<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 10, 1997
REGISTRATION NO. 333-36711
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
AMENDMENT NO. 1
TO
Form S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------------------
NORTEK, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3634 05-0314991
(State or other jurisdiction (Primary standard industrial (I.R.S. Employer
of classification code number) Identification Number)
incorporation or organization)
</TABLE>
50 KENNEDY PLAZA, PROVIDENCE, RHODE ISLAND 02903
(401) 751-1600
(Address, including zip code and telephone number
including area code of registrant's principal executive offices)
KEVIN W. DONNELLY
VICE PRESIDENT AND GENERAL COUNSEL
NORTEK, INC.
50 KENNEDY PLAZA
PROVIDENCE, RHODE ISLAND 02903
(401) 751-1600
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
------------------------------------
Please send copies of all communications to:
John B. Ayer, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
(617) 951-7000
------------------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effectiveness of the Registration Statement.
If the only securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
PROSPECTUS
NORTEK, INC.
OFFER TO EXCHANGE
9 1/8% SERIES B SENIOR NOTES DUE SEPTEMBER 1, 2007
FOR AN EQUAL PRINCIPAL AMOUNT OF
9 1/8% SERIES A SENIOR NOTES DUE SEPTEMBER 1, 2007
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON NOVEMBER 18, 1997, UNLESS EXTENDED
------------------------------------
Nortek, Inc., a Delaware corporation ("Nortek" or the "Company"), hereby
offers (the "Exchange Offer"), upon the terms and subject to the conditions set
forth in this Prospectus (the "Prospectus") and the accompanying letter of
transmittal (the "Letter of Transmittal"), to exchange an aggregate principal
amount of up to $310,000,000 of its 9 1/8% Series B Senior Notes due 2007 (the
"Exchange Notes") of the Company for a like principal amount of the issued and
outstanding 9 1/8% Series A Senior Notes due 2007 (the "Original Notes" and
together with the Exchange Notes, the "Notes") from the holders (the "Holders")
thereof. The form and terms of the Exchange Notes are identical in all material
respects to the form and terms of the Original Notes except that the Exchange
Notes will not contain terms with respect to transfer restrictions (other than
those that might be imposed by state securities laws) or, except in limited
circumstances, provide for the payment of Liquidated Damages (as defined).
The Original Notes are and the Exchange Notes will be senior unsecured
obligations of the Company and will rank pari passu in right of payment with all
existing and future senior unsecured indebtedness of the Company and senior in
right of payment to all existing and future subordinated indebtedness of the
Company. The Original Notes and the Exchange Notes will be effectively
subordinated to all existing and future secured indebtedness of the Company, to
the extent of the value of the assets securing such indebtedness, and to all
existing and future indebtedness and other obligations of the Company's
subsidiaries, except in the case of unsecured indebtedness and other obligations
to the extent any Subsidiary Guaranty (as defined) is then in force. At June 28,
1997, after giving effect to the Transactions (as defined) and the application
of the net proceeds therefrom, the Exchange Notes would have been effectively
subordinated to approximately $414.4 million of indebtedness for borrowed money,
trade payables and accrued liabilities of the Company's subsidiaries. See
"Description of Notes -- General." Subject to certain restrictions, the
Indenture (as defined) pursuant to which the Original Notes were issued and the
Exchange Notes will be issued, permits the Company and its subsidiaries to incur
additional indebtedness, including indebtedness which may be secured. See
"Description of Notes -- Certain Covenants."
Interest on the Exchange Notes will be payable semi-annually on March 1 and
September 1 of each year, commencing March 1, 1998. The Exchange Notes will
mature on September 1, 2007. The Exchange Notes will be redeemable at the option
of the Company, in whole or in part, at any time and from time to time on or
after September 1, 2002 at the redemption prices set forth herein, together with
accrued and unpaid interest, if any, to the date of redemption. Upon a Change of
Control (as defined), holders of the Exchange Notes will have the right, subject
to certain exceptions, restrictions and conditions, to require the Company to
purchase all or any of their Notes at 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of purchase. See "Description
of Notes."
The Exchange Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement, dated
August 26, 1997, among the Company and the other signataries thereto (the
"Registration Rights Agreement"). The Company believes that based on
interpretations by the staff of the Securities and Exchange Commission (the
"Commission"), Exchange Notes issued pursuant to the Exchange Offer in exchange
for Original Notes may be offered for resale, resold and otherwise transferred
by each Holder thereof (other than (i) a broker-dealer who purchased Original
Notes directly from the Company or any of its "affiliates" within the meaning of
Rule 405 under the Securities Act of 1933, as amended (the "Securities Act"),
for resale pursuant to Rule 144A or any other available exemption under the
Securities Act or (ii) a person that is such an "affiliate" of the Company)
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such Exchange Notes are acquired in the
ordinary course of such Holder's business and such Holder is not participating,
and has no arrangement with any such person to participate, in the distribution
of the Exchange Notes.
Each broker-dealer participating in the Exchange Offer (a "Participating
Broker-Dealer") that receives Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. The Letter of Transmittal states that by
so acknowledging and by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a Participating Broker-Dealer in connection with
resales of Exchange Notes received in exchange for Original Notes where such
Original Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days, it will make this Prospectus and any amendment or supplement
to this Prospectus available to any Participating Broker-Dealer for use in
connection with any such resale. See "Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer and will
pay the expenses incident to the Exchange Offer. Tenders of Original Notes may
be withdrawn at any time prior to the Expiration Date. In the event the Company
terminates the Exchange Offer and does not accept for exchange any Original
Notes, the Company will promptly return the Original Notes to the Holders
thereof. See "The Exchange Offer."
------------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 20 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN EVALUATING THE EXCHANGE OFFER
AND AN INVESTMENT IN THE NOTES.
------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------
The date of this Prospectus is October 15, 1997.
<PAGE> 3
The Exchange Offer is not being made to, nor will the Company accept
surrenders for Exchange Notes from, Holders of Original Notes in any
jurisdiction in which the Exchange Offer or the acceptance thereof would not be
in compliance with the securities or Blue Sky Laws for such jurisdiction.
The Exchange Notes will be available initially only in book-entry form. The
Company expects that the Exchange Notes issued pursuant to this Exchange Offer
will be issued in the form of one or more Global Notes (as defined), which will
be deposited with, or on behalf of, The Depository Trust Company (the
"Depositary") and registered in its name or in the name of Cede & Co., its
nominee. Beneficial interests in the Global Note representing the Exchange Notes
will be shown on, and transfers thereof will be effected through, records
maintained by the Depositary and its participants. After the initial issuance of
the Global Note(s), Exchange Notes in certificated form will be issued in
exchange for the Global Note(s) only on the terms set forth in the Indenture.
See "Description of Notes -- Book-Entry, Delivery and Form."
Prior to the Exchange Offer, there has been no public market for the
Original Notes or Exchange Notes. To the extent that Original Notes are tendered
and accepted in the Exchange Offer, a Holder's ability to sell untendered
Original Notes could be adversely affected. If a market for the Exchange Notes
should develop, the Exchange Notes could trade at a premium or discount from
their principal amount. The Company does not currently intend to list the
Exchange Notes on any securities exchange or to seek approval for quotation
through any automated quotation system.
The Company has been advised by Wasserstein Perrella Securities, Inc. and
Bear, Stearns & Co. Inc., the initial purchasers (the "Initial Purchasers") of
the Original Notes, that, following completion of the Exchange Offer, they
intend to make a market in the Exchange Notes; however, such entities are under
no obligation to do so and any market activities with respect to the Exchange
Notes may be discontinued at any time.
Pursuant to the Indenture, so long as any of the Notes are outstanding,
whether or not the Company is subject to the reporting requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Company will furnish to all holders of the Notes (i) all quarterly
and annual financial information that would be required to be contained in a
filing with the Commission on Forms 10-Q and 10-K if the Company were required
to file such Forms, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operation" that describes the financial
condition and results of operations of the Company and its subsidiaries and,
with respect to annual information only, a report thereon by the Company's
independent certified public accountants and (ii) all reports that would be
required to be filed with the Commission on Form 8-K if the Company were
required to file such reports. The Company will also file a copy of all such
information with the Commission for public availability (unless the Commission
will not accept such filing) and make such information available to investors or
prospective investors of the Notes who request it in writing.
2
<PAGE> 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference into this Prospectus the
following documents or information previously filed with the Commission:
(a) the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (the "Form 10-K");
(b) each of the Company's Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 29, 1997 and June 28, 1997;
(c) each of the Company's Current Reports on Form 8-K filed March 5, 1997,
March 13, 1997, May 5, 1997, July 29, 1997, August 27, 1997, September 10, 1997
and September 12, 1997 (collectively, the "Form 8-Ks"); and
(d) all documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering made hereby.
Any statement contained herein or in any documents incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for the purpose of this Prospectus to the extent that a subsequent
statement contained herein or in any subsequently filed document which also is
or is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE WITHOUT CHARGE UPON
WRITTEN OR ORAL REQUEST FROM ALMON C. HALL, VICE PRESIDENT, CONTROLLER AND CHIEF
ACCOUNTING OFFICER AT THE COMPANY'S PRINCIPAL EXECUTIVE OFFICES LOCATED AT 50
KENNEDY PLAZA, PROVIDENCE, RHODE ISLAND 02903; TELEPHONE NUMBER: (401) 751-1600.
IN ORDER TO ENSURE TIMELY DELIVERY OF SUCH DOCUMENTS, ANY REQUEST SHOULD BE MADE
BY NOVEMBER 10, 1997.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. All reports, proxy statements and other
information filed by the Company with the Commission can be inspected and copied
at the Public Reference Section of the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at 7 World Trade Center, 13th Floor, Suite 1300, New York,
New York 10048 and Citicorp Center, 500 West Madison Street, Suite 400, Chicago,
Illinois 60661. Copies of such material can also be obtained at prescribed rates
by writing to the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549. Such material may also be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov. In addition, such reports, proxy statements and other
information concerning the Company can be inspected at the office of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005.
A Registration Statement on Form S-4, including amendments thereto,
relating to the Exchange Notes offered hereby has been filed by the Company with
the Commission. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete and in each instance
reference is made to the copy of such contract or other documents filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. For further information with respect to the
Company and the Exchange Notes offered hereby, reference is made to such
Registration Statement, exhibits and schedules. A copy of the Registration
Statement and the exhibits and schedules thereto may be inspected or obtained in
the same manner set forth in the immediately preceding paragraph for the
reports, proxy statements and other information referred therein.
3
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the detailed information and financial data, including the
Consolidated Financial Statements and Notes thereto, appearing elsewhere in this
Prospectus and incorporated herein by reference. Unless the context otherwise
indicates, references herein to (i) "Nortek" are to Nortek, Inc., a Delaware
corporation, and its subsidiaries, prior to giving effect to the Acquisition (as
defined below); (ii) "Ply Gem" are to Ply Gem Industries, Inc., a Delaware
corporation, and its subsidiaries, prior to giving effect to the Acquisition;
(iii) the "Company" are to Nortek and its subsidiaries, including Ply Gem and
its subsidiaries following and after giving effect to the Acquisition, or to
Nortek as the offeree or obligor on the Notes (except as set forth in the
Consolidated Financial Statements included herein); and (iv) the "Acquisition"
are collectively to the Tender Offer (as defined), the Merger (as defined) and
the other transactions contemplated by the Merger Agreement (as defined). See
"The Acquisition."
THE COMPANY
GENERAL
The Company is a major manufacturer and distributor of building products
for the residential and commercial construction, manufactured housing,
do-it-yourself ("DIY") and professional remodeling and renovation markets. The
Company operates principally through two core businesses: (i) the Residential
Building Products Group which offers a broad range of products including
built-in and ventilation products, windows, doors and siding; and (ii) the Air
Conditioning and Heating ("HVAC") Products Group which manufactures and sells
custom-designed systems for commercial applications and standard products for
manufactured and site-built residential housing. For the twelve months ended
June 28, 1997, the Company had pro forma net sales of approximately $1.8 billion
and adjusted pro forma EBITDA of approximately $159.6 million. See "Unaudited
Pro Forma Condensed Consolidated Financial Data."
The Company is a Delaware corporation incorporated in 1986. The Company's
common stock is quoted on the New York Stock Exchange under the symbol "NTK."
Its executive offices are located at 50 Kennedy Plaza, Providence, Rhode Island
02903-2360, telephone number: (401) 751-1600.
NORTEK
Nortek is a diversified manufacturer of residential and commercial building
products, operating within two principal product groups: the Residential
Building Products Group and the HVAC Products Group. Through these two product
groups, Nortek manufactures and sells, primarily in the United States, Canada
and Europe, a wide variety of products for the residential and commercial
construction, manufactured housing, and the DIY and professional remodeling and
renovation markets. The Residential Building Products Group is a leading
manufacturer and distributor of built-in products primarily for the residential
new construction and the DIY and professional remodeling and renovation markets.
This Group is the largest supplier in the United States and Canada of range
hoods, bath fans and combination units, and indoor air quality products such as
continuous-ventilation systems and energy-recovery ventilators, and one of the
leading suppliers in Western Europe, South America and the Middle East of luxury
"Eurostyle" range hoods. Products are sold under recognized brand names,
including Broan(R), Nautilus(R), Venmar(R), Rangaire(R) and Best(R). The HVAC
Products Group manufactures and sells HVAC systems for custom-designed
commercial applications and for manufactured and site-built residential housing
markets. The Group's commercial products consist of HVAC systems which are
custom-designed to meet customer specifications for commercial offices,
manufacturing and educational facilities, hospitals, retail stores and
governmental buildings. For the manufactured and site-built residential housing
markets, the Group's products include central air conditioners, heat pumps,
furnaces and a wide range of accessories. This Group markets its commercial
products under the Governair(R), Mammoth(R) and Temtrol(R) brand names and its
residential products under the Intertherm(R), Miller(R) and Powermiser(R) brand
names. For the twelve months ended June 28, 1997, Nortek had net sales of
approxi-
4
<PAGE> 6
mately $957.8 million and EBITDA of approximately $87.4 million. See "Unaudited
Pro Forma Condensed Consolidated Financial Data."
PLY GEM
Ply Gem is a major manufacturer and distributor of vinyl and wood windows
and doors, vinyl siding and accessories and is a supplier of specialty wood and
other related products for use in the remodeling and new construction of
residential and light-commercial properties. Ply Gem operates principally
through two business groups: Windows, Doors and Siding; and Wood and Decorative
Products. Ply Gem targets the growing remodeling and DIY markets through the
home center channel by offering a line of branded products and strong customer
service capabilities. Ply Gem markets its windows, doors and siding under the
following brand names: Crestline(R), Great Lakes(R), Vetter(R), Kenergy(R) and
Varigrain(R). For the twelve months ended June 30, 1997, Ply Gem had net sales
of approximately $802.5 million and had EBITDA of approximately $46.4 million.
See "Unaudited Pro Forma Condensed Consolidated Financial Data."
ACQUISITION RATIONALE
The Acquisition reinforces Nortek's strategy of developing and maintaining
leading positions in selected strategic product lines within the building
products industry. The Company expects the Acquisition will provide a
significant opportunity to (i) expand in the growing and less cyclical
remodeling and renovation markets, (ii) increase its importance as a supplier to
home centers and national distributors and (iii) realize savings from the
elimination of duplicative administrative expenses and the implementation of
other operating efficiencies.
Expansion in growing, less cyclical markets. The Company believes the
Acquisition will accelerate its expansion into the growing remodeling and
renovation markets. Ply Gem's windows, doors and siding business offers a range
of products targeted towards the replacement and remodeling markets, including
through the home center distribution channel. The Company believes that the
frequency of renovating and remodeling activities increases with the age of a
home and that such activities also often occur shortly before and after an
existing home sale. According to the National Association of Homebuilders (the
"NAH"), the average age of a U.S. home has increased from 23 years in 1985 to 28
years in 1995. During the same period, according to the NAH annual sales of
existing homes increased 21%. Additionally, the rapid expansion of building
product retail chains have made building products more accessible to
"do-it-yourselfers," contributing to the overall growth in the renovation and
remodeling markets. Correspondingly, between 1985 and 1995, according to the NAH
expenditures on home improvements increased from $44.9 billion to $70.3 billion,
or 57%. The Company also believes that by focusing on the existing home market,
it reduces its exposure to cyclical fluctuations in its operations.
Increased importance to customers. The Acquisition will broaden the
Company's product offerings, which the Company believes will enhance its
position within currently served distribution channels. The Acquisition will add
windows, doors and siding to the Company's existing product portfolio.
Accordingly, the Company believes that home centers and national distributors,
two of the Company's most important customer channels, will view the Company as
a broader "one-stop shopping" supplier at a time when such customers are seeking
to consolidate their vendor bases. In addition, the Acquisition will permit the
sale of Ply Gem's product lines through Nortek's customers serving the
manufactured housing market.
Ability to realize substantial cost savings. The Company expects to realize
pre-tax annual cost savings of approximately $23.4 million, based on the last
twelve months ended June 28, 1997, as a result of the Acquisition. These savings
are expected to result from several actions, including: (i) the elimination of
expenses associated with Ply Gem's New York headquarters; (ii) the consolidation
into the Company of certain of Ply Gem's corporate functions such as legal,
accounting and risk management; and (iii) the identification and rationalization
of underperforming product lines. The Company believes that this annual rate of
cost savings can be achieved beginning in 1998.
5
<PAGE> 7
BUSINESS STRATEGY
The Company's objective is to achieve stable profitable growth in its core
building products businesses by (i) selectively expanding its portfolio of
complementary product lines, (ii) developing and maintaining leadership
positions in strategic products and markets, (iii) achieving a competitive
advantage as a low cost producer and (iv) realizing synergies in marketing and
distribution by offering a broader range of products.
The Company intends to continue to pursue synergistic acquisitions in its
core product lines in order to expand market share in its businesses. The
Company believes there will continue to be opportunities to make such
acquisitions that can contribute value through a combination of economies of
scale, market power and breadth of distribution. In the past several years,
Nortek has successfully integrated acquisitions into its existing businesses,
including the addition of Rangaire L.P., Best S.p.A. and Venmar Ventilation,
Inc. to its Residential Building Products Group.
A fundamental component of the Company's business strategy is to focus on
its core businesses. Accordingly, the Company takes a disciplined approach to
the divestiture or discontinuation of non-strategic assets that are not market
leaders and that fail to meet the Company's investment return expectations.
THE ACQUISITION
On July 24, 1997, Nortek, a wholly owned subsidiary of Nortek and Ply Gem
entered into an Agreement and Plan of Merger (the "Merger Agreement"). In
connection with the Merger Agreement, on July 29, 1997, such Nortek subsidiary
commenced a tender offer to purchase all outstanding shares of common stock,
$0.25 par value per share ("Common Stock" or the "Shares"), of Ply Gem, at a
price of $19.50 per share, net to the seller in cash, without interest thereon
(the "Tender Offer"), upon the terms and conditions set forth in the Offer to
Purchase dated July 29, 1997 (the "Offer to Purchase") and the related letter of
transmittal. On August 26, 1997, Nortek's subsidiary completed the Tender Offer.
Following completion of the Tender Offer, Nortek and its subsidiary collectively
owned approximately 92.3% of Ply Gem's then outstanding Common Stock.
Pursuant to the Merger Agreement, on September 4, 1997, Nortek's subsidiary
was merged with and into Ply Gem (the "Merger"), with Ply Gem surviving the
merger as a wholly owned subsidiary of the Company. All remaining shares of Ply
Gem's Common Stock not tendered and purchased in the Tender Offer were canceled
and those not owned by the Company or by shareholders exercising appraisal
rights were converted into the right to receive $19.50 cash per Share. Because
Nortek's subsidiary beneficially owned more than 90% of Ply Gem's outstanding
Common Stock, under Delaware General Corporation Law, no vote of Ply Gem's
shareholders was required to effect the Merger. See "The Acquisition."
In addition, on the date of consummation of the Tender Offer Ply Gem
refinanced a portion of its existing indebtedness through the extension of
credit by a syndicate of lenders and Fleet National Bank ("Fleet"), as sole
administrative agent for itself and the other lenders (the "Ply Gem Credit
Facility"). The aggregate amount of the refinancing was approximately $108.9
million. See "Description of Other Obligations -- Ply Gem Credit Facility."
6
<PAGE> 8
The sources and uses of the financing used to complete the Acquisition and
related transactions were as follows:
<TABLE>
<CAPTION>
IN
MILLIONS
--------
<S> <C>
Sources of financing:
Nortek cash............................................................. $110.2
Gross proceeds from the offering of the Original Notes.................. 307.5
Extension of credit under the Ply Gem Credit Facility................... 108.9
------
--
Total sources of funds............................................... $526.6
======
Uses of financing:
Payment for shares of Ply Gem common stock and cancellation of Ply Gem
stock options........................................................ $310.1
Refinancing of existing Ply Gem indebtedness............................ 114.4
Termination of Ply Gem accounts receivable securitization program....... 45.0
Funding of termination fees under prior transaction agreement........... 12.0
Consideration paid for termination of management agreements............. 23.5
Fees, expenses and other costs related to the Transactions.............. 21.6
------
--
Total uses of funds.................................................. $526.6
======
</TABLE>
7
<PAGE> 9
THE EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to $310 million aggregate
principal amount of Exchange Notes for an equal aggregate principal amount of
Original Notes. The Exchange Notes will be obligations of the Company entitled
to the benefits of the Indenture relating to the Original Notes. The form and
terms of the Exchange Notes are substantially the same as the form and terms of
the Original Notes except that the Exchange Notes have been registered under the
Securities Act, and hence are not entitled to the benefits of certain
registration rights (the "Registration Rights") granted under the Registration
Rights Agreement and are not entitled to payment of Liquidated Damages (as
defined) (except in certain limited circumstances set forth in the Registration
Rights Agreement).
Registration Rights
Agreement.................. The Company and the Initial Purchasers entered into
the Registration Rights Agreement which grants the
Holders of the Original Notes certain exchange and
registration rights. The Exchange Offer made hereby
is intended to satisfy such exchange rights. See
"The Exchange Offer -- Registration Rights;
Liquidated Damages."
The Exchange Offer......... $1,000 principal amount of Exchange Notes will be
issued in exchange for each $1,000 principal amount
of Original Notes validly tendered pursuant to the
Exchange Offer. As of the date hereof, $310 million
in aggregate principal amount of Original Notes are
outstanding. The Company will issue the Exchange
Notes to tendering Holders of Original Notes on or
promptly after the Expiration Date (as defined).
Resale of the Exchange
Notes...................... Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in
exchange for Original Notes may be offered for
resale, resold and otherwise transferred by any
Holder thereof (other than (i) a broker-dealer who
purchased such Original Notes directly from the
Company or any of its "affiliates" within the
meaning of Rule 405 under the Securities Act for
resale pursuant to Rule 144A or any other available
exemption under the Securities Act or (ii) a person
that is such an "affiliate" of the Company) without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that the Holder is acquiring the Exchange Notes in
its ordinary course of business and is not
participating, and has no arrangement or
understanding with any person to participate, in
the distribution of the Exchange Notes. Holders of
Original Notes wishing to accept an Exchange Offer
must represent to the Company that such conditions
have been met. In the event that the Company's
belief is inaccurate, Holders of Exchange Notes who
transfer Exchange Notes in violation of the
prospectus delivery provisions of the Securities
Act and without an exemption from registration
thereunder may incur liability under the Securities
Act. The Company does not assume or indemnify
Holders against such liability.
A Participating Broker-Dealer that receives
Exchange Notes in exchange for Original Notes held
for its own account, as a result of market-making
activities or other trading activities, must
acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
Although such Participating Broker-Dealer may be an
"underwriter" within the meaning of the Securities
Act, the Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, such
Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus
8
<PAGE> 10
may be used by a Participating Broker-Dealer in
connection with resales of Exchange Notes received
in exchange for Original Notes. The Company has
agreed that, for a period of 180 days, it will make
this Prospectus and any amendment or supplement to
this Prospectus available to any Participating
Broker-Dealer for use in connection with any such
resales. See "Plan of Distribution."
The Exchange Offer is not being made to, nor will
the Company accept surrenders for exchange from,
Holders of Original Notes in any jurisdiction in
which this Exchange Offer or the acceptance thereof
would not be in compliance with the securities or
blue sky laws of such jurisdiction.
All resales must be made in compliance with
applicable state securities or blue sky laws. Such
compliance may require that resales be made by or
through a licensed broker-dealer. The Company
assumes no responsibility with regard to compliance
with such requirements.
Expiration Date............ 5:00 p.m., New York City time, on November 18,
1997, unless the Exchange Offer is extended by the
Company in its sole discretion, in which case the
term "Expiration Date" means the latest date and
time to which the Exchange Offer is extended. See
"The Exchange Offer -- Expiration Dates;
Extensions; Amendments."
Conditions to the
Exchange Offer........... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See
"The Exchange Offer -- Conditions of the Exchange
Offer."
Procedures for Tendering
Original Notes........... Each Holder of Original Notes wishing to accept the
Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions
contained herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile, together with the Original Notes and any
other required documentation to the Exchange Agent
(as defined) at the address set forth herein.
Certain brokers, dealers, commercial banks, trust
companies and other nominees may effect tenders by
book-entry transfer, including an Agent's Message
(as defined) in lieu of a Letter of Transmittal. By
executing a Letter of Transmittal or, in lieu
thereof, by transmitting an Agent's message, each
Holder will represent to the Company that, among
other things, (i) the Exchange Notes acquired
pursuant to the Exchange Offer are being obtained
in the ordinary course of business of the person
receiving such Exchange Notes, whether or not such
person is the Holder, (ii) neither the Holder nor
any such other person has any arrangement or
understanding with any person to participate in the
distribution of such Exchange Notes and that such
Holder is not engaged in, and does not intend to
engage in, a distribution of Exchange Notes, and
(iii) that neither the Holder nor any such other
person is an "affiliate," as defined in Rule 405
under the Securities Act, of the Company. See "The
Exchange Offer -- Procedures for Tendering."
Special Procedures for
Beneficial Holders....... Any beneficial owner whose Original Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
who wishes to tender in the Exchange Offer should
contact such
9
<PAGE> 11
registered Holder promptly and instruct such
registered Holder to tender on such beneficial
owner's behalf. A form of Instruction to Registered
Holder from Beneficial Owner is included with the
applicable Letter of Transmittal enclosed with this
Prospectus for the convenience of such beneficial
owners. See "The Exchange Offer -- Procedures for
Tendering."
Guaranteed Delivery
Procedures............... Holders of Original Notes who wish to tender their
Original Notes and whose Original Notes are not
immediately available or who cannot deliver their
Original Notes, the Letter of Transmittal, as the
case may be, or any other documents required by
such Letter of Transmittal to the Exchange Agent
(or comply with the procedures for book-entry
transfer) prior to the Expiration Date must tender
their Original Notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures."
Untendered Notes........... Following the consummation of the Exchange Offer,
Holders of Original Notes eligible to participate
but who do not tender their Original Notes will not
have any further exchange rights, and such Original
Notes will continue to be subject to certain
restrictions on transfer. Accordingly, the
liquidity of the market for such Original Notes
could be adversely affected by the Exchange Offer.
Consequences of Failure to
Exchange................. The Original Notes that are not exchanged pursuant
to the Exchange Offer will remain restricted
securities. Accordingly, such Original Notes may be
resold only (i) to the Company, (ii) pursuant to
Rule 144A or Rule 144 under the Securities Act or
pursuant to some other exemption under the
Securities Act, (iii) outside the United States in
compliance with Regulation S of the Securities Act,
or (iv) pursuant to an effective registration
statement under the Securities Act. See "The
Exchange Offer -- Consequences of Failure to
Exchange."
Shelf Registration
Statement.................. In the event that any changes in law or the
applicable interpretations of the staff of the
Commission do not permit the Company to effect the
Exchange Offer, or upon the request of a Holder of
Transfer Restricted Securities (as defined) under
certain circumstances or if the Exchange Offer is
not for any other reason consummated within 180
days of the date on which the Original Notes were
issued, the Company has agreed pursuant to the
Registration Rights Agreement to register the
Original Notes issued by it on a shelf registration
statement (the "Shelf Registration Statement") and
use its best efforts to cause it to be declared
effective by the Commission. The Company has agreed
to use its reasonable best efforts to maintain the
effectiveness of the Shelf Registration Statement
for a period of two years or, if sooner, until the
date on which the securities covered by the Shelf
Registration Statement have been sold or cease to
be outstanding.
Withdrawal Rights.......... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
See "The Exchange Offer -- Withdrawal of Tenders."
10
<PAGE> 12
Acceptance of Original
Notes and Delivery of
Exchange Notes........... Subject to certain conditions, the Company will
accept for exchange any and all Original Notes
which are properly tendered in the Exchange Offer
prior to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Notes issued pursuant
to the Exchange Offer will be delivered promptly
following the Expiration Date. See "The Exchange
Offer -- Terms of the Exchange Offer."
Federal Tax
Consideration.............. The exchange pursuant to the Exchange Offer will
generally not be a taxable event for federal income
tax purposes. See "Certain Federal Tax
Considerations."
Use of Proceeds............ There will be no cash proceeds to the Company from
the exchange pursuant to the Exchange Offer.
Exchange Agent............. State Street Bank and Trust Company.
SUMMARY DESCRIPTION OF THE EXCHANGE NOTES
General.................... The form and terms of the Exchange Notes are
substantially the same as the form and terms of the
Original Notes except that (i) the Exchange Notes
bear a Series B designation, (ii) the Exchange
Notes have been registered under the Securities Act
and, therefore, will generally not bear legends
restricting the transfer thereof (other than those
that might be imposed by state securities laws) and
(iii) the Exchange Notes will not provide for the
payment of Liquidated Damages (except in certain
limited circumstances set forth in the Registration
Rights Agreement). See "The Exchange
Offer -- Registration Rights; Liquidated Damages."
The Exchange Notes will evidence the same debt as
the Original Notes and will be entitled to the
benefits of the Indenture. As used herein, the term
"Notes" refers collectively to the Exchange Notes
and the Original Notes.
Securities Offered......... $310,000,000 aggregate principal amount of 9 1/8%
Series B Senior Notes due 2007.
Interest Rate and
Payment Dates............ Interest on the Exchange Notes will accrue at the
rate of 9 1/8% per annum, payable semi-annually in
arrears on March 1 and September 1 of each year,
commencing March 1, 1998.
Maturity................... September 1, 2007.
Redemption................. The Exchange Notes may be redeemed at the Company's
option, in whole or in part, at any time and from
time to time, on and after September 1, 2002,
initially at 104.563% of principal amount and
thereafter at prices declining to 100% from and
after September 1, 2005, plus accrued and unpaid
interest, if any, to the date of redemption. See
"Description of Notes -- Optional Redemption."
Change of Control.......... Upon a Change of Control (as defined), holders of
the Exchange Notes will have the right, subject to
certain restrictions and conditions, to require the
Company to purchase all or any part of their
Exchange Notes at 101% of the principal amount
thereof, plus accrued and unpaid interest, if any
(the "Change of Control Payment"), to the date of
purchase. If a Change of Control were to occur,
there can be no
11
<PAGE> 13
assurance that the Company would have sufficient
funds to make the Change of Control Payment with
respect to all Notes tendered by holders thereof.
In addition, the Company's ability to make such
payment may be limited by the terms of borrowing
and other agreements applicable to the Company or
its subsidiaries. See "Description of
Notes -- Change of Control" and "Description of
Other Obligations."
Ranking.................... The Exchange Notes will be senior unsecured
obligations of the Company and will rank pari passu
in right of payment with all existing and future
senior unsecured indebtedness of the Company and
senior in right of payment to all existing and
future subordinated indebtedness of the Company.
The Exchange Notes will be effectively subordinated
to all existing and future secured indebtedness of
the Company, to the extent of the value of the
assets securing such indebtedness, and to all
existing and future indebtedness and other
obligations of the Company's subsidiaries
(including Ply Gem and its subsidiaries), except in
the case of unsecured indebtedness and other
obligations to the extent any Subsidiary Guaranty
is then in force. Subject to certain restrictions,
the indenture pursuant to which the Exchange Notes
will be issued (the "Indenture") permits the
Company and its subsidiaries to incur additional
indebtedness, including senior indebtedness which
may be secured, and other liabilities. At June 28,
1997, after giving effect to the Transactions (as
defined), the Exchange Notes would have been
effectively subordinated to approximately $414.4
million of indebtedness for borrowed money, trade
payables and accrued liabilities of the Company's
subsidiaries. See "Description of
Notes -- General."
Certain Restrictive
Covenants.................. The Indenture contains certain covenants that limit
the ability of the Company and its Restricted
Subsidiaries (as defined) to, among other things,
pay dividends, repurchase capital stock or make
certain other Restricted Payments (as defined),
incur additional Indebtedness (as defined), issue
preferred stock of Restricted Subsidiaries, make
certain Investments (as defined) and consummate
certain mergers, consolidations or sales of assets.
Upon certain Asset Sales (as defined), the Company
will be required in certain circumstances to offer
to apply certain proceeds thereof to purchase the
Notes. However, all of these limitations and
prohibitions are subject to a number of important
qualifications and exceptions. See "Description of
Notes -- Certain Covenants."
RISK FACTORS
Prospective purchasers of the Notes should consider carefully all of the
information included in this Prospectus and, in particular, should evaluate the
specific factors set forth under "Risk Factors."
12
<PAGE> 14
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
The following table sets forth summary as adjusted consolidated financial
data of Nortek, historical consolidated financial data of Ply Gem and pro forma
and adjusted pro forma consolidated financial data of the Company. The as
adjusted, historical, pro forma and adjusted pro forma consolidated financial
data should be read in conjunction with the audited and unaudited Consolidated
Financial Statements and the Notes thereto, the information contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the information contained in "Unaudited Pro Forma Condensed
Consolidated Financial Data" included elsewhere herein.
The unaudited pro forma consolidated statement of operations data and other
consolidated data for the year ended December 31, 1996 and the six months and
twelve months ended June 28, 1997 give effect to (i) the Acquisition, the
issuance and sale of the Original Notes (the "Offering"), extension of credit
under the Ply Gem Credit Facility (as defined) to refinance certain existing
indebtedness of Ply Gem and the termination of Ply Gem's accounts receivable
securitization program (collectively, the "Transactions"), (ii) the issuance of
the 9 1/4% Senior Notes due 2007 (the "9 1/4% Notes") and (iii) a portion of the
Estimated Cost Reductions (as defined) which are directly attributable to the
Acquisition, as if all of the foregoing had occurred on January 1, 1996. The
unaudited adjusted pro forma consolidated statement of operations data and other
consolidated data for the year ended December 31, 1996 and the six and twelve
months ended June 28, 1997 give effect to (i) the Transactions, (ii) the
issuance of the 9 1/4% Notes and (iii) all of the Estimated Cost Reductions, as
if all of the foregoing had occurred on January 1, 1996. The summary unaudited
pro forma consolidated balance sheet data of the Company as of June 28, 1997
gives effect to the Transactions as if they occurred on that date.
The accompanying unaudited as adjusted, pro forma and adjusted pro forma
consolidated financial data are presented for illustrative purposes only and are
not necessarily indicative of the financial position or results of operations
which would actually have been reported had the above transactions been in
effect during the periods presented or which may be reported in the future. The
results of operations of the six months ended June 28, 1997 are not necessarily
indicative of the results of operations to be expected for the full year.
See "Unaudited Pro Forma Condensed Consolidated Financial Data" and "The
Acquisition."
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED JUNE 28, 1997
-----------------------------------------------------------
ADJUSTED
NORTEK PLY GEM PRO FORMA PRO FORMA
AS ADJUSTED(5) HISTORICAL COMPANY(6)(7) COMPANY(7)(8)
-------------- ---------- ------------- -------------
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales................... $957.8 $802.5 $ 1,760.3 $ 1,760.3
Gross profit................ 262.6 153.6 411.7 411.7
Operating earnings.......... 64.2 30.6 101.4 116.9
Interest expense, net....... (34.8) (6.6) (74.1) (74.1)
Net earnings................ 18.5 11.0 13.0 23.1
Net earnings per share...... 1.84 1.29 2.30
OTHER CONSOLIDATED DATA:
Capital expenditures........ $ 23.5 $ 26.8 $ 50.3 $ 50.3
Depreciation and
amortization.............. 24.3 15.8 46.2 45.4
EBITDA(1)................... 87.4 46.4 144.9 159.6
Ratio of earnings to fixed
charges(2)................ 1.7x 1.3x 1.5x
Ratio of EBITDA to interest
expense, net.............. 2.0 2.2
Ratio of net debt to
EBITDA(3)................. 5.0 4.6
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 SIX MONTHS ENDED JUNE 28, 1997
----------------------------------------------------- -----------------------------------------------------
NORTEK ADJUSTED NORTEK ADJUSTED
AS PLY GEM PRO FORMA PRO FORMA AS PLY GEM PRO FORMA PRO FORMA
ADJUSTED(5) HISTORICAL COMPANY(6) COMPANY(7)(8) ADJUSTED(5) HISTORICAL COMPANY(6) COMPANY(7)(8)
----------- ---------- ---------- ------------- ----------- ---------- ---------- -------------
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
STATEMENT OF
OPERATIONS DATA:
Net sales......... $ 969.8 $774.9 $1,744.7 $ 1,744.7 $ 469.2 $381.7 $850.9 $ 850.9
Gross profit...... 259.9 148.5 403.9 403.9 126.7 68.3 192.7 192.7
Operating
income.......... 60.1 29.0 93.2 106.8 29.9 8.8 43.0 50.7
Interest expense,
net............. (37.0) (6.8) (74.6) (74.6) (16.6) (3.6) (37.1) (37.1)
Net earnings...... 13.9 10.5 6.6 15.4 8.7 2.0 3.2 8.2
Net earnings per
share........... 1.30 .62 1.44 .88 .32 .83
OTHER CONSOLIDATED
DATA:
Capital
expenditures.... $ 22.2 $ 17.6 $ 39.8 $ 39.8 $ 8.9 $ 17.8 $ 26.7 $ 26.7
Depreciation and
amortization.... 23.7 15.0 45.0 44.2 12.4 8.4 23.9 23.5
EBITDA(1)......... 82.6 44.0 135.2 148.0 41.7 17.2 65.5 72.8
Ratio of earnings
to fixed
charges(2)...... 1.5x 1.2x 1.4x 1.6x 1.1x 1.3x
</TABLE>
<TABLE>
<CAPTION>
JUNE 28, 1997
------------------
ACTUAL PRO FORMA
------ ---------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities(4)........ $231.1 $ 128.6
Working capital............................................ 309.5 353.2
Total assets............................................... 773.0 1,297.2
Total debt................................................. 426.8 856.0
Stockholders' investment................................... 121.1 121.1
</TABLE>
- ---------------
(1) "EBITDA" is operating earnings plus depreciation and amortization (other
than amortization of deferred debt expense and debt discount). EBITDA
differs from Consolidated Cash Flow as defined in the Indenture. See
"Description of Notes -- Certain Definitions." EBITDA should not be
considered as an alternative to net earnings as a measure of the Company's
operating results or to cash flows as a measure of liquidity. EBITDA
principally differs from net increase (decrease) in unrestricted cash and
cash equivalents shown on the Consolidated Statement of Cash Flows of the
Company, prepared in accordance with generally accepted accounting
principles, in that EBITDA does not reflect capital expenditures,
borrowings, principal and interest payments under debt and capital lease
obligations, income tax payments and cash flows from other operating,
investing and financing activities.
(2) For purposes of calculating this ratio, "earnings" consist of earnings from
continuing operations before provision for income taxes and fixed charges.
"Fixed charges" consist of interest expense and the estimated interest
portion of rental payments on operating leases.
(3) For purposes of calculating this ratio, "net debt" consists of total debt
less cash, cash equivalents and marketable securities.
(4) Includes approximately $5.7 million of restricted investments and marketable
securities at June 28, 1997 (actual and pro forma). See "Unaudited Pro Forma
Condensed Consolidated Financial Data."
(5) Adjusted to give effect to the issuance of the 9 1/4% Notes as if such
issuance had occurred on January 1, 1996. The actual issuance of the 9 1/4%
Notes took place in March 1997. See "Unaudited Pro Forma Condensed
Consolidated Financial Data."
(6) The pro forma Company consolidated statement of operations data and other
consolidated data give effect to a portion of the Estimated Cost Reductions
which are directly attributable to the Acquisition. See Note (o) of Notes to
the Unaudited Pro Forma Condensed Consolidated Financial Data. Such cost
reductions represent an estimate. Actual results could differ materially
from those presented.
14
<PAGE> 16
(7) The Acquisition is accounted for under the purchase method of accounting.
The summary unaudited pro forma and adjusted pro forma consolidated
financial data have been prepared utilizing a preliminary purchase price
allocation. The preliminary purchase price allocation is subject to
refinement until all pertinent information regarding the Acquisition is
obtained and accordingly the amounts presented herein are subject to change.
(8) The adjusted pro forma Company consolidated statement of operations data and
other consolidated data give effect to all of the Estimated Cost Reductions
(including those referred to in Note (6) above). See Note (t) of Notes to
the Unaudited Pro Forma Condensed Consolidated Financial Data. Such cost
reductions represent an estimate. Actual results could differ materially
from those presented.
15
<PAGE> 17
NORTEK, INC.
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data for each of the five
years in the period ended December 31, 1996 have been derived from the
consolidated financial statements of Nortek which were audited by Arthur
Andersen LLP, independent public accountants. The following summary consolidated
financial data at June 28, 1997 and for the six months ended June 29, 1996 and
June 28, 1997 have been derived from the unaudited consolidated financial
statements of Nortek, which reflect in the opinion of Nortek, all adjustments of
a normal recurring nature necessary for a fair statement of the interim periods
presented. The following summary consolidated financial data should be read in
conjunction with the audited and unaudited Consolidated Financial Statements and
Notes thereto and the information contained in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, -------------------
------------------------------------------ JUNE 29, JUNE 28,
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------ ------ -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA(1):
Net sales.............................. $800.0 $744.1 $737.2 $776.2 $969.8 $481.2 $469.2
Gross profit........................... 204.8 211.6 216.8 201.3 259.9 124.0 126.7
Operating earnings..................... 20.4 30.3 50.0 41.1 60.1 25.8 29.9
Interest expense, net.................. (24.8) (23.3) (20.9) (18.8) (24.8) (12.7) (14.1)
Net earnings (loss)(2)................. (24.2) (20.8) 17.8 15.0 22.0 8.2 10.4
Net earnings (loss) per share.......... (1.92) (1.66) 1.39 1.19 2.05 .73 1.05
OTHER CONSOLIDATED DATA:
Capital expenditures................... $ 8.8 $ 10.8 $ 19.4 $ 17.3 $ 22.2 $ 7.6 $ 8.9
Depreciation and amortization.......... 23.6 20.7 18.0 19.0 23.7 11.8 12.4
EBITDA from operations(3).............. 42.5 49.6 66.7 59.0 82.6 36.9 41.7
Ratio of earnings to fixed
charges(4)........................... -- -- 2.0x 1.9x 2.1x 1.8x 1.8x
Ratio of EBITDA from operations to
interest expense, net................ 1.7 2.1 3.2 3.1 3.3 2.9 3.0
</TABLE>
<TABLE>
<CAPTION>
JUNE 28, 1997
-------------
<S> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities(5)............. $ 231.1
Working capital................................................. 309.5
Total assets.................................................... 773.0
Total debt...................................................... 426.8
Stockholders' investment........................................ 121.1
</TABLE>
- ---------------
(1) Acquisitions have been accounted for under the purchase accounting method
and dispositions have been accounted for as described in Note 2 of the Notes
to Consolidated Financial Statements of Nortek included elsewhere herein.
(2) On January 2, 1992, a Nortek subsidiary, Dixieline Products, Inc.
("Dixieline"), sold the assets of L.J. Smith, Inc. and recognized a pre-tax
gain on the sale of approximately $8.0 million ($.34 per share, net of tax).
On October 2, 1992, Nortek sold its wholly-owned subsidiary Bend Millwork
Systems, Inc. ("Bend") and recognized a pre-tax loss in 1992 of
approximately $22.5 million ($1.60 per share, net of tax). In the third
quarter of 1993, Nortek provided a pre-tax valuation reserve of
approximately $20.3 million to reduce Nortek's net investment in Dixieline
to estimated net realizable value. On March 31,
16
<PAGE> 18
1994, Nortek sold all the capital stock of Dixieline for approximately $18.8
million in cash and $6.0 million in preferred stock of the purchaser. No
additional loss in 1994 was incurred in connection with this sale. In
January 1995, Nortek paid approximately $1.8 million ($.14 per share, net of
tax) as a final purchase price adjustment related to the sale of Bend and
recorded a charge to pre-tax earnings in the fourth quarter of 1994.
(3) "EBITDA" is operating earnings plus depreciation and amortization (other
than amortization of deferred debt expense and debt discount). EBITDA
differs from Consolidated Cash Flow as defined in the Indenture. See
"Description of Notes -- Certain Definitions." EBITDA should not be
considered as an alternative to net earnings as a measure of Nortek's
operating results or to cash flows as a measure of liquidity. EBITDA
principally differs from net increase (decrease) in unrestricted cash and
cash equivalents shown on the Consolidated Statement of Cash Flows of
Nortek, prepared in accordance with generally accepted accounting
principles, in that EBITDA does not reflect capital expenditures,
borrowings, principal and interest payments under debt and capital lease
obligations, income tax payments and cash flows from other operating,
investing and financing activities.
(4) For purposes of calculating this ratio, "earnings" consist of earnings
before provision for income taxes and fixed charges. "Fixed charges" consist
of interest expense and the estimated interest portion of rental payments on
operating leases. Such earnings were insufficient to cover fixed charges by
approximately $18.0 million and approximately $11.6 million for the years
ended December 31, 1992 and 1993, respectively.
(5) Includes approximately $5.7 million of restricted investments and marketable
securities at June 28, 1997. See Consolidated Financial Statements of Nortek
included elsewhere herein.
17
<PAGE> 19
PLY GEM INDUSTRIES, INC.
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data for each of the five
years in the period ended December 31, 1996 have been derived from the
consolidated financial statements of Ply Gem which were audited by Grant
Thornton LLP, independent public accountants. The following summary consolidated
financial data at June 30, 1997 and for the six months ended June 30, 1996 and
1997 have been derived from unaudited consolidated financial statements of Ply
Gem, which reflect in the opinion of Ply Gem, all adjustments of a normal
recurring nature necessary for a fair statement of the interim periods
presented. The following summary consolidated financial data should be read in
conjunction with the audited and unaudited Consolidated Financial Statements and
the Notes thereto and the information contained in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, --------------------
---------------------------------------------- JUNE 30, JUNE 30,
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------ ------ -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales.......................................... $632.6 $731.5 $808.9 $755.2 $774.9 $354.1 $381.7
Gross profit....................................... 130.1 139.5 155.6 124.6 148.5 63.2 68.3
Operating income (loss)(1)(2) ..................... 22.5 26.9 (4.1) (1.5) 29.0 7.2 8.8
Interest expense, net.............................. (9.6) (10.1) (7.5) (6.6) (6.8) (3.8) (3.6)
Net income (loss)(3)............................... 6.3 9.7 (8.5) (7.4) 10.5 1.5 2.0
Net income (loss) per share........................ .56 .75 (.62) (.51) .74 .11 .14
OTHER CONSOLIDATED DATA:
Capital expenditures............................... $ 17.1 $ 20.5 $ 23.0 $ 27.8 $ 17.6 $ 8.6 $ 17.8
Depreciation and amortization ..................... 11.8 12.2 13.4 14.2 15.0 7.6 8.4
EBITDA(4).......................................... 34.3 39.1 50.3 24.6 44.0 14.8 17.2
Ratio of EBITDA to interest expense................ 3.6x 3.9x 6.7x 3.7x 6.5x 3.9x 4.8x
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET DATA: JUNE 30, 1997
-------------
<S> <C>
Cash and cash equivalents.................................. $ 8.0
Working capital............................................ 117.9
Total assets............................................... 358.5
Total debt................................................. 121.7
Stockholders' equity....................................... 147.2
</TABLE>
- ---------------
(1) During the fourth quarter of 1995, Ply Gem adopted SFAS No. 121 "Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
of " and recorded a non-cash pre-tax charge of approximately $12 million
related to the write down of an information system and certain machinery and
equipment.
