<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 30, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
Form S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------------------
NORTEK, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3634 05-0314991
(State or other jurisdiction of (Primary standard industrial (I.R.S. Employer
incorporation or organization) classification code number) Identification 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)
------------------------------------
Please send copies of all communications to:
John B. Ayer, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
(617) 951-7000
------------------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effectiveness of the Registration Statement.
If the only securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT MAXIMUM OFFERING MAXIMUM AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED TO BE REGISTERED PRICE PER UNIT OFFERING PRICE FEE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9 1/8% Series B Senior Notes due
2007............................ $310,000,000 99.192% $307,495,200 $93,180.36
- ------------------------------------------------------------------------------------------------------
</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.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS SUBJECT TO COMPLETION DATED SEPTEMBER 30, 1997
NORTEK, INC.
OFFER TO EXCHANGE
9 1/8% SERIES B SENIOR NOTES DUE SEPTEMBER 1, 2007
FOR AN EQUAL PRINCIPAL AMOUNT OF
9 1/8% SERIES A SENIOR NOTES DUE SEPTEMBER 1, 2007
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON , UNLESS EXTENDED
------------------------------------
Nortek, Inc., a Delaware corporation ("Nortek" or the "Company"), hereby
offers (the "Exchange Offer"), upon the terms and subject to the conditions set
forth in this Prospectus (the "Prospectus") and the accompanying letter of
transmittal (the "Letter of Transmittal"), to exchange an aggregate principal
amount of up to $310,000,000 of its 9 1/8% Series B Senior Notes due 2007 (the
"Exchange Notes") of the Company for a like principal amount of the issued and
outstanding 9 1/8% Series A Senior Notes due 2007 (the "Original Notes" and
together with the Exchange Notes, the "Notes") from the holders (the "Holders")
thereof. The form and terms of the Exchange Notes are identical in all material
respects to the form and terms of the Original Notes except that the Exchange
Notes will not contain terms with respect to transfer restrictions (other than
those that might be imposed by state securities laws) or, except in limited
circumstances, provide for the payment of Liquidated Damages (as defined).
The Original Notes are and the Exchange Notes will be senior unsecured
obligations of the Company and will rank pari passu in right of payment with all
existing and future senior unsecured indebtedness of the Company and senior in
right of payment to all existing and future subordinated indebtedness of the
Company. The Original Notes and the Exchange Notes will be effectively
subordinated to all existing and future secured indebtedness of the Company, to
the extent of the value of the assets securing such indebtedness, and to all
existing and future indebtedness and other obligations of the Company's
subsidiaries, except in the case of unsecured indebtedness and other obligations
to the extent any Subsidiary Guaranty (as defined) is then in force. At June 28,
1997, after giving effect to the Transactions (as defined) and the application
of the net proceeds therefrom, the Exchange Notes would have been effectively
subordinated to approximately $414.4 million of indebtedness for borrowed money,
trade payables and accrued liabilities of the Company's subsidiaries. See
"Description of Notes -- General." Subject to certain restrictions, the
Indenture (as defined) pursuant to which the Original Notes were issued and the
Exchange Notes will be issued, permits the Company and its subsidiaries to incur
additional indebtedness, including indebtedness which may be secured. See
"Description of Notes -- Certain Covenants."
Interest on the Exchange Notes will be payable semi-annually on March 1 and
September 1 of each year, commencing March 1, 1998. The Exchange Notes will
mature on September 1, 2007. The Exchange Notes will be redeemable at the option
of the Company, in whole or in part, at any time and from time to time on or
after September 1, 2002 at the redemption prices set forth herein, together with
accrued and unpaid interest, if any, to the date of redemption. Upon a Change of
Control (as defined), holders of the Exchange Notes will have the right, subject
to certain exceptions, restrictions and conditions, to require the Company to
purchase all or any of their Notes at 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of purchase. See "Description
of Notes."
The Exchange Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement, dated
August 26, 1997, among the Company and the other signataries thereto (the
"Registration Rights Agreement"). The Company believes that based on
interpretations by the staff of the Securities and Exchange Commission (the
"Commission"), Exchange Notes issued pursuant to the Exchange Offer in exchange
for Original Notes may be offered for resale, resold and otherwise transferred
by each Holder thereof (other than (i) a broker-dealer who purchased Original
Notes directly from the Company or any of its "affiliates" within the meaning of
Rule 405 under the Securities Act of 1933, as amended (the "Securities Act"),
for resale pursuant to Rule 144A or any other available exemption under the
Securities Act or (ii) a person that is such an "affiliate" of the Company)
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such Exchange Notes are acquired in the
ordinary course of such Holder's business and such Holder is not participating,
and has no arrangement with any such person to participate, in the distribution
of the Exchange Notes.
