.A. which shall include the
subsidiaries HCF, Friga-Bohn and all subsidiaries of each along with Frinotec
S.A., SCI Geraval and SCI Groupe Brancher.
"Financial Statements" shall have the meaning set forth in Section
8.1.C. with respect to the Brancher Companies and Section V.E.2. of Exhibit
3.2.A. with respect to Lennox U.K. (as hereafter defined).
"Governmental Entity" shall mean any court or tribunal in any
jurisdiction (domestic or foreign) or any federal, state, municipal, domestic,
foreign or other administrative agency, department, commission, board, bureau or
other governmental authority or instrumentality.
"Intellectual Property" shall mean patents, trademarks, service marks,
trade names, copyrights, trade secrets, know-how and similar rights, and all
registrations, applications, licenses, and rights with respect to any of the
foregoing, foreign or domestic.
"Inventory" shall mean all of a company's finished goods, work in
process and raw materials.
"Latest Balance Sheet" shall have the meaning assigned to such term in
Section 8.1.C. with respect to the Venture Company and in Section V.E.2. of
Exhibit 3.2.A. with respect to Lennox U.K.
"Lennox U.K." shall mean that corporation organized under the laws of
the United Kingdom which has been created to contain the assets of Lennox
Industries which is to be sold to the Venture.
"Material Adverse Effect" shall mean any adverse change in the
financial condition, business or operations of a company which is material to
such company.
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"Net Book Value" shall mean the net book value as reflected in the
applicable Latest Balance Sheet as defined by conventional accounting practices
in effect on the Closing Date; provided however, in the event of extraordinary
events which distort Net Book Value, the Parties agree to adjust year-ending Net
Book Value so as to remove such distortion.
"New Companies" shall mean the Brancher Companies and all related
subsidiaries combined with Lennox U.K. as provided herein.
"Original Agreement" shall mean the Venture Agreement entered into by
the Parties as of 13 May 1996 which was amended by letter agreement dated 13 may
1996 and amendment dated 24 September 1996.
"Permitted Encumbrances" means those certain Encumbrances, easements,
rights of way, encroachments, conflicts, protrusions or other exceptions to
title to the Real Property accepted by the Parties hereto.
"Permits" shall mean licenses, permits, franchises, consents, approvals
and other authorizations obtained or to be obtained from Governmental Entities.
"Party" or "Parties" shall mean the parties to this Amended Agreement.
"Proceedings" shall mean all proceedings, actions, suits,
investigations or inquiries in or before any arbitrator or Governmental Entity.
"Real Property" shall mean the real property owned by or leased to the
Venture Company more particularly described in Sections 8.1.F. and 8.1.G. and
Sections V.E.5. and V.E.6. of Exhibit 3.2.A. with respect to Lennox U.K.,
together with all buildings and other improvements situated thereon, all
fixtures and other property affixed thereto and all and singular the rights and
appurtenances pertaining to the property, including any right, title and
interest of the owner of such property in and to adjacent streets, alleys or
rights of way.
"Securities Act" shall mean the any laws of France, the United States
or the United Kingdom which apply to the transfer of stock or assets or other
securities pursuant to the terms of this Amended Agreement.
"Shareholders" shall mean Brancher and Lennox or the designee of
either.
"Venture Company" shall mean Ets. Brancher S.A. which shall include the
subsidiaries of Frinotec S.A., SCI Geraval and SCI Groupe Brancher (with the
Ets. Brancher ownership of SCI Groupe Brancher being transferred from Ets.
Brancher to Friga-Bohn); but not HCF, Friga-Bohn and all subsidiaries of each.
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II. NAME AND BASIC PRINCIPLES
SECTION 2.1. NAMES
Pursuant to the terms of this Amended Agreement, the Parties will
conduct the business of the Venture through companies with such names as the
Parties may from time to time select.
SECTION 2.2. BASIC PRINCIPLES
The Parties have agreed to form the Venture to consist of the Brancher
Companies and Lennox U.K. for the purpose of conducting an HVAC/R business in a
defined geographic area. The Venture will operate with Brancher and Lennox
sharing the ownership of a holding company which will own all the interests of
each party in the participating companies. Lennox will ultimately acquire all of
the ownership of Ets. Brancher as described in this Amended Agreement. For the
conduct of the Venture, the Parties have established by mutual agreement certain
basic principles which will govern the formation of the Venture and its
operations and include the following:
A. OBJECTIVE. Ets. Brancher will be managed with the
fundamental objective of profitable growth of Ets. Brancher through the
production, marketing and sales of products within the HVAC/R industry with a
geographic focus of operations in Europe, Africa, and the Middle East including
Iran (the "Territory"). The existing products and markets of Ets. Brancher will
be the focus for the products and markets of the Venture. Lennox agrees, as the
majority partner, to use its best efforts to maintain and increase the
profitability of Ets. Brancher consistent with reasonable business judgment with
due regard to its other business interests.
B. EXCHANGE OF TECHNOLOGY. The technology of Ets. Brancher
will be made available to Lennox and the technology of Lennox will be made
available to Ets. Brancher under mutually agreed upon terms; except that no
license fee shall be charged or sublicense granted unless agreed upon by the
Parties. Also, the products manufactured by Ets. Brancher will be supplied for
resale to Lennox and the products manufactured by Lennox will be supplied for
resale to Ets. Brancher, where appropriate, within the Territory and outside the
Territory, as agreed from time to time subject to the Parties agreement
regarding competition.
C. NON-COMPETITION. Throughout the term of this Amended
Agreement, the Parties agree that neither shall participate, directly or
indirectly, in the businesses of Ets. Brancher within the Territory other than
through participation in Ets. Brancher as described in this Amended Agreement.
Lennox further agrees not to compete, directly or indirectly, with Ets. Brancher
within the Territory and Brancher and Ets. Brancher agrees not to compete,
directly or indirectly, with Lennox outside the Territory. Each Party
acknowledges that neither Party can control any third party who purchases such
products; however, both Parties agree to take those reasonable steps to prevent
a third party from violating the intent of this Section 2.2.C. where not
prohibited by law.
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III. ACQUISITION OF OWNERSHIP BY LENNOX
SECTION 3.1. OWNERSHIP OF BRANCHER COMPANIES STOCK
Lennox has purchased and Brancher owns certain shares of the Brancher
Companies which constitute essentially one hundred percent (100%) of all
interests in the Brancher Companies. Lennox and Brancher have transferred or
will transfer all such interests, not already owned by Ets. Brancher, such that
it now owns essentially one hundred percent (100%) of all interests in the
Brancher Companies. Brancher and Lennox now own or will own Ets. Brancher in
proportions set forth in the Restructure Agreement. The Parties further agree
that all obligations of each Party as required by the Agreement relating to the
transfer of ownership of the Brancher Companies have been completed except as
specifically set out in this Amended Agreement.
SECTION 3.2. TRANSFER OF LENNOX U.K.
Lennox and Brancher have agreed to the following with respect to the
purchase by Ets. Brancher of Lennox U.K.:
A. PURCHASE OF LENNOX U.K. HCF has agreed to purchase from
Lennox and Lennox shall sell all of its ownership interests in Lennox U.K. in
accordance with the principles set forth on Exhibit 3.2.A. The purchase price
for this purchase shall equal Twenty Nine Million Nine Hundred Ninety-Nine
Thousand Nine Hundred Seventy French Francs ("Ffs") (29,999,970Ffs).
B. SCOPE OF LENNOX U. K. PURCHASE. The parties have agreed
that Lennox U.K. shall consist of one hundred percent (100%) of the ownership
interests in Lennox Industries (including all of its assets and liabilities),
which company will have a net book value of at least Thirty Million Ffs
(30,000,000.00 Ffs) at the time of the transfer.
C. TIMING OF THE TRANSFER. The parties have further agreed
that the transfer shall occur on or before 1 January 1998 ("Transfer Date").
Until the transfer, Lennox shall be responsible for the profits and losses of
Lennox U.K. although it will be operated as though it were integrated with HCF.
The purchase price referenced above shall be paid upon the transfer specified
above at time agreed upon by the Parties.
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.
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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 (this value is 233,662,837 Ffs before
restructuring adjustments described below and as described in more
detail on Schedule 3.3.A(i)) 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.
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
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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 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.
SECTION 3.4. ISSUANCE OR TRANSFER OF SHARES
A. SHARES OF STOCK. Brancher agrees that all shares of Ets.
Brancher Company Stock either issued or transferred to Lennox hereunder shall be
shares of the common stock which possess the highest form of voting power,
preferences, dividends or other rights.
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B. ISSUANCE OR TRANSFER OF SHARES TO LENNOX. Brancher agrees
to issue or transfer or have issued or transferred to Lennox or its nominee
sufficient shares of the Ets. Brancher Company Stock under the terms of Section
3.3.B(ii), to reflect the Lennox percentage of ownership acquired by Lennox
pursuant to the terms and conditions of this Amended Agreement. This issuance
will be completed within thirty (30) days of the date specified for any Lennox
acquisition of Ets.
Brancher Company Stock.
SECTION 3.5. EXPENSES OF RESTRUCTURE (PROFESSIONAL FEES, TAXES OR
OTHER FEES)
The Shareholders shall bear individually the costs and expenses
incurred in connection with the consummation of the transactions contemplated
under this Amended Agreement related to that Shareholder incurred prior to 30
September 1997 including, but not limited to, all professional fees, costs or
any taxes or fees levied on or in respect of the transactions contemplated
hereunder, however designated and whenever or wherever levied, including by way
of example but not limited to ad valorem, sales, excise, purchase or use taxes,
stock transfer, mortgage registration, deed recording or other property transfer
fees, but not including income taxes of any kind. Thereafter, all such expenses
will be borne by Ets. Brancher except as the expenses relate to a capital
reduction of Ets.
Brancher will be borne by Brancher.
SECTION 3.6. RESTRICTION ON THE SALE OF SHARES OF COMPANY STOCK
The Shareholders each agree that neither shall sell shares of Ets.
Brancher Company Stock except as specifically provided for in this Amended
Agreement except as each may transfer ownership to other affiliates of Brancher
or Lennox.
SECTION 3.7. FINDING OF AN UNLAWFUL STOCK PRICE FOR THE SALE OF
SHARES OF COMPANY STOCK
In the event that a determination by any court of competent
jurisdiction that the Stock Price or Ets. Brancher Company Stock Price defined
in this Amended Agreement is null and void, the Shareholders agree that a new
Stock Price or Company Stock Price will be determined by an expert appointed by
the Commercial Court in France.
IV. FUTURE CAPITAL CONTRIBUTIONS
SECTION 4.1. FUTURE CAPITAL CONTRIBUTIONS
Contributions of capital to Ets. Brancher that have not been
anticipated at the date of this Amended Agreement, and therefore not scheduled,
shall be made by the Shareholders as follows:
A. FUTURE CAPITAL CALLS. The Parties acknowledge and agree
that it is anticipated, assuming satisfactory business performance, that Ets.
Brancher may expand its operations in a manner and at a time to be determined by
the Committee (as defined below), and
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additional capital contributions may be required for the expansion of Ets.
Brancher. The Parties hereby agree that the Committee may evaluate the
circumstances of the Ets. Brancher Company and approve a proposal for a capital
contribution from the Shareholders. If the Committee fails to agree on the
necessity of such a capital contribution, it shall constitute a dispute under
the terms of Section 7.1. and shall be resolved under such terms. Further,
should any Shareholder not make any contribution approved by the Committee and
the Parties, within twenty (20) days of the date of the formal decision, the
other Shareholder, at its sole discretion, shall have the option to pay the
Expansion Capital Contribution of the nonpaying Shareholder; provided, the
Shareholder contributing additional capital shall be entitled to additional
shares of Company Stock of the requesting company sufficient such that the
percentage of ownership of stock of the requesting company held by such
Shareholder shall equal the percentage that the total capital contributions made
by such Shareholder to such company bears to the sum of the then applicable Net
Book Value of Ets. Brancher and such total capital contributions. It is further
agreed that all further capital increases will be based on the Ets. Brancher
Stock Price defined in Section 3.3.B(i). In the event Jean-Jacques Brancher
elects not to make any approved capital contribution and his contribution is
offered by Lennox as provided above which would cause the ownership of
Jean-Jacques Brancher in the Venture Company to fall below Twenty Five Percent
(25%), the Parties agree that Jean- Jacques Brancher may also elect to sell the
balance of his shares in the Ets. Brancher Company to Lennox as provided for in
Section 3.3.D(ii). It is further agreed that Lennox may utilize any other means
of financing in Ets. Brancher or pursue the business venture sought to be
financed by the capital contribution outside the Venture notwithstanding the
terms of this Amended Agreement under Section 2.2.C, without limitation.
B. SPECIAL CAPITAL CALLS. If Ets. Brancher, for any period of
time greater than thirty (30) consecutive days, shall experience a cash deficit
sufficient to place the continued operations of Ets. Brancher in jeopardy, then
the management of the Ets. Brancher Company shall immediately notify the
Committee and request that it immediately take any and all steps necessary to
cure the cash deficit. Within ten (10) days of receiving such a request, the
Committee, at its sole discretion, may elect to: (i) attempt to arrange for an
emergency loan to the company, such loan to be made by any lender acceptable to
the Committee (including either or both Shareholders) upon such terms as the
Committee in its sole discretion shall approve; (ii) propose a Special Capital
Call upon the Shareholders in an amount sufficient to cure the cash deficit; or
(iii) decline to act on the request. If the Committee for any reason shall not
elect one of the actions specified above within ten (10) days of the receipt of
such request, it shall give rise to a dispute and the remedies available under
Section 7.1. Further, should any Shareholder not make any contribution approved
by the Committee and the Parties, within twenty (20) days of the date of the
formal decision, the other Shareholder, at its sole discretion, shall have the
option to pay the capital contribution of the nonpaying Shareholder; provided,
the Shareholder contributing additional capital shall be entitled to additional
shares of Company Stock of Ets. Brancher sufficient such that the percentage of
ownership of stock of Ets. Brancher held by such Shareholder shall equal the
percentage that the total capital contributions made by such Shareholder to Ets.
Brancher bears to the Ets. Brancher Company Value as described in Section
3.3.A(i) and such total capital contributions. It is further agreed that
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all further capital increases will be based on the Ets. Brancher Stock Price
defined in Section 3.3.B(i).
SECTION 4.2. RETURN OF PAYMENTS OF CAPITAL
In the event either Shareholder shall make a capital contribution to
Ets. Brancher which fails to be completed as specified by the Board of Directors
of such company, that Shareholder shall be entitled to a return of such
contribution as provided by the applicable law.
SECTION 4.3. RETURN OR WITHDRAWAL OF CAPITAL
To the extent allowed by the applicable laws, the Shareholders agree
that no capital shall be returned to any Shareholder unless agreed upon by the
Parties.
V. MANAGEMENT AND STAFF
SECTION 5.1. NEW COMPANIES STAFF
A. JOINT OWNERSHIP PHASE. For so long as Ets. Brancher is
jointly owned, its activities shall be conducted by the personnel serving as its
officers or in key positions selected from time to time by the Committee. It is
understood and agreed that if the Committee selects a President Director General
of Ets. Brancher over the formal objection of Jean-Jacques Brancher, the
selection by the Committee shall be suspended for fourteen (14) days to allow
Jean-Jacques Brancher the opportunity to present reasons for such objection to
the Chief Executive Officer of Lennox. The Chief Executive Officer may either
overrule the selection of the Committee or sustain its selection with reasons
provided for the decision. In the event Jean-Jacques Brancher continues to
object to the selection, he shall have all of the remedies otherwise available
under the terms of this Amended Agreement. The staff of any company may include
employees of either Shareholder who may be temporarily or permanently assigned
to any one of Ets. Brancher. The Committee may decide that any such employee
shall be made available for such period of time as to meet the needs of the
company. For administrative convenience, the Committee may, at its discretion,
request that payroll, benefit and related employment matters with respect to
Ets. Brancher staff be handled through the respective Shareholder for those
employees selected from that Shareholder. Upon such request, such payroll,
benefits and related employment matters shall be handled by such Shareholder
pursuant to a general services agreement to be entered into between Ets.
Brancher and such Shareholder. The duties of the staff for Ets. Brancher shall
be defined by the Committee.
B. PHASE OF SOLE OWNERSHIP BY LENNOX. In the event Lennox
assumes sole ownership of Ets. Brancher, the respective Boards of Directors of
Ets. Brancher shall solely determine staffing Ets. Brancher.
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SECTION 5.2. VENTURE COMPANY PLANNING AND OPERATING COMMITTEE
A. NATURE, FUNCTIONS AND PROCEDURES OF COMMITTEES. The
Shareholders agree that the existing Committee may continue or a new Committee
or Committees established for Ets. Brancher or its subsidiary companies to
perform such functions, using such procedures as the Shareholders' may from time
to time elect. The nature of the Committee or Committee's, its functions and
procedures will be decided by the Shareholders by majority vote
B. THE APPLICATION OF COMMITTEE DECISIONS TO ETS. BRANCHER OR
THE NEW COMPANIES. The Parties acknowledge and agree that each will participate,
either directly or indirectly through its authorized representatives on the
Boards of Directors or as officers of or in other capacities with Ets. Brancher
or the New Companies. The Parties further agree that, limited only by
obligations imposed on such Party by Law, each Party in that capacity shall act
consistent with the decisions of the Committee as those decisions apply to the
operations and Policies of Ets.
Brancher or the New Companies.
SECTION 5.3. BOARDS OF DIRECTORS
A. DESIGNATION OF MEMBERS; POWERS OF REVIEW. The Boards of
Directors shall consist of: for Ets. Brancher four (4) members, for Friga-Bohn
eight (8) members, and for the Boards of HCF ten (10) members, with each Party
designating a number of members in its sole discretion equivalent to its
percentage of ownership of Ets. Brancher. The Shareholders agree to reduce
restructure the membership of the respective Boards to provide the smallest
number of members who can be available to attend meetings and respond to the
requirements of each company as soon as practical giving due consideration for
the expiration of the terms of the existing directors. The Shareholders further
agree that so long as Jean-Jacques Brancher shall remain a Shareholder with at
least Twenty-Five Percent (25%) interest in Ets. Brancher, he shall be elected a
director of Ets. Brancher and its subsidiaries or serve as the representative of
a director.
B. BOARD MEETINGS; VOTING; ACTION OF THE BOARD. All actions of
each Board of Directors shall be taken in accordance with the procedures set
forth in the applicable Company Statutes. All provisions in such Company
Statutes shall govern notice of the meetings to such Board, quorum requirements,
votes and voting, and the conduct of the meetings.
C. CURRENT MEMBERS OF THE FRIGA-BOHN BOARD OF DIRECTORS.
<TABLE>
<S> <C> <C>
(i) INDIVIDUAL REPRESENTATIVES: Term Ends:
Robert Moulin,
President Director General 31-12-1999
Ets. Brancher S.A. 31-12-1999
Representative: Jean-Jacques Brancher
M. Roger Stocker 31-12-1997
M. Jean-Jacques Blanchedeau 31-12-1997
(ii) REPRESENTATIVES OF LENNOX: Term Ends:
</TABLE>
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<TABLE>
<S> <C> <C>
Lennox Global Ltd. 31-12-2001
Representative: John W. Norris, Jr.
Heatcraft Inc. 31-12-2001
Representative: Robert L. Jenkins
Heatcraft Technologies Inc. 31-12-2001
Representative: H.E. (Ed) French
Lennox International Inc. 31-12-2001
Representative: Clyde Wyant
D. CURRENT MEMBERS OF THE HCF BOARD OF DIRECTORS:
(i) INDIVIDUAL REPRESENTATIVES: Term Ends:
Jean-Pierre Boutier,
President Director General 31-12-1997
Jean-Jacques Brancher 31-12-1996
Ets. Brancher S.A. 31-12-1996
Representative: Hartmut Schmied
M. Roger Stocker 31-12-1998
M. Roland De Vignon 31-12-1999
(ii) REPRESENTATIVES OF LENNOX: Term Ends:
Lennox International Inc. 31-12-2001
Representative: Harry J Ashenhurst
Lennox Global Ltd. 31-12-2001
Representative: John W. Norris Jr.
Heatcraft Inc. 31-12-2001
Representative: Clyde Wyant
Heatcraft Technologies Inc. 31-12-2001
Representative: Carl E. Edwards, Jr.
Lennox Industries Inc. 31-12-1998
Representative: Robert L. Jenkins
E. MEMBERS OF THE ETS. BRANCHER BOARD OF DIRECTORS.
(i) REPRESENTATIVES OF BRANCHER: Term Ends:
Jean-Jacques Brancher 31-12-2002
(ii) REPRESENTATIVES OF LENNOX: Term Ends:
Robert L. Jenkins 31-12-2002
Lennox Global Ltd. 31-12-2002
Representative: John W. Norris Jr.
Lennox International Inc. 31-12-2002
Representative: Clyde Wyant
</TABLE>
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F. LENGTH OF SERVICE OF BOARD MEMBERS. Each Board member shall
serve until the term of his or her election shall expire unless re-elected by
the shareholders at any duly constituted meeting or until such member is removed
by the action of the shareholders as provided for on the Company Statutes or
applicable law.
G. BOARD DUTIES. Each Board shall meet periodically to do
those functions specified in the applicable Company Statutes, and such other
things as may from time to time be necessary for the conduct of Ets. Brancher or
the New Companies' businesses.
G. REIMBURSEMENT OF DIRECTORS' EXPENSES. Each company in the
New Companies shall reimburse its directors for travel, food and lodging
expenses incurred in attending directors' meetings and otherwise in conducting
the affairs of the Board.
VI. TERM, TERMINATION AND PHASE OUT
SECTION 6.1. TERM
The term of this Amended Agreement shall be for as long as any of the
Parties remain shareholders or their respective successors or assigns own stock
in Ets. Brancher. Sections 6.3. and 13.5. shall survive termination of this
Amended Agreement.
SECTION 6.2. TERMINATION
A. NORMAL TERMINATION. Upon completion of the purchase by Lennox of all
remaining interests of Brancher in Ets. Brancher, this Amended Agreement shall
be deemed terminated. It is expressly understood and agreed that such purchase
may be completed through the exercise by Jean- Jacques Brancher of his option to
accelerate the purchase as provided under Section 3.3.D(ii). Brancher shall
provide written notice to Lennox as provided under Section 6.2.E(i).
B. TERMINATION BY THE DEATH OF JEAN-JACQUES BRANCHER. Upon the
death of Jean-Jacques Brancher, Lennox shall purchase all remaining interest in
Ets. Brancher from Brancher as provided under Section 3.3.D(i). Brancher's
estate shall provide written notice to Lennox as provided under Section
6.2.E(i).
C. TERMINATION BY PURCHASE OR SALE AT BUYOUT PRICE PER SHARE.
Upon the occurrence of one (1) or more of the following events, Brancher or
Lennox may, at its sole discretion as a terminating Party, by giving notice to
the other Party as provided under Section 6.2.E(ii) within thirty (30) days
after the occurrence of such event, terminate this Amended Agreement and cause
the other Party, at the terminating Party's sole discretion, to either: (A) sell
all of such other Party's
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shares in Ets. Brancher to the terminating Party, or (B) to purchase all of the
shares in Ets. Brancher held by the terminating Party:
(i) breach of this Amended Agreement by the other
Party; provided, however, that no Party may terminate this
Amended Agreement pursuant to this clause until after the
notice and cure provisions set forth in Sections 12.1. and
12.2. and the dispute resolution mechanism set forth in
Section 7.1. have been exhausted.
(ii) either Party shall file or have filed against
it, under the laws of the appropriate jurisdiction,
declaration of bankruptcy or insolvency or enter into any
agreement which acts as an assignment of its assets for the
satisfaction of its debts; provided, however, the terminating
Party may only purchase the shares of the other Party in
accordance with the terms of this Section 6.2.C. unless
otherwise permitted under the applicable laws under which such
insolvency or bankruptcy event occurs.
The price of any shares in Ets. Brancher purchased or sold as
provided under this Section 6.2.C. shall be as specified
below, and the terms of such purchase and the closing thereof
shall be as set forth in Section 6.2.F.
(iii) If Lennox is the terminating Party, the
purchase price shall be the lesser of Ets. Brancher Stock
Price per share determined under Section 3.3.B(i). or a price
determined using the minimum Venture Company values under
Section 3.3.A(ii) and the sale price shall be the aggregate
purchase price paid by Lennox to acquire its interest; or
(iv) If Brancher is the terminating Party, the
purchase price shall be the aggregate purchase price paid by
Lennox to acquire its interest, and the sale price shall be
the greater of the Stock Price per share determined under
Section 3.3.B(i) or a price determined using the Minimum
Company Values under Section 3.3.A(ii).
D. TERMINATION BY REASON OF IMPASSE. Upon the occurrence of a
dispute between the Parties which is not resolved by use of the procedures for
dispute resolution set forth below in Section 7.1., the Dispute Committee shall
be asked to propose a solution to the dispute. If the Dispute Committee is
unable to agree on such a solution, each Party shall appoint a representative,
which representative shall appoint a third representative to propose a solution.
All such representatives shall not be members of the Committee or involved in
any way with Ets. Brancher. Any Party may, at its sole discretion, reject the
proposed solution by giving notice to the other Party as provided under Section
6.2.E(iii). In this event the dissenting Party shall sell its remaining
interests in Ets. Brancher to the other Party at the then applicable Stock Price
and the terms of such purchase and the closing thereof shall be as set forth in
Section 6.2.F.
E. NOTICES.
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(i) Notice of Termination under Sections 6.2.A. and
6.2.B. Any notice of termination by Brancher or his estate
shall be given to Lennox in writing. Such notice shall state
that the Amended Agreement is terminated by reason of
Brancher's death or exercise of the option to accelerate the
purchase of the remaining shares of Brancher by Lennox in
accordance with Section 6.2.A. or 6.2.B. Lennox shall complete
the purchase within ninety (90) days after receipt of such
written notice, which period will be automatically extended to
the extent necessary to comply with any requirements for
completing such purchase.
(ii) Notice of Section 6.2.C. Termination and Buyout.
Any notice of termination of this Amended Agreement and
purchase or sale of shares of Ets. Brancher under the
provisions of Section 6.2.C. shall be given by the terminating
Party to the other Party in writing within thirty (30) days of
the event causing such termination. Such notice shall clearly
state that the Amended Agreement is being terminated under
Section 6.2.C., the reason for such termination and that the
terminating Party thereby elects to sell its interest or to
purchase the other Party's interest, as the case may be, in
Ets. Brancher. A binding contract shall exist between the
Parties as to the termination and buyout as provided herein
upon the receipt of such notice.
(iii) Notice of Section 6.2.D. Termination. Any
notice of termination of this Amended Agreement under the
provisions of Section 6.2.D., shall be given by the
terminating Party to the other Party in writing. Such notice
shall clearly state that the Amended Agreement is being
terminated under Section 6.2.D., the reason for such
termination being the existence of a dispute which, after
exhaustion of the dispute resolution procedures in Section
7.1., has failed to be resolved and that the terminating
Party, having reject the proposed solution of the dispute,
thereby elects to terminate the Amended Agreement under
Section 6.2.D.
F. TERMS OF PURCHASE AND CLOSING OF SECTION 6.2.C. OR SECTION
6.2.D. The terms of any purchase or sale under Section 6.2.C. or Section 6.2.D.
shall be as follows:
(i) There shall be a closing of any transfer of
shares in Ets. Brancher no later than thirty (30) days
following the notice given under Section 6.2.E(ii) or Section
6.2. E(iii).
(ii) The purchase price specified in Section 6.2.C.
or Section 6.2.D. shall be paid in full to the selling Party
at the closing.
(iii) The purchasing Party shall provide a
representation and warranty to the selling Party that the
shares of Ets. Brancher are being purchased for investment
purposes only and not with a view toward the offer, sale or
other distribution thereof without being in compliance with
Applicable Law.
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(iv) The selling Party shall provide the following
representations and warranties:
(A) It has good and marketable title to the
shares of Ets. Brancher being transferred, free and clear of
all liens and encumbrances;
(B) It has taken all steps and complied with
all corporate formalities required to transfer the shares of
Ets. Brancher to the purchasing Party; and
(C) It is legally empowered to transfer the
shares of Ets. Brancher to the purchasing Party.
SECTION 6.3. PHASE OUT OF TECHNOLOGY AND PRODUCTS.
In the event the selling Party has a material requirement for the use
of the technology and/or products of the Company existing at the time of
termination hereunder (other than a termination under Section 6.2.A. or 6.2.B.),
the Parties shall arrange and agree upon the phase out of such use to be
completed within one (1) year of the termination of this Amended Agreement.
VII. DISPUTE RESOLUTION
SECTION 7.1. DISPUTE RESOLUTION MECHANISM
Every dispute whatsoever that may arise between the Parties or their
nominees, designees or other representatives with respect to the subject matter
of this Amended Agreement shall be submitted for resolution as provided in this
Section 7.1.
A. DISPUTE AMONG THE PARTIES; REFERRAL TO COMMITTEE. Any
dispute arising with respect to the operation of the Venture or execution,
application or interpretation of this Amended Agreement as it relates to any
specific company in the Company shall be referred to the Committee for review
and resolution. The Committee in good faith shall strive to resolve any dispute
that may arise among the Parties as to any matter that is within the scope of
its authority. If, however, the Committee shall fail for any reason to resolve,
to the mutual satisfaction of the Brancher nominees and the Lennox nominees who
serve on the Committee, any disputed matter, then the dissatisfied members of
the Committee shall notify the Chairman of the Committee in writing that if such
matter is not resolved in a satisfactory manner within thirty (30) days of such
notice, then the Chairman of the Committee shall refer such matter to the
Dispute Resolution Committee (referred to as the "Dispute Committee" in this
Amended Agreement and shall consist of the Chief Executive or Chief Operating
Officers of Brancher and Lennox) and request that the Dispute Committee
immediately call a special meeting to resolve such disputed matter. If, for any
reason, the Chairman of the Committee shall fail to refer such disputed matter
to the Dispute
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Committee and request a special meeting of the Committee to resolve such matter
as required hereunder, then any Party shall have the right to call such meeting
of the Dispute Committee.
B. REFERRAL TO DISPUTE COMMITTEE; MEDIATION. The Parties,
through the Dispute Committee, in good faith shall strive to resolve any dispute
that may arise between them as to any matter arising from or in any way
connected with the Venture, or that is related to or otherwise connected with
the subject matter of this Amended Agreement. If, however, the Dispute Committee
shall fail to resolve any matter in dispute (including any matter referred to
the Dispute Committee by the Chairman of the Committee) within sixty (60) days
of its first meeting to consider the matter, then at the request of either or
both Parties, the dispute shall be submitted for resolution depending on the
nature of the dispute as described in Section 7.1.C. below.
C. FAILURE OF DISPUTE RESOLUTION; REMAINING REMEDIES. If the
Dispute Resolution Committee shall fail to produce a resolution of the dispute
within sixty (60) days of the commencement thereof, then, and only then, the
Parties shall:
(i) For any dispute not involving a claim of the
breach of any term of this Amended Agreement, resolve such
dispute in accordance with Section 6.2.D., no later than
thirty (30) days following the notice of a failure to resolve
such dispute by any Party.
(ii) For any dispute involving a claim of the breach
of any term of this Amended Agreement, the dispute shall be
submitted for resolution under the International Chamber of
Commerce Rules for arbitration in a location agreed to by the
Parties or failing agreement, The Hague of the Netherlands.
The result of such arbitration shall be binding on the parties
and enforceable by application to a court of competent
jurisdiction.
VIII. REPRESENTATIONS AND WARRANTIES
SECTION 8.1. REPRESENTATIONS OF BRANCHER.
Brancher hereby represents and warrants that to the best of its
knowledge and belief all representations and warranties made in the Original
Agreement remain true and accurate and with respect this Amended Agreement, it
hereby represents and warrants as to the Venture Company:
A. DUE INCORPORATION, GOOD STANDING, POWER AND AUTHORITY. The
Venture Company is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization, with all necessary
corporate power and authority to carry on its business as now being conducted
and to own, operate and lease all properties owned, operated or leased by it,
and is duly qualified to do business in all jurisdictions where such
qualification is required, except where the failure to be so qualified will not
result in a Material Adverse Effect.
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Brancher has delivered to Lennox true, correct and complete copies of the
Company Statutes of the Venture Company;
B. AUTHORIZATION OF AMENDED AGREEMENT. Brancher has taken all
corporate action required or necessary for the authorization, execution,
delivery and performance of this Amended Agreement and has full corporate power
to enter into this Amended Agreement and to carry out its obligations hereunder,
and the execution and delivery by Brancher of this Amended Agreement and the
performance by Brancher of its obligations hereunder have been duly authorized
by all necessary corporate action of Brancher. This Amended Agreement has been
duly executed and delivered by Brancher and constitutes a valid and legally
binding obligation of Brancher enforceable against Brancher in accordance with
its terms (subject only to the limitations to enforceability that might result
from bankruptcy, insolvency or other similar laws affecting creditors' rights
generally). No actions or proceedings to dissolve Brancher or the Venture
Company is pending.
C. FINANCIAL STATEMENTS. Brancher has delivered or will
deliver as soon as available to Lennox, true, complete and correct copies of (i)
the unaudited Balance Sheet of the Venture Company at June 30, 1997 (the "Latest
Balance Sheet") and the related Statements of Operating Income, and the notes
and schedules thereto, and (ii) the audited Balance Sheet of the Venture Company
at December 31, 1996 and the related Statements of Operating Income for the year
then ended, and the notes and schedules thereto (collectively, the Financial
Statements"). The Venture Company Financial Statements have been prepared from
the Venture Company's books and records in accordance with the Venture Company's
accounting practices applied on a basis consistent with preceding years
throughout the period involved. The Venture Company Financial Statements present
fairly the Venture Company's financial condition at the respective dates thereof
and their results of operations for the periods then ended. Brancher further
agrees to provide any updates to such statement, including final 1997 audited
Financial Statements, as soon as such statements become available.
D. CAPITALIZATION. The authorized capital stock of the Venture
Company consists of the number of shares of common stock, of the indicated par
value as set forth on Schedule 8.1.E. All outstanding shares of capital stock of
the Venture Company--have been validly issued and are fully paid and
nonassessable. No shares of capital stock of the Venture Company have been
issued in violation of preemptive or similar rights, and there are no
outstanding or contingent rights to acquire any of the capital stock of the
Venture Company (whether or not outstanding), and no outstanding agreements or
other arrangements by which the Venture Company is or may be bound to repurchase
or otherwise acquire any shares of their capital stock have not been disclosed
to Lennox.
