<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1997
REGISTRATION NO. 333-25505
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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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 (I.R.S. Employer
of incorporation or industrial classification code Identification Number)
organization) number)
</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)
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PLEASE SEND COPIES OF ALL COMMUNICATIONS TO:
JOHN B. AYER, ESQ.
ROPES & GRAY
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110
(617) 951-7000
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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. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
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TITLE OF EACH CLASS
OF AMOUNT PROPOSED PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE MAXIMUM OFFERING AGGREGATE REGISTRATION
REGISTERED REGISTERED PRICE PER UNIT OFFERING PRICE FEE
- --------------------------------------------------------------------------------------------------
9 1/4% Series B Senior
Notes due 2007...... $175,000,000 99.422% $173,988,500 $52,723.79
==================================================================================================
</TABLE>
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.
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<PAGE> 2
PROSPECTUS
NORTEK, INC.
OFFER TO EXCHANGE
9 1/4% SERIES B SENIOR NOTES DUE MARCH 15, 2007
FOR AN EQUAL PRINCIPAL AMOUNT OF
9 1/4% SERIES A SENIOR NOTES DUE MARCH 15, 2007
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON JUNE 12, 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 and the accompanying letter of transmittal (the "Letter
of Transmittal"), to exchange an aggregate principal amount of up to
$175,000,000 of its 9 1/4% Series B Senior Notes due 2007 (the "Exchange Notes")
of the Company for a like principal amount of the issued and outstanding 9 1/4%
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 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. At December 31, 1996, after
giving effect to the issuance and sale of the Original Notes (the "Offering")
and the application of the net proceeds therefrom, the Exchange Notes would have
been effectively subordinated to approximately $172.6 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 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.
Interest on the Exchange Notes will be payable semi-annually on March 15 and
September 15 of each year, commencing September 15, 1997. The Exchange Notes
will mature on March 15, 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 March 15, 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
March 17, 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 after the Expiration Date (as defined), 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 12 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 MAY 1, 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, Exchange Notes in certificated form will be issued in exchange
for the Global Note only on the terms set forth in the Indenture (as defined).
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 Bear, Stearns & Co., Inc., Wasserstein
Perrella Securities Inc. and BT Securities Corporation, 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 (as defined), 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.
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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 Current Report on Form 8-K dated March 5,
1997 and March 12, 1997 (collectively, the "Form 8-Ks"); and
(c) all documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act of 1934, as amended (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 JUNE 5, 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
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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 or
incorporated by reference in this Prospectus.
THE COMPANY
The Company is a diversified manufacturer of residential and commercial
building products, operating within three principal product groups: the
Residential Building Products Group; the Air Conditioning and Heating Products
Group; and the Plumbing Products Group. Through these product groups, the
Company manufactures and sells, primarily in the United States, Canada and
Europe, a wide variety of products for the residential and commercial
construction, manufactured housing, and do-it-yourself and professional
remodeling and renovation markets. The Company's net sales and EBITDA from
operations for the fiscal year ended December 31, 1996 were $969.8 million and
$82.6 million, respectively.
RESIDENTIAL BUILDING PRODUCTS GROUP
The Residential Building Products Group manufactures and distributes
built-in products primarily for the residential new construction, do-it-yourself
and professional remodeling and renovation markets. The principal products sold
by the Group are kitchen range hoods, bath fans, combination units (fan, heater
and light combinations) and bath cabinets. The Group is 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 do-it-yourself 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.
In the fourth quarter of 1995, the Company, through its subsidiaries,
completed the acquisition of the assets, subject to certain liabilities, of
Rangaire Company, all the capital stock of Best S.p.A. and related entities and
all the capital stock of Venmar Ventilation Inc. See the Consolidated Financial
Statements and Notes thereto included in the Form 10-K incorporated herein by
reference.
AIR CONDITIONING AND HEATING PRODUCTS GROUP
The Air Conditioning and Heating Products Group manufactures and sells
heating, ventilating and central air conditioning ("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 operate on
building rooftops (including large self-contained walk-in-units) or on
individual floors within a building, and range from 40 to 600 tons of cooling
capacity. The Group markets its commercial products under the Governair(R),
Mammoth(R) and Temtrol(TM) brand names. For manufactured and site-built
residential housing, the Group's products include central air conditioners, heat
pumps, furnaces and a wide range of accessories marketed under the
Intertherm(R), Softheat(R), Miller(R), Elect-Air(R) and Powermiser(R) brand
names. Residential central air conditioning products range from 1.5 to 5 tons of
cooling capacity and furnaces range from 45,000 BTU's to 144,000 BTU's of
heating capacity. The Group's residential products also include portable and
permanent electric baseboard heating products.
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4
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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. In addition to its standard product offerings, 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 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 Company is a Delaware corporation incorporated in 1986. Its executive
offices are located at 50 Kennedy Plaza, Providence, Rhode Island 02903-2360,
telephone number: (401) 751-1600.
