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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-K
(Mark One) ------------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number: 1-6112
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Nortek, Inc.
(exact name of Registrant as specified in its charter)
Delaware 05-0314991
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
50 Kennedy Plaza 02903-2360
Providence, Rhode Island (zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (401) 751-1600
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $1.00 par value New York Stock Exchange
Preference Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
Special Common Stock, $1.00 par value
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No. __.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K [X].
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of March 15, 1994 was $88,952,237. See Item 12.
The number of shares of Common Stock outstanding as of March 15, 1994 was
11,981,179. The number of shares of Special Common Stock outstanding as of
March 15, 1994 was 560,768.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement for use at its 1994 Annual Meeting
of Shareholders are incorporated by reference into Part III.
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<PAGE>
PART I
Item 1. Business.
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. (As used in this report, the term "Company" refers to
Nortek, Inc., together with its subsidiaries, unless the context indicates
otherwise.)
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.
Additional information concerning the Company's business is set forth in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Item 7, Part II of this Report (pages 15 through 27) and
incorporated herein by reference.
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. 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 Care (TM) brand names, among others, to distributors and dealers of
electrical and lighting products, kitchen and bath dealers, retail home centers
and OEMs (original equipment manufacturers). 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.
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.
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 Care
(TM) 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; SensAire (R) (humidity and
motion 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.
With respect to certain product lines, several private label customers
account for a substantial portion of revenues. In 1993, approximately 12.8% of
the total sales of such product lines were made to private label customers.
Production generally consists of fabrication from coil and sheet steel and
formed metal utilizing stamping, pressing and welding methods, assembly with
components and subassemblies purchased from outside sources (motors, fan
blades, heating elements, wiring harnesses, controlling devices, glass mirrors,
lighting fixtures, lumber, wood and polyethylene components, speakers, grilles,
radio receivers and similar electronic components, and record and tape player
mechanisms) and painting and finishing.
The Group offers a broad array of products with various features and
styles across a range of price points. 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 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 cost reduction initiatives, provides the Group with a
competitive advantage.
With respect to range hoods, bath fans, combination units and radio
intercoms, 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 1,751 full-time
people as of December 31, 1993, 178 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 consists
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 Temtrol(TM) 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 BTU's to 144,000 BTU's of heating capacity. The
Group's residential products also include portable and permanent electric
baseboard heating products.
Commercial Products. The Group's commercial products include packaged rooftop
units and airhandlers, custom walk-in units, individual floor units and heat
pumps. 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 building. 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.
The Company estimates that more than half of the Group's commercial sales
in 1993 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.
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 site-built 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.
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.
The Group's commercial products are marketed through independently owned
manufacturers' representatives and an in-house sales, marketing and engineering
group of 100 persons as of December 31, 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 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.
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 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 1993 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 of the Group's sales.
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 furnaces used in site-built
residential homes. The after market channel of distribution includes sales of
both new and replacement air conditioning units and heat pumps.
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 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 1,660 full-time
people as of December 31, 1993, 201 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, including die cast, 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 URC(TM), Universal-Rundle(R), CareFree(R),
Milwaukee Faucets(TM) 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 sells its products to distributors and home centers through
independently owned manufacturer's representatives supported by 67 sales and
marketing personnel employed by the Group as of December 31, 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 and by developing products using new technologies.
The Plumbing Products Group has eight manufacturing facilities and
employed 1,321 full-time people as of December 31, 1993, approximately 980 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 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. The
Company currently intends to operate this business until a sale is consummated.
See Management's Discussion and Analysis of Financial Condition and Results of
Operations, Item 7 of Part II of this report and Note 9, Notes to Consolidated
Financial Statements, Item 8 of Part II of this report, incorporated herein by
reference.
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 687 full-time people as of December 31, 1993, 153 of
whom are covered by collective bargaining agreements which expire in 1995. The
Company believes that Dixieline's relationships with its employees are
satisfactory.
GENERAL CONSIDERATIONS
Employees
The Company employed approximately 5,640 persons at December 31, 1993.
Backlog
Backlog expected to be filled during 1994 was approximately $95,839,000,
at December 31, 1993 ($80,181,000 at December 31, 1992). Backlog is not
regarded as a significant factor for operations where orders are generally for
prompt delivery. While backlog stated for December 31, 1993 is believed to be
firm, the possibility of cancellations makes it difficult to assess the
firmness of backlog with certainty.
Research and Development
The Company's research and development activities are principally new
product development and do not involve significant expenditures.
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 Care(TM), Governair(R), Mammoth(R),
Temtrol(TM), Miller(R), Intertherm(R), URC(TM) 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.
Working Capital
The carrying of inventories to support distributors and to permit prompt
delivery of finished goods requires substantial working capital. Substantial
working capital is also required to carry receivables. See "Liquidity and
Capital Resources" in Management's Discussion and Analysis of Financial
Condition and Results of Operations, beginning on Page 23 of this report,
incorporated herein by reference.
Executive Officers of the Registrant
Name Age Position
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 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
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 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.
Executive Officers are elected annually by the Board of Directors of the
Company and serve until their successors are chosen and qualified. Mr. Bready
has an employment agreement with the Company providing for his employment as
Chief Executive Officer through 1998. The Company's executive officers include
only those officers of the Company who perform policy-making functions for the
Company as a whole and have managerial responsibility for major aspects of the
Company's overall operations. A number of other individuals who serve as
officers of the Company or its subsidiaries perform policy-making functions and
have managerial responsibilities for the subsidiary or division by which they
are employed, although not for the Company overall. Certain of these
individuals could, depending on earnings of such unit, be more highly
compensated than some executive officers of the Company.
Item 2. 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.
Approximate
Location Description Square Feet
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 46,000*
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*
_______________
(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.
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 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 7, Notes to Consolidated Financial
Statements, Item 8 of Part II of this report, incorporated herein by reference.
Item 3. 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 1992 and 1993 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.
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 7, Notes to Consolidated
Financial Statements, Item 8 of Part II of this report, incorporated herein by
reference.
Item 4. Submission of Matters of a Vote of Security Holders.
Not applicable.
<PAGE>
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholders Matters.
Stockholders of record of Nortek Common and Special Common Stock at March
15, 1994, numbered approximately 4,542 and 3,392, respectively. There were no
dividends declared on the Common and Special Common in 1992 or 1993. The high
and low sales prices of Nortek's Common Stock traded on the New York Stock
Exchange in each quarter of 1993 and 1992 were:
1993
Quarter High Low
First 6 1/8 4 7/8
Second 5 1/2 4 3/4
Third 6 4 3/8
Fourth 9 6
1992
Quarter High Low
First 5 3/4 1 5/8
Second 7 3/8 4 1/2
Third 6 1/8 4 3/8
Fourth 5 1/2 3 3/4
See Note 5, Notes to Consolidated Financial Statements, Page F-18 of this
report.
Item 6. Consolidated Selected Financial Data
Nortek, Inc. and Subsidiaries
For the Five Years Ended December 31, 1993
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
(In Thousands Except Per Share Amounts)
Consolidated Summary of
Operations:
Net sales $744,113 $799,979 $917,049 $1,037,239 $1,080,225
Operating earnings (loss) 30,346 20,436 11,015 (16,512) 981
Pre-tax loss on businesses
sold or held for sale (20,300) (14,500) (15,200) --- ---
Loss from continuing
operations (12,600) (21,000) (34,700) (41,400) (42,500)
Earnings (loss) from dis-
continued operations --- (3,300) --- (6,600) 14,000
Extraordinary gain (loss)
from debt retirements (6,100) 100 7,600 9,900 16,000
Cumulative effect of an
accounting change (2,100) --- --- --- ---
Net loss (20,800) (24,200) (27,100) (38,100) (12,500)
Financial Position:
Unrestricted cash, invest-
ments and marketable
securities $ 82,498 $ 73,748 $ 42,919 $ 61,098 $160,202
Working capital 117,926 132,587 139,657 176,742 322,419
Total assets 509,209 515,373 582,372 715,427 856,765
Total Debt--
Current 37,539 6,810 4,875 68,483 33,052
Long-term 178,210 201,863 232,581 284,323 400,825
Current ratio 1.6:1 1.9:1 1.9:1 1.9:1 2.8:1
Debt to equity ratio 2.1:1 1.6:1 1.6:1 2.0:1 2.0:1
Depreciation and amortiza-
tion 20,726 23,644 28,373 31,050 33,273
Capital expenditures 10,809 8,804 16,015 24,523 35,303
Stockholders' investment 104,007 126,906 152,929 180,743 218,031
Common and Special Common
shares outstanding 12,542 12,526 13,079 13,512 13,928
Per Share:
Loss from continuing operations--
Primary $ (1.00) $ (1.67) $ (2.57) $ (3.07) $ (3.10)
Fully diluted (1.00) (1.67) (2.57) (3.07) (3.10)
Net loss--
Primary (1.66) (1.92) (2.01) (2.83) (.91)
Fully diluted (1.66) (1.92) (2.01) (2.83) (.91)
Cash dividends--
Common --- --- --- .10 .10
Special Common --- --- --- .04 .04
Stockholders' investment 8.29 10.13 11.69 13.38 15.65
See Notes 7 to 12 and Note 14 of the Notes to Consolidated Financial
Statements, Pages F-21 to F-25 and F-26, respectively, of this report and Item
7 of Management's Discussion and Analysis of Financial Condition and Results of
Operations, Page 15, regarding the effect on operating results of businesses
sold and other matters.
Item 7. 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 ("Dixieline") 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 the purposes of this
Management's Discussion and Analysis of Financial Condition and Results of
Operations, the results of operations attributable to Dixieline have been
excluded from all data that is reported as being from ongoing operations,
including net sales, cost of products sold, selling, general and administrative
expense and segment earnings. Total consolidated operating results of the
Company, however, include the operating results of Dixieline through October 2,
1993, the date that such business was accounted for as a business held for
sale. (See Notes 1 and 9 of the Notes to Consolidated Financial Statements.)
Results of Operations
The following tables set forth, for the three years ended December 31, 1993,
(a) certain consolidated operating results, (b) the percentage change of
certain such results as compared to the prior year, (c) the percentage which
certain of such results bears to net sales and (d) the change of certain of
such percentages (to net sales) as compared to the prior year:
Percentage
Change
------
Year Ended December 31, 1992 1991
----------------------- to to
1993 1992 1991 1993 1992
-------- ---- ---- ----
(Amounts in Millions)
Net sales $744.1 $800.0 $917.0 (7.0) (12.8)%
Cost of products sold 532.5 595.2 693.1 10.5 14.1
Selling, general and admini-
strative expense 181.3 184.4 212.9 1.7 13.4
Operating earnings 30.3 20.4 11.0 48.5 85.5
Interest expense (26.5) (29.2) (39.2) 9.3 25.5
Interest and dividend income 3.2 4.4 8.8 (27.3) (50.0)
Net gain on investment and
marketable securities 1.7 0.9 0.4 88.9 125.0
Settlement of litigation --- --- (11.5) --- 100.0
Loss on businesses sold or held
for sale (20.3) (14.5) (15.2) (40.0) 4.6
Loss from continuing operations
before provision (credit) for
income taxes (11.6) (18.0) (45.7) 35.6 60.6
Provision (credit) for
income taxes 1.0 3.0 (11.0) 66.7 (127.3)
Loss from continuing operations (12.6) (21.0) (34.7) 40.0 39.5
Loss from discontinued
operations --- (3.3) --- 100.0 ---
Extraordinary gain (loss) from
debt retirements (6.1) 0.1 7.6 --- (98.7)
Cumulative effect of an account-
ing change (2.1) --- --- --- ---
Net loss (20.8) (24.2) (27.1) 14.1 10.7
Change in
Percentage
----------
Percentage of Net Sales 1992 1991
Year Ended December 31, to to
-----------------------
1993 1992 1991 1993 1992
---- ---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% --- ---
Cost of products sold 71.5 74.4 75.6 2.9 1.2
Selling, general and admini-
strative expense 24.4 23.0 23.2 (1.4) 0.2
Operating earnings 4.1 2.6 1.2 1.5 1.4
Interest expense (3.6) (3.7) (4.3) .1 0.6
Interest and dividend income .4 .6 1.0 (.2) (0.4)
Net gain on investment and
marketable securities .2 --- --- .2 ---
Settlement of litigation --- --- (1.3) --- 1.3
Loss on businesses sold (2.7) (1.8) (1.6) (.9) (0.2)
Loss from continuing opera-
tions before provision
(credit) for income taxes (1.6) (2.3) (5.0) .7 2.7
Provision (credit) for
income taxes .1 0.3 (1.2) .2 (1.5)
Loss from continuing opera-
tions (1.7) (2.6) (3.8) .9 1.2
Loss from discontinued
operations --- (0.4) --- .4 (0.4)
Extraordinary gain (loss)
from debt retirements (.8) --- 0.8 (.8) (0.8)
Cumulative effect of an
accounting change (.3) --- --- (.3) ---
Net loss (2.8) (3.0) (3.0) .2 ---
The following table presents the net sales for the Company's principal product
groups for the three years ended December 31, 1993, and the percentage change
of such results as compared to the prior year.
Percentage
Change
--------
1992 1991
Year Ended December 31, to to
-----------------------
1993 1992 1991 1993 1992
---- ---- ---- ---- ----
Net Sales:
Residential Building
Products $257.2 $249.2 $241.5 3.2% 3.2%
Air Conditioning and
Heating Products 275.6 237.0 221.1 16.3 7.2
Plumbing Products 128.1 126.1 112.7 1.6 11.9
----- ----- ----- ----- -----
Net Sales from Ongoing
Operations 660.9 612.3 575.3 7.9 6.4
Businesses Sold or Held
for Sale and Other 83.2 187.7 341.7 (55.7) (45.1)
----- ----- ----- ----- -----
Total $744.1 $800.0 $917.0 (7.0)% (12.8)%
===== ===== ===== ===== =====
Year Ended December 31, 1993 as Compared to the Year Ended December 31, 1992
Net sales from ongoing operations increased approximately $48,598,000, or
approximately 7.9%, in 1993 as compared to 1992. Total net sales decreased
approximately $55,866,000, or approximately 7.0%, in 1993 as compared to 1992
as a result of businesses sold in 1992 and the effect of Dixieline, 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 72.5% in 1992 to approximately
71.1% in 1993. Total cost of products sold as a percentage of total net sales
decreased from approximately 74.4% in 1992 to approximately 71.5% 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
from ongoing operations as a percentage of net sales from ongoing operations
primarily was attributable to increased sales levels and a reduction in cost in
the Plumbing Products Group, and to a lesser extent, increased sales in the
Residential Building Products Group and the Air Conditioning and Heating
Products Group, in both cases, without a proportionate increase in costs. The
improvement in cost levels was due, in part, to the Company's ongoing cost
control efforts.