(2) During 1994, Ply Gem recorded non-recurring charges of approximately $41.0
million consisting of approximately $29.1 million related to a restructuring
program and approximately $11.9 million for unusual items consisting of the
write down of certain intangible assets and discontinued products. During
the first six months of 1997, Ply Gem recorded a nonrecurring charge of $2.9
million related to certain merger costs. Additionally, during 1996 and for
the six months of 1997, Ply Gem recorded merger expenses of $0.8 and $.05
million, respectively, which are recorded in selling, general and
administrative expenses.
(3) Ply Gem has a program which allows for the sale of undivided fractional
interests in a pool of eligible accounts receivable to a financial
institution with limited recourse. The program costs of approximately $3.5
million, approximately $3.2 million, approximately $1.9 million,
approximately $1.5 million and approximately $1.5 million for the years
ended December 31, 1996, 1995, 1994, 1993 and 1992, respectively, and
approximately $1.6 million and approximately $1.0 million for the six months
ended June 30, 1997 and 1996, respectively, have been classified as other
expense.
18
<PAGE> 20
(4) "EBITDA" is operating income (loss) plus depreciation and amortization and
excludes write down of long-lived assets and non-recurring charges. EBITDA
should not be considered as an alternative to net income as a measure of Ply
Gem's operating results or to cash flows as a measure of liquidity. EBITDA
principally differs from net increase (decrease) in cash and cash
equivalents shown on the Consolidated Statement of Cash Flows of Ply Gem,
prepared in accordance with generally accepted accounting principles, in
that EBITDA does not reflect capital expenditures, borrowings, principal and
interest payments under debt and capital lease obligations, income tax
payments and cash flows from other operating, investing and financing
activities.
19
<PAGE> 21
RISK FACTORS
Prospective purchasers of the Exchange Notes should carefully review and
consider, among other things, the factors set forth below, as well as the other
information included in this Prospectus, before making an investment in the
Exchange Notes.
SUBSTANTIAL LEVERAGE
The Company has a substantial amount of debt. After giving effect to the
Transactions, as of June 28, 1997, the Company would have had approximately
$856.0 million of consolidated debt and a debt to equity ratio of 7.1 to 1. See
"Capitalization" and "Description of Other Obligations."
The degree to which the Company is leveraged could have important
consequences to Holders of the Notes, including the following: (i) the Company's
ability to obtain additional financing in the future for refinancing
indebtedness, acquisitions, working capital, capital expenditures or other
purposes may be impaired, (ii) funds available to the Company for its operations
and general corporate purposes or for capital expenditures will be reduced as a
result of the dedication of a substantial portion of the Company's consolidated
cash flow from operations to the payment of the principal and interest on its
indebtedness, (iii) the Company may be more highly leveraged than certain of its
competitors, which may place it at a competitive disadvantage, (iv) the
agreements governing the Company's and its subsidiaries' long-term indebtedness
(including indebtedness under the 9 7/8% Senior Notes due 2004 (the "9 7/8%
Notes"), the 9 1/4% Notes, the Ply Gem Credit Facility (as defined) and the
Notes) and bank loans contain certain restrictive financial and operating
covenants, including, in the case of certain indebtedness of subsidiaries,
certain covenants that restrict the ability of the Company's subsidiaries to pay
dividends or make other distributions to the Company (see "Description of Other
Obligations"), (v) an event of default (not cured or waived) under financial and
operating covenants contained in the Company's or its subsidiaries' debt
instruments, including the Indenture, could occur and have a material adverse
effect on the Company, (vi) certain of the borrowings under debt agreements of
the Company's subsidiaries have floating rates of interest, which causes the
Company and its subsidiaries to be vulnerable to increases in interest rates and
(vii) the Company's substantial degree of leverage could make it more vulnerable
to a downturn in general economic conditions.
The terms of the Indenture allow for the incurrence of additional
Indebtedness (as defined). Except as set forth below, the incurrence of
additional Indebtedness is limited by certain conditions, including compliance
with a Consolidated Cash Flow Coverage Ratio (as defined) of 2.0 to 1.0, pro
forma for, among other things, the incurrence of additional Indebtedness. As of
June 28, 1997, after giving effect to the Transactions, the Company would have
been significantly limited in its ability to incur additional Indebtedness based
on compliance with the Consolidated Cash Flow Coverage Ratio. The Company and
its Restricted Subsidiaries (as defined) may incur specified levels of
additional Indebtedness without regard to compliance with the Consolidated Cash
Flow Coverage Ratio or any other financial ratio or covenant in the Indenture.
The Indenture places no restriction on the incurrence of Indebtedness by any of
the Company's Unrestricted Subsidiaries (as defined). As of the date of this
Prospectus, the Company does not have any Unrestricted Subsidiaries. See
"Description of Notes." In the event the Company or its subsidiaries were to
incur additional Indebtedness, whether for acquisitions, investment in its
business or other general corporate purposes, the Company's leverage could
increase, which in turn could make it more susceptible to the factors described
above.
The ability of the Company and its subsidiaries to make principal and
interest payments under long-term indebtedness (including the Notes) and bank
loans will be dependent upon their future performance, which is subject to
financial, economic and other factors affecting the Company and its
subsidiaries, some of which are beyond their control. There can be no assurance
that the current level of operating results of the Company and its subsidiaries
will continue or improve. The Company believes that it will need to access the
capital markets in the future in order to provide the funds necessary to repay a
significant portion of its indebtedness. There can be no assurance that any such
refinancing will be possible or that any additional financing can be obtained,
particularly in view of the Company's anticipated high levels of debt and the
debt incurrence restrictions under its existing debt agreements, including the
Indenture. If no such refinancing or additional financing were
20
<PAGE> 22
available, the Company and/or its subsidiaries could default on their respective
debt obligations. In such case, virtually all other debt of the Company and its
subsidiaries, including payments to be made under the Notes, could become
immediately due and payable.
SECURED INDEBTEDNESS
The Indenture permits the Company to incur certain indebtedness secured by
a lien on assets of the Company (including indebtedness which may be incurred
under the Company Credit Facility (as defined) and the Ply Gem Credit Facility).
The Notes are unsecured and will be effectively subordinated to all existing and
future secured indebtedness of the Company to the extent of the value of the
assets securing such indebtedness. Accordingly, if an event of default occurs
under any agreement or instrument governing secured indebtedness of the Company,
the lenders thereunder will have a prior right to the assets of the Company
securing such indebtedness and may foreclose upon such collateral to the
exclusion of the holders of the Notes. In such event, such assets would first be
used to repay in full outstanding amounts under indebtedness secured thereby,
resulting in all or a portion of the Company's assets being unavailable to
satisfy the claims of the Holders of Notes and holders of other unsecured
indebtedness. As of June 28, 1997, after giving effect to the Transactions, the
Company had outstanding, exclusively through its subsidiaries, on a pro forma
basis $148.2 million of secured indebtedness. See "Description of
Notes -- Certain Covenants" and "Description of Other Obligations -- Ply Gem
Credit Facility."
STRUCTURAL SUBORDINATION
The Notes will be obligations of the Company exclusively. Because the
operations of the Company are conducted entirely through subsidiaries, the
Company's cash flow and its ability to service debt, including the Notes, are
dependent upon the cash flow of its subsidiaries and the payment of funds by
those subsidiaries in the forms of loans, dividends or otherwise. The
subsidiaries, however, are legally distinct from the Company and have no
obligation, contingent or otherwise (except to the extent described below with
respect to the requirement to provide guaranties in certain circumstances), to
pay amounts due pursuant to the Notes or to make any funds available for such
payments.
Certain agreements governing the Company's subsidiaries restrict the
ability of the subsidiaries to pay dividends or make other distributions to the
Company. See "Description of Other Obligations."
In addition, while substantially all of the Company's subsidiaries are
currently wholly owned directly or indirectly by the Company, the ability of the
Company to cause any less than wholly owned subsidiary to pay dividends or make
other distributions to the Company may be limited by reason of contractual
restrictions or the need to consider the interests of the other owners of such
subsidiary. For example, a pro rata amount of any dividend distribution would in
most cases be required to be paid to the other owners of such subsidiary (and
thereby be subject to, and potentially prohibited by, the Limitations on
Restricted Payments covenant of the Indenture and similar covenants in other
agreements or instruments applicable to the Company, including without
limitation the indenture governing the 9 7/8% Notes and the indenture governing
the 9 1/4% Notes). In addition, the terms of any loan from any such less than
wholly owned subsidiary to the Company may only be able to be made, if at all,
on terms less favorable to the Company than in the case of a loan from a wholly
owned subsidiary.
Except to the extent that the Company may itself be a trade creditor with
recognized claims against its subsidiaries, claims of creditors of such
subsidiaries, including trade creditors, will have effective priority with
respect to the assets and earnings of such subsidiaries over the claims of
creditors of the Company, including holders of the Notes. At June 28, 1997,
after giving effect to the Transactions, the Notes would have been effectively
subordinated to approximately $414.4 million of indebtedness for borrowed money,
trade payables and accrued liabilities of the Company's subsidiaries. See
"Description of Notes -- General."
The Indenture provides that in the event any of the Company's subsidiaries
guarantees or otherwise becomes liable for the payment of any Indebtedness of
the Company (other than Indebtedness under the Company Credit Facility or the
Ply Gem Credit Facility) such subsidiary shall also guarantee the payment of the
Notes. This provision of the Indenture ceases to have effect in certain
circumstances. In the event any
21
<PAGE> 23
subsidiary provides such a guaranty, the guaranty may, under certain
circumstances, be subject to avoidance or subordination under fraudulent
conveyance laws or the preference provisions of federal or state bankruptcy law.
See "Description of Notes -- Certain Covenants -- Limitation on Guaranties by
Subsidiaries."
REPURCHASE OF NOTES UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required to
make an offer to repurchase the Notes at a price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest to the date of repurchase.
Certain events involving a Change of Control could result in acceleration of, or
similar repurchase obligations with respect to, indebtedness outstanding under
the Company Credit Facility, the Ply Gem Credit Facility, the 9 7/8% Notes, the
9 1/4% Notes or other indebtedness of the Company or its subsidiaries that may
be incurred in the future. There can be no assurance that the Company will have
sufficient resources to repurchase the Notes in the event it becomes obligated
to do so, particularly in the event of acceleration of, or the need to comply
with repurchase obligations with respect to, other indebtedness. The failure to
repurchase all of the tendered Notes in the event of a Change of Control
constitutes an event of default under the Indenture which may result in the
acceleration of the maturity of the Notes. The Change of Control repurchase
provisions may be deemed to have anti-takeover effects and may delay, defer or
prevent a merger, tender offer or other takeover attempt. See "Description of
Notes -- Change of Control", "-- Certain Covenants" and "-- Events of Default
and Remedies."
INTEGRATION OF THE BUSINESS OF PLY GEM
A significant element of the Company's business strategy is to pursue
strategic acquisitions that either expand or complement the Company's products
or markets. Although the management of the Company has had experience
integrating acquired businesses, the Acquisition represents a transaction
significantly larger than any acquisition previously completed by Nortek. The
task of integrating Ply Gem, which is of a comparable size to Nortek, will
require significant time and effort from management. In addition, the Company's
business plan assumes that significant synergies and cost savings can be
realized in connection with the Acquisition. If significant difficulty is
encountered during the integration process or if Ply Gem is not rapidly
integrated or if such synergies and cost savings are not realized, the results
of operations and financial condition of the Company likely will be adversely
affected. There can be no assurance that the Company will be able to
successfully manage and integrate Ply Gem following the Acquisition.
LABOR RELATIONS
As of December 31, 1996, approximately 43% of Ply Gem's workforce and 34%
of Nortek's workforce were subject to various collective bargaining agreements.
There can be no assurance as to the results of negotiations of future collective
bargaining agreements, whether future collective bargaining agreements will be
negotiated without production interruptions including labor stoppages or the
possible impact of future collective bargaining agreements, or the negotiations
thereof, on the Company's financial condition and results of operations.
FRAUDULENT CONVEYANCE CONSIDERATIONS
The incurrence by the Company of indebtedness such as the Notes to finance
the Acquisition and related transactions may be subject to review under federal
bankruptcy law or relevant state fraudulent conveyance laws if a bankruptcy case
or lawsuit is commenced by or on behalf of unpaid creditors of the Company.
Under these laws, if a court were to find that, after giving effect to the sale
of the Notes and the application of the net proceeds therefrom, either (a) the
Company incurred such indebtedness with the intent of hindering, delaying or
defrauding creditors or (b) the Company received less than reasonably equivalent
value or consideration for incurring such indebtedness and (i) was insolvent or
was rendered insolvent by reason of such transactions, (ii) was engaged in a
business or transaction for which the assets remaining with the Company
constituted unreasonably small capital or (iii) intended to incur, or believed
that it would incur, debts beyond its ability to pay as they matured, such court
might subordinate such indebtedness to presently existing and future
22
<PAGE> 24
indebtedness of the Company or void the issuance of such indebtedness and direct
the repayment of any amounts paid thereunder to the creditors of the Company, as
the case may be, or take other action detrimental to the holders of such
indebtedness.
The measure of insolvency for purposes of determining whether a transfer is
avoidable as a fraudulent transfer varies depending upon the law of the
jurisdiction that is being applied. Generally, however, a debtor would be
considered insolvent if the sum of all its debts, including contingent
liabilities, were greater than the value of all of its assets at a fair
valuation, or if the present fair saleable value of the debtor's assets were
less than the amount required to repay its probable liability on its debts,
including contingent liabilities, as they become absolute and mature.
The Company believes that it will receive equivalent value at the time
indebtedness under the Notes is incurred. In addition, after giving effect to
the consummation of the Transactions, the Company does not: (i) believe that it
will be insolvent or rendered insolvent; (ii) believe that it will be engaged in
a business or transaction for which its remaining assets constitute unreasonably
small capital; or (iii) intend to incur, or believe that it will incur, debts
beyond its ability to pay as they mature. These beliefs are based on the
Company's analysis of internal cash flow projections and estimated values of
assets and liabilities of the Company at the time of the Transactions. There can
be no assurance, however, that a court passing on these issues would make the
same determination.
SENSITIVITY TO ECONOMIC CYCLES; AVAILABILITY AND PRICING OF RAW MATERIALS
A significant percentage of the Company's sales of residential and
commercial building products is attributable to new residential and
nonresidential construction, which are affected by such cyclical factors as
interest rates, inflation, consumer spending habits and employment. This
exposure to cyclicality in the new construction market is partially mitigated by
the Company's increasing emphasis on the repair and replacement markets, which
are typically less cyclical. In addition, the Company is dependent upon raw
materials (including, among others, steel, copper, packaging material, plastics,
resins and aluminum) and components purchased from third parties. Accordingly,
the Company's results of operations and financial condition have in the past
been, and may again in the future be, adversely affected by increases in raw
material or component costs or their lack of availability.
COMPETITION
Substantially all of the markets in which the Company participates are
highly competitive with respect to product quality, price, design innovations,
distribution, service, warranties, reliability, efficiency and financing terms.
Certain of the Company's competitors have greater financial and marketing
resources and brand awareness than the Company. Competitive factors could
require price reductions or increased spending on product development, marketing
and sales that would adversely affect the Company's operating results.
LACK OF PUBLIC MARKET; RESTRICTIONS ON TRANSFER
There is no existing public market for the Original Notes or the Exchange
Notes and the Company does not intend to list the Exchange Notes on any national
securities exchange or seek the admission thereof to trading in the National
Association of Securities Dealers Automated Quotation System. The Initial
Purchasers have advised the Company that they currently intend to make a market
in the Notes but are not obligated to do so and may discontinue such market
making at any time without notice. In addition, such market making activity will
be subject to the limits imposed by the Securities Act and the Exchange Act and
may be limited during the Exchange Offer and the pendency of a Shelf
Registration Statement. Accordingly, no assurance can be given that an active
market will develop for any of the Exchange Notes or as to the liquidity of the
trading market for any of the Exchange Notes. If a trading market does not
develop or is not maintained, Holders of the Exchange Notes may experience
difficulty in reselling such Exchange Notes or may be unable to sell them at
all. If a market for the Exchange Notes develops, any such market may be
discontinued at any time. If a trading market develops for the Exchange Notes,
future trading prices of such Exchange Notes will depend on many factors,
including, among other things, prevailing interest rates, the
23
<PAGE> 25
Company's results of operations and the market for similar securities. Depending
on prevailing interest rates, the market for similar securities and other
factors, including the financial condition of the Company, the Exchange Notes
may trade at a discount from their principal amount.
------------------------
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical facts, including without
limitation, the statements made under "Summary", "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business"
constitute forward-looking statements. Such forward-looking statements are
subject to certain risks and uncertainties, over which the Company has no
control, which could cause actual results to differ materially from those
projected. Cautionary statements describing these risks and uncertainties
include those disclosed under the caption "Risk Factors" and elsewhere in this
Prospectus. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by such cautionary statements. Readers are cautioned
not to place undue reliance on forward-looking statements, including statements
made in this Prospectus, which speak only as of the date made (including the
date of any incorporated document in the case of any forward-looking statement
contained therein), and the Company undertakes no obligation to republish
revised forward-looking statements to reflect events or circumstances after the
date originally made or to reflect the occurrence of unanticipated events.
Readers are also urged to carefully review and consider the various disclosures
made by the Company in the Company's periodic reports filed with the Commission.
24
<PAGE> 26
THE ACQUISITION
On July 24, 1997, Nortek, a wholly owned subsidiary of Nortek and Ply Gem
entered into the Merger Agreement. In connection with the Merger Agreement, on
July 29, 1997, Nortek's subsidiary commenced a tender offer to purchase all
outstanding shares of Common Stock of Ply Gem, at a price of $19.50 per share,
net to the seller in cash, without interest thereon, upon the terms and
conditions set forth in the Offer to Purchase and the related letter of
transmittal. On August 26, 1997, Nortek's subsidiary completed the Tender Offer
and shortly thereafter purchased approximately 12,854,039 Shares, which when
added to Shares already owned by Nortek, constituted approximately 92.3% of Ply
Gem's then outstanding Common Stock. In addition, each outstanding option to
purchase Shares of Ply Gem was surrendered and canceled in exchange for a cash
payment equal to the number of Shares underlying such option, multiplied by
$19.50, less the aggregate exercise price of such option.
Pursuant to the Merger Agreement, on September 4, 1997, Nortek's subsidiary
was merged with and into Ply Gem with Ply Gem surviving the Merger as a wholly
owned subsidiary of the Company. Under Delaware General Corporation Law, because
Nortek's subsidiary beneficially acquired in excess of 90% of each class and
series of outstanding voting shares of Ply Gem in the Tender Offer and related
transactions, the Merger was effected without shareholder vote or approval. Upon
consummation of the Merger, each Share then outstanding (other than dissenting
Shares, Shares held in the treasury of Ply Gem or Shares held by Nortek or its
subsidiary) was converted into the right to receive $19.50 in cash.
The total amount of financing required to complete the Tender Offer and
Merger and related transactions was approximately $526.6 million. The sources
and uses of the financing were as follows:
<TABLE>
<CAPTION>
IN MILLIONS
-----------
<S> <C>
Sources of financing:
Nortek cash............................................................. $ 110.2
Gross proceeds from the offering of the Original Notes.................. 307.5
Extension of credit under Ply Gem Credit Facility....................... 108.9
-------
Total sources of funds.......................................... $ 526.6
=======
Use of financing:
Payment for Shares and cancellation of Options.......................... $ 310.1
Refinancing of existing Ply Gem indebtedness............................ 114.4
Termination of accounts receivables securitization program.............. 45.0
Funding of termination fees under prior acquisition agreement........... 12.0
Consideration paid for termination of management agreements............. 23.5
Fees, expenses and other costs related to the Transactions.............. 21.6
-------
Total use of funds.............................................. $ 526.6
=======
</TABLE>
Upon entering into the Merger Agreement, Nortek and Ply Gem simultaneously
entered into a Stock Purchase Agreement whereby, among other things, Nortek
agreed to purchase 640,000 Shares for an aggregate purchase price of $12
million. Ply Gem agreed to use the proceeds of such sale first to satisfy its
termination fee obligations to Atrium Acquisition Holdings Corp. under the terms
of the Agreement and Plan of Merger dated as of June 24, 1997 (the "Atrium
Agreement") among Atrium Acquisition Holdings Corp., Atrium/PG Acquisition
Corp., Ply Gem and, for limited purposes, Atrium Corporation, and then, if there
remained any proceeds after such obligations were fully satisfied, for general
corporate purposes.
In addition, contemporaneously with the execution and delivery of the
Merger Agreement, Nortek and Ply Gem entered into (i) a Non-Compete and
Termination Agreement with Jeffrey S. Silverman, Chairman of the Board and Chief
Executive Officer of Ply Gem (the "Non-Compete and Termination Agreement"), (ii)
a Termination and Release Agreement with Herbert P. Dooskin, Executive Vice
President of Ply Gem (the "Termination and Release Agreement") and (iii) an
Amended and Restated Stockholders Agreement (the "Amended and Restated
Stockholders Agreement") with Messrs. Jeffrey S. Silverman, Dana R. Snyder and
Herbert P. Dooskin, Atrium Acquisition Holdings Corp., Atrium/PG Acquisition
Corp (the two Atrium entities, collectively, "Atrium").
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<PAGE> 27
Pursuant to the Non-Compete and Termination Agreement, Mr. Silverman
resigned as an officer and director of Ply Gem and each of its subsidiaries, and
his employment agreement with Ply Gem was terminated in full as of the
consummation of the Tender Offer. Following his resignation, pursuant to the
terms of the Merger Agreement, Mr. Silverman was appointed an interim director
of Ply Gem until consummation of the Merger. In addition, Mr. Silverman agreed,
for a period of two years from the consummation of the Tender Offer, to not,
among other things, directly or indirectly compete with Ply Gem or its
subsidiaries in the United States, engage in certain activities that may
interfere with the operations of Ply Gem or its subsidiaries or aid competitors
of Ply Gem. Mr. Silverman also agreed to release and discharge Ply Gem and its
subsidiaries from all claims and damages, including those related to his
employment with, and membership on the Boards of Directors of, Ply Gem and its
subsidiaries and resignations therefrom, his employment agreement, and all other
acts or omissions related to any matter at any time prior to and including the
date of termination of his employment agreement; except that such release does
not include, among other things, Mr. Silverman's entitlement to certain
statutory rights to continued group medical coverage and vested accrued benefits
in certain of Ply Gem's qualified employee benefit plans.
As liquidated damages for the termination of Mr. Silverman's employment
agreement, upon consummation of the Tender Offer, Ply Gem paid Mr. Silverman
$21,335,176. In addition, Ply Gem forgave certain indebtedness of Mr. Silverman
to Ply Gem of an aggregate principal amount of $17,407,850 plus accrued
interest, if any, a portion of which represented liquidated damages for the
termination.
Pursuant to the Termination and Release Agreement, Mr. Dooskin resigned as
an officer and director of Ply Gem and each of its subsidiaries, and his
employment agreement with Ply Gem was terminated in full as of the consummation
of the Tender Offer. Following his resignation, pursuant to the terms of the
Merger Agreement, Mr. Dooskin was appointed an interim director of Ply Gem until
consummation of the Merger. In addition, Mr. Dooskin agreed, for a period of two
years from the consummation of the Tender Offer, to not, among other things,
directly or indirectly compete with Ply Gem or its subsidiaries in the United
States, engage in certain activities that may interfere with the operations of
Ply Gem or its subsidiaries or aid competitors of Ply Gem. Mr. Dooskin also
agreed to release and discharge Ply Gem and its subsidiaries from all claims and
damages, including those related to his employment with, and membership on the
Boards of Directors of, Ply Gem and its subsidiaries and resignations therefrom,
his employment agreement, and all other acts or omissions related to any matter
at any time prior to and including the date of termination of his employment
agreement; except that such release does not include, among other things, Mr.
Dooskin's entitlement to certain statutory rights to continued group medical
coverage and vested accrued benefits in certain of Ply Gem's qualified employee
benefit plans.
In consideration of the termination of Mr. Dooskin's employment agreement,
upon consummation of the Tender Offer, Ply Gem paid Mr. Dooskin $1,900,000. In
addition, effective as of the termination of Mr. Dooskin's employment agreement,
Ply Gem forgave certain indebtedness of Mr. Dooskin to Ply Gem in a aggregate
principal amount of $49,500.
In addition, contemporaneously with the execution of the Atrium Agreement,
Messrs. Jeffrey S. Silverman, Dana R. Snyder and Herbert P. Dooskin (each, a
"Relevant Shareholder") entered into a Stockholders Agreement with Atrium. Such
agreement was amended and restated as of July 24, 1997, with Nortek and a
subsidiary of Nortek becoming parties thereto. Pursuant to the Amended and
Restated Stockholders Agreement, among other things, each Relevant Stockholder
agreed to tender all shares owned by him in the Tender Offer, with 75% of the
price paid in the Tender Offer over $18.75 per Share (the price per Share
payable pursuant to the Atrium Agreement) to be paid to Atrium and the remainder
of the price paid in the Tender Offer to be paid to the Relevant Shareholder.
Nortek and Ply Gem also agreed to release, as of the consummation of the Tender
Offer, all claims they may have with respect to the $12 million payment made by
Ply Gem in connection with the termination of the Atrium Agreement as provided
therein. In addition, certain of the Relevant Shareholders each agreed to enter
into Option Surrender Agreements, Releases and Waivers whereby each such person
agreed to surrender Options held by him for cancellation. For each share of
Common Stock subject to such Option, such Relevant Shareholder received an
amount (subject to applicable withholding tax) in cash equal to the difference
between the per Share price paid in the Tender Offer and the per share exercise
price of such Option to the extent such difference is a positive number.
26
<PAGE> 28
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes. The Company is issuing the Exchange Notes in exchange for the
Original Notes in order to fulfill its obligations under the Registration Rights
Agreement. Properly tendered Original Notes will be retired and canceled.
For a description of the use of proceeds from the sale of the Original
Notes, see "The Acquisition."
27
<PAGE> 29
CAPITALIZATION
The following table sets forth at June 28, 1997 the short-term debt and
capitalization of Nortek, actual, and of the Company, as adjusted, to reflect
the Transactions:
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED
------ -----------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Short-term debt:
Short-term borrowings................................................... $ 12.9 $ 12.9
Current maturities of long-term debt.................................... 5.1 6.6
------ -------
Total short-term debt........................................... $ 18.0 $ 19.5
====== =======
Long-term debt:
Notes, mortgage notes and other......................................... $ 17.6 $ 137.8
9 1/8% Senior Notes due 2007............................................ -- 307.5
9 1/4% Senior Notes due 2007............................................ 174.0 174.0
9 7/8% Senior Subordinated Notes due 2004............................... 217.2 217.2
------ -------
Total long-term debt(1)......................................... $408.8 $ 836.5
====== =======
Stockholders' Investment(2):
Preference stock, $1.00 par value; 7,000,000 shares authorized, none
issued............................................................... -- --
Common stock, $1.00 par value; 40,000,000 shares authorized;
16,025,542 shares issued............................................. 16.0 16.0
Special common stock, $1.00 par value; 5,000,000 shares authorized;
774,339 shares issued................................................ .8 .8
Additional paid-in capital.............................................. 135.3 135.3
Retained earnings....................................................... 48.2 48.2
Cumulative translation, pension and other adjustments................... (4.0) (4.0)
Less: Treasury stock, at cost, 6,929,227 common shares and 285,233
special common shares................................................ (75.2) (75.2)
------ -------
Total stockholders' investment.................................. $121.1 $ 121.1
====== =======
Total capitalization............................................ $529.9 $ 957.6
====== =======
</TABLE>
- ---------------
(1) Long-term debt is net of $2.3 million (actual) and $4.8 million (as
adjusted) of unamortized debt discount.
(2) Excludes (i) 1,829,386 shares of common stock, $1.00 par value (the "Common
Stock") at June 28, 1997 which have been reserved for issuance pursuant to
options and the conversion of the Company's special common stock, $1.00 par
value (the "Special Common Stock"), (ii) 755,000 shares of Special Common
Stock at June 28, 1997 which have been reserved for issuance pursuant to
options and (iii) 95,855 shares of Series A Participating Preference Stock
(the "Preference Stock") which may be issuable upon exercise of rights under
the Rights Agreement, as amended and restated as of April 2, 1996, between
the Company and State Street Bank and Trust Company.
28
<PAGE> 30
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma condensed consolidated statement of
operations ("Pro Forma Company") for the year ended December 31, 1996 and the
six months and twelve months ended June 28, 1997 gives effect to (i) the
Transactions, (ii) the issuance of the 9 1/4% Notes and (iii) a portion of the
Estimated Cost Reductions which are directly attributable to the Acquisition as
if all of the foregoing had occurred on January 1, 1996. In addition, the
unaudited adjusted pro forma condensed consolidated statement of operations
("Adjusted Pro Forma Company") for the year ended December 31, 1996 and the six
months and twelve months ended June 28, 1997 give effect to all of the Estimated
Cost Reductions (as discussed below). The unaudited pro forma condensed
consolidated balance sheet of the Company as of June 28, 1997 gives effect to
the Transactions as if they occurred on that date.
The Company expects to realize pre-tax annual cost savings of approximately
$23.4 million, based on the twelve months ended June 28, 1997, as a result of
the Acquisition. These savings are expected to result from several actions,
including: (i) the elimination of expenses associated with Ply Gem's New York
headquarters; (ii) the consolidation into Nortek of certain of Ply Gem's
corporate functions such as legal, accounting and risk management; and (iii) the
identification and rationalization of underperforming product lines (all of the
foregoing referred to collectively as "Estimated Cost Reductions"). Of the $23.4
million of expected pre-tax savings, $7.9 million is included in footnote (o)
for the twelve months ended June 28, 1997 and represents estimated cost
reductions directly attributable to the Acquisition. The remaining $15.5 million
is included in footnote (t) for the twelve months ended June 28, 1997 and
relates to additional estimated cost savings and operating efficiencies which
management expects will result from the Acquisition.
The effect of the issuance of the 9 1/4% Notes is reflected in the
Company's June 28, 1997 unaudited condensed consolidated balance sheet because
such issuance occurred prior to the date of such balance sheet.
The Acquisition is accounted for under the purchase method of accounting.
The accompanying unaudited pro forma and adjusted pro forma condensed
consolidated financial data have been prepared utilizing a preliminary purchase
price allocation. The preliminary purchase price allocation is subject to
refinement until all pertinent information regarding the Acquisition is obtained
and, accordingly, the amounts presented herein are subject to change.
The results of operations of the six months ended June 28, 1997 are not
necessarily indicative of the results of operations to be expected for the full
year. The accompanying Pro Forma Company and Adjusted Pro Forma Company
information is presented for illustrative purposes only and is not necessarily
indicative of the financial position or results of operations which would
actually have been reported had the above transactions been in effect during the
periods presented or which may be reported in the future.
The accompanying unaudited pro forma and adjusted pro forma condensed
consolidated financial data should be read in conjunction with the audited and
unaudited Consolidated Financial Data and related Notes thereto for Nortek and
Ply Gem included elsewhere herein.
29
<PAGE> 31
THE COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 28, 1997
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
NORTEK PLY GEM FOR THE PRO FORMA
HISTORICAL HISTORICAL TRANSACTIONS COMPANY
---------- ---------- ------------ ---------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS
Unrestricted:
Cash and cash equivalents..................... $ 56.8 $ 8.0 $ --(a) $ 64.8
Marketable securities available for sale...... 168.6 -- (110.5)(b) 58.1
Restricted:
Cash and marketable securities................ 5.7 -- -- 5.7
Accounts receivable, net........................ 137.8 45.9 49.2(c) 232.9
Inventories, net................................ 107.7 110.5 -- 218.2
Prepaid expenses................................ 4.3 -- -- 4.3
Other current assets............................ 13.8 14.9 (3.8)(d) 24.9
Prepaid income taxes............................ 20.0 10.9 -- 30.9
------ ------ ------ --------
Total current assets....................... 514.7 190.2 (65.1) 639.8
Property, plant and equipment, net.............. 138.0 101.5 -- 239.5
Goodwill and other intangibles.................. 88.9 20.9 227.9(e) 337.7
Deferred debt expense........................... 11.0 1.2 10.1(f) 22.3
Other assets.................................... 20.4 44.7 (7.2)(g) 57.9
------ ------ ------ --------
Total assets.......................... $773.0 $358.5 $165.7 $1,297.2
====== ====== ====== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Notes payable and other short-term
obligations................................... $ 12.9 $ -- $ -- $ 12.9
Current maturities of long-term debt............ 5.1 1.5 -- 6.6
Accounts payable................................ 86.3 36.9 -- 123.2
Accrued expenses and taxes, net................. 101.0 33.9 9.0(h) 143.9
------ ------ ------ --------
Total current liabilities.................. 205.3 72.3 9.0 286.6
Deferred income taxes........................... 18.3 2.6 (3.6)(i) 17.3
Other long-term liabilities..................... 19.5 16.2 -- 35.7
Notes, mortgages, capital leases and obligations
payable less current maturities............... 408.8 120.2 307.5(j) 836.5
Preference stock................................ -- -- -- --
Common stock.................................... 16.0 4.4 (4.4) 16.0
Special common stock............................ 0.8 -- -- 0.8
Additional paid-in capital...................... 135.3 150.1 (150.1) 135.3
Retained earnings............................... 48.2 63.1 (63.1) 48.2
Cumulative translation, pension and other
adjustments................................... (4.0) (5.6) 5.6 (4.0)
Treasury stock -- common........................ (73.3) (64.8) 64.8 (73.3)
Treasury stock -- special common................ (1.9) -- -- (1.9)
------ ------ ------ --------
Total stockholders' investment............. 121.1 147.2 (147.2)(k) 121.1
------ ------ ------ --------
Total liabilities and stockholders'
investment.......................... $773.0 $358.5 $165.7 $1,297.2
====== ====== ====== ========
</TABLE>
See Notes to the Unaudited Pro Forma Condensed Consolidated Financial Data
30
<PAGE> 32
------------------
THE COMPANY
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
ADJUSTED
PRO PRO
NORTEK NORTEK PLY GEM FORMA FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED HISTORICAL ADJUSTMENTS COMPANY COMPANY
---------- ----------- ----------- ---------- ----------- ------- -------
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales..................... $969.8 $ -- $ 969.8 $774.9 $ -- $1,744.7 1,744.7
Cost of products sold......... 709.9 -- 709.9 626.4 4.5(n) 1,340.8 1,340.8
------ ------- ------- ------ ------- -------- --------
Gross profit.................. 259.9 -- 259.9 148.5 (4.5) 403.9 403.9
Selling, general and
administrative expense...... 199.8 -- 199.8 119.5 (8.6)(o) 310.7 297.1 (t)
------ ------- ------- ------ ------- -------- --------
Operating income.............. 60.1 -- 60.1 29.0 4.1 93.2 106.8
Interest expense.............. (30.1) (12.2)(l) (42.3) (6.8) (30.8)(p) (79.9) (79.9)
Other expense................. -- -- -- (2.6) 2.9(q) .3 .3
Interest income............... 5.3 -- 5.3 -- -- 5.3 5.3
Net gain on investment and
marketable securities....... 0.7 -- 0.7 -- -- .7 .7
------ ------- ------- ------ ------- -------- --------
Earnings before provision for
income taxes................ 36.0 (12.2) 23.8 19.6 (23.8) 19.6 33.2
Provision for income taxes.... 14.0 (4.1)(m) 9.9 9.1 (6.0)(s) 13.0 17.8 (u)
------ ------- ------- ------ ------- -------- --------
Net earnings................ $ 22.0 $ (8.1) $ 13.9 $ 10.5 $ (17.8) $ 6.6 $ 15.4
====== ======= ======= ====== ======= ======== ========
Net earnings per share........ $ 2.05 $ 1.30 $ .62 $ 1.44
Fully diluted weighted average
shares outstanding (in
thousands).................. 10,722 10,722 10,722 10,722
</TABLE>
31
<PAGE> 33
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 28, 1997
<TABLE>
<CAPTION>
PRO ADJUSTED
NORTEK NORTEK PLY GEM FORMA PRO FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED HISTORICAL ADJUSTMENTS COMPANY COMPANY
---------- ----------- ----------- ---------- ----------- ------- ---------
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.......................... $469.2 $ -- $ 469.2 $381.7 $ -- $850.9 $ 850.9
Cost of products sold.............. 342.5 -- 342.5 313.4 2.3(n) 658.2 658.2
------ ----- ------- ------ ------- ------ -------
Gross profit....................... 126.7 -- 126.7 68.3 (2.3) 192.7 192.7
Selling, general and administrative
expense.......................... 96.8 -- 96.8 59.5 (6.6)(o) 149.7 142.0(t)
------ ----- ------- ------ ------- ------ -------
Operating income................... 29.9 -- 29.9 8.8 4.3 43.0 50.7
Interest expense................... (18.5) (2.5)(l) (21.0) (3.6) (15.2)(p) (39.8) (39.8)
Other expense...................... -- -- -- (1.2) 1.4(q) .2 .2
Interest income.................... 4.4 -- 4.4 -- (1.7)(r) 2.7 2.7
Net gain on investment and
marketable securities............ 0.2 -- 0.2 -- -- .2 .2
------ ----- ------- ------ ------- ------ -------
Earnings before provision for
income taxes..................... 16.0 (2.5) 13.5 4.0 (11.2) 6.3 14.0
Provision for income taxes......... 5.6 (0.8)(m) 4.8 2.0 (3.7)(s) 3.1 5.8(u)
------ ----- ------- ------ ------- ------ -------
Net earnings..................... $ 10.4 $(1.7) $ 8.7 $ 2.0 $ (7.5) $ 3.2 $ 8.2
====== ===== ======= ====== ======= ====== =======
Net earnings per share............. $ 1.05 $ 0.88 $ .32 $ .83
Fully diluted weighted average
shares outstanding (in
thousands)....................... 9,923 9,923 9,923 9,923
</TABLE>
See Notes to the Unaudited Pro Forma Condensed Consolidated Financial Data
32
<PAGE> 34
THE COMPANY
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED JUNE 28, 1997
<TABLE>
<CAPTION>
ADJUSTED
NORTEK NORTEK PLY GEM PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED HISTORICAL ADJUSTMENTS COMPANY COMPANY
---------- ----------- ----------- ---------- ----------- --------- ---------
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................. $957.8 $ -- $ 957.8 $802.5 $ -- $1,760.3 $1,760.3
Cost of products sold..... 695.2 -- 695.2 648.9 4.5(n) 1,348.6 1,348.6
------ ------ ------- ------ ------- -------- --------
Gross profit.............. 262.6 -- 262.6 153.6 (4.5) 411.7 411.7
Selling, general and
administrative
expense................. 198.4 -- 198.4 123.0 (11.1)(o) 310.3 294.8(t)
------ ------ ------- ------ ------- -------- --------
Operating income.......... 64.2 -- 64.2 30.6 6 .6 101.4 116.9
Interest expense.......... (33.1) (8.6)(l) (41.7) (6.6) (31 .0)(p) (79.3) (79.3)
Other expense............. -- -- -- (3.2) 3.0(q) (0.2) (0.2)
Interest income........... 6.9 -- 6.9 -- (1.7)(r) 5.2 5.2
Net gain on investment and
marketable securities... 0.9 -- 0.9 -- -- 0.9 0.9
------ ------ ------- ------ ------- -------- --------
Earnings before provision
for income taxes........ 38.9 (8.6) 30.3 20.8 (23.1) 28.0 43.5
Provisions for income
taxes................... 14.7 (2.9)(m) 11.8 9.8 (6.6)(s) 15.0 20.4(u)
------ ------ ------- ------ ------- -------- --------
Net earnings.......... $ 24.2 $ (5.7) $ 18.5 $ 11.0 $ (16.5) $ 13.0 $ 23.1
====== ====== ======= ====== ======= ======== ========
Net earnings per share.... $ 2.40 $ 1.84 $ 1.29 $ 2.30
Fully diluted weighted
average shares
outstanding (in
thousands).............. 10,074 10,074 10,074 10,074
</TABLE>
See Notes to the Unaudited Pro Forma Condensed Consolidated Financial Data
33
<PAGE> 35
THE COMPANY
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL DATA
(IN MILLIONS)
<TABLE>
<CAPTION>
AS OF
JUNE 28, 1997
-------------
<S> <C> <C>
(a) Cash and cash equivalents:
Total sources of financing for the Acquisition and related
transactions:
Gross proceeds from the Offering............................ $ 307.5
Proceeds from the sale of Company marketable securities..... 110.5
Extension of credit under Ply Gem Credit Facility........... 101.9
-------
$ 519.9
=======
Total uses of financing for the Acquisition and related
transactions:
Consideration paid for Ply Gem common stock and cancellation
of options.................................................. 310.2
Funding of termination fees and costs under prior
acquisition agreement....................................... 12.0
Refinancing of existing Ply Gem indebtedness................ 101.9
Termination of accounts receivable securitization program... 50.0
Consideration paid for termination of management
agreements.................................................. 24.5
Fees, expenses and other costs related to the
Transactions................................................ 21.3
-------
(519.9)
-------
$ 0.0
=======
(b) Marketable securities available for sale:
Sale of marketable securities to fund the Acquisition and
related transactions........................................ $(110.5)
=======
(c) Accounts receivable:
Forgiveness of notes receivable in connection with the
termination of management agreements........................ $ (0.8)
Termination and repurchase of amounts outstanding under Ply
Gem's accounts receivable securitization program............ 50.0
-------
$ 49.2
=======
(d) Other current assets:
Forgiveness of notes receivable in connection with the
termination of management agreements........................ $ (3.8)
-------
(e) Goodwill:
Additional cost in excess of net assets acquired, net....... $ 227.9
=======
(f) Deferred debt expense:
Financing costs related to the Offering and extension of
credit under Ply Gem Credit Facility........................ $ 10.7
Write-off deferred debt expense related to refinanced
indebtedness................................................ (0.6)
-------
$ 10.1
=======
</TABLE>
34
<PAGE> 36
<TABLE>
<CAPTION>
AS OF
JUNE 28, 1997
-------------
<S> <C> <C>
(g) Other assets:
Forgiveness of notes receivable in connection with the
termination of management agreements........................ $ (7.2)
=======
(h) Accrued expenses and taxes:
Estimated liabilities incurred in connection with the
Acquisition................................................. $ 9.0
=======
(i) Deferred income taxes:
To record deferred taxes related to the Acquisition......... $ (3.6)
=======
(j) Notes, mortgages, capital leases and obligations payable
less current maturities:
Notes issued in the Offering................................ $ 307.5
Extension of credit under the Ply Gem Credit Facility....... 101.9
Refinancing of existing Ply Gem indebtedness ............... (101.9)
-------
$ 307.5
=======
(k) Stockholders' investment:
To eliminate equity in connection with the Acquisition...... $(152.2)
Forgiveness of notes receivable in connection with the
termination of management agreements........................ 5.0
-------
$(147.2)
=======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS TWELVE MONTHS
DECEMBER 31, ENDED ENDED
1996 JUNE 28, 1997 JUNE 28, 1997
------------ ------------- -------------
<S> <C> <C> <C> <C>
(l) Interest expense:
Interest expense related to the
9 1/4% Notes issued in March
1997............................ $(16.2) $ (3.3) $ (11.4)
Amortization of related debt
issuance costs.................. (.5) (.1) (.4)
Reduction of interest expense
related to debt refinanced with
a portion of the proceeds from
the 9 1/4% Notes issued in March
1997............................ 4.5 0.9 3.2
------ ------ -------
$(12.2) $ (2.5) $ (8.6)
====== ====== =======
(m) Tax provision:
Tax benefit on the interest
expense adjustments related to
the 9 1/4% Notes issued in March
1997 and the related
refinancing..................... $ (4.1) $ (0.8) $ (2.9)
====== ====== =======
(n) Reflects the following
adjustment to cost of sales:
Increased amortization of
goodwill over 40 years due to
the Acquisition................. $ 4.5 $ 2.3 $ 4.5
====== ====== =======
</TABLE>
35
<PAGE> 37
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS TWELVE MONTHS
DECEMBER 31, ENDED ENDED
1996 JUNE 28, 1997 JUNE 28, 1997
------------ ------------- -------------
<S> <C> <C> <C> <C>
(o) Reflects the following
adjustments to selling, general
and administrative expense:
Elimination of Ply Gem's
nonrecurring costs related to
the Acquisition................. $ (.8) $ (2.9) $ (3.2)
Estimated cost reductions
directly attributable to the
Acquisition..................... (7.8) (3.7) (7.9)
------ ------ -------
$ (8.6) $ (6.6) $ (11.1)
====== ====== =======
(p) Interest expense:
Interest expense at an assumed
rate of 9 1/8% on the Notes
issued in the Offering.......... $(28.3) $ (14.1) $ (28.3)
Amortization of related debt
issuance costs.................. (1.0) (.5) (1.0)
Amortization of debt discount... (.2) (.1) (.2)
Interest expense at an assumed
rate of 6 3/4% on indebtedness
assumed to be outstanding under
the Ply Gem Credit Facility..... (7.0) (3.5) (7.0)
Reduction in interest expense
related to the refinancing of
existing Ply Gem indebtedness... 5.7 3.0 5.5
------ ------ -------
$(30.8) $ (15.2) $ (31.0)
====== ====== =======
(q) Other expense:
Decrease in other expense, net
due to termination and
repurchase of amounts
outstanding under Ply Gem's
accounts receivable
securitization program.......... $ 2.9 $ 1.4 $ 3.0
====== ====== =======
(r) Interest income:
Reduction in interest income on
marketable securities sold to
fund the Acquisition and related
transactions ................... $ -- $ (1.7) $ (1.7)
====== ====== =======
</TABLE>
36
<PAGE> 38
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS TWELVE MONTHS
DECEMBER 31, ENDED ENDED
1996 JUNE 28, 1997 JUNE 28, 1997
------------ ------------- -------------
<S> <C> <C> <C> <C>
(s) Tax provision:
Tax benefit on the interest
expense adjustments related to
the Notes issued in the
Offering, the Ply Gem Credit
Facility and the refinancing of
existing Ply Gem indebtedness... $ (9.7) $ (4.9) $ (9.8)
Tax provision on the elimination
of Ply Gem's non-recurring costs
related to the Acquisition...... .3 .7 1.0
Tax provision on the estimated
cost reductions directly
attributable to the Acquisition
referred to in note (o) above... 3.4 1.1 2.8
Tax benefit on the reduction in
interest income related to the
sale of marketable securities
used to fund the Acquisition and
related transactions............ -- (0.6) (0.6)
------ ------ -------
$ (6.0) $ (3.7) $ (6.6)
====== ====== =======
(t) Additional estimated cost
savings and operating
efficiencies related to the
Acquisition including
depreciation and amortization
expense of approximately $0.8,
$0.4 and $0.8 for the year ended
December 31, 1996, six months
ended June 28, 1997 and the
twelve months ended June 28,
1997, respectively.............. $(13.6) $ (7.7) $ (15.5)
====== ====== =======
(u) Tax provision on the additional
estimated cost savings and
operating efficiencies related
to the Acquisition referred to
in note (t) above............... $ 4.8 $ 2.7 $ 5.4
====== ====== =======
</TABLE>
37
<PAGE> 39
SELECTED FINANCIAL DATA OF NORTEK
The selected consolidated operating and balance sheet data for each of the
five years in the period ended December 31, 1996 and as of the end of each such
period are derived from Nortek's consolidated financial statements which were
audited by Arthur Andersen LLP, independent public accountants. The selected
consolidated operating and balance sheet data for the six months ended June 29,
1996 and June 28, 1997 and as of the end of each such period have been derived
from Nortek's unaudited condensed consolidated financial statements, which
reflect, in the opinion of Nortek, all adjustments of a normal recurring nature
necessary for a fair statement of the interim periods presented. The results of
operations for the six months ended June 28, 1997 are not necessarily indicative
of the results of operations to be expected for the full year. The following
selected consolidated financial data should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto and the information
contained in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" of Nortek included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, --------------------
------------------------------------------ JUNE 29, JUNE 28,
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------ ------ -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA(1):
Net sales............................ $800.0 $744.1 $737.2 $776.2 $969.8 $481.2 $469.2
Cost of products sold................ 595.2 532.5 520.4 574.9 709.9 357.2 342.5
Selling, general and administrative
expense............................ 184.4 181.3 166.8 160.2 199.8 98.2 96.8
779.6 713.8 687.2 735.1 909.7 455.4 439.3
Operating earnings................... 20.4 30.3 50.0 41.1 60.1 25.8 29.9
Interest expense..................... (29.2) (26.5) (26.2) (24.9) (30.1) (15.5) (18.5)
Interest income...................... 4.4 3.2 5.3 6.1 5.3 2.8 4.4
Net gain on sale of investments and
marketable securities.............. .9 1.7 -- 2.0 .7 -- .2
Loss on businesses sold.............. (14.5) (20.3) (1.7) -- -- -- --
------ ------ ------ ------ ------ ------ ------
Earnings (loss) from continuing
operations before income taxes..... (18.0) (11.6) 27.4 24.3 36.0 13.1 16.0
Provision for income taxes........... 3.0 1.0 10.2 9.3 14.0 4.9 5.6
Earnings (loss) from continuing
operations(2)...................... (21.0) (12.6) 17.2 15.0 22.0 8.2 10.4
Earnings (loss) from discontinued
operations......................... (3.3) -- -- -- -- -- --
Extraordinary gain (loss) from debt
retirements........................ .1 (6.1) .2 -- -- -- --
Cumulative effect of accounting
changes............................ -- (2.1) .4 -- -- -- --
------ ------ ------ ------ ------ ------ ------
Net earnings (loss).................. (24.2) (20.8) 17.8 15.0 22.0 8.2 10.4
====== ====== ====== ====== ====== ====== ======
Net earnings (loss) per share........ (1.92) (1.66) 1.34 1.19 2.05 .73 1.05
OTHER CONSOLIDATED DATA:
Capital expenditures................. $ 8.8 $ 10.8 $ 19.4 $ 17.3 $ 22.2 $ 7.6 $ 8.9
Depreciation and amortization........ 23.6 20.7 18.0 19.0 23.7 11.8 12.4
EBITDA from operations(3)............ 42.5 49.6 66.7 59.0 82.6 36.9 41.7
Ratio of earnings to fixed
charges(4)......................... -- -- 2.0 1.9 2.1 1.8 1.8
Ratio of EBITDA from operations to
interest expense, net.............. 1.7x 2.1x 3.2x 3.1x 3.3x 2.9x 3.0x
</TABLE>
38
<PAGE> 40
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, --------------------
------------------------------------------ JUNE 29, JUNE 28,
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------ ------ -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities(5)...................... $ 83.5 $ 89.2 $114.4 $112.7 $ 97.8 $ 89.0 $ 231.1
Working capital...................... 132.6 117.9 173.5 160.7 143.5 138.0 309.5
Total assets......................... 515.4 509.2 519.2 625.5 609.1 626.7 773.0
Total debt........................... 208.7 215.7 224.6 282.4 280.5 285.5 426.8
Stockholders' investment............. 126.9 104.0 117.8 131.3 118.8 107.7 121.1
</TABLE>
- ---------------
(1) Acquisitions have been accounted for under the purchase accounting method
and dispositions have been accounted for as described in Note 2 of Notes to
Consolidated Financial Statements of Nortek included elsewhere herein.