RECENT DEVELOPMENTS
For the fiscal quarter ended March 29, 1997, the Company's net sales,
earnings and earnings per share were $219.6 million, $3.7 million and $.37 per
share, respectively. The Company's earnings and earnings per share for the
quarter represented an increase of 54% and 85%, respectively, from the fiscal
quarter ended March 30, 1996. Earnings per share in the first quarter of 1997
were based on 9.9 million shares outstanding, representing a decrease of 1.9
million shares since the first quarter of 1996 as a result of the Company's
stock repurchase programs.
THE EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to $175 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 Notes. The form and terms of
the Exchange Notes are 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 (as
defined).
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, $175 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.
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
5
<PAGE> 7
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, 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. The
Company has agreed that, for a period of 180 days
after the Expiration Date, 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.
Expiration Date............ 5:00 p.m., New York City time, on June 12, 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. By
executing a Letter of Transmittal, each holder will
represent to the Company that, among other things,
(i) the Exchange
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<PAGE> 8
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 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
(as defined) (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 to
a foreign person pursuant to the requirements of
Rule 904 under 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 165
days of the
7
<PAGE> 9
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 the earlier of (i) two years or (ii) 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."
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.
THE EXCHANGE NOTES
General.................... The form and terms of the Exchange Notes are the
same as the form and terms of the respective
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. 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......... $175,000,000 aggregate principal amount of 9 1/4%
Series B Senior Notes due 2007.
Interest Rate and Payment
Dates.................... Interest on the Exchange Notes will accrue at the
rate of 9 1/4% per annum, payable semi-annually in
arrears on March 15 and September 15 of each year,
commencing September 15, 1997.
Maturity................... March 15, 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
8
<PAGE> 10
March 15, 2002, initially at 104.625% of principal
amount and thereafter at prices declining to 100%
from and after March 15, 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 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. 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 December 31, 1996, after
giving effect to the issuance and sale of the
Original Notes and the application of the net
proceeds therefrom, the Exchange Notes would have
been effectively subordinated to approximately
$172.6 million of indebtedness for borrowed money,
trade payables and accrued liabilities of the
Company's subsidiaries. See "Description of
Notes -- General."
Certain 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. See "Description of Notes -- Certain
Covenants."
RISK FACTORS
Prospective purchasers of the Exchange 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."
9
<PAGE> 11
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data for the five years ended
December 31, 1996 has been derived from the Company's Consolidated Financial
Statements and should be read in conjunction with the Consolidated Financial
Statements and the Notes thereto and the information contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Form 10-K incorporated herein by reference. The Adjusted Consolidated Statement
of Operations Data and adjusted Other Consolidated Data for the year ended
December 31, 1996 give effect to the Offering, the refinancing of approximately
$47.2 million of outstanding indebtedness of the Company's subsidiaries in
connection therewith (the "Refinancing") and the purchase by the Company of the
Company's Common and Special Common Stock for the period from January 1, 1996 to
March 29, 1997 (the "Company Stock Purchases") as if such transactions had
occurred on January 1, 1996. The Consolidated Balance Sheet Data as adjusted
give effect to the Offering, the Refinancing and the Company Stock Purchases as
if such transactions had occurred on December 31, 1996.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------ ------
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA(1):
Net sales..................................... $800.0 $744.1 $737.2 $776.2 $969.8
Operating earnings............................ 20.4 30.3 50.0 41.1 60.1
Interest expense, net......................... (24.8) (23.3) (20.9) (18.8) (24.8)
Earnings (loss) from continuing
operations(2)............................... (21.0) (12.6) 17.2 15.0 22.0
Earnings (loss) per share from continuing
operations.................................. (1.67) (1.00) 1.34 1.19 2.05
ADJUSTED CONSOLIDATED STATEMENT OF OPERATIONS
DATA(6):
Interest expense, net......................... (31.3)
Earnings from continuing operations........... 17.5
Earnings per share from continuing
operations.................................. 1.78
OTHER CONSOLIDATED DATA(6):
Capital expenditures.......................... 8.8 10.8 19.4 17.3 22.2
Ratio of earnings to fixed charges(3)......... 2.0x 1.9x 2.1x
Adjusted ratio of earnings to fixed
charges(3).................................. 1.7x
EBITDA from operations(4)..................... $ 42.5 $ 49.6 $ 66.7 $ 59.0 $ 82.6
Ratio of EBITDA from operations to interest
expense, net................................ 1.7x 2.1x 3.2x 3.1x 3.3x
Adjusted ratio of EBITDA from operations to
interest expense, net(4).................... 2.6x
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
-------------------------
ACTUAL AS ADJUSTED(6)
------ --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities(5).................. $ 97.8 $213.1
Working capital...................................................... 143.5 291.7
Total assets......................................................... 609.1 729.4
Total debt........................................................... 280.5 407.3
Stockholders' investment............................................. 118.8 112.3
</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 contained in the Form 10-K incorporated
herein by reference and in note (2) below.