Selling, general and administrative expense from ongoing operations, as a
percentage of net sales from ongoing operations increased from approximately
23.3% in 1992 to approximately 24.3% in 1993. Total selling, general and
administrative expense, as a percentage of total net sales increased from
approximately 23.0% in 1992 to approximately 24.4% in 1993 as a result of the
factors described below and the effect of businesses sold in 1992, which sold
businesses operated at lower expense levels than the Company's other product
groups, partially offset by lower expense levels at Dixieline. The increase in
the percentage of net sales from ongoing operations in 1993 was principally due
to the effect of a pre-tax loss in the fourth quarter of 1993 of approximately
$2,800,000 in connection with the curtailment of certain product lines by the
Company's Plumbing Products Group and the effect of pre-tax losses in the third
quarter of 1993 of approximately $1,600,000 as a result of the sale in October
1993 of certain real property and approximately $700,000 in connection with the
consolidation of certain manufacturing facilities by the Company's Residential
Building 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 $47,200,000 for
1993 as compared to approximately $38,100,000 for 1992. Total segment earnings
were approximately $46,900,000 for 1993, as compared to approximately
$32,700,000 for 1992 as a result of the effect of changes in the operating
Year Ended December 31, 1993 as Compared to the Year Ended December 31, 1992
(Continued)
results of 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 and reduced costs in the Plumbing Products Group, 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 and increased sales
level in the Residential Building Products Group, without a proportionate
increase in cost and expense. The increase in segment earnings from ongoing
operations was partially offset by the effect of a pre-tax loss in the fourth
quarter of 1993 of approximately $2,800,000 and the effect of pre-tax losses in
the third quarter 1993 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 approximately 11% of segment earnings from ongoing
operations in 1993 from approximately 16% of such earnings in 1992. This
decline was primarily due to an approximately 30% increase in domestic segment
earnings from ongoing operations in 1993, as well as an approximate 11%
decrease in foreign segment earnings in 1993. The decrease in foreign segment
earnings was primarily the result of the continued weakness in the residential
construction market in Canada.
Dixieline's operating loss decreased by approximately $700,000 to a loss of
approximately $300,000 in 1993. Net sales of Dixieline were approximately
$83,200,000 in 1993 and approximately $94,800,000 in 1992. Total consolidated
operating results of the Company include the operating results of Dixieline
through October 2, 1993. Weakness in the San Diego area residential
construction market and increased competition continued to affect Dixieline's
results adversely.
Operating earnings in 1993 increased approximately $9,900,000, or approximately
48.5%, as compared to 1992, primarily as a result of the factors discussed
above and include the effect of the results of Dixieline and a business sold in
1992.
Interest expense in 1993 decreased approximately $2,700,000, or approximately
9.3%, as compared to 1992, primarily 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 in 1993 decreased approximately $1,200,000, or approximately
27.3%, as compared to 1992, principally due to lower average invested balances
of short-term investments, marketable securities and other investments (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
$1,650,000 for 1993, as compared to approximately $850,000 for 1992.
Year Ended December 31, 1993 as Compared to the Year Ended December 31, 1992
(Continued)
The pre-tax loss on businesses sold or held for sale of approximately
$20,300,000 in 1993 and approximately $14,500,000 in 1992 resulted in the
approximately $11,600,000 loss before provision for income taxes in 1993 and
was the primary reason for the approximately $18,000,000 loss before provision
for income taxes in 1992. The pre-tax loss on businesses sold or held for sale
in 1993 resulted from the Company's decision to sell Dixieline and therefore to
reduce the Company's net investment in such business to estimated net
realizable value. (See Notes 1 and 9 of Notes to Consolidated Financial
Statements.)
The provision for income taxes was approximately $1,000,000 for 1993, as
compared to approximately $3,000,000 for 1992. The provision for income taxes
as a percentage of the pre-tax loss from continuing operations was
approximately 8.6% in 1993 as compared to approximately 16.7% in 1992. The
income tax rates differed from the United States federal statutory rate of 35%
in 1993 and 34% in 1992 as a result of the effect of an increase in income tax
valuation reserves in 1993 and higher foreign income tax on foreign source
income, a limited amount of state income tax benefits recorded, and
nondeductible amortization expense (for tax purposes) in both years, and, in
1992, 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 3 of the Notes to Consolidated Financial Statements.)
An extraordinary loss of approximately $6,100,000 in 1993 compared to an
approximate $100,000 gain in 1992. The loss in 1993 resulted primarily from
the call for redemption on February 22, 1994 of certain of the Company's
various Notes and Debentures in connection with the financing described in Note
4 of Notes to Consolidated Financial Statements.
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 6 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 the effect of 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 and 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 from ongoing operations 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
Year Ended December 31, 1992 as Compared to the Year Ended December 31, 1991
(Continued)
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 from ongoing operations 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 from ongoing operations 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 selling, general and administrative expense from
ongoing operations as a 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 $38,100,000 for
1992 and approximately $27,800,000 for 1991. Total segment earnings were
approximately $32,700,000 for 1992 as compared to approximately $23,800,000 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 approximately 16% of total segment
earnings from ongoing operations in 1992 from approximately 30% of such
earnings in 1991. This decline was primarily due to an approximate 64%
increase in domestic segment earnings from ongoing operations in 1992, as well
as an approximate 27% decrease in foreign segment earnings in 1992. The
decrease in foreign segment earnings was due primarily to a sales decrease in
Year Ended December 31, 1992 as Compared to the Year Ended December 31, 1991
(Continued)
the Company's Canadian operations resulting from weakness in the residential
construction market in Canada.
The operating loss from Dixieline 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 approximately 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 $9,400,000, or approximately
85.5%, as compared to 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 in 1992 decreased approximately $10,000,000, or approximately
25.5% 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 in 1992 decreased approximately $4,400,000, or approximately
50.0% as compared to 1991, principally due to lower average invested balances
of short-term investments, marketable securities and other investments (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
Year Ended December 31, 1992 as Compared to the Year Ended December 31, 1991
(Continued)
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 7 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 7 and
10 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, 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.
Liquidity and Capital Resources
The Company's primary sources of liquidity in 1993 and 1992 have been funds
provided by subsidiary operations, unrestricted investments and marketable
securities and net proceeds from businesses sold or discontinued. The
Company's Canadian subsidiary, Broan Limited, has a $20,100,000 Canadian
(approximately $15,200,000 U. S. at exchange rates prevailing at December 31,
1993) secured line of credit, of which approximately $14,800,000 Canadian
(approximately $11,200,000 U. S. at exchange rates prevailing at December 31,
1993), in the aggregate, 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 $11,200,000
U. S. at exchange rates prevailing at December 31, 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 $378,000 U. S. at exchange rates prevailing at
December 31, 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.
Liquidity and Capital Resources (Continued)
As of March 15, 1994, there were $2,346,000 U. S. in outstanding borrowings
under the Line of Credit, all of the proceeds of such borrowings were advanced
to the Company, and $3,850,000 U. S. of additional available borrowings could
be advanced to the Company.
Unrestricted cash and investments were $56,606,000 at December 31, 1993. On
January 14, 1994, the Company redeemed $22,600,000 principal amount of its 11-
1/2% Senior Subordinated Debentures due May 1994, which were called for
redemption in December 1993. In February 1994, the Company sold in a public
offering $218,500,000 of its 9-7/8% Senior Subordinated Notes due 2004 ("9-7/8%
Notes") at a slight discount. A portion of the net proceeds from the sale of
the 9-7/8% Notes were used to redeem, on March 24, 1994, approximately
$153,000,000 of certain of the Company's outstanding principal amount of
indebtedness and pay accrued interest. The call for redemption on February 22,
1994 of this indebtedness resulted in an after-tax extraordinary loss of
approximately $6,100,000, which was recorded in the fourth quarter of 1993.
(See Note 4 of Notes to the Consolidated Financial Statements.)
The Company believes that 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 $10,400,000 in 1993, and are
expected to be approximately $14,000,000 in 1994.
The Indenture governing the 9-7/8% Notes restricts, among other things, the
payment of cash dividends, the repurchase of the Company's capital stock, the
making of certain other restricted payments and the incurrence of additional
indebtedness. (See Note 4 of Notes to Consolidated Financial Statements.)
The Company's investment in marketable securities at December 31, 1993
consisted primarily of investments in United States Treasury securities. At
December 31, 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 accompanying
consolidated balance sheet.
In 1993, approximately $5,507,000 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.
At December 31, 1993, 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. In March 1994, the Company paid
approximately $1,594,000 to the Trustee of these IRB's for interest payments
through that date. 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
Liquidity and Capital Resources (Continued)
adverse effect on the financial position or results of operations of the
Company. (See Note 7 of Notes to Consolidated Financial Statements.)
In 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 was paid during
1993 as a result of certain plan modifications. (See Note 6 to the Notes to
Consolidated Financial Statements.)
In 1993, the Company decided to sell Dixieline and recorded a pre-tax valuation
reserve of approximately $20,300,000 (approximately $14,900,000 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 sheet. (See Notes 1 and 9 of
Notes to Consolidated Financial Statements.)
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 $117,926,000 and approximately 1.6:1, respectively, at December
31, 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
quarter of 1993. (See Note 3 of Notes to Consolidated Financial Statements.)
Disregarding the effect of SFAS 109 working capital decreased approximately
$18,263,000, or approximately 13.8%, from December 31, 1992 to December 31,
1993.
Accounts receivable, excluding those of Dixieline, increased approximately
$6,480,000, or approximately 8.3%, between December 31, 1992 and December 31,
1993, while net sales from ongoing operations increased approximately 5.6% in
the fourth quarter of 1993 as compared to the fourth quarter of 1992. This
increase is principally as a result of increased net sales of new and
replacement products from residential and manufactured housing customers by the
Air Conditioning and Heating Products Group. 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 net sales. Significant net
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, excluding those of Dixieline, increased approximately $5,870,000
or approximately 7.7%, between December 31, 1992 and December 31, 1993.
Liquidity and Capital Resources (Continued)
Disregarding the effect of SFAS 109, inventories increased approximately
$523,000, or approximately .7%.
Unrestricted cash and investments increased approximately $33,139,000 (of which
$22,600,000 was used to retire certain indebtedness on January 14, 1994 - see
Note 4 of Notes to Consolidated Financial Statements) from December 31, 1992 to
December 31, 1993, principally as a result of cash provided (used) by the
following:
Condensed
Consolidated
Cash Flows
------------
Operating Activities--
Cash flow from operations, net $21,476,000
Increase in accounts receivable, net (11,033,000)
Increase in inventories (2,854,000)
Increase in accounts payable 4,360,000
Change in accrued expenses, taxes, prepaids,
other assets, liabilities, and other, net 476,000
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 26,039,000
Proceeds from the sale of property and
equipment 5,242,000
Capital expenditures (10,436,000)
Financing Activities--
Increases in borrowings, net of payments,
including purchase of debentures 1,841,000
All other, net 448,000
----------
$33,139,000
==========
The Company's debt-to-equity ratio increased from approximately 1.6:1 at
December 31, 1992 to approximately 2.1:1 at December 31, 1993, primarily as a
result of the net loss of $20,800,000 in 1993 and a net increase in borrowings
of approximately $7,100,000.
At December 31, 1993 and subsequently thereafter, the payment of cash dividends
or stock payments was prohibited under the most restrictive of the Company's
indentures and loan agreements. (See Note 4 of Notes to Consolidated Financial
Statements.)
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 December 31, 1993, the Company accrued for estimated losses of approximately
$14,500,000 related to the flooding, recorded a receivable of approximately
$14,500,000 for casualty, property damage and business interruption insurance
claims due from its insurance carrier and recorded as a liability approximately
$13,200,000 of cash advances received relating to such claims. The Company
believes that it has adequate insurance coverage and does not expect this event
Liquidity and Capital Resources (Continued)
to have a material adverse effect on the Company's financial condition or
results of operations. (See Note 7 of Notes to Consolidated Financial
Statements.)
At December 31, 1993, the Company has approximately $8,000,000 of net U. S.
Federal prepaid income tax assets which are expected to be realized through
future operating earnings. (See Note 3 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.
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-1980s. 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.
Item 8. Financial Statements and Supplementary Data.
Financial statements and supplementary data required by this Item 8 are set
forth at the pages indicated in Item 14(a) included elsewhere herein.
Item 9. Disagreements on Accounting and Financial Disclosure.
Not applicable.
<PAGE>
PART III.
Item 10. Directors and Executive Officers of the Registrant
See Election of Directors in the definitive Proxy Statement for the Company's
1994 Annual Meeting of Stockholders, incorporated herein by reference. See
also Part I, Item 1, Business-General Considerations-Executive Officers of the
Registrant.
Item 11. Executive Compensation
See Executive Compensation in the definitive Proxy Statement for the Company's
1994 Annual Meeting of Stockholders, incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
See Security Ownership of Certain Beneficial Owners and Management in the
definitive Proxy Statement for the Company's 1994 Annual Meeting of
Stockholders, incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
See Election of Directors in the definitive Proxy Statement for the Company's
1994 Annual Meeting of Stockholders, incorporated herein by reference.
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Financial Statements and Schedules
The following documents are filed as part of this report:
1. Financial Statements: Page No.
Report of Independent
Public Accountants F-1
Consolidated Statement of
Operations for the three
years ended December 31,
1993 F-2
Consolidated Balance Sheet
as of December 31, 1993
and 1992 F-3
Consolidated Statement of
Cash Flows for the three
years ended December 31,
1993 F-5
Consolidated Statement of
Stockholders' Investment
for the three years ended
December 31, 1993 F-6
Notes to Consolidated
Financial Statements F-7
2. Financial Statement Schedules:
Schedule I - Marketable
Securities F-28
Schedule II - Notes and
Accrued Interest Receivable
from Employees F-29
Schedule V - Property and
Equipment F-30
Schedule VI - Accumulated
Depreciation and Amorti-
zation of Property and
Equipment F-31
Schedule VIII - Valuation
and Qualifying Accounts F-32
Schedule IX - Short-Term
Borrowings F-33
Schedule X - Supplementary
Profit and Loss Infor-
mation F-34
Schedules III, IV, VII, XI, XII, XIII and XIV are omitted as not
applicable or not required under the rules of Regulation S-X.