E. TITLE TO SHARES. Brancher has, and at Closing Lennox will
acquire, good and marketable title to the designated percentages, which may be
less than One Hundred Percent (100%), of all of the authorized and issued shares
of Company Stock of the Venture Company, HCF, Friga-Bohn, Frinotec S.A. and
other related companies, free and clear of all Encumbrances except as listed on
Schedule 8.1.E.
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F. ASSETS AND PROPERTIES.
(i) Real Property. Lennox has been supplied a complete
listing of all Real Properties, owned by the Venture Company. Those
Real Properties will be owned by the Venture Company except as
described on Schedule 8.1.F.
(ii) Personal Property. Except as set forth on Schedule
8.1.F. and except for Inventory and supplies disposed of or consumed
and accounts receivables collected or written off and cash utilized,
all in the ordinary course of business consistent with the past
practices, the Venture Company owns all of its Inventory, equipment and
other personal property (both tangible and intangible) reflected on the
Latest Balance Sheet, free and clear of all Encumbrances.
(iii) Condition of Property. Except as set forth on
Schedule 8.1.F., the Real Property and tangible personal property owned
or leased by the Venture Company is in good operating condition and
repair, ordinary wear and tear excepted; and the Venture Company has no
knowledge of any condition or defect, not disclosed herein of the Real
Property or such personal property that would materially affect its
fair market values or otherwise have a Material Adverse Effect on the
Venture Company or its operation.
(iv) Title to Properties. The Venture Company has good and
indefeasible title to all properties (real, personal, tangible and
intangible) it owns, as set forth in the Latest Balance Sheet, other
than those sold or otherwise disposed of in the ordinary course of
business, free and clear of all Encumbrances, except (a) as disclosed
on Schedule 8.1.F, (b) as set forth in the Latest Balance Sheet as
securing specific liabilities, (c) the Permitted Encumbrances, and (d)
imperfections of title that are not substantial in character, amount or
extent and do not materially detract from the value of the properties
subject thereto.
(v) Utilities. To the best knowledge of the Venture Company
, all utilities (water, sewer, gas, electricity, telephones, etc.) are
available to its property to adequately service such property.
(vi) Compliance. To the best of knowledge of Venture
Company, the continued ownership, operation, use, and occupancy of the
Real Property, as currently operated, used or occupied, will not
violate any zoning, building, health, flood control, fire or other law,
ordinance or regulation or any restrictive covenant, except as set
forth on Schedule 8.1.F or otherwise reported to Lennox
G. LEASES. Lennox has been provided a complete list of all
real properties leased by the Venture Company which is used or required for use
in the businesses of the New Companies. Except as specified on Schedule 8.1.G.,
all rights to such properties shall be retained by the Venture Company. The
lessee under each such lease has been in peaceable possession (or remedied any
claims relating thereto) of the Real Property, buildings, machinery, equipment,
vehicles or other
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tangible property or assets covered thereby since the commencement of the
original term of such lease and such lessee is not in material default
thereunder except as described in Schedule 8.1.G. hereof. There are no liens on
the assets of the Venture Company except as set forth on Schedule 8.1.G.
H. INTELLECTUAL PROPERTY. Lennox has been provided a complete
list of all Intellectual Property that is material to the conduct of the
businesses of the Venture Company as currently being conducted and owned by the
Venture Company or which it is licensed to use. The listed Intellectual Property
constitutes all Intellectual Property necessary for the conduct of the
businesses of the Venture Company as currently conducted and all rights to such
Intellectual Property remain in the Venture Company except as set forth on
Schedule 8.1.H. To the best knowledge of Brancher, there are no Proceedings
pending or threatened in writing against the Venture Company asserting that the
use by the Venture Company of any of such Intellectual Property infringes in any
material respect the rights of any other person or seeking revocation,
termination, or concurrent use of any of such Intellectual Property. To the best
knowledge of Brancher, none of such Intellectual Property is being infringed
upon by any other person.
I. LEGAL PROCEEDINGS. Lennox has been provided a complete
listing of all pending and, to the best knowledge of Brancher, threatened in
writing, Proceedings involving the Venture Company or any of their properties in
which the damages sought to be imposed exceed Five Hundred Thousand Ffs
(500,000Ffs) in any one case or which, individually or in the aggregate, might
result in any Material Adverse Effect. There are no Proceedings pending or, to
the best knowledge of Brancher, threatened in writing, seeking to restrain,
prohibit or obtain damages or other relief in connection with this Amended
Agreement or the consummation of the transactions contemplated herein except as
set forth on Schedule 8.1.I.
J. GOVERNMENTAL CONSENTS, COMPLIANCE WITH LAW. Except for the
approvals of Governmental Entities disclosed in Schedule 8.1.J., to the best
knowledge of Brancher, there is no requirement applicable to Brancher to make
any filing with, or to obtain any permit, authorization, consent or approval of,
any Governmental Entity as a condition to the lawful consummation by Brancher of
the transactions contemplated by this Amended Agreement.
K. INVENTORY. All Inventory (including raw materials,
work-in-progress and finished goods) and related supplies reflected on the
Brancher Latest Balance Sheet or thereafter acquired and not disposed of in the
ordinary course of business is usable and salable in the ordinary course of
business of the Venture Company.
L. CONTRACTS AND AGREEMENTS. Lennox has been provided a
complete listing list of all material contracts or other agreements with a value
greater than Five Hundred Thousand Ffs (500,000Ffs) (other than those listed on
any other Schedule referred to in this Article), relating to the businesses of
the Venture Company to which the Venture Company is a party or by which the
Venture Company is bound, and Brancher has furnished or shall furnish prior to
the Closing Date to Lennox complete and correct copies of all such contracts or
other agreements, including all
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amendments as of the date hereof. The Venture Company is not in default in any
material respect, and no written notice of alleged default has been received by
the Venture Company under any of these agreements, and, to the best of
Brancher's knowledge, no other party thereto is in default or alleged in writing
to be in default in any material respect other than defaults as to which
requisite waivers or consents have been obtained and defaults which in the
aggregate would not have a Material Adverse Effect except as set forth on the
attached Schedule 8.1.L. Brancher makes no representations about the possibility
or likelihood of renewal or extension of any such contract or other agreement
unless otherwise noted on Schedule 8.1.L.
M. COMPLIANCE WITH LAW. To the best of Brancher's knowledge,
the Venture Company is not in violation of (i) any applicable judgment, order,
injunction, award or decree relating to the operation of its businesses or (ii)
any Applicable Law except in the case of (i) and (ii) for such violation
individually or in the aggregate which would not have a Material Adverse Effect.
N. PERMITS. Lennox has been provided a complete listing of all
Permits which are material to or necessary in the conduct of the businesses of
the Venture Company as they are currently being conducted. The Venture Company
has conducted its businesses and operations substantially in accordance with the
conditions and provisions of the Permits except for noncompliance as to which it
has received requisite waivers or consents or which does not have a Material
Adverse Effect except as set forth on Schedule 8.1.N. hereto. There is no other
Permit the absence of which would have a Material Adverse Effect on the Venture
Company's ability to carry on its businesses and operations. Except as set forth
on Schedule 8.1.N.: (i) all such Permits are in full force and effect, (ii) no
violations are known to Brancher or have been recorded (which have not been
remedied) in respect of any such Permit, and (iii) no Proceeding is pending or
threatened in writing to revoke or limit any such Permit.
O. NO CONFLICT WITH OTHER AGREEMENTS. Neither the execution
nor delivery of this Amended Agreement, nor the consummation of the transactions
contemplated hereunder, nor the fulfillment of or compliance with the terms and
conditions hereof will conflict with the Company Statutes of the Venture
Company, or will result in a breach of, or constitute a conflict or default
under, any material contract, agreement or instrument to which it is a party or
by which it or its assets or personnel are bound; and
P. ABSENCE OF CERTAIN EVENTS. Other than those events
disclosed to Lennox, there has not been:
(i) Any Material Adverse Effect on the Venture Company or the
assets and properties described in Section 8.1.F. which has not been
disclosed to Lennox;
(ii) Any purchase, sale or transfer of assets in anticipation
of this Amended Agreement, or which would contravene the intent of this
Amended Agreement other than those necessary to complete the
Restructure and this Amended Agreements;
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(iii) Any illegal payment by the Venture Company and
the Brancher Companies to foreign or domestic governmental or
quasi-governmental officials, or payments to customers or suppliers for
rebating of charges, or other reciprocal practices, in connection with
the conduct of their businesses, other than normal price reductions
allowed to customers in the ordinary course of business; or
(iv) Any damage, destruction or loss (whether or not
covered by insurance) which has or would have a Material Adverse Effect
on the Venture Company or the Brancher Companies.
Q. EMPLOYEES. Lennox has been provided a complete list of the
collective bargaining agreements applicable to the facilities of the Venture
Company, as well as, a list of all employment agreements between any employee
and the Venture Company and the names and total compensation of all salaried
employees who are employed by the Venture Company who have an annual salary in
excess of Four Hundred Thousand Ffs (400,000Ffs). Except as set forth on
Schedule 8.1.Q, there are no strikes, slow-downs, disputes, litigation, agency
or other actions pending or threatened which are believed to be in excess of One
Hundred Thousand Ffs (100,000Ffs) in liability or considered adverse to the
operations of the Venture Company.
R. EMPLOYEE BENEFIT PLANS. Lennox has been provided a complete
list of all of the pension, profit sharing, thrift, deferred compensation,
bonus, incentive, stock purchase, severance, hospitalization, insurance or other
similar plans, agreements or arrangements, which are maintained by or
contributed to by the Venture Company for its employees. All obligations of the
Venture Company to contribute to such plans on behalf of the employees employed
for calendar years prior to 1997 have been paid, and all obligations of the
Venture Company to contribute to such plans on behalf of such employees for the
period beginning January 1, 1997 and ending on the Closing Date will be paid by
the Venture Company except as listed on Schedule 8.1.R. The Venture Company has
not incurred any liability under these plans or the laws governing them arising
in connection with the termination of, or complete or partial withdrawal from,
any plan covered or previously covered by Applicable Laws, and the Venture
Company has paid and discharged when due all obligations and liabilities arising
under Applicable Laws with respect to all employee benefit plans of a character
which, if unpaid or unperformed might result in the imposition of a lien against
any of the assets of the Venture Company. All employee benefit plans of the
Venture Company (the "Brancher Plans") have been and are being maintained in
compliance with each of their terms and with the requirements prescribed by any
and all Applicable Laws. Brancher has furnished to Lennox a copy of the Brancher
Plans and related documents, where applicable, and all amendments thereto and
written interpretations thereof together with the any reports prepared in
connection with the Brancher Plans. There are not now, nor have there been, any
transactions with respect to the Plans which could result in material liability
on the part of the Venture Company under Applicable Laws except as listed on
Schedule 8.1.R. There are no threatened or pending claims by or on behalf of the
Brancher Plans or by any employee participating therein alleging a breach of
fiduciary duties or violations of Applicable Laws with respect to the Brancher
Plans which could result in material liability on the part of the Venture
Company or the Brancher Plans under Applicable Laws except as listed on Schedule
8.1.R.
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S. INSURANCE. Lennox has been provided a true and complete
list of all policies of fire, liability, casualty, life and all other forms of
insurance owned or held by the Venture Company with a value in excess of Five
Hundred Thousand Ffs (500,000Ffs). Such policies will remain in full effect
subject to its term and not be altered as a result of this Amended Agreement
except as Set forth on Schedule 8.1.S.
T. TAXES. The Venture Company has filed all necessary tax
reports or returns required to be filed and have either discharged or adequately
provided for the discharge of all taxes, costs, expenses, charges and debts of
every kind and character, except those taxes, costs, expenses, charges and debts
which are being protested in good faith by the Venture Company which are set
forth on Schedule 8.1.T.
SECTION 8.2. REPRESENTATIONS OF LENNOX.
Lennox hereby represents and warrants that to the best of its knowledge
and belief all representations and warranties made in the Original Agreement
remain true and accurate and with respect this Amended Agreement, it hereby
represents and warrants:
A. DUE INCORPORATION, GOOD STANDING, POWER AND AUTHORITY.
Lennox is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, United States of America.
B. AUTHORIZATION OF AMENDED AGREEMENT. Lennox has taken all
corporate action required or necessary for the authorization, execution,
delivery and performance of this Amended Agreement and has full corporate power
to enter into this Amended Agreement and to carry out its obligations hereunder,
and the execution and delivery by Lennox of this Amended Agreement and the
performance by Lennox of its obligations hereunder have been duly authorized by
all necessary corporate action of Lennox. This Amended Agreement has been duly
executed and delivered by Lennox constitutes a valid and legally binding
obligation of Lennox, enforceable against it in accordance with its terms
(subject only to the limitations to enforceability that might result from
bankruptcy, insolvency or other similar laws affecting creditors' rights
generally). No actions or proceedings to dissolve Lennox or Lennox U.K. are
pending or will be undertaken between now and the Transfer Date.
C. FINANCIAL STATEMENTS. Lennox has delivered to Brancher
true, complete and correct copies of (i) the unaudited Balance Sheet of Lennox
U.K. and Lennox International Inc. at July 31, 1997 and the related Statements
of Operating Income for the year then ended, and the notes and schedules
thereto, and (ii) the audited Balance Sheet of Lennox U.K. and Lennox
International Inc. at December 31, 1996 (the "Latest Balance Sheet") and the
related Statements of Operating Income for the year then ended, and the notes
and schedules thereto (collectively, the "Lennox U.K. and Lennox International
Inc. Financial Statements"). The Lennox U.K. and Lennox International Inc.
Financial
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Statements have been prepared from Lennox U.K. and Lennox International Inc.
books and records in accordance with Lennox U.K. and Lennox International Inc.
accounting practices applied on a basis consistent with preceding years
throughout the period involved. The Lennox U.K. and Lennox International Inc.
Financial Statements present fairly Lennox U.K. and Lennox International Inc.'s
financial condition at the respective dates thereof and their results of
operations for the periods then ended.
D. NO CONFLICT WITH OTHER AGREEMENTS. Neither the execution
nor delivery of this Amended Agreement, nor the consummation of the transactions
contemplated hereunder, nor the fulfillment of or compliance with the terms and
conditions hereof will conflict with the Company Statutes of Lennox or Lennox
U.K. and Lennox International Inc., or will result in a breach of, or constitute
a conflict or default under, any material contract, agreement or instrument to
which either of them is a party or by which either of them or any of their
assets or personnel are bound.
E. GOVERNMENTAL CONSENTS, COMPLIANCE WITH LAW. Except for the
approvals of Governmental Entities disclosed in writing to Brancher, to the best
knowledge of Lennox, there is no requirement applicable to Lennox to make any
filing with, or to obtain any permit, authorization, consent or approval of, any
Governmental Entity as a condition to the lawful consummation by Lennox of the
transactions contemplated by this Amended Agreement. The execution, delivery or
performance by Lennox of this Amended Agreement will not violate any Applicable
Law to which Lennox is subject.
F. INVESTMENT INTENT. Lennox is acquiring the shares of the
Venture Company solely for investment purposes and not with a view to the
distribution thereof.
IX. CLOSING AND CONDITIONS PRECEDENT
SECTION 9.1. CERTAIN PARTY ACTIONS TO BE COMPLETED PRIOR TO
CLOSING
A. COMPLETION OF DUE DILIGENCE BY THE PARTIES. Prior to the
Closing, the Parties shall have completed or caused to be completed, where
required, such due diligence as deemed necessary or desirable by either Party,
including, without limitation:
(i) review of any documents of the Venture Company or
Lennox Industries;
(ii) conduct of any required surveys of facilities of
either Lennox Industries or the Venture Company;
(iii) review by agents or consultants of Lennox and
Brancher of any documents, materials or facilities; and
(iv) any other due diligence actions deemed
appropriate by either Party.
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B. SECURE REQUIRED PERMITS, CERTIFICATES AND LICENSES. Apply
or cause either Party to apply, where necessary, prior to Closing, to obtain any
and all permits, certificates and licenses required to be obtained from, or the
approval or permission of, any and all agencies, instrumentalities, departments,
regulatory authorities or political subdivisions of any government with
authority to regulate any part or aspect of the businesses of the Venture
Company or the transactions contemplated by this Amended Agreement, such that by
obtaining said permits, certificates and licenses, the Venture Company legally
shall be able to operate the Venture Company and the New Companies facilities
and conduct the Venture Company and the New Companies businesses as contemplated
hereunder.
SECTION 9.2. CLOSING
The closing of the transactions provided for herein (the "Closing")
shall take place in a series of steps at various locations agreed to by the
parties, to be completed on or before November 15, 1997 or at such other time as
may be mutually agreed by the Parties (the "Closing Date"). At the Closing:
A. DELIVERY BY BRANCHER OF CERTAIN DOCUMENTS.
(i) An signed copy of this Amended Agreement;
(ii) Properly signed corporate documents reflecting
the transfer of the Company Stock of the Venture Company as provided in
this Amended Agreement.
B. DELIVERY BY LENNOX OF CERTAIN DOCUMENTS.
An signed copy of this Amended Agreement.
SECTION 9.3. CERTAIN PARTY ACTIONS TO BE TAKEN FOLLOWING CLOSING.
At or immediately following the Closing, Brancher and Lennox shall use
their best efforts to:
A. SECURE PERMITS, CERTIFICATES AND LICENSES. Where not
previously obtained under Section 9.1.C. above, apply or cause either Party to
apply, where necessary, to obtain any and all permits, certificates and licenses
required to be obtained from, or the approval or permission of, any and all
agencies, instrumentalities, departments, regulatory authorities or political
subdivisions of any government with authority to regulate any part or aspect of
the businesses of the Venture Company and the New Companies or the transactions
contemplated by this Amended Agreement, such that by obtaining said permits.
certificates and licenses, the Venture Company and the New Companies legally
shall be able to operate the Venture Company and the New Companies facilities
and conduct the New Companies businesses as contemplated hereunder.
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In addition, the Board of Directors of each Party shall adopt in writing such
resolutions as may be necessary or advisable to implement the provisions hereof.
SECTION 9.4. CONDITIONS PRECEDENT TO BRANCHER'S OBLIGATION TO CLOSE.
The obligation of Brancher to close is subject to the fulfillment of
each of the following conditions at the time of Closing:
A. REPRESENTATIONS AND WARRANTIES OF LENNOX. The
representations and warranties of Lennox contained in this Amended Agreement
shall be true and correct in all material respects;
B. FULFILLMENT OF CONDITIONS. Lennox shall have fully executed
all agreements and other documents required by this Amended Agreement to be
executed and delivered at the Closing, and shall have fulfilled or otherwise
complied with all conditions required by this Amended Agreement to be performed
or complied with by Lennox at or prior to the Closing;
C. ASSURANCE OF PERFORMANCE BY OFFICER'S CERTIFICATE. If
requested by Brancher, Lennox shall have furnished to Brancher an officer's
certificate stating that:
(i) Lennox is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware,
United States of America;
(ii) the execution, delivery and performance of this
Amended Agreement by Lennox have been duly authorized by all requisite
corporate action;
(iii) this Amended Agreement constitutes the valid
and binding obligation of Lennox and is enforceable in accordance with
its terms (subject only to the provisions of the United States
Bankruptcy Code and to limitations on enforceability that might result
from bankruptcy, insolvency or other similar laws affecting creditors'
rights generally); and
(iv) all actions and proceedings required by law or
by the provisions of this Amended Agreement do not require any action
by the shareholders of Lennox, do not violate any of the provisions of
Lennox's Company Statutes, and do not violate any of the provisions of
any note of which Lennox is the maker or of any indenture, agreement or
other instrument to which Lennox is a party or by which it is bound;
upon the understanding that the foregoing representations shall be made to and
for the benefit of Brancher alone; and
D. CONSENTS AND APPROVALS. Lennox shall have obtained all
consents and approvals from third parties that may be required to consummate and
perform this Amended Agreement.
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SECTION 9.5. CONDITIONS PRECEDENT TO LENNOX OBLIGATION TO CLOSE.
The obligation of Lennox to close is subject to the fulfillment of each
of the following conditions at the time of Closing:
A. REPRESENTATIONS AND WARRANTIES OF BRANCHER. The
representations and warranties of Brancher contained in this Amended Agreement
shall be true and correct in all material respects;
B. FULFILLMENT OF CONDITIONS. Brancher shall have fully
executed all agreements and other documents required by this Amended Agreement
to be executed and delivered at the Closing, and shall have fulfilled or
otherwise complied with all conditions required by this Amended Agreement to be
performed or complied with by Brancher at or prior to the Closing;
C. ASSURANCE OF PERFORMANCE BY PRESIDENT DIRECTOR GENERAL'S
CERTIFICATE. If requested by Lennox, Brancher shall have furnished to Lennox an
officer's certificate stating that:
(i) The Venture Company is a corporation duly
organized, validly existing and in good standing under the laws of
France;
(ii) the execution, delivery and performance of this
Amended Agreement by Brancher have been duly authorized by all
requisite corporate action;
(iii) this Amended Agreement constitutes the valid
and binding obligation of Brancher and is enforceable in accordance
with its terms (subject only to the limitations on enforceability that
might result from bankruptcy, insolvency or other similar laws
affecting creditors' rights generally); and
(iv) all actions and proceedings required by law or
by the provisions of this Amended Agreement do not require any action
by the shareholders of Brancher, do not violate any of the provisions
of Venture Company's Company Statutes, and do not violate any of the
provisions of any note of which Brancher is the maker or of any
indenture, agreement or other instrument to which Brancher is a party
or by which it is bound;
upon the understanding that the foregoing representations shall be made to and
for the benefit of Lennox alone; and
D. CONSENTS AND APPROVALS. Brancher shall have obtained all
consents and approvals from third parties that may be required to consummate and
perform this Amended Agreement.
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X. RESTRICTIONS ON TRANSFER
SECTION 10.1. RESTRICTION ON TRANSFER TO THIRD PARTIES
No Party may transfer or permit to be transferred any of the
Company Stock in Ets. Brancher or the New Companies other than as provided
herein.
SECTION 10.2. SECURITIES LAW RESTRICTIONS ON TRANSFER
No Party shall attempt to transfer or permit to be transferred
or consent to any transfer any of the Company Stock in Ets. Brancher and the New
Companies where such transfer shall constitute a violation of any Securities
Law.
XI. INDEMNIFICATION AND INSURANCE
SECTION 11.1. INDEMNIFICATION OF PARTIES.
Each Party hereto agrees to hold the other Party harmless and
indemnify such Party from and against any and all claims against the other Party
which are due to the actions or failure to act of the indemnifying Party, its
officers, directors, employees, agents or assigns; including, without
limitation, all damages, costs, and reasonable attorneys fees.
SECTION 11.2. INDEMNIFICATION OF PRIOR OPERATIONS OF ETS. BRANCHER
AND THE NEW COMPANIES.
Lennox hereto agrees to hold Brancher harmless and indemnify
Brancher, its officers, directors, employees, agents or assigns from and against
any and all claims against Brancher; including, without limitation, all damages,
costs, and reasonable attorneys fees which arise out of the operations of Lennox
Industries prior to the Transfer Date as defined in Exhibit 3.2.A. , other than
warranty claims arising in the normal and usual operations of the Lennox
Industries.
Brancher hereto agrees to hold Lennox harmless and indemnify
Lennox, its officers, directors, employees, agents or assigns from and against
any and all claims against Lennox; including, without limitation, all damages,
costs, and reasonable attorneys fees which arise out of the operations of Ets.
Brancher and the Brancher Companies prior to the Closing Date, other than
warranty claims arising in the normal and usual operations of Ets. Brancher and
the Brancher Companies.
The parties agree that the reserves maintained by Ets.
Brancher for the employee litigation (Jean Louis Bernard) (when and to the
extent such reserves are released and no longer required) and payments made by
the Blondell's as required under the terms of the Agreement dated in 1994 to the
extent such payments are made to Ets. Brancher will be used for the purpose of
satisfying all claims for indemnification against Brancher until such sums are
exhausted.
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SECTION 11.3. INSURANCE.
The Venture Company shall purchase and maintain at its expense
such policy or policies of insurance with respect to the operations, products
and personnel of the Venture Company as may be necessary or appropriate in the
judgment of the respective Board of Directors, or as otherwise may be required
by law.
XII. BREACH, NOTICE AND OPPORTUNITY TO CURE
SECTION 12.1. NOTICE OF BREACH
If either Party in good faith should conclude that the other Party has committed
a breach of this Amended Agreement, the Party so concluding shall notify the
other Party that it is in breach hereof.
SECTION 12.2. OPPORTUNITY TO CURE
Any Party receiving notice under Section 12.1. of this Amended
Agreement shall have thirty (30) days to cure its breach, if any, or to begin
those steps reasonably necessary to cure and diligently continue such steps and
to notify the Party sending such notice that such breach has been cured or the
steps to cure have been taken.
SECTION 12.3. RESOLUTION OF DISPUTED BREACH
Following the cure period specified in Section 12.2., if the
notifying Party shall reject the cure or otherwise maintain that an uncured
breach of this Amended Agreement exists, then such matter shall be referred to
the Chairman of the Dispute Committee by the complaining Party, whereupon, the
disputed matter shall be treated as a dispute to be resolved beginning under
Section 7.1., as if the disputed matter had been referred to the Dispute
Committee by either of the Parties.
SECTION 12.4. REMEDIES
Neither Party may pursue any remedy at law for a breach of
this Amended Agreement until it first shall have exhausted the dispute
resolution mechanism set forth in Section 7.1. Nothing in this Amended Agreement
shall preclude or limit the right of any Party at any time or under any
circumstances to seek injunctive relief hereunder.
XIII. GENERAL PROVISIONS
SECTION 13.1. ACCURACY OF RECITALS
The paragraphs contained in the recitals in this Amended
Agreement are incorporated herein by this reference, and the Parties hereto
acknowledge the accuracy thereof.
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SECTION 13.2. AUDIT RIGHTS
Each Party at any time may inspect and audit the books and
records of any of the Company and the New Companies, either through its own
employees or through independent auditors, or both.
SECTION 13.3. PUBLIC STATEMENTS
Neither Party shall, without the permission of the other,
release any public statement describing or in any way relating to the business
or operations of any of the Company and the New Companies.
SECTION 13.4. WAIVER OF CONSEQUENTIAL DAMAGES
The Parties hereby waive any and all claims to incidental or
consequential damages arising out of any breach of this Amended Agreement.
SECTION 13.5. TREATMENT OF CONFIDENTIAL OR PROPRIETARY INFORMATION
Neither Party, nor any of the Company or the New Companies,
shall share with any other person any confidential or proprietary information
obtained through or for any of the Company and the New Companies, or otherwise
use such information to the detriment of either or both Parties or any of the
Company or the New Companies.
SECTION 13.6. NOTICES
All notices, demands and other communications provided for
hereunder shall be in writing and shall be mailed, communicated by means of
facsimile transmission or delivered (by hand or courier service) to the Parties
at their respective addresses set forth below:
Brancher: Ets. Brancher S.A.
Attention: President
11 rue d'Alsace-Lorraine
69500 Bron, France
Telephone: (33) 472 14 61 14
Fax: (33) 472 14 61 16
Jean Jacques Brancher
34 Route du Pont de Chene
69340 Francheville, France
Telephone: (33) 472 16 05 54
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Lennox: Lennox Global Ltd.
Attention: President
2100 Lake Park Blvd.
Richardson, Texas 75080
U.S.A.
Telephone: 214-497-6868
Fax: 214-497-5159
or at such other address as the Party desiring to change the address set forth
above under its name may direct by written notice to the other Party hereto. All
such notices and communications, when mailed by certified mail or sent by
courier or fax, shall be effective upon the earlier to occur actual receipt or
three (3) business days after deposit in the mail, postage prepaid.
SECTION 13.7. FURTHER ASSURANCES
The Parties agree to execute such additional agreements and
documents, and to take such other actions, as may be necessary to effect the
purposes of this Amended Agreement.
SECTION 13.8. MODIFICATIONS
Any action or agreement by the Parties to modify this Amended
Agreement, in whole or in part, shall be binding upon the Parties even though
such agreement may lack legal consideration, so long as such modification
agreement shall be in writing and shall be executed by both Parties with the
same formality with which this Amended Agreement was executed.
SECTION 13.9. HEADINGS
The headings in this Amended Agreement are inserted for
convenience only and shall not affect the meaning or interpretation of this
Amended Agreement or of any section hereof.
SECTION 13.10. BINDING EFFECT
This Amended Agreement shall be binding upon, and shall inure
to the benefit of, the Parties and their respective successors, assigns and
legal representatives.
SECTION 13.11. COUNTERPARTS
This Amended Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
together shall constitute one and the same Amended Agreement. Each Party may
execute this Amended Agreement by signing any such counterpart.
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SECTION 13.12. GOVERNING LAW
This Amended Agreement shall be deemed to be a contract made
under, and for all purposes shall be construed in accordance with and governed
by, the laws of France.
SECTION 13.13. CONSTRUCTION
Wherever possible, this Amended Agreement, and all documents
contemplated hereunder, shall be construed and interpreted so as to be effective
and valid under Applicable Law. If any provision of this Amended Agreement, or
any document contemplated hereunder, for any reason shall be deemed invalid or
prohibited under Applicable Law, such provision shall be invalid or prohibited
only to the extent of such invalidity or prohibition, which shall not invalidate
the remainder of such provision or the remaining provisions of this Amended
Agreement.
SECTION 13.14. DELAY OR PARTIAL EXERCISE NOT WAIVER
No failure or delay on the part of any Party to exercise any
right or remedy hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right or remedy hereunder preclude any other
or further exercise thereof or the exercise of any other right or remedy granted
hereby or by any related document.
SECTION 13.15. INTERPRETATION
As used in this Amended Agreement, any singular noun shall
include the plural and any plural the singular, and any reference to one gender
shall include the other.
SECTION 13.16. COMMITMENTS FROM SUBSIDIARIES
Each Party shall cause its subsidiaries to act in such a
manner as to give effect to the purposes, provisions and obligations of such
Party under this Amended Agreement.
SECTION 13.17. ENTIRE AGREEMENT
This Amended Agreement and the Exhibits and Schedules attached
or to be attached hereto constitute and express the entire agreement between the
Parties with respect to the matters referred to herein. All previous
discussions, promises, representations and understandings relative thereto are
hereby merged in and superseded by this Amended Agreement; including
specifically, the agreement between Ets. Brancher S.A. and Heatcraft Inc. dated
November 1, 1990, the Letter of Intent between Lennox Global Ltd. and Ets.
Brancher S.A. dated November 16, 1995 and the Venture agreement between the
Parties dated 13 May 1996 as amended by the letter agreement dated 13 May 1996
and the amendment dated 24 September 1996. It is further agreed that the
Restructure Agreement signed contemporaneously with this Amended Agreement is
not superseded and remains independent from this Amended Agreement and of full
force and effect.
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SECTION 13.18. WAIVER
To be effective, any waiver of any right hereunder shall be in
writing and be signed by a duly authorized officer or representative of the
Party bound thereby.
SECTION 13.19. SIGNATORIES DULY AUTHORIZED
Each of the signatories to this Amended Agreement represents
that he is duly authorized to execute this Amended Agreement on behalf of the
Party for which he is signing, and that such signature is sufficient to bind the
Party purportedly represented.
SECTION 13.20. INCORPORATION OF EXHIBITS AND SCHEDULES BY REFERENCE
Any reference herein to any Exhibit or Schedule to this
Amended Agreement shall incorporate such Exhibit or Schedule herein, as if it
were set out in full in the text of this Amended Agreement.
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IN WITNESS WHEREOF, Brancher and Lennox have caused this Amended
Agreement to be duly executed and delivered as of the date first written above.
ETS. BRANCHER S.A. LENNOX GLOBAL LTD.
A French Corporation A Delaware Corporation
By: /s/Jean-Jacques Brancher By: /s/Robert L. Jenkins
---------------------------- --------------------------
JEAN-JACQUES BRANCHER LENNOX INTERNATIONAL INC.
A Delaware Corporation
/s/ Jean-Jacques Brancher By: /s/Clyde Wyant
- ------------------------------- --------------------------
Jean-Jacques Brancher Executive Vice President
FIBEL S.A.
A French Corporation
By: /s/Jean-Jacques Brancher
----------------------------
President
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EXHIBIT 3.2.A
CONTRIBUTION OF LENNOX U.K. TO HCF
The following principles will be used to govern the contribution of Lennox U.K.
to the New Company:
I. Lennox U.K., will consist of all the assets of Lennox Industries.
II. The parties will develop an inventory of assets; including, all
equipment (at book value); all raw material inventory; all accounts
payable; finished goods inventory; all other assets and liabilities;
and accounts receivable. The assets will reflect an agreed upon net
value of at least Twenty Nine Million Nine Hundred Ninety-Nine Thousand
Nine Hundred Seventy Ffs (29,999,970.00Ffs).
III. The process to be used to complete the transfer is as follows:
A. All shares of Lennox U.K. will be transferred to HCF or HCF's
designated subsidiary on or before 1 January 1998.
B. Lennox will be responsible for the financial results of the
integrated operation for 1997.
V. The share transfer agreement shall consist of the following terms and
conditions:
A. Agreement to Sell and Purchase Shares. Subject to the terms
and conditions set forth in this share transfer agreement, the
Parties agree that HCF will purchase and Lennox will sell all
of the shares of Company Stock of Lennox U.K.
B. Purchase Price. At the Transfer Date, the Parties agree that
HCF will pay or cause to be paid to Lennox the sum of Twenty
Nine Million Nine Hundred Ninety-Nine Thousand Nine Hundred
Seventy Ffs (29,999,970.00Ffs) as the purchase price for all
of the shares of Company Stock Of Lennox U.K.
C. Delivery of Shares of Lennox U.K. Lennox agrees to deliver to
HCF all of the shares of Company Stock of Lennox U.K., which
shares represent One Hundred Percent (100%) of the ownership
of Lennox U.K., on or before January 1, 1998 or such other
date as the parties may agree ("Transfer Date"). Such shares
shall be free of any lien, encumbrance or claim except as
agreed upon by HCF.