(2) On January 2, 1992, the Company's 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. On October 2, 1992, the
Company sold its wholly-owned subsidiary Bend Millwork Systems, Inc.
("Bend") and recognized a pre-tax loss in 1992 of $22.5 million. In the
third quarter of 1993, the Company provided a
10
<PAGE> 12
pre-tax valuation reserve of approximately $20.3 million to reduce the Company's
net investment in Dixieline to estimated net realizable value. On March 31,
1994, the Company 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, the Company paid approximately $1.8 million 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) 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. Such earnings were
insufficient to cover fixed charges by $18.0 million and $11.6 million for
the years ended December 31, 1992 and 1993, respectively.
(4) "EBITDA from operations" is the earnings (loss) from continuing operations
before income taxes plus depreciation, amortization and interest expense,
and excludes interest and dividend income, net gain on investment and
marketable securities and loss on business sold. EBITDA from operations
differs from Consolidated Cash Flow as defined in the Indenture. See
"Description of Notes -- Certain Definitions." EBITDA from operations should
not be considered as an alternative to net earnings as a measure of the
Company's operating results or to cash flows as a measure of liquidity.
EBITDA from operations principally differs from net increase (decrease) in
unrestricted cash and cash equivalents shown on the Consolidated Statement
of Cash Flows of the Company, prepared in accordance with generally accepted
accounting principles, in that EBITDA from operations does not reflect
capital expenditures, borrowings, principal and interest payments under debt
and capital lease obligations, income tax payments and cash flows from other
operating, investing and financing activities.
(5) Includes $5.7 million of restricted investments and marketable securities at
December 31, 1996 (actual and as adjusted). See the Consolidated Financial
Statements included in the Form 10-K incorporated herein by reference.
(6) The Adjusted Consolidated Statement of Operations Data and adjusted Other
Consolidated Data for the year ended December 31, 1996 give effect to the
Offering, the Refinancing and the Company Stock Purchases as if such
transactions had occurred on January 1, 1996. The Consolidated Balance Sheet
Data as adjusted give effect to the Offering, the Refinancing and the
Company Stock Purchases as if such transactions had occurred on December 31,
1996. A reconciliation from actual to as adjusted amounts is as follows
(dollars in millions, except per share amounts):
<TABLE>
<CAPTION>
COMPANY 1996
1996 OFFERING AND STOCK AS
ACTUAL REFINANCING SUBTOTAL PURCHASE ADJUSTED
------ ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
ADJUSTED CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Interest Expense, net................. $(24.8) $ (5.6) $(30.4) $ (0.9) $(31.3)
Earnings from continuing operations... 22.0 (3.9) 18.1 (0.6) 17.5
Earnings per share from continuing
operations.......................... 2.05 (0.36) 1.69 0.09 1.78
OTHER CONSOLIDATED DATA:
Adjusted ratio of EBITDA from
operations to interest expense,
net................................. 3.3x (0.6)x 2.7x (0.1)x 2.6x
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, COMPANY DECEMBER 31,
1996 OFFERING AND STOCK 1996 AS
ACTUAL REFINANCING SUBTOTAL PURCHASE ADJUSTED
------------ ------------ -------- -------- ------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities.......................... $ 97.8 $121.8 $219.6 $ (6.5) $213.1
Working Capital....................... 143.5 154.7 298.2 (6.5) 291.7
Total Assets.......................... 609.1 126.8 735.9 (6.5) 729.4
Total Debt............................ 280.5 126.8 407.3 -- 407.3
Stockholders Investment............... 118.8 -- 118.8 (6.5) 112.3
</TABLE>
11
<PAGE> 13
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 or incorporated by reference in this Prospectus, before
making an investment in the Exchange Notes.
SUBSTANTIAL LEVERAGE
The Company has a substantial amount of debt. At December 31, 1996, the
Company had approximately $280.5 million of consolidated debt. After giving
effect to the Offering, the Refinancing and the Company Stock Purchases as of
December 31, 1996, the Company would have had approximately $407.3 million of
consolidated debt. At December 31, 1996, the Company's debt to equity ratio was
2.4 to 1 and after giving effect to the Offering, the Refinancing and the
Company Stock Purchases as of December 31, 1996, the Company's debt to equity
ratio would have been 3.6 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 Exchange 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 Company's 9 7/8% Senior Subordinated Notes due
2004 (the "9 7/8% Notes") and the Exchange 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 to 1, pro forma
for the additional Indebtedness. As of December 31, 1996, after giving effect to
the Offering and the Refinancing, the Company could have incurred approximately
$360.7 million of additional Indebtedness based on compliance with the
Consolidated Cash Flow Coverage Ratio. In addition, 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). 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,
12
<PAGE> 14
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 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 will permit 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)). The Exchange 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 Exchange 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 Exchange Notes and holders of other unsecured
indebtedness. See "Description of Notes -- Certain Covenants."
