<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 9, 1994
REGISTRATION NO. 33-69778
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
NORTEK, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
05-0314991
(I.R.S. EMPLOYER IDENTIFICATION NO.)
50 KENNEDY PLAZA, PROVIDENCE, RHODE ISLAND, 02903 (401) 751-1600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
<TABLE>
RICHARD L. BREADY
NORTEK, INC.
50 Kennedy Plaza
Providence, Rhode Island 02903
(401) 751-1600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<S> <C>
DAVID C. CHAPIN, ESQ. MARC WEINGARTEN, ESQ.
ROPES & GRAY SCHULTE ROTH & ZABEL
One International Place 900 Third Avenue
Boston, Massachusetts 02110 New York, New York 10022
(617) 951-7000 (212) 758-0404
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of the Registration Statement.
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 of
1933, check the following box. / /
If the registrant elects to deliver its latest annual report to
securityholders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this form, 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
NORTEK, INC.
<TABLE>
(CROSS REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING
LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS IN FORM S-2)
<CAPTION>
FORM S-2 ITEM LOCATION IN PROSPECTUS
------------- ----------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus........... Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Inside Front and Outside Back Cover
Pages of Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................ Prospectus Summary; Risk Factors;
Selected Consolidated Financial Data
4. Use of Proceeds.................................. Use of Proceeds
5. Determination of Offering Price.................. Not Applicable
6. Dilution......................................... Not Applicable
7. Selling Security Holders......................... Not Applicable
8. Plan of Distribution............................. Outside Front Cover Page of
Prospectus; Underwriting
9. Description of Securities to be Registered....... Description of the Notes; Certain Tax
Considerations
10. Interests of Named Experts and Counsel........... Not Applicable
11. Information with Respect to the Registrant....... Prospectus Summary; The Company;
Recent Developments; Risk Factors;
Capitalization; Selected Consolidated
Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Principal
Securityholders; Description of the
Notes; Certain Tax Considerations;
Description of Other Obligations;
Consolidated Financial Statements
12. Incorporation of Certain Information by
Reference........................................ Inside Front Cover Page of Prospectus
13. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... Not Applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 9, 1994
PROSPECTUS
$190,000,000
NORTEK, INC.
% SENIOR SUBORDINATED NOTES DUE 2004
The % Senior Subordinated Notes due 2004 (the "Notes") will bear interest
at the rate of % per annum, payable semi-annually on and
of each year, commencing , 1994.
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time and from time to time, on and after , 1999, at the
redemption prices set forth herein, together with accrued interest. Upon a
Change of Control (as defined), holders of the Notes will have the right,
subject to certain exceptions, restrictions and conditions, to require the
Company to purchase all or any of their Notes at 101% of the principal amount
thereof plus accrued and unpaid interest thereon to the date of purchase.
The Notes will be unsecured obligations of the Company and will be
subordinate in right of payment to all existing and permitted future Senior
Indebtedness (as defined) of the Company and will be effectively subordinated to
all indebtedness and other liabilities of the Company's subsidiaries. As of
October 2, 1993, after giving pro forma effect to the Refinancing (as defined),
the Company had no outstanding Senior Indebtedness. As of October 2, 1993, the
aggregate liabilities of the Company's subsidiaries, principally consisting of
trade payables and accruals, were $146.0 million. Subject to certain
restrictions, the Indenture pursuant to which the Notes will be issued permits
the Company and its subsidiaries to incur additional indebtedness, including
secured indebtedness, and other liabilities, but prohibits the incurrence by the
Company of any indebtedness ranking senior to the Notes and subordinate to
Senior Indebtedness. See "Description of the Notes."
The net proceeds of this offering will be used to redeem, and pay accrued
interest on, the $51.4 million outstanding principal amount of the Company's
9 3/4% Senior Notes due 1997, the $79.4 million outstanding principal amount of
the Company's 13 1/2% Senior Subordinated Debentures due 1997, the $2.6 million
outstanding principal amount of the Company's 10% Subordinated Sinking Fund
Debentures due 1999 and the $19.4 million outstanding principal amount of the
Company's 11% Subordinated Sinking Fund Debentures due 2004, and to replace
working capital used by the Company to redeem and pay accrued interest on the
$22.6 million principal amount of its 11 1/2% Senior Subordinated Debentures due
1994, which were redeemed on January 14, 1994. The 13 1/2% Senior Subordinated
Debentures are redeemable at 101.5% of the outstanding principal amount thereof,
while the other issues are redeemable at par, in each case plus accrued
interest. See "Use of Proceeds."
FOR A DISCUSSION OF CERTAIN FACTORS TO BE CONSIDERED IN EVALUATING AN
INVESTMENT IN THE NOTES, SEE "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(1)(3)
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<S> <C> <C> <C>
Per Note.................................... % % %
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Total(4).................................... $ $ $
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<FN>
(1) Plus accrued interest from , 1994.
(2) The Company has agreed to indemnify the Underwriters against, and to provide
contribution with respect to, certain liabilities, including liabilities
under the Securities Act of 1933. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $ .
(4) The Company has granted the Underwriters a 30-day option to purchase up to
an additional $28,500,000 principal amount of Notes solely to cover
over-allotments. If the option is exercised in full, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
</TABLE>
------------------------
The Notes are offered, subject to prior sale, when, as and if delivered to
and accepted by the Underwriters, and subject to the approval of certain legal
matters by counsel and certain other conditions. The Underwriters reserve the
right to withdraw, cancel or modify the offer and to reject orders in whole or
in part. It is expected that delivery of the Notes will be made against payment
therefor on or about , 1994, at the offices of Bear, Stearns & Co.
Inc., 245 Park Avenue, New York, New York 10167.
BEAR, STEARNS & CO. INC. CHASE SECURITIES, INC.
, 1994
<PAGE> 4
[CAPTIONS FOR PHOTOGRAPHS: TO BE INSERTED]
RANGE HOODS AND BATH FANS MANUFACTURED
BY THE RESIDENTIAL BUILDING PRODUCTS GROUP.
STATE-OF-THE-ART AUTOMATED RANGE HOOD
MANUFACTURING LINE.
1.5 GALLON WATER-EFFICIENT TOILET MANUFACTURED BY
THE PLUMBING PRODUCTS GROUP.
CUSTOM-DESIGNED COMMERCIAL HVAC EQUIPMENT
MANUFACTURED BY THE AIR CONDITIONING
AND HEATING PRODUCTS GROUP.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 5
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed by the Company with the Commission can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's regional offices located at Seven World Trade Center, 13th Floor,
New York, New York 10048, and Suite 1400, Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661. Copies of such materials can be
obtained from the Public Reference Section of the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such materials
can also be inspected at the New York Stock Exchange, 20 Broad Street, New York,
New York 10005.
The Company has filed with the Commission a Registration Statement on Form
S-2 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the securities offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement, certain parts of
which have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the
securities offered hereby, reference is made to the Registration Statement,
including exhibits filed as part thereof and otherwise incorporated therein.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document filed as an exhibit to the Registration Statement or
incorporated by reference therein, while complete in all material respects, do
not necessarily describe all terms or provisions of such contract, agreement or
other document. For a complete description, reference is made to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement or incorporated by reference therein. Copies of the Registration
Statement and the exhibits may be inspected, without charge, at the offices of
the Commission, or obtained at prescribed rates from the Public Reference
Section of the Commission at the address set forth above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission by the Company
pursuant to the Exchange Act are incorporated by reference in this Prospectus
and made a part hereof: the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992, as amended by a Form 8 dated April 29, 1993 (the
"1992 10-K"), the Company's Quarterly Reports on Form 10-Q for the fiscal
quarters ended April 3, 1993 (the "First Quarter 10-Q"), July 3, 1993 (the
"Second Quarter 10-Q") and October 2, 1993 (the "Third Quarter 10-Q"), and the
Company's Form 8-K filed October 12, 1993 and Form 8-K filed December 15, 1993
(the "8-Ks").
The 1992 10-K, the First Quarter 10-Q, the Second Quarter 10-Q, the Third
Quarter 10-Q and the 8-Ks shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement contained herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
The Company will provide without charge to any person to whom this
Prospectus is delivered, upon written or oral requests of such person, a copy of
any or all of the documents which have been incorporated by reference in this
Prospectus, other than exhibits to such documents, unless such exhibits are
specifically incorporated by reference into the documents so incorporated.
Requests for such copies should be directed to Investor Relations, Nortek, Inc.,
50 Kennedy Plaza, Providence, Rhode Island 02903-2360 (telephone number: (401)
751-1600).
3
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements, including the Notes thereto,
appearing elsewhere or incorporated by reference in this Prospectus. In
addition, except where otherwise indicated, all information set forth herein
assumes that the Underwriters' over-allotment option will not be exercised.
Unless the context otherwise requires, all references herein to the "Company" or
"Nortek" include Nortek, Inc. and its subsidiaries, with the exception of
references in "Description of the Notes", where references to the "Company"
include only Nortek, Inc. and do not include its subsidiaries. Such definitions
are used for convenience only; Nortek, Inc. and each of its subsidiaries are
distinct legal entities and manage their affairs separately.
THE COMPANY
The Company is a diversified manufacturer of residential and commercial
building products, operating within three principal product groups: the
Residential Building Products Group; the Air Conditioning and Heating Products
Group; and the Plumbing Products Group. Through these product groups, the
Company manufactures and sells, primarily in the United States and Canada, a
wide variety of products for the residential and commercial construction,
manufactured housing, and the do-it-yourself and professional remodeling and
renovation markets. In October 1993, the Company decided to sell its Retail Home
Center Operations. The Company currently intends to operate this business until
a sale is consummated.
Beginning in the fourth quarter of 1990, in order to return the Company to
profitability and position it for growth, the Company developed and implemented
initiatives to (i) sell non-core or unprofitable businesses, (ii) reduce the
costs and expenses of its retained businesses and (iii) significantly reduce
debt. Since December 31, 1990, the Company has disposed of eight businesses,
which accounted for $310.5 million of net sales and operating losses of $2.0
million in 1990. The $74.3 million in cash proceeds received from disposed
businesses, together with cash on hand, were used to reduce indebtedness by
$150.7 million, or 42.7%, between December 31, 1990 and October 2, 1993. In
addition, a significant reduction in operating costs was the principal factor
responsible for a substantial increase in EBITDA from operations from $27.4
million for the year ended December 31, 1990 to $51.0 million for the twelve
months ended October 2, 1993. See "Business."
STRATEGY
The Company's business strategy is to develop and maintain leading
positions in selected product lines within the residential and commercial
building products industry. To accomplish this strategy, the Company plans to
continue to expand the market share of its product groups through new product
development, product line extensions and selected acquisitions, and to improve
margins on its products through technological innovation, product
differentiation, cost efficiency, customer service and attention to quality. The
Company has instituted a variety of programs which are designed to increase its
market share, including an increase in new product introductions and the
establishment of on-line computer access to the Company's order entry and
inventory systems for certain distributors. The Company has also pursued a
variety of cost reduction activities and manufacturing process improvements,
including the investment of substantial resources to consolidate manufacturing
facilities and sales, marketing and administrative functions in each of its
product groups. These actions have resulted in increased production capacity,
enhanced manufacturing efficiency and flexibility, reduced inventory and
overhead levels and decreased unit costs for many of the Company's operating
facilities.
The Company believes that its growth will be generated largely by internal
growth in each of its product groups, augmented by strategic acquisitions. The
Company regularly reviews potential acquisitions which would increase or expand
the market penetration of, or otherwise complement, its current product lines,
although there are no pending agreements or negotiations for any material
acquisitions and the Company has made no material acquisitions since early 1988.
In October 1993, the Company made the strategic decision to sell its Retail Home
Center Operations to increase the Company's focus on its other building products
businesses.
4
<PAGE> 7
FACTORS AFFECTING OPERATING PERFORMANCE
The Company's performance is dependent to a significant extent upon the
levels of new residential construction, residential replacement and remodeling
and non-residential construction, all of which are affected by such factors as
interest rates, inflation and unemployment. In recent periods, the Company's
product groups have operated in an environment of flat to declining levels of
construction and remodeling activity, particularly the number of new housing
starts which, though improved since 1991, remain significantly below levels
experienced in the mid-1980's. Although the Company's operations have been
significantly affected by the difficult economic conditions in recent periods,
the actions taken by the Company to reduce production costs and overhead levels
and improve the efficiency and profitability of its operations have enabled the
Company to significantly increase operating earnings in a slow economy and have
positioned the Company's product groups for growth should there be a recovery in
their markets. In the near term, the Company expects to operate in an
environment of relatively stable levels of construction and remodeling activity,
without significant further declines or improvements in such levels.
PRODUCT GROUP OVERVIEW
The Residential Building Products Group manufactures and distributes
built-in products primarily for the residential housing, do-it-yourself and
professional remodeling and renovation markets. The principal products sold by
this Group are kitchen range hoods, bath fans and combination units (fan, heater
and light combinations) and bath cabinets, which represented more than 50% of
this Group's net sales in 1992. This Group is one of the largest suppliers in
the United States and Canada of range hoods, bath fans and combination units.
Products are sold under the Broan(R), Nautilus(R) and Air CareTM brand names,
among others, to distributors and dealers of electrical and lighting products,
kitchen and bath dealers, retail home centers and original equipment
manufacturers ("OEMs"). Other products sold by this Group include, among others,
wireless security products, garage door openers, built-in home intercoms and
entertainment systems and door chimes.
The Air Conditioning and Heating Products Group manufactures and sells
heating, ventilating and central air conditioning systems ("HVAC") for
custom-designed commercial applications and for manufactured and site-built
residential housing. This Group's commercial HVAC products and air handler
systems are designed to meet customer specifications for use in offices,
manufacturing and educational facilities, hospitals, retail stores and
governmental buildings. Such systems are primarily designed to operate on
building rooftops (including large self-contained walk-in-units) or on
individual floors within a building, and range in size from 40 to 600 tons (a
ton is an industry measurement of cooling capacity equaling 12,000 BTUs).
Commercial products are marketed under the Governair(R), Mammoth(R) and
TemtrolTM brand names. Residential manufactured and site-built housing products
include central air conditioners, heat pumps, furnaces and a wide range of
accessories marketed under the Intertherm(R) and Miller(R) brand names.
Residential central air conditioning products range from 1.5 to 5 tons of
cooling capacity and furnaces range from 45,000 BTUs to 144,000 BTUs of heating
capacity.
The Plumbing Products Group manufactures and sells vitreous china bathroom
fixtures (including sinks, toilet bowls and tanks), fiberglass and acrylic
fixtures and brass and plastic faucets, and also markets stainless steel and
enameled steel tubs and sinks. In addition to its standard product offerings,
this Group also sells designer bathroom fixtures, 1.5 gallon water-efficient
toilets and a variety of products that are accessible by physically challenged
individuals. Products are sold under the URCTM, Universal-Rundle(R),
CareFree(R), Milwaukee FaucetsTM and Raphael(R) brand names principally to
wholesale plumbing distributors and retail home centers. End customers of this
Group's products are generally home builders, do-it-yourself homeowners,
remodeling contractors and commercial builders.
BUSINESS HELD FOR SALE
In October 1993, the Company decided to sell its Retail Home Center
Operations, which consist of a chain of ten retail home center stores, a
contractor and wholesale lumberyard and a truss manufacturing yard in the
greater San Diego, California area. The Company reduced its investment in this
business to estimated net realizable value and recorded a pre-tax valuation
reserve of $20.3 million in the third quarter of 1993. See Note 16B of Notes to
Consolidated Financial Statements.
5
<PAGE> 8
<TABLE>
THE OFFERING
<S> <C>
Securities Offered............ $190,000,000 principal amount of % Senior Subordinated
Notes due 2004 (the "Notes").
Interest Payment Dates........ and , commencing , 1994.
Maturity...................... , 2004.
Redemption.................... Redeemable at the Company's option, in whole or in part, at
any time and from time to time, on and after ,
1999, initially at % of principal amount and thereafter
at prices declining to 100% from and after , 2002.
See "Description of the Notes -- Optional Redemption."
Change of Control............. Upon a Change of Control (as defined), holders of the Notes
will have the right, subject to certain restrictions and
conditions, to require the Company to purchase all or any
part of their Notes at 101% of the principal amount thereof,
plus accrued and unpaid interest thereon to the date of
purchase. If a Change of Control were to occur, there can be
no assurance that the Company would have sufficient funds to
pay the Change of Control purchase price for all Notes
tendered by holders thereof. In addition, the Company's
ability to make such payment may be limited by the terms of
borrowing and other agreements applicable to the Company or
its subsidiaries. The Change of Control provisions are not
applicable to certain transactions with Richard L. Bready,
the Chairman of the Board, or persons or entities affiliated
with Mr. Bready. See "Description of the Notes -- Change of
Control" and "Description of Other Obligations."
Ranking....................... Subordinate to all existing and permitted future Senior
Indebtedness (as defined) of the Company and effectively
subordinate to all indebtedness and other liabilities of
subsidiaries of the Company. As of October 2, 1993, after
giving pro forma effect to the Refinancing, the Company had
no outstanding Senior Indebtedness. As of October 2, 1993,
the aggregate liabilities of the Company's subsidiaries,
principally consisting of trade payables and accruals, were
$146.0 million. Subject to certain restrictions, the
indenture pursuant to which the Notes will be issued (the
"Indenture") permits the Company and its subsidiaries to
incur additional indebtedness, including Senior Indebtedness
which may be secured, and other liabilities. However, the
Indenture prohibits the Company from incurring any
indebtedness ranking senior to the Notes but subordinate to
Senior Indebtedness. See "Risk Factors -- Substantial
Leverage" and "Description of the Notes -- Subordination."
Certain Covenants............. The Indenture restricts, among other things, the payment of
dividends, the repurchase of capital stock and the making of
certain other Restricted Payments (as defined), the
incurrence of additional Indebtedness (as defined), the
making of certain Investments (as defined) and certain
mergers, consolidations or sales of assets. Upon certain
Asset Sales (as defined), the Company will be required to
offer to purchase, at 100% of their principal amount plus
accrued and unpaid interest thereon to the date of purchase,
Notes in a principal amount equal to any Net Cash Proceeds
(as defined) that are not invested in properties and assets
used primarily in the same or a related business to those
owned and operated by the Company as of the issue date of
the Notes or at the date of such sale and not applied to
permanently reduce Senior Indebtedness. See "Description of
the Notes -- Certain Covenants."
</TABLE>
6
<PAGE> 9
<TABLE>
<S> <C>
Use of Proceeds............... The net proceeds of this offering will be used to redeem,
and pay accrued interest and a redemption premium on,
certain existing indebtedness, and to replace certain
working capital used by the Company to redeem and pay
accrued interest on certain other indebtedness redeemed on
January 14, 1994. The sale of the Notes and the use of the
net proceeds therefrom for such purposes are referred to
herein as the "Refinancing." See "Use of Proceeds."
</TABLE>
Prospective purchasers of the Notes should consider carefully all of the
information set forth in this Prospectus and, in particular, should evaluate the
specific factors set forth under "Risk Factors."
7
<PAGE> 10
<TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary of selected consolidated financial data for the five
years ended December 31, 1992, and the 39 weeks ended September 26, 1992 and
October 2, 1993, are derived from the Selected Consolidated Financial Data
appearing elsewhere in this Prospectus and should be read in conjunction with
the Consolidated Financial Statements and the Notes thereto and the information
contained in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing elsewhere in this Prospectus. The results of
operations for the 39 weeks ended October 2, 1993 are not necessarily indicative
of the results of operations to be expected for the full year. The consolidated
pro forma operating data for the year ended December 31, 1992 and for the 39
weeks ended October 2, 1993 give pro forma effect to the Refinancing as if it
had occurred on January 1, 1992 and to certain other adjustments as described in
Note 4 below. The consolidated pro forma balance sheet data give pro forma
effect to the Refinancing and the redemption on January 14, 1994 of the
Company's 11 1/2% Senior Subordinated Debentures due 1994 as if such
transactions had occurred on October 2, 1993.
<CAPTION>
39 WEEKS ENDED
YEARS ENDED DECEMBER 31, ------------------------
---------------------------------------------- SEPTEMBER 26, OCTOBER 2,
1988 1989 1990 1991 1992 1992 1993
-------- ------- ------- ------ ------ ------------- ----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED OPERATING AND
CASH FLOW DATA(1):
Net sales..................... $1,029.2 $1,080.2 $1,037.2 $917.0 $800.0 $ 617.2 $575.8
Operating earnings
(loss)(2)................... 22.3 1.0 (16.6) 11.0 20.4 11.6 21.4
Interest expense, net......... (29.7 ) (36.6) (33.8) (30.4) (24.8) (18.8) (17.8)
Earnings (loss) from
continuing operations(3).... 0.2 (42.5) (41.4) (34.7) (21.0) (19.6) (12.8)
Net cash provided (used) by
operating activities........ (21.1 ) (23.1) 33.8 39.6 12.1 (.2) 1.2
Cash provided by investing
activities.................. 92.1 183.6 10.2 50.3 22.8 25.5 31.8
Cash used by financing
activities.................. 99.4 133.3 70.9 104.9 27.9 19.8 6.1
Capital expenditures.......... 20.7 35.3 24.5 16.0 8.8 7.8 7.2
CONSOLIDATED PRO FORMA
OPERATING DATA:
Interest expense, net(4)...... $(20.7) $(16.0)
Earnings (loss) from
continuing operations(4).... .2 (11.6)
Earnings (loss) per share from
continuing operations(4).... .02 (.93)
OTHER CONSOLIDATED DATA:
Ratio of earnings to fixed
charges(5).................. 1.1x -- -- -- -- -- --
Pro forma ratio of earnings to
fixed charges(5)............ -- --
EBITDA from operations(6)..... $ 50.3 $ 31.9 $ 27.4 $ 38.2 $ 42.5 $ 29.5 $ 38.0
Ratio of EBITDA from
operations to interest
expense, net................ 1.7x -- -- 1.3x 1.7x 1.6x 2.1x
Pro forma ratio of EBITDA from
operations to interest
expense, net(6)............. 2.1x 2.4x
</TABLE>
<TABLE>
<CAPTION>
AS OF OCTOBER 2, 1993
------------------------
ACTUAL PRO FORMA
------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, investments and
marketable securities(7).... $ 67.2 $ 66.6
Working capital............... 119.7 149.6
Total assets.................. 509.6 513.4
Total indebtedness............ 202.4 224.0
Stockholders' investment(8)... 112.0 105.2
</TABLE>
- ------------------------------
(See footnotes on following page)
8
<PAGE> 11
[FN]
(1) Acquisitions have been accounted for under the purchase accounting method
and dispositions have been accounted for as described in Notes 10 and 11 of
Notes to Consolidated Financial Statements. See Notes 8 to 13 and Note 15 of
Notes to Consolidated Financial Statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" regarding the
effect of businesses sold and other matters on operating results during the
periods covered hereby. See Notes 16D and 16H of Notes to Consolidated
Financial Statements with respect to changes in accounting methods, adopted
as of January 1, 1993, related to post-retirement health care benefits and
income taxes.
(2) The operating loss for the year ended December 31, 1990 includes
non-recurring pre-tax charges of $12.6 million ($.66 per share, net of tax)
as described in Notes 1 and 13 of Notes to Consolidated Financial
Statements.
(3) The Company has decided to sell its Dixieline Lumber Company subsidiary
("Dixieline") through which the Company conducts its Retail Home Center
Operations. In connection with this decision, the Company recorded a pre-tax
valuation reserve of $20.3 million ($1.19 per share, net of tax) in the
third quarter of 1993 to reduce the Company's net investment in such
business to estimated net realizable value.
(4) Pro forma (A) to reflect (i) the Refinancing, (ii) the redemption on January
14, 1994 of the Company's 11 1/2% Senior Subordinated Debentures due 1994
and (iii) the sale of L.J. Smith, Inc. and Bend Millwork Systems, Inc. as if
the transactions in clauses (i), (ii) and (iii) had occurred on January 1,
1992 and (B) to exclude the net after-tax loss of approximately $16 million
related to the sale of L.J. Smith, Inc. and Bend Millwork Systems, Inc. in
the year ended December 31, 1992. The loss from continuing operations of
$11.6 million ($.93 loss per share) for the 39 weeks ended October 2, 1993
includes a net after-tax loss of $14.9 million ($1.19 loss per share)
related to the valuation reserve for Dixieline. See Note 16B of Notes to
Consolidated Financial Statements.
(5) For purposes of calculating this ratio, "earnings" consist of earnings from
continuing operations before provision for income taxes and fixed charges,
and "fixed charges" consist of interest expense, including the estimated
interest portion of rental payments on operating leases. Such earnings were
insufficient to cover fixed charges by $59.5 million, $60.4 million, $45.7
million and $18.0 million for the years ended December 31, 1989, 1990, 1991,
1992, respectively, by $18.3 million and $14.3 million for the 39 weeks
ended September 26, 1992 and October 2, 1993, respectively, and by $13.9
million and $12.5 million for the year ended December 31, 1992 and the 39
weeks ended October 2, 1993, respectively, on a pro forma basis. The pro
forma data have been adjusted to reflect the Refinancing and the redemption
on January 14, 1994 of the Company's 11 1/2% Senior Subordinated Debentures
due 1994 as if such transactions had occurred on January 1, 1992.
<TABLE>
(6) "EBITDA from operations" is the earnings (loss) from continuing operations
before income taxes plus depreciation, amortization and interest expense,
and excludes interest and dividend income, net (gain) loss on investment and
marketable securities and certain non-operating (income) expense, as
follows:
<CAPTION>
PRO 39 WEEKS ENDED PRO
FOR THE YEARS ENDED DECEMBER 31, FORMA --------------------- FORMA
------------------------------------------ DEC. 31, SEPT. 26, OCTOBER 2, OCTOBER 2,
1988 1989 1990 1991 1992 1992 1992 1993 1993
------ ------ ------ ------ ------ --------- --------- ---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings (loss) from continuing
operations before income
taxes......................... $ 3.6 $(59.5) $(60.4) $(45.7) $(18.0) $ (13.9) $ (18.3) $(14.3) $(12.5)
Add (Deduct):
Interest expense............ 58.8 63.9 48.9 39.2 29.2 25.1 22.4 20.2 18.4
Interest and dividend
income.................... (29.1) (27.3) (15.1) (8.8) (4.4) (4.4) (3.6) (2.4) (2.4)
Net (gain) loss on
investment and marketable
securities................ (11.0) 23.9 10.0 (.4) (.9) (.9) (1.4) (2.4) (2.4)
Depreciation and
amortization (excludes
amortization of deferred
debt expense and debt
discount, which is
included in interest
expense).................. 28.0 30.9 31.4 27.2 22.1 22.1 17.9 15.0 15.0
------ ------ ------ ------ ------ --------- --------- ---------- ----------
EBITDA.................. $ 50.3 $ 31.9 $ 14.8 $ 11.5 $ 28.0 $ 28.0 $ 17.0 $ 16.1 $ 16.1
Loss on businesses sold or
held for sale (3 above)... -- -- -- 15.2 14.5 14.5 12.5 20.3 20.3
Settlement of litigation.... -- -- -- 11.5 -- -- -- -- --
Other (2 above)............. -- -- 12.6 -- -- -- -- 1.6 1.6
------ ------ ------ ------ ------ --------- --------- ---------- ----------
EBITDA from
operations............ $ 50.3 $ 31.9 $ 27.4 $ 38.2 $ 42.5 $ 42.5 $ 29.5 $ 38.0 $ 38.0
------ ------ ------ ------ ------ --------- --------- ---------- ----------
------ ------ ------ ------ ------ --------- --------- ---------- ----------
</TABLE>
The pro forma data in the preceding table have been adjusted to reflect the
Refinancing and the redemption on January 14, 1994 of the Company's 11 1/2%
Senior Subordinated Debentures due 1994 as if such transactions had occurred
on January 1, 1992.
EBITDA from operations principally differs from Consolidated Cash Flow as
defined in the Indenture in that Consolidated Cash Flow includes net (gain)
loss on investment and marketable securities and excludes (i) the results of
Dixieline, (ii) after-tax compensation expense in respect of capital stock
awarded to employees as part of an employee benefit plan and (iii) net
non-cash expense items not to exceed 10% of Consolidated Cash Flow. See
9
<PAGE> 12
"Description of the Notes -- Certain Definitions." EBITDA from operations is
presented because it is a financial indicator of a leveraged company's
ability to service and/or incur indebtedness. EBITDA from operations should
not be considered as an alternative to net earnings as a measure of the
Company's operating results or to cash flows as a measure of liquidity.
EBITDA from operations principally differs from net increase (decrease) in
unrestricted cash and investments shown on the Consolidated Statement of
Cash Flows of the Company prepared in accordance with generally accepted
accounting principles in that EBITDA from operations does not reflect
capital expenditures, borrowings, principal and interest payments under debt
and capital lease obligations, income tax payments and cash flows from other
operating, investing and financing activities.
(7) Includes $6.7 million of restricted cash, investments and marketable
securities at October 2, 1993 (actual and pro forma). See Note 1, of Notes
to Consolidated Financial Statements.
(8) Pro forma stockholders' investment as of October 2, 1993 reflects the
estimated net after-tax extraordinary loss of $6.8 million ($.54 per share)
that would have been recorded at October 2, 1993 as a consequence of the
redemption of certain of the Company's outstanding indebtedness as a part of
the Refinancing. The loss principally includes the effect of unamortized
deferred debt expense and debt discounts and a redemption premium on certain
of such indebtedness. The Company estimates that the actual amount of such
loss will be approximately $6.1 million ($.48 per share) and will be
recorded in the fourth quarter of 1993.
10
<PAGE> 13
RISK FACTORS
Prospective purchasers of the Notes should consider, among other things,
the factors set forth below, as well as the other information set forth in this
Prospectus, before making an investment in the Notes.
SUBSTANTIAL LEVERAGE
The Company has a substantial amount of indebtedness. Although the Company
has reduced indebtedness by $150.7 million since December 31, 1990, the Company
is, and immediately following the Refinancing will remain, significantly
leveraged. At October 2, 1993, the Company had $202.4 million of indebtedness.
After giving pro forma effect to the Refinancing, as of October 2, 1993, the
Company would have had $224.0 million of indebtedness (or $252.5 million of
indebtedness if the Underwriters' over-allotment option is exercised in full).
At October 2, 1993, the Company's debt to equity ratio was 1.8 to 1 and after
giving pro forma effect to the Refinancing, as of October 2, 1993, the Company's
debt to equity ratio would have been 2.1 to 1. See "Capitalization."
The degree to which the Company is leveraged could have important
consequences to holders of the Notes, including the following: (i) the Company's
ability to obtain additional financing in the future for refinancing
indebtedness, working capital, capital expenditures, acquisitions or general
corporate purposes may be impaired, (ii) a substantial portion of the Company's
consolidated cash flow from operations must be used for the payment of interest
and principal on its indebtedness, (iii) the Company may be more highly
leveraged than its competitors, which may place it at a competitive
disadvantage, (iv) the agreements governing the Company's and its subsidiaries'
indebtedness (including the Notes) and bank loans contain certain restrictive
financial and operating covenants, including certain covenants that restrict the
ability of the Company's subsidiaries to pay dividends or make other
distributions to the Company, (v) certain of the borrowings under debt
agreements of the Company's subsidiaries have floating rates of interest, which
cause the Company and its subsidiaries to be vulnerable to increases in interest
rates and (vi) the Company's substantial degree of leverage could make it more
vulnerable to a downturn in general economic conditions.
The terms of the Indenture allow for the incurrence of additional
indebtedness, including Senior Indebtedness and secured indebtedness. The
incurrence of additional indebtedness is limited by certain conditions,
including compliance with a Consolidated Cash Flow Coverage Ratio (as defined),
calculated on a pro forma basis to reflect such additional indebtedness, of 2.0
to 1. As of October 2, 1993, after giving pro forma effect to the Refinancing,
the Company could incur additional indebtedness based on this covenant in the
Indenture. In addition and notwithstanding the foregoing, the Indenture permits
the Company, and in certain cases its subsidiaries, to incur up to approximately
$107.0 million of specified additional indebtedness, including Senior
Indebtedness, and certain other types of indebtedness, without regard to the
compliance with the Consolidated Cash Flow Coverage Ratio referred to above or
any other financial ratio or covenant in the Indenture. See "Description of the
Notes." In the event the Company were to incur additional indebtedness for
investment in its current business, acquisitions or other purposes, the
Company's leverage may increase and, as a result, the Company could be more
susceptible to the factors described above.
The ability of the Company to make principal and interest payments under
the Company's long-term indebtedness (including the Notes) and bank loans will
be dependent upon the Company's future performance, which is subject to
financial, economic and other factors affecting the Company, some of which are
beyond its control. There can be no assurance that the current level of the
Company's operating results will continue or that its operating results will
improve. The Company believes that it may need to access the capital markets in
the future in order to provide the funds necessary to repay a portion of its
indebtedness. There can be no assurance that any such refinancing would be
possible or that any additional financing could be obtained, particularly in
view of the Company's anticipated high levels of debt and the debt incurrence
restrictions under its debt agreements, including the Indenture. If no such
refinancing or additional financing were available, the Company and/or its
subsidiaries could default on their respective debt obligations. In such case,
virtually all other debt of the Company and its subsidiaries, including payments
to be made under the Notes, could become immediately due and payable.
11
<PAGE> 14
SUBORDINATION
The Notes will be subordinate in right of payment to all existing and
future Senior Indebtedness of the Company, including certain refinancings of
such Senior Indebtedness. Further, subject to restrictions, the Indenture
permits the Company to incur additional Senior Indebtedness. As of October 2,
1993, after giving pro forma effect to the Refinancing, the Company had no
outstanding Senior Indebtedness. By reason of the subordination applicable to
the Notes, in the event of an insolvency, liquidation, or other reorganization
of the Company, the Senior Indebtedness must be paid in full before the
principal of, and interest on, the Notes may be paid. In addition, under certain
circumstances, no payments may be made with respect to the principal of, or
interest on, the Notes upon the occurrence of a default under the terms of any
Senior Indebtedness. See "Description of the Notes".
The Notes will be obligations of the Company exclusively. Because the
operations of the Company are conducted entirely through subsidiaries, the
Company's cash flow and its ability to service debt, including the Notes, are
dependent upon the cash flow of its subsidiaries and the payment of funds by
those subsidiaries in the forms of loans, dividends or otherwise. The
subsidiaries, however, are legally distinct from the Company and have no
obligation, contingent or otherwise (except to the extent described below with
respect to the requirement to provide guaranties in certain circumstances), to
pay amounts due pursuant to the Notes or to make any funds available for such
payments. Certain agreements governing the Company's subsidiaries restrict the
ability of the subsidiaries to pay dividends or make other distributions to the
Company. The Company's Canadian subsidiary, Broan Limited, has a $15.0 million
(based on exchange rates in effect on October 2, 1993) secured line of credit,
of which $11.1 million (based on exchange rates in effect on October 2, 1993) is
available to the Company. The line of credit prohibits dividends or other
distributions to the Company from Broan Limited in excess of $11.1 million
(based on exchange rates in effect on October 2, 1993). As of January 19, 1994,
there were $5.8 million in outstanding borrowings under this line of credit, all
the proceeds of which borrowings were advanced to the Company. The Company's
Nordyne Inc. subsidiary ("Nordyne") is party to an industrial revenue bond
financing agreement that restricts Nordyne's ability to declare cash dividends
to the Company in the event that Nordyne's tangible net worth is less than $9.0
million at the end of any quarter. If such net worth is determined to be below
$9.0 million at the end of any quarter, this agreement provides that Nordyne
shall not pay any cash dividends to the Company in any twelve-month period
thereafter to the extent that such cash dividends exceed, in the aggregate,
forty percent (40%) of Nordyne's net income accrued after the quarter in which
Nordyne's tangible net worth was less than $9.0 million. As of October 2, 1993,
Nordyne's tangible net worth substantially exceeded $9.0 million and the amount
of indebtedness outstanding under the industrial revenue bond financing
agreement was $1.8 million.
Except to the extent that the Company may itself be a trade creditor with
recognized claims against its subsidiaries, claims of creditors of such
subsidiaries, including trade creditors, will have effective priority with
respect to the assets and earnings of such subsidiaries over the claims of
creditors of the Company, including holders of the Notes, even though such
subsidiary obligations do not fall within the definition of Senior Indebtedness.
As of October 2, 1993, the aggregate liabilities of the Company's subsidiaries,
principally consisting of trade payables and accruals, were $146.0 million.
The Indenture provides that in the event any of the Company's subsidiaries
guarantees the payment of any Indebtedness of the Company such subsidiary shall
also guarantee the payment of the Notes. Any such guaranty shall be subordinate
to Guarantor Senior Indebtedness (as defined) in substantially the same manner
and to the same extent as the Notes are subordinated to Senior Indebtedness of
the Company. In the event any subsidiary provides such a guaranty, the guaranty
may, under certain circumstances, be subject to avoidance or subordination under
fraudulent conveyance laws or the preference provisions of The United States
Bankruptcy Code or comparable state law. See "Description of the
Notes -- Certain Covenants -- Limitation on Guaranties by Subsidiaries." The
Company may incur or issue Senior Indebtedness which may be secured by liens on
assets and properties of the Company and its subsidiaries without any obligation
of the Company or any of its subsidiaries to provide any such liens in favor of
the holders of the Notes or to guaranty the payment of the Notes. See
"Description of The Notes -- Certain Covenants -- Limitation on Liens."
In certain circumstances, the Company may be obligated to repurchase or to
make an offer to repurchase the Notes. The amount of funds then available to the
Company and the subordination of the Notes to all
12
<PAGE> 15
existing and future Senior Indebtedness of the Company may limit the ability of
the Company to repurchase the Notes. See "Description of the Notes."
CHANGE OF CONTROL
The Change of Control repurchase provisions of the Indenture are not
applicable to certain transactions with Richard L. Bready, the Chairman of the
Board, or persons or entities affiliated with Mr. Bready. If the Company were to
incur additional indebtedness in compliance with the terms of the Indenture in
order to effect a transaction in which Mr. Bready or persons or entities
affiliated with him gained beneficial ownership of 50% or more of the combined
voting power of all the Company's then outstanding securities entitled to vote
generally for the election of directors, holders of Notes would not have the
right to require the repurchase of all or any part of their Notes, and the
proceeds of such additional indebtedness might be available to purchase or
redeem all or a portion of the Company's then outstanding equity securities,
subject to the other limitations in the Indenture, such as the dividend and
capital stock repurchase restrictions contained in the LIMITATION ON RESTRICTED
PAYMENTS COVENANT. See "Description of the Notes."
HISTORY OF OPERATING LOSSES
The Company had net losses from continuing operations of $12.8 million in
the 39 weeks ended October 2, 1993, $21.0 million in 1992, $34.7 million in
1991, $41.4 million in 1990 and $42.5 million in 1989. The Company believes that
its losses from continuing operations reflect the general economic environment,
the declining construction market, the performance of certain of its businesses,
certain non-operating charges and the effect of the high fixed interest costs
associated with the Company's indebtedness. The Company has taken actions
throughout each of its businesses to reduce operating expenses and manufacturing
costs, although for some businesses these cost reduction efforts have not wholly
offset the Company's lower level of sales. The losses from continuing operations
in the 39 weeks ended October 2, 1993 and in 1992 and 1991 include pre-tax
losses on businesses sold or held for sale of $20.3 million, $14.5 million and
$15.2 million, respectively. The Company's earnings from continuing operations
before provision for income taxes and fixed charges were insufficient to cover
its fixed charges by $14.3 million in the first 39 weeks of 1993, $18.0 million
in 1992, $45.7 million in 1991, $60.4 million in 1990 and $59.5 million in 1989,
and by $12.5 million in the first 39 weeks of 1993 on a pro forma basis and
$13.9 million for the year ended December 31, 1992 on a pro forma basis. See
"Selected Consolidated Financial Data." The Company's future operating results
and cash flow will be dependent on, among other things, new residential and
non-residential construction, residential replacement and remodeling
expenditures and general economic conditions. As a result, there can be no
assurance that the Company will achieve a level of earnings before fixed charges
that is sufficient to cover its fixed charges in the future, including interest
payments on the Notes. If the Company's earnings before fixed charges are
insufficient to cover fixed charges, the Company may be required to sell assets
or operations in order to pay its debt obligations. If such dispositions occur,
there can be no assurance that the Company will not incur a loss on the assets
or operations sold or that the proceeds realized by the Company will be adequate
to meet its obligations then due.
SENSITIVITY TO ECONOMIC CYCLES
The Company's performance is dependent to a significant extent upon the
levels of new residential construction, residential replacement and remodeling
and non-residential construction, all of which are affected by such factors as
interest rates, inflation and unemployment. In recent periods, the Company has
operated in an environment of flat to declining levels of construction and
remodeling activity, particularly new housing starts which remain significantly
below levels experienced in the mid-1980's. Further declines in new residential
and non-residential construction may have a material adverse effect on the
Company's financial condition and results of operations. See "Business."
COMPETITION
Substantially all of the markets in which the Company participates are
highly competitive with respect to product quality, price, design, distribution
and service. Many of the Company's competitors have greater financial and
marketing resources and brand awareness than the Company. Competitive factors
could require price reductions or increased spending on product development,
marketing and sales that would adversely affect the Company's results of
operations. See "Business."
13
<PAGE> 16
ABSENCE OF PUBLIC MARKET
There is currently no public market for the Notes and there can be no
assurance as to the liquidity of any market that may develop for the Notes, the
ability of the holders of the Notes to sell their Notes or the price at which
holders would be able to sell their Notes. Future trading prices of the Notes
will depend on many factors, including, among other things, prevailing interest
rates, the Company's operating results and the market for similar securities.
Bear, Stearns & Co. Inc. and Chase Securities, Inc. (the "Underwriters") have
advised the Company that they currently intend to make a market in the Notes.
However, the Underwriters are not obligated to do so and any market making may
be discontinued at any time without notice. The Company does not intend to apply
for listing of the Notes on any securities exchange or to arrange
for their quotation on the National Association of Securities Dealers, Inc.
Automated Quotation System ("NASDAQ"). See "Underwriting."
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the Notes. There can be no assurances that the trading market, if
any, for the Notes will not be subject to similar disruptions.
14
<PAGE> 17
THE COMPANY
The Company is a diversified manufacturer of residential and commercial
building products, operating within three principal product groups: the
Residential Building Products Group; the Air Conditioning and Heating Products
Group; and the Plumbing Products Group. Through these product groups, the
Company manufactures and sells, primarily in the United States and Canada, a
wide variety of products for the residential and commercial construction,
manufactured housing, and the do-it-yourself and professional remodeling and
renovation markets. In October 1993, the Company decided to sell its Retail Home
Center Operations. The Company currently intends to operate this business until
a sale is consummated.
Beginning in the fourth quarter of 1990, in order to return the Company to
profitability and position it for growth, the Company developed and implemented
initiatives to (i) sell non-core or unprofitable businesses, (ii) reduce the
costs and expenses of its retained businesses and (iii) significantly reduce
debt. Since December 31, 1990, the Company has disposed of eight businesses,
which accounted for $310.5 million of net sales and $2.0 million of operating
losses in 1990. The $74.3 million in cash proceeds received from disposed
businesses, together with cash on hand, were used to reduce indebtedness by
$150.7 million, or 42.7%, between December 31, 1990 and October 2, 1993. In
addition, a significant reduction in operating costs was the principal factor
responsible for a substantial increase in EBITDA from operations from $27.4
million for the year ended December 31, 1990 to $51.0 million for the twelve
months ended October 2, 1993. See "Business."
The Company is a Delaware corporation. Its principal executive offices are
located at 50 Kennedy Plaza, Providence, Rhode Island 02903 and its telephone
number at that address is (401) 751-1600.
STRATEGY
The Company's business strategy is to develop and maintain leading
positions in selected product lines within the residential and commercial
building products industry. To accomplish this strategy, the Company plans to
continue to expand the market share of its product groups through new product
development, product line extensions and selected acquisitions, and to improve
margins on its products through technological innovation, product
differentiation, cost efficiency, customer service and attention to quality. The
Company has instituted a variety of programs which are designed to increase its
market share, including an increase in new product introductions and the
establishment of on-line computer access to the Company's order entry and
inventory systems for certain distributors. The Company has also pursued a
variety of cost reduction activities and manufacturing process improvements,
including the investment of substantial resources to consolidate manufacturing
facilities and sales, marketing and administrative functions in each of its
product groups. These actions have resulted in increased production capacity,
enhanced manufacturing efficiency and flexibility, reduced inventory and
overhead levels and decreased unit costs for many of the Company's operating
facilities.
The Company believes that its growth will be generated largely by internal
growth in each of its product groups, augmented by strategic acquisitions. The
Company regularly reviews potential acquisitions which would increase or expand
the market penetration of, or otherwise complement, its current product lines,
although there are no pending agreements or negotiations for any material
acquisitions and the Company has made no material acquisitions since early 1988.
In October 1993, the Company made the strategic decision to sell its Retail Home
Center Operations to increase the Company's focus on its other building products
businesses. See Note 16B of Notes to Consolidated Financial Statements.
FACTORS AFFECTING OPERATING PERFORMANCE
The Company's performance is dependent to a significant extent upon the
levels of new residential construction, residential replacement and remodeling
and non-residential construction, all of which are affected by such factors as
interest rates, inflation and unemployment. In recent periods, the Company's
product groups have operated in an environment of flat to declining levels of
construction and remodeling activity, particularly the number of new housing
starts which, though improved since 1991, remain significantly below levels
experienced in the mid-1980's. Although the Company's operations have been
significantly affected by the difficult economic conditions in recent periods,
the actions taken by the Company to reduce production costs and overhead levels
and improve the efficiency and profitability of its operations
15
<PAGE> 18
have enabled the Company to significantly increase operating earnings in a slow
economy and have positioned the Company's product groups for growth should there
be a recovery in their markets. In the near term, the Company expects to operate
in an environment of relatively stable levels of construction and remodeling
activity, without significant further declines or improvements in such levels.
PRODUCT GROUP OVERVIEW
The Residential Building Products Group manufactures and distributes
built-in products primarily for the residential housing, do-it-yourself and
professional remodeling and renovation markets. The principal products sold by
this Group are kitchen range hoods, bath fans and combination units (fan, heater
and light combinations) and bath cabinets, which represented more than 50% of
this Group's net sales in 1992. This Group is one of the largest suppliers in
the United States and Canada of range hoods, bath fans and combination units.
Products are sold under the Broan(R), Nautilus(R) and Air CareTM brand names,
among others, to distributors and dealers of electrical and lighting products,
kitchen and bath dealers, retail home centers and OEMs. Other products sold by
this Group include, among others, wireless security products, garage door
openers, built-in home intercoms and entertainment systems and door chimes.
The Air Conditioning and Heating Products Group manufactures and sells HVAC
systems for custom-designed commercial applications and for manufactured and
site-built residential housing. This Group's commercial HVAC products and air
handler systems are designed to meet customer specifications for use in offices,
manufacturing and educational facilities, hospitals, retail stores and
governmental buildings. Such systems are primarily designed to operate on
building rooftops (including large self-contained walk-in-units) or on
individual floors within a building, and range in size from 40 to 600 tons of
cooling capacity. Commercial products are marketed under the Governair(R),
Mammoth(R) and TemtrolTM brand names. Residential manufactured and site-built
housing products include central air conditioners, heat pumps, furnaces and a
wide range of accessories marketed under the Intertherm(R) and Miller(R) brand
names. Residential central air conditioning products range from 1.5 to 5 tons of
cooling capacity and furnaces range from 45,000 BTUs to 144,000 BTUs of heating
capacity.
The Plumbing Products Group manufactures and sells vitreous china bathroom
fixtures (including sinks, toilet bowls and tanks), fiberglass and acrylic
fixtures and brass and plastic faucets, and also markets stainless steel and
enameled steel tubs and sinks. In addition to its standard product offerings,
this Group also sells designer bathroom fixtures, 1.5 gallon water-efficient
toilets and a variety of products that are accessible by physically challenged
individuals. Products are sold under the URCTM, Universal-Rundle(R),
CareFree(R), Milwaukee FaucetsTM and Raphael(R) brand names principally to
wholesale plumbing distributors and retail home centers. End customers of this
Group's products are generally home builders, do-it-yourself homeowners,
remodeling contractors and commercial builders.
BUSINESS HELD FOR SALE
In October 1993, the Company decided to sell its Retail Home Center
Operations, which consist of a chain of ten retail home center stores, a
contractor and wholesale lumberyard and a truss manufacturing yard in the
greater San Diego, California area. The Company reduced its investment in this
operation to estimated net realizable value and recorded a pre-tax valuation
reserve of $20.3 million in the third quarter of 1993. See Note 16B of Notes to
Consolidated Financial Statements.
16
<PAGE> 19
RECENT DEVELOPMENTS
ESTIMATED OPERATING RESULTS FOR THE FOURTH QUARTER OF 1993 AND THE YEAR ENDED
DECEMBER 31, 1993
The Company estimates that net sales from ongoing operations (i.e., total
net sales less net sales of businesses sold or held for sale) will be
approximately $168.0 million in the fourth quarter of 1993 as compared to
approximately $159.4 million in the fourth quarter of 1992, and will be
approximately $661.0 million for the year ended December 31, 1993 as compared to
approximately $612.3 million for the year ended December 31, 1992. The Company
estimates that total net sales for the fourth quarter of 1993 will be
approximately $168.0 million as compared to approximately $182.7 million in the
fourth quarter of 1992. For the year ended December 31, 1993, the Company
estimates that total net sales will be approximately $744.0 million as compared
to approximately $800.0 million for the year ended December 31, 1992. Net sales
from ongoing operations in the fourth quarter of 1993 and the year ended
December 31, 1993 increased principally as a result of increased sales volume of
residential air conditioning and heating products, including increased shipments
of new and replacement air conditioning and heating products to manufactured
housing customers in both periods, and increased sales volume of commercial air
conditioning and heating products in the fourth quarter. These increases in the
fourth quarter were partially offset by slightly lower net sales in the
Residential Building Products Group and lower net sales in the Plumbing Products
Group.
The Company estimates that EBITDA from ongoing operations for the fourth
quarter of 1993 will be between approximately $11.0 million and approximately
$13.0 million (after a reduction of approximately $2.8 million due to the
curtailment of certain product lines within the Plumbing Products Group) as
compared to approximately $13.3 million in the fourth quarter of 1992. The
Company estimates that for the year ended December 31, 1993 EBITDA from ongoing
operations will be between approximately $48.0 million and approximately $50.0
million (after a reduction of approximately $3.5 million due to provisions for
the curtailment of certain product lines within the Plumbing Products Group and
reserves for plant consolidations) as compared to approximately $43.6 million
for the year ended December 31, 1992.
The Company expects that its earnings (loss) before extraordinary gain
(loss) and the cumulative effect of an accounting change will be improved in the
fourth quarter of 1993 and in the year ended December 31, 1993 as compared to
the fourth quarter of 1992 and the year ended December 31, 1992, respectively.
If the Refinancing is consummated, the Company expects to have a net loss in the
fourth quarter of 1993 due primarily to the extraordinary loss to be recorded as
a consequence of the redemption of certain of the Company's outstanding
indebtedness as a part of the Refinancing. This loss principally includes the
effect of unamortized deferred debt expense and debt discounts and a redemption
premium on certain of such indebtedness. Whether or not the Refinancing is
consummated, the Company expects to have a net loss for the year ended December
31, 1993, primarily as a result of the approximately $20.3 million pre-tax loss
related to the valuation reserve for Dixieline.
17
<PAGE> 20
<TABLE>
USE OF PROCEEDS
The net proceeds from the sale of the Notes are estimated to be $183.7
million ($211.5 million if the Underwriters' over-allotment option is exercised
in full). Such net proceeds will be used by the Company to redeem, and pay
accrued interest and a redemption premium on, the following indebtedness and to
replace working capital used to redeem certain other indebtedness on January 14,
1994, thereby reducing the Company's borrowing costs, lengthening the average
maturity of its funded debt and improving its financial position:
<CAPTION>
TITLE AMOUNT(1)
------------
<S> <C>
(DOLLARS IN
MILLIONS)
9 3/4% Senior Notes due 1997.......................................... $ 51.4
13 1/2% Senior Subordinated Debentures due 1997....................... 79.4
10% Subordinated Sinking Fund Debentures due 1999..................... 2.6
11% Subordinated Sinking Fund Debentures due 2004..................... 19.4
Redemption Premium(2)................................................. 1.2
Accrued Interest(3)................................................... 5.3
Replace Working Capital Used for Debenture Redemption(4).............. 23.1
------------
$182.4
------------
------------
- ---------------
<FN>
(1) Principal amounts are as of October 2, 1993 and reduced for principal
payments made subsequent thereto.
(2) The 13 1/2% Senior Subordinated Debentures are redeemable at 101.5% of the
outstanding principal amount. All of the other issues are redeemable at par.
(3) Estimated accrued interest on all issues assuming a redemption date of March
15, 1994.
(4) On January 14, 1994, the Company redeemed and paid accrued interest on the
$22.6 million outstanding principal amount of its 11 1/2% Senior
Subordinated Debentures due 1994.
</TABLE>
Following the Refinancing, the remaining net proceeds from the sale of the
Notes are estimated to be $1.3 million ($29.1 million if the Underwriters'
over-allotment option is exercised in full). Such remaining net proceeds will be
added to working capital and used for general corporate purposes.
18
<PAGE> 21
<TABLE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
the Company at October 2, 1993, and as adjusted to reflect the Refinancing:
<CAPTION>
AS
ACTUAL(1) ADJUSTED
--------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Short-Term Debt:
Current maturities of long-term debt............................. $ 1.1 $ 0.8
11 1/2% Senior Subordinated Debentures due 1994, net(2).......... 22.6 --
--------- --------
Total Short-Term Debt.................................... $ 23.7 $ 0.8
--------- --------
--------- --------
Long-Term Debt:
Notes, mortgage notes and other.................................. $ 17.7 $ 17.7
9 3/4% Senior Notes due 1997..................................... 45.4 --
% Senior Subordinated Notes due 2004........................ -- 190.0
7 1/2% Convertible Debentures due 2006........................... 15.5 15.5
13 1/2% Senior Subordinated Debentures due 1997.................. 79.0 --
10% Subordinated Sinking Fund Debentures due 1999................ 2.4 --
11% Subordinated Sinking Fund Debentures due 2004................ 18.7 --
--------- --------
Total Long-Term Debt..................................... 178.7 223.2
--------- --------
Stockholders' Investment(3):
Preference stock, $1 par value; 7,000,000 shares authorized; none
issued........................................................ -- --
Common stock, $1 par value; 40,000,000 shares authorized;
15,742,582 shares issued...................................... 15.7 15.7
Special common stock, $1 par value; 5,000,000 shares authorized;
859,567 shares issued......................................... 0.9 0.9
Additional paid-in capital....................................... 134.6 134.6
Retained earnings (deficit)(4)................................... (11.1) (17.9)
Less -- Treasury stock, at cost, 3,795,028 Common shares and
271,574 Special common shares............................ (28.1) (28.1)
--------- --------
Total Stockholders' Investment(4)........................ 112.0 105.2
--------- --------
Total Capitalization(4).................................. $ 290.7 $328.4
--------- --------
--------- --------
<FN>
- ---------------
(1) Long-term debt is net of $7.2 million of unamortized debt discount.
(2) The Company redeemed its 11 1/2% Senior Subordinated Debentures due 1994 on
January 14, 1994.
(3) Excludes (i) 2,547,453 shares of common stock at October 2, 1993 which have
been reserved for issuance pursuant to options and the conversion of the
Company's convertible debentures and special common stock, (ii) 43,500
shares of special common stock at October 2, 1993 which have been reserved
for issuance pursuant to options and (iii) 125,355 shares of Series A
Participating Preference Stock which may be issuable upon exercise of Rights
under the Rights Agreement, as amended and restated as of March 18, 1991,
between the Company and State Street Bank and Trust Company.
(4) As adjusted to reflect the estimated net after-tax extraordinary loss of
$6.8 million ($.54 per share) that would have been recorded at October 2,
1993 as a consequence of the redemption of certain of the Company's
outstanding indebtedness as a part of the Refinancing. The loss principally
includes the effect of unamortized deferred debt expense and debt discounts
and a redemption premium on certain of such indebtedness. The Company
estimates that the actual amount of such loss will be approximately $6.1
million ($.48 per share) and will be recorded in the fourth quarter of 1993.
</TABLE>
19
<PAGE> 22
<TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the five years ended
December 31, 1992 and for the 39 weeks ended September 26, 1992 and October 2,
1993 should be read in conjunction with the Consolidated Financial Statements
and the Notes thereto and the information contained in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" appearing
elsewhere in this Prospectus. The selected consolidated operating and cash flow
data, per share data and balance sheet data for each of the five years in the
period ended December 31, 1992 and as of the end of each such period are derived
from the Company's consolidated financial statements which have been audited by
Arthur Andersen & Co., independent public accountants. The selected consolidated
financial data for the 39 weeks ended September 26, 1992 and October 2, 1993 and
as of October 2, 1993 have been derived from the Company's unaudited
consolidated financial statements, which, in the opinion of management, contain
all adjustments (consisting only of normal recurring accruals) necessary to
present fairly the results of operations and the financial position of the
Company for such periods and as of such date. The results of operations for the
39 weeks ended October 2, 1993 are not necessarily indicative of the results of
operations to be expected for the full year. The consolidated pro forma
operating data for the year ended December 31, 1992 and for the 39 weeks ended
October 2, 1993 give pro forma effect to the Refinancing as if it had occurred
on January 1, 1992 and to certain other adjustments as described in Note 5
below. The consolidated pro forma balance sheet data give pro forma effect to
the Refinancing and the redemption on January 14, 1994 of the Company's 11 1/2%
Senior Subordinated Debentures as if such transactions had occurred on October
2, 1993.
<CAPTION>
39 WEEKS ENDED
FOR THE YEARS ENDED DECEMBER 31, ----------------------
------------------------------------------------- SEPT. 26, OCT. 2,
1988 1989 1990 1991 1992 1992 1993
------- ------- ------- ------ ------ --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED OPERATING AND CASH FLOW DATA(1):
Net sales......................................... $1,029.2 $1,080.2 $1,037.2 $917.0 $800.0 $ 617.2 $ 575.8
Costs and expenses:
Cost of products sold........................... 796.4 842.5 808.4 693.1 595.2 465.6 414.6
Selling, general and administrative expense..... 210.5 236.7 245.4 212.9 184.4 140.0 139.8
Operating earnings (loss)(2)...................... 22.3 1.0 (16.6) 11.0 20.4 11.6 21.4
Interest expense................................ (58.8) (63.9) (48.9) (39.2) (29.2) (22.4) (20.2)
Interest and dividend income.................... 29.1 27.3 15.1 8.8 4.4 3.6 2.4
Net gain (loss) on investment and marketable
securities.................................... 11.0 (23.9) (10.0) 0.4 0.9 1.4 2.4
Settlement of litigation........................ -- -- -- (11.5) -- -- --
Loss on businesses sold or held for sale(3)..... -- -- -- (15.2) (14.5) (12.5) (20.3)
------- ------- ------- ------ ------ --------- ---------
Earnings (loss) from continuing operations before
income taxes.................................... 3.6 (59.5) (60.4) (45.7) (18.0) (18.3) (14.3)
Provision (credit) for income taxes............. 3.4 (17.0) (19.0) (11.0) 3.0 1.3 (1.5)
------- ------- ------- ------ ------ --------- ---------
Earnings (loss) from continuing operations...... 0.2 (42.5) (41.4) (34.7) (21.0) (19.6) (12.8)
Earnings (loss) from discontinued operations.... 13.0 14.0 (6.6) -- (3.3) -- --
Extraordinary gain from debt retirements........ 6.4 16.0 9.9 7.6 0.1 0.1 --
Cumulative effect of an accounting change....... -- -- -- -- -- -- (2.1)
------- ------- ------- ------ ------ --------- ---------
Net earnings (loss)........................... $ 19.6 $ (12.5) $ (38.1) $(27.1) $(24.2) $ (19.5) $ (14.9)
------- ------- ------- ------ ------ --------- ---------
------- ------- ------- ------ ------ --------- ---------
Net cash provided (used) by operating
activities...................................... $ (21.1) $ (23.1) $ 33.8 $ 39.6 $ 12.1 $ (.2) $ 1.2
Cash provided by investing activities............. 92.1 183.6 10.2 50.3 22.8 25.5 31.8
Cash used by financing activities................. 99.4 133.3 70.9 104.9 27.9 19.8 6.1
Capital expenditures.............................. 20.7 35.3 24.5 16.0 8.8 7.8 7.2
PER SHARE DATA:
Earnings (loss) from continuing operations(4)..... $ .01 $ (3.10) $ (3.07) $(2.57) $(1.67) $ (1.56) $ (1.02)
Cash dividends declared (common and special common
stock).......................................... .14 .14 .14 -- -- -- --
CONSOLIDATED PRO FORMA OPERATING DATA:
Interest expense, net of interest and dividend
income(5)....................................... $(20.7) $ (16.0)
Earnings (loss) from continuing operations(5)..... .2 (11.6)
Earnings (loss) per share from continuing
operations(5)................................... .02 (.93)
OTHER CONSOLIDATED DATA:
Ratio of earnings to fixed charges(6)............. 1.1x -- -- -- -- -- --
Pro forma ratio of earnings to fixed charges(6)... -- --
EBITDA from operations(7)......................... $ 50.3 $ 31.9 $ 27.4 $ 38.2 $ 42.5 $ 29.5 $ 38.0
Ratio of EBITDA from operations to interest
expense, net.................................... 1.7x -- -- 1.3x 1.7x 1.6x 2.1x
Pro forma ratio of EBITDA from operations to
interest
expense, net(7)................................. 2.1x 2.4x
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF OCTOBER 2, 1993
------------------------------------------------- ----------------------
1988 1989 1990 1991 1992 ACTUAL PRO FORMA
------- ------- ------- ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, investments and marketable securities(8).... $ 239.7 $ 163.3 $ 99.3 $ 76.3 $ 81.9 $ 67.2 $ 66.6
Working capital................................... 454.0 322.4 176.7 139.7 132.6 119.7 149.4
Total assets...................................... 993.6 836.8 715.4 582.4 515.4 509.6 513.4
Total indebtedness................................ 589.9 434.8 353.1 237.5 208.7 202.4 224.0
Stockholders' investment(9)....................... 234.9 218.0 180.7 152.9 126.9 112.0 105.2
</TABLE>
- ---------------
(See footnotes on following page)
20
<PAGE> 23
[FN]
(1) Acquisitions have been accounted for under the purchase accounting method
and dispositions have been accounted for as described in Notes 10 and 11 of
Notes to Consolidated Financial Statements. See Notes 8 to 13 and Note 15 of
Notes to Consolidated Financial Statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" regarding the
effect of businesses sold and other matters on operating results during the
periods covered hereby. See Notes 16D and 16H of Notes to Consolidated
Financial Statements with respect to changes in accounting methods, adopted
as of January 1, 1993, related to post-retirement health care benefits and
income taxes.
(2) The operating loss for the year ended December 31, 1990 includes
non-recurring pre-tax charges of $12.6 million ($.66 per share, net of tax)
as described in Notes 1 and 13 of Notes to Consolidated Financial
Statements.
(3) The Company has decided to sell Dixieline. In connection with this decision,
the Company recorded a pre-tax valuation reserve of $20.3 million ($1.19 per
share, net of tax) in the third quarter of 1993 to reduce the Company's net
investment in such business to estimated net realizable value.
(4) Per share data for earnings (loss) from continuing operations for all
periods presented are primary per share amounts. Fully diluted per share
data are the same as primary amounts for each period presented except for
the year ended December 31, 1988 in which fully diluted earnings from
continuing operations were $.24 per share.
(5) Pro forma (A) to reflect (i) the Refinancing, (ii) the redemption on January
14, 1994 of the Company's 11 1/2% Senior Subordinated Debentures due 1994
and (iii) the sale of L.J. Smith, Inc. and Bend Millwork Systems, Inc. as if
the transactions in clauses (i), (ii) and (iii) had occurred on January 1,
1992 and (B) to exclude the net after-tax loss of approximately $16 million
related to the sale of L.J. Smith, Inc. and Bend Millwork Systems, Inc. in
the year ended December 31, 1992. The loss from continuing operations of
$11.6 million ($.93 loss per share) for the 39 weeks ended October 2, 1993
includes a net after-tax loss of $14.9 million ($1.19 loss per share)
related to the valuation reserve for Dixieline. See Note 16B of Notes to
Consolidated Financial Statements.
(6) For purposes of calculating this ratio, "earnings" consist of earnings from
continuing operations before provision for income taxes and fixed charges,
and "fixed charges" consist of interest expense, including the estimated
interest portion on operating leases. Such earnings were insufficient to
cover fixed charges by $59.5 million, $60.4 million, $45.7 million and $18.0
million for the years ended December 31, 1989, 1990, 1991, 1992,
respectively, by $18.3 million and $14.3 million for the 39 weeks ended
September 26, 1992 and October 2, 1993 respectively, and by $13.9 million
and $12.5 million for the year ended December 31, 1992 and the 39 weeks
ended October 2, 1993, respectively, on a pro forma basis. The pro forma
data have been adjusted to reflect the Refinancing and the redemption on
January 14, 1994 of the Company's 11 1/2% Senior Subordinated Debentures due
1994 as if such transactions had occurred on January 1, 1992.
<TABLE>
(7) "EBITDA from operations" is the earnings (loss) from continuing operations
before income taxes plus depreciation, amortization and interest expense,
and excludes interest and dividend income, net (gain) loss on investment and
marketable securities and certain non-operating (income) expense as follows:
<CAPTION>
PRO 39 WEEKS ENDED PRO
FOR THE YEARS ENDED DECEMBER 31, FORMA --------------------- FORMA
----------------------------------------- DEC. 31, SEPT. 26, OCTOBER 2, OCTOBER 2,
1988 1989 1990 1991 1992 1992 1992 1993 1993
----- ------ ------ ------ ------ --------- --------- ---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings (loss) from continuing
operations before income taxes... $ 3.6 $(59.5) $(60.4) $(45.7) $(18.0) $ (13.9) $ (18.3) $(14.3) $(12.5)
Add (Deduct):
Interest expense............... 58.8 63.9 48.9 39.2 29.2 25.1 22.4 20.2 18.4
Interest and dividend income... (29.1) (27.3) (15.1) (8.8) (4.4) (4.4) (3.6) (2.4) (2.4)
Net (gain) loss on investment
and marketable securities.... (11.0) 23.9 10.0 (.4) (.9) (.9) (1.4) (2.4) (2.4)
Depreciation and amortization
(excludes amortization of
deferred debt expense and
debt discount, which is
included in interest
expense)..................... 28.0 30.9 31.4 27.2 22.1 22.1 17.9 15.0 15.0
----- ------ ------ ------ ------ --------- --------- ---------- ----------
EBITDA..................... $50.3 $ 31.9 $ 14.8 $ 11.5 $ 28.0 $ 28.0 $ 17.0 $ 16.1 $ 16.1
Loss on businesses sold or held
for sale (3 above)........... -- -- -- 15.2 14.5 14.5 12.5 20.3 20.3
Settlement of litigation....... -- -- -- 11.5 -- -- -- -- --
Other (2 above)................ -- -- 12.6 -- -- -- -- 1.6 1.6
----- ------ ------ ------ ------ --------- --------- ---------- ----------
EBITDA from operations..... $50.3 $ 31.9 $ 27.4 $ 38.2 $ 42.5 $ 42.5 $ 29.5 $ 38.0 $ 38.0
----- ------ ------ ------ ------ --------- --------- ---------- ----------
----- ------ ------ ------ ------ --------- --------- ---------- ----------
</TABLE>
The pro forma data in the preceding table have been adjusted to reflect the
Refinancing and the redemption on January 14, 1994 of the Company's 11 1/2%
Senior Subordinated Debentures due 1994 as if such transactions had
occurred on January 1, 1992.
EBITDA from operations principally differs from Consolidated Cash Flow as
defined in the Indenture in that Consolidated Cash Flow includes net (gain)
loss on investment and marketable securities and excludes (i) the results
of Dixieline, (ii)
21
<PAGE> 24
after-tax compensation expense in respect of capital stock awarded to
employees as part of an employee benefit plan and (iii) net non-cash
expense items not to exceed 10% of Consolidated Cash Flow. See "Description
of the Notes -- Certain Definitions." EBITDA from operations is presented
because it is a widely accepted financial indicator of a leveraged
Company's ability to service and/or incur indebtedness. EBITDA from
operations should not be considered as an alternative to net earnings as a
measure of the Company's operating results or to cash flows as a measure of
liquidity. EBITDA from operations principally differs from net increase
(decrease) in unrestricted cash and investments shown on the Consolidated
Statement of Cash Flows of the Company prepared in accordance with
generally accepted accounting principles in that EBITDA from operations
does not reflect capital expenditures, borrowings, principal and interest
payments under debt and capital lease obligations, income tax payments and
cash flows from other operating, investing and financing activities.
(8) Includes restricted cash, investments and marketable securities in the
amounts of $7.8 million, $5.2 million, $39.5 million, $33.4 million, $8.2
million and $6.7 million at December 31, 1988, 1989, 1990, 1991 and 1992 and
October 2, 1993 (actual and pro forma), respectively. See Note 1 of Notes to
Consolidated Financial Statements.
(9) Pro forma stockholders' investment as of October 2, 1993 reflects the
estimated net after-tax extraordinary loss of $6.8 million ($.54 per share)
that would have been recorded at October 2, 1993 as a consequence of the
redemption of certain of the Company's outstanding indebtedness as a part of
the Refinancing. The loss principally includes the effect of unamortized
deferred debt expense and debt discounts and a redemption premium on certain
of such indebtedness. The Company estimates that the actual amount of such
loss will be approximately $6.1 million ($.48 per share) and will be
recorded in the fourth quarter of 1993.
22
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company is a diversified manufacturer of residential and commercial
building products, operating within three principal product groups: the
Residential Building Products Group; the Air Conditioning and Heating Products
Group; and the Plumbing Products Group. Through these product groups, the
Company manufactures and sells, primarily in the United States and Canada, a
wide variety of products for the residential and commercial construction,
manufactured housing, and the do-it-yourself and professional remodeling and
renovation markets.
In October 1993, the Company made the strategic decision to sell its Retail
Home Center Operations to increase the Company's focus on its other building
products businesses. Although the Company currently intends to operate this
business until a sale is consummated, for purposes of this Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
results of operations attributable to the Retail Home Center Operations have
been excluded from all data that are reported as being from ongoing operations,
including net sales, cost of products sold, selling, general and administrative
expense and segment earnings.
RESULTS OF OPERATIONS
<TABLE>
The following tables set forth, for the periods indicated, (a) certain
consolidated operating results, (b) the percentage change of certain of such
results as compared to the prior comparable period, (c) the percentage which
certain of such results bear to net sales and (d) the change of certain of such
percentages (to net sales) as compared to the prior comparable period. The
results of operations for the 39 weeks ended October 2, 1993 are not necessarily
indicative of the results of operations to be expected for the full year.
<CAPTION>
PERCENTAGE
INCREASE (DECREASE)
YEAR ENDED 39 WEEKS ENDED ---------------------------------
DECEMBER 31, ------------------------ 1990 1991 SEPT. 26, 1992
------------------------------ SEPT. 26, OCTOBER 2, TO TO TO
1990 1991 1992 1992 1993 1991 1992 OCTOBER 2, 1993
-------- ------ ------ --------- ---------- ----- ----- ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................... $1,037.2 $917.0 $800.0 $ 617.2 $ 575.8 (11.6)% (12.8)% (6.7)%
Cost of products sold...... 808.4 693.1 595.2 465.6 414.6 14.3 14.1 11.0
Selling, general and
administrative expense... 245.4 212.9 184.4 140.0 139.8 13.2 13.4 0.1
Operating earnings (loss).... (16.6) 11.0 20.4 11.6 21.4 166.3 85.5 84.5
Interest expense........... (48.9) (39.2) (29.2) (22.4) (20.2) 19.8 25.5 9.8
Interest and dividend
income................... 15.1 8.8 4.4 3.6 2.4 (41.7) (50.0) (33.3)
Net gain (loss) on
investment and marketable
securities............... (10.0) 0.4 0.9 1.4 2.4
Settlement of litigation... -- (11.5) -- -- --
Loss on businesses sold or
held for sale............ -- (15.2) (14.5) (12.5) (20.3)
Loss from continuing
operations
before income taxes...... (60.4) (45.7) (18.0) (18.3) (14.3)
Provision (credit) for
income taxes............. (19.0) (11.0) 3.0 1.3 (1.5)
Loss from continuing
operations............... (41.4) (34.7) (21.0) (19.6) (12.8)
Loss from discontinued
operations............... (6.6) -- (3.3) -- --
Extraordinary gain from
debt retirements......... 9.9 7.6 0.1 0.1 --
Cumulative effect of an
accounting change........ -- -- -- -- (2.1)
Net loss............... (38.1) (27.1) (24.2) (19.5) (14.9)
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
-----------------------------------------------------------
CHANGE IN PERCENTAGE
YEAR ENDED 39 WEEKS ENDED ---------------------------------
DECEMBER 31, ------------------------ 1990 1991 SEPT. 26, 1992
------------------------------ SEPT. 26, OCTOBER 2, TO TO TO
1990 1991 1992 1992 1993 1991 1992 OCTOBER 2, 1993
-------- ------ ------ --------- ---------- ----- ----- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................... 100.0% 100.0% 100.0% 100.0% 100.0% --% --% --%
Cost of products sold...... 77.9 75.6 74.4 75.5 72.0 2.3 1.2 3.5
Selling, general and
administrative expense... 23.7 23.2 23.0 22.7 24.3 0.5 0.2 (1.6)
Operating earnings (loss).... (1.6) 1.2 2.6 1.8 3.7 2.8 1.4 1.9
</TABLE>
23
<PAGE> 26
<TABLE>
The following table presents the unaudited net sales for the Company's
principal product groups for the three years ended December 31, 1992, and the 39
weeks ended Sept. 26, 1992 and October 2, 1993, and the percentage change of
such results as compared to the prior comparable period. The results of
operations for the 39 weeks ended October 2, 1993 are not necessarily indicative
of the results of operations to be expected for the full year.