D. Assets of Lennox U.K. Lennox agrees that the net book value,
as provided under normal and usual accounting conventions,
shall equal no less than Twenty Nine Million Nine Hundred
Ninety-Nine Thousand Nine Hundred Seventy Ffs
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(29,999,970.00Ffs) on the Date of Transfer. HCF shall have the
right to have such book value audited by a third party. If
there is a dispute as to the book value, then each party shall
appoint an independent third party, which parties shall
appoint a third party to constitute a panel (the "Panel") to
determine the net book value of Lennox U.K. The Panel shall
then determine, by a majority vote, the net book value of
Lennox U.K. within thirty (30) days of their appointment. If
the net book value is less than Twenty Nine Million Nine
Hundred Ninety-Nine Thousand Nine Hundred Seventy Ffs
(29,999,970.00Ffs), Lennox agrees to add sufficient assets
such that the net book value, as determined by the Panel,
shall equal or exceed Twenty Nine Million Nine Hundred
Ninety-Nine Thousand Nine Hundred Seventy Ffs
(29,999,970.00Ffs). If the net book value exceeds Twenty Nine
Million Nine Hundred Ninety-Nine Thousand Nine Hundred Seventy
Ffs (29,999,970.00Ffs) then Lennox shall have the option to
remove any assets at its election so long as the remaining net
book value remains equal to or greater than Twenty Nine
Million Nine Hundred Ninety-Nine Thousand Nine Hundred Seventy
Ffs (29,999,970.00Ffs).
E. Representations of Lennox. Lennox hereby represents and warrants
that:
1. DUE INCORPORATION, GOOD STANDING, POWER AND
AUTHORITY. Lennox U.K. is or will, at the Transfer
Date, be a corporation duly organized, validly
existing and in good standing under the laws of the
United Kingdom, with all necessary corporate power
and authority to carry on its business as being
conducted on the Transfer Date and to own, operate
and lease all properties owned, operated or leased by
it, and it will, at the Transfer Date, be duly
qualified to do business in all jurisdictions where
such qualification is required, except where the
failure to be so qualified will not result in a
Material Adverse Effect. Lennox has delivered or
will, at the Transfer Date, deliver to HCF true,
correct and complete copies of the current Company
Statutes or similar organizational documents of
Lennox U.K.
2. FINANCIAL STATEMENTS. Lennox agrees to provide HCF,
at least monthly or upon its request, unaudited
Balance Sheets and the related Statements of
Operating Income of Lennox U.K. for its operations
from the Closing Date until the Transfer Date. In
addition, Lennox agrees to deliver to HCF, as soon as
available, true, complete and correct copies of (i)
the unaudited Balance Sheet of Lennox U.K. at
December 31, 1997. The Lennox U.K. Financial
Statements have been prepared from Lennox U.K. books
and records in accordance with Lennox U.K. accounting
practices applied on a basis consistent with
preceding years throughout the period involved. The
Lennox U.K. Financial Statements present fairly
Lennox U.K. 's financial condition at the respective
dates thereof and their results of operations for the
periods then ended.
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3. CAPITALIZATION. The authorized capital stock of
Lennox U.K. consists or 470,000 Redeemable
Non-Cumulative Preference Shares of 1(pound)each and
15,000 Ordinary Shares of 1(pound)each. All
outstanding capital stock of Lennox U.K. has been
validly issued and is fully paid and nonassessable.
No shares of capital stock of Lennox U.K. will have
been issued in violation of preemptive or similar
rights, and there will be no outstanding or
contingent rights to acquire any of the capital stock
of Lennox U.K. (whether or not outstanding), and no
outstanding agreements or other arrangements by which
Lennox U.K. is or may be bound to repurchase or
otherwise acquire any shares of its capital stock.
4. TITLE TO SHARES OR PROPERTY. At the Transfer Date,
HCF will acquire, good and marketable title to the
shares of Company Stock of Lennox U.K. as provided
herein, free and clear of all Encumbrances.
5. ASSETS AND PROPERTIES.
(i) Real Property. Lennox agrees to
supply to HCF, on or before the Transfer
Date, a list of all Real Property owned by
or leased to Lennox U.K.;
(ii) Personal Property. Except for
Inventory and supplies disposed of or
consumed and accounts receivables collected
or written off and cash utilized, all in the
ordinary course of business consistent with
the past practices of Lennox U.K., Lennox
U.K. will own all of its Inventory,
equipment and other personal property (both
tangible and intangible) reflected on the
Latest Balance Sheet as of the Transfer
date, free and clear of all Encumbrances.
(iii) Condition of Property. Except
as specifically identified to HCF on or
before the Transfer Date, the Real Property
and tangible personal property owned or
leased by Lennox U. K. on the Transfer Date
will be in good operating condition and
repair, ordinary wear and tear excepted; and
Lennox U.K. has no knowledge of any
condition or defect, not disclosed to HCF,
of the Real Property or such personal
property that would materially affect its
fair market values or otherwise have a
Material Adverse Effect on Lennox U.K. or
its operations.
(iv) Title to Properties. Lennox U.
K. has or will have as of the Transfer Date,
good and indefeasible title to all
properties (real, personal, tangible and
intangible) it owns other than those sold or
otherwise disposed of in the ordinary course
of business, free and
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clear of all Encumbrances, except (i) as
disclosed to HCF, (ii) as set forth in the
Latest Balance Sheet as securing specific
liabilities, (iii) the Permitted
Encumbrances, and (iv) imperfections of
title that are not substantial in character,
amount or extent and do not materially
detract from the value of the properties
subject thereto.
(v) Utilities. To the best knowledge
of Lennox U.K., all utilities (water, sewer,
gas, electricity, telephones, etc.) are or
will available to its property to adequately
service such property as of the Transfer
Date.
(vi) Compliance. To the best
knowledge of Lennox U.K., as of the Transfer
date, the continued operation, use or
occupancy of the Real Property, as currently
operated, used or occupied, will not violate
any zoning, building, health, flood control,
fire or other law, ordinance or regulation
or any restrictive covenant, except as
disclosed to HCF prior to the Transfer Date
in writing.
6. LEASES. On or before the Transfer date,
Lennox will provide to HCF a list of all real
properties leased by Lennox U.K. and Lennox U.K. has
or will have been in peaceable possession (or
remedied any claims relating thereto) of the Real
Property, buildings, machinery, equipment, vehicles
or other tangible property or assets covered thereby
since the commencement of the original term of such
lease and is or will not be in material default
thereunder as of the Transfer date. There will not be
any liens on the assets of Lennox U.K. except as have
been identified to HCF in writing on the Transfer
Date.
7. INTELLECTUAL PROPERTY. On or before the
Transfer date, Lennox will provide to HCF a list of
all Intellectual Property that is material to the
conduct of the businesses of Lennox U.K. as being
conducted on the Transfer Date and owned by Lennox
U.K. or which it is licensed to use. The listed
Intellectual Property will constitute all
Intellectual Property necessary for the conduct of
the businesses of Lennox U.K. as being conducted as
of the Transfer date. To the best knowledge of
Lennox, there are no Proceedings pending or
threatened in writing against Lennox U.K. asserting
that the use by Lennox U.K. of any of such
Intellectual Property infringes in any material
respect the rights of any other person or seeking
revocation, termination, or concurrent use of any of
such Intellectual Property. Nor will such proceeding
exist at the Transfer Date without prior written
notice to HCF. To the best knowledge of Lennox, none
of such Intellectual Property is being infringed upon
by any other person.
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8. LEGAL PROCEEDINGS. On or before the Transfer date,
Lennox will provide to HCF a list, in writing, of all
pending and, to the best knowledge of Lennox,
threatened Proceedings involving Lennox U.K. or any
of its properties in which the damages sought to be
imposed exceed 500,000Ffs in any one case or which,
individually or in the aggregate, might result in any
Material Adverse Effect on the Transfer Date. There
are no Proceedings pending or, to the best knowledge
of Lennox, threatened in writing, seeking to
restrain, prohibit or obtain damages or other relief
in connection with this Amended Agreement or the
consummation of the transactions contemplated herein.
9. GOVERNMENTAL CONSENTS, COMPLIANCE WITH LAW. Except
for the approvals of Governmental Entities disclosed
in writing to HCF, to the best knowledge of Lennox,
there is no requirement applicable to Lennox or
Lennox U.K. to make any filing with, or to obtain any
permit, authorization, consent or approval of, any
Governmental Entity as a condition to the lawful
consummation by Lennox of the transactions
contemplated by this share transfer agreement. The
execution, delivery or performance by Lennox of this
Amended Agreement will not violate any Applicable Law
to which Lennox or Lennox U.K. is subject.
10. INVENTORY. As of the Transfer Date, all Inventory
(including raw materials, work-in progress and
finished goods) and related supplies reflected on the
Lennox U.K. Latest Balance Sheet or thereafter
acquired and not disposed of in the ordinary course
of business will be usable and salable in the
ordinary course of business of Lennox U.K.
11. CONTRACTS AND AGREEMENTS. On or before the Transfer
date, Lennox will provide to HCF a list, in writing,
of all material contracts or other agreements,
relating to the businesses of Lennox U.K. to which
Lennox U.K. is a party or by which Lennox U.K. is
bound, and Lennox has furnished or shall furnish
prior to the Transfer Date to HCF complete and
correct copies of all such contracts or other
agreements, including all amendments as of the date
hereof. Lennox U.K. will not be in default in any
material respect, and no written notice of alleged
default will have been received by Lennox U.K. under
any of these agreements, and, to the best of Lennox'
knowledge, no other party thereto is in default or
alleged in writing to be in default in any material
respect other than defaults as to which requisite
waivers or consents have been obtained and defaults
which in the aggregate would not have a Material
Adverse Effect which have not been identified to HCF,
in writing. Lennox makes no representations about the
possibility or likelihood of renewal or extension of
any such contract or other agreement unless otherwise
noted to HCF, in writing.
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12. COMPLIANCE WITH LAW. To the best of Lennox'
knowledge, Lennox U.K. will not, as of the Transfer
Date, be in violation of (i) any applicable judgment,
order, injunction, award or decree relating to the
operation of its businesses or (ii) any Applicable
Law except in the case of (i) and (ii) for such
violation individually or in the aggregate which
would not have a Material Adverse Effect which have
not been identified to HCF, in writing.
13. PERMITS. On or before the Transfer date, Lennox will
provide to HCF a list, in writing of all Permits
which are material to or necessary in the conduct of
the businesses of Lennox U.K. as they are being
conducted as of the Transfer date. Lennox U.K. will
have conducted its businesses and operations
substantially in accordance with the conditions and
provisions of the Permits except for noncompliance as
to which it has received requisite waivers or
consents or which does not have a Material Adverse
Effect. There will be no other Permit the absence of
which would have a Material Adverse Effect on Lennox
U.K.'s ability to carry on its businesses and
operations on the Transfer Date except as identified
to HCF in writing. Except as identified to HCF in
writing: (i) all such Permits will be in full force
and effect, (ii) no violations are known to Lennox or
have been recorded (which have not been remedied) in
respect of any such Permit, and (iii) no Proceeding
is pending or threatened in writing to revoke or
limit any such Permit.
14. EMPLOYEES. On or before the Transfer date, Lennox
will provide to HCF a list, in writing, a complete
list of the collective bargaining agreements
applicable to the facilities of Lennox U.K.; a list
of all employment agreements between any employee and
Lennox U.K. and the names and total compensation of
all salaried employees who are employed by Lennox
U.K. who have an annual salary in excess of $100,000.
Except as identified to HCF in writing, there are no
and will not have been strikes, slow-downs, disputes,
litigation, agency or other actions pending or
threatened which are considered adverse to the
operations of Lennox U.K.
15. EMPLOYEE BENEFIT PLANS. On or before the Transfer
date, Lennox will provide to HCF a list, in writing,
of all of the pension, profit sharing, thrift,
deferred compensation, bonus, incentive, stock
purchase, severance, hospitalization, insurance or
other similar plans, agreements or arrangements,
which are maintained by or contributed to by Lennox
U.K. for its employees. All obligations of Lennox
U.K. to contribute to such plans on behalf of the
employees employed for calendar years prior to 1996
have been paid, and all obligations of Lennox U.K. to
contribute to such plans on behalf of such employees
for the period beginning January 1, 1996 and ending
on the Transfer Date will be paid by Lennox U.K.
Lennox U.K. has not incurred any liability under
these plans or the laws governing them arising in
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connection with the termination of, or complete or
partial withdrawal from, any plan covered or
previously covered by Applicable Laws, and Lennox
U.K. has paid and discharged when due all obligations
and liabilities arising under Applicable Laws with
respect to all employee benefit plans of a character
which, if unpaid or unperformed might result in the
imposition of a lien against any of the assets of
Lennox U.K. All employee benefit plans of Lennox U.K.
(the "Lennox U.K. Plans") have been, are being and
will have been, at the Transfer Date, maintained in
compliance with each of their terms and with the
requirements prescribed by all Applicable Laws.
Lennox has furnished or will furnish, on the Transfer
Date, to HCF a copy of the Lennox U.K. Plans and
related documents, where applicable, and all
amendments thereto and written interpretations
thereof together with any reports prepared in
connection with the Lennox U.K. Plans. There are not
now, nor will there have been prior to the Transfer
Date, any transactions with respect to the Lennox
U.K. Plans which could result in material liability
on the part of Lennox U.K. under Applicable Laws.
There are no threatened or pending claims by or on
behalf of the Lennox U.K. Plans or by any employee
participating therein alleging a breach of fiduciary
duties or violations of Applicable Laws with respect
to the Lennox U.K. Plans on or before the Transfer
Date which could result in material liability on the
part of Lennox U.K. or the Lennox U.K. Plans under
Applicable Laws of which HCF will have not been
notified in writing. The Parties further agree that
HCF shall have the option to terminate all Lennox
U.K. Plans upon the Closing or such mutually agreed
upon date thereafter and any employees of Lennox U.K.
transferred to shall be a participant in such
employee benefit plans as are in force for other
employees of the.
16. INSURANCE. On or before the Transfer date, Lennox
will provide to HCF a list, in writing, of all
policies of fire, liability, casualty, life and all
other forms of insurance owned or held by Lennox U.K.
As of the Transfer Date or the first policy renewal
date thereafter, HCF shall have the option to
terminate all Lennox U.K. coverages under said
policies with respect to assets being transferred to
the New Companies and the HCF will be responsible for
obtaining any insurance it deems necessary and
reasonable.
17. TAXES. Lennox U.K. has or will have filed all
foreign, federal, state, local and other tax reports
or returns required to be filed on or before the
Transfer Date and has or will have either discharged
or adequately provided for the discharge of all
taxes, costs, expenses, charges and debts of every
kind and character, except those taxes, costs,
expenses, charges and debts which are being protested
in good faith by Lennox U.K. which are identified to
HCF in writing.
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18. NO CONFLICT WITH OTHER AGREEMENTS. Neither the
execution nor delivery of this Amended Agreement, nor
the consummation of the transactions contemplated
hereunder, nor the fulfillment of or compliance with
the terms and conditions hereof will conflict with
the Company Statutes of Lennox or Lennox U.K., or
will result in a breach of, or constitute a conflict
or default under, any material contract, agreement or
instrument to which either of them is a party or by
which either of them or any of their assets or
personnel are bound.
19. ABSENCE OF CERTAIN EVENTS. Since December 31, 1995,
there has not been:
(i) Any Material Adverse Effect on Lennox U.K.
or the assets and properties described above
which has not been disclosed to HCF;
(ii) Any purchase, sale or transfer of assets in
anticipation of this Amended Agreement, or
which would contravene the intent of this
Amended Agreement;
(iii) Any illegal payment by Lennox U.K. to
foreign or domestic governmental or
quasi-governmental officials, or payments to
customers or suppliers for rebating of
charges, or other reciprocal practices, in
connection with the conduct of its
businesses, other than normal price
reductions allowed to customers in the
ordinary course of business; or
(iv) Any damage, destruction or loss (whether or
not covered by insurance) which has or would
have a Material Adverse Effect on Lennox
U.K.
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SCHEDULES
Schedule 3.3.A(i) Consolidated Net Book Value of Ets. Brancher as of
30 September 1997.
Schedule 8.1.E. Description of the Stock of the Venture Company
Schedule 8.1.F. Assets and Properties of the Venture Company
Schedule 8.1.G. Real Properties Leased by the Venture Company
Schedule 8.1.H. Intellectual Property of the Venture Company
Schedule 8.1.I. Legal Proceedings Involving the Venture Company
Schedule 8.1.J. Governmental Consents of the Venture Company
Schedule 8.1.L. Contracts & Agreements of the Venture Company
Schedule 8.1.N. Permits of the Venture Company
Schedule 8.1.Q. Labor Disputes of the Venture Company
Schedule 8.1.R. Employee Benefit Plans Maintained or Contributed to
by the Venture Company
Schedule 8.1.S. Insurance Policies of the Venture Company
Schedule 8.1.T. Taxes under Protest by the Venture Company
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EXHIBIT 10.14
SHAREHOLDER RESTRUCTURE AGREEMENT
This Shareholder Restructure Agreement is entered into by and between
Jean Jacques Brancher ("Brancher") , Ets. Brancher S.A. ("Ets. Brancher") , a
French company, AFIBRAL S.A., a French company ("AFIBRAL") and Parifri S.A., a
Belgium company ("Parifri"), both holding companies to be formed by Brancher
("Holding A") and Lennox International Inc., a U.S. Delaware corporation with
its principal place of business at 2100 Lake Park Boulevard, Richardson, Texas,
75080, acting for itself and its subsidiaries (collectively Lennox ) as of the
30th day of September, 1997.
WITNESSETH:
WHEREAS, Lennox, Brancher and Ets. Brancher have entered into a Joint
Venture Agreement, dated 13 May 1996, which was amended by the letter agreement
of 13 May 1996 and the amendment of 24 September 1996, for the purposes of the
manufacture, marketing and sale of heating, ventilating, air conditioning,
refrigeration ("HVACR") and other related equipment (the "Venture"); and
WHEREAS, the parties believe the restructuring of the Venture as set
forth below is in the parties mutual interest;
AGREEMENT
NOW, THEREFORE, for and in consideration of the covenants set forth in
this Restructure Agreement, the receipt and sufficiency thereof being
acknowledged by the parties, and in reliance on the recitals and covenants set
forth in this Restructure Agreement, the parties hereby agree as follows:
I. DEFINITIONS
"A Assets" shall mean the assets owned by Ets. Brancher to be
transferred to Holding A which are unrelated to the Companies or their operation
which are described in more detail on SCHEDULE 2.2.C.
"Amended and Restated Venture Agreement" shall mean the Venture
Agreement, dated 13 May 1997, which was amended by the letter agreement of 13
May 1996 and the amendment of 24 September 1996 which has been, simultaneously
with the signing of this Restructure Agreement, amended and restated to conform
to the terms of this Restructure Agreement.
"B Assets" shall mean the assets to be retained in Ets. Brancher
related to its activities consisting of real property located at the
Villefranche, Cremieux and Genas facilities of the Companies and certain debts
owed by the Companies to the Shareholders, the shares of Frinotec S.A., SCI
Groupe Brancher, SCI Geraval and certain miscellaneous assets of Ets. Brancher
which are described in more detail on SCHEDULE 2.2.A(l).
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"Brancher" shall mean Jean Jacques Brancher.
"The Companies" shall mean the HCF Lennox S.A. ("HCF") and Friga Bohn
S.A. ("Friga Bohn").
"Holding" shall mean AFIBRAL and Parifri, the holding companies created
by Brancher under the terms of this Restructure Agreement for the purpose of
owning assets unrelated to the Venture.
"Holding B" or "Ets. Brancher" shall mean Ets. Brancher S.A.
"Shareholder" shall mean either Lennox or Brancher or both.
"Lennox Stock" shall mean the common stock authorized for issuance by
Lennox International Inc. which represents the equity ownership of Lennox.
II. PURPOSE AND SCOPE
SECTION 2.1. PURPOSE.
Each of the Shareholders own, directly or indirectly, shares
of the Companies which conduct the operations of the Venture under the terms of
the Amended Venture Agreement. The purpose of this Restructure Agreement is to
restructure the Venture such that the shares of the Companies now owned by the
Shareholders, directly or indirectly, will be transferred to and owned by a
single holding company, the existing Ets. Brancher. The Shareholders will then
own the shares of this holding company in the proportion agreed to in this
Restructure Agreement and the Amended Venture Agreement. In addition, Brancher
will remove from Ets. Brancher those assets which are unrelated to the Venture
(the A Assets) in a manner so as to also transfer any liabilities related to
these assets to the new holding company, AFIBRAL or Holding A, which will own
those assets. Holding B will continue to own certain other assets which are
related to the Venture (the B Assets). Finally, this restructuring will increase
the percentage of Lennox' ownership of Holding B through an exchange of Lennox
Stock for additional Holding 3 shares currently owned, directly or indirectly,
by Brancher.
SECTION 2.2. STEPS IN THE RESTRUCTURE PROCESS.
A. SPECIFICATION OF THE VENTURE HOLDING COMPANY. The
Shareholders have agreed that the existing company, Ets. Brancher will serve as
the holding company for the Venture, Holding B. After the restructure described
in this Restructure Agreement, Holding B will own: (i) all outstanding shares of
HCF and Friga Bohn (excluding those shares which are owned by any member of the
boards of directors of the Companies to qualify that director for service on the
Board); (ii) certain real property on which some of the facilities of the
Companies are located (more fully described below); (iii) certain notes owed by
the Companies to Ets. Brancher and Lennox; and (iv) certain miscellaneous assets
owned by Ets. Brancher prior to the restructuring (items ii, iii and
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iv defined collectively above as B Assets). The B Assets are specified in more
detail on SCHEDULE 2.2.A(l) attached hereto. For the purposes of this
transaction, specifically the steps described in SECTIONS 2.2.D. through 2.2.H.,
the price per share for Ets. Brancher will be as described on SCHEDULE 2.2.A(2).
B. CREATION OF THE NEW HOLDING COMPANY. Brancher agrees to
create new companies into which a specified number of shares of Ets. Brancher
and other assets of Ets. Brancher (the A Assets), will be transferred. It is
understood and agreed that Lennox shall have no ownership interest in or control
of Holding A apart from the obligations assumed by Ets. Brancher and Holding A,
under this Restructuring Agreement to perform the functions it will perform for
the restructure described herein.
C. TRANSFER OF A ASSETS. Brancher agrees to cause the transfer
all A Assets from Ets. Brancher into Fibel S.A. ("Fibel"), a subsidiary of Ets.
Brancher, in manner so as to also transfer any present or future liabilities
related to those assets. The A Assets are specified in more detail on SCHEDULE
2.2.C. attached hereto.
D. TRANSFER OF ETS. BRANCHER SHARES TO HOLDING A. Brancher
agrees to transfer a portion of his shares of Ets. Brancher at the price per
share described in SECTION 2.2.A(2). above, to AFIBRAL and Parifri. The number
of shares transferred to AFIBRAL will equal at least the value of Fibel
containing all the A Assets and the number of shares transferred to Parifri will
equal at least the value of the Lennox Stock to be exchanged for shares of Ets.
Brancher which is described in more detail on SCHEDULE 2.2.D. attached hereto.
E. HOLDING A'S TRANSFER OF ETS. BRANCHER SHARES TO ETS.
BRANCHER FOR FIBEL SHARES. Brancher agrees to cause that portion of the Ets.
Brancher shares held by AFIBRAL to be exchanged or sold to Ets. Brancher at the
price per share described in SECTION 2.2.A(2) above, for all of the Fibel
shares. This will cause Fibel owning all of the A Assets to be owned by AFIBRAL.
Subsequent to this sale or exchange these shares of Ets. Brancher will be
canceled as required by French law.
F. LENNOX' CONTRIBUTION OF ALL OF ITS SHARES IN AND LOANS TO
THE COMPANIES TO ETS. BRANCHER FOR ETS. BRANCHER SHARES. Lennox agrees to
contribute all of its shares in and loans to the Companies to Ets. Brancher for
shares of Ets. Brancher at the price per share described in SECTION 2.2.A(2).
above. The number of shares of the Companies to be contributed and the number of
Ets. Brancher shares to be received is described in more detail on SCHEDULE
2.2.F. attached hereto.
G. HOLDING A S EXCHANGE OF ETS. BRANCHER SHARES FOR LENNOX
STOCK. Brancher and Lennox agree to cause that number of the Ets. Brancher
shares at the price per share described in SECTION 2.2.A(2). above, held by
Parifri to be exchanged with Lennox for an equivalent value of Lennox Stock. The
number of shares of the Ets. Brancher and the number of shares of Lennox Stock
to be exchanged is described in more detail on SCHEDULE 2.2.G. attached hereto.
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H. SUBSEQUENT PURCHASE OF ETS. BRANCHER SHARES BY LENNOX.
Brancher and Lennox agree that Lennox will purchase and Brancher will sell
additional Ets. Brancher shares at the price per share described in SECTION
2.2.A(2). above, at times selected by Brancher during the period between the
Effective Date of this Restructure Agreement and 31 October 1997. The number of
such shares will be at Brancher election. The balance of the Ets. Brancher
shares held by Brancher shall be purchased by Lennox and sold by Brancher in
accordance with the Amended Venture Agreement. The number of shares of Ets.
Brancher to be purchased and sold in the future is described in more detail on
SCHEDULE 2.2.H. attached hereto.
I. FINALIZATION OF THE TRANSACTIONS. The parties acknowledge
and agree that the number of shares to be purchased and the price per share of
Ets. Brancher shares are based on preliminary financial information for Ets.
Brancher. The final values of all Ets. Brancher Assets will be based on
financial data approved by the authorized representatives of both Brancher and
Lennox. The parties further agree to adjust the respective contributions of each
party as necessary to result in the number of shares and the price per share
described above.
J. TIMING OF THE TRANSACTIONS. The order and timing of the
above transactions may be changed with the agreement of the Shareholders.
SECTION 2.3. AMENDMENT OF THE VENTURE AGREEMENT.
The Shareholders agree that simultaneously with the Effective
Date of this Restructure Agreement, the parties will cause the terms of the
Venture Agreement to be amended as necessary to conform to the terms of this
Restructure Agreement.
III. VALUATION
SECTION 3.1. REAL PROPERTY AND OTHER ASSETS.
Brancher shall have or cause to have appraised, by an
independent appraiser, all A Assets and B Assets included in the transactions
described above. Lennox shall have the right to review all such appraisals and,
at its option, obtain a second independent appraisal. In the event the second
appraisal differs from the initial appraisal by more than Five Percent (5%), the
value of any such asset will be deemed to be the average of the two appraisals.
It is further agreed that, where required, an appraiser, appointed in accordance
with the requirements of French Law, will be used. Lennox and Brancher agree
that in the event of a dispute as to the value of any asset which can not be
resolved among the parties, the dispute provisions of this Restructure Agreement
shall control.
SECTION 3.2. SHARES.
A. SHARES OF THE COMPANIES. Lennox and Brancher agree that for
the purposes of the transactions described in this Restructuring Agreement the
shares of the Companies shall be valued as follows: (i) HCF shares will be
valued at eighty-one French Francs (81 Ffrs) per share and (ii) Friga Bohn
shares will be valued at One Thousand Eight Hundred ninety-nine French Francs
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<PAGE> 5
(1899 Ffrs) per share. It being understood and agreed that this is the same
price per share paid by Lennox for the shares of the Companies under the Amended
Venture Agreement.
B. LENNOX STOCK. Lennox and Brancher agree that, for purposes
of the transactions described above, the Lennox Stock will be valued in
accordance with the appraisal in effect at the time of any such transaction for
a nonmarketable minority interest provided by the independent professional
appraisers engaged by the Lennox, which is Houlihan, Lokey, Howard & Zukin, Inc.
It being understood that such appraisals are provided on a quarterly basis,
approximately forty-five (45) days after the close of any calendar quarter, and
are effective upon receipt by Lennox and remain in effect until the next
appraisal is received by Lennox.
C. SHARES OF ETS. BRANCHER. Lennox and Brancher agree that for
purposes of the transactions described above the Ets. Brancher Shares will be
valued in accordance with the calculation described in SCHEDULE 2.2.A(2).
IV. ETS. BRANCHER MANAGEMENT AND SHAREHOLDER RIGHTS
SECTION 4.1. ETS. BRANCHER MANAGEMENT.
For so long as Both shareholders continue to own shares in the
Ets. Brancher, the Ets. Brancher's activities are to be managed as provided for
in the Amended Venture Agreement.
SECTION 4.2. BOARD OF DIRECTORS.
A. DESIGNATION OF MEMBERS; POWERS OF BOARD. The Board of
Directors shall be designated and its activities conducted in accordance with
the terms of the Amended Venture Agreement.
B. ACTION OF THE BOARD. The Shareholders agree that each will
take all actions as a member of the Board of Directors of the Ets. Brancher or
the Companies in accordance with the terms of this Restructure Agreement and the
Amended Venture Agreement consistent with the terms set forth in the Company
Statutes of Ets. Brancher or the Companies and applicable laws.
SECTION 4.3. ACTIONS REQUIRING SHAREHOLDER APPROVAL. In addition to and
not in contravention of any rights which a Shareholder may have under the
Company Statutes or applicable laws, Ets. Brancher shall be prohibited from
taking any of the following actions without first obtaining the express written
consent of the Shareholders:
(i) engaging in any increase of capital such that the percentage of
Brancher ownership of the Ets. Brancher is less than Twenty Five Percent (25%)
of the Ets. Brancher's outstanding shares unless Brancher either by election
under SECTION 2.2.H. or otherwise under the terms of the Amended Venture
Agreement reduces its ownership of the Ets. Brancher to less than Twenty-five
Percent (25%) of the outstanding shares of the Ets. Brancher;
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(ii) changing in any material way the purpose of Ets. Brancher; and
(iii) dissolving the Ets. Brancher.
V. REPRESENTATIONS AND WARRANTIES
SECTION 5.1. LENNOX REPRESENTATIONS AND WARRANTIES.
Lennox hereby represents and warrants to Brancher as follows:
A. ORGANIZATION AND POWER. Lennox is a corporation duly
organized, validly existing and in good standing under the laws of Delaware and
is duly qualified to do business in all other jurisdictions where such
qualification is required. No actions or proceedings to dissolve Lennox are
pending.
B. AUTHORITY OF LENNOX. Lennox has full corporate power to
enter into this Restructure Agreement and to carry out its obligations
hereunder, and the execution and delivery by Lennox of this Restructure
Agreement and the performance by Lennox of its obligations hereunder have been
duly authorized by all necessary corporate action of Lennox. This Restructure
Agreement has been duly executed and delivered by Lennox and constitutes a valid
and legally binding obligation of Lennox enforceable against Lennox in
accordance with its terms, except that (i) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditor's rights generally, (ii) the remedies of specific performance and
injunctive relief are subject to certain equitable defenses and to the
discretion of the court before which any proceedings may be brought, and (iii)
rights to indemnification hereunder may be limited under applicable Securities
Laws.
C. FINANCIAL STATEMENTS. Lennox has or will have delivered to
Brancher true, complete and correct copies of (i) the audited Balance Sheet of
Lennox at December 31, 1996 and the related Statements of Earnings and Changes
in Financial Position for the year then ended, and the notes thereto, and (ii)
the unaudited Balance Sheet of Lennox at June 30, 1997 and the related
Statements of Earnings and Changes in Financial Position for the period then
ended. The Financial Statements have been prepared from the books and records of
Lennox in accordance with the GAAP and accounting practices of each applied on a
basis consistent with preceding years throughout the period involved and present
fairly the financial condition of Lennox at the respective dates thereof and
their results of operations and cash flows for the periods then ended. Brancher
and their employees and agents shall not disclose any of the financial data to
any party without the prior written consent of Lennox.
D. CAPITALIZATION. The authorized capital stock of Lennox
consists of Thirty Seven Million Five Hundred Thousand (37,500,000) shares of
common stock, of a par value of $0.01 of which One Million Twenty-five Thousand
Two Hundred sixty-seven (1,025,267) shares are outstanding and an additional
approximately ninety-two Thousand Five Hundred forty-nine (92,549) shares under
option. Lennox also has 1,000,000 shares of preferred stock, of a par value of
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$0.01, authorized with no shares outstanding. No other shares of capital stock
are issued or outstanding. All outstanding shares of capital stock of Lennox
have been validly issued and are fully paid and nonassessable. No such shares of
capital stock have been issued in violation of preemptive or similar rights, and
there are no outstanding or contingent rights to acquire any of the capital
stock of Brancher (whether or not outstanding), and no outstanding agreements or
other arrangements by which Brancher is or may be bound to repurchase or
otherwise acquire any shares of its capital stock.
E. TITLE TO SHARES. The shares of Lennox Stock to be exchanged
for Ets. Brancher shares under the terms of this Restructure Agreement will be
common stock which has been authorized but unissued. The title to the Lennox
Stock is held, in the number of shares noted, free of any lien or other
encumbrance or restriction. The Lennox Stock is not registered for sale on any
exchange and all such shares are subject to a right of first refusal on behalf
of Lennox in the event any such shares are offered for sale to a third party as
specified in Article Sixteen of the Certificate of Incorporation. This
restriction is terminated in the event of registration of the shares for sale on
any exchange. A decision by Lennox to seek such registration, including the sale
of additional shares is a matter within the sole discretion of Lennox and
nothing in this Restructure Agreement shall constitute any commitment by Lennox
to engage in such registration or sale of Lennox Stock.
F. NON-CONTRAVENTION. Neither the execution and delivery of
this Restructure Agreement nor the completion of the transactions described
herein will (i) conflict with or result in any violation of or constitute a
default under any provision of the Certificate of Incorporation or Bylaws of
Lennox or any mortgage, bond, indenture, agreement, franchise or other
instrument or obligation to which Lennox is a party or by which Lennox is bound,
(ii) violate any judgment, order, injunction, decree or order of any
Governmental Entity against, or binding upon, Lennox or upon the securities,
property or business of Lennox, or (iii) constitute a violation by Lennox of any
law or regulation of any jurisdiction as such law or regulation relates to
Lennox or the securities, property or business of Lennox.
G. GOVERNMENTAL CONSENTS; COMPLIANCE WITH LAW. The execution,
delivery, or performance by Lennox of this Restructure Agreement will not
violate the terms, or require the obtainment, of any consent, order, approval or
authorization of, or declaration, filing, or registration with, any Governmental
Entity. The execution, delivery or performance by Lennox of this Restructure
Agreement will not violate any Applicable Law to which Lennox is subject.