STRUCTURAL SUBORDINATION
The Exchange 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 Exchange
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 Exchange 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). 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 Exchange Notes. At December
31, 1996, after giving effect to the Offering and the Refinancing, the Exchange
Notes would have been effectively subordinated to approximately $172.6 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) such
subsidiary shall also guarantee the payment of the Exchange Notes. This
provision of the Indenture ceases to have effect in certain circumstances. In
the event any subsidiary provides
13
<PAGE> 15
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, if any, 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 9 7/8% 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, including the Exchange 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."
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
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 to 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 the 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
14
<PAGE> 16
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 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 and the documents
incorporated herein by reference. 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 or the documents incorporated
herein by reference, 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.
15
<PAGE> 17
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
the Company at December 31, 1996 and as adjusted to reflect the Offering, the
Refinancing and the Company Stock Purchases:
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED(3)
------ --------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Short-term debt:
Short-term borrowings........................................ $ 25.3 $ --
Current maturities of long-term debt......................... 11.2 3.6
------ ------
Total short-term debt................................ $ 36.5 $ 3.6
====== ======
Long-term debt:
Notes, mortgage notes and other.............................. $ 26.9 $ 12.6
9 1/4% Series B Senior Notes due 2007........................ -- 174.0
9 7/8% Senior Subordinated Notes due 2004.................... 217.1 217.1
------ ------
Total long-term debt(1).............................. 244.0 403.7
------ ------
Stockholders' investment(2):
Preference stock, $1.00 par value; 7,000,000 authorized...... -- --
Common stock, $1.00 par value; 40,000,000 shares authorized;
15,965,585 shares issued.................................. 15.9 15.9
Special common stock, $1.00 par value; 5,000,000 shares
authorized; 784,169 shares issued......................... .8 .8
Additional paid-in capital................................... 135.0 135.0
Retained earnings............................................ 37.8 37.8
Cumulative translation, pension and other adjustments........ (3.2) (3.2)
Less: Treasury stock, at cost, 6,599,645 actual and 6,872,470
as adjusted common shares and 276,910 actual and 284,985
as adjusted special common shares......................... (67.5) (74.0)
------ ------
Total stockholders' investment....................... 118.8 112.3
------ ------
Total capitalization................................. $362.8 $516.0
====== ======
</TABLE>
- ---------------
(1) Long-term debt is net of $2.3 million (actual) and $3.3 million (as
adjusted) of unamortized debt discount.
(2) Excludes (i) 1,428,869 shares of common stock, $1.00 par value (the "Common
Stock") at December 31, 1996 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) 281,000 shares of Special
Common Stock at December 31, 1996 which have been reserved for issuance
pursuant to options and (iii) 98,732 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 1, 1996, between the Company and State Street Bank and Trust Company.
(3) See note (6) to the Summary Consolidated Financial Data on page 11 of this
Prospectus for a reconciliation from actual to as adjusted amounts.
16
<PAGE> 18
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 March 17, 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, the Notes and the Registration Rights Agreement 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.
Copies of the Indenture and the Registration Rights Agreement are exhibits to
the Registration Statement of which this Prospectus is a part and are 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 not bear legends restricting the
transfer thereof (except as may be required under the state securities laws) and
(iii) the holders of Exchange Notes will generally not be entitled to certain
rights under the Registration Rights Agreement, including the provisions
providing for Liquidated Damages in certain circumstances relating to the timing
of the Exchange Offer, which rights will terminate when the Exchange Offer is
consummated. See "The Exchange Offer -- Registration Rights; Liquidated
Damages."
The Notes will be unsecured senior obligations of the Company limited to
$175,000,000 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. The Notes will be
effectively subordinated to all existing and future secured Indebtedness of the
Company, including secured Indebtedness pursuant to the Company 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. At
December 31, 1996, after giving effect to the Offering and the Refinancing, the
Notes would have been effectively subordinated to approximately $172.6 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 (the "Holders"), 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 are limited in aggregate principal amount to $175,000,000 and
will mature on March 15, 2007. Interest on the Notes will accrue at the rate of
9 1/4% per annum and will be payable semi-annually on each March 15 and
September 15 commencing on September 15, 1997, to Holders on the immediately
preceding March 1 or September 1, 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 Original Notes
and will continue to accrue after the occurrence of an event of default
described in clause (5) or (6) of the first paragraph under "-- Events of
Default and Remedies." 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
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<PAGE> 19
payments of interest and Liquidated Damages, if any, may be made at the office
or agency of the Company 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 March 15, 2002 at the following redemption prices (expressed as a
percentage of the principal amount) if redeemed during the 12-month period
beginning March 15 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........................................................... 104.625%
2003........................................................... 103.083%
2004........................................................... 101.542%
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> 20
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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<PAGE> 21
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 in excess of 50% of the
combined voting power of the Company's then outstanding securities entitled to
vote generally for the election of directors or otherwise.