<CAPTION>
PERCENTAGE
INCREASE (DECREASE)
YEAR ENDED 39 WEEKS ENDED ---------------------------------
DECEMBER 31, ------------------------ 1990 1991 SEPT. 26, 1992
------------------------------ SEPT. 26, OCTOBER 2, TO TO TO
1990 1991 1992 1992 1993 1991 1992 OCTOBER 2, 1993
-------- ------ ------ --------- ---------- ----- ----- ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales:
Residential Building
Products................. $ 268.9 $241.5 $249.2 $ 182.2 $191.6 (10.2)% 3.2% 5.2%
Air Conditioning and
Heating Products......... 198.3 221.1 237.0 178.4 204.0 11.5 7.2 14.4
Plumbing Products.......... 123.5 112.7 126.1 92.3 97.0 (8.7) 11.9 5.1
-------- ------ ------ ------- ------ ----- ----- -----
Net sales from ongoing
operations................. 590.7 575.3 612.3 452.9 492.6 (2.6) 6.4 8.8
Businesses sold or held for
sale and other........... 446.5 341.7 187.7 164.3 83.2 (23.5) (45.1) (49.4)
-------- ------ ------ ------- ------ ----- ----- -----
Total.............. $1,037.2 $917.0 $800.0 $ 617.2 $575.8 (11.6)% (12.8)% (6.7)%
======== ====== ====== ======= ====== ===== ===== =====
</TABLE>
39 WEEKS ENDED OCTOBER 2, 1993 AS COMPARED TO THE 39 WEEKS ENDED SEPTEMBER 26,
1992
Net sales from ongoing operations increased approximately $39,655,000, or
approximately 8.8%, in 1993 as compared to 1992. Total net sales decreased
approximately $41,435,000, or approximately 6.7%, in 1993 as compared to 1992 as
a result of businesses sold in 1992, partially offset by the following factors.
Net sales from ongoing operations increased principally as a result of increased
sales volume of residential air conditioning and heating products (in part, as a
result of the addition of certain distributors) and increased shipments of new
and replacement air conditioning and heating products to manufactured housing
customers by the Air Conditioning and Heating Products Group. To a lesser
extent, increased sales levels in the Residential Building Products Group and
increased sales levels of bathroom fixtures (principally vitreous china
products) by the Plumbing Products Group were also a factor.
Cost of products sold from ongoing operations as a percentage of net sales
from ongoing operations decreased from approximately 73.2% in 1992 to
approximately 71.5% in 1993. Total cost of products sold as a percentage of
total net sales decreased from approximately 75.5% in 1992 to approximately
72.0% in 1993 as a result of the effect of businesses sold in 1992, which was
partially offset by the effect of increases in cost of products sold as a
percentage of net sales at Dixieline and the following factors. The decrease in
cost of products sold as a percentage of net sales from ongoing operations
primarily was attributable to increased sales levels in the Plumbing Products
Group, the Residential Building Products Group and, principally in the third
quarter and to a lesser extent, the Air Conditioning and Heating Products Group,
in each case without a proportionate increase in costs, in part, due to the
Company's ongoing cost control efforts.
Selling, general, and administrative expense, as a percentage of net sales
from ongoing operations increased from approximately 23.4% in 1992 to
approximately 24.2% in 1993. Total selling, general and administrative expense,
as a percentage of total net sales increased from approximately 22.7% in 1992 to
approximately 24.3% in 1993. The increase in the percentage of net sales from
ongoing operations in 1993 was principally due to the effect of third quarter
1993 pre-tax losses of approximately $1,600,000 as a result of the sale in
October 1993 of certain real property and $700,000 in connection with the
consolidation of certain manufacturing facilities by the Company's Residential
Building Products Group and, to a lesser extent, increased expense levels in the
Plumbing Products Group. The increase in the percentage of net sales from
ongoing operations was partially offset by the effect of increased sales volume
of residential and manufactured housing air conditioning and heating products by
the Air Conditioning and Heating Products Group, without proportionate increases
in expense.
Segment earnings from ongoing operations were approximately $34,085,000 for
1993 as compared to approximately $24,828,000 for 1992. Total segment earnings
were approximately $33,882,000 for 1993, as compared to approximately
$20,690,000 for 1992 as a result of the effect of changes in the operating
results of
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<PAGE> 27
Dixieline and a business sold in 1992 and the following factors. Total segment
earnings are operating earnings (loss) plus corporate and other expenses not
directly attributable to the Company's operating activities. The increase in
segment earnings from ongoing operations principally was due to the increased
sales level in the Plumbing Products Group, without a proportionate increase in
cost, in part due to the Company's ongoing cost control efforts, and increased
sales volume of residential and manufactured housing air conditioning and
heating products by the Air Conditioning and Heating Products Group, without a
proportionate increase in expense. To a lesser extent, the increased sales level
in the Residential Building Products Group, without a proportionate increase in
cost, was also a factor. The increase in segment earnings from ongoing
operations was partially offset by the effect of third quarter 1993 pre-tax
losses of approximately $1,600,000 and $700,000 described above.
Foreign segment earnings, consisting primarily of the results of operations
of the Company's Canadian subsidiary which manufactures built-in ventilating
products, declined to 12% of total segment earnings from ongoing operations in
the first 39 weeks of 1993 from 18% of such earnings in the first 39 weeks of
1992. This decline was primarily due to a 47% increase in domestic segment
earnings from ongoing operations in the 1993 period, as well as a small decrease
in foreign segment earnings in the 1993 period. The decrease in foreign segment
earnings was primarily the result of a sales decrease in the Company's Canadian
operations due to continued weakness in the residential construction market in
Canada.
The operating loss from the Company's Retail Home Center Operations
increased by approximately $100,000 to a loss of $300,000 in the first 39 weeks
of 1993. Although the Company's Retail Home Center Operations had an increase in
net sales of approximately $11,500,000, or 16.0%, in the 1993 period to
approximately $83,200,000 from approximately $71,700,000 in the first 39 weeks
of 1992, weakness in the San Diego area residential construction market and
increased competition continued to affect results adversely.
Operating earnings in 1993 increased approximately $9,800,000, or
approximately 84.5%, as compared to 1992, primarily as a result of the factors
discussed above and include the results of Dixieline and a business sold in
1992.
Interest expense decreased approximately $2,200,000, or approximately 9.8%,
in 1993, as compared to 1992, principally as a result of purchases, at a
discount, in open market and negotiated transactions of the Company's debentures
and notes in 1992 and the payment of current maturities of long-term debt.
Interest income decreased approximately $1,200,000, or approximately 33.3%,
in 1993, as compared to 1992, principally due to lower average invested balances
of short-term investments and marketable securities (in part, due to a reduction
in indebtedness), and lower yields earned on investment and marketable
securities.
The net gain on investment and marketable securities was approximately
$2,350,000 for 1993, as compared to approximately $1,400,000 for 1992.
The pre-tax loss on businesses sold or held for sale of approximately
$20,300,000 in 1993 and approximately $12,500,000 in 1992 resulted in the
approximately $14,300,000 loss before income tax credit in 1993 and was the
primary reason for the approximately $18,300,000 loss before provision for
income taxes in 1992. The pre-tax loss on businesses sold or held for sale in
the 1993 period resulted from the Company's decision to sell its Dixieline
subsidiary (through which the Company conducts its Retail Home Center
Operations) and therefore to reduce the Company's net investment in Dixieline to
estimated net realizable value. See Note 16B of Notes to Consolidated Financial
Statements.
The income tax credit was approximately $1,500,000 for 1993, as compared to
a provision for income taxes of approximately $1,300,000 for 1992. The income
tax rates differed from the United States federal statutory rate of 34% in 1993
as a result of the effect of an increase in income tax valuation reserves and,
in the 1992 period, principally as a result of certain nondeductible costs
associated with a business sold and unrecorded income tax credits relating to
capital loss carryforwards since the income tax benefits attributable thereto
may not be realized. See Note 16H of Notes to Consolidated Financial Statements.
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<PAGE> 28
The charge to operations in 1993 from the cumulative effect of an
accounting change of approximately $2,100,000 resulted from the adoption of
Statement of Financial Accounting Standards ("SFAS") No. 106. See Note 16D of
Notes to Consolidated Financial Statements.
YEAR ENDED DECEMBER 31, 1992 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1991
Net sales from ongoing operations increased approximately $36,982,000, or
approximately 6.4%, in 1992 as compared to 1991. Total net sales decreased
approximately $117,070,000, or approximately 12.8%, in 1992 as compared to 1991
due to businesses sold in 1991 and 1992 partially offset by the following
factors. Net sales from ongoing operations increased principally as a result of
increased sales volume of residential air conditioning and heating products by
the Air Conditioning and Heating Products Group, increased sales prices and
sales volume of bathroom fixtures by the Plumbing Products Group. To a lesser
extent, increased sales levels in the Residential Building Products Group were
also a factor.
Cost of products sold as a percentage of net sales from ongoing operations
decreased slightly from approximately 72.7% in 1991 to approximately 72.5% in
1992. Total cost of products sold as a percentage of total net sales decreased
from approximately 75.6% in 1991 to approximately 74.4% in 1992. This
differential is attributable to the fact that the businesses sold by the Company
during this period operated at higher cost levels than the Company's other
product groups. The decrease in cost of products sold as a percentage of net
sales from ongoing operations in 1992 was primarily attributable to increased
sales levels of residential air conditioning and heating products by the Air
Conditioning and Heating Products Group, and increased sales levels by the
Plumbing Products and Residential Building Products Groups, in each case without
a proportionate increase in cost. This decrease in the percentage was partially
offset by increased costs on slightly lower sales in commercial and industrial
air conditioning and heating products by the Air Conditioning and Heating
Products Group.
Selling, general and administrative expense as a percentage of net sales
from ongoing operations decreased from approximately 24.7% in 1991 to
approximately 23.3% in 1992. Total selling, general and administrative expense
as a percentage of total net sales decreased from approximately 23.2% in 1991 to
approximately 23.0% in 1992. This differential is attributable to the fact that
the businesses sold by the Company during this period operated at lower expense
levels than the Company's other product groups. The decrease in the percentage
of net sales from ongoing operations in 1992 was principally due to increased
sales of bathroom fixtures by the Plumbing Products Group, without a
proportionate increase in expense. A reduction in the level of expense in the
Residential Building Products Group also contributed to the decrease in the
percentage. Net settlements of litigation and related expenses of approximately
$700,000 in 1992 as compared to approximately $2,300,000 in 1991 were also
factors.
Segment earnings from ongoing operations were approximately $37,655,000 for
1992 and approximately $27,595,000 for 1991. Total segment earnings were
approximately $32,659,000 for 1992 as compared to approximately $23,847,000 in
1991. The increase in total segment earnings is primarily a result of the
factors that follow partially offset by the effect of businesses sold. The
increase in segment earnings from ongoing operations was due principally to
reduced expense levels in the Residential Building Products Group and increased
sales levels of residential air conditioning and heating products by the Air
Conditioning and Heating Products Group. To a lesser extent, increased sales
levels of plumbing products by the Plumbing Products Group contributed to the
increase in segment earnings from ongoing operations. A decline in 1992 in the
amount of net settlements of litigation and related expenses was also a factor
in the increase in segment earnings from ongoing operations in 1992. These
increases in segment earnings from ongoing operations were partially offset by
slightly lower earnings attributable to commercial and industrial air
conditioning and heating products by the Air Conditioning and Heating Products
Group resulting from a slight decrease in net sales of such products, without a
proportionate decrease in costs.
Foreign segment earnings declined to 16% of total segment earnings from
ongoing operations in 1992 from 30% of such earnings in 1991. This decline was
primarily due to a 64% increase in domestic segment earnings from ongoing
operations in 1992, as well as a 27% decrease in foreign segment earnings in
1992. The decrease in foreign segment earnings was due primarily to a sales
decrease in the Company's Canadian operations resulting from weakness in the
residential construction market in Canada.
26
<PAGE> 29
The operating loss from the Company's Retail Home Center Operations
increased by approximately $500,000 to a loss of $1,100,000 in 1992. The
increased loss resulted primarily from a decline in net sales of approximately
$9,700,000, or 9.3%, to approximately $94,800,000 in 1992 from approximately
$104,500,000 in 1991. Weakness in the San Diego area residential construction
market and increased competition were primarily responsible for the lower sales
and increased loss.
Operating earnings in 1992 increased approximately $9,421,000 from 1991,
primarily as a result of the factors discussed above for segment earnings from
ongoing operations, partially offset by an increase in the operating loss of
businesses sold to the date of sale. Lower unallocated corporate expenses were
also a factor.
Interest expense decreased approximately $9,952,000, or approximately
25.5%, in 1992, as compared to 1991, principally as a result of purchases, at a
discount, in open market and negotiated transactions of the Company's debentures
and notes in 1992 and 1991, payment of current maturities of long-term debt and
a reduction in net short-term borrowings.
Interest income decreased approximately $4,323,000, or approximately 50%,
in 1992, as compared to 1991, principally due to lower average invested balances
of short-term investments and marketable securities (in part, due to a reduction
in indebtedness), and significantly lower yields earned on investments and
marketable securities.
The net gain on investment and marketable securities was approximately
$850,000 for 1992, as compared to approximately $400,000 in 1991. The gain on
investment and marketable securities for 1991 was net of a loss of approximately
$1,600,000 on the sale of the Company's investment in Stanley Interiors
Corporation preferred stock.
The pre-tax loss on businesses sold of approximately $14,500,000 in 1992
was the primary factor in the approximately $18,000,000 loss from continuing
operations before provision for income taxes in 1992. The approximately
$15,200,000 pre-tax loss on businesses sold and the approximately $11,500,000
loss on settlement of litigation in 1991 were significant factors in the
approximately $45,700,000 loss from continuing operations before income tax
credit in 1991.
The provision for income taxes from continuing operations was approximately
$3,000,000 for 1992 as compared to an approximately $11,000,000 income tax
credit in 1991. The provision for income taxes as a percentage of the pre-tax
loss from continuing operations was approximately 16.7% for 1992 compared to an
income tax credit of approximately 24.1% for 1991. The income tax rate differed
from the U.S. Federal statutory rate of 34% for both years as a result of the
effect of certain nondeductible costs associated with businesses sold
(approximately $2,827,000 in 1992 and approximately $968,000 in 1991), higher
foreign income tax on foreign source income (approximately $1,127,000 in 1992
and approximately $2,728,000 in 1991), a limited amount of state income tax
benefits recorded (since the income tax benefits attributable to operating
losses for state income tax purposes may not be realized), nondeductible
amortization expense (for tax purposes), and in 1992 approximately $3,990,000 of
unrecorded income tax credits relating to capital loss carryforwards.
Results of discontinued operations in 1992 included a pre-tax gain of
$1,474,000 (approximately $900,000 after-tax) which was attributable to the
exchange of securities resulting from the settlement of derivative litigation.
See Note 8 of Notes to Consolidated Financial Statements. During 1992, results
of discontinued operations also included pre-tax valuation reserves of
approximately $1,400,000 recorded in the third quarter and approximately
$5,000,000 recorded in the fourth quarter. The Company remains contingently
liable under approximately $7,100,000 of obligations under Industrial Revenue
Bond ("IRB's") agreements, plus unpaid interest, relating to facilities of a
previously discontinued business. This discontinued business defaulted on
certain principal and interest payments related to these IRB's during 1992 and,
in February 1993, filed for protection under federal bankruptcy laws. The
Company continues to vigorously pursue all available remedies to minimize any
liability that may ultimately result from the outcome of this matter. The
Company believes that the resolution of this matter, after giving consideration
to amounts previously provided, will not have a material adverse effect on the
financial position or results of operations of the Company. See Notes 8 and 11
of Notes to Consolidated Financial Statements. Results of discontinued
operations in 1991 included other income and expense items relating to
businesses discontinued in prior years,
27
<PAGE> 30
including a pre-tax gain of approximately $700,000 as a result of proceeds from
the settlement of certain litigation.
Extraordinary gain from debt retirements decreased approximately $7,500,000
in 1992 as compared to 1991.
YEAR ENDED DECEMBER 31, 1991 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1990
Net sales from ongoing operations decreased approximately $15,336,000, or
approximately 2.6%, in 1991 as compared to 1990. Total net sales decreased
approximately $120,190,000, or approximately 11.6%, for 1991 as compared to 1990
as a result of businesses sold in 1991, lower sales levels of products to
recreational vehicle customers due to closures of plants used by the Company in
late 1990 to service this market and from the following factors. Net sales from
ongoing operations decreased principally as a result of lower sales levels of
built-in ventilating products by the Residential Building Products Group and
lower sales levels of bathroom fixtures and vanities by the Plumbing Products
Group (reflecting changes in product mix and lower sales prices and sales
volume). The decrease in net sales from ongoing operations was partially offset
by a substantial increase in sales levels of residential air conditioning and
heating products by the Air Conditioning and Heating Products Group. Lower sales
levels in most of the Company's businesses reflected, in part, the effects of
the general slowdown in the United States economy, particularly in the home
building industry.
Cost of products sold as a percentage of net sales from ongoing operations
decreased from approximately 74.4% in 1990 to approximately 72.7% in 1991. Total
cost of products sold as a percentage of total net sales decreased from
approximately 77.9% in 1990 to approximately 75.6% in 1991. This differential is
attributable to the fact that the businesses sold by the Company during this
period operated at higher relative cost levels than the Company's other product
groups. The decrease in cost of products sold as a percentage of net sales from
ongoing operations in 1991 was primarily attributable to increased sales levels
in residential, commercial and industrial air conditioning and heating products
without a proportionate increase in costs by the Air Conditioning and Heating
Products Group, and lower sales levels of bathroom fixtures in the Plumbing
Products Group (all of which have a higher relative cost level than the
Company's other product groups). The effect of the write-off of approximately
$3,055,000 of certain goodwill in 1990 was also a factor in the decrease in 1991
in total cost of products sold as a percentage of total net sales.
Selling, general and administrative expense as a percentage of net sales
from ongoing operations, decreased from approximately 28.0% in 1990 to
approximately 24.7% in 1991. Total selling, general and administrative expense
as a percentage of total net sales decreased from approximately 23.7% in 1990 to
approximately 23.2% in 1991. The effect of the approximately $9,500,000 payment
to the former Chairman in 1990 in connection with his retirement and settlement
of the Company's obligations under his employment agreement and other matters
was the principal factor in the decrease in selling, general and administrative
expense as a percentage of net sales from ongoing operations. The decrease was
also due to increased sales levels, without a proportionate increase in expense,
of residential air conditioning and heating products serving the site-built and
manufactured housing markets by the Air Conditioning and Heating Products Group,
a reduction in expenses of wireless infrared security devices by the Residential
Building Products Group and, to a lesser extent, a decline in expense levels in
the Plumbing Products Group. A decrease in expense incurred in connection with
various litigation matters from approximately $3,700,000 in 1990 to
approximately $2,300,000 in 1991 also contributed slightly to the change in the
percentage.
Segment earnings from ongoing operations were approximately $27,595,000 for
1991 and approximately $11,463,000 for 1990. Total segment earnings were
approximately $23,847,000 for 1991 as compared to approximately $9,517,000 for
1990. The increase in total segment earnings primarily was due to the effect of
businesses sold, lower expense as a result of the closures by the Company in
late 1990 of its plants that had been used to service the recreational vehicle
market, the write-off of approximately $3,055,000 of goodwill in 1990 which
principally was due to the Company's determination that such goodwill had no
continuing value and the following factors. The increase in segment earnings
from ongoing operations principally was due to increased sales levels and lower
cost and expense levels of air conditioning and heating products serving the
residential and manufactured housing industries and increased sales levels
without a proportionate increase in cost in commercial and industrial air
conditioning products by the Air Conditioning and Heating Products Group. To a
lesser extent, lower expense and cost levels of bathroom fixtures in the
Plumbing Products Group
28
<PAGE> 31
and the write-off of approximately $1,550,000 of intangible assets in 1990 which
was due to the Company's determination that such intangible assets had no
continuing value and decreased expenses of wireless infrared security devices
sold by the Residential Building Products Group also contributed to the
increase. These increases were partially offset by net settlements of certain
litigation and related expense of approximately $2,300,000 in 1991, as compared
to approximately $1,000,000 in 1990.
Foreign segment earnings declined to 30% of total segment earnings from
ongoing operations in 1991 from 71% of such earnings in 1990. This decline was
primarily due to a 366% increase in domestic segment earnings from ongoing
operations.
Operating earnings from the Company's Retail Home Center Operations
decreased by approximately $3,600,000 to a loss of $600,000 in 1991. The loss
resulted primarily from a decline in net sales of approximately $31,500,000, or
23.2%, to approximately $104,500,000 in 1991 from approximately $136,000,000 in
1990. Weakness in the San Diego area residential construction market and
increased competition were primarily responsible for the lower net sales and
resulting loss.
Operating earnings in 1991 increased approximately $27,527,000 from a loss
in 1990, primarily as a result of the factors discussed above for segment
earnings from ongoing operations, partially offset by the effect of operating
losses of businesses sold to the date of sale in 1991 (as compared to operating
earnings in 1990), and also includes the effect of an expense in 1990 relating
to the $9,500,000 payment to the former Chairman of the Company, the write-off
of approximately $3,055,000 of goodwill and $1,550,000 of intangible assets
which principally was due to the Company's determination that such assets had no
continuing value, and an approximately $2,700,000 reduction in non-segment
expense in connection with various litigation matters.
Interest expense decreased approximately $9,765,000, or approximately
19.8%, in 1991 as compared to 1990, principally as a result of purchases, at a
discount, in open market and negotiated transactions of the Company's debentures
and notes in 1991 and 1990, payment of current maturities of long-term debt, a
reduction in short-term borrowings, and the payment of subsidiary bank
indebtedness with the net proceeds from the sale of businesses.
Interest and dividend income decreased approximately $6,342,000, or
approximately 41.7%, from 1990 to 1991, principally due to lower average
invested balances of short-term investments and marketable securities (in part,
due to a reduction in indebtedness), and significantly lower yields earned on
investment and marketable securities, in part, as a result of a shift from high
yield securities in 1990 to more liquid, higher grade investments in 1991.
The net gain on investment and marketable securities changed from a loss of
approximately $10,000,000 in 1990 to a gain of approximately $400,000 in 1991.
This change resulted from a shift from high yield securities to more liquid,
higher grade investments. Market declines in the prices of high yield bonds
during 1990 resulted in substantial investment losses. The gain on investment
and marketable securities for 1991 is net of a loss of approximately $1,600,000
on the sale of the Company's investment in Stanley Interiors Corporation
preferred stock.
The approximately $15,200,000 pre-tax loss on businesses sold and the
$11,500,000 loss on settlement of litigation in 1991 were significant factors in
the approximate $45,700,000 loss from continuing operations before income tax
credit in 1991.
The income tax credit decreased approximately $7,950,000 as compared to
1990. The income tax credit as a percentage of the pre-tax loss was
approximately 24.1% for 1991 and approximately 31.4% for 1990. The rate differed
from the United States Federal statutory rate of 34.0% for both years as a
result of the effect of foreign source deemed income in 1991, the effect of
certain nondeductible costs in 1991 associated with the approximately
$15,200,000 loss on businesses sold, higher foreign income tax rates on foreign
source income in both years, the effect of a limited amount of state income tax
benefits recorded in both years (since the income tax benefits attributable to
operating losses for state income tax purposes may not be realized), the effect
of nondeductible amortization expense (for tax purposes) and in 1990 the effect
of approximately $2,400,000 of unrecognized income tax credits relating to 1989
losses being realized for tax purposes.
Earnings from discontinued operations were essentially zero, as compared to
a loss of approximately $6,600,000 in 1990. Results of discontinued operations
in 1991 and 1990 included other income and expense
29
<PAGE> 32
items relating to businesses discontinued in prior years, including a pre-tax
gain of approximately $700,000 as a result of proceeds from the settlement of
certain litigation in 1991. Results of discontinued operations for 1990 also
reflect (i) a net after-tax charge of approximately $8,700,000 from the
discontinuance of a product line and reserves established to reduce the carrying
value of certain assets of discontinued operations to estimated net realizable
value, (ii) after-tax income of approximately $2,200,000 resulting from the cash
collection and settlement of amounts owed to the Company relating to certain
businesses previously discontinued and (iii) approximately $1,000,000 of net
after-tax income which was deferred in 1989 in connection with the sale of
Monogram Industries, Inc. ("Monogram") as a result of the collection in June
1990 of the $14,000,000 note due from the purchaser of Monogram, a company
controlled by the Company's former Chairman. See Note 11 of Notes to
Consolidated Financial Statements.
Extraordinary gain from debt retirements decreased approximately $2,300,000
in 1991 as compared to 1990 as a result of differences in the amount of discount
and principal amount of purchases in open market and negotiated transactions of
debentures and notes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity in 1991, 1992 and 1993 have been
funds provided by subsidiary operations, unrestricted investments and marketable
securities, net proceeds from businesses sold or discontinued and in 1991 net
United States federal income tax refunds. The Company's Canadian subsidiary,
Broan Limited, has a $20,100,000 Canadian (approximately $15,000,000 U.S. at
exchange rates prevailing at October 2, 1993) secured line of credit, of which
approximately $14,800,000 Canadian (approximately $11,100,000 U.S. at exchange
rates prevailing at October 2, 1993) is available to the Company (the "Line of
Credit"). The Line of Credit prohibits dividends or other distributions to the
Company from Broan Limited in excess of $14,800,000 Canadian (approximately
$11,100,000 U.S. at exchange rates prevailing at October 2, 1993). Borrowings
under the Line of Credit are available for working capital and other general
corporate purposes. The Line of Credit contains covenants requiring Broan
Limited to maintain (i) a ratio of earnings before interest and taxes to
interest of at least 2 to 1, (ii) a working capital ratio of at least 1.5 to 1
and (iii) a debt to equity ratio of no higher than 3 to 1; the Line of Credit
also limits the annual amount of capital expenditures which Broan Limited may
make to $500,000 Canadian (approximately $375,000 U.S. at exchange rates
prevailing at October 2, 1993). Broan Limited pays a commitment fee of .25% per
annum on the unutilized portion of the Line of Credit payable monthly on a pro
rata basis, and the Line of Credit is subject to review by the lender in April
1994. As of January 19, 1994, there were $5,800,000 U.S. in outstanding
borrowings under the Line of Credit, all of the proceeds of which borrowings
were advanced to the Company.
Unrestricted cash and investments were $60,507,000 at October 2, 1993. On
January 14, 1993, the Company used approximately $23,100,000 to redeem and pay
accrued interest on the then outstanding $22,600,000 principal amount of its
11 1/2% Senior Subordinated Debentures. The Company intends to use substantially
all of the net proceeds from the offering of the Notes to redeem, and pay
accrued interest and a redemption premium on, certain other indebtedness, and to
replace the working capital it used to effect the redemption of its 11 1/2%
Senior Subordinated Debentures. After giving pro forma effect to the
Refinancing, the Company believes that its liquidity will be improved as a
result of the lengthening of the average maturities of its funded debt and a
reduction in borrowing costs. See "Use of Proceeds."
The Company believes cash flow from subsidiary operations, unrestricted
cash and marketable securities and borrowings under the Line of Credit or under
new credit facilities or arrangements which may be entered into will provide
sufficient liquidity to meet the Company's working capital, capital expenditure,
debt service and other ongoing business needs through, at least, 1994. Capital
expenditures were approximately $8,800,000 in 1992, and are expected to be
between approximately $11,000,000 and approximately $12,000,000 in 1993. The
Indenture contains restrictions on the incurrence by the Company and its
subsidiaries of additional indebtedness. See "Description of the Notes."
The Company's earnings from continuing operations before income taxes and
interest expense have been insufficient to cover fixed charges subsequent to
1988. The Company has been able to meet its fixed charges during this period
principally from existing cash and marketable securities and net proceeds from
businesses sold. Excluding the results of businesses sold or held for sale, the
Company had earnings before income taxes
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<PAGE> 33
and interest expense for the year ended December 31, 1992 and for the first 39
weeks of 1993 sufficient to cover fixed charges in each such period. The Company
currently expects to be able to cover its fixed charges, including interest
payments on the Notes, for the forseeable future without needing to sell
businesses. However, there can be no assurance that the Company will achieve a
level of earnings before fixed charges that is sufficient to cover its fixed
charges in the future. If the Company's earnings before fixed charges are
insufficient to cover fixed charges, the Company may be required to dispose of
assets or operations in order to pay its debt obligations. If such dispositions
occur, there can be no assurance that the proceeds realized by the Company will
be adequate to meet its obligations then due.
The Company's investment in marketable securities at December 31, 1992 and
October 2, 1993 consisted primarily of investments in United States Treasury
securities. At October 2, 1993, approximately $6,687,000 of the Company's cash
and investments were pledged as collateral with an insurance company and were
classified as restricted in current assets in the Company's unaudited
consolidated balance sheet. At October 2, 1993, approximately $1,625,000 of
subsidiary cash and investments were classified as restricted in other assets in
the Company's unaudited consolidated balance sheet. During 1992, approximately
$13,400,000 of restricted investments became available for the Company's
unrestricted use, principally from a reduction in the amount of collateral
required for insurance obligations and the release of approximately $8,500,000,
principally as a result of the settlement of certain litigation. See Note 8 of
Notes to Consolidated Financial Statements.
In the first 39 weeks of 1993, approximately $4,787,000 of cash was
utilized by the Company and its subsidiaries to pay indebtedness, including
purchases, at a slight discount, in open market transactions of approximately
$1,202,000 principal amount of the Company's debentures. In 1992, approximately
$23,188,000 of cash was utilized by the Company and its subsidiaries to pay
indebtedness (net of borrowings), including purchases, at a slight discount, in
open market transactions of $22,348,000 principal amount of the Company's
debentures.
At October 2, the Company remains contingently liable under approximately
$7,100,000 of obligations under Industrial Revenue Bond ("IRB's") agreements,
plus unpaid interest, relating to facilities of a previously owned subsidiary.
This former subsidiary defaulted on certain principal and interest payments
related to these IRB's during 1992 and, in February 1993, filed for protection
under federal bankruptcy laws. The Company continues to vigorously pursue all
available remedies to minimize any liability that may ultimately result from the
outcome of this matter. The Company believes that the resolution of this matter,
after giving consideration to amounts previously provided, will not have a
material adverse effect on the financial position or results of operations of
the Company. See Notes 8 and 16E of Notes to Consolidated Financial Statements.
In the first 39 weeks of 1993, the Company adopted the accounting
requirements of SFAS No. 106 for post-retirement health care and related
benefits and recorded the accumulated post-retirement benefit obligation of
approximately $2,100,000, after an income tax credit of approximately $1,000,000
($.17 per share, net of tax) as the cumulative effect of an accounting change.
Previously, such health care and related benefits for qualified and retired
beneficiaries were charged to operating results in the period that such benefits
were paid. Approximately $950,000 of the accumulated post-retirement benefit
obligation is expected to be paid during 1993 as a result of certain plan
modifications. See Notes 7 and 16D of Notes to Consolidated Financial
Statements.
The Company has decided to sell its Dixieline subsidiary through which the
Company conducts its Retail Home Center Operations, and recorded a pre-tax
valuation reserve of $20.3 million ($14.9 million after-tax) in the third
quarter of 1993 to reduce the Company's net investment in such business to
estimated net realizable value. The Company is in preliminary discussions with a
potential purchaser of these operations; however, no agreement has yet been
reached, and there can be no assurance that any transaction will be consummated.
The Company has reflected Dixieline's current assets, non-current assets,
current liabilities and long-term mortgage notes payable separately in its
consolidated balance sheets. See Note 16B of Notes to Consolidated Financial
Statements.
In July 1992, derivative litigation against the Company and its directors
challenging the transactions involving the retirement in 1990 of the Company's
former Chairman was settled. In connection with the settlement, the Company
exchanged $5,250,000 principal amount of Monogram 11% Subordinated Notes due
31
<PAGE> 34
December 31, 1995 held by the Company for $4,050,000 principal amount of the
Company's 13 1/2% Senior Subordinated Debentures due June 15, 1997 held by
Monogram.
The Company's working capital and current ratio decreased from
approximately $132,587,000 and approximately 1.9:1, respectively, at December
31, 1992 to approximately $119,687,000 and approximately 1.6:1, respectively, at
October 2, 1993. These decreases include the effect of the change in the method
of accounting for income taxes, pursuant to SFAS 109, adopted in the first 26
weeks of 1993. See Note 16H of Notes to Consolidated Financial Statements.
Disregarding the effect of SFAS 109 working capital decreased approximately
$16,502,000, or approximately 12.4%, from December 31, 1992 to October 2, 1993.
The Company's working capital decreased from approximately $139,657,000 to
approximately $132,587,000 between December 31, 1991 and December 31, 1992 (the
current ratio remained at approximately 1.9:1 from December 31, 1991 to December
31, 1992). The decrease in working capital reflected the sale of the Company's
former L. J. Smith subsidiary ("L.J. Smith") in the first quarter of 1992 and
its former Bend Millwork subsidiary ("Bend") in the third quarter of 1992.
Disregarding the effect of the sale of L. J. Smith and Bend, working capital
decreased approximately $21,947,000, or approximately 14.2% from December 31,
1991 to December 31, 1992.
Accounts receivable, including those of Dixieline, increased approximately
$21,824,000, or approximately 26.1%, between December 31, 1992 and October 2,
1993, principally as a result of increased sales volume, in part, due to
seasonal factors affecting the Air Conditioning and Heating Products Group.
Accounts receivable, including those of Dixieline, decreased approximately
$5,662,000, or approximately 6.3%, between December 31, 1991 and December 31,
1992, while net sales decreased approximately 11.4% in the fourth quarter of
1992 as compared to the fourth quarter of 1991. Disregarding the effect of the
sale of L. J. Smith and Bend, accounts receivable, including those of Dixieline,
increased approximately $3,818,000, or approximately 4.8%, during this period,
while net sales increased approximately 8.5% in the fourth quarter of 1992 as
compared to the fourth quarter of 1991. The rate of change in accounts
receivable in certain periods may be different than the rate of change in sales
in such periods principally due to the timing of sales. Significant sales near
the end of any period generally result in significant amounts of accounts
receivable on the date of the balance sheet at the end of such period. In recent
periods, the Company has not experienced any significant changes in credit
terms, collection efforts, credit utilization or delinquency.
Inventories, including those of Dixieline, increased approximately
$11,914,000, or approximately 13.6%, between December 31, 1992 and October 2,
1993. Disregarding the effect of SFAS 109, inventories increased approximately
$6,567,000, or approximately 7.1%, reflecting an increase in sales volume, in
part, due to seasonal factors. Inventories, including those of Dixieline,
decreased $16,891,000, or approximately 16.2%, between December 31, 1991 and
December 31, 1992. Disregarding the effect of the sale of L. J. Smith and Bend,
inventories, including those of Dixieline, increased approximately $2,562,000,
or approximately 3.0%, during this period.
32
<PAGE> 35
<TABLE>
Unrestricted cash and investments increased approximately $26,888,000 from
December 31, 1992 to October 2, 1993, principally as a result of cash provided
(used) by the following:
<CAPTION>
CONDENSED
CONSOLIDATED
CASH FLOWS
------------
<S> <C>
Operating Activities --
Cash flows from operations, net.............................. $ 13,949,000
Increase in accounts receivable, net......................... (21,872,000)
Increase in inventories...................................... (6,567,000)
Increase in accounts payable................................. 3,202,000
Change in accrued expenses, taxes, prepaids, other assets,
liabilities, and other, net............................... 12,480,000
Investing Activities --
Net cash payments relating to businesses sold or
discontinued.............................................. (2,420,000)
Proceeds from the sale of investment and marketable
securities, net of purchases.............................. 42,498,000
Capital expenditures......................................... (7,227,000)
Financing Activities --
Payment of borrowings, including purchase of debentures...... (4,787,000)
All other, net................................................. (2,368,000)
------------
$ 26,888,000
============
</TABLE>
<TABLE>
Unrestricted cash and investments increased approximately $6,958,000 from
December 31, 1991 to December 31, 1992, principally as a result of cash provided
(used) by the following:
<CAPTION>
CONDENSED
CONSOLIDATED
CASH FLOWS
------------
<S> <C>
Operating Activities --
Cash flows from operations, net.............................. $ 18,831,000
Increase in accounts receivable, net......................... (7,323,000)
Increase in inventories...................................... (2,807,000)
Increase in accruals and taxes............................... 3,398,000
Investing Activities --
Net cash proceeds from businesses sold or discontinued....... 38,813,000
Decrease in restricted cash, investment and marketable
securities................................................ 13,030,000
Purchase of investment and marketable securities, net of
sales..................................................... (22,391,000)
Capital expenditures......................................... (8,804,000)
Financing Activities --
Purchase of debentures and notes payable..................... (21,693,000)
Purchase of Company common and special common stock.......... (2,006,000)
Other, net................................................... (4,215,000)
All other, net................................................. 2,125,000
------------
$ 6,958,000
============
</TABLE>
The Company's debt-to-equity ratio increased from approximately 1.6:1 at
December 31, 1992 to approximately 1.8:1 at October 2, 1993, primarily as a
result of the net loss of $14,900,000 in the first 39 weeks of 1993 which was
partially offset by the decrease in total long-and short-term indebtedness of
approximately $6,354,000 between December 31, 1992 and October 2, 1993. Between
December 31, 1992 and December 31, 1991, total long-and short-term indebtedness
declined approximately $28,678,000, principally as a result of the purchase, at
a discount, in open market transactions of the Company's debentures and the
exchange of $4,050,000 of debentures. See Note 8 of Notes to Consolidated
Financial Statements. Stockholders' investment declined approximately
$26,023,000 in this period, principally as a result of the net loss of
approximately $24,200,000 and the purchase of common and special common stock
for approximately $2,006,000.
At October 2, 1993, the payment of cash dividends or stock payments was
prohibited under the most restrictive of the Company's indentures and loan
agreements.
33
<PAGE> 36
In 1992, the Company's total net sales to Sears Roebuck & Co. ("Sears")
were approximately 3.7% of the Company's consolidated net sales (excluding the
results of businesses sold). In January 1993, Sears announced plans to
discontinue its catalog and related sales programs and close a number of
unprofitable stores. As a result, sales to Sears declined to 2.4% of the
Company's consolidated net sales in the first 39 weeks of 1993 as compared to
2.8% of the Company's consolidated net sales in the corresponding period of
1992.
The Company's St. Louis, Missouri plant, which is part of the Company's Air
Conditioning and Heating Products Group and manufactures products for the
residential site-built and manufactured housing markets, experienced damage as a
result of the flooding of the Mississippi River in July 1993. The plant was
closed for several weeks, but returned to full operation in late August 1993. At
October 2, 1993, the Company has accrued for estimated losses of $14,500,000
related to the flooding, has recorded a receivable of approximately $14,500,000
for casualty, property damage and business interruption insurance claims due
from its insurance carrier and has recorded as a liability approximately
$6,600,000 of cash advances received relating to such claims. Subsequent to
October 2, 1993 the Company has received approximately $6,600,000 of additional
cash advances from the insurance carrier. The Company believes that it has
adequate insurance coverage and does not expect this event to have a material
adverse effect on the Company's financial condition or results of operations.
See Note 16L of Notes to Consolidated Financial Statements.
The Company believes that its growth will be generated largely by internal
growth in each of its product groups, augmented by strategic acquisitions. The
Company regularly reviews potential acquisitions which would increase or expand
the market penetration of, or otherwise complement, its current product lines,
although there are no pending agreements or negotiations for any material
acquisitions and the Company has made no material acquisitions since early 1988.
The Company will realize an estimated net after-tax extraordinary loss of
approximately $6,100,000 ($.48 per share) as a consequence of the redemption of
certain of the Company's outstanding indebtedness as part of the Refinancing.
The loss is expected to be recorded in the fourth quarter of 1993 and
principally includes the effect of unamortized deferred debt expense and debt
discounts and a redemption premium on certain of such indebtedness.
INFLATION, TRENDS AND GENERAL CONSIDERATIONS
The Company's performance is dependent to a significant extent upon the
levels of new residential construction, residential replacement and remodeling
and non-residential construction, all of which are affected by such factors as
interest rates, inflation and unemployment. In recent periods, the Company's
product groups have operated in an environment of flat to declining levels of
construction and remodeling activity, particularly new housing starts which
decreased 43.8% between 1986 and 1991. New residential construction has made a
modest recovery since 1991, although housing starts remain significantly below
levels experienced in the mid-1980's. The Company's operations have been
significantly affected by the difficult economic conditions, particularly in the
Northeastern United States and California. However, the actions taken to reduce
production costs and overhead levels and improve the efficiency and
profitability of the Company's operations have enabled the Company to
significantly increase operating earnings in a slow economy, as well as to
position the Company for growth should there be a recovery in the Company's
markets. In the near term, the Company expects to operate in an environment of
relatively stable levels of construction and remodeling activity, without
significant further declines or improvements in such levels.
In recent periods, inflation has not had, and is not expected to have for
the foreseeable future, a material effect on the Company's results of operations
and financial condition.
34
<PAGE> 37
BUSINESS
GENERAL
The Company is a diversified manufacturer of residential and commercial
building products, operating within three principal product groups: the
Residential Building Products Group; the Air Conditioning and Heating Products
Group; and the Plumbing Products Group. Through these product groups, the
Company manufactures and sells, primarily in the United States and Canada, a
wide variety of products for the residential and commercial construction,
manufactured housing, and the do-it-yourself and professional remodeling and
renovation markets. In October 1993, the Company decided to sell its Retail Home
Center Operations. The Company currently intends to operate this business until
a sale is consummated.
Beginning in the fourth quarter of 1990, in order to return the Company to
profitability and position it for growth, the Company developed and implemented
initiatives to (i) sell non-core or unprofitable businesses, (ii) reduce the
costs and expenses of its retained businesses and (iii) significantly reduce
indebtedness. Since December 31, 1990, the Company has disposed of eight
businesses, which accounted for $310.5 million of net sales and operating losses
of $2.0 million in 1990. The net cash proceeds received from disposed businesses
were $74.3 million. These proceeds, together with cash on hand, were used to
reduce indebtedness by $150.7 million, or 42.7%, between December 31, 1990 and
October 2, 1993. In addition, a significant reduction in the Company's operating
costs was the principal factor responsible for a substantial increase in EBITDA
from operations from $27.4 million for the year ended December 31, 1990 to $51.0
million for the twelve months ended October 2, 1993.
The Company's business strategy is to develop and maintain leading
positions in selected product lines within the residential and commercial
building products industry. To accomplish this strategy, the Company plans to
continue to expand the market share of its product groups through new product
development, product line extensions and selected acquisitions, and to improve
margins on its products through technological innovation, product
differentiation, cost efficiency, customer service and attention to quality. The
Company has instituted a variety of programs to expand and strengthen its
relationships with distributors, including providing on-line computer access to
the Company's order entry and inventory systems for certain products. In recent
years, the Company has also increased new product introductions in its
manufacturing businesses with the objective of increasing product penetration
with existing customers and expanding its customer base. In the period 1990 to
1992, the Company invested approximately $49 million in capital expenditures and
implemented a variety of cost reduction activities and manufacturing process
improvements, including the consolidation of manufacturing facilities and sales,
marketing and administrative functions in each of its product groups. The
Company has also introduced coordinated purchasing programs for certain services
and materials used in its principal manufacturing operations, including freight,
steel and other raw materials. These actions have resulted in increased
production capacity, enhanced manufacturing efficiency and flexibility, reduced
inventory and overhead levels and decreased unit costs for many of the Company's
operating facilities.
The Company's performance is dependent to a significant extent upon the
levels of new residential construction, residential replacement and remodeling
and non-residential construction, all of which are affected by such factors as
interest rates, inflation and unemployment. In recent periods, the Company's
product groups have operated in an environment of flat to declining levels of
construction and remodeling activity, particularly new housing starts which
decreased 43.8% between 1986 and 1991. New residential construction has made a
modest recovery since 1991, although housing starts remain significantly below
levels experienced in the mid-1980's. The Company's operations have been
significantly affected by the difficult economic conditions, particularly in the
Northeastern United States and California. However, the actions taken to reduce
production costs and overhead levels and improve the efficiency and
profitability of the Company's operations have enabled the Company to
significantly increase operating earnings in a slow economy, as well as to
position the Company for growth should there be a recovery in the Company's
markets. In the near term, the Company expects to operate in an environment of
relatively stable levels of construction and remodeling activity, without
significant further declines or improvements in such levels.
35
<PAGE> 38
<TABLE>
The following table presents certain residential and commercial
construction industry statistics which, among other things, represent factors
that the Company believes affect its operating performance:
SELECTED INDUSTRY STATISTICS
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------
1986 1987 1988 1989 1990 1991 1992
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Housing starts(1).................. 1,805.4 1,620.5 1,488.1 1,376.1 1,192.7 1,013.9 1,200.0
Change from previous year........ -- (10.2)% (8.2)% (7.5)% (13.3)% (15.0)% 18.4%
Residential replacement and
remodeling(2).................... $ 95,300 $ 94,100 $101,100 $100,900 $106,800 $ 97,500 $103,700
Change from previous year........ -- (1.3)% 7.4% (0.2)% 5.8% (8.7)% 6.4%
Manufactured housing
shipments(3)..................... 244.7 232.6 218.4 198.3 188.0 170.7 210.4
Change from previous year........ -- (4.9)% (6.1)% (9.2)% (5.2)% (9.2)% 23.3%
Non-residential construction
contracts(4)..................... $ 91,580 $ 98,770 $ 97,885 $106,071 $ 95,470 $ 86,255 $ 87,063
Change from previous year........ -- 7.9% (0.9)% 8.4% (10.0)% (9.7)% 0.9%
- ---------------
<FN>
(1) Source: Bureau of the Census (units in thousands)
(2) Source: Bureau of the Census (dollars in millions)
(3) Source: Manufactured Housing Institute (units in thousands)
(4) Source: F.W. Dodge/McGraw Hill (dollars in millions)
</TABLE>
<TABLE>
The following table presents the unaudited consolidated net sales and
operating earnings (loss) from ongoing operations for the Company's principal
product groups for the five years ended December 31, 1992 and for the 39 weeks
ended September 26, 1992 and October 2, 1993. The results of operations for the
39 weeks ended October 2, 1993 are not necessarily indicative of the results of
operations to be expected for the full year. This table should be read in
conjunction with the Company's Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere herein.
NET SALES AND OPERATING EARNINGS
<CAPTION>
39 WEEKS ENDED
FOR THE YEARS ENDED DECEMBER 31, ---------------------------
-------------------------------------------------------- SEPTEMBER 26, OCTOBER 2,
1988 1989 1990 1991 1992 1992 1993
-------- -------- -------- -------- -------- ------------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales:
Residential Building Products....... $ 243.2 $ 278.0 $ 268.9 $241.5 $249.2 $ 182.2 $191.6
Air Conditioning and Heating
Products.......................... 200.9 196.9 198.3 221.1 237.0 178.4 204.0
Plumbing Products................... 133.4 141.7 123.5 112.7 126.1 92.3 97.0
-------- -------- -------- -------- -------- ------ ----------
Net sales from ongoing operations..... 577.5 616.6 590.7 575.3 612.3 452.9 492.6
Net sales from businesses sold or
held
for sale(3)....................... 451.7 463.6 446.5 341.7 187.7 164.3 83.2
-------- -------- -------- -------- -------- ------ ----------
Total net sales..................... $1,029.2 $1,080.2 $1,037.2 $917.0 $800.0 $ 617.2 $575.8
-------- -------- -------- -------- -------- ------ ----------
-------- -------- -------- -------- -------- ------ ----------
Operating earnings (loss):
Residential Building Products(1).... $ 25.6 $ 22.6 $ 18.1 $ 18.9 $ 25.1 $ 16.7 $ 18.2
Air Conditioning and Heating
Products(2)....................... 8.4 (7.3 ) 4.7 13.7 15.4 11.1 14.4
Plumbing Products................... 1.0 (2.1 ) (11.0 ) (4.8) (2.4) (2.8) 1.6
Corporate and other, net(3)......... (20.0 ) (20.5 ) (26.1 ) (12.9) (12.2) (8.9) (12.5)
-------- -------- -------- -------- -------- ------ ----------
Operating earnings (loss) from ongoing
operations.......................... 15.0 (7.3 ) (14.3 ) 14.9 25.9 16.1 21.7
Operating earnings (loss) from
businesses sold or held for
sale(4)........................... 7.3 8.3 (2.3 ) (3.9) (5.5) (4.5) (0.3)
-------- -------- -------- -------- -------- ------ ----------
Operating earnings (loss)........... $ 22.3 $ 1.0 $ (16.6 ) $ 11.0 $ 20.4 $ 11.6 $ 21.4
-------- -------- -------- -------- -------- ------ ----------
-------- -------- -------- -------- -------- ------ ----------
- ---------------
<FN>
(1) Reflects charges in 1990 of approximately $1.5 million as a result of the
determination that certain intangible assets of one of the Group's
businesses had no continuing value. Reflects charges in the 39 weeks ended
October 2, 1993 of approximately $2.3 million as a result of the sale of
certain of the Group's real property and the consolidation of certain of its
manufacturing facilities.
(2) The cost reduction activities of the Air Conditioning and Heating Products
Group resulted in certain significant costs and expenses in the Group's
residential products business during the period 1989 to 1991.
(3) Reflects charges in 1990 of $9.5 million related to payments made by the
Company to its former Chairman in connection with the settlement of his
employment and other agreements.
(4) Includes results of the Company's Retail Home Center Operations, which are
currently held for sale. Reflects a charge in 1990 of approximately $3.1
million as a result of the determination that the net unamortized goodwill
of a business subsequently sold had no continuing value.
</TABLE>
36
<PAGE> 39
The Company believes that its growth will be generated largely by internal
growth in each of its product groups, augmented by strategic acquisitions. The
Company regularly reviews potential acquisitions which would increase or expand
the market penetration of, or otherwise complement, its current product lines,
although there are no pending agreements or negotiations for any material
acquisitions and the Company has made no material acquisitions since early 1988.
In October 1993, the Company made the strategic decision to sell its Retail
Home Center Operations to increase the Company's focus on its other building
products businesses. The Company is in preliminary discussions with a potential
purchaser of these operations; however, no agreement has yet been reached, and
there can be no assurance that any transaction will be consummated. The Company
reduced its investment in this business to estimated net realizable value and
recorded a pre-tax valuation reserve of $20.3 million in the third quarter of
1993.
RESIDENTIAL BUILDING PRODUCTS GROUP
The Residential Building Products Group manufactures and distributes
built-in products primarily for the residential new construction, do-it-yourself
and professional remodeling and renovation markets. The principal products sold
by the Group are kitchen range hoods, bath fans, combination units (fan, heater
and light combinations) and bath cabinets, which represented more than 50% of
the Group's net sales in 1992. The Group is one of the largest suppliers in the
United States and Canada of range hoods, bath fans and combination units.
Products are sold under the Broan(R), Nautilus(R)and Air CareTM brand names,
among others, to distributors and dealers of electrical and lighting products,
kitchen and bath dealers, retail home centers and OEMs. Other products sold by
this Group include, among others, wireless security products, garage door
openers, built-in home intercoms and entertainment systems and door chimes.
The Group's strategy is to retain its significant market share among
suppliers of range hoods, bath fans and combination units in the United States
and Canada. To accomplish this, the Group seeks to be the low-cost producer of
its principal products, to continue to introduce new or improved products and to
offer its principal products across a range of price points. To capitalize on
the significant increase in the retail distribution of residential building
products, the Group has introduced marketing programs which are designed to
increase the Company's sales to this market. In addition, the Group continues to
develop and expand its strong wholesale customer base.
Sales of the Group's products are principally affected by the level of
housing starts and residential replacement and remodeling activity in the United
States and, to a lesser extent, in Canada. Accordingly, factors such as interest
rates, consumer spending and unemployment significantly affect the Group's
sales. The recent recession and attendant decrease in home construction continue
to adversely affect the Group's business. In addition, the high level of
consumer debt and low level of consumer confidence have reduced the amount of
discretionary income consumers have available to direct toward remodeling and
renovation expenditures. Housing starts, in spite of the lowest mortgage rates
in 20 years, are up just 3.9% for the first nine months of 1993 as compared to
the corresponding period of 1992 and the growth in the overall economy continues
at a sluggish pace. In spite of these negative factors, the operating
performance of the Group continues to improve. In addition to the effectiveness
of the Group's cost reduction programs, this improvement is due to the
successful introduction of many new or improved products, increased penetration
of existing customer accounts due to improved customer service, delivery and
product line breadth, and expansion of the Group's retail account base.
37
<PAGE> 40
<TABLE>
The following table presents the unaudited net sales and operating earnings
from ongoing operations for the Group for the five years ended December 31, 1992
and for the 39 weeks ended September 26, 1992 and October 2, 1993. The results
of operations for the 39 weeks ended October 2, 1993 are not necessarily
indicative of the results of operations to be expected for the full year. The
table also presents certain industry statistics which, among other things,
represent factors that the Company believes affect the operating performance of
the Group.
RESIDENTIAL BUILDING PRODUCTS GROUP
<CAPTION>
39 WEEKS ENDED
FOR THE YEARS ENDED DECEMBER 31, -----------------------
------------------------------------------------------- SEPT. 26, OCTOBER 2,
1988 1989 1990 1991 1992 1992 1993
-------- -------- -------- ------- -------- --------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales from ongoing operations...... $ 243.2 $ 278.0 $ 268.9 $ 241.5 $ 249.2 $ 182.2 $191.6
Operating earnings from ongoing
operations(1)........................ $ 25.6 $ 22.6 $ 18.1 $ 18.9 $ 25.1 $ 16.7 $ 18.2
Housing starts(2)...................... 1,488.1 1,376.1 1,192.7 1,013.9 1,200.0 924.8 960.6
Residential replacement and
remodeling(3)........................ $101,100 $100,900 $106,800 $97,500 $103,700 $76,681 (4)
- ---------------
<FN>
(1) The operating earnings from ongoing operations for 1990 reflect a charge of
approximately $1.5 million as a result of the determination that certain
intangible assets of one of the Group's businesses had no continuing value.
The operating earnings from ongoing operations for the 39 weeks ended
October 2, 1993 reflect charges of approximately $2.3 million as a result of
the sale of certain of the Group's real property and the consolidation of
certain of its manufacturing facilities.
(2) Source: Bureau of the Census (units in thousands)
(3) Source: Bureau of the Census
(4) Not yet available. Amounts for the 26 weeks ended June 27, 1992 and July 3,
1993 were $49,094 and $48,131, respectively.
</TABLE>
Over the past several years, the Group has significantly reduced costs by
consolidating certain manufacturing and administrative functions, upgrading
certain production facilities and enhancing its management information systems.
For example, since January 1, 1990, the Group has invested $12.7 million in
capital expenditures, including the installation of state of the art robotics to
automate a significant portion of its range hood manufacturing process. This
investment resulted in substantial increases in the Group's production
capabilities and flexibility and eliminated a number of high cost,
nonvalue-added activities, including many labor-intensive operations. The Group
improved its inventory turnover from approximately 3.7x for the year ended
December 31, 1990 to approximately 4.4x for the year ended December 31, 1992.
These changes have also benefited the Group's customers by permitting quicker
delivery and therefore allowing such customers to maintain lower levels of the
Group's products in their inventory.
Customers for the Group's products include residential and electrical
contractors, professional remodelers and do-it-yourself homeowners. The Group's
products are sold on a wholesale basis through distributors and dealers of
electrical and lighting products, on a retail basis through building supply
centers and to OEMs for inclusion in their product lines. The sales and
marketing efforts of the Group's dealers and distributors are supported by a 292
person in-house staff as of October 2, 1993.
A key component of the Group's operating strategy is the introduction of
new products which capitalize on the strong Broan(R), Nautilus(R) and Air CareTM
brand names and the extensive distribution system of the Group's businesses.
Recent product introductions under these brand names include: indoor air quality
systems for continuous and intermittent home ventilation; down-draft ventilating
systems for cooking ranges; SensAireTM (humidity sensing) bath fans; and the
Rangemaster(R) line of commercial-style range hoods for use in the home.
Consumer preferences are important in developing new products and establishing
marketing strategies, and the Company believes that the Group's ability to
develop new and improved product styles and features provides a significant
competitive advantage. Despite recent cost cutting measures, the Group continues
to devote substantial resources to product development. For the year ended
December 31, 1992, product development expenses were approximately 1.8% of the
Group's net sales.
The Group offers a broad array of products with various features and styles
across a range of price points. The Group's range hoods have retail prices from
approximately $30 to $300, with a typical unit price of approximately $50.
Similarly, the retail prices of the Group's bath fans range from approximately
$12 to $250, with a typical unit price of approximately $25. The Company
believes that the Group's variety of product offerings helps the Group maintain
and improve its market position for its principal products. In addition, the
popularity of higher priced, higher margin products tends to decline in
difficult economic times, and thus, the Company believes that the Group's
ability to offer low-and mid-priced products gives it desirable sales
38
<PAGE> 41
diversification. At the same time, the Company believes that the Group's status
as a low-cost producer, in large part as a result of the cost reduction
initiatives described above, provides the Group with a competitive advantage.
With respect to range hoods, bath fans and combination units, the Company
believes that the Group's primary competitor is NuTone, a division of Williams
Holdings Companies. The market for bath cabinets is highly fragmented with no
single dominant supplier. The Group's other products compete with many domestic
and international suppliers in their various markets. The Group competes with
suppliers of competitive products primarily on the basis of quality,
distribution, delivery and price. Although the Group believes it competes
favorably with respect to each of these factors, competition among suppliers of
the Group's products is intense and certain of these suppliers have greater
financial and marketing resources than the Group.
The Group has nine manufacturing plants and employed 1,724 full-time people
as of October 2, 1993, 185 of which are covered by collective bargaining
agreements which expire in 1994 and 1996. The Company believes that the Group's
relationships with its employees are satisfactory.
AIR CONDITIONING AND HEATING PRODUCTS GROUP
The Air Conditioning and Heating Products Group manufactures and sells HVAC
systems for custom-designed commercial applications and for manufactured and
site-built residential housing. The Group's commercial products consist of HVAC
and air handler systems which are custom-designed to meet customer
specifications for commercial offices, manufacturing and educational facilities,
hospitals, retail stores and governmental buildings. Such systems are primarily
designed to operate on building rooftops (including large self-contained
walk-in-units) or on individual floors within a building, and range from 40 to
600 tons of cooling capacity. The Group markets its commercial products under
the Governair(R), Mammoth(R) and TemtrolTM brand names. For manufactured and
site-built residential housing, the Group's products include central air
conditioners, heat pumps, furnaces and a wide range of accessories marketed
under the Intertherm(R) and Miller(R) brand names. Residential central air
conditioning products range from 1.5 to 5 tons of cooling capacity and furnaces
range from 45,000 BTUs to 144,000 BTUs of heating capacity. The Group's
residential products also include portable and permanent electric baseboard
heating products.
<TABLE>
The following table presents the unaudited net sales and operating earnings
(loss) from ongoing operations for the Group for the five years ended December
31, 1992 and for the 39 weeks ended September 26, 1992 and October 2, 1993. The
results of operations for the 39 weeks ended October 2, 1993 are not necessarily
indicative of the results of operations to be expected for the full year. The
table also presents certain industry statistics which, among other things,
represent factors that the Company believes affect the operating performance of
the Group.
AIR CONDITIONING AND HEATING PRODUCTS GROUP
<CAPTION>
39 WEEKS ENDED
FOR THE YEARS ENDED DECEMBER 31, ----------------------------
------------------------------------------------------------ SEPTEMBER 26, OCTOBER 2,
1988 1989 1990 1991 1992 1992 1993
-------- -------- -------- -------- -------- ------------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales from ongoing
operations................... $ 200.9 $ 196.9 $ 198.3 $ 221.1 $ 237.0 $ 178.4 $ 204.0
Operating earnings (loss) from
ongoing operations(1)........ $ 8.4 $ (7.3) $ 4.7 $ 13.7 $ 15.4 $ 11.1 $ 14.4
Manufactured housing
shipments(2)................. 218.4 198.3 188.0 170.7 210.4 153.1 187.9
Non-residential construction
contracts(3)................. $97,885 $106,071 $95,470 $86,255 $87,063 $66,368 $ 63,215
- ---------------
<FN>
(1) Cost reduction activities resulted in certain significant costs and expenses
in the Group's residential products business during the period 1989 to 1991.
(2) Source: Manufactured Housing Institute (units in thousands)
(3) Source: F.W. Dodge/McGraw Hill
</TABLE>
The Group's inventory turnover improved from approximately 4.4x for the
year ended December 31, 1990 to approximately 5.3x for the year ended December
31, 1992. This improvement resulted primarily from the implementation of
manufacturing process improvements and cost reduction programs.
39
<PAGE> 42
Commercial Products
The Group's commercial products include packaged rooftop units and air
handlers, custom walk-in units, individual floor units and heat pumps.
Individual units range from 40 to 600 tons of cooling capacity, and complete
systems generally range in price from $200,000 to $3,000,000. The market for
commercial HVAC equipment is segmented between standard and custom-designed
equipment. Standard equipment can be manufactured at a lower cost and therefore
offered at substantially lower initial prices than custom-designed equipment. As
a result, suppliers of standard equipment generally have a larger share of the
overall commercial HVAC market than suppliers of custom-designed equipment,
including the Group. However, because of certain building designs, shapes or
other characteristics, the Company believes there are many applications for
which custom-designed equipment is required or is more cost effective over the
life of the equipment. Unlike standard equipment, the Group's commercial HVAC
equipment can be designed to match the exact space, capacity and performance
requirements of the customer. The Group sells its commercial products primarily
to contractors, owners and developers of commercial office buildings,
manufacturing and educational facilities, hospitals, retail stores and
government buildings. The Group seeks to maintain strong relationships
nationwide with design engineers, owners and developers, the persons who are
most likely to value the benefits and long-term cost efficiencies of the Group's
custom-designed equipment.
Although the general level of commercial construction activity has declined
significantly since 1989, the impact of this decline on the Group has been
partially offset due to the Group's focus on certain segments within the
commercial construction market (for example, hospitals, prisons and schools)
that have outperformed the overall market. The Company estimates that more than
half of the Group's commercial sales in 1992 were attributable to replacement
and retrofit activity, which typically is less cyclical than new construction
activity and generally commands higher margins. The Group continues to develop
product and marketing programs to increase penetration in the growing
replacement and retrofit market. The Company believes that significant
opportunities are available in this market due to, among other things, the
development of higher efficiency HVAC systems and the availability of new
environmentally acceptable refrigerants.
For many commercial applications, the ability to provide a custom-designed
system is the principal concern of the customer. The Group's packaged rooftop
and self-contained walk-in units maximize a building's rentable floor space
because they are located outside the building. In addition, factors relating to
the manner of construction and timing of installation of commercial HVAC
equipment can often favor custom-designed rather than standard systems. As
compared with standard commercial HVAC systems, the Group's systems are factory
assembled and then installed, rather than assembled on site, permitting
extensive testing prior to shipment. As a result, the Group's commercial systems
can be installed later in the construction process than site-built systems,
thereby saving the owner or developer construction and labor costs. These
savings, together with the reliability and lower operating costs of the Group's
walk-in units, led the developers of the Mall of America in Minneapolis, the
largest fully enclosed retail/family entertainment center in the United States,
to choose the Group as its air cooling and handling supplier. The Group designed
and installed 33 custom walk-in units for the Mall of America, each with 400
tons of cooling capacity. The Group's individual floor units offer flexibility
in metering and billing, a substantial advantage if a building is to be occupied
in stages or where HVAC usage varies significantly from floor to floor. For
these reasons as well as the low noise levels of the Group's individual floor
units, the Group was chosen as the HVAC supplier for nine buildings within
London's Canary Wharf office development project. As part of this project, the
Group has provided 152 individual floor units, serving 3.5 million square feet
of office space, with an average cooling capacity of 55 tons.
The Group's commercial products are marketed through independently owned
manufacturers' representatives and an in-house sales, marketing and engineering
group of 103 persons as of October 2, 1993. The independent representatives are
typically HVAC engineers, a factor which is significant in marketing the Group's
commercial products because of the design intensive nature of the market segment
in which the Group competes.
The Company believes that the Group is among the largest suppliers of
custom-designed commercial HVAC products in the United States. The Group's five
largest competitors in the commercial HVAC market
40
<PAGE> 43
are Brod & McClung, Inc. (which sells under the "Pace" tradename), Carrier
Corporation, McQuay (a division of Snyder-General Corporation), Miller-Picking
(a division of York International Corporation) and The Trane Company (a
subsidiary of American Standard Inc.). The Group competes primarily on the basis
of engineering support, quality, flexibility in design and construction and
total installed system cost. Although the Company believes that the Group
competes favorably with respect to certain of these factors, most of the Group's
competitors have greater financial and marketing resources than the Group and
enjoy greater brand awareness. However, the Company believes that the Group's
ability to produce equipment that meets the performance characteristics required
by the particular product application provides it with advantages not enjoyed by
certain of these competitors.
Residential Products
The Group is one of the largest suppliers of air conditioners, heat pumps
and furnaces to the manufactured housing market in the United States. In
addition, the Group manufactures and markets HVAC products for site-built homes,
a business it entered in 1987. Net sales from site-built HVAC products have
grown significantly, and in the period 1989 to 1992 net sales of such products
experienced 30% compounded annual growth.
The Group's strategy for its residential HVAC operations is to maintain its
position in the manufactured housing market, to continue with its efforts to
reduce costs and improve operating efficiencies, and to expand its site-built
residential HVAC business. The Group also intends to continue to use its product
engineering expertise to introduce new, more energy efficient products.
The principal factors affecting the market for the Group's residential HVAC
products are the levels of manufactured housing shipments and housing starts and
the demand for replacement and modernization of existing equipment. The Company
believes that two recent market trends have caused HVAC sales to outperform the
new residential construction market. First, home air conditioning has come to be
considered a standard feature by an increasing number of consumers. Second, the
trend towards using multiple cooling zones within a home to provide improved
comfort and energy efficiency has led to an increasing number of units per home.
In addition, the Company anticipates that the replacement market will continue
to expand as a large number of previously installed heating and cooling products
become outdated or reach the end of their useful lives during the 1990s. This
growth may be accelerated by a tendency among consumers to replace older heating
and cooling products with higher efficiency models prior to the end of such
equipment's useful life. The Company estimates that less than half of the
Group's net sales of residential HVAC products in 1992 were attributable to the
replacement market, which tends to be less cyclical than the new construction
market. The market for residential cooling products, including those sold by the
Group, is affected by spring and summer temperatures. The Group does not sell
window air conditioners, a segment of the market which is highly seasonal and
especially affected by spring and summer temperatures. The Company believes that
the Group's ability to offer both heating and cooling products helps offset the
effects of seasonality on the Group's sales.
Between 1988 and 1992, the Group invested approximately $25 million in
capital expenditures for its residential HVAC products business. These capital
investments have allowed the Group to significantly reduce the cost of its
manufacturing and distribution processes and to introduce new, more energy
efficient products. Specifically, the Group significantly reduced its
manufacturing and administrative overhead by integrating the Intertherm(R) and
Miller(R) manufacturing lines, as well as their respective sales, marketing and
administrative functions. Furthermore, the Group changed from a decentralized
multiple-site distribution system receiving products from four different
manufacturing plants to a centralized system receiving products from two plants.
The change in the distribution system and the consolidation of manufacturing
operations have produced important efficiencies, such as the improvement of
inventory controls, the elimination of redundant product handling activities and
the reduction of freight expenses.
The Group sells its manufactured housing products to builders of
manufactured housing and, through distributors, to manufactured housing dealers
and owners of such housing. The majority of sales to builders of manufactured
housing consist of furnaces designed and engineered to meet or exceed certain
standards mandated by federal agencies. These standards differ in several
important respects from the standards for
41
<PAGE> 44
furnaces used in site-built residential homes. The aftermarket channel of
distribution includes sales of both new and replacement air conditioning units
and heat pumps. Approximately two-thirds of the Group's residential HVAC net
sales in 1992 were through channels of distribution serving the manufactured
housing market.
The Group has used its experience and knowledge of residential HVAC
equipment to expand its business into the site-built residential market. A
substantial portion of site-built residential products have been introduced in
the last three years, including a reengineered line of high efficiency air
conditioners, heat pumps and furnaces. Residential HVAC products for use in
site-built homes are sold through independently-owned distributors who sell to
HVAC dealers and contractors. The Group, in conjunction with its distributors,
has undertaken a targeted marketing program to introduce contractors to its
residential products. To build recognition with these contractors, the Group
features television weatherman Willard Scott as its national spokesman.
The Group is one of the largest suppliers of HVAC equipment for the
manufactured housing market in the United States. The Company believes that the
Group has one major competitor in this market, Evcon Industries, which markets
its products under the "Evcon/Coleman" name. Competition in the site-built
residential HVAC market is intense, and many suppliers of such equipment have
substantially greater financial and marketing resources than the Group and enjoy
greater brand awareness. In these markets, the Group competes with, among
others, Carrier Corporation, Lennox Industries, Trane Company and York
International Corporation. The Group competes in both the manufactured housing
and site-built markets on the basis of breadth and quality of its product line,
distribution, product availability and price. The Company believes that the
Group competes favorably with respect to these factors.
The Group has eight manufacturing plants and employed 1,621 full-time
people as of October 2, 1993, 197 of which are covered under a collective
bargaining agreement which expires in 1995. The Company believes that the
Group's relationships with its employees are satisfactory.
PLUMBING PRODUCTS GROUP
The Plumbing Products Group manufactures and sells vitreous china bathroom
fixtures (including sinks, toilet bowls and tanks), fiberglass and acrylic
fixtures, brass and plastic faucets, bath cabinets and vanities and shower
doors, and also markets stainless steel and enameled steel tubs and sinks. In
addition to its standard product offerings, the Group also sells designer
bathroom fixtures, 1.5 gallon water-efficient toilets and a variety of products
that are accessible to physically challenged individuals. Products are sold
under the URCTM, Universal-Rundle(R), CareFree(R), Milwaukee FaucetsTM and
Raphael(R) brand names principally to wholesale plumbing distributors and retail
home centers. End customers of the Group's products are generally home builders,
do-it-yourself homeowners, remodeling contractors and commercial builders.
The Group's principal strategy is to maintain its position as a low cost
and high quality manufacturer, with an emphasis on low-and mid-priced products.
As a result, the Company believes that the Group can compete favorably against
more well-known brands in the new construction markets where product selection
is made by builders and contractors and is therefore influenced significantly by
price. At the same time, the Group is expanding its line of higher-margin
specialty products in response to the increased prominence of the replacement
and remodeling market. In this market, the consumer is generally the purchaser,
and, therefore significant emphasis is placed on quality and design as well as
on price. The Group intends to continue to emphasize markets in which it has
developed considerable expertise, such as the markets for water-efficient
toilets and products that are accessible to physically challenged individuals.
The installation in new housing of water-efficient toilets is mandated by
federal law beginning in January 1994. The Company believes that the Group has
one of the most extensive lines of such toilets.
The principal industry factors affecting the Group's sales are the levels
of United States housing starts (particularly in the Northeastern United States
where the Group's sales are concentrated), replacement and remodeling
expenditures and, to a lesser extent, non-residential construction. An
increasing percentage of the Group's products are sold for use by do-it-yourself
and professional remodelers. Although the depressed rate of home construction
continues to adversely affect the Group's business, the Company believes that
the
42
<PAGE> 45
Group's cost reduction efforts and new product initiatives discussed below have
been the principal factors leading to the improvement in its operating results
in recent periods.
<TABLE>
The following table presents the unaudited net sales and operating earnings
(loss) from ongoing operations for the Group for the five years ended December
31, 1992 and for the 39 weeks ended September 26, 1992 and October 2, 1993. The
results of operations for the 39 weeks ended October 2, 1993 are not necessarily
indicative of the results of operations to be expected for the full year. The
table also presents certain industry statistics which, among other things,
represent factors that the Company believes affect the operating performance of
the Group.