H. INVESTMENT INTENT. Lennox is acquiring the Shares of the
Ets. Brancher for its own account for investment purposes only and not with a
view to, or for sale or other disposition in connection with, any distribution
thereof, nor with any present intention of selling or otherwise disposing
thereof. Lennox agrees that the shares may not be sold, transferred, offered for
sale, pledged, hypothecated or otherwise disposed of without registration under
the applicable securities laws, as amended, except pursuant to any exemption
from such registration available thereunder.
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I. LENNOX STOCK. The Lennox Stock is being exchanged subject
only to the restrictions set forth in of the Certificate of Incorporation or
By-laws of Lennox and not subject to any mortgage, bond, indenture, agreement,
franchise or other instrument or obligation to which Lennox is a party or by
which Lennox is bound. Lennox has provided or agrees to provide Brancher access
to all such documents. It is expressly understood that such restrictions include
a right of first refusal in favor of Lennox, for the sale of Lennox Stock owned
by Brancher. It is further understood that the Lennox Stock may not be sold,
transferred, offered for sale, pledged, hypothecated or otherwise disposed of
without registration under the applicable securities laws, as amended, except
pursuant to any exemption from such registration available thereunder. Any
future registration for such sale by Lennox or any other shareholder of Lennox
may or may not occur based on a Lennox decision solely within its discretion. In
the event the Lennox stock is not registered for public sale and Brancher
desires to sell some or all of its Lennox stock, Lennox agrees to, upon written
notice by Brancher of its intent to sell the Lennox stock, either register the
Lennox stock for public sale within six (6) months of such request or purchase
up to twenty-five Percent (25%) of the Lennox stock owned by Brancher per year
at the then applicable appraised value as referenced in SECTION 3.2.B.
SECTION 5.2. BRANCHER S REPRESENTATIONS AND WARRANTIES.
Brancher hereby represents and warrants to Lennox as follows:
A. ORGANIZATION, POWER AND AUTHORITY OF THE ETS. BRANCHER. Ets
Brancher is duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization, with all necessary corporate power and
authority to carry on its business as now being conducted and to own, operate
and lease all properties owned, operated or leased by it, and is duly qualified
to do business in all jurisdictions where such qualification is required, except
where the failure to be so qualified will not result in a Material Adverse
Effect. Brancher has delivered to Lennox true, correct and complete copies of
the charter or bylaws of the Ets. Brancher as now in force.
B. AUTHORITY. Brancher, Holding A and Ets. Brancher have full
power, corporate or individual, as appropriate, to enter into this Restructure
Agreement and to carry out their obligations hereunder, and the execution and
delivery by such parties of this Restructure Agreement and the performance by
such parties of their obligations hereunder have been duly authorized by all
necessary corporate action or other approvals of such parties. This Restructure
Agreement has been duly executed and delivered by Brancher, Holding A and Ets.
Brancher and constitutes a valid and legally binding obligation of such parties
enforceable against the parties in accordance with its terms, except that (i)
such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditor's rights generally, (ii) the
remedies of specific performance and injunctive relief are subject to certain
equitable defenses and to the discretion of the court before which any
proceedings may be brought, and (iii) rights to indemnification hereunder may be
limited under applicable securities laws. No actions or proceedings to dissolve
Brancher, Holding A and Ets. Brancher are pending.
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C. CAPITALIZATION. The authorized capital stock of Ets.
Brancher S. A. consists of Two Hundred Thousand Sixty Six Ten (266,010) shares
of common stock, of a par value of 100 Ffrs per share of which all shares are
outstanding. No other shares of capital stock are issued or outstanding. All
outstanding shares of capital stock of Brancher have been validly issued and are
fully paid and nonassessable. No such shares of capital stock have been issued
in violation of preemptive or similar rights, and there are no outstanding or
contingent rights to acquire any of the capital stock of Brancher (whether or
not outstanding), and no outstanding agreements or other arrangements by which
Brancher is or may be bound to repurchase or otherwise acquire any shares of its
capital stock.
D. TITLE TO SHARES. The title to all of the authorized and
issued Shares of Brancher are held, in the number of shares noted, free of any
lien or other encumbrance or restriction other than those described thereon, by
those parties set forth on SCHEDULE 5.2.D., attached hereto.
E. TITLE TO PROPERTIES. The Ets. Brancher has good and
indefeasible title to all A Assets and B Assets free and clear of all
encumbrances, except as disclosed on SCHEDULE 5.2.E.
F. COMPLIANCE WITH LAW. To the best of Brancher's knowledge
and except for those disclosed on SCHEDULE 5.2.F., the Ets. Brancher is not in
violation of (i) any applicable judgment, order, injunction, award or decree
relating to the operation of its businesses or (ii) any Applicable Law.
G. ABSENCE OF CERTAIN EVENTS. Other than those events which
have been disclosed to Lennox, there has not been:
(a) Any Material Adverse Effect on the Ets. Brancher, A
Holding or Brancher from any source;
(b) Any purchase, sale or transfer of assets in anticipation
of this Restructure Agreement, or which would contravene the intent of
this Restructure Agreement;
(c) Any damage, destruction or loss (whether or not covered by
insurance) which has or would have a Material Adverse Effect.
H. TAXES. Other than those items specifically disclosed to
Lennox, Ets. Brancher has filed all tax returns and other reports required to be
filed and has either discharged or adequately provided for the discharge of all
taxes, costs, expenses, charges and debts of every kind and character, except
those taxes, costs, expenses, charges and debts which are being protested in
good faith by the Ets. Brancher. Prior to Closing, the Ets. Brancher shall
provide to Lennox the federal tax returns for fiscal years 1995 and 1996 for
Ets. Brancher.
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VI. CONDITIONS TO THE OBLIGATIONS OF BRANCHER
The obligations of Brancher to consummate the transactions contemplated
by this Restructure Agreement are subject to the fulfillment, on or before the
Closing Date, of the following conditions, subject to the right of Brancher to
waive any such condition (except for any condition that cannot be waived due to
any Applicable Law):
SECTION 6.1 REPRESENTATIONS AND WARRANTIES TRUE. All the
representations and warranties of Lennox contained in this Restructure Agreement
shall be true and correct in all material respects on and as of the Closing
Date, except to the extent such representations and warranties expressly relate
to an earlier date.
SECTION 6.2 PERFORMANCE OF COVENANTS. Lennox shall have in all material
respects performed or complied with all covenants and agreements required by
this Restructure Agreement to be performed or complied with by Lennox prior to
or on the Closing Date.
SECTION 6.3 CLOSING DOCUMENTS. Lennox shall have delivered to Brancher
the documents and other items listed below:
(a) Resolutions of the Board of Directors of Lennox
authorizing the execution, delivery and performance of this Restructure
Agreement and the consummation of the transactions contemplated hereby,
certified by an officer of Lennox;
(b) Stock certificates representing the Lennox Stock, duly
endorsed for transfer to Brancher or its designee;
(c) Such other certificates and documents as may be reasonably
requested by Brancher.
SECTION 6.5 NO INJUNCTIONS. Neither Brancher nor Lennox shall be
subject to an order, decree or injunction of a court of competent jurisdiction
which (i) prevents or delays any of the transactions contemplated by this
Restructure Agreement or (ii) would impose any material limitation on the
ability of Brancher effectively to exercise full rights of ownership of the
Lennox Stock except as set forth in this Restructure Agreement.
VII. CONDITIONS TO THE OBLIGATIONS OF LENNOX
The obligations of Lennox to consummate the transactions contemplated
by this Restructure Agreement are subject to the fulfillment, on or before the
Closing Date, of the following conditions, subject to the right of Lennox to
waive any such condition (except for any condition that cannot be waived due to
any Applicable Law):
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SECTION 7.1 REPRESENTATIONS AND WARRANTIES TRUE. All of the
representations and warranties of Brancher contained in this Restructure
Agreement shall be true and correct in all material respects on and as of the
Closing Date, except to the extent such representations and warranties expressly
relate to an earlier date.
SECTION 7.3 PERFORMANCE OF COVENANTS. Brancher shall have performed or
complied with or delivered all covenants and agreements required by this
Restructure Agreement to be performed or complied with by Brancher prior to or
on the Closing Date.
SECTION 7.4 CLOSING DOCUMENTS. Brancher shall have delivered to Lennox
the documents listed below:
(a) Resolutions of the Board of Directors of Ets. Brancher,
Holding A or other corporation involved authorizing the execution,
delivery and performance of this Restructure Agreement and the
consummation of the transactions contemplated hereby, certified by an
officer of such company;
(b) Certificates representing the transfer of Ets. Brancher
shares to Lennox;
(c) Such other certificates and documents as may be reasonably
requested by Lennox.
SECTION 7.5 NO INJUNCTIONS. Neither Brancher, Ets Brancher, Holding A
or other entity necessary for the completion of the transactions contemplated by
this Restructuring Agreement nor Lennox shall be subject to an order, decree or
injunction of a court of competent jurisdiction which (i) prevents or delays any
of the transactions contemplated by this Restructure Agreement or (ii) would
impose any material limitation on the ability of Lennox effectively to exercise
full rights of ownership of the Shares.
VIII. COVENANTS AND AGREEMENTS OF THE PARTIES
Brancher and Lennox mutually covenant and agree as follows:
SECTION 8.1 ACCESS. Until the closing, both Brancher and Lennox shall
give the officers, attorneys, accountants and other authorized representatives
of the other full access, during normal business hours and upon reasonable
notice, to all of the records, plants, properties and personnel of the Ets.
Brancher, Holding A, Lennox or any other entity involved in the transactions
envisioned in this Restructuring Agreement. Each party will furnish the
representatives of the other party during such period with all information as
such representatives may reasonably request and cause the employees, accountants
and attorneys of that party to cooperate fully with such representatives in
connection with such review and examination; provided, however, that, the
receiving party will hold in strict confidence and not use for its own benefit
the documents and information furnished concerning the other party; and, if the
transactions contemplated by this Restructure Agreement shall not be
consummated, such confidence shall be maintained and all such documents and all
copies
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thereof and all summaries or compilations of such documents prepared by any
receiving party shall immediately thereafter be returned to the providing party.
SECTION 8.2 LITIGATION. Until the Closing, each party will promptly
notify the other party of any Proceeding which is threatened in writing or
commenced against that party, or against any officer, employee, agent,
consultant or director of that party which may relate to or affect this
Restructure Agreement or the transactions contemplated hereby.
SECTION 8.3 EXPENSES OF SALE. Brancher and Lennox shall each bear their
own direct and indirect expenses incurred in connection with the negotiation and
preparation of this Restructure Agreement and the consummation and performance
of the transactions contemplated hereby. Each party shall be liable for and
shall pay all applicable sales and use taxes imposed on that party as a result
of the consummation of the transactions contemplated hereby, and Lennox and
Brancher agree to cooperate to obtain all available exemptions from such taxes.
The party receiving shares shall also be liable for and shall pay all other
transfer, recording and deed and stamp taxes and fees relating to the transfer
of the such shares and consummation of the transactions contemplated hereby. The
parties agree to equally share the other costs and expenses incurred in
connection with the consummation of the transactions contemplated under this
Restructure Agreement.
SECTION 8.4 ACTIONS WITH RESPECT TO CLOSING. The parties agree to use
their best efforts to bring about the satisfaction of the conditions precedent
to the Closing and to cause the covenants and agreements contained in this
ARTICLE VIII to be satisfied and performed hereunder by each of them.
SECTION 8.5 PUBLICITY. The parties agree that no publicity release or
announcement concerning the transactions contemplated hereby shall be issued
without the advance approval of form and substance by the respective parties.
SECTION 8.6 CONDITIONS OF EMPLOYMENT. The parties agree that Jean
Jacques Brancher shall remain as an officer and employee of Brancher under the
terms and for the compensation described on SCHEDULE 8.6. The parties agree that
fifty percent (50%) of the corresponding costs of Brancher (salary, benefits,
etc.) less 200,000 Ffrs will be invoiced to Holding A.
IX. TERM AND TERMINATION
SECTION 9.1. TERM.
The term of this Restructure Agreement shall be for as long as
both Shareholders or their respective successors or assigns own shares of Ets.
Brancher or until the termination of the Amended Venture Agreement.
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SECTION 9.2. TERMINATION.
A. TERMINATION BY BREACH OF THIS RESTRUCTURE AGREEMENT. Upon
the occurrence of a breach by the other Shareholder of the terms of this
Restructure Agreement, the other Shareholder may, at its sole discretion, by
giving notice to the other Shareholder as provided under SECTION 9.2.C(i),
terminate this Restructure Agreement and seek such remedies as may provided
herein; provided, however, that termination of this Restructure Agreement and,
at that Shareholder's option, purchase the shares of the Ets. Brancher owned by
the defaulting Shareholder or sell its shares to the Defaulting Shareholder at
the non-defaulting Shareholder's option, which shall be permitted only following
exhaustion of the notice and cure provisions set forth in SECTIONS 12.1 AND 12.2
and the dispute resolution mechanism set forth in SECTION 10.1. The price to be
paid or received for the shares shall be determined by the formula specified in
the Amended Venture Agreement.
B. TERMINATION BY TERMINATION OF THE AMENDED VENTURE
AGREEMENT. Upon the termination of the Amended Venture Agreement, this
Restructure Agreement will also terminate. Any Ets. Brancher shares still owned
by Brancher shall be transferred to Lennox as provided herein.
C. NOTICES.
(i) NOTICE OF SECTION 9.2.A. TERMINATION. Any notice of
termination of this Restructure Agreement under SECTION 9.2.A. shall be
given, if at all, by the terminating Shareholder in writing to the
other Shareholder. Such notice shall state that the Restructure
Agreement is thereby terminated under SECTION 9.2.A., provide a clear
statement of the reason for such termination, and make demand upon the
other Shareholder to cooperate fully with the terminating Shareholder
in causing the transfer of the shares of the Ets. Brancher as specified
by the terminating Shareholder.
(ii) NOTICE OF SECTION 9.2.B. TERMINATION BY THE TERMINATION
OF THE AMENDED VENTURE AGREEMENT. No notice of termination of this
Restructure Agreement upon the termination of the Amended Venture
Agreement shall be require and such termination shall be effective
automatically upon the termination of the Amended Venture Agreement
without action by either Shareholder. However, provided there remain
Ets. Brancher shares still owned by Brancher, either Lennox or Brancher
shall provide a notice to the other indicating that the transfer all
remaining Ets. Brancher shares to Lennox is initiated. The Notice of
Intent to Transfer shall state that the Amended Venture Agreement is
terminated and the required transfer of Ets. Brancher shares is
initiated under SECTION 9.2.B. Within ten (10) days of receipt of any
such Notice of Intent to Transfer, Brancher shall transfer all the Ets.
Brancher shares to Lennox, and Lennox shall purchase all the remaining
Ets. Brancher shares.
D. TERMS OF PURCHASE AND CLOSING SECTION 9.2.A. OR 9.2.B.
PURCHASE. The terms of any transfer of Ets. Brancher shares under SECTION 9.2.A.
OR 9.2.B., shall be as follows:
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(i) The closing of any transfer of Ets. Brancher shares under
SECTION 9.2.A. shall be completed no later than thirty (30) days
following the Notice of Intent to Transfer provided under SECTION
9.2.C(i) given by the initiating Shareholder.
(ii) The closing of the transfer any remaining Ets. Brancher
shares of Brancher under SECTION 9.2.B. shall be completed no later
than thirty (30) days following the notice of SECTION 9.2.B.
termination given under SECTION 9.2.C(ii).
(iii) The transfer price of the Ets. Brancher shares being
transferred shall be fully paid in cash by the purchasing Shareholder
to the selling Shareholder on or before the date it is due.
(iv) The purchasing Shareholder shall provide to the selling
Shareholder a representation and warranty to the effect that it is
purchasing such Ets. Brancher shares for investment purposes and not
with a view to the offer, sale or other distribution thereof.
(v) The selling Shareholder shall provide to the purchasing
Shareholder representations and warranties to the effect that:
(a) The selling Shareholder has good and marketable
title to the Ets. Brancher shares that are to be transferred,
free and clear of all liens and encumbrances;
(b) The selling Shareholder has taken all steps and
complied with all corporate formalities required to transfer
its Ets. Brancher shares to the buying Shareholder; and
(c) The selling Shareholder is legally empowered and
authorized to effect such sale of its Ets. Brancher shares.
X. DISPUTE RESOLUTION
SECTION 10.1. DISPUTE RESOLUTION MECHANISM.
Every dispute whatsoever that may arise between the
Shareholders or their nominees, designees or other representatives with respect
to the subject matter of this Restructure Agreement shall be resolved as
provided in this SECTION 10.1.
A. DISPUTE AMONG SHAREHOLDERS. The Shareholders shall strive
in good faith to resolve any dispute that may arise between them as to any
matter arising from or in any way connected with their relationship as
Shareholders, or that is related to or otherwise connected with the subject
matter of this Restructure Agreement.
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B. FAILURE OF RESOLUTION; REMAINING REMEDIES. If attempts by
the Shareholders to resolve any dispute arising under this Restructure Agreement
shall fail to produce a resolution of the dispute satisfactory to both
Shareholders within thirty (30) days of the commencement thereof, then either
Shareholder shall pursue the remedies for the resolution of disputes as set
forth in the Amended Venture Agreement.
XI. RESTRICTIONS ON TRANSFER
SECTION 11.1. RESTRICTION ON TRANSFER TO THIRD PARTIES.
Neither Shareholder shall transfer, attempt to transfer or
permit to be transferred any of its Ets. Brancher shares to any person other
than the other Shareholder; provided, however, that either Shareholder may
transfer its Ets. Brancher shares to any third party upon receiving the written
approval of such transfer by the other Shareholder, such written approval to be
given or withheld at the sole discretion of the other Shareholder.
SECTION 11.2. SECURITIES LAW RESTRICTIONS ON TRANSFER.
Neither Shareholder shall attempt to transfer, or permit to be
transferred, its Ets. Brancher shares, or consent to any transfer by the other
Shareholder of its Ets. Brancher shares, unless both Shareholders shall have
received opinions from their respective counsel that such transfer shall not
constitute a violation of any applicable laws.
XII. BREACH, NOTICE AND OPPORTUNITY TO CURE
SECTION 12.1. NOTICE OF BREACH.
If either Shareholder in good faith should conclude that the
other Shareholder has committed a breach of this Restructure Agreement, the
Shareholder so concluding may notify the other Shareholder that it is in breach
hereof.
SECTION 12.2. OPPORTUNITY TO CURE.
Any Shareholder receiving notice under SECTION 12.1. of this
Restructure Agreement shall have thirty (30) days to cure its breach, if any,
and to begin those steps reasonably necessary to cure and diligently continue
such steps and to notify the Shareholder sending such notice that such breach
has been cured or the steps to cure have been taken.
SECTION 12.3. RESOLUTION OF DISPUTED BREACH.
Following the cure period specified in SECTION 12.2., if the
notifying Shareholder shall reject the cure or otherwise maintain that an
uncured breach of this Restructure Agreement exists, then such matter shall be
treated as a dispute to be resolved beginning under SECTION 10.1.A.
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SECTION 12.4. REMEDIES.
Neither Shareholder may pursue any remedy at law for a breach
of this Restructure Agreement until it first shall have exhausted the dispute
resolution mechanism set forth in SECTION 10.1. Nothing in this Restructure
Agreement shall preclude or limit the right of any Shareholder at any time or
under any circumstances to seek injunctive relief hereunder.
XIII. GENERAL PROVISIONS
SECTION 13.1. ACCURACY OF RECITALS.
The paragraphs contained in the recitals in this Restructure
Agreement are incorporated herein by this reference, and the parties hereto
acknowledge the accuracy thereof.
SECTION 13.2. AUDIT RIGHTS.
Each Shareholder at any time may inspect and audit Ets.
Brancher's books and records, either through its own employees or through
independent auditors, or both.
SECTION 13.3. PUBLIC STATEMENTS.
Neither Shareholder shall, without the permission of the
other, release any public statement describing or in any way relating to the
business or operations of Ets. Brancher.
SECTION 13.4. WAIVER OF CONSEQUENTIAL DAMAGES.
The Shareholders hereby waive any and all claims to incidental
and consequential damages arising out of any breach of this Restructure
Agreement.
SECTION 13.5. TREATMENT OF CONFIDENTIAL OR PROPRIETARY INFORMATION.
Neither Shareholder, nor Ets. Brancher, shall share with any
other person any Confidential or Proprietary Information obtained through or for
Ets. Brancher, or otherwise use such information to the detriment of either or
both Shareholders or Ets. Brancher.
SECTION 13.6. NOTICES.
All notices, demands and other communications provided for hereunder
shall be in writing and shall be mailed, faxed or delivered (by hand or courier
service) to the parties at their respective addresses set forth below:
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Brancher: Jean Jacques Brancher
11 rue d'Alsace-Lorraine
69500 Bron France
Telephone: (33) 472.14.61.14
Fax: (33) 472.14.61.16
Lenox: Lennox International Inc.
Attention: Chief Executive Officer
2100 Lake Park Boulevard
Richardson, Texas 75080-2254
Telephone: 972-497-5000
Fax: 972-497-5440
or at such other address as the party desiring to change the address set forth
above under its name may direct by written notice to all other parties hereto.
All such notices and communications, when mailed by certified mail or when
telecopied, shall be effective upon the earlier to occur of actual receipt or
three (3) business days after deposit in the mail, postage prepaid.
SECTION 13.7. FURTHER ASSURANCES.
The Shareholders agree to execute such additional agreements
and documents, and to take such other actions, as may be necessary to effect the
purposes of this Restructure Agreement.
SECTION 13.8. MODIFICATIONS.
Any action or agreement by the Shareholders to modify this
Restructure Agreement, in whole or in part, shall be binding upon the
Shareholders even though such Restructure Agreement may lack legal
consideration, so long as such modification Restructure Agreement shall be in
writing and shall be executed by both Shareholders with the same formality with
which this Restructure Agreement was executed.
SECTION 13.9. HEADINGS.
The headings in this Restructure Agreement are inserted for
convenience only and shall not affect the meaning or interpretation of this
Restructure Agreement or of any section hereof.
SECTION 13.10. BINDING EFFECT.
This Restructure Agreement shall be binding upon, and shall
inure to the benefit of, the Shareholders and their respective successors,
assigns and legal representatives.
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SECTION 13.11. COUNTERPARTS.
This Restructure Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
together shall constitute one and the same Restructure Agreement. Each
Shareholder may execute this Restructure Agreement by signing any such
counterpart.
SECTION 13.12. GOVERNING LAW.
This Restructure Agreement shall be deemed to be a contract
made under, and for all purposes shall be construed in accordance with and
governed by, the laws of France.
SECTION 13.14. CONSTRUCTION.
Wherever possible, this Restructure Agreement, and all
documents contemplated hereunder, shall be construed and interpreted so as to be
effective and valid under applicable law. If any provision of this Restructure
Agreement, or any document contemplated hereunder, for any reason shall be
deemed invalid or prohibited under applicable law, such provision shall be
invalid or prohibited only to the extent of such invalidity or prohibition,
which shall not invalidate the remainder of such provision or the remaining
provisions of this Restructure Agreement.
SECTION 13.15. DELAY OR PARTIAL EXERCISE NOT WAIVER.
No failure or delay on the part of any party to exercise any
right or remedy hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right or remedy hereunder preclude any other
or further exercise thereof or the exercise of any other right or remedy granted
hereby or by any related document.
SECTION 13.16. INTERPRETATION.
As used in this Restructure Agreement, any singular noun shall
include the plural and any plural the singular, and any reference to one gender
shall include the other.
SECTION 13.17. COMMITMENTS FROM SUBSIDIARIES.
Each Shareholder shall cause its subsidiaries to act in such a
manner as to give effect to the purposes, provisions and obligations of such
Shareholder under this Restructure Agreement.
SECTION 13.18. ENTIRE RESTRUCTURE AGREEMENT.
This Restructure Agreement and the Exhibits attached hereto
constitute and express the entire Restructure Agreement between the Shareholders
with respect to the matters referred to herein. All previous discussions,
promises, representations and understandings relative thereto are hereby merged
in and superseded by this Restructure Agreement.
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SECTION 13.19. WAIVER.
To be effective, any waiver of any right hereunder shall be in
writing and be signed by a duly authorized officer or representative of the
Shareholder bound thereby.
SECTION 13.20. SIGNATORIES DULY AUTHORIZED.
Each of the signatories to this Restructure Agreement
represents that he is duly authorized to execute this Restructure Agreement on
behalf of the party for which he is signing, and that such signature is
sufficient to bind the party purportedly represented.
SECTION 13.21. INCORPORATION OF EXHIBITS BY REFERENCE.
Any reference herein to any Exhibit to this Restructure
Agreement shall incorporate such Exhibit herein, as if it were set out in full
in the text of this Restructure Agreement.
IN WITNESS WHEREOF, Brancher and Lennox have caused this
Restructure Agreement to be duly executed and delivered as of the date first
written above.
ETS. BRANCHER S.A. LENNOX INTERNATIONAL INC.
A French Corporation A Delaware Corporation
By: /s/ Jean-Jacques Brancher By: /s/ Clyde Wyant
------------------------------ -----------------------------
President Executive Vice President
AFIBRAL S.A. PARIFRI S.A.
A French Corporation A Belgium Corporation
By: /s/ Jean-Jacques Brancher By: /s/ J.C. DeKoster
------------------------------ -----------------------------
President President
JEAN JACQUES BRANCHER
By: /s/ Jean-Jacques Brancher
------------------------------
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LIST OF EXHIBITS
TO SHAREHOLDER RESTRUCTURE AGREEMENT
SCHEDULE 2.2.A(l) B ASSETS
SCHEDULE 2.2.A(2) B SHARES PRICE
SCHEDULE 2.2.C. A ASSETS
SCHEDULE 2.2.D. ETS. BRANCHER SHARES EXCHANGED FOR A ASSETS
SCHEDULE 2.2.F. ETS. BRANCHER SHARES RECEIVED BY LENNOX
SCHEDULE 2.2.G. ETS. BRANCHER SHARES EXCHANGED FOR LENNOX STOCK
SCHEDULE 2.2.H. ETS. BRANCHER SHARES PURCHASED BY LENNOX
SCHEDULE 5.2.C. ETS. BRANCHER FINANCIAL STATEMENTS
SCHEDULE 5.2.D. ENCUMBRANCES ON ETS. BRANCHER SHARES
SCHEDULE 5.2.E. TITLE TO PROPERTIES
SCHEDULE 5.2.F. JUDGMENTS, DECREES, ETC.
SCHEDULE 5.2.L. INSURANCE
SCHEDULE 8.6. JEAN JACQUES BRANCHER EMPLOYMENT
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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:
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(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
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(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.
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"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
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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
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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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<PAGE> 15
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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<PAGE> 16
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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<PAGE> 17
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:
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SCHEDULE A
List of Executive Officers and Directors
who entered into Indemnification Agreements
with Lennox International Inc., dated April 23, 1999
John W. Norris, Jr.
Linda G. Alvarado
David H. Anderson
Richard W. Booth
David V. Brown
James J. Byrne
Thomas B. Howard, Jr.
John E. Major
Donald E. Miller
Loraine B. Millman
Robert W. Norris
Lynn B. Storey
Richard L. Thompson
Terry D. Stinson
Thomas Booth
Harry J. Ashenhurst
Scott J. Boxer
Carl E. Edwards, Jr.
H.E. French
John J. Hubbuch
W. Lane Pennington
Robert E. Schjerven
Michael G. Schwartz
Clyde W. Wyant
Janet Cooper
<PAGE> 1
EXHIBIT 10.16
__________, 1998
(Employee)
(Address)
Dear (Employee):
Lennox International Inc. ("Lennox") recognizes you as a key employee,
important to its future profitability, growth and financial strength.
Accordingly, Lennox proposes to enter into an agreement with you to establish
certain terms of your employment, including a specified duration or term of
employment, the basis for your compensation and assignments, certain
post-employment covenants, mechanisms to resolve disputes and certain benefits
and income to you in the event you leave the employ of Lennox under certain
specified circumstances (the "Agreement"). We believe the Agreement benefits
both you and Lennox by clarifying your employment relationship so that we all
understand its terms. The Agreement provides you with greater certainty and
security with various aspects of your employment relationship, as well as
provides you with information to assist you with future financial planning. In
that same regard, the Agreement assists Lennox in its own financial and business
planning. The purpose of this letter is to describe the terms of your employment
with Lennox after the effective date of this Agreement. The term "Employee" will
be used to refer to you in this Agreement where appropriate. The controlling
terms of this Agreement are set forth in the body of this letter Agreement as
well as in the Exhibits to this Agreement which are incorporated by reference.
The specific terms of the Exhibits are controlling should there be any confusion
or conflict between them and this letter. With the signing by both parties of
this Agreement, you and Lennox will have agreed to the following:
1. Nature of Employment. You and Lennox have agreed that your employment
relationship with Lennox will no longer be "at will" and terminable by
either party at any time. Instead, this employment relationship will be
governed by the terms of this Agreement for as long as it remains in
effect and even after its termination for any provisions which by their
terms survive. The terms agreed upon by you and Lennox provide the
consideration and inducement for each party to enter into this
Agreement and are described more fully throughout the body of this
Agreement and the attached Exhibits A through C.
<PAGE> 2
2. Term of Agreement; Termination Date. This Agreement will commence on
the date of signing this Agreement by both parties (the "Effective
Date") and will be in effect until December 31 of that year and
thereafter for a series of one-year terms.
3. Termination of Employment. Your employment with Lennox may be
terminated for a number of reasons prior to the expiration of any term
of this Agreement as described below. The rights of each party under
each circumstance will vary and are described in the attached Exhibits.
More specifically, if Lennox terminates your employment for any reason
other than for "Cause", as defined in Section B.3 of Exhibit A, you
will be entitled to receive, in addition to any other compensation or
benefits described in Section B.2 of Exhibit A, severance benefits
consisting of either the Normal Severance Payment defined in Section 2
of Exhibit C or the Enhanced Severance Payment defined in Section 3 of
Exhibit C as determined by those provisions. However, the provisions of
Sections C.2(a)-(d) of Exhibit A will continue to be effective after
the termination of this Agreement regardless of the reason for your
termination.
a. Termination by Employee. You may terminate your employment at
any time upon 30 days notice to Lennox (or a lesser period if
approved by Lennox) of your intent to terminate or not to
renew this Agreement and, in that event, Lennox shall be
obligated only to pay you your Base Salary and other
applicable benefits provided to employees in your position
that are effective at the time of the voluntary resignation up
to the effective date of the termination only.
b. Termination For Cause. Lennox may terminate your employment,
at any time, for Cause, as defined in Section B.3 of Exhibit
A, to be effective immediately upon delivery to you of notice
of termination. If Lennox terminates you for Cause, you are
only entitled to receive your Base Salary and other applicable
benefits provided to employees in your position that are
effective at the time of termination up through the effective
date of termination.
c. Termination Other Than For Cause. Your employment may also be
terminated by Lennox other than for Cause at any time
(including Lennox' non-renewal of the Agreement) but such a
decision triggers certain defined benefits for you. In the
event Lennox elects to terminate you under this provision,
Lennox agrees to pay either the Normal Severance Payment as
defined in Section 2 of Exhibit C or the Enhanced Severance
Payment as defined in Section 3 of Exhibit C, provided you
comply with all requirements described in Section 3 of Exhibit
C. These benefits are contractually defined by this Agreement
and are not dependent on the other benefits policies of Lennox
at the time of your termination.
d. Termination As A Result Of Disability Or Death. Should you die
or become permanently disabled (completely unable to perform
your duties as defined in the
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benefit plans of Lennox) during the term of this Agreement,
your employment will be terminated effective as of the date of
your death or permanent disability.
e. Withholdings From Payment/Offset. Any payments made by Lennox
to you under Section 3 will be subject to all applicable
local, state, federal or foreign taxes, including, without
limitation, income tax, withholding tax, and social security
tax. Further, to the extent you have, on the date of
termination, any outstanding debts or financial obligations to
Lennox, including, but not limited to, loans, overpayment of
wages, bonuses or other forms of incentive payments,
unauthorized travel or purchasing expenses, or theft of
Lennox' funds or property, you agree that Lennox shall be
entitled to set off against and withhold from such payments
due you for such debts or obligations.
4. Nonpayment Upon Breach. Notwithstanding anything in this Agreement to
the contrary, at any time after the date of termination, if you, by any
intentional or grossly negligent action or omission to act, breach any
covenant, agreement, condition or obligation contained herein, Lennox
is entitled to cease making any payments and to cease providing any of
the benefits to you under this Agreement. Additionally, Lennox reserves
the right to seek repayment of any amounts previously paid hereunder
along with recovery of any other damages caused by you.
5. Resolution of Disputes. In the event that any employment dispute as
defined in Section A of Exhibit B arises between Lennox and any
Employee, the parties involved will make all efforts to resolve any
such dispute through informal means. If these informal attempts at
resolution fail, Lennox and the Employee agree to and shall submit the
dispute to final and binding arbitration pursuant to the policy and
terms outlined in Exhibit B, to which the parties expressly agree to be
bound. The parties fully and completely understand and agree that
arbitration is the exclusive forum for all such arbitrable disputes and
that the parties are giving up all rights to a court trial or jury
trial; however, the parties, by agreeing to the policy for resolution
of disputes outlined in Exhibit B are not waiving any substantive
rights or remedies to which they would otherwise be entitled.
6. Waiver, Modification, and Integration. The waiver by any party hereto
of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach by any party. This
Agreement, which includes all Exhibits referenced or attached,
expresses the entire agreement of the parties concerning matters
contained herein and supersedes all prior and contemporaneous
representations, understandings and agreement, either oral or in
writing, between the parties hereto with respect to such matters and
all such prior or contemporaneous representations, understandings and
agreements, both oral and written, are hereby terminated. This
Agreement may not be modified, altered or amended except by written
agreement of the Employee and the Chief Executive Officer, except when
the Chief Executive Officer is involved, and in that event, an official
designated by the Board of Directors for Lennox.
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<PAGE> 4
7. Binding Effect. This Agreement shall be binding and effective upon
Lennox and its successors and permitted assigns, and upon the Employee,
Employee's heirs and representatives. The Employee hereby represents
and warrants to Lennox that Employee has not previously assumed any
obligations inconsistent with those contained in this Agreement,
including, but not limited to, covenants not to compete with another
person, firm, corporation or other entity.