The Change of Control purchase feature may in certain circumstances make
more difficult or discourage a takeover of the Company and, thus, the removal of
the incumbent management. Although the Company has from time to time received
and considered proposals which might involve a Change of Control, the Change of
Control purchase feature was not adopted as a result of management's knowledge
of any specific effort to accumulate shares of Common Stock or to obtain control
of the Company by means of a merger, tender offer, solicitation or otherwise, or
part of a plan by management to adopt a series of antitakeover provisions.
Instead, the Change of Control purchase feature is a standard term contained in
other similar debt offerings and the terms of such feature result from
negotiations between the Company and the Initial Purchasers.
If a Change of Control were to occur, there can be no assurance that the
Company would have sufficient funds to make the Change of Control Payment in
respect of all Notes tendered by Holders thereof. 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 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
20
<PAGE> 22
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 Original 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 Original 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.
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.
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<PAGE> 23
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 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, 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;
(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;
(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;
22
<PAGE> 24
(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 remaining
Indebtedness under the agreement or instrument governing the Indebtedness
being refinanced, shall not exceed (1) in the case of Refinancing
Indebtedness incurred to refinance Indebtedness permitted to be incurred
under any of clauses (iii) through (v) and (xv) above, an amount which,
when added to all other Indebtedness outstanding under such clause, shall
not exceed the aggregate amount of Indebtedness permitted to be incurred
under such clause, and (2) in the case of Refinancing Indebtedness incurred
to refinance Indebtedness permitted to be incurred under any of clauses
(i), (ii) and (vi) through (xiii) above, 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 at least to the same
23
<PAGE> 25
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.
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 (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), (xiii) and (xiv) of the Limitation on Additional Indebtedness
covenant; (vi) 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
extended, renewed or refinanced was at any time previously secured by Liens on
assets of such Restricted Subsidiary; and (vii) 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
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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 Original Notes,
(f) the Company Credit Facility, (g) the Broan Limited Credit Facility, (h) any
other agreement pursuant to which any Restricted Subsidiary of the Company
incurs Indebtedness in accordance with the Limitation on Additional Indebtedness
covenant and (i) any agreement effecting a refinancing of Indebtedness issued
pursuant to any agreement or instrument referred to in clause (d), (e), (f), (g)
or (h) 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 Original 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
Original 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 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
25
<PAGE> 27
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 or any Subsidiary Guarantor (other than the Notes), unless (a)
such liability is in respect of the Company 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 obligate it to become a Subsidiary Guarantor, such Subsidiary
Guarantor shall be deemed automatically and unconditionally released from all
obligations under its Subsidiary Guaranty without any further action required on
the part of the Trustee or any Holder. In addition, (i) upon the designation of
any Subsidiary 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 will be deemed to be released from all
obligations under its Subsidiary Guaranty.
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 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 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.
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Payments for Consents. Neither the Company nor any of its Subsidiaries
shall, directly or indirectly, pay or cause to be paid any consideration whether
by way of interest, fee or otherwise, to any Holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Indenture or the Notes unless such consideration is offered to be paid or
agreed to be paid to all Holders of the Notes which so consent, waive or agree
to amend in the time frame set forth in solicitation documents relating to such
consent, waiver or agreement.
Provision of Reports. The Indenture provides 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 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
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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 and 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 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
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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.
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
and 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.
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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).
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents, and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar is not required to transfer or
exchange any Note selected for redemption. Also, the Registrar is not required
to transfer or exchange any Note for a period of 15 days before a selection of
Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
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 and 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.
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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.
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 payment 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
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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 is 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 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 any and all shares, interests, participations, rights
or other equivalents (however designated) of corporate stock (including common
or preferred stock) or partnership interests.
"Cash Equivalents" means (i) any evidence of Indebtedness, maturing not
more than 365 days after the date of acquisition, issued or fully guaranteed or
insured by the United States of America, or an instrumentality or agency thereof
(provided that the full faith and credit of the United States of America is
pledged in support thereof), (ii) any certificate of deposit, overnight bank
deposit or bankers' acceptance, maturing not more than 365 days after the date
of acquisition, issued by, or time deposit of, a commercial banking institution
having unsecured long-term debt (or whose holding company has unsecured
long-term debt) rated, at the time as of which any Investment therein is made,
BBB-- or better by S&P or Moody's or the equivalent of such rating by a
successor rating agency, (iii) commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than an Affiliate
or Subsidiary of the Company) organized and existing under the laws of the
United States of America or any State thereof or the District of Columbia which
is rated, at the time as of which any Investment therein is made, P-1 or better
by Moody's or A-1 or better by S&P, or the equivalent of such rating by a
successor rating agency, (iv) Investments in mutual funds, money market funds,
investment pools and other savings vehicles, 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
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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 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."