(2) On January 2, 1992, Nortek's subsidiary, Dixieline, sold the assets of L.J.
Smith, Inc. and recognized a pre-tax gain on the sale of approximately $8.0
million ($.34 per share, net of tax). On October 2, 1992, Nortek sold its
wholly owned subsidiary, Bend and recognized a pre-tax loss in 1992 of $22.5
million ($1.60 per share, net of tax). In the third quarter of 1993, Nortek
provided a pre-tax valuation reserve of approximately $20.3 million to
reduce Nortek's net investment in Dixieline to estimated net realizable
value. On March 31, 1994, Nortek sold all the capital stock of Dixieline for
approximately $18.8 million in cash and $6.0 million in preferred stock of
the purchaser. No additional loss in 1994 was incurred in connection with
this sale. In January 1995, Nortek paid approximately $1.8 million ($.14 per
share, net of tax) as a final purchase price adjustment related to the sale
of Bend and recorded a charge to pre-tax earnings in the fourth quarter of
1994.
(3) "EBITDA" is operating earnings plus depreciation and amortization (other
than amortization of deferred debt expense and debt discount). EBITDA
differs from Consolidated Cash Flow as defined in the Indenture. See
"Description of Notes -- Certain Definitions." EBITDA should not be
considered as an alternative to net earnings as a measure of Nortek's
operating results or to cash flows as a measure of liquidity. EBITDA
principally differs from net increase (decrease) in unrestricted cash and
cash equivalents shown on the Consolidated Statement of Cash Flows of
Nortek, prepared in accordance with generally accepted accounting
principles, in that EBITDA does not reflect capital expenditures,
borrowings, principal and interest payments under debt and capital lease
obligations, income tax payments and cash flows from other operating,
investing and financing activities.
(4) For purposes of calculating this ratio, "earnings" consist of earnings
before provision for income taxes and fixed charges. "Fixed charges" consist
of interest expense and the estimated interest portion of rental payments on
operating leases. Such earnings were insufficient to cover fixed charges by
approximately $18.0 million and approximately $11.6 million for the years
ended December 31, 1992 and 1993, respectively.
(5) Includes restricted cash, investments and marketable securities in the
amounts of approximately $8.2 million, $6.7 million, $9.3 million, $9.4
million, $5.7 million, $9.5 million and $5.7 million at December 31, 1992,
1993, 1994, 1995, 1996, June 29, 1996 and June 28, 1997, respectively.
39
<PAGE> 41
SELECTED FINANCIAL DATA OF PLY GEM
The selected consolidated operating and balance sheet data for each of the
five years in the period ended December 31, 1996 and as of the end of each such
period are derived from Ply Gem's consolidated financial statements which were
audited by Grant Thornton LLP, independent public accountants. The selected
consolidated operating and balance sheet data for the six months ended June 30,
1996 and 1997 and as of the end of each such period have been derived from
unaudited consolidated financial statements of Ply Gem, which reflect, in the
opinion of Ply Gem, all adjustments of a normal recurring nature necessary for a
fair statement of the interim periods presented. The results of operations for
the six months ended June 30, 1997 are not necessarily indicative of the results
of operations to be expected for the full year. The following selected
consolidated financial data should be read in conjunction with the audited and
unaudited Consolidated Financial Statements and the Notes thereto and the
information contained in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of Ply Gem included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, ---------------------
-------------------------------------------------- JUNE 30, JUNE 30,
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------ ------ -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales..................................... $632.6 $731.5 $808.9 $755.2 $774.9 $354.1 $381.7
Costs and expenses:
Cost of products sold......................... 502.5 592.0 653.3 630.6 626.4 290.9 313.4
Selling, general and administrative........... 107.6 112.6 118.7 114.2 119.5 56.0 56.6
Write-down of long-lived assets(1)............ -- -- -- 12.0 -- -- --
Non-recurring charges(2) ..................... -- -- 41.0 -- -- -- --
Merger expenses(3)............................ -- -- -- -- -- -- 2.9
------ ------ ------ ------ ------ ------ ------
610.1 704.6 813.0 756.8 745.9 346.9 372.9
------ ------ ------ ------ ------ ------ ------
Income (loss) from operations................. 22.5 26.9 (4.1) (1.6) 29.0 7.2 8.8
Interest expense.............................. (9.6) (10.1) (7.5) (6.6) (6.8) (3.8) (3.6)
Other income (expense), net(4)................ (1.5) .7 (.3) (2.1) (2.6) (.6) (1.2)
------ ------ ------ ------ ------ ------ ------
Income (loss) before income taxes............. 11.4 17.5 (11.9) (10.3) 19.6 2.8 4.0
Tax provision (benefit)....................... 5.1 7.8 (3.4) (2.9) 9.1 1.3 2.0
------ ------ ------ ------ ------ ------ ------
Net income (loss)............................. $ 6.3 $ 9.7 $ (8.5) $ (7.4) $ 10.5 $ 1.5 $ 2.0
====== ====== ====== ====== ====== ====== ======
Net income (loss) per share................... $ .56 $ .75 $ (.62) $ (.51) $ .74 $ .11 $ .14
OTHER DATA:
Capital expenditures.......................... 17.1 20.5 23.0 27.8 17.6 8.6 17.8
Depreciation and amortization................. 11.8 12.2 13.4 14.2 15.0 7.6 8.4
EBITDA(5)..................................... 34.3 39.1 50.3 24.7 44.0 14.8 17.2
Ratio of EBITDA to interest expense........... 3.6x 3.9x 6.7x 3.7x 6.5x 3.9x 4.8x
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents..................... $ 12.5 $ 12.5 $ 14.4 $ 8.1 $ 9.9 $ 4.0 $ 8.0
Working capital............................... 93.7 137.4 110.5 104.7 86.6 112.3 117.9
Total assets.................................. 314.0 344.9 345.6 325.0 313.4 335.8 358.5
Total debt.................................... 131.7 152.9 87.1 100.7 83.8 110.5 121.7
Stockholders' equity.......................... 118.4 128.9 161.6 144.5 145.8 141.7 147.2
</TABLE>
- ---------------
(1) During the fourth quarter of 1995, Ply Gem adopted SFAS No. 121 "Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
of" and recorded a non-cash pre-tax charge of approximately $12.0 million
related to the write down of an information system and certain machinery and
equipment.
40
<PAGE> 42
(2) During 1994, Ply Gem recorded non-recurring charges of approximately $41.0
million consisting of approximately $29.1 million related to a restructuring
program and approximately $11.9 million for unusual items consisting of the
write down of certain intangible assets and discontinued products.
(3) During the first six months of 1997, Ply Gem recorded expenses of $2.9
million related to certain merger costs. Additionally during 1996 and for
the first six months of 1996, Ply Gem recorded merger expenses of $0.8 and
$0.5 million, respectively, which are included in selling, general and
administrative expenses.
(4) Ply Gem had a program which allows for the sale of undivided fractional
interests in a pool of eligible accounts receivable to a financial
institution with limited recourse. The program costs of approximately $3.5
million, approximately $3.2 million, approximately $1.9 million,
approximately $1.5 million and approximately $1.5 million for the years
ended December 31, 1996, 1995, 1994, 1993 and 1992, respectively, and
approximately $1.6 million and approximately $1.0 million for the six months
ended June 30, 1997 and 1996, respectively, have been classified as other
expense.
(5) "EBITDA" is operating income (loss) plus depreciation and amortization and
excludes write down of long-lived assets and non-recurring charges. EBITDA
should not be considered as an alternative to net income as a measure of Ply
Gem's operating results or to cash flows as a measure of liquidity. EBITDA
principally differs from net increase (decrease) in cash and cash
equivalents shown on the Consolidated Statement of Cash Flows of Ply Gem,
prepared in accordance with generally accepted accounting principles, in
that EBITDA does not reflect capital expenditures, borrowings, principal and
interest payments under debt and capital lease obligations, income tax
payments and cash flows from other operating, investing and financing
activities.
41
<PAGE> 43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
NORTEK
Results of Operations
The following tables set forth, for the periods presented (a) certain
consolidated operating results, (b) the percentage change of such results as
compared to the prior period, (c) the percentage which such results bears to net
sales and (d) the change of such percentages as compared to the prior period:
<TABLE>
<CAPTION>
PERCENTAGE CHANGE
YEAR ENDED DECEMBER 31, -----------------
---------------------------- 1995 TO 1994 TO
1996 1995 1994 1996 1995
------ ------ ------ ------- --------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales..................................... $969.8 $776.2 $737.2 24.9% 5.3%
Cost of products sold......................... 709.9 574.9 520.4 (23.5) (10.5)
Selling, general and administrative expense... 199.8 160.2 166.8 (24.7) 4.0
Operating earnings............................ 60.1 41.1 50.0 46.2 (17.8)
Interest expense.............................. (30.1) (24.9) (26.2) (20.9) 5.0
Interest income............................... 5.3 6.1 5.3 (13.1) 15.1
Net gain on investment and marketable
securities.................................. .7 2.0 -- (65.0) --
Loss on business sold......................... -- -- (1.7) -- 100.0
Earnings before provision for income taxes.... 36.0 24.3 27.4 48.1 (11.3)
Provision for income taxes.................... 14.0 9.3 10.2 (50.5) 8.8
Earnings before extraordinary gain............ 22.0 15.0 17.2 46.7 (12.8)
Extraordinary gain from debt retirements...... -- -- .2 -- (100.0)
Cumulative effect of an accounting change..... -- -- .4 -- (100.0)
Net earnings.................................. $ 22.0 $ 15.0 $ 17.8 46.7% (15.7)%
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES PERCENTAGE CHANGE
YEAR ENDED DECEMBER 31, -----------------
---------------------------- 1995 TO 1994 TO
1996 1995 1994 1996 1995
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Net sales................................... 100.0% 100.0% 100.0% --% --%
Cost of products sold....................... 73.2 74.1 70.6 .9 (3.5)
Selling, general and administrative
expense................................... 20.6 20.6 22.6 -- 2.0
Operating earnings.......................... 6.2 5.3 6.8 .9 (1.5)
Interest expense............................ (3.1) (3.2) (3.6) .1 .4
Interest income............................. .6 .8 .7 (.2) .1
Net gain on investment and marketable
securities................................ -- .2 -- (.2) .2
Loss on business sold....................... -- -- (.2) -- .2
Earnings before provision for income
taxes..................................... 3.7 3.1 3.7 .6 (.6)
Provision for income taxes.................. 1.4 1.2 1.4 (.2) .2
Earnings before extraordinary gain.......... 2.3 1.9 2.3 .4 (.4)
Extraordinary gain from debt retirements.... -- -- -- -- --
Cumulative effect of an accounting change... -- -- .1 -- (.1)
Net earnings................................ 2.3% 1.9% 2.4% .4% (.5)%
</TABLE>
42
<PAGE> 44
<TABLE>
<CAPTION>
PERCENTAGE CHANGE
IN SIX MONTHS
SIX MONTHS ENDED 1997
--------------------- AS COMPARED TO
JUNE 28, JUNE 29, SIX MONTHS
1997 1996 1996
-------- -------- -----------------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C>
Net sales............................................... $469.2 $481.2 (2.5)%
Cost of products sold................................... 342.5 357.2 4.1
Selling, general and administrative expense............. 96.8 98.2 1.4
Operating earnings...................................... 29.9 25.8 15.9
Interest expense........................................ (18.5) (15.5) (19.4)
Interest income......................................... 4.4 2.8 57.1
Net gain on investments and marketable securities....... .2 -- --
Earnings before provision for income taxes.............. 16.0 13.1 22.1
Provision for income taxes.............................. 5.6 4.9 (14.3)
------ ------ -----
Net earnings............................................ $ 10.4 $ 8.2 26.8%
====== ====== =====
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE CHANGE
NET SALES FOR SIX MONTHS
SIX MONTHS ENDED 1997
--------------------- AS COMPARED TO
JUNE 28, JUNE 29, SIX MONTHS
1997 1996 1996
-------- -------- -----------------
<S> <C> <C> <C>
Net sales............................................... 100.0% 100.0% --%
Cost of products sold................................... 73.0 74.2 1.2
Selling, general and administrative expense............. 20.6 20.4 (.2)
Operating earnings...................................... 6.4 5.4 1.0
Interest expense........................................ (3.9) (3.2) (.7)
Interest income......................................... .9 .5 .4
Net gain on investments and marketable securities....... -- -- --
Earnings before provision for income taxes.............. 3.4 2.7 .7
Provision for income taxes.............................. 1.2 1.0 (.2)
----- ----- ---
Net earnings............................................ 2.2% 1.7% .5%
===== ===== ===
</TABLE>
The following table presents the net sales for Nortek's product groups for
the periods presented, and the percentage change of such results as compared to
the prior year.
<TABLE>
<CAPTION>
PERCENTAGE CHANGE
--------------------------------
SIX MONTHS ENDED SIX MONTHS
YEAR ENDED DECEMBER 31, --------------------- 1995 1994 1997 TO
---------------------------- JUNE 28, JUNE 29, TO TO SIX MONTHS
1996 1995 1994 1997 1996 1996 1995 1996
------ ------ ------ -------- -------- ------ ------ ----------
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales:
Residential Building
Products................... $418.6 $281.2 $265.2 $205.6 $203.1 48.9% 6.0% 1.2%
Air Conditioning and Heating
Products................... 411.9 363.4 338.0 206.6 207.8 13.4 7.5 (.6)
Plumbing Products............ 139.3 131.6 134.0 57.0 70.3 5.9 (1.8) (18.9)
------ ------ ------ ------ ------ ----- ----- -----
Total.................. $969.8 $776.2 $737.2 $469.2 $481.2 24.9% 5.3% (2.5)%
====== ====== ====== ====== ====== ===== ===== =====
</TABLE>
43
<PAGE> 45
Second Quarter and Six Months Ended June 28, 1997 Compared to Second Quarter and
Six Months Ended June 28, 1996
Net sales decreased approximately $10,600,000, or approximately 4.1% (or
decreased approximately $8,800,000 or approximately 3.4% excluding the effect of
foreign exchange), and decreased approximately $12,000,000, or approximately
2.5%, (or decreased approximately $9,800,000 or approximately 2.0% excluding the
effect of foreign exchange) for the second quarter and the first six months of
1997, respectively, as compared to 1996. These decreases in both periods are
principally as a result of lower sales volume, including the reduction of
certain product line offerings (approximately $2,300,000 and $3,900,000 of the
decrease for the second quarter and first six months, respectively), within the
Plumbing Products Group and a decrease in sales volume by the Residential
Building Products Group's European subsidiary primarily due to weakness in the
German and French markets. These decreases were partially offset by increased
sales volume in residential building products in the United States and Canada
and residential HVAC products in the United States in the first half.
Cost of products sold as a percentage of net sales decreased from
approximately 73.6% in the second quarter of 1996 to approximately 73.0% in the
second quarter of 1997, and decreased from approximately 74.2% in the first six
months of 1996 to approximately 73.0% in the first six months of 1997. These
decreases in the percentages principally resulted from a reduction in cost in
the second quarter and first six months of 1997 of certain raw materials and
components compared to the second quarter and first six months of 1996 and
decreased labor as a percentage of net sales in the Residential Building
Products and HVAC Products Groups due to the increased volume of higher margin
products and improved manufacturing efficiency. These decreases were partially
offset by increased overhead costs in the Plumbing Products Group and Nortek's
European subsidiaries, in part, reflecting lower sales levels of lower margin
products. Overall, changes in the cost of products sold as a percentage of net
sales for one period as compared to another period may reflect a number of
factors, including changes in the relative mix of products sold, the effect of
changes in sales prices, the unit cost of products sold and changes in
productivity levels.
Selling, general and administrative expense as a percentage of net sales
decreased from approximately 20.3% in the second quarter of 1996 to
approximately 19.9% in the second quarter of 1997 and increased slightly from
approximately 20.4% in the first six months of 1996 to approximately 20.6% in
the first six months of 1997. The decrease in the percentage for the second
quarter was primarily the result of higher sales levels of residential building
products without a proportionate increase in expense and lower expense in
residential HVAC products resulting from new sales initiatives. The increase in
the percentage in the first six months was primarily due to a one-week shorter
shipping period in the first quarter. Lower sales in Nortek's Plumbing Products
Group, without a proportionate decrease in expense in both periods, was also a
factor.
Segment earnings were approximately $21,100,000 for the second quarter of
1997, as compared to approximately $20,500,000 for the second quarter of 1996,
and approximately $36,600,000 for the first six months of 1997 as compared to
approximately $32,900,000 for the first six months of 1996. The increase in
segment earnings was due principally to the factors noted above.
Foreign segment earnings, consisting primarily of the results of operations
of Nortek's Canadian and European subsidiaries, which manufacture built-in
ventilating products, decreased to approximately 9.3% of segment earnings in the
second quarter of 1997 from approximately 15.4% of such earnings in the second
quarter of 1996 and to approximately 9.8% of segment earnings in the first six
months of 1997 from approximately 13.9% of such earnings in the first six months
of 1996. Sales and earnings derived from the international market are subject to
the risks of currency fluctuations.
Operating earnings in the second quarter of 1997 increased approximately
$1,800,000, or approximately 11.4%, as compared to the second quarter of 1996
and increased approximately $4,100,000, or approximately 15.9%, for the first
six months of 1997 as compared to 1996, primarily due to the factors previously
discussed.
Interest expense in the second quarter of 1997 increased approximately
$3,000,000, or approximately 39.0%, as compared to the second quarter of 1996,
and increased approximately $3,000,000, or approximately 19.4% for the first six
months of 1997, as compared to the first six months of 1996, primarily as a
result of the
44
<PAGE> 46
sale of $175,000,000 principal amount of 9.25% Notes in March 1997. This
increase was partially offset by the refinancing of certain outstanding
indebtedness of Nortek's subsidiaries primarily in the second quarter of 1997.
(See Note 14B of the Notes to the Consolidated Financial Statements of Nortek
included elsewhere herein.)
Interest income in the second quarter of 1997 increased approximately
$2,200,000, or approximately 244.4%, as compared to the second quarter of 1996,
and increased approximately $1,600,000 or approximately 57.1% for the first six
months of 1997, as compared to the first six months of 1996, principally due to
higher average invested balances of short-term investments and marketable
securities, principally as a result of the investment of the proceeds from the
sale in March 1997 of the 9.25% Notes.
The provision for income taxes was approximately $3,300,000 for the second
quarter of 1997, as compared to approximately $3,200,000 for the second quarter
of 1996 and was approximately $5,600,000 for the first six months of 1997, as
compared to approximately $4,900,000 for the first six months of 1996. The
income tax rates principally differed from the United States Federal statutory
rate of 35%, as a result of state income tax provisions, nondeductible
amortization expense (for tax purposes), the change in tax valuation reserves,
the effect of foreign income tax on foreign source income and the effect of
product development tax credits from foreign operations in both periods. (See
Note 14D of the Notes to the Consolidated Financial of Statements of Nortek
included elsewhere herein.)
Year Ended December 31, 1996 as Compared to the Year Ended December 31, 1995
Net sales increased approximately $193,600,000, or approximately 24.9%, as
compared to 1995. The Residential Building Products Group net sales increased
principally as a result of fourth quarter 1995 acquisitions, which contributed
approximately $140,400,000 in 1996 as compared to approximately $24,600,000 in
1995. Shipments of new and replacement HVAC products to manufactured housing
customers and increased sales levels of commercial and industrial HVAC products
were the primary reasons for increased sales in the HVAC Products Group. Modest
sales price increases in certain product lines of the Residential Building
Products Group were also a factor, and were partially offset by lower sales
prices of certain products in the Plumbing Products Group and certain
residential HVAC products in the HVAC Products Group.
Cost of products sold as a percentage of net sales decreased from
approximately 74.1% in 1995 to approximately 73.2% in 1996. The decrease in the
percentage principally resulted from a reduction in cost in 1996 of certain raw
materials and components compared to 1995 and decreased overhead costs as a
percentage of sales in the Residential Building Products and HVAC Products
Groups due to increased volume and improved efficiency. These decreases were
partially offset by the 1995 acquisitions, which have a higher level of cost of
sales to net sales than the overall group of businesses owned prior to the
acquisitions, the effect of the development and introduction of new products and
the effect of an extended shutdown period in the third quarter in Europe and by
increased direct labor costs in the Plumbing Products Group. Had all year-end
inventory values been stated on a FIFO basis, year-end inventory would have been
approximately $8,482,000 higher in 1996, approximately $10,550,000 higher in
1995 and approximately $6,710,000 higher in 1994. Overall, changes in cost of
products sold as a percentage of net sales for one period as compared to another
period may reflect the effect of a number of factors, including among others,
changes in the relative mix of products sold, the effect of changes in sales
prices, the unit cost of products sold and changes in productivity levels.
Selling, general and administrative expense as a percentage of net sales
was approximately 20.6% in 1995 and 1996. The fourth quarter 1995 acquisitions,
which have a lower level of selling, general and administrative expense to net
sales than the overall group of businesses owned prior to the acquisitions, and
increased sales levels without a proportionate increase in expense in Nortek's
Plumbing Products Group in 1996 contributed to a decrease in the percentage
which was offset by the effect of limited sales activity during an extended
shutdown period in the third quarter by Nortek's European subsidiaries without a
proportionate reduction in expense and higher net unallocated expense.
45
<PAGE> 47
Segment earnings were approximately $73,900,000 for 1996, as compared to
approximately $48,700,000 for 1995. Segment earnings are operating earnings
before corporate and other expenses that are not directly attributable to
Nortek's product groups. Fourth quarter 1995 acquisitions, included in the
Residential Building Products Group, contributed approximately $8,400,000 to
segment earnings in 1996 as compared to $1,050,000 in 1995. Segment earnings
have been reduced by depreciation and amortization expense of approximately
$22,200,000 and approximately $17,600,000 for 1996 and 1995, respectively.
Acquisitions accounted for approximately $5,100,000 of the depreciation and
amortization expense in 1996 as compared to $750,000 in 1995. The overall
increase in segment earnings was due principally to increased sales volume in
each of Nortek's operating groups, particularly increased sales volume of
residential and commercial HVAC products and residential building products, the
effect of increased sales from the fourth quarter 1995 acquisitions, and a
reduction in the price paid for certain materials in each of Nortek's operating
groups and was affected by the factors noted above.
Foreign segment earnings, consisting primarily of the results of operations
of Nortek's Canadian and European subsidiaries, which manufacture built-in
ventilating products, increased to approximately 11.4% of segment earnings in
1996 from approximately 6.1% of such earnings in 1995. The increase in 1996 was
primarily attributable to an approximate 184.2% increase in foreign segment
earnings in 1996, as compared to a 43.2% increase in domestic earnings. The
increase in 1996 was primarily attributable to earnings of Nortek's 1995
Canadian and European acquisitions. Sales and earnings derived from the
international market are subject to the risks of currency fluctuations.
Operating earnings in 1996 increased approximately $19,000,000, or
approximately 46.2%, as compared to 1995, primarily due to the factors
previously discussed.
Interest expense in 1996 increased approximately $5,200,000, or
approximately 20.9%, as compared to 1995, primarily as a result of higher
borrowings resulting from the 1995 acquisitions including existing short-term
working capital borrowings of the acquired subsidiaries.
Interest income in 1996 decreased approximately $800,000, or approximately
13.1%, as compared to 1995, principally due to lower average invested balances
of short-term investments and marketable securities, principally resulting from
the 1995 acquisitions and from purchases of Nortek's capital stock, partially
offset by increased cash from operating results.
The provision for income taxes was approximately $14,000,000 for 1996, as
compared to approximately $9,300,000 for 1995. The provision for income taxes
has been reduced by approximately $481,000 in 1996 and approximately $1,100,000
in 1995, respectively, reflecting the reversal of tax valuation reserves no
longer required, of which approximately $263,000 in 1996 and $670,000 in 1995
are as a result of the gain on the sale of certain investments and marketable
securities. The income tax rates principally differed from the United States
Federal statutory rate of 35%, as a result of state income tax provisions,
nondeductible amortization expense (for tax purposes), the changes in tax
valuation reserves, the effect of foreign income tax on foreign source income,
and in 1996 from the effect of product development tax credits from foreign
operations. (See Note 4 of the Notes to the Consolidated Financial Statements of
Nortek included elsewhere herein.)
Year Ended December 31, 1995 as Compared to the Year Ended December 31, 1994
Net sales increased approximately $39,000,000, or approximately 5.3%, as
compared to 1994 principally as a result of increased shipments of new and
replacement HVAC products to manufactured housing customers, increased sales
levels of commercial and industrial HVAC products by the HVAC Products Group and
acquisitions which contributed approximately $24,600,000 to net sales in 1995.
These increases were partially offset by lower sales volume and prices of
vitreous china products in the Plumbing Products Group.
Cost of products sold as a percentage of net sales increased from
approximately 70.6% in 1994 to approximately 74.1% in 1995, primarily as a
result of higher material costs in each of Nortek's operating groups. Had all
year end inventory values been stated on a FIFO basis, year end inventory would
have been approximately $10,550,000 higher in 1995, approximately $6,710,000
higher in 1994, and approximately $4,982,000 higher in 1993. Increased direct
labor and overhead costs in the HVAC Products Group also
46
<PAGE> 48
contributed to the increased percentage. To a lesser extent, decreased sales
levels without a proportionate decrease in overhead costs in Plumbing Products
were also a factor. The increase in the percentage was partially offset by lower
direct labor and overhead costs in the Residential Building Products Group.
Selling, general and administrative expense as a percentage of net sales
decreased from approximately 22.6% in 1994 to approximately 20.6% in 1995,
principally due to lower expense on increased HVAC product net sales, primarily
to residential and manufactured housing customers and lower non-segment expense
both as a result of Nortek's cost containment measures. To a lesser extent,
decreased expenses in the Plumbing Products Group was also a factor. The
decrease in the percentage was partially offset by the effect of approximately
$3,200,000 of income in 1994 from the settlement of insurance claims and
disputes.
Segment earnings were approximately $48,700,000 for 1995, as compared to
approximately $61,300,000 for 1994, as a result of the effect of the factors
discussed below. Acquisitions in 1995, included in the Residential Building
Products Group, contributed approximately $1,050,000 to segment earnings in
1995. Segment earnings have been reduced by depreciation and amortization
expense of approximately $17,600,000 and $15,700,000 for 1995 and 1994,
respectively. Acquisitions contributed approximately $750,000 of the increase in
depreciation and amortization expense in 1995. The overall decline in segment
earnings was due principally to increased material costs in each of Nortek's
operating groups, partially offset by higher earnings from increased sales
volume of HVAC products, without a proportionate increase in expense, and lower
selling, general and administrative expense (as a percentage of net sales) in
the HVAC Products and Plumbing Products Groups. Approximately $1,600,000 of the
decline in segment earnings resulted from the effect of income in the second
quarter of 1994 from the settlement of insurance claims and disputes.
Foreign segment earnings in 1995, consisting primarily of the results of
operations of Nortek's Canadian and European subsidiaries, which manufacture
built-in ventilating products, decreased to approximately 6.1% of segment
earnings in 1995 from approximately 6.2% of such earnings in 1994. This decrease
was primarily due to a decline in earnings in Canada due to the weakness in
residential construction, partially offset by acquisitions and the effect of an
approximate 21% decline in domestic segment earnings in 1995.
Operating earnings in 1995 decreased approximately $8,900,000, or
approximately 17.8%, as compared to 1994, primarily as a result of the factors
discussed above, including the effect of lower non-segment expense, net and
approximately $3,200,000 (including $1,600,000 relating to Nortek's operating
segments) of income in the second quarter of 1994 from the settlement of
insurance claims and disputes.
Interest expense decreased approximately $1,300,000, or approximately 5.0%
in 1995, as compared to 1994. In February 1994, Nortek sold in a public offering
$218,500,000 of its 9 7/8% Notes and used a portion of the proceeds to redeem,
on March 24, 1994, approximately $153,000,000 of certain of Nortek's outstanding
indebtedness. Interest expense (net of interest income) for 1994 was
approximately $1,300,000 greater than it would have been had the debt redemption
occurred on the same day as the financing. The effect of the redemption of
certain other outstanding indebtedness in 1994 was also a factor. The decrease
in interest expense was partially offset by increased interest expense as a
result of acquisitions.
Interest income increased approximately $800,000, or approximately 15.1% in
1995, as compared to 1994, principally due to higher yields earned on short-term
investments and marketable securities, partially offset by lower average
invested balances of short-term investments and marketable securities.
In the third quarter of 1995, Nortek sold its investment in the preferred
stock of a business previously sold, which resulted in a pre-tax gain of
$2,200,000. (See Note 2 of the Notes to Consolidated Financial Statements of
Nortek included elsewhere herein.)
The provision for income taxes was approximately $9,300,000 in 1995, as
compared to approximately $10,200,000 in 1994. The provision for income taxes as
a percentage of pre-tax earnings was approximately 38.3% in 1995 and 37.2% in
1994. The provision for income taxes in 1995 has been reduced by approximately
$1,100,000, reflecting the reversal of tax valuation reserves no longer
required, of which $670,000 is as a result of the sale of certain investments
and marketable securities. The provision for income taxes in 1994 has been
reduced by approximately $1,600,000, principally reflecting the reversal of tax
valuation reserves as a result of the realization of certain tax assets. The
income tax rates also differ from the United States federal statutory
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rate of 35% as a result of state income tax provisions, nondeductible
amortization expense (for tax purposes) and the effect of foreign income tax on
foreign source income. (See Note 4 of the Notes to Consolidated Financial
Statements of Nortek included elsewhere herein.)
Inflation, Trends and General Considerations
Nortek'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, Nortek's product
groups have operated in an environment of increasing levels of construction and
remodeling activity, including new housing starts which increased approximately
20% between 1990 and 1994, declined approximately 8.5% in 1995, and increased
approximately 8.8% in 1996. New residential construction housing starts,
however, remain below the levels experienced in the mid-1980s. Nortek's
operations have been affected by past difficult economic conditions in the
northeastern United States, California and Canada. However, the actions taken to
reduce production costs and overhead levels and improve the efficiency and
profitability of Nortek's operations have enabled it to significantly increase
operating earnings, as well as to position Nortek for growth. In the near term,
Nortek expects to operate in an environment of relatively stable levels of
construction and remodeling activity. However, increases in interest rates could
have a negative impact on the level of housing construction and remodeling
activity.
Inflation did not have a material effect on Nortek's results of operations
and financial condition until mid-1994, when Nortek experienced increases in
certain costs and expenses including raw material costs. In 1995, material costs
as a percentage of net sales increased by approximately 3.0%, as compared to
1994. In 1996, cost increases subsided and Nortek experienced decreases in
certain costs and expenses, including raw materials, as compared to prices in
effect in 1995.
PLY GEM
Results of Operations for First Six Months of 1997 Compared with First Six
Months of 1996
Net sales for the second quarter of 1997 totaled $218.9 million, an
increase of 3.2% over the same period in 1996. For the six months ended June 30,
1997, net sales increased 7.8% from $354.1 million in 1996 to $381.7 million in
1997. Three out of four of Ply Gem's business groups reported increased sales in
1997 when compared to 1996. Approximately three quarters of the consolidated
sales growth for the periods was attributed to unit volume increases and the
remainder to increases in average selling prices.
Gross margins were 19.0% in the second quarter of 1997 compared with 20.1%
for the same period in 1996. Gross margins for the first half of 1997 and 1996
were 17.9%. Gross margins for the quarter were affected by higher raw material
costs, particularly PVC resin and costs associated with the introduction of a
new window product line.
Selling, general and administrative expenses, as a percentage of sales, for
the 1997 second quarter declined to 13.7% from 15.4% for the corresponding
period in 1996. For the six month comparison periods selling, general and
administrative expenses declined to 14.8% from 15.8%. The improvement primarily
relates to Ply Gem's ongoing effort to reduce selling, general and
administrative costs.
Income from operations for the second quarter of 1997, excluding merger
costs of $2.9 million, was $11.5 million compared with $10.1 million recorded in
the second quarter of 1996. Excluding merger costs income from operations for
the first six months of 1997 advanced 62% to $11.7 million compared with $7.2
million for the 1996 comparison period. The improvement resulted primarily from
improved operating results as discussed in the preceding paragraphs.
Ply Gem's effective tax rate in the second quarter of 1997 was 48.4%, which
compares with 45.0% in the second quarter of 1996. The effective tax rate for
the first six months of 1997 was 50% compared with 45.9% recorded in the
comparison period. The higher effective tax rates are due primarily to certain
non-deductible merger costs.
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Results of Operations for 1996 Compared with 1995 and 1995 Compared with 1994
Net Sales
Net sales for 1996 totaled $774.9 million, a 3% increase over 1995 sales of
$755.2 million. The sales growth was driven primarily by Ply Gem's Windows,
Doors and Siding and Specialty Woods businesses. Nine out of eleven of Ply Gem's
business units reported increased sales in 1996 when compared to 1995.
Approximately two-thirds of the consolidated sales growth was attributed to unit
volume increases and the remainder to increases in average selling prices.
Net sales for 1995 totaled $755.2 million, a decrease of 7% from 1994 net
sales of $808.9 million. The primary cause of the decline in sales was Ply Gem's
planned discontinuance or de-emphasis of certain low margin products. Excluding
these products, net sales declined 2% for the comparison period. The 1995 sales
growth in Ply Gem's Windows, Doors and Siding businesses was offset by both
lower sales volume at Ply Gem's Specialty Wood businesses, which were impacted
by low framing lumber prices, and lower volume at Ply Gem's Distribution
businesses.
Gross Profit
Gross margins increased to 19.2% in 1996 from 16.5% in 1995. Gross profit
for 1996 increased 19.1% to $148.5 million, as compared to prior year's gross
profit of $124.6 million. The significant improvement resulted from actions
taken to reduce costs, including aggressive procurement initiatives,
particularly with regard to vinyl profiles and glass, improved productivity and
process improvements and ongoing cost containment measures. In addition, lower
raw material costs, particularly PVC resin and glass (which are used to
manufacture siding and windows), product mix and lower unit freight costs
contributed to the improvement in gross margins.
Gross margins were 16.5% in 1995 as compared to 19.2% in 1994. The 1995
gross margins were impacted by higher conversion costs, including costs related
to the restructuring program such as training and moving costs but not
classified as such, product mix, and new product manufacturing start-up costs.
In addition, higher raw material costs, particularly PVC resin and glass had a
negative impact on gross margins in Ply Gem's Windows, Doors and Siding
businesses, as did declining framing lumber prices in Ply Gem's Specialty Wood
businesses and lower absorption of fixed manufacturing costs in Ply Gem's
Distribution business.
Ply Gem's results of operations are affected by fluctuations in the market
prices of wood products and PVC resin which are used as raw materials in its
various manufacturing operations. Over the years, Ply Gem has experienced
significant fluctuations in the cost of these commodities from primary
suppliers. A variety of factors over which Ply Gem has no control, including
supply and demand, environmental regulations, weather and economic conditions,
impact the cost of these materials. Ply Gem anticipates that these fluctuations
will continue in the future. Although Ply Gem attempts to increase sales prices
of its products in response to higher material costs, such increases may lag
behind the escalation of the cost of raw materials in question. While Ply Gem
intends to increase prices in a timely manner to cover possible increases in the
cost of its raw materials, its ability to do so may be limited by competitive or
other factors.
Selling, General and Administrative Expenses
Selling, general and administrative expenses, as a percentage of net sales,
were 15.4% in 1996 as compared to 15.1% in 1995 and 14.7% in 1994. The modest
percentage and absolute dollar increase of $5.3 million for the 1996 comparison
period to 1995 is primarily due to higher employment costs and higher incentive
compensation expenses. In absolute dollars, selling, general and administrative
expenses declined by $4.6 million in 1995 compared to 1994 primarily due to
lower amortization of intangibles, lower employment costs related in part to the
reduction in workforce and lower incentive compensation expense.
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Write-Down of Long-Lived Assets and Nonrecurring Charges
As described in Notes 4 and 11 of Notes to Consolidated Financial
Statements of Ply Gem included elsewhere herein, Ply Gem recorded a pretax
charge of $12.0 million ($7.6 million after tax) in 1995 related to the
write-down of certain long-lived assets.
During 1994, Ply Gem recorded nonrecurring charges of $41 million ($25.7
million after tax), relating to a restructuring program and for unusual items
primarily consisting of the write-down of certain intangible assets and
discontinued products.
The 1994 restructuring program was designed by prior operating management
to improve Ply Gem's cost structure primarily through facilities consolidations
and closures, abandonment of certain information systems and workforce
reductions. Implementation of several initiatives associated with the
restructuring program have been postponed indefinitely or have resulted in
higher costs than originally anticipated. As a result Ply Gem has not realized
the savings from the restructuring it had expected.
The cash outlays with respect to the 1994 restructuring program during 1996
of approximately $6 million relate primarily to severance costs, lease
termination expenses and costs associated with the abandonment of certain
information systems. Noncash writedowns relate primarily to fixed asset and
inventory write-offs in connection with the closing or consolidation of
facilities. Remaining cash outlays primarily to work-force related activities
and are expected to total approximately $1.9 million of which approximately $1.1
million are expected to be expended in 1997.
Income from Operations
Income from operations, advanced to $29 million in 1996 compared to $10.5
million in 1995 and $36.9 million in 1994. The significant improvement in income
from operations in 1996 resulted primarily from improved operating results at
Ply Gem's Windows, Doors and Siding and Specialty Woods businesses slightly
offset by lower operating results at Ply Gem's Distribution and Home Products
businesses both of which faced very competitive market conditions during 1996.
As discussed above, income from operations for 1995 and 1994 excludes the
write-down of long-lived assets and nonrecurring charges, respectively.
Interest Expense
Interest expense was $6.8 million in 1996 compared to $6.6 million in 1995
and $7.5 million in 1994. The decline in interest expense in 1995 resulted from
the conversion of Ply Gem's 10% Convertible Subordinated Debentures into common
stock during March 1994, partially offset by higher average debt balances and
higher interest rates experienced in 1995.
Ply Gem uses various financial instruments to mitigate Ply Gem's exposure
to changes in floating interest rates. The impact of these instruments on Ply
Gem's results of operations and on its financial position is explained further
in Note 8 to the consolidated financial statements.
Other Expense
The increase in other expense of $1.8 million for the 1995 to 1994
comparison period, primarily relates to higher accounts receivable program costs
due to an increase in the average amount of receivables sold under this program
during 1995 as compared to 1994. Other expense in 1996 primarily includes the
costs associated with the sale of accounts receivables program.
Income Taxes
The effective income tax rate (benefit in 1995 and 1994) was 46.6% in 1996,
27.9% in 1995 and 28.6% in 1994. The difference between these rates and the
statutory rate was primarily due to non-deductible goodwill amortization and
certain state tax benefits relating to the write-down of long-lived assets in
1995 and nonrecurring charges in 1994 which, in accordance with the criteria set
forth in SFAS No. 109, were not recognized.
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Net Income
Net income, before the write-down of long-lived assets, advanced to $10.5
million in 1996 from $.2 million in 1995. Net income before nonrecurring charges
was $17.2 million in 1994. The factors cited above were responsible for the
improvement in the operating results of Ply Gem.
PRO FORMA LIQUIDITY AND CAPITAL RESOURCES
As a result of the Transactions, the Company will be highly leveraged and
expects to continue to be highly leveraged for the foreseeable future. As of
June 28, 1997 after giving pro forma effect to the Transactions, the Company had
consolidated debt of $856.0 million consisting of (i) $19.5 million of short
term borrowings and current maturities of long term debt, (ii) $137.8 million of
notes, mortgage notes and other indebtedness, (iii) $307.5 million of the Notes,
(iv) $174.0 million of 9 1/4% Notes and (v) $217.2 million of 9 7/8% Notes. See
"Capitalization." As of such date, after giving pro forma effect to the
Transactions, the Company's ratio of debt to equity was 7.1 to 1. The Company
intends to explore actions to reduce its leverage, including, among others, the
possible sale of non-core assets, the establishment of an accounts receivable
securitization program and the issuance of equity securities in one or more
public or private placements.
The Company's total unrestricted cash, cash equivalents and marketable
securities were $122.9 million as of June 28, 1997 after giving pro forma effect
to the Transactions. The Company's primary capital requirements following
completion of the Transactions will be for working capital, capital expenditures
and payments of interest on its indebtedness. The Company expects approximately
$75 million in annual net interest expense in fiscal 1998. Through the end of
fiscal 1998, the Company also expects to require between $30.0 million and $40.0
million for capital expenditures. The Company expects that the funds necessary
to meet its capital requirements through the end of fiscal 1998 will be
generated from cash on hand, the operating cash flow of its subsidiaries, the
sale of assets and investments and marketable securities, and borrowings under
new or existing credit facilities (including subsidiary borrowing arrangements)
and, with respect to a portion of its capital expenditure requirements, may be
generated from mortgage or capital lease financings.
After giving pro forma effect to the Transactions, the Company had working
capital (exclusive of cash, cash equivalents and marketable securities) of
approximately $224.6 million at June 28, 1997 compared to approximately $153.5
million at December 31, 1996. Historically, the Company's level of working
capital has been seasonal in nature, with peak levels occurring during the
second and third fiscal quarters. Therefore, the Company does not anticipate
significant additional working capital requirements during the balance of fiscal
1997.
The indentures and other agreements governing the Company's and its
subsidiaries indebtedness (including the Indenture, the indentures for the
9 7/8% Notes and the 9 1/4% Notes and the credit agreement for the Ply Gem
Credit Facility) contain restrictive financial and operating covenants,
including covenants that restrict the ability of the Company and its
subsidiaries to complete acquisitions, pay dividends, incur indebtedness, make
investments, sell assets and take certain other corporate actions. See
"Description of Notes" and "Description of Other Obligations."
The Company's ability to pay interest on or to refinance its indebtedness
(including indebtedness under the Notes) depends on the successful integration
of Ply Gem's operations and the Company's future performance, which, in part, is
subject to general economic, financial, competitive, legislative, regulatory and
other factors beyond its control. There can be no assurance that the Company
will generate sufficient cash flow from the operation of its subsidiaries or
that future financings will be available on acceptable terms in an amount
sufficient to enable the Company to service or refinance its indebtedness,
including the Notes, or to make necessary capital expenditures. See "Risk
Factors -- Substantial Leverage."
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BUSINESS
GENERAL
The Company is a major manufacturer and distributor of building products
for the residential and commercial construction, manufactured housing, DIY and
professional remodeling and renovation markets. The Company operates principally
through two core businesses: (i) the Residential Building Products Group which
offers a broad range of products including built-in and ventilation products,
windows, doors and siding; and (ii) HVAC Products Group which manufactures and
sells custom-designed systems for commercial applications and standard products
for manufactured and site-built residential housing. For the twelve months ended
June 28, 1997, the Company had pro forma net sales of approximately $1.8 billion
and adjusted pro forma EBITDA of approximately $159.6 million. See "Unaudited
Pro Forma Condensed Consolidated Financial Data."
ACQUISITION RATIONALE
The Acquisition reinforces Nortek's strategy of developing and maintaining
leading positions in selected strategic product lines within the building
products industry. The Company expects the Acquisition will provide a
significant opportunity to (i) expand in the growing and less cyclical
remodeling and renovation markets, (ii) increase its importance as a supplier to
home centers and national distributors and (iii) realize savings from the
elimination of duplicative administrative expenses and the implementation of
other operating efficiencies.
Expansion in growing, less cyclical markets. The Company believes the
Acquisition will accelerate its expansion into the growing remodeling and
renovation markets. Ply Gem's windows, doors and siding business offers a range
of products targeted towards the replacement and remodeling markets, including
through the home center distribution channel.
Increased importance to customers. The Acquisition will broaden the
Company's product offerings, which the Company believes will enhance its
position within currently served distribution channels. The Acquisition will add
windows, doors and siding to the Company's existing product portfolio.
Accordingly, the Company believes that home centers and national distributors,
two of the Company's most important customer channels, will view the Company as
a broader "one-stop shopping" supplier at a time when such customers are seeking
to consolidate their vendor bases. In addition, the Acquisition will permit the
sale of Ply Gem's product lines through Nortek's customers serving the
manufactured housing market.
Ability to realize substantial cost savings. The Company expects to
realize pre-tax annual cost savings of approximately $23.4 million, based on the
last twelve months ended June 28, 1997, as a result of the Acquisition. These
savings are expected to result from several actions, including: (i) the
elimination of expenses associated with Ply Gem's New York headquarters; (ii)
the consolidation into the Company of certain of Ply Gem's corporate functions
such as legal, accounting and risk management; and (iii) the identification and
rationalization of underperforming product lines. The Company believes that this
annual rate of cost savings can be achieved beginning in 1998.
BUSINESS STRATEGY
The Company's objective is to achieve stable profitable growth in its core
building products businesses by (i) selectively expanding its portfolio of
complementary product lines, (ii) developing and maintaining leadership
positions in strategic products and markets, (iii) achieving a competitive
advantage as a low cost producer and (iv) realizing synergies in marketing and
distribution by offering a broader range of products.
The Company intends to continue to pursue synergistic acquisitions in its
core product lines in order to expand market share in its businesses. The
Company believes there will continue to be opportunities to make such
acquisitions that can contribute value through a combination of economies of
scale, market power and breadth of distribution. In the past several years,
Nortek has successfully integrated acquisitions into its existing businesses,
including the addition of Rangaire L.P., Best S.p.A. and Venmar Ventilation,
Inc. to its Residential Building Products Group.
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A fundamental component of the Company's business strategy is to focus on
its core businesses. Accordingly, the Company takes a disciplined approach to
the divestiture or discontinuation of non-strategic assets that are not market
leaders and that fail to meet the Company's investment return expectations.
Recent Developments. The Company currently has under consideration the
possible sale or other disposition of all or part of its Plumbing Products Group
in one or more transactions. The Company has received proposals from prospective
buyers but has no binding commitment or understanding with respect to any sale.
The Company does not expect that disposition of all or a part of the Group based
upon the terms being discussed would have a material impact on the results of
operations or financial condition of the Company.