PLUMBING PRODUCTS GROUP
<CAPTION>
39 WEEKS ENDED
FOR THE YEARS ENDED DECEMBER 31, ----------------------
--------------------------------------------------- SEPT. 26, OCTOBER 2,
1988 1989 1990 1991 1992 1992 1993
-------- -------- -------- ------- -------- --------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales from ongoing operations............ $ 133.4 $ 141.7 $ 123.5 $ 112.7 $ 126.1 $ 92.3 $ 97.0
Operating earnings (loss) from ongoing
operations................................. $ 1.0 $ (2.1) $ (11.0) $ (4.8) $ (2.4) $ (2.8) $ 1.6
Housing starts(1)............................ 1,488.1 1,376.1 1,192.7 1,013.9 1,200.0 924.8 960.6
Residential replacement and remodeling(2).... $101,100 $100,900 $106,800 $97,500 $103,700 $76,681 (3)
<FN>
- ---------------
(1) Source: Bureau of the Census (units in thousands)
(2) Not yet available. Amounts for the 26 weeks ended June 27, 1992 and July 3,
1993 were $49,094 and $48,131, respectively.
</TABLE>
The Group has invested $10.7 million in capital expenditures during the
four years ended December 31, 1992. In addition, the Group has restructured its
operations by closing certain manufacturing facilities. These actions have
resulted in improved operating efficiencies at certain of the Group's
manufacturing facilities and reduced overhead levels. The Group improved its
inventory turnover from approximately 4.9x for the year ended December 31, 1990
to approximately 8.6x for the year ended December 31, 1992. In the current
difficult market for residential construction, the Group's cost reduction
efforts have been a significant factor leading to the improvement in its
operating results.
In 1992, approximately 45% of the Group's net sales were attributable to
wholesale plumbing distributors, approximately 40% were attributable to retail
home centers and approximately 15% were attributable to mass merchandisers and
others. Sales to Sears represented approximately 10% of the Group's sales in
1992, as compared to approximately 17% in 1990. In January 1993, Sears announced
plans to discontinue its catalog and related sales programs and closed a number
of unprofitable stores. As a result, the Group's sales to Sears have declined to
4.9% of the Group's sales in the first 39 weeks of 1993 as compared to 9.2% of
the Group's sales in the corresponding period of 1992. The Group sells its
products to distributors and home centers through independently owned
manufacturer's representatives supported by 37 sales and marketing personnel
employed by the Group as of October 2, 1993.
The Group competes with many suppliers of plumbing and related products,
several of which have greater financial and marketing resources than the Group
and greater brand awareness. The Group's competitors include American Standard
Inc., Eljer Industries and Kohler Company. The Group competes primarily on the
basis of price, quality, service and breadth of product line offerings. The
Group believes it competes favorably by offering quality products at a
reasonable price, serving markets that larger competitors do not emphasize, and
developing products using new technologies.
The Plumbing Products Group has eight manufacturing facilities and employed
1,338 full-time people as of October 2, 1993, approximately 1,000 of whom are
covered by collective bargaining agreements which expire between 1994 and 1997.
The Company believes that the Group's relationships with its employees are
satisfactory.
BUSINESS HELD FOR SALE
In October 1993, the Company decided to sell its Dixieline Lumber Company
subsidiary ("Dixieline") through which the Company conducts its Retail Home
Center Operations. This business consists of a chain of
43
<PAGE> 46
ten retail home center stores, a contractor and wholesale lumberyard and a truss
manufacturing yard in the greater San Diego, California area. Dixieline provides
a wide assortment of lumber, plywood, building materials and home improvement
products serving the new residential construction and residential replacement
and remodeling markets, and also provides delivery and lumber cutting and
milling services. The contractor and wholesale lumberyard sells lumber, plywood
and building materials to professional contractors and wholesalers, and supplies
such products for sale in its own retail home center stores. The Company reduced
its investment in this business to estimated net realizable value and recorded a
pre-tax valuation reserve of $20.3 million in the third quarter of 1993. See
Note 16B of Notes to Consolidated Financial Statements.
<TABLE>
The following table presents the unaudited net sales and operating earnings
(loss) for Retail Home Center Operations for the five years ended December 31,
1992 and for the 39 weeks ended September 26, 1992 and October 2, 1993. The
results of operations for the 39 weeks ended October 2, 1993 are not necessarily
indicative of the results of operations to be expected for the full year. The
table also presents data regarding the number of San Diego County housing
permits, one of the factors which the Company believes affects the operating
performance of its Retail Home Center Operations.
RETAIL HOME CENTER OPERATIONS
<CAPTION>
39 WEEKS ENDED
FOR THE YEARS ENDED DECEMBER 31, ---------------------------
---------------------------------------------------------------- SEPTEMBER 26, OCTOBER 2,
1988 1989 1990 1991 1992 1992 1993
-------- -------- -------- -------- -------- ------------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.................... $136.9 $157.2 $136.0 $104.5 $ 94.8 $71.7 $ 83.2
Operating earnings (loss).... $ 5.0 $ 5.9 $ 3.0 $ (0.6) $ (1.1) $(0.2) $ (0.3)
San Diego County housing
permits(1)................. 28,394 18,813 15,807 7,992 6,081 5,371 4,143
- ---------------
<FN>
(1) Source: Greater San Diego Chamber of Commerce
</TABLE>
Dixieline competes primarily with Home Base and Home Depot. Certain of its
competitors have greater financial and marketing resources than Dixieline.
Dixieline competes primarily on the basis of price, product availability and the
knowledge of its sales staff. The Company believes Dixieline competes favorably
with respect to these factors.
Dixieline employed 689 full-time people as October 2, 1993, 164 of which
are covered by collective bargaining agreements which expire in 1995. The
Company believes that Dixieline's relationships with its employees are
satisfactory.
44
<PAGE> 47
PATENTS AND TRADEMARKS
The Company holds numerous design and process patents that it considers
important, but no single patent is material to the overall conduct of its
business. It is the Company's policy to obtain and protect patents whenever such
action would be beneficial to the Company. The Company owns several trademarks
that it considers material to the marketing of its products, including Broan(R),
Nautilus(R), Air CareTM, Governair(R), Mammoth(R), TemtrolTM, Miller(R),
Intertherm(R), URCTM and Universal-Rundle(R). The Company believes that its
rights in these trademarks are adequately protected.
RAW MATERIALS
The Company purchases raw materials and most components used in its various
manufacturing processes. The principal raw materials purchased by the Company
are rolled sheet, formed and galvanized steel, copper, aluminum, plate mirror
glass, silica, lumber, plywood, paints, chemicals, resins and plastics. The
materials, molds and dies, subassemblies and components purchased from other
manufacturers, and other materials and supplies used in manufacturing processes
have generally been available from a variety of sources. Whenever practical, the
Company establishes multiple sources for the purchase of raw materials and
components to achieve competitive pricing, ensure flexibility and protect
against supply disruption.
<TABLE>
PROPERTIES
Set forth below is a brief description of the location and general
character of the principal administrative, sales and manufacturing facilities
and other material real properties of the Company. All properties are owned,
except for those indicated by an asterisk, which are leased.
<CAPTION>
APPROXIMATE
LOCATION DESCRIPTION SQUARE FEET
-------- ----------- -----------
<S> <C> <C>
Union, IL Manufacturing/Warehouse/Administrative 174,000*
Hartford, WI Manufacturing/Warehouse/Administrative 402,000
Old Forge, PA Warehouse/Administrative 40,000
Bensenville, IL Warehouse/Administrative 69,000*
Mississauga, ONT Manufacturing/Administrative 108,000
Elk Grove Village, IL Manufacturing/Warehouse/Administrative 106,000*
Dallas, TX Manufacturing/Administrative 71,000
Carlsbad, CA Warehouse/Administrative 26,000*
Hong Kong Manufacturing 30,000*
Waupaca, WI Manufacturing 35,000
St. Peters, MO Warehouse/Administrative 250,000*
St. Louis, MO Manufacturing 214,000
Boonville, MO Manufacturing 250,000*
Minneapolis, MN Manufacturing 200,000*
Oklahoma City, OK Manufacturing/Administrative 117,000
Okarche, OK Manufacturing/Administrative 107,000
Los Angeles, CA Manufacturing/Administrative 177,000
San Diego, CA(1) Retail/Warehouse/Administrative 180,000*
New Castle, PA Manufacturing/Administrative 420,000
Hondo, TX Manufacturing/Administrative 404,000
Monroe, GA Manufacturing/Administrative 414,000
Union Point, GA Manufacturing/Administrative 191,000
Ottumwa, IA Manufacturing/Administrative 85,000
Milwaukee, WI Manufacturing/Administrative 76,000
Rensselaer, IN Manufacturing/Administrative 271,000
Chicago, IL Manufacturing/Sales/Administrative 100,000
Providence, RI Administrative 31,000*
- ---------------
<FN>
(1) In addition, Dixieline owns or leases nine other retail locations containing
between 13,000 and 56,000 square feet, plus warehouse and outdoor storage
space for a total of approximately 3,770,000 square feet.
</TABLE>
The Company considers its material properties to be in satisfactory repair.
The St. Louis plant, which is part of the Company's Air Conditioning and Heating
Products Group and manufactures products for the
45
<PAGE> 48
residential site-built and manufactured housing markets, experienced damage as a
result of the flooding of the Mississippi River in July 1993. The plant was
closed for several weeks, but returned to full operation in late August 1993.
The Company believes that it has adequate insurance coverage and does not expect
this event to have a material adverse effect on the Company's financial
condition or results of operations. See Note 16L of Notes to Consolidated
Financial Statements.
REGULATIONS AND ENVIRONMENTAL MATTERS; LEGAL PROCEEDINGS
The Company and its operating units are subject to numerous federal, state
and local laws and regulations, including environmental laws and regulations
that impose limitations on the discharge of pollutants into the air and water
and establish standards for the treatment, storage and disposal of solid and
hazardous wastes. The Company believes that it is in substantial compliance with
the material laws and regulations applicable to it. The Company and its
subsidiaries or former subsidiaries are involved in current, and may become
involved in future, remedial actions under federal and state environmental laws
and regulations which impose liability on companies to clean up, or contribute
to the cost of cleaning up, sites at which their hazardous wastes or materials
were disposed of or released. Such claims may relate to properties or business
lines acquired by the Company after a release has occurred. In other instances,
the Company may be partially liable under law or contract to other parties that
have acquired businesses or assets from the Company for past practices relating
to hazardous substances management. The Company believes that all such claims
asserted against it, or such obligations incurred by it, will not have a
material adverse effect upon the Company's financial condition or results of
operations. Expenditures in 1991 and 1992 to evaluate and remediate such sites
were not material. However, the Company is presently unable to estimate
accurately its ultimate financial exposure in connection with identified or yet
to be identified remedial actions due among other reasons to: (i) uncertainties
surrounding the nature and application of environmental regulations, (ii) the
Company's lack of information about additional sites at which it may be listed
as a potentially responsible party ("PRP"), (iii) the level of clean-up that may
be required at specific sites and choices concerning the technologies to be
applied in corrective actions and (iv) the time periods over which remediation
may occur. Furthermore, since liability for site remediation is joint and
several, each PRP is potentially wholly liable for other PRPs that become
insolvent or bankrupt. Thus, the solvency of other PRPs could directly affect
the Company's ultimate aggregate clean-up costs. In certain circumstances, the
Company's liability for clean-up costs may be covered in whole or in part by
insurance or indemnification obligations of third parties.
The Company's HVAC products (and those of many of its competitors) utilize
HCFC-22, a refrigerant that has been found to have an ozone-depleting effect
when released into the atmosphere. Under current United States Environmental
Protection Agency ("EPA") regulations, the use of HCFC-22 in new equipment must
be phased out by January 1, 2010, and must be phased out for use in all
equipment by January 1, 2020. The Air Conditioning and Refrigeration Institute,
a trade association to which certain of the Company's operating units belong,
has been working closely with refrigerant manufacturers and others in the
industry to develop new refrigerants that are compatible with existing HVAC
products. However, such new refrigerants may require the Company and its
competitors to modify the design of their existing products, particularly
residential and light commercial products. The availability of new refrigerants
may also prompt an acceleration by the EPA of the phase-out dates. The costs of
the substitution of alternative refrigerants are expected to be industry-wide
product modification costs and accordingly these costs are not expected to have
a material adverse impact on the Company.
Various federal and state statutes, including the National Appliance Energy
Conservation Act of 1987, as amended, impose energy efficient standards for
certain of the Company's unitary air conditioning products. While the Company
has been able to meet or exceed such standards to date, stricter standards in
the future could require substantial research and development expense and
capital expenditures to achieve compliance.
In addition to the legal matters described above, the Company and its
subsidiaries are parties to various legal proceedings incident to the conduct of
their businesses. None of these proceedings is expected to have a material
adverse effect, either individually or in the aggregate, on the Company's
financial position or results of operations. See Note 8 of Notes to Consolidated
Financial Statements.
46
<PAGE> 49
<TABLE>
MANAGEMENT
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- ---------------------------------------
<S> <C> <C>
Richard L. Bready...................... 49 Chairman, President and Chief Executive
Officer
Almon C. Hall.......................... 47 Vice President, Controller and Chief
Accounting Officer
Richard J. Harris...................... 57 Director, Vice President and Treasurer
Siegfried Molnar....................... 53 Senior Vice President -- Group
Operations
Kenneth J. Ortman...................... 58 Senior Vice President -- Group
Operations
Kevin W. Donnelly...................... 39 Vice President, General Counsel and
Secretary
Dennis J. McGillicuddy................. 52 Director
D. Stevens McVoy....................... 50 Director
Philip B. Brooks....................... 79 Director
J. Peter Lyons......................... 58 Director
Barry Silverstein...................... 60 Director
</TABLE>
The executive officers have served in the same or substantially similar
executive positions with the Company for at least the past five years, except
Mr. Bready, who became Chairman and Chief Executive Officer in 1990 after
serving as President, Chief Operating Officer and Chief Financial Officer of the
Company for more than the past five years; Mr. Molnar, who was President and
Chief Operating Officer (1987-1990) of RB&W Corporation prior to joining the
Company in March, 1990; and Mr. Ortman, who was Vice President, Operations and
later Senior Vice President and General Manager of the Supply Division of the
Wheelabrator Corporation division of Wheelabrator Technologies (1984-1988) prior
to joining the Company in September, 1989.
Mr. McGillicuddy has been President and a director and Mr. McVoy has been
Vice President and a director, for more than the past five years, of the Coaxial
Communications Companies, which they founded along with Mr. Silverstein. Mr.
Brooks is a certified public accountant who retired from active practice in
1967. Mr. Lyons, for more than the past five years, has been President of The J.
Peter Lyons Companies which has designed benefit plans and provided insurance
services to the Company. Mr. Silverstein, for more than the past five years, has
been the principal owner and a director of the Coaxial Communications Companies,
which he founded along with Messrs. McGillicuddy and McVoy. Mr. Silverstein, for
more than the past five years, has also been Chief Executive Officer (June 1985
to May 1988 and February 1991 to May 1991), Chairman of the Executive Committee
(May 1988 to February 1991) and Chairman of the Board (June 1986 to May 1988 and
February 1991 to the present) of CCX, Inc. a manufacturer of building products.
Messrs. Bready, McGillicuddy and McVoy are also directors of CCX, Inc.
In a civil injunction action filed March 12, 1990 in federal court in
Washington, D.C., the Securities and Exchange Commission ("SEC") alleged that
the Company violated Sections 10(b) and 13(d) of the Securities Exchange Act of
1934 and Rules 10b-5 and 13d-1 thereunder in connection with reporting on a
Schedule 13D its purchases of stock of Rexham Corporation ("Rexham") in January
1987. The complaint also alleged that Messrs. Harris and Bready and Ralph R.
Papitto (former Chairman and Chief Executive Officer of the Company) aided and
abetted the Company's violations of Section 13(d) and Rule 13d-1. For purposes
of settling, each of the Company and Messrs. Papitto, Harris and Bready, without
admitting or denying the SEC allegations, agreed to an entry of a permanent
injunction enjoining them from future violations of the statutory provisions and
rules they were alleged to have violated, and the Company agreed to pay into a
fund created by the court $634,593 including interest, to compensate persons who
sold Rexham securities during the four-day period the Company's Schedule 13D
filing was allegedly delinquent.
47
<PAGE> 50
<TABLE>
PRINCIPAL SECURITYHOLDERS
The following table sets forth the beneficial ownership of equity
securities of the Company by those persons known by the Company to own
beneficially more than 5% of its Common Stock or Special Common Stock, all as of
December 31, 1993 except for the number of shares held by Gabelli Funds, Inc. as
to which the date is November 2, 1992 and by UBS Asset Management (New York)
Inc. as to which the date is December 31, 1993.
<CAPTION>
COMMON STOCK SPECIAL COMMON STOCK
------------------------ ------------------------
AMOUNT AND AMOUNT AND
NATURE OF PERCENT NATURE OF PERCENT
BENEFICIAL OF BENEFICIAL OF
NAME(1) OWNERSHIP(2) CLASS OWNERSHIP(2) CLASS
------- ------------ ------- ------------ -------
<S> <C> <C> <C> <C>
Richard L. Bready(3)(4)................ 1,738,759 14.5 318,327 51.7
Richard J. Harris(4)................... 287,376 2.4 50,106 8.7
Dennis J. McGillicuddy(3).............. 1,501,959 12.6 234,564 40.6
D. Stevens McVoy(3).................... 1,501,959 12.6 234,564 40.6
Barry Silverstein(3)................... 1,501,959 12.6 234,564 40.6
All directors and executive officers as
a group(3)(4)(5)..................... 1,914,721 15.8 330,957 53.3
Bready Associates(3)................... 1,501,959 12.6 234,564 40.6
Phoenix Associates III(3).............. 1,501,959 12.6 234,564 40.6
Gabelli Funds, Inc.
One Corporate Center
Rye, NY 10580(6)..................... 2,031,215 16.7 24,631 4.3
UBS Asset Management (New York) Inc.
1211 Avenue of the Americas,
New York, NY 10036(6)................ 977,400 8.2 -- --
- ---------------
<FN>
(1) The address of all such persons unless otherwise stated is c/o Nortek, Inc.,
50 Kennedy Plaza, Providence, Rhode Island 02903-2360. The address of Mr.
McVoy, Bready Associates and Phoenix Associates III is 3770 East Livingston
Avenue, Columbus, Ohio 43227. The address of Messrs. McGillicuddy and
Silverstein is 5111 Ocean Boulevard, Sarasota, Florida 34242. Certain of the
shares shown in the table are shares as to which the persons named in the
table have the right to acquire beneficial ownership, as specified in Rule
13d-3(d)(1) promulgated under the Exchange Act. Unless otherwise indicated,
the persons or entities identified in this table have sole voting and
investment power with respect to all shares shown as beneficially held by
them, subject to community property laws where applicable.
(2) Includes shares subject to currently exercisable options in the case of
Messrs. Bready (37,500 shares of Special Common Stock) and Harris (30,000
shares of Common Stock). Does not include future rights to acquire shares
upon the exercise of options in the case of Messrs. Bready (500,000 shares
of Common Stock) and Harris (30,000 shares of Common Stock). Includes 200
shares of Common Stock and 33 shares of Special Common Stock beneficially
owned by Mr. McGillicuddy's wife, as to which Mr. McGillicuddy disclaims
beneficial ownership, and 869 shares of Common Stock beneficially owned by
Mr. McVoy's wife, as to which he disclaims beneficial ownership.
(3) Mr. Bready holds a 15% interest, Mr. McGillicuddy a 19% interest, Mr. McVoy
a 9% interest and Mr. Silverstein a 57% interest in Bready Associates, a
partnership which directly held 1,059,291 shares of Common Stock at December
31, 1993. Under the terms of the partnership agreement of Bready Associates,
the partnership also exercises sole voting and dispositive power over shares
of Common and Special Common held by the partners and their affiliates.
Phoenix Associates III is a partnership whose general partners are Messrs.
McGillicuddy (a 22.5% interest), McVoy (a 10% interest) and Silverstein (a
67.5% interest). As of December 31, 1993 Phoenix Associates III directly
held 183,700 shares of Common Stock. Accordingly, all shares held by the
partnerships, the partners and their affiliates are included in the table as
being beneficially owned by Messrs. Bready, McGillicuddy, McVoy and
Silverstein and by the partnerships and are also included under shares held
by directors and executive officers as a group.
</TABLE>
48
<PAGE> 51
(4) Various defined benefit pension plans of the Company and certain of its
subsidiaries held approximately 2.0% of the outstanding Common Stock of the
Company and 8.0% of the outstanding Special Common Stock at December 31,
1993. Under the provisions of the trust agreement governing the plans, the
Company may instruct the trustee regarding the acquisition and disposition
of plan assets and the voting of securities held by the trust. Accordingly,
although the directors and officers disclaim beneficial ownership of such
shares, the shares are included in the table as being beneficially owned by
Messrs. Bready and Harris and are also included under shares held by
directors and executive officers as a group.
(5) Includes 127,200 shares of Common Stock and 43,500 shares of Special Common
Stock that directors and executive officers as a group have a right to
acquire upon the exercise of currently exercisable options. Does not include
future rights of executive officers to acquire shares upon exercise of
options totalling 606,000 shares of Common Stock. Includes 200 shares of
Common Stock and 33 shares of Special Common Stock owned by Mr.
McGillicuddy's wife as to which Mr. McGillicuddy disclaims beneficial
ownership, and 869 shares of Common Stock owned by Mr. McVoy's wife as to
which Mr. McVoy disclaims beneficial ownership. Except as set forth in the
above table, the Company knows of no persons who at December 31, 1993,
beneficially owned more than 5% of the shares of Common Stock or Special
Common Stock of the Company outstanding on that date.
(6) The information is based on filings made with the Commission and for Gabelli
Funds, Inc. includes 234,915 shares of Common Stock which may be acquired
upon the exercise of conversion rights of the Company's 7 1/2% Convertible
Debentures due 2006 at $21.56 per share.
DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued pursuant to an indenture (the "Indenture") to be
dated as of , 1994 between the Company and State Street Bank and
Trust Company, a Massachusetts banking corporation, as trustee (the "Trustee"),
a form of which has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. The terms of the Notes include those stated
in the Indenture and those made a part of the Indenture by reference to the
Trust Indenture Act of 1939 (the "Trust Indenture Act") as in effect on the date
of the Indenture. The Notes are subject to all such terms, and holders of the
Notes are referred to the Indenture and the Trust Indenture Act for a statement
thereof. The following summary of certain provisions of the Indenture, while
complete in all material respects, does not purport to describe all terms or
provisions thereof and is qualified in its entirety by reference to the
Indenture, including the definitions therein of certain terms used below. The
definitions of certain terms used in the following summary are set forth below
under "Certain Definitions."
The Notes will be senior subordinated obligations of the Company,
subordinate in right of payment to all Senior Indebtedness of the Company and
senior in right of payment to, or pari passu in right of payment with, other
subordinated indebtedness of the Company. The Notes will be effectively
subordinated to all indebtedness and other liabilities of the Company's
Subsidiaries. At October 2, 1993, after giving pro forma effect to the
Refinancing, the Company had no outstanding Senior Indebtedness. At October 2,
1993, the aggregate liabilities of the Company's Subsidiaries, principally
consisting of trade payables and accruals, were $146.0 million.
In the future, subject to the terms of the Indenture, the Company may incur
or issue Senior Indebtedness, which may be secured by Liens on assets and
properties of the Company and its Subsidiaries (without any obligation of the
Company or any of its Subsidiaries to provide any Liens in favor of Holders of
the Notes or to guarantee the payment of the Notes). See Limitation on Liens
covenant under "Certain Covenants" below. However, where a Subsidiary of the
Company guarantees the payment of Indebtedness of the Company, the Company will
be required to cause such Subsidiary to guarantee on a senior subordinated basis
payment of the Company's obligations under the Notes. See the Limitation on
Guaranties by Subsidiaries covenant under "Certain Covenants" below.
Although the Indenture contains certain covenants and provisions that
afford certain protections to Holders of the Notes, such covenants and
provisions would not necessarily afford the Holders of the Notes
49
<PAGE> 52
protection in the event of a highly leveraged transaction involving the Company,
including a leveraged transaction initiated or supported by the Company, the
management of the Company or any affiliate of either party. See "Certain
Covenants" below.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $190,000,000 (or
$218,500,000 if the Underwriters' over-allotment option is exercised in full)
and will mature on , 2004. Interest on the Notes will accrue at
the rate of % per annum and will be payable semi-annually on each
and commencing on , 1994, to
holders of record of the Notes ("Holders") on the immediately preceding
or , whether or not a business day. Interest on the
Notes will accrue from the most recent date to which interest has been paid or,
if no interest has been paid, from , 1994. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal of, premium, if any, and interest on the Notes will be payable at
the office or agency of the Company maintained for such purpose or, at the
option of the Company, payment of interest and principal may be made by check
mailed to the Holders at their respective addresses set forth in the register of
Holders. The Notes will be issued only in registered form, without coupons, in
denominations of $1,000 and integral multiples thereof.
<TABLE>
OPTIONAL REDEMPTION
The Notes will be redeemable by the Company, in whole or in part, on or
after , 1999 at the following redemption prices (expressed as a
percentage of the principal amount) if redeemed during the 12-month period
beginning of the years indicated below, in each case, together with
accrued interest thereon to the redemption date:
<CAPTION>
YEAR PERCENTAGE
----------------------------------------------------------------
<S> <C>
1999.................................................. %
2000.................................................. %
2001.................................................. %
2002 and thereafter................................... 100%
</TABLE>
Notice of the redemption must be mailed by first class mail at least 30 but
not more than 60 days before the redemption date to each Holder of the Notes to
be redeemed at such Holder's registered address. If any Note is to be redeemed
in part only, the notice of redemption relating to that Note will state the
principal amount thereof to be redeemed and a new Note in principal amount equal
to the unredeemed portion will be issued in the name of the Holder upon
cancellation of the original Note. On or after the redemption date, interest
ceases to accrue on Notes or portions of them called for redemption. If less
than all the outstanding Notes are to be redeemed at any time, selection of the
Notes for redemption will be made by the Trustee by lot or, if such method is
prohibited by the rules of any stock exchange on which the Notes are then
listed, any other method the Trustee considers reasonable, provided that Notes
shall be redeemed in principal amounts of $1,000 or integral multiples thereof.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control (as defined below), each Holder
will have the right to require the repurchase of all or any part of such
Holder's Notes pursuant to the offer described below (the "Change of Control
Offer") at a purchase price equal to 101% of the aggregate principal amount plus
accrued and unpaid interest, if any, to the date of purchase.
Immediately following any Change of Control, the Company is required to
mail a notice to the Trustee and to each Holder stating: (i) that the Change of
Control Offer is being made pursuant to the Repurchase Upon Change of Control
covenant of the Indenture and that all Notes tendered will be accepted for
payment; (ii) the purchase price and the purchase date (the "Change of Control
Payment Date"), which may not be earlier than 30 days or no later than 60 days
from the date such notice is mailed; (iii) that any Note not
50
<PAGE> 53
tendered will continue to accrue interest; (iv) that, unless the Company
defaults in the payment therefor, all Notes accepted for payment pursuant to the
Change of Control Offer will cease to accrue interest on and after the Change of
Control Payment Date; (v) that Holders electing to have any Notes purchased
pursuant to a Change of Control Offer will be required to surrender the Notes to
be purchased to the Paying Agent at the address specified in the notice prior to
the close of business on the third business day preceding the Change of Control
Payment Date; (vi) that Holders will be entitled to withdraw Notes they have
tendered on the terms and conditions set forth in such notice; and (vii) that
Holders whose Notes are being purchased only in part will be issued new Notes
equal in principal amount to the unpurchased portion of the Notes surrendered;
provided that the portion of each Note purchased and each such new Note issued
shall be in a principal amount of $1,000 or an integral multiple thereof.
On the Change of Control Payment Date, the Company will (i) accept for
payment all Notes or portions thereof tendered pursuant to the Change of Control
Offer and not withdrawn, (ii) deposit with the Paying Agent money sufficient to
pay the purchase price of all Notes or portions thereof so tendered and not
withdrawn, and (iii) deliver or cause to be delivered to the Trustee, all Notes
so tendered and not withdrawn together with an officers' certificate specifying
the Notes or portions thereof tendered to the Company. The Paying Agent will
promptly mail to each Holder of Notes so tendered and not withdrawn payment in
an amount equal to the purchase price for such Notes, and the Trustee will
promptly authenticate and mail to such Holder a new Note equal in principal
amount to any unpurchased portion of the Notes surrendered; provided that each
such new Note shall be in a principal amount of $1,000 or an integral multiple
thereof. The Company will publicly announce the results of the Change of Control
Offer on or as soon as practicable after the Change of Control Payment Date.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act, and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes triggered by a Change of Control.
A "Change of Control" will be deemed to have occurred at such time as any
of the following events occur: (i) there is consummated any consolidation or
merger of the Company with or into another corporation, or all or substantially
all of the assets of the Company are sold, leased or otherwise transferred or
conveyed to another Person (other than pursuant to a bona fide pledge of assets
to secure Indebtedness made in accordance with the Indenture), and the holders
of the Company's common stock outstanding immediately prior to such
consolidation, merger, sale, lease or other transfer or conveyance or one or
more Exempt Persons do not hold, directly or indirectly, at least a majority of
the common stock of the continuing or surviving corporation immediately after
such consolidation or merger or at least a majority of the Equity Interests of
such Person; (ii) there is filed a report on Schedule 13D or 14D-1 (or any
successor schedule, form or report) pursuant to the Exchange Act disclosing that
any person (defined, solely for the purposes of the Change of Control provision,
as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act or any successor provision to either of the foregoing) has become
the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3
or any successor rule or regulation promulgated under the Exchange Act) of 50%
or more of the combined voting power of all the Company's then outstanding
securities entitled to vote generally for the election of directors; provided,
however, that a person shall not be deemed to be the beneficial owner of, or to
own beneficially, (A) any securities tendered pursuant to a tender or exchange
offer made by or on behalf of such person or any of such person's Affiliates or
associates until such tendered securities are accepted for purchase or exchange
thereunder, or (B) any securities if such beneficial ownership (1) arises solely
as a result of a revocable proxy delivered in response to a proxy or consent
solicitation made pursuant to the applicable rules and regulations under the
Exchange Act, and (2) is not also then reportable on Schedule 13D (or any
successor schedule) under the Exchange Act; or (iii) during any consecutive
two-year period, individuals who at the beginning of such period constituted the
Board of Directors of the Company (together with any new directors whose
election by such Board of Directors or whose nomination for election by the
stockholders of the Company was approved by a vote of 66 2/3% of the directors
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board of Directors of the Company
then in office.
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<PAGE> 54
Notwithstanding the foregoing, a Change of Control shall not be deemed to
have occurred under clause (ii) of the immediately preceding paragraph solely by
virtue of the Company, any Subsidiary of the Company, any employee stock
ownership plan or any other employee benefit plan of the Company or any such
Subsidiary, any other person holding securities of the Company for or pursuant
to the terms of any such employee benefit plan or an Exempt Person, filing or
becoming obligated to file a report under or in response to Schedule 13D or
Schedule 14D-1 (or any successor schedule, form or report) under the Exchange
Act disclosing beneficial ownership by it of securities of the Company, whether
in excess of 50% of the combined voting power of the Company's then outstanding
securities entitled to vote generally for the election of directors or
otherwise.
The Change of Control purchase feature may in certain circumstances make
more difficult or discourage a takeover of the Company and, thus, the removal of
the incumbent management. Although the Company has from time to time received
and considered proposals which might involve a Change of Control, the Change of
Control purchase feature was not adopted as a result of management's knowledge
of any specific effort to accumulate shares of Common Stock or to obtain control
of the Company by means of a merger, tender offer, solicitation or otherwise, or
part of a plan by management to adopt a series of antitakeover provisions.
Instead, the Change of Control purchase feature is a standard term contained in
other similar debt offerings and the terms of such feature result from
negotiations between the Company and the Underwriters.
If a Change of Control were to occur, there can be no assurance that the
Company would have sufficient funds to pay the Change of Control purchase price
for all Notes tendered by Holders thereof. In addition, the Company's ability to
make such payment may be limited by the terms of then-existing borrowing and
other agreements applicable to the Company or its Subsidiaries. Certain existing
agreements applicable to certain of the Company's Subsidiaries restrict the
ability of these Subsidiaries to make distributions to the Company. See
"Description of Other Obligations." The failure of the Company to pay the Change
of Control purchase price to Holders of Notes when due, if continued for 30 days
after receipt of written notice of Default from the Trustee or the Holders of at
least 25% of the aggregate principal amount of the Notes then outstanding,
specifying such Default and requiring that it be remedied, would constitute an
Event of Default under the terms of the Indenture. See "Events of Default and
Remedies."
Neither the Board of Directors of the Company nor the Trustee may waive the
Change of Control repurchase feature of the Indenture. After giving effect to
the Refinancing, the Company will have no outstanding Senior Indebtedness that
contains change of control repurchase provisions similar to the Change of
Control repurchase feature applicable to the Notes.
One of the events that constitute a Change of Control under the Indenture
is a sale, lease or other transfer or conveyance of all or substantially all of
the assets of the Company. There is no precise established definition under
applicable law of the term "substantially all" and, accordingly, if the Company
were to engage in transactions in which it disposed of less than all of its
assets, a question could arise as to whether such disposition was of
"substantially all" of its assets and whether because of such disposition the
Company was required to repurchase the Notes as a result of a Change of Control.
SUBORDINATION
The payment of the principal of, premium, if any, and interest on the Notes
is subordinated in right of payment, as set forth in the Indenture, to the prior
payment in full of all Senior Indebtedness.
Upon any bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property, or any assignment for the
benefit of creditors or any marshalling of the assets and liabilities of the
Company or any distribution to creditors of the Company in a liquidation or
dissolution of the Company, the holders of Senior Indebtedness, shall be
entitled to receive payment in full in cash or, at the option of the holders of
the Senior Indebtedness, cash equivalents of such Senior Indebtedness
(including, in the case of Specified Senior Indebtedness, interest accruing
after the commencement of any such proceeding at the rate specified in the
instrument evidencing the applicable Specified Senior Indebtedness, whether or
not a claim therefor is allowed, to the date of payment of such Specified Senior
Indebtedness), before the Holders shall be entitled to receive any payment of
principal of, premium, if any, or interest on the Notes or receive any
distributions to which the Holders would otherwise be entitled, except that
Holders may receive
52
<PAGE> 55
securities that (i) are subordinated to Senior Indebtedness and to any
securities issued in exchange for Senior Indebtedness to at least the same
extent as the Notes are subordinated to Senior Indebtedness and (ii) have no
maturity or mandatory prepayment prior to the final maturity of any securities
issued in exchange for Senior Indebtedness.
The Company may not pay principal of, premium, if any, or interest on the
Notes and may not make any deposit pursuant to the provisions described under
"Discharge of the Indenture and the Notes" below or acquire any Notes for cash
or property if (i) a default in the payment of the principal of, premium, if
any, interest, fees or expenses on any Senior Indebtedness occurs and is
continuing (a "Payment Default") and the Trustee or the Paying Agent receives a
notice of the default from a Person who may give it pursuant to the Indenture;
or (ii) a default, other than a Payment Default, on any Specified Senior
Indebtedness occurs and is continuing that then permits the holders (or the
agent) of such Specified Senior Indebtedness to accelerate its maturity
immediately and without any further notice (other than notice of such permitted
acceleration, whether or not such acceleration has occurred) or grace periods (a
"Non-Payment Default"), and such default is either the subject of judicial
proceedings or the Trustee or the Paying Agent receives a notice of the default
from a Person who may give it pursuant to the Indenture.
The Trustee or the Paying Agent shall resume payments (including any missed
payments) on the Notes and may make any deposit pursuant to the provisions
described under "Discharge of the Indenture and the Notes" below or acquire them
(i) in the case of a Payment Default, when the default is cured or waived, any
such acceleration is rescinded or the Senior Indebtedness to which such default
relates or which has been accelerated is discharged, or when the right under the
Indenture to prevent any such payment is waived by written notice to the Trustee
by or on behalf of the holders of such Senior Indebtedness, or (ii) in the case
of a Non-Payment Default, at the end of the period (the "Payment Blockage
Period") ending on the earlier of (a) when the default is cured or waived, the
Specified Senior Indebtedness to which such default relates is discharged or
such Payment Blockage Period is terminated by written notice to the Trustee by
or on behalf of the holders of such Specified Senior Indebtedness, or (b) the
179th day after the receipt by the Trustee or the Paying Agent of the notice
commencing such Payment Blockage Period.
Not more than one Payment Blockage Period may be commenced with respect to
the Notes during any period of 360 consecutive days, and there shall be a period
of at least 181 consecutive days in each period of 360 consecutive days when no
Payment Blockage Period is in effect. In addition, no default which existed or
was continuing on the date of the commencement of any Payment Blockage Period
with respect to the Specified Senior Indebtedness and which was known to the
holders (or the agent) of such Specified Senior Indebtedness on such date of
commencement shall be made the basis for the commencement of a second Payment
Blockage Period by the holders (or the agent) of such Specified Senior
Indebtedness whether or not within a period of 360 consecutive days unless such
default shall have been cured or waived for a period of not less than 90
consecutive days.
Nothing contained in the Indenture shall limit the right of the Trustee or
the Holders of Notes to take any action to accelerate the maturity of the Notes
or to pursue any other rights or remedies thereunder or under applicable law;
provided, however, that all Senior Indebtedness of the Company then or
thereafter due and payable, shall first be paid in full in cash or, at the
option of the holders of the Senior Indebtedness, cash equivalents before the
Holders shall be entitled to receive any payment of principal of, premium, if
any, or interest on the Notes. Notwithstanding the foregoing, any acceleration
of the maturity of the Notes or other remedies pursued under the Indenture or
under applicable law due to the default by the Company to make a payment of
principal of, premium, if any, or interest on the Notes required by the
Indenture and resulting from the operation of the foregoing subordination
provisions relating to a Payment Default or a Non-Payment Default shall be
automatically rescinded or discontinued to the extent permitted by applicable
law and all Events of Default which permitted the acceleration of the Notes or
the pursuit of other remedies under the Indenture or under applicable law shall
be deemed to be automatically and permanently cured to the extent permitted by
applicable law if (i) the payment or payments the omission of which gave rise to
the Event of Default is or are made within 179 days after the date on which the
Trustee or the Paying Agent received notice of the default or defaults on the
Senior Indebtedness and (ii) at the time of such automatic rescission no other
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<PAGE> 56
Event of Default or Default shall have occurred and be continuing. Such
automatic rescission shall be effective as of the date the conditions specified
in clauses (i) and (ii) above are satisfied.
In the event that the Company makes any payment to the Trustee, or a
distribution is made to the Holders, on account of principal of, premium, if
any, or interest on the Notes at a time when such payment or distribution is
prohibited by the subordination provisions of the Indenture, such payment shall
be held by the Trustee, and such distribution shall be held by such Holders, in
trust for the benefit of, and shall be paid forthwith over and delivered, upon
written request, to, the holders of Senior Indebtedness (pro rata as to each of
such holders on the basis of the respective amounts of Senior Indebtedness held
by them) or their representative, as their respective interests may appear, for
application to the payment of all Senior Indebtedness remaining unpaid to the
extent necessary to pay all Senior Indebtedness in full in accordance with the
terms thereof, after giving effect to any concurrent payment or distribution to
or for the holders of Senior Indebtedness.
By reason of the subordination provisions described above, in the event of
insolvency of the Company, funds that would otherwise be payable to the Holders
may be paid or turned over to the holders of Senior Indebtedness to the extent
necessary to pay the Senior Indebtedness in full, and the Company may be unable
to make all payments due under the Notes. Accordingly, creditors of the Company
who are holders of Senior Indebtedness may recover more, ratably, than the
Holders, and creditors of the Company who are not holders of Senior Indebtedness
or the Holders of the Notes may recover less, ratably, than holders of Senior
Indebtedness and may recover more, ratably, than the Holders.
The Notes will be structurally subordinated to all liabilities, including
trade payables and Capital Lease Obligations, of the Company's Subsidiaries
(except for any Subsidiary that is a Subsidiary Guarantor, if any, and then the
obligation of such Subsidiary Guarantor under its guaranty of payment of the
Notes will be contractually subordinated to the prior payment of Guarantor
Senior Indebtedness of such Subsidiary Guarantor). The right of the Company to
participate as a stockholder in any distribution of assets of any such
Subsidiary upon its liquidation or reorganization or winding up (and thus the
ability of Holders of the Notes to benefit as creditors of the Company) is
subject to the prior claims of creditors of any such Subsidiary regardless of
whether such creditors are holders of Senior Indebtedness, unless such creditors
have expressly agreed that their claims are subordinate to the claims of the
Holders of the Notes or such Subsidiary is a Subsidiary Guarantor (and then the
obligation of such Subsidiary Guarantor under its guaranty of payment of the
Notes will be contractually subordinated to the prior payment of Guarantor
Senior Indebtedness of such Subsidiary Guarantor). The operations of the Company
are conducted through its Subsidiaries.
The subordination provisions described above will cease to be applicable
upon the effectiveness of any defeasance of the Notes pursuant to the provisions
described under "Discharge of the Indenture and the Notes" below.
CERTAIN COVENANTS
Limitation on Restricted Payments. The Company shall not, and shall not
permit any of its Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend on, or make any distribution in respect of the Company's or any
such Subsidiary's Capital Stock or other Equity Interests, except to the extent
any such dividend or other distribution is (a) actually received by the Company
or a Subsidiary thereof or (b) payable solely in shares of Capital Stock or
other Equity Interests (other than Redeemable Stock or Capital Stock convertible
into any security other than such Capital Stock) of the Company or such
Subsidiary, as the case may be; (ii) purchase, redeem or otherwise acquire or
retire for value any Capital Stock or other Equity Interests of the Company or
any of its Subsidiaries (other than Capital Stock or other Equity Interests held
by the Company or any Wholly-Owned Subsidiary of the Company); (iii) prepay,
repay, purchase, repurchase, redeem, defease or otherwise acquire or retire for
value, prior to a scheduled repayment date, scheduled mandatory sinking fund
payment date or maturity date any Indebtedness of the Company that is
subordinate in right of payment to the Notes (other than in connection with any
refinancing of such Indebtedness permitted by the Indenture); or (iv) make any
Investment other than Permitted Investments (each such action described in any
of clauses (i) through (iv) above being referred to as a "Restricted Payment"),
if, at
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the time of such Restricted Payment, (1) a Default or Event of Default shall
have occurred and be continuing or shall occur as a consequence thereof; (2)
such Restricted Payment, together with the aggregate amount of all other
Restricted Payments declared or made on or after the issue date of the Notes
(including, without duplication, Restricted Payments described in the next
succeeding paragraph), exceeds the sum of (A) 50% of the cumulative Consolidated
Net Income of the Company for the period commencing on January 1, 1994 through
the last day of the fiscal quarter immediately preceding the date of such
proposed Restricted Payment (or, if the Consolidated Net Income of the Company
shall be a deficit, minus 100% of such deficit); (B) the aggregate net cash
proceeds, and the Fair Market Value of any property other than cash, if any,
received by the Company (other than from a Subsidiary of the Company) from the
issuance and sale of either Capital Stock of the Company (other than Redeemable
Stock or any Capital Stock convertible into any security other than such Capital
Stock) or Indebtedness that is convertible into Capital Stock of the Company
(other than Redeemable Stock or any Capital Stock convertible into any security
other than such Capital Stock), to the extent such Indebtedness is actually
converted into such Capital Stock; and (C) $20,000,000; or (3) the Company could
not incur at least $1.00 of additional Indebtedness pursuant to the first
paragraph of the Limitation on Additional Indebtedness covenant.
The foregoing provisions shall not prohibit, so long as no Default or Event
of Default shall have occurred and be continuing or shall occur as a consequence
thereof, (i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment would have
complied with the provisions of the Indenture; or (ii) the declaration and
payment by a Subsidiary of the Company which is required to file periodic
reports under Section 13 or 15(d) of the Exchange Act (a "Reporting Subsidiary")
of dividends on its common stock to all holders of such common stock on a pro
rata basis out of funds legally available for the payment of dividends.
Limitation on Other Senior Subordinated Indebtedness. The Company shall
not incur, issue, create, assume, guarantee or otherwise become liable for any
Indebtedness that is contractually subordinated in right of payment to any
Senior Indebtedness and contractually senior in right of payment to the Notes.
Limitation on Additional Indebtedness. The Company shall not, and shall
not permit any of its Subsidiaries to, directly or indirectly, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable with
respect to (each, an "incurrence") any Indebtedness, including, without
limitation, Acquired Indebtedness; provided, however, that the Company may incur
Indebtedness if (i) no Default or Event of Default shall have occurred and be
continuing at the time or after giving effect to the incurrence of such
Indebtedness and (ii) the Consolidated Cash Flow Coverage Ratio of the Company
for the four full fiscal quarters ending immediately prior to the date of the
incurrence of such additional Indebtedness is at least 2.0 to 1.0.
The foregoing limitations shall not apply, without duplication, to:
(i) Existing Indebtedness;
(ii) Indebtedness of (a) the Company represented by the Notes or (b)
any Subsidiary Guarantor under any Subsidiary Guaranty;
(iii) Indebtedness of the Company under the Company Credit Facility,
up to $60,000,000 in aggregate outstanding principal amount (including the
available undrawn amount of any letters of credit issued thereunder) at any
time;
(iv) Indebtedness of (a) Broan Limited under the Broan Limited Credit
Facility, provided that such Indebtedness shall not exceed at any time
$20,100,000 (Canadian) in aggregate outstanding principal amount (including
the available undrawn amount of any letters of credit issued under such
facility) and shall be secured only by Liens on assets of Broan Limited and
(b) the Company under its limited guaranty of not more than $10,000,000
(Canadian) of the Indebtedness of Broan Limited under the Broan Limited
Credit Facility;
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(v) Indebtedness of Aubrey Manufacturing, Inc. or Broan Mfg. Co., Inc.
not exceeding at any time $3,000,000 in aggregate outstanding principal
amount and, if secured, secured only by Liens on certain real property
owned by such Persons;
(vi) Indebtedness of Universal-Rundle Corporation for working capital
or joint venture investment purposes not exceeding at any time $4,000,000
in aggregate outstanding principal amount and, if secured, secured only by
Liens on assets of Universal-Rundle Corporation;
(vii) Indebtedness of the Company to any of its Wholly-Owned
Subsidiaries, provided that such Indebtedness is contractually subordinated
in right of payment to the Notes, or Indebtedness of any Subsidiary of the
Company to the Company or to any other Wholly-Owned Subsidiary of the
Company, provided that if the Company or any of its Subsidiaries incurs
Indebtedness to a Wholly-Owned Subsidiary of the Company which, at any time
after such incurrence, ceases to be a Wholly-Owned Subsidiary, then all
such Indebtedness in excess of the amount of Allowable Subsidiary Loans
shall be deemed to have been incurred at the time such former Wholly-Owned
Subsidiary ceases to be a Wholly-Owned Subsidiary of the Company;
(viii) Indebtedness of a Subsidiary of the Company under a guaranty of
Indebtedness of the Company (other than the Notes) which causes such
Subsidiary to become a Subsidiary Guarantor pursuant to the provisions of
the Limitation on Guaranties by Subsidiaries covenant;
(ix) Indebtedness of the Company and its Subsidiaries under Interest
Rate Agreements, Currency Agreements and Commodity Agreements, provided
that (a) in the case of Interest Rate Agreements, such Interest Rate
Agreements relate to Indebtedness permitted to be incurred under the
Indenture and the notional principal amount of the obligations of the
Company and its Subsidiaries under such Interest Rate Agreements does not
exceed the principal amount of such Indebtedness, and (b) in the case of
Currency Agreements that relate to other Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company and its
Subsidiaries outstanding at any time other than as a result of fluctuations
in foreign currency exchange rates or by reason of fees, indemnities and
compensation payable thereunder;
(x) Indebtedness of the Company under its guaranty of payment of the
principal of and interest on and certain expenses relating to certain
industrial revenue bonds issued for the benefit of Spaulding Composites
Company, Inc.;
(xi) Indebtedness of the Company and its Subsidiaries under guaranties
of Indebtedness incurred in the ordinary course of business of suppliers,
licensees, franchisees or customers;
(xii) Indebtedness incurred by the Company and its Subsidiaries
consisting of Purchase Money Obligations and Capital Lease Obligations not
exceeding at any time $15,000,000 in aggregate outstanding principal
amount;
(xiii) Acquired Indebtedness incurred by a Subsidiary of the Company
to the extent such Indebtedness could have been incurred by the Company
under the limitations set forth in the preceding paragraph, after giving
pro forma effect to the acquisition of such Subsidiary by the Company;
(xiv) Indebtedness of the Company and its Subsidiaries in respect of
performance bonds, bankers' acceptances and surety or appeal bonds provided
in the ordinary course of business;
(xv) other Indebtedness of the Company and its Subsidiaries not to
exceed at any time $10,000,000 in aggregate outstanding principal amount;
(xvi) Liens permitted under the Limitation on Liens covenant; and
(xvii) Indebtedness ("Refinancing Indebtedness") created, incurred,
issued, assumed or guaranteed in exchange for, or the proceeds of which are
used to extend, refinance, renew, replace, substitute or refund
("refinance"), Indebtedness described in the preceding paragraph or
referred to in clauses (i) through (xv) above; provided, however, that (a)
the principal amount of such Refinancing Indebtedness (or if such
Refinancing Indebtedness is issued at a price less than the principal
amount thereof, the
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original issue amount of such Refinancing Indebtedness), together with the
principal amount of any remaining Indebtedness under the agreement or
instrument governing the Indebtedness being refinanced, shall not exceed
(1) in the case of Refinancing Indebtedness incurred to refinance
Indebtedness permitted to be incurred under any of clauses (iii) through
(vi) and (xv) above, an amount which, when added to all other Indebtedness
outstanding under such clause, shall not exceed the aggregate amount of
Indebtedness permitted to be incurred under such clause, and (2) in the
case of Refinancing Indebtedness incurred to refinance Indebtedness
permitted to be incurred under any of clauses (i), (ii) and (vii) through
(xiv) above, the aggregate amount of such Indebtedness outstanding at the
time of such refinancing, in either case, after giving effect to any
mandatory reductions in principal or other repayments required under the
agreement or instrument governing such Indebtedness; (b) except in the case
of Refinancing Indebtedness that refinances all of the Notes outstanding at
the time of such refinancing, such Refinancing Indebtedness shall be
subordinated in right of payment to the Notes at least to the same extent
as the Indebtedness to be refinanced; (c) in the case of Refinancing
Indebtedness incurred to refinance (1) any Existing Indebtedness, (2) the
Notes, or (3) Indebtedness that ranks pari passu with or junior in right of
payment to the Notes, such Refinancing Indebtedness shall have an Average
Life and Stated Maturity equal to, or greater than, the Average Life and
Stated Maturity of the Indebtedness to be refinanced at the time of such
incurrence; (d) the proceeds of such Refinancing Indebtedness, if incurred
by a Subsidiary of the Company, shall not be used to refinance Indebtedness
of the Company or another Subsidiary of the Company; and (e) the incurrence
of any such Refinancing Indebtedness is substantially simultaneous with the
refinancing of the Indebtedness to be refinanced.
Any Indebtedness incurred pursuant to this Limitation on Additional
Indebtedness covenant shall be subject to the limitations set forth in the
Limitation on Other Senior Subordinated Indebtedness covenant. For purposes of
this Limitation on Additional Indebtedness covenant, the accretion of original
issue discount on Indebtedness shall not be deemed to be an incurrence of
Indebtedness.
Limitation on Sale or Issuance of Capital Stock of Subsidiaries. The
Company shall not (i) sell or otherwise convey or dispose of any Equity
Interests of any of its Subsidiaries except to the Company or a Wholly-Owned
Subsidiary of the Company or as permitted by the Limitation on Liens covenant
and the Limitation On Use of Proceeds from Asset Sales covenant; or (ii) permit
any of its Subsidiaries to issue or sell to any Person except the Company or a
Wholly-Owned Subsidiary of the Company (a) any preferred stock of such
Subsidiaries or (b) except as permitted by the Limitation On Use of Proceeds
from Asset Sales covenant, any other Equity Interests of such Subsidiary.
Limitation on Liens. The Company shall not, and shall not permit any of
its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien on any of its assets or properties, now owned or hereafter
acquired, or any income or profits therefrom, securing any Indebtedness that is
pari passu with or contractually subordinated in right of payment to the Notes
unless the Company or such Subsidiary, as the case may be, simultaneously
executes and delivers a supplemental indenture to the Indenture providing that
(i) the Notes are secured by such Lien equally and ratably with any and all
other Indebtedness secured by such Lien or (ii) in the case of Indebtedness
contractually subordinated in right of payment to the Notes, the Lien securing
such Indebtedness shall be subordinate in right of payment to the Lien securing
the Notes to the same extent that such Indebtedness is subordinated to the
Notes.
The foregoing limitations shall not apply to: (i) Liens securing Acquired
Indebtedness incurred by the Company or any Subsidiary of the Company and
permitted under the Limitation on Additional Indebtedness covenant, provided
that such Liens attach solely to the assets acquired and do not extend to or
cover any property or assets of the Company or any of its Subsidiaries; (ii)
Liens securing Refinancing Indebtedness incurred to refinance Indebtedness that
has been secured by a Lien permitted under the Indenture, provided that such
Liens do not extend to or cover any property or assets of the Company or any of
its Subsidiaries not securing the Indebtedness so refinanced; (iii) Liens
securing Existing Indebtedness; or (iv) Permitted Liens.
Limitation on Certain Restrictions Affecting Subsidiaries. The Company
shall not, and shall not permit any of its Subsidiaries to, directly or
indirectly, create or enter into or otherwise cause or permit to exist or become
effective any agreement with any Person that would cause any consensual
encumbrance or restriction on the ability of any such Subsidiary to (i) pay
dividends or make any other distributions on its Capital Stock
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or any other interest or participation in, or measured by, its profits, owned by
the Company or any of its Subsidiaries, (ii) pay or repay any Indebtedness owed
to the Company or any of its Subsidiaries which owns Equity Interests in such
Subsidiary, (iii) make loans or advances to the Company or any of its
Subsidiaries which owns Equity Interests in such Subsidiary, (iv) transfer any
of its properties or assets to the Company or any of its Subsidiaries which owns
Equity Interests in such Subsidiary or (v) guarantee any Indebtedness of the
Company or any other Subsidiary of the Company except, in each case, for such
encumbrances or restrictions existing under or by reason of (a) applicable law,
(b) the Indenture, (c) customary nonassignment provisions of any lease governing
a leasehold interest of the Company or any of its Subsidiaries, (d) any
instrument governing Indebtedness of a Person acquired by the Company or any of
its Subsidiaries at the time of such acquisition, which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person so acquired, (e) agreements existing as of the
issue date of the Notes, (f) the Company Credit Facility and (g) any agreement
effecting a refinancing of Indebtedness issued pursuant to any agreement or
instrument referred to in clause (d) or (e) above, provided that the terms and
conditions of any such encumbrances and restrictions are not materially less
favorable to the Holders than those under the agreement or instrument evidencing
the Indebtedness being refinanced.
The foregoing shall not restrict the ability of any Subsidiary of the
Company to grant any Lien to the extent otherwise permitted in the Indenture.
Repurchase upon Change of Control. See "Change of Control" above.
Limitation on Use of Proceeds from Asset Sales. The Company shall not, and
shall not permit any of its Subsidiaries to, directly or indirectly, consummate
any Asset Sale unless (i) the Company or such Subsidiary, as the case may be,
receives consideration at the time of any such Asset Sale having a value
(including the Fair Market Value of any non-cash consideration) at least equal
to the Fair Market Value of the securities or assets being sold or otherwise
disposed of, (ii) at least 75% of the consideration from such Asset Sale is
received at the closing in the form of cash, Cash Equivalents (together with
cash, "Cash Proceeds") or indebtedness for borrowed money of the Company or such
Subsidiary that is assumed by the transferee of any such assets or any such
indebtedness of any Subsidiary of the Company whose stock is purchased by the
transferee, and (iii) with respect to any Asset Sale involving the Equity
Interests of any Wholly-Owned Subsidiary of the Company or, in the case of
subclause (b) below, any Subsidiary of the Company that was a Wholly-Owned
Subsidiary of the Company prior to the first public offering referred to in such
subclause (b), (a) the Company or another Wholly-Owned Subsidiary of the Company
shall in such Asset Sale sell all of the Equity Interests it owns of such
Subsidiary or receive Cash Proceeds at the closing of such Asset Sale in an
amount not less than 75% of the Fair Market Value of all Equity Interests of
such Subsidiary owned by the Company or such other Wholly-Owned Subsidiary of
the Company, whether or not sold, or (b) the Company or another Subsidiary of
the Company may sell, or such Subsidiary may issue, in such Asset Sale not more
than 20% of the shares of common stock of such Subsidiary in one or more public
offerings for cash only if, as of the date of such Asset Sale, after giving pro
forma effect to such Asset Sale by excluding, in the determination of
Consolidated Cash Flow of the Company for the four full consecutive fiscal
quarters ending immediately prior to such Asset Sale, that portion of the
Consolidated Cash Flow accounted for by such Subsidiary equal to the portion of
the common stock of such Subsidiary being sold or issued in such Asset Sale, the
Company could incur at least $1.00 of additional Indebtedness pursuant to the
first paragraph of the Limitation on Additional Indebtedness covenant.
Notwithstanding anything to the contrary in the preceding sentence, the sale by
the Company of all Equity Interests of Dixieline Lumber Company or all or
substantially all of the assets of Dixieline Lumber Company shall not be deemed
to be an Asset Sale except to the extent that the Company or any of its
Subsidiaries makes after the issue date of the Notes any Investment in Dixieline
Lumber Company, in which event the aggregate amount of all such Investments
shall be deemed Net Cash Proceeds without regard to the $5,000,000 exception set
forth in the definition of the term Asset Sale in the Indenture. Any Net Cash
Proceeds (a) in excess of the amount of cash applied by the Company or any
Subsidiary of the Company during the period beginning six months prior to the
date of the Asset Sale (but not prior to the issue date of the Notes) and ending
12 months after the date of such Asset Sale to purchase any business that is, or
any properties and assets used primarily in, the same or a related business as
those owned and operated by the Company and its Subsidiaries as of the issue
date of the Notes or at the date of
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such Asset Sale and (b) not applied within 12 months after the date of the Asset
Sale to permanently reduce Senior Indebtedness shall be deemed to be "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $10,000,000, the
Company shall make an offer (the "Excess Proceeds Offer") to apply the Excess
Proceeds to purchase the Notes. The Excess Proceeds Offer must be in cash in an
amount equal to 100% of the principal amount plus accrued and unpaid interest to
the date fixed for the closing of such offer, substantially in accordance with
the procedures for a Change of Control Offer described in the Repurchase upon
Change of Control covenant. To the extent that the aggregate amount of Notes
tendered pursuant to the Excess Proceeds Offer is less than the Excess Proceeds,
the Company may use the remaining Excess Proceeds for general corporate purposes
and such amounts shall no longer be deemed Excess Proceeds. If the aggregate
principal amount of Notes surrendered by Holders exceeds the amount of Excess
Proceeds, the Trustee shall select the Notes to be purchased on a pro rata
basis, subject to the limitation on the authorized denominations of the Notes.
Notwithstanding the immediately preceding paragraph (i) the Company and its
Subsidiaries may, in the ordinary course of business, sell, lease, or otherwise
transfer or dispose of assets acquired and held for resale in the ordinary
course of business; (ii) the Company may sell, lease, or otherwise transfer or
dispose of assets in accordance with the provisions described under "Merger,
Consolidation or Transfer of Assets" below; (iii) the Company and its
Subsidiaries may sell, lease or otherwise transfer or dispose of damaged, worn
out or obsolete property in the ordinary course of business or other property no
longer necessary for the proper conduct of their businesses; and (iv) the
Company and its Subsidiaries may abandon assets or properties which are no
longer useful in their businesses and cannot be sold.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws are applicable in connection with the repurchase of Notes
pursuant to an Excess Proceeds Offer.
Limitation on Transactions with Affiliates. Except as otherwise permitted
by the Indenture, neither the Company nor any of its Subsidiaries shall make any
Investment, loan, advance, guaranty or capital contribution to, or for the
benefit of, or sell, lease or otherwise transfer or dispose of any of its
properties or assets to, or for the benefit of, or purchase or lease any
property or assets from, or enter into or amend any contract, agreement or
understanding with, or for the benefit of, any Affiliate of the Company or any
of its Subsidiaries, unless (i) such transaction or series of transactions is in
the best interests of the Company or such Subsidiary based on all relevant facts
and circumstances; (ii) such transaction or series of transactions is fair to
the Company or such Subsidiary and on terms that are no less favorable to the
Company or such Subsidiary, as the case may be, than those that could have been
obtained in a comparable transaction on an arms' length basis from a Person that
is not an Affiliate; and (iii) (a) with respect to a transaction or series of
related transactions involving aggregate payments in excess of $1,000,000, the
Board of Directors and a majority of the Disinterested Directors shall approve
such transaction or series of transactions by a Board Resolution evidencing
their determination that such transaction or series of transactions comply with
clauses (i) and (ii) above, and (b) with respect to a transaction or series of
transactions involving aggregate payments equal to or greater than $10,000,000,
the Company receives a written opinion from a nationally recognized investment
bank or, with respect to a transaction requiring the valuation of real property,
a nationally recognized real estate appraisal firm, that such transaction or
series of transactions is fair to the Company from a financial point of view.
Certain transactions subject to this covenant, such as the repurchase of Capital
Stock from, or an Investment in, an Affiliate of the Company also would be
subject to the Limitation on Restricted Payments covenant.
The foregoing limitation shall not apply to: (i) an Investment to be made
by the Company pursuant to a commitment authorized by the Board of Directors of
the Company prior to the issue date of the Notes in Ecological Engineering
Associates, L.P. in an amount not to exceed $2,100,000 (including such
Investments made prior to the issue date of the Notes); (ii) any payment of
money or issuance of securities by the Company or any Subsidiary of the Company
pursuant to employment agreements or arrangements and employee benefit plans,
including reimbursement or advancement of out-of-pocket expenses and directors'
and officers' liability insurance; (iii) reasonable and customary payments and
other benefits (including indemnification) provided to directors for service on
the Board of Directors of the Company or any of its Subsidiaries
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and reimbursement of expenses related thereto; or (iv) transactions between the
Company and any Subsidiary of the Company, or between one Subsidiary of the
Company and another Subsidiary of the Company, provided that not more than 5% of
such Subsidiary is owned by any Affiliate of the Company or any of its
Subsidiaries (other than the Company or a Wholly-Owned Subsidiary of the
Company).
Limitation on Guaranties by Subsidiaries. The Company shall not permit any
Subsidiary of the Company, directly or indirectly, to assume, guarantee or in
any other manner become liable with respect to any Indebtedness of the Company
or any Subsidiary Guarantor (other than the Notes), unless such Subsidiary is a
Subsidiary Guarantor or simultaneously executes and delivers (a) to the Company
and the Trustee a supplemental indenture to this Indenture providing for a
Subsidiary Guaranty of the Notes by such Subsidiary and any other Subsidiary
Guarantors having such terms as are set forth in an exhibit to the Indenture and
(b) to the Trustee a Subsidiary Guaranty. Each Subsidiary Guaranty shall be
subordinate to Guarantor Senior Indebtedness in substantially the same manner
and to the same extent as the Notes are subordinated to Senior Indebtedness of
the Company under the Indenture. Notwithstanding the foregoing, in the event
that a Subsidiary Guarantor is released from all obligations which pursuant to
the first sentence of this paragraph obligate it to become a Subsidiary
Guarantor, such Subsidiary Guarantor shall be deemed automatically and
unconditionally released from all obligations under its Subsidiary Guaranty
without any further action required on the part of the Trustee or any Holder. In
addition, upon any sale or disposition (by merger or otherwise) of any
Subsidiary Guarantor by the Company or a Subsidiary of the Company to any person
that is not an Affiliate of the Company or any of its Subsidiaries which is
otherwise in compliance with the terms of the Indenture, such Subsidiary
Guarantor will be deemed to be released from all obligations under its
Subsidiary Guaranty.
Each Subsidiary Guaranty may be modified from time to time without the
consent of the Holders, to reflect such fraudulent conveyance savings
provisions, net worth or maximum amount limitations as to recourse or similar
provisions as are set forth in, and after giving effect to, any guaranty by any
Subsidiary Guarantor of any Senior Indebtedness with respect to the Company
Credit Facility.
No Lien on the properties or assets of any Subsidiary of the Company
permitted by the Limitation on Liens covenant shall constitute a guaranty of the
payment of any Indebtedness of the Company for purposes of this Limitation on
Guaranties by Subsidiaries covenant.
Payments for Consents. Neither the Company nor any of its Subsidiaries
shall, directly or indirectly, pay or cause to be paid any consideration whether
by way of interest, fee or otherwise, to any Holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Indenture or the Notes unless such consideration is offered to be paid or
agreed to be paid to all Holders of the Notes which so consent, waive or agree
to amend in the time frame set forth in solicitation documents relating to such
consent, waiver or agreement.
Provision of Reports and Other Information. The Company shall file with
the Commission all such definitive reports and other information as is required
by Section 13 or 15(d) of the Exchange Act. Within 15 days after the same are
filed with the Commission, the Company will file with the Trustee and supply to
each holder of the Notes, without cost, such reports or other information. If
the Company is not subject to the reporting requirements of the Exchange Act, it
shall provide to the Trustee and supply to each Holder, without cost, within 15
days after it would have been required to file such information with the
Commission, financial statements, including any notes thereto and, with respect
to annual reports, an auditors' report by an accounting firm of established
national reputation and a "Management's Discussion and Analysis of Financial
Condition and Results of Operations," both comparable to that which the Company
would have been required to include in such annual reports, information,
documents or other reports if the Company had been subject to the requirements
of such Sections 13 or 15(d) of the Exchange Act.
MERGER, CONSOLIDATION OR TRANSFER OF ASSETS
The Company shall not consolidate with, merge with or into, or transfer all
or substantially all of its assets (as an entirety or substantially as an
entirety in one transaction or a series of related transactions) to, any Person
or permit any Person to merge with or into it, or permit any of its Subsidiaries
to enter into any such
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transaction or transactions if such transaction or transactions in the aggregate
would result in a transfer of all or substantially all of the assets of the
Company and its Subsidiaries on a consolidated basis, unless: (1) the Company
shall be the continuing Person, or the Person, if other than the Company, formed
by such consolidation or into which the Company is merged or to which the
properties and assets of the Company or of the Company and its Subsidiaries on a
consolidated basis, substantially as an entirety, are transferred shall be a
corporation organized and existing under the laws of the United States or any
state thereof or the District of Columbia and shall expressly assume, by an
indenture supplemental to the Indenture, executed and delivered to the Trustee,
in form satisfactory to the Trustee, all the obligations of the Company under
the Notes and the Indenture, and the Indenture remains in full force and effect;
(2) immediately before and immediately after giving effect to such transaction,
no Event of Default and no Default shall have occurred and be continuing; (3)
the Person which is formed by or survives such consolidation or merger or to
which such assets are transferred (the "surviving entity"), after giving pro
forma effect to such transaction, could incur $1.00 of additional Indebtedness
under the first paragraph of the Limitation on Additional Indebtedness covenant;
(4) immediately after giving effect to such transaction on a pro forma basis the
Consolidated Net Worth of the surviving entity shall be equal to or greater than
the Consolidated Net Worth of the Company immediately before such transaction
and (5) each Subsidiary Guarantor, if any, unless it is the other party to the
applicable transaction described above or its Subsidiary Guaranty, after giving
effect to such transaction, is to be released in accordance with the terms
hereof and of such Subsidiary Guaranty, shall have confirmed by supplemental
indenture that its Subsidiary Guaranty shall apply to the obligations of the
Company or the surviving entity under the Indenture.
In connection with any such consolidation, merger or transfer, the Company
shall deliver, or cause to be delivered, to the Trustee, in form and substance
reasonably satisfactory to the Trustee, an officers' certificate and an opinion
of counsel, each stating that such consolidation, merger or transfer and the
supplemental indenture in respect thereto comply with the Indenture and that all
conditions precedent therein provided for relating to such transactions have
been complied with.
Upon any consolidation or merger, or any transfer of all or substantially
all of the assets of the Company and its Subsidiaries on a consolidated basis,
in accordance with the second preceding paragraph, the successor Person formed
by such consolidation or into which the Company is merged or the successor
Person to which such transfer is made shall succeed to, and be substituted for,
and may exercise every right and power of, the Company under the Indenture with
the same effect as if such successor Person had been named as the Company in the
Indenture, and when a successor Person assumes all the obligations of its
predecessor under the Indenture or the Notes, the predecessor shall be released
from those obligations; provided, however, that in the case of a transfer by
lease, the predecessor shall not be released from the payment of principal of,
premium, if any, and interest on the Notes.
With respect to the transfer of all or substantially all of the assets of
the Company or of the assets of the Company and its Subsidiaries on a
consolidated basis, there is no precise established definition of the term
"substantially all" under applicable law. Accordingly, if the Company were to
engage in transactions in which it disposed of less than all of its assets or
the Company or a Subsidiary of the Company were to engage in transactions in
which less than all of the assets of the Company and its Subsidiaries on a
consolidated basis were disposed of, a question could arise as to whether such
disposition was of "substantially all" of the assets of the Company or the
assets of the Company and its Subsidiaries on a consolidated basis, as the case
may be, and, therefore, whether the transaction was subject to the foregoing
provisions of the Indenture.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an "Event of
Default": (1) the Company defaults in the payment, when due and payable, of (i)
interest on any Note and the default continues for a period of 30 days, or (ii)
the principal of or premium, if any, on any Notes when the same becomes due and
payable at maturity, by acceleration, on the Redemption Date, on the Change of
Control Payment Date, on any payment date respecting an Excess Proceeds Offer or
otherwise; (2) the Company fails to comply with any of its covenants or
agreements under the Repurchase upon Change of Control covenant, the Limitation
on Restricted Payments covenant, or the provisions set forth under "Merger,
Consolidation or Transfer of Assets"
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above; (3) the Company fails to comply with any of its covenants or agreements
in the Notes or the Indenture (other than those referred to in clause (1) or (2)
above), or any Subsidiary Guarantor fails to comply with any of its covenants or
agreements in the Indenture or its Subsidiary Guaranty and such failure
continues for the period and after receipt by the Company of the notice
specified below; (4) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
indebtedness for money borrowed by the Company or any of its Subsidiaries (or
the payment of which is guaranteed by the Company or any of its Subsidiaries,
excluding, however, the guaranty of the Company referred to in clause (x) of the
Limitation on Additional Indebtedness covenant) whether such indebtedness or
guaranty is now existing or hereafter created, if such default shall constitute
a failure to pay any portion of the principal of such indebtedness when due and
payable or if as a result of such default the maturity of such indebtedness has
been accelerated prior to its stated maturity and, in either case, the principal
amount of such indebtedness, together with the principal amount of any other
such indebtedness for money borrowed which has not been paid when due and
payable or the maturity of which has been accelerated as a result of such
default, aggregates $10,000,000 or more; (5) the Company or any of its Material
Subsidiaries pursuant to or within the meaning of any bankruptcy law: (A)
commences a voluntary case or proceeding; (B) consents to the entry of an order
for relief against it in an involuntary case or proceeding; (C) consents to the
appointment of a custodian of it or for all or substantially all of its
property; (D) makes a general assignment for the benefit of its creditors; or
(E) admits in writing its inability to pay its debts generally as they become
due; (6) a court of competent jurisdiction enters an order or decree under any
bankruptcy law that: (A) is for relief against the Company or any of its
Material Subsidiaries in an involuntary case or proceeding; (B) appoints a
custodian of the Company or any of its Material Subsidiaries for all or
substantially all of its properties; (C) orders the liquidation of the Company
or any of its Material Subsidiaries; (D) and in each case the order or decree
remains unstayed and in effect for 60 days; (7) final judgments for the payment
of money which in the aggregate exceed $10,000,000 shall be rendered against the
Company or any of its Subsidiaries by a court and shall remain unstayed or
undischarged for a period of 60 days; or (8) any Subsidiary Guaranty ceases to
be in full force and effect or is declared null and void, or any Subsidiary
Guarantor denies that it has any further liability under any Subsidiary Guaranty
or gives notice to such effect (in each case other than by reason of the
termination of the Indenture or the release of such Subsidiary Guaranty in
accordance with the terms of the Indenture and such Subsidiary Guaranty) and
such condition shall have continued for the period and after receipt by the
Company of the notice specified below.
A Default under clause (3) or (8) above is not an Event of Default until
the Trustee notifies the Company, or the Holders of at least 25% in aggregate
principal amount of the Notes at the time outstanding notify the Company and the
Trustee, of the Default and the Company does not cure such Default within 30
days after receipt of such notice. Any such notice must specify the Default,
demand that it be remedied and state that such notice is a "Notice of Default."
In the case of any Event of Default (other than as a result of a failure to
comply with the Repurchase upon Change of Control covenant) occurring by reason
of any willful action (or inaction) taken (or not taken) by or on behalf of the
Company with the intention of avoiding payment of the premium which the Company
would have to pay if the Company then had elected to redeem the Notes, an
equivalent premium shall also become and be immediately due and payable to the
extent permitted by law, anything in the Indenture or in the Notes contained to
the contrary notwithstanding.