3.The exhibits are listed in the Exhibit Index, which is incorporated
herein by reference.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed by the Registrant during the
last quarter of the period covered by this report:
October 12, 1993. Item 5. Other Events, Item 7. Financial Statements,
Pro Forma Financial Information and Exhibits.
December 15, 1993. Item 5. Other Events.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on March 25, 1994.
NORTEK, INC.
By:
/s/Richard L. Bready
-------------------
Richard L. Bready
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated, as of March 25, 1994.
/s/Richard L. Bready /s/D. Stevens McVoy
- ------------------------------- ----------------------------------
Richard L. Bready, Chairman D. Stevens McVoy, Director
of the Board and President
(principal executive officer)
/s/Richard J. Harris /s/J. Peter Lyons
- ------------------------------- ----------------------------------
Richard J. Harris, Vice President J. Peter Lyons, Director
and Treasurer (principal financial
officer) and Director
/s/Almon C. Hall /s/Dennis J. McGillicuddy
- ------------------------------- ----------------------------------
Almon C. Hall, Vice President Dennis J. McGillicuddy, Director
and Controller (principal
accounting officer)
/s/Philip B. Brooks /s/Barry Silverstein
- ------------------------------- ----------------------------------
Philip B. Brooks, Director Barry Silverstein, Director
<PAGE>
Report of Independent Public Accountants
To Nortek, Inc.:
We have audited the accompanying consolidated financial statements of
Nortek, Inc. (a Delaware corporation) and subsidiaries listed in Item
14(a)(1) of this Form 10-K. These financial statements and the schedules
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules 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, 1993 and 1992, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1993 in conformity with generally accepted accounting
principles.
As explained in Note 6 to the consolidated financial statements, effective
January 1, 1993, the Company changed its method of accounting for post-
retirement benefits other than pensions.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in Item
14(a)(2) are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial
statements. These schedules have been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in
our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN & CO.
Boston, Massachusetts,
March 24, 1994
<PAGE>
Nortek, Inc. and Subsidiaries
Consolidated Statement of Operations
For the Three Years ended December 31, 1993
1993 1992 1991
------ ------ -----
(In Thousands Except Per Share Amounts)
Net Sales $744,113 $799,979 $917,049
------- ------- -------
Costs and Expenses:
Cost of products sold 532,488 595,177 693,091
Selling, general and administrative
expense 181,279 184,366 212,943
------- ------- -------
713,767 779,543 906,034
------- ------- -------
Operating earnings 30,346 20,436 11,015
Interest expense (26,519) (29,232) (39,184)
Interest and dividend income 3,223 4,446 8,769
Net gain on investment and
marketable securities 1,650 850 400
Settlement of litigation --- --- (11,500)
Loss on businesses sold or held for
sale (20,300) (14,500) (15,200)
------- ------- -------
Loss from continuing operations before
provision (credit) for income taxes (11,600) (18,000) (45,700)
Provision (credit) for income taxes 1,000 3,000 (11,000)
------- ------- -------
Loss from continuing operations (12,600) (21,000) (34,700)
Loss from discontinued operations --- (3,300) ---
------- ------- -------
Loss before extraordinary gain (loss) (12,600) (24,300) (34,700)
Extraordinary gain (loss) from debt
retirements (6,100) 100 7,600
------- ------- -------
Loss before the cumulative effect of
an accounting change (18,700) (24,200) (27,100)
Cumulative effect of an accounting
change (2,100) --- ---
------- ------- -------
Net Loss $(20,800)$(24,200) $(27,100)
======= ======= =======
Net Earnings (Loss) Per Share:
Continuing operations--
Primary $ (1.00) $ (1.67) $ (2.57)
------- ------- -------
Fully diluted $ (1.00) $ (1.67) $ (2.57)
------- ------- -------
Discontinued operations--
Primary --- (.26) ---
-------------- -------
Fully diluted --- (.26) ---
------- ------- -------
Loss before extraordinary gain (loss)--
Primary (1.00) (1.93) (2.57)
------- ------- -------
Fully diluted (1.00) (1.93) (2.57)
------- ------- -------
Extraordinary gain (loss)--
Primary (.49) .01 .56
------- ------- -------
Fully diluted (.49) .01 .56
------- ------- -------
Cumulative Effect of an Accounting
Change--
Primary (.17) --- ---
------- ------- -------
Fully diluted (.17) --- ---
------- ------- -------
Net Loss--
Primary $ (1.66) $ (1.92) $ (2.01)
======= ======= =======
Fully diluted $ (1.66) $ (1.92) $ (2.01)
======= ======= =======
Weighted Average Number of Shares:
Primary 12,622 12,645 13,460
======= ======= =======
Fully diluted 13,362 13,411 14,312
======= ======= =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
Nortek, Inc. and Subsidiaries
Consolidated Balance Sheet
December 31, 1993 and 1992
Assets 1993 1992
------ ------
(Amounts in Thousands)
Current Assets:
Unrestricted--
Cash and investments at cost which
approximates market $ 34,006 $ 23,467
Short-term investments held for
redemption of debentures 22,600 ---
Marketable securities 25,892 50,281
Restricted--
Cash and investments at cost which
approximates market 6,687 8,187
Accounts receivable, less allowances
of $4,198,000 and $3,961,000 84,843 78,363
Inventories--
Raw materials 27,603 27,269
Work in process 9,227 9,792
Finished goods 45,183 39,082
------- -------
82,013 76,143
------- -------
Current assets of business held
for sale 23,736 18,990
Insurance claims receivable 14,500 ---
Prepaid expenses and other current
assets 7,541 8,069
U. S. Federal prepaid income taxes 17,000 22,000
------- -------
Total Current Assets 318,818 285,500
------- -------
Property and Equipment, at cost:
Land 5,833 7,376
Buildings and improvements 52,309 54,416
Machinery and equipment 108,983 103,246
------- -------
167,125 165,038
Less--Accumulated depreciation 76,546 66,469
------- -------
Total Property and Equipment, net 90,579 98,569
------- -------
Other Assets:
Goodwill, less accumulated amortization
of $19,180,000 and $16,857,000 75,599 78,406
Non-current assets of business held for
sale 11,987 30,785
Other 12,226 22,113
------- -------
99,812 131,304
------- -------
$509,209 $515,373
======= =======
The accompanying notes are an integral part of these financial statements.
Nortek, Inc. and Subsidiaries
Consolidated Balance Sheet
December 31, 1993 and 1992
1993 1992
------ ------
(Amounts in Thousands)
Liabilities and Stockholders' Investment
Current Liabilities:
Notes payable, current maturities
of long-term debt and other
short-term obligations $ 14,957 $ 6,810
11 1/2% Senior Subordinated
Debentures, net 22,582 ---
Accounts payable 46,923 45,052
Accrued expenses and taxes, net 91,422 92,276
Current liabilities of business
held for sale 11,769 8,775
Insurance claims advances 13,239 ---
------- -------
Total Current Liabilities 200,892 152,913
------- -------
Other Liabilities:
Deferred income taxes 18,000 29,696
Other 8,100 3,995
------- -------
26,100 33,691
------- -------
Notes, Mortgage Notes and Debentures
Payable, Less Current Maturities 169,664 192,938
------- -------
Mortgage Notes Payable of business
held for sale 8,546 8,925
------- -------
Commitments and Contingencies (Note 7)
Stockholders' Investment:
Preference stock, $1 par value; authorized
7,000,000 shares, none issued --- ---
Common stock, $1 par value; authorized
40,000,000 shares, 15,758,974 and
15,602,142 shares issued 15,759 15,602
Special common stock, $1 par value;
authorized 5,000,000 shares, 849,575
and 990,007 shares issued 849 990
Additional paid-in capital 134,627 134,599
Retained earnings (accumulated deficit) (17,034) 3,766
Cumulative translation, pension
and other adjustments (2,143) ---
Less --treasury common stock at cost,
3,795,028 shares (26,371) (26,371)
--treasury special common stock
at cost, 271,574 shares (1,680) (1,680)
------- -------
Total Stockholders' Investment 104,007 126,906
------- -------
$509,209 $515,373
======= =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
Nortek, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
For the Three Years Ended December 31, 1993
1993 1992 1991
------ ------ ------
(Amounts in Thousands)
Cash flows from operating activities:
Net loss $(20,800) $(24,200) $(27,100)
Adjustments to reconcile net loss to cash:
Depreciation and amortization 20,726 23,644 28,373
Gain on sale of investment and
marketable securities (1,650) (850) (400)
(Gain) loss on debt retirements 9,275 (150) (12,600)
Loss on businesses sold or held for sale 20,300 19,500 15,200
Settlement of litigation --- --- 11,500
Cumulative effect of an accounting change 3,100 --- ---
Deferred federal income tax credit from
continuing operations (6,300) (1,700) (9,350)
Deferred federal income tax credit on
extraordinary loss (3,175) --- ---
Changes in certain assets and liabilities,
net of effects from acquisitions and
dispositions:
Accounts receivable, net (11,033) (7,323) (8,862)
Prepaids and other current assets (937) 2,443 (2,019)
U. S. Federal income tax refund --- 1,803 16,401
Inventories (2,854) (2,807) 11,703
Net assets of discontinued operations --- --- 1,797
Accounts payable 4,360 (1,638) 18,735
Accrued expenses and taxes (3,913) 3,398 (3,087)
Long-term assets, liabilities and
other, net 5,326 (21) (673)
------- ------- -------
Total adjustments to net loss 33,225 36,299 66,718
------- ------- -------
Net Cash Provided by Operating
Activities 12,425 12,099 39,618
------- ------- -------
Cash Flows from investing activities:
Capital expenditures (10,436) (8,804) (15,902)
Proceeds from the sale of property
and equipment 5,242 1,045 3,573
Purchase of investments and marketable
securities (87,922) (94,671) (195,677)
Purchase of restricted investments
and marketable securities --- (603)
Proceeds from the sale of investments
and marketable securities 113,961 72,280 203,133
Proceeds from the sale of restricted
investments and marketable securities --- --- 2,972
Net cash proceeds (payments) relating
to businesses sold or discontinued (2,420) 38,813 38,496
Change in restricted cash and
investments 2,552 13,030 13,972
Other, net (777) 1,080 296
------- ------- -------
Net Cash Provided by Investing
Activities 20,200 22,773 50,260
------- ------- -------
Cash Flows from financing activities:
Purchase of debentures and notes
payable (1,383) (21,693) (43,444)
Increase in borrowings 7,348 4,197 15,860
Payment of borrowings (4,124) (5,692) (73,911)
Cash dividends paid --- --- (324)
Purchase of Nortek Common and
Special Common Stock --- (2,006) (713)
Other, net (1,327) (2,720) (2,357)
------- ------- -------
Net Cash Provided by (Used in)
Financing Activities 514 (27,914) (104,889)
------- ------- -------
Net increase (decrease) in unre-
stricted cash and investments 33,139 6,958 (15,011)
Unrestricted cash and investments
at the beginning of the year 23,467 16,509 31,520
------- ------- -------
Unrestricted cash and investments
at the end of the year $56,606 $ 23,467 $ 16,509
======= ======= =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
Nortek, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Investment
For the Three Years Ended December 31, 1993
Cumulative
Translation,
Addi- Retained Pension
Special tional Earnings and Other
Common Common Paid-in (Accumulat- Adjust-Treasury
Stock Stock Capital ed Deficit) ments Stock
------ ------- ------- -------- -------
(Amounts in Thousands)
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)
140,432 shares of
special common stock
converted into 140,432
shares of common stock 141 (141) --- --- --- ---
16,400 shares of common
stock issued upon
exercise of stock
options 16 --- 28 --- --- ---
Translation adjustment --- --- --- --- (1,337) ---
Pension adjustment --- --- --- --- (806) ---
Net loss --- --- --- (20,800) --- ---
------ ------ ------- ------- ------ -------
Balance, December 31,
1993 $15,759$ 849 $134,627 $(17,034) $(2,143)$(28,051)
====== ====== ======= ======= ====== =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
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, 1993. On October 2, 1993, the Company began
to account for its Dixieline Lumber Company, Inc. subsidiary ("Dixieline") as a
business held for sale, through which business the Company conducts its Retail
Home Center Operations. As a result, Dixieline's assets and liabilities have
been separately reflected in the Company's accompanying consolidated balance
sheet, and Dixieline's operating results through October 2, 1993 have been
included in the Company's consolidated statement of operations for the year
ended December 31, 1993. The Company intends to operate this business until a
sale is consummated. (See Note 9.)
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, 1993, approximately $6,687,000 of cash and investments has been
pledged as collateral for insurance and other requirements and is classified as
restricted in current assets in the accompanying consolidated balance sheet.
Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate 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, 1993, 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
the Company's 1994 debt redemptions. (See Note 4.) At December 31, 1993,
the fair value of long-term indebtedness approximates the amount on the
Company's consolidated balance sheet.
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Inventories
Inventories in the accompanying consolidated balance sheet are valued at the
lower of cost or market. At December 31, 1993 and 1992, approximately
$53,154,000 and $45,834,000 of total inventories, respectively, were valued on
the last-in, first-out method (LIFO). Under the first-in, first-out method
(FIFO) of accounting, such inventories would have been $4,982,000 and
$11,735,000 greater at December 31, 1993 and 1992, respectively. All other
inventories were valued under the FIFO method. The increase in the amount of
LIFO inventories in 1993 primarily results from the change in accounting for
income taxes. (See Note 3.)
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.
Foreign Currency Translation
The Company translates the assets and liabilities of its foreign subsidiaries
at the exchange rates in effect at year-end. Net sales and expenses are
translated using exchange rates in effect during the year. Gains and losses
from foreign currency translation are credited or charged to cumulative
translation adjustment included in stockholders' investment in the accompanying
consolidated balance sheet. Gains and losses from foreign currency
transactions were not material in 1992 and 1991.
Depreciation and Amortization
Depreciation and amortization of property and equipment is provided on a
straight-line basis over the estimated useful lives which are generally as
follows:
Buildings and improvements 10-35 years
Machinery and equipment, including leases 3-15 years
Leasehold improvements term of lease
Expenditures for maintenance and repairs are expensed when incurred.
Expenditures for renewals and betterments are capitalized. When assets are
sold, or otherwise disposed of, the 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. Goodwill is being amortized on a straight-line method over 40
years. Amortization charged to continuing operations amounted to $2,418,000,
$2,548,000 and $2,759,000 for 1993, 1992 and 1991, respectively. 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
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
analysis, the Company believes that no material impairment of goodwill exists
at December 31, 1993.
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.
2. Cash Flows
Interest paid was $26,981,000, $27,436,000 and $38,658,000 in 1993, 1992 and
1991, respectively.