"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
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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 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 (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 (or loss) of any Subsidiary of such Person that
is subject to any restriction or limitation on the payment of dividends and
other distributions (including loans or advances) by operation of the terms of
its charter or by agreement, instrument, judgment, decree, order or governmental
regulation applicable to such Subsidiary to the extent of such restriction or
limitation in such period; and (x) 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
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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 Original 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.
"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).
"Exchange Notes" means the Company's 9 1/4% Series B Senior Notes due March
15, 2007 issued in exchange for an Original Note pursuant to the Exchange Offer.
"Exchange Offer" means the offer by the Company to the Holders of all
outstanding Transfer Restricted Securities to exchange all such outstanding
Restricted Securities held by such Holders for the Company's 9 1/4% Senior
Series B Notes due March 15, 2007, in an aggregate principal amount equal to the
aggregate principal amount of the Transfer Restricted Securities tendered in
such exchange offer by such Holders.
"Exchange Offer Registration Statement" means the registration statement
under the Securities Act relating to the Exchange Offer, including the related
prospectus.
"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 Original Notes.
"Existing Investments" means (i) Investments of the Company and its
Restricted Subsidiaries, in existence on the issue date of the Original 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 Original 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 Original 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,
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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 Original 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 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. The holders of Exchange Notes will generally
not be entitled to certain rights under the Registration Rights Agreement,
including the provisions providing for Liquidated Damages in certain
circumstances relating to the timing of the Exchange Offer, which rights will
terminate when the Exchange Offer is consummated. See "Exchange
Offer -- Registration Rights; Liquidated Damages."
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"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
or 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 the Original Notes and the Exchange Notes.
"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.
"Original Notes" means the Company's 9 1/4% Series A Senior Notes due March
15, 2007 issued under the Indenture prior to the issuance of Exchange Notes.
"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 Original 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
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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 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.
"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
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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, in whole or in part, prior to
the Stated Maturity of the Notes.
"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.
"Shelf Registration Statement" means a "shelf" registration statement of
the Company pursuant to the provisions of Section 2(b) of the Registration
Rights Agreement which covers all of the Registrable Securities (as defined in
the Registration Rights Agreement), on an appropriate form under Rule 415 under
the Act or any similar rule that may be adopted by the SEC, and all amendments
and supplements to such registration statement, including post-effective
amendments, in each case including a Prospectus contained therein, all exhibits
thereto and all material incorporated by reference therein.
"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.
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<PAGE> 41
"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.
"TIA" means the Trust Indenture Act of 1939 as amended and as in effect on
the date of this Indenture; provided, however, that in the event the TIA is
amended after such date, TIA means, to the extent required by any such
amendment, the TIA as so amended.
"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 an Original 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 Original Note is distributed to the
public pursuant to Rule 144 under the Securities Act.
"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 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.
"Wholly-Owned Subsidiary" of any Person means any Subsidiary of such Person
to the extent the entire voting share capital of such Subsidiary is owned by
such Person (either directly or indirectly through Wholly-Owned Subsidiaries).
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BOOK-ENTRY, DELIVERY AND FORM
The certificates representing Exchange Notes will be issued in fully
registered form, without coupon. Except as described below, the Exchange Notes
will be deposited with, or on behalf of, the Depositary and registered in the
name of Cede & Co., as nominee of the Depositary (such nominee being referred to
herein as the "Global Note Holder") in the form of one or more Global Notes (the
"Global Notes") or will remain in the custody of the Trustee.
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. 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, 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.
Prospective purchasers are advised that the laws of some states require that
certain Persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to transfer Exchange Notes evidenced by the
Global Notes will be limited to such extent.
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 Exchange Notes outstanding under the Indenture. Beneficial owners of
Exchange Notes evidenced by the Global Note 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
certificate evidencing such interest.
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 Exchange Notes by the Depositary, or for maintaining, supervising or
reviewing any records of the Depositary relating to such Exchange Notes.
Payments in respect of the principal of, premium, if any, and Liquidated
Damages, 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, interest and Liquidated Damages, if any).
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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 Exchange 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
Notes to be issued).
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Exchange Notes
(including principal, premium, if any, interest, if any) 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.