THE MARKET FOR BUILDING PRODUCTS
The Industry Overview. The building products industry consists of a large
number of companies that manufacture materials and equipment used primarily in
two end markets: (i) the repair, renovation and remodeling market and (ii) the
new construction market. Both of these end markets are further subdivided into
residential and non-residential categories. According to the United States
Department of Commerce, private construction of residential and non-residential
buildings totaled approximately $397 billion in 1996.
The most important factors influencing demand for building products include
both the levels of residential and commercial new construction activity as well
as the levels of repair and remodeling activity. Demand for residential building
products is principally affected by the number of housing starts, the rate of
existing home sales and the age and size of the U.S. housing stock. The level of
remodeling activity tends to be closely related to the rate of existing home
sales and the age and size of such homes. Nortek and Ply Gem each have strong
relationships with large retail home centers which are expected to benefit from
continuing growth of the DIY and home improvement markets.
Renovation and Remodeling. The Company's strategy is to increase sales
derived from spending associated with renovation and remodeling activities for
both residential and non-residential buildings and structures. The Company
believes that the frequency of renovating and remodeling activities increases
with the age of a home and that such activities also often occur shortly before
and after an existing home sale. According to the NAH, the average age of a U.S.
home has increased from 23 years in 1985 to 28 years in 1995. During the same
period, according to the NAH annual sales of existing homes increased 21%.
Additionally, the rapid expansion of building product retail chains have made
building products more accessible to "do-it-yourselfers," contributing to the
overall growth in the renovation and remodeling markets. Correspondingly,
between 1985 and 1995, according to the NAH expenditures on home improvements
increased from $44.9 billion to $70.3 billion, or 57%. The Company also believes
that the existing home market experiences less cyclicality than the new home
market.
Residential New Construction. This category includes spending associated
with the construction of both single-family and multi-family residences.
Building activity in the residential construction market is often measured in
terms of housing starts, which vary with job growth, population growth and other
demographic trends, as well as the state of the economy and interest rates.
According to the NAH, housing starts in 1996 totaled 1.48 million units,
consisting of 1.16 million single family units and 0.32 million multi-family
units. Since 1985, single family housing starts have exceeded one million units
in all but two years (1990 and 1991), while multi-family housing starts have
averaged 350,000 units per year during the same period. Manufactured housing
shipments have increased from approximately 170,000 in 1991 to over 360,000 in
1996, representing an increase in excess of 50%. The sector is growing
consistently faster than the overall market for new housing, representing 24% in
the total single family housing starts in 1996 over 17% in 1991. Another factor
driving increased demand for building products has been an increase in the
average size of homes built in the United States. In 1996, the average
single-family home contained 1,950 square feet of space, compared to 1,385
square feet in 1970 and 1,595 square feet in 1980. According to the USDC, total
spending in the United States for new housing units in 1996 totaled
approximately $176 billion, representing an 8% increase over 1995 levels.
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Non-Residential Construction. This category includes spending associated
with the construction of new buildings and structures for the commercial,
industrial, government and infrastructure markets. Activity in commercial
construction has increased as evidenced by expenditures for new office space,
which grew from $20.3 billion in 1992 to $27.6 billion in 1996.
NORTEK
Nortek is a diversified manufacturer of residential and commercial building
products, operating within two principal product groups: the Residential
Building Products Group and the HVAC Products Group. Nortek also operates the
Plumbing Products Group. Through these product groups, Nortek manufactures and
sells, primarily in the United States, Canada and Europe, a wide variety of
products for the residential and commercial construction, manufactured housing,
and the DIY and professional remodeling and renovation markets.
Residential Building Products Group
The Residential Building Products Group is a leading manufacturer and
distributor of built-in products primarily for the residential new construction,
DIY 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. This Group is the largest
supplier in the United States and Canada of range hoods, bath fans and
combination units, indoor air quality products such as continuous-ventilation
systems and energy-recovery ventilators and one of the leading suppliers in
Western Europe, South America and the Middle East of luxury "Eurostyle" range
hoods. Products are sold under the Broan(R), Nautilus(R), Venmar(R), Flair,
vanEE(R), Rangaire(R) and Best(R) 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). Customers for the
Group's products include residential and electrical contractors, professional
remodelers and DIY homeowners. Other products sold by this Group include, among
others, wireless security products, garage door openers, built-in home intercoms
and entertainment systems, home automation systems, door chimes, paddle fans,
central vacuum systems and fluorescent lighting fixtures. Nortek's sales of
kitchen range hoods accounted for approximately 16.4% of Nortek's consolidated
net sales in 1996.
A key component of the Group's operating strategy is the introduction of
new products which capitalize on the strong Broan(R), Nautilus(R), Venmar(R),
Flair, vanEE(R), Rangaire(R) and Best(R) brand names and the extensive
distribution system of the Group's businesses. Product introductions under these
brand names include the Finesse(TM) contoured style range hood, Sensaire and
Solitare Ultra Silent fans and fan lights, the Flair and vanEE(R) Super Compact
Line of heat recovery cores and the Broan(R) stainless steel trash compactor.
With respect to certain product lines, several private label customers
account for a substantial portion of revenues. In 1996, approximately 24% of the
total sales of the Group were made to private label customers.
The Group offers a broad array of products with various features and styles
across a range of price points. Nortek believes that the Group's variety of
product offerings helps the Group maintain and improve its market position for
its principal products. At the same time, Nortek 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, Nortek believes that the Group's primary competitor is NuTone, a
subsidiary of Williams Holdings PLC. The market for bath cabinets is highly
fragmented with no single dominant suppliers. 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.
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Air Conditioning and Heating Products Group
The HVAC Products Group manufactures and sells HVAC systems for
custom-designed commercial applications and for manufactured and site-built
residential housing. The Group's commercial products consist of HVAC 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 operating 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. This Group markets its commercial products under the Governair(R),
Mammoth(R) and Temtrol(R) 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), Miller(R), Elect-Air(R) and Powermiser(R) brand names.
Commercial Products. The Group's commercial products include packaged
rooftop units and air handlers, custom walk-in mechanical equipment rooms,
individual floor by floor units and heat pumps. The market for commercial HVAC
equipment is segmented between standard and custom-designed equipment.
Nortek 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 governmental buildings. The Group seeks
to maintain strong relationships nationwide with design engineers, owners and
developers, and the persons who are most likely to value the benefits and
long-term cost efficiencies of the Group's custom-designed equipment.
Nortek estimates that slightly less than half of the Group's commercial
sales in 1996 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.
Nortek believes that the Group is among the largest suppliers of
custom-designed commercial HVAC products in the United States. The Group's four
largest competitors in the commercial HVAC market are Brod & McClung, Inc.
(which sells under the "Pace" trade name), 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.
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. Nortek
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. Nortek estimates that more than half of the Group's residential
site-built sales of HVAC products in 1996 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. Nortek believes that the Group's
ability to offer both heating and cooling products helps offset the effects of
seasonality of the Group's sales.
A substantial portion of site-built residential products have been
introduced in the past several years, including a new line of furnaces and a
reengineered line of high efficiency air conditioners and heat pumps.
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Plumbing Products Group
The Plumbing Products Group manufactures and sells vitreous china bathroom
fixtures (including lavatories, toilet bowls, flush tanks, bidets and urinals),
gelcoat and acrylic bathtubs, shower stalls and whirlpools, brass and die cast
faucets and shower doors, and also markets stainless steel and enameled steel
tubs and sinks. The Group also sells designer bathroom fixtures, 1.6 gallon
water-efficient toilets, pressure balance tub-shower fittings and a variety of
products that are accessible to physically challenged individuals. Products are
sold under the URC(TM) and Universal-Rundle(R) brand names principally to
wholesale plumbing r distributors and retail home centers. End customers of the
Group's products are generally home builders, do-it-yourself or buy-it-yourself
homeowners, remodeling contractors and commercial builders.
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, a subsidiary of Zurn Industries, Kohler Company and
Mansfield Plumbing Products, Inc., a subsidiary of Falcon Building Products,
Inc. The Group competes primarily on the basis of service, quality, price, and
breadth of product line offerings.
PLY GEM
Ply Gem conducts the majority of its business through its Windows, Doors
and Siding Group. Additionally, Ply Gem operates a Wood and Decorative Products
business and a Home Products business.
Windows, Doors and Siding
Ply Gem is a major manufacturer and distributor of vinyl and wood windows
and doors for use in the replacement/remodeling and new construction segments of
the building products market. Ply Gem believes it is among the largest suppliers
of vinyl windows serving the replacement market in the United States.
Additionally, Ply Gem believes it is a leading supplier of wood windows to major
home centers. Ply Gem seeks to differentiate its windows and doors business from
its competition with a multiple brand strategy, a multi-channel distribution
strategy (with an emphasis on the home center market), an established
distribution network utilizing custom design and manufacturing capabilities and
a superior field sales and services support network.
Ply Gem is a major manufacturer and distributor of vinyl siding, soffit,
skirting, injected molded components and accessories, which are available in a
wide variety of woodgrains and colors. Its products are used in both remodeling
and new construction applications for exterior siding materials (which includes
wood, aluminum and masonry) due to its ease of installation, high performance,
durability, low maintenance requirements and price stability as compared to
alternative siding materials. These products are marketed principally to
building materials distributors, who in turn sell primarily to home centers and
lumber yards.
Net sales of Ply Gem's Windows, Doors and Siding Group were approximately
$476.7 million for the year ended December 31, 1996 and $222.2 million for the
six months ended June 30, 1997.
Wood and Decorative Products
Specialty Wood Products Group. Ply Gem's Specialty Wood Products Group
manufactures and distributes pressure treated wood products, specialty lumber,
and decorative home products. The group offers a full range of preservative and
fire retardant treated lumber and plywood products which are marketed to home
centers, cooperative buying groups, lumber yards and independent wholesale
distributors for use generally in residential decking, roofing, siding and
landscaping as well as various commercial construction applications. The group
also products and distributes a full line of decorative wall coverings,
including pre-finished wood paneling, shelving, solid wood planking and tile
board. Additional decorative home products include imported ceramic, porcelain
and marble tile and melamine coated kitchens and bath panels. These products are
marketed both direct to home centers and lumber yards as well as to independent
wholesale distributors.
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Distribution Group. Ply Gem's Distribution Group markets specialty wood and
wood related products, including hardwood plywood, melamine and other laminated
board products, hardwood lumber, and cabinet and furniture hardware. The group
is also an importer of specialty wood panels. In addition, the group is a west
coast distributor of furniture components, laminates and board products.
Customers include cabinet and furniture manufacturers, architectural mill
workers and manufacturers of store fixtures and signs. The group has also begun
to penetrate the home center and lumber yard market with a variety of its
products.
Net sales of Ply Gem's Wood and Decorative Products Group were
approximately $274.2 million for the year ended December 31, 1996 and $147.4
million for the six months ended June 30, 1997.
Home Products
Ply Gem's Home Products Group manufactures disposable paper vacuum cleaner
bags through its Studley subsidiary. Products are sold to manufacturers of
vacuum cleaners, mass merchandisers and other retailers and to the retail home
center market. The Group had net sales of approximately $24.0 million for the
year ended December 31, 1996 and $12.1 million for the six months ended June 30,
1997.
Legal Proceedings
The Company is 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 is 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 1995 and 1996 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.
Hoover Treated Wood Products, Inc. ("Hoover"), a wholly-owned subsidiary of
Ply Gem, is a defendant in a number of lawsuits alleging damage caused by
alleged defects in certain pressure treated interior wood products. Hoover has
not manufactured or sold these products since August 1988. Sales of these
products constituted less than 3% of total sales of Ply Gem and its subsidiaries
on a consolidated basis during the period January 1, 1984 through December 31,
1990. The number of lawsuits pending has declined significantly from earlier
periods. Most of the suits have been resolved by dismissal or settlement with
settlements being paid out of insurance proceeds or other third party
recoveries. Hoover and Ply Gem are vigorously defending the suits which remain
pending and defense and indemnity costs are being paid out of insurance proceeds
and proceeds from the settlement by Hoover with suppliers of material used in
the production of interior treated wood products. Hoover and Ply Gem have
engaged in coverage litigation with their insurers and have settled their
coverage claims with a majority of the insurers. Hoover and Ply Gem believe that
the remaining coverage disputes will be resolved on a satisfactory basis and a
substantial amount of additional coverage will be
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available. In reaching this belief, Hoover and Ply Gem have has analyzed
Hoover's insurance coverage and the status of the coverage litigation,
considered the history of settlements with primary and excess insurers and
consulted with counsel. In evaluating the effect of these lawsuits, a number of
factors have been considered, including: the litigation history, the significant
decline in the number of cases, the availability of various legal defenses and
the likely availability of proceeds from additional insurance.
Andrew Klotz, a purported shareholder of Ply Gem, has filed a complaint in
Delaware Chancery Court against Ply Gem, Ply Gem's Chairman and each of the
other members of Ply Gem's Board of Directors (the Chairman and such other
directors collectively, the "Individual Defendants"). The complaint purports to
be brought on behalf of a class consisting of all public stockholders of Ply
Gem, and claims that the Individual Defendants breached their fiduciary duties
and subordinated the interests of Ply Gem's public stockholders to the
individual interests of Ply Gem's Chairman with respect to amounts to be
received by him in connection with the proposed termination of his existing
employment agreement with Ply Gem in connection with an acquisition of Ply Gem,
and that, as a result, the public stockholders have not and will not receive
their fair proportion of the value of Ply Gem's assets and business and/or have
been and will be prevented from obtaining a fair and adequate price for their
shares. The complaint seeks monetary relief based on the defendants' purported
wrongful acts and seeks to have the Court impose a constructive trust upon all
monies paid by the Company and Ply Gem to any Individual Defendant as a result
of such person's purported breach of his fiduciary duties. The defendants
believe the complaint to be without merit.
In addition, two other purported shareholders of Ply Gem, Herman Smilow and
Adele Brody, have filed a complaint against Ply Gem and the Individual
Defendants in Delaware Chancery Court. The complaint purports to be on behalf of
a class consisting of all public shareholders of Ply Gem, and alleges that the
Ply Gem Board members breached their fiduciary duties by recommending and
approving the Atrium Agreement and the transactions contemplated thereby. At the
time of filing, the complaint sought an injunction enjoining the transactions
contemplated by the Atrium Agreement, as well as plaintiffs' costs and legal
fees. The defendants expect this action to be consolidated with the suit brought
by Mr. Klotz. The defendants believe this complaint to be equally without merit.
Finally, Andrew Klotz also filed a complaint against Furman Selz LLC
("Furman Selz") in the New York Supreme Court. On June 20, 1997, Furman Selz and
Ply Gem entered into a letter of engagement (the "Engagement Letter") pursuant
to which Furman Selz agreed to render financial advisory and investment banking
services to Ply Gem in connection with the proposed acquisition of Ply Gem by a
third party. The complaint purports to be on behalf of a class consisting of all
public shareholders of Ply Gem, and alleges, among other things, that Furman
Selz was negligent in failing to take into consideration certain factors and
render advice that would maximize shareholder value. The complaint alleges that
the shareholders have suffered damages in an amount in excess of $100,000,000 as
a result of such negligence and seeks such damages and the return of fees paid
to Furman Selz. Under the Engagement Letter, Ply Gem is required to indemnify
Furman Selz against losses and costs incurred as a result of third party
lawsuits arising out of the services rendered by it under the Engagement Letter
(except in the case that such losses and costs are finally judicially determined
to be primarily attributable to the bad faith or gross negligence on the part of
Furman Selz).
The Company and its subsidiaries are parties to various legal proceedings
and claims incident to the conduct of their businesses, including the matters
described above. None of these proceedings and claims is expected to have a
material adverse effect, either individually or in the aggregate, on the
Company's financial position or results of operations. See Note 8 of Notes to
Consolidated Financial Statements of Nortek included elsewhere herein.
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MANAGEMENT
DIRECTORS OF THE COMPANY
The following table sets forth the name, age as of the date hereof and
current principal occupation or employment and five-year employment history for
the five members currently serving on the Company's Board of Directors. Unless
otherwise noted, each director has maintained the same principal occupation
during the past five years.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME AGE FIVE-YEAR EMPLOYMENT HISTORY
------------------------- --- ---------------------------------------------------------
<S> <C> <C>
Richard L. Bready........ 53 Mr. Bready has been Chairman and Chief Executive Officer
of Nortek for more than the past five years.
Phillip L. Cohen......... 65 Mr. Cohen was a partner with the professional service
firm Arthur Andersen LLP from 1965 until his retirement
in June 1994 and has been a financial consultant since
that date.
Richard J. Harris........ 61 Mr. Harris has been employed by Nortek as Vice President
and Treasurer for more than the past five years.
William I. Kelly......... 54 Mr. Kelly has been Director of the Graduate School of
Professional Accounting of Northeastern University for
more than the past five years.
J. Peter Lyons........... 63 Mr. Lyons, for more than the past five years, has been
President of The J. Peter Lyons Companies, an insurance
and employee benefit consulting company.
</TABLE>
OTHER EXECUTIVE OFFICERS
The following table sets forth the name, age as of the date hereof and
position and office held with the Company for the following persons who may be
deemed executive officers of the Company and who are not also serving on the
Company's Board of Directors. Unless otherwise noted, each executive officer has
maintained the same position and office with the Company during the past five
years.
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION AND OFFICE WITH THE COMPANY
------------------------- --- ---------------------------------------------------------
<S> <C> <C>
Almon C. Hall............ 50 Vice President, Controller and Chief Accounting Officer
Kenneth J. Ortman........ 62 Senior Vice President, Group Operations
Siegfried Molnar......... 57 Senior Vice President, Group Operations
Kevin W. Donnelly........ 43 Vice President, General Counsel and Secretary
</TABLE>
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PLY GEM OFFICERS
Upon the consummation of the Tender Offer, Jeffrey S. Silverman, Ply Gem's
former Chief Executive Officer and Chairman of the Board, and Herbert P.
Dooskin, Ply Gem's former Executive Vice President, terminated their employment
with Ply Gem. In addition, both Mr. Silverman and Mr. Dooskin have each agreed,
for a period of two years from the consummation of the Tender Offer, not to
directly or indirectly compete with Ply Gem or its subsidiaries in the United
States, engage in certain activities that may interfere with the operations of
Ply Gem or its subsidiaries or aid competitors of Ply Gem. See "The
Acquisition." Consummation of the Tender Offer permitted Dana R. Snyder, Ply
Gem's former President, to leave Ply Gem's employ and receive certain severance
benefits under his employment agreement. Shortly following consummation of the
Acquisition, Mr. Snyder's employment with Ply Gem terminated. In addition, Mr.
Snyder's employment agreement provides that, for a period of two years following
the termination of his employment, he will not directly or indirectly compete
with Ply Gem or its subsidiaries.
On September 16, 1997, the Company announced the appointment of Robert E.G.
Ractliffe as the new President and Chief Executive Officer of Ply Gem. Since
1989, Mr. Ractliffe has served as Chief Executive Officer of Nordyne Inc., a
wholly owned subsidiary of the Company and part of the Company's Air
Conditioning and Heating Products Group. Prior to joining Nordyne Inc., Mr.
Ractliffe was President, North American Operations, Carrier Corporation.
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DESCRIPTION OF NOTES
GENERAL
The Original Notes were issued and the Exchange Notes will be issued
pursuant to an indenture (the "Indenture") dated as of August 26, 1997 between
the Company and State Street Bank and Trust Company, a Massachusetts banking
corporation, as trustee (the "Trustee"). The terms of the Exchange Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), as
in effect on the date of the Indenture. The Notes are subject to all such terms,
and holders of the Notes are referred to the Indenture and the Trust Indenture
Act for a statement thereof. The following summary of certain provisions of the
Indenture and the Notes does not purport to be complete and is qualified in its
entirety by reference to the Indenture, including the definitions included in
the Indenture of certain terms used below. A copy of the Indenture is an exhibit
to the Registration Statement of which this Prospectus is a part and is publicly
available as set forth above under "-- Available Information." The definitions
of certain terms used in the following summary are set forth below under
"-- Certain Definitions."
The form and terms of the Exchange Notes are the same as the form and terms
of the Original Notes (which they replace) except that (i) the Exchange Notes
bear a Series B designation, (ii) the Exchange Notes have been registered under
the Securities Act and, therefore, will generally not bear legends restricting
the transfer thereof (except as may be required under the state securities laws)
and (iii) the Exchange Notes will not provide for the payment of Liquidated
Damages (except in certain limited circumstances set forth in the Registration
Rights Agreement). See "The Exchange Offer -- Registration Rights; Liquidated
Damages."
The Notes will be unsecured senior obligations of the Company limited to
$310 million aggregate principal amount. The Notes will rank senior in right of
payment to all existing and future subordinated Indebtedness of the Company,
including the 9 7/8% Notes, and pari passu in right of payment with all existing
and future senior unsecured Indebtedness of the Company, including the 9 1/4%
Notes. The Notes will be effectively subordinated to all existing and future
secured Indebtedness of the Company and the Subsidiary Guarantors, if any,
including secured Indebtedness pursuant to the Company Credit Facility or the
Ply Gem Credit Facility to the extent of the value of the assets securing such
Indebtedness, and the Notes will be structurally subordinated to all
Indebtedness and other obligations (including trade payables) of the Company's
Subsidiaries (including Ply Gem and its Subsidiaries). At June 28, 1997, after
giving effect to the Transactions, the Notes would have been effectively
subordinated to approximately $414.4 million of indebtedness for borrowed money,
trade payables and accrued liabilities of the Company's Subsidiaries.
Although the Indenture contains certain covenants and provisions that
afford certain protections to holders of the Notes, such covenants and
provisions would not necessarily afford the holders of the Notes protection in
the event of a highly leveraged transaction involving the Company, including a
leveraged transaction initiated or supported by the Company, the management of
the Company or any affiliate of either party. See "-- Certain Covenants" below.
PRINCIPAL, MATURITY AND INTEREST
The Notes will mature on September 1, 2007. Interest on the Notes will
accrue at the rate of 9 1/8% per annum and will be payable semi-annually on each
September 1 and March 1 commencing on March 1, 1998, to Holders on the
immediately preceding August 15 or February 15, whether or not a business day.
Interest on the Notes will accrue from the most recent date to which interest
has been paid or, if no interest has been paid, from the date of issuance of the
Notes. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months.
Principal of, premium, if any, interest on, and Liquidated Damages, if any,
with respect to the Notes will be payable by wire transfer of immediately
available funds to the holder of the Global Notes; provided, that payments of
interest and Liquidated Damages, if any, may be made at the office or agency of
the Company
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maintained for such purpose or, at the option of the Company, by check mailed to
the Holders at their respective addresses set forth in the register of Holders.
Unless otherwise designated by the Company, the Company's office or agency in
New York will be the office of the Trustee maintained for such purpose. The
Notes will be issued only in registered form, without coupons, in denominations
of $1,000 and integral multiples thereof. The Trustee is Paying Agent and
Registrar under the Indenture. The Company may act as Paying Agent or Registrar
under the Indenture, and the Company may change the Paying Agent or Registrar
without notice to the Holders.
OPTIONAL REDEMPTION
The Notes will be redeemable by the Company, in whole or in part, on or
after September 1, 2002 at the following redemption prices (expressed as a
percentage of the principal amount) if redeemed during the 12-month period
beginning September 1 of the years indicated below, in each case, together with
accrued and unpaid interest and Liquidated Damages, if any, to the redemption
date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
------------------------------------------------- ----------
<S> <C>
2002............................................. 104.563%
2003............................................. 103.042%
2004............................................. 101.521%
2005 and thereafter.............................. 100.000%
</TABLE>
Notice of the redemption must be mailed by first class mail at least 30 but
not more than 60 days before the redemption date to each Holder to be redeemed
at such Holder's registered address. If any Note is to be redeemed in part only,
the notice of redemption relating to that Note will state the principal amount
thereof to be redeemed and a new Note in principal amount equal to the
unredeemed portion will be issued in the name of the Holder upon cancellation of
the original Note. On and after the redemption date, interest ceases to accrue
on Notes or portions of Notes called for redemption, unless the Company shall
default in the payment of the redemption price. If less than all the outstanding
Notes are to be redeemed at any time, selection of the Notes for redemption will
be made by the Trustee by lot or, if such method is prohibited by the rules of
any stock exchange on which the Notes are then listed, any other method the
Trustee considers reasonable, provided that Notes shall be redeemed in principal
amounts of $1,000 or integral multiples thereof.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes. However, as described below, the Company may
be obligated, under certain circumstances, to make an offer to purchase (i) all
outstanding Notes at a redemption price of 101% of the principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages, if any, to the date of
purchase, upon a Change of Control; and (ii) outstanding Notes with a portion of
the Excess Proceeds of Asset Sales at a redemption price of 100% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of purchase. See "-- Change of Control" and
"-- Certain Covenants -- Limitation on Use of Proceeds from Asset Sales."
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder will have the right
to require the repurchase of all or any part of such Holder's Notes pursuant to
the offer described below (the "Change of Control Offer") at a purchase price
equal to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages, if any, to the date of purchase (the "Change of
Control Payment").
Immediately following any Change of Control, the Company is required to
mail a notice to the Trustee and to each Holder stating: (i) that the Change of
Control Offer is being made pursuant to the Repurchase Upon Change of Control
covenant of the Indenture and that all Notes tendered will be accepted for
payment; (ii) the amount of the Change of Control Payment and the purchase date
(the "Change of Control Payment
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<PAGE> 64
Date"), which may not be earlier than 30 days nor later than 60 days from the
date such notice is mailed; (iii) that any Note not tendered will continue to
accrue interest; (iv) that, unless the Company defaults in the payment thereof,
all Notes accepted for payment pursuant to the Change of Control Offer will
cease to accrue interest on and after the Change of Control Payment Date; (v)
that Holders electing to have any Notes purchased pursuant to a Change of
Control Offer will be required to surrender the Notes to be purchased to the
Paying Agent at the address specified in the notice prior to the close of
business on the third business day preceding the Change of Control Payment Date;
(vi) that Holders will be entitled to withdraw Notes they have tendered on the
terms and conditions set forth in such notice; and (vii) that Holders whose
Notes are being purchased only in part will be issued new Notes (or book-entry
notation made with respect thereto) equal in principal amount to the unpurchased
portion of the Notes tendered; provided that the portion of each Note purchased
and each such new Note issued (or book-entry notation, if applicable) shall be
in a principal amount of $1,000 or an integral multiple thereof.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Notes or portions thereof tendered pursuant
to the Change of Control Offer and not withdrawn, (ii) deposit with the Paying
Agent an amount sufficient to pay the Change of Control Payment in respect of
all Notes or portions thereof so tendered and not withdrawn, and (iii) deliver
or cause to be delivered to the Trustee all Notes so tendered and not withdrawn
together with an Officers' Certificate specifying the Notes or portions thereof
tendered to the Company. The Paying Agent will promptly mail to each Holder of
Notes so tendered and not withdrawn the Change of Control Payment in respect of
such Notes, and the Trustee will promptly authenticate and mail to such Holder a
new Note (or cause to be transferred by book entry) equal in principal amount to
any unpurchased portion of the Notes surrendered; provided that each such new
Note shall be in a principal amount of $1,000 or an integral multiple thereof.
The Company will publicly announce the results of the Change of Control Offer on
or as soon as practicable after the Change of Control Payment Date.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act, and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes triggered by a Change of Control.
A "Change of Control" will be deemed to have occurred at such time as any
of the following events occur: (i) there is consummated any consolidation or
merger of the Company with or into another corporation, or all or substantially
all of the assets of the Company are sold, leased or otherwise transferred or
conveyed to another Person (other than pursuant to a bona fide pledge of assets
to secure Indebtedness made in accordance with the Indenture), and the holders
of the Company's common stock outstanding immediately prior to such
consolidation, merger, sale, lease or other transfer or conveyance or one or
more Exempt Persons do not hold, directly or indirectly, at least a majority of
the common stock of the continuing or surviving corporation immediately after
such consolidation or merger or at least a majority of the Equity Interests of
such Person; (ii) there is filed a report on Schedule 13D or 14D-1 (or any
successor schedule, form or report) pursuant to the Exchange Act disclosing that
any person (defined, solely for the purposes of the Change of Control provision,
as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act or any successor provision to either of the foregoing) has become
the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3
or any successor rule or regulation promulgated under the Exchange Act) of 50%
or more of the combined voting power of all the Company's then outstanding
securities entitled to vote generally for the election of directors; provided,
however, that a person shall not be deemed to be the beneficial owner of, or to
own beneficially, (A) any securities tendered pursuant to a tender or exchange
offer made by or on behalf of such person or any of such person's Affiliates or
associates until such tendered securities are accepted for purchase or exchange
thereunder, or (B) any securities if such beneficial ownership (1) arises solely
as a result of a revocable proxy delivered in response to a proxy or consent
solicitation made pursuant to the applicable rules and regulations under the
Exchange Act, and (2) is not also then reportable on Schedule 13D (or any
successor schedule) under the Exchange Act; or (iii) during any consecutive
two-year period, individuals who at the beginning of such period constituted the
Board of Directors of the Company (together with any new directors whose
election by such Board of Directors or whose nomination for election by the
stockholders of the Company was approved by a vote of 66 2/3% of the directors
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was
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previously so approved) cease for any reason to constitute a majority of the
Board of Directors of the Company then in office.
Notwithstanding the foregoing, a Change of Control shall not be deemed to
have occurred under clause (ii) of the immediately preceding paragraph solely by
virtue of the Company, any Subsidiary of the Company, any employee stock
ownership plan or any other employee benefit plan of the Company or any such
Subsidiary, any other person holding securities of the Company for or pursuant
to the terms of any such employee benefit plan, or any Exempt Person, filing or
becoming obligated to file a report on 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 equal to or greater than
50% of the combined voting power of the Company's then outstanding securities
entitled to vote generally for the election of directors or otherwise.
The Change of Control purchase feature may in certain circumstances make
more difficult or discourage a takeover of the Company and, thus, the removal of
the incumbent management. Although the Company has from time to time received
and considered proposals which might involve a Change of Control, the Change of
Control purchase feature was not adopted as a result of management's knowledge
of any specific effort to accumulate shares of Common Stock or to obtain control
of the Company by means of a merger, tender offer, solicitation or otherwise, or
part of a plan by management to adopt a series of antitakeover provisions.
Instead, the Change of Control purchase feature is a standard term contained in
other similar debt offerings and the terms of such feature result from
negotiations between the Company and the Initial Purchasers. Subject to the
limitations discussed below, the Company could, in the future, enter into
certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of indebtedness outstanding at
such time or otherwise affect the Company's capital structure or credit ratings.
The occurrence of a Change of Control would require the Company to offer to
acquire the 9 7/8% Notes and the 9 1/4% Notes at 101% of the principal amount
thereof and likely would result in an event of default under the Company Credit
Facility and the Ply Gem Credit Facility permitting the lenders thereunder to
accelerate the repayment of the Indebtedness thereunder. If a Change of Control
were to occur, there can be no assurance that the Company would have sufficient
funds to satisfy all of such obligations. In addition, the Company's ability to
make such payment may be limited by the terms of its then-existing borrowings
and other agreements applicable to the Company or its Subsidiaries. Certain
existing agreements applicable to certain of the Company's Subsidiaries restrict
the ability of these Subsidiaries to make distributions to the Company. See
"Description of Other Obligations."
Neither the Board of Directors of the Company nor the Trustee may waive the
Change of Control repurchase feature of the Indenture.
One of the events that constitutes a Change of Control under the Indenture
is a sale, lease or other transfer or conveyance of all or substantially all of
the assets of the Company. There is no precise established definition under
applicable law of the term "substantially all" and, accordingly, if the Company
were to engage in transactions in which it disposed of less than all of its
assets, a question could arise as to whether such disposition was of
"substantially all" of its assets and whether because of such disposition the
Company was required to repurchase the Notes as a result of a Change of Control.
CERTAIN COVENANTS
Limitation on Restricted Payments. The Company shall not, and shall not
permit any of its Restricted 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 Restricted 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 Restricted 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 Restricted 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 Restricted
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Subsidiaries (other than Capital Stock or other Equity Interests held by the
Company or any Wholly-Owned Subsidiary of the Company that is a Restricted
Subsidiary); (iii) prepay, repay, purchase, repurchase, redeem, defease or
otherwise acquire or retire for value, prior to a scheduled repayment date,
scheduled mandatory sinking fund payment date or maturity date any Indebtedness
of the Company that is subordinate in right of payment to the Notes (other than
in connection with any refinancing of such Indebtedness permitted by the
Indenture); or (iv) make any Investment other than Permitted Investments (each
such action described in any of clauses (i) through (iv) above being referred to
as a "Restricted Payment"), if, at the time of such Restricted Payment, (1) a
Default or Event of Default shall have occurred and be continuing or shall occur
as a consequence thereof; (2) such Restricted Payment, together with the
aggregate amount of all other Restricted Payments declared or made on or after
the issue date of the Notes (including, without duplication, Restricted Payments
described in the next succeeding paragraph), exceeds the sum of (A) 50% of the
cumulative Consolidated Net Income of the Company for the period commencing on
January 1, 1997 through the last day of the fiscal quarter immediately preceding
the date of such proposed Restricted Payment (provided that if the amount of
such cumulative Consolidated Net Income divided by the number of full fiscal
quarters of the Company in the applicable period exceeds $5,250,000, then such
amount shall equal (i) 50% of the product of $5,250,000 multiplied by the number
of full fiscal quarters in such period plus (ii) 75% of the amount in excess of
the product of $5,250,000 multiplied by the number of full fiscal quarters in
such period) (or, if the cumulative 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 Restricted 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; (C) an amount equal to any cash and the Fair
Market Value (at the time of receipt) of other assets received by the Company or
any of its Restricted Subsidiaries after the date of the issuance of the Notes
as a dividend or other distribution from any Unrestricted Subsidiary; (D) the
Fair Market Value of any Investment held by either the Company or any Restricted
Subsidiary of the Company in any Unrestricted Subsidiary at the time such
Unrestricted Subsidiary is redesignated as a Restricted Subsidiary in accordance
with the provisions of the Indenture; and (E) $35,000,000; or (3) the Company
could not incur at least $1.00 of additional Indebtedness pursuant to the first
paragraph of the Limitation on Additional Indebtedness covenant.
The foregoing provisions shall not prohibit, so long as no Default or Event
of Default shall have occurred and be continuing or shall occur as a consequence
thereof, (i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment would have
complied with the provisions of the Indenture; (ii) the declaration and payment
by a Restricted Subsidiary of the Company which is required to file periodic
reports under Section 13 or 15(d) of the Exchange Act (a "Reporting Subsidiary")
of dividends on its common stock to all holders of such common stock on a pro
rata basis out of funds legally available for the payment of dividends, provided
that the amount of such dividends in any fiscal year of such Reporting
Subsidiary shall not exceed 25% of the Consolidated Net Income of such Reporting
Subsidiary for the immediately preceding fiscal year; (iii) the purchase,
redemption, acquisition, cancellation or other retirement for value of shares of
Capital Stock of the Company, options to purchase such shares or related stock
appreciation rights or similar securities held by current or former officers,
employees or directors (or their estates or beneficiaries under their estates)
of the Company or any Restricted Subsidiary; provided that the aggregate
consideration paid for such purchase, redemption, cancellation or other
retirement after the date hereof does not exceed $2,500,000 in the aggregate in
any fiscal year of the Company; (iv) the prepayment, repayment, purchase,
repurchase, redemption, defeasance or other acquisition or retirement for value
of any or all of the 9 7/8% Notes at any time within one year of the scheduled
maturity date thereof; and (v) the redemption, repurchase, defeasance or other
acquisition or retirement for value of Indebtedness of the Company that is
subordinated in right of payment to the Notes in exchange for, or out of the
proceeds of a substantially concurrent offering of, shares of Capital Stock of
the Company (other than Redeemable Stock or any Capital Stock convertible into
any security other than such Capital Stock).
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Limitation on Additional Indebtedness. The Company shall not, and shall
not permit any of its Restricted Subsidiaries to, directly or indirectly,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable with respect to (each, an "incurrence") any Indebtedness,
including, without limitation, Acquired Indebtedness; provided, however, that
the Company may incur Indebtedness if (i) no Default or Event of Default shall
have occurred and be continuing at the time or after giving effect to the
incurrence of such Indebtedness and (ii) the Consolidated Cash Flow Coverage
Ratio of the Company for the four full fiscal quarters ending immediately prior
to the date of the incurrence of such additional Indebtedness is at least 2.0 to
1.0.
The foregoing limitations shall not apply, without duplication, to:
(i) Existing Indebtedness;
(ii) Indebtedness of (a) the Company represented by the Notes and the
Indenture or (b) any Subsidiary Guarantor under any Subsidiary Guaranty;
(iii) Indebtedness of the Company and its Restricted Subsidiaries
under the Company Credit Facility; provided, that the aggregate principal
amount of Indebtedness (including the available undrawn amount of any
letters of credit issued thereunder) so incurred on any date, together with
all other Indebtedness incurred pursuant to this clause (iii) and
outstanding on such date, shall not exceed the greater of (a) $75,000,000
and (b) the sum of 85% of Eligible Receivables of the Company and its
Subsidiaries, plus 65% of Eligible Inventory of the Company and its
Subsidiaries;
(iv) Indebtedness of (a) Broan Limited and any Canadian Subsidiaries
which are Restricted Subsidiaries under the Broan Limited Credit Facility;
provided that (1) the aggregate outstanding principal amount (including the
available undrawn amount of any letters of credit issued thereunder) so
incurred on any date, together with all other Indebtedness incurred
pursuant to this clause (iv) and outstanding on such date, shall not exceed
the greater of (x) $30,000,000 (Canadian) and (y) the sum of 85% of
Eligible Receivables of Broan Limited and the Canadian Subsidiaries which
are Restricted Subsidiaries plus 65% of Eligible Inventory of Broan Limited
and the Canadian Subsidiaries which are Restricted Subsidiaries (but
without duplication of any such Eligible Receivables or Eligible Inventory
of Broan Limited and the Canadian Subsidiaries used as a basis to incur
Indebtedness pursuant to clause (iii) above) and (2) such Indebtedness
shall be secured only by Liens on assets of Broan Limited and the Canadian
Subsidiaries which are Restricted Subsidiaries, and (b) the Company under
its limited guaranty of not more than $20,000,000 (Canadian) of the
Indebtedness of Broan Limited and the Canadian Subsidiaries which are
Restricted Subsidiaries under the Broan Limited Credit Facility;
(v) Indebtedness of Universal-Rundle Corporation for facility
expansion or improvement or joint venture investment purposes not exceeding
at any time $6,000,000 in aggregate outstanding principal amount and, if
secured, secured only by Liens on assets of Universal-Rundle Corporation or
the applicable joint venture;
(vi) Indebtedness of the Company to any of its Wholly-Owned
Subsidiaries that is a Restricted Subsidiary, provided that such
Indebtedness is contractually subordinated in right of payment to the
Notes, or Indebtedness of any Subsidiary of the Company that is a
Restricted Subsidiary to the Company or to any other Wholly-Owned
Subsidiary of the Company that is a Restricted Subsidiary, provided that
any such Indebtedness incurred by a Subsidiary Guarantor is contractually
subordinated in right of payment to its guarantee of the Notes; provided
further that if the Company or any of its Restricted Subsidiaries incurs
Indebtedness to a Wholly-Owned Subsidiary of the Company that is a
Restricted Subsidiary which, at any time after such incurrence, ceases to
be a Wholly-Owned Subsidiary or ceases to be a Restricted 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 or ceases
to be a Restricted Subsidiary;
(vii) Indebtedness of a Restricted Subsidiary under a guaranty of
Indebtedness of the Company (other than the Notes) which causes such
Restricted Subsidiary to become a Subsidiary Guarantor pursuant to the
provisions of the Limitation on Guaranties by Subsidiaries covenant;
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(viii) Indebtedness of the Company and its Restricted Subsidiaries
under Interest Rate Agreements, Currency Agreements and Commodity
Agreements, provided that (a) in the case of Interest Rate Agreements, such
Interest Rate Agreements relate to Indebtedness permitted to be incurred
under the Indenture and the notional principal amount of the obligations of
the Company and its Restricted 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 Restricted 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;
(ix) Indebtedness of the Company and its Restricted Subsidiaries
incurred in the ordinary course of business under guaranties of
Indebtedness of suppliers, licensees, franchisees or customers;
(x) Indebtedness incurred by the Company and its Restricted
Subsidiaries consisting of Purchase Money Obligations and Capital Lease
Obligations not exceeding at any time $30,000,000 in aggregate outstanding
principal amount;
(xi) Acquired Indebtedness incurred by a Restricted 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 of this
Limitation on Additional Indebtedness covenant, after giving pro forma
effect to the acquisition of such Restricted Subsidiary by the Company;
(xii) Indebtedness of any Restricted Subsidiary existing at the time
of the designation of such Subsidiary as a Restricted Subsidiary in
accordance with the terms of the Indenture if immediately prior to such
designation such Subsidiary was an Unrestricted Subsidiary, provided that,
after giving pro forma effect to such designation, such Indebtedness could
have been incurred by the Company under the limitations set forth in the
preceding paragraph of this Limitation on Additional Indebtedness covenant
(assuming for purposes of this clause (xii) only that the Consolidated Cash
Flow Coverage Ratio set forth in such paragraph were 2.25 to 1.0); and
provided further that, none of the Company or any of its other Restricted
Subsidiaries shall provide credit support of any kind (including any
undertaking, agreement or instrument that would constitute Indebtedness),
or otherwise be at any time, directly or indirectly liable (as a guarantor
or otherwise), for such existing Indebtedness, except to the extent the
Company or any of its Restricted Subsidiaries could become so liable in
accordance with the provisions of this Limitation on Additional
Indebtedness covenant (other than solely in accordance with clause (vi)
above or this clause (xii));
(xiii) Indebtedness of the Company and its Restricted Subsidiaries in
respect of performance bonds, bankers' acceptances, letters of credit,
short-term overdraft facilities and surety or appeal bonds incurred or
provided in the ordinary course of business;
(xiv) Indebtedness of (a) Nortek (UK) Limited and its Subsidiaries
arising out of advances on exports, advances on imports, advances on trade
receivables, factoring of receivables and similar transactions in the
ordinary course of business and, if secured, secured only by Liens on
assets of Nortek (UK) Limited and its Subsidiaries and (b) the Company
under its limited guaranty of not more than $10,000,000 of any such
Indebtedness of Nortek (UK) Limited and its Subsidiaries;
(xv) other Indebtedness of the Company and its Restricted Subsidiaries
not to exceed at any time $25,000,000 in aggregate outstanding principal
amount;
(xvi) Liens permitted under the Limitation on Liens covenant; and
(xvii) Indebtedness ("Refinancing Indebtedness") created, incurred,
issued, assumed or guaranteed in exchange for, or the proceeds of which are
used to extend, refinance, renew, replace, substitute or refund
("refinance"), Indebtedness described in the preceding paragraph or
referred to in clauses (i) through (xv) above; provided, however, that (a)
the principal amount of such Refinancing Indebtedness (or if such
Refinancing Indebtedness is issued at a price less than the principal
amount thereof, the original issue amount of such Refinancing
Indebtedness), together with the principal amount of any
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remaining Indebtedness under the agreement or instrument governing the
Indebtedness being refinanced, (1) in the case of Refinancing Indebtedness
incurred to refinance Indebtedness permitted to be incurred under any of
clauses (iii) through (v) and (xv) above, shall not, when added to all
other Indebtedness outstanding under such clause, 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 (vi) through
(xiv) above, shall not exceed the aggregate amount of such Indebtedness
outstanding at the time of such refinancing, in each case, after giving
effect to any mandatory reductions in principal or other repayments
required under the agreement or instrument governing such Indebtedness; (b)
such Refinancing Indebtedness shall be subordinated in right of payment to
the Notes or the Subsidiary Guaranties at least to the same extent as the
Indebtedness to be refinanced; (c) 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 Restricted 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.
For purposes of this Limitation on Additional Indebtedness covenant, the
accretion of original issue discount on Indebtedness shall not be deemed to be
an incurrence of Indebtedness.
The Company will not, directly or indirectly, incur any Indebtedness that
is expressly subordinated to any other Indebtedness of the Company or any
Restricted Subsidiary unless such Indebtedness is also expressly subordinated to
the Notes (and any Subsidiary Guaranty, as applicable) to the same extent and in
the same manner as such Indebtedness is subordinated to such other Indebtedness
of the Company or such Restricted Subsidiary.
Limitation on Sale or Issuance of Preferred Stock of Restricted
Subsidiaries. The Company shall not (i) permit any of its Restricted
Subsidiaries to issue or sell to any Person except the Company or a Wholly-Owned
Subsidiary of the Company that is a Restricted Subsidiary any preferred stock of
any Restricted Subsidiary, or (ii) sell or otherwise convey or dispose of, or
permit any of its Wholly-Owned Subsidiaries that is a Restricted Subsidiary to
sell or otherwise convey or dispose of, any such preferred stock so issued or
sold to the Company or any of its Wholly-Owned Subsidiaries that is a Restricted
Subsidiary (except to the issuer thereof, the Company or any of its other
Wholly-Owned Subsidiaries that is a Restricted Subsidiary).
Limitation on Liens. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, create, incur, assume or
suffer to exist any Lien on any Principal Property or on any shares of Capital
Stock of any Restricted Subsidiary of the Company held by the Company or any
other Restricted Subsidiary of the Company or on any Indebtedness owed by any
Restricted Subsidiary to the Company or any other Restricted Subsidiary of the
Company. The foregoing limitation does not apply to (i) Liens securing
obligations under the Notes, (ii) Liens securing obligations under the Company
Credit Facility or the Ply Gem Credit Facility (but such Liens shall not secure
Indebtedness in excess of the amount of Indebtedness then permitted to be
incurred under clause (iii) of the second paragraph of the Limitation on
Additional Indebtedness covenant plus the amount of any Indebtedness then
outstanding pursuant to such clause (iii)); (iii) other Liens existing on the
Closing Date; (iv) Liens with respect to the assets of a Restricted Subsidiary
granted by such Restricted Subsidiary to the Company or a Restricted Subsidiary
that is a Wholly-Owned Subsidiary of the Company to secure Indebtedness owing to
the Company or such Wholly-Owned Subsidiary by such Restricted Subsidiary; (v)
Liens permitted by clauses (iv), (v), (x) and (xiv) of the Limitation on
Additional Indebtedness covenant; (vi) Liens in respect of Indebtedness
permitted by clause (xiii) of the Limitation on Additional Indebtedness
covenant; (vii) Liens granted in connection with the extension, renewal or
refinancing, in whole or in part, of any Indebtedness under the Notes or
described in clause (iii) above; provided that (1) such new Indebtedness is
permitted to be incurred under the Limitation on Additional Indebtedness
covenant and (2) the amount of Indebtedness secured by such Lien is not
increased thereby; and provided, further, that the extension, renewal or
refinancing of Indebtedness of the Company may not be secured by Liens on assets
of any Restricted Subsidiary other than to the extent the Indebtedness being
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extended, renewed or refinanced was at any time previously secured by Liens on
assets of such Restricted Subsidiary; and (viii) Permitted Liens.
Limitation on Certain Restrictions Affecting Subsidiaries. The Company
shall not, and shall not permit any of its Restricted 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 Restricted 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 Restricted Subsidiaries, (ii) pay or repay any
Indebtedness owed to the Company or any of its Restricted Subsidiaries which
owns Equity Interests in such Restricted Subsidiary, (iii) make loans or
advances to the Company or any of its Restricted Subsidiaries which owns Equity
Interests in such Restricted Subsidiary, (iv) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries which owns Equity
Interests in such Restricted Subsidiary or (v) guarantee any Indebtedness of the
Company or any other Restricted Subsidiary of the Company except, in each case,
for such encumbrances or restrictions existing under or by reason of (a)
applicable law, (b) the Indenture, (c) customary nonassignment provisions of any
lease governing a leasehold interest of the Company or any of its Restricted
Subsidiaries, (d) any instrument governing Indebtedness of a Person acquired by
the Company or any of its Restricted Subsidiaries at the time of such
acquisition, which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person so acquired,
(e) agreements existing as of the issue date of the Notes, (f) the Company
Credit Facility, (g) the Ply Gem Credit Facility, (h) the Broan Limited Credit
Facility, (i) any other agreement pursuant to which any Restricted Subsidiary of
the Company incurs Indebtedness in accordance with the Limitation on Additional
Indebtedness covenant and (j) any agreement effecting a refinancing of
Indebtedness issued pursuant to any agreement or instrument referred to in
clause (d), (e), (f), (g), (h) or (i) 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 Restricted Subsidiary
of the Company to grant any Lien to the extent otherwise permitted in the
Indenture.