The following table summarizes the activity of businesses sold or discontinued
included in the accompanying consolidated statement of cash flows:
Year Ended December 31,
-----------------------
1993 1992 1991
---- ---- ----
(Amounts in Thousands)
Fair value of assets sold $ --- $ 52,793 $ 58,624
Liabilities assumed by the purchaser --- (13,329) (11,530)
Notes receivable and other non-cash
proceeds received as part of the
proceeds --- (316) (10,090)
Cash (paid) received relating to
businesses sold or discontinued (2,420) (335) 1,492
------ ------ ------
Net cash proceeds (payments) relating
to businesses sold or discontinued $(2,420) $38,813 $38,496
====== ====== ======
The following summarizes other non-cash financing and investing activities:
Year Ended
December 31,
-----------------------
1992 1991
---- ---- ----
(Amounts in Thousands)
Use of restricted cash and investments
in settlement of certain litigation
(see Note 7) $11,800 $ ---
Exchange of debentures (see Note 7) 4,050 ---
Settlement of 11% subordinated notes
receivable (see Note 7) 2,576 ---
Non-compete agreement --- 540
Capitalized lease obligations incurred --- 113
Other 1,556 1,174
Non-cash financing and investing activities were not significant for the year
ended December 31, 1993.
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
3. Income Taxes
In the first quarter of 1993, the Company adopted SFAS No. 109, as a change in
accounting method. 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 quarter of 1993 was not significant to the provision for
income taxes as compared to the prior accounting method. 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.
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:
Effect of
Accounting
Change
----------
(Amounts in Thousands)
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
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
December 31, 1993, as adjusted for the adoption of SFAS No. 109, is as follows:
Dec. 31, Jan. 1,
1993 1993
-------- -------
(Amounts in Thousands)
U. S. Federal Prepaid (Deferred) Income Tax
Assets Arising From:
Accounts receivable $ 1,387 $ 1,353
Inventory (666) (2,229)
Insurance reserves 4,576 4,682
Other reserves, liabilities and
assets, net 11,725 13,162
Other, net (22) 32
------ ------
$17,000 $17,000
====== ======
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Dec. 31, Jan. 1,
1993 1993
-------- -------
(Amounts in Thousands)
Deferred (Prepaid) Income Tax Liabilities
Arising From:
Property and equipment, net $11,709 $16,188
Prepaid pension assets 1,666 1,977
Unamortized debt discount 102 2,369
Insurance reserves (1,024) (556)
Other reserves, liabilities and
assets, net 844 3,621
Capital loss carryforward (6,217) (5,925)
Unrealized loss on business held
for sale (3,405) ---
Net operating loss carryforward --- (1,350)
Contribution carryforward --- (544)
Alternative minimum tax carryforward --- (509)
Valuation allowances 14,326 11,714
Other, net (1) 15
------ ------
$18,000 $27,000
====== ======
At December 31, 1993, the Company has a capital loss carryforward of
approximately $17,700,000, which expires in the year 1997. The Company has
provided a valuation allowance equal to the tax effect of capital loss
carryforwards and certain other deferred income tax assets, since realization
of these deferred income tax assets, in part, is dependent on future taxable
income which cannot be reasonably assured. At December 31, 1993, the Company
has approximately $8,000,000 of net U.S. Federal prepaid income tax assets
which are expected to be realized through future operating earnings.
At December 31, 1992, under the prior accounting method, prepaid income taxes
of approximately $22,000,000, relating principally to accruals not deductible
currently, were classified as a current asset, while cumulative deferred income
tax liabilities of approximately $29,696,000, relating principally to
depreciation differences, were classified as a non-current liability in the
accompanying consolidated balance sheet.
The following is a summary of the components of loss from continuing operations
before income tax credit:
Year Ended December 31,
-----------------------
1993 1992 1991
---- ---- ----
(Amounts in Thousands)
Domestic $(17,000) $(24,400) $(52,900)
Foreign 5,400 6,400 7,200
------ ------- -------
$(11,600) $(18,000) $(45,700)
====== ======= =======
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
The following is a summary of the provision (credit) for income taxes from
continuing operations included in the accompanying consolidated statement of
operations:
Year Ended December 31,
------------------------
1993 1992 1991
---- ---- ----
(Amounts in Thousands)
Federal Income Taxes--
Current $2,800 $ 600 $(5,400)
Deferred (6,300) (1,700) (9,350)
----- ------ -------
(3,500) (1,100) (14,750)
Foreign 2,600 3,200 3,000
State 1,900 900 750
----- ------ -------
$1,000 $ 3,000 $(11,000)
===== ====== =======
The deferred federal income tax credit from continuing operations includes the
following timing differences:
Year Ended December 31,
------------------------
1993 1992 1991
---- ---- ----
(Amounts in Thousands)
Business held for sale $(7,277) $ --- $ ---
Change in valuation reserve 2,618 --- ---
Accelerated depreciation (1,378) (1,550) (1,320)
Accruals not deductible currently 426 1,625 (3,975)
Capitalization of inventory
for tax purposes (35) 250 (25)
Effect of capital loss --- (1,400) ---
Alternative minimum income tax --- (275) (3,750)
Other, net (654) (350) (280)
----- ------ ------
Total deferred federal income tax
credit from continuing operations $(6,300) $(1,700) $(9,350)
===== ====== ======
Income tax (payments) refunds, net, were approximately $(11,950,000),
$(1,600,000) and $5,700,000 in 1993, 1992 and 1991, respectively.
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
The table below reconciles the federal statutory income tax rate to the
effective tax rate from continuing operations of approximately 8.6%, 16.7% and
24.1% in 1993, 1992 and 1991, respectively.
Year Ended December 31,
------------------------
1993 1992 1991
---- ---- ----
(Amounts in Thousands)
Income tax credit from continuing
operations at the Federal
statutory rate $(4,060) $(6,120) $(15,538)
Net change from statutory
rate:
Change in valuation reserve 2,618 --- ---
Effect of unrecognized capital
losses --- 3,990 ---
State taxes, net of federal tax
effect 1,235 594 495
Amortization not deductible for
tax purposes 746 552 358
Businesses sold (172) 2,827 968
Foreign source deemed income 700 648 2,182
Tax effect on foreign income 196 479 546
Other, net (263) 30 (11)
----- ------ -------
Income tax provision (credit)
from continuing operations $ 1,000 $ 3,000 $(11,000)
===== ====== =======
The Company recorded a $1,000,000 income tax credit (principally deferred) in
the first quarter of 1993 relating to the cumulative effect of an accounting
change for certain post-retirement benefits. In the fourth quarter of 1993,
the Company recorded a $3,175,000 deferred income tax credit relating to the
extraordinary loss, arising from indebtedness called for redemption. (See Note
4.) In 1991, the Company recorded a $5,000,000 current income tax provision
relating to the extraordinary gain on debt retirements.
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
4. Notes, Mortgage Notes and Debentures Payable
Notes, mortgage notes and debentures payable in the accompanying consolidated
balance sheet at December 31, 1993 and 1992 consist of the following:
December 31,
-------------
1993 1992
---- ----
(Amounts in Thousands)
Notes payable to banks $ 7,348 $ ---
Mortgage notes payable 8,188 11,676
Other 1,141 4,085
9 3/4% Senior Notes due 1997
("9 3/4% Senior Notes"), net of
unamortized original issue
discount of $293,000 and
$6,967,000 51,152 44,478
13 1/2% senior subordinated
debentures due 1997 ("13 1/2%
Debentures"), net of unamortized
original issue discount of
$53,000 and $438,000 79,305 79,685
11 1/2% senior subordinated
debentures due 1994 ("11 1/2%
Debentures"), net of unamortized
original issue discount of
$18,000 and $69,000 22,582 22,531
11% subordinated sinking fund
debentures due 2004 ("11%
Debentures"), net of unamortized
debt discount of $18,000 and
$666,000 19,406 18,758
10% subordinated sinking fund
debentures due 1999 ("10%
Debentures"), net of unamortized
debt discount of $8,000 and
$269,000 2,587 2,742
7 1/2% convertible sinking fund
debentures due 2006 ("7 1/2%
Convertible Debentures") 15,494 15,793
------- -------
207,203 199,748
Less amounts included in current
liabilities 37,539 6,810
------- -------
$169,664 $192,938
======= =======
On January 14, 1994, the Company redeemed $22,600,000 principal amount of its
11-1/2% Debentures, which were called for redemption in December 1993 and are
classified as a current liability in the accompanying consolidated balance
sheet.
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
In February 1994, the Company sold in a public offering $218,500,000 of its 9-
7/8% Senior Subordinated Notes due 2004 ("9-7/8% Notes") at a discount of
approximately $1,717,000, which will be amortized over the life of the issue.
Net proceeds from the sale of the 9-7/8% Notes, after deducting underwriting
commissions and expenses, amounted to approximately $207,695,000, and a portion
of such proceeds were used to redeem on March 24, 1994 the Company's
outstanding principal amount of indebtedness and pay accrued interest on
$51,445,000 of its 9-3/4% Senior Notes, $79,358,000 of its 13-1/2% Debentures,
$2,595,000 of its 10% Debentures, and $19,424,000 of its 11% Debentures, all of
which were called for redemption on February 22, 1994. The 13-1/2% Debentures
were redeemed at 101.5% of the outstanding principal amount thereof, while the
other issues were redeemed at par. The call for these debt redemptions
resulted in an extraordinary loss of approximately $6,100,000 ($.49 per share)
net of an income tax credit of approximately $3,175,000, which was recorded in
the fourth quarter of 1993.
The unaudited pro forma consolidated loss from continuing operations and fully
diluted loss per share would have been $11,800,000 and $.94, respectively for
the year ended December 31, 1993, as adjusted for the pro forma effect of this
financing and the redemption of the Company's indebtedness, had such
transactions been completed as of January 1, 1993. The pro forma data does not
purport to be indicative of the results which would actually have been
reported, or which may be reported in the future. The pro forma data includes a
net after-tax loss of approximately $14,900,000 ($1.19 per share) as a result
of the valuation reserve provided on Dixieline (See Note 9). In computing the
pro forma loss from continuing operations, interest expense on the indebtedness
redeemed during the period that such indebtedness was outstanding was excluded
from operating results at an average interest rate of approximately 13.3%
(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
approximately 9-7/8% plus amortization of deferred debt expense and debt
discount, net of the tax effect. Investment income was assumed earned on the
remaining cash proceeds from the debt financing at a rate of 3.5%.
The 9-7/8% Notes are redeemable at the option of the Company, in whole or in
part, at any time and from time to time, at 104.214% on March 1, 1999,
declining to 100% on March 1, 2002 and thereafter.
The Company's Canadian subsidiary has a $15,200,000 secured line of credit, of
which approximately $11,200,000 in the aggregate is available to the Company.
At December 31, 1993, there was approximately $7,000,000 outstanding (all of
the proceeds of which borrowings were advanced to the Company) under this
secured line of credit bearing interest at rates that approximate the prime
rate of interest. At March 15, 1994, there was approximately $2,346,000
outstanding borrowings under this secured line of credit. The line of credit
facility is subject to review by April 30, 1994. The Canadian subsidiary pays a
commitment fee of .25% per annum on the unutilized portion of the line of
credit payable monthly on a pro rata basis. Borrowings are available for
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
working capital and other general corporate purposes, of which approximately
$3,850,000 at March 15, 1994 is available for Nortek and its other
subsidiaries' requirements.
Mortgage notes payable include various mortgage notes and other related
indebtedness payable in installments through 1998 and bearing interest at rates
ranging from 2% to 13.5%. Approximately $8,038,000 of such indebtedness is
collateralized by property and equipment with an aggregate net book value of
approximately $5,901,000 at December 31, 1993.
Other obligations include borrowings relating to equipment purchases and other
borrowings bearing interest from 2% to 5% and maturing at various dates through
2001. Approximately $1,141,000 of such indebtedness is collateralized by
property and equipment with an aggregate net book value of approximately
$1,338,000 at December 31, 1993.
Mortgage notes payable of a business held for sale principally include various
mortgage notes payable of Dixieline in installments through 1997 and bearing
interest at an adjustable rate equal to three points over the U. S. treasury
bill rate. At December 31, 1993, the current interest rate was approximately
6.23% under these mortgage notes payable. Approximately $8,546,000 of such
indebtedness is collateralized by property and equipment with an aggregate net
book value of $10,095,000 at December 31, 1993. Maturities of such indebtedness
are $255,000 in 1995, $2,769,000 in 1996 and $5,522,000 in 1997.
During 1993, the Company acquired, at a discount, in open market transactions
approximately $1,202,000 principal amount of its various notes and debentures.
These purchases did not result in a gain or loss. During 1992 and 1991, the
Company acquired, at a discount, in open market and negotiated transactions,
approximately $26,398,000 and $56,485,000, respectively, principal amount of
its various notes and debentures. These transactions resulted in an
extraordinary gain of $200,000, net of income taxes of $150,000 ($.01 per
share) in the second quarter of 1992, an extraordinary loss of $100,000, net of
an income tax credit of $100,000 ($.01 per share) in the third quarter of 1992,
extraordinary gains of $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, and $2,900,000, net of
income taxes of $1,850,000 ($.22 per share) in the fourth quarter of 1991.
Discount and deferred costs relating to various notes and debentures in 1993
were principally being amortized over the original life of those issues. Such
amortization of discount and deferred costs was approximately $2,100,000,
$2,000,000 and $2,000,000 in 1993, 1992 and 1991, respectively. In the fourth
quarter of 1993, as a result of the call for redemption of certain of the
Company's indebtedness described above, the Company wrote off approximately
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
$8,100,000 of unamortized deferred debt expense and debt discount and provided
a redemption premium of approximately $1,175,000, both of which were recorded
as an extraordinary loss.
The indenture governing the 9-7/8% Notes restricts, among other things, the
payment of cash dividends, repurchase of the Company's capital stock and the
making of certain other restricted payments, the incurrence of additional
indebtedness, the making of certain investments, mergers, consolidations and
sale of assets (all as defined in the indenture). Upon certain asset sales (as
defined in the indenture), the Company will be required to offer to purchase,
at 100% principal amount plus accrued interest to the date of purchase, 9-7/8%
Notes in a principal amount equal to any net cash proceeds (as defined in the
indenture) that are not invested in properties and assets used primarily in the
same or related business to those owned and operated by the Company at the
issue date of the 9-7/8% Notes or at the date of such asset sale and such net
cash proceeds were not applied to permanently reduce Senior Indebtedness (as
defined in the indenture).