In the case of an Event of Default as a result of a failure to comply with
the Repurchase upon Change of Control covenant occurring by reason of any
willful action (or inaction) taken (or not taken) by or on behalf of the Company
with the intention of avoiding payment of the premium which the Company would
have to pay pursuant to the Repurchase upon Change of Control covenant, such
premium shall also become and be immediately due and payable at such time as the
principal and interest on the Notes become due and payable pursuant to the
acceleration provisions of the Indenture to the extent permitted by law,
anything in the Indenture or in the Notes contained to the contrary
notwithstanding.
If any Event of Default (other than an Event of Default specified in clause
(5) or (6) above) occurs and is continuing, the Trustee or the Holders of at
least 25% of the principal amount of the Notes then outstanding, by written
notice to the Company (and to the Trustee if such notice is given by such
Holders)
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(the "Acceleration Notice"), may, and such Trustee at the request of such
Holders shall, declare all unpaid principal of, premium, if any, and accrued
interest on the Notes to be due and payable. Upon a declaration of acceleration,
such principal, premium, if any, and accrued interest shall be due and payable,
(i) immediately, if no amount is outstanding and no commitment is in effect
under Specified Senior Indebtedness or (ii) if any amount is outstanding or any
commitment is in effect under Specified Senior Indebtedness, upon the earlier of
five business days after delivery of the Acceleration Notice to the Company and
the agent of the holders of Specified Senior Indebtedness by the Trustee or the
Holders, as the case may be, or acceleration of the Specified Senior
Indebtedness, and thereupon the Trustee may, at its discretion, proceed to
protect and enforce the rights of the Holders by appropriate judicial
proceedings. If an Event of Default specified in clause (5) or (6) above occurs,
all principal of, premium, if any, and accrued interest on the Notes then
outstanding shall ipso facto become and be immediately due and payable without
declaration or other act on the part of the Trustee or any Holder. The Holders
of at least a majority in principal amount of the Notes then outstanding by
written notice to the Trustee may rescind an acceleration and its consequences
(except an acceleration due to default in payment of principal or interest on
the Notes) if all existing Events of Default have been cured or waived except
non-payment of principal or interest that has become due solely because of the
acceleration. Subject to certain restrictions set forth in the Indenture, the
Holders of at least a majority in principal amount of the outstanding Notes by
notice to the Trustee may waive an existing Default or Event of Default and its
consequences, except a Default in the payment of principal of, premium, if any,
or interest on, any Note or a Default under a provision which requires consent
of all Holders to amend. When a Default or Event of Default is waived, it is
cured and ceases. A Holder of Notes may not pursue any remedy with respect to
the Indenture or the Notes unless: (i) the Holder gives to the Trustee written
notice that an Event of Default is continuing; (ii) the Holders of at least 25%
in aggregate principal amount of any Notes outstanding make a written request to
the Trustee to pursue the remedy; (iii) such Holder or Holders offer to the
Trustee reasonable indemnity or security against any loss, liability or expense
satisfactory to the Trustee; (iv) the Trustee does not comply with the request
within 30 days after receipt of the request and the offer of indemnity or
security; and (v) during such 30-day period the Holders of a majority in
aggregate principal amount of the outstanding Notes do not give the Trustee a
direction which is inconsistent with the request.
DISCHARGE OF THE INDENTURE AND THE NOTES
If, at any time prior to the Stated Maturity of the Notes or the date of
redemption of all outstanding Notes, the Company irrevocably deposits with the
Trustee money and/or direct non-callable obligations of, or non-callable
obligations guaranteed by, the United States of America for the payment of which
guarantee or obligation the full faith and credit of the Untied States is
pledged, maturing as to principal and interest in such amounts and at such times
as are sufficient, without consideration of any reinvestment of such interest,
to pay principal of, premium, if any, and interest on, the outstanding Notes
(other than replaced Notes) to maturity or redemption, as the case may be, in
accordance with the terms of the Indenture and the Notes, the Indenture and each
Subsidiary Guaranty, if any, shall cease to be of further effect as to all
outstanding Notes (except, among other things, as to (i) remaining rights of
registration of transfer and substitution and exchange of the Notes, (ii) rights
of Holders to receive payment of principal and interest on the Notes, and (iii)
the rights, obligation and immunities of the Trustee).
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents, and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar is not required to transfer or
exchange any Note selected for redemption. Also, the Registrar is not required
to transfer or exchange any Note for a period of 15 days before a selection of
Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
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AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, with the written consent of the Holders of
at least a majority in aggregate principal amount of the Notes then outstanding,
the Company and the Trustee may amend the Indenture or the Notes, or may waive
compliance by the Company or any Subsidiary Guarantor with any provision of the
Indenture, the Notes or such Subsidiary Guarantor's Subsidiary Guaranty.
However, without the consent of each Holder affected, a waiver or an amendment
to the Indenture or the Notes may not: (i) reduce the percentage of principal
amount of the Notes whose Holders must consent to an amendment or waiver; (ii)
make any change to the Stated Maturity of the principal of, premium, if any, or
any interest on the Notes or any Redemption Price thereof, or impair the right
to institute suit for the enforcement of any such payment or make any Note
payable in money or securities other than that stated in the Note; (iii) make
any change in the subordination provisions of the Indenture or any Subsidiary
Guaranty that adversely affects the rights of any Holder of the Notes or any
other change to the Indenture or any Subsidiary Guaranty that adversely affects
the rights of any Holder of the Notes under such subordination provisions; (iv)
waive a default in the payment of the principal of, premium, if any, or interest
on, any Note; (v) make any change in the provisions of the Repurchase upon
Change of Control covenant or the Limitation on Use of Proceeds of Asset Sale
covenant; (vi) release any Subsidiary Guarantor from any of its obligations
under its Subsidiary Guaranty or the Indenture other than in compliance with the
terms of such Subsidiary Guaranty; or (vii) make any change in the amendment
provisions of the Indenture.
Notwithstanding the foregoing, without the consent of any Holder, the
Company and the Trustee may amend or supplement the Indenture or the Notes (i)
to cure any ambiguity, defect or inconsistency; (ii) to comply with the
provisions described under "Merger, Consolidation or Transfer of Assets"; (iii)
to provide for uncertificated Notes in addition to or in place of certificated
Notes so long as such uncertificated Notes are in registered form for purposes
of the Internal Revenue Code of 1986, as amended; (iv) to make any other change
that does not adversely affect the rights of any Holder; (v) to comply with any
requirement of the Commission in connection with the qualification of the
Indenture under the Trust Indenture Act; or (vi) to add any Subsidiary of the
Company as a Subsidiary Guarantor.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquired any conflicting interest it must eliminate
such conflict within 90 days, or apply to the Commission for permission to
continue or resign.
The Holders of not less than a majority in principal amount of then
outstanding Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur and be continuing (and shall not be cured), the Trustee will
be required, in the exercise of its power, to use the degree of care and skill
of a prudent person in the conduct of his own affairs. Subject to such
provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any Holders of Notes,
unless they shall have offered to the Trustee reasonable security or indemnity
satisfactory to it against any loss, liability or expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means, with respect to any Person, Indebtedness of
such Person (i) assumed in connection with an acquisition of assets or
properties from such Person, or (ii) existing at the time such Person becomes a
Subsidiary of any other Person (in each case other than any Indebtedness
incurred in connection with, or in contemplation of, such acquisition or such
Person becoming such a Subsidiary).
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"Affiliate" means, with respect to any Person, any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. A Person shall be deemed to "control"
(including the correlative meanings, the terms "controlling," "controlled by",
and "under common control with") another Person if the controlling Person (i)
possesses, directly or indirectly, the power to direct or cause the direction of
the management or policies of the controlled Person, whether through ownership
of voting securities, by agreement or otherwise, or (ii) owns, directly or
indirectly, 10% or more of the combined voting power of all classes of the
issued and outstanding equity securities of the controlled Person.
"Allowable Subsidiary Loans" means Indebtedness of the Company to a
Subsidiary not to exceed the Net Cash Proceeds received by the Company as a
result of such Subsidiary becoming less than a Wholly-Owned Subsidiary through
the sale of Equity Interests in compliance with the terms of the Indenture,
provided that (i) all such Allowable Subsidiary Loans are contractually
subordinated in right of payment to the Notes and (ii) the total amount of all
Allowable Subsidiary Loans does not exceed $25,000,000.
"Asset Sale" means, with respect to any Person, the sale, lease, conveyance
or other transfer or disposition by such Person of any of its assets or
properties (including by way of a sale-and-leaseback and including the sale or
other transfer of any of the Capital Stock of any Subsidiary of such Person), in
a single transaction or through a series of related transactions, for aggregate
consideration received by such Person or a Subsidiary of such Person, net of
out-of-pocket costs relating thereto (including, without limitation, legal,
accounting and investment banking fees and sales commissions), in excess of
$5,000,000. For purposes of this definition, consideration shall include,
without limitation, any indebtedness for borrowed money of such Person or such
Subsidiary that is assumed by the transferee of any assets or any such
indebtedness of any Subsidiary of such Person whose stock is purchased by the
transferee. Any transaction consummated in compliance with the provisions set
forth under "Merger, Consolidation or Transfer of Assets" above and any Lien
permitted under the Limitation on Liens covenant (and any foreclosure or other
sale under any such Lien, except to the extent there are surplus proceeds from
such foreclosure) shall not constitute an Asset Sale.
"Average Life" means, as of the date of determination, with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products of
the number of years from the date of determination to the date of each
successive scheduled principal payment (assuming the exercise by the obligor of
such debt security of all unconditional (other than as to the giving of notice)
extension options of each such scheduled payment date) of such debt security
multiplied by the amount of such principal payment by (ii) the sum of all such
principal payments.
"Broan Limited Credit Facility" means a credit facility between Broan
Limited, a Canadian Subsidiary of the Company, and one or more banks or other
institutional lenders, as the same may be amended, extended, amended and
restated, supplemented or otherwise modified or replaced from time to time.
"Capital Lease Obligations" means, with respect to any Person, all
obligations of such Person or any of its Subsidiaries under leases of property
by such Person or such Subsidiary as lessee which would be capitalized on a
balance sheet of such Person prepared in accordance with GAAP, and for purposes
of the Indenture the amount of such obligations at any time shall be the
aggregate capitalized amount thereof at such time, as determined in accordance
with GAAP.
"Capital Stock" means any and all shares, interests, participations, rights
or other equivalents (however designated) of corporate stock (including common
or preferred stock) or partnership interests.
"Cash Equivalents" means (i) any evidence of Indebtedness, maturing not
more than 365 days after the date of acquisition, issued or fully guaranteed or
insured by the United States of America, or an instrumentality or agency thereof
(provided that the full faith and credit of the United States of America is
pledged in support thereof), (ii) any certificate of deposit, overnight bank
deposit or bankers acceptance, maturing not more than 365 days after the date of
acquisition, issued by, or time deposit of, a commercial banking institution
having unsecured long-term debt (or whose holding company has unsecured
long-term debt) rated, at the time as of which any Investment therein is made,
BBB+ or better by S&P or Moody's or the equivalent of such rating by a successor
rating agency, (iii) commercial paper, maturing not more than 90
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days after the date of acquisition, issued by a corporation (other than an
Affiliate or Subsidiary of the Company) organized and existing under the laws of
the United States of America or any State thereof or the District of Columbia
which is rated, at the time as of which any Investment therein is made, P-1 or
better by Moody's or A-1 or better by S&P, or the equivalent of such rating by a
successor rating agency, (iv) Investments in mutual funds, money market funds,
investment pools and other savings vehicles, 100% of the assets of which are
invested in Investments described in clause (i), (ii) or (iii) above, and (v) in
the case of Broan Limited, (a) any evidence of Indebtedness, maturing not more
than 365 days after the date of acquisition, issued or fully guaranteed or
insured by Canada or any instrumentality or agency thereof (provided that the
full faith and credit of Canada is pledged in support thereof), (b) any
certificate of deposit, overnight bank deposit or bankers acceptance, maturing
not more than 365 days after the date of acquisition, issued by, or time deposit
of, a commercial banking institution having unsecured long-term debt (or whose
holding company has unsecured long-term debt) rated, at the time as of which any
Investment therein is made, A or better by Dominion Bond Rating Services or the
equivalent of such rating by a successor rating agency and (c) commercial paper,
maturing not more than 90 days after the date of acquisition, issued by a
corporation (other than an Affiliate or Subsidiary of the Company) organized and
existing under the laws of Canada or any province thereof which is rated, at the
time as of which any Investment therein is made, R-1 or better by Dominion Bond
Rating Services or the equivalent of such rating by a successor rating agency.
"Commodity Agreement" means any agreement or arrangement designed to
protect the Company or any of its Subsidiaries against fluctuations in the
prices of commodities used by the Company or any of its Subsidiaries in the
ordinary course of business.
"Company Credit Facility" means one or more credit facilities between the
Company and one or more banks or other institutional lenders, as the same may be
amended, extended, amended and restated, supplemented or otherwise modified or
replaced from time to time, specifically designated in each such credit facility
as a "Company Credit Facility." All Company Credit Facilities are referred to
collectively in the Indenture as the "Company Credit Facility".
"Consolidated Amortization Expense" means, with respect to any Person for
any period, the amortization expense of such Person and its Subsidiaries,
determined on a consolidated basis for such period in accordance with GAAP,
excluding any amortization expense included in Consolidated Interest Expense.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the sum of, without duplication, (i) Consolidated Net Income of such Person for
such period, (ii) Consolidated Interest Expense of such Person for such period,
(iii) Consolidated Income Tax Expense of such Person for such period, (iv)
Consolidated Depreciation Expense of such Person for such period, (v)
Consolidated Amortization Expense of such Person for such period, and (vi) the
amount, not to exceed 10% of Consolidated Cash Flow of such Person for such
period (which amount shall be excluded in determining such Consolidated Cash
Flow), by which (A) other non-cash items of expense that reduce Consolidated Net
Income of such Person for such period exceed (B) other non-cash items of expense
that increase Consolidated Net Income of such Person for such period; provided,
however, that, in the case of the Company, any expenses which are included in
any of clauses (ii) through (vi) above for such period and which are
attributable to Dixieline Lumber Company shall be deducted from Consolidated
Cash Flow of the Company for such period.
"Consolidated Cash Flow Coverage Ratio" means, with respect to any Person
for any period, the ratio of Consolidated Cash Flow of such Person for such
period to Consolidated Interest Expense of such Person for such period;
provided, however, that, Consolidated Cash Flow and Consolidated Interest
Expense shall be calculated on a pro forma basis after giving effect, as if
occurring at the beginning of such period, to (i) the incurrence of Indebtedness
giving rise to the need to calculate the Consolidated Cash Flow Coverage Ratio
and the retirement of any Indebtedness refinanced with the proceeds of such
Indebtedness, (ii) the incurrence, during such period or since the last day of
such period, of any Indebtedness (other than Indebtedness incurred for working
capital purposes), and the retirement of any Indebtedness refinanced with the
proceeds of such Indebtedness, (iii) the acquisition by such Person (directly or
through a Subsidiary of such Person) of any company or business during such
period or since the last day of such period, (iv) the sale or other disposition
of assets or properties outside the ordinary course of business by such Person
(directly or
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through a Subsidiary of such Person) and the actual application of the proceeds
therefrom during such period or since the last day of such period, and (v) in
the case of the Company and with respect to any such period ending prior to the
date on which there shall be four fiscal quarters of the Company which commenced
and ended after the issue date of the Notes, the income that could have been
earned by the Company if the Cash Proceeds of the issuance of the Notes (net of
underwriters' discounts and commissions and amounts used to retire Indebtedness
of the Company), if any, received by the Company were invested from the
beginning of such period to but excluding the date of receipt by the Company of
such Cash Proceeds at the rate in effect on the last day of the last fiscal
quarter within such period for United States Treasury securities maturing one
year from the date of issuance of such securities, as compiled and published in
the then most recent Federal Reserve Statistical Release H.15 (519).
"Consolidated Depreciation Expense" means, with respect to any Person for
any period, the depreciation and depletion expense of such Person and its
Subsidiaries, determined on a consolidated basis for such period in accordance
with GAAP.
"Consolidated Income Tax Expense" means, with respect to any Person for any
period, the provision for federal, state, local and foreign income taxes
(including franchise, net worth or similar taxes) of such Person and its
Subsidiaries for such period, determined on a consolidated basis in accordance
with GAAP.
"Consolidated Interest Expense" means, with respect to any Person for any
period, without duplication, the sum of (i) the interest expense of such Person
and its Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP, including, without limitation, all original issue discount
and other interest portion of any deferred payment Indebtedness and all
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing less, in the case of the Company,
any interest income included in Consolidated Net Income of the Company for such
period, but excluding any deferred financing fees otherwise includible in
Consolidated Interest Expense of the Company for such period; (ii) the interest
component of Capital Lease Obligations paid, accrued and/or scheduled to be paid
or accrued by such Person and its Subsidiaries during such period as determined
on a consolidated basis in accordance with GAAP; and (iii) all cash dividends or
other distributions declared or paid on any Capital Stock (other than common
stock or preferred stock that is not Redeemable Stock or, with respect to the
Company, special common stock) of such Person and its Subsidiaries for such
period as determined on a consolidated basis in accordance with GAAP; provided,
however, that any Indebtedness bearing a floating rate of interest shall be
computed as if the rate in effect on the date of computation had been the
applicable rate for the entire period.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate net income (or loss) of such Person and its Subsidiaries for such
period, before discontinued operations, extraordinary items and the cumulative
effect of a change in accounting principles of such Person and its Subsidiaries,
determined on a consolidated basis in accordance with GAAP, provided that there
shall also be excluded from Consolidated Net Income (i) any net gains or losses
in respect of dispositions of assets other than in the ordinary course of
business; (ii) any gains from currency exchange transactions not in the ordinary
course of business consistent with past practice; (iii) any gains or losses
realized from the termination of any employee pension benefit plan; (iv) any
gains or losses realized upon the refinancing of any Indebtedness of such Person
or any of its Subsidiaries; (v) any gains or losses arising from the destruction
of property or assets due to fire or other casualty; (vi) any gains or losses
from the revaluation of property or assets; (vii) the net income (or loss) of
any other Person (other than a Subsidiary of such Person) except to the extent
of cash dividends or distributions paid to such Person by such other Person in
such period; (viii) the net income (or loss) of any Subsidiary of such Person
except to the extent of the interest of such Person in such Subsidiary, provided
that in the case of the Company the net income (or loss) of Dixieline Lumber
Company shall be excluded; (ix) the net income (or loss) of any Subsidiary of
such Person that is subject to any restriction or limitation on the payment of
dividends and other distributions (including loans or advances) by operation of
the terms of its charter or by agreement, instrument, judgment, decree, order or
governmental regulation applicable to such Subsidiary to the extent of such
restriction or limitation in such period; and (x) in the case of the Company the
excess of (a) the compensation expense recorded by the Company in the
computation of net earnings of the Company in respect of shares of Capital Stock
(other than Redeemable Stock) or other Equity Interests,
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pursuant to a plan or other arrangement approved by the Board of Directors of
the Company (or of a Reporting Subsidiary, if applicable), to or for the benefit
of any employee, officer or director of the Company or any of its Subsidiaries
or to or by any employee stock ownership plan or similar trust for the benefit
of any such employee, officer or director, over (b) the amount of income taxes
recorded by the Company in connection with such compensation expense of the
Company.
"Consolidated Net Worth" means, with respect to any Person at any date of
determination, the sum of the Capital Stock, additional paid-in capital and
cumulative translation adjustment account plus retained earnings (or minus
accumulated deficit), excluding amounts attributable to Redeemable Stock, any
Capital Stock convertible into Indebtedness, or Treasury Stock, of such Person
and its Subsidiaries, determined on a consolidated basis in accordance with
GAAP.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement entered into in the ordinary
course of business and designed to protect the Company or any of its
Subsidiaries against fluctuations in currency values to or under which the
Company or any of its Subsidiaries is a party or a beneficiary on the issue date
of the Notes or becomes a party or a beneficiary thereafter.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series
of transactions in respect of which the Board of Directors of the Company is
required to deliver a Board Resolution under the Indenture, a member of such
Board of Directors who does not have any material direct or indirect financial
interest in or with respect to such transaction or series of transactions.
"Equity Interests" means Capital Stock, warrants, options or other rights
to acquire Capital Stock (but excluding any debt security which is convertible
into, or exchangeable for, Capital Stock).
"Exempt Person" means (i) Richard L. Bready, (ii) any Person which is an
Affiliate of Richard L. Bready, and (iii) any other Affiliate of such Person so
long as such Person is an Affiliate of Richard L. Bready.
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries, in existence on the issue date of the Notes.
"Existing Investments" means (i) Investments of the Company and its
Subsidiaries, in existence on the issue date of the Notes and (ii) Investments
to be made pursuant to commitments authorized by the Board of Directors of the
Company prior to the issue date of the Notes (a) in Ecological Engineering
Associates, L.P. in an amount not to exceed $2.1 million (including such
Investments made prior to the issue date of the Notes) and (b) in or related to
a joint-venture involving Universal-Rundle Corporation in an amount not to
exceed $4.0 million.
"Fair Market Value" means, with respect to any asset, the price which could
be negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing buyer, neither of which is under pressure or
compulsion to complete the transaction; provided, however, that the Fair Market
Value of any asset or assets of the Company or any of its Subsidiaries shall be
determined by the Board of Directors of the Company or, if such subsidiary is a
Reporting Subsidiary, of such Reporting Subsidiary, acting in good faith, and
evidenced by a Board Resolution of the Company or such Reporting Subsidiary, as
the case may be, delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
from time to time; provided, however, that with respect to the obligations of
the Company described under "Certain Covenants" and "Merger, Consolidation or
Transfer of Assets," GAAP shall be determined on the basis of such principles as
in effect on the issue date of the Notes.
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"Guarantor Senior Indebtedness" means, with respect to any Subsidiary
Guarantor, the principal of, premium, if any, and interest on any Indebtedness
of such Subsidiary Guarantor, whether outstanding on the issue date of the Notes
or thereafter created, incurred, assumed or guaranteed (unless, in the case of
any particular Indebtedness, the instrument under which such Indebtedness is
created, incurred, assumed or guaranteed expressly provides that such
Indebtedness shall not be senior or superior in right of payment to the
Subsidiary Guaranty of such Subsidiary Guarantor), including, without limiting
the generality of the foregoing, the principal of, premium, if any, and interest
(including interest accruing after the commencement of any proceeding under
Bankruptcy Law, whether or not such interest is an allowable claim) on, and all
other obligations in respect of, Specified Guarantor Senior Indebtedness, but
excluding: (i) Indebtedness evidenced by the Subsidiary Guaranty of such
Subsidiary Guarantor; (ii) any Indebtedness of such Subsidiary Guarantor to any
of its Subsidiaries or other Affiliates; (iii) any Indebtedness incurred by such
Subsidiary Guarantor that is contractually subordinated in right of payment to
any Guarantor Senior Indebtedness; (iv) amounts owed for goods, materials or
services purchased in the ordinary course of business or for compensation to
employees; (v) any Indebtedness in respect of any Capital Lease Obligation
created, incurred, assumed or guaranteed prior to or, unless designated in the
instrument evidencing such Capital Lease Obligation as "Senior Indebtedness",
after the effective date of the Subsidiary Guaranty of such Subsidiary
Guarantor; (vi) Indebtedness represented by Redeemable Stock of such Subsidiary
Guarantor; and (vii) Indebtedness which when incurred is without recourse to
such Subsidiary Guarantor.
"Indebtedness" means, with respect to any Person, without duplication, any
indebtedness, contingent or otherwise, (i) with respect to borrowed money
(whether or not the recourse of the lender is to the whole of the assets of such
Person or only to a portion thereof), or evidenced by bonds, notes, debentures
or similar instruments or consisting of reimbursement obligations with respect
to letters of credit, or (ii) representing the deferred and unpaid balance of
the purchase price of any property excluding any such balance that constitutes a
trade payable or an accrued liability, in each case arising in the ordinary
course of business, if and to the extent any of the foregoing indebtedness would
appear as a liability upon a balance sheet of such Person prepared on a
consolidated basis in accordance with GAAP, and shall also include, to the
extent not otherwise included, (a) any Capital Lease Obligations, (b) the
maximum fixed repurchase price of any Redeemable Stock, (c) indebtedness secured
by a Lien to which the property or assets owned or held by such Person is
subject, whether or not the obligations secured thereby shall have been assumed,
(d) guaranties of items that would be included within this definition to the
extent of such guaranties, and (e) net liabilities in respect of Commodity
Agreements, Currency Agreements and Interest Rate Agreements. For purposes of
the immediately preceding sentence, the maximum fixed repurchase price of any
Redeemable Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Redeemable Stock as if such
Redeemable Stock were repurchased on any date on which Indebtedness shall be
required to be determined pursuant to the Indenture, provided that if such
Redeemable Stock is not then permitted to be repurchased, the repurchase price
shall be the book value of such Redeemable Stock. The amount of Indebtedness of
any Person at any date shall be without duplication (y) the outstanding balance
at such date of all unconditional obligations as described above and the maximum
liability of any such contingent obligations at such date and (z) in the case of
Indebtedness of others secured by a Lien to which the property or assets owned
or held by such Person is subject, the lesser of the Fair Market Value at such
date of any property or asset subject to a Lien securing the Indebtedness of
others or the amount of the Indebtedness secured. The amount of any Indebtedness
issued at a discount shall be equal to the gross proceeds of such issuance (and
not the face amount of any bond, note, debenture or similar instrument
representing such Indebtedness).
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, or other similar agreement or arrangement entered
into in the ordinary course of business and designed to protect the Company or
any of its Subsidiaries against fluctuations in interest rates to or under which
the Company or any of its Subsidiaries is a party or a beneficiary thereof.
"Investment" means, with respect to any Person, (i) any direct or indirect
loan or other extension of credit (other than extensions of trade credit by such
Person on commercially reasonable terms and relating to the sale of property or
services in the ordinary course of business) or capital contribution (by means
of any transfer of cash or other property to others or any payment for property
or services for the account or use of
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others) to any other Person, or (ii) any purchase or acquisition by such Person
of any Capital Stock, bonds, notes, debentures or other securities or evidences
of Indebtedness issued by any other Person.
"Lien" means any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind, whether or not filed, recorded or otherwise perfected
under applicable law (including any conditional sale or other title retention
agreement, any lease intended as security, any option or other agreement to sell
or give any security interest and any filing of or other agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction other than a financing statement covering leased goods under
a lease not intended as security).
"Material Subsidiary" of any Person means (i) any Subsidiary Guarantor and
(ii) any Subsidiary of such Person which at the time of determination (a) had
assets which, as of the date of such Person's then most recent quarterly
consolidated balance sheet, constituted at least 5% of such Person's total
assets on a consolidated basis as of such date, in each case determined in
accordance with GAAP, (b) had net sales for the 12-month period ending on the
date of such Person's most recent quarterly consolidated statement of income
which constituted at least 5% of such Person's total net sales on a consolidated
basis for such period, or (c) had operating income for the 12-month period
ending on the date of such Person's most recent quarterly consolidated statement
of operating income which constituted at least 10% of such Person's total
operating income on a consolidated basis for such period.
"Net Cash Proceeds" means the aggregate Cash Proceeds received by the
Company or any of its Subsidiaries in respect of any Asset Sale, net of the
out-of-pocket costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees and sales commissions) and any
relocation expenses and severance and shutdown costs incurred as a result
thereof, and all federal, state, provincial, foreign and local taxes required to
be accrued as a liability under GAAP as a consequence of such Asset Sale,
amounts required to be applied to the repayment of Indebtedness secured by a
Lien on the asset or assets which are the subject of such Asset Sale and any
reasonable reserve in accordance with GAAP for adjustments in respect of the
sale price of such asset or assets.
"Notes" means any of the Company's % Senior Subordinated Notes due
, 2004, issued under the Indenture.
"Permitted Investments" means any of the following: (i) Cash Equivalents;
(ii) Existing Investments; (iii) Investments by the Company or a Subsidiary of
the Company in any Subsidiary of the Company or any other Person that
concurrently with the making of such Investment becomes a Subsidiary of the
Company; (iv) guaranties by Subsidiaries of the Company permitted under the
Limitation on Additional Indebtedness covenant and the Limitation on Guaranties
by Subsidiaries covenant; (v) Indebtedness of the Company to any Subsidiary of
the Company, provided that such Indebtedness is contractually subordinated in
right of payment to the Notes; (vi) Investments by the Company or any of its
Subsidiaries in debt securities or debt instruments having maturities of 10
years or less and (A) issued or fully guaranteed or insured by the United States
of America, or an instrumentality or agency thereof (provided that the full
faith and credit of the United States of America is pledged in support thereof)
or (B) with a rating of BBB- or better by S&P or Baa-3 or better by Moody's or
the equivalent of such rating by a successor rating agency; (vii) any Investment
by Broan Limited in debt securities or debt instruments having maturities of 10
years or less and issued or fully guaranteed or insured by Canada or an
instrumentality or agency thereof or rated, at the time of such Investment, BBB-
or better by Dominion Bond Rating Services or the equivalent of such rating by a
successor rating agency, so long as the aggregate amount of all such Investments
by Broan Limited does not exceed $7,500,000 at any one time outstanding; (viii)
loans and advances to officers and directors of the Company or any Subsidiary of
the Company made in the ordinary course of business or pursuant to an employee
benefit plan, up to $3,000,000 in the aggregate at any one time outstanding;
(ix) loans and advances to vendors, suppliers and contractors of the Company or
any Subsidiary of the Company and made in the ordinary course of business; (x)
the receipt by the Company or its Subsidiaries of consideration other than Cash
Proceeds in any Asset Sale made in compliance with the terms of the Indenture;
(xi) so long as no Default or Event of Default shall have occurred and be
continuing, other Investments made after the issue date of the Notes not
exceeding in the aggregate at any time outstanding (A) $10,000,000, if at the
time of the making of such Investment the Notes are not rated BB+ or better by
S&P or Ba1 or better by Moody's, or
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(B) $20,000,000, but not more than $10,000,000 in any fiscal year of the
Company, if at the time of the making of such Investment the Notes are rated BB+
or better by S&P or Ba1 or better by Moody's; provided, however, that upon the
sale by the Company of all of the Equity Interests of Dixieline Lumber Company
or all or substantially all of the assets of Dixieline Lumber Company, the
aggregate amount of Investments permitted to be outstanding pursuant to this
clause (xi) shall be increased by the amount, if any, by which the Net Cash
Proceeds received by the Company from such sale (plus the amount of cash
collection of any non-cash proceeds received by the Company from such sale)
exceed the aggregate of all Investments in Dixieline Lumber Company made by the
Company or any of its Subsidiaries after the issue date of the Notes; (xii) any
Lien permitted under the Limitation on Liens covenant; and (xiii) Investments by
Subsidiaries of the Company not exceeding in the aggregate $5,000,000 at any one
time outstanding in Cash Equivalents described in clause (ii) of the definition
of such term in the Indenture, provided that for purposes of this clause (xiii)
an instrument referred to in such clause (ii) may be issued by any commercial
banking institution having capital and surplus of not less than $100,000,000.
"Permitted Liens" means (i) Liens securing Indebtedness owing to the
Company by a Subsidiary of the Company; (ii) Liens securing Acquired
Indebtedness incurred by the Company or any of its Subsidiaries in accordance
with the provisions of the Indenture, provided such Liens were not incurred in
anticipation of or in connection with the transaction pursuant to which such
Acquired Indebtedness was so incurred; (iii) Liens securing Purchase Money
Obligations permitted to be incurred by the provisions of the Indenture; (iv)
Liens securing Indebtedness permitted by clause (xiv) of the Limitation on
Additional Indebtedness covenant; and (v) any interest or title of a lessor in
property subject to any Capital Lease Obligation or operating lease of the
Company and of its Subsidiaries.
"Person" means any individual, corporation, partnership, joint venture,
incorporated or unincorporated association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof or other entity of any kind.
"Purchase Money Obligations" means any Indebtedness of the Company or any
of its Subsidiaries incurred to finance the acquisition or construction of any
property or business (including Indebtedness incurred within 180 days following
such acquisition or construction), including Indebtedness of a Person existing
at the time such Person becomes a Subsidiary of the Company or assumed by the
Company or a Subsidiary of the Company in connection with the acquisition of
assets from such Person; provided, however, that (i) any Lien on such
Indebtedness shall not extend to any property other than the property so
acquired or constructed and (ii) at no time shall the aggregate principal amount
of outstanding Indebtedness secured thereby be increased.
"Redeemable Stock" means any Equity Interest which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable before the Stated Maturity of the Notes), or upon the happening of
any event, matures or is mandatorily redeemable, in whole or in part, prior to
the Stated Maturity of the Notes.
"Senior Indebtedness" means the principal of, premium, if any, and interest
on any Indebtedness of the Company, whether outstanding on the issue date of the
Notes or hereafter created, incurred, assumed or guaranteed (unless, in the case
of any particular Indebtedness, the instrument under which such Indebtedness is
created, incurred, assumed or guaranteed expressly provides that such
Indebtedness shall not be senior or superior in right of payment to the Notes),
including, without limiting the generality of the foregoing, the principal of,
premium, if any, and interest (including interest accruing after the
commencement of any proceeding under Bankruptcy Law, whether or not such
interest is an allowable claim) on, and all other obligations in respect of,
Specified Senior Indebtedness but excluding: (i) any Indebtedness represented by
the Company's 7 1/2% Convertible Debentures due 2006; (ii) any Indebtedness of
the Company to any of its Subsidiaries or other Affiliates; (iii) any
Indebtedness hereafter incurred by the Company that is contractually
subordinated in right of payment to any Senior Indebtedness; (iv) amounts owed
for goods, materials or services purchased in the ordinary course of business or
for compensation to employees; (v) any Indebtedness in respect of any Capital
Lease Obligation created, incurred, assumed or guaranteed prior to or, unless
designated in the instrument evidencing such Capital Lease Obligation as "Senior
Indebtedness", after the issue date of the Notes; (vi) Indebtedness represented
by Redeemable Stock; (vii) Indebtedness which when
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incurred is without recourse to the Company; (viii) Indebtedness of the Company
under the guaranty referred to in clause (x) of the Limitation on Additional
Indebtedness covenant and any Indebtedness incurred by the Company in any
refinancing, replacement or settlement thereof and (ix) Indebtedness of the
Company and its Norfleet, Inc. Subsidiary under their guaranties of the
obligations under the Indebtedness secured by the building and other real
property where the Company's headquarters are located and other nearby real
property.
"Specified Senior Indebtedness" means (i) any Indebtedness outstanding
under the Company Credit Facility and all fees, expenses, indemnities and other
monetary obligations in respect thereof and (ii) any other Senior Indebtedness
and all fees, expenses, indemnities and other monetary obligations in respect
thereof, under a single credit facility or agreement between the Company and one
or more banks or other lenders or under separate credit facilities or agreements
between the Company and one or more banks or other lenders, entered into
substantially at the same time and having substantially the same terms, which,
at the time of creation thereof or determination, had or has an aggregate
principal amount outstanding, together with any unutilized commitments to lend,
of at least $15,000,000 and is specifically designated in the instrument or
instruments evidencing such Senior Indebtedness as "Specified Senior
Indebtedness."
"Specified Guarantor Senior Indebtedness" means, with respect to any
Subsidiary Guarantor, any Guarantor Senior Indebtedness of such Subsidiary
Guarantor which consists of a guaranty of any Specified Senior Indebtedness and
all fees, expenses, indemnities and other monetary obligations with respect to
such Guarantor Senior Indebtedness.
"Stated Maturity" means, with respect to any security or Indebtedness, the
date specified therein as the fixed date on which the principal of such security
or Indebtedness is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
of such security or Indebtedness at the option of the holder thereof upon the
happening of any contingency).
"Subsidiary" of any Person means any corporation, partnership, association
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors or, in the case of a Person
which is not a corporation, the members of the appropriate governing board or
other group is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of such Person or a combination
thereof; provided, however, that Forges et Boulonneries D'Ars-sur-Moselle shall
not be deemed to be a Subsidiary of the Company so long as (i) all Indebtedness
of Forges et Boulonneries D'Ars-sur-Moselle is non-recourse to the Company and
its Subsidiaries and (ii) the Company invests not more than $2,000,000 in debt
or equity capital of Forges et Boulonneries D'Ars-sur-Moselle on a cumulative
basis from the issue date of the Notes.
"Subsidiary Guarantor" means, with respect to any Subsidiary Guaranty, the
issuer of such Subsidiary Guaranty, so long as such Subsidiary Guaranty remains
outstanding.
"Subsidiary Guaranty" means any guaranty of the Notes pursuant to a
supplemental indenture executed and delivered pursuant to the Limitation on
Guaranties by Subsidiaries covenant, including as the context may require either
or both of the guaranty of the Notes set forth as an exhibit to the Indenture
upon the execution and delivery by a Subsidiary Guarantor of such supplemental
indenture and any separate guaranty of the Notes or confirmation of guaranty
executed and delivered by such Subsidiary Guarantor pursuant to such
supplemental indenture.
"Trustee" means the party named as the "Trustee" in the first paragraph of
the Indenture until a successor replaces it pursuant to the applicable
provisions of the Indenture and, thereafter, shall mean such successor.
"Wholly-Owned Subsidiary" of any Person means any Subsidiary of such Person
to the extent the entire voting share capital of such Subsidiary is owned by
such Person (either directly or indirectly through Wholly-Owned Subsidiaries).
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following discussion summarizes the material United States Federal
income tax considerations of the purchase, ownership and disposition of the
Notes. This summary is based upon the Internal Revenue Code of 1986, as amended,
and authorities thereunder, in effect and existing as of the date hereof.
This summary applies only to holders of Notes who are United States
citizens or residents or United States corporations, partnerships, estates or
trusts. This summary does not apply to holders of Notes who are nonresident
alien individuals or to foreign corporations, partnerships, estates or trusts,
to whom different rules would apply. In addition, this summary only applies to
those persons who are the initial holders of Notes and who hold Notes as capital
assets. This summary does not address the tax consequences to taxpayers who
purchase Notes from such original holders or taxpayers who are subject to
special rules (such as dealers in securities or currencies, financial
institutions, tax-exempt organizations and insurance companies), or aspects of
Federal income taxation that may be relevant to a prospective investor based
upon such investor's particular tax situation.
PURCHASERS OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO
THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE NOTES, INCLUDING THE APPLICABILITY OF ANY STATE, LOCAL OR
FOREIGN TAX LAWS TO WHICH THEY MAY BE SUBJECT.
TAXATION OF THE NOTES
Holders of Notes will be required to include interest on the Notes in their
gross income as ordinary income under their usual method of accounting for
interest income for Federal income tax purposes. Generally, any sale or
redemption of a Note will result in taxable gain or loss equal to the difference
between the amount of cash or the fair market value of other property received
(except to the extent the consideration is attributable to accrued but unpaid
interest, which consideration is treated as interest received) and the holder's
adjusted tax basis in the Note. Assuming a holder purchased Notes for the full
principal amount of such Notes, such holder's adjusted tax basis for determining
gain or loss on the sale or other disposition of a Note will be the principal
amount of such Notes decreased by any previous principal payments to the holder
on the Notes and increased by any interest previously included in income for tax
purposes but not paid to the holder. Any gain or loss upon a sale or other
disposition of a Note will generally be capital gain or loss, which will be long
term if the Note has been held by the holder for more than one year. The
taxation of redemptions of a holder's Notes at a premium (see "Description of
the Notes -- Optional Redemption" and "Description of the Notes -- Change of
Control") will be subject to the rules generally governing the taxation of
redemptions and dispositions.
BACKUP WITHHOLDING
A holder may be subject, under certain circumstances, to backup withholding
at a 31% rate with respect to payments received with respect to the Notes. This
withholding generally applies only if the holder (i) fails to furnish his or her
social security or other taxpayer identification number ("TIN"), (ii) furnishes
an incorrect TIN, (iii) is notified by the Internal Revenue Service (the "IRS")
that he or she has failed to properly report payment of interest and dividends
and the IRS has notified the Company that he or she is subject to backup
withholding, or (iv) fails, under certain circumstances, to provide a certified
statement, signed under penalty of perjury, that the TIN provided is his or her
correct number and that he or she is not subject to backup withholding. Any
amount withheld from a payment to a holder under the backup withholding rules is
allowable as a credit against such holder's Federal income tax liability,
provided that the required information is furnished to the IRS. Certain holders
(including corporations) are not subject to backup withholding. Holders should
consult their tax advisors as to their qualification for exemption from backup
withholding and the procedure for obtaining such an exemption.
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DESCRIPTION OF OTHER OBLIGATIONS
The following is a description of the principal obligations of the Company
in respect of indebtedness for borrowed money that will exist following the
Refinancing. This description is complete in all material respects.
Mortgage Notes and Other Obligations
The Company's subsidiaries have outstanding mortgage notes and other
similar indebtedness (the "Mortgage Notes") in the principal amount of
$17,237,000 as of October 2, 1993 (net of current maturities of $687,000). The
Mortgage Notes are payable in installments through 1999 and bear interest at
rates ranging from 2% to 13.5%. Mortgage Notes in the amount of $17,087,000 are
collateralized by property and equipment with an aggregate net book value of
$15,205,000 at October 2, 1993. The Mortgage Notes rank senior in right and
priority of payment to the Notes.
One of these Mortgage Notes is payable by the Company's Nordyne subsidiary,
and the related industrial revenue bond financing agreement restricts Nordyne's
ability to declare cash dividends to the Company in the event that Nordyne's
tangible net worth is less than $9,000,000 at the end of any quarter. If such
net worth is determined to be below $9,000,000 at the end of any quarter, this
agreement provides that Nordyne shall not pay any cash dividends to the Company
in any twelve-month period thereafter to the extent that such cash dividends
exceed, in the aggregate, forty percent (40%) of its net income accrued after
the quarter in which Nordyne's tangible net worth was less than $9,000,000. As
of October 2, 1993, Nordyne's tangible net worth substantially exceeded
$9,000,000 and the amount of indebtedness outstanding under the industrial
revenue bond financing agreement was $1,800,000.
Other Obligations
The Company's subsidiaries are obligated under debt instruments relating to
equipment purchases and other borrowings in the principal amount of $1,542,000
as of October 2, 1993 (net of current maturities of $371,000). Such instruments
bear interest from 2% to 13.8% and mature at various dates through 2001.
Indebtedness of $1,292,000 represented by such instruments is collateralized by
property and equipment with an aggregate net book value of $1,516,000 as of
October 2, 1993. Such instruments rank senior in right and priority of payment
to the Notes.
7 1/2% Convertible Sinking Fund Debentures
As of October 2, 1993, the Company had $15.5 million principal amount
outstanding of 7 1/2% Convertible Sinking Fund Debentures due 2006 (the
"Convertible Debentures"). The Convertible Debentures were issued under an
Indenture dated May 1, 1986 between the Company and Fleet National Bank, a copy
of which, through incorporation by reference, is an exhibit to the Registration
Statement of which this Prospectus is a part. The following is qualified in its
entirety by reference to such Indenture.
At December 31, 1992, the Convertible Debentures were convertible into
shares of Common Stock of the Company at $21.56 per share, which is subject to
adjustment under certain conditions. The Convertible Debentures are redeemable
at the option of the Company as a whole or from time to time in part, at 102.25%
of par value, declining to 100% on May 1, 1996. All sinking fund requirements of
the Convertible Debentures have been met to date. The Convertible Debentures
rank pari passu to the Notes.
The Indenture governing the Convertible Debentures limits the payment of
cash dividends and stock payments and requires that the Company maintain a
minimum net worth, as defined, of $100,000,000. If the net worth at the end of
any two consecutive fiscal quarters falls below the minimum, then on the last
day of the fiscal quarter (the "Accelerated Payment Date") next following such
second fiscal quarter, the Company will be required to accelerate the then
outstanding principal amount of the Convertible Debentures due after such
Accelerated Payment Date. Upon such acceleration, the Company will be required
to redeem amounts of the Convertible Debentures until the Company's net worth
exceeds $100,000,000 or until all of the Convertible Debentures are redeemed.
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With respect to such mandatory redemptions, the redemption price of the
Convertible Debentures will be the outstanding principal amount plus accrued
interest to the Accelerated Payment Date. The Company may credit against its
redemption obligation upon any Accelerated Payment Date the principal amount of
(i) Convertible Debentures acquired by the Company and surrendered for
cancellation (including converted Convertible Debentures), and (ii) Convertible
Debentures redeemed or called for redemption otherwise than through operation of
the sinking fund or through redemption following an Accelerated Payment Date. In
no event shall the failure to meet the minimum net worth stated above at the end
of any fiscal quarter be counted toward more than one acceleration of any
sinking fund payment.
Canadian Secured Credit Facility
The Company's Canadian subsidiary, Broan Limited, has a $15.0 million
(based on exchange rates at October 2, 1993) secured line of credit, of which
$11.1 million (based on exchange rates at October 2, 1993) is available to the
Company (the "Line of Credit"). The Line of Credit prohibits dividends or other
distributions to the Company from Broan Limited in excess of $11.1 million
(based on exchange rates at October 2, 1993). Borrowings under the Line of
Credit are available for working capital and other general corporate purposes.
The Line of Credit contains covenants requiring Broan Limited to maintain (i) a
ratio of earnings before interest and taxes to interest of at least 2 to 1, (ii)
a working capital ratio of at least 1.5 to 1 and (iii) a debt to equity ratio of
no higher than 3 to 1; the Line of Credit also limits the annual amount of
capital expenditures which Broan Limited may make to $500,000 Canadian
(approximately $375,000 based on exchange rates prevailing at October 2, 1993).
Broan Limited pays a commitment fee of .25% per annum on the unutilized portion
of the Line of Credit payable monthly on a pro rata basis, and the Line of
Credit is subject to review by the lender in April 1994. As of January 19, 1994,
there were $5.8 million in outstanding borrowings under the Line of Credit, all
the proceeds of which borrowings were advanced to the Company.
Contingent Industrial Revenue Bond Obligation
The Company remains contingently liable under approximately $7,100,000 of
obligations under Industrial Revenue Bond ("IRB's") agreements, plus unpaid
interest, relating to facilities of a previously owned subsidiary. This former
subsidiary defaulted on certain principal and interest payments related to these
IRB's during 1992 and, in February 1993, filed for protection under federal
bankruptcy laws. The Company continues to vigorously pursue all available
remedies to minimize any liability that may ultimately result from the outcome
of this matter. The Company believes that the resolution of this matter, after
giving consideration to amounts previously provided, will not have a material
adverse effect on the financial position or results of operations of the
Company. See Notes 8 and 16E of Notes to Consolidated Financial Statements.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement") by and among the Company and the Underwriters,
the Company has agreed to sell to the Underwriters, and the Underwriters have
agreed to purchase from the Company, $190,000,000 in principal amount of the
Notes. The Underwriting Agreement provides that the obligations of the
Underwriters thereunder are subject to approval of certain legal matters by its
counsel and various other conditions. The nature of the obligations of the
Underwriters is such that they are committed to purchase all of the Notes if any
are purchased.
The Underwriters have advised the Company that they propose to offer the
Notes directly to the public at the public offering price set forth on the cover
page of this Prospectus and to certain dealers at that price less a concession
not in excess of % of the principal amount. After the initial public
offering, the public offering price and concession may be changed by the
Underwriters.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an additional $28.5
million principal amount of Notes at the public offering price set forth on the
cover page hereof (plus accrued interest, if any, from the date a Note is first
issued under the Indenture) less the underwriting discount. The Underwriters may
exercise such option solely for the purpose of covering over-allotments, if any,
made in connection with this offering.
75
<PAGE> 78
There is no public market for the Notes. The Company does not intend to
list the Notes on any securities exchange or to arrange for their quotation on
NASDAQ. The Company has been advised by the Underwriters that they presently
intend to make a market in the Notes after the consummation of this offering,
although they are under no obligation to do so. No assurance can be given,
however, as to the liquidity of the trading market for the Notes or that an
active trading market for the Notes will develop. If an active trading market
does not develop, the market price and liquidity of the Notes may be adversely
affected.
The Company has agreed with the Underwriters that, for a period of 90 days
following the date of this Prospectus, it will not issue any additional debt
securities without the prior written consent of the Underwriters.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and where such
indemnification is not available, to contribute to payments the Underwriters may
be required to make in respect of such liabilities.
Bear, Stearns & Co. Inc. ("Bear Stearns") has entered into an agreement
with the Company whereby Bear Stearns will receive $250,000 and reimbursement of
out-of-pocket expenses in the event that this offering or a similar financing
does not take place. During 1992 and 1993, Bear Stearns has provided certain
investment banking and financial advisory services to the Company, including
services in connection with the acquisition of 625,000 shares of its Common
Stock. For these services, the Company has paid, or agreed to pay, compensation
to Bear Stearns in customary amounts.
LEGAL MATTERS
The legality of the securities being offered hereby will be passed upon for
the Company by Ropes & Gray, Boston, Massachusetts. Certain legal matters in
connection with the offering will be passed upon for the Underwriters by Schulte
Roth & Zabel, New York, New York.
EXPERTS
The audited consolidated financial statements and schedules included in or
incorporated by reference in this prospectus and elsewhere in the registration
statement to the extent and for the periods indicated in their reports have been
audited by Arthur Andersen & Co., independent public accountants, as indicated
in their reports with respect thereto, and are included or incorporated by
reference herein in reliance upon the authority of said firm as experts in
giving said reports.
76
<PAGE> 79
<TABLE>
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
PAGE
----
<S> <C>
NORTEK, INC. AND SUBSIDIARIES:
Report of Independent Public Accountants.......................................... F-2
Consolidated Statement of Operations for each of the Three Years in the Period
Ended December 31, 1992, and the 39 Weeks Ended September 26, 1992 (unaudited)
and
October 2, 1993 (unaudited)..................................................... F-3
Consolidated Balance Sheet as of December 31, 1991 and 1992, and
October 2, 1993 (unaudited)..................................................... F-4
Consolidated Statement of Cash Flows for each of the Three Years in the Period
Ended December 31, 1992, and the 39 Weeks Ended September 26, 1992 (unaudited)
and
October 2, 1993 (unaudited)..................................................... F-6
Consolidated Statement of Stockholders' Investment for each of the Three Years in
the Period Ended December 31, 1992, and the 39 Weeks Ended October 2, 1993
(unaudited)..................................................................... F-7
Notes to Consolidated Financial Statements........................................ F-8
Pro Forma (unaudited)
Nortek, Inc. and Subsidiaries Consolidated Statement of Operations for the Year
Ended December 31, 1992...................................................... F-29
</TABLE>
F-1
<PAGE> 80
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Nortek, Inc.:
We have audited the accompanying consolidated balance sheet of Nortek, Inc.
(a Delaware corporation) and subsidiaries as of December 31, 1991 and 1992 and
the related consolidated statements of operations, cash flows and stockholders'
investment for each of the three years in the period ended December 31, 1992.
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 Nortek, Inc. and
subsidiaries as of December 31, 1991 and 1992, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1992 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN & CO.
Boston, Massachusetts
March 26, 1993
F-2
<PAGE> 81
NORTEK, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
39 WEEKS ENDED
YEARS ENDED DECEMBER 31, -----------------------
-------------------------------- SEPT. 26, OCTOBER 2,
1990 1991 1992 1992 1993
---------- -------- -------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS AND RATIOS)
NET SALES......................................... $1,037,239 $917,049 $799,979 $617,230 $ 575,795
---------- -------- -------- --------- -----------
COSTS AND EXPENSES:
Cost of products sold............................. 808,382 693,091 595,177 465,657 414,600
Selling, general and administrative expense....... 245,369 212,943 184,366 139,953 139,844
---------- -------- -------- --------- -----------
1,053,751 906,034 779,543 605,610 554,444
---------- -------- -------- --------- -----------
Operating earnings (loss)......................... (16,512) 11,015 20,436 11,620 21,351
Interest expense.................................. (48,949) (39,184) (29,232) (22,387) (20,165)
Interest and dividend income...................... 15,111 8,769 4,446 3,567 2,464
Net gain (loss) on investment and marketable
securities...................................... (10,000) 400 850 1,400 2,350
Settlement of litigation.......................... -- (11,500) -- -- --
Loss on businesses sold or held for sale.......... -- (15,200) (14,500) (12,500) (20,300)
---------- -------- -------- --------- -----------
Loss from continuing operations before provision
(credit) for income taxes....................... (60,350) (45,700) (18,000) (18,300) (14,300)
Provision (credit) for income taxes............... (18,950) (11,000) 3,000 1,300 (1,500)
---------- -------- -------- --------- -----------
Loss from continuing operations................... (41,400) (34,700) (21,000) (19,600) (12,800)
Loss from discontinued operations................. (6,600) -- (3,300) -- --
---------- -------- -------- --------- -----------
Loss before extraordinary gain.................... (48,000) (34,700) (24,300) (19,600) (12,800)
Extraordinary gain from debt retirements.......... 9,900 7,600 100 100 --
---------- -------- -------- --------- -----------
Loss before the cumulative effect of an accounting
change.......................................... (38,100) (27,100) (24,200) (19,500) (12,800)
Cumulative effect of an accounting change......... -- -- -- -- (2,100)
---------- -------- -------- -------- ---------
NET LOSS.......................................... $ (38,100) $(27,100) $(24,200) $(19,500) $ (14,900)
========== ======== ======== ======== =========
NET EARNINGS (LOSS) PER SHARE:
CONTINUING OPERATIONS --
Primary......................................... $ (3.07) $ (2.57) $ (1.67) $ (1.56) $ (1.02)
---------- -------- -------- --------- -----------
Fully diluted................................... $ (3.07) $ (2.57) $ (1.67) $ (1.56) $ (1.02)
---------- -------- -------- --------- -----------
DISCONTINUED OPERATIONS --
Primary......................................... (.49) -- (.26) -- --
---------- -------- -------- --------- -----------
Fully diluted................................... (.49) -- (.26) -- --
---------- -------- -------- --------- -----------
LOSS BEFORE EXTRAORDINARY GAIN --
Primary......................................... (3.56) (2.57) (1.93) (1.56) (1.02)
---------- -------- -------- --------- -----------
Fully diluted................................... (3.56) (2.57) (1.93) (1.56) (1.02)
---------- -------- -------- --------- -----------
EXTRAORDINARY GAIN --
Primary......................................... .73 .56 .01 .01 --
---------- -------- -------- --------- -----------
Fully diluted................................... .73 .56 .01 .01 --
---------- -------- -------- --------- -----------
CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE --
Primary......................................... -- -- -- -- (.17)
---------- -------- -------- --------- -----------
Fully diluted................................... -- -- -- -- (.17)
---------- -------- -------- --------- -----------
NET LOSS --
Primary......................................... $ (2.83) $ (2.01) $ (1.92) $ (1.55) $ (1.19)
========== ======== ======== ========= ===========
Fully diluted................................... $ (2.83) $ (2.01) $ (1.92) $ (1.55) $ (1.19)
========== ======== ======== ========= ===========
WEIGHTED AVERAGE NUMBER OF SHARES:
Primary......................................... 13,485 13,460 12,645 12,690 12,605
========== ======== ======== ========= ===========
Fully diluted................................... 14,407 14,312 13,411 13,454 13,332
========== ======== ======== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 82
NORTEK, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED BALANCE SHEET
ASSETS
<CAPTION>
DECEMBER 31,
--------------------- OCTOBER 2,
1991 1992 1993
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
(AMOUNTS IN THOUSANDS)
CURRENT ASSETS:
Unrestricted --
Cash and investments at cost which approximates
market............................................... $ 16,509 $ 23,467 $ 50,355
Marketable securities................................... 26,410 50,281 10,152
Restricted --
Cash and investments at cost which approximates
market............................................... 32,829 8,187 6,687
Marketable securities................................... 603 -- --
Accounts receivable, less allowances of $4,532,000,
$3,961,000 and $4,208,000............................... 83,528 78,363 96,429
Inventories --
Raw materials........................................... 35,468 27,269 29,642
Work in process......................................... 16,958 9,792 10,614
Finished goods.......................................... 41,826 39,082 46,354
-------- -------- -----------
94,252 76,143 86,610
-------- -------- -----------
Current assets of business held for sale.................. 17,682 18,990 25,581
Insurance claims receivable............................... -- -- 14,500
Prepaid expenses.......................................... 6,826 4,216 3,662
Other current assets...................................... 5,235 3,853 1,217
U.S. Federal deferred income tax asset.................... 18,000 22,000 17,000
-------- -------- -----------
Total Current Assets............................ 301,874 285,500 312,193
-------- -------- -----------
PROPERTY AND EQUIPMENT, AT COST:
Land...................................................... 9,597 7,376 5,975
Buildings and improvements................................ 72,001 54,416 54,461
Machinery and equipment................................... 113,232 103,246 111,027
-------- -------- -----------
194,830 165,038 171,463
Less -- Accumulated depreciation.......................... 67,226 66,469 79,799
-------- -------- -----------
Total Property and Equipment, net............... 127,604 98,569 91,664
-------- -------- -----------
OTHER ASSETS:
Restricted cash and investments........................... 1,513 1,625 1,625
Goodwill, less accumulated amortization of $16,305,000,
$16,857,000 and $18,645,000............................. 90,980 78,406 76,503
Non-current assets of business held for sale.............. 31,829 30,785 10,775
Investment in and amounts due from businesses sold or
discontinued............................................ 10,262 3,019 1,392
Other..................................................... 18,310 17,469 15,453
-------- -------- -----------
152,894 131,304 105,748
-------- -------- -----------
$582,372 $515,373 $ 509,605
======== ======== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 83
NORTEK, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' INVESTMENT
<CAPTION>
DECEMBER 31,
--------------------- OCTOBER 2,
1991 1992 1993
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
(AMOUNTS IN THOUSANDS)
CURRENT LIABILITIES:
Notes payable, current maturities of long-term debt and
other short-term obligations............................ $ 4,875 $ 6,810 $ 23,678
Accounts payable.......................................... 52,149 45,052 47,473
Accrued expenses and taxes, net........................... 96,277 92,276 103,543
Current liabilities of business held for sale............. 8,916 8,775 11,212
Insurance claims advances................................. -- -- 6,600
-------- -------- -----------
Total Current Liabilities....................... 162,217 152,913 192,506
-------- -------- -----------
OTHER LIABILITIES:
Deferred income taxes..................................... 29,018 29,696 18,000
Other..................................................... 5,627 3,995 8,363
-------- -------- -----------
34,645 33,691 26,363
-------- -------- -----------
NOTES, MORTGAGE NOTES AND DEBENTURES PAYABLE, LESS CURRENT
MATURITIES.............................................. 223,150 192,938 170,063
-------- -------- -----------
Mortgage notes payable of business held for sale.......... 9,431 8,925 8,638
COMMITMENTS AND CONTINGENCIES (NOTE 8)
STOCKHOLDERS' INVESTMENT:
Preference stock, $1 par value;
authorized 7,000,000 shares, none issued................ -- -- --
Common stock, $1 par value; authorized 40,000,000 shares,
15,437,960, 15,602,142 and 15,742,582 shares issued..... 15,438 15,602 15,743
Special common stock, $1 par value; authorized 5,000,000
shares, 1,076,352, 990,007 and 859,567 shares issued.... 1,077 990 859
Additional paid-in capital................................ 134,493 134,599 134,618
Retained earnings......................................... 27,966 3,766 (11,134)
Less -- treasury common stock at cost, 3,163,327,
3,795,028 and 3,795,028 shares.......................... (24,365) (26,371) (26,371)
-- treasury special common stock at cost, 271,574
shares.................................................. (1,680) (1,680) (1,680)
-------- -------- -----------
Total Stockholders' Investment.................. 152,929 126,906 112,035
-------- -------- -----------
$582,372 $515,373 $ 509,605
======== ======== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 84
NORTEK, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
39 WEEKS ENDED
YEARS ENDED DECEMBER 31, --------------------
------------------------------- SEPT. 26, OCT. 2,
1990 1991 1992 1992 1993
-------- --------- -------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
(AMOUNTS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)........................................ $(38,100) $ (27,100) $(24,200) $ (19,500) $(14,900)
-------- --------- -------- --------- --------
ADJUSTMENTS TO RECONCILE NET EARNINGS (LOSS) TO CASH:
Depreciation and amortization.............................. 31,050 28,373 23,644 19,455 16,566
Write off of goodwill and intangible assets................ 4,605 -- -- -- --
(Gain) loss on sale of property and equipment.............. 433 6 (73) 297 33
(Gain) loss on sale of investment and marketable
securities............................................... 10,000 (400) (850) (1,400) (2,350)
Gain on debt retirements................................... (16,500) (12,600) (150) (150) --
Loss on businesses sold or held for sale................... 9,500 15,200 19,500 12,500 20,300
Settlement of litigation................................... -- 11,500 -- -- --
Cumulative effect of an accounting change.................. -- -- -- -- 2,100
Deferred federal income tax provision (credit) from
continuing operations.................................... 1,400 (9,350) (1,700) 2,450 (7,800)
Changes in certain assets and liabilities, net of effects
from acquisitions and dispositions:
Accounts receivable, net................................. 22,184 (8,862) (7,323) (17,526) (21,872)
Prepaids and other current assets........................ (4,876) (2,019) 2,443 2,306 398
U. S. Federal income tax refund.......................... 11,883 16,401 1,803 -- --
Inventories.............................................. 27,177 11,703 (2,807) (7,929) (6,567)
Net assets of discontinued operations.................... 4,744 1,797 -- -- --
Accounts payable......................................... (17,371) 18,735 (1,638) 2,816 3,202
Accrued expenses and taxes............................... (12,265) (3,087) 3,398 8,016 4,985
Long-term assets, liabilities and other, net............. (47) (679) 52 (1,529) 7,097
-------- --------- -------- --------- --------
Total adjustments to net earnings (loss).......... 71,917 66,718 36,299 19,306 16,092
-------- --------- -------- --------- --------
Net Cash Provided (Used) by Operating
Activities...................................... 33,817 39,618 12,099 (194) 1,192
-------- --------- -------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures....................................... (23,341) (15,902) (8,804) (7,794) (7,227)
Proceeds from the sale of property and equipment........... 1,174 3,573 1,045 948 80
Purchase of investments and marketable securities.......... (41,638) (195,677) (94,671) (77,267) (90,502)
Purchase of restricted investments and marketable
securities............................................... (2,000) (603) -- -- --
Proceeds from the sale of investments and marketable
securities............................................... 70,257 203,133 72,280 72,280 133,000
Proceeds from the sale of restricted investments and
marketable securities.................................... 32,535 2,972 -- -- --
Net proceeds from businesses sold or discontinued.......... 20,951 38,496 38,813 23,628 (2,420)
Change in restricted cash and investments.................. (46,625) 13,972 13,030 12,993 1,500
Other, net................................................. (1,102) 296 1,080 735 (2,607)
-------- --------- -------- --------- --------
Net Cash Provided by Investing Activities......... 10,211 50,260 22,773 25,523 31,824
-------- --------- -------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of debentures and notes payable................... (40,612) (43,444) (21,693) (14,578) (1,104)
Increase in borrowings..................................... 819 15,860 4,197 3,650 --
Payment of borrowings...................................... (30,002) (73,911) (5,692) (7,821) (3,683)
Cash dividends paid........................................ (1,284) (324) -- -- --
Nortek common stock sold to Bready Associates.............. 2,708 -- -- -- --
Purchase of Nortek Common and Special Common Stock......... (2,486) (713) (2,006) (2,006) --
Other, net................................................. (1) (2,357) (2,720) 935 (1,341)
-------- --------- -------- --------- --------
Net Cash Used in Financing Activities............. (70,858) (104,889) (27,914) (19,820) (6,128)
-------- --------- -------- --------- --------
Net increase (decrease) in unrestricted cash and
investments.............................................. (26,830) (15,011) 6,958 5,509 26,888
Unrestricted cash and investments at the beginning of the
period................................................... 58,350 31,520 16,509 16,509 23,467
-------- --------- -------- --------- --------
Unrestricted cash and investments at the end of the
period................................................... $ 31,520 $ 16,509 $ 23,467 $ 22,018 $ 50,355
======== ========= ======== ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 85
NORTEK, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' INVESTMENT
FOR THE THREE YEARS ENDED DECEMBER 31, 1992 AND THE 39 WEEKS ENDED OCTOBER 2,
1993 (UNAUDITED)
<CAPTION>
SPECIAL ADDITIONAL DEFERRED
COMMON COMMON PAID-IN RETAINED TREASURY COMPEN-
STOCK STOCK CAPITAL EARNINGS STOCK SATION
------- ------ ---------- -------- -------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1989....... $15,023 $1,492 $138,068 $ 96,243 $(27,731) $(5,064)
288,526 shares of special common
stock converted into 288,526
shares of common stock......... 289 (289) -- -- -- --
510,292 shares of common treasury
stock and 172,160 shares of
special common treasury stock
acquired from the ESOP (Note
6)............................. -- -- (3,194) -- (2,410) 5,064
285,000 shares of common treasury
stock sold to Bready
Associates..................... -- -- (381) (1,797) 4,886 --
17,524 shares of common treasury
stock and 443 shares of special
common treasury stock
acquired....................... -- -- -- -- (76) --
Cash dividends of $.10 per common
share and $.04 per special
common share................... -- -- -- (1,280) -- --
Net loss......................... -- -- -- (38,100) -- --
------- ------ ---------- -------- -------- -------
BALANCE, December 31, 1990....... 15,312 1,203 134,493 55,066 (25,331) --
126,817 shares of special common
stock converted into 126,817
shares of common stock......... 126 (126) -- -- -- --
432,292 shares of common treasury
stock and 777 shares of special
common treasury stock
acquired....................... -- -- -- -- (714) --
Net loss......................... -- -- -- (27,100) -- --
------- ------ ---------- -------- -------- -------
BALANCE, December 31, 1991....... 15,438 1,077 134,493 27,966 (26,045) --
86,345 shares of special common
stock converted into 86,345
shares of common stock......... 87 (87) -- -- -- --
631,701 shares of common treasury
stock acquired, net............ -- -- -- -- (2,006) --
77,837 shares of common stock
issued upon exercise of stock
options........................ 77 -- 106 -- -- --
Net loss......................... -- -- -- (24,200) -- --
------- ------ ---------- -------- -------- -------
BALANCE, December 31, 1992....... 15,602 990 134,599 3,766 (28,051) --
130,440 shares of special common
stock converted into 130,440
shares of common stock......... 131 (131) -- -- -- --
10,000 shares of common stock
issued upon exercise of stock
options........................ 10 -- 19 -- -- --
Net loss......................... -- -- -- (14,900) -- --
------- ------ ---------- -------- -------- -------
BALANCE, October 2, 1993
(unaudited).................... $15,743 $ 859 $134,618 $(11,134) $(28,051) $ --
======= ====== ========== ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 86
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Nortek, Inc.
and all of its significant wholly-owned subsidiaries (the "Company" or "Nortek")
after elimination of intercompany accounts and transactions. Certain amounts in
the prior years' financial statements have been reclassified to conform to the
presentation at December 31, 1992.
CASH, INVESTMENTS AND MARKETABLE SECURITIES
Investments consist of short-term (maturities of less than 30 days) highly
liquid investments which are readily convertible into cash. Investments and
marketable securities are carried at the lower of aggregate cost or approximate
market price.
The Company has classified as restricted, certain cash, investments and
marketable securities that are not fully available for use in its operations. At
December 31, 1992, approximately $8,187,000 of cash and investments has been
pledged as collateral for insurance and other requirements and is classified as
restricted in current assets, and approximately $1,625,000 of subsidiary cash
and investments is classified as restricted in other assets in the accompanying
consolidated balance sheet.
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH AND INVESTMENTS --
The carrying amount approximates fair value because of the short
maturity of those instruments.
MARKETABLE SECURITIES --
The fair value of marketable securities is based on quoted market
prices. At December 31, 1992, the fair value of marketable securities
approximated the amount on the Company's consolidated balance sheet.
LONG-TERM DEBT --
The fair value of long-term indebtedness was estimated based on prices
related to transactions involving the Company's long-term indebtedness or
valuations prepared by independent third parties. At December 31, 1992, the
fair value of long-term indebtedness approximates the amount on the
Company's consolidated balance sheet.
INVENTORIES
Inventories are valued at the lower of cost or market. At December 31, 1991
and 1992, approximately $51,769,000 and $57,432,000 of total inventories,
respectively, were valued on the last-in, first-out method. Under the first-in,
first-out method (FIFO) of accounting, such inventories would have been
$14,642,000 and $15,051,000 greater at December 31, 1991 and 1992, respectively.
All other inventories were valued under the FIFO method.
SALES RECOGNITION
The Company recognizes sales upon the shipment of its products net of
applicable provisions for discounts and allowances. The Company also provides
for its estimate of warranty and bad debts at the time of shipment as selling,
general and administrative expense.
F-8
<PAGE> 87
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DEPRECIATION AND AMORTIZATION
<TABLE>
Depreciation and amortization of property and equipment is provided on a
straight-line basis over the estimated useful lives which are generally as
follows:
<S> <C>
Buildings and improvements..................................... 10-35 years
Machinery and equipment, including leases...................... 3-15 years
Leasehold improvements......................................... term of lease
</TABLE>
Expenditures for maintenance and repairs are expensed when incurred.
Expenditures for renewals and betterments are capitalized. When assets are sold,
or otherwise disposed of, cost and accumulated depreciation are eliminated and
the resulting gain or loss is recognized.
GOODWILL
The Company has classified as goodwill the cost in excess of fair value of
the net assets (including tax attributes) of companies acquired in purchase
transactions. The loss from continuing operations for 1990 reflects a net
after-tax charge of approximately $3,055,000 ($.23 per share) in the fourth
quarter as a result of a determination that the net unamortized goodwill of one
of the Company's businesses had no further continuing value. Goodwill is being
amortized on a straight-line method over 40 years. Amortization charged to
continuing operations amounted to $2,997,000, $2,759,000 and $2,548,000 for
1990, 1991 and 1992, respectively. The reduction in goodwill in 1991 and 1992
also included approximately $3,197,000 and $9,008,000, respectively, charged to
loss on businesses sold. At each balance sheet date, the Company evaluates the
realizability of goodwill based upon expectations of non-discounted cash flows
and operating income for each subsidiary having a material goodwill balance.
Based upon its most recent analysis, the Company believes that no material
impairment of goodwill exists at December 31, 1992.
NET EARNINGS (LOSS) PER SHARE
Net earnings (loss) per share amounts have been computed using the weighted
average number of common and common equivalent shares outstanding during each
year. Earnings (loss) per share calculations for all periods presented do not
include the effect of common stock equivalents or convertible debentures (and
the reduction in related interest expense) because the assumed exercise of stock
options and conversion of debentures is anti-dilutive for the net loss per share
amounts. Special Common Stock is treated as the equivalent of common stock in
determining earnings per share results. Unallocated and unencumbered shares of
the Company's Common and Special Common Stock held by the Company's ESOP were
treated as treasury stock for purposes of computing earnings per share. The
Company's ESOP was terminated during the second quarter of 1990 (see Note 6).
2. CASH FLOWS
Interest paid on indebtedness was $47,334,000, $38,658,000 and $27,436,000
in 1990, 1991 and 1992, respectively.
<TABLE>
The following table summarizes the activity of businesses sold or
discontinued included in the accompanying consolidated statement of cash flows:
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1990 1991 1992
------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Fair value of assets sold........................... $ -- $ 58,624 $ 52,793
Liabilities assumed by the purchaser................ -- (11,530) (13,329)
Notes receivable and other non-cash proceeds
received as part of the proceeds.................. -- (10,090) (316)
Cash (paid) received relating to businesses sold or
discontinued...................................... 20,951 1,492 (335)
------- -------- --------
Net cash proceeds from businesses sold or
discontinued...................................... $20,951 $ 38,496 $ 38,813
======= ======== ========
</TABLE>
F-9
<PAGE> 88
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
The following summarizes other non-cash financing and investing activities:
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1990 1991 1992
------ ------ -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Use of restricted cash and investments in settlement of
certain litigation (see Note 8)....................... $ -- $ -- $11,800
Exchange of debentures (see Note 8)..................... -- -- 4,050
Settlement of 11% subordinated notes receivable (see
Note 8)............................................... -- -- 2,576
Non-compete agreement................................... -- 540 --
Reduction of debt in connection with the termination of
the Company's ESOP.................................... 1,871 -- --
Capitalized lease obligations incurred.................. 1,217 113 --
Other................................................... 989 1,174 1,556
</TABLE>
3. INVESTMENTS IN AND AMOUNTS DUE FROM BUSINESSES SOLD OR DISPOSED
During the past several years, the Company received notes and other
receivables and preferred stock as partial consideration from the sale of
businesses. The accompanying consolidated balance sheet at December 31, 1991 and
1992 includes approximately $12,909,000 and $3,888,000, respectively, of such
receivables and preferred stock ($2,647,000 and $869,000, respectively, is
included in other current assets) and is net of approximately $3,384,000 and
$4,320,000, respectively, of valuation reserves (see Notes 8, 10, 11, 12 and
13).