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THE EXCHANGE OFFER
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company and the Initial Purchasers entered into the Registration Rights
Agreement on March 17, 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. The
Exchange Notes will be substantially identical to 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 as arising out of the obligations set forth in the next sentence,
provide for the payment of Liquidated Damages. 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, the
Company will file with the Commission a Shelf Registration Statement (as defined
above under "Description of Notes -- Certain Definitions") to cover resales of
the Original Notes by the Holders thereof who satisfy certain conditions
relating to the provision of information in connection with 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. 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 Participating
Broker-Dealer in the Exchange Offer of an Original Note for an Exchange Note,
the date on which such Exchange Note is sold to a purchaser who receives from
such Participating 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 Original 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 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 Participating
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 Participating 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 after consummation
of the Exchange Offer, to make available a prospectus meeting the requirements
of the Securities Act to any Participating Broker-Dealer for use in connection
with any resale of any Exchange Notes acquired.
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
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to participate in the distribution (within the meaning of the Securities Act) of
the Exchange Notes and (ii) 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 45
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 120 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; provided, that if the Company has not
consummated the Exchange Offer within 165 days of the Closing Date, then the
Company will cause to be filed with the Commission a Shelf Registration
Statement on or prior to the 210th day after the Closing Date. 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 to each Holder affected by such
Registration Default on each interest payment date. Liquidated Damages shall
accrue from and after the date of each Registration Default, and shall continue
to accrue thereafter until such Registration Default has been cured or waived as
set forth in the Registration Rights Agreement, at a rate equal to 0.50% per
annum of the principal amount of Notes during the first 90-day period
immediately following the occurrence of such Registration Default, which rate
shall increase by an additional 0.50% per annum during each subsequent 90-day
period up to a maximum rate equal to 2.0% per annum.
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 the Exchange Notes; Plan of Distribution."
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
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<PAGE> 46
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 $500,000 or (c) 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 holders of Exchange Notes will generally not be
entitled to rights under the Registration Rights Agreement including the
provisions providing for Liquidated Damages, in certain circumstances relating
to the timing of the Exchange Offer, which rights will terminate when the
Exchange Offer is consummated. 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 April 29, 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 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.
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<PAGE> 47
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 June
12, 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 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, must be received by 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 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 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 DELIV-
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<PAGE> 48
ERY 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 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.
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<PAGE> 49
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, 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.
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), together with the certificate(s)
representing the Original Notes to be tendered in proper form for transfer
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), 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
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<PAGE> 50
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 to 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.
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 Company determines in its reasonable discretion, that the Exchange
Offer is not permitted by applicable federal law, it 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.
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<PAGE> 51
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, Fourth Two International Place, Fourth Two International Place, Fourth
Floor Floor Floor
Boston, MA 02210 Boston, MA 02210 Boston, MA 02210
Attn: Lena Altomare Attn: Lena Altomare Attn: Lena Altomare
</TABLE>
FACSIMILE:
(617)664-5371
FOR INFORMATION:
(617)664-5607
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.
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
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<PAGE> 52
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 after the Expiration Date, 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.
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DESCRIPTION OF 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).
The Company's Canadian subsidiary Broan Limited, has a $14.7 million
secured line of credit (based on exchange rates in effect on December 31, 1996).
There are currently no outstanding borrowings under this line of credit. 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 December 31, 1996, $8.8 million in dividends or other distributions could
have been made to the Company by Broan Limited under this covenant.
The Company's Venmar Ventilation Inc. subsidiary ("Venmar") is a party to a
$6.0 million (Canadian) revolving credit agreement which prohibits Venmar from
declaring cash dividends to the Company in any year in excess of 25% of Venmar's
net profit for the previous year or if such dividend would create a default
under the agreement. Approximately $.4 million may be distributed under this
provision for 1997. There is approximately $1.3 million (Canadian) outstanding
under this facility.
For additional information regarding the obligations described above, see
Note 5 of Notes to Consolidated Financial Statements of the Company included in
the Form 10-K incorporated by reference 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
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<PAGE> 54
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.
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 the Section 1001 Regulations
relating to modifications and exchanges of debt instruments, with certain
exceptions, an alteration of a legal right or obligation that occurs by
operation of the terms of a debt instrument is not a modification of the debt
instrument and thus does not result in a taxable exchange. Therefore, 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 because 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.
53
<PAGE> 55
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 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 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) 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 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 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 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
54
<PAGE> 56
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 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.
Proposed Regulations. The Internal Revenue Service released proposed
regulations on April 22, 1996 that would revise the procedures for withholding
tax on interest and the associated backup withholding and information reporting
rules described above. In particular, the regulations propose to 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. The regulations are generally
proposed to be effective for payments of income made after December 31, 1997,
although the effective date could be extended under proposed transition rules in
particular circumstances. Foreign Holders should consult their tax advisors to
determine the effects of the potential application of the proposed regulations
to their particular circumstances.
55
<PAGE> 57
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 after the Expiration Date, it will make
this Prospectus, as amended or supplemented, available to any Participating
Broker-Dealer for use in connection with any such resales. In addition, until
June 12, 1997, all dealers effecting transactions in the Exchange Notes may be
required to deliver a prospectus.