The indenture governing the 7 1/2% 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 due after such Accelerated Payment Date. Such
redemptions will continue until the Company's net worth exceeds $100,000,000 or
until all 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.
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 102.25% (as of December 31, 1993)
declining to 100% on May 1, 1996.
At December 31, 1993 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.
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
The following is a summary of maturities of all of the Company's debt
obligations, excluding unamortized debt discount, due after December 31, 1994,
as adjusted for the pro forma effect of the financing and the redemption of the
Company's indebtedness on March 24, 1994:
(Amounts in Thousands)
1995 $ 498
1996 533
1997 527
1998 488
Thereafter 234,223
-------
$236,269
=======
After the redemption on March 24, 1994 of certain indebtedness noted above, the
indenture governing the 7-1/2% Convertible Debentures will be the most
restrictive of the Company's loan agreements and indentures. The payment of
cash dividends and stock payments was prohibited at December 31, 1993 and
subsequently thereafter.
5. 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, 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.
At December 31, 1993, a total of 2,360,521 shares of Common Stock was reserved
as follows:
Conversion of convertible debentures 718,646
Stock option plans 792,300
Conversion of special common stock 849,575
---------
2,360,521
=========
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
At December 31, 1993, 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 Stock and
Special Common Stock, and at December 31, 1993, there were options outstanding
covering 503,900 shares of Common and Special Common Stock, of which 233,200
options are currently exercisable.
Options for 65,100 and 41,400 shares of Common and Special Common Stock became
exercisable during 1993 and 1992, respectively. Proceeds from options
exercised are credited to common stock and additional paid-in capital.
The following table summarizes all Common and Special Common Stock option
transactions for the three years ended December 31, 1993:
Option Price
Number ------------
of Shares Per Share Total
--------- --------- -----
Options outstanding at
December 31, 1990 354,300 $2.25-$15.69 $1,529,634
Granted 30,000 2.88 86,250
Canceled (7,800) 2.88 (22,425)
Options outstanding at
December 31, 1991 376,500 $2.25-$15.69 $1,593,459
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
Granted 280,000 8.75 2,450,000
Exercised (16,400) 2.25-2.875 (44,000)
------- ----------- ---------
Options outstanding at
December 31, 1993 503,900 $2.25-15.69 $3,470,838
======= =========== =========
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 4 with respect to limitations on the payment of cash dividends and stock
payments.)
6. 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 $1,683,000 in 1993, $2,130,000 in 1992, and $1,938,000
in 1991. The Company's policy is to fund currently the actuarially determined
annual contribution.
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
The Company's net pension expense (credit) for its defined benefit plans for
1993, 1992 and 1991 consists of the following components:
Year Ended December 31,
-----------------------
1993 1992 1991
---- ---- ----
(Amounts in Thousands)
Service costs $1,685 $1,584 $1,213
Interest cost 1,989 1,967 1,818
Actual net income on
plan assets (3,295) (3,173) (4,762)
Net amortization and deferred
items 822 1,070 2,635
----- ----- -----
Net pension expense $1,201 $1,448 $ 904
===== ===== =====
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:
Dec. 31,
Dec. 31, 1993 1992
------------- ---------
Plan Assets Accumulated Plan Assets
Exceeding Benefit Exceeding
Accumulated Obligation Accumulated
Benefit Exceeding Benefit
Obligation Plan Assets Obligation
(Amounts in Thousands)
Actuarial present value of benefit
obligations at September 30:
Vested benefits $17,799 $ 4,221 $17,535
Non-vested benefits 434 305 552
------ ------ ------
Accumulated benefit obligation 18,233 4,526 18,087
Effect of projected future
compensation levels 5,936 --- 5,829
------ ------ ------
Projected benefit obligation 24,169 4,526 23,916
Plan assets at fair value at
September 30 24,055 3,678 26,065
------ ------ ------
Plan assets in excess of (less than)
the projected benefit obligation (114) (848) 2,149
Unrecognized net loss 7,294 806 5,930
Unrecognized transition net
asset at January 1 (2,971) --- (3,320)
Unrecognized prior service costs 312 652 985
Additional minimum liability --- (1,458) ---
------ ------ ------
Prepaid pension costs (liability)
at December 31 $ 4,521 $ (848) $ 5,744
====== ====== ======
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 7.125 percent
and 5.5 percent, respectively, in 1993, and 8 percent and 6 percent,
respectively, in 1992 and 1991. The expected long-term rate of return on
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
assets was 8.5 percent in 1993 and 9.5 percent in 1992 and 1991.
In 1993, a minimum pension liability and an intangible asset for certain plans
was recognized, resulting in a reduction in the Company's stockholders'
investment of approximately $806,000.
Certain of the Company's subsidiaries provided 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 Post-Retirement Benefits Other Than
Pensions" and recorded an accumulated post-retirement benefit obligation
("APBO") of approximately $3,100,000 (before 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, such
benefits were charged to operating results in the period that such benefits
were paid. Approximately $950,000 of the APBO was paid during 1993 as a result
of certain plan modifications. The annual expense for 1993 from adopting SFAS
106 was approximately equal to the expense that would have been recorded under
the previous accounting method. The discount rate used in determining the APBO
at January 1, 1993 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
determining the APBO at January 1, 1993, decreasing gradually to 6 percent in
the year 2009. If the assumed health care and related cost trend rates
increased 1 percent for all future years, the APBO at January 1, 1993 could
have increased 10 percent. At December 31, 1993, the actuarially determined
APBO for remaining plan benefits was approximately $1,400,000, relating
principally to one subsidiary of the Company. The annual expense and liability
related to these benefits is not significant to the Company's operations or
financial position.
7. 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.
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 December 31, 1993, the
Company accrued for estimated losses of $14,500,000 related to the flooding,
recorded a receivable of approximately $14,500,000 for casualty, property
damage and business interruption insurance claims due from its insurance
carrier and recorded as a liability approximately $13,200,000 of cash advances
received relating to such claims. 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.
In July 1992, derivative litigation against the Company and its directors
challenging the transactions involving the retirement in 1990 of the Company's
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
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
certain notes (carried at approximately $2,576,000 on Nortek's books at the
date of the exchange) due from a company controlled by Nortek's former Chairman
and held by the Company for $4,050,000 principal amount of Nortek 13-1/2%
Debentures held by such company controlled by Nortek's former Chairman.
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.
At December 31, 1993, the Company and its subsidiaries, excluding Dixieline,
are obligated under lease agreements for the rental of certain real estate and
machinery and equipment used in its operations. Minimum annual rental expense
aggregates approximately $12,728,000 at December 31, 1993. The obligations are
payable as follows:
1994 $4,966,000
1995 2,431,000
1996 1,691,000
1997 1,416,000
1998 1,343,000
Thereafter 881,000
Certain of these lease agreements provide for increased payments based on
changes in the consumer price index. Rental expense, from continuing
operations in the accompanying consolidated statement of operations, excluding
Dixieline, for the years ended December 31, 1993, 1992 and 1991 was
approximately $6,562,000, $8,716,000 and $10,583,000, respectively. Under
certain of these lease agreements, the Company and its subsidiaries are also
obligated to pay insurance and taxes.
At December 31, 1993, Dixieline is obligated under lease agreements for the
rental of certain real estate and machinery and equipment used in its
operations. Minimum rental expense (net of minimum sub lease rental income of
approximately $9,327,000) aggregates approximately $25,086,000 at December 31,
1993. Obligations are payable as follows:
1994 $ 2,190,000
1995 1,863,000
1996 1,596,000
1997 1,513,000
1998 1,492,000
Thereafter 16,432,000
Certain of these lease obligations provide for increased payments based on
changes in the consumer price index. Dixieline's rental expense, net, from
continuing operations included in the Company's accompanying consolidated
statement of operations for the years ended December 31, 1993, 1992 and 1991
was approximately $1,225,000, $1,910,000 and $1,851,000, respectively. Under
certain of these lease agreements, Dixieline is obligated to pay insurance and
taxes.
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
At December 31, 1993, the Company is contingently liable for obligations
(approximately $7,500,000) 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. In March 1994,
the Company paid approximately $1,594,000 to the Trustee of these IRB's for
interest payments through that date. 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, environmental matters, contract and
employment claims, product liability, warranty and modification, adjustment or
replacement of component parts of units sold, which may include product
recalls. 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.
8. Operating Segment Information and Concentration of Credit Risk
The Company 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, 1993, the Company had no
significant concentrations of credit risk.
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
9. Businesses Sold or Held for Sale
In October 1993, the Company decided to sell 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.
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.
("L. J. Smith") for approximately $24,000,000. 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 provided
additional reserves 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 or
held for sale in 1993 and 1992 included in the consolidated statement of
operations of the Company were approximately $83,205,000 and $600,000,
respectively, for the year ended December 31, 1993, and approximately
$185,431,000 and $2,250,000, respectively, for the year ended December 31,
1992.
10. Discontinued Operations
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.
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).
11. Net Gain (Loss) on Investment and Marketable Securities
During 1993, the Company recorded a pre-tax gain on investment and marketable
securities of $1,000,000 ($0.05 per share, net of tax) in the first quarter, a
pre-tax gain of $450,000 ($0.02 per share, net of tax) in the second quarter, a
$900,000 pre-tax gain ($0.05 per share, net of tax) in the third quarter and a
pre-tax loss of $700,000 ($0.04 per share, net of tax) in the fourth quarter.
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
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.
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.
12. Selling, General and Administrative Expense
In the fourth quarter of 1993, the Company's Plumbing Products Group recorded a
pre-tax loss of approximately $2,800,000 ($.15 per share, net of tax) in
connection with the curtailment of certain product lines. In the third quarter
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.
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.
13. Accrued Expenses and Taxes, Net
Accrued expenses and taxes, net, consist of the following at December 31, 1993
and 1992:
December 31,
-------------
1993 1992
---- ----
(Amounts in Thousands)
Interest $ 4,759 $ 4,840
Insurance 17,677 18,071
Payroll, management incentive and
accrued employee benefits 11,647 10,567
Businesses sold or discontinued 8,650 12,963
Other, net 48,689 45,835
------- ------
$91,422 $92,276
======= ======
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
14. Summarized Quarterly Financial Data (Unaudited)
The following summarizes unaudited quarterly financial data for the years ended
December 31, 1993 and December 31, 1992:
For the Quarters Ended
----------------------
April 3 July 3 Oct. 2 Dec. 31
------- ------- ------ -------
(In Thousands except per share amounts)
1993
Net sales $178,707 $195,058 $202,030 $168,318
Gross profit 49,545 54,665 56,985 50,430
Earnings (loss) from
continuing operations (1,400) 1,500 (12,900) 200
Earnings (loss) per share
from continuing operations:
Primary $ (.11) $ .12 $ (1.03) $ .02
Fully diluted $ (.11) $ .12 $ (1.03) $ .02
Net earnings (loss) $ (3,500) $ 1,500 $(12,900) $ (5,900)
Net earnings (loss) per share:
Primary $ (.28) $ .12 $ (1.03) $ (.47)
Fully diluted $ (.28) $ .12 $ (1.03) $ (.47)
For the Quarters Ended
----------------------
March 28 June 27 Sept. 26 Dec. 31
-------- ------- ------ -------
(In Thousands except per share amounts)
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)
The Company's earnings (loss) from continuing operations in 1993 includes an
approximately $14,900,000 net after tax loss ($1.19 per share) in the third
quarter relating to a valuation reserve to reduce the Company's investment in
Dixieline to estimated net realizable value. (See Notes 1 and 9.) The net
earnings (loss) in 1993 also includes an approximately $2,100,000 net after-tax
loss ($0.17 per share) related to the cumulative effect of an accounting change
in the first quarter (see Note 6), and an approximately $6,100,000 after-tax
extraordinary loss ($0.49 per share) in the fourth quarter related to the call
for debt redemption in the first quarter of 1994. (See Note 4.)
The Company's earnings (loss) from continuing operations in 1992 includes a net
after-tax gain of approximately $4,200,000 ($.34 per share) in the first
quarter, a net after-tax loss of approximately $18,200,000 ($1.43 per share)
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
in the third quarter and a net after-tax loss of approximately $2,000,000 ($.17
per share) in the fourth quarter on businesses sold. The Company's 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 7 and 9).
See Notes 4, 5, 9, 10, 11 and 12 regarding certain other quarterly transactions
included in the operating results in the above table.
Lower net sales in 1993 and 1992, as compared to the prior year principally
reflect the effect of businesses sold or held for sale, partially offset by
increased net sales of ongoing operations, in part, resulting from the slight
improvement in the residential housing market. (See Management's Discussion and
Analysis of Financial Condition and Results of Operations).
<PAGE>
SCHEDULE I
NORTEK, INC. AND SUBSIDIARIES
MARKETABLE SECURITIES
DECEMBER 31, 1993
NUMBER OF
SHARES, MARKET AMOUNT
UNITS OR COST VALUE ON THE
PRINCIPAL OF EACH OF EACH BALANCE
DESCRIPTION AMOUNT ISSUE ISSUE SHEET
- ----------- --------- ------- ------- -------
(Dollar Amounts in Thousands)
Unrestricted marketable
securities:
U. S. Governmental and Agency
Securities 26,000 $26,321 $25,892 $25,892
SCHEDULE II
NORTEK, INC. AND SUBSIDIARIES
NOTES AND ACCRUED INTEREST RECEIVABLE FROM EMPLOYEES
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
BALANCE DEDUCTIONS BALANCE
BEGINNING AMOUNTS AMOUNTS END OF YEAR
------------ -----------
NAME OF YEAR ADDITIONS COLLECTED WRITTEN OFF CURRENT NON-CURRENT
1991
Ralph R.
Papitto(c) $324,940$27,253(a) $ --- $ --- $ --- $352,193
1992
Ralph R.
Papitto(c) $352,193$27,253(a) $ --- $ --- $379,446 $ ---
======= ====== ==== ==== ======= =======
1993
Ralph R.
Papitto(c) $379,446$22,711(a) $ ---$402,157(b) $ --- $ ---
======= ====== ==== ======= ======= =======
(a) Accrued interest at a rate of 8.95%.
(b) Amounts forgiven and recorded as compensation expense.
(c) In connection with the retirement and settlement of the employment
agreement and other matters involving the Company's former Chairman, the
remaining principal balance and accrued interest was forgiven on October
31, 1993.