4. INCOME TAXES
<TABLE>
The following is a summary of the components of earnings (loss) from
continuing operations before income tax credit:
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1990 1991 1992
-------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Domestic........................................... $(67,150) $(52,900) $(24,400)
Foreign............................................ 6,800 7,200 6,400
-------- -------- --------
$(60,350) $(45,700) $(18,000)
======== ======== ========
</TABLE>
<TABLE>
The following is a summary of the provision (credit) for income taxes from
continuing operations included in the accompanying consolidated statement of
operations:
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1990 1991 1992
-------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Federal Income Taxes --
Current.......................................... $(24,250) $ (5,400) $ 600
Deferred......................................... 1,400 (9,350) (1,700)
-------- -------- --------
(22,850) (14,750) (1,100)
Foreign............................................ 3,000 3,000 3,200
State.............................................. 900 750 900
-------- -------- --------
$(18,950) $(11,000) $ 3,000
======== ======== ========
</TABLE>
F-10
<PAGE> 89
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
The deferred federal income tax provision (credit) from continuing
operations includes the following timing differences:
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1990 1991 1992
-------- -------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Accelerated depreciation.......................... $ 933 $ (1,320) $(1,550)
Accruals not deductible currently................. 725 (3,975) 1,625
Capitalization of inventory for tax purposes...... 66 (25) 250
Effect of capital loss............................ -- -- (1,400)
Alternative minimum income tax.................... -- (3,750) (275)
Other, net........................................ (324) (280) (350)
-------- -------- -------
Total deferred federal income tax provision
(credit) from continuing operations............. $ 1,400 $ (9,350) $(1,700)
======== ======== =======
</TABLE>
Prepaid income taxes, relating primarily to accruals not deductible
currently, of approximately $18,000,000 at December 31, 1991 and $22,000,000 at
December 31, 1992, are classified as a current asset in the accompanying
consolidated balance sheet. All other cumulative deferred income tax liabilities
are classified as non-current. Income tax (payments) refunds, net, were
approximately $4,700,000, $5,700,000 and $(1,600,000) in 1990, 1991 and 1992,
respectively.
<TABLE>
The table below reconciles the federal statutory income tax rate to the
effective tax rate from continuing operations of 31.4%, 24.1% and 16.7% in 1990,
1991, and 1992, respectively.
<CAPTION>
>YEAR ENDED DECEMBER 31,
---------------------------------
1990 1991 1992
-------- -------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Income tax credit at the federal statutory rate... $(20,519) $(15,538) $(6,120)
INCREASE (DECREASE) FROM STATUTORY RATE:
Effect of unrecognized capital losses............. (2,433) -- 3,990
State taxes, net of federal tax effect............ 868 495 594
Amortization not deductible for tax purposes...... 163 358 552
Write-off of goodwill............................. 1,039 -- --
Businesses sold................................... -- 968 2,827
Foreign source deemed income...................... -- 2,182 648
Tax effect on foreign income...................... 589 546 479
Other, net........................................ 1,343 (11) 30
-------- -------- -------
Income tax provision (credit) from continuing
operations...................................... $(18,950) $(11,000) $ 3,000
======== ======== =======
</TABLE>
Pursuant to Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes," the Company will change its method of accounting
for income taxes in the first quarter of 1993. Prior year financial statements
will not be restated to reflect the new accounting method. The effect of this
new accounting method will not require a material adjustment for the cumulative
effect of an accounting change. For years through December 31, 1992, the
provision (credit) for income taxes was computed in accordance with the
comprehensive income tax allocation method, which recognizes the tax effects of
all income and expense transactions included in each year's consolidated
statement of operations regardless of the year the transactions are reported for
tax purposes. Under SFAS No. 109, deferred income tax assets or liabilities will
be computed based on the difference (temporary differences) between the
financial statement and income tax bases of assets and liabilities, using the
current marginal income tax rates in effect for the year in which the
F-11
<PAGE> 90
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
differences are expected to reverse. Deferred income tax expenses or credits
will be based on the changes in the asset or liability between periods.
5. NOTES, MORTGAGE NOTES AND DEBENTURES PAYABLE
<TABLE>
Notes, mortgage notes and debentures payable at December 31, 1991 and 1992
consists of the following:
<CAPTION>
DECEMBER 31,
---------------------
1991 1992
-------- --------
(AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Notes payable to banks......................................... $ 64 $ --
Mortgage notes payable......................................... 21,251 20,661
Other.......................................................... 7,662 4,435
9 3/4% senior notes due 1997 ("9 3/4% Senior Notes"), net of
unamortized debt discount of $8,049,000 and $6,967,000....... 43,396 44,478
13 1/2% senior subordinated debentures due 1997 ("13 1/2%
Debentures"), net of unamortized original issue discount of
$563,000 and $438,000........................................ 83,760 79,685
11 1/2% senior subordinated debentures due 1994 ("11 1/2%
Debentures"), net of unamortized original issue discount of
$205,000 and $69,000......................................... 40,794 22,531
11% subordinated sinking fund debentures due 2004 ("11%
Debentures"), net of unamortized debt discount of $837,000
and $666,000................................................. 20,596 18,758
10% subordinated sinking fund debentures due 1999 ("10%
Debentures"), net of unamortized debt discount of $355,000
and $269,000................................................. 3,105 2,742
7 1/2% convertible sinking fund debentures due 2006 ("7 1/2%
Convertible Debentures")..................................... 17,133 15,793
-------- --------
237,761 209,083
Less current maturities........................................ 5,180 7,220
-------- --------
$232,581 $201,863
======== ========
</TABLE>
The Company's Canadian subsidiary has a $15,800,000 secured line of credit
and as of December 31, 1992, there were no outstanding borrowings under this
line of credit. The line of credit facility is subject to review by April 30,
1994. Broan Limited pays a commitment fee of .25% per annum on the unutilized
portion of this line of credit payable monthly on a pro rata basis. Borrowings
are available for working capital and other general corporate purposes, of which
approximately $11,600,000 is available for Nortek and its other subsidiaries'
requirements.
Mortgage notes payable obligations include various mortgage notes and other
related indebtedness payable in installments through 1999 and bearing interest
at rates ranging from 2% to 13.5%. Approximately $20,361,000 of such
indebtedness is collateralized by property and equipment with an aggregate net
book value of approximately $17,645,000 at December 31, 1992.
Other obligations include borrowings relating to equipment purchases and
other borrowings bearing interest from 2% to 16.36% and maturing at various
dates through 2001. Approximately $1,531,000 of such indebtedness is
collateralized by property and equipment with an aggregate net book value of
approximately $1,769,000 at December 31, 1992.
The 9 3/4% Senior Notes are redeemable by the Company at any time in whole
or from time to time in part at 100% of principal amount plus accrued interest,
if any, to the date of redemption.
The indenture governing the 9 3/4% Senior Notes limits the payment of cash
dividends and stock payments. Under this loan agreement, which is the most
restrictive of the Company's loan agreements and indentures, share payments were
prohibited at December 31, 1992.
F-12
<PAGE> 91
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The indenture also requires that the Company maintain a minimum net worth,
as defined, of $100,000,000. If the net worth at the end of any two consecutive
fiscal quarters falls below the minimum, then on the last day of the fiscal
quarter (the "Accelerated Payment Date") next following such second fiscal
quarter or, if such second fiscal quarter is the fiscal year end of the Company,
120 days following the fiscal year end, the Company shall commence an offer
("Mandatory Purchase Offer") to purchase 7.5% of the principal amount of the
9 3/4% Senior Notes. No fiscal quarter will count towards more than one
requirement to make a Mandatory Purchase Offer. The purchase price of the 9 3/4%
Senior Notes will be their principal amount plus accrued interest to the date of
purchase. The Company may credit against its obligation to purchase the 9 3/4%
Senior Notes, 100% of the principal amount of the 9 3/4% Senior Notes acquired
or redeemed subsequent to the end of the first fiscal quarter in which the
Company's net worth is less than $100,000,000 which were not previously used as
a credit.
During 1990, 1991 and 1992, the Company acquired, at a discount, in open
market and negotiated transactions $57,678,000, $56,485,000 and $26,398,000,
respectively, principal amount of its various notes and debentures. These
transactions resulted in extraordinary gains of $1,700,000, net of income taxes
of $1,150,000 ($.13 per share) in the first quarter of 1990, $3,600,000, net of
income taxes of $2,350,000 ($.27 per share) in the second quarter of 1990,
$2,450,000, net of income taxes of $1,650,000 ($.19 per share) in the third
quarter of 1990, and $2,150,000, net of income taxes of $1,450,000 ($.16 per
share) in the fourth quarter of 1990, $3,500,000, net of income taxes of
$2,500,000 ($.26 per share) in the first quarter of 1991, $1,200,000, net of
income taxes of $650,000 ($.09 per share) in the second quarter of 1991,
$2,900,000, net of income taxes of $1,850,000 ($.22 per share) in the fourth
quarter of 1991 $200,000, net of income taxes of $150,000 ($.01 per share) in
the second quarter of 1992, and an extraordinary loss of $100,000, net of an
income tax credit of $100,000 ($.01 per share) in the third quarter of 1992.
Discount and deferred costs relating to the 9 3/4% Senior Notes, 13 1/2%
Debentures, 11 1/2% Debentures and the 7 1/2% Convertible Debentures are being
amortized over the life of the issue. Discount related to the 10% and 11%
Debentures is being amortized over the remaining life of those issues. Such
amortization of discount and deferred costs was approximately $2,400,000,
$2,000,000 and $2,000,000 in 1990, 1991 and 1992, respectively.
The indentures governing the 11 1/2% Debentures, the 13 1/2% Debentures and
the 7 1/2% Convertible Debentures also limit the payment of cash dividends and
stock payments and require that the Company maintain a minimum net worth, as
defined, of $100,000,000. If the net worth at the end of any two consecutive
fiscal quarters falls below the minimum, then on the last day of the fiscal
quarter (the "Accelerated Payment Date") next following such second fiscal
quarter, the Company will be required to begin semi-annual redemptions of
$2,500,000 principal amount of the 11 1/2% Debentures, $12,500,000 principal
amount of the 13 1/2% Debentures, and for the 7 1/2% Convertible Debentures to
accelerate the then outstanding principal amount due after such Accelerated
Payment Date. Such redemptions will continue until the Company's net worth
exceeds $100,000,000 or until all the 11 1/2% Debentures, the 13 1/2% Debentures
and the 7 1/2% Convertible Debentures are redeemed.
The redemption price of the 7 1/2% Convertible Debentures will be their
principal amount plus accrued interest to the Accelerated Payment Date. The
Company may credit against its obligation to redeem the 7 1/2% Convertible
Debentures upon any Accelerated Payment Date the principal amount of (i) 7 1/2%
Convertible Debentures acquired by the Company and surrendered for cancellation
(including converted 7 1/2% Convertible Debentures), and (ii) 7 1/2% Convertible
Debentures redeemed or called for redemption otherwise than through operation of
the sinking fund or through redemption on an Accelerated Payment Date. In no
event shall the failure to meet the minimum net worth stated above at the end of
any fiscal quarter be counted toward more than one acceleration of any sinking
fund payment.
All sinking fund requirements of the 7 1/2% Convertible Debentures have
been met.
F-13
<PAGE> 92
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under the terms of the indenture governing the 11% Debentures, the Company
is required to make annual mandatory sinking fund payments of $1,810,000 until
April 2003 to retire 90% of the issue prior to maturity. The sinking fund
requirements have been met through April 1993, and a portion (approximately
$1,687,420) of the sinking fund requirement due April 1994 has also been met, as
a result of open market purchases.
The terms of the indenture governing the 10% Debentures require the Company
to make seven remaining annual mandatory sinking fund payments of $432,500 each
December to retire 90% of the issue prior to maturity.
The 13 1/2% Debentures are redeemable at the option of the Company, in
whole or in part, upon 30 days notice at 103.0% (as of December 31, 1992)
declining to 100% on June 15, 1994.
The 11 1/2% Debentures are redeemable at the option of the Company, in
whole or in part, upon 30 days notice at 101.5% (as of December 31, 1992)
declining to 100% on June 1, 1993.
The 11% and 10% Debentures are redeemable at par at any time at the option
of the Company.
The 7 1/2% Convertible Debentures are redeemable at the option of the
Company as a whole or from time to time in part, at 103.0% (as of December 31,
1992), declining to 100% on May 1, 1996.
At December 31, 1991 and 1992, the 7 1/2% Convertible Debentures were
convertible into shares of Common Stock of the Company at $21.56 per share,
which is subject to adjustment under certain conditions.
<TABLE>
The following is a summary of maturities of all of the Company's debt
obligations, excluding unamortized debt discount, due after December 31, 1993:
<CAPTION>
(AMOUNTS IN THOUSANDS)
<S> <C>
1994.................................................... $ 30,580
1995.................................................... 3,028
1996.................................................... 3,053
1997.................................................... 142,351
Thereafter.............................................. 31,260
-----------
$210,272
===========
</TABLE>
6. COMMON STOCK, SPECIAL COMMON STOCK, STOCK OPTIONS AND DEFERRED COMPENSATION
Each share of Special Common Stock has 10 votes on all matters submitted to
a stockholder vote, except that the holders of Common Stock, voting separately
as a class, have the right to elect 25% of the directors to be elected at a
meeting to the Company's Board of Directors, with the remaining 75% being
elected by the combined vote of both classes. Shares of Special Common Stock are
generally non-transferable, but are freely convertible on a share-for-share
basis into shares of Common Stock.
The Company has a rights plan which provides for the right to purchase for
$75, one one-hundredth of a share of $1.00 par value Series A Participating
Preference Stock for each right held. The rights that are not currently
exercisable, are attached to each share of Common Stock and may be redeemed by
the Directors at $.01 per share at any time. After a shareholder acquires
beneficial ownership of 17% or more of the Company's Common Stock and Special
Common Stock, the rights will trade separately and become exercisable entitling
a rights holder to acquire additional shares of the Company's Common Stock
having a market value equal to twice the amount of the exercise price of the
right. In addition, after a person or group ("Acquiring Company") commences a
tender offer or announces an intention to acquire 30% or more of the Company's
Common Stock and Special Common Stock, the rights will trade separately and,
under certain circumstances,
F-14
<PAGE> 93
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
will permit each rights holder to acquire common stock of the Acquiring Company,
having a market value equal to twice the amount of the exercise price of the
right.
<TABLE>
At December 31, 1992, a total of 2,691,554 shares of Common Stock was
reserved as follows:
<S> <C>
Conversion of convertible debentures.............................. 732,514
Stock option plans................................................ 969,033
Conversion of special common stock................................ 990,007
---------
2,691,554
=========
</TABLE>
At December 31, 1992 a total of 43,500 shares of Special Common Stock was
reserved for stock option plans.
The Company has several stock option plans which provide for the granting
of options to certain officers, employees and non-employee directors of the
Company. Options granted under the plans vest over periods ranging up to five
years and expire from eight to ten years from the date of grant. These Plans
provide for the issuance of 1,183,333 shares of the Company's Common and Special
Common Stock, and at December 31, 1992, there were options outstanding covering
240,300 shares of Common and Special Common Stock, of which 172,500 options are
currently exercisable.
Options for 120,700 and 41,400 shares of Common and Special Common Stock
became exercisable during 1991 and 1992, respectively. Proceeds from options
exercised are credited to common stock and additional paid-in capital.
<TABLE>
The following table summarizes all Common and Special Common Stock option
transactions for the three years ended December 31, 1992:
<CAPTION>
OPTION PRICE
----------------------------
NUMBER PER
OF SHARES SHARE TOTAL
---------- ------------- -----------
<S> <C> <C> <C>
OPTIONS OUTSTANDING AT DECEMBER 31, 1989.... 775,229 $4.69-$15.69 $ 5,203,369
Granted................................... 710,133 2.25-3.56 2,057,782
Exercised................................. -- -- --
Canceled.................................. (1,131,062) 2.88-10.88 (5,731,517)
OPTIONS OUTSTANDING AT DECEMBER 31, 1990.... 354,300 $2.25-$15.69 $ 1,529,634
Granted................................... 30,000 2.88 86,250
Exercised................................. -- -- --
Canceled.................................. (7,800) 2.88 (22,425)
OPTIONS OUTSTANDING AT DECEMBER 31, 1991.... 376,500 $2.25-$15.69 $ 1,593,459
Granted................................... -- -- --
Exercised................................. (85,700) 2.25-2.88 (240,613)
Canceled.................................. (50,500) 2.25-8.69 (288,008)
---------- ------------- -----------
OPTIONS OUTSTANDING AT DECEMBER 31, 1992.... 240,300 $2.25-$15.69 $ 1,064,838
========== ============= ===========
</TABLE>
During 1990, a total of $904,000 was charged to operations as compensation
expense relating to the forgiveness of principal and interest on notes
receivable from the current Chairman and the former Chairman. On October 31,
1990, in connection with the retirement of the Company's former Chairman,
413,333 Common Stock options were canceled (see Note 13).
During 1990, the Company's ESOP, which covered substantially all regular
full-time employees not covered by a collective bargaining agreement, was
terminated and the Company purchased Treasury Stock from the ESOP consisting of
510,292 Nortek Common shares and 172,160 Nortek Special Common shares
F-15
<PAGE> 94
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for approximately $2,410,000. In connection with the ESOP termination, the
unamortized balance of deferred compensation, net of the guarantee of
indebtedness, was accounted for as a charge to additional paid-in capital of
approximately $3,193,000.
On January 31, 1992, the Company acquired 625,000 shares of its Common
Stock in a negotiated transaction for approximately $1,975,000 including
expenses. See Note 5 with respect to limitations on the payment of cash
dividends and stock payments.
7. PENSION, RETIREMENT, PROFIT SHARING PLANS AND POST-RETIREMENT BENEFITS
The Company and its subsidiaries have various pension, retirement and
profit sharing plans requiring contributions to qualified trusts and union
administered funds. Pension and profit sharing expense charged to operations
aggregated approximately $679,000 in 1990, $1,938,000 in 1991 and $2,130,000 in
1992. The Company's policy is to fund currently the actuarially determined
annual contribution.
<TABLE>
The Company's net pension expense (credit) for its defined benefits plans
for 1990, 1991 and 1992 consists of the following components:
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1990 1991 1992
------- ------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Service costs......................................... $ 1,276 $ 1,213 $ 1,584
Interest cost......................................... 2,079 1,818 1,967
Actual net loss (income) on plan assets............... 2,192 (4,762) (3,173)
Net amortization and deferred items................... (5,563) 2,635 1,070
------- ------- -------
Net pension expense (credit).......................... $ (16) $ 904 $ 1,448
======= ======= =======
</TABLE>
<TABLE>
The following table sets forth the funded status of the Company's defined
benefit plans and amounts recognized in the Company's consolidated balance
sheet:
<CAPTION>
DECEMBER 31,
-------------------
1991 1992
------- -------
(AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations at September 30:
Vested benefits.................................................. $15,308 $17,535
Non-vested benefits.............................................. 409 552
------- -------
Accumulated benefit obligation................................... 15,717 18,087
Effect of projected future compensation levels................... 4,526 5,829
------- -------
Projected benefit obligation..................................... 20,243 23,916
Plan assets at fair value at September 30........................ 24,660 26,065
------- -------
Plan assets in excess of projected benefit obligation............ 4,417 2,149
Unrecognized net loss............................................ 5,039 5,930
Unrecognized transition net asset at January 1................... (3,635) (3,320)
Unrecognized prior service costs................................. 726 985
------- -------
Prepaid pension costs at December 31............................. $ 6,547 $ 5,744
======= =======
</TABLE>
Plan assets include commingled funds, marketable securities, insurance
contracts and cash and short-term investments. The weighted average discount
rate and rate of increase in future compensation levels used in determining the
actuarial present value of the projected benefit obligation were 8.5 percent and
6 percent, respectively, in 1990 and 8 percent and 6 percent, respectively, in
1991 and 1992. The expected long-term rate of return on assets was 9.5 percent
in 1990, 1991 and 1992.
F-16
<PAGE> 95
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Certain of the Company's subsidiaries provide health care and related
benefits, which were modified in 1993, to qualified active and retired
beneficiaries. These benefits are net of reimbursement by Medicare and other
insurance coverages. Effective January 1, 1993, the Company will adopt the
accounting requirements of Statement of Financial Accounting Standards ("SFAS")
No. 106, "Employers' Accounting for Post-Retirement Benefits" and expects to
record the initial accumulated post-retirement benefit obligation ("APBO") of
approximately $2,100,000 (after an income tax credit of approximately
$1,000,000) at January 1, 1993 as a charge to operations ($.17 per share, net of
tax) as the cumulative effect of an accounting change. Previously, benefits were
charged to operating results in the period that such benefits were paid.
Approximately $950,000 of the APBO is expected to be paid during 1993 as a
result of certain plan modifications. The annual expense for 1993 from adopting
SFAS 106 is expected to approximate the expense that would have been recorded
under the previous accounting method. The Company continues to fund benefit
costs principally on a pay-as-you-go basis, with most retirees paying a portion
of the costs. The discount rate used in determining the APBO was 8 percent. A 17
percent annual rate of increase in the per capita cost of such health care and
related benefits was assumed for 1993, decreasing gradually to 6 percent in the
year 2009.
8. COMMITMENTS AND CONTINGENCIES
The Company provides accruals for all direct and indirect costs associated
with the estimated resolution of contingencies at the earliest date at which the
incurrence of a liability is deemed probable and the amount of such liability
can be reasonably estimated.
In December 1991, the Company recorded an $11,500,000 pre-tax charge ($.47
per share, net of tax) in connection with the settlement of litigation with the
former selling shareholders of the Company's former Bend Millwork Systems
Company. Payment was made on March 6, 1992 by an insurance company that held, at
December 31, 1991, approximately $16,500,000 of the Company's restricted
investments and marketable securities as collateral for a security bond.
In July 1992, derivative litigation against the Company and its directors
challenging the transactions involving the retirement in 1990 of the Company's
former Chairman was settled. In connection with the settlement, the Company
recorded a net after-tax gain on discontinued operations in the third-quarter of
approximately $900,000 ($.07 per share), resulting from the exchange of
$5,250,000 principal amount (included in the Company's consolidated balance
sheet at the date of exchange at approximately $2,576,000) of Monogram
Industries, Inc. ("Monogram") 11% subordinated notes due December 31, 1995 held
by the Company for $4,050,000 principal amount of Nortek 13 1/2% Senior
Subordinated Debentures due June 15, 1997 held by a company controlled by
Nortek's former Chairman.
<TABLE>
At December 31, 1992, the Company and its subsidiaries are obligated under
lease agreements for the rental of certain real estate and machinery and
equipment used in its operations. Minimum annual rental expense (net of minimum
sublease rental income of approximately $9,306,000) aggregates approximately
$38,119,000 at December 31, 1992. The obligations are payable as follows:
<S> <C>
1993............................................................ $ 6,875,000
1994............................................................ 5,233,000
1995............................................................ 2,663,000
1996............................................................ 2,057,000
1997............................................................ 2,258,000
Thereafter...................................................... 19,033,000
</TABLE>
Certain of these lease agreements provide for increased payments based on
changes in the consumer price index. Rental expense, net, from continuing
operations in the accompanying consolidated statement of operations for the
years ended December 31, 1990, 1991 and 1992 was approximately $14,617,000,
F-17
<PAGE> 96
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$12,434,000 and $10,626,000, respectively. Under certain of these lease
agreements, the Company and its subsidiaries are also obligated to pay insurance
and taxes.
At December 31, 1992, the Company is contingently liable for obligations
(approximately $7,700,000) under Industrial Revenue Bond agreements ("IRB'S")
relating to facilities of previously owned subsidiaries. During 1992, the
Company was notified of events of default relating to the failure of one of
these previously owned subsidiaries, obligated on $7,100,000 of these IRB'S, to
make interest payments of approximately $800,000 due in March and September 1992
and a $75,000 payment of principal and interest due in May 1992. In February
1993, the Company was informed that this former subsidiary filed for protection
under Federal bankruptcy laws. The Company has not been informed of what actions
might be taken by the holders of these bonds, but it is possible there may be a
call for acceleration of payment of the bonds. The Company believes that any
liability that may ultimately result from the resolution of this matter, in
excess of amounts provided, will not have a material adverse effect on financial
position or results of operations of the Company.
The Company is subject to other contingencies, including additional legal
proceedings and claims arising out of its businesses that cover a wide range of
matters, including, among others, product liability, warranty and product
recalls, environmental matters and contract and employment claims. The Company
has used various substances in its products and manufacturing operations which
have been or may be deemed to be hazardous or dangerous, and the extent of its
potential liability, if any, under environmental, product liability and worker's
compensation statutes, rules, regulations and case law is unclear. Further, due
to the lack of adequate information and the potential impact of present
regulations and any future regulations, there are certain circumstances in which
no range of potential exposure may be reasonably estimated.
While it is impossible to ascertain the ultimate legal and financial
liability with respect to contingent liabilities, including lawsuits, the
Company believes that the aggregate amount of such liabilities, if any, in
excess of amounts provided, will not have a material adverse effect on the
consolidated financial position or results of operations of the Company.
9. OPERATING SEGMENT INFORMATION AND CONCENTRATION OF CREDIT RISK
The Company predominantly operates in one industry segment, Residential and
Commercial Building Products. No single customer accounts for 10% or more of
consolidated net sales. More than 90% of net sales and identifiable segment
assets are related to the Company's domestic operations.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
and trade receivables. The Company places its temporary cash investments with
high credit quality financial institutions and limits the amount of credit
exposure to any one financial institution. Concentrations of credit risk with
respect to trade receivables are limited due to the large number of customers
comprising the Company's customer base, and their dispersion across many
different geographical regions. At December 31, 1992, the Company had no
significant concentrations of credit risk.
10. BUSINESSES SOLD
In 1991, the Company completed the sale of substantially all of the assets,
subject to certain liabilities, of a group of its operations engaged in the
business of manufacturing and selling wood, wood-vinyl and packaging products
and DPI completed the sale of the stock of its American Door Company of
Michigan, Inc. subsidiary and substantially all of the assets, subject to
certain liabilities, of its Castlegate, Inc. and Mohawk Flush Doors, Inc.
subsidiaries. In connection with these transactions, the Company recorded
pre-tax losses of approximately $8,500,000 ($.45 per share, net of tax) in the
second quarter and $6,700,000 ($.37 per share, net of tax) in the third quarter
of 1991, respectively. Net cash proceeds from transactions in 1991 were used to
retire bank indebtedness of DPI in 1991.
F-18
<PAGE> 97
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On January 2, 1992, the assets, subject to certain liabilities, of the
Company's Dixieline Products, Inc. ("DPI") subsidiary, L. J. Smith, Inc. ("L. J.
Smith") were sold for approximately $24,000,000 in cash. The Company recorded a
pre-tax gain on the sale of L. J. Smith of approximately $8,000,000 ($.34 per
share, net of tax) in the first quarter of 1992. On October 2, 1992, the Company
sold all of the capital stock of its wholly-owned subsidiary, Bend Millwork
Systems, Inc. ("Bend") for approximately $17,200,000 in cash and recorded a
pre-tax loss on sale in the third quarter of 1992 of approximately $20,500,000
($1.43 per share, net of tax). In the fourth quarter of 1992, the Company
recorded an additional provision of approximately $2,000,000 ($.17 per share,
net of tax) in connection with the sale of Bend related to purchase price
negotiations and settlements.
The combined unaudited net sales and pre-tax loss for all businesses sold
in 1991 and 1992 were approximately $234,800,000 and $3,700,000, respectively,
for the year ended December 31, 1991, and approximately $90,600,000 and
$3,900,000, respectively, for the year ended December 31, 1992.
Unaudited pro forma net sales, loss from continuing operations and fully
diluted loss per share from continuing operations of the Company for the year
ended December 31, 1992, assuming that the sale of L.J. Smith and Bend had
occurred on January 1, 1992, would have been $709,300,000, $2,500,000 and $.20
respectively. The pro forma data does not purport to be indicative of the
results which would actually have been reported, if the dispositions had
occurred on January 1, 1992 or which may be reported in the future. In computing
the pro forma results, the net after-tax loss on the sale of businesses in 1992
($14,500,000 before income taxes) has been excluded; however, no investment
income was assumed earned on the net cash proceeds of approximately $22,300,000
from the sale of L. J. Smith or the cash proceeds of approximately $17,200,000
on the sale of Bend.
11. DISCONTINUED OPERATIONS
Results of discontinued operations in 1990 include other income and expense
items relating to businesses discontinued in prior years, and in the fourth
quarter primarily reflect a net after-tax charge of approximately $7,000,000
(net of income tax credit of approximately $4,700,000) as a result of the
discontinuance of a product line and from reserves established to reduce the
carrying value of certain assets of discontinued operations to estimated net
realizable value at December 31, 1990. Results of discontinued operations in the
fourth quarter of 1990 also include after-tax income previously deferred of
approximately $2,200,000 (net of an income tax provision of approximately
$1,200,000) resulting from the cash collection and settlement of approximately
$5,400,000 from certain businesses previously discontinued. Results for the
second quarter of 1990 include approximately $1,000,000 of net after-tax income
which was deferred in 1989 in connection with the sale of Monogram as a result
of the collection in June 1990 of the $14,000,000 note due from the purchaser of
Monogram.
<TABLE>
The following is an unaudited summary of the results of discontinued
operations for the year ended December 31, 1990:
<CAPTION>
YEAR ENDED
DECEMBER 31,
1990
----------------------
(AMOUNTS IN THOUSANDS)
<S> <C>
Net sales............................................... $ 15,656
----------
Loss before income tax credit........................... (3,450)
Income tax credit....................................... (1,250)
----------
Loss from discontinued operations....................... (2,200)
Loss on disposal, net of income tax credit of
$3,900,000............................................ (4,400)
----------
Loss from discontinued operations....................... $ (6,600)
==========
</TABLE>
F-19
<PAGE> 98
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Results of discontinued operations in 1991 include other income and expense
items relating to businesses discontinued in prior years, including proceeds
received from the settlement of certain litigation that was pending prior to the
sale in 1989 of the Company's former Bradford-White Corporation subsidiary which
resulted in a pre-tax gain of approximately $700,000 in the first quarter of
1991 ($.03 per share, net of tax).
Results of discontinued operations include other income and expense items
relating to businesses discontinued in prior years, including an increase in
reserves of approximately $1,400,000 in the third quarter and $5,000,000 in the
fourth quarter of 1992.
12. NET GAIN (LOSS) ON INVESTMENT AND MARKETABLE SECURITIES
During 1990, the Company recorded a pre-tax loss on investment and
marketable securities of $2,300,000 ($.12 per share, net of tax) in the first
quarter, a pre-tax loss of $1,200,000 ($.01 per share, net of tax) in the second
quarter, a pre-tax loss of $4,250,000 ($.09 per share, net of tax) in the third
quarter and a pre-tax loss of $2,250,000 ($.12 per share, net of tax) in the
fourth quarter.
During 1991, the Company recorded a pre-tax gain on investment and
marketable securities of approximately $200,000 ($.01 per share, net of tax) in
the first quarter, a pre-tax loss of $1,850,000 ($.09 per share, net of tax) in
the second quarter, a pre-tax gain of $350,000 ($.02 per share, net of tax) in
the third quarter and a pre-tax gain of $1,700,000 ($.09 per share, net of tax)
in the fourth quarter. The pre-tax loss in the second quarter includes a
$1,600,000 pre-tax loss ($.07 per share, net of tax) from the sale of the
Company's investment in Stanley Interiors preferred stock (previously recorded
in other assets) for approximately $1,000,000 in cash.
During 1992, the Company recorded a pre-tax loss on investment and
marketable securities of $500,000 ($.03 per share, net of tax) in the first
quarter, a pre-tax gain of $850,000 ($.04 per share, net of tax) in the second
quarter, a $1,050,000 pre-tax gain ($.06 per share, net of tax) in the third
quarter and a pre-tax loss of $550,000 ($.04 per share, net of tax) in the
fourth quarter.
13. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
In the fourth quarter of 1990, operating results from continuing operations
include the payments made by the Company to its former Chairman in connection
with the settlement of his employment and other agreements totalling $9,500,000,
which resulted in an after-tax charge of $5,700,000 ($.43 per share). Derivative
litigation has been settled challenging this transaction (see Note 8).
During 1990, the Company recorded net after-tax charges of $800,000 ($.06
per share) in the first quarter, $800,000 ($.06 per share) in the third quarter
and $900,000 ($.07 per share) in the fourth quarter in connection with various
litigation matters.
During 1991, the Company increased reserves (primarily related to
businesses sold) for bad debts and warranties and recorded net after-tax charges
of approximately $800,000 ($.06 per share) in the first quarter, $600,000 ($.04
per share) in the second quarter, $600,000 ($.04 per share) in the third
quarter, and $800,000 ($.06 per share) in the fourth quarter. Also during 1991,
the Company recorded net after-tax charges of approximately $400,000 ($.03 per
share) in the second quarter, $800,000 ($.06 per share) in the third quarter and
$200,000 ($.01 per share) in the fourth quarter in connection with various
litigation matters.
F-20
<PAGE> 99
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. ACCRUED EXPENSES AND TAXES, NET
<TABLE>
Accrued expenses and taxes, net, consist of the following at December 31,
1991 and 1992:
<CAPTION>
DECEMBER 31,
-------------------
1991 1992
------- -------
(AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Interest......................................................... $ 5,071 $ 4,840
Insurance........................................................ 16,844 18,071
Payroll, management incentive and accrued employee benefits...... 13,036 10,567
Settlement of litigation......................................... 11,500 --
Businesses sold or discontinued.................................. 3,813 12,963
Other, net....................................................... 46,013 45,835
------- -------
$96,277 $92,276
======= =======
</TABLE>
15. SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
The following summarizes unaudited quarterly financial data for the years
ended December 31, 1991 and December 31, 1992:
<CAPTION>
FOR THE QUARTERS ENDED
-----------------------------------------------
MARCH 30 JUNE 29 SEPT. 28 DEC. 31
-------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1991
Net sales............................... $221,984 $248,872 $239,868 $206,325
Gross profit............................ 50,451 58,578 62,979 51,950
Loss from continuing operations......... (7,500) (9,750) (6,550) (10,900)
Loss per share from continuing
operations:
Primary............................... (.56) (.72) (.49) (.82)
Fully diluted......................... (.56) (.72) (.49) (.82)
Net loss................................ (3,900) (8,800) (6,300) (8,100)
Net loss per share:
Primary............................... (.29) (.65) (.47) (.61)
Fully diluted......................... (.29) (.65) (.47) (.61)
</TABLE>
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
-----------------------------------------------
MARCH 28 JUNE 27 SEPT. 26 DEC. 31
-------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1992
Net sales............................... $188,868 $215,862 $212,500 $182,749
Gross profit............................ 46,017 54,239 51,317 53,229
Earnings (Loss) from continuing
operations............................ 100 100 (19,800) (1,400)
Earnings (Loss) per share from
continuing operations:
Primary............................... .01 .01 (1.58) (.11)
Fully diluted......................... .01 .01 (1.58) (.11)
Net earnings (loss)..................... 100 300 (19,900) (4,700)
Net earnings (loss) per share:
Primary............................... .01 .02 (1.59) (.37)
Fully diluted......................... .01 .02 (1.59) (.37)
</TABLE>
F-21
<PAGE> 100
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The loss from continuing operations in 1991 includes a pre-tax charge of
approximately $11,500,000 ($.47 per share, net of tax) in the fourth quarter
from the settlement of certain litigation, a pre-tax loss on businesses sold of
approximately $6,700,000 ($.37 per share, net of tax) in the third quarter, and
a pre-tax loss on businesses sold of approximately $8,500,000 ($.45 per share,
net of tax) in the second quarter (see Notes 8 and 10).
The earnings (loss) from continuing operations in 1992 includes a pre-tax
gain of approximately $8,000,000 ($.34 per share, net of tax) in the first
quarter, a pre-tax loss of approximately $20,500,000 ($1.43 per share, net of
tax) in the third quarter and a pre-tax loss of approximately $2,000,000 ($.17
per share, net of tax) in the fourth quarter on businesses sold. The net loss in
the fourth quarter of 1992 also includes a $3,300,000 after-tax loss ($.27 per
share) on discontinued operations (see Notes 8 and 10).
Substantially lower sales in 1991 and 1992, as compared to the prior year,
in part, reflect the effect of the general slowdown in the U. S. economy,
particularly in the home building industry in 1991 and reflects the effect of
the sale of businesses in both years. (See Management's Discussion and Analysis
of Financial Condition and Results of Operations.)
16. INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(A) The unaudited consolidated financial statements presented for the 39 weeks
ended October 2, 1993 and September 26, 1992 ("Unaudited Financial
Statements") have been prepared by Nortek, Inc. and subsidiaries (the
"Company") without audit and, in the opinion of management, reflect all
adjustments of a normal recurring nature necessary for a fair statement of
the interim periods presented. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted, although, the
Company believes that the disclosures included are adequate to make the
information presented not misleading. Certain amounts in the Unaudited
Financial Statements for the prior periods have been reclassified to conform
to the presentation at October 2, 1993.
(B) On January 2, 1992, the Company's Dixieline Products, Inc. subsidiary sold
the assets, subject to certain liabilities, of its subsidiary, L.J. Smith,
Inc. and, on October 2, 1992, the Company sold all of the capital stock of
its wholly-owned subsidiary, Bend Millwork Systems, Inc. In October 1993,
the Company decided to sell its Dixieline Lumber Retail Home Center
Operations ("Dixieline"), and provided a pre-tax valuation reserve of
approximately $20,300,000 ($1.19 per share, net of tax) in the third
quarter of 1993 to reduce the Company's net investment in such business to
estimated net realizable value and has reflected Dixieline's assets and
liabilities separately in the accompanying consolidated balance sheets.
(C) In the first 39 weeks of 1993, the Company recorded a pre-tax loss of
approximately $1,600,000 ($.08 per share, net of tax) as a result of the
sale in October 1993 of certain real property and provided a pre-tax
reserve of approximately $700,000 ($.04 per share, net of tax) in
connection with the consolidation of certain of its manufacturing
facilities.
(D) Certain of the Company's subsidiaries provide health care and related
benefits, which were modified in 1993, to qualified active and retired
beneficiaries. These benefits are net of reimbursement by Medicare and other
insurance coverages. Effective January 1, 1993, the Company adopted the
accounting requirements of Statement of Financial Accounting Standards
("SFAS") No. 106, "Employers' Accounting for Postretirement Benefits" and
recorded an accumulated post-retirement benefit obligation ("APBO") of
approximately $2,100,000 (after an income tax credit of approximately
$1,000,000) at January 1, 1993 as a charge to operations ($.17 per share,
net of tax) as the cumulative effect of an accounting change. Previously,
benefits were charged to operating results in the period that such benefits
were paid. Approximately $950,000 of the APBO is expected to be paid in 1993
as a result of certain plan modifications. The annual expense for 1993 from
adopting SFAS 106 is expected to approximate the expense that would have
been recorded under the previous accounting method. The Company continues to
fund benefit costs principally on a pay-as-you-go basis, with most retirees
paying a portion
F-22
<PAGE> 101
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of the costs. The discount rate used in determining the APBO was 8 percent.
A 17 percent annual rate of increase in the per capita cost of such health
care and related benefits was assumed for 1993, decreasing gradually to 6
percent in the year 2009. If the assumed health care and related benefits
cost trend increased 1% for all future years, the APBO would have increased
approximately 10%.
(E) At October 2, 1993, the Company remains contingently liable for obligations
under IRB's, plus unpaid interest, relating to facilities of previously
owned subsidiaries. See Note 8. The Company continues to vigorously pursue
all available remedies to minimize any liability that may ultimately result
from the outcome of this matter. The Company believes that any liability
that may ultimately result from the resolution of this matter, in excess of
amounts provided, will not have a material adverse effect on financial
position or results of operations of the Company.
(F) During the first 39 weeks of 1992, the Company purchased, at a discount, in
the open market approximately $15,102,000 principal amount of its various
debentures. These transactions resulted in an extraordinary gain of
approximately $100,000, net of income tax ($.01 per share) in the first 39
weeks of 1992.
During the first 39 weeks of 1993, the Company purchased, at a discount, in
the open market approximately $1,202,000 principal amount of its various
debentures which did not result in a net gain.
(G) In July 1992, derivative litigation against the Company and its directors
challenging the transactions involving the retirement in 1990 of the
Company's former Chairman and Chief Executive Officer was settled. In
connection with the settlement, the Company recorded a net after-tax gain on
discontinued operations in the third quarter of approximately $900,000 ($.07
per share), resulting from the exchange of $5,250,000 principal amount
(included in the Company's condensed consolidated balance sheet at June 27,
1992 at approximately $2,576,000) of Monogram Industries, Inc. ("Monogram")
11% subordinated notes due December 31, 1995 held by the Company for
$4,050,000 principal amount of Nortek 13 1/2% senior subordinated debentures
due June 15, 1997 held by Monogram, a company controlled by Nortek's former
Chairman and Chief Executive Officer.
Results of discontinued operations in the third quarter of 1992 also include
other income and expense items relating to businesses discontinued in prior
years, including an increase in valuation reserves of approximately
$1,400,000.
(H) In the first 39 weeks of 1993, the Company adopted SFAS No. 109, as a change
in accounting method. See Note 4. Prior year financial statements have not
been restated to reflect the new accounting method. The effect of adopting
this new accounting method in the first 39 weeks of 1993 was not significant
to the provision for income taxes as compared to the prior accounting
method.
<TABLE>
The effect of this change in accounting method did not result in a charge to
operations for the cumulative effect of an accounting change, but did result
in changes to certain account balances on January 1, 1993 relating
principally to net deferred income tax liabilities arising from acquisitions
that were netted against certain asset and liability balances in the
Company's consolidated balance sheet at December 31, 1992 as follows:
<CAPTION>
EFFECT OF
ACCOUNTING
CHANGE
----------------------
(AMOUNTS IN THOUSANDS)
<S> <C>
Increase in inventory, net...................... $5,347
Increase in property and equipment, net......... 1,883
Decrease in accrued liabilities and taxes,
net........................................... 1,833
Increase in other liabilities................... 99
Decrease in U.S. Federal prepaid income taxes... 3,578
Increase in deferred income tax liabilities..... 5,386
</TABLE>
F-23
<PAGE> 102
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effect of temporary differences which gave rise to significant
portions of deferred income tax assets and liabilities as of January 1,
1993 and October 2, 1993, as adjusted for the adoption of SFAS No. 109, is
as follows:
<TABLE>
<CAPTION>
JAN. 1, OCTOBER 2,
1993 1993
------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
U.S. Federal Prepaid (Deferred) Income Tax Assets Arising
From:
Accounts receivable......................................... $ 1,353 $ 1,443
Inventory................................................... (2,229) (1,212)
Insurance reserves.......................................... 4,682 5,791
Other reserves, liabilities and assets, net................. 13,162 10,919
Other, net.................................................. 32 59
------- ----------
$17,000 $ 17,000
======= ==========
</TABLE>
<TABLE>
<CAPTION>
OCTOBER
JAN. 1, 2,
1993 1993
---------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Deferred (Prepaid) Income Tax Liabilities Arising From:
Property and equipment, net................................. $ 16,188 $15,687
Prepaid pension assets...................................... 1,977 1,977
Unamortized debt discount................................... 2,369 2,048
Insurance reserves.......................................... (556) (556)
Other reserves, liabilities and assets, net................. 3,621 (5,959)
Capital loss carryforward................................... (5,925) (5,627)
Net operating loss carryforwards............................ (1,350) (2,577)
Contribution carryforwards.................................. (544) (571)
Alternative minimum tax carryforward........................ (509) (376)
Valuation allowances........................................ 11,714 13,959
Other, net.................................................. 15 (5)
---------- ---------
$ 27,000 $18,000
========== =========
</TABLE>
The Company has a capital loss carryforward of approximately $17,000,000
and a net operating loss carryforward of approximately $5,000,000, both of
which expire in the year 2007. The Company has provided a valuation
allowance equal to the tax effect of certain carryforwards (capital loss,
net operating loss and contribution) and certain other deferred income tax
assets, since realization of these
F-24
<PAGE> 103
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
deferred income tax assets, in part, is dependent on future taxable income
which cannot be reasonably assured. The Company's deferred income tax
assets are expected to be realized through the future reversal of deferred
income tax liabilities.
<TABLE>
The following is a summary of the provision (credit) for income taxes from
continuing operations included in the accompanying unaudited consolidated
statement of operations:
<CAPTION>
39 WEEKS ENDED
----------------------------
SEPT. 26, OCTOBER 2,
1992 1993
--------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Federal Income Taxes --
Current............................................... $(3,801) $ 3,742
Deferred.............................................. 2,450 (7,800)
--------- ----------
(1,351) (4,058)
Foreign................................................. 1,976 1,583
State................................................... 675 975
--------- ----------
$ 1,300 $ (1,500)
========= ==========
</TABLE>
<TABLE>
The deferred federal income tax provision (credit) from continuing
operations consists of the tax effect of the following:
<CAPTION>
39 WEEKS ENDED
---------------------------
SEPT.
26, OCTOBER 2,
1992 1993
-------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Accelerated depreciation................................. $ (892) $ (502)
Accruals not deductible currently........................ 3,485 (2,554)
Income tax credit relating to business held for sale..... -- (7,106)
Change in valuation allowance............................ -- 2,251
Other, net............................................... (143) 111
-------- ----------
Total deferred federal income tax provision (credit) from
continuing operations.................................. $ 2,450 $ (7,800)
======== ==========
</TABLE>
F-25
<PAGE> 104
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The table below reconciles the provision for income taxes from continuing
operations at the Federal statutory income tax rate to the actual provision
for income taxes:
<TABLE>
<CAPTION>
39 WEEKS ENDED
----------------------------
SEPT. 26, OCTOBER 2,
1992 1993
--------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Income tax credit from continuing operations at the
Federal statutory rate................................ $(6,222) $ (4,862)
Net change from statutory rate:
State taxes, net of federal tax effect.................. 446 644
Non-deductible depreciation and amortization for tax
purposes.............................................. 344 540
Other non-deductible items.............................. 136 326
Change in valuation reserve............................. -- 2,251
Net loss on business sold or held for sale.............. 3,943 (204)
Tax effect on foreign income............................ 702 317
Effect of capital losses................................ 1,651 --
Other, net.............................................. 300 (512)
--------- ----------
Provision (credit) for income taxes from continuing
operations............................................ $ 1,300 $ (1,500)
========= ==========
</TABLE>
The Company recorded a $1,000,000 deferred income tax credit in the first
39 weeks of 1993 relating to the cumulative effect of an accounting change
for certain post-retirement benefits. This actual deferred income tax
credit was approximately equal to the tax credit at the U.S. Federal
statutory rate.
(I) Fully diluted earnings (loss) per share calculations presented do not
include the effect of common stock equivalents or convertible debentures
(and the reduction in related interest expense) because the assumed
exercise of stock options and the conversion of debentures is anti-dilutive
for the net loss per share amounts.
(J) At October 2, 1993, the payment of cash dividends or stock payments was
prohibited under the most restrictive of the Company's indenture and loan
agreements.
(K) The following table summarizes the unaudited activity of businesses sold or
discontinued included in the accompanying unaudited condensed consolidated
statement of cash flows:
<TABLE>
<CAPTION>
39 WEEKS ENDED
--------------------------
SEPT. 26, OCTOBER 2,
1992 1993
--------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Fair value of assets sold................................ $25,380 $ --
Liabilities assumed by the purchaser..................... (3,615) --
Cash received (paid) relating to businesses sold or
discontinued........................................... 236 (2,420)
--------- ----------
Net cash proceeds (payments) relating to businesses sold
or discontinued........................................ $22,001 $ (2,420)
========= ==========
</TABLE>
Significant unaudited non-cash activities excluded from the accompanying
unaudited condensed consolidated statement of cash flows for the 39 weeks
ended September 26, 1992 consist of approximately $11,800,000 of restricted
cash and investments paid in settlement of certain litigation and
approximately $4,050,000 exchange of debentures and $2,576,000 settlement
of 11% subordinated notes receivable in connection with certain litigation
involving the Company's former Chairman.
F-26
<PAGE> 105
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest paid was approximately $15,554,000 and $13,254,000 in the first 39
weeks of 1992 and 1993, respectively. Income tax payments, net of income
tax refunds, were approximately $2,819,000 and $13,678,000 in the first 39
weeks of 1992 and 1993, respectively.
(L) The Company's Air Conditioning and Heating Products Group's plant in St.
Louis, Missouri, which manufactures products for the residential and
manufactured housing markets, experienced damage as a result of the
flooding of the Mississippi River in July 1993. The plant was closed for
several weeks, but returned to full operation in late August 1993. At
October 2, 1993, the Company has accrued for estimated losses of
$14,500,000 related to the flooding, has recorded a receivable of
approximately $14,500,000 for casualty, property damage and business
interruption insurance claims due from its insurance carrier and has
recorded as a liability approximately $6,600,000 of cash advances received
relating to such claims. Subsequent to October 2, 1993, the Company has
received approximately $6,600,000 of additional cash advances. The Company
believes that it has adequate insurance coverage and does not expect this
event to have a material adverse effect on the Company's financial
condition or results of operations.
(M) Summarized Quarterly Financial Data
The following summarizes unaudited quarterly financial data for the 13
weeks ended April 3, 1993, July 3, 1993 and October 2, 1993:
<TABLE>
<CAPTION>
FOR THE 13 WEEKS ENDED
------------------------------------------------------
APRIL 3, 1993 JULY 3, 1993 OCTOBER 2, 1993
------------- ------------ ---------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales............................... $ 178,707 $195,058 $ 202,030
Gross profit............................ 49,545 54,665 56,985
Earnings (Loss) from continuing
operations............................ (1,400) 1,500 (12,900)
Earnings (Loss) per share from
continuing operations:
Primary............................... $ (0.11) $ 0.12 $ (1.03)
Fully diluted......................... $ (0.11) $ 0.12 $ (1.03)
Net earnings (loss)..................... (3,500) 1,500 (12,900)
Net earnings (loss) per share:
Primary............................... $ (0.28) $ 0.12 $ (1.03)
Fully diluted......................... $ (0.28) $ 0.12 $ (1.03)
</TABLE>
The net loss of approximately $3,500,000 ($0.28 per share) for the 13 weeks
ended April 3, 1993 includes an approximately $2,100,000 net after-tax loss
($0.17 per share) related to the cumulative effect of an accounting change.
See Notes 7 and 16D. The net loss of approximately $12,900,000 ($1.03 per
share) for the 13 weeks ended October 2, 1993 includes an approximately
$14,900,000 net after tax loss ($1.19 per share) relating to a valuation
reserve to reduce the Company's investment in Dixieline to estimated net
realizable value. See Note 16B.
F-27
<PAGE> 106
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
(N) Pro Forma
The Company has filed a registration statement with the Securities and
Exchange Commission for a public offering of $190 million of Senior
Subordinated Notes (the "Notes"), the net proceeds from which will be used
to redeem approximately $145 million of indebtedness (net of approximately
$7.2 million of unamortized debt discounts) outstanding as of October 2,
1993, to pay accrued interest on such indebtedness and a redemption premium
on certain of such indebtedness, and to replace approximately $23.1 million
of working capital used for the redemption and payment of accrued interest
on certain other indebtedness on January 14, 1994. The following table
presents the unaudited pro forma operating results for the Company for the
year ended December 31, 1992 and the 39 week period ended October 2, 1993,
as adjusted for the pro forma effect of this refinancing transaction and
the sale of L.J. Smith and Bend as if they had occurred on January 1, 1992
and to exclude the after-tax loss of $16,000,000 related to the sale of
these two businesses. The loss from continuing operations of $11.6 million
($.93 loss per share) for the 39 weeks ended October 2, 1993 includes a net
after-tax loss of $14.9 million ($1.19 loss per share) related to the
valuation reserve for Dixieline. (See Notes 16B and 10):
<CAPTION>
YEAR 39 WEEKS
ENDED ENDED
DECEMBER 31, OCTOBER 2,
1992 1993
------------- ----------
<S> <C> <C>
(AMOUNTS IN THOUSANDS
EXCEPT PER SHARE AMOUNTS)
Pro Forma Earnings (Loss) from Continuing
Operations.......................................... $ 200 $(11,600)
------ ----------
Pro Forma Fully Diluted Earnings (Loss) from
Continuing Operations Per Share..................... $ .02 $ (.93)
------ ----------
------ ----------
</TABLE>
In computing the pro forma earnings, interest expense on the refinanced
indebtedness outstanding for the periods presented was excluded from
earnings at an average interest rate of approximately 13.7% for the year
ended December 31, 1992 and approximately 13.6% for the 39 weeks ended
October 2, 1993 (including amortization of debt discounts and deferred debt
expense), net of the tax effect. Interest expense was included on the Notes
at a rate of 10.8% (including amortization of deferred debt expense) for
both periods presented, net of the tax effect.
For purposes of computing weighted average shares for fully diluted
earnings per share for all periods presented, the dilutive effect of
convertible debentures was excluded because the assumed conversion is
antidilutive to the pro forma earnings amount.
F-28
<PAGE> 107
NORTEK, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS FROM CONTINUING OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1992
(UNAUDITED)
<TABLE>
The following Unaudited Pro Forma Condensed Consolidated Statement of
Operations from continuing operations for the year ended December 31, 1992
reflects the historical results of Nortek, less the operating results of Bend
Millwork Systems, Inc. ("Bend") and assumes that the sale of Bend occurred on
January 1, 1992. The pro forma data does not purport to be indicative of the
results which would actually have been reported, if the disposition had occurred
on January 1, 1992, or which may be reported in the future. This statement
should be read in conjunction with the accompanying notes and the respective
historical consolidated financial statements and related notes of Nortek
included elsewhere herein.
<CAPTION>
NORTEK AS LESS BEND PRO FORMA NORTEK
PREVIOUSLY MILLWORK ADJUSTMENTS PRO
REPORTED SYSTEMS, INC. (DR) CR FORMA
--------- ------------- ----------- ------
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net Sales........................................... $ 800.0 $90.7 $ $709.3
--------- ------ ----------- ------
Costs and Expenses and Other:
Cost of products sold............................. 595.2 81.3 513.9
Selling, administrative and other, net............ 184.4 13.3 171.1
--------- ------ ----------- ------
779.6 94.6 685.0
--------- ------ ----------- ------
Operating earnings (loss)......................... 20.4 (3.9) 24.3
Interest expense.................................. (29.2) (0.0) (29.2)
Interest income................................... 4.4 0.0 4.4
Net gain on investment and marketable
securities..................................... 0.9 0.0 0.9
Loss on businesses sold........................... (14.5) 0.0 14.5(B) 0.0
--------- ------ ----------- ------
Earnings (loss) from continuing operations before
income tax provision (credit)..................... (18.0) (3.9) 14.5 0.4
Provision (credit) for income taxes................. 3.0 (1.4) (1.5)(C) 2.9
--------- ------ ----------- ------
Net loss from continuing operations................. $ (21.0) $(2.5) 16.0 $ (2.5)
========= ====== =========== ======
Loss Per Share:
Continuing Operations--
Primary........................................ $ (1.67) $(0.20)
--------- ------
Fully diluted.................................. $ (1.67) $(0.20)
--------- ------
Weighted Average Number of Shares:
Primary........................................... 12,645 12,645
========= ======
Fully diluted..................................... 13,411 13,411
========= ======
</TABLE>
The notes following this Unaudited Pro Forma Condensed Consolidated
Statement of Operations from Continuing Operations (alphabetic note references
above) and the Notes to Nortek Consolidated Financial Statements included
elsewhere herein are an integral part of this Unaudited Pro Forma Condensed
Consolidated Statement of Operations.
F-29
<PAGE> 108
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS FROM CONTINUING OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1992
(A) The pro forma amounts reflect the results of Nortek (less the operating
results of Bend) and reflect the pro forma adjustments described below.
(B) Entry necessary to exclude the loss on the sale of businesses sold.
(C) Entry necessary to exclude the provision for income taxes related to the
loss on businesses sold. The provision for income taxes differs from the
expected credit calculated at the Federal statutory income tax rate of 34%,
primarily as a result of certain nondeductible costs associated with
businesses sold (approximately $5,500,000) and the Company's inability to
record the tax benefit related to capital losses resulting from the
dispositions (approximately $900,000) since realization of the tax benefit
is not reasonably assured.
(D) On January 2, 1992, the assets, subject to certain liabilities, of the
Company's Dixieline Products, Inc. subsidiary, L. J. Smith, Inc., were sold
for approximately $24,000,000 and the Company recorded a pre-tax gain on
the sale of L. J. Smith of approximately $8,000,000 ($.34 per share, net of
tax). On October 2, 1992, the Company sold all of the capital stock of its
wholly-owned subsidiary Bend, for approximately $17,200,000 in cash and
recorded a pre-tax loss on the sale in the third quarter of 1992 of
approximately $20,500,000 ($1.43 per share, net of tax). In the fourth
quarter of 1992, the Company provided additional reserves of approximately
$2,000,000 ($.17 per share, net of tax) related to businesses sold. In
computing the pro forma results, the net after-tax loss on businesses sold
has been excluded, and no investment income was assumed earned on the net
cash proceeds received from the sale of L. J. Smith and Bend.
F-30
<PAGE> 109
NORTEK, INC.
Nortek, Inc. is a diversified manufacturer of residential and commercial
building products, operating within three principal product groups: Residential
Building Products; Air Conditioning and Heating Products; and Plumbing Products.
Through these product groups, the Company manufactures and sells, primarily in
the United States and Canada, a wide variety of products for the residential and
commercial construction, manufactured housing, and the do-it-yourself and
professional remodeling and renovation markets.
The back page of the prospectus contains a schematic with 23 pictures of
products manufactured by the Company. The schematic is a representation of a
home with lines drawn from the product pictures to the appropriate location
within the home where the products are utilized.
<PAGE> 110
<TABLE>
===============================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE ANY OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THESE
SECURITIES IN ANY STATE TO OR FROM ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY
TIME DOES NOT IMPLY THAT INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE.
------------------------
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 3
Incorporation of Certain Documents by
Reference........................... 3
Prospectus Summary.................... 4
Risk Factors.......................... 11
The Company........................... 15
Recent Developments................... 17
Use of Proceeds....................... 18
Capitalization........................ 19
Selected Consolidated Financial
Data................................ 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 23
Business.............................. 35
Management............................ 47
Principal Securityholders............. 48
Description of the Notes.............. 49
Certain Federal Income Tax
Considerations...................... 73
Description of Other Obligations...... 74
Underwriting.......................... 75
Legal Matters......................... 76
Experts............................... 76
Index to Financial Statements......... F-1
</TABLE>
===============================================================================
$190,000,000
NORTEK, INC.
% SENIOR SUBORDINATED NOTES DUE 2004
------------------------------
PROSPECTUS
------------------------------
BEAR, STEARNS & CO. INC.
CHASE SECURITIES, INC.
, 1994
===============================================================================
<PAGE> 111
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
<TABLE>
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
<S> <C>
SEC Registration Fee................................................... $ 68,281
Printing and engraving expenses........................................ 215,000
Fees and expenses of Trustee........................................... 10,000
Accounting fees and expenses........................................... 450,000
Legal fees and expenses................................................ 375,000
Blue sky fees and expenses (including fees of counsel)................. 25,000
National Association of Securities Dealers, Inc. fees.................. 22,350
Rating agency fees..................................................... 125,000
Miscellaneous.......................................................... 209,369
----------
Total............................................................. $1,500,000
==========
<FN>
- ---------------
* All amounts except the SEC Registration Fee and NASD fees are estimated.
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Delaware law empowers a corporation to 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 that 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 (including employee benefits plans)
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by that person in connection with
that action, suit or proceeding, to the extent that that person (i) acted in
good faith and in a manner that person reasonably believed to be in or not
opposed to the best interests of the corporation (including with respect to any
employee benefit plan actions in good faith and in a manner reasonably believed
to be in the interests of the beneficiaries of that employee benefit plan), and
(ii) with respect to any criminal action or proceeding, had no reasonable cause
to believe that the conduct was unlawful.
Delaware law also empowers a corporation to 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 acted in any of the
capacities set forth above (that is, a derivative action or suit) against
expenses (including attorneys' fees) actually and reasonably incurred by that
person in connection with the defense or settlement of such an action or suit if
that person acted under similar standards, except that no indemnification may be
made in respect of any claim, issue or matter as to which that person has been
adjudged to be liable to the corporation unless and to the extent that the Court
of Chancery or the court in which the action or suit was brought determines
that, despite the adjudication of liability but in view of all the circumstances
of the case, that person is fairly and reasonably entitled to indemnity for such
expenses as the court deems proper.
Delaware law further provides that (i) to the extent a director, officer,
employee or agent of a corporation has been successful in the defense of any
action suit or proceeding referred to above or in the defense of any claim,
issue or matter in any such action, suit or proceeding, that person shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by that person in connection with that claim, issue or matter, (ii)
indemnification provided for by Delaware law shall not be deemed exclusive of
any other rights to which the indemnified party may be entitled, and (iii) a
corporation may purchase and maintain insurance on behalf of a director,
officer, employee or agent of a corporation against any liability asserted
against that person or incurred by that person in any such capacity or arising
out of that person's status as such whether or not the corporation would have
the power to indemnify against such liabilities under Delaware law.
II-1
<PAGE> 112
Delaware law also provides that determinations with respect to
indemnification shall be made (i) by the board of directors of a corporation by
a majority vote of a quorum consisting of directors who were not parties to the
action, suit or proceeding, (ii) by independent legal counsel in a written
opinion in cases where a quorum is not obtainable, or, even if obtainable when a
quorum of disinterested directors so directs, or (iii) by the stockholders of
the corporation.
The Company's bylaws allow advances of litigation expenses without further
action by the board of directors.
The Company's bylaws contain provisions requiring the Company to indemnify
any director, officer, employee or agent to the fullest extent permitted under
Delaware law, provided the Company shall not be required to indemnify or advance
expenses to any person in connection with any action, suit, proceeding, claim or
counterclaim initiated by or on behalf of such person, other than an action to
enforce indemnification rights.
The Company has a directors' and officers' liability insurance policy
wherein a director or officer of the Company or its subsidiaries is insured
against loss arising from any claim or claims which may be made against them,
jointly or severally, during the policy period by reason of any wrongful act in
their respective capacities.
Article Eighth of the Company's Certificate of Incorporation provides that
a director of the Company shall not be personally liable to the Company or its
stockholders for monetary damages arising out of the director's breach of that
persons's fiduciary duty as a director, except to the extent that Delaware law
does not permit exemption from such liability. Article Eighth does not eliminate
the fiduciary duty of directors or affect their liability to anyone other than
the Company or its stockholders; instead, Article Eighth is designed only to
limit or eliminate the personal liability of directors for monetary damages to
the Company or the stockholders to the maximum extent permitted by Delaware law
as it now exists or may be amended in the future.
Current Delaware law contains express limitations on the ability to limit
or eliminate liability to a corporation or its stockholders. Under these
limitations, which Article Eighth incorporates by reference, a director remains
potentially liable for monetary damages to the corporation or the stockholders
for (i) breach of the director's duty of loyalty, (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) an improper payment of a dividend or an improper repurchase of the
corporation's stock, as provided in Section 17 of the Delaware General
Corporation Law, or (iv) any transaction from which a director derives an
improper personal benefit.
<TABLE>
ITEM 16. EXHIBITS.
Unless otherwise indicated, exhibits have heretofore been filed with this
Registration Statement or have heretofore been filed with the Commission and are
incorporated herein by reference.
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -------------------------------------------------------------------------------
<S> <C>
1.1 -- Form of Underwriting Agreement.
4.1 -- Indenture dated as of May 1, 1986 between the Company and Fleet National Bank
relating to the 7 1/2% Convertible Debentures due 2006 (Exhibit 4.1 to
Registration Statement No. 33-4693 filed April 23, 1986).
4.2 -- First Supplemental Indenture dated as of April 23, 1987 between the Company and
Fleet National Bank supplementing the Indenture dated May 1, 1986 relating to
the 7 1/2% Convertible Debentures due 2006 (Exhibit 4.11 to Form 10-K filed
March 30, 1988, File No. 1-6112).
4.3 -- Rights Agreement dated as of March 31, 1986 as amended and restated as of March
18, 1991 between the Company and State Street Bank and Trust Company, as Rights
Agent (Exhibit 1 to Form 8-K filed March 26, 1991, File No. 1-6112).
4.4 -- Amendment No. 1 dated as of October 6, 1993 to Amended and Restated Rights
Agreement dated as of March 18, 1991 (Exhibit 1 to Form 8-K filed October 12,
1993, File No. 1-6112).
</TABLE>
II-2
<PAGE> 113
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
4.5* -- Indenture dated as of , 1994 between the Company and State Street
Bank and Trust Company, as Trustee, relating to % Senior Subordinated Notes
due 2004.
5* -- Opinion of Ropes & Gray, Boston, Massachusetts.
10.1 -- Employment Agreement between Richard L. Bready and the Company, dated as of
January 1, 1984 (Exhibit 10.2 to Form 10-K filed March 31, 1986, File No.
1-6112).
10.2 -- Amendment dated as of March 3, 1988 to Employment Agreement between Richard L.
Bready and the Company dated of January 1, 1984 (Exhibit 19.2 to Form 10-Q
filed May 17, 1988, File No. 1-6112).
10.3 -- Second Amendment dated as of November 1, 1990 to Employment Agreement between
Richard L. Bready and the Company dated as of January 1, 1984 (Exhibit 10.3 to
Form 10-K filed April 1, 1991, File No. 1-6112).
10.4* -- Deferred Compensation Agreement dated March 7, 1983 between Richard L. Bready
and the Company.
10.5* -- Deferred Compensation Agreement dated March 7, 1983 between Almon C. Hall and
the Company.
10.6* -- Deferred Compensation Agreement dated March 7, 1983 between Richard J. Harris
and the Company.
10.7 -- 1984 Stock Option Plan, as amended through May 27, 1987 (Exhibit 28.2 to
Registration Statement No. 33-22527 filed June 15, 1988).
10.8 -- Change in Control Severance Benefit Plan for Key Employees adopted February 10,
1986, and form of agreement with employees (Exhibit 10.19 to Form 10-K filed
March 31, 1986, File No. 1-6112).
10.9 -- 1987 Stock Option Plan (Exhibit 28.3 to Registration Statement No. 33-22527
filed June 15, 1988).
10.10 -- Form of Indemnification Agreement between the Company and its directors and
certain officers (Appendix C to Proxy Statement dated March 23, 1987 for Annual
Meeting of Nortek Stockholders, File No. 1-6112).
10.11 -- 1988 General Stock Option Plan (Appendix A to Proxy Statement dated April 1,
1988 for Annual Meeting of Nortek Stockholders, File No. 1-6112).
10.12 -- 1988 General Stock Option Plan III (Appendix C to Proxy Statement dated April
12, 1989 for Annual Meeting of Nortek Stockholders, File No. 1-6112).
10.13 -- Registration Rights Agreement dated as of October 31, 1990 between the Company
and Bready Associates (Exhibit 3 to Schedule 13D filed November 13, 1990 by
Bready Associates relating to the Common Stock, par value $1.00 per share, of
the Company).
10.14 -- 1990 General Stock Option Plan (Appendix A to Proxy Statement dated April 17,
1991 for Annual Meeting of Nortek Stockholders, File No. 1-6112).
10.15 -- Broan Limited Line of Credit (previously filed with this Registration
Statement).
11 -- Calculation of shares used in determining earnings per share.
12 -- Nortek, Inc. and Subsidiaries Calculation of Ratio of Earnings to Fixed
Charges.
23.1* -- Consent of Arthur Andersen & Co.
23.2 -- Consent of Ropes & Gray is contained in Exhibit 5.
23.3 -- Consent of Manufactured Housing Institute.
23.4 -- Consent of F.W. Dodge/McGraw Hill.
</TABLE>
II-3
<PAGE> 114
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
24 -- Power of Attorney (included in Part II of this Registration Statement under the
caption "Signatures").
25 -- Statement of Eligibility and Qualification of Trustee on Form T-1.
- ---------------
<FN>
*Filed herewith.
</TABLE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) That, for purposes of determining any liability under the
Securities Act of 1933, 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 of 1933 shall be
deemed to be part of this registration statement as of the time is was
declared effective.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(3) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in this registration statement
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 15 above, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-4
<PAGE> 115
<TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-2 and has duly caused this Amendment No. 2 to
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Providence, State of Rhode Island, on
the 9th day of February, 1994.
NORTEK, INC.
/S/ ALMON C. HALL
By: ................................
ALMON C. HALL
VICE PRESIDENT, CONTROLLER
AND CHIEF ACCOUNTING 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.
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------- ------------------
<C> <S> <C>
* Chairman of the Board of February 9, 1994
........................................ Directors, President, Chief
RICHARD L. BREADY Executive Officer and Director
(Principal Executive Officer)
* Vice President, Controller and February 9, 1994
........................................ Chief Accounting Officer
ALMON C. HALL (Principal Accounting Officer)
* Vice President, Treasurer and February 9, 1994
........................................ Director (Principal Financial
RICHARD J. HARRIS Officer)
* Director February 9, 1994
........................................
DENNIS J. MCGILLICUDDY
* Director February 9, 1994
........................................
D. STEVENS MCVOY
* Director February 9, 1994
........................................
PHILIP B. BROOKS
* Director February 9, 1994
........................................
J. PETER LYONS
* Director February 9, 1994
........................................
BARRY SILVERSTEIN
</TABLE>
/S/ ALMON C. HALL
*By: ...............................
ALMON C. HALL, FOR
HIMSELF AND AS
ATTORNEY-IN-FACT
II-5
<PAGE> 116
<TABLE>
EXHIBIT INDEX
Unless otherwise indicated, exhibits have heretofore been filed with this
Registration Statement or have heretofore been filed with the Commission and are
incorporated herein by reference.
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- --------------------------------------------------------------------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement.
4.1 -- Indenture dated as of May 1, 1986 between the Company and Fleet National
Bank relating to the 7 1/2% Convertible Debentures due 2006 (Exhibit 4.1
to Registration Statement No. 33-4693 filed April 23, 1986).
4.2 -- First Supplemental Indenture dated as of April 23, 1987 between the
Company and Fleet National Bank supplementing the Indenture dated May 1,
1986 relating to the 7 1/2% Convertible Debentures due 2006 (Exhibit 4.11
to Form 10-K filed March 30, 1988, File No. 1-6112).
4.3 -- Rights Agreement dated as of March 31, 1986 as amended and restated as of
March 18, 1991 between the Company and State Street Bank and Trust
Company, as Rights Agent (Exhibit 1 to Form 8-K filed March 26, 1991, File
No. 1-6112).
4.4 -- Amendment No. 1 dated as of October 6, 1993 to Amended and Restated Rights
Agreement dated as of March 18, 1991 (Exhibit 1 to Form 8-K filed October
12, 1993, File No. 1-6112).
4.5* -- Indenture dated as of , 1994 between the Company and State
Street Bank and Trust Company, as Trustee, relating to % Senior
Subordinated Notes due 2004.
5* -- Opinion of Ropes & Gray, Boston, Massachusetts.
10.1 -- Employment Agreement between Richard L. Bready and the Company, dated as
of January 1, 1984 (Exhibit 10.2 to Form 10-K filed March 31, 1986, File
No. 1-6112).
10.2 -- Amendment dated as of March, 3, 1988 to Employment Agreement between
Richard L. Bready and the Company dated of January 1, 1984 (Exhibit 19.2
to Form 10-Q filed May 17, 1988, File No. 1-6112).
10.3 -- Second Amendment dated as of November 1, 1990 to Employment Agreement
between Richard L. Bready and the Company dated as of January 1, 1984
(Exhibit 10.3 to Form 10-K filed April 1, 1991, File No. 1-6112).
10.4* -- Deferred Compensation Agreement dated March 7, 1983 between Richard L.
Bready and the Company.
10.5* -- Deferred Compensation Agreement dated March 7, 1983 between Almon C. Hall
and the Company.
10.6* -- Deferred Compensation Agreement dated March 7, 1983 between Richard J.
Harris and the Company.
10.7 -- 1984 Stock Option Plan, as amended through May 27, 1987 (Exhibit 28.2 to
Registration Statement No. 33-22527 filed June 15, 1988).
10.8 -- Change in Control Severance Benefit Plan for Key Employees adopted
February 10, 1986, and form of agreement with employees (Exhibit 10.19 to
Form 10-K filed March 31, 1986, File No. 1-6112).
10.9 -- 1987 Stock Option Plan (Exhibit 28.3 to Registration Statement No.
33-22527 filed June 15, 1988).
10.10 -- Form of Indemnification Agreement between the Company and its directors
and certain officers (Appendix C to Proxy Statement dated March 23, 1987
for Annual Meeting of Nortek Stockholders, File No. 1-6112).
10.11 -- 1988 General Stock Option Plan (Appendix A to Proxy Statement dated April
1, 1988 for Annual Meeting of Nortek Stockholders, File No. 1-6112).
10.12 -- 1988 General Stock Option Plan III (Appendix C to Proxy Statement dated
April 12, 1989 for Annual Meeting of Nortek Stockholders, File No.
1-6112).
10.13 -- Registration Rights Agreement dated as of October 31, 1990 between the
Company and Bready Associates (Exhibit 3 to Schedule 13D filed November
13, 1990 by Bready Associates relating to the Common Stock, par value
$1.00 per share, of the Company).
10.14 -- 1990 General Stock Option Plan (Appendix A to Proxy Statement dated April
17, 1991 for Annual Meeting of Nortek Stockholders, File No. 1-6112).