Repurchase upon Change of Control. See "-- Change of Control" above.
Limitation on Use of Proceeds from Asset Sales. The Company shall not, and
shall not permit any of its Restricted Subsidiaries to, directly or indirectly,
consummate any Asset Sale unless (i) the Company or such Restricted 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, and (ii) at least 75% of the consideration from such
Asset Sale is received in the form of cash, Cash Equivalents (together with
cash, "Cash Proceeds") or indebtedness for borrowed money of the Company or such
Restricted Subsidiary that is assumed by the transferee of any such assets or
any such indebtedness of any Restricted Subsidiary of the Company whose stock is
purchased by the transferee. Any Net Cash Proceeds (a) in excess of the amount
of cash applied by the Company or any Restricted Subsidiary of the Company
during the period beginning 12 months prior to the date of the Asset Sale (but
not prior to the issue date of the Notes) and ending 12 months after the date of
such Asset Sale to purchase any business that is, or any properties and assets
used primarily in, the same or a related business as those owned and operated by
the Company and its Subsidiaries as of the issue date of the Notes or at the
date of such Asset Sale and (b) not applied within 12 months after the date of
the Asset Sale to reduce Indebtedness of the Company (other than Indebtedness
which is subordinated by its terms to the Notes) or any Restricted Subsidiary
shall be deemed to be "Excess Proceeds." When the aggregate amount of Excess
Proceeds exceeds $15,000,000, the Company shall make an offer (the "Excess
Proceeds Offer") to apply the Excess Proceeds to purchase the Notes. The Excess
Proceeds Offer must be in cash in an amount equal to 100% of the principal
amount plus accrued and unpaid interest, if any, thereon and Liquidated Damages,
if any, to the date fixed for the closing of such offer, substantially in
accordance with the procedures for a Change of Control Offer described in the
Repurchase upon Change of Control covenant. To the extent that the aggregate
amount of Notes tendered pursuant to the Excess Proceeds Offer is less than the
Excess Proceeds, the Company may use the remaining Excess Proceeds for general
corporate purposes and such
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amounts shall no longer be deemed Excess Proceeds. If the aggregate principal
amount of Notes surrendered by Holders exceeds the amount of Excess Proceeds,
the Trustee shall select the Notes to be purchased on a pro rata basis, subject
to the limitation on the authorized denominations of the Notes.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws are applicable in connection with the repurchase of Notes
pursuant to an Excess Proceeds Offer.
Limitation on Transactions with Affiliates. Except as otherwise permitted
by the Indenture, neither the Company nor any of its Restricted 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 Restricted Subsidiaries, unless (i) such transaction or series of
transactions is in the best interests of the Company or such Restricted
Subsidiary based on all relevant facts and circumstances; (ii) such transaction
or series of transactions is fair to the Company or such Restricted Subsidiary
and on terms that are no less favorable to the Company or such Restricted
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 of the Company or any of its Restricted Subsidiaries; and (iii) (a)
with respect to a transaction or series of related transactions involving
aggregate payments in excess of $2,500,000, 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 complies 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 valuation firm
or, with respect to a transaction requiring the valuation of real property, a
nationally recognized real estate appraisal firm, that such transaction or
series of transactions is fair to the Company from a financial point of view.
Certain transactions subject to this covenant, such as the repurchase of Capital
Stock from, or an Investment in, an Affiliate of the Company or any of its
Restricted Subsidiaries may also be subject to the Limitation on Restricted
Payments covenant.
The foregoing limitation shall not apply to: (i) any payment of money or
issuance of securities by the Company or any Restricted 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; (ii) 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 Restricted
Subsidiaries and reimbursement of expenses related thereto; or (iii)
transactions between the Company and any Restricted Subsidiary of the Company,
or between one Restricted Subsidiary of the Company and another Restricted
Subsidiary of the Company, provided that not more than 20% of such Restricted
Subsidiary is owned by any Affiliate of the Company or any of Restricted
Subsidiaries (other than the Company or a Wholly-Owned Subsidiary of the
Company).
Limitation on Guaranties by Subsidiaries. The Company shall not permit any
Restricted 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 (excluding for this purpose, any Indebtedness deemed to arise
from a guarantee by the Company of Indebtedness of any Restricted Subsidiary of
the Company) or any Subsidiary Guarantor (other than the Notes), unless (a) such
liability is in respect of the Company Credit Facility or the Ply Gem Credit
Facility or (b) such Restricted Subsidiary is a Subsidiary Guarantor or
simultaneously executes and delivers (i) to the Company and the Trustee a
supplemental indenture to the Indenture providing for a Subsidiary Guaranty of
the Notes by such Restricted Subsidiary and any other Subsidiary Guarantors
having such terms as are set forth in an exhibit to the Indenture and (ii) to
the Trustee a Subsidiary Guaranty. Notwithstanding the foregoing, in the event
that a Subsidiary Guarantor is released from all obligations which pursuant to
the first sentence of this paragraph would obligate it to become a Subsidiary
Guarantor (if it was not already a Subsidiary Guarantor), such Subsidiary
Guarantor shall be automatically and unconditionally released from all
obligations under its Subsidiary Guaranty without any further action required on
the part of the Trustee or any Holder. In addition, (i) upon the designation of
any Subsidiary
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Guarantor as an Unrestricted Subsidiary in compliance with the terms of the
Indenture or (ii) upon any sale or disposition (by merger or otherwise) of any
Subsidiary Guarantor by the Company or a Restricted Subsidiary of the Company to
any Person that is not an Affiliate of the Company or any of its Restricted
Subsidiaries which is otherwise in compliance with the terms of the Indenture,
such Subsidiary Guarantor shall be automatically and unconditionally released
from all obligations under its Subsidiary Guaranty without any such further
action.
No Lien on the properties or assets of any Restricted Subsidiary of the
Company permitted by the Limitation on Liens covenant shall constitute a
guaranty of the payment of any Indebtedness of the Company for purposes of this
Limitation on Guaranties by Subsidiaries covenant.
The provisions of this Limitation on Guaranties by Subsidiaries covenant
shall cease to have further force and effect (and if there then exists any
Subsidiary Guarantor, such Subsidiary Guarantor will be deemed to be released
from all obligations under its Subsidiary Guaranty) at such time as the similar
covenant in the indenture governing the Company's 9 7/8% Notes and the
indenture governing the Company's 9 1/4% Notes shall cease to have further
force and effect (whether by reason of amendment, redemption or repayment of
such Indebtedness or otherwise), provided, however, that if the instrument or
other agreement governing any Indebtedness incurred to refinance the 9 7/8%
Notes or the 9 1/4% Notes includes such a similar covenant, the provisions of
this Limitation on Guaranties by Subsidiaries covenant shall continue in full
force and effect for so long as such similar covenant remains in force and
effect.
Payments for Consents. Neither the Company nor any of its Subsidiaries
shall, directly or indirectly, pay or cause to be paid any consideration whether
by way of interest, fee or otherwise, to any Holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Indenture or the Notes unless such consideration is offered to be paid or
agreed to be paid to all Holders of the Notes which so consent, waive or agree
to amend in the time frame set forth in solicitation documents relating to such
consent, waiver or agreement.
Rule 144A Information Requirement. The Company has agreed that, if it is
not subject to and in compliance with the informational requirements of Sections
13 or 15(d) of the Exchange Act at any time while the Notes constitute
"restricted securities" within the meaning of the Securities Act, it will
furnish to the holders or beneficial holders of the Notes and prospective
purchasers of the Notes designated by holders of the Notes, upon their request,
the information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act until such time as the Company either exchanges all of the Notes
for the Exchange Notes or has registered under the Securities Act and continues
to maintain a registration statement with respect to the resale of all of the
Notes pursuant to the Registration Rights Agreement.
Provision of Reports. The Indenture will provide that whether or not
required by the rules and regulations of the Commission, so long as any Notes
are outstanding, the Company will furnish to the Holders of Notes (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
were required to file such Forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" that describes the
financial condition and results of operations of the Company and its
Subsidiaries and, with respect to the annual information only, a report thereon
by the Company's independent certified public accountants and (ii) all reports
that would be required to be filed with the Commission on Form 8-K if the
Company were required to file such reports. In addition, whether or not required
by the rules and regulations of the Commission, the Company will file a copy of
all such information with the Commission for public availability (unless the
Commission will not accept such a filing) and make such information available to
investors or prospective investors who request it in writing.
MERGER, CONSOLIDATION OR TRANSFER OF ASSETS
The Company shall not consolidate with, merge with or into, or transfer all
or substantially all of its assets (as an entirety or substantially as an
entirety in one transaction or a series of related transactions) to, any Person
or permit any Person to merge with or into it, or permit any of its Subsidiaries
to enter into any such transaction or transactions if such transaction or
transactions in the aggregate would result in a transfer of all
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or substantially all of the assets of the Company and its Subsidiaries on a
consolidated basis, unless: (1) the Company shall be the continuing Person, or
the Person, if other than the Company, formed by such consolidation or into
which the Company is merged or to which the properties and assets of the Company
or of the Company and its Subsidiaries on a consolidated basis, substantially as
an entirety, are transferred shall be a corporation organized and existing under
the laws of the United States or any state thereof or the District of Columbia
and shall expressly assume, by an indenture supplemental to the Indenture,
executed and delivered to the Trustee, in form satisfactory to the Trustee, all
the obligations of the Company under the Notes and the Indenture, and the
Indenture remains in full force and effect; (2) immediately before and
immediately after giving effect to such transaction, no Event of Default and no
Default shall have occurred and be continuing; (3) the Person which is formed by
or survives such consolidation or merger or to which such assets are transferred
(the "surviving entity"), after giving pro forma effect to such transaction,
could incur $1.00 of additional Indebtedness under the first paragraph of the
Limitation on Additional Indebtedness covenant; (4) immediately after giving
effect to such transaction on a pro forma basis the Consolidated Net Worth of
the surviving entity shall be equal to or greater than the Consolidated Net
Worth of the Company immediately before such transaction; and (5) each
Subsidiary Guarantor, if any, unless it is the other party to the applicable
transaction described above or its Subsidiary Guaranty, after giving effect to
such transaction, is to be released in accordance with the terms hereof and of
such Subsidiary Guaranty, shall have confirmed by supplemental indenture that
its Subsidiary Guaranty shall apply to the obligations of the Company or the
surviving entity under the Indenture.
In connection with any such consolidation, merger or transfer, the Company
shall deliver, or cause to be delivered, to the Trustee, in form and substance
reasonably satisfactory to the Trustee, an Officers' Certificate and an opinion
of counsel, each stating that such consolidation, merger or transfer and the
supplemental indenture in respect thereto comply with the Indenture and that all
conditions precedent therein provided for relating to such transactions have
been complied with.
Upon any consolidation or merger, or any transfer of all or substantially
all of the assets of the Company and its Subsidiaries on a consolidated basis,
in accordance with the second preceding paragraph, the successor Person formed
by such consolidation or into which the Company is merged or the successor
Person to which such transfer is made shall succeed to, and be substituted for,
and may exercise every right and power of, the Company under the Indenture with
the same effect as if such successor Person had been named as the Company in the
Indenture, and when a successor Person assumes all the obligations of its
predecessor under the Indenture or the Notes, the predecessor shall be released
from those obligations; provided, however, that in the case of a transfer by
lease, the predecessor shall not be released from the payment of principal of,
premium, if any, interest and Liquidated Damages, if any, on the Notes.
With respect to the transfer of all or substantially all of the assets of
the Company or of the assets of the Company and its Subsidiaries on a
consolidated basis, there is no precise established definition of the term
"substantially all" under applicable law. Accordingly, if the Company were to
engage in transactions in which it disposed of less than all of its assets or
the Company or a Subsidiary of the Company were to engage in transactions in
which less than all of the assets of the Company and its Subsidiaries on a
consolidated basis were disposed of, a question could arise as to whether such
disposition was of "substantially all" of the assets of the Company or of the
Company and its Subsidiaries on a consolidated basis, as the case may be, and,
therefore, whether the transaction was subject to the foregoing provisions of
the Indenture.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an "Event of
Default": (1) the Company defaults in the payment, when due and payable, of (i)
interest on or Liquidated Damages, if any, with respect to any Note and the
default continues for a period of 30 days, or (ii) principal of or premium, if
any, on any Notes when the same becomes due and payable at maturity, by
acceleration, on the Redemption Date, on the Change of Control Payment Date, on
any payment date respecting an Excess Proceeds Offer or otherwise; (2) the
Company fails to comply with any of the provisions set forth under "Merger,
Consolidation or Transfer of Assets" above; (3) the Company fails to comply with
any of its covenants or agreements in the Notes or the Indenture (other than
those referred to in clause (1) or (2) above), or any Subsidiary Guarantor
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fails to comply with any of its covenants or agreements in the Indenture or its
Subsidiary Guaranty, and in either case 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 Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries), 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 $15,000,000 or more; (5) the Company or any
of its Significant Subsidiaries that is a Restricted Subsidiary (or any group of
Restricted Subsidiaries that, taken together, would constitute a Significant
Subsidiary) 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
Significant Subsidiaries that is a Restricted Subsidiary (or any group of
Restricted Subsidiaries that, taken together, would constitute a Significant
Subsidiary) in an involuntary case or proceeding; (B) appoints a custodian of
the Company or any of its Significant Subsidiaries that is a Restricted
Subsidiary (or any group of Restricted Subsidiaries that, taken together, would
constitute a Significant Subsidiary) for all or substantially all of its
properties; (C) orders the liquidation of the Company or any of its Significant
Subsidiaries that is a Restricted Subsidiary (or any group of Restricted
Subsidiaries that, taken together, would constitute a Significant Subsidiary)
and (D) remains unstayed and in effect for 60 days; (7) final judgments for the
payment of money which in the aggregate exceed $15,000,000 shall be rendered
against the Company or any of its Restricted Subsidiaries by a court and shall
remain unstayed or undischarged for a period of 60 days; or (8) any Subsidiary
Guaranty ceases to be in full force and effect or is declared null and void, or
any Subsidiary Guarantor denies that it has any further liability under any
Subsidiary Guaranty or gives notice to such effect (in each case other than by
reason of the termination of the Indenture or the release of such Subsidiary
Guaranty in accordance with the terms of the Indenture and such Subsidiary
Guaranty) and such condition shall have continued for the period and after
receipt by the Company of the notice specified below.
A Default under clause (3) or (8) above is not an Event of Default until
the Trustee notifies the Company, or the Holders of at least 25% in aggregate
principal amount of the Notes at the time outstanding notify the Company and the
Trustee, of the Default and the Company does not cure such Default within 30
days after receipt of such notice. Any such notice must specify the Default,
demand that it be remedied and state that such notice is a "Notice of Default."
In the case of any Event of Default (other than as a result of the failure
to comply with the Repurchase upon Change of Control covenant) occurring by
reason of any willful action (or inaction) taken (or not taken) by or on behalf
of the Company with the intention of avoiding payment of the premium which the
Company would have to pay if the Company then had elected to redeem the Notes,
an equivalent premium shall also become and be immediately due and payable to
the extent permitted by law, anything in the Indenture or in the Notes contained
to the contrary notwithstanding.
In the case of an Event of Default as a result of a failure to comply with
the Repurchase upon Change of Control covenant occurring by reason of any
willful action (or inaction) taken (or not taken) by or on behalf of the Company
with the intention of avoiding payment of the premium which the Company would
have to pay pursuant to the Repurchase upon Change of Control covenant, such
premium shall also become and be immediately due and payable at such time as the
principal and interest on the Notes become due and payable pursuant to the
acceleration provisions of the Indenture to the extent permitted by law,
anything in the Indenture or in the Notes contained to the contrary
notwithstanding.
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If any Event of Default (other than an Event of Default specified in clause
(5) or (6) above) occurs and is continuing, the Trustee or the Holders of at
least 25% of the principal amount of the Notes then outstanding, by written
notice to the Company (and to the Trustee if such notice is given by such
Holders), may, and such Trustee at the request of such Holders shall, declare
all unpaid principal of, premium, if any, and accrued interest on and Liquidated
Damages, if any, with respect to the Notes to be due and payable immediately. If
an Event of Default specified in clause (5) or (6) above occurs, all unpaid
principal of, premium, if any, and accrued interest on and Liquidated Damages,
if any, with respect to the Notes then outstanding shall ipso facto become and
be immediately due and payable without declaration or other act on the part of
the Trustee or any Holder. The Holders of at least a majority in principal
amount of the Notes then outstanding by written notice to the Trustee may
rescind an acceleration and its consequences (except an acceleration due to
default in payment of principal of, premium, if any, and accrued interest on and
Liquidated Damages, if any, with respect to, the Notes) if all existing Events
of Default have been cured or waived except non-payment of principal of,
premium, if any, and accrued interest on and Liquidated Damages, if any, with
respect to, the Notes that have become due solely because of the acceleration.
Subject to certain restrictions set forth in the Indenture, the Holders of at
least a majority in principal amount of the outstanding Notes by notice to the
Trustee may waive an existing Default or Event of Default and its consequences,
except a default in the payment of principal of, premium, if any, or interest
on, or Liquidated Damages, if any, with respect to any Note or a Default under a
provision which requires consent of all Holders to amend. When a Default or
Event of Default is waived, it is cured and ceases. A Holder of Notes may not
pursue any remedy with respect to the Indenture or the Notes unless: (i) the
Holder gives to the Trustee written notice that an Event of Default is
continuing; (ii) the Holders of at least 25% in aggregate principal amount of
any Notes outstanding make a written request to the Trustee to pursue the
remedy; (iii) such Holder or Holders offer to the Trustee reasonable indemnity
or security against any loss, liability or expense satisfactory to the Trustee;
(iv) the Trustee does not comply with the request within 30 days after receipt
of the request and the offer of indemnity or security; and (v) during such
30-day period the Holders of a majority in aggregate principal amount of the
outstanding Notes do not give the Trustee a direction which is inconsistent with
the request.
DISCHARGE OF THE INDENTURE AND THE NOTES
If, at any time prior to the Stated Maturity of the Notes or the date of
redemption of all outstanding Notes, the Company irrevocably deposits with the
Trustee money and/or direct non-callable obligations of, or non-callable
obligations guaranteed by, the United States of America for the payment of which
guarantee or obligation the full faith and credit of the United States is
pledged, maturing as to principal and interest in such amounts and at such times
as are sufficient, without consideration of any reinvestment of such interest,
to pay principal of, premium, if any, and accrued interest on and Liquidated
Damages, if any, with respect to, the outstanding Notes (other than replaced
Notes) to maturity or redemption, as the case may be, in accordance with the
terms of the Indenture and the Notes, the Indenture and each Subsidiary
Guaranty, if any, shall cease to be of further effect as to all outstanding
Notes (except, among other things, as to (i) remaining rights of registration of
transfer and substitution and exchange of the Notes, (ii) rights of Holders to
receive payment of principal of, premium, if any, and accrued interest on and
Liquidated Damages, if any, with respect to the Notes, and (iii) the rights,
obligation and immunities of the Trustee); provided, however, that the Company
will only be entitled to make such a deposit if the Company has delivered to the
Trustee, among other things, (x)(1) a ruling directed to the Trustee from the
Internal Revenue Service to the effect that the holders of the Notes 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 (2)
an opinion of counsel, reasonably satisfactory to the Trustee to the same effect
as clause (x)(1) above and (y) 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 above with respect to the
Notes.
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TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents, and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar is not required to transfer or
exchange any Note selected for redemption. Also, the Registrar is not required
to transfer or exchange any Note for a period of 15 days before a selection of
Notes is to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, with the written consent of the Holders of
at least a majority in aggregate principal amount of the Notes then outstanding,
the Company and the Trustee may amend the Indenture or the Notes, or may waive
compliance by the Company or any Subsidiary Guarantor with any provision of the
Indenture, the Notes or such Subsidiary Guarantor's Subsidiary Guaranty.
However, without the consent of each Holder affected, a waiver or an amendment
to the Indenture or the Notes may not: (i) reduce the percentage of principal
amount of the Notes whose Holders must consent to an amendment or waiver; (ii)
make any change to the Stated Maturity of the principal of, premium, if any, or
any interest on or Liquidated Damages, if any, with respect to, the Notes or any
Redemption Price thereof, or impair the right to institute suit for the
enforcement of any such payment or make any Note payable in money or securities
other than that stated in the Note; (iii) waive a default in the payment of the
principal of, premium, if any, or interest on, or Liquidated Damages, if any,
with respect to, any Note; (iv) make any change in the provisions of the
Repurchase upon Change of Control covenant or the Limitation on Use of Proceeds
of Asset Sales covenant; (v) release any Subsidiary Guarantor from any of its
obligations under its Subsidiary Guaranty or the Indenture other than in
compliance with the terms of the Indenture and such Subsidiary Guaranty; or (vi)
make any change in the amendment provisions of the Indenture.
Notwithstanding the foregoing, without the consent of any Holder, the
Company and the Trustee may amend or supplement the Indenture or the Notes (i)
to cure any ambiguity, defect or inconsistency; (ii) to comply with the
provisions described under "Merger, Consolidation or Transfer of Assets"; (iii)
to provide for uncertificated Notes in addition to or in place of certificated
Notes so long as such uncertificated Notes are in registered form for purposes
of the Internal Revenue Code of 1986, as amended; (iv) to make any other change
that does not adversely affect the rights of any Holder; (v) to comply with any
requirement of the Commission in connection with the qualification of the
Indenture under the Trust Indenture Act; or (vi) to add any Subsidiary of the
Company as a Subsidiary Guarantor.
CONCERNING THE TRUSTEE
State Street Bank and Trust Company is the Trustee under the Indenture and
has been appointed by the Company as Registrar and Paying Agent with respect to
the Notes.
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, or apply to the Commission for permission to
continue or resign.
The Holders of not less than a majority in principal amount of the then
outstanding Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur and be continuing (and shall not be cured), the Trustee will
be required, in the exercise of its power, to use the degree of care and skill
of a prudent person in the conduct of his own affairs. Subject to such
provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any Holders of Notes,
unless they shall have offered to the Trustee reasonable security or indemnity
satisfactory to it against any loss, liability or expense.
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CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means, with respect to any Person, Indebtedness of
such Person (i) assumed in connection with an acquisition of assets or
properties from such Person or (ii) existing at the time such Person becomes a
Restricted Subsidiary of any other Person provided such Person was not
immediately prior thereto an Unrestricted Subsidiary (in each case other than
any Indebtedness incurred in connection with, or in contemplation of, such
acquisition or such Person becoming such a Restricted 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
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.
"Allowable Subsidiary Loans" means Indebtedness of the Company to a
Restricted Subsidiary not to exceed the Net Cash Proceeds received by the
Company as a result of such Restricted Subsidiary becoming less than a
Wholly-Owned Subsidiary through the sale of Equity Interests in compliance with
the terms of the Indenture, provided that (i) all such Allowable Subsidiary
Loans are contractually subordinated in right of payments to the Notes and (ii)
the total amount of all Allowable Subsidiary Loans at any time outstanding does
not exceed $35,000,000.
"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,
issuance 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 (but if such Person is the Company or any Restricted Subsidiary, only if
such Subsidiary is a Restricted Subsidiary), 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. Notwithstanding anything to
the contrary in the foregoing provisions of this definition, the term "Asset
Sale", with respect to any Person, shall not include (i) the sale, lease or
other transfer or disposition of assets acquired and held for resale in the
ordinary course of business; (ii) the sale, lease or other transfer or
disposition of assets in accordance with the provisions described under "Merger,
Consolidation or Transfer of Assets"; (iii) the sale, lease or other transfer or
disposition of damaged, worn out or obsolete property in the ordinary course of
business or other property no longer necessary for the proper conduct of the
business of such Person or its Subsidiaries; (iv) the abandonment of assets or
properties which are no longer useful in the business of such Person or its
Subsidiaries and are not readily saleable; (v) the granting of any Lien
permitted under the Limitation on Liens covenant (and any foreclosure or other
sale under any such Lien, except to the extent there are surplus proceeds from
such foreclosure); (vi) any sale, lease, assignment or other disposition by such
Person or its Subsidiaries if such Person has outstanding senior debt securities
all of which are rated BBB- or higher by S&P and have not been placed on credit
watch by S&P for a possible downgrade or are rated Baa3 or higher by Moody's and
have not been placed on credit watch by Moody's for a possible downgrade; or
(vii) the sale or other transfer or disposition of receivables in connection
with an asset securitization transaction by such Person or its Subsidiaries.
"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
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payment date) of such debt security multiplied by the amount of such principal
payment by (ii) the sum of all such principal payments.
"Broan Limited Credit Facility" means a credit facility between Broan
Limited or any of the Canadian Subsidiaries, 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.
"Canadian Subsidiary" means any Subsidiary of Broan Limited and any
Subsidiary of the Company whose headquarters is located in Canada.
"Capital Lease Obligations" means, with respect to any Person, all
obligations under leases of property by such Person as lessee which would be
capitalized on a balance sheet of such Person prepared in accordance with GAAP,
and for purposes of the Indenture the amount of such obligations at any time
shall be the aggregate capitalized amount thereof at such time, as determined in
accordance with GAAP.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights or other equivalents (however designated) of
capital stock (including common or preferred stock), partnership interests or
any other participation right or other interest in the nature of an equity
interest in such Person.
"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, substantially all 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 and the Canadian Subsidiaries, (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 Restricted 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 (other than
the Ply Gem Credit Facility) between the Company or any of its Subsidiaries and
one or more banks or other institutional lenders, as the same may be amended,
extended, amended and restated, supplemented or otherwise modified or replaced
from time to time, specifically designated in each such credit facility as a
"Company Credit Facility." All Company Credit Facilities are referred to
collectively in the Indenture as the "Company Credit Facility."
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"Consolidated Amortization Expense" means, with respect to any Person for
any period, the amortization expense of such Person and its Subsidiaries (or if
such Person is the Company, the amortization expense of the Company and its
Restricted 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.
"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 Restricted Subsidiary of such Person if such Person is the Company and
directly or through a Subsidiary of such Person if such Person is not the
Company) of any company or business during such period or since the last day of
such period and (iv) the sale or other disposition of assets or properties
outside the ordinary course of business by such Person (directly or through a
Restricted Subsidiary of such Person if such Person is the Company and directly
or through a Subsidiary of such Person if such Person is not the Company) and
the actual application of the proceeds therefrom during such period or since the
last day of such period.
"Consolidated Depreciation Expense" means, with respect to any Person for
any period, the depreciation and depletion expense of such Person and its
Subsidiaries (or if such Person is the Company, the depreciation and depletion
expense of the Company and its Restricted 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 (or if such Person is the Company, the provision for such taxes of
the Company and its Restricted 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 (or if such Person is the Company, the interest expense of
the Company and its Restricted 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 any interest
income included in Consolidated Net Income for such period, but excluding any
deferred financing fees otherwise includible in Consolidated Interest Expense
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 (or if such Person is the Company, such interest expense paid,
accrued and/or scheduled to be paid or accrued by the Company and its Restricted
Subsidiaries) during such period as determined on a consolidated basis in
accordance with GAAP; and (iii) all cash dividends or other distributions
declared or paid on any Capital Stock (other than common stock or preferred
stock that is not Redeemable Stock or, with respect to the Company, Special
Common Stock) of such Person and its Subsidiaries (or if such Person is the
Company, all
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such dividends or other distributions declared or paid on any such Capital Stock
of the Company and its Restricted 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 (or if
such Person is the Company, the aggregate net income (or loss) of the Company
and its Restricted Subsidiaries) for such period, before discontinued
operations, extraordinary items and the cumulative effect of a change in
accounting principles, determined on a consolidated basis in accordance with
GAAP, provided that there shall also be excluded from Consolidated Net Income
(but only to the extent included in calculating such 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 (or if
such Person is the Company, any gains or losses realized upon the refinancing of
any Indebtedness of Company and its Restricted 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 Person that is not a Subsidiary of such
first Person (or that is not a Restricted Subsidiary if such first Person is the
Company) except to the extent of cash dividends or distributions paid to such
first Person by such other Person in such period; (viii) the net income (or
loss) of any Subsidiary of such first Person except to the extent of the
interest of such Person in such Subsidiary; (ix) the net income of any
Subsidiary of such Person (or if such Person is the Company, of any Restricted
Subsidiary) 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 (or such Restricted
Subsidiary, if applicable) to the extent of such restriction or limitation in
such period; (x) the net income of any Person acquired in a pooling transaction
for any period prior to the date of such acquisition; and (xi) the excess of (a)
the consolidated 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 awarded, pursuant to a plan or other
arrangement approved by the Board of Directors of the Company (or of a Reporting
Subsidiary, if applicable), to or for the benefit of any employee, officer or
director of the Company or any of its Subsidiaries or to or by any employee
stock ownership plan or similar trust for the benefit of any such employee,
officer or director, over (b) the amount of consolidated income tax benefit
recorded by the Company in connection with such consolidated 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, pension and other 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 Restricted 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 Restricted
Subsidiaries against fluctuations in currency values to or under which the
Company or any of its Restricted Subsidiaries is a party or a beneficiary on the
issue date of the Notes or becomes a party or a beneficiary thereafter.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series
of transactions in respect of which the Board of Directors of the Company is
required to deliver a Board Resolution under the Indenture, a member of such
Board of Directors who does not have any material direct or indirect financial
interest in or with respect to such transaction or series of transactions.
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"Eligible Inventory" means, with respect to any Person, the finished goods,
raw materials and work-in-process of such Person less any applicable reserves,
each of the foregoing determined on the FIFO method of accounting in accordance
with GAAP.
"Eligible Receivables" means, with respect to any Person, the trade
receivables of such Person less the allowance for doubtful accounts, each of the
foregoing determined in accordance with GAAP.
"Equity Interests" means Capital Stock, warrants, options or other rights
to acquire Capital Stock (but excluding any debt security which is convertible
into, or exchangeable for, Capital Stock).
"Exempt Person" means (i) Richard L. Bready, (ii) any Person which is an
Affiliate of Richard L. Bready, and (iii) any other Affiliate of such Person so
long as such Person is an Affiliate of Richard L. Bready.
"Existing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries, in existence on the issue date of the Notes, including
without limitation all Indebtedness outstanding under the Ply Gem Credit
Facility on such date.
"Existing Investments" means (i) Investments of the Company and its
Restricted Subsidiaries, in existence on the issue date of the Notes and (ii)
Investments to be made pursuant to commitments authorized by the Board of
Directors of the Company prior to the issue date of the Notes (a) in Ecological
Engineering Associates, L.P. in an amount not to exceed $3.0 million (including
such Investments made prior to the issue date of the Notes) and (b) in or
related to a joint venture involving Universal-Rundle Corporation in an amount
not to exceed $10.0 million.
"Fair Market Value" means, with respect to any asset, the price which could
be negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing buyer, neither of which is under pressure or
compulsion to complete the transaction; provided, however, that the Fair Market
Value of any asset or assets of the Company or any of its Subsidiaries shall be
determined by the Board of Directors of the Company or, if such subsidiary is a
Reporting Subsidiary, of such Reporting Subsidiary, acting in good faith, and
evidenced by a Board Resolution of the Company or such Reporting Subsidiary, as
the case may be, delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
from time to time; provided, however, that with respect to the obligations of
the Company described under "Certain Covenants" and "Merger, Consolidation or
Transfer of Assets" and the definitions used therein, GAAP shall be determined
on the basis of such principles as in effect on the issue date of the Notes.
"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
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pursuant to the Indenture, provided that if such Redeemable Stock is not then
permitted to be repurchased, the repurchase price shall be the book value of
such Redeemable Stock. The amount of Indebtedness of any Person at any date
shall be without duplication (y) the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability of any
such contingent obligations at such date and (z) in the case of Indebtedness of
others secured by a Lien to which the property or assets owned or held by such
Person is subject, the lesser of the Fair Market Value at such date of any
property or asset subject to a Lien securing the Indebtedness of others or the
amount of the Indebtedness secured. The amount of any Indebtedness issued at a
discount shall be equal to the gross proceeds of such issuance (and not the face
amount of any bond, note, debenture or similar instrument representing such
Indebtedness).
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, or other similar agreement or arrangement entered
into in the ordinary course of business and designed to protect the Company or
any of its Restricted Subsidiaries against fluctuations in interest rates to or
under which the Company or any of its Restricted 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).
"Liquidated Damages" means all liquidated damages then owing pursuant to
the Registration Rights Agreement.
"Net Cash Proceeds" means the aggregate Cash Proceeds received by the
Company or any of its Restricted 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.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; (ii) no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against an Unrestricted Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness of the Company or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its stated maturity;
and (iii) as to which the lenders have been notified in writing that they will
not have any recourse to the stock or assets of the Company or any of its
Restricted Subsidiaries.
"Notes" means any of the Company's 9 1/8% Senior Notes due September 1,
2007 issued under the Indenture.
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"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chief Executive Officer or President and the Chief Financial
Officer or chief accounting officer of such Person.
"Permitted Investments" means any of the following: (i) Cash Equivalents;
(ii) Existing Investments; (iii) Investments by the Company or a Restricted
Subsidiary of the Company in any Subsidiary of the Company that is a Restricted
Subsidiary or any other Person that concurrently with the making of such
Investment becomes a Subsidiary of the Company that is a Restricted Subsidiary;
(iv) guaranties by Restricted Subsidiaries of the Company permitted under the
Limitation on Additional Indebtedness covenant and the Limitation on Guaranties
by Subsidiaries covenant; (v) Indebtedness of the Company to any Restricted
Subsidiary of the Company, provided that such Indebtedness is contractually
subordinated in right of payment to the Notes; (vi) Investments by the Company
or any of its Restricted 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 and or any Canadian
Subsidiary 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 and any Canadian Subsidiaries that are Restricted Subsidiaries
does not exceed $15,000,000 at any one time outstanding; (viii) loans and
advances to officers and directors of the Company or any Restricted Subsidiary
of the Company made in the ordinary course of business or pursuant to any
employee benefit plan, up to $5,000,000 in the aggregate at any one time
outstanding; (ix) loans and advances to vendors, suppliers and contractors of
the Company or any Restricted Subsidiary of the Company and made in the ordinary
course of business; (x) the receipt by the Company or its Restricted
Subsidiaries of consideration other than Cash Proceeds in any Asset Sale made in
compliance with the terms of the Indenture; (xi) so long as no Default or Event
of Default shall have occurred and be continuing, other Investments made after
the issue date of the Notes not exceeding in the aggregate at any time
outstanding (A) $40,000,000, if at the time of the making of such Investment the
Notes are not rated BB+ or better by S&P or Bal or better by Moody's, or (B)
$50,000,000, if at the time of the making of such Investment the Notes are rated
BB+ or better by S&P or Bal or better by Moody's; (xii) any Lien permitted under
the Limitation on Liens covenant; and (xiii) Investments by Restricted
Subsidiaries of the Company not exceeding in the aggregate $10,000,000 at any
one time outstanding in Cash Equivalents described in clause (ii) of the
definition of such term in the Indenture, provided that for purposes of this
clause (xiii) an instrument referred to in such clause (ii) may be issued by any
commercial banking institution having capital and surplus of not less than
$100,000,000.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims that are not yet due or are being contested in good faith by
appropriate legal proceedings, provided that any reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made therefor; (ii) statutory Liens of landlords and carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen or other similar Liens arising in
the ordinary course of business and with respect to amounts not yet delinquent
or being contested in good faith by appropriate legal proceedings, provided that
any reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made therefor; (iii) Liens incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance or other types of social security; (iv)
Liens incurred or deposits made to secure the performance of tenders, bids,
leases, statutory or regulatory obligations, bankers' acceptances, surety and
appeal bonds, government contracts, performance and return-of-money bonds and
other obligations of a similar nature incurred in the ordinary course of
business (exclusive of obligations for the payment of borrowed money); (v)
easements, rights-of-way, municipal and zoning ordinances and similar charges,
encumbrances, title defects or other irregularities that do not materially
interfere with the ordinary course of business of the Company or any of its
Subsidiaries, taken as a whole; (vi) Liens securing Purchase Money Obligations
permitted to be incurred by the provisions of the Indenture; (vii) leases or
subleases or licenses or sublicenses granted to others in the ordinary course of
business of the Company or any of its Restricted
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Subsidiaries, taken as a whole; (viii) Liens encumbering property or assets
under construction arising from progress or partial payments by a customer of
the Company or any of its Restricted Subsidiaries relating to such property or
assets; (ix) any interest or title of a lessor in the property subject to any
Capital Lease Obligation; (x) Liens arising from filing Uniform Commercial Code
financing statements regarding leases; (xi) Liens on property of, or on shares
of stock or Indebtedness of, any corporation existing at the time such
corporation becomes, or becomes a part of, any Restricted Subsidiary; (xii)
Liens in favor of the Company or any Subsidiary; (xiii) Liens securing any real
property or other assets of the Company or any Restricted Subsidiary of the
Company in favor of the United States of America or any State, or any
department, agency, instrumentality or political subdivision thereof, in
connection with the financing of industrial revenue bond facilities or of any
equipment or other property designed primarily for the purpose of air or water
pollution control; provided that any such Lien on such facilities, equipment or
other property shall not apply to any other assets of the Company or such
Restricted Subsidiary of the Company; (xiv) Liens arising from the rendering of
a final judgment or order against the Company or any Restricted Subsidiary of
the Company that does not give rise to an Event of Default; (xv) Liens securing
reimbursement obligations with respect to letters of credit that encumber
documents and other property relating to such letters of credit and the products
and proceeds thereof; (xvi) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of customs duties in connection
with the importation of goods; (xvii) Liens encumbering customary initial
deposits and margin deposits, and other Liens that are either within the general
parameters customary in the industry and incurred in the ordinary course of
business or otherwise permitted under the terms of the Company Credit Facility,
in each case securing Indebtedness under Commodity Agreements, Interest Rate
Agreements and Currency Agreements; and (xviii) Liens arising out of conditional
sale, title retention, consignment or similar arrangements for the sale of goods
entered into by the Company or any of its Restricted Subsidiaries in the
ordinary course of business in accordance with the past practices of the Company
and its Restricted Subsidiaries prior to the Closing Date.
"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.
"Ply Gem Credit Facility" means one or more credit facilities between Ply
Gem or any of its Subsidiaries 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 "Ply Gem Credit Facility." All Ply
Gem Credit Facilities are referred to collectively in the Indenture as the "Ply
Gem Credit Facility."
"Principal Property" means any manufacturing or processing plant, warehouse
or other building used by the Company or any Restricted Subsidiary, other than a
plant, warehouse or other building that, in the good faith opinion of the Board
of Directors as reflected in a Board Resolution, is not of material importance
as of the date such Board Resolution is adopted to the businesses conducted by
the Company and its Subsidiaries, on a consolidated basis, or conducted by any
Significant Subsidiary of the Company.
"Purchase Money Obligations" means any Indebtedness of the Company or any
of its Restricted Subsidiaries incurred to finance the acquisition or
construction of any property or business (including Indebtedness incurred within
one year following such acquisition or construction), including Indebtedness of
a Person existing at the time such Person becomes a Restricted Subsidiary of the
Company or assumed by the Company or a Restricted Subsidiary of the Company in
connection with the acquisition of assets from such Person; provided, however,
that (i) any Lien on such Indebtedness shall not extend to any property other
than the property so acquired or constructed and (ii) at no time shall the
aggregate principal amount of outstanding Indebtedness secured thereby be
increased.
"Redeemable Stock" means any Equity Interest which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable before the Stated Maturity of the Notes), or upon the happening of
any event, matures or is mandatorily redeemable or is redeemable at the sole
option of the holder thereof, in whole or in part, prior to the Stated Maturity
of the Notes.
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"Restricted Subsidiary" means (i) any Subsidiary of the Company in
existence on the date of the Indenture, unless such Subsidiary shall have been
designated as an Unrestricted Subsidiary by resolution of the Board of Directors
of the Company as provided in and in compliance with the definition of
"Unrestricted Subsidiary", (ii) any Subsidiary of the Company (other than a
Subsidiary that is also a Subsidiary of an Unrestricted Subsidiary) organized or
acquired after the date of the Indenture, unless such Subsidiary shall have been
designated as an Unrestricted Subsidiary by resolution of the Board of Directors
of the Company as provided in and in compliance with the definition of
"Unrestricted Subsidiary" and (iii) any Unrestricted Subsidiary which is
designated as a Restricted Subsidiary by the Board of Directors of the Company;
provided that, immediately after giving effect to the designation referred to in
clause (iii), no Default or Event of Default shall have occurred and be
continuing and the Company could incur at least $1.00 of additional Indebtedness
under the first paragraph under the Limitation on Additional Indebtedness
covenant. The Company shall evidence any such designation to the Trustee by
promptly filing with the Trustee an Officers' Certificate certifying that such
designation has been made and stating that such designation complies with the
requirements of the immediately preceding sentence.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Rule 1-02 of Regulation S-X promulgated by the
Commission, as such regulation is in effect on the date of the Indenture.
"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.
"Subsidiary Guarantor" means, with respect to any Subsidiary Guaranty, the
issuer of such Subsidiary Guaranty, so long as such Subsidiary Guaranty remains
outstanding.
"Subsidiary Guaranty" means any guaranty of the Notes pursuant to a
supplemental indenture executed and delivered pursuant to the Limitation on
Guaranties by Subsidiaries covenant, including as the context may require either
or both of the guaranty of the Notes set forth as an exhibit to the Indenture
upon the execution and delivery by a Subsidiary Guarantor of such supplemental
indenture and any separate guaranty of the Notes or confirmation of guaranty
executed and delivered by such Subsidiary Guarantor pursuant to such
supplemental indenture.
"Trustee" means the party named as the "Trustee" in the first paragraph of
the Indenture until a successor replaces it pursuant to the applicable
provisions of the Indenture and, thereafter, shall mean such successor.
"Unrestricted Subsidiary" means, until such time as any of the following
shall be designated as a Restricted Subsidiary of the Company by the Board of
Directors of the Company as provided in and in compliance with the definition of
"Restricted Subsidiary," (i) any Subsidiary of the Company or of a Restricted
Subsidiary organized or acquired after the date of the Indenture that is
designated concurrently with its organization or acquisition as an Unrestricted
Subsidiary by resolution of the Board of Directors of the Company, (ii) any
Subsidiary of any Unrestricted Subsidiary, and (iii) any Restricted Subsidiary
of the Company that is designated as an Unrestricted Subsidiary by resolution of
the Board of Directors of the Company, provided that, (a) immediately after
giving effect to such designation, no Default or Event of Default shall have
occurred and be continuing, (b) any such designation shall be deemed the making
of a Restricted Payment at the time of such designation in an amount equal to
the Fair Market Value of the Investment in such Subsidiary and shall be subject
to the restrictions contained in the "Limitation on
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Restricted Payments" covenant, and (c) such Subsidiary or any of its
Subsidiaries does not own any Capital Stock or Indebtedness of, or own or hold
any Lien on any property of, the Company or any other Restricted Subsidiary of
the Company that is not a Subsidiary of the Subsidiary to be so designated. A
Person may be designated as an Unrestricted Subsidiary only if and for so long
as such Person (i) has no Indebtedness other than Non-Recourse Debt; (ii) is a
Person with respect to which neither the Company nor any of its Restricted
Subsidiaries has any direct or indirect obligation (a) to subscribe for
additional Equity Interests or (b) to make any payment to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results, except to the extent any such direct or
indirect obligation would then be permitted in accordance with the Limitation on
Restricted Payments covenant; and (iii) has not guaranteed or otherwise directly
or indirectly provided credit support for any Indebtedness of the Company or any
of its Restricted Subsidiaries. The Company shall evidence any designation
pursuant to clause (i) or (iii) of the first sentence hereof to the Trustee by
filing with the Trustee within 45 days of such designation an Officers'
Certificate certifying that such designation has been made and that such
designation complies with the requirements of the Indenture and all conditions
thereto have been satisfied.
"Wholly-Owned Subsidiary" of any Person means any Subsidiary of such Person
to the extent the entire voting share capital of such Subsidiary (other than
directors' qualifying shares) is owned by such Person (either directly or
indirectly through Wholly-Owned Subsidiaries).
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the Exchange Notes will
initially be issued in the form of one or more Global Notes (the "Global
Notes"). The Global Notes will be deposited with, or on behalf of, the
Depositary and registered in the name of Cede & Co., as nominee of the
Depositary or will remain in the custody of the Trustee pursuant to the FAST
Balance Certificate Agreement between the Depositary and the Trustee (such
nominee or the Trustee, in such capacity being referred to herein as the "Global
Note Holder").
Exchange Notes that are issued as described below under "-- Certificated
Securities" will be issued in registered form (the "Certificated Securities").
Upon the transfer of Certificated Securities, such Certificated Securities may,
unless the Global Notes have previously been exchanged for Certificated
Securities, be exchanged for an interest in a Global Note representing the
principal amount of Notes being transferred.
The Depositary is a limited-purpose trust company which was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants, thereby
eliminating the need for physical transfer and delivery of certificates. The
Depositary's Participants include securities brokers and dealers (including the
Initial Purchasers), banks and trust companies, clearing corporations and
certain other organizations. Access to the Depositary's system is also available
to other entities such as banks, brokers, dealers and trust companies
(collectively, the "Indirect Participants" or the "Depositary's Indirect
Participants") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. Persons who are not Participants may
beneficially own securities held by or on behalf of the Depositary only through
the Depositary's Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Notes with the Global Note Holder, the
Depositary will credit the accounts of Participants designated by the Initial
Purchasers with portions of the principal amount of the Global Notes and (ii)
ownership of the Exchange Notes evidenced by the Global Notes will be shown on,
and the transfer of ownership thereof will be effected only through, records
maintained by the Depositary (with respect to the interests of the Depositary's
Participants), the Depositary's Participants and the Depositary's Indirect
Participants.
So long as the Global Note Holder is the registered owner of any Exchange
Notes, the Global Note Holder will be considered the sole owner or holder of
such Notes outstanding under the Indenture. Beneficial
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owners of Notes evidenced by the Global Note will not be entitled to receive
physical delivery of Certified Securities, and will not be considered the owners
or Holders thereof under the Indenture for any purpose, including with respect
to the giving of any directions, instructions or approvals to the Trustee
thereunder. The ability of a person having a beneficial interest in Exchange
Notes represented by a Global Note to pledge such interest to Persons or
entities that do not participate in the Depositary's system or to otherwise take
actions in respect of such interest may be affected by the lack of physical
certificates evidencing such interest.
Accordingly, each holder owning a beneficial interest in a Global Note must
rely on the procedures of the Depository and, if such holder is not a
Participant or an Indirect Participant, on the procedures of the Participant
through which such holder owns its interest, to exercise any rights of a Holder
of Notes under the Indenture or such Global Note. The Company understands that
under existing industry practice, in the event the Company requests any action
of Holders of Notes or a Holder that is an owner of a beneficial interest in a
Global Note desires to take any action that the Global Note Holder as the Holder
of such Global Note, is entitled to take, the Depositor would authorize the
Participants to take such action and the Participant would authorize Holders
owning through such Participants to take such action or would otherwise act upon
the instruction of such Holders. Neither the Company nor the Trustee will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of Notes by the Depositary, or for maintaining,
supervising or reviewing any records of the Depositary relating to such Notes.
Payments in respect of the principal of, and premium, if any, with respect
to, any Notes registered in the name of a Global Note Holder on the applicable
record date will be payable by the Trustee to or at the direction of such Global
Note Holder in its capacity as the registered holder under the Indenture. Under
the terms of the Indenture, the Company and the Trustee may treat the Persons in
whose names the Notes, including the Global Notes, are registered as the owners
thereof for the purpose of receiving such payments and for any and all other
purposes whatsoever. Consequently, neither the Company nor the Trustee has or
will have any responsibility or liability for the payment of such amounts to
beneficial owners of Notes (including principal, premium, if any, and interest).
The Company believes, however, that it is currently the policy of the
Depositary to immediately credit the accounts of the relevant Participants with
such payment, in amounts proportionate to their respective holdings in principal
amount of beneficial interests in the relevant security as shown on the records
of the Depositary. Payments by the Depositary's Participants and the
Depositary's Indirect Participants to the beneficial owners of Exchange Notes
will be governed by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants or the Depositary's Indirect
Participants.
CERTIFICATED SECURITIES
Subject to certain conditions, any Person having a beneficial interest in a
Global Note may, upon request to the Company or the Trustee, exchange such
beneficial interest for Exchange Notes in the form of Certificated Securities.
Upon any such issuance, the Trustee is required to register such Exchange Notes
in the name of, and cause the same to be delivered to, such Person or Persons.