SCHEDULE V
NORTEK, INC. AND SUBSIDIARIES
PROPERTY AND EQUIPMENT
OTHER (e)
BALANCE AT CHANGES BALANCE
BEGINNING ADDITIONS DEBIT/ AT END
CLASSIFICATION OF YEAR AT COST (CREDIT) OF YEAR
- -------------- ---------- --------- ------- -------
(Amounts in Thousands)
For the year ended December 31, 1991:
Land $ 23,797 $ 33 $ (822) (a)$23,043
(430) (b)
465 (c)
Buildings and (2,647) (a)
Improvements 95,113 2,201 (8,997) (b)89,027
3,357 (c)
(2,575) (a)
Machinery and (18,054) (b)
Equipment and other 133,658 13,781 (5,304) (c)121,506
------- ------ ------- -------
$252,568 $16,015 $(35,007) $233,576
======= ====== ======= =======
For the year ended December 31, 1992:
$ (94) (a)
Land $ 23,043 $ 10 (1,409) (b)$20,822
(728) (c)
Buildings and (1,104) (a)
Improvements 89,027 316 (9,915) (b)71,388
(6,936) (c)
(4,162) (a)
Machinery and (12,790) (b)
Equipment and other 121,506 8,478 (1,154) (c)111,878
------- ------ ------- -------
$233,576 $ 8,804 $(38,292) $204,088
======= ====== ======= =======
For the year ended December 31, 1993:
Land $ 20,822 $ 60 $ (1,603) (c)$ 5,833
(13,446) (d)
(103) (a)
Buildings and (902) (c)
Improvements 71,388 305 (18,379) (d)52,309
(2,649) (a)
Machinery and (2,146) (c)
Equipment and other 111,878 10,444 (8,544) (d)108,983
------- ------ ------- -------
$204,088 $10,809 $(47,772) $167,125
======= ====== ======= =======
(a) Sale, retirement or transfers of property and equipment
(b) Sale of businesses
(c) Other
(d) Transfer of property and equipment of Dixieline to non-current assets of
business held for sale
(e) The total amount of property and equipment at December 1992, of
approximately $204,088,000 above, includes approximately $39,050,000 of
Dixieline property and equipment classified as non-current assets of
business held for sale in the accompanying consolidated balance sheet.
SCHEDULE VI
NORTEK, INC. AND SUBSIDIARIES
ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT
ADDITIONS (a)
BALANCE ATCHARGED TORETIREMENTS BALANCE
BEGINNING COSTS AND AND AT END
CLASSIFICATION OF YEAR EXPENSES OTHER OF YEAR
- -------------- ------------------------------- -------
(Amounts in Thousands)
For the year ended December 31, 1991:
Buildings and
Improvements $19,737 $ 5,189 $ (3,004) $21,922
Machinery and
Equipment 46,722 15,563 (9,574) 52,711
------ ------ ------- ------
$66,459 $20,752 $(12,578) $74,633
====== ====== ======= ======
For the year ended December 31, 1992:
Buildings and
Improvements $21,922 $ 4,241 $ (5,797) $20,366
Machinery and
Equipment 52,711 13,041 (10,811) 54,941
------ ------ ------- ------
$74,633 $17,282 $(16,608) $75,307
====== ====== ======= ======
For the year ended December 31, 1993:
Buildings and
Improvements $20,366 $ 3,596 $ (7,777) $16,185
Machinery and
Equipment 54,941 11,397 (5,977) 60,361
------ ------ ------- ------
$75,307 $14,993 $(13,754) $76,546
====== ====== ======= ======
(a) The total amount of accumulated depreciation at December 31, 1992 of
approximately $75,307,000 above includes approximately $8,838,000 of
Dixieline accumulated depreciation classified in non-current assets of
business held for sale in the accompanying consolidated balance sheet.
SCHEDULE VIII
NORTEK, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
BALANCE CHARGED
AT TO COSTS CHARGED DEDUCTIONS BALANCE
BEGINNING AND TO OTHER FROM AT END
CLASSIFICATION OF YEAR EXPENSES ACCOUNTS RESERVES OF YEAR
- -------------- --------- -------- -------- ---------- -------
(Amounts in Thousands)
For the year ended December 31, 1991:
Allowances for doubtful
accounts and sales
allowances $4,633 $3,349$(1,160)(b)$(2,189)(a) $4,633
===== ===== ====== ====== =====
For the year ended December 31, 1992:
Allowances for doubtful
accounts and sales
allowances $4,633 $2,362$ (573)(b)$(2,354)(a) $4,068
===== ===== ===== ====== =====
For the year ended December 31, 1993:
Allowances for doubtful
accounts and sales
allowances $4,068 $1,832$ (125)(c)$(1,577)(a) $4,198
===== ===== ===== ====== =====
(a) Amounts written off, net of recoveries.
(b) Sale of businesses.
(c) Transfer of allowances for doubtful accounts of Dixieline to current
assets of business held for sale.
SCHEDULE IX
NORTEK, INC. AND SUBSIDIARIES
SHORT-TERM BORROWINGS
DECEMBER 31, 1993
WEIGHTED MAXIMUM AVERAGE
AVERAGE AMOUNT AMOUNT AVERAGE
INTEREST OUT- OUT- INTEREST
CATEGORY OF BALANCE RATE STANDING STANDING RATE
AGGREGATE SHORT- AT END AT END DURING DURING DURING
TERM BORROWINGS OF YEAR OF YEAR THE YEAR THE YEAR THE YEAR
- ---------------- ------- -------- -------- ---------- ----------
(Dollar Amounts in Thousands)
Year ended December
31, 1991:
Credit Line Borrowings(a) $ --- --- $15,600 $10,900 10.38%
Margin Borrowings(b) --- --- 9,000 --- ---
Year ended December
31, 1992:
Margin Borrowings(b) $ --- --- $13,100 $ 4,831 6.34%
Year ended December
31, 1993:
Credit Line Borrowings(c) $7,000 6.15% $7,000 $7,000 6.15%
Margin Borrowings(b) --- --- 7,000 5,293 5.50%
(a) During 1991, the Company's Canadian subsidiary had up to approximately
$15,600,000 of borrowings under a secured line of credit. The average
amount outstanding and average interest rate during the year was
calculated based on outstanding balances and weighted average interest
rates at each month end during the year, respectively.
(b) During 1991, the Company had margin borrowings outstanding of $9,000,000
for three days at 7.75%. During 1992, the Company had margin borrowings
outstanding for 141 days at a weighted average interest rate of
approximately 6.34% and a weighted average amount outstanding of
approximately $4,831,000. During 1993, the Company had margin borrowings
outstanding for 51 days at a weighted average interest rate of
approximately 5.50% and a weighted average amount outstanding of
approximately $5,293,000. There were no borrowings outstanding at
December 31, 1993.
(c) On December 30, 1993, the Company's Canadian subsidiary borrowed
approximately $7,000,000 under its secured line of credit, and such
borrowings were advanced to Nortek, Inc. (See Note 4 of the Notes to
Consolidated Financial Statements, included elsewhere herein.)
SCHEDULE X
NORTEK, INC. AND SUBSIDIARIES
SUPPLEMENTARY PROFIT AND LOSS INFORMATION (a)
Year Ended December 31,
-----------------------
1993 1992 1991
-------- ----
(Amounts in Thousands)
Maintenance and repairs $ 8,258 $10,955 $11,640
====== ====== ======
Advertising $12,186 $10,963 $11,945
====== ====== ======
(a)Depreciation and amortization of intangible assets and similar deferrals
have been disclosed separately in the Registrant's consolidated
financial statements for the three years ended December 31, 1993.
Taxes, other than payroll and income taxes, and royalties, as reported
in the related consolidated statement of operations, did not exceed 1%
of net sales and are therefore not required to be disclosed separately.
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Nortek, Inc.:
As independent public accountants, we hereby consent to the
incorporation of our report dated March 24, 1994 included in this Form 10-K,
into the Company's previously filed Registration Statements on Form S-8
(File Nos. 33-22527 and 33-47897) and Form S-3 (File No. 33-4693).
ARTHUR ANDERSEN & CO.
Boston, Massachusetts,
March 24, 1994
<PAGE>
EXHIBIT INDEX
Exhibits marked with an asterisk are filed herewith. The remainder of the
exhibits have heretofore been filed with the Commission and are incorporated
herein by reference. Exhibits marked with a double asterisk identify each
management contract or compensatory plan or arrangement.
3.1 Restated Certificate of Incorporation of Nortek, Inc. (Exhibit 2
to Form 8-K filed April 23, 1987, File No. 1-6112).
3.2 Amendment to Restated Certificate of Incorporation of Nortek,
Inc. effective May 10, 1989 (Exhibit 3.2 to Form 10-K filed March 30,
1990, File No. 1-6112).
*3.3 By-laws of Nortek, Inc. (as amended through November 30, 1993).
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 February 14, 1994 between the Company and
State Street Bank and Trust Company, as Trustee, relating to the 9
7/8% Senior Subordinated Notes due 2004.
**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 as 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 (Exhibit 10.4 to Registration
Statement No. 33-69778 filed February 9, 1994).
**10.5 Deferred Compensation Agreement dated March 7, 1983 between
Almon C. Hall and the Company (Exhibit 10.5 to Registration Statement
No. 33-69778 filed February 9, 1994.
**10.6 Deferred Compensation Agreement dated March 7, 1983 between
Richard J. Harris and the Company (Exhibit 10.6 to Registration
Statement No. 33-69778 filed February 9, 1994).
**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 4 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).
*11.1 Calculation of Shares Used in Determining Earnings Per
Share.
*22.1 List of subsidiaries.
<PAGE>
As Amended through
November 30, 1993
BY-LAWS
of
NORTEK, INC.
SECTION 1.
LAW, CERTIFICATE OF INCORPORATION
AND BY- LAWS
1.1. These by-laws are subject to the certificate of
incorporation of the corporation. In these by-laws, references
to law, the certificate of incorporation and by-laws mean the
law, the provisions of the certificate of incorporation and
the by-laws as from time to time in effect.
SECTION 2.
STOCKHOLDERS
2.1. Annual Meeting. The annual meeting of stockholders
shall be held at 11:00 A.M. on the third Wednesday in July in
each year, unless that day be a legal holiday at the place
where the meeting is to be held, in which case the meeting
shall be held at the same hour on the next succeeding day not
a legal holiday, or at such other date and time as shall be
designated from time to time by the board of directors and
stated in the notice of the meeting, at which they shall elect
a board of directors and transact such other business as may
be required by law or these by-laws or as may properly come
before the meeting.
2.2 Special Meeting in Place of Annual Meeting. If the
election for directors shall not be held on the day designated
by these by-laws, the directors shall cause the election to be
held as soon thereafter as convenient, and to that end, if the
annual meeting is omitted on the day herein provided therefor
or if the election of directors shall not be held thereat, a
special meeting of the stockholders may be held in place of
such omitted meeting or election, and any business transacted
or election held at such special meeting shall have the same
effect as if transacted or held at the annual meeting, and in
such case all references in these by-laws to the annual
meeting of the stockholders, or to the annual election of
directors, shall be deemed to refer to or include such special
meeting. Any such special meeting shall be called, and the
purposes thereof shall be specified in the call, as provided
in Section 2.3.
2.3. Special Meetings. A special meeting of the
stockholders may be called at any time by the chairman of the
board, if any, the president or by the board of directors.
2.4. Place of Meeting. All meetings of the stockholders
for the election of directors or for any other purpose shall
be held at such place within or without the State of Delaware
as may be determined from time to time by the chairman of the
board, if any, the president or the board of directors. Any
adjourned session of any meeting of the stockholders shall be
held at the place designated in the vote of adjournment.
2.5. Notice of Meetings. Except as otherwise provided by
law, a written notice of each meeting of stockholders stating
the place, day and hour thereof and, in the case of a special
meeting, the purposes for which the meeting is called, shall
be given not less then ten nor more than sixty days before the
meeting, to each stockholder entitled to vote thereat, and to
each stockholder who, by law, by the certificate of
incorporation or by these by-laws, is entitled to notice, by
leaving such notice with him or at his residence or usual
place of business, or by depositing it in the United States
mail, postage prepaid, and addressed to such stockholder at
his address as it appears in the records of the corporation.
Such notice shall be given by the secretary, or by an officer
or person designated by the board of directors, or in the case
of a special meeting by the officer calling the meeting. As to
any adjourned session of any meeting of stockholders, notice
of the adjourned meeting need not be given if the time and
place thereof are announced at the meeting at which the
adjournment was taken except that if the adjournment is for
more than thirty days or if after the adjournment a new record
date is set for the adjourned session, notice of any such
adjourned session of the meeting shall be given in the manner
heretofore described. No notice of any meeting of stockholders
or any adjourned session thereof need be given to a
stockholder if a written waiver of notice, executed before or
after the meeting or such adjourned session by such
stockholder, is filed with the records of the meeting or if
the stockholder attends such meeting without objecting at the
beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened.
Neither the business to be transacted at, nor the purpose of,
any meeting of the stockholders or any adjourned session
thereof need be specified in any written waiver of notice.
2.6. Quorum of Stockholders. At any meeting of the
stockholders, whether the same be an original or an adjourned
session, a quorum shall consist of a majority in interest of
all stock issued and outstanding and entitled to vote at the
meeting, provided that, except as may otherwise be provided in
the certificate of incorporation, when a specified item of
business is required to be voted on by a class or series,
voting as a class, the holders of one-third of the shares of
such class or series shall constitute a quorum for the
transaction of such specified item of business. Any meeting
may be adjourned from time to time by a majority of the votes
properly cast upon the question, whether or not a quorum is
present.
2.7. Action by Vote. When a quorum is present at any
meeting, whether the same be an original or an adjourned
session, a plurality of the votes properly cast for election
to any office shall elect to such office and a majority of the
votes properly cast upon any question other than an election
to an office shall decide the question, except when a larger
vote is required by law, by the certificate of incorporation
or by these by-laws. No ballot shall be required for any
election unless requested by a stockholder present or
represented at the meeting and entitled to vote in the
election.
2.8. Action without Meetings. Unless otherwise provided
in the certificate of incorporation, any action required or
permitted to be taken by stockholders for or in connection
with any corporate action may be taken without a meeting,
without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by
the holders of all of the shares of outstanding stock of the
corporation having power to vote.
If action is taken by unanimous consent of stockholders,
the writing or writings comprising such unanimous consent
shall be filed with the records of the meetings of
stockholders.
In the event that the action which is consented to is
such as would have required the filing of a certificate under
any of the provisions of the Central Corporation Law of
Delaware, if such action had been voted upon by the
stockholders at a meeting thereof, the certificate filed under
such provision shall state that written consent has been given
under Section 228 of said General Corporation Law, in lieu of
stating that the stockholders have voted upon the corporate
action in question, if such last mentioned statement is
required thereby.