8. Governing Law, Venue and Personal Jurisdiction. It is the intention of
the parties that the laws of the State of Texas should govern the
validity of this Agreement, the construction of its terms, and the
interpretation of the rights and duties of the parties hereto. The
parties agree that venue for all disputes shall be in Dallas County,
Texas. The parties further agree to submit to personal jurisdiction in
Dallas County, Texas.
Sincerely,
LENNOX INTERNATIONAL INC.
By:
------------------------------------
John W. Norris, Jr.
ACCEPTED AND AGREED this ______ day of _______________, 1998.
EMPLOYEE
- ------------------------------
Signature
- ------------------------------
Printed Name
4
<PAGE> 5
EXHIBIT A
TERMS OF EMPLOYMENT
The following are the specific agreements of Lennox and the Employee providing
the details and basis for this Agreement and are intended by each as its
consideration to induce the other party to enter into this Agreement. Each party
agrees that the consideration provided by the other is adequate for its
agreements to the following terms:
A. Renewal. On January 1 of each year (the "Anniversary Date") after the
end of the first term and for each year thereafter, this Agreement will
be automatically renewed for an additional year, unless either party
notifies the other, in writing, at least 30 days prior to the
Anniversary Date, that it does not wish to renew the Agreement. No
reason need be given by either party for the non-renewal of the
Agreement. If Lennox elects not to renew, however, Employee is
nevertheless entitled to the benefits provided in this Agreement,
subject to all of its provisions. If Employee elects not to renew,
Employee will receive only those benefits provided upon voluntary
termination as described in Section 3(a) of the letter agreement.
B. Agreements by Lennox.
1. Employee Duties. Lennox will assign to the Employee such
duties and responsibilities that would appropriately be
performed by an employee holding Employee's position and/or
job title on a permanent basis as it deems consistent with the
Employee's qualifications and experience provided, however,
that Lennox can assign other duties on a temporary basis.
Lennox retains the right to change such duties and to change
the location of the Employee's assignment as and when it deems
appropriate.
2. Employee Compensation. Employee shall receive an annual salary
of that amount in effect at the initial effective or
subsequent renewal dates of this Agreement (as may be, from
time to time, adjusted in accordance with Lennox' applicable
salary policies which may be changed by Lennox in its sole
discretion), payable in accordance with the then applicable
payroll policies and subject to all required and authorized
withholdings and deductions ("Base Salary"). The Base Salary
will be set in accordance with Lennox' policy regarding
salaries and will not be reduced during the annual term of the
Agreement unless Employee's job duties are changed, in which
circumstance Lennox reserves the right to lessen Employee's
compensation by no more than ten percent for the remainder of
the year without such change amounting to a breach or
termination of this Agreement. Employee is also entitled to
such short term bonuses, stock options, long-term incentive
program payments and fringe benefits as are applicable to
employees in your position pursuant to Lennox'
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<PAGE> 6
then applicable policies and plans. Benefits may be subject to
periodic review and may be changed by Lennox in its sole
discretion.
3. Termination for Cause Defined. Lennox may terminate Employee's
employment, at any time, for Cause as set forth in Section
3(b) of the body of the Letter Agreement. "Cause" is defined
as (a) any violation by an Employee of Lennox' written
policies as they may exist or be created or modified from time
to time in the future, including, as examples and not as a
limitation of the policies to which an Employee may be
subject, those policies prohibiting discrimination in the
workplace, including the prohibition of harassment, on the
ground of race, sex, religion, age or any other prohibited
basis; (b) any state or federal criminal conviction,
including, but not limited to, entry of a plea of nolo
contendere or deferred adjudication upon a felony or
misdemeanor charge; (c) the commission by Employee of any
material act of misconduct or dishonesty; (d) any intentional
or grossly negligent action or omission to act which breaches
any covenant, agreement, condition or obligation contained in
this Agreement; or (e) acts that in any way have a direct,
substantial and adverse effect on Lennox' reputation.
Lennox' termination for Cause determination is subject to the
Employee's rights to a resolution of a dispute of that
determination as provided in Exhibit B of this Agreement.
4. Payments Upon Disability or Death. In the event Employee dies
or becomes permanently disabled during the term of the
Agreement, Employee or Employee's designated beneficiaries
will be entitled to the payments described in Section 3(c) of
the Agreement, together with any other benefits provided to
employees in an equivalent position in effect at that time.
Should Employee die during the severance period, all payments
of severance amounts shall cease upon the later of Employee's
death or the expiration of the twenty-fourth month after the
date of Employee's termination in the event the employee has
agreed to the terms of the enhanced severance benefit. Any
payments after Employee's death that may be due hereunder will
be paid to Employee's beneficiary named in connection with
Exhibit D of this Agreement, or if no such designation has
been made by Employee, then to Employee's executors,
administrators, heirs, personal representatives, successors,
or assigns, as the case may be.
C. Agreements by Employee.
1. Effort and Cooperation. Employee agrees to devote his or her
full efforts and time to the performance of this Agreement and
shall not, without the prior written consent of the Chief
Executive Officer, or in the event the Chief Executive Officer
is involved, a designee assigned by the Board of Directors,
engage in any other employment, business or other activity
that would materially interfere with the
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performance of his or her duties under this Agreement.
Employee further agrees that following his or her termination
from employment, Employee will provide reasonable cooperation
with and assistance to Lennox in all respects, including, but
not limited to, the transition of his or her duties and
responsibilities, cooperation on any project for a reasonable
period not to exceed six months, or litigation involving
Lennox. Lennox will reimburse the Employee any reasonable
expenses incurred.
2. Protective Covenants. Employee recognizes that Employee's
employment by Lennox is one of the highest trust and
confidence. In return for the Employee's agreement to the
protective covenants herein, Lennox agrees that the (i)
Employee will become fully familiar with many aspects of
Lennox' business, including future changes customarily related
to the performance of the duties of Employees's position
during the term of the Agreement, (ii) Employee will be given
access to proprietary confidential information of Lennox or
its customers and other information which is of special and
peculiar commercial or competitive value to Lennox or its
customers for use in connection with Lennox' business, which
proprietary confidential information is for the sole and
exclusive benefit of Lennox, (iii) Employee will be given all
specialized training necessary to perform his or her assigned
duties, and (iv) Employee will be provided with Lennox'
goodwill in dealing with customers, vendors and potential
business contacts.
Employee acknowledges and agrees that if any such proprietary
and confidential information of either Lennox or its customers
were to become known by any persons outside of Lennox with a
need to have such information, hardship, loss or irreparable
injury and damage could result to Lennox or its customers
which would be difficult if not impossible to measure.
Therefore, Employee agrees that (i) it is necessary for Lennox
to protect its business and that of its customers from such
damage, (ii) that the information is of a confidential nature,
(iii) that the following covenants constitute a reasonable and
appropriate means, consistent with the best interests of both
Employee and Lennox, to protect Lennox and its customers
against such damage and to protect the value of their
confidential proprietary information, (iv) that the following
covenants are agreed to as a term and condition of Employee's
continued employment with Lennox and are supported by adequate
consideration from Lennox, and (v) shall apply to and be
binding upon Employee as provided herein:
a. Trade Secrets, Proprietary and Confidential
Information. Employee will have access to, and
contact with certain trade secrets and confidential
and proprietary information of Lennox, including,
without limitation, unique skills, concepts, sales
presentations, marketing programs, marketing
strategy, business practices, methods of operation,
systems, sales methods, proposals, customer lists,
customer leads, documents identifying past, present
and future customers, hiring and training methods,
financial and other customer data,
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<PAGE> 8
lists of agents, and other confidential information
("Trade Secrets"). Employee agrees to protect and
safeguard the Trade Secrets, business practices, and
confidential and proprietary information of Lennox.
Employee further agrees and covenants that, except as
may be required by Lennox in connection with this
Agreement, or with the prior written consent of
Lennox, Employee shall not, either during his or her
employment with Lennox or thereafter, directly or
indirectly, use for Employee's own benefit or for the
benefit of another, disclose, disseminate, or
distribute to another, any Trade Secret, business
practice, or confidential or proprietary information
(whether or not acquired, learned, obtained, or
developed by Employee alone or in conjunction with
others) of Lennox or of others with whom Lennox has a
business relationship. Such Trade Secrets, business
practices, and confidential and proprietary
information include, but are not limited to, Lennox'
patents, trademarks, licenses and technical
information concerning its operations, data bases,
Lennox' sales information and marketing strategy, the
identities of Lennox' customers, contractors,
suppliers, and others with whom Lennox has a business
relationship, Lennox arrangements with such parties,
Lennox' customer list and Lennox' pricing policies
and strategy. All memoranda, notes, records,
drawings, documents, or other writings whatsoever
made, compiled, acquired, or received by Employee
during the term of Employee's employment with Lennox,
arising out of, in connection with, or related to any
activity or business of Lennox, including, but not
limited to, Lennox' customers, contractors,
suppliers, or others with whom Lennox has a business
relationship, Lennox' arrangements with such parties,
and Lennox' pricing policies and strategy, are, and
shall continue to be, the sole and exclusive property
of Lennox, and shall, together with all copies
thereof and all advertising literature, be returned
and delivered to Lennox by Employee immediately,
without demand, upon the termination of the
Employee's employment with Lennox or shall be
returned at any time upon Lennox demand.
b. Restrictions on Diverting Employees of Lennox.
Employee agrees that during employment with Lennox,
and for a period of 24 complete calendar months
following the termination of employment, Employee
will not, either directly or indirectly, call on,
solicit, induce or attempt to induce any of the
employees or officers of Lennox that Employee had
knowledge of or association with during Employee's
employment with Lennox to terminate their association
with Lennox either personally or through the efforts
of his or her subordinates.
c. Restrictions on Diverting Vendors or Contractors.
Employee agrees that during his or her employment
with Lennox, and for a period of 24 complete calendar
months following his or her termination of
employment, Employee
4
<PAGE> 9
will not, either directly or indirectly, call on,
solicit, or induce any of Lennox' vendors or
suppliers that Employee had contact with, direct
knowledge of through his or her position with Lennox,
or associated with in the course of employment with
Lennox to terminate their association with Lennox
either personally or through the efforts of his or
her subordinates.
d. Restrictions on Soliciting Customers. For a period of
24 calendar months following the termination of
employment, Employee will not directly or indirectly
call on, service, or solicit competing business or
provide consulting services regarding the same from
customers of Lennox that Employee had (i) direct
contact with or (ii) access to information and files
about as part of Employee's duties with Lennox within
the previous 24 months. This restriction is limited,
by geography, to the specific places, addresses, or
locations where a covered customer is present and
available for solicitation or servicing.
A competing business is defined as a business that is
the same or so substantially similar in nature to
Lennox so as to have the possibility to affect or
usurp Lennox' business opportunities.
e. Remedies. In the event of breach or threatened breach
by Employee of any provision of Paragraph C.2 hereof,
Lennox shall be entitled to (i) cease any payments
under this Agreement as set forth in Section 4 of the
body of the Agreement, (ii) relief by temporary
restraining order, temporary injunction, and/or
permanent injunction, (iii) recovery of all attorneys
fees and costs incurred by Lennox in obtaining such
relief, and (iv) any other legal and equitable relief
to which it may be entitled, including any and all
monetary damages. Lennox has the right to pursue
partial enforcement and/or to seek declaratory relief
regarding the enforceable scope of this Agreement
without penalty and without waiving Lennox' right to
pursue any other available remedy.
f. Survival of Covenants. Each covenant of Employee set
forth in Paragraph C.2 shall survive the termination
of Employee's employment. The existence of any claim
or cause of action by Employee against Lennox,
whether related to this Agreement or otherwise, shall
not constitute a defense to the enforcement of the
covenants in Paragraph C.2. In the event an
enforcement remedy is necessary under Paragraph C.2,
the restricted time periods provided for in Paragraph
C.2 shall commence on the date enforcement is ordered
and complied with by Employee and shall be extended
by the period of noncompliance.
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<PAGE> 10
g. Acknowledgment of Ancillary Agreements and
Consideration. Employee acknowledges that his or her
agreement to be bound by the protective covenants set
forth in Paragraph C.2 is the inducement for Lennox
(i) to enter into the other terms of this Agreement
(ii) to modify existing employment agreements or
other contracts, if any, affected by this Agreement,
(iii) to initiate or continue the employment of
Employee pursuant to the terms of this Agreement,
(iv) to provide Employee with initial or continued
use or access to confidential proprietary information
of Lennox, and (v) to provide the Employee with
unique and specialized training regarding Lennox'
Trade Secrets, business practices and marketing
strategy, to provide use of goodwill as a
representative of Lennox and to ensure business
expertise in developing relations with third parties.
Employee agrees that each agreement set forth in this
Agreement is otherwise enforceable and independently
sufficient to support all the protective covenants in
Paragraph C.2.
D. Severability. If any provision contained in this Agreement is
determined to be void, illegal or unenforceable, in whole or in part,
then it will be treated as though it never was contained herein and all
other provisions shall remain in full force and effect.
E. Notices. All communications required or allowed under this Agreement
shall be in writing and shall be deemed to have been delivered on the
date personally delivered or on the date deposited in the United States
Postal Service, postage prepaid, by certified mail, return receipt
requested, addressed to you at the address provided above and to Lennox
at:
Lennox International Inc.
2100 Lake Park Blvd.
Richardson, Texas 75080-2254
Attn: General Counsel
6
<PAGE> 11
EXHIBIT B
POLICY FOR RESOLUTION OF DISPUTES
A. Agreement to Arbitrate.
1. Arbitrable Disputes. This Policy covers any legal dispute
between the parties, as set forth below, except for Lennox's
right to seek enforcement of Employee's protective covenants
set forth in Paragraph C.2 of Exhibit A or Employee's claims
related to workers compensation and/or unemployment insurance.
The disputes subject to this policy are all those disputes
between the parties arising from any breach or alleged breach
of this Agreement or as to Employee's termination or as to any
allegation by the Employee that Lennox has violated any of the
Employee's rights under state or federal employment or civil
rights laws, or any other laws, statutes or constitutional
provisions, including, but not limited to, the following:
unlawful discrimination or harassment; claims based on any
purported breach of contractual obligations; claims based on
any purported breach of duty arising in tort, including
violations of public policy; as well as any actions recognized
under common law or the combination of any of these claims;
and any claims against supervisors or agents of Lennox for
which the supervisors or agents were acting in the course and
scope of their employment or making any decisions or comments
related to or connected with employment, even if the
supervisor or agent was not acting within the course and scope
of employment, shall be resolved in accordance with the
provisions of this Policy for Resolution of Disputes as set
forth herein. All arbitrable disputes are subject to
applicable statutes of limitations and other affirmative
defenses recognized by law. Employee or Lennox may seek a
court order to enforce or compel arbitration pursuant to the
terms of this Policy.
2. Acceptance of Policy. By accepting or continuing employment
with Lennox, for the provision of a term of employment
provided by Lennox, for Lennox' agreement to pay a severance
package, and for Lennox' agreement to provide Employee access
to confidential information, Employee and Lennox agree that
arbitration is the exclusive remedy for all arbitrable
disputes.
3. Governing Law/Waiver of Rights. THIS POLICY AND AGREEMENT TO
ARBITRATE IS MADE PURSUANT TO THE FEDERAL ARBITRATION ACT AND
APPLICABLE STATE LAWS REGARDING ARBITRATION AND IS A FULL AND
COMPLETE WAIVER OF THE PARTIES' RIGHTS TO A CIVIL COURT ACTION
AND RIGHTS TO A TRIAL BY JURY.
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<PAGE> 12
B. Request for Arbitration.
1. Attempt at Informal Resolution of Disputes.
a. Prior to submission of any dispute to arbitration,
Lennox and the Employee shall attempt to resolve the
dispute informally as set forth below.
b. Lennox and the Employee will select a mutually
acceptable mediator from a list provided by an
American Arbitration Association Employment Dispute
Division or other similar agency who will assist the
parties in attempting to reach a settlement of the
dispute. The mediator may make settlement suggestions
to the parties but shall not have the power to impose
a settlement upon them. If the dispute is resolved in
mediation, the matter shall be deemed closed. If the
dispute is not resolved in mediation and goes to the
next step (binding arbitration), any proposals or
compromises suggested by either of the parties or the
mediator shall not be referred to or have any bearing
on the arbitration procedure. The mediator cannot
also serve as the arbitrator in the subsequent
proceeding unless all parties expressly agree in
writing.
2. Arbitration Procedures. The Employee or his/her representative
must submit a "Request for Arbitration" in writing to the
Chief Executive Officer of Lennox within the greater of 300
days or the applicable statute of limitation that would apply
if the claim had been brought in court of (i) the termination
of employment (including resignation), (ii) the incident
giving rise to the dispute or claim, or (iii) in the case of
unlawful discrimination, including sexual or other unlawful
harassment, the alleged conduct. This time limitation will not
be extended for any reason and shall not be subject to
tolling, equitable or otherwise. If the "Request for
Arbitration" is not submitted in accordance with the
aforementioned time limitations, the Employee will not be able
to bring his/her claim to this or any other forum. The
Employee can obtain a "Request for Arbitration" form from the
Human Resource Department of Lennox International Inc. or
other party designated by the Chief Executive Officer.
Alternatively, the Employee can create his/her own "Request
for Arbitration" form, as long as it clearly states "Request
for Arbitration" at the beginning of the first page. The
"Request for Arbitration" must include the following
information:
a. A factual description of the dispute in sufficient
detail to advise Lennox of the nature of the dispute;
b. The date when the dispute first arose;
c. The names, work locations, telephone numbers of any
co-workers or supervisors with knowledge of the
dispute; and
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<PAGE> 13
d. The relief requested by the Employee.
Lennox will respond in a timely manner to this "Request for
Arbitration," so that the parties can begin the process of
selecting an arbitrator. Such response may include any
counterclaims that Lennox chooses to bring against the
Employee.
3. Selection of the Arbitrator. All disputes will be resolved by
a single arbitrator. The arbitrator will be mutually selected
by Lennox and the Employee. If the parties cannot agree on an
arbitrator, then a list of seven arbitrators, experienced in
employment matters, shall be provided by the American
Arbitration Association. The arbitrator will be selected by
the parties who will alternately strike names from the list.
The last name remaining on the list will be the arbitrator
selected to resolve the dispute. Upon selection, the
arbitrator shall set an appropriate time, date, and place for
the arbitration, after conferring with the parties to the
dispute.
4. Arbitrator's Authority. The arbitrator shall have the powers
enumerated below:
a. Ruling on motions regarding discovery, and ruling on
procedural and evidentiary issues arising during the
arbitration;
b. Issuing protective orders on the motion of any party
or third party witness (such protective orders may
include, but not be limited to, sealing the record of
the arbitration, in whole or in part (including
discovery proceedings and motions, transcripts, and
the decision and award), to protect the privacy or
other constitutional or statutory rights of parties
and/or witnesses);
c. Determining only the issue(s) submitted to him/her
(the issue(s) must be identified in the "Request for
Arbitration" or counterclaims, and any issue(s) not
so identified in those documents shall be deemed to
be and is/are outside the scope of the arbitrator's
jurisdiction, and any award involving those issue(s)
shall be subject to a motion to vacate);
d. Shall have no authority to violate state or federal
law; and
e. Issuing written opinions on the issues raised in the
Arbitration.
5. Pleadings.
a. A copy of the "Request for Arbitration" shall be
forwarded to the arbitrator within five calendar days
of his/her selection.
b. Within 10 calendar days following submission of the
"Request for Arbitration" to the arbitrator, Lennox
shall respond in writing to the "Request
3
<PAGE> 14
for Arbitration" to the arbitrator, Lennox shall
respond in writing to the "Request for Arbitration"
by answer and/or demurrer. The answer or demurrer
shall be served on the arbitrator and the Employee.
c. The answer to the "Request for Arbitration" shall
include the following information:
(1) a response, by admission or denial, to each
claim set forth in the "Request for
Arbitration";
(2) all affirmative defenses asserted by Lennox
to each claim; and
(3) all counterclaims Lennox asserts against the
Employee and any related third party claims.
d. If Lennox contends that some or all of the Employee's
claims set forth in the "Request for Arbitration" are
barred as a matter of law, it may respond by demurrer
setting forth the legal authorities in support of its
position. If Lennox demurs to less than the entire
"Request for Arbitration," Lennox must answer those
claims to which it does not demur at the same time
that it submits its demurrer.
e. The Employee shall have 20 calendar days to oppose
Lennox' demurrer. Any opposition must be in writing
and served on the arbitrator and Lennox.
f. If the answer alleges a counterclaim, within 20 days
of service of the answer, the Employee shall answer
and/or demur to the counterclaim in writing and serve
the answer and/or demurrer on the arbitrator and
Lennox. If the Employee demurs to any counterclaim,
Lennox shall have 20 calendar days from its receipt
of the demurrer to submit a written opposition to the
demurrer to the Employee and the arbitrator.
g. The arbitrator shall rule on demurrer(s) to any
claims and/or counterclaims within 15 calendar days
of service of the moving and opposition papers.
h. If any demurrer is overruled, the moving party must
answer those claims to which it demurred within five
calendar days of the receipt of the arbitrator's
ruling. The answer must be served on the arbitrator
and the opposing party.
i. When all claims and counterclaims have been answered,
the arbitrator shall set a time and place for hearing
which shall be no earlier than three months from the
day on which the parties are notified of the date of
hearing and no
4
<PAGE> 15
later than 12 months from the date on which the
arbitrator sets the date for the hearing.
6. Discovery. The discovery process shall proceed and be governed
as follows:
a. Parties may obtain discovery by any of the following
methods:
(1) depositions upon oral examination, one per
side as of right, with more permitted if
leave is obtained from the arbitrator;
(2) written interrogatories, up to a maximum
combined total of 20, with the responding
party having 20 days to respond;
(3) request for production of documents or
things or permission to enter upon land or
other property for inspection, with the
responding party having 20 days to produce
the documents and allow entry or to file
objections to the request; and
(4) physical and mental examination, in
accordance with the Federal Rules of Civil
Procedure, Rule 35(a).
b. Any motion to compel production, answers to
interrogatories or entry onto land or property must
be made to the arbitrator within 15 days of receipt
of objections.
c. All discovery requests shall be submitted no less
than 60 days before the hearing date.
d. The scope of discoverable evidence shall be in
accordance with Federal Rule of Civil Procedure
26(b)(1).
e. The arbitrator shall have the power to enforce the
aforementioned discovery rights and obligations by
the imposition of the same terms, conditions,
consequences, liabilities, sanctions, and penalties
as can or may be imposed in like circumstances in a
civil action by a federal court under the Federal
Rules of Civil Procedure, except the power to order
the arrest or imprisonment of a person.
7. Hearing Procedure. The hearing shall proceed according to the
American Arbitration Association's Rules with the following
amendments:
a. The arbitrator shall rule at the outset of the
arbitration on procedural issues that bear on whether
the arbitration is allowed to proceed.
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<PAGE> 16
b. Each party has the burden of proving each element of
its claim or counterclaims, and each party has the
burden of proving any of its affirmative defenses.
c. In addition to, or in lieu of, closing arguments,
either party shall have the right to present
post-hearing briefs, and the due date for exchanging
post- hearing briefs shall be mutually agreed on by
the parties and the arbitrator.
8. Substantive Law. The applicable substantive law shall be the
law of the State of Texas or federal law. If both federal and
state law speak to a cause of action, the Employee shall have
the right to elect his/her choice of law. However, choice of
law in no way affects the procedural aspects of the
arbitration, which are exclusively governed by the provisions
of this Policy.
9. Opinion and Award. The arbitrator shall issue a written
opinion and award, in conformance with the following
requirements:
a. The opinion and award must be signed and dated by the
arbitrator.
b. The arbitrator's opinion and award shall decide all
issues submitted.
c. The arbitrator's opinion and award shall set forth
the legal principles supporting each part of the
opinion.
d. The arbitrator shall have the same authority to award
remedies and damages as provided to a judge and/or
jury under parallel circumstances.
10. Enforcement of Arbitrator's Award. Following the issuance of
the arbitrator's decision, any party may petition a court to
confirm, enforce, correct or vacate the arbitrator's opinion
and award under the Federal Arbitration Act, and/or applicable
state law.
11. Fees and Costs. Fees and costs shall be allocated in the
following manner:
a. Each party shall be responsible for its own
attorneys' fees, except as provided by law.
b. The Employee will pay a $150 filing fee to be paid to
the arbitration agency. Lennox will bear the
remainder of the arbitrator's fees and any costs
associated with the facilities for the arbitration.
c. Lennox and the Employee shall each bear an equal
one-half of any court reporters' fees, assuming both
parties want a transcript of the proceeding. If
6
<PAGE> 17
one party elects not to receive a transcript of the
proceedings, the other party will bear all of the
court reporters' fee. However, such an election must
be made when the arrangements for the court reporter
are being made.
d. Each party shall be responsible for its costs
associated with discovery.
C. Severability. In the event that any provision of this Policy is
determined by a court of competent jurisdiction to be illegal, invalid,
or unenforceable to any extent, such term or provision shall be
enforced to the extent permissible under the law and all remaining
terms and provisions of this Policy shall continue in full force and
effect.
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<PAGE> 18
EXHIBIT C
SEVERANCE TERMS
1. Effect of Protective Covenants. The provisions of Paragraphs C2(a)-(d)
of Exhibit A of this Agreement will continue in full force and effect
regardless of whether Employee continues to be employed by Lennox and
regardless of the reason Employee's employment is terminated and
regardless of the severance compensation to which Employee is entitled
as set forth below, if any.
2. Normal Severance Compensation. Should Employee be terminated by Lennox
prior to the expiration of the term specified in Section 2 of the body
of the Agreement or the Agreement is not renewed by Lennox for any
reason other than for Cause as defined in Section B.3 of Exhibit A, and
provided the Employee does not qualify for the Enhanced Severance
Payment described in Section 3 of Exhibit C set forth below, 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 Employee's Base Salary in addition to any other
compensation or benefits applicable to an employee at Employee's level.
3. Enhanced Severance Benefits. If Lennox terminates an Employee other
than for Cause (including Lennox' non-renewal of the Agreement) and
that Employee accepts and meets the conditions of this Paragraph 3 of
Exhibit C, Lennox agrees to pay an Enhanced Severance Payment and
provide the other benefits described below ("Enhanced Severance
Benefits"). The Employee must agree to execute a written General
Release of any and all possible claims against Lennox existing at the
time of termination in exchange for which Lennox agrees to the
following severance provisions:
(i) Severance Payment. Lennox agrees to pay Employee's Base Salary
for a period of 24 months following the date of termination.
The severance payments will be paid in installments in
accordance with the regular payroll policies of Lennox then in
effect and each installment will be subject to regular payroll
deductions and all applicable taxes.
(ii) Perquisites. Within 45 days following the date of termination,
the Employee will receive in addition to (i) above, in a lump
sum, a payment of $12,000 in lieu of the continuation of or
payment for any perquisites, including, without limitation,
automobile, club membership, tax preparation, physical
examination or others being received by the Employee at the
time of termination.
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<PAGE> 19
(iii) COBRA Continuation. Lennox agrees to pay COBRA premiums to
allow Employee to continue to participate in Lennox group
health plan on the same terms as other Lennox employees for up
to 18 months while Employee is unemployed and not eligible for
other group health insurance coverage. Should Employee remain
unemployed at the end of 18 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 for his or her use in
obtaining health insurance coverage outside the group health
plan.
(iv) Outplacement. Lennox agrees to provide Employee with
outplacement services in accordance with Lennox' then
applicable policy. In lieu of such outplacement services,
Lennox agrees to pay Employee a lump sum payment of 10% of
Employee's annual Base Salary within 45 days following the
date of termination should Employee elect not to receive
outplacement services.
(v) Death Benefit. Employee's beneficiary, as set forth in Exhibit
D, will receive, in a lump sum, a death benefit equivalent to
six months of Employee's Base Salary in the event that the
Employee should die during the period in which the Employee is
entitled to any severance payment described above.
Nothing herein shall be construed to limit Employee's right to receive
any benefits and entitlements under Lennox' ERISA or other employee
benefit plans, with all such benefits being received by the Employee
only to the extent allowed by and subject to the terms of any such plan
as it may from time to time exist or be modified. Further, this
Agreement is not intended and the parties agree that it will not be
interpreted as creating any obligation for Lennox to create or maintain
any employee benefit, compensation, perquisite or other plan, policy or
program for its employees and Lennox retains the sole discretion to
eliminate or modify any existing plan, program or policy as it deems to
be appropriate.
2
<PAGE> 20
EXHIBIT D
DESIGNATION OF BENEFICIARY
The following represent the designation of Beneficiary for the Employee named
below:
EMPLOYEE:
-------------------------------
<TABLE>
<CAPTION>
PRIMARY BENEFICIARY(S):
<S> <C> <C>
- --------------------- ------------------------ ---------%*
Name Relationship Percent
- --------------------- ------------------------ ---------%*
Name Relationship Percent
*The total should add to 100%
CONTINGENT BENEFICIARY(S):
- --------------------- ------------------------ ---------%*
Name Relationship Percent
- --------------------- ------------------------ ---------%*
Name Relationship Percent
*The total should add to 100%
</TABLE>
This is to confirm the designation of my Beneficiary(s) to receive any benefits
provided under this Agreement which are not otherwise covered by Employee
benefit plans with other designations of beneficiary which I intend to supersede
any designation made above.
EMPLOYEE
------------------------------
Signature
------------------------------
Printed Name
------------------------------
Date
<PAGE> 21
SCHEDULE A
List of Executive Officers who entered into
Employment Agreements with Lennox International Inc.,
and respective dates of effectiveness
John W. Norris, Jr. February 6, 1998
Harry J. Ashenhurst March 23, 1998
Carl E. Edwards, Jr. February 9, 1998
Horace E. French February 24, 1998
Robert E. Schjerven June 2, 1998
Michael G. Schwartz August 6, 1998
Clyde W. Wyant, Jr. February 3, 1998
Scott J. Boxer July 1, 1998
William Lane Pennington June 26, 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
April ___, 1999
<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
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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
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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
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<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
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<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
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<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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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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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
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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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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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(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> 26
SCHEDULE A
List of Executive Officers who entered into
Change of Control Employment Agreements
with Lennox International Inc., dated April 23, 1999
John W. Norris, Jr.
Harry J. Ashenhurst
Scott J. Boxer
Carl E. Edwards, Jr.
Horace E. French
William Lane Pennington
Robert E. Schjerven
Michael G. Schwartz
Clyde W. Wyant, Jr.
<PAGE> 1
EXHIBIT 10.18
STOCK DISPOSITION AGREEMENT
THIS AGREEMENT ("Agreement") is effective as of the 2nd day of June,
1997 and is by and among A.O.C. CORPORATION, a Texas corporation ("Pledgor"),
LENNOX INTERNATIONAL INC., a Delaware corporation ("Lennox"), and COMPASS BANK,
a state bank chartered under the laws of the State of Texas, with its principal
office located in Dallas, Texas (the "Bank").
PRELIMINARY STATEMENTS:
WHEREAS, Pledgor is the owner of common shares of the capital stock of
Lennox and has pledged 30,000 of such shares to the Bank for the benefit of
Borrower (said 30,000 shares, together with any additional shares that may
hereafter be pledged by Pledgor to the Bank as collateral for the Loan [defined
below], are referred to herein collectively as the "Pledged Stock"); and
WHEREAS, it is the desire of the parties hereto that the Bank make a
loan to AOC Development, L.L.C., a Delaware limited liability company (the
"Borrower") in the principal amount of $20,950,900.00 (the "Loan"), pursuant to
a Loan Agreement (the "Loan Agreement") dated of even date herewith by and
between Borrower and Lender, which Loan shall be evidenced by a promissory note
dated of even date herewith (together with any and all renewals, extensions,
modifications and replacements thereof, the "Note") and secured by, among other
things, the Pledged Stock pursuant to a Stock Pledge Agreement executed by
Pledgor and delivered to Bank and dated of even date herewith (the "Security
Agreement"); and
WHEREAS, Lennox has determined that it is in its best interests to
enter into this Agreement to make provision for the potential future disposition
of its stock; and
WHEREAS, the Pledged Stock is subject to certain restrictions,
including a right of first refusal in favor of Lennox under the terms of its
Certificate of Incorporation; and
WHEREAS, the Pledged Stock has value to the Bank as security only to
the extent that the Bank can be assured that, upon the occurrence of an Event of
Default under the Loan Agreement, there will be available a ready buyer or
market for the Pledged Stock.
NOW, THEREFORE, in consideration of the premises and covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
AGREEMENTS:
1. Conditions on the Ownership and Restrictions on the Transfer of the
Pledged Stock. The Pledgor's ownership and the rights of the Bank with respect
to the Pledged Stock are subject to the following:
(a) Pursuant to Article Sixteenth of the Lennox Restated
Certificate of Incorporation, "No sale, assignment, transfer or other
disposition . . . shall be effective unless and until there is
compliance with the . . . terms and conditions" set forth therein. The
Restated Certificate of Incorporation of Lennox is attached hereto and
incorporated herein as Exhibit A.
The parties hereto understand and agree that the Pledgor's rights in
and to the Pledged Stock and any rights of the Bank thereto created as a result
of the Loan and the Security Agreement are expressly conditioned upon the above
conditions set forth and referenced above in this Paragraph 1.
2. Disposition of Pledged Stock. At any time after the occurrence of an
Event of Default as defined in the Loan Agreement (a "Loan Agreement Default"),
the Bank shall have the right to demand and require Lennox to perform one of the
following: (a) within sixty (60) days of such demand, procure a ready and
willing buyer for the Pledged Stock at the Value (as defined in
STOCK DISPOSITION AGREEMENT - Page 1
<PAGE> 2
the Loan Agreement) of such shares; (b) within thirty (30) days of such demand,
purchase from the Bank the Pledged Stock at the Value of such shares; or (c) if
at the time of a Loan Agreement Default, Lennox's common stock is listed for
trading on a stock exchange or other recognized securities market and has an
average daily trading volume of 25,000 shares, then as soon as is practicable,
but within one hundred twenty (120) days of such demand, register the Pledged
Stock pursuant to the Securities Act of 1933; provided that (i) Lennox shall
have the option to perform under clause (a), (b) or (c) above so long as
performance is completed within the number of days specified (during which time
interest shall continue to accrue on the Note at the Default Rate [as defined in
the Note]) and (ii) neither the buyer under clause (a) above nor Lennox under
clause (b) above shall be required to purchase Pledged Stock in excess of the
number of shares pledged to secure the Note and required to pay Bank an amount
equal to the aggregate amount of the then outstanding indebtedness secured by
the Pledged Stock. Notwithstanding anything else to the contrary herein, Lennox
shall not be required to take any action pursuant to this Agreement that would
cause Lennox to be in default under (i) the Revolving Credit Agreement dated as
of December 4, 1991, as the same may have heretofore been amended or may
hereafter be amended, among Lennox, the banks named on the signature pages
thereof, and The Northern Trust Company, as Agent, or (ii) any note purchase
agreements entered into in December 1991, December 1993, and July 1995, between
Lennox and various note purchasers, as in effect on the date hereof, where the
outstanding amount of a long term note issued thereunder exceeds Five Million
Dollars ($5,000,000.00).