In addition, if (i) the Company notifies the Trustee in writing that the
Depositary is no longer willing or able to act as a depositary and the Company
is unable to appoint a qualified successor within 90 days or (ii) the Company,
at its option, notifies the Trustee in writing that it elects to cause the
issuance of Notes in the form of Certificated Securities under the Indenture,
then, upon surrender by the relevant Global Note Holder of its Global Note,
Exchange Notes in such form will be issued to each Person that the Depositary
identifies as the beneficial owner of the related Exchange Notes.
Neither the Company nor the Trustee shall be liable for any delay by the
Depositary in identifying the beneficial owners of the related Exchange Notes
and each such Person may conclusively rely on, and shall be protected in relying
on, instructions from the Depositary for all purposes (including with respect to
the registration and delivery, and the respective principal amounts, of the
Exchange Notes to be issued).
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SAME-DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Exchange Notes
(including principal, premium, if any and interest) be made by wire transfer of
immediately available funds to the accounts specified by the Global Note Holder.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing-house or next-day funds. In contrast, the Notes
have been designated as eligible for trading in the PORTAL market and are
expected to trade in the Depositary's Next-Day Funds Settlement System, and any
permitted secondary market trading activity in the Notes will therefore be
required by the Depositary to be settled in immediately available funds. The
Company expects that secondary trading in the Certificated Notes also will be
settled in immediately available funds.
THE EXCHANGE OFFER
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company and the Initial Purchasers entered into the Registration Rights
Agreement on August 26, 1997 (the "Closing Date"). Pursuant to the Registration
Rights Agreement, the Company agreed to use its best efforts to cause to be
filed with the Commission the Exchange Offer Registration Statement, of which
this Prospectus forms a part, on the appropriate form under the Securities Act
with respect to an offer to exchange the Original Notes for Exchange Notes. In
the event that (i) the Company is not permitted to commence or accept tenders
pursuant to the Exchange Offer because the Exchange Offer is not permitted by
applicable law or Commission policy, (ii) any Holder of Transfer Restricted
Securities notifies the Company within 20 business days after the consummation
of the Exchange Offer that (a) it is prohibited by law or Commission policy from
participating in the Exchange Offer or (b) that it may not resell the Exchange
Notes acquired by it in the Exchange Offer to the public without delivering a
prospectus and the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales or (c) that it is a
broker-dealer and owns Original Notes acquired directly from the Company or an
Affiliate of the Company, or (iii) the Exchange Offer is not for any other
reason consummated within 180 days of the Closing Date, the Company will file
with the Commission a shelf registration statement to cover resales of the Notes
by the Holders thereof who satisfy certain conditions relating to the provision
of information in connection with such registration statement (the "Shelf
Registration Statement"). The Company will use its best efforts to cause the
applicable registration statement to be declared effective as promptly as
possible by the Commission. The Company will keep the Exchange Offer open for
not less than 30 days (or longer, if required by applicable law) after the date
notice of the Exchange Offer is mailed to the holders of the Notes. For purposes
of the foregoing, "Transfer Restricted Securities" means each Original Note
until (i) the date on which such Original Note has been exchanged by a Person
other than a broker-dealer for an Exchange Note in the Exchange Offer, (ii)
following the exchange by a broker-dealer in the Exchange Offer of a Note for an
Exchange Note, the date on which such Exchange Note is sold to a purchaser who
receives from such broker-dealer on or prior to the date of such sale a copy of
the prospectus contained in the Exchange Offer Registration Statement, (iii) the
date on which such Original Note has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement or (iv) the date on which such Note is distributed to the public
pursuant to Rule 144 under the Securities Act.
This Prospectus covers the offer and sale of the Exchange Notes pursuant to
the Exchange Offer made hereby and the resale of the Exchange Notes received in
the Exchange Offer by any Participating Broker-Dealer who holds Original Notes
(other than Original Notes acquired directly from the Company or one of its
affiliates).
Under existing interpretations by the staff of the Commission, the Exchange
Notes would, in general, be freely transferable after the Exchange Offer without
further registration under the Securities Act; provided, that broker-dealers
receiving Exchange Notes in the Exchange Offer will have a prospectus delivery
requirement with respect to the resales of Exchange Notes. The Commission has
taken the position that such broker-dealers may fulfill their prospectus
delivery requirements with respect to the Exchange Notes (other than a resale of
an unsold allotment from the original sale of Original Notes) with the
prospectus contained in the Exchange Offer Registration Statement. The Company
has agreed, for a period of 180 days, to make
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this Prospectus or any supplement or amendment to this Prospectus available to
any Participating Broker-Dealer for use in connection with any resale of any
Exchange Notes acquired.
All resales must be made in compliance with applicable state securities or
blue sky laws. Such compliance may require that resales be made by or through a
licensed broker-dealer. The Company assumes no responsibility with regard to
compliance with such requirements.
Each Holder (other than certain specified holders) who wishes to exchange
such Original Notes for Exchange Notes in the Exchange Offer will be required to
make certain representations, including representations that (i) any Exchange
Notes to be received by it will be acquired in the ordinary course of its
business, (ii) at the time of the commencement of the Exchange Offer, it had no
arrangement with any Person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes and (iii) is not an
"affiliate," as defined in Rule 405 of the Securities Act, of the Company.
The Registration Rights Agreement provides that, to the extent not
prohibited by any applicable law or applicable interpretation of the staff of
the Commission, (i) the Company will use its best efforts to cause to be filed
with the Commission an Exchange Offer Registration Statement on or prior to 60
days after the Closing Date, (ii) the Company will use its best efforts to have
such Exchange Offer Registration Statement declared effective under the
Securities Act by the Commission on or prior to 135 days after the Closing Date,
(iii) the Company will use its best efforts to cause the Exchange Offer to be
consummated on or prior to 45 days after the date on which the Exchange Offer
Registration Statement was declared effective under the Securities Act by the
Commission and (iv) if obligated to cause to be filed with the Commission the
Shelf Registration Statement, the Company will cause to be filed with the
Commission a Shelf Registration Statement on or prior to 45 days after such
filing obligation arises and use its best efforts to cause the Shelf
Registration Statement to be declared effective by the Commission on or prior to
90 days after such obligation arises. The Company shall use its reasonable best
efforts to keep such Shelf Registration Statement continuously effective,
supplemented and amended until the second anniversary of the Closing Date or
such shorter period that will terminate when all the securities covered by the
Shelf Registration Statement have been sold pursuant to the Shelf Registration
Statement. If (a) the Company fails to file any Registration Statement required
by the Registration Rights Agreement on or prior to the date specified for such
filing, (b) any such Registration Statement is not declared effective by the
Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"), (c) the Company fails to consummate the Exchange
Offer on or prior to 45 days after the Effectiveness Target Date with respect to
the Exchange Offer Registration Statement, or (d) the Shelf Registration
Statement or the Exchange Offer Registration Statement is declared effective but
thereafter ceases to be effective or usable during the periods specified in the
Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a "Registration Default"), then the Company will be required
to pay Liquidated Damages in an amount equal to $.05 per week per $1,000
principal amount held by such Holder to each Holder affected by such
Registration Default on each interest payment date. For any portion of a week
that the Registration Default continues such Liquidated Damages shall be
calculated on a pro-rata basis. The amount of Liquidated Damages will increase
by an additional $.05 per week per $1,000 principal amount of Notes with respect
to each subsequent 90-day period until all Registration Defaults have been
cured, up to a maximum amount of Liquidated Damages of $.25 per week per $1,000
principal amount of Notes.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is filed as an exhibit to this Exchange Offer
Registration Statement. See "Available Information."
Except as set forth above, after consummation of the Exchange Offer,
Holders of Original Notes have no registration or exchange rights under the
Registration Rights Agreement. See "-- Consequences of Failure to Exchange," and
"-- Resales of Exchange Notes; Plan of Distribution."
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CONSEQUENCES OF FAILURE TO EXCHANGE
The Original Notes which are not exchanged for Exchange Notes pursuant to
an Exchange Offer and are not included in a resale prospectus will remain
restricted securities. Accordingly, such Original Notes may be offered, sold or
otherwise transferred prior to the date which is two years after the later of
the date of original issue and the last date that the Company or any affiliate
of the Company was the owner of such securities (or any predecessor thereto)
(the "Resale Restriction Termination Date") only (a) to the Company (b) pursuant
to a registration statement which has been declared effective under the
Securities Act, (c) for so long as the Original Notes are eligible for resale
pursuant to Rule 144A, to a person the owner reasonably believes is a qualified
institutional buyer that purchases for its own account or for the account of a
qualified institutional buyer to whom notice is given that the transfer is being
made in reliance on Rule 144A, (d) to an "accredited investor" within the
meaning of subparagraph (1), (2), (3) or (7) of paragraph (a) of Rule 501 under
the Securities Act that is purchasing for his own account or for the account of
such an "accredited investor" in each case in a minimum of Original Notes with a
purchase price of $100,000 or (e) pursuant to any other available exemption from
the registration requirements of the Securities Act, subject in each of the
foregoing cases to any requirement of law that the disposition of its property
or the property of such investor account or accounts be at all times within its
or their control. The foregoing restrictions on resale will not apply subsequent
to the Resale Restriction Termination Date. If any resale or other transfer of
the Original Notes is proposed to be made pursuant to clause (d) above prior to
the Resale Restriction Termination Date, the transferor shall deliver a letter
from the transferee to the Company and the Trustee, which shall provide, among
other things, that the transferee is an "accredited investor" within the meaning
of subparagraph (1), (2), (3) or (7) of paragraph (a) of Rule 501 under the
Securities Act and that it is acquiring such Securities for investment purposes
and not for distribution in violation of the Securities Act. Prior to any offer,
sale or other transfer of Original Notes prior to the Resale Restriction
Termination Date pursuant to clauses (d) or (e) above, the issuer and the
Trustee may require the delivery of an opinion of counsel, certifications and/or
other information satisfactory to each of them.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept all
Original Notes properly tendered and not withdrawn prior to the applicable
Expiration Date. The Company will issue $1,000 principal amount of Exchange
Notes in exchange for each $1,000 principal amount of outstanding Original Notes
accepted in the Exchange Offer. Holders may tender some or all of their Original
Notes pursuant to the Exchange Offer. However, Original Notes may be tendered
only in integral multiples of $1,000 principal amount at final maturity.
The forms and terms of the Exchange Notes are the same as the form and
terms of the Original Notes, except that (i) the Exchange Notes bear a Series B
designation, (ii) the Exchange Notes have been registered under the Securities
Act and therefore will generally not bear legends restricting their transfer
(except as may be required under state securities laws) pursuant to the
Securities Act, and (iii) the Exchange Notes will not provide for the payment of
Liquidated Damages (except in certain limited circumstances set forth in the
Registration Rights Agreement). The Exchange Notes will evidence the same debt
as the Original Notes (which they replace), and will be issued under, and be
entitled to the benefits of, the Indenture.
Solely for reasons of administration (and for no other purpose) the Company
has fixed the close of business on October 15, 1997 as the record date for the
Exchange Offer for purpose of determining the persons to whom this Prospectus
and the Letter of Transmittal will be mailed initially. Only a registered Holder
of Original Notes (or such Holder's legal representative or attorney-in-fact) as
reflected on the records of the trustee under the governing indenture may
participate in the Exchange Offer. There will be no fixed record date for
determining registered Holders of the Original Notes entitled to participate in
the relevant Exchange Offer.
Holders of the Original Notes do not have any appraisal or dissenters'
rights under the General Corporation Law of Delaware or under the Indenture in
connection with the Exchange Offer. The Company
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intends to conduct the Exchange Offer in accordance with the applicable
requirements of the Exchange Act and the rules and regulations of the Commission
thereunder.
The Company shall be deemed to have accepted validly tendered Original
Notes when, as and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
Holders of Original Notes for the purpose of receiving Exchange Notes.
If any tendered Original Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Original Notes will be returned,
without expenses, to the tendering Holder, thereof, as promptly as practicable
after the Expiration Date.
Holders of Original Notes who tender in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of
Original Notes pursuant to the Exchange Offer. The Company will pay all charges
and expenses, other than certain applicable taxes, in connection with the
Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATES; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m. New York City time on
November 18, 1997 unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date to which the Exchange Offer is extended.
In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by oral or written notice and will make a public
announcement thereof, prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.
The Company reserves the right in its sole discretion (i) to delay
acceptance of any Original Notes, (ii) to extend the Exchange Offer (iii) if the
condition set forth below under "-- Conditions of the Exchange Offer" shall not
have been satisfied, to terminate the Exchange Offer by giving oral or written
notice of such delay, extension or termination to the Exchange Agent, or (iv) to
amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by a public announcement thereof. If the Exchange Offer is amended
in a manner determined by the Company to constitute a material change, the
Company will promptly disclose such amendment by means of a prospectus
supplement that will be distributed to the registered holders of the Original
Notes and the Exchange Offer will be extended for a period of five to ten
business days, as required by law, depending upon the significance of the
amendment and the manner of disclosure to the registered holders, if the
Exchange Offer would otherwise expire during such five to ten business day
period.
Without limiting the manner in which the Company may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the Exchange Offer, the Company shall have no obligation to publish, advertise,
or otherwise communicate any such public announcement, other than by making a
timely release to the Dow Jones News Service.
PROCEDURES FOR TENDERING
Only a registered Holder of Original Notes may tender such Original Notes
in the Exchange Offer. To tender in the Exchange Offer, a Holder must complete,
sign and date the Letter of Transmittal, have the signatures thereon guaranteed
if required by the Letter of Transmittal, and mail or otherwise deliver such
Letter of Transmittal, or (in the case of a book-entry transfer) transmit an
Agent's Message in lieu of the Letter of Transmittal, to the Exchange Agent at
the address set forth below prior to 5:00 p.m., New York City time, on the
Expiration Date. In addition, either (i) certificates for such Original Notes
must be received by the Exchange Agent along with the Letter of Transmittal, or
(ii) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Original Notes, if such procedure is available, into the
Exchange Agent's account at The Depository Trust Company (the "Book-Entry
Transfer Facility") pursuant to the procedure for book-entry transfer described
below, including an Agent's Message, must be received by
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the Exchange Agent prior to the applicable Expiration Date, or (iii) the Holder
must comply with the guaranteed delivery procedures described below. To be
tendered effectively, the Letter of Transmittal , or Agent's Message in lieu
thereof, and all other required documents must be received by the Exchange Agent
at the address set forth below under "-- Exchange Agent" prior to the applicable
Expiration Date.
The term "Agent's Message" means a message transmitted by DTC to and
received by the Exchange Agent and forming part of the book-entry confirmation,
which states that DTC has received an express acknowledgement from the tendering
Holder, which acknowledgement states that such Holder has received and agrees to
be bound by the Letter of Transmittal and that The Company may enforce the
Letter of Transmittal against such Holder. The term "book-entry confirmation"
means a timely confirmation of book-entry transfer of Original Notes to the
Exchange Agent's account at DTC.
The tender by a Holder of Original Notes will constitute an agreement
between such holder and the Company in accordance with the terms and subject to
the conditions set forth herein and in the Letter of Transmittal.
THE METHOD OF DELIVERY OF THE ORIGINAL NOTES AND THE APPLICABLE LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE
ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED
THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
APPLICABLE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR ORIGINAL NOTES SHOULD BE
SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
Any beneficial owner whose Original Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered Holder to tender on his behalf. If such beneficial owner wishes to
tender on his own behalf, such beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering his Original Notes, either
make appropriate arrangements to register ownership of the Original Notes in
such owner's name or obtain a properly completed bond power from the registered
holder. The transfer of record ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined) unless
the Original Notes tendered pursuant thereto are tendered (i) by a registered
owner who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantee must be by a participant in a recognized signature
guarantee medallion program within the meaning of Rule 17Ad-15 under the
Exchange Act (an "Eligible Institution").
If a Letter of Transmittal is signed by a person other than the registered
owner of any Original Notes listed therein, such Original Notes must be endorsed
or accompanied by properly completed bond powers, signed by such registered
owner as such registered owner's name appears on the Original Notes, with
signature guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Original Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and evidence
satisfactory to the Company, as applicable, of their authority to so act must be
submitted with the Letter of Transmittal designated for such Original Notes.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Original Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Original Notes not
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properly tendered or any Original Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the absolute right to waive any defects, irregularities or conditions
of tender as to particular Original Notes. The Company's interpretation of the
terms and conditions of the Exchange Offer (including the instructions in the
Letter of Transmittal) will be final and binding on all parties. Unless waived,
any defects or irregularities in connection with tenders of Original Notes must
be cured within such time as the Company shall determine. Neither the Company,
the Exchange Agent nor any other person shall be under any duty to give
notification of defects or irregularities with respect to tenders of Original
Notes nor shall any of them incur any liability for failure to give such
notification. Tenders of Original Notes will not be deemed to have been made
until such irregularities have been cured or waived. Any Original Notes received
by the Exchange Agent that are not properly tendered and as to which the defects
or irregularities have not been cured or waived will be returned without cost by
the Exchange Agent to the tendering holder of such Original Notes (or, in the
case of Original Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described below, such unaccepted or non-exchanged Original Notes will
be credited to an account maintained with such Book-Entry Transfer Facility),
unless otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
By tendering Original Notes in the Exchange Offer, each registered Holder
will represent to the issuer of such Original Notes that, among other things,
(i) the Exchange Notes to be acquired by the Holder and any beneficial owner(s)
of such Original Notes ("Beneficial Owner(s)") in connection with the Exchange
Offer are being acquired by the Holder and any Beneficial Owner(s) in the
ordinary course of business of the Holder and any Beneficial Owner(s), (ii) the
Holder and each Beneficial Owner are not participating, do not intend to
participate, and have no arrangement or understanding with any person to
participate, in a distribution of the Exchange Notes, (iii) the Holder and each
Beneficial Owner acknowledge and agree that (x) any person participating in an
Exchange Offer for the purpose of distributing the Exchange Notes must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction with respect to the Exchange
Notes acquired by such person and cannot rely on the position of the Staff of
the Commission set forth in no-action letters that are discussed herein under
"-- Resales of the Exchange Notes", and (y) any Participating Broker-Dealer that
receives Exchange Notes for its own account in exchange for Original Notes
pursuant to an Exchange Offer must deliver a prospectus in connection with any
resale of such Exchange Notes, but by so acknowledging, the holder shall not be
deemed to admit that, by delivering a prospectus, it is an "underwriter" within
the meaning of the Securities Act, (iv) neither the holder nor any Beneficial
Owner is an "affiliate," as defined under Rule 405 of the Securities Act, of the
Company except as otherwise disclosed to the Company in writing, and (v) the
Holder and each Beneficial Owner understands that a secondary resale transaction
described in clause (iii) above should be covered by an effective registration
statement containing the selling securityholder information required by Item 507
of Regulation S-K of the Commission.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Original Notes at the Book-Entry Transfer Facility, for purposes of the
Exchange Offer, within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Original Notes by causing the
Book-Entry Transfer Facility to transfer such Original Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Original Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the applicable Letter of Transmittal, with any
required signature guarantees and any other documents, or an Agent's Message in
lieu of the Letter of Transmittal must be transmitted to and received by the
Exchange Agent at the address set forth below under "-- Exchange Agent" on or
prior to the applicable Expiration Date or the guaranteed delivery procedures
described below must be complied with.
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GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Original Notes and (i) whose Original
Notes are not immediately available, or (ii) who cannot deliver their Original
Notes, the Letter of Transmittal or any other required documents to the Exchange
Agent prior to the applicable Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the applicable Expiration Date, the Exchange Agent
receives from such Eligible Institution a properly completed and duly
executed Notice of Guaranteed Delivery (by facsimile transmission, mail or
hand delivery) setting forth the name and address of the Holder of the
Original Notes, the certificate number or numbers of such Original Notes
and the principal amount of Original Notes tendered, stating that the
tender is being made thereby, and guaranteeing that, within five business
days after the applicable Expiration Date, the applicable Letter of
Transmittal (or facsimile thereof), or Agent's Message in lieu thereof,
together with the certificate(s) representing the Original Notes to be
tendered in proper form for transfer (or confirmation of a book-entry
transfer into the Exchange Agent's account at DTC of the Original Notes
delivered electronically) and any other documents required by the
applicable Letter of Transmittal, will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), or Agent's Message in lieu thereof, together with the
certificate(s) representing all tendered Original Notes in proper form for
transfer (or confirmation of a book-entry transfer into the Exchange
Agent's account at DTC of Original Notes delivered electronically) and all
other documents required by the Letter of Transmittal are received by the
Exchange Agent within five business days after the applicable Expiration
Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Original Notes pursuant to
an Exchange Offer, unless theretofore accepted for exchange as provided in the
Exchange Offer, may be withdrawn at any time prior to 5:00 p.m., New York City
time, on the business day prior to the Expiration Date.
To be effective, a written or facsimile transmission notice of withdrawal
must be received by the Exchange Agent at its address set forth herein by 5:00
p.m., New York City time, on the business day prior to the Expiration Date. Any
such notice of withdrawal must (i) specify the name of the person having
deposited the Original Notes to be withdrawn (the "Depositor"), (ii) identify
the Original Notes to be withdrawn (including the certificate number or numbers
and aggregate principal amount of such Original Notes), and (iii) be signed by
the holder in the same manner as the original signature on the applicable Letter
of Transmittal (including any required signature guarantees). All questions as
to the validity, form and eligibility (including time of receipt) for such
withdrawal notices will be determined by the Company, whose determination shall
be final and binding on all parties.
Any Original Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no Exchange Notes will be issued
with respect thereto unless the Original Notes so withdrawn are validly
retendered. Properly withdrawn Original Notes may be retendered by following one
of the procedures described above under "-- Procedures for Tendering" at any
time prior to the applicable Expiration Date.
Any Original Notes which have been tendered but which are not accepted for
exchange due to the rejection of the tender due to uncured defects or the prior
termination of the applicable Exchange Offer, or which have been validly
withdrawn, will be returned to the holder thereof (unless otherwise provided in
the Letter of Transmittal), as soon as practicable following the applicable
Expiration Date or, if so requested in the notice of withdrawal, promptly after
receipt by the issuer of the Original Notes of notice of withdrawal without cost
to such holder.
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CONDITIONS OF THE EXCHANGE OFFER
The Exchange Offer is subject to the condition that the Exchange Offer, or
the making of any exchange by a Holder, does not violate applicable law or any
applicable interpretation of the staff of the Commission. If there has been a
change in commission policy such that in the reasonable opinion of Counsel to
the Company there is a substantial question whether the Exchange Offer is
permitted by applicable federal law, the Company has agreed to seek a no-action
letter or other favorable decision from the Commission allowing the Company to
consummate the Exchange Offer.
If the Exchange Offer is not permitted by applicable federal law, the
Company may terminate the Exchange Offer. In connection therewith, the Company
may (i) refuse to accept any Original Notes and return any Original Notes that
have been tendered by the holders thereof, (ii) extend the Exchange Offer and
retain all Original Notes tendered prior to the Expiration of the Exchange
Offer, subject to the rights of such holders of tendered Original Notes to
withdraw their tendered Original Notes, or (iii) waive such termination event
with respect to the Exchange Offer and accept all properly tendered Original
Notes that have not been withdrawn. If such waiver constitutes a material change
in the Exchange Offer, the Company will disclose such change by means of a
supplement to this Prospectus that will be distributed to each registered holder
of Original Notes, and the Company will extend the Exchange Offer for a period
of five to ten business days, depending upon the significance of the waiver and
the manner of disclosure to the registered holders of the Original Notes, if the
Exchange Offer would otherwise expire during such period.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as "Exchange Agent"
for the Exchange Offer. Questions and requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal and other
documents should be directed to the Exchange Agent addressed as follows:
<TABLE>
<S> <C> <C>
BY EXPRESS: BY MAIL: BY HAND:
(insured or registered
recommended)
State Street Bank and Trust State Street Bank and Trust State Street Bank and Trust
Company Company Company
Corporate Trust Department Corporate Trust Department Corporate Trust Department
Two International Place Two International Place Two International Place
Boston, MA 02210 Boston, MA 02210 Boston, MA 02210
Attn: Lena Altomare Attn: Lena Altomare Attn: Lena Altomare
FACSIMILE:
(617) 664-5371
FOR INFORMATION:
(617) 664-5607
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation is being made by mail.
Additional solicitations may be made by officers and regular employees of the
Company and its affiliates in person, by telegraph or telephone.
The Company will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
the Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith. The Company may also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them
in forwarding copies of this Prospectus, Letters of Transmittal and related
documents to the beneficial owners of the Original Notes and in handling or
forwarding tenders for exchange.
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The expenses to be incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee, accounting and
legal fees and printing costs, will be paid by the Company and are estimated to
be approximately $100,000.
The tendering Holder will pay all transfer taxes, if any, applicable to the
exchange of Original Notes pursuant to the Exchange Offer.
ACCOUNTING TREATMENT
The terms of the Original Notes are not expected to be materially different
from those of the Exchange Notes. Accordingly, no gain or loss for accounting
purposes will be recognized. The expenses of the Exchange Offer will be
amortized over the term of the Exchange Notes.
RESALE OF THE EXCHANGE NOTES; PLAN OF DISTRIBUTION
Based on no-action letters issued by the staff of the Commission to third
parties, the Company believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Original Notes may be offered for resale, resold
and otherwise transferred by any holder thereof (other than (i) a broker-dealer
who purchased such Original Notes directly from the Company or an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act to resell
pursuant to Rule 144A or any other available exemption under the Securities Act
or (ii) a person that is such an affiliate ) without compliance with the
registration and prospectus delivery requirements of the Securities Act,
provided that the holder is acquiring the Exchange Notes in its ordinary course
of business and is not participating, and has no arrangement or understanding
with any person to participate, in the distribution of the Exchange Notes.
Holders of Original Notes wishing to accept the Exchange Offer must represent to
the Company that such conditions have been met. In the event that the Company's
belief is inaccurate, holders of Exchange Notes who transfer Exchange Notes in
violation of the prospectus delivery provisions of the Securities Act and
without an exemption from registration thereunder may incur liability under the
Securities Act. The Company does not assume or indemnify holders against such
liability.
Each affiliate of the Company must acknowledge that such person will comply
with the registration and prospectus delivery requirements of the Securities Act
to the extent applicable. Each Participating Broker-Dealer that receives
Exchange Notes in exchange for Original Notes held for its own account, as a
result of market-making or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
Although a Participating Broker-Dealer may be an "underwriter" within the
meaning of the Securities Act, the Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, such Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by such Participating Broker-Dealer in connection with
resales of Exchange Notes received in exchange for Original Notes. The Company
has agreed that, for a period of 180 days, it will make this Prospectus and any
amendment or supplement to this Prospectus available to any such Participating
Broker-Dealer for use in connection with any such resale.
DESCRIPTION OF OTHER OBLIGATIONS
PLY GEM CREDIT FACILITY
On August 26, 1997, Nortek, a syndicate of lenders and Fleet, as sole
administrative and collateral agent for itself and the other lenders, entered
into the Ply Gem Credit Facility. The aggregate amount of the extension of
credit under the Ply Gem Credit Facility was approximately $121.7 million.
The Ply Gem Credit Facility provides Ply Gem with a term loan and letters
of credit. Under the Ply Gem Credit Facility, the term loan and the letters of
credit were issued contemporaneously with the closing of the Tender Offer (the
"Ply Gem Credit Facility Closing Date") and will mature on the fifth anniversary
of the Ply Gem Credit Facility Closing Date.
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Term loans under the Ply Gem Credit Facility may, at the option of Ply Gem,
bear interest at a rate equal to (i) a fluctuating interest rate per annum in
effect from time to time, equal to the higher of (A) the prime rate publicly
announced by Fleet and (B) 1/2 of one percent per annum above the federal funds
rate; or (ii) the London InterBank Offer Rate plus a spread, which spread will
fluctuate between 30 and 95 basis points based on certain financial ratios of
Ply Gem; provided, however, that the applicable interest rate will increase by
200 basis points during the continuance of any monetary default or event of
default. Interest on the term loans under the Ply Gem Credit Facility is payable
quarterly in arrears. In addition, Ply Gem will pay a facility fee on the
aggregate principal amount available under the Ply Gem Credit Facility, which
facility fee will fluctuate between 20 and 30 basis points based on certain
financial ratios of Ply Gem. The facility fee will be payable quarterly in
arrears.
The Ply Gem Credit Facility is secured by a first-priority lien on (i) all
shares of capital stock of substantially all of Ply Gem's present operating
subsidiaries, (ii) all of the present and future accounts receivable and
inventory of Ply Gem and its operating Subsidiaries and (iii) all proceeds and
products of the foregoing. In addition, Ply Gem and substantially all of its
present operating subsidiaries have guaranteed the Ply Gem Credit Facility.
During the period commencing on March 31, 1998 and ending on June 30, 2002,
the aggregate principal amount of the Ply Gem Credit Facility will be subject to
quarterly principal payments in an aggregate amount of $25.0 million beginning
with annual amounts of $4.0 million in 1998 and increasing to $6.0 million per
year in 2001 and thereafter. Ply Gem also will be required to make mandatory
prepayments of a portion of the net proceeds of asset sales. Ply Gem may prepay
borrowings under the Ply Gem Credit Facility, in whole or in part without
premium or penalty. Borrowings outstanding under the Ply Gem Credit Facility
will be due and payable no later than the fifth anniversary of the Ply Gem
Credit Facility Closing Date.
The Ply Gem Credit Facility contains representation and warranties,
covenants (including, without limitation, the financial covenants described
below) and events of default customary for credit facilities of such type,
except that there are no restrictions on the payment of dividends by Ply Gem
unless a default exists, or would result from the payment of such dividend,
under the Ply Gem Credit Facility.
The Ply Gem Credit Facility requires Ply Gem at all times to have
consolidated net worth of at least $375 million, less up to $25 million in
losses on the sale by Ply Gem of certain unprofitable subsidiaries. Under the
Ply Gem Credit Facility, Ply Gem also needs to maintain (i) a ratio of
consolidated current assets to consolidated current liabilities that equals or
exceeds 2 to 1 and (ii) a ratio of consolidated EBITDA to consolidated interest
expense of at least 3.5 to 1. Furthermore, Ply Gem must not permit its
consolidated funded debt to consolidated EBITDA for the four most recent
consecutive full fiscal quarters to exceed the following amounts: 3.25 to 1 on
September 30, 1997; 3.0 to 1 on December 31, 1997; 2.75 to 1 on December 31,
1998; 2.5 to 1 on June 30, 1999; and 2 to 1 on June 30, 2000 and thereafter.
OTHER OBLIGATIONS
In February 1994, the Company issued $218,500,000 of the 9 7/8% Notes. The
indenture governing the 9 7/8% Notes (the "9 7/8% Indenture") 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 9 7/8% Indenture). Upon
certain asset sales (as defined in the 9 7/8% Indenture), the Company will be
required to offer to purchase, at 100% principal amount plus accrued interest to
the date of purchase, the 9 7/8% Notes in a principal amount equal to any net
cash proceeds (as defined in the 9 7/8% 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 9 7/8% Indenture). 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 payment of the principal of, premium,
if any, and interest on the 9 7/8% Notes is subordinated in right of payment to
the prior payment of all Senior Indebtedness (as defined in the 9 7/8%
Indenture).
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In March 1997, the Company issued $175,000,000 of the 9 1/4% Notes. The
indenture governing the 9 1/4% Notes (the "9 1/4% Indenture") 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 9 1/4% Indenture). Upon
certain asset sales (as defined in the 9 1/4% Indenture), the Company will be
required to offer to purchase, at 100% principal amount plus accrued interest to
the date of purchase, the 9 1/4% Notes in a principal amount equal to any net
cash proceeds (as defined in the 9 1/4% 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 issued date of the 9 1/4% Notes or at
the date of such asset sale and such net cash proceeds were not applied to
permanently reduce other indebtedness of the Company (other than the
indebtedness which is subordinated by its terms to the 9 1/4% Notes). The 9 1/4%
Notes are redeemable at the option of the Company, in whole or in part, at any
time and from time to time, at 104.625% on March 15, 2002, declining to 100% on
March 15, 2005 and thereafter.
At June 28, 1997, the Company's Canadian subsidiary, Broan Limited, has
$8.6 million in secured borrowings (based on exchange rates in effect on June
28, 1997). The line of credit contains a covenant prohibiting net aggregate
dividends or other distributions to the Company from Broan Limited in excess of
$10.8 million. As of June 28, 1997, $7.3 million in dividends or other
distributions could have been made to the Company by Broan Limited under this
covenant.
For additional information regarding the obligations described above, see
Note 5 of Notes to Consolidated Financial Statements of the Company included
elsewhere herein.
CERTAIN FEDERAL TAX CONSIDERATIONS
The following is a general discussion of the material United States federal
income tax consequences of the receipt, ownership and disposition of the
Exchange Notes to United States Holders (as defined below) and Foreign Holders
(as defined below). This discussion is based on currently existing provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), existing and
proposed Treasury regulations promulgated thereunder, and administrative and
judicial interpretations thereof, all as in effect or proposed on the date
hereof and all of which are subject to change, possibly with retroactive effect,
or to different interpretations. This discussion does not address the tax
consequences to subsequent purchasers of Exchange Notes and is limited to
Holders who hold the Exchange Notes as capital assets, within the meaning of
Section 1221 of the Code. This discussion also does not address the tax
consequences to nonresident aliens or foreign corporations that are subject to
United States federal income tax on a net basis on income realized with respect
to an Exchange Note because such income is effectively connected with the
conduct of a U.S. trade or business. Such Holders are generally taxed in a
similar manner to United States Holders; however, certain special rules apply.
Moreover, this discussion is for general information only and does not address
all of the tax consequences that may be relevant to particular Holders in light
of their personal circumstances or to certain types of Holders (such as certain
financial institutions, insurance companies, tax-exempt entities, dealers in
securities or persons who have hedged a risk of ownership of a Note).
No ruling from the Internal Revenue Service ("IRS") will be requested with
respect to any of the matters discussed herein. There can be no assurance that
the IRS will not take a different position concerning the tax consequences of
the receipt, ownership, or disposition of the Notes, or that any such position
would be sustained. BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH
PROSPECTIVE HOLDER OF EXCHANGE NOTES IS STRONGLY URGED TO CONSULT HIS OR HER OWN
TAX ADVISOR WITH RESPECT TO HIS OR HER PARTICULAR SITUATION, AND AS TO ANY
FEDERAL, FOREIGN, STATE, LOCAL OR OTHER TAX CONSIDERATIONS (INCLUDING ANY
POSSIBLE CHANGES IN TAX LAW OR INTERPRETATIONS THEREOF) AFFECTING THE RECEIPT,
HOLDING, AND DISPOSITION OF THE EXCHANGE NOTES.
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TAX CONSEQUENCES TO UNITED STATES HOLDERS
As used herein, the term "United States Holder" means a holder of Exchange
Notes, that is, for United States federal income tax purposes, (a) a citizen or
resident of the United States, (b) treated as a domestic corporation or domestic
partnership, or (c) an estate or trust other than a "foreign estate" or "foreign
trust" as defined in section 7701(a)(31) of the Code.
Exchange of Original Notes for Exchange Notes. The exchange by a United
States Holder of an Original Note for an Exchange Note pursuant to the Exchange
Offer will not constitute a taxable exchange of the Original Note if the
economic terms of the Exchange Note (including the interest rate) are identical
to the economic terms of the Original Note. Under recently promulgated Treasury
regulations relating to modifications and exchanges of debt instruments (the
"Section 1001 Regulations"), even if Liquidated Damages were payable with
respect to the Original Notes but not with respect to the Exchange Notes as a
result of a Registration Default as described under "The Exchange
Offer--Registration Rights; Liquidated Damages", the exchange of an Original
Note for an Exchange Note would not be treated as a taxable exchange, as such
Liquidated Damages payments would occur pursuant to the original terms of the
Original Note. Accordingly, the Company intends to take the position that in the
circumstances described in the preceding sentence, the exchange will not
constitute a taxable exchange of the Original Notes.
Interest on Exchange Notes. Interest on the Exchange Notes generally will
be includible in the income of a United States Holder as ordinary income at the
time such interest is received or accrued, in accordance with such Holder's
method of accounting for United States federal income tax purposes. Since the
Original Notes were issued with original issue discount ("OID") that was less
than 1/4 of 1 percent of the stated redemption price at maturity, multiplied by
the number of complete years to maturity, the Original Notes qualified for the
de minimis exception from the imputed OID interest rules and, therefore, so will
the Exchange Notes.
Sale, Exchange, Redemption or Retirement. Upon the sale, exchange,
redemption, retirement or other disposition of an Exchange Note, a United States
Holder will generally recognize taxable gain or loss equal to the difference
between the amount realized on the sale, exchange, redemption or retirement and
such Holder's adjusted tax basis in the Exchange Note. A United States Holder's
adjusted tax basis in an Exchange Note generally will equal the cost of the
Original Note to such Holder. Gain or loss recognized on the disposition of an
Exchange Note generally will be capital gain or loss and will be long-term
capital gain or loss if, at the time of such disposition, the Exchange Note has
been held for more than one year.
Backup Withholding. Certain Holders of Exchange Notes may be subject to
backup withholding at the rate of 31% with respect to interest and cash received
in certain circumstances upon the disposition of such Exchange Notes. Generally,
backup withholding will be applied only if the Holder fails to furnish to the
Company its taxpayer identification number (social security or employer
identification number) in the prescribed manner, to certify that such Holder is
not subject to backup withholding, or to otherwise comply with the applicable
requirements of the backup withholding rules. Any amounts withheld under the
backup withholding rules will be allowed as a credit or refund against a United
States Holder's United States federal income tax liability, provided that such
United States Holder furnished the required information to the IRS. Certain
Holders (including, among others, corporations) are not subject to the backup
withholding requirements.
UNITED STATES FEDERAL TAXATION OF FOREIGN HOLDERS
This section discusses special rules to a Holder of Exchange Notes that is
a Foreign Holder. For purposes of this discussion, a "Foreign Holder" means a
Holder that is not a United States Holder.
Interest on Exchange Notes. In general, interest received by any Foreign
Holder will not be subject to United States federal withholding tax, provided
that (a) such interest is effectively connected with the conduct by the Holder
of a trade or business within the United States and the Company or its paying
agent receives a properly completed Form 4224 in advance of the payments, (b)(i)
the Holder does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company
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entitled to vote, (ii) the Holder is not a "bank" within the meaning of Section
881(c)(3)(A) of the Code, (iii) the Holder is not a controlled foreign
corporation that is related to the Company actually or constructively through
stock ownership and (iv) either (x) the beneficial owner of the Note, under
penalties of perjury, provides the Company or its agent with the beneficial
owner's name and address and certifies that it is not a United States Holder on
IRS Form W-8 (or a suitable substitute or successor form) or (y) a securities
clearing organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "financial
institution") holds the Exchange Note and certifies to the Company or its agent
under penalties of perjury that such a Form W-8 (or a suitable substitute or
successor form) has been received by it from the beneficial owner of the
Exchange Note or qualifying intermediary and furnishes the payor a copy thereof
or (c) the Foreign Holder is entitled to the benefits of an income tax treaty
under which the interest on the Exchange Notes is exempt from United States
withholding tax and the Foreign Holder or such Holder's agent provides a
properly executed IRS Form 1001 or successor form in the name of the beneficial
owner claiming the exemption. Payments of interest not exempt from U.S. federal
withholding tax as described above will be subject to such withholding tax at a
rate of 30% (subject to reduction under an applicable income tax treaty).
Interest payments made to a Foreign Holder that are effectively connected with a
United States trade or business conducted by such Foreign Holder are subject to
U.S. tax at the graduated rates applicable to U.S. citizens, resident aliens and
domestic corporations (an additional branch profits tax may also apply to
corporate Foreign Holders).
Gain on Disposition of Exchange Notes. A Foreign Holder generally will not
be subject to United States federal income tax or withholding tax with respect
to gain recognized on a disposition of the Exchange Notes, unless (i) in the
case of a Foreign Holder that is an individual, such Foreign Holder is present
in the United States for 183 or more days in the taxable year of the disposition
and certain other requirements are met, (ii) the Foreign Holder is an individual
who is a former citizen of the United States who lost such citizenship within
the preceding ten-year period (or former long-term permanent resident of the
United States who relinquished residency on or after February 6, 1995) whose
loss of citizenship or permanent residency had as one of its principal purposes
the avoidance of United States tax or (iii) such gain is effectively connected
with the conduct in the United States of a trade or business of the Foreign
Holder, or, if a treaty applies, the gain is attributable to a permanent
establishment in the United States (in either case, the branch profits tax also
may apply if the Foreign Holder is a corporation). If a Foreign Holder falls
under (i) above, the Holder generally will be subject to United States federal
income tax at a rate of 30% on the gain derived from the sale (or reduced treaty
rate) and may be subject to withholding in certain circumstances. If a Foreign
Holder falls within clause (ii) or (iii) above, the Holder will be taxed on the
net gain derived from the sale under the graduated United States federal income
tax rates that are applicable to U.S. citizens, resident aliens and domestic
corporations, as the case may be, and may be subject to withholding under
certain circumstances.
Information Reporting and Backup Withholding. Under current Treasury
regulations, backup withholding and information reporting on Form 1099 do not
apply to payments made by the Company or a paying agent to Foreign Holders if
the certification described in part (iv) of the first sentence under "Interest
on Exchange Notes" is received, provided that the payor does not have actual
knowledge that the Holder is a United States Holder. If any payments of
principal and interest are made to the beneficial owner of an Exchange Note
outside the United States by or through the foreign office of a foreign
custodian, foreign nominee or other foreign agent of such beneficial owner, or
if the foreign office of a foreign "broker" (as defined in applicable United
States Treasury Department regulations) pays the proceeds of the sale of an
Exchange Note to the seller thereof, backup withholding and information
reporting will not apply. Information reporting requirements (but not backup
withholding) will apply, however, to payments by a foreign office of a broker or
custodian that is (a) a United States person, (b) derives 50% or more of its
gross income for certain periods from the conduct of a trade or business in the
United States, or (c) that is a "controlled foreign corporation" (generally, a
foreign corporation controlled by certain United States shareholders) with
respect to the United States, unless the broker or custodian has documentary
evidence in its records that the Holder is a Foreign Holder and certain other
conditions are met, or the Holder otherwise establishes an exemption. Payment by
a United States office of a broker or custodian is subject to both backup
withholding at a rate of 31% and information reporting unless the Holder
certifies under penalties of perjury that it is a Foreign Holder, or otherwise
establishes an exemption. A Foreign Holder may obtain a refund of, or a credit
against
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such Holder's U.S. federal income tax liability for, any amounts withheld under
the backup withholding rules, provided the required information is furnished to
the IRS.
Prospective Final Regulations. On October 6, 1997 the Internal Revenue
Service released regulations that revise the procedures for withholding tax on
interest and the associated backup withholding and information reporting rules
described above for payments of interest and gross proceeds made after December
31, 1998. The regulations modify the requirements imposed on a Foreign Holder or
certain intermediaries for establishing the recipient's status as a Foreign
Holder eligible for exemption from withholding tax and backup withholding. In
particular, the final regulations impose more stringent conditions on the
ability of financial intermediaries acting for a Foreign Holder to provide
certifications on behalf of the Foreign Holder, which may include entering into
an agreement with the Internal Revenue Service to audit certain documentation
with respect to such certifications. Foreign Holders should consult their tax
advisors to determine the effects of the application on these regulations to
their particular circumstances.
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PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of Exchange Notes
received in exchange for Original Notes where such Original Notes were acquired
as a result of market-making activities or other trading activities. The Company
has agreed that for a period of 180 days it will make this Prospectus, as
amended or supplemented, available to any Participating Broker-Dealer for use in
connection with any such resales.
The Company will not receive any proceeds from any sale of Exchange Notes
by Participating Broker-Dealers. Exchange Notes received by Participating
Broker-Dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such Participating Broker-Dealer and/or the purchasers of
any such Exchange Notes. Any Participating Broker-Dealer that resells Exchange
Notes that were received by it for its own account pursuant to the Exchange
Offer and any broker or dealer that participates in a distribution of such
Exchange Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of Exchange Notes and any
commission or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver, and by delivering a
prospectus, a Participating Broker-Dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of 180 days from the date of the consummation of the Exchange
Offer, the Company will promptly send additional copies of this Prospectus and
any amendment or supplement to this Prospectus to any Participating
Broker-Dealer that requests such documents in the Letter of Transmittal.
LEGAL MATTERS
The legality of the Exchange Notes being offered hereby will be passed upon
for the Company by Ropes & Gray, Boston, Massachusetts.
INDEPENDENT AUDITORS
The audited consolidated financial statements and schedule of Nortek, Inc.
and subsidiaries as of December 31, 1995 and 1996 and for each of the three
years in the period ended December 31, 1996 set forth or incorporated by
reference in this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto.
The audited consolidated financial statements of Ply Gem set forth in this
Prospectus have been audited by Grant Thornton LLP, independent public
accountants, as indicated in their report with respect thereto.