2.9. Proxy Representation. Every stockholder may
authorize another person or persons to act for him by proxy in
all matters in which a stockholder is entitled to participate,
whether by waiving notice of any meeting, objecting to or
voting or participating at a meeting, or expressing consent or
dissent without a meeting. Every proxy must be signed by the
stockholder or by his attorney-in-fact. No proxy shall be
voted or acted upon after three years from its date unless
such proxy provides for a longer period. A duly executed proxy
shall be irrevocable if it states that it is irrevocable and,
if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may
be made irrevocable regardless of whether the interest with
which it is coupled is an interest in the stock itself or an
interest in the corporation generally. The authorization of a
proxy may but need not be limited to specified action,
provided, however, that if a proxy limits its authorization to
a meeting or meetings of stockholders, unless otherwise
specifically provided such proxy shall entitle the holder
thereof to vote at any adjourned session but shall not be
valid after the final adjournment thereof.
2.10. Inspectors. The directors or the person presiding
at the meeting may, but need not, appoint one or more
inspectors of election and any substitute inspectors to act at
the meeting or any adjournment thereof. Each inspector, before
entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector at such
meeting with strict impartiality and according to the best of
his ability. The inspectors, if any, shall determine the
number of shares of stock outstanding and the voting power of
each, the shares of stock represented at the meeting, the
existence of a quorum, the validity and effect of proxies, and
shall receive votes, ballots or consents, hear and determine
all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper
to conduct the election or vote with fairness to all
stockholders. On request of the person presiding at the
meeting, the inspectors shall make a report in writing of any
challenge, question or matter determined by them and execute a
certificate of any fact found by them.
2.11. List of Stockholders. The secretary shall prepare
and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to
vote at such meeting, arranged in alphabetical order and
showing the address of each stockholder and the number of
shares registered in his name. The stock ledger shall be the
only evidence as to who are stockholders entitled to examine
such list or to vote in person or by proxy at such meeting.
SECTION 3.
BOARD OF DIRECTORS
3.1. Number. The number of directors which shall
constitute the whole board shall not be less than three. The
number of directors of the corporation at any time shall be
the number of directors fixed by resolution adopted by the
board of directors. No decrease in the number of directors
shall have the effect of shortening the term of any incumbent
director.
3.2. Classification, Election and Tenure. The
directors, other than those who may be elected by the holders
of any class or series of preference stock voting separately
by class or series, shall be classified, with respect to the
duration of the term for which they severally hold office,
into three classes, designated Class I, Class II, and Class
III, which shall be as nearly equal in number as possible and
as provided by resolution of the board of directors in
connection with such election.
Each initial director in Class I shall hold office for a
term expiring at the 1990 annual meeting of stockholders; each
initial director of Class II shall hold office for a term
expiring at the 1991 annual meeting of stockholders; and each
initial director of Class III shall hold office for a term
expiring at the 1992 annual meeting of stockholders. Each
director shall serve until his successor is duly elected and
qualified or until his earlier death, resignation, removal or
disqualification. At each annual meeting of stockholders
following the 1989 annual meeting, the stockholders shall
elect the successors to the class of directors whose term
expires at that meeting to hold office for a term expiring at
the annual meeting of stockholders held in the third year
following the year of their election and until their
successors have been duly elected and qualified or until their
earlier death, resignation, removal or disqualification.
The board of directors shall increase or decrease the
number of directors in one or more classes as may be
appropriate whenever it increases or decreases the number of
directors pursuant to Section 3.1, in order to ensure that the
three classes shall be as nearly equal in number as possible.
3.3. Powers and Qualifications. The business of the
corporation shall be managed by or under the direction of the
board of directors who shall have and may exercise all the
powers of the corporation and do all such lawful acts and
things as are not by law, the certificate of incorporation or
these by-laws directed or required to be exercised or done by
the stockholders. Directors need not be residents of the State
of Delaware or stockholders of the corporation. No person
shall be qualified for election as a director who has not
reached the age of twenty-one years.
3.4. Nominations. Nominations of persons to be elected
directors of the corporation, other than nominations submitted
on behalf of the incumbent board of directors, must
(a) be submitted in writing to the secretary or
chief executive officer of the corporation not less than
30 days before the meeting of the stockholders at which
such election is to be held;
(b) be accompanied by a written statement, as to
each such nominee, of his residence and business (if any)
address, occupation (if any), date of birth, and record
and beneficial holdings of the shares of the corporation;
and
(c) accompanied by a petition in support of such
nomination signed by at least 100 record holders of share
of capital stock of the corporation entitled to vote in
elections of directors, holding in the aggregate not less
than 1% of the shares of capital stock of the corporation
entitled to vote in elections of directors outstanding as
of the date such petition is submitted.
3.5. Vacancies. Vacancies and any newly created
directorships resulting from any increase in the number of
directors may be filled by vote of a majority of the directors
then in office, although less than a quorum. When one or more
directors shall resign from the board, effective at a future
date, a majority of the directors then in office, including
those who have resigned, shall have power to fill such vacancy
or vacancies, the vote or action in writing thereon to take
effect when such resignation or resignations shall become
effective. The directors shall have and may exercise all their
powers notwithstanding the existence of one or more vacancies
in their number, subject to any requirements of law or of the
certificate of incorporation or of these by-laws as to the
number of directors required for a quorum or for any vote or
other actions.
3.6. Executive and Other Committees of Directors. The
board of directors, by resolution adopted by a majority of the
full board of directors, may designate from among its members
an executive committee and one or more other committees each
of which, to the extent provided in the resolution or these by-
laws, shall have and may exercise all the authority of the
board of directors, but no such committee shall have the
authority of the board of directors in reference to amending
the certificate of incorporation, adopting a plan of merger or
consolidation, recommending to the shareholders the sale,
lease, exchange or other disposition of all or substantially
all the property and assets of the corporation otherwise than
in the usual and regular course of its business, recommending
to the stockholders a voluntary dissolution of the corporation
or a revocation thereof, or amending these by-laws. Except as
the board of directors may otherwise determine, any such
committee may make rules for the conduct of its business, but
unless otherwise provided by the board of directors or such
rules, its business shall be conducted as nearly as may be in
the same manner as is provided by these by-laws for the
conduct of business of the board of directors. Each such
committee shall serve at the pleasure of the board of
directors. Such committees shall keep regular minutes or other
records of their proceedings and report the same to the board
of directors upon request.
3.7. Regular Meetings. Regular meetings of the board of
directors may be held without call or notice at such places
within or without the State of Delaware and at such times as
the board may from time to time determine, provided that
notice of the first regular meeting following any such
determination shall be given to absent directors. A regular
meeting of the directors may be held without call or notice
immediately after and at the same place as the annual meeting
of stockholders.
3.8. Special Meetings. Special meetings of the board of
directors may be held at any time and at any place within or
without the State of Delaware designated in the notice of the
meeting, when called by the chairman of the board, if the
meeting, when called by the chairman of the board, if any, the
president, or by one-third or more in number of the directors,
reasonable notice thereof being given to each director by the
secretary or by the chairman of the board, if any, the
president or any one of the directors calling the meeting.
3.9. Notice. It shall be reasonable and sufficient
notice to a director to send notice by mail at least forty-
eight hours or by telegram at least twenty-four hours before
the meeting addressed to him at his usual or last known
business or residence address or to give notice to him in
person or by telephone at least twenty-four hours before the
meeting. Notice of a meeting need not be given to any director
if a written waiver of notice, executed by him before or after
the meeting, is filed with the records of the meeting, or to
any director who attends the meeting without protesting prior
thereto or at its commencement the lack of notice to him.
Neither notice of a meeting nor a waiver of a notice need
specify the purposes of the meeting.
3.10. Quorum. Except as may be otherwise provided by
law, by the certificate of incorporation or by these by-laws,
at any meeting of the directors a majority of the directors
then in office shall constitute a quorum; a quorum shall not
in any case be less than one-third of the total number of
directors constituting the whole board. Any meeting may be
adjourned from time to time by a majority of the votes cast
upon the question, whether or not a quorum is present, and the
meeting may be held as adjourned without further notice.
3.11. Action by Vote. Except as may be otherwise
provided by law, by the certificate of incorporation or by
these by-laws, when a quorum is present at any meeting the
vote of a majority of the directors present shall be the act
of the board of directors.
3.12. Action Without a Meeting. Any action required or
permitted to be taken at any meeting of the board of directors
or a committee thereof may be taken without a meeting if all
the members of the board or of such committee, as the case may
be, consent thereto in writing, and such writing or writings
are filed with the records of the meetings of the board or of
such committee. Such consent shall be treated for all purposes
as the act of the board or of such committee, as the case may
be.
3.13. Participation in Meetings by Conference Telephone.
Members of the board of directors, or any committee designated
by such board, may participate in a meeting of such board or
committee by means of conference telephone or similar
communications equipment by means of which all persons
participating in the meeting can hear each other or by any
other means permitted by law. Such participation shall
constitute presence in person at such meeting.
3.14. Compensation. In the discretion of the board of
directors, each director may be paid such fees for his
services as director and be reimbursed for his reasonable
expenses incurred in the performance of his duties as a
director as the board of directors from time to time may
determine. Nothing contained in this section shall be
construed to preclude any director from serving the
corporation in any other capacity and receiving reasonable
compensation therefor.
3.15. Interested Directors and Officers.
(a) No contract or transaction between the corporation
and one or more of its directors or officers, or between the
corporation and any other corporation, partnership,
association, or other organization in which one or more of the
corporation's directors or officers are directors or officers,
or have a financial interest, shall be void or voidable solely
for this reason, or solely because the director or officer is
present at or participates in the meeting of the board or
committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted
for such purpose, if:
(1) The material facts as to his relationship or
interest and as to the contract or transaction are
disclosed or are known to the board of directors or the
committee, and the board or committee in good faith
authorizes the contract or transaction by the affirmative
votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum;
or
(2) The material facts as to his relationship or
interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to
vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the
stockholders; or
(3) The contract or transaction is fair as to the
corporation as of the time it is authorized, approved or
ratified, by the board of directors, a committee thereof,
or the stockholders.
(b) Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the board
of directors or of a committee which authorizes the contract
or transaction.
SECTION 4.
OFFICERS AND AGENTS
4.1. Enumeration, Qualification. The officers of the
corporation shall be a president, a treasurer, a secretary and
such other officers, if any, as the board of directors from
time to time may in its discretion elect or appoint including
without limitation a chairman of the board, a vice chairman of
the board, one or more vice presidents and a controller. The
corporation may also have such agents, if any, as the board of
directors from time to time may in its discretion choose. Any
officer may be but none need be a director or stockholder.
Any two or more offices may be held by the same person. Any
officer may be required by the board of directors to secure
the faithful performance of his duties to the corporation by
giving bond in such amount and with sureties or otherwise as
the board of directors may determine.
4.2. Powers. Subject to law, to the certificate of
incorporation and to the other provisions of these by-laws,
each officer shall have, in addition to the duties and powers
herein set forth, such duties and powers as are commonly
incident to his office and such additional duties and powers
as the board of directors may from time to time designate.
4.3. Election. The officers may be elected by the board
of directors at the first meeting following the annual meeting
of the stockholders or at any other time. At any time or from
time to time the directors may delegate to any officer their
power to elect or appoint any other officer or any agents.
4.4. Tenure. Each officer shall hold office until the
first meeting of the board of directors following the next
annual meeting of the stockholders and until his respective
successor is chosen and qualified unless a shorter period
shall have been specified by the terms of his election or
appointment, or in each case until he sooner dies, resigns, is
removed or becomes disqualified. Each agent shall retain his
authority at the pleasure of the directors, or the officer by
whom he was appointed or by the officer who then holds agent
appointive power.
4.5. Chairman and Vice Chairman of the Board of
Directors, President and Vice President. The chairman of the
board, if any, and the vice chairman if any, shall have such
duties and powers as shall be designated from time to time by
the board of directors. If there is a chairman of the board,
he shall preside at all meetings of the stockholders and of
the board of directors at which he is present, except as
otherwise voted by the board of directors. If there is no
chairman of the board or in the absence of the chairman of the
board, the president shall preside at all meetings of the
stockholders and of the board of directors at which he is
present, except as otherwise voted by the board of directors.
The vice chairman, if any, shall upon the death or
resignation of the chairman as a director or in the event the
chairman becomes totally and permanently incapacitated and is
unable to serve as a director, succeed to the office of the
chairman of the board. If such chairman was also chief
executive officer of the corporation, the vice chairman shall
succeed to the office of chief executive officer as well.
Unless the board of directors otherwise specifies, the
chairman of the board, if any, shall be the chief executive
officer and shall have direct charge of all business
operations of the corporation, and subject to the control of
the directors, shall have general supervision over the entire
business of the corporation. If a chairman of the board is
not elected, the president shall be the chief executive
officer.
The president shall have the duties and powers specified
in these by-laws, shall be the chief operating officer if a
chairman of the board is elected and is the chief executive
officer, and shall have such other duties and powers as may be
determined by the board of directors or by the chief executive
officer.
Any vice presidents shall have such duties and powers as
shall be set forth in these by-laws or as shall be designated
from time to time by the board of directors or by the chief
executive officer.
4.6. Treasurer and Assistant Treasurers. Except as the
board of directors shall otherwise determine, the treasurer
shall be the chief financial officer of the corporation and
shall be in charge of its funds and valuable papers, and shall
have such other duties and powers as may be designated from
time to time by the board of directors or by the president. If
no controller is elected, the treasurer shall also have the
duties and powers of the controller.
Any assistant treasurers shall have such duties and
powers as shall be designated from time to time by the board
of directors, the president or the treasurer.
4.7. Secretary and Assistant Secretaries. The secretary
shall record all proceedings of the stockholders, of the board
of directors and of committees of the board of directors in a
book or series of books to be kept therefor and shall file
therein all actions by written consent of stockholders or
directors. In the absence of the secretary from any meeting,
an assistant secretary, or if there be none or he is absent, a
temporary secretary chosen at the meeting, shall record the
proceedings thereof. Unless a transfer agent has been
appointed the secretary shall keep or cause to be kept the
stock and transfer records of the corporation, which shall
contain the names and record addresses of all stockholders and
the number of shares registered in the name of each
stockholder. He shall have such other duties and powers as may
from time to time be designated by the board of directors or
the president.
Any assistant secretaries shall have such duties and
powers as shall be designated from time to time by the board
of directors, the president or the secretary.
4.8. Compensation. The officers of the corporation shall
receive such compensation as shall be affixed from time to
time by the board of directors, except that the board of
directors may delegate to any officer or officers the power to
fix the compensation of any officer, except the chief
executive officer of the corporation. No officer shall be
prohibited from receiving such salary by reason of the fact
that he is also a director of the corporation.