If a Loan Agreement Default shall occur, the Bank shall also have the
right, subject to the conditions set forth in Paragraph 1 hereof, to procure a
buyer for the Pledged Stock; provided that the Bank shall first offer the shares
of the Pledged Stock to Lennox, whether or not the aggregate Value of the
Pledged Stock shall be sufficient to pay in full all then outstanding
indebtedness secured by the Pledged Stock, and provided, further, that Bank's
obligation to make such offer shall terminate in the event Lennox fails to
exercise its right of first refusal by paying Bank the Value of the Pledged
Stock in cash within thirty (30) days of such offer.
3. Method of Demand. The right to demand performance by Lennox as
described in Paragraph 2 hereof shall be exercised by Bank giving written notice
to Lennox (at the address set forth in Paragraph 9(b) below) of the Loan
Agreement Default and the Bank's demand for such performance by Lennox. Any
delay by Bank in exercising such right after the occurrence of a Loan Agreement
Default shall not operate as a waiver of such right or any other right provided
for herein. Upon receipt of such demand, Lennox shall advise the Bank in writing
within ten (10) business days whether it intends to perform under clause (a),
(b) or (c) of Paragraph 2 hereof, whereupon Lennox shall promptly commence said
performance and shall diligently pursue completion of its performance.
4. Method of Payment. The purchase price of the Pledged Stock (the
"Purchase Price") shall be its Value as provided in Paragraph 2 hereof, and the
full Purchase Price shall be paid to the Bank in cash on the Closing Date as set
forth in Paragraph 5 below.
5. Closing Date. Any purchase of the Pledged Stock by Lennox or a buyer
procured by Lennox pursuant to Paragraph 2 hereof shall occur in Dallas, Texas
at the principal office of Bank or such other address in Dallas, Texas as Bank
shall designate, on a date mutually agreed by Bank and Lennox, which date shall
be not later than the last date for performance by Lennox or such buyer under
Paragraph 2 hereof (the "Closing Date"). At the closing, Bank shall deliver the
certificates being purchased, duly endorsed or with duly completed stock powers,
and the buyer of the Pledged Stock shall deliver to Bank, the Purchase Price
required to be paid on the Closing Date pursuant to Paragraph 4 above, which
shall be payable through a wire transfer or a cashier's check in United States
dollars from a bank acceptable to Bank.
6. Representations, Warranties and Covenants
(a) This Agreement has been duly authorized by all corporate
action necessary on the part of Pledgor and Lennox, respectively. This
Agreement constitutes a valid and binding agreement of Pledgor and
Lennox, and is enforceable against Pledgor and Lennox, respectively, in
accordance with its terms, except that such enforceability may be
affected by (i) general principles of equity (regardless of whether
relief is sought in an action at law or in equity) and (ii) applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws from
time to time in effect affecting enforcement of creditors' rights
generally.
(b) Pledgor hereby agrees that the disposition of the Pledged
Stock in the manner and on such terms as are provided in this Agreement
shall be deemed for all purposes as a "commercially reasonable" sale as
required by the
STOCK DISPOSITION AGREEMENT - Page 2
<PAGE> 3
Texas Business and Commerce Code, regardless of whether the book,
market or other value of the Pledged Stock is equal to, above or below
the Purchase Price.
(c) BANK HAS MADE NO REPRESENTATION OR WARRANTY WHATSOEVER
CONCERNING THE INVESTMENT VALUE OF THE PLEDGED STOCK. THE PLEDGOR AND
LENNOX AGREE THAT THIS AGREEMENT CONTEMPLATES THAT NEITHER PLEDGOR NOR
LENNOX SHALL BE ENTITLED TO ASSERT ANY SUCH REPRESENTATION OR WARRANTY
BY BANK, AT ANY TIME. PLEDGOR AND LENNOX AGREE TO INDEMNIFY AND HOLD
BANK HARMLESS WITH RESPECT TO ANY CLAIM MADE BY ANY PARTY HERETO, OR
ANY SUCCESSOR OR ASSIGN, ASSERTING SUCH A REPRESENTATION OR WARRANTY BY
BANK.
(d) Each of the parties hereto agree to undertake such
additional agreements, execute such additional documents, and do such
other acts and things as may be reasonably required to effect the
purposes of this Agreement.
(e) To the extent that any provision of this Agreement is in
conflict with any provision in any prior agreement between Pledgor and
Lennox, this Agreement shall control.
(f) Lennox shall promptly give written notice to Bank of any
event of default under any loan or credit agreement or note purchase
agreement between Lennox and a lender where the amount of debt
outstanding under such agreement is at least Ten Million Dollars
($10,000,000).
(g) Pledgor shall reimburse Lennox for its reasonable
out-of-pocket expenses (not including any Purchase Price paid by Lennox
hereunder) in performing its obligations hereunder after an Event of
Default has occurred.
(h) Pledgor represents and warrants that the Pledged Stock has
not been pledged, assigned, hypothecated or transferred in any way for
the benefit of any other party, and is not the subject of any security,
pledge, hypothecation or similar agreement for the benefit of any other
party, with the sole exception of the Other Security Agreement relating
to the Pledgor's Loan (as such terms are defined below in Paragraph
9[h] of this Agreement).
7. Breach of Agreement. It is agreed that a breach by Lennox in the
performance of its obligations hereunder cannot be adequately measured or
compensated in money damages, and that any such breach would do irreparable
injury to Bank. It is therefore agreed that in the event of any breach or
threatened breach by Lennox of any of the terms and conditions set forth herein,
Bank shall be entitled, in addition to any and all rights and remedies to which
it may otherwise be entitled at law or in equity, to apply for and obtain
injunctive relief to restrain Lennox from committing such breach or threatened
breach and from continuing any activity constituting such breach, and mandating
that Lennox perform under this Agreement.
8. Parties Bound. All representations, warranties, covenants and
agreements made by or on behalf of Lennox and Pledgor shall bind Lennox and
Pledgor and the heirs, devisees, executors, administrators, personal
representatives, successors, trustees, receivers, and assigns of Pledgor and
Lennox and inure to the benefit of the successors and assigns of Bank.
9. Miscellaneous.
(a) This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and
assigns; provided, however, that neither of Lennox nor Pledgor shall be
permitted to assign or delegate its rights, privileges or obligations
hereunder at any time, and shall be required to adhere to and carry out
its duties as set forth herein. Any attempted assignment by Lennox or
by Pledgor shall be null and void and shall not relieve such party of
any of its obligations, responsibilities, representations and
warranties contained in this Agreement.
(b) All notice and other communications provided for herein
shall be validly given, made or served, if in writing and delivered
personally or sent by certified mail, return receipt requested, postage
prepaid:
If to Bank: Compass Bank
P.O. Box 650561
Dallas, Texas 75265-0561
Attention: John Reichenbach
If to Lennox: Lennox International Inc.
P.O. Box 799900
Dallas, Texas 75379-9900
Attention: Chief Financial Officer
STOCK DISPOSITION AGREEMENT - Page 3
<PAGE> 4
If to Pledgor: A.O.C. Corporation
2100 Lake Park Blvd.
Richardson, Texas 75080
Attention: President
(c) This Agreement contains the entire agreement between the
parties hereto with respect to the disposition of stock contemplated
herein as the same relates to the Loan and supersedes all prior
agreements or understandings, if any, between the parties hereto
relating to the subject matter hereof in connection with the Loan, and
may not be modified except by written agreement signed by all of the
parties hereto.
(d) The captions of each paragraph hereof are entered as a
matter of convenience only and shall not be considered to be of any
effect in the construction of this Agreement.
(e) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS
OF THE UNITED STATES OF AMERICA. THIS AGREEMENT HAS BEEN ENTERED INTO
IN DALLAS COUNTY, TEXAS, SHALL BE PERFORMABLE FOR ALL PURPOSES IN
DALLAS COUNTY, TEXAS AND THE PLEDGOR, LENNOX AND THE BANK AGREE THAT
DALLAS COUNTY, TEXAS IS PROPER VENUE FOR ANY ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT AND THAT NO SUCH COURT IS AN INCONVENIENT
FORUM. PLEDGOR, LENNOX AND BANK AGREE THAT SERVICE OF PROCESS UPON ANY
OF THEM MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT
REQUESTED, AT THEIR ADDRESSES SPECIFIED ABOVE OR DETERMINED IN
ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT. NOTHING HEREIN OR IN
ANY OF THE NOTE OR SECURITY AGREEMENT SHALL AFFECT THE RIGHT OF THE
BANK TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
(f) All representations and warranties contained herein shall
survive the execution of this Agreement.
(g) This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all
of which shall constitute one and the same instrument.
(h) It is understood and acknowledged that (i) the 30,000
shares of the Pledged Stock were previously pledged by Pledgor to Bank
pursuant to a Security Agreement (the "Other Security Agreement") dated
July 26, 1995 by and between Pledgor and Bank in connection with a term
loan ("Pledgor's Loan") made by Bank to Pledgor at that time, (ii) this
Agreement is not intended to supercede, replace, amend, alter or
otherwise affect in any way the Other Security Agreement, Pledgor's
Loan or the Stock Disposition Agreement (the "Other Stock Disposition
Agreement") executed by Pledgor, the Bank and Lennox in connection with
Pledgor's Loan, (iii) the rights and obligations of Pledgor and Lennox
under this Agreement are unrelated to and completely independent of
their respective rights and obligations under the Other Stock
Disposition Agreement, and each of Pledgor and Lennox shall honor and
perform its obligations hereunder without regard to the Other Stock
Disposition Agreement, (iv) upon the occurrence of a Loan Agreement
Default, Bank shall be entitled to exercise its rights and remedies
hereunder and otherwise relating to the Loan and the subject matter of
this Agreement without regard to the Other Stock Disposition Agreement,
and (v) in the event that default situations should exist
simultaneously under or with respect to both the Loan and the Pledgor's
Loan, Bank shall be entitled, at its option and without limitation as
to election of remedies or otherwise, to pursue its rights and remedies
as to the Pledged
STOCK DISPOSITION AGREEMENT - Page 4
<PAGE> 5
Stock under either this Agreement or the Other Stock Disposition
Agreement, or under both of them, either simultaneously or
independently of one another.
(i) Except in the event that a Loan Agreement Default, or a
breach or threatened breach by Lennox in the performance of its
obligations hereunder, shall have occurred and remain uncured,
unperformed or otherwise unresolved at such time, this Agreement shall
be deemed automatically terminated and of no further force or effect
(except as otherwise expressly provided herein) on the date that (i)
Pledged Stock becomes registered for resale under the Securities Act of
1933, as amended, and the common stock of Lennox is listed on a
nationally recognized securities exchange or market (including the New
York Stock Exchange or NASDAQ) and (ii) the average daily trading
volume for such Lennox common stock has exceeded 25,000 shares
(adjusted for any stock split after the date hereof) for at least ten
(10) of the prior thirty (30) days.
THIS STOCK DISPOSITION AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN
THE PARTIES AS TO THE SUBJECT MATTER HEREOF IN CONNECTION WITH THE LOAN AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
LENNOX: LENNOX INTERNATIONAL INC.
By: /s/ Clyde Wyant
----------------------------------------------
Clyde Wyant
Executive Vice President, Chief Financial
Officer and Treasurer
PLEDGOR: A.O.C. CORPORATION
By: /s/ Clyde Wyant
----------------------------------------------
Clyde Wyant
Vice President
BANK: COMPASS BANK
By: /s/ John H. Reichenbach
----------------------------------------------
John H. Reichenbach
Vice President
STOCK DISPOSITION AGREEMENT - Page 5
<PAGE> 6
EXHIBIT A
Restated Certificate of Incorporation of Lennox
EXHIBIT A - Restated Certificate of Incorporation of Lennox
<PAGE> 1
EXHIBIT 10.19
STOCK DISPOSITION AGREEMENT
THIS AGREEMENT ("Agreement") is effective as of the 22nd day of
January, 1998 and is by and among A.O.C. CORPORATION, a Texas corporation
("Pledgor"), LENNOX INTERNATIONAL INC., a Delaware corporation ("Lennox"), and
COMPASS BANK, a state bank chartered under the laws of the State of Texas, with
its principal office located in Dallas, Texas (the "Bank").
PRELIMINARY STATEMENTS:
WHEREAS, Pledgor is the owner of common shares of the capital stock of
Lennox and has pledged 30,000 of such shares to the Bank for the benefit of
Borrower (said 30,000 shares, together with any additional shares that may
hereafter be pledged by Pledgor to the Bank as collateral for the Loan [defined
below], are referred to herein collectively as the "Pledged Stock"); and
WHEREAS, it is the desire of the parties hereto that the Bank make a
loan to AOC Development II, L.L.C., a Delaware limited liability company (the
"Borrower") in the principal amount of $27,965,500.00 (the "Loan"), pursuant to
a Loan Agreement (the "Loan Agreement") dated of even date herewith by and
between Borrower and Lender, which Loan shall be evidenced by a promissory note
dated of even date herewith (together with any and all renewals, extensions,
modifications and replacements thereof, the "Note") and secured by, among other
things, the Pledged Stock pursuant to a Stock Pledge Agreement executed by
Pledgor and delivered to Bank and dated of even date herewith (the "Security
Agreement"); and
WHEREAS, Lennox has determined that it is in its best interests to
enter into this Agreement to make provision for the potential future
disposition of its stock; and
WHEREAS, the Pledged Stock is subject to certain restrictions,
including a right of first refusal in favor of Lennox under the terms of its
Certificate of Incorporation; and
WHEREAS, the Pledged Stock has value to the Bank as security only to
the extent that the Bank can be assured that, upon the occurrence of an Event
of Default under the Loan Agreement, there will be available a ready buyer or
market for the Pledged Stock.
NOW, THEREFORE, in consideration of the premises and covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
AGREEMENTS:
1. Conditions on the Ownership and Restrictions on the Transfer of the
Pledged Stock. The Pledgor's ownership and the rights of the Bank with respect
to the Pledged Stock are subject to the following:
(a) Pursuant to Article Sixteenth of the Lennox Restated
Certificate of Incorporation, "No sale, assignment, transfer or other
disposition . . . shall be effective unless and until there is
compliance with the . . . terms and conditions" set forth therein. The
Restated Certificate of Incorporation of Lennox is attached hereto and
incorporated herein as Exhibit A.
The parties hereto understand and agree that the Pledgor's rights in
and to the Pledged Stock and any rights of the Bank thereto created as a result
of the Loan and the Security Agreement are expressly conditioned upon the above
conditions set forth and referenced above in this Paragraph 1.
2. Disposition of Pledged Stock. At any time after the occurrence of
an Event of Default as defined in the Loan Agreement (a "Loan Agreement
Default"), the Bank shall have the right to demand and require Lennox to
perform one of the following: (a) within sixty (60) days of such demand,
procure a ready and willing buyer for the Pledged Stock at the Value (as
defined in
STOCK DISPOSITION AGREEMENT - Page 1
<PAGE> 2
the Loan Agreement) of such shares; (b) within thirty (30) days of such demand,
purchase from the Bank the Pledged Stock at the Value of such shares; or (c) if
at the time of a Loan Agreement Default, Lennox's common stock is listed for
trading on a stock exchange or other recognized securities market and has an
average daily trading volume of 25,000 shares, then as soon as is practicable,
but within one hundred twenty (120) days of such demand, register the Pledged
Stock pursuant to the Securities Act of 1933; provided that (i) Lennox shall
have the option to perform under clause (a), (b) or (c) above so long as
performance is completed within the number of days specified (during which time
interest shall continue to accrue on the Note at the Default Rate [as defined
in the Note]) and (ii) neither the buyer under clause (a) above nor Lennox
under clause (b) above shall be required to purchase Pledged Stock in excess of
the number of shares pledged to secure the Note and required to pay Bank an
amount equal to the aggregate amount of the then outstanding indebtedness
secured by the Pledged Stock. Notwithstanding anything else to the contrary
herein, Lennox shall not be required to take any action pursuant to this
Agreement that would cause Lennox to be in default under (i) the Revolving
Credit Agreement dated as of December 4, 1991, as the same may have heretofore
been amended or may hereafter be amended, among Lennox, the banks named on the
signature pages thereof, and The Northern Trust Company, as Agent, or (ii) any
note purchase agreements entered into in December 1991, December 1993, and July
1995, between Lennox and various note purchasers, as in effect on the date
hereof, where the outstanding amount of a long term note issued thereunder
exceeds Five Million Dollars ($5,000,000.00).
If a Loan Agreement Default shall occur, the Bank shall also have the
right, subject to the conditions set forth in Paragraph 1 hereof, to procure a
buyer for the Pledged Stock; provided that the Bank shall first offer the
shares of the Pledged Stock to Lennox, whether or not the aggregate Value of
the Pledged Stock shall be sufficient to pay in full all then outstanding
indebtedness secured by the Pledged Stock, and provided, further, that Bank's
obligation to make such offer shall terminate in the event Lennox fails to
exercise its right of first refusal by paying Bank the Value of the Pledged
Stock in cash within thirty (30) days of such offer.
3. Method of Demand. The right to demand performance by Lennox as
described in Paragraph 2 hereof shall be exercised by Bank giving written
notice to Lennox (at the address set forth in Paragraph 9(b) below) of the Loan
Agreement Default and the Bank's demand for such performance by Lennox. Any
delay by Bank in exercising such right after the occurrence of a Loan Agreement
Default shall not operate as a waiver of such right or any other right provided
for herein. Upon receipt of such demand, Lennox shall advise the Bank in
writing within ten (10) business days whether it intends to perform under
clause (a), (b) or (c) of Paragraph 2 hereof, whereupon Lennox shall promptly
commence said performance and shall diligently pursue completion of its
performance.
4. Method of Payment. The purchase price of the Pledged Stock (the
"Purchase Price") shall be its Value as provided in Paragraph 2 hereof, and the
full Purchase Price shall be paid to the Bank in cash on the Closing Date as
set forth in Paragraph 5 below.
5. Closing Date. Any purchase of the Pledged Stock by Lennox or a
buyer procured by Lennox pursuant to Paragraph 2 hereof shall occur in Dallas,
Texas at the principal office of Bank or such other address in Dallas, Texas as
Bank shall designate, on a date mutually agreed by Bank and Lennox, which date
shall be not later than the last date for performance by Lennox or such buyer
under Paragraph 2 hereof (the "Closing Date"). At the closing, Bank shall
deliver the certificates being purchased, duly endorsed or with duly completed
stock powers, and the buyer of the Pledged Stock shall deliver to Bank, the
Purchase Price required to be paid on the Closing Date pursuant to Paragraph 4
above, which shall be payable through a wire transfer or a cashier's check in
United States dollars from a bank acceptable to Bank.
6. Representations, Warranties and Covenants
(a) This Agreement has been duly authorized by all corporate
action necessary on the part of Pledgor and Lennox, respectively. This
Agreement constitutes a valid and binding agreement of Pledgor and
Lennox, and is enforceable against Pledgor and Lennox,
respectively, in accordance with its terms, except that such
enforceability may be affected by (i) general principles of equity
(regardless of whether relief is sought in an action at law or in
equity) and (ii) applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws from time to time in effect affecting
enforcement of creditors' rights generally.
(b) Pledgor hereby agrees that the disposition of the Pledged
Stock in the manner and on such terms as are provided in this
Agreement shall be deemed for all purposes as a "commercially
reasonable" sale as required by the Texas Business and Commerce Code,
regardless of whether the book, market or other value of the Pledged
Stock is equal to, above or below the Purchase Price.
STOCK DISPOSITION AGREEMENT - Page 2
<PAGE> 3
(c) BANK HAS MADE NO REPRESENTATION OR WARRANTY WHATSOEVER
CONCERNING THE INVESTMENT VALUE OF THE PLEDGED STOCK. THE PLEDGOR AND
LENNOX AGREE THAT THIS AGREEMENT CONTEMPLATES THAT NEITHER PLEDGOR NOR
LENNOX SHALL BE ENTITLED TO ASSERT ANY SUCH REPRESENTATION OR WARRANTY
BY BANK, AT ANY TIME. PLEDGOR AND LENNOX AGREE TO INDEMNIFY AND HOLD
BANK HARMLESS WITH RESPECT TO ANY CLAIM MADE BY ANY PARTY HERETO, OR
ANY SUCCESSOR OR ASSIGN, ASSERTING SUCH A REPRESENTATION OR WARRANTY
BY BANK.
(d) Each of the parties hereto agree to undertake such
additional agreements, execute such additional documents, and do such
other acts and things as may be reasonably required to effect the
purposes of this Agreement.
(e) To the extent that any provision of this Agreement is in
conflict with any provision in any prior agreement between Pledgor and
Lennox, this Agreement shall control.
(f) Lennox shall promptly give written notice to Bank of any
event of default under any loan or credit agreement or note purchase
agreement between Lennox and a lender where the amount of debt
outstanding under such agreement is at least Ten Million Dollars
($10,000,000).
(g) Pledgor shall reimburse Lennox for its reasonable
out-of-pocket expenses (not including any Purchase Price paid by
Lennox hereunder) in performing its obligations hereunder after an
Event of Default has occurred.
(h) Pledgor represents and warrants that the Pledged Stock
has not been pledged, assigned, hypothecated or transferred in any way
for the benefit of any other party, and is not the subject of any
security, pledge, hypothecation or similar agreement for the benefit
of any other party, with the sole exception of the Other Security
Agreement relating to the Existing Loan (as such terms are defined
below in Paragraph 9[h] of this Agreement).
7. Breach of Agreement. It is agreed that a breach by Lennox in the
performance of its obligations hereunder cannot be adequately measured or
compensated in money damages, and that any such breach would do irreparable
injury to Bank. It is therefore agreed that in the event of any breach or
threatened breach by Lennox of any of the terms and conditions set forth
herein, Bank shall be entitled, in addition to any and all rights and remedies
to which it may otherwise be entitled at law or in equity, to apply for and
obtain injunctive relief to restrain Lennox from committing such breach or
threatened breach and from continuing any activity constituting such breach,
and mandating that Lennox perform under this Agreement.
8. Parties Bound. All representations, warranties, covenants and
agreements made by or on behalf of Lennox and Pledgor shall bind Lennox and
Pledgor and the heirs, devisees, executors, administrators, personal
representatives, successors, trustees, receivers, and assigns of Pledgor and
Lennox and inure to the benefit of the successors and assigns of Bank.
9. Miscellaneous.
(a) This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and
assigns; provided, however, that neither of Lennox nor Pledgor shall
be permitted to assign or delegate its rights, privileges or
obligations hereunder at any time, and shall be required to adhere to
and carry out its duties as set forth herein. Any attempted assignment
by Lennox or by Pledgor shall be null and void and shall not relieve
such party of any of its obligations, responsibilities,
representations and warranties contained in this Agreement.
(b) All notice and other communications provided for herein
shall be validly given, made or served, if in writing and delivered
personally or sent by certified mail, return receipt requested,
postage prepaid:
If to Bank: Compass Bank
P.O. Box 650561
Dallas, Texas 75265-0561
Attention: John Reichenbach
If to Lennox: Lennox International Inc.
P.O. Box 799900
Dallas, Texas 75379-9900
Attention: Chief Financial Officer
If to Pledgor: A.O.C. Corporation
2100 Lake Park Blvd.
Richardson, Texas 75080
Attention: President
STOCK DISPOSITION AGREEMENT - Page 3
<PAGE> 4
(c) This Agreement contains the entire agreement between the
parties hereto with respect to the disposition of stock contemplated
herein as the same relates to the Loan and supersedes all prior
agreements or understandings, if any, between the parties hereto
relating to the subject matter hereof in connection with the Loan, and
may not be modified except by written agreement signed by all of the
parties hereto.
(d) The captions of each paragraph hereof are entered as a
matter of convenience only and shall not be considered to be of any
effect in the construction of this Agreement.
(e) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS
OF THE UNITED STATES OF AMERICA. THIS AGREEMENT HAS BEEN ENTERED INTO
IN DALLAS COUNTY, TEXAS, SHALL BE PERFORMABLE FOR ALL PURPOSES IN
DALLAS COUNTY, TEXAS AND THE PLEDGOR, LENNOX AND THE BANK AGREE THAT
DALLAS COUNTY, TEXAS IS PROPER VENUE FOR ANY ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT AND THAT NO SUCH COURT IS AN INCONVENIENT
FORUM. PLEDGOR, LENNOX AND BANK AGREE THAT SERVICE OF PROCESS UPON ANY
OF THEM MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT
REQUESTED, AT THEIR ADDRESSES SPECIFIED ABOVE OR DETERMINED IN
ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT. NOTHING HEREIN OR IN
ANY OF THE NOTE OR SECURITY AGREEMENT SHALL AFFECT THE RIGHT OF THE
BANK TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
(f) All representations and warranties contained herein shall
survive the execution of this Agreement.
(g) This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all
of which shall constitute one and the same instrument.
(h) It is understood and acknowledged that (i) the 30,000
shares of the Pledged Stock were previously pledged by Pledgor to Bank
pursuant to a Stock Pledge Agreement (the "Other Security Agreement")
dated June 2, 1997 by and between Pledgor and Bank in connection with
a $20,950,900.00 construction loan ("Existing Loan") made by Bank to
AOC Development, L.L.C., a Delaware limited liability company at that
time, (ii) this Agreement is not intended to supersede, replace,
amend, alter or otherwise affect in any way the Other Security
Agreement, Existing Loan or the Stock Disposition Agreement (the
"Other Stock Disposition Agreement") executed by Pledgor, the Bank and
Lennox in connection with the Existing Loan, (iii) the rights and
obligations of Pledgor and Lennox under this Agreement are unrelated
to and completely independent of their respective rights and
obligations under the Other Stock Disposition Agreement, and each of
Pledgor and Lennox shall honor and perform its obligations hereunder
without regard to the Other Stock Disposition Agreement, (iv) upon the
occurrence of a Loan Agreement Default, Bank shall be entitled to
exercise its rights and remedies hereunder and otherwise relating to
the Loan and the subject matter of this Agreement without regard to
the Other Stock Disposition Agreement, and (v) in the event that
default situations should exist simultaneously under or with respect
to both the Loan and the Existing Loan, Bank shall be entitled, at its
option and without limitation as to election of remedies or otherwise,
to pursue its rights and remedies as to the Pledged Stock under either
this Agreement or the Other Stock Disposition Agreement, or under both
of them, either simultaneously or independently of one another.
STOCK DISPOSITION AGREEMENT - Page 4
<PAGE> 5
(i) Except in the event that a Loan Agreement Default, or a
breach or threatened breach by Lennox in the performance of its
obligations hereunder, shall have occurred and remain uncured,
unperformed or otherwise unresolved at such time, this Agreement shall
be deemed automatically terminated and of no further force or effect
(except as otherwise expressly provided herein) on the date that (i)
the Pledged Stock becomes registered for resale under the Securities
Act of 1933, as amended, and the common stock of Lennox is listed on a
nationally recognized securities exchange or market (including the New
York Stock Exchange or NASDAQ) and (ii) the average daily trading
volume for such Lennox common stock has exceeded 25,000 shares
(adjusted for any stock split after the date hereof) for at least ten
(10) of the prior thirty (30) days.
THIS STOCK DISPOSITION AGREEMENT REPRESENTS THE FINAL AGREEMENT
BETWEEN THE PARTIES AS TO THE SUBJECT MATTER HEREOF IN CONNECTION WITH THE LOAN
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
LENNOX: LENNOX INTERNATIONAL INC.
By: /s/ CLYDE WYANT
-----------------------------------------
Clyde Wyant
Executive Vice President, Chief Financial
Officer and Treasurer
PLEDGOR: A.O.C. CORPORATION
By: /s/ CLYDE WYANT
-----------------------------------------
Clyde Wyant
Vice President
BANK: COMPASS BANK
By: /s/ JOHN H. REICHENBACH
-----------------------------------------
John H. Reichenbach
Vice President
DA973350149
011998 v2
225:16621-8
STOCK DISPOSITION AGREEMENT - Page 5
<PAGE> 6
EXHIBIT A
Restated Certificate of Incorporation of Lennox
EXHIBIT A - Restated Certificate of Incorporation of Lennox
<PAGE> 1
EXHIBIT 10.20
STOCK DISPOSITION AGREEMENT
(this "Agreement")
THIS AGREEMENT is effective as of the 7th day of May, 1998, and is by
and among the NORTHERN TRUST BANK OF FLORIDA, N.A., TRUSTEE U/A/W LORAINE BOOTH
GIMRE TRUST ("Borrower"), LENNOX INTERNATIONAL INC., a Delaware corporation
("Lennox"), and the NORTHERN TRUST BANK OF FLORIDA, N.A., a national banking
association (the "Bank").
PRELIMINARY STATEMENTS:
WHEREAS, Borrower is the owner of 6,946 SHARES of the capital stock of
Lennox (the "Pledged Stock"); and
WHEREAS, it is the desire of the parties hereto that the Bank make a
term loan to Borrower in the principal amount of $2,800,000.00 maturing as of
MAY 7, 2000 (the "Loan") which shall be evidenced by a term note dated of even
date herewith (together with any and all renewals, extensions, modifications and
replacements thereof, the "Note") and secured by the Pledged Stock pursuant to a
Security Agreement-Pledge executed by Borrower and delivered to the Bank and
dated of even date herewith ("Security Agreement")(collectively referred to as
the "Loan Documents"); and
WHEREAS, Lennox has determined that it is in its best interests to
enter into this Agreement to make provision for the potential future disposition
of its stock; and
WHEREAS, the Pledged Stock is subject to certain restrictions,
including a right of first refusal in favor of Lennox under the terms of its
Certificate of Incorporation; and
WHEREAS, the Pledged Stock has value to the Bank as security only to
the extent that the Bank can be assured that, upon the default of Borrower under
the Note, there will be available a ready buyer or market for the Pledged Stock.
NOW, THEREFORE, in consideration of the premises and covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
AGREEMENTS:
1. Conditions on the Ownership and Restrictions on the Transfer of the
Pledged Stock. Except as provided in Paragraph 2(b) hereof, the Borrower's
ownership and the rights of the Bank with respect to the Pledged Stock are
subject to the following:
<PAGE> 2
(a) Pursuant to Article Sixteenth of the Lennox Restated
Certificate of Incorporation, "No sale, assignment, transfer or other
disposition... shall be effective unless and until there is compliance
with the...terms and conditions" set forth therein. The Restated
Certificate of Incorporation of Lennox is attached hereto and
incorporated herein as EXHIBIT "A".
The parties hereto understand and agree that the Borrower's rights in and to the
Pledged Stock and any rights of the Bank thereto created as a result of the Loan
Documents are, except as provided in Paragraph 2(b) hereof, expressly
conditioned upon the above conditions set forth and referenced above in this
Paragraph 1, but Lennox hereby consents to the pledge of the Pledged Stock
pursuant to the Security Agreement.
2. Disposition of Pledged Stock.
(a) At any time after the occurrence of any event of default
under any of the Loan Documents (an "Event of Default"), the Bank shall have the
right to request and Lennox agrees to use its best efforts to perform one of the
following: (a) within ninety (90) days of such demand, procure a ready and
willing buyer for the Pledged Stock at their Value as such term is defined
below; (b) within ninety (90 ) days of such demand, purchase from the Bank the
Pledged Stock at their Value ; or (c) with written consent of the Bank as to
this option, as soon as practicable, register the Pledged Stock pursuant to the
Securities Act of 1933; provided that (i) Lennox shall have the option to
perform under clause (a), (b) or (c) above so long as performance is completed
within the time specified (during which time interest shall continue to accrue
on the Note at the default rate (as defined in the Loan Documents), and (ii)
neither the buyer under clause (a) above nor Lennox under clause (b) above shall
be required to purchase Pledged Stock in excess of the number of shares pledged
to secure the Note and required to pay the Bank an amount equal to the aggregate
amount of the then outstanding indebtedness secured by the Pledged Stock, as at
the time of purchase. Notwithstanding anything else to the contrary herein,
Lennox shall not be required to take any action pursuant to this Agreement that
would cause Lennox to be in default under (i) the Revolving Credit Agreement
dated as of December 4, 1991, as amended, among Lennox, the banks named on the
signature pages thereof, and The Northern Trust Company, as Agent, or (ii) any
note purchase agreements entered into in December 1991, December 1993, July 1995
and April 1998, between Lennox and various note purchasers, as in effect on the
date hereof, where the outstanding amount of a long term note issued thereunder
exceeds $3,000,000; provided, however, that Lennox and Borrower agree that they
will provide the Bank with a letter from the Chief Executive Officer, Chief
Financial Officer or General Counsel as of the date of this Agreement and,
thereafter, on a quarterly basis, certifying that Lennox is not in default under
any of the documents referred to in this sentence and that there is no default
occurring therein relating to this Agreement as of the date of any such request
by the Bank and failure by Borrower and Lennox to provide such a letter shall be
an Event of Default under the Bank's Loan Documents and an Event of Default for
purposes of the defined term used herein.
2
<PAGE> 3
(b) If an Event of Default shall occur, the Bank shall also
have the right, subject to the conditions set forth in Paragraph 1 hereof, to
procure a buyer for the Pledged Stock; provided the Bank shall first offer the
shares of the Pledged Stock to Lennox, whether or not the aggregate Value of the
Pledged Stock shall be sufficient to pay in full all then outstanding
indebtedness secured by the Pledged Stock; and provided, further, that the
Bank's obligation to make such offer shall terminate in the event Lennox fails
to exercise its right of first refusal by paying the Bank the Value of the
Pledged Stock in cash within thirty (30) days of such offer.