101
<PAGE> 103
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
NORTEK, INC. AND SUBSIDIARIES:
Report of Independent Public Accountants............................................. F-2
Consolidated Statement of Operations for each of the Three Years in the Period Ended
December 31, 1996, and the Six Months Ended June 29, 1996 (unaudited) and June 28,
1997 (unaudited)................................................................... F-3
Consolidated Balance Sheet as of December 31, 1995 and 1996, and June 28, 1997
(unaudited)........................................................................ F-4
Consolidated Statement of Cash Flows for each of the Three Years in the Period Ended
December 31, 1996, and the Six Months Ended June 29, 1996 (unaudited) and June 28,
1997 (unaudited)................................................................... F-5
Consolidated Statement of Stockholders' Investment for each of the Three Years in the
Period Ended December 31, 1996, and the Six Months Ended June 28, 1997
(unaudited)........................................................................ F-6
Notes to Consolidated Financial Statements........................................... F-7
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES:
Report of Independent Public Accountants............................................. F-25
Consolidated Statement of Operations for each of the Three Years in the Period Ended
December 31, 1996, and the Six Months Ended June 30, 1996 and 1997 (unaudited)..... F-26
Consolidated Balance Sheet as of December 31, 1995 and 1996, and June 30, 1997
(unaudited)........................................................................ F-27
Consolidated Statement of Stockholders' Investment for each of the Three Years in the
Period Ended December 31, 1996, and the Six Months Ended June 30, 1997
(unaudited)........................................................................ F-28
Consolidated Statement of Cash Flows for each of the Three Years in the Period Ended
December 31, 1996, and the Six Months Ended June 30, 1996 and 1997 (unaudited)..... F-29
Notes to Consolidated Financial Statements........................................... F-30
</TABLE>
F-1
<PAGE> 104
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO NORTEK, INC.:
We have audited the accompanying consolidated balance sheets of Nortek,
Inc. (a Delaware corporation) and subsidiaries (the "Company") as of December
31, 1995 and 1996, and the related statements of operations, shareholders'
investment and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance 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, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 12, 1997
F-2
<PAGE> 105
NORTEK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, -------------------
------------------------------ JUNE 29, JUNE 28,
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C>
Net Sales................................... $737,160 $776,210 $969,798 $481,220 $469,218
COSTS AND EXPENSES:
Cost of products sold....................... 520,328 574,929 709,875 357,210 342,444
Selling, general and administrative
expense................................... 166,815 160,197 199,871 98,243 96,830
-------- -------- -------- -------- --------
687,143 735,126 909,746 455,453 439,274
-------- -------- -------- -------- --------
Operating earnings.......................... 50,017 41,084 60,052 25,767 29,944
Interest expense............................ (26,162) (24,918) (30,113) (15,486) (18,523)
Interest and dividend income................ 5,295 6,134 5,311 2,819 4,404
Net gain on investment and marketable
securities................................ -- 2,000 750 -- 175
Loss on businesses sold..................... (1,750) -- -- -- --
-------- -------- -------- -------- --------
Earnings from continuing operations before
provision for income taxes................ 27,400 24,300 36,000 13,100 16,000
Provision for income taxes.................. 10,200 9,300 14,000 4,900 5,600
-------- -------- -------- -------- --------
Earnings before extraordinary gain.......... 17,200 15,000 22,000 8,200 10,400
Extraordinary gain from retirements......... 200 -- -- -- --
Earnings before the cumulative effect of an
accounting change......................... 17,400 15,000 22,000 -- --
Cumulative effect of an accounting change... 400 -- -- -- --
-------- -------- -------- -------- --------
Net Earnings.............................. $ 17,800 $ 15,000 $ 22,000 $ 8,200 $ 10,400
======== ======== ======== ======== ========
NET EARNINGS PER SHARE:
EARNINGS BEFORE EXTRAORDINARY GAIN--
Primary................................... $ 1.35 $ 1.19 $ 2.07
-------- -------- --------
Fully diluted............................. $ 1.34 $ 1.19 $ 2.05
-------- -------- --------
EXTRAORDINARY GAIN--
Primary................................... .02 -- --
-------- -------- --------
Fully diluted............................. .02 -- --
-------- -------- --------
CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE--
Primary................................... .03 -- --
-------- -------- --------
Fully diluted............................. .03 -- --
-------- -------- --------
NET EARNINGS--
Primary................................... $ 1.40 $ 1.19 $ 2.07 $ .73 $ 1.05
======== ======== ======== ======== ========
Fully diluted............................. $ 1.39 $ 1.19 $ 2.05 $ .73 $ 1.05
======== ======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES:
Primary................................... 12,707 12,569 10,641 11,186 9,898
======== ======== ======== ======== ========
Fully diluted............................. 13,144 12,620 10,722 11,199 9,923
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 106
NORTEK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 28,
1995 1996 1997
-------- -------- -----------
ASSETS (UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Unrestricted
Cash and cash equivalents.................................... $ 37,211 $ 41,042 $ 56,769
Marketable securities available for sale..................... 66,102 51,051 168,630
Restricted--
Investment and marketable securities at cost, which
approximates market....................................... 9,411 5,681 5,688
Accounts receivable, less allowances of $4,546, $4,356 and
$4,825....................................................... 118,017 122,176 137,833
Inventories--
Raw materials................................................ 42,601 36,765 35,945
Work in process.............................................. 14,319 12,717 12,346
Finished goods............................................... 53,132 48,176 59,422
-------- --------- ---------
110,052 97,658 107,713
-------- --------- ---------
Prepaid expenses and other current assets...................... 16,927 14,940 18,114
Prepaid income taxes........................................... 19,100 20,000 20,000
-------- --------- ---------
Total current assets...................................... 376,820 352,548 514,747
-------- --------- ---------
PROPERTY AND EQUIPMENT, AT COST:
Land......................................................... 6,508 7,046 6,867
Buildings and improvements................................... 69,125 72,954 71,566
Machinery and equipment...................................... 157,884 174,064 175,807
-------- --------- ---------
233,517 254,064 254,240
Less accumulated depreciation................................ 97,255 112,645 116,202
-------- --------- ---------
Total property and equipment, net......................... 136,262 141,419 138,038
-------- --------- ---------
OTHER ASSETS:
Goodwill, less accumulated amortization of $23,978, $26,948
and $28,357............................................... 91,347 91,578 88,857
Deferred debt expense........................................ 7,574 6,647 10,959
Other........................................................ 13,476 16,924 20,362
-------- --------- ---------
112,397 115,149 120,178
-------- --------- ---------
$625,479 $609,116 $ 772,963
======== ========= =========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Notes payable and other short-term obligations................. $ 30,226 $ 25,334 $ 12,929
Current maturities of long-term debt........................... 11,824 11,230 5,125
Accounts payable............................................... 73,047 74,945 86,293
Accrued expenses and taxes, net................................ 100,970 97,565 100,913
-------- -------- ---------
Total current liabilities.................................... 216,067 209,074 205,260
-------- -------- ---------
OTHER LIABILITIES:
Deferred income taxes.......................................... 27,780 22,588 18,300
Other.......................................................... 9,945 14,698 19,535
-------- -------- ---------
37,725 37,286 37,835
Notes, Mortgage Notes and Obligations Payable, Less Current
Maturities................................................... 240,396 243,961 408,771
STOCKHOLDERS' INVESTMENT:
Preference stock, $1 par value; authorized 7,000,000 shares,
none issued.................................................. -- -- --
Common stock, $1 par value; authorized 40,000,000 shares;
15,883,447, 15,965,585 and 16,025,542 issued................. 15,883 15,966 16,026
Special common stock, $1 par value; authorized 5,000,000
shares; 774,366, 784,169 and 774,339 shares issued........... 774 784 774
Additional paid-in capital..................................... 134,690 135,028 135,311
Retained earnings.............................................. 15,766 37,766 48,166
Cumulative translation, pension and other adjustments.......... (2,742) (3,212) (3,948)
Less -- treasury common stock at cost, 4,306,706, 6,599,645 and
6,929,227 shares ...................................... (31,351) (65,805) (73,299)
-- treasury special common stock at cost, 276,784, 276,910
and 285,233 shares .................................... (1,729) (1,732) (1,933)
-------- -------- ---------
Total stockholders' investment............................... 131,291 118,795 121,097
-------- -------- ---------
$625,479 $609,116 $ 772,963
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 107
NORTEK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, ---------------------
---------------------------------- JUNE 29, JUNE 28,
1994 1995 1996 1996 1997
--------- --------- -------- -------- ---------
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.................................. $ 17,800 $ 15,000 $ 22,000 $ 8,200 $ 10,400
--------- --------- -------- -------- ---------
Adjustments to reconcile net earnings to cash:
Depreciation and amortization................. 17,960 18,977 23,726 11,138 11,769
Non-cash interest expense, net................ -- -- -- 682 583
Net gain on investments and marketable
securities.................................. -- (2,000) (750) -- (175)
Extraordinary gain from debt retirements...... (250) -- -- -- --
Loss on business sold......................... 1,750 -- -- -- --
Cumulative effect of an accounting change..... (400) -- -- -- --
Deferred federal income tax (benefit)
provision before extraordinary items........ 300 1,300 (1,800) 450 200
Deferred federal income tax provision on
discontinued operations..................... 2,200 -- -- -- --
Deferred federal income tax provision on
extraordinary items......................... 1,350 -- -- -- --
CHANGES IN CERTAIN ASSETS AND LIABILITIES, NET
OF EFFECTS FROM ACQUISITIONS AND
DISPOSITIONS:
Accounts receivable........................... (5,501) 4,496 (3,626) (26,712) (16,450)
Prepaids and other current assets............. (4,361) (289) 4,620 577 (2,385)
Inventories................................... (12,593) 5,820 12,196 3,528 (11,322)
Accounts payable.............................. 6,364 (5,614) 2,090 16,919 12,317
Accrued expenses and taxes.................... 4,242 (4,894) (8,840) 1,149 4,358
Long-term assets, liabilities and other,
net......................................... (2,682) 1,051 (312) (1,215) (1,041)
--------- --------- -------- -------- ---------
Total adjustments to net earnings........... 8,379 18,847 27,304 6,516 (2,146)
--------- --------- -------- -------- ---------
Net cash provided by operating activities... 26,179 33,847 49,304 14,716 8,254
--------- --------- -------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................... (19,424) (16,091) (21,683) (7,611) (8,883)
Net cash paid for businesses acquired......... -- (27,543) -- -- --
Proceeds from the sale of property and
equipment................................... 114 1,831 1,325 -- --
Purchase of investments and marketable
securities.................................. (110,231) (104,762) (66,901) (20,140) (157,037)
Proceeds from the sale of investments and
marketable securities....................... 62,929 112,173 82,435 22,677 37,220
Net cash proceeds relating to businesses sold
or discontinued............................. 12,465 1,129 -- -- --
Change in restricted investments and
marketable securities....................... (2,475) (331) -- -- --
Other, net.................................... 51 (1,499) (2,214) (66) (204)
--------- --------- -------- -------- ---------
Net cash used in investing activities....... (56,571) (35,093) (7,038) (5,140) (128,904)
--------- --------- -------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of Notes, net............................ 209,195 -- -- -- 169,395
Purchase of debentures and notes payable...... (191,582) -- -- -- --
Increase (decrease) in borrowings, net of
payments.................................... (8,962) 9,107 (4,092) 1,278 (26,071)
Purchase of Nortek Common and Special Common
Stock....................................... -- (4,664) (34,822) (31,738) (7,626)
Other, net.................................. (29) (822) 479 74 679
--------- --------- -------- -------- ---------
Net cash (used in) provided by financing
activities................................ 8,622 3,621 (38,435) (30,386) 136,377
--------- --------- -------- -------- ---------
Net increase (decrease) in unrestricted cash
and cash equivalents........................ (21,770) 2,375 3,831 (20,810) 15,727
Unrestricted cash and cash equivalents at the
beginning of the year....................... 56,606 34,836 37,211 60,079 41,042
--------- --------- -------- -------- ---------
Unrestricted cash and cash equivalents at the
end of the year............................. $ 34,836 $ 37,211 $ 41,042 $ 39,269 $ 56,769
========= ========= ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 108
NORTEK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' INVESTMENT
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 AND THE SIX MONTHS ENDED JUNE 28,
1997
<TABLE>
<CAPTION>
CUMULATIVE
RETAINED TRANSLATION,
SPECIAL ADDITIONAL EARNINGS PENSION
COMMON COMMON PAID-IN (ACCUMULATED AND OTHER TREASURY
STOCK STOCK CAPITAL DEFICIT) ADJUSTMENTS STOCK
------- ------ ---------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994............. $15,814 $802 $ 134,627 $ 766 $(6,168) $(28,051)
27,731 shares of special common stock
converted into 27,731 shares of
common stock......................... 28 (28) -- -- -- --
41,450 shares of common stock issued
upon exercise of stock options ...... 41 -- 63 -- -- --
511,671 shares of treasury stock
acquired............................. -- -- -- -- -- (5,029)
Translation adjustment................. -- -- -- -- 701 --
Pension adjustment..................... -- -- -- -- (244) --
Unrealized appreciation in marketable
securities........................... -- -- -- -- 2,969 --
Net earnings........................... -- -- -- 15,000 -- --
-------- ---- --------- ------- ------- --------
Balance, December 31, 1995............. 15,883 774 134,690 15,766 (2,742) (33,080)
27,697 shares of special common stock
converted into 27,697 shares of
common stock......................... 28 (28) -- -- -- --
54,461 shares of common stock and
37,500 shares of special common stock
issued upon exercise of stock
options.............................. 55 38 338 -- -- --
2,293,065 shares of treasury stock
acquired............................. -- -- -- -- -- (34,457)
Translation adjustment................. -- -- -- -- 138 --
Pension adjustments.................... -- -- -- -- (127) --
Unrealized decline in marketable
securities........................... -- -- -- -- (481) --
Net earnings........................... -- -- -- 22,000 -- --
-------- ---- --------- ------- ------- --------
Balance, December 31, 1996............. 15,966 784 135,028 37,766 (3,212) (67,537)
15,638 shares of special common stock
converted into 15,638 shares of
common stock......................... 16 (16) -- -- -- --
44,319 shares of common stock and 5,808
shares of special common stock issued
upon exercise of stock options ...... 44 6 283 -- -- --
337,905 shares of treasury stock
acquired............................. -- -- -- -- -- (7,695)
Translation adjustment................. -- -- -- -- (1,105) --
Unrealized increase in the value of
marketable securities................ -- -- -- -- 369 --
Net earnings........................... -- -- -- 10,400 -- --
-------- ---- --------- ------- ------- --------
Balance, July 28, 1997................. $16,026 $774 $ 135,311 $ 48,166 $(3,948) $(75,232)
======== ==== ========= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 109
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, Canada and
Europe, a wide variety of products for the residential and commercial
construction, manufactured housing, and the do-it-yourself and professional
remodeling and renovation markets.
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, 1996.
Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles involves estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities as of the date of the financial statements and the
reported amounts of income and expense during the reporting periods. Operating
results in the future could vary from the amounts derived from such estimates
and assumptions.
Cash, Investments and Marketable Securities
Cash equivalents consist of short-term highly liquid investments with
original maturities of three months or less which are readily convertible into
cash.
The Company has classified as restricted (in current assets in the
accompanying consolidated balance sheet) certain investments and marketable
securities that are not fully available for use in its operations. At December
31, 1996, approximately $5,681,000 of investments and marketable securities has
been pledged as collateral for insurance and other requirements.
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 CASH EQUIVALENTS -- 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, 1996, the fair value of
marketable securities approximated the amount on the Company's consolidated
balance sheet.
LONG-TERM DEBT -- At December 31, 1996, the fair value of long-term
indebtedness approximated the amount, before original issue discount, on
the Company's consolidated balance sheet (See Note 5.)
Inventories
Inventories in the accompanying consolidated balance sheet are valued at
the lower of cost or market. At December 31, 1995 and 1996, approximately
$69,967,000 and $61,641,000 of total inventories, respectively, were valued on
the last-in, first-out method (LIFO). Under the first-in, first-out method
(FIFO) of
F-7
<PAGE> 110
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accounting, such inventories would have been approximately $10,550,000 and
$8,482,000 greater at December 31, 1995 and 1996, respectively. All other
inventories were valued under the FIFO method.
Sales Recognition
The Company recognizes sales upon the shipment of its products net of
applicable provisions for discounts and allowances. The Company also provides
for its estimate of warranty and bad debts at the time of shipment as selling,
general and administrative expense.
Foreign Currency Translation
The financial statements of subsidiaries outside the United States are
generally measured using the local currency as the functional currency. 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 average 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. Transaction gains or losses are recorded in selling, general and
administrative expense and have not been material.
Depreciation and Amortization
Depreciation and amortization of property and equipment are provided on a
straight-line basis over the estimated useful lives, which are generally as
follows:
<TABLE>
<S> <C>
Buildings and improvements..................................... 10-35 years
Machinery and equipment, including leases...................... 3-15 years
Leasehold improvements......................................... term of lease
</TABLE>
Expenditures for maintenance and repairs are expensed when incurred.
Expenditures for renewals and betterments are capitalized. When assets are sold,
or otherwise disposed of, 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 operations amounted to $2,407,000, $2,519,000 and
$2,970,000, for 1994, 1995 and 1996, respectively. At each balance sheet date,
the Company evaluates the realizability of goodwill based on expectations of
non-discounted cash flows and operating income for each subsidiary having a
material goodwill balance. Based on its most recent analysis, the Company
believes that no material impairment of goodwill exists at December 31, 1996.
Recent Accounting Pronouncements
On January 1, 1996, the Company adopted the accounting requirements of
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The statement also requires that certain long-lived assets and
identifiable intangibles that are to be disposed, be reported at the lower of
the carrying amount or fair value less cost to sell. The application of SFAS No.
121 did not have a significant impact on the Company's results of operations or
financial condition.
F-8
<PAGE> 111
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On January 1, 1996, the Company adopted the accounting requirements of SFAS
No. 123, "Stock-Based Compensation." SFAS No. 123 requires that employee
stock-based compensation be either recorded or disclosed at its fair value. The
Company will continue to account for stock-based compensation under Accounting
Principles Board ("APB") No. 25 and will not adopt the new accounting provisions
for stock-based compensation under SFAS No. 123, but will include the additional
required disclosures. (See Note 6.)
Net Earnings Per Share
Net earnings per share amounts have been computed using the weighted
average number of common and common equivalent shares outstanding during each
year. Special Common Stock is treated as the equivalent of Common Stock in
determining earnings per share results.
2. ACQUISITIONS AND BUSINESSES SOLD
Acquisitions are accounted for as purchases and, accordingly, have been
included in the Company's consolidated results of operations since the
acquisition date. Purchase price allocations are subject to refinement until all
pertinent information regarding the acquisitions is obtained.
In the fourth quarter of 1995, several of the Company's wholly owned
subsidiaries completed the acquisition of the assets, subject to certain
liabilities, of Rangaire Company ("Rangaire"), all the capital stock of Best
S.p.A. and related entities ("Best") and all the capital stock of Venmar
Ventilation inc. ("Venmar"). The aggregate purchase price for these acquisitions
was approximately $36,500,000, consisting of cash of approximately $33,400,000
and future payments of approximately $3,100,000. The selling shareholders of
certain of these acquisitions are entitled to additional purchase price payments
of up to approximately $2,000,000, depending on subsequent operating results of
such acquisitions.
On March 31, 1994, the Company sold all the capital stock of one of its
businesses for approximately $18,800,000 in cash and $6,000,000 in preferred
stock of the purchaser. In the third quarter of 1995, the Company sold its
investment in the preferred stock, which resulted in a pre-tax gain of
approximately $2,200,000 ($.17 per share, net of tax), and is included in net
gain on investment and marketable securities in the Company's accompanying
consolidated statement of operations.
In January 1995, the Company paid approximately $1,750,000 ($.14 per share,
net of tax) as a final purchase price adjustment related to one of its
businesses sold and recorded a charge to earnings in the fourth quarter of 1994.
The approximate unaudited pro forma net sales, operating earnings, earnings
before extraordinary gain, and fully diluted earnings per share of the Company
for the year ended December 31, 1995, as adjusted for the pro forma effect of
acquisitions discussed above, assuming that these transactions occurred on
January 1, 1995, was approximately $886,210,000, $47,355,000, $15,100,000, and
$1.20, respectively.
In computing the pro forma earnings before extraordinary gain, earnings
have been reduced by net interest income on the aggregate cash portion of the
purchase price of such acquisitions at the historical rates earned by the
Company and by interest expense on indebtedness incurred in connection with the
acquisitions, net of the tax effect. Earnings before extraordinary gain have
also been reduced by amortization of goodwill and reflect net adjustments to
depreciation expense, as a result of an increase to estimated fair market value
of property and equipment.
The pro forma information presented does not purport to be indicative of
the results which would have been reported if these transactions had occurred on
January 1, 1995, or which may be reported in the future.
F-9
<PAGE> 112
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. CASH FLOWS
Interest paid was $22,119,000, $23,228,000 and $30,581,000 in 1994, 1995
and 1996, respectively.
The following table summarizes the activity of businesses acquired in
purchase transactions included in the accompanying consolidated statement of
cash flows for the year ended December 31, 1995:
<TABLE>
<CAPTION>
1995
-----------
(AMOUNTS IN
THOUSANDS)
<S> <C>
Fair value of assets acquired.................................... $ 129,652
Liabilities assumed or created................................... (96,224)
---------
Cash paid for acquisitions....................................... 33,428
Less cash acquired............................................... (5,885)
---------
Net cash paid for acquisitions................................... $ 27,543
=========
</TABLE>
The following table summarizes the activity of businesses sold or
discontinued included in the accompanying consolidated statement of cash flows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1994 1995
-------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Fair value of assets sold............................. $ 39,439 --
Liabilities assumed by the purchaser.................. (16,143) --
Notes receivable and other non-cash proceeds received
as part of the proceeds............................. (6,000) --
Cash proceeds from the sale of preferred stock........ -- 2,874
Cash payments relating to businesses sold or
discontinued, net................................... (4,831) (1,745)
-------- -------
Net cash proceeds relating to businesses sold or
discontinued........................................ $ 12,465 $ 1,129
======== =======
</TABLE>
Significant non-cash financing and investing activities excluded from the
accompanying consolidated statement of cash flows include capitalized lease
additions of approximately $500,000 in 1996 and a decline of approximately
$2,979,000, an increase of approximately $2,969,000 and a decline of
approximately $481,000 in the fair market value of marketable securities
available for sale for 1994, 1995 and 1996, respectively.
4. INCOME TAXES
The following is a summary of the components of earnings before provision
for income taxes and extraordinary gain:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
------- ------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Domestic...................................... $23,100 $21,600 $32,500
Foreign....................................... 4,300 2,700 3,500
------- ------- -------
$27,400 $24,300 $36,000
======= ======= =======
</TABLE>
F-10
<PAGE> 113
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of the provision (benefit) for income taxes
before extraordinary gain included in the accompanying consolidated statement of
operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1996
------- ------ -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Federal income taxes--
Current...................................... $ 7,125 $5,700 $12,950
Deferred..................................... 300 1,300 (1,800)
------- ------ -------
7,425 7,000 11,150
Foreign...................................... 1,500 1,300 1,300
State........................................ 1,275 1,000 1,550
------- ------ -------
$10,200 $9,300 $14,000
======= ====== =======
</TABLE>
Income tax payments, net of refunds, were approximately $10,895,000,
$3,739,000 and $18,611,000 in 1994, 1995 and 1996, respectively.
The following reconciles the federal statutory income tax rate to the
effective tax rate for earnings before extraordinary gain of approximately
37.2%, 38.3% and 38.9% in 1994, 1995 and 1996, respectively.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
------- ------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Income tax provision before extraordinary gain at the
Federal statutory rate............................. $ 9,590 $ 8,505 $12,600
NET CHANGE FROM STATUTORY RATE:
Change in valuation reserve, net..................... (1,625) (1,100) (481)
State taxes, net of federal tax effect............... 829 650 1,008
Amortization not deductible for tax purposes......... 737 868 1,040
Business sold........................................ 613 -- --
Product development tax credit from foreign
operations......................................... -- -- (478)
Tax effect on foreign income......................... 164 79 56
Other, net........................................... (108) 298 255
------- ------- -------
$10,200 $ 9,300 $14,000
======= ======= =======
</TABLE>
F-11
<PAGE> 114
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effect of temporary differences which gave rise to significant
portions of deferred income tax assets and liabilities as of December 31, 1995
and December 31, 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
PREPAID (DEFERRED) INCOME TAX ASSETS ARISING FROM:
Accounts receivable............................................ $ 1,425 $ 1,246
Inventory...................................................... (577) (610)
Insurance reserves............................................. 6,036 2,972
Other reserves, liabilities and assets, net.................... 12,216 16,392
------- -------
$19,100 $20,000
======= =======
DEFERRED (PREPAID) INCOME TAX LIABILITIES ARISING FROM:
Property and equipment, net.................................... $15,233 $15,400
Prepaid pension assets......................................... 1,323 (593)
Insurance reserves............................................. (273) (10)
Other reserves, liabilities and assets, net.................... 8,797 5,787
Capital loss carryforward...................................... (7,260) (6,462)
Other tax assets............................................... (1,658) (1,772)
Valuation allowances........................................... 11,618 10,238
------- -------
$27,780 $22,588
======= =======
</TABLE>
At December 31, 1996, the Company has U.S. Federal capital loss
carryforwards of approximately $18,500,000, of which approximately $16,600,000
expires in the year 1997. The Company has provided a valuation allowance equal
to the tax effect of capital loss carryforwards and certain other tax assets,
since realization of these tax assets cannot be reasonably assured.
5. NOTES, MORTGAGE NOTES AND OBLIGATIONS PAYABLE
Short-term obligations at December 31, 1995 and 1996 consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Secured revolving lines of credit of a Canadian subsidiary....... $ 4,173 $ 2,472
Secured lines of credit and bank advances of the Company's
European subsidiaries.......................................... 21,972 22,118
Other secured revolving lines of credit of one of the Company's
U.S. subsidiaries.............................................. 3,830 742
Other obligations................................................ 251 2
------- -------
$30,226 $25,334
======= =======
</TABLE>
These short-term obligations principally relate to subsidiaries acquired in
1995 and at December 31, 1996 are secured by approximately $56,900,000 of
accounts receivable and inventory. These borrowings have an average weighted
interest rate of approximately 10.925%.
F-12
<PAGE> 115
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Notes, mortgage notes and obligations payable in the accompanying
consolidated balance sheet at December 31, 1995 and 1996 consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
-------- --------
(AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Mortgage notes payable, net of $316,000 of unamortized discount
in 1996...................................................... $ 17,055 $ 20,878
Other, net of $548,000 and $750,000 of unamortized discount.... 18,185 17,209
9 7/8% Senior Subordinated Notes due 2004 ("9 7/8% Notes"),
net of unamortized original issue discount of $1,396,000 and
$1,520,000................................................... 216,980 217,104
-------- --------
252,220 255,191
Less amounts included in current liabilities................... 11,824 11,230
-------- --------
$240,396 $243,961
======== ========
</TABLE>
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 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. At February 7,
1997, approximately $683,607 was available for the payment of cash dividends or
stock payments under the terms of the Company's Indenture governing the 9 7/8%
Notes. (See Note 6.)
Mortgage notes payable of approximately $20,879,000 outstanding at December
31, 1996 include various mortgage notes and other related indebtedness payable
in installments through 2006 and bearing interest at rates ranging from 6.25% to
11.5% and is collateralized by property and equipment with an aggregate net book
value of approximately $42,900,000 at December 31, 1996.
Other obligations of approximately $17,209,000 outstanding at December 31,
1996 include borrowings relating to equipment purchases and other borrowings
bearing interest at rates primarily ranging between 5.6% to 14% and maturing at
various dates through 2002. Approximately $12,599,000 of such indebtedness is
collateralized by property and equipment with an aggregate net book value of
approximately $29,072,000 at December 31, 1996.
The following is a summary of maturities of all of the Company's debt
obligations, excluding unamortized debt discount, due after December 31, 1997:
<TABLE>
<CAPTION>
(AMOUNTS IN
THOUSANDS)
<S> <C>
1998...................................................... $ 7,277
1999...................................................... 5,056
2000...................................................... 4,789
2001...................................................... 3,245
Thereafter................................................ 225,854
--------
$246,221
========
</TABLE>
F-13
<PAGE> 116
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Amortization of discount and deferred costs, net of amortization of
discount on marketable securities was approximately $1,400,000, $1,100,000 and
$1,200,000 in 1994, 1995 and 1996, respectively.
6. COMMON STOCK, SPECIAL COMMON STOCK, STOCK OPTIONS
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, 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.
On April 1, 1996, the Company extended and amended its shareholder rights
plan to March 31, 2006. Under the amended plan, each right previously issued
under the plan in effect to date, or subsequently issued under the amended and
restated plan, entitles shareholders to buy 1/100 of a share of a new series of
preference stock of Nortek at an exercise price of $72 per share, subject to
adjustments for stock dividends, splits and similar events.
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, 1996, a total of 1,428,869 shares of Common Stock was
reserved as follows:
<TABLE>
<S> <C>
Stock option plans................................................ 644,700
Conversion of Special Common Stock................................ 784,169
--------
1,428,869
=========
</TABLE>
At December 31, 1996, 281,000 shares of Special Common Stock were 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 ten years from the date of grant. At December 31, 1996, 15,900
additional options are available for grant under these plans. Options for
200,100 and 27,500 shares of Common and Special Common Stock became exercisable
during 1995 and 1996, respectively.
F-14
<PAGE> 117
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes the Common and Special Common Stock option
transactions for the three years ended December 31, 1996:
<TABLE>
<CAPTION>
NUMBER OPTION PRICE WEIGHTED AVERAGE
OF SHARES PER SHARE EXERCISE PRICE
--------- --------------- ----------------
<S> <C> <C> <C>
Options outstanding at December 31,
1993.................................... 503,900 $2.25 - $15.69 $ 6.89
Exercised............................... (9,800) 2.875 2.88
------- --------------- ------
Options outstanding at December 31,
1994.................................... 494,100 $2.25 - $15.69 $ 6.97
Exercised............................... (42,600) 2.25 - 2.875 2.81
------- --------------- ------
Options outstanding at December 31,
1995.................................... 451,500 $2.25 - $15.69 $ 7.36
Granted................................. 275,000 14.75 14.75
Exercised............................... (95,200) $2.25 - $7.9375 5.07
Canceled................................ (2,500) 8.75 8.75
------- --------------- ------
Options outstanding at December 31,
1996.................................... 628,800 $2.875 - $15.69 $10.93
======= =============== ======
</TABLE>
51,800 of the 628,800 options outstanding at December 31, 1996 have an
exercise price of $2.875, with a weighted average contractual life of 2.8 years.
All of these options are exercisable. 296,000 options have exercise prices
between $6.125 and $9.38 with a weighted average exercise price of $8.69 and a
weighted average remaining contractual life of 6.5 years. All of these options
are exercisable. The remaining 281,000 options, 6,000 of which are exercisable,
have exercise prices between $14.75 and $15.69, with a weighted average exercise
price of $14.77 and a remaining contractual life of 9.8 years.
The Company accounts for stock option plans under APB Opinion No. 25, under
which no compensation cost has been recognized since options are granted with
exercise prices equal to the fair market value of the Common Stock at the date
of grant. Had compensation cost for these plans been determined consistent with
SFAS No. 123, the Company's unaudited pro forma net earnings and fully diluted
earnings per share for the year ended December 31, 1996 would have been
approximately $21,634,000 and $2.02, respectively. The fair value of each option
grant is estimated on the date of the grant using the Black-Scholes option
pricing model with the following assumptions used for grants in 1996: risk-free
interest rate of 7%; expected life of 5 years; expected volatility of 33%;
dividend yield of 0%.
During 1995 and 1996, the Company's Board of Directors authorized a number
of programs to purchase shares of the Company's Common and Special Common Stock,
subject to market conditions and cash availability. The programs included the
purchase of 1,189,809 shares of its common stock, or approximately 10.6% of its
outstanding shares on April 26, 1996 for approximately $20,200,000 from three of
its directors who also resigned from the Company's Board of Directors and the
most recent program which was announced on October 28, 1996, to purchase up to
500,000 shares of the Company's Common and Special Common Stock in open-market
or negotiated transactions subject to market conditions and cash availability.
From November 16, 1995 to December 31, 1996, the Company purchased 2,476,719
shares of its Common and Special Common Stock for approximately $36,319,000 and
accounted for such share purchases as Treasury
F-15
<PAGE> 118
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock. Had these shares been purchased as of January 1, 1995, unaudited pro
forma net earnings and fully diluted net earnings per share would have been:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DEC. 31, 1995 DEC. 31, 1996
------------- -------------
(AMOUNTS IN THOUSANDS
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Net Earnings....................................... $13,800 $21,600
======= =======
Fully diluted net earnings per share............... $ 1.37 $ 2.14
======= =======
</TABLE>
As of February 7, 1997, the Company purchased during the first quarter,
approximately 280,700 shares of its Common and Special Common Stock for
approximately $6,530,000 in cash, in negotiated and open market transactions.
7. PENSION, RETIREMENT AND PROFIT SHARING PLANS
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 $2,883,000 in 1994, $1,377,000 in 1995 and $4,420,000
in 1996. The Company's policy is to fund currently the actuarially determined
annual contribution. In the fourth quarter of 1995, benefits related to the
Company's existing defined benefit plans were frozen. On January 1, 1996, the
Company adopted a supplemental retirement plan for certain officers. The
actuarial present value of the unfunded accumulated benefit obligation and the
pension costs of this plan have been included in the tables below.
The Company's net expense for its defined benefit plans for 1994, 1995 and
1996 consists of the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
------- ------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Service costs......................................... $ 1,647 $ 1,273 $ 453
Interest cost......................................... 2,261 2,364 2,543
Actual net income on plan assets...................... (2,155) (3,204) (4,345)
Net amortization and deferred items................... 10 790 2,341
Net gain from freezing plan benefits.................. -- (581) --
------- ------- -------
Total expense......................................... $ 1,763 $ 642 $ 992
======= ======= =======
</TABLE>
The following sets forth the funded status of the Company's defined benefit
plans and amounts recognized in the Company's consolidated balance sheet at
December 31, 1995 and 1996:
<TABLE>
<CAPTION>
PLAN ASSETS EXCEEDING
BENEFIT OBLIGATIONS
---------------------
1995 1996
------- -------
(AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations at September 30:
Vested benefits and accumulated benefit obligation............. $22,259 $23,945
Plan assets at fair value at September 30...................... 25,673 28,040
Plan assets in excess of the accumulated benefit obligation.... 3,414 4,095
Unrecognized net gain.......................................... -- (452)
------- -------
$ 3,414 $ 3,643
======= =======
</TABLE>
F-16
<PAGE> 119
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
BENEFIT OBLIGATIONS
EXCEEDING PLAN
ASSETS
-------------------
1995 1996
------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations at September 30:
Vested benefits.................................................. $ 5,069 $ 9,707
Non-vested benefits.............................................. -- 520
------- -------
Accumulated benefit obligation................................... 5,069 10,227
Effect of projected future compensation levels................... -- 2,439
------- -------
Projected benefit obligation..................................... 5,069 12,666
------- -------
Plan assets at fair value at September 30........................ 4,407 4,813
Projected obligation in excess of plan assets.................... (662) (7,853)
Unrecognized net loss............................................ 916 1,043
Unrecognized prior service costs................................. -- 6,335
Additional minimum liability..................................... (916) (4,939)
------- -------
$ (662) $(5,414)
======= =======
</TABLE>
Plan assets include commingled funds, marketable securities, insurance
contracts and cash and short-term investments. The weighted average discount
rate and rate of increase in future compensation levels used in determining the
actuarial present value of benefit obligations were 8 percent and 5 1/2
percent, respectively, in 1994, 7 1/2 percent and 5 percent, respectively, in
1995 and 1996. The expected long-term rate of return on assets was 8 1/2
percent in 1994, 1995 and 1996.
Recognition of a minimum pension liability and an intangible asset for
certain plans resulted in a reduction in the Company's stockholders' investment
of approximately $672,000, $916,000 and $1,043,000 in 1994, 1995 and 1996,
respectively.
8. COMMITMENTS AND CONTINGENCIES
The Company provides accruals for all direct and indirect costs associated
with the estimated resolution of contingencies at the earliest date at which the
incurrence of a liability is deemed probable and the amount of such liability
can be reasonably estimated.
At December 31, 1996, the Company and its subsidiaries are obligated under
lease agreements for the rental of certain real estate and machinery and
equipment used in its operations. Minimum annual rental expense aggregates
approximately $26,761,000 at December 31, 1996. The obligations are payable as
follows:
<TABLE>
<S> <C>
1997............................................................... $ 4,916
1998............................................................... 4,173
1999............................................................... 3,104
2000............................................................... 1,953
2001............................................................... 1,319
Thereafter......................................................... 11,296
</TABLE>
Certain of these lease agreements provide for increased payments based on
changes in the consumer price index. Rental expense charged to operations in the
accompanying consolidated statement of operations was approximately $7,000,000,
$6,900,000 and $6,725,000 for the years ended December 31, 1994, 1995 and 1996,
respectively. Under certain of these lease agreements, the Company and its
subsidiaries are also obligated to pay insurance and taxes.
F-17
<PAGE> 120
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is subject to other contingencies, including 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 workers'
compensation statutes, rules, regulations and case law is unclear. Further, due
to the lack of adequate information and the potential impact of present
regulations and any future regulations, there are certain circumstances in which
no range of potential exposure may be reasonably estimated.
While it is impossible to ascertain the ultimate legal and financial
liability with respect to contingent liabilities, including lawsuits, the
Company believes that the aggregate amount of such liabilities, if any, in
excess of amounts provided, will not have a material adverse effect on the
consolidated financial position or results of operations of the Company.
9. OPERATING AND GEOGRAPHIC 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. Prior to 1995, more than 90% of net sales and identifiable assets
were related to the Company's domestic operations. As a result of acquisitions
in 1995, the following information by geographic area is presented for 1995 and
1996:
<TABLE>
<CAPTION>
NET PRE-TAX IDENTIFIABLE
SALES EARNINGS ASSETS
-------- -------- ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1995:
Geographic areas:
Domestic operations.................................. $733,264 $ 45,742 $341,555
European operations.................................. 13,298 769 71,180
Other foreign operations............................. 42,432 2,189 68,056
Eliminations......................................... (12,784) -- (8,258)
-------- -------- --------
776,210 48,700 472,533
Unallocated....................................... -- (7,616) 152,946
Interest expense.................................. -- (24,918) --
Interest income................................... -- 6,134 --
Net gain on investment and marketable
securities...................................... -- 2,000 --
-------- -------- --------
Consolidated Totals.................................. $776,210 $ 24,300 $625,479
======== ======== ========
</TABLE>
F-18
<PAGE> 121
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
NET PRE-TAX IDENTIFIABLE
SALES EARNINGS ASSETS
-------- -------- ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1996:
Geographic areas:
Domestic operations.................................. $834,789 $ 65,538 $334,927
European operations.................................. 82,363 3,520 73,285
Other foreign operations............................. 67,503 4,886 64,609
Eliminations......................................... (14,857) -- (5,663)
-------- -------- --------
969,798 73,944 467,158
Unallocated....................................... -- (13,892) 141,958
Interest expense.................................. -- (30,113) --
Interest income................................... -- 5,311 --
Net gain on investment and marketable
securities...................................... 750 --
-------- -------- --------
Consolidated Totals.................................. $969,798 $ 36,000 $609,116
======== ======== ========
</TABLE>
Unallocated assets consist primarily of cash, investments and marketable
securities and U. S. Federal prepaid income taxes.
The Company operates internationally and is exposed to market risks from
changes in foreign exchange rates. 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,
1996, the Company had no significant concentrations of credit risk.
10. NET GAIN (LOSS) ON MARKETABLE SECURITIES
On January 1, 1994, the Company adopted the accounting requirements of SFAS
No. 115 "Accounting for Certain Investments in Debt and Equity Securities", and
recorded as income the accumulated unrealized marketable security reserve
recorded at December 31, 1993 of approximately $400,000 ($.03 per share) as the
cumulative effect of an accounting change. Under the new accounting method, the
Company records unrealized gains or losses on such investment securities as
adjustments to stockholders' investment. Previously, such gains or losses were
recorded in the Company's consolidated statement of operations.
At December 31, 1995 and 1996, the reduction in the Company's stockholders'
investment under the new accounting method for gross unrealized losses was
approximately $410,000 and $891,000, respectively. At December 31, 1996, there
were no gross unrealized gains on the Company's marketable securities.
F-19
<PAGE> 122
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's marketable securities at December 31, 1996 consist primarily
of U. S. Government Treasury Notes and bank issued money market instruments due
as follows:
<TABLE>
<CAPTION>
FAIR
PRINCIPAL AMORTIZED MARKET
AMOUNT COST VALUE
--------- --------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
U. S. GOVERNMENT NOTES:
Due in 1-5 years.......................................... $ 11,000 $11,207 $10,806
Due in 5-10 years......................................... 4,000 4,123 3,880
-------- ------- -------
15,000 15,330 14,686
-------- ------- -------
BANK ISSUED MONEY MARKET INSTRUMENTS:
Due within 1 year......................................... 35,900 36,612 36,365
-------- ------- -------
$ 50,900 $51,942 $51,051
======== ======= =======
</TABLE>
11. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
In the second quarter of 1994, the Company recorded net pre-tax income of
approximately $3,200,000 ($.14 per share, net of tax) resulting from the
settlement of certain insurance claims and disputes.
12. ACCRUED EXPENSES AND TAXES, NET
Accrued expenses and taxes, net, consist of the following at December 31,
1995 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
-------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Insurance..................................................... $ 22,496 $12,084
Payroll, management incentive and accrued employee benefits... 17,463 25,939
Interest...................................................... 8,077 7,749
Accrued product warranty expense.............................. 6,850 8,134
Other, net.................................................... 46,084 43,659
-------- -------
$100,970 $97,565
======== =======
</TABLE>
13. SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following summarizes unaudited quarterly financial data for the years
ended December 31, 1995 and December 31, 1996:
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
-----------------------------------------------
APRIL 1 JULY 1 SEPT. 30 DEC. 31
-------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1995
Net sales............................... $184,809 $194,206 $193,567 $203,628
Gross profit............................ 49,369 49,505 49,676 52,731
Net earnings............................ 2,500 3,200 5,200 4,100
Net earnings per share:
Primary............................... .20 .25 .41 .33
Fully diluted......................... .20 .25 .41 .33
</TABLE>
F-20
<PAGE> 123
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
-----------------------------------------------
MARCH 30 JUNE 29 SEPT. 28 DEC. 31
-------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1996
Net sales............................... $220,985 $260,235 $248,227 $240,351
Gross profit............................ 55,398 68,612 66,419 69,494
Net earnings............................ 2,400 5,800 6,500 7,300
Net earnings per share:
Primary............................... .20 .55 .64 .72
Fully diluted......................... .20 .55 .64 .72
</TABLE>
See Notes 2 and 11 regarding certain other quarterly transactions included
in the operating results in the above table.
Increased net sales in 1996 as compared to 1995 reflect the effect of
businesses acquired in the fourth quarter of 1995. Operating results in the
third quarter of 1996 were adversely affected by an extended shutdown period and
other factors by the Company's European subsidiaries. Net sales and gross profit
margins increased in the fourth quarter of 1996 from the fourth quarter of 1995.
Overall, these increases are due in part to the effect of continued strong
shipments (on a seasonal basis) in several of the Company's businesses,
especially ventilation and HVAC products and the positive effect of the relative
mix of products sold and changes in productivity levels. (See Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Note 2).
14. INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(A) The unaudited condensed consolidated financial statements presented
("Unaudited Financial Statements") have been prepared by Nortek, Inc. and
include all of its wholly-owned subsidiaries (the "Company") after elimination
of intercompany accounts and transactions, without audit and, in the opinion of
management, reflect all adjustments of a normal recurring nature necessary for a
fair statement of the interim periods presented. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted,
although, the Company believes that the disclosures included are adequate to
make the information presented not misleading. Certain amounts in the Unaudited
Financial Statements for the prior periods have been reclassified to conform to
the presentation at June 28, 1997. It is suggested that these Unaudited
Financial Statements be read in conjunction with the financial statements and
the notes included in the Company's latest Annual Report on Form 10-K.
(B) In March 1997, the Company sold $175,000,000 principal amount of
9 1/4% Senior Notes due March 2007 ("9 1/4% Notes") at a slight discount. The
net proceeds will be used to refinance certain outstanding indebtedness of the
Company's subsidiaries and for acquisitions and other general corporate
purposes, including investment in plant and equipment.
The Company's Board of Directors has authorized a number of programs to
purchase shares of the Company's Common and Special Common Stock since November
16, 1995. The most recent of these programs was announced on April 30, 1997, to
purchase up to 500,000 shares of the Company's Common and Special Common Stock
in open market or negotiated transactions, subject to market conditions, cash
availability and provisions of the Company's outstanding debt instruments. As of
July 25, 1997, the Company has purchased approximately 14,179 shares of its
Common and Special Common Stock for approximately $336,700 under this latest
program. For the period from November 16, 1995 to July 25, 1997, the Company
purchased approximately 2,800,000 shares of its Common and Special Common Stock
for approximately $44,160,000 and accounted for such share purchases as Treasury
Stock.
F-21
<PAGE> 124
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At July 25, 1997, approximately $4,800,000 was available for the payment of
cash dividends or stock purchases under the terms of the Company's most
restrictive Indenture.
(C) At December 31, 1996 and June 28, 1997, the reduction in the Company's
stockholders' investment for gross unrealized losses on marketable securities
was approximately $891,000 and $522,000, respectively.
(D) The tax effect of temporary differences which gave rise to significant
portions of deferred income tax assets and liabilities as of December 31, 1996
and June 28, 1997 is as follows:
<TABLE>
<CAPTION>
DEC. 31, JUNE 28,
1996 1997
-------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
U. S. Federal Prepaid (Deferred) Income Tax Assets Arising From:
Accounts receivable............................................ $ 1,246 $ 1,442
Inventory...................................................... (610) (376)
Insurance reserves............................................. 4,985 5,366
Other reserves, liabilities and assets, net.................... 14,379 13,568
-------- --------
$ 20,000 $ 20,000
======== ========
Deferred (Prepaid) Income Tax Liabilities Arising From:
Property and equipment, net.................................... $ 15,400 $ 15,558
Prepaid pension assets......................................... 841 586
Other reserves, liabilities and assets, net.................... (608) 147
Capital loss carryforward...................................... (6,462) (6,400)
Other, net..................................................... (1,772) (1,828)
Valuation allowances........................................... 10,238 10,237
-------- --------
$ 17,637 $ 18,300
======== ========
</TABLE>
At June 28, 1997, the Company has a capital loss carryforward of
approximately $18,300,000, of which approximately $16,400,000 expires in 1997.
The Company has provided a valuation allowance equal to the tax effect of
capital loss carryforwards and certain other tax assets, since realization of
these tax assets cannot be reasonably assured.
F-22
<PAGE> 125
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following reconciles the federal statutory income tax rate to the
effective tax rate from continuing operations of approximately 35.6% and 33.0%
in the second quarter of 1996 and 1997, respectively, and 35.0% and 37.4% in the
first six months of 1996 and 1997, respectively.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- ---------------------
JUNE 29, JUNE 28, JUNE 29, JUNE 28,
1996 1997 1996 1997
-------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Income tax provision at the Federal statutory
rate......................................... $3,150 $3,500 $4,585 $5,600
Net Change from Statutory Rate:
Change in valuation reserve, net............... (577) (701) (748) (827)
State taxes, net of federal tax effect......... 325 391 487 455
Amortization not deductible for tax purposes... 277 267 523 535
Other nondeductible items...................... 50 48 118 183
Product development tax credit from foreign
operations................................... (109) (125) (224) (207)
Tax effect on foreign income................... 84 (80) 159 (139)
------ ------ ------ ------
$3,200 $3,300 $4,900 $5,600
====== ====== ====== ======
</TABLE>
(E) Net earnings per share ("EPS") amounts have been computed using the
weighted average number of common and common equivalent shares outstanding
during each year. Special common stock is treated as the equivalent of common
stock in determining earnings per share.
In March 1997, the FASB released SFAS No. 128, "Earnings Per Share," which
will become effective December 31, 1997. As a result, the Company's reported
earnings per share for 1996 and 1997 will be restated in the Company's annual
report on Form 10-K for the year ending December 31, 1997. The unaudited pro
forma effect of this accounting change on reported earnings per share is as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- --------------------- YEAR ENDED
JUNE 29, JUNE 28, JUNE 29, JUNE 28, DEC. 31,
1996 1997 1996 1997 1996
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Amounts Primary EPS as
reported........................ $.55 $.68 $.73 $ 1.05 $ 2.07
Effect of SFAS No. 128............ .01 .02 .02 .03 .03
---- ---- ---- ------ ------
Basic EPS as restated............. $.56 .70 $.75 $ 1.08 $ 2.10
==== ==== ==== ====== ======
Fully diluted EPS as reported..... $.55 .68 $.73 $ 1.05 $ 2.05
Effect of SFAS No. 128............ -- -- -- -- .02
---- ---- ---- ------ ------
Diluted EPS as restated........... $.55 .68 $.73 $ 1.05 $ 2.07
==== ==== ==== ====== ======
</TABLE>
On July 24, 1997, Nortek, a wholly owned subsidiary of Nortek and Ply Gem
entered into an Agreement and Plan of Merger (the "Merger Agreement"). In
connection with the Merger Agreement, on July 29, 1997, such Nortek subsidiary
commenced a tender offer to purchase all outstanding shares of common stock,
$0.25 par value per share ("Common Stock" or the "Shares"), of Ply Gem, at a
price of $19.50 per share, net to the seller in cash, without interest thereon
(the "Tender Offer"), upon such terms and conditions as are set forth in the
Offer to Purchase dated July 29, 1997 (the "Offer to Purchase") and the related
Letter of Transmittal.
As promptly as practicable after the acceptance of and payment for the
Shares tendered pursuant to the Tender Offer, the Merger Agreement provides that
Nortek's subsidiary will be merged with and into Ply Gem (the "Merger"), which
shall be the surviving corporation and shall become a wholly owned subsidiary of
F-23
<PAGE> 126
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Nortek. The obligation of Nortek to consummate the Tender Offer and Merger is
subject to the satisfaction of certain conditions.
The sources and uses of the financing needed to complete the Acquisition
and related transactions are expected to be as follows:
<TABLE>
<CAPTION>
IN MILLIONS
-----------
<S> <C>
SOURCES OF FINANCING:
Nortek cash..................................................... $ 110.5
Gross proceeds from the Offering................................ 307.5
Extension of credit under the Ply Gem Credit Facility........... 101.9
-------
Total sources of funds....................................... $ 519.9
=======
USES OF FINANCING:
Payment for shares of Ply Gem common stock and cancellation of
Ply Gem stock options........................................ $ 310.2
Refinancing of existing Ply Gem indebtedness.................... 101.9
Termination of Ply Gem accounts receivable securitization
program...................................................... 50.0
Funding of termination fees under prior transaction agreement... 12.0
Consideration paid for termination of management agreements..... 24.5
Fees, expenses and other costs related to the Transactions...... 21.3
-------
Total uses of funds.......................................... $ 519.9
=======
</TABLE>
On July 29, 1997, the Company commenced a cash tender offer and expects to
complete the acquisition of Ply Gem in the third quarter of 1997.
F-24
<PAGE> 127
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Ply Gem Industries, Inc.