</TABLE>
<PAGE> 117
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
10.15 -- Broan Limited Line of Credit (previously filed with this Registration
Statement).
11 -- Calculation of shares used in determining earnings per share.
12 -- Nortek Inc. and Subsidiaries Calculation of Ratio of Earnings to Fixed
Charges.
23.1* -- Consent of Arthur Andersen & Co.
23.2 -- Consent of Ropes & Gray is contained in Exhibit 5.
23.3 -- Consent of Manufactured Housing Institute.
23.4 -- Consent of F.W. Dodge/McGraw Hill.
24 -- Power of Attorney (included in Part II of this Registration Statement
under the caption "Signatures").
25 -- Statement of Eligibility and Qualification of Trustee on Form T-1.
<FN>
- ---------------
*Filed herewith.
</TABLE>
<PAGE> 1
EXHIBIT 4.5
NORTEK, INC.,
Company,
and
STATE STREET BANK AND TRUST COMPANY,
Trustee
____________________________________
INDENTURE
Dated as of______ __, 1994
____________________________________
[$218,500,000]
__% Senior Subordinated Notes due ________ __, 2004
<PAGE> 2
<TABLE>
CROSS REFERENCE TABLE 1
<CAPTION>
TIA Indenture
Section Section
- ------- ---------
<S> <C>
310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.2
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.08; 7.10
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.05
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.03
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.03
313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.02
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.02; 11.02
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.04
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.04
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.05
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.03
315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.05; 11.02
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.07
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316(a) (last sentence) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.08
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.05
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.04
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.07
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.08
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.09
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.04
318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.01
____________________
<FN>
1 Note: This Cross Reference Table shall not, for any
purpose, be deemed to be part of this Indenture.
2 N.A. means Not Applicable.
</TABLE>
i
<PAGE> 3
<TABLE>
TABLE OF CONTENTS 3
<CAPTION>
PAGE
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
<S> <C> <C>
SECTION 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. Other Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 1.03. Incorporation by Reference of
Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 1.04. Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 1.05. Acts of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 1.06. Exchange Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 2
THE SECURITIES
SECTION 2.01. Form and Dating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.02. Execution and Authentication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.03. Registrar and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.04. Paying Agent to Hold Money in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.05. Securityholder Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.06. Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.07. Replacement Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 2.08. Outstanding Securities; Determinations
of Holders' Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.09. Temporary Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.10. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.11. CUSIP Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.12. Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 3
REDEMPTION
SECTION 3.01. Right to Redeem; Notices to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 3.02. Selection of Securities to be
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 3.03. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 3.04. Effect of Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 3.05. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 3.06. Securities Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
____________________
<FN>
3 This Table of Contents shall not, for any purpose, be
deemed to be part of this Indenture.
</TABLE>
ii
<PAGE> 4
<TABLE>
ARTICLE 4
COVENANTS
<S> <C> <C>
SECTION 4.01. Payment of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 4.02. SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 4.03. Compliance Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 4.04. Further Instruments and Acts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 4.05. Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 4.06. Limitation on Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 4.07. Limitation on Other Senior
Subordinated Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 4.08. Limitation on Additional Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 4.09. Limitation on Sale or Issuance
of Capital Stock of
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 4.10. Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 4.11. Limitation on Certain Restrictions
Affecting Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 4.12. Repurchase Upon Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 4.13. Limitation on Use of Proceeds
from Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 4.14. Limitation on Transactions
With Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 4.15. Limitation on Guarantees by
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 4.16. Payment of Taxes and Other Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 4.17. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 4.18. Maintenance of Properties and
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 4.19. Stay, Extension and Usury Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 4.20. Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 4.21. Payments for Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 4.22. Covenant to Comply with Securities
Laws upon Purchase of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE 5
SUCCESSOR CORPORATION
SECTION 5.01. When the Company May Merge or
Transfer Assets, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 5.02. Successor Corporation Substituted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 6.02. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 6.03. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 6.04. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 6.05. Control by Majority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 6.06. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 6.07. Rights of Holders to Receive Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
SECTION 6.08. Collection Suit by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 6.09. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 6.11. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 6.12. Restoration of Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE 7
TRUSTEE
SECTION 7.01. Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 7.02. Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 7.03. Individual Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 7.04. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 7.05. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 7.06. Reports by Trustee to Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 7.07. Compensation and Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 7.08. Replacement of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 7.09. Successor Trustee by Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 7.10. Eligibility; Disqualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 7.11. Preferential Collection of
Claims Against the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
ARTICLE 8
DISCHARGE OF INDENTURE
SECTION 8.01. Discharge of Liability on Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 8.02. Repayment to the Company or
Subsidiary Guarantors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
ARTICLE 9
AMENDMENTS
SECTION 9.01. Without Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 9.02. With Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 9.03. Compliance with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 9.04. Revocation and Effect of Consents,
Waivers and Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 9.05. Notation on or Exchange of
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 9.06. Trustee to Sign Supplemental
Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 9.07. Effect of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
ARTICLE 10
SUBORDINATION
SECTION 10.01. Agreement to Subordinate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 10.02. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 10.03. Liquidation; Dissolution;
Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 10.04. Default on Senior
Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C> <C>
SECTION 10.05. No Suspension of Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 10.06. When Distribution Must be Paid Over . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 10.07. Notice by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 10.08. Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 10.09. Relative Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 10.10. No Waiver of Subordination
Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 10.11. Distribution or Notice to
Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 10.12. Rights of Trustee and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 10.13. Authorization to Effect
Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 10.14. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. Trust Indenture Act Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 11.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 11.03. Communication by Holders with
Other Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 11.04. Certificate and Opinion as to
Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 11.05. Statements Required in
Certificate or Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 11.06. Separability Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 11.07. Rules by Trustee, Paying Agent
and Registrar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 11.08. Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 11.09. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 11.10. No Recourse Against Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 11.11. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 11.12. Multiple Originals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
EXHIBIT A Form of Security
EXHIBIT B Terms of Guaranty
EXHIBIT C Form of Guaranty
</TABLE>
v
<PAGE> 7
INDENTURE, dated as of _______ ___, 1994, between Nortek,
Inc., a Delaware corporation (the "Company"), and State Street Bank and Trust
Company, a Massachusetts banking corporation (the "Trustee").
Each party agrees as follows for the benefit of the other
party and for the equal and ratable benefit of the Holders of the Company's __%
Senior Subordinated Notes due _____________ ___, 2004 (the "Securities"):
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
------------------------------------------
Section 1.01. DEFINITIONS.
"Acquired Indebtedness" means, with respect to any Person,
Indebtedness of such Person (i) assumed in connection with an acquisition of
assets or properties from such Person or (ii) existing at the time such Person
becomes a Subsidiary of any other Person (in each case other than any
Indebtedness incurred in connection with, or in contemplation of, such
acquisition or such Person becoming such a Subsidiary).
"Affiliate" means, with respect to any Person, any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person. A Person shall be deemed
to "control" (including the correlative meanings, the terms "controlling,"
"controlled by", and "under common control with") another Person if the
controlling Person (i) possesses, directly or indirectly, the power to direct
or cause the direction of the management or policies of the controlled Person,
whether through ownership of voting securities, by agreement or otherwise, or
(ii) owns, directly or indirectly, 10% or more of the combined voting power of
all classes of the issued and outstanding equity securities of the controlled
Person.
"Allowable Subsidiary Loans" means Indebtedness of the Company
to a Subsidiary not to exceed the Net Cash Proceeds received by the Company as
a result of such Subsidiary becoming less than a Wholly-Owned Subsidiary
through the sale of Equity Interests in compliance with this Indenture,
PROVIDED that (i) all such Allowable Subsidiary Loans are contractually
subordinated in right of payment to the Securities and (ii) the total amount of
all Allowable Subsidiary Loans does not exceed $25,000,000.
<PAGE> 8
"Asset Sale" means, with respect to any Person, the sale,
lease, conveyance or other transfer or disposition by such Person of any of its
assets or properties (including by way of a sale-and-leaseback and including
the sale or other transfer of any of the Capital Stock of any Subsidiary of
such Person), in a single transaction or through a series of related
transactions, for aggregate consideration received by such Person or a
Subsidiary of such Person, net of out-of-pocket costs relating thereto
(including, without limitation, legal, accounting and investment banking fees
and sales commissions), in excess of $5,000,000. For purposes of this
definition, consideration shall include, without limitation, any indebtedness
for borrowed money of such Person or such Subsidiary that is assumed by the
transferee of any assets or any such indebtedness of any Subsidiary of such
Person whose stock is purchased by the transferee. Any transaction consummated
in compliance with Article 5 hereof and any Lien permitted under Section 4.10
hereof (and any foreclosure or other sale under any such Lien, except to the
extent there are surplus proceeds from such foreclosure) shall not constitute
an Asset Sale.
"Average Life" means, as of the date of determination, with
respect to any debt security, the quotient obtained by dividing (i) the sum of
the products of the number of years from the date of determination to the date
of each successive scheduled principal payment (assuming the exercise by the
obligor of such debt security of all unconditional (other than as to the giving
of notice) extension options of each such scheduled payment date) of such debt
security multiplied by the amount of such principal payment by (ii) the sum of
all such principal payments.
"Board of Directors" of any corporation means the Board of
Directors of such corporation, or any duly authorized committee of such Board
of Directors.
"Board Resolution" means, with respect to any Person, a copy
of a resolution or resolutions certified by the Secretary or an Assistant
Secretary of such Person to have been duly adopted by the Board of Directors of
such Person and to be in full force and effect on the date of such
certification, as filed with the corporate records of such Person.
"Broan Limited Credit Facility" means a credit facility
between Broan Limited, a Canadian Subsidiary of the Company, and one or more
banks or other institutional lenders, as the same may be amended, extended,
amended and restated, supplemented or otherwise modified or replaced from time
to time.
2
<PAGE> 9
"Business Day" means any day that is not a Saturday, a Sunday
or a day on which banking institutions in the Commonwealth of Massachusetts are
authorized or required to close.
"Capital Lease Obligations" means, with respect to any Person,
all obligations of such Person or any of its Subsidiaries under leases of
property by such Person or such Subsidiary as lessee which would be capitalized
on a balance sheet of such Person prepared in accordance with GAAP, and for
purposes of this Indenture the amount of such obligations at any time shall be
the aggregate capitalized amount thereof at such time, as determined in
accordance with GAAP.
"Capital Stock" means any and all shares, interests,
participations, rights or other equivalents (however designated) of corporate
stock (including common or preferred stock) or partnership interests.
"Cash Equivalents" means (i) any evidence of Indebtedness,
maturing not more than 365 days after the date of acquisition, issued or fully
guaranteed or insured by the United States of America, or an instrumentality or
agency thereof (provided that the full faith and credit of the United States of
America is pledged in support thereof), (ii) any certificate of deposit,
overnight bank deposit or bankers acceptance, maturing not more than 365 days
after the date of acquisition, issued by, or time deposit of, a commercial
banking institution having unsecured long-term debt (or whose holding company
has unsecured long-term debt) rated, at the time as of which any Investment
therein is made, BBB+ or better by S&P or Moody's or the equivalent of such
rating by a successor rating agency, (iii) commercial paper, maturing not more
than 90 days after the date of acquisition, issued by a corporation (other than
an Affiliate or Subsidiary of the Company) organized and existing under the
laws of the United States of America or any State thereof or the District of
Columbia which is rated, at the time as of which any Investment therein is
made, P-1 or better by Moody's or A-1 or better by S&P, or the equivalent of
such rating by a successor rating agency, (iv) Investments in mutual funds,
money market funds, investment pools and other savings vehicles, 100% of the
assets of which are invested in Investments described in clause (i), (ii) or
(iii) above, and (v) in the case of Broan Limited, (a) any evidence of
Indebtedness, maturing not more than 365 days after the date of acquisition,
issued or fully guaranteed or insured by Canada or any instrumentality or
agency thereof (PROVIDED that the full faith and credit of Canada is pledged in
support thereof), (b) any certificate of deposit, overnight bank deposit or
bankers acceptance, maturing not more than 365 days after the date of
acquisition, issued by, or time deposit of, a commercial banking institution
having unsecured long-term debt (or whose holding company has unsecured
long-term debt) rated, at the time as of which any Investment therein is made,
A or better
3
<PAGE> 10
by Dominion Bond Rating Services or the equivalent of such rating by a
successor rating agency, and (c) commercial paper, maturing not more than 90
days after the date of acquisition, issued by a corporation (other than an
Affiliate or Subsidiary of the Company) organized and existing under the laws
of Canada or any province thereof which is rated, at the time as of which any
Investment therein is made, R-1 or better by Dominion Bond Rating Services or
the equivalent of such rating by a successor rating agency.
"Commodity Agreement" means any agreement or arrangement
designed to protect the Company or any of its Subsidiaries against fluctuations
in the prices of commodities used by the Company or any of its Subsidiaries in
the ordinary course of business.
"Company Credit Facility" means one or more credit facilities
between the Company and one or more banks or other institutional lenders, as
the same may be amended, extended, amended and restated, supplemented or
otherwise modified or replaced from time to time, specifically designated in
each such credit facility as a "Company Credit Facility." All Company Credit
Facilities are referred to collectively in this Indenture as the "Company
Credit Facility".
"Consolidated Amortization Expense" means, with respect to any
Person for any period, the amortization expense of such Person and its
Subsidiaries, determined on a consolidated basis for such period in accordance
with GAAP, excluding any amortization expense included in Consolidated Interest
Expense.
"Consolidated Cash Flow" means, with respect to any Person for
any period, the sum of, without duplication, (i) Consolidated Net Income of
such Person for such period, (ii) Consolidated Interest Expense of such Person
for such period, (iii) Consolidated Income Tax Expense of such Person for such
period, (iv) Consolidated Depreciation Expense of such Person for such period,
(v) Consolidated Amortization Expense of such Person for such period, and (vi)
the amount, not to exceed 10% of Consolidated Cash Flow of such Person for such
period (which amount shall be excluded in determining such Consolidated Cash
Flow), by which (A) other non-cash items of expense that reduce Consolidated
Net Income of such Person for such period exceed (B) other non-cash items of
expense that increase Consolidated Net Income of such Person for such period;
PROVIDED, HOWEVER, that, in the case of the Company, any expenses which are
included in any of clauses (ii) through (vi) above for such period and which
are attributable to Dixieline Lumber Company shall be deducted from
Consolidated Cash Flow of the Company for such period.
"Consolidated Cash Flow Coverage Ratio" means, with respect to
any Person for any period, the ratio of Consolidated
4
<PAGE> 11
Cash Flow of such Person for such period to Consolidated Interest Expense of
such Person for such period; PROVIDED, HOWEVER, that, Consolidated Cash Flow
and Consolidated Interest Expense shall be calculated on a pro forma basis
after giving effect, as if occurring at the beginning of such period, to (i)
the incurrence of Indebtedness giving rise to the need to calculate the
Consolidated Cash Flow Coverage Ratio and the retirement of any Indebtedness
refinanced with the proceeds of such Indebtedness, (ii) the incurrence, during
such period or since the last day of such period, of any Indebtedness (other
than Indebtedness incurred for working capital purposes), and the retirement of
any Indebtedness refinanced with the proceeds of such Indebtedness, (iii) the
acquisition by such Person (directly or through a Subsidiary of such Person) of
any company or business during such period or since the last day of such
period, (iv) the sale or other disposition of assets or properties outside the
ordinary course of business by such Person (directly or through a Subsidiary of
such Person), and the actual application of the proceeds therefrom, during such
period or since the last day of such period, and (v) in the case of the Company
and with respect to any such period ending prior to the date on which there
shall be four fiscal quarters of the Company which commenced and ended after
the issue date of the Securities, the income that could have been earned by the
Company if the Cash Proceeds of the issuance of the Securities (net of
underwriters' discounts and commissions and amounts used to retire Indebtedness
of the Company), if any, received by the Company were invested from the
beginning of such period to but excluding the date of receipt by the Company of
such Cash Proceeds at the rate in effect on the last day of the last fiscal
quarter within such period for United States Treasury securities maturing one
year from the date of issuance of such securities, as compiled and published in
the then most recent Federal Reserve Statistical Release H.15 (519).
"Consolidated Depreciation Expense" means, with respect to any
Person for any period, the depreciation and depletion expense of such Person
and its Subsidiaries, determined on a consolidated basis for such period in
accordance with GAAP.
"Consolidated Income Tax Expense" means, with respect to any
Person for any period, the provision for federal, state, local and foreign
income taxes (including franchise, net worth or similar taxes) of such Person
and its Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any
Person for any period, without duplication, the sum of (i) the interest expense
of such Person and its Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP, including, without limitation, all
original issue discount and other interest portion of any deferred payment
Indebtedness and all commissions, discounts and other fees and charges owed
5
<PAGE> 12
with respect to letters of credit and bankers' acceptance financing (less, in
the case of the Company, any interest income included in Consolidated Net
Income of the Company for such period), but excluding any deferred financing
fees otherwise includible in Consolidated Interest Expense of the Company for
such period; (ii) the interest component of Capital Lease Obligations paid,
accrued and/or scheduled to be paid or accrued by such Person and its
Subsidiaries during such period as determined on a consolidated basis in
accordance with GAAP; and (iii) all cash dividends or other distributions
declared or paid on any Capital Stock (other than common stock, preferred stock
that is not Redeemable Stock or, with respect to the Company, special common
stock) of such Person and its Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP; PROVIDED, HOWEVER, that any
Indebtedness bearing a floating rate of interest shall be computed as if the
rate in effect on the date of computation had been the applicable rate for the
entire period.
"Consolidated Net Income" means, with respect to any Person
for any period, the aggregate net income (or loss) of such Person and its
Subsidiaries for such period, before discontinued operations, extraordinary
items and the cumulative effect of a change in accounting principles of such
Person and its Subsidiaries, determined on a consolidated basis in accordance
with GAAP, PROVIDED that there shall also be excluded from Consolidated Net
Income (i) any net gains or losses in respect of dispositions of assets other
than in the ordinary course of business; (ii) any gains from currency exchange
transactions not in the ordinary course of business consistent with past
practice; (iii) any gains or losses realized from the termination of any
employee pension benefit plan; (iv) any gains or losses realized upon the
refinancing of any Indebtedness of such Person or any of its Subsidiaries; (v)
any gains or losses arising from the destruction of property or assets due to
fire or other casualty; (vi) any gains or losses from the revaluation of
property or assets; (vii) the net income (or loss) of any other Person (other
than a Subsidiary of such Person) except to the extent of cash dividends or
distributions paid to such Person by such other Person in such period; (viii)
the net income (or loss) of any Subsidiary of such Person except to the extent
of the interest of such Person in such Subsidiary, PROVIDED that in the case of
the Company the net income (or loss) of Dixieline Lumber Company shall be
excluded; (ix) the net income (or loss) of any Subsidiary of such Person that
is subject to any restriction or limitation on the payment of dividends and
other distributions (including loans or advances) by operation of the terms of
its charter or by agreement, instrument, judgment, decree, order or
governmental regulation applicable to such Subsidiary to the extent of such
restriction or limitation in such period; and (x) in the case of the Company,
the excess of (a) the compensation expense recorded by the Company in the
computation of net
6
<PAGE> 13
earnings of the Company in respect of shares of Capital Stock (other than
Redeemable Stock) or other Equity Interests, pursuant to a plan or other
arrangement approved by the Board of Directors of the Company (or of a
Reporting Subsidiary of the Company, if applicable), to or for the benefit of
any employee, officer or director of the Company or any of its Subsidiaries or
to or by any employee stock ownership plan or similar trust for the benefit of
any such employee, officer or director, over (b) the amount of income taxes
recorded by the Company in connection with such compensation expense of the
Company.
"Consolidated Net Worth" means, with respect to any Person at
any date of determination, the sum of the Capital Stock, additional paid-in
capital and cumulative translation adjustment account plus retained earnings
(or minus accumulated deficit), excluding amounts attributable to Redeemable
Stock, any Capital Stock convertible into Indebtedness, or Treasury Stock, of
such Person and its Subsidiaries, determined on a consolidated basis in
accordance with GAAP.
"Currency Agreement" means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement entered into
in the ordinary course of business and designed to protect the Company or any
of its Subsidiaries against fluctuations in currency values to or under which
the Company or any of its Subsidiaries is a party or a beneficiary on the issue
date of the Securities or becomes a party or a beneficiary thereafter.
"Default" means any event which is, or after notice or passage
of time or both would be, an Event of Default.
"Disinterested Director" means, with respect to any
transaction or series of transactions in respect of which the Board of
Directors of the Company is required to deliver a Board Resolution under the
Indenture, a member of such Board of Directors who does not have any material
direct or indirect financial interest in or with respect to such transaction or
series of transactions.
"Equity Interests" means Capital Stock, warrants, options or
other rights to acquire Capital Stock (but excluding any debt security which is
convertible into, or exchangeable for, Capital Stock).
"Exempt Person" means (i) Richard L. Bready, (ii) any Person
which is an Affiliate of Richard L. Bready and (iii) any other Affiliate of
such Person so long as such Person is an Affiliate of Richard L. Bready.
"Existing Indebtedness" means Indebtedness of the Company and
its Subsidiaries, in existence on the issue date of the Securities.
"Existing Investments" means (i) Investments of the Company
and its Subsidiaries, in existence on the issue date of the Securities and (ii)
Investments to be made pursuant to commitments authorized by the Board of
Directors of the Company prior to the issue date of the Securities (a) in
Ecological Engineering Associates, L.P. in an amount not to exceed
7
<PAGE> 14
$2,100,000 (including such Investments made prior to the issue date of the
Securities) and (b) in or related to a joint-venture involving Universal-Rundle
Corporation in an amount not to exceed $4,000,000.
"Fair Market Value" means, with respect to any asset, the
price which could be negotiated in an arm's-length free market transaction, for
cash, between a willing seller and a willing buyer, neither of which is under
pressure or compulsion to complete the transaction; PROVIDED, HOWEVER, that the
Fair Market Value of any asset or assets of the Company or any of its
Subsidiaries shall be determined by the Board of Directors of the Company or,
if such Subsidiary is a Reporting Subsidiary of the Company, of such Reporting
Subsidiary, acting in good faith, and evidenced by a Board Resolution of the
Company or such Reporting Subsidiary, as the case may be, delivered to the
Trustee.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession, from time to time; PROVIDED, HOWEVER, that for purposes
of Articles IV and V hereof, GAAP shall be determined on the basis of such
principles as in effect on the issue date of the Securities.
"guaranty" means, with respect to any obligation, (i) a
guaranty (other than by endorsement of negotiable instruments for collection in
the ordinary course of business), direct or indirect, of all or any part of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure the payment or
performance of (or payment of damages in the event of non-performance) of all
or any part of such obligation.
"Holder" or "Securityholder" means a Person in whose name a
Security is registered on the Registrar's books.
"Indebtedness" means, with respect to any Person, without
duplication, any indebtedness, contingent or otherwise, (i) with respect to
borrowed money (whether or not the recourse of the lender is to the whole of
the assets of such Person or only to a portion thereof), or evidenced by bonds,
notes, debentures or similar instruments or consisting of reimbursement
obligations with respect to letters of credit or (ii) representing the deferred
and unpaid balance of the purchase price of any property excluding any such
balance that constitutes a trade payable or an accrued liability, in each case
arising in the ordinary course of business, if and to the extent any of the
foregoing indebtedness would appear as a liability upon a balance
8
<PAGE> 15
sheet of such Person prepared on a consolidated basis in accordance with GAAP,
and shall also include, to the extent not otherwise included, (a) any Capital
Lease Obligations, (b) the maximum fixed repurchase price of any Redeemable
Stock, (c) indebtedness secured by a Lien to which the property or assets owned
or held by such Person is subject, whether or not the obligations secured
thereby shall have been assumed, (d) guaranties of items that would be included
within this definition to the extent of such guaranties, and (e) net
liabilities in respect of Commodity Agreements, Currency Agreements and
Interest Rate Agreements. For purposes of the immediately preceding sentence,
the maximum fixed repurchase price of any Redeemable Stock which does not have
a fixed repurchase price shall be calculated in accordance with the terms of
such Redeemable Stock as if such Redeemable Stock were repurchased on any date
on which Indebtedness shall be required to be determined pursuant to this
Indenture, PROVIDED that if such Redeemable Stock is not then permitted to be
repurchased, the repurchase price shall be the book value of such Redeemable
Stock. The amount of Indebtedness of any Person at any date shall be without
duplication (y) the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability of any such contingent
obligations at such date and (z) in the case of Indebtedness of others secured
by a Lien to which the property or assets owned or held by such Person is
subject, the lesser of the Fair Market Value at such date of any property or
asset subject to a Lien securing the Indebtedness of others or the amount of
the Indebtedness secured. The amount of any Indebtedness issued at a discount
shall be equal to the gross proceeds of such issuance (and not the face amount
of any bond, note, debenture or similar instrument representing such
Indebtedness).
"Indenture" means this Indenture, as amended or supplemented
from time to time in accordance with the terms hereof, including the provisions
of the TIA that are deemed to be a part hereof.
"Interest Rate Agreement" means any interest rate protection
agreement, interest rate future agreement, interest rate option agreement,
interest rate swap agreement, interest rate cap agreement, interest rate collar
agreement, interest rate hedge agreement, or other similar agreement or
arrangement entered into in the ordinary course of business and designed to
protect the Company or any of its Subsidiaries against fluctuations in interest
rates to or under which the Company or any of its Subsidiaries is a party or a
beneficiary thereof.
9
<PAGE> 16
"Investment" means, with respect to any Person, (i) any direct
or indirect loan or other extension of credit (other than extensions of trade
credit by such Person on commercially reasonable terms and relating to the sale
of property or services in the ordinary course of business) or capital
contribution (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others) to any
other Person, or (ii) any purchase or acquisition by such Person of any Capital
Stock, bonds, notes, debentures or other securities or evidences of
Indebtedness issued by any other Person.
"Lien" means any mortgage, lien, pledge, charge, security
interest or encumbrance of any kind, whether or not filed, recorded or
otherwise perfected under applicable law (including any conditional sale or
other title retention agreement, any lease intended as security, any option or
other agreement to sell or give any security interest and any filing of or
other agreement to give any financing statement under the Uniform Commercial
Code (or equivalent statutes) of any jurisdiction other than a financing
statement covering leased goods under a lease not intended as security).
"Material Subsidiary" of any Person means (i) any Subsidiary
Guarantor and (ii) any other Subsidiary of such Person which at the time of
determination (a) had assets which, as of the date of such Person's then most
recent quarterly consolidated balance sheet, constituted at least 5% of such
Person's total assets on a consolidated basis as of such date, in each case
determined in accordance with GAAP, (b) had net sales for the 12-month period
ending on the date of such Person's most recent quarterly consolidated
statement of income which constituted at least 5% of such Person's total net
sales on a consolidated basis for such period or (c) had operating income for
the 12-month period ending on the date of such Person's most recent quarterly
consolidated statement of operating income which constituted at least 10% of
such Person's total operating income on a consolidated basis for such period.
"Moody's" means Moody's Investors Service, Inc. and its
successors.
"Net Cash Proceeds" means the aggregate Cash Proceeds received
by the Company or any of its Subsidiaries in respect of any Asset Sale, net of
the out-of-pocket costs relating to such Asset Sale (including, without
limitation, legal, accounting and investment banking fees and sales
commissions) and any relocation expenses and severance and shutdown costs
incurred as a result thereof, and all federal, state, provincial, foreign and
local taxes required to be accrued as a liability under GAAP as a
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consequence of such Asset Sale, amounts required to be applied to the repayment
of Indebtedness secured by a Lien on the asset or assets which are the subject
of such Asset Sale and any reasonable reserve in accordance with GAAP for
adjustments in respect of the sale price of such asset or assets.
"Officer" means, with respect to any corporation, the Chairman
of the Board, any Vice Chairman, the President, any Vice President, the
Treasurer, the Secretary, any Assistant Treasurer or any Assistant Secretary of
such corporation.
"Officers' Certificate" means a written certificate containing
the information specified in Sections 11.04 and 11.05 herein, signed in the
name of the Company by any two of its Officers, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion containing the
information specified in Sections 11.04 and 11.05 hereof, rendered by legal
counsel (who may be counsel to the Company) acceptable to the Trustee.
"Permitted Investments" means any of the following: (i) Cash
Equivalents; (ii) Existing Investments; (iii) Investments by the Company or a
Subsidiary of the Company in any Subsidiary of the Company or any other Person
that concurrently with the making of such Investment becomes a Subsidiary of
the Company; (iv) guaranties by Subsidiaries of the Company permitted under
Section 4.08 or 4.15 hereof; (v) Indebtedness of the Company to any Subsidiary
of the Company, PROVIDED that such Indebtedness is contractually subordinated
in right of payment to the Securities; (vi) Investments by the Company or any
of its Subsidiaries in debt securities or debt instruments having maturities of
10 years or less and (A) issued or fully guaranteed or insured by the United
States of America, or an instrumentality or agency thereof (provided that the
full faith and credit of the United States of America is pledged in support
thereof) or (B) with a rating of BBB- or better by S&P or Baa-3 or better by
Moody's or the equivalent of such rating by a successor rating agency; (vii)
any Investment by Broan Limited in debt securities or debt instruments having
maturities of 10 years or less and issued or fully guaranteed or insured by
Canada or an instrumentality or agency thereof or rated, at the time of such
Investment, BBB- or better by Dominion Bond Rating Services or the equivalent
of such rating by a successor rating agency, so long as the aggregate amount of
all such Investments by Broan Limited do not exceed $7,500,000 at any one time
outstanding; (viii) loans and advances to officers and directors of the Company
or any Subsidiary of the Company made in the ordinary course of business or
pursuant to an employee benefit plan, up to $3,000,000 in the aggregate at any
one time outstanding; (ix) loans and advances to vendors, suppliers and
contractors of the Company or any Subsidiary of the Company and made in the
ordinary course of business; (x) the
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receipt by the Company or its Subsidiaries of consideration other than Cash
Proceeds in any Asset Sale made in compliance with the terms of this Indenture;
(xi) so long as no Default or Event of Default shall have occurred and be
continuing, other Investments made after the issue date of the Securities not
exceeding in the aggregate at any time outstanding (A) $10,000,000, if at the
time of the making of such Investment the Securities are not rated BB+ or
better by S&P or Ba1 or better by Moody's, or (B) $20,000,000, but not more
than $10,000,000 in any fiscal year of the Company, if at the time of the
making of such Investment the Securities are rated BB+ or better by S&P or Ba1
or better by Moody's; PROVIDED, HOWEVER, that upon the sale by the Company of
all of the Equity Interests of Dixieline Lumber Company or all or substantially
all of the assets of Dixieline Lumber Company, the aggregate amount of
Investments permitted to be outstanding pursuant to this clause (xi) shall be
increased by the amount, if any, by which the Net Cash Proceeds received by the
Company from such sale (plus the amount of cash collection of any non-cash
proceeds received by the Company from such sale) exceed the aggregate of all
Investments in Dixieline Lumber Company made by the Company or any of its
Subsidiaries after the issue date of the Securities; (xii) any Lien permitted
under Section 4.10 hereof; and (xiii) Investments by Subsidiaries of the
Company not exceeding in the aggregate $5,000,000 at any one time outstanding
in Cash Equivalents described in clause (ii) of the definition of such term in
this Indenture, PROVIDED that for purposes of this clause (xiii) an instrument
referred to in such clause (ii) may be issued by any commercial banking
institution having capital and surplus of not less than $100,000,000.
"Permitted Liens" means (i) Liens securing Indebtedness owing
to the Company by a Subsidiary of the Company; (ii) Liens securing Acquired
Indebtedness incurred by the Company or any of its Subsidiaries in accordance
with the provisions of this Indenture, PROVIDED such Liens were not incurred in
anticipation of or in connection with the transaction pursuant to which such
Acquired Indebtedness was so incurred; (iii) Liens securing Purchase Money
Obligations permitted to be incurred by the provisions of this Indenture; (iv)
Liens securing Indebtedness permitted by clause (xiv) of Section 4.08 hereof;
and (v) any interest or title of a lessor in property subject to any Capital
Lease Obligation or operating lease of the Company and of its Subsidiaries.
"Person" means any individual, corporation, partnership, joint
venture, incorporated or unincorporated association, joint-stock company,
trust, unincorporated organization or government or other agency or political
subdivision thereof or other entity of any kind.
"Purchase Money Obligations" means any Indebtedness of the
Company or any of its Subsidiaries incurred to finance the acquisition or
construction of any property or business
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(including Indebtedness incurred within 180 days following such acquisition or
construction), including Indebtedness of a Person existing at the time such
Person becomes a Subsidiary of the Company or assumed by the Company or a
Subsidiary of the Company in connection with the acquisition of assets from
such Person; PROVIDED, HOWEVER, that (i) any Lien on such Indebtedness shall
not extend to any property other than the property so acquired or constructed
and (ii) at no time shall the aggregate principal amount of outstanding
Indebtedness secured thereby be increased.
"Redeemable Stock" means any Equity Interest which, by its
terms (or by the terms of any security into which it is convertible or for
which it is exchangeable before the Stated Maturity of the Securities), or upon
the happening of any event, matures or is mandatorily redeemable, in whole or
in part, prior to the Stated Maturity of the Securities.
"Redemption Date" or "redemption date" means the date
specified for redemption of the Securities in accordance with the terms of the
Securities and this Indenture.
"Redemption Price" or "redemption price" shall have the
meaning set forth in paragraph 6 of the Securities.
"Reporting Subsidiary" means, with respect to any Person, a
Subsidiary of such Person required to file periodic reports under Section 13 or
15(d) of the Exchange Act.
"S&P" means Standard and Poor's Corporation and its successors.
"SEC" means the Securities and Exchange Commission.
"Securities" means any of the Company's __% Senior
Subordinated Notes due ___________ ___, 2004, issued under this Indenture.
"Securityholder" or "Holder" means a Person in whose name a
Security is registered on the Registrar's books.
"Stated Maturity" means, with respect to any security or
Indebtedness, the date specified therein as the fixed date on which the
principal of such security or Indebtedness is due and payable, including
pursuant to any mandatory redemption provision (but excluding any provision
providing for the repurchase of such security or Indebtedness at the option of
the holder thereof upon the happening of any contingency).
"Subsidiary" of any Person means any corporation, partnership,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to
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<PAGE> 20
vote in the election of directors or, in the case of a Person which is not a
corporation, the members of the appropriate governing board or other group is
at the time owned or controlled, directly or indirectly, by such Person or one
or more of the other Subsidiaries of such Person or a combination thereof;
PROVIDED, HOWEVER, that Forges et Boulonneries D'Ars-sur-Moselle shall not be
deemed to be a Subsidiary of the Company so long as (i) all Indebtedness of
Forges et Boulonneries D'Ars-sur-Moselle is non-recourse to the Company and its
Subsidiaries and (ii) the Company invests not more than $2,000,000 in debt or
equity capital of Forges et Boulonneries D'Ars-sur-Moselle on a cumulative
basis from the issue date of the Securities.
"Subsidiary Guarantor" means, with respect to any Subsidiary
Guaranty, the issuer of such Subsidiary Guaranty, so long as such Subsidiary
Guaranty remains outstanding.
"Subsidiary Guaranty" means any guaranty of the Securities
pursuant to a supplemental indenture executed and delivered pursuant to Section
4.15 hereof, including as the context may require either or both of the
guaranty of the Securities set forth in Article 12 hereof upon the execution
and delivery by a Subsidiary Guarantor of such supplemental indenture and any
separate guaranty of the Securities, substantially in the form of Exhibit C
hereto, or confirmation of guaranty executed and delivered by such Subsidiary
Guarantor pursuant to such supplemental indenture.
"TIA" means the Trust Indenture Act of 1939 as amended and as
in effect on the date of this Indenture; PROVIDED, HOWEVER, that in the event
the TIA is amended after such date, TIA means, to the extent required by any
such amendment, the TIA as so amended.
"Trust Officer," when used with respect to the Trustee, means
any officer assigned to and working in the corporate trust department of the
Trustee or any other officer of the Trustee customarily performing functions
similar to those performed by any of the above officers and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of his knowledge of and familiarity with the
particular subject.
"Trustee" means the party named as the "Trustee" in the first
paragraph of this Indenture until a successor replaces it pursuant to the
applicable provisions of this Indenture and, thereafter, shall mean such
successor.
"Wholly-Owned Subsidiary" of any Person means any Subsidiary
of such Person to the extent the entire voting share
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<PAGE> 21
capital of such Subsidiary is owned by such Person (either directly or
indirectly through Wholly-Owned Subsidiaries).
<TABLE>
SECTION 1.02. OTHER DEFINITIONS.
<CAPTION>
Defined in
Term Section
---- ----------
<S> <C>
"Act"............................................. 1.05
"Acceleration Notice"............................. 6.02
"Bankruptcy Law".................................. 6.01
"Cash Proceeds"................................... 4.13
"Change of Control"............................... 4.12
"Change of Control Offer"......................... 4.12
"Change of Control Payment Date".................. 4.12
"Core Subsidiary"................................. 4.13
"Custodian"....................................... 6.01
"Event of Default"................................ 6.01
"Excess Proceeds"................................. 4.13
"Excess Proceeds Offer"........................... 4.13
"Exchange Act".................................... 4.02
"Existing Liens".................................. 4.10
"incurrence"...................................... 4.08
"Lease Basket".................................... 4.08
"Legal Holiday"................................... 11.08
"Non-Payment Default"............................. 10.04
"Paying Agent".................................... 2.03
"Payment Blockage Period"......................... 10.04
"Payment Default"................................. 10.04
"refinance"....................................... 4.08
"Refinancing Indebtedness"........................ 4.08
"Register"........................................ 2.03
"Registrar"....................................... 2.03
"Restricted Payment".............................. 4.06
"Securities Act".................................. 7.04
"Senior Indebtedness"............................. 10.02
"Specified Senior Indebtedness"................... 10.02
"surviving entity"................................ 5.01
"U.S. Government Obligations"..................... 8.01
</TABLE>
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE
ACT. Whenever this Indenture refers to a provision of the TIA, such provision
is incorporated by reference in and made a part of this Indenture. The
following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"Indenture securities" means the Securities.
"Indenture security holder" means a Securityholder.
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<PAGE> 22
"Indenture to be qualified" means this Indenture.
"Indenture trustee" or "institutional trustee" means the
Trustee.
"Obligor" on the Securities means the Company and each
Subsidiary Guarantor, if any, and each other obligor on the Securities or any
Subsidiary Guaranty.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by SEC rule
have the meanings assigned to them by such definitions.
SECTION 1.04. RULES OF CONSTRUCTION. Unless the context
otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including, without limitation; and
(5) words in the singular include the plural, and words
in the plural include the singular.
SECTION 1.05. ACTS OF HOLDERS.
(1) Any request, demand, authorization, direction,
notice, consent, waiver or other action provided by this Indenture to be given
or taken by Holders may be embodied in and evidenced by one or more instruments
of substantially similar tenor signed by such Holders in person or by an agent
duly appointed in writing; and, except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Trustee and, where it is hereby expressly required, to the
Company. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of Holders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for
any purpose of this Indenture and conclusive in favor of the Trustee and the
Company, if made in the manner provided in this Section.
(2) The fact and date of the execution by any Person of
any such instrument or writing may be proved in any manner which the Trustee
deems sufficient.
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<PAGE> 23
(3) The ownership of Securities shall be proved by the
Register.
(4) Any request, demand, authorization, direction,
notice, consent, waiver or other Act of the Holder of any Security shall bind
every future Holder of the same Security and the holder of every Security
issued upon the registration of transfer thereof or in exchange therefor or in
lieu thereof in respect of anything done, omitted or suffered to be done by the
Trustee or the Company in reliance thereon, whether or not notation of such
action is made upon such Security.
(5) If the Company shall solicit from the Holders any
request, demand, authorization, direction, notice, consent, waiver or other
Act, the Company may, at its option, by or pursuant to a Board Resolution, fix
in advance a record date for the determination of Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other
Act, but the Company shall have no obligation to do so. If such a record date
is fixed, such request, demand, authorization, direction, notice, consent,
waiver or other Act may be given before or after such record date, but only the
Holders of record at the close of business on such record date shall be deemed
to be Holders for the purposes of determining whether Holders of the requisite
proportion of outstanding securities have authorized or agreed or consented to
such request, demand, authorization, directions, notice, consent, waiver or
other Act, and for that purpose the outstanding securities shall be computed as
of such record date, PROVIDED that no such authorization, agreement or consent
by the Holders on such record date shall be deemed effective unless it shall
become effective pursuant to the provisions of this Indenture not later than
six months after the record date.
SECTION 1.06. EXCHANGE RATES. Except as otherwise required
under GAAP or in connection with the preparation of any financial statements,
any computation of the U.S. dollar equivalent of any foreign currency required
for any calculation or computation under this Indenture (including, without
limitation, in connection with the limitations under the definition of
"Consolidated Net Income" and Section 4.03 hereof) shall be made at the
exchange rate published in The Wall Street Journal which is in effect as of the
close of business on the first Business Day in the month in which such
computation is required to be made hereunder.
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<PAGE> 24
ARTICLE 2
THE SECURITIES
SECTION 2.01. FORM AND DATING. The Securities and the
Trustee's certificate of authentication shall be substantially in the form of
Exhibit A attached hereto. The Securities may have notations, legends or
endorsements required by law, stock exchange rule or usage. Each Security
shall be dated the date of its authentication.
The terms and provisions contained in the Securities, annexed
hereto as Exhibit A, shall constitute, and are hereby expressly made, a part of
this Indenture. To the extent applicable, the Company, by its execution and
delivery of this Indenture, expressly agrees to such terms and provisions and
to be bound thereby.
SECTION 2.02. EXECUTION AND AUTHENTICATION. The Securities
shall be executed on behalf of the Company by its Chairman of the Board, one of
its Vice Chairmen, its President or one of its Vice Presidents, under its
corporate seal reproduced thereon attested by its Secretary or one of its
Assistant Secretaries. The signature of any such officer on the Securities may
be manual or facsimile.
Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper Officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased
to hold such offices prior to the authentication and delivery of such
Securities or did not hold such offices at the date of such Securities.
No Security shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears on
such Security a certificate of authentication substantially in the form
provided for in Exhibit A annexed hereto duly executed by the Trustee by manual
signature of an authorized officer, and such certificate upon any Security
shall be conclusive evidence, and the only evidence, that such Security has
been duly authenticated and made available for delivery hereunder.
The Trustee shall authenticate and make available for delivery
Securities for original issue in the aggregate principal amount of
[$218,500,000] upon a Board Resolution and a written order of the Company
signed by two Officers of the Company, but without any further action by the
Company. Such order shall specify the amount of the Securities to be
authenticated and the date on which the original issue of Securities is to be
authenticated and delivered. The aggregate principal amount of Securities
outstanding at any time may not exceed [$218,500,000], except as provided in
Section 2.07.
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<PAGE> 25
The Trustee shall act as the initial authenticating agent.
Thereafter, the Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate Securities. An authenticating agent
may authenticate Securities whenever the Trustee may do so. Each reference in
this Indenture to authentication by the Trustee includes authentication by such
agent. An authenticating agent has the same rights as a Paying Agent to deal
with the Company or an Affiliate of the Company.
The Securities shall be issuable only in registered form
without coupons and only in denominations of $1,000 and any integral multiple
thereof.
SECTION 2.03. REGISTRAR AND PAYING AGENT. The Company
shall maintain or cause to be maintained an office or agency where Securities
may be presented for registration of transfer or for exchange ("Registrar"), an
office or agency where Securities may be presented or surrendered for purchase
or payment ("Paying Agent") and an office or agency where notices and demands
to or upon the Company in respect of the Securities and this Indenture may be
served. The Registrar shall keep a register of the Securities and of their
transfer and exchange (the "Register"). The Company may have one or more
co-registrars and one or more additional paying agents. The term Paying Agent
includes any additional paying agent.
The Company shall enter into an appropriate agency agreement
with any Registrar, Paying Agent or co-registrar (if not the Trustee or the
Company). The agreement shall implement the provisions of this Indenture that
relate to such agent. The Company shall notify the Trustee of the name and
address of any such agent. If the Company fails to maintain a Registrar,
Paying Agent or agent for service of notices or demands, the Trustee shall act
as such and shall be entitled to appropriate compensation therefor pursuant to
Section 7.07 hereof. The Company or any Subsidiary or an Affiliate of either
of them may act as Paying Agent, Registrar or co-registrar or agent for service
of notices and demands.
The Company initially appoints the Trustee as Registrar and
Paying Agent and agent for service of notices and demands.
SECTION 2.04 PAYING AGENT TO HOLD MONEY IN TRUST. Except
as otherwise provided herein, prior to each due date of the principal, premium,
if any, and interest on any Security, the Company shall deposit with the Paying
Agent a sum of money sufficient to pay such principal, premium, if any, and
interest so becoming due. The Company shall require each Paying Agent (other
than the Trustee or the Company) to agree in writing that such Paying Agent
shall hold in trust for the benefit of Securityholders or the Trustee all money
held by the Paying Agent for the payment of principal, premium, if any, and
interest on
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<PAGE> 26
the Securities (whether such money has been paid to it by the Company or any
other obligor on the Securities) and shall notify the Trustee of any default by
the Company (or any other obligor on the Securities) in making any such
payment. At any time during the continuance of any such default, the Paying
Agent shall, upon the request of the Trustee, forthwith pay to the Trustee all
money so held in trust and account for any money disbursed to it. The Company
at any time may require a Paying Agent to pay all money held by it to the
Trustee and to account for any money disbursed by it. Upon doing so, the
Paying Agent shall have no further liability for the money so paid over to the
Trustee. If the Company, a Subsidiary or an Affiliate of either of them acts
as Paying Agent, it shall segregate the money held by it as Paying Agent and
hold it as a separate trust fund.
SECTION 2.05. SECURITYHOLDER LISTS. The Trustee shall
preserve in as current a form as is reasonably practicable the most recent list
available to it of the names and addresses of Securityholders. If the Trustee
is not the Registrar, the Company shall cause to be furnished to the Trustee on
or before each interest payment date and at such other times as the Trustee may
request in writing, within five Business Days of such request, a list in such
form as the Trustee may reasonably require of the names and addresses of
Securityholders.
SECTION 2.06. TRANSFER AND EXCHANGE. Upon surrender for
registration of transfer of any Security at the office or agency of the Company
designated as Registrar or co-registrar pursuant to Section 2.03 or at the
office or agency referred to in Section 4.05, the Company shall execute, and
the Trustee shall authenticate and make available for delivery, in the name of
the designated transferee or transferees, one or more new Securities of any
authorized denomination or denominations, of a like aggregate principal amount.
At the option of the Holder, Securities may be exchanged for
other Securities of any authorized denomination or denominations, of a like
aggregate principal amount, upon surrender of the Securities to be exchanged at
such office or agency. Whenever any Securities are so surrendered for
exchange, the Company shall execute, and the Trustee shall authenticate and
make available for delivery, the Securities which the Holder making the
exchange is entitled to receive.
Every Security presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or the Trustee)
be duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Registrar duly executed, by the Holder or
his attorney duly authorized in writing.
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<PAGE> 27
The Company shall not charge a service charge for any
registration of transfer or exchange, but the Company may require payment of a
sum sufficient to pay all taxes, assessments or other governmental charges that
may be imposed in connection with the transfer or exchange of the Securities
from the Securityholder requesting such transfer or exchange (other than any
exchange of a temporary Security for a definitive Security not involving any
change in ownership).
The Company shall not be required to make, and the Registrar
need not register, transfers or exchanges of Securities selected for redemption
(except, in the case of Securities to be redeemed in part, the portion thereof
not to be redeemed) or any Securities for a period of 15 days before a
selection of Securities to be redeemed.
SECTION 2.07. REPLACEMENT SECURITIES. If any mutilated
Security is surrendered to the Company or the Trustee, or the Company and the
Trustee receive evidence to their satisfaction of the destruction, loss or
theft of any Security, and there is delivered to the Company and the Trustee
such security or indemnity as may be required by them to save each of them
harmless, then, in the absence of notice to the Company or the Trustee that
such Security has been acquired by a bona fide purchaser, the Company shall
execute, and upon its written request, the Trustee shall authenticate and make
available for delivery, in exchange for any such mutilated Security or in lieu
of any such destroyed, lost or stolen Security, a new Security of like tenor
and principal amount, bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security
has become or is about to become due and payable, or is about to be purchased
by the Company pursuant to Article 3 hereof, the Company in its discretion may,
instead of issuing a new Security, pay or purchase such Security, as the case
may be.
Upon the issuance of new Securities under this Section 2.07,
the Company may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) in connection
therewith.
Every new Security issued pursuant to this Section 2.07 in
lieu of any mutilated, destroyed, lost or stolen Security shall constitute an
original additional contractual obligation of the Company, whether or not the
mutilated, destroyed, lost or stolen Security shall be at any time enforceable
by anyone, and shall be entitled to all benefits of this Indenture equally and
proportionately with any and all other Securities duly issued hereunder.
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<PAGE> 28
The provisions of this Section 2.07 are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 2.08. OUTSTANDING SECURITIES; DETERMINATIONS OF
HOLDERS' ACTION. Securities outstanding at any time are all the Securities
authenticated by the Trustee except for those cancelled by it, those delivered
to it for cancellation, those referred to in Section 2.07 hereof, or purchased
by the Company pursuant to Article 3 hereof and those described in this Section
2.08 as not outstanding. A Security does not cease to be outstanding because
the Company or an Affiliate thereof holds the Security; PROVIDED, HOWEVER, that
in determining whether the Holders of the requisite principal amount of
Securities have given or concurred in any request, demand, authorization,
direction, notice, consent or waiver hereunder, Securities owned by the
Company, any other obligor upon the Securities or any Affiliate of the Company
or such other obligor shall be disregarded and deemed not to be outstanding,
except that, in determining whether the Trustee shall be protected in relying
upon such request, demand, authorization, direction, notice, consent or waiver,
only Securities which a Trust Officer of the Trustee knows based upon an
examination of the Register to be so owned shall be so disregarded. Subject to
the foregoing, only Securities outstanding at the time of such determination
shall be considered in any such determination (including determinations
pursuant to Articles 6 and 9).
If a Security is replaced pursuant to Section 2.07, it ceases
to be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If the Paying Agent (other than the Company) holds, in
accordance with this Indenture, at maturity or on a Redemption Date, money
sufficient to pay the Securities payable on that date, then immediately on the
date of maturity or such Redemption Date, as the case may be, such Securities
shall cease to be outstanding and interest, if any, on such Securities shall
cease to accrue.
SECTION 2.09. TEMPORARY SECURITIES. Pending the
preparation of definitive Securities, the Company may execute, and upon receipt
of an Officers' Certificate from the Company, the Trustee shall authenticate
and make available for delivery, temporary Securities which are printed,
lithographed, typewritten, mimeographed or otherwise produced, in any
authorized denomination, substantially of the tenor of the definitive
Securities in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the Officers of
the Company executing such
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Securities may determine, as conclusively evidenced by their execution of such
Securities.
If temporary Securities are issued, the Company will cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at the office or agency of the Company designated for such purpose
pursuant to Section 2.03 hereof, without charge to the Holder. Upon surrender
for cancellation of anyone or more temporary Securities, the Company shall
execute and the Trustee, upon receipt of an Officers' Certificate from the
Company, shall authenticate and make available for delivery in exchange
therefor a like principal amount of definitive Securities of authorized
denominations. Until so exchanged, the temporary Securities shall in all
respects be entitled to the same benefits under this Indenture as definitive
Securities.
SECTION 2.10. CANCELLATION. All Securities surrendered for
payment, purchase by the Company, redemption by the Company pursuant to Article
3 hereof, or registration of transfer or exchange shall, if surrendered to any
Person other than the Trustee, be delivered to the Trustee and shall be
promptly cancelled by it. The Company may at any time deliver to the Trustee
for cancellation any Securities previously authenticated and made available for
delivery hereunder which the Company may have acquired in any manner
whatsoever, and all Securities so delivered shall be promptly cancelled by the
Trustee. The Company may not reissue, or issue new Securities to replace
Securities it has paid or delivered to the Trustee for cancellation. No
Securities shall be authenticated in lieu of or in exchange for any Securities
cancelled as provided in this Section 2.10, except as expressly permitted by
this Indenture. All cancelled Securities held by the Trustee shall be
destroyed by the Trustee.
SECTION 2.11. CUSIP NUMBERS. The Company, in issuing the
Securities may use "CUSIP" numbers (if then generally in use), and the Trustee
shall use CUSIP numbers in notices of redemption or exchange as a convenience
to Holders; provided that any such notice shall state that no representation is
made as to the correctness of such numbers either as printed on the Securities
or as contained in any notice of redemption or exchange and that reliance may
be placed only on the other identification numbers printed on the Securities
and any redemption shall not be affected by any defect in or omission of such
numbers.
SECTION 2.12. DEFAULTED INTEREST. If the Company defaults
on a payment of interest on the Securities, it shall pay the defaulted
interest, plus (to the extent lawful) any interest
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payable on the defaulted interest (as provided in Section 4.01), to the Persons
who are Holders on a subsequent special record date, and such special record
date, as used in this Section 2.12 with respect to the payment of any defaulted
interest, shall mean the 15th day next preceding the date fixed by the Company
for the payment of defaulted interest, whether or not such day is a Business
Day. At least 15 days before the subsequent special record date, the Company
shall mail to each Holder and to the Trustee a notice that states the
subsequent special record date, the payment date and the amount of defaulted
interest to be paid. The Company may also pay defaulted interest in any other
lawful manner.
ARTICLE 3
REDEMPTION
----------
SECTION 3.01. RIGHT TO REDEEM; NOTICES TO TRUSTEE. At any
time on and after ___________ ___, 1999, the Company, at its option, may redeem
the Securities for cash in accordance with this Article 3 and the provisions of
paragraph 6 of the Securities. If the Company elects to redeem Securities
pursuant to paragraph 6 of the Securities, it shall notify the Trustee in
writing of the Redemption Date, the principal amount of Securities to be
redeemed and the Redemption Price.
The Company shall give the notice to the Trustee provided for
in this Section 3.01 at least 45 days before the Redemption Date (unless a
shorter notice shall be satisfactory to the Trustee).
SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED. If
less than all the outstanding Securities are to be redeemed at any time, the
Trustee shall select the Securities to be redeemed by lot or, if such method is
prohibited by the rules of any stock exchange on which the Securities are then
listed, any other method the Trustee considers reasonable. The Trustee shall
make the selection at least 30 but not more than 60 days before the Redemption
Date from outstanding Securities not previously called for redemption.
Securities and portions of them the Trustee selects shall be in principal
amounts of $1,000 or an integral multiple of $1,000. Provisions of this
Indenture that apply to Securities called for redemption also apply to portions
of Securities called for redemption. The Trustee shall notify the Company
promptly of the Securities or portions of Securities to be redeemed.
SECTION 3.03. NOTICE OF REDEMPTION. At least 15 days but
not more than 60 days before a Redemption Date, the Company shall mail or cause
to be mailed a notice of redemption by first-class mail, postage prepaid, to
each Holder of Securities to be redeemed at the Holder's last address, as it
shall appear on the
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registry book. A copy of such notice shall be mailed to the Trustee on the
same day the notice is mailed to Holders of Securities.
The notice shall identify the Securities to be redeemed and
shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) the CUSIP number (subject to the provisions of Section
2.11 hereof);
(4) the name and address of the Paying Agent;
(5) that Securities called for redemption must be
surrendered to the Paying Agent to collect the Redemption Price;
(6) if fewer than all the outstanding Securities are to
be redeemed, the identification and principal amounts of the particular
Securities to be redeemed; and
(7) that, unless the Company defaults in making such
redemption payment, interest will cease to accrue on Securities called for
redemption on and after the Redemption Date.
At the Company's written request, the Trustee shall give the
notice of redemption in the Company's name and at the Company's expense;
PROVIDED, HOWEVER, that in all cases, the text of such notice of redemption
shall be prepared or approved by the Company and the Trustee shall have no
responsibility whatsoever with regard to such notice being accurate or correct.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION. Once notice
of redemption is given, Securities called for redemption become due and payable
on the Redemption Date and at the Redemption Price. Upon the later of the
Redemption Date and the date such Securities are surrendered to the Paying
Agent, such Securities called for redemption shall be paid at the Redemption
Price plus accrued interest to the Redemption Date, if money sufficient for
that purpose has been deposited as provided in Section 3.05 hereof.
Notice of redemption shall be deemed to be given when mailed
in the manner provided in Section 3.03, whether or not the Holder receives the
notice. In any event, failure to give such notice, or any defect therein,
shall not affect the validity of the proceedings for the redemption of the
Securities.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE. Prior to the
Redemption Date, the Company shall deposit with the Paying
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Agent (or if the Company or a Subsidiary or an Affiliate of either of them is
the Paying Agent, shall segregate and hold in trust) money sufficient to pay
the Redemption Price of all Securities to be redeemed on that date other than
Securities or portions of Securities called for redemption which prior thereto
have been delivered by the Company to the Trustee for cancellation.
SECTION 3.06. SECURITIES REDEEMED IN PART. Upon surrender
of a Security that is redeemed in part, the Company shall execute, and the
Trustee shall authenticate and make available for delivery to the Holder, a new
Security (accompanied by a confirmation of guaranty with respect to the
Subsidiary Guaranty, if any, duly executed and delivered by each Subsidiary
Guarantor party thereto) in an authorized denomination equal in principal
amount to the unredeemed portion of the Security surrendered.
ARTICLE 4
COVENANTS
---------
SECTION 4.01. PAYMENT OF SECURITIES. The Company shall pay
the principal of, premium, if any, and interest (including interest accruing on
or after the filing of a petition in bankruptcy or reorganization relating to
the Company, whether or not a claim for post-filing interest is allowed in such
proceeding) on the Securities on (or prior to) the dates and in the manner
provided in the Securities or pursuant to this Indenture. An installment of
principal, premium, if any, or interest shall be considered paid on the
applicable date due if on such date the Trustee or the Paying Agent holds, in
accordance with this Indenture, money sufficient to pay all of such installment
then due. The Company shall pay interest on overdue principal and premium, if
any, and interest on overdue installments of interest (including interest
accruing on or after the filing of a petition in bankruptcy or reorganization
relating to the Company whether or not a claim for post-filing interest is
allowed in such proceeding), to the extent lawful, at 2% above the rate per
annum borne by the Securities, which interest on overdue interest shall accrue
from the date such amounts became overdue.
SECTION 4.02. SEC REPORTS.
(1) The Company shall file with the Trustee and supply to
each Holder, without cost, within 15 days after it files the same with the SEC,
definitive copies of its annual and quarterly reports, information, documents
and other reports (or copies of such portions of any of the foregoing as the
SEC may by rules and regulations prescribe) which it is required to file with
the SEC pursuant to Section 13 or 15(d) of the Securities Exchange Act of
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1934, as amended (the "Exchange Act"). In the event that the Company is at any
time not subject to the reporting requirements of the Exchange Act, it shall
provide to the Trustee and supply to each Holder, without cost, within 15 days
after it would have been required to file such information with the SEC,
financial statements, including any notes thereto and, with respect to annual
reports, an auditors' report by an accounting firm of established national
reputation and a "Management's Discussion and Analysis of Financial Condition
and Results of Operations," both comparable to that which the Company would
have been required to include in such annual reports, information, documents or
other reports if the Company had been subject to the requirements of such
Sections 13 or 15(d) of the Exchange Act. The Company also shall comply with
the other provisions of TIA Section 314(a).
(2) So long as any Securities remain outstanding, the
Company shall cause its annual report to shareholders and any other financial
reports furnished by it to shareholders generally, to be mailed to the Holders
at their addresses appearing in the register of Securities maintained by the
Registrar in each case at the time of such mailing or furnishing to
shareholders. If the Company is not required to furnish annual or quarterly
reports to its stockholders pursuant to the Exchange Act, the Company shall
cause its financial statements, including any notes thereto and with respect to
annual reports, an auditors' report by an accounting firm of established
national reputation and a "Management's Discussion and Analysis of Financial
Condition and Results of Operations," to be so filed with the Trustee and
mailed to the Holders within 120 days after the end of each of the Company's
fiscal years (which on the date hereof ends on December 31) and within 60 days
after the end of each of the first three quarters of each fiscal year.
(3) The Company shall provide the Trustee with a
sufficient number of copies of all reports and other documents and information
that the Company may be required to deliver to the Securityholders under this
Section 4.02.
SECTION 4.03. COMPLIANCE CERTIFICATES.
(1) The Company shall deliver to the Trustee within 90
days after the end of each of the Company's fiscal years an Officers'
Certificate executed by Officers of the Company, stating whether or not the
signers know of any Default or Event of Default. Such certificate shall
contain a certification from the principal executive officer, principal
financial officer or principal accounting officer of the Company as to his or
her knowledge of the Company's compliance with all conditions and covenants
under this Indenture. For purposes of this Section 4.03(1), such compliance
shall be determined without regard to any period of grace or requirement of
notice provided under this
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Indenture. If they do know of such a Default or Event of Default, the
certificate shall describe any such Default or Event of Default, and its
status.
(2) So long as not contrary to the then current
recommendation of the American Institute of Certified Public Accountants, the
Company shall deliver to the Trustee within 120 days after the end of each
fiscal year a written statement by the Company's independent certified public
accountants stating (a) that their audit examination has included a review of
the terms of this Indenture and the Securities as they relate to accounting
matters, and (b) whether, in connection with their audit examination, any
Default has come to their attention and, if such a Default has come to their
attention, specifying the nature and period of the existence thereof; PROVIDED,
HOWEVER, that the independent certified public accountants delivering such
statement shall not be liable in respect of such statement by reason of any
failure to obtain knowledge of any such Default or Event of Default that would
not be disclosed in the course of an audit examination conducted in accordance
with GAAP.
(3) The Company shall deliver to the Trustee as soon as
possible and in any event within 15 days after the Company becomes aware of the
occurrence of each Default or Event of Default, which is continuing, an
Officers' Certificate setting forth the details of such Default or Event of
Default, and the action which the Company proposes to take with respect
thereto.
SECTION 4.04. FURTHER INSTRUMENTS AND ACTS. Upon request
of the Trustee, the Company shall execute and deliver such further instruments
and do such further acts as may be reasonably necessary or proper to carry out
more effectively the purposes of this Indenture.
SECTION 4.05. MAINTENANCE OF OFFICE OR AGENCY. The Company
will maintain or cause to be maintained an office or agency of the Trustee,
Registrar and Paying Agent where Securities may be presented or surrendered for
payment, where Securities may be surrendered for registration of transfer,
exchange or redemption and where notices and demands to or upon the Company in
respect of the Securities and this Indenture may be served. The corporate
trust office of the Trustee at the address specified in Section 11.02 hereof
shall initially be such office or agency for all of the aforesaid purposes.
The Company shall give prompt written notice to the Trustee of any change of
location of such office or agency. If at any time the Company shall fail to
maintain or cause to be maintained any such required office or agency or shall
fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the address of the
Trustee set forth in Section 11.02 hereof.
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The Company may also from time to time designate one or more
other offices or agencies where the Securities may be presented or surrendered
for any or all such purposes and may from time to time rescind such
designations. The Company will give prompt written notice to the Trustee of
any such designation or rescission and of any change in location of any such
other office or agency.
SECTION 4.06. LIMITATION ON RESTRICTED PAYMENTS. The
Company shall not, and shall not permit any of its Subsidiaries to, directly or
indirectly: (i) declare or pay any dividend on, or make any distribution in
respect of the Company's or any such Subsidiary's Capital Stock or other Equity
Interests, except to the extent any such dividend or other distribution is (a)
actually received by the Company or a Subsidiary thereof or (b) payable solely
in shares of Capital Stock or other Equity Interests (other than Redeemable
Stock or Capital Stock convertible into any security other than such Capital
Stock) of the Company or such Subsidiary, as the case may be; (ii) purchase,
redeem or otherwise acquire or retire for value any Capital Stock or other
Equity Interests of the Company or any of its Subsidiaries (other than Capital
Stock or other Equity Interests held by the Company or any Wholly-Owned
Subsidiary of the Company); (iii) prepay, repay, purchase, repurchase, redeem,
defease or otherwise acquire or retire for value, prior to a scheduled
repayment date, scheduled mandatory sinking fund payment date or maturity date
any Indebtedness of the Company that is subordinate in right of payment to the
Securities (other than in connection with any refinancing of such Indebtedness
permitted by this Indenture); or (iv) make any Investment other than Permitted
Investments (each such action described in any of clauses (i) through (iv)
above being referred to as a "Restricted Payment"), if, at the time of such
Restricted Payment:
(1) a Default or Event of Default shall have occurred and
be continuing or shall occur as a consequence thereof;
(2) such Restricted Payment, together with the aggregate
amount of all other Restricted Payments declared or made on or after the issue
date of the Securities (including, without duplication, Restricted Payments
described in the next succeeding paragraph), exceeds the sum of (A) 50% of the
cumulative Consolidated Net Income of the Company for the period commencing on
January 1, 1994 through the last day of the fiscal quarter immediately
preceding the date of such proposed Restricted Payment (or, if the Consolidated
Net Income of the Company shall be a deficit, minus 100% of such deficit); (B)
the aggregate net cash proceeds and the Fair Market Value of any property other
than cash, if any, received by the Company (other than from a Subsidiary of the
Company) from the issuance and sale of either Capital Stock of the Company
(other than Redeemable Stock or any Capital Stock convertible into any security
other
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than such Capital Stock) or Indebtedness that is convertible into Capital Stock
of the Company (other than Redeemable Stock or any Capital Stock convertible
into any security other than such Capital Stock), to the extent such
Indebtedness is actually converted into such Capital Stock; and (C)
$20,000,000; or
(3) the Company could not incur at least $1.00 of
additional Indebtedness pursuant to the first paragraph of Section 4.08 hereof.
The foregoing provisions shall not prohibit, so long as no
Default or Event of Default shall have occurred and be continuing or shall
occur as a consequence thereof, (i) the payment of any dividend within 60 days
after the date of declaration thereof, if at such date of declaration such
payment would have complied with the provisions of this Indenture; or (ii) the
declaration and payment by a Reporting Subsidiary of the Company of dividends
on its common stock to all holders of such common stock on a pro rata basis out
of funds legally available for the payment of dividends.
The amount of any dividend or other distribution (other than
cash) shall be equal at least to the Fair Market Value of the asset(s) proposed
to be transferred by the Company or such Subsidiary of the Company, as the case
may be, pursuant to such dividend or other distribution.
The Company shall deliver to the Trustee within 90 days after
the end of each of the Company's fiscal years in which a Restricted Payment is
made under the first paragraph of this Section 4.06, an Officers' Certificate
setting forth the aggregate amount of Restricted Payments made in such fiscal
year, briefly describing the nature or type of Restricted Payments made in
such fiscal year and stating that each such Restricted Payment is permitted
by this Section 4.06.
SECTION 4.07. LIMITATION ON OTHER SENIOR SUBORDINATED
INDEBTEDNESS. The Company shall not incur, issue, create, assume, guarantee or
otherwise become liable for any Indebtedness that is contractually subordinated
in right of payment to any Senior Indebtedness and contractually senior in
right of payment to the Securities.
SECTION 4.08. LIMITATION ON ADDITIONAL INDEBTEDNESS. The
Company shall not, and shall not permit any of its Subsidiaries to, directly or
indirectly, create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable with respect to (each, an "incurrence") any
Indebtedness, including, without limitation, Acquired Indebtedness; PROVIDED,
HOWEVER, that the Company may incur Indebtedness if (i) no Default or Event of
Default shall have occurred and be continuing
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at the time or after giving effect to the incurrence of such Indebtedness and
(ii) the Consolidated Cash Flow Coverage Ratio of the Company for the four full
fiscal quarters ending immediately prior to the date of the incurrence of such
additional Indebtedness is at least 2.0 to 1.0.
The foregoing limitations set forth in this Section 4.08 shall
not apply, without duplication, to:
(i) Existing Indebtedness;
(ii) Indebtedness of (a) the Company represented by the
Securities or (b) any Subsidiary Guarantor under any Subsidiary Guaranty;
(iii) Indebtedness of the Company under the Company Credit
Facility, up to $60,000,000 in aggregate outstanding principal amount
(including the available undrawn amount of any letters of credit issued
thereunder) at any time;
(iv) Indebtedness of (a) Broan Limited under the Broan
Limited Credit Facility, PROVIDED that such Indebtedness shall not exceed at
any time $20,100,000 (Canadian) in aggregate outstanding principal amount
(including the available undrawn amount of any letters of credit issued under
such facility) and shall be secured only by Liens on assets of Broan Limited
and (b) the Company under its limited guaranty of not more than $10,000,000
(Canadian) of the Indebtedness of Broan Limited under the Broan Limited Credit
Facility;
(v) Indebtedness of Aubrey Manufacturing, Inc. or Broan
Mfg. Co., Inc. not exceeding at any time $3,000,000 in aggregate outstanding
principal amount and, if secured, secured only by Liens on certain real
property owned by such Persons;
(vi) Indebtedness of Universal-Rundle Corporation for
working capital or joint venture investment purposes not exceeding at any time
$4,000,000 in aggregate outstanding principal amount and, if secured, secured
only by Liens on assets of Universal-Rundle Corporation;
(vii) Indebtedness of the Company to any of its
Wholly-Owned Subsidiaries, PROVIDED that such Indebtedness is contractually
subordinated in right of payment to the Securities, or Indebtedness of any
Subsidiary of the Company to the Company or to any other Wholly-Owned
Subsidiary of the Company, PROVIDED that if the Company or any of its
Subsidiaries incurs Indebtedness to a Wholly-Owned Subsidiary of the Company
which, at any time after such incurrence, ceases to be a Wholly-Owned
Subsidiary, then all such Indebtedness in excess of the amount of Allowable
Subsidiary Loans shall be deemed to have been incurred at the time such former
Wholly-Owned Subsidiary ceases to be a Wholly-Owned Subsidiary of the Company;
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(viii) Indebtedness of a Subsidiary of the Company under a
guaranty of Indebtedness of the Company (other than the Securities) which
causes such Subsidiary to become a Subsidiary Guarantor pursuant to Section
4.15 hereof;
(ix) Indebtedness of the Company and its Subsidiaries
under Interest Rate Agreements, Currency Agreements and Commodity Agreements,
PROVIDED that (a) in the case of Interest Rate Agreements, such Interest Rate
Agreements relate to Indebtedness permitted to be incurred under this Indenture
and the notional principal amount of the obligations of the Company and its
Subsidiaries under such Interest Rate Agreements does not exceed the principal
amount of such Indebtedness, and (b) in the case of Currency Agreements that
relate to other Indebtedness, such Currency Agreements do not increase the
Indebtedness of the Company and its Subsidiaries outstanding at any time other
than as a result of fluctuations in foreign currency exchange rates or by
reason of fees, indemnities and compensation payable thereunder;
(x) Indebtedness of the Company under its guaranty of
payment of the principal of and interest on and certain expenses relating to
certain industrial revenue bonds issued for the benefit of Spaulding Composites
Company, Inc.;
(xi) Indebtedness of the Company and its Subsidiaries
under guaranties of Indebtedness incurred in the ordinary course of business of
suppliers, licensees, franchisees or customers;
(xii) Indebtedness incurred by the Company and its
Subsidiaries consisting of Purchase Money Obligations and Capital Lease
Obligations not exceeding at any time $15,000,000 in aggregate outstanding
principal amount;
(xiii) Acquired Indebtedness incurred by a Subsidiary of the
Company to the extent such Indebtedness could have been incurred by the Company
under the limitations set forth in the preceding paragraph, after giving PRO
FORMA effect to the acquisition of such Subsidiary by the Company;
(xiv) Indebtedness of the Company and its Subsidiaries in
respect of performance bonds, bankers' acceptances and surety or appeal bonds
provided in the ordinary course of business;
(xv) other Indebtedness of the Company and its
Subsidiaries not to exceed at any time $10,000,000 in aggregate outstanding
principal amount;
(xvi) Liens permitted under Section 4.10 hereof; and
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(xvii) Indebtedness ("Refinancing Indebtedness") created,
incurred, issued, assumed or guaranteed in exchange for, or the proceeds of
which are used to extend, refinance, renew, replace, substitute or refund
("refinance"), Indebtedness described in the preceding paragraph or referred to
in clauses (i) through (xv) above; PROVIDED, HOWEVER, that (a) the principal
amount of such Refinancing Indebtedness (or if such Refinancing Indebtedness is
issued at a price less than the principal amount thereof, the original issue
amount of such Refinancing Indebtedness), together with the principal amount of
any remaining Indebtedness under the agreement or instrument governing the
Indebtedness being refinanced, shall not exceed (1) in the case of Refinancing
Indebtedness incurred to refinance Indebtedness permitted to be incurred under
any of clauses (iii) through (vi) and (xv) above, an amount which, when added
to all other Indebtedness outstanding under such clause, shall not exceed the
aggregate amount of Indebtedness permitted to be incurred under such clause,
and (2) in the case of Refinancing Indebtedness incurred to refinance
Indebtedness permitted to be incurred under any of clauses (i), (ii) and (vii)
through (xiv) above, the aggregate amount of such Indebtedness outstanding at
the time of such refinancing, in either case, after giving effect to any
mandatory reductions in principal or other repayments required under the
agreement or instrument governing such Indebtedness; (b) except in the case of
Refinancing Indebtedness that refinances all of the Securities outstanding at
the time of such refinancing, such Refinancing Indebtedness shall be
subordinated in right of payment to the Securities at least to the same extent
as the Indebtedness to be refinanced; (c) in the case of Refinancing
Indebtedness incurred to refinance (1) any Existing Indebtedness, (2) the
Securities, or (3) Indebtedness that ranks PARI PASSU ewith or junior in right
of payment to the Securities, such Refinancing Indebtedness shall have an
Average Life and Stated Maturity equal to, or greater than, the Average Life
and Stated Maturity of the Indebtedness to be refinanced at the time of such
incurrence; (d) the proceeds of such Refinancing Indebtedness, if incurred by a
Subsidiary of the Company, shall not be used to refinance Indebtedness of the
Company or another Subsidiary of the Company; and (e) the incurrence of any
such Refinancing Indebtedness is substantially simultaneous with the
refinancing of the Indebtedness to be refinanced.