(c) The "Value" of each share of the Pledged Stock shall be
determined depending on whether the Pledged Stock is traded on any security
exchange according to the following procedure:
(i) If the Pledged Stock is not traded on any public exchange,
then the Value shall mean the fair market value of a share of common
stock of Lennox as most recently fixed pursuant to the process for
determination of value set forth in Paragraph (d) of Article Sixteen,
which shall have been determined (prior to the date of the event giving
rise to the use and application of such term) by independent
consultants to Lennox selected and appointed by its Board of Directors
for the purpose of ascertaining the applicable market value
("Applicable Market Value"). Such independent consultants shall fix and
determine the fair market value of a share of common stock of Lennox on
a quarterly basis following the end of each calendar quarter. In
ascertaining such value (sometimes identified as the "non-marketable
minority" value), such consultants shall consider the latest available
financial statements and financial information of Lennox, projections
and internal information relating to Lennox 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 the independent consultants, the
minority nature of any individual's shareholding and the lack of a
public market for the common stock and its consequent illiquidity.
(ii) If the Pledged Stock is traded on any public exchange,
the Value shall mean the price of a share of common stock as determined
by the normal and usual method used to value common stock on the
securities exchange on which the Lennox common stock may at the time be
listed.
3. Method of Demand. The right to demand performance by Lennox as
described in Paragraph 2 hereof shall be exercised by the Bank giving written
notice to Lennox (at the address set forth in Paragraph 6(c) below) of the Event
of Default and the Bank's demand for such performance by Lennox. The date of
such notice is herein referred to as the "Notice Date." Any delay by the Bank in
exercising such right after the occurrence of an Event of Default shall not
operate as a waiver of such right or any other right provided for herein. Upon
receipt of such demand, Lennox shall advise the Bank in writing within fifteen
(15) business days whether it intends to perform under clause (a), (b) or (c) of
Paragraph 2(a) hereof.
3
<PAGE> 4
4. Method of Payment. The purchase price of the Pledged Stock (the
"Purchase Price") shall be its Value as provided in Paragraph 2(c) hereof, and
the full Purchase Price shall be paid in cash on the Closing Date as set forth
in Paragraph 5 below.
5. Closing Date. Any purchase of the Pledged Stock by Lennox or a buyer
procured by Lennox pursuant to Paragraph 2 hereof shall occur in Dallas, Texas
at the principal office of Lennox or such other address in Dallas, Texas as
Lennox shall designate, on a date mutually agreed by the Bank and Lennox, which
date shall be not later than the last date for performance by Lennox or such
buyer under Paragraph 2 hereof (the "Closing Date"). At the closing, the Bank
shall deliver the certificates being purchased, duly endorsed or with duly
completed stock powers, and the buyer of the Pledged Stock shall deliver to the
Bank, the Purchase Price required to be paid on the Closing Date pursuant to
Paragraph 4 above, which shall be payable through a wire transfer or a cashier's
check in United States dollars from a bank acceptable to the Bank.
6. Miscellaneous.
(a) This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and
assigns;
(b) Borrower shall reimburse Lennox for its reasonable
out-of-pocket expenses (not including any Purchase Price paid by Lennox
hereunder) in performing its obligations hereunder after an Event of
Default has occurred;
(c) All notice and other communications provided for herein
shall be validly given, made or served, if in writing and delivered
personally or sent by certified mail, return receipt requested, postage
prepaid:
if to the Bank: Northern Trust Bank of Florida, N.A.
1515 Ringling Blvd.
Sarasota, FL 34236
Attention: Peter L. Biegel,
Senior Vice President
if to Lennox: Lennox International Inc.
P. O. Box 799900
Dallas, Texas 75379-9900
Attention: Chief Financial Officer
4
<PAGE> 5
if to Borrower: Northern Trust Bank of Florida/Sarasota, N.A.
Trustee U/A/W Loraine Booth Gimre Trust
1515 Ringling Blvd.
Sarasota, FL 34236
Attention: William C. Garr
(d) This Agreement contains the entire agreement between the
parties hereto with respect to the disposition of stock contemplated
herein and supersedes all prior agreements or understandings, if any,
between the parties hereto relating to the subject matter hereof, and
may not be modified except by written agreement signed by all of the
parties hereto.
(e) The captions of each paragraph hereof are entered as a
matter of convenience only and shall not be considered to be of any
effect in the construction of this Agreement.
(f) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS
OF THE UNITED STATES OF AMERICA. THIS AGREEMENT HAS BEEN ENTERED INTO
IN DALLAS COUNTY, TEXAS, SHALL BE PERFORMABLE FOR ALL PURPOSES IN
DALLAS COUNTY, TEXAS AND THE BORROWER, LENNOX AND THE BANK AGREE THAT
DALLAS COUNTY, TEXAS IS PROPER VENUE FOR ANY ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT AND THAT NO SUCH COURT IS AN INCONVENIENT
FORUM. BORROWER, LENNOX AND THE BANK AGREE THAT SERVICE OF PROCESS UPON
ANY OF THEM MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT
REQUESTED, AT THEIR ADDRESSES SPECIFIED ABOVE OR DETERMINED IN
ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT. NOTHING HEREIN OR IN
ANY OF THE LOAN DOCUMENTS SHALL AFFECT THE RIGHT OF THE BANK TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
(g) All representations and warranties contained herein shall
survive the execution of this Agreement.
(h) This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all
of which shall constitute one and the same instrument.
THIS STOCK DISPOSITION AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
LENNOX: LENNOX INTERNATIONAL INC.
By: /s/ Clyde Wyant
Clyde Wyant
Executive Vice President, Chief Financial
Officer and Treasurer
BORROWER: NORTHERN TRUST BANK OF FLORIDA, N.A.
TRUSTEE U/A/W LORAINE BOOTH GIMRE
TRUST
By: /s/ William C. Gaan
Name: William C. Gaan
Title: Vice President
BANK: NORTHERN TRUST BANK OF FLORIDA, N.A.
By: /s/ Peter L. Biegel
Name: Peter L. Biegel
Title: Senior Vice President
6
<PAGE> 1
EXHIBIT 10.21
MASTER STOCK DISPOSITION AGREEMENT
(this "Agreement")
THIS AGREEMENT is effective as of August 10, 1998, and is by and among LENNOX
INTERNATIONAL INC., a Delaware corporation ("Lennox"), CHASE BANK OF TEXAS,
NATIONAL ASSOCIATION, a national banking association (the "Bank") and each
Borrower as defined herein.
PRELIMINARY STATEMENTS:
WHEREAS, one or more shareholders of Lennox may from time to time request loans
from Bank, and Bank may agree to make such loan subject to the conditions
precedent that such loan be secured by an amount of Borrower's common stock of
Lennox agreed by such Borrower and Bank, and that Bank shall have the rights and
benefits provided for in this Agreement with respect to the Lennox stock
securing such loan;
WHEREAS, Lennox has determined that it is in its best interests to enter into
this Agreement to make provision for the potential future disposition of its
stock; and
WHEREAS, Lennox stock is subject to certain restrictions, including a right of
first refusal in favor of Lennox under the terms of its Certificate of
Incorporation; and
WHEREAS, Lennox stock has value to the Bank as security only to the extent that
the Bank can be assured that, upon the default of Borrower under the Note, there
will be available a ready buyer or market for the Lennox stock pledged to secure
the loans contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
DEFINITIONS
"Loan" each shall refer to refer to each Loan described in an Acceptance of
Terms of Master Agreement substantially in the form of Exhibit B.
With respect to each Loan:
"Note" shall refer to the Note evidencing such Loan, together with any
and all renewals, extensions, modifications and replacements thereof.
"Pledged Stock" shall refer to the Lennox stock securing such Loan and
Note (including any Lennox stock replacing such Pledged Stock)
"Security Agreement" shall mean the security agreement executed and
delivered by the Borrower covering the Pledged Stock and securing the
Loan and Note
"Loan Documents" shall mean and include the Note and Security Agreement
pertaining to the Loan and this Agreement including the Acceptance of
Terms of Master Agreement executed by the Borrower in connection with
the Loan
"Borrower" shall mean each Borrower who obtains the Loan secured by
Pledged Stock and who executes an Acceptance of Terms of Master
Agreement substantially in the form of Exhibit B
AGREEMENTS:
1. Conditions on the Ownership and Restrictions on the Transfer of the Pledged
Stock. Each Borrower's ownership and the rights of the Bank with respect to the
Pledged Stock are subject to the following:
Pursuant to Article Sixteenth of the Lennox Restated Certificate of
Incorporation, "No sale, assignment, transfer or other disposition...
shall be effective unless and until there is compliance with
the...terms and conditions" set forth therein and attached hereto and
incorporated herein as EXHIBIT A.
The parties hereto understand and agree that the Borrower's rights in and to the
Pledged Stock and any rights of the Bank thereto created as a result of the Loan
and Security Agreement are expressly conditioned upon the above conditions set
forth and referenced above in this Paragraph 1.
2. Disposition of Pledged Stock. At any time after the occurrence of an Event of
Default, as defined in the Loan Documents between Borrower and the Bank pursuant
to which the Loan is being made (an "Event of Default"), the Bank shall have the
right to request and Lennox agrees to use its best efforts to perform one of the
following: (a) within ninety (90) days of such demand, procure a ready and
willing buyer for the Pledged Stock at the Applicable Market Value (as defined
Exhibit A) of such shares; (b) within sixty (60) days of such demand, purchase
from the Bank the Pledged Stock at the Applicable Market Value of such shares;
or (c) with written consent of the Bank as to this option, as soon as
practicable, register the Pledged Stock pursuant to the Securities Act of 1933;
provided that (i) Lennox shall have the
1
<PAGE> 2
option to perform under clause (a), (b) or (c) above so long as performance is
completed within the time specified (during which time interest shall continue
to accrue on the Note at the Default Rate (as defined in the Note), and (ii)
neither the buyer under clause (a) above nor Lennox under clause (b) above shall
be required to purchase Pledged Stock in excess of the number of shares pledged
to secure the Note and required to pay the Bank an amount equal to the aggregate
amount of the then outstanding indebtedness secured by the Pledged Stock.
Notwithstanding anything else to the contrary herein, Lennox shall not be
required to take any action pursuant to this Agreement that would cause Lennox
to be in default under (i) the Revolving Credit Facility Agreement dated as of
July 13, 1998, as amended, among Lennox, the banks named on the signature pages
thereof, and the Bank, as Administrative Agent, and Wachovia Bank, N. A., , as
Documentation Agent, or (ii) any note purchase agreements entered into in
December 1991, December 1993, July 1995, and April !998, between Lennox and
various note purchasers, as in effect on the date hereof, where the outstanding
amount of a long term note issued thereunder exceeds $3,000,000; provided,
however, that Lennox and Borrower agree that they will provide the Bank with a
letter from the Chief Executive Officer, Chief Financial Officer or General
Counsel as of the date of this Agreement and, thereafter, on a quarterly basis,
within fifteen (15) days after request by the Bank, certifying that Lennox is
not in default under any of the documents referred to in this sentence and that
there is no default occurring therein relating to this Agreement as of the date
of any such request by the Bank and failure by Borrower and Lennox to provide
such a letter shall be an Event of Default under the Bank's Loan Documents.
If an Event of Default shall occur, the Bank shall also have the right, subject
to the conditions set forth in Paragraph 1 hereof, to procure a buyer for the
Pledged Stock; provided the Bank shall first offer the shares of the Pledged
Stock to Lennox, whether or not the aggregate Applicable Market Value of the
Pledged Stock shall be sufficient to pay in full all then outstanding
indebtedness secured by the Pledged Stock; and provided, further, that the
Bank's obligation to make such offer shall terminate in the event Lennox fails
to exercise its right of first refusal by paying the Bank the Applicable Market
Value of the Pledged Stock in cash within thirty (30) days of such offer.
3. Method of Demand. The right to demand performance by Lennox as described in
Paragraph 2 hereof shall be exercised by the Bank giving written notice to
Lennox (at the address set forth in Paragraph 6(c) below) of the Event of
Default and the Bank's demand for such performance by Lennox. Any delay by the
Bank in exercising such right after the occurrence of an Event of Default shall
not operate as a waiver of such right or any other right provided for herein.
Upon receipt of such demand, Lennox shall advise the Bank in writing within
fifteen (15) business days whether it intends to perform under clause (a), (b)
or (c) of Paragraph 2 hereof.
4. Method of Payment. The purchase price of the Pledged Stock (the "Purchase
Price") shall be its Applicable Market Value as provided in Paragraph 2 hereof,
and the full Purchase Price shall be paid in cash on the Closing Date as set
forth in Paragraph 5 below.
5. Closing Date. Any purchase of the Pledged Stock by Lennox or a buyer procured
by Lennox pursuant to Paragraph 2 hereof shall occur in Dallas, Texas at the
principal office of the Bank or such other address in Dallas, Texas as the Bank
shall designate, on a date mutually agreed by the Bank and Lennox, which date
shall be not later than the last date for performance by Lennox or such buyer
under Paragraph 2 hereof (the "Closing Date"). At the closing, the Bank shall
deliver the certificates being purchased, duly endorsed or with duly completed
stock powers, and the buyer of the Pledged Stock shall deliver to the Bank, the
Purchase Price required to be paid on the Closing Date pursuant to Paragraph 4
above, which shall be payable through a wire transfer or a cashier's check in
United States dollars from a bank acceptable to the Bank.
6. Miscellaneous.
(a) This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and assigns;
(b) Borrower shall reimburse Lennox for its reasonable out-of-pocket
expenses (not including any Purchase Price paid by Lennox hereunder) in
performing its obligations hereunder after an Event of Default has
occurred;
(c) All notice and other communications provided for herein shall be
validly given, made or served, if in writing and delivered personally
or sent by certified mail, return receipt requested, postage prepaid:
if to the Bank: Chase Bank of Texas, National Association
2200 Ross Avenue
P. O. Box 660197
Dallas, Texas 75266-0197
Attention: Ms. Marcia B. Messinger,
Senior Vice President
2
<PAGE> 3
if to Lennox: Lennox International Inc.
P. O. Box 799900
Dallas, Texas 75379-9900
Attention: Chief Financial Officer
if to Borrower: the address set out in the Borrower's
Acceptance of Terms of Master Agreement
(c) This Agreement contains the entire agreement between the parties
hereto with respect to the disposition of stock contemplated herein and
supersedes all prior agreements or understandings, if any, between the
parties hereto relating to the subject matter hereof, and may not be
modified except by written agreement signed by all of the parties
hereto.
(e) The captions of each paragraph hereof are entered as a matter of
convenience only and shall not be considered to be of any effect in the
construction of this Agreement.
(f) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE
UNITED STATES OF AMERICA. THIS AGREEMENT HAS BEEN ENTERED INTO IN
DALLAS COUNTY, TEXAS, SHALL BE PERFORMABLE FOR ALL PURPOSES IN DALLAS
COUNTY, TEXAS AND THE BORROWER, LENNOX AND THE BANK AGREE THAT DALLAS
COUNTY, TEXAS IS PROPER VENUE FOR ANY ACTION OR PROCEEDING BROUGHT IN
ANY SUCH COURT AND THAT NO SUCH COURT IS AN INCONVENIENT FORUM.
BORROWER, LENNOX AND THE BANK AGREE THAT SERVICE OF PROCESS UPON ANY OF
THEM MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT
REQUESTED, AT THEIR ADDRESSES SPECIFIED ABOVE OR DETERMINED IN
ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT. NOTHING HEREIN OR IN
ANY OF THE NOTE OR SECURITY AGREEMENT SHALL AFFECT THE RIGHT OF THE
BANK TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
(g) All representations and warranties contained herein shall survive
the execution of this Agreement.
(h) This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
THIS STOCK DISPOSITION AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
LENNOX: LENNOX INTERNATIONAL INC.
By: /s/ Clyde Wyant
-------------------------------
Clyde Wyant
Executive Vice President, Chief Financial
Officer and Treasurer
BANK: CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
By: /s/ Marcia B. Messinger
-------------------------------
Marcia B. Messinger
Senior Vice President
3
<PAGE> 4
EXHIBIT A TO
MASTER STOCK DISPOSITION AGREEMENT
effective as of the 10th day of August, 1998
Article Sixteenth of the Lennox Restated Certificate of Incorporation
"SIXTEENTH: 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
SIXTEENTH:
(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 forty-five (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 SIXTEENTH. If such sale to
such third party is not completed within such forty-five (45)-day
period, such stockholder shall continue to hold such shares subject to
all the terms and conditions of this ARTICLE SIXTEENTH and may not
consummate a sale without again complying with the provisions of this
paragraph (a). Notwithstanding the foregoing provisions of this
paragraph (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
<PAGE> 5
SIXTEENTH) 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 SIXTEENTH 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 SIXTEENTH.
(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 SIXTEENTH, 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 SIXTEENTH (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 SIXTEENTH.
(d) As used in this ARTICLE SIXTEENTH, 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 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
SIXTEENTH 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
SIXTEENTH 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.
<PAGE> 6
Exhibit B
TO
MASTER STOCK DISPOSITION AGREEMENT
effective as of 8 - 10, 1998
ACCEPTANCE OF TERMS OF MASTER AGREEMENT
The undersigned Borrower, having been delivered and having reviewed a true and
correct copy of the Master Stock Disposition Agreement between Lennox
International Inc. ("Lennox"), Chase Bank of Texas, National Association
("Bank") dated 8 - 10, 1998 ("Agreement"), consents to become a party to that
Agreement and be bound by its terms with respect to the Loan secured by the
Pledged Stock of Lennox set out below. The Borrower also agrees that at all
times loans are outstanding under the note below (or any renewal, extension or
other rearrangement of such loans or note), Borrower will maintain collateral in
the form of stock subject to the Agreement, or other readily marketable
investment securities acceptable to Bank in its sole discretion, with a fair
market value at least equal to the amount needed to maintain the maximum loan
balance to collateral value ratio specified below.
Borrower's Name: Robert E. Schjerven
Address: 812 Woodhaven Drive
Highland Village, Texas 75067
Promissory Note dated: 8-10-98
-----------------------------
Face Amount of Promissory Note: $1,993,356.35
-----------------------------
Number of shares of Pledged Stock: 5060
-----------------------------
Maximum loan balance to collateral value ratio: 80 %
------------
THIS ACCEPTANCE OF TERMS, THE STOCK DISPOSITION AGREEMENT AND THE OTHER WRITTEN
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
I accept and agree to the terms of the
Master Agreement:
BORROWER:
/s/ Robert E. Schjerven.
----------------------------------
Name: Robert E. Schjerven
-----------------------------
Date: 8/10/98
-----------------------------
Acknowledged and agreed:
LENNOX: LENNOX INTERNATIONAL INC.
By: /s/ Clyde Wyant
----------------------------------
Clyde Wyant
Executive Vice President, Chief Financial
Officer and Treasurer
BANK: CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
By: /s/ Marcia Messinger
----------------------------------
Marcia Messinger
Senior Vice President
<PAGE> 7
Exhibit B
TO
MASTER STOCK DISPOSITION AGREEMENT
effective as of 8 - 10, 1998
ACCEPTANCE OF TERMS OF MASTER AGREEMENT
The undersigned Borrower, having been delivered and having reviewed a true and
correct copy of the Master Stock Disposition Agreement between Lennox
International Inc. ("Lennox"), Chase Bank of Texas, National Association
("Bank") dated 8 - 10, 1998 ("Agreement"), consents to become a party to that
Agreement and be bound by its terms with respect to the Loan secured by the
Pledged Stock of Lennox set out below. The Borrower also agrees that at all
times loans are outstanding under the note below (or any renewal, extension or
other rearrangement of such loans or note), Borrower will maintain collateral in
the form of stock subject to the Agreement, or other readily marketable
investment securities acceptable to Bank in its sole discretion, with a fair
market value at least equal to the amount needed to maintain the maximum loan
balance to collateral value ratio specified below.
Borrower's Name: John J. Hubbuch
Address: 4440 Longfellow Drive
Plano, Texas 75093
Promissory Note dated: August 10, 1998
Face Amount of Promissory Note: $410,000.00
Number of shares of Pledged Stock: 1065
----------------------------------
Maximum loan balance to collateral value ratio: 80 %
---------------------
THIS ACCEPTANCE OF TERMS, THE STOCK DISPOSITION AGREEMENT AND THE OTHER WRITTEN
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
I accept and agree to the terms of the Master
Agreement:
BORROWER:
/s/ John J. Hubbuch
------------------------------
Name: John J. Hubbuch
Date: 8/10/98
Acknowledged and agreed:
LENNOX: LENNOX INTERNATIONAL INC.
By: /s/ Clyde Wyant
Clyde Wyant
Executive Vice President, Chief Financial
Officer and Treasurer
BANK: CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
By: /s/ Marcia Messinger
-------------------------------
Marcia Messinger
Senior Vice President
<PAGE> 8
Exhibit B
TO
MASTER STOCK DISPOSITION AGREEMENT
effective as of 8 - 10, 1998
ACCEPTANCE OF TERMS OF MASTER AGREEMENT
The undersigned Borrower, having been delivered and having reviewed a true and
correct copy of the Master Stock Disposition Agreement between Lennox
International Inc. ("Lennox"), Chase Bank of Texas, National Association
("Bank") dated 8 - 10, 1998 ("Agreement"), consents to become a party to that
Agreement and be bound by its terms with respect to the Loan secured by the
Pledged Stock of Lennox set out below. The Borrower also agrees that at all
times loans are outstanding under the note below (or any renewal, extension or
other rearrangement of such loans or note), Borrower will maintain collateral in
the form of stock subject to the Agreement, or other readily marketable
investment securities acceptable to Bank in its sole discretion, with a fair
market value at least equal to the amount needed to maintain the maximum loan
balance to collateral value ratio specified below.
Borrower's Name: Harry J. Ashenhurst
Address: 2926 Cambridgeshire Drive
Carrollton, Texas 75007
Promissory Note dated: August 10, 1998
Face Amount of Promissory Note: $362,000.00
Number of shares of Pledged Stock: 1020
---------------------
Maximum loan balance to collateral value ratio: 80 %
--------
THIS ACCEPTANCE OF TERMS, THE STOCK DISPOSITION AGREEMENT AND THE OTHER WRITTEN
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
I accept and agree to the terms of the
Master Agreement:
BORROWER:
/s/ Harry J. Ashenhurst
---------------------------------------
Name: Harry J. Ashenhurst
Date: 8/10/98
Acknowledged and agreed:
LENNOX: LENNOX INTERNATIONAL INC.
By: /s/ Clyde Wyant
---------------------------------------
Clyde Wyant
Executive Vice President, Chief Financial
Officer and Treasurer
BANK: CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
By: /s/ Marcia Messinger
---------------------------------------
Marcia Messinger
Senior Vice President
<PAGE> 9
Exhibit B
TO
MASTER STOCK DISPOSITION AGREEMENT
effective as of 8 - 10, 1998
ACCEPTANCE OF TERMS OF MASTER AGREEMENT
The undersigned Borrower, having been delivered and having reviewed a true and
correct copy of the Master Stock Disposition Agreement between Lennox
International Inc. ("Lennox"), Chase Bank of Texas, National Association
("Bank") dated 8 - 10, 1998 ("Agreement"), consents to become a party to that
Agreement and be bound by its terms with respect to the Loan secured by the
Pledged Stock of Lennox set out below. The Borrower also agrees that at all
times loans are outstanding under the note below (or any renewal, extension or
other rearrangement of such loans or note), Borrower will maintain collateral in
the form of stock subject to the Agreement, or other readily marketable
investment securities acceptable to Bank in its sole discretion, with a fair
market value at least equal to the amount needed to maintain the maximum loan
balance to collateral value ratio specified below.
Borrower's Name: Clyde Wyant, Jr.
Address: 3101 Royal Ashdown Ct.
Plano , Texas 75093
Promissory Note dated: August 10, 1998
------------------------------------------------
Face Amount of Promissory Note: $311,000.00
---------------------------------------
Number of shares of Pledged Stock: 1020
------------------------------------
Maximum loan balance to collateral value ratio: 80 %
---------------------
THIS ACCEPTANCE OF TERMS, THE STOCK DISPOSITION AGREEMENT AND THE OTHER WRITTEN
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
I accept and agree to the terms of the
Master Agreement:
BORROWER:
/s/ Clyde Wyant, Jr.
-----------------------------------
Name: Clyde Wyant, Jr.
Date: 8/10/98
Acknowledged and agreed:
LENNOX: LENNOX INTERNATIONAL INC.
By: /s/ Clyde Wyant
-----------------------------------
Clyde Wyant
Executive Vice President, Chief Financial
Officer and Treasurer
BANK: CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
By: /s/ Marcia Messinger
-----------------------------------
Marcia Messinger
Senior Vice President
<PAGE> 10
Exhibit B
TO
MASTER STOCK DISPOSITION AGREEMENT
effective as of 8 - 10, 1998
ACCEPTANCE OF TERMS OF MASTER AGREEMENT
The undersigned Borrower, having been delivered and having reviewed a true and
correct copy of the Master Stock Disposition Agreement between Lennox
International Inc. ("Lennox"), Chase Bank of Texas, National Association
("Bank") dated 8 - 10, 1998 ("Agreement"), consents to become a party to that
Agreement and be bound by its terms with respect to the Loan secured by the
Pledged Stock of Lennox set out below. The Borrower also agrees that at all
times loans are outstanding under the note below (or any renewal, extension or
other rearrangement of such loans or note), Borrower will maintain collateral in
the form of stock subject to the Agreement, or other readily marketable
investment securities acceptable to Bank in its sole discretion, with a fair
market value at least equal to the amount needed to maintain the maximum loan
balance to collateral value ratio specified below.
Borrower's Name: Horace E. French
Address: 2628 High Street
Conyers, GA 30094
Promissory Note dated: August 10, 1998
----------------------------------
Face Amount of Promissory Note: $294,000.00
----------------------------------
Number of shares of Pledged Stock: 1020
----------------------------------
Maximum loan balance to collateral value ratio: 80 %
-------------
THIS ACCEPTANCE OF TERMS, THE STOCK DISPOSITION AGREEMENT AND THE OTHER WRITTEN
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
I accept and agree to the terms of the
Master Agreement:
BORROWER:
/s/ Horace E. French
------------------------------
Name: Horace E. French
Date: 8/10/98
Acknowledged and agreed:
LENNOX: LENNOX INTERNATIONAL INC.
By: /s/ Clyde Wyant
---------------------------------------
Clyde Wyant
Executive Vice President, Chief Financial
Officer and Treasurer
BANK: CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
By: /s/ Marcia Messinger
---------------------------------------
Marcia Messinger
Senior Vice President
<PAGE> 11
Exhibit B
TO
MASTER STOCK DISPOSITION AGREEMENT
effective as of 8 - 10, 1998
ACCEPTANCE OF TERMS OF MASTER AGREEMENT
The undersigned Borrower, having been delivered and having reviewed a true and
correct copy of the Master Stock Disposition Agreement between Lennox
International Inc. ("Lennox"), Chase Bank of Texas, National Association
("Bank") dated 8 - 10, 1998 ("Agreement"), consents to become a party to that
Agreement and be bound by its terms with respect to the Loan secured by the
Pledged Stock of Lennox set out below. The Borrower also agrees that at all
times loans are outstanding under the note below (or any renewal, extension or
other rearrangement of such loans or note), Borrower will maintain collateral in
the form of stock subject to the Agreement, or other readily marketable
investment securities acceptable to Bank in its sole discretion, with a fair
market value at least equal to the amount needed to maintain the maximum loan
balance to collateral value ratio specified below.
Borrower's Name: Michael G. Schwartz
Address: 4408 Autumn Ridge Lane
Sandusky, Ohio 44870
Promissory Note dated: August 10, 1998
Face Amount of Promissory Note: $453,000.00
Number of shares of Pledged Stock: 1100
------------------------------------
Maximum loan balance to collateral value ratio: 80 %
-------------------
THIS ACCEPTANCE OF TERMS, THE STOCK DISPOSITION AGREEMENT AND THE OTHER WRITTEN
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
I accept and agree to the terms of the
Master Agreement:
BORROWER:
/s/ Michael G. Schwartz
-----------------------------------
Name: Michael G. Schwartz
Date: 8/10/98
Acknowledged and agreed:
LENNOX: LENNOX INTERNATIONAL INC.
By: /s/ Clyde Wyant
-----------------------------------
Clyde Wyant
Executive Vice President, Chief Financial
Officer and Treasurer
BANK: CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
By: /s/ Marcia Messinger
-----------------------------------
Marcia Messinger
Senior Vice President
<PAGE> 12
Exhibit B
TO
MASTER STOCK DISPOSITION AGREEMENT
effective as of August 13, 1998
ACCEPTANCE OF TERMS OF MASTER AGREEMENT
The undersigned Borrower, having been delivered and having reviewed a true and
correct copy of the Master Stock Disposition Agreement between Lennox
International Inc. ("Lennox"), Chase Bank of Texas, National Association
("Bank") dated August 13, 1998 ("Agreement"), consents to become a party to that
Agreement and be bound by its terms with respect to the Loan secured by the
Pledged Stock of Lennox set out below. The Borrower also agrees that at all
times loans are outstanding under the note below (or any renewal, extension or
other rearrangement of such loans or note), Borrower will maintain collateral in
the form of stock subject to the Agreement, or other readily marketable
investment securities acceptable to Bank in its sole discretion, with a fair
market value at least equal to the amount needed to maintain the maximum loan
balance to collateral value ratio specified below.
Borrower's Name: Karen O'Shea
Address: 18404 Rain Dance Trail
Dallas, Texas 75007
Promissory Note dated: August 13, 1998
Face Amount of Promissory Note: $70,000.00
Number of shares of Pledged Stock: 289
------------------------------------
Maximum loan balance to collateral value ratio: 80 %
-------------------
THIS ACCEPTANCE OF TERMS, THE STOCK DISPOSITION AGREEMENT AND THE OTHER WRITTEN
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
I accept and agree to the terms of the
Master Agreement:
BORROWER:
/s/ Karen O'Shea
-----------------------------------
Name: Karen O'Shea
Date: 8/13/98
Acknowledged and agreed:
LENNOX: LENNOX INTERNATIONAL INC.
By: /s/ Clyde Wyant
-----------------------------------
Clyde Wyant
Executive Vice President, Chief Financial
Officer and Treasurer
BANK: CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
By: /s/ Marcia Messinger
-----------------------------------
Marcia Messinger
Senior Vice President
<PAGE> 13
MASTER STOCK DISPOSITION AGREEMENTS W/CHASE
Status
------
Bob Schjerven
-------------------------
Carl Edwards, Jr. repaid
-------------------------
Clyde Wyant
-------------------------
Ed French
-------------------------
Harry Ashenhurst
-------------------------
John Hubbuch
-------------------------
Karen O'Shea
-------------------------
Mike Schwartz
-------------------------
Lane Pennington (did not participate)
<PAGE> 1
EXHIBIT 10.22
STOCK DISPOSITION AGREEMENT
(this "Agreement")
THIS AGREEMENT is effective as of the 19th day of Nov., 1998 and is by
and among John E. Major ("Borrower"), LENNOX INTERNATIONAL INC., a Delaware
corporation ("Lennox"), and Harry Trust & Savings Bank, a federal banking
association, with its principal office located in Chicago, IL (the "Bank").
PRELIMINARY STATEMENTS:
WHEREAS, Borrower is the owner of 65 shares of the capital stock of
Lennox (the "Pledged Stock"); and
WHEREAS, it is the desire of the parties hereto that the Bank make a
term loan to Borrower in the principal amount of $350,000 maturing on Demand
(the "Loan"), which loan shall be evidenced by a promissory note dated of even
date herewith (together with any and all renewals, extensions, modifications and
replacements thereof, the "Note") and secured by, among other things, the
Pledged Stock pursuant to a Security Agreement executed by Borrower and
delivered to Bank and dated of even date herewith ("Security Agreement"); and
WHEREAS, Lennox has determined that it is in its best interests to
enter into this Agreement to make provision for the potential future disposition
of its stock; and
WHEREAS, the Pledged Stock is subject to certain restrictions,
including a right of first refusal in favor of Lennox under the terms of its
Certificate of Incorporation; and
WHEREAS, the Pledged Stock has value to the Bank as security only to
the extent that the Bank can be assured that, upon the default of Borrower under
the Note, there will be available a ready buyer or market for the Pledged Stock.
NOW, THEREFORE, in consideration of the premises and covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
AGREEMENTS:
1. Conditions on the Ownership and Restrictions on the Transfer of the
Pledged Stock. The Borrower's ownership and the rights of the Bank with respect
to the Pledged Stock are subject to the following:
(a) Pursuant to Article Sixteenth of the Lennox Restated
Certificate of Incorporation, "No sale, assignment, transfer or other
disposition... shall be effective unless and until there is compliance
with the...terms and conditions" set forth therein. The Restated
Certificate of Incorporation of Lennox is attached hereto and
incorporated herein as EXHIBIT A.
<PAGE> 2
The parties hereto understand and agree that the Borrower's rights in and to the
Pledged Stock and any rights of the Bank thereto created as a result of the Loan
and Security Agreement are expressly conditioned upon the above conditions set
forth and referenced above in this Paragraph 1.
2. Disposition of Pledged Stock. At any time after the occurrence of an
Event of Default, as defined in the Loan Agreement between Borrower and the Bank
pursuant to which the Loan is being made (an "Event of Default"), the Bank shall
have the right to request and Lennox agrees to use its best efforts to perform
one of the following: (a) within sixty (60) days of such demand, procure a ready
and willing buyer for the Pledged Stock at the Value (as defined in the Loan
Agreement) of such shares; (b) within thirty (30) days of such demand, purchase
from the Bank the Pledged Stock at the Value of such shares; or (c) if, at the
time of an Event of Default, Lennox common stock is listed for trading on a
stock exchange or other recognized securities market and has an average daily
trading volume of 25,000 shares, then as soon as practicable, but within one
hundred eighty (180) days of such demand, register the Pledged Stock pursuant to
the Securities Act of 1933; provided that (i) Lennox shall have the option to
perform under clause (a), (b) or (c) above so long as performance is completed
within the number of days specified (during which time interest shall continue
to accrue on the Note at the Default Rate (as defined in the Note), and (ii)
neither the buyer under clause (a) above nor Lennox under clause (b) above shall
be required to purchase Pledged Stock in excess of the number of shares pledged
to secure the Note and required to pay Bank an amount equal to the aggregate
amount of the then outstanding indebtedness secured by the Pledged Stock.