We have audited the accompanying consolidated balance sheets of Ply Gem
Industries, Inc. and Subsidiaries (the "Company") as of December 31, 1996 and
1995 and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conduct our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Ply Gem
Industries, Inc. and Subsidiaries as of December 31, 1996 and 1995 and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
GRANT THORNTON LLP
New York, New York
February 25, 1997
F-25
<PAGE> 128
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, -------------------
------------------------------ JUNE 30, JUNE 30,
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales................................. $808,874 $755,198 $774,928 $354,097 $381,728
Cost of goods sold........................ 653,270 630,552 626,424 290,889 313,403
-------- -------- -------- -------- --------
Gross profit............................ 155,604 124,646 148,504 63,208 68,325
Selling, general and administrative
expenses................................ 118,726 114,171 119,494 55,988 56,626
Write-down of long-lived assets........... -- 11,950 -- -- --
Merger expenses........................... -- -- -- -- 2,850
Nonrecurring charges...................... 40,962 -- -- -- --
-------- -------- -------- -------- --------
Income (net loss) from operations....... (4,084) (1,475) 29,010 7,220 8,849
Interest expense.......................... (7,479) (6,649) (6,773) (3,757) (3,649)
Other expense, net........................ (386) (2,138) (2,658) (657) (1,239)
-------- -------- -------- -------- --------
Income (loss) before income taxes....... (11,949) (10,262) 19,579 2,806 3,961
Income tax provision (benefit)............ (3,418) (2,860) 9,125 1,287 1,981
-------- -------- -------- -------- --------
NET INCOME (LOSS)......................... $ (8,531) $ (7,402) $ 10,454 $ 1,519 $ 1,980
======== ======== ======== ======== ========
Earnings (loss) per share................. $ (.62) $ (.51) $ .74 $ .11 $ .14
-------- -------- -------- -------- --------
Weighted average number of shares
outstanding............................. 13,870 14,445 14,065 14,251 13,842
-------- -------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
F-26
<PAGE> 129
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............................. $ 8,107 $ 9,924 $ 7,952
Accounts receivable, net of allowance of $4,511,
$3,039 and $2,713................................... 31,736 28,003 45,937
Inventories........................................... 96,228 92,983 110,450
Prepaid and deferred income taxes..................... 15,714 10,905 10,905
Other current assets.................................. 10,478 12,975 14,931
-------- -------- ---------
Total current assets................................ 162,263 154,790 190,175
Property, plant and equipment -- at cost, net......... 81,832 90,681 101,543
Patents and trademarks, net of accumulated
amortization of $8,971, $9,776 and $10,331.......... 15,334 13,793 13,255
Intangible assets, net................................ 15,507 14,794 14,380
Cost in excess of net assets acquired, net............ 23,081 21,618 20,887
Other assets.......................................... 26,973 17,771 18,220
-------- -------- ---------
Total assets........................................ $324,990 $313,447 $ 358,460
======== ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses................. $ 40,455 $ 50,937 $ 56,654
Accrued restructuring................................. 4,480 1,138 646
Accrued payroll and commissions....................... 7,790 10,408 8,782
Accrued insurance..................................... 4,400 4,285 4,673
Current maturities of long-term debt and capital
leases.............................................. 458 1,380 1,528
-------- -------- ---------
Total current liabilities........................... 57,583 68,148 72,283
Long-term debt........................................ 93,135 73,166 111,496
Capital leases........................................ 7,106 9,231 8,656
Other liabilities..................................... 22,681 17,119 18,819
Stockholders' equity Preferred stock, $.01 par value;
authorized 5,000,000 shares; none issued............ -- -- --
Common stock, $.25 par value; authorized 60,000,000
shares; issued 17,463,072, 17,676,540 and
17,747,957 shares................................ 4,366 4,419 4,437
Additional paid-in capital.......................... 148,618 149,226 150,059
Retained earnings................................... 53,246 61,993 63,129
-------- -------- ---------
206,230 215,638 217,625
Less
Treasury stock -- at cost (3,015,311, 3,687,954 and
3,764,278 shares)................................ 55,676 63,936 64,766
Unamortized restricted stock and note receivable.... 6,069 5,919 5,653
-------- -------- ---------
Total stockholders' equity....................... 144,485 145,783 147,206
-------- -------- ---------
Total liabilities and stockholders' equity....... $324,990 $313,447 $ 358,460
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-27
<PAGE> 130
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
THREE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
-----------------------------------------------------------------
COMMON STOCK TREASURY STOCK
------------------- -------------------
NUMBER ADDITIONAL NUMBER
OF PAID-IN RETAINED OF
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT
---------- ------ ---------- -------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994.................... 11,872,509 $2,968 $ 64,006 $ 72,601 910,073 $ 9,362
Cash dividends on common stock ($.12 per
share)...................................... (1,673)
Exercise of employee stock options............ 2,672,318 668 23,423 1,197,241 29,465
Tax benefit arising from exercise of stock
options..................................... 9,962
Conversion of debentures...................... 2,751,328 688 48,379
Purchase of stock for treasury................ 640,700 12,175
Other......................................... 40 -- 1,197 (2,695) (48)
Net loss...................................... (8,531)
---------- ------ --------- -------- --------- -------
Balance at December 31, 1994.................. 17,296,195 4,324 146,967 62,397 2,745,319 50,954
Cash dividends on common stock ($.12 per
share)...................................... (1,749)
Exercise of employee stock options............ 166,872 42 1,494 30,580 573
Tax benefit arising from exercise of stock
options..................................... 174
Shares held for distribution to employee
profit sharing trust........................ (52,500) (819)
Purchase of stock for treasury................ 292,000 4,955
Other......................................... 5 -- (17) (88) 13
Net loss...................................... (7,402)
---------- ------ --------- -------- --------- -------
Balance at December 31, 1995.................. 17,463,072 4,366 148,618 53,246 3,015,311 55,676
Cash dividends on common stock ($.12 per
share)...................................... (1,707)
Exercise of employee stock options............ 213,468 53 1,916 63,612 915
Tax benefit arising from exercise of stock
options..................................... 367
Contribution of treasury stock to employee
profit sharing trusts....................... (1,039) (140,700) (2,608)
Purchase of stock for treasury................ 752,200 9,998
Other......................................... (636) (2,469) (45)
Net income.................................... 10,454
---------- ------ --------- -------- --------- -------
Balance at December 31, 1996.................. 17,676,540 $4,419 $ 149,226 $ 61,993 3,687,954 $63,936
---------- ------ --------- -------- --------- -------
Cash dividends on common stock ($.06 per
share)...................................... (844)
Exercise of employee stock options............ 71,417 18 703 7,153 117
Contribution of treasury stock to employee
profit sharing trusts....................... (232) (50,000) (863)
Purchase of stock for treasury................ 132,953 1,808
Other......................................... 362 (13,782) (232)
Net income.................................... 1,980
---------- ------ --------- -------- --------- -------
Balance at June 30, 1997...................... 17,747,957 $4,437 $ 150,059 $ 63,129 3,764,278 $64,766
========== ====== ========= ======== ========= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-28
<PAGE> 131
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, ---------------------
---------------------------------- JUNE 30, JUNE 30,
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................... $ (8,531) $ (7,402) $ 10,454 $ 1,519 $ 1,980
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation........................... 8,733 10,521 11,359 5,758 6,667
Amortization........................... 4,652 3,650 3,594 1,811 1,700
Non-cash profit sharing expense........ -- -- 2,243 -- --
Write-down of long-lived assets........ -- 11,950 -- -- --
Nonrecurring charges net of cash
payments of $5,223,000 in 1994....... 35,739 -- -- -- --
Deferred taxes......................... (8,067) 3,644 3,339 -- --
Provision for doubtful accounts........ 874 1,505 1,982 1,526 460
Changes in assets and liabilities
Accounts receivable.................. 10,515 9,617 1,751 (13,830) (18,394)
Inventories.......................... 5,575 6,861 3,245 (4,494) (17,467)
Prepaid expenses and other current
assets............................ 1,459 (5,129) 2,135 (969) (1,956)
Accounts payable and accrued
expenses.......................... 3,860 (8,195) 12,985 8,873 4,479
Income taxes payable................. (4,902) -- -- -- --
Accrued restructuring................ -- (10,608) (5,574) (4,294) (492)
Other assets......................... (1,061) (5,305) 3,141 3,550 1,251
-------- -------- -------- -------- --------
Net cash provided by (used in)
operating activities............ 48,846 11,109 50,654 (550) (21,772)
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment.............................. (23,046) (27,827) (17,583) (8,623) (17,789)
Funds used for construction............... 1,327 -- -- -- --
Proceeds from property, plant and
equipment disposals.................... 1,681 799 473 49 180
Proceeds from sales of marketable
securities, net........................ -- 788 -- -- --
Other..................................... 129 25 (17) 68 63
-------- -------- -------- -------- --------
Net cash used in investing
activities...................... (19,909) (26,215) (17,127) (8,506) (17,546)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings.................. -- -- -- -- 2,725
Repayment of long-term debt............... (881) (481) (533) 36 722
Net increase (decrease) in revolving note
borrowings with original maturity of 90
days or less........................... (14,884) 14,040 (19,540) 9,424 35,900
Purchase of stock for treasury............ (12,175) (4,955) (9,998) (4,630) (1,808)
Cash dividends............................ (1,673) (1,749) (1,707) (868) (844)
Proceeds from exercise of employee stock
options................................ 6,491 1,499 1,500 -- 676
Other..................................... (3,911) 456 (1,432) 992 (25)
-------- -------- -------- -------- --------
Net cash provided by (used in) financing
activities................................ (27,033) 8,810 (31,710) 4,954 37,346
-------- -------- -------- -------- --------
Net increase (decrease) in cash and
cash equivalents..................... 1,904 (6,296) 1,817 (4,102) (1,972)
Cash and cash equivalents at beginning of
year...................................... 12,499 14,403 8,107 8,107 9,924
-------- -------- -------- -------- --------
Cash and cash equivalents at end of year.... $ 14,403 $ 8,107 $ 9,924 $ 4,005 $ 7,952
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-29
<PAGE> 132
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Ply Gem Industries, Inc. ("Ply Gem") through its subsidiaries (the
"Company") operates predominantly in one industry segment, which consists of the
manufacture and sale of vinyl siding, wood and vinyl-framed windows, doors,
skylights, prefinished decorative plywood and decorator wall and floor
coverings, furniture components, pressure-treated wood products and the
distribution of other products for the building products and home improvement
markets.
Principles of Consolidation
The consolidated financial statements include the accounts of Ply Gem
Industries, Inc. and its wholly-owned subsidiaries after eliminating all
significant intercompany accounts and transactions. Certain prior year items
have been reclassified to conform to 1996 presentation.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and temporary investments
having an original maturity of three months or less.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
on the first-in, first-out (FIFO) method.
Long-Lived Assets
(a) Property, Plant and Equipment
Owned property, plant and equipment are depreciated over the estimated
useful lives of the assets using the straight-line method for financial
reporting purposes and accelerated methods for income tax purposes. Service
lives for principal assets are 5 to 35 years for buildings and improvements and
3 to 12 years for machinery and equipment.
Leasehold improvements are amortized on a straight-line basis over their
respective lives or the terms of the applicable leases, including expected
renewal options, whichever is shorter. Capitalized leases are amortized on a
straight-line basis over the terms of the leases or their economic useful lives.
(b) Patents and Trademarks
Purchased patents and trademarks are recorded at appraised value at the
time of the business acquisition and are being amortized on a straight-line
basis over their estimated remaining economic lives; thirteen to seventeen years
for patents and thirty years for trademarks.
(c) Cost in Excess of Net Assets Acquired and Other Intangibles
Cost in excess of net assets acquired is being amortized from twenty to
thirty years on a straight-line basis. Other intangibles, which arose primarily
from the allocation of purchase prices of businesses acquired, are being
amortized on a straight-line basis over thirty-nine years.
The Company annually evaluates the carrying value of its long-lived assets
to evaluate whether changes have occurred that would suggest that the carrying
amount of such assets may not be recoverable based on the estimated future
undiscounted cash flows of the businesses to which the assets relate. Any
impairment loss would be equal to the amount by which the carrying value of the
assets exceed its fair value.
F-30
<PAGE> 133
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
Deferred income tax liabilities and assets reflect the tax effects of
temporary differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes and
net operating loss and credit carryforwards. These differences are classified as
current or noncurrent based upon the classification of the related asset or
liability. Deferred income tax assets, such as benefits related to net operating
loss and credit carryforwards, are recognized to the extent that such benefits
are more likely than not to be realized.
Financial Instruments
The Company utilizes various financial instruments to manage interest rate
risk associated with its borrowings. Interest rate swap agreements modify the
interest characteristics of a portion of the Company's debt. Amounts to be paid
or received under interest rate swap agreements are accrued as interest rates
change and are recognized over the life of the swap agreements as an adjustment
to interest expense. Interest rate caps are used to lock in a maximum interest
rate if rates rise, but enables the Company to otherwise pay lower market rates.
The cost of interest rate cap agreements are amortized to interest expense over
the life of the cap. Payments received as a result of the cap agreements reduce
interest expense. The unamortized costs of the cap agreements are included in
other assets.
The fair value for cash, receivables, accounts payable, and accrued
liabilities approximate carrying amount because of the short maturity of these
instruments. The fair value of long-term debt approximates its carrying amount,
as the debt carries variable interest rates.
Earnings (Loss) Per Share
Earnings (loss) per share of common stock is computed by dividing net
income (loss) by the weighted average number of common shares outstanding. Stock
options have been excluded from the calculations as their effect would be
anti-dilutive.
Stock Based Compensation
The Company grants stock options for a fixed number of shares to employees
and directors with an exercise price equal to or greater than the fair value of
the shares at the date of grant. The Company accounts for stock option grants in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees."
Accordingly, the Company recognizes no compensation expense for the stock option
grants.
Customers
The Company's products are distributed through an extensive network that
includes major retail home center chains, specialty home remodeling
distributors, lumber and building products wholesalers, professional contractors
and Company operated distribution centers. The products are marketed
predominately in the United States through Company sales personnel and
independent representatives. One customer accounted for approximately 19% of the
Company's net sales for the years ended December 31, 1996 and 1995 and
approximately 14% in 1994.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-31
<PAGE> 134
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 ACCOUNTS RECEIVABLE
The Company has a program which currently allows for the sale of up to $50
million of undivided fractional interests in a designated pool of eligible
accounts receivable to a financial institution with limited recourse. The
program expires in April 1998. At December 31, 1996 and 1995 respectively, the
Company sold $45 and $42 million of receivables under this program. Program
costs of $3,540,000, $3,205,000, and $1,892,000 are included in "other expense"
for 1996, 1995 and 1994, respectively. $5,000,000, due from officer, was repaid
subsequent to year end.
NOTE 3 INVENTORIES
The classification of inventories at the end of each year was as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Finished goods.................................. $ 53,833,000 $ 54,530,000
Work in progress................................ 9,724,000 12,508,000
Raw materials................................... 29,426,000 29,190,000
------------ ------------
$ 92,983,000 $ 96,228,000
============ ============
</TABLE>
NOTE 4 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at the end of each year consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Land............................................ $ 2,668,000 $ 2,704,000
Buildings and improvements...................... 27,044,000 24,853,000
Machinery and equipment......................... 94,912,000 78,830,000
Transportation equipment........................ 2,156,000 2,428,000
Furniture and fixtures.......................... 10,378,000 11,312,000
Capital leases.................................. 10,705,000 7,501,000
Construction in progress........................ 5,575,000 5,777,000
------------ ------------
153,438,000 133,405,000
Accumulated depreciation and amortization....... (62,757,000) (51,573,000)
------------ ------------
$ 90,681,000 $ 81,832,000
============ ============
</TABLE>
During the fourth quarter of 1995, the Company adopted SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" and recorded a non cash pretax charge of $12.0 million ($7.6
million after tax) related to the write-down of certain long-lived assets. The
charge consisted of a write-down of approximately $9.5 million related to the
Company's information system and $2.5 million related primarily to certain
machinery and equipment.
NOTE 5 INTANGIBLE AND OTHER ASSETS
Accumulated amortization of cost in excess of net assets acquired and other
intangible assets is $22,357,000 at December 31, 1996 and $19,917,000 at
December 31, 1995.
The balance sheet at December 31, 1996 includes notes receivable from an
officer. The 1992 Note ($5,400,000 principal amount at December 31, 1996
including current maturities), has an average interest rate of 7.1% and is due
in approximately equal annual installments through 2003. Under the terms of the
note, principal and interest are forgiven upon the attainment of at least a 20%
improvement in net income, as defined, compared to the prior year or at the
discretion of the Board of Directors. Accordingly, the annual
F-32
<PAGE> 135
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
installments for 1996 and 1994 were forgiven. The 1994 Note ($3,000,000
principal amount at December 31, 1996 including current maturities) and the 1995
Note ($5,000,000 principal amount at December 31, 1996) have interest rates
which are the higher of the Company's average bank borrowing rate or the
applicable Federal rate in effect for such period. They are payable in annual
installments of $250,000 each with the final payments due December 31, 1998 and
April 30, 2001, respectively. Furthermore, under the terms of the officer's
employment agreement, the notes are forgiven upon the occurrence of a change in
control of the Company or the permanent disability of the officer. The long-term
portion of the 1992 and 1994 Notes are included in other assets. The 1995 Note
has been reflected as a reduction of stockholders' equity since the officer may
reduce the indebtedness through the Company's redemption of its shares which are
owned by the officer.
NOTE 6 STOCKHOLDERS' EQUITY
In addition to treasury stock, deductions from stockholders' equity
consists of unamortized restricted stock of $919,000 and $1,069,000 at December
31, 1996 and 1995, respectively and notes receivable due from officer of
$5,000,000 at December 31, 1996 and 1995. See Note 5.
NOTE 7 SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information for the years ended December 31 is as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Interest paid (net of $453,000 capitalized in
1996, $746,000 in 1995 and $323,000 in
1994)........................................ $ 6,609,000 $ 5,887,000 $ 5,546,000
----------- ----------- -----------
Income taxes paid.............................. $ 6,939,000 $ 872,000 $ 2,819,000
=========== =========== ===========
</TABLE>
Noncash financing activities involve the issuance of common stock upon
conversion of $49,963,000 of the Company's Debentures in 1994 and in 1996 the
Company acquired approximately $3.2 million of equipment under capital leases.
NOTE 8 LONG-TERM DEBT
The composition of long-term debt at the end of each year was as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Revolving credit facility expiring in 1999................ $ 66,000,000 $ 85,540,000
Industrial Development Revenue Bonds maturing at various
dates to 2012, generally at floating interest rates
which are reset periodically (6.0% weighted average
interest rate for 1996)................................. 7,561,000 7,955,000
Other..................................................... 34,000 45,000
------------ ------------
73,595,000 93,540,000
Less current maturities................................... 429,000 405,000
------------ ------------
$ 73,166,000 $ 93,135,000
============ ============
</TABLE>
The Company has a revolving credit facility with a syndicate of banks,
which provides financing of up to $200 million through February 1999. Interest
on borrowings are at varying rates based, at the Company's option, on the London
Interbank Offered Rate (LIBOR) plus a spread or the bank's prime rate. The
Company pays a facility fee quarterly which, based on a formula, averaged .42%
of the committed amount during 1996. The average weighted interest rate on the
credit facility for the year 1996 and 1995 was 6.7% and 6.9%, respectively (6.3%
and 7.0% at December 31, 1996 and 1995, respectively). The credit facility
includes customary covenants, including covenants limiting the Company's ability
to pledge assets or incur liens on assets and financial covenants requiring
among other things, the Company to maintain a specified leverage
F-33
<PAGE> 136
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ratio, fixed charge ratio and tangible net worth levels. In addition, the amount
of annual dividends the Company can pay is limited based on a formula. At
December 31, 1996 $2,800,000 was available for payments of dividends in 1997.
Borrowings under this credit facility are collateralized by the common stock of
the Company's principal subsidiaries.
The Company periodically enters into interest rate swap and cap agreements
as a hedge against interest rate exposure of its floating rate bank debt. In
1996, the Company entered into $75 million of interest rate swap agreements,
whereby the Company will pay the counterparties interest at a fixed rate of
5.53% and the counterparties will pay the Company interest at a floating rate
equal to one month LIBOR for a two year period ending December 3, 1998. At the
option of the counterparties, the termination date may be extended to December
3, 1999 upon notice to the Company. The Company also entered into $75 million of
interest rate cap agreements which entitles the Company to receive from the
counterparties on a monthly basis an amount by which the Company's interest
payments on $75 million of its floating rate debt exceed 7% during the period
December 5, 1998 to December 5, 1999.
Future maturities of long-term debt, for the years 1997 through 2001, are:
1997 -- $429,000; 1998 -- $446,000; 1999 -- $66,476,000; 2000 -- $495,000 and
2001 -- $525,000. The net book value of property, plant and equipment pledged as
collateral under industrial revenue bonds was approximately $6,751,000 at
December 31, 1996.
NOTE 9 INCOME TAXES
The income tax provision (benefit) for the years ended December 31
consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
Federal
Current........................... $ 4,163,000 $(7,485,000) $ (6,195,000)
Deferred.......................... 3,075,000 4,172,000 (7,353,000)
Foreign............................. 13,000 7,000 (21,000)
State and local
Current........................... 1,243,000 800,000 903,000
Deferred.......................... 264,000 (528,000) (714,000)
----------- ----------- ------------
8,758,000 (3,034,000) (13,380,000)
Tax benefit from exercise of stock
options........................ 367,000 174,000 9,962,000
----------- ----------- ------------
Actual tax provision (benefit).... $ 9,125,000 $(2,860,000) $ (3,418,000)
----------- ----------- ------------
</TABLE>
F-34
<PAGE> 137
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The significant components of the Company's deferred tax assets and
liabilities as of December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Net deferred tax assets (liabilities) -- current:
Nonrecurring charge..................................... $ 397,000 $ 1,917,000
Allowance for bad debts................................. 1,765,000 1,567,000
Accrued expenses deductible for tax purposes when
paid................................................. 3,682,000 2,775,000
State and local net operating loss and tax credit
carryforwards........................................ 2,465,000 1,747,000
Other................................................... (227,000) 47,000
----------- -----------
Total deferred tax assets............................ 8,082,000 8,053,000
Valuation allowance for deferred tax assets.......... (1,104,000) (897,000)
----------- -----------
Net deferred tax current assets...................... $ 6,978,000 $ 7,156,000
----------- -----------
Net deferred tax liabilities (assets) -- noncurrent:
Write-down of long-lived assets......................... $(2,242,000) (4,107,000)
Nonrecurring charge..................................... (395,000) (1,073,000)
Accelerated depreciation................................ 7,500,000 6,557,000
State net operating loss and credit carryforwards....... (916,000) --
Accrued expenses deductible for tax purposes when
paid................................................. (2,254,000) (2,318,000)
Income not recognized for book purposes................. (595,000) (671,000)
Other................................................... 1,522,000 1,070,000
----------- -----------
Net deferred tax noncurrent liabilities (assets)..... $ 2,620,000 $ (542,000)
=========== ===========
</TABLE>
As of December 31, 1996, the Company has deferred tax assets largely
attributable to the 1995 write-down of long-lived assets (see Note 4) and
various state net operating loss and tax credit carryforwards. Deferred tax
assets, net of the valuation reserve, are expected to be realized through future
taxable income and from the reversal of temporary differences.
The actual income tax provision (benefit) varies from the Federal statutory
rate applied to consolidated pretax income (loss) as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ----------- -----------
<S> <C> <C> <C>
Income taxes at Federal statutory rate of
35%........................................ $6,853,000 $(3,592,000) $(4,182,000)
Increases resulting from State and local
income taxes net of Federal income tax
benefit.................................... 1,080,000 177,000 123,000
Amortization of cost in excess of net
assets acquired......................... 534,000 478,000 509,000
Other -- net............................... 658,000 77,000 132,000
---------- ----------- -----------
Actual tax provision (benefit)............. $9,125,000 $(2,860,000) $(3,418,000)
========== =========== ===========
</TABLE>
NOTE 10 RETIREMENT PLANS
The Company provides retirement benefits to certain of its salaried and
hourly employees through non-contributory defined benefit pension plans. The
benefits provided are primarily based upon length of service and compensation,
as defined. The Company funds the plans in amounts as actuarially determined and
to the extent deductible for federal income tax purposes. The pension plan
assets are invested in a diversified portfolio of common stock and fixed income
securities.
F-35
<PAGE> 138
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of pension expense are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ----------- ----------
<S> <C> <C> <C>
Service cost -- benefits earned in current year... $1,032,000 $ 1,013,000 $1,044,000
Interest cost on projected benefit obligation..... 983,000 923,000 782,000
Income earned on plan assets...................... (643,000) (1,053,000) (866,000)
Net amortization and deferral..................... (317,000) 200,000 28,000
---------- ----------- ----------
$1,055,000 $ 1,083,000 $ 988,000
========== =========== ==========
</TABLE>
Assumptions used in the computation of net pension expense are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate for plan obligations............. 8.0% 8.0% 8.0%
Rate of future compensation increases........................... 5.0 5.0 5.0
Weighted average rate of return on plan assets.................. 8.8 8.8 8.8
</TABLE>
The reconciliation of the funded status of the plans at year end follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Accumulated benefit obligation:
Vested.................................................. $11,200,000 $10,595,000
Nonvested............................................... 572,000 676,000
----------- -----------
Total..................................................... 11,772,000 11,271,000
Projected salary increases................................ 2,050,000 1,793,000
----------- -----------
Projected benefit obligation.............................. 13,822,000 13,064,000
Plan assets at fair value................................. 12,883,000 12,088,000
----------- -----------
Assets less than projected benefit obligation............. (939,000) (976,000)
Unrecognized net (gain) loss.............................. (1,053,000) (1,111,000)
Unrecognized prior service cost........................... 1,656,000 1,742,000
Unrecognized transition cost.............................. 120,000 158,000
Additional liability...................................... (1,403,000) (1,623,000)
----------- -----------
Accrued pension........................................... $(1,619,000) $(1,810,000)
=========== ===========
</TABLE>
The Company maintains a discretionary profit sharing plan with a voluntary
401(k) option for certain of its salaried and hourly employees who vest after
meeting certain minimum age and service requirements. Profit sharing plan
expense, including the Company's 401(k) match was $2,243,000, $1,371,000 and
$2,636,000 for 1996, 1995 and 1994, respectively. The contributions consisted of
the Company's common stock.
NOTE 11 NONRECURRING CHARGES
During 1994, the Company recorded nonrecurring charges of $41.0 million
($25.7 million after tax), consisting of approximately $29.1 million related to
a restructuring program and $11.9 million for unusual items primarily consisting
of the write down of certain intangible assets and discontinued products.
F-36
<PAGE> 139
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The status of the components of the restructuring provision at the end of
the year was:
<TABLE>
<CAPTION>
BALANCE AT 1996 BALANCE AT
DECEMBER 31, 1995 ACTIVITY DECEMBER 31, 1996
----------------- ---------- -----------------
<S> <C> <C> <C>
Consolidation and closure of
facilities, including severance and
related costs....................... $ 7,779,000 $5,663,000 $ 2,116,000
Other, including lease termination
expenses and costs to execute the
restructuring program............... 235,000 235,000 --
----------- ---------- -----------
$ 8,014,000* $5,898,000 $ 2,116,000*
=========== ========== ===========
</TABLE>
- ---------------
* The following amounts are included in the consolidated balance sheet at
December 31, 1996 and 1995, respectively under the captions: "accrued
restructuring" ($1.1 and $4.5 million), "other liabilities" ($.8 and $3.1
million), property, plant and equipment" (reduction of $.1 and $.2 million),
and "various other asset accounts" (reduction of $.1 and $.2 million).
NOTE 12 STOCK PLANS
The Company's stock plans authorize the granting of incentive and
non-qualified stock options and restricted stock to executives, key employees
and directors of the Company. Stock options are granted at prices not less than
the fair market value on the date of grant. Option terms, vesting and exercise
periods vary except that the term of an option may not exceed ten years. Certain
options provide, among other things, that in the event of a change in control,
as defined, such options will become immediately exercisable. At December 31,
1996, approximately 531,000 shares were available for future grants under the
Company's plans.
In 1991, the Company granted 250,000 shares of restricted stock to an
executive officer of the Company. The restrictions on these shares will be
released at the rate of 25,000 shares per year upon the attainment of certain
performance goals and the continued employment of the officer. These goals were
attained in 1994 and 1996. The restrictions will be released in the event of a
change in control of the Company. The unamortized restricted stock resulting
from this stock award has been deducted from stockholders' equity and is being
amortized over the periods earned.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock Based Compensation". Accordingly, no compensation cost has
been recognized for the stock option plans. Had compensation cost been
determined based on the fair value at the grant date for stock option awards in
1995 and 1996 consistent with the provision of SFAS No. 123, the Company's net
loss and loss per share for 1995 would have been increased by approximately
$2,100,000 or $.15 per share, respectively and net income and earnings per share
for 1996 would have been decreased by approximately $3,800,000 or $.27 per
share, respectively. During the initial phase-in period of SFAS No. 123, such
compensation may not be representative of the future effects of applying this
statement.
The weighted average fair value at date of grant for options granted during
1996 and 1995 was $4.11 and $4.99 per option, respectively. The fair value of
each option at date of grant was estimated using the Black-Scholes option
pricing model with the following weighted average assumptions for grants in 1996
and 1995, respectively: expected stock price volatility 35% and 39%; expected
lives of options of six and three years; expected dividend rate of $.12 per year
and risk free interest rate of 6.26% and 5.81%. The pro forma effect for
F-37
<PAGE> 140
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1995 does not take into account grants made prior to 1995. Information regarding
these option plans for 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995
------------------ ------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE 1994
EXERCISE EXERCISE ------
SHARES PRICE SHARES PRICE SHARES
------ --------- ------ --------- ------
(SHARES IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Options outstanding beginning of year........ 4,926 $ 14.10 4,479 $ 11.77 5,604
Exercised.................................... (216) 9.34 (167) 9.21 (2,672)
Granted...................................... 1,436 13.10 776 16.18 1,589
Cancelled or forfeited....................... (489) 17.64 (162) 20.13 (42)
----- ------- ----- ------- ------
Options outstanding end of year.............. 5,657 $ 13.72 4,926 $ 14.10 4,479
===== ======= ===== ======= ======
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- -----------------------
AVERAGE WEIGHTED- WEIGHTED-
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 12/31/96 LIFE PRICE AT 12/31/96 PRICE
----------------------------------- ----------- ----------- --------- ----------- ---------
(SHARES IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$ 6.63 to $ 9.75.................. 258 4 years $ 8.62 258 $ 8.62
$10.25 to $13.75.................. 3,407 6 years 11.73 3,097 11.66
$14.25 to $18.875................. 926 7 years 16.21 926 16.21
$19.125 to $20.125................. 1,066 8 years 19.14 1,066 19.14
----- -----
5,657 5,347
===== =====
</TABLE>
NOTE 13 COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain of its manufacturing, distribution and office
facilities as well as some transportation and manufacturing equipment under
noncancellable leases expiring at various dates through the year 2017. Certain
real estate leases contain escalation clauses and generally provide for payment
of various occupancy costs.
Minimum future lease obligations on noncancellable leases in effect at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- -----------
<S> <C> <C>
Year ending December 31,
1997.................................................... $ 1,115,000 $11,912,000
1998.................................................... 1,161,000 10,889,000
1999.................................................... 1,143,000 9,819,000
2000.................................................... 138,000 8,013,000
2001.................................................... 32,000 7,139,000
Subsequent years through 2017........................... 7,000,000 43,816,000
----------- -----------
Net minimum lease payments................................ 10,589,000 $91,588,000
Amount representing interest.............................. 407,000
-----------
Present value of net minimum lease payments (including
$951,000 payable within one year)....................... $10,182,000
===========
</TABLE>
F-38
<PAGE> 141
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Rental expense for operating leases amounted to approximately $19,645,000
in 1996, $19,883,000 in 1995 and $19,993,000 in 1994.
Hoover Treated Wood Products, Inc.
Hoover Treated Wood Products, Inc. ("Hoover"), a wholly-owned subsidiary of
Ply Gem, is a defendant in a number of lawsuits alleging damage caused by
alleged defects in certain pressure treated interior wood products. Hoover has
not manufactured or sold these products since August, 1988. The number of
lawsuits pending has declined significantly from earlier periods. Most of the
suits have been resolved by dismissal or settlement with settlements being paid
out of insurance proceeds or other third party recoveries. Hoover and Ply Gem
are vigorously defending the suits which remain pending and defense and
indemnity costs are being paid out of insurance proceeds and proceeds from a
settlement by Hoover with suppliers of material used in the production of
interior treated wood products.
Hoover and Ply Gem have engaged in coverage litigation with their insurers
and have settled their coverage claims with a majority of the insurers. Ply Gem
believes that the remaining coverage disputes will be resolved on a satisfactory
basis and a substantial amount of additional coverage will be available to
Hoover. In reaching this belief, it has analyzed Hoover's insurance coverage and
the status of the coverage litigation, considered its history of settlements
with primary and excess insurers and consulted with counsel.
Hoover has recorded a receivable at December 31, 1996 for approximately
$8.9 million for the estimated proceeds and recoveries related to insurance
matters discussed above and recorded an accrual for the same amount for its
estimated cost to resolve those matters not presently covered by existing
settlements with insurance carriers and suppliers.
In evaluating the effect of the lawsuits, a number of factors have been
considered, including: the litigation history, the significant decline in the
number of cases, the availability of various legal defenses and the likely
availability of proceeds from additional insurance. Based on its evaluation, the
Company believes that the ultimate resolution of the lawsuits and the insurance
claims will not have a material effect upon the financial position of the
Company.
LETTERS OF CREDIT
At December 31, 1996 approximately $20 million of letters of credit issued
by the Company's banks were outstanding, principally in connection with certain
financing transactions.
Other
Ply Gem and its subsidiaries are subject to legal actions from time to time
which have arisen in the ordinary course of its business. In the opinion of
management, the resolution of these claims will not materially affect the
financial position of the Company. The Company has various commitments for the
purchase of materials arising in the ordinary course of business.
F-39
<PAGE> 142
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Year Ended December 31, 1996:
Net Sales.......................... $ 142,018 $ 212,079 $ 230,143 $ 190,688
Gross Profit....................... 20,514 42,694 49,423 35,873
Income (loss) Before Taxes......... (4,753) 7,559 12,924 3,849
Net Income (Loss).................. (2,638) 4,157 6,915 2,020
Per Share:
Primary......................... (.18) .28 .45 .15
Fully Diluted................... (.18) .28 .45 .15
Year Ended December 31, 1995:
Net Sales.......................... $ 162,934 $ 203,265 $ 210,973 $ 178,026
Gross Profit....................... 24,862 34,149 37,444 28,191
Income (loss) Before Taxes(1) (4,594) 1,618 4,365 (11,651)
Net Income (Loss).................. (2,665) 1,028 2,276 (8,041)
Per Share:
Primary......................... (.18) .07 .16 (.56)
Fully Diluted................... (.18) .07 .16 (.56)
</TABLE>
- ---------------
(1) After charge of $12.0 million for the impairment of assets in the fourth
quarter. See Note 4 to the consolidated financial statements.
Earnings (loss) per share calculations for each of the quarters presented
are based on the weighted average number of shares and common equivalent shares
outstanding during such periods. The sum of the quarters may not necessarily be
equal to the full year earnings per share amounts.
NOTE 15 INTERIM FINANCIAL STATEMENTS (UNAUDITED)
A. The unaudited financial statements presented for the six months ended
June 30, 1997 and 1996 have been prepared without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations.
These statements include all adjustments, consisting only of normal
recurring accruals, considered necessary for a fair presentation of financial
position and results of operations. The financial statements included herein
should be read in conjunction with the financial statements and notes thereto
included in the latest annual report on Form 10-K.
B. On July 24, 1997, Ply Gem Industries, Inc. (the "Company") entered into
an Agreement and Plan of Merger ("Agreement") with Nortek, Inc. ("Nortek") and
its subsidiary, NTK SUB, Inc. (the "Purchaser") pursuant to which Nortek
commenced on July 29, 1997, a tender offer to purchase all of the outstanding
shares of the Company for cash consideration of $19.50 per share. The Agreement
is subject to customary conditions, including the tender of a majority of the
outstanding shares, regulatory approvals and the receipt of financing. Also on
July 24, 1997, the Company has terminated its merger agreement with Atrium
Acquisition Holdings Corp. (Atrium), an affiliate of Hicks, Muse, Tate & Furst
Incorporated. As a result, the Company paid $12 million to Atrium which was
funded by the issuance of 640,000 shares of the Company's stock to Nortek for
the same amount.
F-40
<PAGE> 143
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
C. The major classes of inventories were as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
Finished goods....................................... $ 61,696 $ 53,833
Work in process...................................... 13,837 9,724
Raw materials........................................ 34,917 29,426
-------- --------
$110,450 $ 92,983
======== ========
</TABLE>
D. Earnings per share of common stock is computed by dividing net income by
the weighted average number of common shares outstanding. Earnings per share for
the second quarter of 1997 and 1996 is calculated using the modified treasury
stock method, which limits the assumed purchase of treasury shares to 20% of the
outstanding common shares.
In February 1997, the Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share", which
is effective for financial statements for both interim and annual periods ending
after December 15, 1997. Early adoption of the new standard is not permitted.
The new standard eliminates primary and fully diluted earnings per share and
requires presentation of basic and diluted earnings per share together with
disclosure of how the per share amounts were computed. Adoption of the new
standard would not have had a material effect on earnings per share for the
three and six month periods ended June 30, 1997.
E. Supplemental cash flow information for the six month periods are as
follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Interest paid............................................. $3,300 $3,156
Income taxes paid......................................... 1,098 387
</TABLE>
F. The accumulated amortization of cost in excess of net assets acquired
and other intangible assets are $23,502,000 at June 30, 1997 and $22,357,000 at
December 31, 1996.
G. The Company's loan agreements with its banks require the Company to
maintain a specified leverage ratio, fixed charge ratio and tangible net worth
levels and maintain certain financial ratios, among its provisions. Under the
most restrictive of these covenants, at June 30, 1997 approximately $1,900,000
of retained earnings was available for the payment of dividends in 1997.
H. During the second quarter of 1997, the Board of Directors adopted
resolutions providing for severance payments in the event of a change in control
and subsequent termination, as defined, to certain designated employees of the
Company. At June 30, 1997, the maximum amount payable would be approximately $5
million.
I. Hoover Treated Wood Products, Inc. ("Hoover"), a wholly-owned subsidiary
of Ply Gem Industries, Inc. ("Ply Gem"), is a defendant in a number of lawsuits
alleging damage caused by alleged defects in certain pressure treated interior
wood products. Hoover has not manufactured or sold these products since August,
1988. The number of lawsuits pending has declined significantly from earlier
periods. Most of the suits have been resolved by dismissal or settlement with
settlements being paid out of insurance proceeds or other third party
recoveries. Hoover and Ply Gem are vigorously defending the suits which remain
pending and defense and indemnity costs are being paid out of insurance proceeds
and proceeds from a settlement by Hoover with suppliers of material used in the
production of interior treated wood products. Hoover and Ply Gem have engaged in
coverage litigation with their insurers and have settled their coverage claims
with a majority of the insurers. Ply Gem believes that the remaining coverage
disputes will be resolved on a satisfactory basis and a
F-41
<PAGE> 144
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
substantial amount of additional coverage will be available to Hoover. In
reaching this belief, it has analyzed Hoover's insurance coverage and the status
of the coverage litigation, considered its history of settlements with primary
and excess insurers and consulted with counsel.
Hoover has recorded a receivable at June 30, 1997 for approximately $7.5
million for the estimated proceeds and recoveries related to insurance matters
discussed above and recorded an accrual for the same amount for its estimated
cost to resolve those matters not presently covered by existing settlements with
insurance carriers and suppliers.
In evaluating the effect of the lawsuits, a number of factors have been
considered, including, the litigation history, the significant decline in the
number of cases, the availability of various legal defenses and the likely
availability of proceeds from additional insurance. Based on its evaluation, the
Company believes that the ultimate resolution of the lawsuits and the insurance
claims will not have a material effect upon the financial position of the
Company.
Two purported stockholders of the Company, filed a complaint in Delaware
Chancery Court against the Company and its Board of Directors ("Board"). The
complaint purports to be brought on behalf of a class consisting (with certain
exceptions) of all stockholders of the Company, and challenges as inadequate to
such stockholders the consideration to be paid in connection with the merger
agreement with Atrium (that has subsequently been terminated in connection with
the execution of the July 24, 1997 agreement with Nortek referred to in Note 2).
The complaint alleges, among other things, that the proposed price to be paid
pursuant to the merger agreement with Atrium is inadequate, and that the Board
breached their fiduciary duties in agreeing to it. The Company and its Board
believe the complaint to be without merit.
F-42
<PAGE> 145
======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE INITIAL PURCHASERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE
NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY OF THE NOTES TO ANYONE OR BY ANYONE IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO WHOM, IT WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN A CHANGE IN THE INFORMATION SET FORTH IN THIS PROSPECTUS OR IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by
Reference........................... 3
Available Information................. 3
Prospectus Summary.................... 4
Risk Factors.......................... 20
The Acquisition....................... 25
Use of Proceeds....................... 27
Capitalization........................ 28
Unaudited Pro Forma Condensed
Consolidated Financial Data......... 29
Selected Financial Data of Nortek..... 38
Selected Financial Data of Ply Gem.... 40
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 42
Business.............................. 52
Management............................ 59
Description of Notes.................. 61
The Exchange Offer.................... 87
Description of Other Obligations...... 95
Certain Federal Tax Considerations.... 97
Plan of Distribution.................. 101
Legal Matters......................... 101
Independent Auditors.................. 101
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
NORTEK, INC.
EXCHANGE OFFER
$310,000,000
9 1/8% SERIES B SENIOR NOTES DUE 2007
------------------------------------
PROSPECTUS
------------------------------------
OCTOBER 15, 1997
======================================================
<PAGE> 146
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law ("DGCL") provides that
a corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding whether civil, criminal or investigative (other than an action by or
in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Section 145 further
provides that a corporation similarly may indemnify any such person serving in
any such capacity who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor, against expenses actually and
reasonably incurred in connection with the defense or settlement of such action
or suit if he acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or such other
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 102(b)(7) of the DGCL permits a corporation to include in its
certificate of incorporation a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such provision
shall not eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (relating to
unlawful payment of dividends and unlawful stock purchase and redemption) or
(iv) for any transaction from which the director derived an improper personal
benefit.
The Company's Certificate of Incorporation provides that its Directors
shall not be liable to the Registrant or its stockholders for monetary damages
for breach of fiduciary duty as a director except to the extent that exculpation
from liabilities is not permitted under the DGCL as in effect at the time such
liability is determined. The Company's By-Laws further provide that Registrant
shall indemnify its directors and officers to the fullest extent permitted by
the DGCL.
The directors and officers of the Company are covered under directors' and
officers' liability insurance policies maintained by the Company.
II-1
<PAGE> 147
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------
<C> <S>
1 (*)Purchase Agreement dated August 21, 1997 regarding the issuance and
sale of the Notes between Nortek, Inc., Wasserstein Perella Securities,
Inc. and Bear, Stearns & Co. Inc.
2.1 Agreement and Plan of Merger dated July 24, 1997 among Nortek, NTK Sub,
Inc. and Ply Gem Industries, Inc. (Exhibit 2.1 to Form 8-K filed on July
29, 1997, File No. 1-6112.)
2.2 Amendment No. 1 dated as of September 2, 1997 to Agreement and Plan of
Merger dated July 24, 1997 among Nortek, Inc., NTK Sub, Inc. and Ply Gem
Industries, Inc. (Exhibit 2.2 to Form 8-K filed September 10, 1997, File
No. 1-6112.)
2.3 Stock Purchase Agreement dated July 24, 1997 between Nortek, Inc. and Ply
Gem Industries, Inc. (Exhibit 2.3 to Form 8-K filed July 29, 1997, File
No. 1-6112)
4.1 (*)Indenture dated as of August 26, 1997 between Nortek, Inc. and State
Street Bank and Trust Company, as Trustee.
4.2 (*)Registration Rights Agreement dated as of August 26, 1997 between
Nortek, Inc. and the Initial Purchasers.
5 (*)Opinion of Ropes & Gray regarding the validity of the Series B Senior
Notes due 2007.
12 (*)Schedule regarding computation of ratio of earnings to fixed charges.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Grant Thornton LLP.
23.3 (*)Consent of Ropes & Gray (included in Exhibit 5).
24 (*)Powers of Attorney (included on signature page hereto).
25 (*)Statement of Eligibility of Trustee.
99.1 (*)Form of Letter of Transmittal used in connection with the Exchange
Offer.
99.2 (*)Form of Notice of Guaranteed Delivery used in connection with The
Exchange Offer.
</TABLE>
- ---------------
(*) Previously filed.
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant, pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer of controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by any such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether or not
such indemnification is against public policy as expressed in the Securities Act
of 1933 and will be governed by the final adjudication of such issue.
II-2
<PAGE> 148
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, (10)(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent
no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
<PAGE> 149
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Providence,
State of Rhode Island, on the 10th day of October, 1997.
NORTEK, INC.
By: /s/ KEVIN W. DONNELLY
------------------------------------
Name: Kevin W. Donnelly
Title: Vice President and
General Counsel
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed on October 10, 1997 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------- ---------------------
<S> <C> <C>
/s/ RICHARD L. BREADY Chairman, President and Chief October 10, 1997
- ------------------------------------------ Executive Officer (Principal
Richard L. Bready Executive Officer)
/s/ ALMON C. HALL Vice President, Controller October 10, 1997
- ------------------------------------------ and Chief Accounting Officer
Almon C. Hall (Principal Accounting
Officer)
/s/ RICHARD J. HARRIS Vice President, Treasurer and October 10, 1997
- ------------------------------------------ Director (Principal Financial
Richard J. Harris Officer)
Director October 10, 1997
- ------------------------------------------
Phillip L. Cohen
/s/ WILLIAM I. KELLY Director October 10, 1997
- ------------------------------------------
William I. Kelly
/s/ J. PETER LYONS Director October 10, 1997
- ------------------------------------------
J. Peter Lyons
By: /s/ KEVIN W. DONNELLY October 10, 1997
- ------------------------------------------
Kevin W. Donnelly
Attorney-in-fact
</TABLE>
II-4
<PAGE> 150
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
- ------ ------------------------------------------------------------------------ ------------
<C> <S> <C>
1 (*)Purchase Agreement dated August 21, 1997 regarding the issuance and
sale of the Notes between Nortek, Inc. and the Initial Purchasers.
2.1 Agreement and Plan of Merger dated July 24, 1997 among Nortek, NTK Sub,
Inc. and Ply Gem Industries, Inc. (Exhibit 2.1 to Form 8-K filed on
July 29, 1997, File No. 1-6112.)
2.2 Amendment No. 1 dated as of September 2, 1997 to Agreement and Plan of
Merger dated July 24, 1997 among Nortek, Inc., NTK Sub, Inc. and Ply
Gem Industries, Inc. (Exhibit 2.2 to Form 8-K filed September 10, 1997,
File No. 1-6112.)
2.3 Stock Purchase Agreement dated July 24, 1997 between Nortek, Inc. and
Ply Gem Industries, Inc. (Exhibit 2.3 to Form 8-K filed July 29, 1997,
File No. 1-6112)
4.1 (*)Indenture dated as of August 26, 1997 between Nortek, Inc. and State
Street Bank and Trust Company, as Trustee.
4.2 (*)Registration Rights Agreement dated as of August 26, 1997 between the
Company and the Initial Purchasers.
5 (*)Opinion of Ropes & Gray regarding the validity of the Series B Senior
Notes due 2007.
12 (*)Schedule regarding computation of ratio of earnings to fixed charges.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Grant Thornton LLP.
23.3 (*)Consent of Ropes & Gray (included in Exhibit 5).
24 (*)Powers of Attorney (included on signature page hereto).
25 (*)Statement of Eligibility of Trustee.
99.1 (*)Form of Letter of Transmittal used in connection with the Exchange
Offer.
99.2 (*)Form of Notice of Guaranteed Delivery used in connection with The
Exchange Offer.
</TABLE>
- ---------------
(*) Previously filed.
<PAGE> 1
Exhibit 23.1
[ARTHUR ANDERSEN LLP LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Nortek, Inc.:
As independent public accountants, we hereby consent to the
incorporation by reference in this Registration Statement of our report dated
February 12, 1997 included in Nortek, Inc.'s Form 10-K for the year ended
December 31, 1996 and to all references to our Firm included in this
Registration Statement.
/s/ Arthur Andersen LLP
------------------------
ARTHUR ANDERSEN LLP
Boston, Massachusetts
October 10, 1997
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued one report dated February 25, 1997 accompanying the consolidated
financial statements of Ply Gem Industries, Inc. (the "Company") and
subsidiaries for the year ended December 31, 1996 appearing in this
Registration Statement. We hereby consent to the incorporation of our report
included in this Form S-4.
/s/ Grant Thornton LLP
- ----------------------------
Grant Thornton LLP
New York, New York
October 10, 1997