Any Indebtedness incurred pursuant to this Section
4.08 shall be subject to the limitations set forth in Section 4.07 hereof. For
purposes of this Section 4.08, the accretion of original issue discount on
Indebtedness shall not be deemed to be an incurrence of Indebtedness.
SECTION 4.09. LIMITATION ON SALE OR ISSUANCE OF CAPITAL
STOCK OF SUBSIDIARIES. The Company shall not (i) sell or otherwise convey or
dispose of any Equity Interests of any of its
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Subsidiaries except to the Company or a Wholly-Owned Subsidiary of the Company,
or as permitted by Sections 4.10 or 4.13 hereof or (ii) permit any of its
Subsidiaries to issue or sell to any Person except the Company or a
Wholly-Owned Subsidiary of the Company (a) any preferred stock of such
Subsidiaries or (b) except as permitted by Section 4.13 hereof, any other
Equity Interests of such Subsidiary.
SECTION 4.10. LIMITATION ON LIENS. The Company shall not,
and shall not permit any of its Subsidiaries to, directly or indirectly,
create, incur, assume or suffer to exist any Lien on any of its assets or
properties, now owned or hereafter acquired, or any income or profits
therefrom, securing any Indebtedness that is PARI PASSU with or contractually
subordinated in right of payment to the Securities unless the Company or such
Subsidiary, as the case may be, simultaneously executes and delivers a
supplemental indenture to this Indenture providing that (i) the Securities are
secured by such Lien equally and ratably with any and all other Indebtedness
secured by such Lien or (ii) in the case of Indebtedness contractually
subordinated in right of payment to the Securities, the Lien securing such
Indebtedness shall be subordinate in right of payment to the Lien securing the
Securities to the same extent that such Indebtedness is subordinated to the
Securities.
The foregoing limitations set forth in this Section 4.10 shall
not apply to:
(i) Liens securing Acquired Indebtedness incurred by the
Company or any Subsidiary of the Company and permitted by Section 4.08 hereof,
PROVIDED that such Liens attach solely to the assets acquired and do not extend
to or cover any property or assets of the Company or any of its Subsidiaries;
(ii) Liens securing Refinancing Indebtedness incurred to
refinance Indebtedness that has been secured by a Lien permitted under this
Indenture, PROVIDED that such Liens do not extend to or cover any property or
assets of the Company or any of its Subsidiaries not securing the Indebtedness
so refinanced;
(iii) Liens securing Existing Indebtedness; or
(iv) Permitted Liens.
SECTION 4.11. LIMITATION ON CERTAIN RESTRICTIONS AFFECTING
SUBSIDIARIES. The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, create or enter into or otherwise
cause or permit to exist or become effective any agreement with any Person that
would cause any consensual encumbrance or restriction on the ability of any
such Subsidiary to (i) pay dividends or make any other distributions on its
Capital Stock or any other interest or participation in,
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or measured by, its profits, owned by the Company or any of its Subsidiaries,
(ii) pay or repay any Indebtedness owed to the Company or any of its
Subsidiaries which owns Equity Interests in such Subsidiary, (iii) make loans
or advances to the Company or any of its Subsidiaries which owns Equity
Interests in such Subsidiary, (iv) transfer any of its properties or assets to
the Company or any of its Subsidiaries which owns Equity Interests in such
Subsidiary, or (v) guarantee any Indebtedness of the Company or any other
Subsidiary of the Company except, in each case, for such encumbrances or
restrictions existing under or by reason of (a) applicable law, (b) this
Indenture, (c) customary nonassignment provisions of any lease governing a
leasehold interest of the Company or any of its Subsidiaries, (d) any
instrument governing Indebtedness of a Person acquired by the Company or any of
its Subsidiaries at the time of such acquisition, which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person so acquired, (e) agreements existing as of the
issue date of the Securities, (f) the Company Credit Facility and (g) any
agreement effecting a refinancing of Indebtedness issued pursuant to any
agreement or instrument referred to in clause (d) or (e) above, PROVIDED that
the terms and conditions of any such encumbrances and restrictions are not
materially less favorable to the Holders than those under the agreement or
instrument evidencing the Indebtedness being refinanced.
The foregoing shall not restrict the ability of any Subsidiary
of the Company to grant any Lien to the extent otherwise permitted in this
Indenture.
SECTION 4.12. REPURCHASE UPON CHANGE OF CONTROL. Upon the
occurrence of a Change of Control, each Holder shall have the right to require
the repurchase of such Holder's Securities pursuant to the offer described
below (the "Change of Control Offer") at a purchase price equal to 101% of the
aggregate principal amount plus accrued and unpaid interest, if any, to the
date of purchase. Immediately following any Change of Control, the Company
shall mail a notice to the Trustee and to each Holder stating: (1) that the
Change of Control Offer is being made pursuant to this Section 4.12 and that
all Securities tendered will be accepted for payment; (2) the purchase price
and the purchase date (which shall be no earlier than 30 days nor later than 60
days from the date such notice is mailed) (the "Change of Control Payment
Date"); (3) that any Security not tendered will continue to accrue interest;
(4) that, unless the Company defaults in the payment thereof, all Securities
accepted for payment pursuant to the Change of Control Offer shall cease to
accrue interest on and after the Change of Control Payment Date; (5) that
Holders electing to have any Securities purchased pursuant to a Change of
Control Offer will be required to surrender the Securities to be purchased to
the Paying Agent at the address specified in the notice prior to the close of
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business on the third Business Day preceding the Change of Control Payment
Date; (6) that Holders will be entitled to withdraw their election on the terms
and conditions set forth in such notice; and (7) that Holders whose Securities
are being purchased only in part will be issued new Securities equal in
principal amount to the unpurchased portion of the Securities surrendered;
provided that each Security purchased and each such new Security issued shall
be in a principal amount of $1,000 or an integral multiple thereof.
On the Change of Control Payment Date, the Company shall (1)
accept for payment all Securities or portions thereof tendered, pursuant to the
Change of Control Offer, (2) deposit with the Paying Agent money sufficient to
pay the purchase price of all Securities or portions thereof so tendered, and
(3) deliver, or cause to be delivered to the Trustee, all Securities so
tendered together with an Officers' Certificate specifying the Securities or
portions thereof tendered to the Company. The Paying Agent shall promptly
mail, to each Holder of Securities so tendered, payment in an amount equal to
the purchase price for such Securities, and the Trustee shall promptly
authenticate and mail to such Holder a new Security equal in principal amount
to any unpurchased portion of the Securities surrendered; provided that each
such new Security shall be in a principal amount of $1,000 or an integral
multiple thereof. The Company will publicly announce the results of the Change
of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
A "Change of Control" shall be deemed to have occurred at such
time as any of the following events shall occur:
(i) there is consummated any consolidation or
merger of the Company with or into another corporation, or all
or substantially all of the assets of the Company are sold,
leased or otherwise transferred or conveyed to another Person
(other than pursuant to a bona fide pledge of assets to secure
Indebtedness made in accordance with this Indenture), and the
holders of the Company's common stock outstanding immediately
prior to such consolidation, merger, sale, lease or other
transfer or conveyance or one or more Exempt Persons do not
hold, directly or indirectly, at least a majority of the
common stock of the continuing or surviving corporation
immediately after such consolidation or merger or at least a
majority of the Equity Interests of such Person;
(ii) there is filed a report on Schedule 13D or
14D-1 (or any successor schedule, form or report) pursuant to
the Exchange Act disclosing that any person (defined, solely
for the purposes of the Change of
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Control provision, as the term "person" is used in Section
13(d)(3) or Section 14(d)(2) of the Exchange Act or any
successor provision to either of the foregoing) has become the
beneficial owner (as the term "beneficial owner" is defined
under Rule 13d-3 or any successor rule or regulation
promulgated under the Exchange Act) of 50% or more of the
combined voting power of all the Company's then outstanding
securities entitled to vote generally for the election of
directors; PROVIDED, HOWEVER, that a person shall not be deemed
to be the beneficial owner of, or to own beneficially, (A) any
securities tendered pursuant to a tender or exchange offer made
by or on behalf of such person or any of such person's
Affiliates or associates until such tendered securities are
accepted for purchase or exchange thereunder, or (B) any
securities if such beneficial ownership (1) arises solely as a
result of a revocable proxy delivered in response to a proxy or
consent solicitation made pursuant to the applicable rules and
regulations under the Exchange Act, and (2) is not also then
reportable on Schedule 13D (or any successor schedule) under
the Exchange Act; or
(iii) during any consecutive two-year period,
individuals who at the beginning of such period constituted
the Board of Directors of the Company (together with any new
directors whose election by such Board of Directors or whose
nomination for election by the stockholders of the Company was
approved by a vote of 66-2/3% of the directors then still in
office who were either directors at the beginning of such
period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then in
office.
Notwithstanding anything to the contrary set forth in this
Section 4.12, a Change of Control shall not be deemed to have occurred under
clause (ii) of the immediately preceding paragraph solely by virtue of the
Company, any Subsidiary of the Company, any employee stock ownership plan or
any other employee benefit plan of the Company or any such Subsidiary, or any
other Person holding securities of the Company for or pursuant to the terms of
any such employee benefit plan or an Exempt Person, filing or becoming
obligated to file a report under or in response to Schedule 13D or Schedule
14D-1 (or any successor schedule, form or report) under the Exchange Act
disclosing beneficial ownership by it of securities of the Company, whether in
excess of 50% of the combined voting power of the Company's then outstanding
securities entitled to vote generally for the election of directors or
otherwise.
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SECTION 4.13. LIMITATION ON USE OF PROCEEDS FROM ASSET SALES. The
Company shall not, and shall not permit any of its Subsidiaries to, directly or
indirectly, consummate any Asset Sale unless (i) the Company or such
Subsidiary, as the case may be, receives consideration at the time of any such
Asset Sale having a value (including the Fair Market Value of any non-cash
consideration) at least equal to the Fair Market Value of the securities or
assets being sold or otherwise disposed of, (ii) at least 75% of the
consideration from such Asset Sale is received at the closing in the form of
cash, Cash Equivalents (together with cash, "Cash Proceeds") or indebtedness
for borrowed money of the Company or such Subsidiary that is assumed by the
transferee of any such assets or any such indebtedness of any Subsidiary of the
Company whose stock is purchased by the transferee, and (iii) with respect to
any Asset Sale involving the Equity Interests of any Wholly-Owned Subsidiary of
the Company or, in the case of subclause (b) below, any Subsidiary of the
Company that was a Wholly-Owned Subsidiary of the Company prior to the first
public offering referred to in such subclause (b), (a) the Company or another
Wholly-Owned Subsidiary of the Company shall in such Asset Sale sell all of the
Equity Interests it owns of such Subsidiary or receive Cash Proceeds at the
closing of such Asset Sale in an amount not less than 75% of the Fair Market
Value of all Equity Interests of such Subsidiary owned by the Company or such
other Wholly-Owned Subsidiary of the Company, whether or not sold, or (b) the
Company or another Subsidiary of the Company may sell, or such Subsidiary may
issue, in such Asset Sale not more than 20% of the shares of common stock of
such Subsidiary in one or more public offerings for cash only if, as of the
date of such Asset Sale, after giving PRO FORMA effect to such Asset Sale by
excluding, in the determination of Consolidated Cash Flow of the Company for
the four full consecutive fiscal quarters ending immediately prior to the date
of such Asset Sale, that portion of the Consolidated Cash Flow accounted for by
such Subsidiary equal to the portion of the common stock of such Subsidiary
being sold or issued in such Asset Sale, the Company could incur at least $1.00
of additional Indebtedness pursuant to the first paragraph of Section 4.08
hereof. Notwithstanding anything to the contrary in the preceding sentence, the
sale by the Company of all Equity Interests of Dixieline Lumber Company or all
or substantially all of the assets of Dixieline Lumber Company shall not be
deemed an Asset Sale except to the extent that the Company or any of its
Subsidiaries makes after the issue date of the Securities any Investment in
Dixieline Lumber Company, in which event the aggregate amount of all such
Investments shall be deemed Net Cash Proceeds without regard to the $5,000,000
exception set forth in the definition of the term Asset Sale in this Indenture.
Any Net Cash Proceeds (a) in excess of the amount of cash applied by the
Company or any Subsidiary of the Company during the period beginning six months
prior to the date of the Asset Sale (but not prior to the issue date of the
Securities) and ending 12 months
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after the date of such Asset Sale to purchase any business that is, or any
properties and assets used primarily in, the same or a related business as
those owned and operated by the Company and its Subsidiaries as of the issue
date of the Securities or at the date of such Asset Sale and (b) not applied
within 12 months after the date of the Asset Sale to permanently reduce Senior
Indebtedness shall be deemed to be "Excess Proceeds." When the aggregate
amount of Excess Proceeds exceeds $10,000,000, the Company shall make an offer
(the "Excess Proceeds Offer") to apply the Excess Proceeds to purchase the
Securities. The Excess Proceeds Offer must be in cash in an amount equal to
100% of the principal amount plus accrued and unpaid interest to the date fixed
for the closing of such offer, substantially in accordance with the procedures
for a Change of Control Offer described in Section 4.12 hereof. To the extent
that the aggregate amount of Securities tendered pursuant to the Excess
Proceeds Offer is less than the Excess Proceeds, the Company may use the
remaining Excess Proceeds for general corporate purposes and such amounts shall
no longer be deemed Excess Proceeds. If the aggregate principal amount of
Securities surrendered by Holders exceeds the amount of Excess Proceeds, the
Trustee shall select the Securities to be purchased on a pro rata basis,
subject to the limitation on the authorized denominations of the Securities.
Notwithstanding the limitations set forth in the immediately
preceding paragraph:
(i) the Company and its Subsidiaries may, in the ordinary
course of business, sell, lease, or otherwise transfer or dispose of assets
acquired and held for resale in the ordinary course of business;
(ii) the Company may sell, lease, or otherwise
transfer or dispose of assets pursuant to and in accordance with the
provisions of Article 5 hereof;
(iii) the Company and its Subsidiaries may sell,
lease or otherwise transfer or dispose of damaged, worn out or obsolete
property in the ordinary course of business or other property no longer
necessary for the proper conduct of their businesses; and
(iv) the Company and its Subsidiaries may abandon assets
or properties which are no longer useful in their businesses and cannot be
sold.
SECTION 4.14. LIMITATION ON TRANSACTIONS WITH AFFILIATES.
Except as otherwise permitted by this Indenture, neither the Company nor any of
its Subsidiaries shall make any Investment, loan, advance, guaranty or capital
contribution to, or for the benefit of, or sell, lease or otherwise transfer or
dispose of any of its properties or assets to, or for the benefit of, or
purchase or lease any property or assets from, or enter
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into or amend any contract, agreement or understanding with, or for the benefit
of, any Affiliate of the Company or any of its Subsidiaries, unless (i) such
transaction or series of transactions is in the best interests of the Company
or such Subsidiary based on all relevant facts and circumstances; (ii) such
transaction or series of transactions is fair to the Company or such Subsidiary
and on terms that are no less favorable to the Company or such Subsidiary, as
the case may be, than those that could have been obtained in a comparable
transaction on an arms' length basis from a Person that is not an Affiliate;
and (iii) (a) with respect to a transaction or series of related transactions
involving aggregate payments in excess of $1,000,000, the Board of Directors
and a majority of the Disinterested Directors shall approve such transaction or
series of transactions by a Board Resolution evidencing their determination
that such transaction or series of transactions comply with clauses (i) and
(ii) above, and (b) with respect to a transaction or series of transactions
involving aggregate payments equal to or greater than $10,000,000, the Company
receives a written opinion from a nationally recognized investment bank or,
with respect to a transaction requiring the valuation of real property, a
nationally recognized real estate appraisal firm, that such transaction or
series of transactions is fair to the Company from a financial point of view.
The foregoing limitation shall not apply to: (i) an
Investment to be made by the Company pursuant to a commitment authorized by the
Board of Directors of the Company prior to the issue date of the Securities in
Ecological Engineering Associates, L.P. in an amount not to exceed $2,100,000
(including such Investments made prior to the issue date of the Securities);
(ii) any payment of money or issuance of securities by the Company or any
Subsidiary of the Company pursuant to employment agreements or arrangements and
employee benefit plans, including reimbursement or advancement of out-of-pocket
expenses and directors' and officers' liability insurance; (iii) reasonable and
customary payments and other benefits (including indemnification) PROVIDED to
directors for service on the Board of Directors of the Company or any of its
Subsidiaries and reimbursement of expenses related thereto; or (iv)
transactions between the Company and any Subsidiary of the Company, or between
one Subsidiary of the Company and another Subsidiary of the Company, PROVIDED
that not more than 5% of such Subsidiary is owned by any Affiliate of the
Company or any of its Subsidiaries (other than the Company or a Wholly-Owned
Subsidiary of the Company).
SECTION 4.15. LIMITATION ON GUARANTIES BY SUBSIDIARIES.
The Company shall not permit any Subsidiary of the Company, directly or
indirectly, to assume, guarantee or in any other manner become liable with
respect to any Indebtedness of the Company or any Subsidiary Guarantor (other
than the
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Securities), unless such Subsidiary is a Subsidiary Guarantor or simultaneously
executes and delivers (i) to the Company and the Trustee a supplemental
indenture to this Indenture providing for a Subsidiary Guaranty of the
Securities by such Subsidiary and any other Subsidiary Guarantors by adding an
Article 12 to this Indenture, in the form of Exhibit B hereto, which Subsidiary
Guaranty shall be subordinated to Guarantor Senior Indebtedness of such
Subsidiary Guarantor to the extent set forth in such Exhibit B; and (ii) to the
Trustee a Subsidiary Guaranty substantially in the form of Exhibit C hereto.
No Lien on the properties or assets of any Subsidiary of the
Company permitted by Section 4.10 hereof shall constitute a guaranty of the
payment of any Indebtedness of the Company for purposes of this Section 4.15.
SECTION 4.16. PAYMENT OF TAXES AND OTHER CLAIMS. The
Company shall pay or discharge or cause to be paid or discharged, before any
penalty accrues thereon, (i) all material taxes, assessments and governmental
charges levied or imposed upon the Company or any of its Subsidiaries upon the
income, profits or property of the Company or any of its Subsidiaries and (ii)
all material lawful claims for labor, materials and supplies which, if unpaid,
would by law become a Lien upon the property of the Company or any of its
Subsidiaries; provided that none of the Company or any of its Subsidiaries
shall be required to pay or discharge or cause to be paid or discharged any
such tax, assessment, charge or claims the amount, applicability or validity of
which is being contested in good faith by appropriate proceedings and for which
adequate provision has been made or where the failure to effect such payment or
discharge is not adverse in any material respect to the Holders.
SECTION 4.17. CORPORATE EXISTENCE. Subject to Article 5
hereof, the Company will do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence and the
corporate, partnership or other existence of any of its Subsidiaries in
accordance with the respective organizational documents of such Subsidiary and
the rights (charter and statutory), licenses and franchises of the Company and
its Subsidiaries; PROVIDED, HOWEVER, that the Company shall not be required to
preserve any such right, license or franchise, or the corporate, partnership or
other existence of any such Subsidiary, if the Board of Directors of the
Company shall determine that the preservation thereof is no longer desirable in
the conduct of the business of the Company and its Subsidiaries taken as a
whole and that the loss thereof is not adverse in any material respect to the
Holders.
SECTION 4.18. MAINTENANCE OF PROPERTIES AND INSURANCE. The
Company shall cause all material properties owned by or leased to it or any of
its Subsidiaries and used or useful in the
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conduct of its business or the business of such Subsidiary to be maintained and
kept in normal condition, repair and working order and supplied with all
necessary equipment and shall cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section 4.18 shall prevent the Company or any of
its Subsidiaries from discontinuing the maintenance of any such properties, if
such discontinuance is desirable in the conduct of its business or the business
of such Subsidiary.
The Company shall provide or cause to be provided, for itself
and any of its Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds customarily insured against by corporations
similarly situated and owning like properties, including, but not limited to,
public liability insurance, with reputable insurers in such amounts with such
deductibles and by such methods as shall be customary for corporations
similarly situated in the industry.
SECTION 4.19. STAY, EXTENSION AND USURY LAWS. The Company
covenants (to the extent it may lawfully do so) that it will not at any time
insist upon, plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay, extension or usury law wherever enacted, now or at any
time hereafter in force, which may affect the covenants or the performance of
this Indenture; and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that
it will not, by resort to any such law, hinder, delay or impede the execution
of any power herein granted to the Trustee, but will suffer and permit the
execution of every such power as though no such law has been enacted.
SECTION 4.20. INVESTMENT COMPANY ACT. The Company shall not
become an investment company subject to registration under the Investment
Company Act of 1940, as amended.
SECTION 4.21. PAYMENTS FOR CONSENTS. The Company shall not,
and shall not permit any of its Subsidiaries to, directly or indirectly, pay or
cause to be paid any consideration whether by way of interest, fee or
otherwise, to any Holder of any Securities for or as an inducement to any
consent, waiver or amendment of any of the terms or provisions of this
Indenture or the Securities unless such consideration is offered to be paid or
agreed to be paid to all Holders of the Securities which so consent, waive or
agree to amend in the time frame set forth in solicitation documents relating
to such consent, waiver or agreement.
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SECTION 4.22. COVENANT TO COMPLY WITH SECURITIES LAWS UPON
PURCHASE OF SECURITIES. In connection with any offer to purchase or purchase
of Securities under Section 4.12 or 4.13 hereof, the Company shall (i) comply
with Rule 14e-1 under the Exchange Act, and (ii) otherwise comply with all
Federal and state securities laws so as to permit the rights and obligations
under Sections 4.12 and 4.13 hereof to be exercised in the time and in the
manner specified in Sections 4.12 and 4.13 hereof.
ARTICLE 5
SUCCESSOR CORPORATION
---------------------
SECTION 5.01. WHEN THE COMPANY MAY MERGE OR TRANSFER ASSETS,
ETC.
(a) The Company shall not consolidate with, merge with or
into, or transfer all or substantially all of its assets (as an entirety or
substantially as an entirety in one transaction or a series of related
transactions) to, any Person or permit any Person to merge with or into it, or
permit any of its Subsidiaries to enter into any such transaction or
transactions if such transaction or transactions in the aggregate would result
in a transfer of all or substantially all of the assets of the Company and its
Subsidiaries on a consolidated basis, unless:
(1) the Company shall be the continuing Person, or
the Person, if other than the Company, formed by such consolidation or into
which the Company is merged or to which the properties and assets of the
Company or of the Company and its Subsidiaries on a consolidated basis,
substantially as an entirety, are transferred shall be a corporation organized
and existing under the laws of the United States or any state thereof or the
District of Columbia and shall expressly assume, by a supplemental indenture,
executed and delivered to the Trustee, in form and substance satisfactory to
the Trustee, all the obligations of the Company under the Securities and this
Indenture, and this Indenture remains in full force and effect;
(2) immediately before and immediately after giving
effect to such transaction, no Event of Default and no Default shall have
occurred and be continuing;
(3) the Person which is formed by or survives such
consolidation or merger or to which such assets are transferred (the "surviving
entity"), after giving pro forma effect to such transaction, could incur $1.00
of additional Indebtedness under the first paragraph of Section 4.08 hereof;
(4) immediately after giving effect to such
transaction on a pro forma basis the Consolidated Net Worth of the surviving
entity shall be equal to or greater than the
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Consolidated Net Worth of the Company immediately before such transaction; and
(5) each Subsidiary Guarantor, if any, unless it
is the other party to the applicable transaction described above or its
Subsidiary Guaranty, after giving effect to such transaction, is to be released
in accordance with the terms hereof and of such Subsidiary Guaranty, shall have
confirmed by supplemental indenture that its Subsidiary Guaranty shall apply to
the obligations of the Company or the surviving entity under this Indenture.
In connection with any such consolidation, merger or transfer,
the Company shall deliver, or cause to be delivered, to the Trustee, in form
and substance reasonably satisfactory to the Trustee, an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger or
transfer and the supplemental indenture in respect thereto comply with this
Section 5.01(a) and that all conditions precedent provided for in this
Indenture relating to such transactions have been complied with.
(b) A Subsidiary Guarantor shall not, and the Company
shall not permit a Subsidiary Guarantor to, consolidate with, or merge with or
into, any Person unless its Subsidiary Guaranty, after giving effect to such
merger or consolidation, is to be released in accordance with the terms hereof
and of such Subsidiary Guaranty or:
(1) such Subsidiary Guarantor or the Company
shall be the continuing person or the resulting or surviving person in such
transaction ("the surviving entity") or the surviving entity shall be a
corporation organized and existing under the laws of the United States or any
state thereof or the District of Columbia and shall expressly assume, by a
supplemental indenture executed and delivered to the Trustee, in form and
substance reasonably satisfactory to the Trustee, all of the obligations of
such Subsidiary Guarantor under this Indenture, as modified by such
supplemental indenture, and its Subsidiary Guaranty; and
(2) immediately before and immediately after
giving effect to such merger or consolidation, no Event of Default and no
Default shall have occurred and be continuing.
In connection with any such consolidation or merger,
the Company shall deliver, or caused to be delivered, to the Trustee, in form
and substance reasonably satisfactory to the Trustee, an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation or merger, and
if a supplemental indenture is required in connection with such transaction,
such supplemental indenture comply with this Section 5.01(b) and that
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all conditions precedent provided for in this Indenture relating to such
transaction have been complied with.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED. Upon any
consolidation or merger, or any transfer of all or substantially all of the
assets of the Company and its Subsidiaries on a consolidated basis, in
accordance with Section 5.01 hereof, the successor Person formed by such
consolidation or into which the Company or any Subsidiary Guarantor, as the
case may be, is merged or the successor Person to which such transfer is made
shall succeed to, and be substituted for, and may exercise every right and
power of, the Company or such Subsidiary Guarantor, as the case may be, under
this Indenture and, in the case of such Subsidiary Guarantor, under such
Subsidiary Guaranty, with the same effect as if such successor Person had been
named as the Company in this Indenture or as such Subsidiary Guarantor in this
Indenture and such Subsidiary Guaranty, as the case may be, and when a
successor Person assumes all the obligations of its predecessor under this
Indenture, the Securities or a Subsidiary Guaranty, the predecessor shall be
released from those obligations; PROVIDED, HOWEVER, that in the case of a
transfer by lease, the predecessor shall not be released from the payment of
principal of, premium, if any, and interest on the Securities.
ARTICLE 6
DEFAULTS AND REMEDIES
---------------------
SECTION 6.01. EVENTS OF DEFAULT. An "Event of Default"
occurs if one of the following shall have occurred and be continuing:
(1) the Company defaults in the payment, when due and
payable, of (i) interest on any Security and the default continues for a period
of 30 days, or (ii) the principal of or premium, if any, on any Securities when
the same becomes due and payable at maturity, by acceleration, on the
Redemption Date, on the Change of Control Payment Date, on any payment date
respecting an Excess Proceeds Offer or otherwise;
(2) the Company fails to comply with any of its covenants
or agreements under Section 4.06, Section 4.12 or Article 5 hereof;
(3) the Company fails to comply with any of its covenants or
agreements in the Securities or this Indenture (other than those referred to in
clause (1) or (2) above), or any Subsidiary Guarantor fails to comply with any
of its covenants or agreements in this Indenture or its Subsidiary Guaranty,
and such
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failure continues for the period and after receipt by the Company of the notice
specified below;
(4) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
indebtedness for money borrowed by the Company or any of its Subsidiaries (or
the payment of which is guaranteed by the Company or any of its Subsidiaries,
excluding, however, the guaranty of the Company referred to in clause (x) of
the second paragraph of Section 4.08 hereof) whether such indebtedness or
guaranty is now existing or hereafter created, if such default shall constitute
a failure to pay any portion of the principal of such indebtedness when due and
payable or if as a result of such default the maturity of such indebtedness has
been accelerated prior to its stated maturity and, in either case, the
principal amount of such indebtedness, together with the principal amount of
any other such indebtedness for money borrowed which has not been paid when due
and payable or the maturity of which has been accelerated as a result of such
default, aggregates $10,000,000 or more;
(5) the Company or any of its Material Subsidiaries pursuant
to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case or proceeding;
(B) consents to the entry of an order for relief
against it in an involuntary case or
proceeding;
(C) consents to the appointment of a Custodian of
it or for all or substantially all of its
property;
(D) makes a general assignment for the benefit of
its creditors; or
(E) admits in writing its inability to pay its
debts generally as they become due;
(6) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against the Company or any of
its Material Subsidiaries in an involuntary
case or proceeding;
(B) appoints a Custodian of the Company or any of
its Material Subsidiaries for all or
substantially all of its properties;
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(C) order the liquidation of the Company or any
of its Material Subsidiaries;
(D) and in each case the order or decree remains
unstayed and in effect for 60 days;
(7) final judgments for the payment of money which in the
aggregate exceed $10,000,000 shall be rendered against the Company or any of
its Subsidiaries by a court and shall remain unstayed or undischarged for a
period of 60 days; or
(8) any Subsidiary Guaranty ceases to be in full force
and effect or is declared null and void, or any Subsidiary Guarantor denies
that it has any further liability under any Subsidiary Guaranty or gives notice
to such effect (in each case other than by reason of the termination of this
Indenture or the release of such Subsidiary Guaranty in accordance with the
terms of this Indenture and such Subsidiary Guaranty) and such condition shall
have continued for the period and after receipt by the Company of the notice
specified below.
"Bankruptcy Law" means Title 11, United States Code, or any
similar Federal or state law for the relief of debtors. "Custodian" means any
receiver, trustee, assignee, liquidator, sequestrator, custodian or similar
official under any Bankruptcy Law.
A Default under clause (3) or (8) above is not an Event of
Default until the Trustee notifies the Company or the Holders of at least 25%
in aggregate principal amount of the Securities at the time outstanding notify
the Company and the Trustee, of the Default and the Company does not cure such
Default within 30 days after receipt of such notice. Any such notice must
specify the Default, demand that it be remedied and state that such notice is a
"Notice of Default".
In the case of any Event of Default (other than as a result of
a failure to comply with Section 4.12 hereof) pursuant to the provisions of
this Section 6.01 occurring by reason of any willful action (or inaction) taken
(or not taken) by or on behalf of the Company with the intention of avoiding
payment of the premium which the Company would have to pay if the Company then
had elected to redeem the Securities pursuant to paragraph 6 of the Securities,
an equivalent premium shall also become and be immediately due and payable to
the extent permitted by law, anything in this Indenture or in the Securities
contained to the contrary notwithstanding.
In the case of an Event of Default as a result of a failure to
comply with Section 4.12 hereof occurring by reason of any willful action (or
inaction) taken (or not taken) by or on behalf of the Company with the
intention of avoiding payment of
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the premium which the Company would have to pay pursuant to Section 4.12
hereof, such premium shall also become and be immediately due and payable at
such time as the principal and interest on the Securities become due and
payable pursuant to Section 6.02 hereof to the extent permitted by law,
anything in this Indenture or in the Securities contained to the contrary
notwithstanding.
SECTION 6.02. ACCELERATION. If any Event of Default (other
than an Event of Default specified in clause (5) or (6) of Section 6.01 hereof)
occurs and is continuing, the Trustee may, by notice to the Company, or the
Holders of at least 25% in aggregate principal amount of the Securities then
outstanding may, by notice to the Company and the Trustee (each, an
"Acceleration Notice"), and the Trustee shall, upon the request of such
Holders, declare the principal of the Securities, premium, if any, and accrued
interest on the Securities to be due and payable (i) immediately, if no amount
is outstanding and no commitment is in effect under Specified Senior
Indebtedness, or (ii) if any amount is outstanding or any commitment is in
effect under Specified Senior Indebtedness, upon the earlier of five Business
Days after delivery of the Acceleration Notice to the Company and the agent of
the holders of Specified Senior Indebtedness by the Trustee or the Holders, as
the case may be, or acceleration of the Specified Senior Indebtedness, and
thereupon the Trustee may, at its discretion, proceed to protect and enforce
the rights of the Holders by appropriate judicial proceedings. If any Event or
Default under clause (5) or (6) of Section 6.01 hereof occurs, all principal,
premium, if any, and interest on the Securities then outstanding shall IPSO
FACTO become and be immediately due and payable without declaration or other
act on the part of the Trustee or any Holder. The Holders of at least a
majority in aggregate principal amount of the Securities then outstanding by
written notice to the Trustee and to the Company may rescind an acceleration
and its consequences (except an acceleration due to a default in payment of the
principal or interest on any of the Securities) if all existing Events of
Default have been cured or waived except non-payment of principal or interest
that has become due solely because of the acceleration.
SECTION 6.03. OTHER REMEDIES. If any Event of Default occurs
and is continuing, the Trustee may pursue any available remedy by proceeding at
law or in equity to collect the payment of principal of, premium, if any, or
interest on the Securities or to enforce the performance of any provision of
the Securities or this Indenture.
The Trustee may maintain a proceeding even if the Trustee does
not possess any of the Securities or does not produce any of the Securities in
the proceeding. A delay or omission by the Trustee or any Securityholder in
exercising any
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right or remedy accruing upon an Event of Default shall not impair the right or
remedy or constitute a waiver of, or acquiescence in, the Event of Default. No
remedy is exclusive of any other remedy. All available remedies are
cumulative.
SECTION 6.04. WAIVER OF PAST DEFAULTS. The Holders of not
less than a majority in aggregate principal amount of the Securities at the
time outstanding, by notice to the Trustee (and without notice to any other
Securityholder), may waive an existing Default or Event of Default and its
consequences except (i) an Event of Default described in Section 6.01(1)
hereof, or (ii) a Default in respect of a provision that under Section 9.02
hereof cannot be amended without the consent of each Securityholder affected.
When a Default or Event of Default is waived, it is deemed cured and shall
cease to exist, but no such waiver shall extend to any subsequent or other
Default or Event of Default or impair any consequent right.
SECTION 6.05. CONTROL BY MAJORITY. The Holders of not less
than a majority in aggregate principal amount of the Securities at the time
outstanding may direct, by an instrument or concurrent instruments in writing
delivered to the Trustee, the time, method and place of conducting any
proceeding for any remedy available to the Trustee or of exercising any trust
or power conferred on the Trustee. However, the Trustee may refuse to follow
any direction that conflicts with law or this Indenture or that the Trustee
determines in good faith is unduly prejudicial to the rights of other
Securityholders or would involve the Trustee in personal liability. The
Trustee may take any other action deemed proper by the Trustee which is not
inconsistent with such direction.
SECTION 6.06. LIMITATION ON SUITS. Except as provided in
Section 6.07 hereof, a Securityholder may not pursue any remedy with respect to
this Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice stating
that an Event of Default is continuing;
(2) the Holders of at least 25% in aggregate principal amount
of the Securities at the time outstanding make a written request to the Trustee
to pursue the remedy;
(3) such Holder or Holders offer to the Trustee reasonable
security or indemnity against any loss, liability or expense satisfactory to
the Trustee;
(4) the Trustee does not comply with the request within 30
days after receipt of the notice, the request and the offer of security or
indemnity; and
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(5) the Holders of a majority in aggregate principal amount
of the Securities at the time outstanding do not give the Trustee a direction
inconsistent with the request during such 30-day period.
A Securityholder may not use this Indenture to prejudice the
rights of any other Securityholder or to obtain a preference or priority over
any other Securityholder.
SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of any Holder
to receive payment of the principal amount, premium, if any, or interest, in
respect of the Securities held by such Holder, on or after the respective due
dates expressed in the Securities, any Redemption Date, any Change in Control
Payment Date or any payment date respecting an Excess Proceeds Offer, or to
bring suit for the enforcement of any such payment on or after such respective
dates or the right to convert, shall not be impaired or affected adversely
without the consent of each such Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE. If an Event of
Default described in Section 6.01(1) hereof occurs and is continuing, the
Trustee may recover judgment in its own name and as trustee of an express trust
against the Company or any other obligor on the Securities for the whole amount
owing with respect to the Securities and the amounts provided for in Section
7.07 hereof.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. In case of
the pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceeding relative to the Company or the property of the Company or to any
other obligor on the Securities or the property of such obligor, the Trustee
shall be entitled and empowered, by intervention in such proceeding or
otherwise:
(1) to file and prove a claim for the whole amount of the
principal amount, premium, if any, and interest on the Securities and to file
such other papers or documents as may be necessary or advisable in order to
have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel) and of the Holders allowed in such judicial proceeding; and
(2) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
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and any Custodian in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay
the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 7.07 hereof.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting
the Securities or the rights of any Holder thereof, or to authorize the Trustee
to vote in respect of the claim of any Holder in any such proceeding.
SECTION 6.10. PRIORITIES. If the Trustee collects any money
pursuant to this Article 6, it shall pay out the money in the following order:
FIRST: to the Trustee for amounts due under Section 7.07
hereof;
SECOND: to Securityholders for amounts due and unpaid
on the Securities for the principal amount, Redemption Price or interest, if
any, as the case may be, ratably, without preference or priority of any kind,
according to such amounts due and payable on the Securities; and
THIRD: the balance, if any, to the Company or to the
Person or Persons otherwise entitled thereto.
The Trustee may fix a record date and payment date for any
payment to Securityholders pursuant to this Section 6.10.
SECTION 6.11. UNDERTAKING FOR COSTS. In any suit for the
enforcement of any right or remedy under this Indenture or in any suit against
the Trustee for any action taken or omitted by it as Trustee, a court in its
discretion may require the filing by any party litigant (other than the
Trustee) in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees and expenses, against any party litigant in the suit, having
due regard to the merits and good faith of the claims or defenses made by the
party litigant. This Section 6.11 does not apply to a suit by the Trustee, a
suit by a Holder pursuant to Section 6.07 hereof or a suit by Holders of more
than 10% in aggregate principal amount of the Securities at the time
outstanding.
SECTION 6.12 RESTORATION OF RIGHTS AND REMEDIES. If the
Trustee or any Holder has instituted any proceeding to
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enforce any right or remedy under this Indenture, any Security or any
Subsidiary Guaranty and such proceeding has been discontinued or abandoned for
any reason, or has been determined adversely to the Trustee or to such Holder,
then and in every such case the Company, each Subsidiary Guarantor, if any, the
Trustee and the Holders shall, subject to any determination in such proceeding,
be restored severally and respectively to their former positions hereunder, and
thereafter all rights and remedies of the Trustee and the Holders shall
continue as though no such proceeding had been instituted.
ARTICLE 7
TRUSTEE
-------
SECTION 7.01. DUTIES OF TRUSTEE.
(1) If an Event of Default has occurred and is continuing
(and is not cured), the Trustee shall exercise the rights and powers vested in
it by this Indenture and use the same degree of care and skill in its exercise
as a prudent person would exercise or use under the circumstances in the
conduct of his own affairs.
(2) Except during the continuance of an Event of Default:
(A) the Trustee need perform only those duties
that are specifically set forth in this
Indenture and not others and no implied
covenants or obligations shall be read into
this Indenture against the Trustee and the
duties of the Trustee shall be determined
solely by the express provisions of this
Indenture; and
(B) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the
truth of the statements and the correctness
of the opinions expressed therein, upon
certificates or opinions furnished to the
Trustee and conforming to the requirements of
this Indenture. However, in the case of any
such certificate or opinion which by any
provision hereof are specifically required to
be furnished to the Trustee, the Trustee
shall examine the certificates and opinions
to determine whether or not they conform to
the requirements of this Indenture.
The Trustee shall not be liable for any interest on any money
received by it.
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(3) The Trustee may not be relieved from liability for
its own negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(A) this paragraph (3) does not limit the effect
of paragraph (2) of this Section 7.01;
(B) the Trustee shall not be liable for any error
of judgment made in good faith by a Trust
Officer unless it is proved that the Trustee
was negligent in ascertaining the pertinent
facts; and
(C) the Trustee shall not be liable with respect
to any action it takes or omits to take in
good faith in accordance with a direction
received by it pursuant to Sections 6.04 or
6.05 hereof.
(4) Whether or not expressly so provided, every provision
of this Indenture that in any way relates to the Trustee is subject to
paragraphs (1), (2), (3), (5) and (7) of this Section 7.01 and Section 7.02.
(5) The Trustee may refuse to perform any duty or
exercise any right or power or extend or risk its own funds or otherwise incur
any financial liability unless it receives reasonable security or indemnity
satisfactory to it against any loss, liability or expense.
(6) Money held by the Trustee in trust hereunder need not
be segregated from other funds except to the extent required by law. The
Trustee shall be under no liability for interest on any money held by it
hereunder.
(7) The Trustee shall not be deemed to have knowledge of
the existence of any fact or matter unless such fact or matter is known to one
of its Trust Officers.
SECTION 7.02. RIGHTS OF TRUSTEE.
(1) The Trustee may rely on any document believed by it
to be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in any such document but
the Trustee may, in its discretion, make such further inquiry or investigation
into such facts or matters stated in any such document as it sees fit.
(2) Before the Trustee acts or refrains from acting, it
may require an Officers' Certificate and an Opinion of Counsel. The Trustee
shall not be liable for any action it takes
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or omits to take in good faith in reliance on such Officers' Certificate and
Opinion of Counsel.
(3) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(4) The Trustee shall not be liable for any action it
takes or omits to take in good faith which it believes to be authorized or
within its rights or powers.
(5) The Trustee may consult with counsel of its selection
and the advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken, suffered
or omitted by it hereunder in good faith and in reliance thereon.
(6) The Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless such Holders
shall have offered to the Trustee reasonable security and indemnity
satisfactory to it against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in
its individual or any other capacity may become the owner or pledgee of
Securities and may otherwise deal with the Company or its Affiliates with the
same rights it would have if it were not Trustee. Any Paying Agent, Registrar
or co-registrar may do the same with like rights. However, the Trustee must
comply with Section 7.10 and 7.11 hereof.
SECTION 7.04. TRUSTEE'S DISCLAIMER. The Trustee makes no
representation as to the validity or adequacy of this Indenture or the
Securities, it shall not be accountable for the Company's use of the proceeds
from the Securities, and it shall not be responsible for any statement in the
registration statement for the Securities under the Securities Act of 1933, as
amended (the "Securities Act") (other than statements contained in the Form T-1
filed with the SEC under the TIA) or in this Indenture or the Securities (other
than its certificate of authentication), or the determination as to which
beneficial owners are entitled to receive any notices hereunder.
SECTION 7.05. NOTICE OF DEFAULTS. If a Default occurs and
is continuing and if it is known to the Trustee, the Trustee shall mail to each
Securityholder as their names and addresses appear on the Security Register
notice of the Default within 90 days after it becomes known to the Trustee
unless such Default shall have been cured or waived. Except in the case of a
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Default described in Section 6.01(1) hereof, the Trustee may withhold such
notice if and so long as a committee of Trust Officers in good faith determines
that the withholding of such notice is in the interests of Securityholders.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS. Within 60 days
after each _________ beginning with _____________ 199_, the Trustee shall mail
to each Securityholder a brief report dated as of such __________ in accordance
with and to the extent required under Section 313 of the TIA.
A copy of each report at the time of its mailing to
Securityholders shall be filed with the Company, the SEC and each stock
exchange on which the Securities are listed. The Company agrees to promptly
notify the Trustee whenever the Securities become listed on any stock exchange
and of any delisting thereof.
SECTION 7.07. COMPENSATION AND INDEMNITY. The Company
agrees:
(1) To pay to the Trustee from time to time such
compensation as shall be agreed in writing between the Company and the Trustee
for all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee of
an express trust);
(2) To reimburse the Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by the Trustee
in accordance with any provision of this Indenture (including the reasonable
compensation and the expenses, disbursements and advances of its agents and
counsel and other persons not regularly in its employ), including all
reasonable expenses, disbursements and advances incurred or made by the Trustee
in connection with any membership on any creditor's committee, except any such
expense, disbursement or advance as may be attributable to its negligence or
bad faith; and
(3) To indemnify the Trustee, its officers, directors and
shareholders, for, and to hold it harmless against, any and all loss, liability
or expense, incurred without negligence or bad faith on its part, arising out
of or in connection with the acceptance or administration of this trust,
including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its powers
or duties hereunder.
The Trustee shall have a claim and lien prior to the
Securities as to all property and funds held by it hereunder for any amount
owing it or any predecessor Trustee pursuant to this Section 7.07, except with
respect to funds held in trust for the payment of principal of, premium, if
any, or interest on particular Securities.
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The Company's payment obligations pursuant to this Section
7.07 and shall survive the discharge of this Indenture. When the Trustee
renders services or incurs expenses after the occurrence of a Default specified
in Section 6.01(5) or (6) hereof, the compensation for services and expenses
are intended to constitute expenses of administration under any Bankruptcy Law.
SECTION 7.08. REPLACEMENT OF TRUSTEE. The Trustee may
resign by so notifying the Company in writing at least 30 days prior to the
date of the proposed resignation; PROVIDED, HOWEVER, no such resignation shall
be effective until a successor Trustee has accepted its appointment pursuant to
this Section 7.08. The Holders of a majority in aggregate principal amount of
the Securities at the time outstanding may remove the Trustee by so notifying
the Trustee in writing and may appoint a successor Trustee subject to the
consent of the Company. The Trustee shall resign if:
(1) the Trustee fails to comply with Section 7.10 hereof;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or public officer takes charge of the
Trustee or its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint, by a
Board Resolution, a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. Subject to payment of all amounts owing to the
Trustee under Section 7.07 hereof and subject further to its lien under Section
7.07, the retiring Trustee shall promptly transfer all property held by it as
Trustee to the successor Trustee.
If a successor Trustee does not take office within 30 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company or the Holders of a majority in aggregate principal amount of the
Securities at the time outstanding may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
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If the Trustee fails to comply with Section 7.10 hereof, any
Securityholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets (including this Trusteeship) to,
another corporation, the resulting, surviving or transferee corporation without
any further act shall be the successor Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION. The Trustee
shall at all times satisfy the requirements of TIA Section 310(a)(1) and (5).
The Trustee shall have a combined capital and surplus of at least $50,000,000
as set forth in its most recent published annual report of condition. The
Trustee shall comply with TIA Section 310(b). In determining whether the
Trustee has conflicting interests as defined in TIA Section 310(b)(1), the
provisions contained in the proviso to TIA Section 310(b)(1) shall be deemed
incorporated herein.
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE
COMPANY. If and when the Trustee shall be or become a creditor of the Company
(or any other obligor under the Securities), the Trustee shall be subject to
the provisions of the TIA regarding the collection of claims against the
Company (or any such other obligor).
ARTICLE 8
DISCHARGE OF INDENTURE
----------------------
SECTION 8.01. DISCHARGE OF LIABILITY ON SECURITIES. When (i)
the Company delivers to the Trustee all outstanding Securities (other than
Securities replaced pursuant to Section 2.07 hereof or Securities which are
purchased pursuant to Section 4.12 or 4.13 hereof or Securities for whose
payment money has theretofore been held in trust and thereafter repaid to the
Company, as provided in Section 8.02 hereof) for cancellation or (ii) the
Company irrevocably deposits with the Trustee money and/or direct non-callable
obligations of, or non-callable obligations guaranteed by, the United States of
America for the payment of which guarantee or obligation the full faith and
credit of the United States is pledged ("U.S. Government Obligations"),
maturing as to principal and interest in such amounts and at such times as are
sufficient, without consideration of any reinvestment of such interest, to pay
principal of, premium, if any, and interest on, the outstanding Securities
(other than Securities replaced pursuant to Section 2.07 hereof) to maturity or
redemption, as the case may be, in accordance with the terms of this Indenture
and the Securities
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issued hereunder, and if in either case the Company pays all other sums payable
hereunder by the Company, then this Indenture shall, subject to Sections 2.06
and 7.07 hereof, and each Subsidiary Guaranty, if any, shall except as to the
obligations of the Subsidiary Guarantor thereunder in respect of such Sections,
cease to be of further effect. The Trustee shall join in the execution of any
documents prepared by the Company acknowledging satisfaction and discharge of
this Indenture and each such Subsidiary Guaranty on written demand of the
Company accompanied by an Officers' Certificate and Opinion of Counsel and at
the cost and expense of the Company. In the case of any such deposit pursuant
to clause (ii) above, the obligation to pay the principal of and any interest
on such Securities and the obligations under Section 7.07 hereof shall continue
until the Securities are paid in full (provided that the provisions of Section
7.07 hereof shall survive the payment of the Securities and discharge of the
Indenture). The Company will be entitled to make such a deposit if the Company
has delivered to the Trustee (i)(A) a ruling directed to the Trustee from the
Internal Revenue Service to the effect that the holders of the Securities will
not recognize income, gain or loss for federal income tax purposes as a result
of such deposit and defeasance of this Indenture and will be subject to federal
income tax on the same amount and in the same manner and at the same times, as
would have been the case if such deposit and defeasance had not occurred, or
(B) an opinion of counsel, reasonably satisfactory to the Trustee, to the same
effect as clause (i)(A) above, (ii) an Opinion of Counsel (who may be an
employee of or counsel for the Company), and an Officers' Certificate in
accordance with this Indenture and (iii) a report from a nationally recognized
firm of independent public accountants stating that the amount of such deposit
is sufficient to pay and discharge the amounts described in clause (ii) above
with respect to the Securities.
If the Trustee or Paying Agent is unable to apply any money in
accordance with this Section 8.01 by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the obligations of the Company and each Subsidiary
Guarantor under this Indenture and the Securities shall be revived and
reinstated as though no deposit had occurred pursuant to this Section 8.01
until such time as the Trustee or Paying Agent is permitted to apply all such
money in accordance with this Section 8.01; PROVIDED, HOWEVER, that if the
Company or any Subsidiary Guarantor, as the case may be, makes any payment of
interest on or principal of any Security following the reinstatement of its
obligations, the Company or any Subsidiary Guarantor, as the case may be, shall
be subrogated to the rights of the Holders of such Securities to receive such
payment from the money held by the Trustee or Paying Agent.
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SECTION 8.02. REPAYMENT TO THE COMPANY OR SUBSIDIARY
GUARANTORS. Subject to Section 7.07 hereof, the Trustee and the Paying Agent
shall promptly pay to the Company, or if deposited with the Trustee by any
Subsidiary Guarantor, to such Subsidiary Guarantor, upon written request any
excess money or U.S. Government Obligations held by them at any time. The
Trustee and the Paying Agent shall return to the Company or any Subsidiary
Guarantor, as the case may be, upon written request any money held by them for
the payment of any amount with respect to the Securities that remains unclaimed
for two years; PROVIDED, HOWEVER, that the Trustee or such Paying Agent, before
being required to make such return, may, in the name and at the expense of the
Company, cause to be published once in THE WALL STREET JOURNAL or another daily
newspaper of national circulation or mail to each such Holder notice that such
money or securities remains unclaimed and that, after a date specified therein,
which shall not be less than 30 days from the date of such mailing, any
unclaimed money or securities then remaining will be returned to the Company.
After return to the Company or any Subsidiary Guarantor, Holders entitled to
the money must look to the Company for payment as general creditors unless an
applicable abandoned property law designates another Person, and all liability
of the Trustee and such Paying Agent with respect to such money shall cease.
ARTICLE 9
AMENDMENTS
----------
SECTION 9.01. WITHOUT CONSENT OF HOLDERS. From time to time,
when authorized by Board Resolutions of each of them, the Company and the
Trustee, without notice to or the consent of the Holders of the Securities
issued hereunder, may amend or supplement this Indenture or the Securities as
follows:
(1) to cure any ambiguity, defect or inconsistency;
(2) to comply with Article 5 hereof;
(3) to provide for uncertificated Securities in addition
to or in place of certificated Securities so long as such uncertificated
Securities are in registered form for purposes of the Internal Revenue Code of
1986, as amended;
(4) to make any other change that does not adversely
affect the rights of any Securityholder;
(5) to comply with any requirement of the SEC in
connection with the qualification of this Indenture under the TIA; or
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(6) to add any Subsidiary of the Company as a Subsidiary
Guarantor pursuant to the terms of Article 12 hereof.
SECTION 9.02. WITH CONSENT OF HOLDERS. With the written
consent of the Holders of at least a majority in aggregate principal amount of
the Securities at the time outstanding, the Company and the Trustee may amend
this Indenture or the Securities or may waive future compliance by the Company
or any Subsidiary Guarantor with any provisions of this Indenture, the
Securities or such Subsidiary Guarantor's Subsidiary Guaranty. However,
without the consent of each Securityholder affected, a waiver or an amendment
to this Indenture or the Securities may not:
(1) reduce the percentage of principal amount of the
Securities whose Holders must consent to an amendment or waiver; or
(2) make any change to the Stated Maturity of the
principal of, premium, if any, or any interest on the Securities or any
Redemption Price thereof, or impair the right to institute suit for the
enforcement of any such payment or make any Security payable in money or
securities other than that stated in the Security; or
(3) make any change in Article 10 hereof or, if
applicable, Article 12 hereof that adversely affects the rights of any Holder
of Securities or any change to any other section hereof that adversely affects
the rights of any Holder of Securities under Article 10 hereof or, if
applicable, Article 12 hereof; or
(4) waive a default in the payment of the principal of,
premium, if any, or interest on, any Security; or
(5) make any change in the provisions of Sections 4.12,
4.13, 6.04 or 6.07 hereof;
(6) release any Subsidiary Guarantor from any of its
obligations under its Subsidiary Guaranty or this Indenture other than in
compliance with Section 12.08 hereof; or
(7) make any change to Sections 9.01 or 9.02 hereof.
It shall not be necessary for the consent of the Holders under
this Section 9.02 to approve the particular form of any proposed amendment, but
it shall be sufficient if such consent approves the substance thereof.
In the event that certain Holders are willing to defer or
waive certain obligations of the Company hereunder with respect to Securities
held by them, such deferral or waiver shall
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not be deemed to affect any other Holder who receives the subject payment or
performance in a timely manner.
After an amendment or waiver under this Section 9.02 becomes
effective, the Company shall mail to each Holder a notice briefly describing
the amendment or waiver. Any failure of the Company to mail such notice, or
any defect therein, shall not, however, in any way impair or affect the
validity of any such amendment or waiver.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT. Every
supplemental indenture executed pursuant to this Article 9 shall comply with
the TIA.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS, WAIVERS AND
ACTIONS. Until an amendment, waiver or other action by Holders becomes
effective, a consent to it or any other action by a Holder of a Security
hereunder is a continuing consent by the Holder and every subsequent Holder of
that Security or portion of the Security that evidences the same obligation as
the consenting Holder's Security, even if notation of the consent, waiver or
action is not made on the Security. However, any such Holder or subsequent
Holder may revoke the consent, waiver or action as to such Holder's Security or
portion of the Security if the Trustee receives the notice of revocation before
the consent of the requisite aggregate principal amount of the Securities then
outstanding has been obtained and not revoked. After an amendment, waiver or
action becomes effective, it shall bind every Securityholder, except as
provided in Section 9.02 hereof.
The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Holders entitled to consent to any
amendment or waiver. If a record date is fixed, then, notwithstanding the
first two sentences of the immediately preceding paragraph, those Persons who
were Holders at such record date (or their duly designated proxies), and only
those Persons, shall be entitled to consent to such amendment, supplement or
waiver or to revoke any consent previously given, whether or not such Persons
continue to be Holders after such record date. No such consent shall be valid
or effective for more than 90 days after such record date.
SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES.
Securities authenticated and made available for delivery after the execution of
any supplemental indenture pursuant to this Article 9 may, and shall, if
required by the Trustee, bear a notation in form approved by the Trustee as to
any matter provided for in such supplemental indenture. If the Company shall
so determine, new Securities so modified as to conform, in the opinion of the
Trustee and the Board of Directors, to any such supplemental indenture may be
prepared and executed by the
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Company and authenticated and made available for delivery by the Trustee in
exchange for outstanding Securities.
SECTION 9.06. TRUSTEE TO SIGN SUPPLEMENTAL INDENTURES. The
Trustee shall sign any supplemental indenture authorized pursuant to this
Article 9 if the supplemental indenture does not adversely affect the rights,
duties, liabilities or immunities of the Trustee. If it does, the Trustee may,
but need not, sign it. In signing such amendment the Trustee shall be entitled
to receive, and shall be fully protected in relying upon, an Officers'
Certificate and Opinion of Counsel stating that such supplemental indenture is
authorized or permitted by this Indenture.
SECTION 9.07. EFFECT OF SUPPLEMENTAL INDENTURES. Upon the
execution of any supplemental indenture under this Article 9, this Indenture
shall be modified in accordance therewith, and such supplemental indenture
shall form a part of this Indenture for all purposes; and every Holder of
Securities theretofore or thereafter authenticated and made available for
delivery hereunder shall be bound thereby.
ARTICLE 10
SUBORDINATION
-------------
SECTION 10.01. AGREEMENT TO SUBORDINATE. The Company agrees,
and each Securityholder by accepting a Security agrees, that the indebtedness
evidenced by the Securities (including principal, premium, if any, and
interest) is subordinated in right of payment, to the extent and in the manner
provided in this Article 10 to the prior payment in full of all Senior
Indebtedness, and that the subordination is for the benefit of the holders of
the Senior Indebtedness.
SECTION 10.02. CERTAIN DEFINITIONS.
"Senior Indebtedness" means the principal of, premium, if any,
and interest on any Indebtedness of the Company, whether outstanding on the
issue date of the Securities or hereafter created, incurred, assumed or
guaranteed (unless, in the case of any particular Indebtedness, the instrument
under which such Indebtedness is created, incurred, assumed or guaranteed
expressly provides that such Indebtedness shall not be senior or superior in
right of payment to the Securities), including, without limiting the generality
of the foregoing, the principal of, premium, if any, and interest (including
interest accruing after the commencement of any proceeding under Bankruptcy
Law, whether or not such interest is an allowable claim) on, and all other
obligations in respect of, Specified Senior Indebtedness but excluding: (i) any
Indebtedness represented by the Company's 7-1/2% Convertible Debentures due
2006; (ii) any Indebtedness of
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the Company to any of its Subsidiaries or other Affiliates; (iii) any
Indebtedness hereafter incurred by the Company that is contractually
subordinated in right of payment to any Senior Indebtedness; (iv) amounts owed
for goods, materials or services purchased in the ordinary course of business
or for compensation to employees; (v) any Indebtedness in respect of any
Capital Lease Obligation created, incurred, assumed or guaranteed prior to or,
unless designated in the instrument evidencing such Capital Lease Obligation as
"Senior Indebtedness", after the issue date of the Securities; (vi)
Indebtedness represented by Redeemable Stock; (vii) Indebtedness which when
incurred is without recourse to the Company; (viii) Indebtedness of the Company
under the guaranty referred to in clause (x) of the second paragraph of Section
4.08 hereof and any Indebtedness incurred by the Company in any refinancing,
replacement or settlement thereof and (ix) Indebtedness of the Company and
NorFleet, Inc. under their guaranties of the obligations under the Indebtedness
secured by the building and real property where the Company's headquarters are
located and other nearby real property.
"Specified Senior Indebtedness" means (i) any Indebtedness
outstanding under the Company Credit Facility and all fees, expenses,
indemnities and other monetary obligations in respect thereof and (ii) any
other Senior Indebtedness and all fees, expenses, indemnities and other
monetary obligations in respect thereof, under a single credit facility or
agreement between the Company and one or more banks or other lenders or under
separate credit facilities or agreements between the Company and one or more
banks or other lenders, entered into substantially at the same time and having
substantially the same terms, which, at the time of creation thereof or
determination, had or has an aggregate principal amount outstanding, together
with any unutilized commitments to lend, of at least $15,000,000 and is
specifically designated in the instrument or instruments evidencing such Senior
Indebtedness as "Specified Senior Indebtedness."
SECTION 10.03. LIQUIDATION; DISSOLUTION; BANKRUPTCY. Upon
any (i) bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property, (ii) assignment for the
benefit of creditors or any marshalling of the assets and liabilities of the
Company or (iii) distribution to creditors of the Company in a liquidation or
dissolution of the Company:
(1) holders of Senior Indebtedness shall be
entitled to receive payment in full in cash or, at the option
of the holders of such Senior Indebtedness, cash equivalents
of such Senior Indebtedness (including, in the case of
Specified Senior Indebtedness, interest accruing after the
commencement of any such proceeding
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at the rate specified in the instrument evidencing the applicable
Specified Senior Indebtedness, whether or not a claim therefor is
allowed, to the date of payment of such Specified Senior Indebtedness)
before Securityholders shall be entitled to receive any payment of
principal of, premium, if any, or interest on the Securities; and
(2) until the Senior Indebtedness (as provided in
subsection (1) above) is paid in full in cash or, at the
option of the holders of the Senior Indebtedness, cash
equivalents, any distribution to which Securityholders would
be entitled but for this Article 10 shall be made to holders
of Senior Indebtedness, as their interests may appear, except
that Securityholders may receive securities that (i) are
subordinated to Senior Indebtedness and to any securities
issued in exchange for Senior Indebtedness to at least the
same extent as the Securities are subordinated to Senior
Indebtedness and (ii) have no maturity or mandatory prepayment
prior to the final maturity of any securities issued in
exchange for Senior Indebtedness.
For purposes of this Article 10, a distribution may consist of
cash, securities or other property, by set-off or otherwise.
The consolidation of the Company with, or the merger of the
Company into, another corporation or the liquidation or dissolution of the
Company following the conveyance or transfer of its properties and assets
substantially as an entirety to another Person upon the terms and conditions
set forth in Article 5 hereof shall not be deemed a dissolution, winding up,
liquidation or reorganization, for the purposes of this Section 10.03 if the
corporation formed by such consolidation or into which the Company is merged or
the Person which acquires by conveyance or transfer such properties and assets
substantially as an entirety, as the case may be, shall, as a part of such
consolidation, merger, conveyance or transfer comply with the conditions set
forth in Article 5 hereof.
SECTION 10.04. DEFAULT ON SENIOR INDEBTEDNESS.
The Company may not pay principal of, premium, if any, or
interest on the Securities and may not make any deposit pursuant to the
provisions of Article 8 hereof or acquire any Securities for cash or property
if:
(1) a default in the payment of the principal of,
premium, if any, interest, fees or expenses on any Senior
Indebtedness occurs and is continuing (a "Payment Default")
and the Trustee or the Paying Agent
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receives a notice of the default from a Person who may give it
pursuant to Section 10.12 hereof; or
(2) a default, other than a Payment Default, on
any Specified Senior Indebtedness occurs and is continuing
that then permits the holders (or the agent) of such Specified
Senior Indebtedness to accelerate its maturity immediately and
without any further notice (other than notice of such
permitted acceleration) or grace periods (a "Non-Payment
Default"), and such default is either the subject of judicial
proceedings or the Trustee or the Paying Agent receives a
notice of the default from a Person who may give it pursuant
to Section 10.12 hereof.
The Trustee or the Paying Agent shall resume payments
(including any missed payments) on the Securities and may make any deposit
pursuant to the provisions of Article 8 hereof or acquire them (i) in the case
of a Payment Default, when the default is cured or waived or the Senior
Indebtedness to which such default relates is discharged, or when the right
under this Indenture to prevent any such payment is waived by written notice to
the Trustee by or on behalf of the holders of such Senior Indebtedness, or (ii)
in the case of a Non-Payment Default, at the end of the period (the "Payment
Blockage Period") ending on the earlier of (a) when the default is cured or
waived, the Specified Senior Indebtedness to which such default relates is
discharged or such Payment Blockage Period is terminated by written notice to
the Trustee by or on behalf of the holders of such Specified Senior
Indebtedness, or (b) the 179th day after the receipt by the Trustee or the
Paying Agent of the notice commencing such Payment Blockage Period.
Not more than one Payment Blockage Period may be commenced
with respect to the Securities during any period of 360 consecutive days, and
there shall be a period of at least 181 consecutive days in each period of 360
consecutive days when no Payment Blockage Period is in effect. In addition, no
default which existed or was continuing on the date of the commencement of any
Payment Blockage Period with respect to the Specified Senior Indebtedness and
which was known to the holders (or the agent) of such Specified Senior
Indebtedness on such date of commencement, shall be made the basis for the
commencement of a second Payment Blockage Period by the holders (or the agent)
of such Specified Senior Indebtedness whether or not within a period of 360
consecutive days unless such default shall have been cured or waived for a
period of not less than 90 consecutive days.
SECTION 10.05. NO SUSPENSION OF REMEDIES. Nothing contained
in this Article 10 shall limit the right of the Trustee or the Holders of
Securities to take any action to accelerate the
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maturity of the Securities or to pursue any other rights or remedies thereunder
or under applicable law; PROVIDED, HOWEVER, that all Senior Indebtedness of the
Company then or thereafter due and payable, shall first be paid in full in cash
or, at the option of the holders of the Senior Indebtedness, cash equivalents
before the Holders shall be entitled to receive any payment of principal of,
premium, if any, or interest on the Securities. Notwithstanding the foregoing,
any acceleration of the maturity of the Securities or other remedies pursued
hereunder or under applicable law due to the default by the Company to make a
payment required by Section 6.01(1) hereof resulting from the operation of
Section 10.04 hereof shall be automatically rescinded or discontinued to the
extent permitted by applicable law and all Events of Default which permitted
the acceleration of the Securities or the pursuit of other remedies hereunder
or under applicable law shall be deemed to be automatically and permanently
cured to the extent permitted by applicable law if (i) the payment or payments
the omission of which gave rise to the Event of Default is or are made within
179 days after the date on which the Trustee or the Paying Agent received
notice of the default or defaults on the Senior Indebtedness and (ii) at the
time of such automatic rescission no other Event of Default or Default shall
have occurred and be continuing. Such automatic rescission shall be effective
as of the date the conditions specified in clauses (i) and (ii) above are
satisfied.
SECTION 10.06. WHEN DISTRIBUTION MUST BE PAID OVER. In the
event that the Company shall make any payment to the Trustee on account of the
principal of, premium, if any, or interest on the Securities at a time when
such payment is prohibited by Section 10.03, 10.04 or 10.05 hereof, such
payment shall be held by the Trustee, in trust for the benefit of, and shall be
paid forthwith over and delivered, upon written request, to, the holders of
Senior Indebtedness (pro rata as to each of such holders on the basis of the
respective amounts of Senior Indebtedness held by them) or their
representative, as their respective interests may appear, for application to
the payment of all Senior Indebtedness in full in accordance with their terms,
after giving effect to any concurrent payment or distribution to or for the
holders of Senior Indebtedness.
If a distribution is made to Securityholders that because of
this Article 10 should not have been made to them, the Securityholders who
receive the distribution shall hold it in trust for holders of Senior
Indebtedness (pro rata as to each of such holder on the basis of the respective
amounts of Senior Indebtedness held by them) or their representative, as their
respective interests may appear, for application to the payment of all Senior
Indebtedness remaining unpaid to the extent necessary to pay all Senior
Indebtedness in full in accordance
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with their terms, after giving effect to any concurrent payment or distribution
to or for the holders of Senior Indebtedness.
With respect to the holders of Senior Indebtedness, the
Trustee undertakes to perform only such obligations on the part of the Trustee
as are specifically set forth in this Article 10, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to
owe any fiduciary duty to the holders of Senior Indebtedness.
SECTION 10.07. NOTICE BY THE COMPANY. The Company shall
promptly notify the Trustee and the Paying Agent of any facts known to the
Company that would cause a payment of principal of or interest on the
Securities to violate this Article 10, but failure to give such notice shall
not affect the subordination of the Securities to the Senior Indebtedness
provided in this Article 10. Nothing in this Article 10 shall apply to claims
of, or payments to, the Trustee under or pursuant to Section 7.07 hereof.
SECTION 10.08. SUBROGATION. After all Senior Indebtedness is
paid in full in cash or, at the option of the holders of Senior Indebtedness,
cash equivalents and until the Securities are paid in full, Securityholders
shall be subrogated to the rights of holders of Senior Indebtedness to receive
distributions applicable to Senior Indebtedness to the extent that
distributions otherwise payable to Securityholders have been applied to the
payment of Senior Indebtedness.
If any payment or distribution to which the Holders would
otherwise have been entitled but for the provisions of this Article 10 shall
have been applied pursuant to the provisions of this Article 10 to the payment
of all amounts payable in respect of the Senior Indebtedness of the Company,
then and in such case, the Holders shall be entitled to receive from the
holders of such Senior Indebtedness at the time outstanding any payment or
distributions received by such holders of Senior Indebtedness in excess of the
amount sufficient to pay all amounts payable in respect of the Senior
Indebtedness of the Company in full in cash or, at the option of the holders of
Senior Indebtedness, cash equivalents.
SECTION 10.09. RELATIVE RIGHTS. This Article 10 defines the
relative rights of Securityholders and holders of Senior Indebtedness. Nothing
in this Indenture shall:
(1) impair, as between the Company and Securityholders,
the obligation of the Company, which is absolute and unconditional, to
pay principal of and interest on the Securities in accordance with
their terms;
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(2) affect the relative rights of Securityholders and
creditors of the Company other than holders of Senior Indebtedness; or
(3) prevent the Trustee or any Securityholder from
exercising its available remedies upon a Default or Event of Default,
subject to the rights of holders of Senior Indebtedness under this
Article 10.
If the Company fails because of this Article 10 to pay
principal of or interest on a Security on the due date, the failure is still a
Default or Event of Default.
The provisions of this Article 10 shall continue to be
effective or be reinstated, as the case may be, if at any time any payment of
any Senior Indebtedness is rescinded or must otherwise be returned by any
holder of Senior Indebtedness upon the insolvency, bankruptcy or reorganization
of the Company or otherwise, all as though such payment had not been made.
SECTION 10.10. NO WAIVER OF SUBORDINATION PROVISIONS. No
right of any holder of Senior Indebtedness to enforce the subordination of the
Indebtedness evidenced by the Securities shall be impaired by any act or
failure to act by the Company or by its failure to comply with this Indenture.
The holders of Senior Indebtedness may, at any time and from
time to time, without the consent of or notice to the Trustee or the Holders of
the Securities and without incurring responsibility to the Holders of the
Securities and without impairing or releasing the subordination provided in
this Article 10 or the obligations hereunder of the Holders of the Securities
to the holders of Senior Indebtedness, do any one or more of the following:
(i) except as otherwise provided in Section 4.08 hereof, change the manner,
place or terms of payment or extend the time of payment of, or renew or alter,
Senior Indebtedness or an instrument evidencing the same or any agreement under
which Senior Indebtedness is outstanding; (ii) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing
Senior Indebtedness; (iii) release any person liable in any manner for the
collection or payment of Senior Indebtedness; and (iv) exercise or refrain from
exercising any rights against the Company or any other person.
SECTION 10.11. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to holders of Senior
Indebtedness, the distribution may be made and the notice given to their
representative.
Upon any payment or distribution of assets of the Company
referred to in this Article 10, the Trustee and the Securityholders shall be
entitled to rely upon any order or
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decree made by any court of competent jurisdiction or upon any certificate of
such representative or of the liquidating trustee or agent or other person
making any distribution to the Trustee or to the Securityholders for the
purpose of ascertaining the persons entitled to participate in such
distribution, the holders of the Senior Indebtedness and other Indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article
10.
SECTION 10.12. RIGHTS OF TRUSTEE AND PAYING AGENT. The
Trustee or Paying Agent shall not at any time be charged with the knowledge of
the existence of any facts which would prohibit the making of any payment to or
by the Trustee unless and until the Trustee or Paying Agent shall have received
written notice thereof from the holders (or the agent) of Senior Indebtedness;
and, prior to the receipt of any such written notice, the Trustee or Paying
Agent shall be entitled to assume conclusively that no such facts exist.
Unless at least two Business Days prior to the date on which by the terms of
this Indenture any monies are to be deposited by the Company with the Trustee
or any Paying Agent (whether or not in trust) for any purpose (including,
without limitation, the payment of either the principal of or the interest on
any Security), the Trustee or Paying Agent shall have received with respect to
such monies the notice provided for in the preceding sentence, the Trustee or
Paying Agent shall have full power and authority to receive such monies and to
apply the same to the purpose for which they were received, and shall not be
affected by any notice to the contrary which may be received by it on or after
such date. The foregoing shall not apply to the Paying Agent if the Company is
acting as Paying Agent.
The Trustee in its individual or any other capacity may hold
Senior Indebtedness with the same rights it would have if it were not Trustee.
SECTION 10.13. AUTHORIZATION TO EFFECT SUBORDINATION. Each
Holder of a Security by his acceptance thereof authorizes and directs the
Trustee on his behalf to take such action as may be necessary or appropriate to
effectuate the subordination as provided in this Article 10, and appoints the
Trustee as attorney-in-fact for any and all purposes.