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.
EXPERTS
The audited consolidated financial statements and schedule incorporated by
reference in this Prospectus, and elsewhere in the Registration Statement of
which this Prospectus is a part, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
56
<PAGE> 58
======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION 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. 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.......................... 12
Capitalization........................ 16
Description of Notes.................. 17
The Exchange Offer.................... 43
Description of Other Obligations...... 52
Certain Federal Tax Considerations.... 52
Plan of Distribution.................. 56
Legal Matters......................... 56
Experts............................... 56
</TABLE>
======================================================
======================================================
NORTEK, INC.
Exchange Offer
$175,000,000
9 1/4 Series B Senior Notes due 2007
------------------------
PROSPECTUS
------------------------
May 1, 1997
======================================================
<PAGE> 59
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 provides 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.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ----------------------------------------------------------------------------------
<C> <S> <C>
1 (1) -- Purchase Agreement dated March 12, 1997 regarding the issuance and sale of the
Notes between Nortek and the Initial Purchasers.
4.2(1) -- Indenture dated as of March 17, 1997 between the Company, and State Street Bank
and Trust Company, as Trustee.
</TABLE>
II-1
<PAGE> 60
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ----------------------------------------------------------------------------------
<C> <S> <C>
4.3(1) -- Registration Rights Agreement dated as of March 17, 1997 between the Company and
the Initial Purchasers.
5 (1) -- Opinion of Ropes & Gray regarding legality.
12 (1) -- Schedule regarding computation of ratio of earnings to fixed charges.
23.1 -- Consent of Independent Public Accountants.
23.2(1) -- Consent of Ropes & Gray (included in Exhibit 5).
24 (1) -- Powers of Attorney (included on signature page).
25 (1) -- Statement of Eligibility of Trustee.
99.1(1) -- Form of Letter of Transmittal used in connection with the Exchange Offer.
99.2(1) -- Form of Notice of Guaranteed Delivery used in connection with The Exchange Offer.
</TABLE>
- ---------------
(1) Previously filed with the Commission on April 18, 1997 as part of this
Registration Statement.
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.
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.
II-2
<PAGE> 61
(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> 62
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 30th day of April, 1997.
NORTEK, INC.
By: /s/ RICHARD L. BREADY*
------------------------------------
Name: Richard L. Bready
Title: Chairman, President and
Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------ ---------------
<C> <S> <C>
/s/ RICHARD L. BREADY* Chairman, President and Chief April 30, 1997
- --------------------------------------------- Executive Officer (Principal
Richard L. Bready Executive Officer)
/s/ ALMON C. HALL Vice President, Controller and April 30, 1997
- --------------------------------------------- Chief Accounting Officer
Almon C. Hall (Principal Accounting
Officer)
/s/ RICHARD J. HARRIS* Vice President, Treasurer and April 30, 1997
- --------------------------------------------- Director (Principal
Richard J. Harris Financial Officer)
/s/ PHILLIP L. COHEN* Director April 30, 1997
- ---------------------------------------------
Phillip L. Cohen
/s/ WILLIAM I. KELLY* Director April 30, 1997
- ---------------------------------------------
William I. Kelly
/s/ J. PETER LYONS* Director April 30, 1997
- ---------------------------------------------
J. Peter Lyons
</TABLE>
*By: /s/ ALMON C. HALL
-----------------------------------------------------
Almon C. Hall
Attorney in Fact
II-4
<PAGE> 63
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ---- --------------------------------------------------------------------------- ------
<S> <C> <C> <C>
1 (1) -- Purchase Agreement dated March 12, 1997 regarding the issuance and sale of
the Notes between Nortek and the Initial Purchasers.
4.2(1) -- Indenture dated as of March 17, 1997 between the Company, and State Street
Bank and Trust Company, as Trustee.
4.3(1) -- Registration Rights Agreement dated as of March 17, 1997 between the
Company and the Initial Purchasers.
5 (1) -- Opinion of Ropes & Gray regarding legality.
12 (1) -- Schedule regarding computation of ratio of earnings to fixed charges.
23.1 -- Consent of Independent Public Accountants.
23.2(1) -- Consent of Ropes & Gray (included in Exhibit 5).
24 (1) -- Powers of Attorney (included on signature page).
25 (1) -- Statement of Eligibility of Trustee.
99.1(1) -- Form of Letter of Transmittal used in connection with the Exchange Offer.
99.2(1) -- Form of Notice of Guaranteed Delivery used in connection with the Exchange
Offer.
</TABLE>
- ---------------
(1) Previously filed with the Commission on April 18, 1997 as part of this
Registration Statement.
II-5
<PAGE> 1
Exhibit 23.1
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.
Arthur Andersen LLP
Boston, Massachusetts
April 30, 1997