SECTION 5.
RESIGNATIONS AND REMOVALS
5.1. Any director or officer may resign at any time by
delivering his resignation in writing to the chairman of the
board, if any, the president, or the secretary or to a meeting
of the board of directors. Such resignation shall be effective
upon receipt unless specified to be effective at some other
time, and without in either case the necessity of its being
accepted unless the resignation shall so state. Except as
otherwise provided in the certificate of incorporation or
these by-laws relating to the rights of the holders of any
class or series of preference stock, voting separately by
class or series, to elect directors under specified
circumstances, any director or directors may be removed from
office at any time, but only for cause and only by the
affirmative vote, at any regular meeting or special meeting of
the stockholders, of not less than two-thirds of the total
number of votes of the then outstanding shares of capital
stock of the corporation entitled to vote generally in the
election of directors, voting together as a single class, but
only if notice of such proposal was contained in the notice of
such meeting. Any vacancy in the board of directors resulting
from any such removal may be filled by vote of a majority of
the directors then in office, although less than a quorum, and
any director or directors so chosen, shall hold office until
the next election of the class for which such directors shall
have been chosen and until their successors shall be elected
and qualified or until their earlier death, resignation or
removal. The board of directors may at any time remove any
officer either with or without cause. The board of directors
may at any time terminate or modify the authority of any
agent. No director or officer resigning and (except where a
right to receive compensation shall be expressly provided in a
duly authorized written agreement with the corporation) no
director or officer removed shall have any right to any
compensation as such director or officer (but not excluding
rights to indemnification provided in the certificate of
incorporation or these by-laws) for any period following his
resignation or removal, or any right to damages on account of
such removal, whether his compensation be by the month or by
the year or otherwise; unless, in the case of a resignation,
the directors, or, in the case of removal, the body acting on
the removal, shall in their or its discretion provide for
compensation.
SECTION 6.
VACANCIES
If the office of the president or the treasurer or the
secretary becomes vacant, the directors may elect a successor
by vote of a majority of the directors then in office. If the
office of any other officer becomes vacant, any person or body
empowered to elect or appoint that officer may choose a
successor. Each such successor shall hold office for the
unexpired term, and in the case of the president, the
treasurer and the secretary until his successor is chosen and
qualified or in each case until he sooner dies, resigns, is
removed or becomes disqualified. Any vacancy of a directorship
shall be filled as specified in Section 3.5 of these by-laws.
SECTION 7.
CAPITAL STOCK
7.1. Stock Certificates. Each stockholder shall be
entitled to a certificate stating the number and the class and
the designation of the series, if any, of the shares held by
him, in such form as shall, in conformity to law, the
certificate of incorporation and the by-laws, be prescribed
from time to time by the board of directors. Such certificate
shall be signed by the chairman or vice chairman of the board,
if any, or the president or a vice president and by the
treasurer or an assistant treasurer or by the secretary or an
assistant secretary. Any of or all the signatures on the
certificate may be a facsimile. In case an officer, transfer
agent, or registrar who has signed or whose facsimile
signature has been placed on such certificate shall have
ceased to be such officer, transfer agent, or registrar before
such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer,
transfer agent, or registrar at the time of its issue.
7.2. Loss of Certificates. In the case of the alleged
theft, loss, destruction or mutilation of a certificate of
stock, a duplicate certificate may be issued in place thereof,
upon such terms, including receipt of a bond sufficient to
indemnify the corporation and its agents against any claim on
account thereof, as the board of directors may prescribe.
SECTION 8.
TRANSFER OF SHARES OF STOCK
8.1. Transfer on Books. Subject to the restrictions, if
any, stated or noted on the stock certificate, shares of stock
may be transferred on the books of the corporation by the
surrender to the corporation or its transfer agent of the
certificate therefor properly endorsed or accompanied by a
written assignment and power of attorney properly executed,
with necessary transfer stamps affixed, and with such proof of
the authenticity of signature as the board of directors or the
transfer agent of the corporation may reasonably require.
Except as may be otherwise required by law, by the certificate
of incorporation or by these by-laws, the corporation shall be
entitled to treat the record holder of stock as shown on its
books as the owner of such stock for all purposes, including
the payment of dividends and the Right to receive notice and
to vote or to give any consent with respect thereto and to be
held liable for such calls and assessments, if any, as may
lawfully be made thereon, regardless of any transfer, pledge
or other disposition of such stock until the shares have been
properly transferred on the books of the corporation.
It shall be the duty of each stockholder to notify the
corporation of his post office address.
8.2. Record Date and Closings Transfer Books. In order
that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in
advance, a record date, which shall not be more than sixty nor
less than ten days (or such longer period as may be required
by law) before the date of such meeting, nor more than sixty
days prior to any other action.
If no record date is fixed:
(a) The record date for determining stockholders
entitled to notice of or to vote it a meeting of
stockholders shall be at the close of business on the day
next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day
next preceding the day on which the meeting is held.
(b) The record date for determining stockholders for
any other purpose shall be at the close of business on
the day on which the board of directors adopts the
resolution relating thereto.
A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the
board of directors may fix a new record date for the adjourned
meeting.
SECTION 9.
INDEMNIFICATION
9.1. The corporation shall, to the maximum extent
permitted from time to time under the law of the State of
Delaware, indemnify and upon request shall advance expenses to
any person who is or was a party or is threatened to be made a
party to any threatened, pending or completed action, suit,
proceeding or claim, whether civil, criminal, administrative
or investigative, by reason of the fact that such person is or
was or has agreed to be a director or officer of this
corporation or while a director or officer is or was serving
at the request of this corporation as a director, officer,
partner, trustee, fiduciary, employee or agent of any
corporation, partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit
plans, against expenses (including attorney's fees and
expenses), judgments, fines, penalties and amounts paid in
settlement incurred in connection with the investigation,
preparation in connection with such action, suit, proceeding
or claim; provided, however, that the foregoing shall not
require this corporation 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. Such indemnification shall not be exclusive of other
indemnification rights arising under any by-law, agreement,
vote of directors or stockholders or otherwise and shall inure
to the benefit of the heirs and legal representatives of such
person. Any such person seeking indemnification under this
Section 9.1 shall be deemed to have met the standard of
conduct required for such indemnification unless the contrary
shall be established. The corporation shall have the power to
provide indemnification and advance expenses to any other
person, including employees and agents of the corporation and
stockholders purporting to act on behalf of the corporation,
to the extent permitted by the law of the State of Delaware.
SECTION 10.
CORPORATE SEAL
10.1. Subject to alteration by the directors, the seal
of the corporation shall consist of a flat-faced circular die
with the word "Delaware" and the name of the corporation cut
or engraved thereon, together with such other words, dates or
images as may be approved from time to time by the directors.
SECTION 11.
EXECUTION OF PAPERS
11.1. Except as the board of directors may generally or
in particular cases authorize the execution thereof in some
other manner, all deeds, leases, transfers, contracts, bonds,
notes, checks, drafts or other obligations made, accepted or
endorsed by the corporation shall be signed by the chairman of
the board, if any, the president, a vice president or the
treasurer.
SECTION 12.
FISCAL YEAR
12.1. The fiscal year of the corporation shall end on
the 31st day of December of each year, or such other date as
may be fixed by the board of directors.
SECTION 13.
AMENDMENTS
13.1. Except as otherwise provided in the certificate of
incorporation, and other than Section 3.4 hereof, these by-
laws may be amended by the favorable vote of the holders of
three-fourths of the shares of the corporation entitled to
vote generally in the election of directors or by a majority
of a quorum of the board of directors, in either case at any
regular or special meeting; any such amendment by the board of
directors may be changed by the favorable vote of the holders
of three-fourths of the shares of the corporation entitled to
vote generally in the election of directors. Section 3.4
hereof may not be amended or rescinded except by the
affirmative vote of the holders of not less than two-thirds of
the outstanding shares of the corporation entitled to vote
generally in the election of directors, at any regular or
special meeting, but only if notice of the proposed alteration
or amendment was contained in the notice of such meeting.
SECTION 14.
BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS
14.1 The provisions of Section 203 of the Delaware
General Corporation Law shall not apply to the corporation.
<PAGE>
06640026.O Exhibit 4.5
EXECUTION COPY
NORTEK, INC.,
Company,
and
STATE STREET BANK AND TRUST COMPANY,
Trustee
___________________________________
INDENTURE
Dated as of February 14, 1994
____________________________________
$218,500,000
9-7/8% Senior Subordinated Notes due March 1, 2004
<PAGE>
CROSS REFERENCE TABLE (1)
TIA
Indenture
Section
Section
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
_______________________________
(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.
<PAGE>
TABLE OF CONTENTS (3)
Page
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
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 17
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
ARTICLE 4
COVENANTS
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
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
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
_______________________________
(3) This Table of Contents shall not, for any purpose, be
deemed to be part of this Indenture.
<PAGE>
06640026.O
INDENTURE, dated as of February 14, 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 9-7/8% Senior Subordinated Notes due March 1,
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.
"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.
"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
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
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
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
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 this 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).
"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
$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
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.
"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
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
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
(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 9-7/8% Senior
Subordinated Notes due March 1, 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
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
capital of such Subsidiary is owned by such Person (either
directly or indirectly through Wholly-Owned Subsidiaries).
SECTION 1.02. Other Definitions.
Defined in
Term Section
"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
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.
"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.
(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.
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.
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
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.
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.
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
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
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 March 1, 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 30 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
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
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
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
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.
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
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
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;
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;
(xi) 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
(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 with 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
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,
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
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 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.
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, 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.
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
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
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 trans
actions 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
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
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.
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
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
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
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;
(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
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
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
(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;
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
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.
(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
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
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 May 15th beginning with May 15, 1994, the
Trustee shall mail to each Securityholder a brief report dated as
of such May 15th 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.
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.
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
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.
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
(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 Inden
ture, 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
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
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
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 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 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
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
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;
(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
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 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: President
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
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
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.
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: /s/ Richard L. Bready
Name: ____________________________
Title: Chairman
STATE STREET BANK AND TRUST COMPANY
By: /s/ Robert C. Butzier
Name: ____________________________
Title: Vice President
<PAGE>
EXHIBIT A
[FORM OF FACE OF SECURITY]
NORTEK, INC.
9-7/8% Senior Subordinated Note due March 1, 2004
No.______ 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 March 1, 2004.
Interest Payment Dates: March 1 and September 1,
commencing September 1, 1994.
Record Dates: February 15 and August 15.
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:
ATTESTED:
By:
Name:
Title:
[SEAL]
Dated:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred
to in the within-mentioned Indenture.
STATE STREET BANK AND TRUST COMPANY
By:
Authorized Officer
[FORM OF REVERSE SIDE OF SECURITY]
9-7/8% Senior Subordinated Note due March 1, 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 September 1,
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 February 22, 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 the February 15 and August 15, as the
case may be, 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.
4 Indenture
The Company issued the Securities under an Indenture,
dated as of February 14, 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.
6 Optional Redemption
The Securities are redeemable as a whole, or from time
to time in part, at any time on and after March 1, 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:
March 1, Redemption Price
1999 104.214%
2000 102.809%
2001 101.405%
2002 and thereafter 100.000%
7 Notice of Redemption
Notice of redemption will be mailed at least 30 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.
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
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
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
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.
<PAGE>
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:
[ ] Change of Control Offer: [ ] Excess Proceeds Offer:
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:__________________________________
<PAGE>
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
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, notwith
standing 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 appli
cable 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.
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).
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.
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
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:
(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
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,
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
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
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.
<PAGE>
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 February 14, 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>
F-1
EXHIBIT 11.1
NORTEK, INC. AND SUBSIDIARIES
CALCULATION OF SHARES USED IN DETERMINING EARNINGS PER SHARE
1993 1992 1991
---- ---- ----
Calculation of the number of shares to
be used in computing earnings per share:
Weighted average common and special
common shares issued during the
period 16,598,819 16,542,132 16,514,312
Less average common and special common
shares held in the Treasury (4,066,602) (3,965,771) (3,053,842)
---------- ---------- ----------
Weighted average number of common and
special common shares outstanding
during the period 12,532,217 12,576,361 13,460,470
Dilutive effect of stock options
considered common stock 90,215 69,043 ---
---------- ---------- ----------
Weighted average number of common and
common equivalent shares outstanding
during ther period 12,622,432 12,645,404 13,460,470
========== ========== ==========
Calculation of the number of shares to
be used in computing fully diluted
earnings per share:
Weighted average number of common and
special common shares outstanding
during the period 12,532,217 12,576,361 13,460,470
Dilutive effect of stock options
considered common stock equivalents
computed under the treasury stock
method using the greater of the
price at the end of the period or
the average price during the
period 109,571 78,552 ---
Dilutive effect of assuming conversion
of the Company's
7-1/2% convertible debentures 720,507 755,971 794,666
9% convertible debentues --- --- 56,697
---------- ---------- ----------
13,362,295 13,410,884 14,311,833
========== ========== ==========
Note: Earnings (loss) per share calculations for the years ended December
31, 1993, 1992 and 1991 do not include the effect of common stock
equivalents or convertible debentures (and the reduction in related
expense) because the assumed exercise of stock options and the
conversion of debentures is anti-dilutive for the net loss per share
amounts.
<PAGE>
td/annual/sublist.doc
Exhibit 22.1
LIST OF SUBSIDIARIES
--------------------
Set forth below is a list of all subsidiaries of the
Company as of December 31, 1993 the assets and operations of
which are included in the Consolidated Financial Statements of
Nortek, Inc., except subsidiaries that, considered in the
aggregate as a single subsidiary, would not constitute a
significant subsidiary:
STATE OF
NAME OF SUBSIDIARY INCORPORATION
------------------ -------------
Broan Limited Ontario
Broan Mfg. Co., Inc. Wisconsin
Aubrey Manufacturing, Inc. Delaware
Monarch Metal Products Corporation Illinois
Dixieline Lumber Company Delaware
Dixieline Builders Fund Control, Inc. California
Jensen Industries, Inc. Delaware
Linear Corporation California
Linear H.K. Manufacturing Limited Hong Kong
We Monitor America Incorporated Colorado
Moore-O-Matic, Inc. Wisconsin
M & S Systems, Inc. Delaware
Nordyne, Inc. Delaware
Commercial Environmental Systems
Group, Inc. Delaware
Mammoth, Inc. Delaware
Governair Corporation Oklahoma
Temtrol, Inc. Oklahoma
Raphael, Ltd. Delaware
Universal-Rundle Corporation Delaware