SECTION 10.14. MISCELLANEOUS.
(a) All rights and interests under this Article 10 of the
holders of Senior Indebtedness, and all agreements and obligations of the
Holders, the Trustee and the Company under this Article 10, shall remain in
full force and effect irrespective of:
(i) any exchange, release or non-perfection of any Lien
securing Senior Indebtedness, or any release or amendment or
waiver of or consent to departure from
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any guaranty, for all or any of the Senior Indebtedness; or
(ii) any other circumstance that might otherwise
constitute a defense available to, or a discharge of the
Company in respect of Senior Indebtedness or the Trustee in
respect of this Indenture.
(b) The provisions of this Article 10 constitute a
continuing agreement and shall (i) remain in full force and effect until the
Senior Indebtedness shall have been paid in full, (ii) be binding upon the
holders and the Trustee, the Company and their successors and assigns, and
(iii) inure to the benefit of and enforceable by each other holder of Senior
Indebtedness and their successors, transferees and assigns.
ARTICLE 11
MISCELLANEOUS
-------------
SECTION 11.01. TRUST INDENTURE ACT CONTROLS. If any
provision of this Indenture limits, qualifies or conflicts with the duties
imposed by operation of subsection (c) of Section 318 of the TIA, the imposed
duties shall control. The provisions of Sections 310 to 317, inclusive, of the
TIA that impose duties on any Person (including provisions automatically deemed
included in an indenture unless the indenture provides that such provisions are
excluded) are a part of and govern this Indenture, except as, and to the
extent, expressly excluded from this Indenture, as permitted by the TIA.
SECTION 11.02. NOTICES. Any notice or communication shall be
in writing and delivered in Person or mailed by first-class mail, postage
prepaid, addressed as follows:
if to the Company:
Nortek, Inc.
50 Kennedy Plaza
Providence, RI 02903-2360
Attention: Mr. Richard L. Bready
if to any Subsidiary Guarantor:
[Name of Guarantor]
c/o Nortek Inc.
50 Kennedy Plaza
Providence, RI 02903-2360
Attention: _________________
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if to the Trustee:
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 12110
Attention: Corporate Trust Administration
The Company or the Trustee by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
Any notice or communication given to a Securityholder shall be
mailed to the Securityholder at the Securityholder's address as it appears on
the registration books of the Registrar and shall be sufficiently given if so
mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder
or any defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not received by the addressee.
If the Company mails a notice or communication to the
Securityholders, it shall mail a copy to the Trustee and each Registrar, Paying
Agent or co-registrar.
SECTION 11.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.
Securityholders may communicate pursuant to TIA Section 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar, the Paying Agent and
anyone else shall have the protection of TIA Section 312(c).
SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS
PRECEDENT. Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate stating that, in the opinion
of the signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of
such counsel, all such conditions precedent have been complied with.
SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each Officers' Certificate and Opinion of Counsel with
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respect to compliance with a covenant or condition provided for in this
Indenture shall include:
(1) a statement that each Person making such Officers'
Certificate or Opinion of Counsel has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such Officers' Certificate or Opinion of Counsel are based;
(3) a statement that, in the opinion of each such Person,
he has made such examination or investigation as is necessary to enable such
Person to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement that, in the opinion of such Person, such
covenant or condition has been complied with; PROVIDED, HOWEVER, that with
respect to matters of fact, an Opinion of Counsel may rely on an Officers'
Certificate or certificates of public officials.
SECTION 11.06. SEPARABILITY CLAUSE. In case any provision in
this Indenture, the Securities or any Subsidiary Guaranty shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
SECTION 11.07. RULES BY TRUSTEE, PAYING AGENT AND REGISTRAR.
The Trustee may make reasonable rules for action by or a meeting of
Securityholders. The Registrar and Paying Agent may make reasonable rules for
their functions.
SECTION 11.08. LEGAL HOLIDAYS. A "Legal Holiday" is any day
other than a Business Day. If any specified date (including a date for giving
notice) is a Legal Holiday, the action shall be taken on the next succeeding
day that is not a Legal Holiday, and, if the action to be taken on such date is
a payment in respect of the Securities, no principal, premium, if any, or
interest installment shall accrue for the intervening period.
SECTION 11.09. GOVERNING LAW. THIS INDENTURE, THE SECURITIES
AND EACH SUBSIDIARY GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND
PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAWS.
SECTION 11.10. NO RECOURSE AGAINST OTHERS. A director,
officer, employee or stockholder, as such, of the
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Company or any Subsidiary Guarantor shall not have any liability for any
obligations of the Company under the Securities or this Indenture or for any
obligations of such Subsidiary Guarantor under its Subsidiary Guaranty or for
any claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder shall waive and release
all such liability. The waiver and release shall be part of the consideration
for the issue of the Securities.
SECTION 11.11. SUCCESSORS. All agreements of the Company and
any Subsidiary Guarantor in this Indenture, the Securities and any Subsidiary
Guaranties shall bind their successors. All agreements of the Trustee in this
Indenture shall bind its successor.
SECTION 11.12. MULTIPLE ORIGINALS. The parties may sign any
number of copies of this Indenture. Each signed copy shall be an original, but
all of them together represent the same agreement. One signed copy is enough
to prove this Indenture.
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SIGNATURES
IN WITNESS WHEREOF, the undersigned, being duly authorized,
have executed this Indenture on behalf of the respective parties hereto as of
the date first above written.
NORTEK, INC.
By: __________________________________
Name: ___________________________
Title: __________________________
STATE STREET BANK AND TRUST COMPANY
By: __________________________________
Name: ___________________________
Title: __________________________
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EXHIBIT A
[FORM OF FACE OF SECURITY]
NORTEK, INC.
___% SENIOR SUBORDINATED NOTE DUE ________________, 2004
CUSIP NO.____
$_____
Nortek, Inc., a Delaware corporation ("the Company", which
term includes any successor corporation under the Indenture hereinafter
referred to), promises to pay to ______ or registered assigns, the principal
amount of ______ Dollars on _________, 2004.
Interest Payment Dates: ___________ and ____________,
commencing ______________, 1994.
Record Dates: ____________ and _____________.
Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof which further provisions shall for all
purposes have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officers and a facsimile
of its corporate seal to be affixed hereto or imprinted hereon.
NORTEK, INC.
By:________________________
Name:
Title:
[SEAL]
Dated:___________________
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred
to in the within-mentioned Indenture.
[ ]
By:___________________________
Authorized Officer
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[FORMS OF REVERSE SIDE OF SECURITY]
___% Senior Subordinated Note due ___________ __, 2004
1. INTEREST
Nortek, Inc., a Delaware corporation ("the Company"), promises
to pay interest on the principal amount of this Security at the rate per annum
shown above. Interest will be payable semi-annually on each interest payment
date, commencing ________________, 1994. Interest on the Securities will
accrue from the most recent date to which interest has been paid, or if no
interest has been paid, from _____________ __, 1994; provided that, if there is
no existing Event of Default in the payment of interest and if this Security is
authenticated between a record date referred to on the face hereof and the next
succeeding interest payment date, interest shall accrue from such interest
payment date. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
The Company shall pay interest on overdue principal and
interest on overdue installments of interest, to the extent lawful, at 2% above
the rate per annum borne by the Securities.
2. METHOD OF PAYMENT
The Company will pay interest on the securities (except
defaulted interest) to the persons who are registered Holders at the close of
business on _____________ and _____________ immediately preceding the interest
payment date even if the Security is cancelled on registration of transfer or
registration of exchange (other than with respect to the purchase of Securities
pursuant to an offer to purchase securities made in connection with Section
4.12 or 4.13 of the Indenture after such record date). Holders must surrender
Securities to a Paying Agent to collect principal payments. The Company will
pay principal, premium, if any, and interest in money of the United States that
at the time of payment is legal tender for payment of public and private debts.
However, the Company may pay principal and interest by its check payable in
such money. It may mail an interest payment to a Securityholder's address as it
appears on the Register.
3. PAYING AGENT AND REGISTRAR
Initially, the Trustee will act as Paying Agent and Registrar.
The Company may appoint and change any Paying Agent or Registrar without
notice, other than notice to the Trustee. The Company or any Subsidiary or an
Affiliate of either of them may act as Paying Agent, Registrar or coregistrar.
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4. INDENTURE
The Company issued the Securities under an Indenture, dated as
of ___________ __, 1994 (the "Indenture"), between the Company and the
Trustee. The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended and as in effect on the date of the Indenture (the "TIA") and
as provided in the Indenture. Capitalized terms used herein and not defined
herein have the meaning ascribed thereto in the Indenture. The Securities are
subject to all such terms, and Securityholders are referred to the Indenture
and the TIA for a statement of those terms.
The Securities are unsecured senior subordinated obligations
of the Company limited to $[218,500,000] aggregate principal amount.
5. GUARANTIES
This Security may be entitled after the date hereof to certain
senior subordinated Subsidiary Guaranties made for the benefit of the
Securityholders. Reference is hereby made to Section 4.15 of the Indenture and
to Exhibits B and C to the Indenture for the terms of any such Subsidiary
Guaranty.
<TABLE>
6. OPTIONAL REDEMPTION
The Securities are redeemable as a whole, or from time to time
in part, at any time on and after ______________ __, 1999 at the option of the
Company at the following redemption prices (expressed as a percentage of
principal) together with accrued and unpaid interest to the Redemption Date if
redeemed in the twelve-month period commencing:
<CAPTION>
______________, Redemption Price
----------------
<S> <C>
1999 ___________%
2000 ___________%
2001 ___________%
2002 and thereafter 100.000%
-----------
</TABLE>
7. NOTICE OF REDEMPTION
Notice of redemption will be mailed at least 15 days but not
more than 60 days before the Redemption Date to each Holder of Securities to be
redeemed at the Holder's registered address. Securities in denominations
larger than $1,000 of principal amount may be redeemed in part but only in
integral multiples of $1,000 of principal amount.
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8. REQUIREMENT THAT THE COMPANY OFFER TO PURCHASE
SECURITIES UNDER CERTAIN CIRCUMSTANCES
Subject to the terms and conditions of the Indenture, the
Company shall become immediately obligated to offer to purchase the Securities
pursuant to Section 4.12 of the Indenture after the occurrence of a Change in
Control of the Company at a price equal to 101% of aggregate principal amount
plus accrued and unpaid interest, if any, to the date of purchase. In
addition, to the extent that there are Net Cash Proceeds from Asset Sales which
are not reinvested, the Company will be obliged to offer to purchase Securities
at 100% of principal amount plus accrued and unpaid interest, if any, in
accordance with Section 4.13 of the Indenture.
9. SUBORDINATION
The Securities are subordinated to Senior Indebtedness (as
defined in the Indenture). To the extent provided in the Indenture, Senior
Indebtedness must be paid before the Securities may be paid. The Company
agrees, and each Securityholder by accepting a Security agrees, to such
subordination and authorizes the Trustee to give it effect.
10. DENOMINATIONS; TRANSFER; EXCHANGE
The Securities are in registered form, without coupons, in
denominations of $1,000 of principal amount and integral multiples of $1,000.
A Holder may transfer or exchange Securities in accordance with the Indenture.
The Registrar may require a holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not transfer or exchange
any Securities selected for redemption (except, in the case of a Security to be
redeemed in part, the portion of the Security not to be redeemed) or any
Securities for a period of 15 days before selection of Securities to be
redeemed.
11. PERSONS DEEMED OWNERS
The registered Holder of this Security may be treated as the
owner of this Security for all purposes.
12. AMENDMENT; WAIVER
Subject to certain exceptions set forth in the Indenture, (i)
the Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in aggregate principal amount of the Securities
at the time outstanding and (ii) certain defaults or noncompliance with certain
provisions may be waived with the written consent of the
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Holders of a majority in aggregate principal amount of the Securities at the
time outstanding. Subject to certain exceptions set forth in the Indenture,
without the consent of any Securityholder, the Company and the Trustee may
amend the Indenture or the Securities to cure any ambiguity, defect or
inconsistency, or to comply with Article 5 of the Indenture, or to provide for
uncertificated Securities in addition to certificated Securities, or to comply
with any requirements of the Securities and Exchange Commission in connection
with the qualification of the Indenture under the TIA, or to make any change
that does not adversely affect the rights of any Securityholder.
13. DEFAULTS AND REMEDIES
Under the Indenture, Events of Default include (i) default in
payment of the principal amount, premium, if any, or interest, in respect of
the Securities when the same becomes due and payable subject, in the case of
interest, to the grace period contained in the Indenture; (ii) failure by the
Company to comply with other agreements in the Indenture or the Securities,
subject to notice and lapse of time; (iii) certain events of acceleration prior
to maturity of certain indebtedness; (iv) certain final judgments which remain
undischarged; (v) certain events of bankruptcy or insolvency; or (vi) certain
failures of Subsidiary Guaranties. If an Event of Default occurs and is
continuing, the Trustee, or the Holders of at least 25% in aggregate principal
amount of the Securities at the time outstanding, may declare all the
Securities to be due and payable immediately. Certain events of bankruptcy or
insolvency are Events of Default which will result in the Securities becoming
due and payable immediately upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the
Securities except as provided in the Indenture. The Trustee may refuse to
enforce the Indenture or the Securities unless it receives reasonable indemnity
or security. Subject to certain limitations, Holders of a majority in
aggregate principal amount of the Securities at the time outstanding may direct
the Trustee in its exercise of any trust or power. The Trustee may withhold
from Securityholders notice of any continuing Default (except a Default in
payment of amounts specified in clause (i) above) if it determines that
withholding notice is in their interests.
14. TRUSTEE DEALINGS WITH THE COMPANY
Subject to certain limitations imposed by the TIA, the Trustee
under the Indenture, in its individual or any other capacity, may become the
owner or pledgee of Securities and may otherwise deal with and collect
obligations owed to it by the Company or its Affiliates and may otherwise deal
with the Company
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or its Affiliates with the same rights it would have if it were not Trustee.
15. NO RECOURSE AGAINST OTHERS
A director, officer, employee or stockholder, as such, of the
Company or any Subsidiary Guarantor shall not have any liability for any
obligations of the Company under the Securities or the Indenture or for any
obligations of a Subsidiary Guarantor under its Subsidiary Guaranty or for any
claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder waives and releases all
such liability. The waiver and release are part of the consideration for the
issue of the Securities.
16. AUTHENTICATION
This Security shall not be valid until an authorized officer
of the Trustee manually signs the Trustee's Certificate of Authentication on
the other side of this Security.
17. ABBREVIATIONS
Customary abbreviations may be used in the name of a
Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT
(=tenants by the entireties), JT TEN (=joint tenants with right of survivorship
and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to
Minors Act).
18. UNCLAIMED MONEY
If money for the payment of principal or interest remains
unclaimed for two years, the Trustee or Paying Agent will pay the money back to
the Company or, if applicable, a Subsidiary Guarantor upon request. After
that, Holders entitled to money must look to the Company or such Subsidiary
Guarantor for payment.
19. DISCHARGE PRIOR TO MATURITY
If the Company or any Subsidiary Guarantor deposits with the
Trustee or Paying Agent money or U.S. Government Obligations sufficient to pay
the principal of and interest on the Securities to maturity, the Company and
the Subsidiary Guarantors will be discharged from the Indenture except for
certain Sections thereof.
20. SUCCESSOR
When a successor Person to the Company or a Subsidiary
Guarantor assumes all the obligations of its predecessor under
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the Securities, a Subsidiary Guaranty and the Indenture such predecessor shall
be released from those obligations.
21. GOVERNING LAW
THE INDENTURE, THIS SECURITY AND ANY SUBSIDIARY GUARANTY SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
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ASSIGNMENT FORM
To assign this Security, fill in the form below:
(I) or (we) assign and transfer this Security to:
________________________________________________________________________
(insert assignee's social security or tax I.D. number)
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
(print or type assignee's name, address and zip code)
and irrevocably appoint _____________________________________
________________ agent to transfer this Security on the books of the Company.
The agent may substitute another to act for him.
Dated:_____________ Signature:____________________________
(Sign exactly as your name
appears on the other side of
this Security)
Signature
Guarantee:______________________________________________________
(Participant in recognized signature guarantee medallion program)
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to elect to have all or any portion of this
Security purchased by the Company pursuant to Section 4.12 ("Change of Control
Offer") or Section 4.13 ("Excess Proceeds Offer") of the Indenture, check the
applicable boxes:
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<TABLE>
<CAPTION>
Change of Control Offer: Excess Proceeds Offer:
<S> <C> <C>
in whole in whole
in part in part
Amount to be Amount to be
purchased: $_____ purchased: $_____
Dated: _________________ Signature:______________________
(Sign exactly as your
name appears on the
other side of this
Security)
Signature
Guarantee:___________________________________________________
(Participant in recognized signature guarantee medallion program)
Social Security Number or
Taxpayer Identification Number:__________________________________
</TABLE>
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<PAGE> 90
EXHIBIT B
ARTICLE 12
GUARANTY OF SECURITIES
----------------------
SECTION 12.01. SUBSIDIARY GUARANTY. Subject to the
provisions of this Article 12, each Subsidiary Guarantor hereby unconditionally
guarantees to each Holder of a Security authenticated and delivered by the
Trustee and to the Trustee that: (i) the principal of, premium, if any, and
interest on the Securities will be duly and punctually paid in full when due,
whether at maturity, by acceleration or otherwise, and interest on the overdue
principal and (to the extent permitted by law) interest, if any, on the
Securities and all other obligations of the Company or the Subsidiary
Guarantors to the Holders or the Trustee hereunder or thereunder (including
fees and expenses) will be promptly paid in full or performed, all in
accordance with the terms hereof and thereof; and (ii) in case of any extension
of time of payment or renewal of any Securities or any such obligations with
respect to the Securities, the same will be promptly paid in full when due or
performed in accordance with the terms of the extension or renewal, whether at
Stated Maturity, by acceleration or otherwise. This Subsidiary Guaranty is a
present and continuing guaranty of payment and performance, and not of
collectibility. Accordingly, failing payment when due of any amount so
guaranteed, or failing performance of any other obligation of the Company to
the Holders under this Indenture or the Securities, for whatever reason, each
Subsidiary Guarantor shall be obligated to pay, or to perform or cause the
performance of, the same immediately.
Each Subsidiary Guarantor hereby agrees that its obligations
under its Subsidiary Guaranty shall be absolute and unconditional, irrespective
of any invalidity, irregularity or unenforceability of the Securities or this
Indenture, the absence of any action to enforce the same, any waiver or consent
by any Holder of the Securities with respect to any provisions hereof or
thereof, any release of any other Subsidiary Guarantor or any other obligor
under the Securities, the recovery of any judgment against the Company, any
action to enforce the same, whether or not a Subsidiary Guaranty is affixed to
any particular Security, or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a guarantor. Each
Subsidiary Guarantor hereby waives the benefit of diligence, presentment,
demand of payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company or any other obligor under the Securities, any right
to require a proceeding first against the Company or any such obligor, protest,
notice and all demands whatsoever and covenants that its Subsidiary Guaranty
will not be discharged except by complete performance of the obligations
contained in the Securities, this Indenture and its Subsidiary Guaranty. If any
Holder or the Trustee is required by any court or otherwise to return to the
Company or to
<PAGE> 91
any Subsidiary Guarantor, or any custodian, trustee, liquidator or other similar
official acting in relation to the Company or such Subsidiary Guarantor, any
amount paid by the Company or such Subsidiary Guarantor to the Trustee or such
Holder, each Subsidiary Guaranty, to the extent theretofore discharged, shall be
reinstated in full force and effect. Each Subsidiary Guarantor further agrees
that, as between it, on the one hand, and the Holders of Securities and the
Trustee, on the other hand, (i) subject to this Article 12, the maturity of the
obligations guaranteed hereby may be accelerated as provided in Article 6 hereof
for the purposes of each Subsidiary Guaranty, notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of the
obligations guaranteed by this Subsidiary Guaranty, and (ii) in the event of any
acceleration of such obligations as provided in Article 6 hereof, such
obligations (whether or not due and payable) shall forthwith become due and
payable by each Subsidiary Guarantor for the purpose of its Subsidiary
Guaranty. Upon the effectiveness of any acceleration of the obligations
guaranteed by this Subsidiary Guaranty, the Trustee shall promptly make a
demand for payment of such obligations by each Subsidiary Guarantor under this
Subsidiary Guaranty. The obligations of the Subsidiary Guarantors under this
Subsidiary Guaranty shall be joint and several.
Each Subsidiary Guaranty shall remain in full force and effect
and continue to be effective should any petition be filed by or against the
Company for liquidation or reorganization, should the Company become insolvent
or make an assignment for the benefit of creditors or should a receiver or
trustee be appointed for all or any significant part of the Company's assets,
and shall, to the fullest extent permitted by law, continue to be effective or
be reinstated, as the case may be, if at any time payment and performance of
the Securities are, pursuant to applicable law, rescinded, or reduced in
amount, or must otherwise be restored or returned by any obligee on the
Securities, whether as a "voidable preference," "fraudulent transfer" or
otherwise, all as though such payment or performance had not been made. In the
event that any payment, or any part thereof, is rescinded, reduced, restored or
returned, the Securities shall, to the fullest extent permitted by law, be
reinstated and deemed reduced only by such amount paid and not so rescinded,
reduced, restored or returned.
No stockholder, officer, director, employer or incorporator,
past, present or future, of any Subsidiary Guarantor, as such, shall have any
personal liability under such Subsidiary Guarantor's Subsidiary Guaranty by
reason of his, her or its status as such stockholder, officer, director,
employer or incorporator.
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The Subsidiary Guarantors shall have the right to seek
contribution from any non-paying Subsidiary Guarantor so long as the exercise
of such right does not impair the rights of the Holders under any Subsidiary
Guaranty.
Each Subsidiary Guaranty may be modified from time to time,
without the consent of the Holders, to reflect such fraudulent conveyance
savings provisions, net worth or maximum amount limitations as to recourse or
similar provisions as are set forth in, and after giving effect to, any
guaranty by any Subsidiary Guarantor of any Senior Indebtedness with respect to
the Company Credit Facility as such guaranty may be amended or otherwise
modified from time to time, PROVIDED that no such modification of this
Subsidiary Guaranty shall adversely affect the Holders in any respect or shall
disadvantage the Holders relative to the holders of Guarantor Senior
Indebtedness of such Subsidiary Guarantor with respect to the Company Credit
Facility other than by operation of the subordination provisions of this
Article 12.
SECTION 12.02. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTY.
The validity and enforceability of this Subsidiary Guaranty shall not be
affected by the fact that it is not affixed to any particular Security, and
each Subsidiary Guarantor hereby agrees that its Subsidiary Guaranty shall
remain in full force and effect notwithstanding any failure to endorse on each
Security a notation of such Subsidiary Guaranty.
If an Officer of a Subsidiary Guarantor whose signature is on
the Indenture or a Subsidiary Guaranty no longer holds that office at the time
the Trustee authenticates any Security or at any time thereafter, such
Subsidiary Guarantor's Subsidiary Guaranty of such Security shall be valid
nevertheless.
The delivery by any Subsidiary Guarantor to the Trustee of any
Subsidiary Guaranty as required by Section 4.15 shall constitute due delivery
of such Subsidiary Guaranty on behalf of such Subsidiary Guarantor to and for
the benefit of all Holders of the Securities.
SECTION 12.03. ADDITIONAL GUARANTORS. Any person may become
a guarantor of the Securities by executing and delivering to the Trustee (i) a
supplemental indenture in form and substance satisfactory to the Trustee, which
subjects such person to the provisions of this Indenture as a guarantor of the
Securities, and (ii) an Opinion of Counsel to the effect that such supplemental
indenture has been duly authorized and executed by such person and constitutes
the legal, valid, binding and enforceable obligation of such person (subject to
such customary exceptions concerning fraudulent conveyance laws, creditors'
rights and equitable principles as may be acceptable to the Trustee in its
discretion).
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SECTION 12.04. RELEASE OF SUBSIDIARY GUARANTOR.
Notwithstanding anything to the contrary contained in this Indenture, in the
event that a Subsidiary Guarantor is released from all obligations which
pursuant to Section 4.15 hereof obligate it to become a Subsidiary Guarantor,
such Subsidiary Guarantor shall be deemed automatically and unconditionally
released from all obligations under its Subsidiary Guaranty without any further
action required on the part of the Trustee or any Holder, PROVIDED that the
provisions of Section 4.15 hereof shall apply anew in the event that such
Subsidiary Guarantor subsequent to being released incurs any obligations that
pursuant to Section 4.15 hereof obligate it to become a Subsidiary Guarantor.
In addition, upon the sale or other disposition of all of the Capital Stock of
a Subsidiary Guarantor by the Company or a Subsidiary of the Company to, or
upon the consolidation or merger of a Subsidiary Guarantor with or into, any
person other than the Company or an Affiliate of the Company or any of its
Subsidiaries, such Subsidiary Guarantor shall be deemed automatically and
unconditionally released from all obligations under its Subsidiary Guaranty
without any further action required on the part of the Trustee or any Holder,
PROVIDED that such sale or other disposition, or consolidation or merger is
made in accordance with the terms of this Indenture, including Sections 4.13
and 5.01 hereof; PROVIDED, HOWEVER, that the foregoing proviso shall not apply
to the sale or disposition of a Subsidiary Guarantor or of the Capital Stock
thereof in a foreclosure proceeding (whether or not judicial) to the extent
that such proviso would be inconsistent with the requirements of the Uniform
Commercial Code. Notwithstanding the immediately preceding sentence, upon
receipt of a request of the Company accompanied by an Officers' Certificate
certifying as to the compliance with this Section 12.04, the Trustee shall
deliver an appropriate instrument evidencing the release of such Subsidiary
Guarantor. Any Subsidiary Guarantor not so released or the entity surviving
such Subsidiary Guarantor, as applicable, shall remain or be liable under its
Subsidiary Guaranty as provided in this Article 12.
SECTION 12.05. AGREEMENT TO SUBORDINATE. Each Subsidiary
Guarantor agrees, and each Securityholder by accepting a Security agrees, that
all payments pursuant to the Subsidiary Guaranty made by such Subsidiary
Guarantor (including principal, premium, if any, and interest) are subordinated
in right of payment, to the extent and in the manner provided in this Article
12, to the prior payment in full of all Guarantor Senior Indebtedness of such
Subsidiary Guarantor, and that the subordination is for the benefit of the
holders of such Guarantor Senior Indebtedness.
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SECTION 12.06. CERTAIN DEFINITIONS.
"Guarantor Senior Indebtedness" means, with respect to any
Subsidiary Guarantor, the principal of, premium, if any, and interest on any
Indebtedness of such Subsidiary Guarantor, whether outstanding on the issue
date of the Securities or thereafter created, incurred, assumed or guaranteed
(unless, in the case of any particular Indebtedness, the instrument under which
such Indebtedness is created, incurred, assumed or guaranteed expressly
provides that such Indebtedness shall not be senior or superior in right of
payment to the Subsidiary Guaranty of such Subsidiary Guarantor), including,
without limiting the generality of the foregoing, the principal of, premium, if
any, and interest (including interest accruing after the commencement of any
proceeding under Bankruptcy Law, whether or not such interest is an allowable
claim) on, and all other obligations in respect of, Specified Guarantor Senior
Indebtedness but excluding (i) Indebtedness evidenced by the Subsidiary
Guaranty of such Subsidiary Guarantor; (ii) any Indebtedness of such Subsidiary
Guarantor to any of its Subsidiaries or other Affiliates; (iii) any
Indebtedness incurred by such Subsidiary Guarantor that is contractually
subordinated in right of payment to any Guarantor Senior Indebtedness; (iv)
amounts owed for goods, materials or services purchased in the ordinary course
of business or for compensation to employees; (v) any Indebtedness in respect
of any Capital Lease Obligation created, incurred, assumed or guaranteed prior
to or, unless designated in the instrument evidencing such Capital Lease
Obligation as "Senior Indebtedness", after the effective date of the Subsidiary
Guaranty of such Subsidiary Guarantor; (vi) Indebtedness represented by
Redeemable Stock of such Subsidiary Guarantor; and (vii) Indebtedness which
when incurred is without recourse to such Subsidiary Guarantor.
"Specified Guarantor Senior Indebtedness" means, with respect
to any Subsidiary Guarantor, any Guarantor Senior Indebtedness of such
Subsidiary Guarantor which consists of a guaranty of any Specified Senior
Indebtedness and all fees, expenses, indemnities and other monetary obligations
with respect to such Guarantor Senior Indebtedness.
SECTION 12.07. LIQUIDATION; DISSOLUTION; BANKRUPTCY. Upon
any (i) bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to a Subsidiary Guarantor or its property, (ii) assignment
for the benefit of creditors or any marshalling of the assets and liabilities
of such Subsidiary Guarantor or (iii) distribution to creditors of such
Subsidiary Guarantor in a liquidation or dissolution of such Subsidiary
Guarantor:
(1) holders of Guarantor Senior Indebtedness of
such Subsidiary Guarantor shall be entitled to receive payment
in full in cash or, at the option of the
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holders of such Guarantor Senior Indebtedness, cash equivalents of
such Guarantor Senior Indebtedness (including, in the case of
Guarantor Senior Indebtedness which also constitutes Specified
Guarantor Senior Indebtedness, interest accruing after the
commencement of any such proceeding at the rate specified in the
instrument evidencing the applicable Specified Guarantor Senior
Indebtedness, whether or not a claim therefor is allowed, to the date
of payment of such Specified Guarantor Senior Indebtedness) before
Securityholders shall be entitled to receive any payment pursuant to
the Subsidiary Guaranty of such Subsidiary Guarantor on account of
principal of, premium, if any, or interest on the Securities; and
(2) until the Guarantor Senior Indebtedness (as
provided in subsection (1) above) is paid in full in cash or,
at the option of the holders of such Guarantor Senior
Indebtedness, cash equivalents, any distribution to which
Securityholders would be entitled but for this Article 12
shall be made to holders of such Guarantor Senior
Indebtedness, as their interests may appear, except that
Securityholders may receive securities that (i) are
subordinated to Guarantor Senior Indebtedness and to any
securities issued in exchange for Guarantor Senior
Indebtedness to at least the same extent as the Subsidiary
Guaranty is subordinated to Guarantor Senior Indebtedness and
(ii) have no maturity or mandatory prepayment prior to the
final maturity of any securities issued in exchange for
Guarantor Senior Indebtedness.
For purposes of this Article 12, a distribution may consist of
cash, securities or other property, by set-off or otherwise.
The consolidation of a Subsidiary Guarantor with, or the
merger of a Subsidiary Guarantor into, another corporation upon the terms and
conditions set forth in Article 5 hereof shall not be deemed a dissolution,
winding up, liquidation or reorganization, for the purposes of this Section
12.07 if the corporation formed by such consolidation or into which the
Subsidiary Guarantor is merged, as the case may be, shall, as part of such
consolidation or merger comply with the conditions set forth in Article 5
hereof.
SECTION 12.08. DEFAULT ON GUARANTOR SENIOR INDEBTEDNESS. No
Subsidiary Guarantor may make any payment, pursuant to its Subsidiary Guaranty
or otherwise, on account of principal of, premium, if any, or interest on the
Securities, make any deposit pursuant to the provisions of Article 8 hereof or
acquire any Securities for cash or property if:
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(i) a default in the payment of the principal of,
premium, if any, or interest on, (a) any Guarantor Senior Indebtedness
or (b) any Senior Indebtedness with respect to which such Subsidiary
Guarantor is an obligor or guarantor occurs and is continuing (a
"Guarantor Payment Default") and the Trustee or the Paying Agent
receives a notice of the default from a Person who may give it
pursuant to Section 12.16 or Section 10.12 hereof, as the case may be;
or
(ii) a Payment Blockage Period is in effect with respect
to Specified Senior Indebtedness which is guaranteed by such
Subsidiary Guarantor pursuant to Specified Guarantor Senior
Indebtedness of such Subsidiary Guarantor.
Such Subsidiary Guarantor shall resume making any and all
required payments in respect of obligations under its Subsidiary Guaranty (i)
in the case of a Guarantor Payment Default, when the default is cured or
waived or the Guarantor Senior Indebtedness or Senior Indebtedness to which
such default relates is discharged, or when the right under this Indenture to
prevent any such payment is waived by written notice to the Trustee by or on
behalf of the holders of such Guarantor Senior Indebtedness or Senior
Indebtedness, or (ii) in the case of such a Payment Blockage Period referred to
in clause (ii) above, at the end of such Payment Blockage Period.
SECTION 12.09. NO SUSPENSION OF REMEDIES. Nothing contained
in this Article 12 shall limit the right of the Trustee or the Holders of
Securities to take any action to accelerate the maturity of the Securities or
to pursue any other rights or remedies thereunder or under any Subsidiary
Guaranty or applicable law; PROVIDED, HOWEVER, that all Guarantor Senior
Indebtedness of any Subsidiary Guarantor then or thereafter due and payable
shall first be paid in full in cash or, at the option of the holders of such
Guarantor Senior Indebtedness, cash equivalents before the Holders shall be
entitled to receive any payment in respect of the Subsidiary Guaranty of such
Subsidiary Guarantor.
SECTION 12.10. WHEN DISTRIBUTION MUST BE PAID OVER. In the
event that any Subsidiary Guarantor shall make any payment to the Trustee on
account of its Subsidiary Guaranty at a time when such payment is prohibited by
Section 12.07, 12.08 or 12.09 hereof, such payment shall be held by the
Trustee, in trust for the benefit of, and shall be paid forthwith over and
delivered, upon written request, to, the holders of Guarantor Senior
Indebtedness (pro rata as to each of such holders on the basis of the
respective amounts of Guarantor Senior Indebtedness held by them) or their
representative, as their respective interests may appear, for application to
the payment of all Guarantor Senior Indebtedness in full in accordance with
their terms, after giving
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<PAGE> 97
effect to any concurrent payment or distribution to or for the holders of
Guarantor Senior Indebtedness.
If a distribution is made to Securityholders that because of
this Article 12 should not have been made to them, the Securityholders who
receive the distribution shall hold it in trust for holders of Guarantor Senior
Indebtedness (pro rata as to each of such holder on the basis of the respective
amounts of Guarantor Senior Indebtedness held by them) or their representative,
as their respective interests may appear, for application to the payment of all
Guarantor Senior Indebtedness remaining unpaid to the extent necessary to pay
all Guarantor Senior Indebtedness in full in accordance with its terms, after
giving effect to any concurrent payment or distribution to or for the holders
of Guarantor Senior Indebtedness.
With respect to the holders of Guarantor Senior Indebtedness,
the Trustee undertakes to perform only such obligations on the part of the
Trustee as are specifically set forth in this Article 12, and no implied
covenants or obligations with respect to the holders of Guarantor Senior
Indebtedness shall be read into this Indenture against the Trustee. The
Trustee shall not be deemed to owe any fiduciary duty to the holders of
Guarantor Senior Indebtedness.
SECTION 12.11. NOTICE BY COMPANY OR SUBSIDIARY GUARANTOR.
Each of the Company and the Subsidiary Guarantors shall promptly notify the
Trustee and the Paying Agent of any facts known to it that would cause a
payment of any obligations in respect of such Subsidiary Guarantor's Subsidiary
Guaranty to violate this Article 12, but failure to give such notice shall not
affect the subordination of any Subsidiary Guaranty to Guarantor Senior
Indebtedness provided in this Article 12. Nothing in this Article 12 shall
apply to claims of, or payments to, the Trustee under or pursuant to Section
7.07 hereof.
SECTION 12.12. SUBROGATION WITH RESPECT TO SUBSIDIARY
GUARANTOR. After all Guarantor Senior Indebtedness of any Subsidiary Guarantor
is paid in full in cash or, at the option of the holders of such Guarantor
Senior Indebtedness, cash equivalents and until the Securities are paid in
full, Securityholders shall be subrogated to the rights of holders of such
Guarantor Senior Indebtedness to receive distributions applicable to such
Guarantor Senior Indebtedness to the extent that distributions otherwise
payable to Securityholders have been applied to the payment of such Guarantor
Senior Indebtedness.
If any payment or distribution to which the Holders would
otherwise have been entitled but for the provisions of this Article 12 shall
have been applied pursuant to the provisions of this Article 12 to the payment
of all amounts payable in respect of the Guarantor Senior Indebtedness of any
Subsidiary Guarantor,
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<PAGE> 98
then and in such case, the Holders shall be entitled to receive from the
holders of such Guarantor Senior Indebtedness at the time outstanding any
payment or distributions received by such holders of Guarantor Senior
Indebtedness in excess of the amount sufficient to pay all amounts payable in
respect of the Guarantor Senior Indebtedness of such Subsidiary Guarantor in
full in cash or, at the option of the holders of such Guarantor Senior
Indebtedness, cash equivalents.
SECTION 12.13. RELATIVE RIGHTS. This Article 12 defines the
relative rights of Securityholders and holders of Guarantor Senior
Indebtedness. Nothing in this Indenture shall:
(1) impair, as between any Subsidiary Guarantor and
Securityholders, the obligations of such Subsidiary Guarantor under
its Subsidiary Guaranty in accordance with its terms, which
obligations are absolute and unconditional;
(2) affect the relative rights against such Subsidiary
Guarantor of Securityholders and creditors of such Subsidiary
Guarantor other than holders of Guarantor Senior Indebtedness of such
Subsidiary Guarantor; or
(3) prevent the Trustee or any Securityholder from
exercising its available remedies upon a Default or Event of Default,
subject to the rights of holders of Guarantor Senior Indebtedness of
any Subsidiary Guarantor under this Article 12.
If any Subsidiary Guarantor fails because of this Article 12
to make a payment in respect of its obligations under its Subsidiary Guaranty,
the failure is still a Default or Event of Default.
The provisions of this Article 12 shall continue to be
effective or be reinstated, as the case may be, if at any time any payment of
any Guarantor Senior Indebtedness is rescinded or must otherwise be returned by
any holder of Guarantor Senior Indebtedness upon the insolvency, bankruptcy or
reorganization of a Subsidiary Guarantor or otherwise, all as though such
payment had not been made.
SECTION 12.14. NO WAIVER OF SUBORDINATION PROVISIONS. No
right of any holder of Guarantor Senior Indebtedness of any Subsidiary
Guarantor to enforce the subordination of the Indebtedness evidenced by the
Subsidiary Guaranty of such Subsidiary Guarantor shall be impaired by any act
or failure to act by such Subsidiary Guarantor or by its failure to comply with
this Indenture.
The holders of Guarantor Senior Indebtedness may, at any time
and from time to time, without the consent of or notice
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<PAGE> 99
to the Trustee or the Holders of the Securities and without incurring
responsibility to the Holders of the Securities and without impairing or
releasing the subordination provided in this Article 12 or the obligations
hereunder of the Holders of the Securities to the holders of Guarantor Senior
Indebtedness, do any one or more of the following: (i) except as otherwise
provided in Section 4.08 hereof, change the manner, place or terms of payment
or extend the time of payment of, or renew or alter, any Guarantor Senior
Indebtedness or any Senior Indebtedness to which such Guarantor Senior
Indebtedness relates, or the instruments evidencing the same or any agreements
under which such Guarantor Senior Indebtedness or Senior Indebtedness, as the
case may be, is outstanding; (ii) sell, exchange, release or otherwise deal
with any property pledged, mortgaged or otherwise securing any Guarantor Senior
Indebtedness or any Senior Indebtedness to which such Guarantor Senior
Indebtedness relates; (iii) release any person liable in any manner for the
collection or payment of any Guarantor Senior Indebtedness or any Senior
Indebtedness to which such Guarantor Senior Indebtedness relates; and (iv)
exercise or refrain from exercising any rights against any Subsidiary Guarantor
or any other person.
SECTION 12.15. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to holders of Guarantor
Senior Indebtedness, the distribution may be made and the notice given to their
representative.
Upon any payment or distribution of assets of any Subsidiary
Guarantor referred to in this Article 12, the Trustee and the Securityholders
shall be entitled to rely upon any order or decree made by any court of
competent jurisdiction or upon any certificate of such representative or of the
liquidating trustee or agent or other person making any distribution to the
Trustee or to the Securityholders for the purpose of ascertaining the persons
entitled to participate in such distribution, the holders of the Guarantor
Senior Indebtedness and other Indebtedness of such Subsidiary Guarantor, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article 12.
SECTION 12.16. RIGHTS OF TRUSTEE AND PAYING AGENT. The
Trustee or Paying Agent shall not at any time be charged with the knowledge of
the existence of any facts which would prohibit the making of any payment to or
by the Trustee relating to a Subsidiary Guarantor's Subsidiary Guaranty unless
and until the Trustee or Paying Agent shall have received written notice
thereof from the holders (or the agent) of Guarantor Senior Indebtedness; and,
prior to the receipt of any such written notice, the Trustee or Paying Agent
shall be entitled to assume conclusively that no such facts exist. Unless at
least two Business Days prior to the date on which by the terms of this
Indenture any monies are to be deposited by a Subsidiary Guarantor with the
Trustee or any Paying Agent (whether or not in
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<PAGE> 100
trust) for any purpose (including, without limitation, the payment of either
the principal of or the interest on any Security), the Trustee or Paying Agent
shall have received with respect to such monies the notice provided for in the
preceding sentence, the Trustee or Paying Agent shall have full power and
authority to receive such monies and to apply the same to the purpose for which
they were received, and shall not be affected by any notice to the contrary
which may be received by it on or after such date. The foregoing shall not
apply to the Paying Agent if the Company is acting as Paying Agent.
The Trustee in its individual or any other capacity may hold
Guarantor Senior Indebtedness with the same rights it would have if it were not
Trustee.
SECTION 12.17. AUTHORIZATION TO EFFECT SUBORDINATION. Each
Holder of a Security by his acceptance thereof authorizes and directs the
Trustee on his behalf to take such action as may be necessary or appropriate to
effectuate the subordination as provided in this Article 12, and appoints the
Trustee as attorney-in-fact for any and all purposes.
SECTION 12.18. MISCELLANEOUS.
(a) All rights and interests under this Article 12 of the
holders of Guarantor Senior Indebtedness, and all agreements and obligations of
the Holders, the Trustee, the Company and any Subsidiary Guarantor under this
Article 12, shall remain in full force and effect irrespective of:
(i) any exchange, release or non-perfection of any Lien
securing Guarantor Senior Indebtedness, or any release or
amendment or waiver of or consent to departure from any
guaranty, for all or any of the Guarantor Senior Indebtedness;
or
(ii) any other circumstance that might otherwise
constitute a defense available to, or a discharge of any
Subsidiary Guarantor in respect of Guarantor Senior
Indebtedness or the Trustee in respect of this Indenture.
(b) The provisions of this Article 12 constitute a
continuing agreement and shall (i) remain in full force and effect until the
Guarantor Senior Indebtedness of each Subsidiary Guarantor shall have been paid
in full, (ii) be binding upon the holders and the Trustee, the Company and each
Subsidiary Guarantor and their respective successors and assigns, and (iii)
inure to the benefit of and enforceable by each other holder of Guarantor
Senior Indebtedness and its successors, transferees and assigns.
B-11
<PAGE> 101
EXHIBIT C
SENIOR SUBORDINATED GUARANTY
----------------------------
For value received, the undersigned hereby unconditionally
guarantees to the holder of a Security (as that term is defined in the
Indenture dated as of _________, 1994 (the "Indenture"), between Nortek, Inc.
(the "Company") and State Street Bank and Trust Company, as trustee (the
"Trustee")) and the Trustee, the payments of principal of, premium, if any, and
interest on such Security in the amounts and at the time when due and interest
on the overdue principal, premium, if any, and interest, if any, of such
Security, if lawful, and the payments or performance of all other obligations
of the Company under the Indenture or the Securities, all in accordance with
and subject to the terms and limitations of such Security, Article 12 of the
Indenture and this Guaranty. This Guaranty shall become effective in
accordance with Article 12 of the Indenture. The validity and enforceability
of this Guaranty shall not be affected by the fact that it is not affixed to
any particular Security.
The obligations of the undersigned to the holders of
Securities and to the Trustee pursuant to this Guaranty and the Indenture are
expressly set forth in Article 12 of the Indenture and reference is hereby made
to the Indenture for the precise terms of this Guaranty and all of the other
provisions of the Indenture to which this Guaranty relates. The Indebtedness
(as defined in the Indenture) evidenced by this Guaranty is, to the extent and
in the manner provided in the Indenture, subordinate and subject in right of
payment to the prior payment in full in cash or cash equivalents of all
Guarantor Senior Indebtedness (as defined in the Indenture). Each holder of a
Security, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee, on behalf of such holder,
to take such action as may be necessary or appropriate to effectuate the
subordination as provided in the Indenture and (c) appoints the Trustee
attorney-in-fact of such holder for such purpose; PROVIDED, HOWEVER, that such
subordination provisions shall cease to affect amounts deposited in accordance
with the defeasance provisions of the Indenture upon the terms and conditions
set forth therein.
This Guaranty is subject to release upon the terms set forth
in the Indenture.
[NAME OF SUBSIDIARY GUARANTOR]
By: _________________________
Name:
Title:
<PAGE> 1
EXHIBIT 5
February 9, 1994
Nortek, Inc.
50 Kennedy Plaza
Providence, RI 02903
Re: Registration Statement on Form S-2
(File No. 33-69778)
----------------------------------
Gentlemen:
This opinion is rendered to you in connection with the Registration
Statement on Form S-2 (File No. 33-69778), as amended by Amendments No. 1 and
No. 2 thereto (the "Registration Statement"), filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, for the
registration by Nortek, Inc., a Delaware corporation (the "Company"), of
$218,500,000 principal amount of % Senior Subordinated Notes Due 2004 (the
"Notes"), including $28,500,000 principal amount subject to an underwriters'
over-allotment option. The Notes are to be sold pursuant to an Underwriting
Agreement (the "Underwriting Agreement") to be entered into among the Company,
Bear, Stearns & Co. Inc. and Chase Securities, Inc., and are to be issued under
an Indenture (the "Indenture") to be entered into between the Company and State
Street Bank and Trust Company, as trustee (the "Trustee").
We are familiar with the proceedings taken by the Company in
connection with the issuance and sale of the Notes and, for purposes of
rendering the opinions expressed herein, we have examined and relied upon the
Registration Statement and such other documents or records as we have deemed
necessary.
We call your attention to the fact that the Indenture provides that it
is to be governed by and construed in accordance with the laws of the State of
New York. For purposes of the opinions expressed herein, we have assumed, with
your approval, that the Indenture would be governed by and construed in
accordance with the domestic substantive laws of the Commonwealth of
Massachusetts without giving effect to any choice or conflict of laws rule or
provision that would cause the application of the domestic substantive laws of
any other jurisdiction. No opinion is expressed herein as to any matter
governed by any law other
<PAGE> 2
Nortek, Inc. -2- February 9, 1994
than the laws of Massachusetts and the United States of America and the General
Corporation Law of the State of Delaware.
Based on the foregoing, we are of the opinion that when the Indenture
shall have been duly executed and delivered in accordance with resolutions duly
adopted by the Board of Directors of the Company or a duly authorized committee
thereof and upon the due execution and authentication of the Notes as provided
in the Indenture and such resolutions, and upon payment for and delivery of the
Notes as provided in the Underwriting Agreement, the Notes will be duly issued
and will constitute valid and legally binding obligations of the Company,
entitled to the benefits of the Indenture, except to the extent that
enforcement of the rights and remedies created thereby is subject to
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting the rights and remedies of creditors and to general
principles of equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law).
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm therein and in the
related Prospectus under the caption "Legal Matters."
Very truly yours,
Ropes & Gray
<PAGE> 1
EXHIBIT 10.4
AGREEMENT made this 7th day of March, 1983 between Nortek, Inc., of
Cranston, Rhode Island, (the "Company") and Richard L. Bready (the "Employee"),
WITNESSETH:
WHEREAS, the Employee has experience and knowledge in the conduct of
the Company's business, and his services are of substantial value to the
Company, and as incentive for him to render continuing services to the Company
the Company wishes to offer him additional financial inducement beyond his
normal compensation; and
WHEREAS, the Employee wishes to continue in the employ of the Company;
NOW, THEREFORE, it is mutually agreed as follows;
1. NORMAL BENEFITS.
Subject to the terms hereof, the Company will pay to the Employee the
sum of $5,050.00 per month for a period of 180 consecutive months ("Normal
Benefits") beginning on the first day of the month coinciding with or next
following the later of (a) the Employee's attainment of age sixty-five or (b)
his retirement from the employ of the Company.
2. EARLY BENEFITS.
If at any time after the Employee attains age 60 he is for any reason
(including termination of service prior to age 60) no longer in the employ of
the Company, he may request that the Company, by approval of a committee
appointed by the Board of Directors (the "Committee") commence the benefits
payable to him hereunder on the first day of any month. However, if approval is
given and payment begins before he attains age 65, his benefits ("Early
Benefits") will be his Normal Benefits reduced equally over the 180 payments by
15%. This Committee shall not unreasonably withhold approval of a request for
Early Benefits.
3. TERMINATION OF SERVICE.
If the Employee's service with the Company terminates for any reason
prior to the earliest of (a) the date on which he attains age 65, (b) the date
of his death, (c) the date in which the Company determines that he is totally
disabled or (d) March 7, 1983 (the earliest such date hereinafter referred to
as his "Vesting Date"), neither he nor any other person will have any rights,
or be entitled to any benefits, under this Agreement, and the Agreement will be
terminated. If the Employee's service
<PAGE> 2
-2-
with the Company terminates for any reason on or after his Vesting Date but
prior to his eligibility for Normal or Early Benefits, he or his beneficiary
will nonetheless become entitled to the appropiate benefits provided herein at
such time as those benefits would otherwise have been payable.
4. DISABILITY BENEFITS.
If the employee becomes totally and permanently disabled prior to the
commencement of any benefits hereunder, he will be entitled to receive Normal
Benefits beginning on the first day of the month coinciding with or next
following the date on which the Board of Directors of the Company determines
that he has become so disabled. Such benefits will be in lieu of all other
benefits hereunder. If the Employee becomes disabled after commencement of his
Normal Benefits or Early Benefits, such Normal or Early Benefits will continue
unchanged subject to the other provisions of this Agreement.
5. DEATH BENEFITS.
(a) If the Employee dies prior to commencement of any benefits
hereunder, his beneficiary or beneficiaries will be entitled to Normal Benefits
beginning as soon as practicable after the Employee's death. If the Employee
dies after commencement of Normal Benefits (including those payable by reason
of disability), such Normal Benefits will continue unchanged (and to the extent
reasonably practicable, uninterrupted), but will be paid to his beneficiary or
beneficiaries, subject to the other provisions of this Agreement. In no event
will (i) the sum of (A) the aggregate amount paid to all beneficiaries by
reason of this paragraph 5 and (B) the amount of any benefits paid to the
Employee before his death exceed (ii) the amount of benefits which would have
been paid to the Employee had he lived.
(b) The Employee may, by written notice to the Company, designate a
beneficiary or beneficiaries (including a trust or trusts) to receive any
benefits due under subparagraph (a) above and the proportionate share to be
paid to each beneficiary if he designates more than one. If he designates only
one beneficiary, he may designate a contingent beneficiary. Any installments
payable will be paid to his beneficiary or beneficiares as provided in
subparagraph (a) above. If he has designated more than one beneficiary, the
installments will be divided among the beneficiaries in any proportions
designated by the Employee, and equally if no proportions have been designated.
If more than one beneficiary has been designated, and a beneficiary dies, any
remaining payments due to the deceased beneficiary will thereafter be divided
equally among the surviving beneficiaries. If only one beneficiary has been
designated and that beneficiary dies, any remaining installments will be paid
to the contingent beneficiary. If, after the
<PAGE> 3
-3-
Employee has died and the Company is ready to begin payment of benefits
hereunder, there is no living beneficiary or contingent beneficiary, the
benefits will be paid to the Employee's estate, provided there is one or more
living individual beneficiary of such estate. If a beneficiary or contingent
beneficiary who has begun to receive payments after the death of the Employee
dies and there is no remaining beneficiary or contingent beneficiary, any
remaining installments will be paid to such deceased beneficiary's estate,
provided that there is one or more living individual beneficiary of such
estate.
6. REVIEW OF BENEFITS.
The amounts of the benefits payable under this Agreement will be
reviewed by the committee appointed by the Company (the "Committee") once
during every third calendar year. If the Committee determines that the benefits
provided for hereunder are, for any reason, insufficient, it may increase the
amounts of such benefits.
7. FORFEITURE FOR COMPETITION.
Anything to the contrary herein notwithstanding, the Employee
shall not, without the written consent of the Company, act as an employee,
director or partner in any business in competition with the Company or any of
its subsidiaries within a period of 180 months after his termination of service
with the Company. If the Employee acts in violation of the terms of this
paragraph, the Company may, in the sole discretion of its Board of Directors,
treat the Employee as having forfeited any benefits otherwise due under this
Agreement, and no amounts shall at any time thereafter be payable to the
Employee or any other person under this Agreement.
8. ARBITRATION OF DISPUTES.
Any dispute between the Company and the Employee or any beneficiary
as the proper interpretation or application of any provision of this Agreement
will be referred for decision to three arbitrators: one will be selected by the
Company, one will be selected by the Employee (or the beneficiary or
beneficiaries with whom the dispute exists), and the third will be selected by
the other two aribitrators so selected. A decision of the majority of the
arbitrators will be final and binding upon all parties.
<PAGE> 4
-4-
9. EFFECT ON EMPLOYMENT RELATIONSHIP.
Except for the right to recieve payment of the benefits provided for
herein (subject to the terms hereof) neither this Agreement nor any
modification hereof will be construed as giving to the Employee or any person
any legal or equitable rights against the Company or any subsidiary of the
Company, or against any officer or director of the Company or of any subsidiary
of the Company. The Agreement does not give the Employee any right to be
retained as an employee of the Company or any subsidiary thereof, and the
Employee will be subject to discharge to the same extent as if the Agreement
had never been executed.
10. EFFECT ON OTHER COMPENSATION.
The benefits provided hereunder are in addition to the Employee's
regular compensation and do not affect the Employee's right to participate in
any other deferred compensation arrangement or retirement plan which is now in
effect or which may be adopted by the Company in the future.
11. RIGHTS OF EMPLOYEE AND OTHER PERSONS.
Any rights accruing to the Employee or any other person under this
Agreement are solely those of an unsecured general creditor of the Company.
Nothing contained in the Agreement and no action taken pursuant to its
provisions will create or be construed to create a trust, pledge or fiduciary
relationship between the Company, the Board of Directors of the Company or the
Committee and the Employee or any other person. Nothing herein will be
construed to require that any fund be maintained or any amount be segregated
for the Employee's benefit.
The rights hereunder of the Employee or any other person will not be
alienable by such Employee or other person by assignment or by any other method
and will not be subject to being taken by creditors in any process.
The terms, provisions and conditions of this Agreement shall be binding
upon and inure to the benefit of the Company and its successors and the
Employee and his beneficiaries, administrators and executors.
12. SEVERABILITY.
If any provision of this Agreement is held invalid or unenforceable,
the other provisions will not be affected, and the Agreement will be construed
and enforced as if the invalid or unenforceable provision had not been
included.
<PAGE> 5
-5-
13. GOVERNING LAW.
This Agreement will be construed, administered and enforced
according to the laws of the State of Rhode Island.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
in duplicate as of the day and year first above written.
NORTEK, INC.
By:_________________________________
Richard L. Bready
__________________________________
EMPLOYEE
<PAGE> 6
<TABLE>
DESIGNATION OF BENEFICIARY
--------------------------
I hereby designate the following to receive any and all amounts which
may become payable after my death under The Nortek, Inc. Deferred Compensation
Program Agreement dated March 7, 1983, to which this designation is attached and
supersedes any prior designations.
<CAPTION>
Primary Beneficiary Relatiosnship Allocation
------------------- ------------- ----------
<S> <C> <C>
Loretta Bready Wife 50%
Barrett Bready Son 50%
Secondary Beneficiary
---------------------
</TABLE>
Date: March 7, 1983 Richard L. Bready
-------------------------------
EMPLOYEE
<PAGE> 1
EXHIBIT 10.5
AGREEMENT made this 7th day of March, 1983 between Nortek, Inc., of
Cranston, Rhode Island, (the "Company") and Almon C. Hall, III (the "Employee"),
WITNESSETH:
WHEREAS, the Employee has experience and knowledge in the conduct of
the Company's business, and his services are of substantial value to the
Company, and as incentive for him to render continuing services to the Company
the Company wishes to offer him additional financial inducement beyond his
normal compensation; and
WHEREAS, the Employee wishes to continue in the employ of the Company;
NOW, THEREFORE, it is mutually agreed as follows;
1. NORMAL BENEFITS.
Subject to the terms hereof, the Company will pay to the Employee the
sum of $1,833.33 per month for a period of 180 consecutive months ("Normal
Benefits") beginning on the first day of the month coinciding with or next
following the later of (a) the Employee's attainment of age sixty-five or (b)
his retirement from the employ of the Company.
2. EARLY BENEFITS.
If at any time after the Employee attains age 60 he is for any reason
(including termination of service prior to age 60) no longer in the employ of
the Company, he may request that the Company, by approval of a committee
appointed by the Board of Directors (the "Committee") commence the benefits
payable to him hereunder on the first day of any month. However, if approval is
given and payment begins before he attains age 65, his benefits ("Early
Benefits") will be his Normal Benefits reduced equally over the 180 payments by
15%. This Committee shall not unreasonably withhold approval of a request for
Early Benefits.
3. TERMINATION OF SERVICE.
If the Employee's service with the Company terminates for any reason
prior to the earliest of (a) the date on which he attains age 65, (b) the date
of his death, (c) the date in which the Company determines that he is totally
disabled or (d) November 2, 2006 (the earliest such date hereinafter referred to
as his "Vesting Date"), neither he nor any other person will have any rights,
or be entitled to any benefits, under this Agreement, and the Agreement will be
terminated. If the Employee's service
<PAGE> 2
-2-
with the Company terminates for any reason on or after his Vesting Dtae but
prior to his eligibility for Normal or Early Benefits, he or his beneficiary
will nonetheless become entitled to the appropiate benefits provided herein at
such time as those benefits would otherwise have been payable.
4. DISABILITY BENEFITS.
If the emplyee becomes totally and permanently disabled prior to the
commencement of any benefits hereunder, he will be entitled to receive Normal
Benefits beginning on the first day of the month coinciding with or next
following the date on which the Board of Directors of the Company determines
that he has become so disabled. Such benefits will be in lieu of all other
benefits hereunder. If the Employee becomes disabled after commencement of his
Normal Benefits or Early Benefits, such Normal or Early Benefits will continue
unchanged subject to the other provisions of this Agreement.
5. DEATH BENEFITS.
(a) If the Employee dies prior to commencement of any benefits
hereunder, his beneficiary or beneficiaries will be entitled to Normal Benefits
beginning as soon as practicable after the Employee's death. If the Employee
dies after commencement of Normal Benefits (including those payable by reason
of disability), such Normal Benefits will continue unchanged (and to the extent
reasonably practicable, uninterrupted), but will be paid to his beneficiary or
beneficiaries, subject to the other provisions of this Agreement. In no event
will (i) the sum of (A) the aggregate amount paid to all beneficiaries by
reason of this paragraph 5 and (B) the amount of any benefits paid to the
Employee before his death exceed (ii) the amount of benefits which would have
been paid to the Employee had he lived.
(b) The Employee may, by written notice to the Company, designate a
beneficiary or beneficiaries (including a trust or trusts) to receive any
benefits due under subparagraph (a) above and the proportionate share to be
paid to each beneficiary if he designates more than one. If he designates only
one beneficiary, he may designate a contingent beneficiary. Any installments
payable will be paid to his beneficiary or beneficiares as provided in
subparagraph (a) above. If he has designated more than one beneficiary, the
installments will be divided among the beneficiaries in any proportions
designated by the Employee, and equally if no proportions have been designated.
If more than one beneficiary has been designated, and a beneficiary dies, any
remaining payments due to the deceased beneficiary will thereafter be divided
equally among the surviving beneficiaries. If only one beneficiary has been
designated and that beneficiary dies, any remaining installments will be paid
to the contingent beneficiary. If, after the
<PAGE> 3
-3-
Employee has died and the Company is ready to begin payment of benefits
hereunder, there is no living beneficiary or contingent beneficiary, the
benefits will be paid to the Employee's estate, provided there is one or more
living individual beneficiary of such estate. If a beneficiary or contingent
beneficiary who has begun to receive payments after the death of the Employee
dies and there is no remaining beneficiary or contingent beneficiary, any
remaining installments will be paid to such deceased beneficiary's estate,
provided that there is one or more living individual beneficiary of such
estate.
6. REVIEW OF BENEFITS.
The amounts of the benefits payable under this Agreement will be
reviewed by the committee appointed by the Company (the "Committee") once
during every third calendar year. If the Committee determines that the benefits
provided for hereunder are, for any reason, insufficient, it may increase the
amounts of such benefits.
7. FORFEITURE FOR COMPETITION.
Anything to the contrary herein notwithstanding, the Employee
shall not, without the written consent of the Company, act as an employee,
director or partner in any business in competition with the Company or any of
its subsidiaries within a period of 180 months after his termination of service
with the Company. If the Employee acts in violation of the terms of this
paragraph, the Company may, in the sole discretion of its Board of Directors,
treat the Employee as having forfeited any benefits otherwise due under this
Agreement, and no amounts shall at any time thereafter be payable to the
Employee or any other person under this Agreement.
8. ARBITRATION OF DISPUTES.
Any dispute between the Company and the Employee or any beneficiary
as the proper interpretation or application of any provision of this Agreement
will be referred for decision to three arbitrators: one will be selected by the
Company, one will be selected by the Employee (or the beneficiary or
beneficiaries with whom the dispute exists), and the third will be selected by
the other two aribitrators so selected. A decision of the majority of the
arbitrators will be final and binding upon all parties.
<PAGE> 4
-4-
9. EFFECT ON EMPLOYMENT RELATIONSHIP.
Except for the right to recieve payment of the benefits provided for
herein (subject to the terms hereof) neither this Agreement nor any
modification hereof will be construed as giving to the Employee or any person
any legal or equitable rights against the Company or any subsidiary of the
Company, or against any officer or director of the Company or of any subsidiary
of the Company. The Agreement does not give the Employee any right to be
retained as an employee of the Company or any subsidiary thereof, and the
Employee will be subject to discharge to the same extent as if the Agreement
had never been executed.
10. EFFECT ON OTHER COMPENSATION.
The benefits provided hereunder are in addition to the Employee's
regular compensation and do not affect the Employee's right to participate in
any other deferred compensation arrangement or retirement plan which is now in
effect or which may be adopted by the Company in the future.
11. RIGHTS OF EMPLOYEE AND OTHER PERSONS.
Any rights accruing to the Employee or any other person under this
Agreement are solely those of an unsecured general creditor of the Company.
Nothing contained in the Agreement and no action taken pursuant to its
provisions will create or be construed to create a trust, pledge or fiduciary
relationship between the Company, the Board of Directors of the Company or the
Committee and the Employee or any other person. Nothing herein will be
construed to require that any fund be maintained or any amount be segregated
for the Employee's benefit.
The rights hereunder of the Employee or any other person will not
be alienable by such Employee or other person by assignment or by any other
method and will not be subject to being taken by creditors in any process.
The terms, provisions and conditions of this Agreement shall be
binding upon and inure to the benefit of the Company and its successors and the
Employee and his beneficiaries, administrators and executors.
12. SEVERABILITY.
If any provision of this Agreement is held invalid or unenforceable,
the other provisions will not be affected, and the Agreement will be construed
and enforced as if the invalid or unenforceable provision had not been included.
<PAGE> 5
-5-
13. GOVERNING LAW.
This Agreement will be construed, administered and enforced
according to the laws of the State of Rhode Island.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
in duplicate as of the day and year first above written.
NORTEK, INC.
By:_________________________________
Almon C. Hall
_________________________________
EMPLOYEE
<PAGE> 6
<TABLE>
DESIGNATION OF BENEFICIARY
--------------------------
I hereby designate the following to receive any and all amounts which
may become payable after my death under The Nortek, Inc. Deferred Compensation
Program Agreement dated March 7, 1983, to which this designation is attached and
supersedes any prior designations.
<CAPTION>
Primary Beneficiary Relatiosnship Allocation
------------------- ------------- ----------
<S> <C> <C>
Norma F. Hall Mother 100%
Secondary Beneficiary
---------------------
</TABLE>
Date: March 7, 1983 Almon C. Hall
-------------------------------
EMPLOYEE
<PAGE> 1
EXHIBIT 10.6
AGREEMENT made this 7th day of March, 1983 between Nortek, Inc., of
Cranston, Rhode Island, (the "Company") and Richard J. Harris (the "Employee"),
WITNESSETH:
WHEREAS, the Employee has experience and knowledge in the conduct of
the Company's business, and his services are of substantial value to the
Company, and as incentive for him to render continuing services to the Company
the Company wishes to offer him additional financial inducement beyond his
normal compensation; and
WHEREAS, the Employee wishes to continue in the employ of the Company;
NOW, THEREFORE, it is mutually agreed as follows;
1. NORMAL BENEFITS.
Subject to the terms hereof, the Company will pay to the Employee the
sum of $1,833.33 per month for a period of 180 consecutive months ("Normal
Benefits") beginning on the first day of the month coinciding with or next
following the later of (a) the Employee's attainment of age sixty-five or (b)
his retirement from the employ of the Company.
2. EARLY BENEFITS.
If at any time after the Employee attains age 60 he is for any reason
(including termination of service prior to age 60) no longer in the employ of
the Company, he may request that the Company, by approval of a committee
appointed by the Board of Directors (the "Committee") commence the benefits
payable to him hereunder on the first day of any month. However, if approval is
given and payment begins before he attains age 65, his benefits ("Early
Benefits") will be his Normal Benefits reduced equally over the 180 payments by
15%. This Committee shall not unreasonably withhold approval of a request for
Early Benefits.
3. TERMINATION OF SERVICE.
If the Employee's service with the Company terminates for any reason
prior to the earliest of (a) the date on which he attains age 65, (b) the date
of his death, (c) the date in which the Company determines that he is totally
disabled or (d) July 19, 1996 (the earliest such date hereinafter referred to
as his "Vesting Date"), neither he nor any other person will have any rights,
or be entitled to any benefits, under this Agreement, and the Agreement will be
terminated. If the Employee's service
<PAGE> 2
-2-
with the Company terminates for any reason on or after his Vesting Date but
prior to his eligibility for Normal or Early Benefits, he or his beneficiary
will nonetheless become entitled to the appropiate benefits provided herein at
such time as those benefits would otherwise have been payable.
4. DISABILITY BENEFITS.
If the employee becomes totally and permanently disabled prior to the
commencement of any benefits hereunder, he will be entitled to receive Normal
Benefits beginning on the first day of the month coinciding with or next
following the date on which the Board of Directors of the Company determines
that he has become so disabled. Such benefits will be in lieu of all other
benefits hereunder. If the Employee becomes disabled after commencement of his
Normal Benefits or Early Benefits, such Normal or Early Benefits will continue
unchanged subject to the other provisions of this Agreement.
5. DEATH BENEFITS.
(a) If the Employee dies prior to commencement of any benefits
hereunder, his beneficiary or beneficiaries will be entitled to Normal Benefits
beginning as soon as practicable after the Employee's death. If the Employee
dies after commencement of Normal Benefits (including those payable by reason
of disability), such Normal Benefits will continue unchanged (and to the extent
reasonably practicable, uninterrupted), but will be paid to his beneficiary or
beneficiaries, subject to the other provisions of this Agreement. In no event
will (i) the sum of (A) the aggregate amount paid to all beneficiaries by
reason of this paragraph 5 and (B) the amount of any benefits paid to the
Employee before his death exceed (ii) the amount of benefits which would have
been paid to the Employee had he lived.
(b) The Employee may, by written notice to the Company, designate a
beneficiary or beneficiaries (including a trust or trusts) to receive any
benefits due under subparagraph (a) above and the proportionate share to be
paid to each beneficiary if he designates more than one. If he designates only
one beneficiary, he may designate a contingent beneficiary. Any installments
payable will be paid to his beneficiary or beneficiares as provided in
subparagraph (a) above. If he has designated more than one beneficiary, the
installments will be divided among the beneficiaries in any proportions
designated by the Employee, and equally if no proportions have been designated.
If more than one beneficiary has been designated, and a beneficiary dies, any
remaining payments due to the deceased beneficiary will thereafter be divided
equally among the surviving beneficiaries. If only one beneficiary has been
designated and that beneficiary dies, any remaining installments will be paid
to the contingent beneficiary. If, after the
<PAGE> 3
-3-
Employee has died and the Company is ready to begin payment of benefits
hereunder, there is no living beneficiary or contingent beneficiary, the
benefits will be paid to the Employee's estate, provided there is one or more
living individual beneficiary of such estate. If a beneficiary or contingent
beneficiary who has begun to receive payments after the death of the Employee
dies and there is no remaining beneficiary or contingent beneficiary, any
remaining installments will be paid to such deceased beneficiary's estate,
provided that there is one or more living individual beneficiary of such
estate.
6. REVIEW OF BENEFITS.
The amounts of the benefits payable under this Agreement will be
reviewed by the committee appointed by the Company (the "Committee") once
during every third calendar year. If the Committee determines that the benefits
provided for hereunder are, for any reason, insufficient, it may increase the
amounts of such benefits.
7. FORFEITURE FOR COMPETITION.
Anything to the contrary herein notwithstanding, the Employee
shall not, without the written consent of the Company, act as an employee,
director or partner in any business in competition with the Company or any of
its subsidiaries within a period of 180 months after his termination of service
with the Company. If the Employee acts in violation of the terms of this
paragraph, the Company may, in the sole discretion of its Board of Directors,
treat the Employee as having forfeited any benefits otherwise due under this
Agreement, and no amounts shall at any time thereafter be payable to the
Employee or any other person under this Agreement.
8. ARBITRATION OF DISPUTES.
Any dispute between the Company and the Employee or any beneficiary
as the proper interpretation or application of any provision of this Agreement
will be referred for decision to three arbitrators: one will be selected by the
Company, one will be selected by the Employee (or the beneficiary or
beneficiaries with whom the dispute exists), and the third will be selected by
the other two aribitrators so selected. A decision of the majority of the
arbitrators will be final and binding upon all parties.
<PAGE> 4
-4-
9. EFFECT ON EMPLOYMENT RELATIONSHIP.
Except for the right to recieve payment of the benefits provided for
herein (subject to the terms hereof) neither this Agreement nor any
modification hereof will be construed as giving to the Employee or any person
any legal or equitable rights against the Company or any subsidiary of the
Company, or against any officer or director of the Company or of any subsidiary
of the Company. The Agreement does not give the Employee any right to be
retained as an employee of the Company or any subsidiary thereof, and the
Employee will be subject to discharge to the same extent as if the Agreement
had never been executed.
10. EFFECT ON OTHER COMPENSATION.
The benefits provided hereunder are in addition to the Employee's
regular compensation and do not affect the Employee's right to participate in
any other deferred compensation arrangement or retirement plan which is now in
effect or which may be adopted by the Company in the future.
11. RIGHTS OF EMPLOYEE AND OTHER PERSONS.
Any rights accruing to the Employee or any other person under this
Agreement are solely those of an unsecured general creditor of the Company.
Nothing contained in the Agreement and no action taken pursuant to its
provisions will create or be construed to create a trust, pledge or fiduciary
relationship between the Company, the Board of Directors of the Company or the
Committee and the Employee or any other person. Nothing herein will be
construed to require that any fund be maintained or any amount be segregated
for the Employee's benefit.
The rights hereunder of the Employee or any other person will not
be alienable by such Employee or other person by assignment or by any other
method and will not be subject to being taken by creditors in any process.
The terms, provisions and conditions of this Agreement shall be
binding upon and inure to the benefit of the Company and its successors and the
Employee and his beneficiaries, administrators and executors.
12. SEVERABILITY.
If any provision of this Agreement is held invalid or unenforceable,
the other provisions will not be affected, and the Agreement will be construed
and enforced as if the invalid or unenforceable provision had not been included.
<PAGE> 5
-5-
13. GOVERNING LAW.
This Agreement will be construed, administered and enforced
according to the laws of the State of Rhode Island.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
in duplicate as of the day and year first above written.
NORTEK, INC.
By:_________________________________
Richard J. Harris
_________________________________
EMPLOYEE
<PAGE> 6
<TABLE>
DESIGNATION OF BENEFICIARY
--------------------------
I hereby designate the following to receive any and all amounts which
may become payable after my death under The Nortek, Inc. Deferred Compensation
Program Agreement dated March 7, 1983, to which this designation is attached and
supersedes any prior designations.
<CAPTION>
Primary Beneficiary Relationship Allocation
------------------- ------------- ----------
<S> <C> <C>
Carole M. Harris Spouse 100%
Secondary Beneficiary
---------------------
Mark R. Harris Son 50%
Pamela J. Harris Daughter 50%
</TABLE>
Date: March 14, 1983 Richard J. Harris
-------------------------------
EMPLOYEE
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Nortek, Inc.:
As independent public accountants, we hereby consent to the use of our
reports dated March 26, 1993 and to all references to our Firm included in or
made a part of this registration statement.
ARTHUR ANDERSEN & CO.
Boston, Massachusetts
February 9, 1994