Notwithstanding anything else to the contrary herein, Lennox shall not be
required to take any action pursuant to this Agreement that would cause Lennox
to be in default under (i) the Revolving Credit Agreement dated as of December
4, 1991, as amended, among Lennox, the banks named on the signature pages
thereof, and The Northern Trust Company, as Agent, or (ii) any note purchase
agreements entered into in December 1991, December 1993, and July 1995, between
Lennox and various note purchasers, as in effect on the date hereof, where the
outstanding amount of a long term note issued thereunder exceeds $5,000,000.
If an Event of Default shall occur, the Bank shall also have the right,
subject to the conditions set forth in Paragraph 1 hereof, to procure a buyer
for the Pledged Stock; provided that the Bank shall first offer the shares of
the Pledged Stock to Lennox, whether or not the aggregate Value of the Pledged
Stock shall be sufficient to pay in full all then outstanding indebtedness
secured by the Pledged Stock; and provided, further, that Bank's obligation to
make such offer shall terminate in the event Lennox fails to exercise its right
of first refusal by paying Bank the Value of the Pledged Stock in cash within
thirty (30) days of such offer.
3. Method of Demand. The right to demand performance by Lennox as
described in Paragraph 2 hereof shall be exercised by Bank giving written notice
to Lennox (at the address set forth in Paragraph 9(b) below) of the Event of
Default and the Bank's demand for such performance by Lennox. Any delay by Bank
in exercising such right after the occurrence of an Event of Default shall not
operate as a waiver of such right or any other right provided for herein. Upon
receipt of such demand, Lennox shall advise the Bank in writing within ten (10)
business days whether it intends to perform under clause (a), (b) or (c) of
Paragraph 2 hereof. Lennox shall promptly commence said performance and shall
diligently pursue completion of its performance.
2
<PAGE> 3
4. Method of Payment. The purchase price of the Pledged Stock (the
"Purchase Price") shall be its Value as provided in Paragraph 2 hereof, and the
full Purchase Price shall be paid in cash on the Closing Date as set forth in
Paragraph 5 below.
5. Closing Date. Any purchase of the Pledged Stock by Lennox or a buyer
procured by Lennox pursuant to Paragraph 2 hereof shall occur in Dallas, Texas
at the principal office of Bank or such other address in Illinois as Bank shall
designate, on a date mutually agreed by Bank and Lennox, which date shall be not
later than the last date for performance by Lennox or such buyer under Paragraph
2 hereof (the "Closing Date"). At the closing, Bank shall deliver the
certificates being purchased, duly endorsed or with duly completed stock powers,
and the buyer of the Pledged Stock shall deliver to Bank, the Purchase Price
required to be paid on the Closing Date pursuant to Paragraph 4 above, which
shall be payable through a wire transfer or a cashier's check in United States
dollars from a bank acceptable to Bank.
6. Representations, Warranties and Covenants.
(a) This Agreement has been duly authorized by all corporate
or other actions necessary on the part of Borrower and Lennox,
respectively. This Agreement constitutes a valid and binding agreement
of Borrower and Lennox, and is enforceable against Borrower and Lennox,
respectively, in accordance with its terms, except that such
enforceability may be limited by (i) general principles of equity
(regardless of whether relief is sought in an action at law or in
equity) and (ii) applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws from time to time in effect affecting
enforcement of creditors' rights generally.
(b) Borrower hereby agrees that the disposition of the Pledged
Stock in the manner and on such terms as are provided in this Agreement
shall be deemed for all purposes as a "commercially reasonable" sale as
required by the Texas Business and Commerce Code, regardless of whether
the book, market or other value of the Pledged Stock is equal to, above
or below the Purchase Price.
(c) BANK HAS MADE NO REPRESENTATION OR WARRANTY WHATSOEVER
CONCERNING THE INVESTMENT VALUE OF THE PLEDGED STOCK. THE BORROWER AND
LENNOX AGREE THAT THIS AGREEMENT CONTEMPLATES THAT NEITHER BORROWER NOR
LENNOX SHALL BE ENTITLED TO ASSERT ANY SUCH REPRESENTATION OR WARRANTY
BY BANK, AT ANY TIME. BORROWER AND LENNOX AGREE TO INDEMNIFY AND HOLD
BANK HARMLESS WITH RESPECT TO ANY CLAIM MADE BY ANY PARTY HERETO, OR
ANY SUCCESSOR OR ASSIGN, ASSERTING SUCH A REPRESENTATION OR WARRANTY BY
BANK.
(d) Each of the parties hereto agree to undertake such
additional agreements, execute such additional documents, and do such
other acts and things as may be reasonably required to effect the
purposes of this Agreement.
3
<PAGE> 4
(e) To the extent that any provision of this Agreement is in
conflict with any provision in any prior agreement between Borrower and
Lennox, this Agreement shall control.
(f) Borrower shall reimburse Lennox for its reasonable
out-of-pocket expenses (not including any Purchase Price paid by Lennox
hereunder) in performing its obligations hereunder after an Event of
Default has occurred.
7. Breach of Agreement. It is agreed that a breach by Lennox in the
performance of its obligations hereunder cannot be adequately measured or
compensated in money damages, and that any such breach would do irreparable
injury to Bank. It is therefore agreed that in the event of any breach or
threatened breach by Lennox of the terms and conditions set forth herein, Bank
shall be entitled, in addition to any and all rights and remedies which it may
have in law or in equity, to apply for and obtain injunctive relief requiring
Lennox to be restrained from any such breach, threatened breach or to refrain
from a continuation of any actual breach and mandating that Lennox perform under
this Agreement.
8. Parties Bound. All representations, warranties, covenants and
agreements made by or on behalf of Lennox and Borrower shall bind Lennox and
Borrower and the heirs, devisees, executors, administrators, personal
representatives, successors, trustees, receivers, and assigns of Borrower and
Lennox and inure to the benefit of the successors and assigns of the Bank.
9. Miscellaneous.
(a) This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and
assigns; provided, however, that Lennox may not assign its rights,
privileges or obligations hereunder at any time, and shall be required
to adhere to and carry out the duties as set forth herein. Any
attempted assignment by Lennox shall be null and void and shall not
relieve it of any of its obligations, responsibilities, representations
and warranties contained in this Agreement.
(b) All notice and other communications provided for herein
shall be validly given, made or served, if in writing and delivered
personally or sent by certified mail, return receipt requested, postage
prepaid:
4
<PAGE> 5
if to Bank: Harris Trust & Savings Bank
111 W. Monroe Street
Chicago, IL 60603
Attention: Kathryn Vander Zanden
Senior Vice President
if to Lennox: Lennox International Inc.
P. O. Box 799900
Dallas, Texas 75379-9900
Attention: Chief Financial Officer
if to Borrower: John E. Major
16720 Las Cuestas
Rancho Santa Fe, CA 92067
Attention: _______________
_______________
(c) This Agreement contains the entire agreement between the
parties hereto with respect to the disposition of stock contemplated
herein and supersedes all prior agreements or understandings, if any,
between the parties hereto relating to the subject matter hereof, and
may not be modified except by written agreement signed by all of the
parties hereto.
(d) The captions of each paragraph hereof are entered as a
matter of convenience only and shall not be considered to be of any
effect in the construction of this Agreement.
(e) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS
OF THE UNITED STATES OF AMERICA. THIS AGREEMENT HAS BEEN ENTERED INTO
IN DALLAS COUNTY, TEXAS, SHALL BE PERFORMABLE FOR ALL PURPOSES IN
DALLAS COUNTY, TEXAS AND THE BORROWER, LENNOX AND THE BANK AGREE THAT
DALLAS COUNTY, TEXAS IS PROPER VENUE FOR ANY ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT AND THAT NO SUCH COURT IS AN INCONVENIENT
FORUM. BORROWER, LENNOX AND BANK AGREE THAT SERVICE OF PROCESS UPON ANY
OF THEM MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT
REQUESTED, AT THEIR ADDRESSES SPECIFIED ABOVE OR DETERMINED IN
ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT. NOTHING HEREIN OR IN
ANY OF THE NOTE OR SECURITY AGREEMENT SHALL AFFECT THE RIGHT OF THE
BANK TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
5
<PAGE> 6
(f) All representations and warranties contained herein shall
survive the execution of this Agreement.
(g) This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all
of which shall constitute one and the same instrument.
THIS STOCK DISPOSITION AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
LENNOX: LENNOX INTERNATIONAL INC.
By: /s/ Clyde Wyant
--------------------------------
Clyde Wyant
Executive Vice President, Chief
Financial Officer and Treasurer
BORROWER: John E. Major
By: /s/ John E. Major
--------------------------------
BANK: Harris Trust & Savings Bank
By: /s/ Kathryn Vander Zanden
--------------------------------
Kathryn Vander Zanden
Vice President
<PAGE> 1
EXHIBIT 10.23
STOCK DISPOSITION AGREEMENT
(this "Agreement")
THIS AGREEMENT is effective as of the 19th day of Nov., 1998 and is by
and among John E. Major and Susan M. Major ("Borrower"), LENNOX INTERNATIONAL
INC., a Delaware corporation ("Lennox"), and Harry Trust & Savings Bank, a
federal banking association, with its principal office located in Chicago, IL
(the "Bank").
PRELIMINARY STATEMENTS:
WHEREAS, Borrower is the owner of 324 shares of the capital stock of
Lennox (the "Pledged Stock"); and
WHEREAS, it is the desire of the parties hereto that the Bank make a
term loan to Borrower in the principal amount of $350,000 maturing on Demand
(the "Loan"), which loan shall be evidenced by a promissory note dated of even
date herewith (together with any and all renewals, extensions, modifications and
replacements thereof, the "Note") and secured by, among other things, the
Pledged Stock pursuant to a Security Agreement executed by Borrower and
delivered to Bank and dated of even date herewith ("Security Agreement"); and
WHEREAS, Lennox has determined that it is in its best interests to
enter into this Agreement to make provision for the potential future disposition
of its stock; and
WHEREAS, the Pledged Stock is subject to certain restrictions,
including a right of first refusal in favor of Lennox under the terms of its
Certificate of Incorporation; and
WHEREAS, the Pledged Stock has value to the Bank as security only to
the extent that the Bank can be assured that, upon the default of Borrower under
the Note, there will be available a ready buyer or market for the Pledged Stock.
NOW, THEREFORE, in consideration of the premises and covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
AGREEMENTS:
1. Conditions on the Ownership and Restrictions on the Transfer of the
Pledged Stock. The Borrower's ownership and the rights of the Bank with respect
to the Pledged Stock are subject to the following:
(a) Pursuant to Article Sixteenth of the Lennox Restated
Certificate of Incorporation, "No sale, assignment, transfer or other
disposition... shall be effective unless and until there is compliance
with the...terms and conditions" set forth therein. The Restated
Certificate of Incorporation of Lennox is attached hereto and
incorporated herein as EXHIBIT A.
<PAGE> 2
The parties hereto understand and agree that the Borrower's rights in and to the
Pledged Stock and any rights of the Bank thereto created as a result of the Loan
and Security Agreement are expressly conditioned upon the above conditions set
forth and referenced above in this Paragraph 1.
2. Disposition of Pledged Stock. At any time after the occurrence of an
Event of Default, as defined in the Loan Agreement between Borrower and the Bank
pursuant to which the Loan is being made (an "Event of Default"), the Bank shall
have the right to request and Lennox agrees to use its best efforts to perform
one of the following: (a) within sixty (60) days of such demand, procure a ready
and willing buyer for the Pledged Stock at the Value (as defined in the Loan
Agreement) of such shares; (b) within thirty (30) days of such demand, purchase
from the Bank the Pledged Stock at the Value of such shares; or (c) if, at the
time of an Event of Default, Lennox common stock is listed for trading on a
stock exchange or other recognized securities market and has an average daily
trading volume of 25,000 shares, then as soon as practicable, but within one
hundred eighty (180) days of such demand, register the Pledged Stock pursuant to
the Securities Act of 1933; provided that (i) Lennox shall have the option to
perform under clause (a), (b) or (c) above so long as performance is completed
within the number of days specified (during which time interest shall continue
to accrue on the Note at the Default Rate (as defined in the Note), and (ii)
neither the buyer under clause (a) above nor Lennox under clause (b) above shall
be required to purchase Pledged Stock in excess of the number of shares pledged
to secure the Note and required to pay Bank an amount equal to the aggregate
amount of the then outstanding indebtedness secured by the Pledged Stock.
Notwithstanding anything else to the contrary herein, Lennox shall not be
required to take any action pursuant to this Agreement that would cause Lennox
to be in default under (i) the Revolving Credit Agreement dated as of December
4, 1991, as amended, among Lennox, the banks named on the signature pages
thereof, and The Northern Trust Company, as Agent, or (ii) any note purchase
agreements entered into in December 1991, December 1993, and July 1995, between
Lennox and various note purchasers, as in effect on the date hereof, where the
outstanding amount of a long term note issued thereunder exceeds $5,000,000.
If an Event of Default shall occur, the Bank shall also have the right,
subject to the conditions set forth in Paragraph 1 hereof, to procure a buyer
for the Pledged Stock; provided that the Bank shall first offer the shares of
the Pledged Stock to Lennox, whether or not the aggregate Value of the Pledged
Stock shall be sufficient to pay in full all then outstanding indebtedness
secured by the Pledged Stock; and provided, further, that Bank's obligation to
make such offer shall terminate in the event Lennox fails to exercise its right
of first refusal by paying Bank the Value of the Pledged Stock in cash within
thirty (30) days of such offer.
3. Method of Demand. The right to demand performance by Lennox as
described in Paragraph 2 hereof shall be exercised by Bank giving written notice
to Lennox (at the address set forth in Paragraph 9(b) below) of the Event of
Default and the Bank's demand for such performance by Lennox. Any delay by Bank
in exercising such right after the occurrence of an Event of Default shall not
operate as a waiver of such right or any other right provided for herein. Upon
receipt of such demand, Lennox shall advise the Bank in writing within ten (10)
business days whether it intends to perform under clause (a), (b) or (c) of
Paragraph 2 hereof. Lennox shall promptly commence said performance and shall
diligently pursue completion of its performance.
2
<PAGE> 3
4. Method of Payment. The purchase price of the Pledged Stock (the
"Purchase Price") shall be its Value as provided in Paragraph 2 hereof, and the
full Purchase Price shall be paid in cash on the Closing Date as set forth in
Paragraph 5 below.
5. Closing Date. Any purchase of the Pledged Stock by Lennox or a buyer
procured by Lennox pursuant to Paragraph 2 hereof shall occur in Dallas, Texas
at the principal office of Bank or such other address in Illinois as Bank shall
designate, on a date mutually agreed by Bank and Lennox, which date shall be not
later than the last date for performance by Lennox or such buyer under Paragraph
2 hereof (the "Closing Date"). At the closing, Bank shall deliver the
certificates being purchased, duly endorsed or with duly completed stock powers,
and the buyer of the Pledged Stock shall deliver to Bank, the Purchase Price
required to be paid on the Closing Date pursuant to Paragraph 4 above, which
shall be payable through a wire transfer or a cashier's check in United States
dollars from a bank acceptable to Bank.
6. Representations, Warranties and Covenants.
(a) This Agreement has been duly authorized by all corporate
or other actions necessary on the part of Borrower and Lennox,
respectively. This Agreement constitutes a valid and binding agreement
of Borrower and Lennox, and is enforceable against Borrower and Lennox,
respectively, in accordance with its terms, except that such
enforceability may be limited by (i) general principles of equity
(regardless of whether relief is sought in an action at law or in
equity) and (ii) applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws from time to time in effect affecting
enforcement of creditors' rights generally.
(b) Borrower hereby agrees that the disposition of the Pledged
Stock in the manner and on such terms as are provided in this Agreement
shall be deemed for all purposes as a "commercially reasonable" sale as
required by the Texas Business and Commerce Code, regardless of whether
the book, market or other value of the Pledged Stock is equal to, above
or below the Purchase Price.
(c) BANK HAS MADE NO REPRESENTATION OR WARRANTY WHATSOEVER
CONCERNING THE INVESTMENT VALUE OF THE PLEDGED STOCK. THE BORROWER AND
LENNOX AGREE THAT THIS AGREEMENT CONTEMPLATES THAT NEITHER BORROWER NOR
LENNOX SHALL BE ENTITLED TO ASSERT ANY SUCH REPRESENTATION OR WARRANTY
BY BANK, AT ANY TIME. BORROWER AND LENNOX AGREE TO INDEMNIFY AND HOLD
BANK HARMLESS WITH RESPECT TO ANY CLAIM MADE BY ANY PARTY HERETO, OR
ANY SUCCESSOR OR ASSIGN, ASSERTING SUCH A REPRESENTATION OR WARRANTY BY
BANK.
(d) Each of the parties hereto agree to undertake such
additional agreements, execute such additional documents, and do such
other acts and things as may be reasonably required to effect the
purposes of this Agreement.
3
<PAGE> 4
(e) To the extent that any provision of this Agreement is in
conflict with any provision in any prior agreement between Borrower and
Lennox, this Agreement shall control.
(f) Borrower shall reimburse Lennox for its reasonable
out-of-pocket expenses (not including any Purchase Price paid by Lennox
hereunder) in performing its obligations hereunder after an Event of
Default has occurred.
7. Breach of Agreement. It is agreed that a breach by Lennox in the
performance of its obligations hereunder cannot be adequately measured or
compensated in money damages, and that any such breach would do irreparable
injury to Bank. It is therefore agreed that in the event of any breach or
threatened breach by Lennox of the terms and conditions set forth herein, Bank
shall be entitled, in addition to any and all rights and remedies which it may
have in law or in equity, to apply for and obtain injunctive relief requiring
Lennox to be restrained from any such breach, threatened breach or to refrain
from a continuation of any actual breach and mandating that Lennox perform under
this Agreement.
8. Parties Bound. All representations, warranties, covenants and
agreements made by or on behalf of Lennox and Borrower shall bind Lennox and
Borrower and the heirs, devisees, executors, administrators, personal
representatives, successors, trustees, receivers, and assigns of Borrower and
Lennox and inure to the benefit of the successors and assigns of the Bank.
9. Miscellaneous.
(a) This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and
assigns; provided, however, that Lennox may not assign its rights,
privileges or obligations hereunder at any time, and shall be required
to adhere to and carry out the duties as set forth herein. Any
attempted assignment by Lennox shall be null and void and shall not
relieve it of any of its obligations, responsibilities, representations
and warranties contained in this Agreement.
(b) All notice and other communications provided for herein
shall be validly given, made or served, if in writing and delivered
personally or sent by certified mail, return receipt requested, postage
prepaid:
4
<PAGE> 5
if to Bank: Harris Trust & Savings Bank
111 W. Monroe Street
Chicago, IL 60603
Attention: Kathryn Vander Zanden
Senior Vice President
if to Lennox: Lennox International Inc.
P. O. Box 799900
Dallas, Texas 75379-9900
Attention: Chief Financial Officer
if to Borrower: John E. Major & Susan M. Major
16720 Las Cuestas
Rancho Santa Fe, CA 92067
Attention:
---------------
---------------
(c) This Agreement contains the entire agreement between the
parties hereto with respect to the disposition of stock contemplated
herein and supersedes all prior agreements or understandings, if any,
between the parties hereto relating to the subject matter hereof, and
may not be modified except by written agreement signed by all of the
parties hereto.
(d) The captions of each paragraph hereof are entered as a
matter of convenience only and shall not be considered to be of any
effect in the construction of this Agreement.
(e) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS
OF THE UNITED STATES OF AMERICA. THIS AGREEMENT HAS BEEN ENTERED INTO
IN DALLAS COUNTY, TEXAS, SHALL BE PERFORMABLE FOR ALL PURPOSES IN
DALLAS COUNTY, TEXAS AND THE BORROWER, LENNOX AND THE BANK AGREE THAT
DALLAS COUNTY, TEXAS IS PROPER VENUE FOR ANY ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT AND THAT NO SUCH COURT IS AN INCONVENIENT
FORUM. BORROWER, LENNOX AND BANK AGREE THAT SERVICE OF PROCESS UPON ANY
OF THEM MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT
REQUESTED, AT THEIR ADDRESSES SPECIFIED ABOVE OR DETERMINED IN
ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT. NOTHING HEREIN OR IN
ANY OF THE NOTE OR SECURITY AGREEMENT SHALL AFFECT THE RIGHT OF THE
BANK TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
5
<PAGE> 6
(f) All representations and warranties contained herein shall
survive the execution of this Agreement.
(g) This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all
of which shall constitute one and the same instrument.
THIS STOCK DISPOSITION AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
LENNOX: LENNOX INTERNATIONAL INC.
By: /s/ Clyde Wyant
---------------
Clyde Wyant
Executive Vice President,
Chief Financial Officer and Treasurer
BORROWER: John E. Major
By: /s/ John E. Major
-----------------
Susan M. Major
By: /s/ Susan M. Major
------------------
BANK: Harris Trust & Savings Bank
By: /s/ Kathryn Vander Zanden
-------------------------
Kathryn Vander Zanden
Vice President
<PAGE> 1
EXHIBIT 10.24
STOCK DISPOSITION AGREEMENT
(this "Agreement")
THIS AGREEMENT is effective as of the 10th day of February, 1999 and is
by and among David H. Anderson, Trustee for Leo E. Anderson Trust ("Borrower"),
LENNOX INTERNATIONAL INC., a Delaware corporation ("Lennox"), and Northern Trust
Bank of Texas, N.A., a federal banking association, with its principal office
located in Dallas, Texas (the "Bank").
PRELIMINARY STATEMENTS:
WHEREAS, Borrower is the owner of 1,270 shares of the capital stock of
Lennox (the "Pledged Stock"); and
WHEREAS, it is the desire of the parties hereto that the Bank make a
term loan to Borrower in the principal amount of $400,000 maturing as of
February 10, 2000 (1) year from the date hereof (the "Loan"), which loan shall
be evidenced by a promissory note dated of even date herewith (together with any
and all renewals, extensions, modifications and replacements thereof, the
"Note") and secured by, among other things, the Pledged Stock pursuant to a
Security Agreement executed by Borrower and delivered to Bank and dated of even
date herewith ("Security Agreement"); and
WHEREAS, Lennox has determined that it is in its best interests to
enter into this Agreement to make provision for the potential future disposition
of its stock; and
WHEREAS, the Pledged Stock is subject to certain restrictions,
including a right of first refusal in favor of Lennox under the terms of its
Certificate of Incorporation; and
WHEREAS, the Pledged Stock has value to the Bank as security only to
the extent that the Bank can be assured that, upon the default of Borrower under
the Note, there will be available a ready buyer or market for the Pledged Stock.
NOW, THEREFORE, in consideration of the premises and covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
AGREEMENTS:
1. Conditions on the Ownership and Restrictions on the Transfer of the
Pledged Stock. The Borrower's ownership and the rights of the Bank with respect
to the Pledged Stock are subject to the following:
(a) Pursuant to Article Sixteenth of the Lennox Restated
Certificate of Incorporation, "No sale, assignment, transfer or other
disposition... shall be effective unless and until there is compliance
with the...terms and conditions" set forth therein. The Restated
Certificate of Incorporation of Lennox is attached hereto and
incorporated herein as EXHIBIT A.
<PAGE> 2
The parties hereto understand and agree that the Borrower's rights in and to the
Pledged Stock and any rights of the Bank thereto created as a result of the Loan
and Security Agreement are expressly conditioned upon the above conditions set
forth and referenced above in this Paragraph 1.
2. Disposition of Pledged Stock. At any time after the occurrence of an
Event of Default, as defined in the Loan Agreement between Borrower and the Bank
pursuant to which the Loan is being made (an "Event of Default"), the Bank shall
have the right to request and Lennox agrees to use its best efforts to perform
one of the following: (a) within sixty (60) days of such demand, procure a ready
and willing buyer for the Pledged Stock at the Value (as defined in the Loan
Agreement) of such shares; (b) within thirty (30) days of such demand, purchase
from the Bank the Pledged Stock at the Value of such shares; or (c) if, at the
time of an Event of Default, Lennox common stock is listed for trading on a
stock exchange or other recognized securities market and has an average daily
trading volume of 25,000 shares, then as soon as practicable, but within one
hundred eighty (180) days of such demand, register the Pledged Stock pursuant to
the Securities Act of 1933; provided that (i) Lennox shall have the option to
perform under clause (a), (b) or (c) above so long as performance is completed
within the number of days specified (during which time interest shall continue
to accrue on the Note at the Default Rate (as defined in the Note), and (ii)
neither the buyer under clause (a) above nor Lennox under clause (b) above shall
be required to purchase Pledged Stock in excess of the number of shares pledged
to secure the Note and required to pay Bank an amount equal to the aggregate
amount of the then outstanding indebtedness secured by the Pledged Stock.
Notwithstanding anything else to the contrary herein, Lennox shall not be
required to take any action pursuant to this Agreement that would cause Lennox
to be in default under (i) the Revolving Credit Agreement dated as of December
4, 1991, as amended, among Lennox, the banks named on the signature pages
thereof, and The Northern Trust Company, as Agent, or (ii) any note purchase
agreements entered into in December 1991, December 1993, and July 1995, between
Lennox and various note purchasers, as in effect on the date hereof, where the
outstanding amount of a long term note issued thereunder exceeds $5,000,000.
If an Event of Default shall occur, the Bank shall also have the right,
subject to the conditions set forth in Paragraph 1 hereof, to procure a buyer
for the Pledged Stock; provided that the Bank shall first offer the shares of
the Pledged Stock to Lennox, whether or not the aggregate Value of the Pledged
Stock shall be sufficient to pay in full all then outstanding indebtedness
secured by the Pledged Stock; and provided, further, that Bank's obligation to
make such offer shall terminate in the event Lennox fails to exercise its right
of first refusal by paying Bank the Value of the Pledged Stock in cash within
thirty (30) days of such offer.
3. Method of Demand. The right to demand performance by Lennox as
described in Paragraph 2 hereof shall be exercised by Bank giving written notice
to Lennox (at the address set forth in Paragraph 9(b) below) of the Event of
Default and the Bank's demand for such performance by Lennox. Any delay by Bank
in exercising such right after the occurrence of an Event of Default shall not
operate as a waiver of such right or any other right provided for herein. Upon
receipt of
2
<PAGE> 3
such demand, Lennox shall advise the Bank in writing within ten (10) business
days whether it intends to perform under clause (a), (b) or (c) of Paragraph 2
hereof. Lennox shall promptly commence said performance and shall diligently
pursue completion of its performance.
4. Method of Payment. The purchase price of the Pledged Stock (the
"Purchase Price") shall be its Value as provided in Paragraph 2 hereof, and the
full Purchase Price shall be paid in cash on the Closing Date as set forth in
Paragraph 5 below.
5. Closing Date. Any purchase of the Pledged Stock by Lennox or a buyer
procured by Lennox pursuant to Paragraph 2 hereof shall occur in Dallas, Texas
at the principal office of Bank or such other address in Dallas, Texas as Bank
shall designate, on a date mutually agreed by Bank and Lennox, which date shall
be not later than the last date for performance by Lennox or such buyer under
Paragraph 2 hereof (the "Closing Date"). At the closing, Bank shall deliver the
certificates being purchased, duly endorsed or with duly completed stock powers,
and the buyer of the Pledged Stock shall deliver to Bank, the Purchase Price
required to be paid on the Closing Date pursuant to Paragraph 4 above, which
shall be payable through a wire transfer or a cashier's check in United States
dollars from a bank acceptable to Bank.
6. Representations, Warranties and Covenants.
(a) This Agreement has been duly authorized by all corporate
or other actions necessary on the part of Borrower and Lennox,
respectively. This Agreement constitutes a valid and binding agreement
of Borrower and Lennox, and is enforceable against Borrower and Lennox,
respectively, in accordance with its terms, except that such
enforceability may be limited by (i) general principles of equity
(regardless of whether relief is sought in an action at law or in
equity) and (ii) applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws from time to time in effect affecting
enforcement of creditors' rights generally.
(b) Borrower hereby agrees that the disposition of the Pledged
Stock in the manner and on such terms as are provided in this Agreement
shall be deemed for all purposes as a "commercially reasonable" sale as
required by the Texas Business and Commerce Code, regardless of whether
the book, market or other value of the Pledged Stock is equal to, above
or below the Purchase Price.
(c) BANK HAS MADE NO REPRESENTATION OR WARRANTY WHATSOEVER
CONCERNING THE INVESTMENT VALUE OF THE PLEDGED STOCK. THE BORROWER AND
LENNOX AGREE THAT THIS AGREEMENT CONTEMPLATES THAT NEITHER BORROWER NOR
LENNOX SHALL BE ENTITLED TO ASSERT ANY SUCH REPRESENTATION OR WARRANTY
BY BANK, AT ANY TIME. BORROWER AND LENNOX AGREE TO INDEMNIFY AND HOLD
BANK HARMLESS WITH RESPECT TO ANY CLAIM MADE BY ANY PARTY HERETO, OR
ANY SUCCESSOR OR ASSIGN, ASSERTING SUCH A REPRESENTATION OR WARRANTY BY
BANK.
3
<PAGE> 4
(d) Each of the parties hereto agree to undertake such
additional agreements, execute such additional documents, and do such
other acts and things as may be reasonably required to effect the
purposes of this Agreement.
(e) To the extent that any provision of this Agreement is in
conflict with any provision in any prior agreement between Borrower and
Lennox, this Agreement shall control.
(f) Borrower shall reimburse Lennox for its reasonable
out-of-pocket expenses (not including any Purchase Price paid by Lennox
hereunder) in performing its obligations hereunder after an Event of
Default has occurred.
7. Breach of Agreement. It is agreed that a breach by Lennox in the
performance of its obligations hereunder cannot be adequately measured or
compensated in money damages, and that any such breach would do irreparable
injury to Bank. It is therefore agreed that in the event of any breach or
threatened breach by Lennox of the terms and conditions set forth herein, Bank
shall be entitled, in addition to any and all rights and remedies which it may
have in law or in equity, to apply for and obtain injunctive relief requiring
Lennox to be restrained from any such breach, threatened breach or to refrain
from a continuation of any actual breach and mandating that Lennox perform under
this Agreement.
8. Parties Bound. All representations, warranties, covenants and
agreements made by or on behalf of Lennox and Borrower shall bind Lennox and
Borrower and the heirs, devisees, executors, administrators, personal
representatives, successors, trustees, receivers, and assigns of Borrower and
Lennox and inure to the benefit of the successors and assigns of the Bank.
9. Miscellaneous.
(a) This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and
assigns; provided, however, that Lennox may not assign its rights,
privileges or obligations hereunder at any time, and shall be required
to adhere to and carry out the duties as set forth herein. Any
attempted assignment by Lennox shall be null and void and shall not
relieve it of any of its obligations, responsibilities, representations
and warranties contained in this Agreement.
(b) All notice and other communications provided for herein
shall be validly given, made or served, if in writing and delivered
personally or sent by certified mail, return receipt requested, postage
prepaid:
4
<PAGE> 5
if to Bank: Northern Trust Bank of Texas, N.A.
5540 Preston Road
Dallas, Texas 75205-2637
Attention: Marcia Messinger
Senior Vice President
if to Lennox: Lennox International Inc.
P. O. Box 799900
Dallas, Texas 75379-9900
Attention: Chief Financial Officer
if to Borrower: David H. Anderson, Trustee for
Leo E. Anderson Trust
1114 State Street, Suite 200
Santa Barbara, CA 93101
(c) This Agreement contains the entire agreement between the
parties hereto with respect to the disposition of stock contemplated
herein and supersedes all prior agreements or understandings, if any,
between the parties hereto relating to the subject matter hereof, and
may not be modified except by written agreement signed by all of the
parties hereto.
(d) The captions of each paragraph hereof are entered as a
matter of convenience only and shall not be considered to be of any
effect in the construction of this Agreement.
(e) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS
OF THE UNITED STATES OF AMERICA. THIS AGREEMENT HAS BEEN ENTERED INTO
IN DALLAS COUNTY, TEXAS, SHALL BE PERFORMABLE FOR ALL PURPOSES IN
DALLAS COUNTY, TEXAS AND THE BORROWER, LENNOX AND THE BANK AGREE THAT
DALLAS COUNTY, TEXAS IS PROPER VENUE FOR ANY ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT AND THAT NO SUCH COURT IS AN INCONVENIENT
FORUM. BORROWER, LENNOX AND BANK AGREE THAT SERVICE OF PROCESS UPON ANY
OF THEM MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT
REQUESTED, AT THEIR ADDRESSES SPECIFIED ABOVE OR DETERMINED IN
ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT. NOTHING HEREIN OR IN
ANY OF THE NOTE OR SECURITY AGREEMENT SHALL AFFECT THE RIGHT OF THE
BANK TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
5
<PAGE> 6
(f) All representations and warranties contained herein shall
survive the execution of this Agreement.
(g) This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all
of which shall constitute one and the same instrument.
THIS STOCK DISPOSITION AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
LENNOX: LENNOX INTERNATIONAL INC.
By: /s/ Clyde Wyant
---------------------------------------
Clyde Wyant
Executive Vice President, Chief
Financial Officer and Treasurer
BORROWER: /s/ David H. Anderson, Trustee
---------------------------------------
David H. Anderson, Trustee for
Leo E. Anderson Trust
BANK: Northern Trust Bank of Texas, N.A.
By: /s/ Marcia Messinger
---------------------------------------
Marcia Messinger
Private Banker
6
<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
May , 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> MAR-31-1999 MAR-31-1998
<CASH> 30,262 0
<SECURITIES> 0 0
<RECEIVABLES> 394,821 0
<ALLOWANCES> 20,247 0
<INVENTORY> 323,962 0
<CURRENT-ASSETS> 797,205 0
<PP&E> 606,155 0
<DEPRECIATION> 340,252 0
<TOTAL-ASSETS> 1,292,534 0
<CURRENT-LIABILITIES> 581,926 0
<BONDS> 0 0
0 0
0 0
<COMMON> 11 0
<OTHER-SE> 374,308 0
<TOTAL-LIABILITY-AND-EQUITY> 1,292,534 0
<SALES> 489,059 379,646
<TOTAL-REVENUES> 489,059 379,646
<CGS> 337,481 261,802
<TOTAL-COSTS> 337,481 261,802
<OTHER-EXPENSES> 2,518 2,612
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6,558 2,620
<INCOME-PRETAX> 13,961 15,629
<INCOME-TAX> 7,331 7,323
<INCOME-CONTINUING> 6,630 8,306
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,630 8,306
<EPS-BASIC> 6.16 7.96
<EPS-DILUTED> 6.02 7.81
</TABLE>