Each broker-dealer participating in the Exchange Offer (a "Participating
Broker-Dealer") that receives Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. The Letter of Transmittal states that by
so acknowledging and by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a Participating Broker-Dealer in connection with
resales of Exchange Notes received in exchange for Original Notes where such
Original Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days, it will make this Prospectus and any amendment or supplement
to this Prospectus available to any Participating Broker-Dealer for use in
connection with any such resale. See "Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer and will
pay the expenses incident to the Exchange Offer. Tenders of Original Notes may
be withdrawn at any time prior to the Expiration Date. In the event the Company
terminates the Exchange Offer and does not accept for exchange any Original
Notes, the Company will promptly return the Original Notes to the Holders
thereof. See "The Exchange Offer."
------------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 20 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN EVALUATING THE EXCHANGE OFFER
AND AN INVESTMENT IN THE NOTES.
------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------
The date of this Prospectus is , 1997.
<PAGE> 3
The Exchange Offer is not being made to, nor will the Company accept
surrenders for Exchange Notes from, Holders of Original Notes in any
jurisdiction in which the Exchange Offer or the acceptance thereof would not be
in compliance with the securities or Blue Sky Laws for such jurisdiction.
The Exchange Notes will be available initially only in book-entry form. The
Company expects that the Exchange Notes issued pursuant to this Exchange Offer
will be issued in the form of one or more Global Notes (as defined), which will
be deposited with, or on behalf of, The Depository Trust Company (the
"Depositary") and registered in its name or in the name of Cede & Co., its
nominee. Beneficial interests in the Global Note representing the Exchange Notes
will be shown on, and transfers thereof will be effected through, records
maintained by the Depositary and its participants. After the initial issuance of
the Global Note(s), Exchange Notes in certificated form will be issued in
exchange for the Global Note(s) only on the terms set forth in the Indenture.
See "Description of Notes -- Book-Entry, Delivery and Form."
Prior to the Exchange Offer, there has been no public market for the
Original Notes or Exchange Notes. To the extent that Original Notes are tendered
and accepted in the Exchange Offer, a Holder's ability to sell untendered
Original Notes could be adversely affected. If a market for the Exchange Notes
should develop, the Exchange Notes could trade at a premium or discount from
their principal amount. The Company does not currently intend to list the
Exchange Notes on any securities exchange or to seek approval for quotation
through any automated quotation system.
The Company has been advised by Wasserstein Perrella Securities, Inc. and
Bear, Stearns & Co. Inc., the initial purchasers (the "Initial Purchasers") of
the Original Notes, that, following completion of the Exchange Offer, they
intend to make a market in the Exchange Notes; however, such entities are under
no obligation to do so and any market activities with respect to the Exchange
Notes may be discontinued at any time.
Pursuant to the Indenture, so long as any of the Notes are outstanding,
whether or not the Company is subject to the reporting requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Company will furnish to all holders of the Notes (i) all quarterly
and annual financial information that would be required to be contained in a
filing with the Commission on Forms 10-Q and 10-K if the Company were required
to file such Forms, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operation" that describes the financial
condition and results of operations of the Company and its subsidiaries and,
with respect to annual information only, a report thereon by the Company's
independent certified public accountants and (ii) all reports that would be
required to be filed with the Commission on Form 8-K if the Company were
required to file such reports. The Company will also file a copy of all such
information with the Commission for public availability (unless the Commission
will not accept such filing) and make such information available to investors or
prospective investors of the Notes who request it in writing.
2
<PAGE> 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference into this Prospectus the
following documents or information previously filed with the Commission:
(a) the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (the "Form 10-K");
(b) each of the Company's Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 29, 1997 and June 28, 1997;
(c) each of the Company's Current Reports on Form 8-K filed March 5, 1997,
March 13, 1997, May 5, 1997, July 29, 1997, August 27, 1997, September 10, 1997
and September 12, 1997 (collectively, the "Form 8-Ks"); and
(d) all documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering made hereby.
Any statement contained herein or in any documents incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for the purpose of this Prospectus to the extent that a subsequent
statement contained herein or in any subsequently filed document which also is
or is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE WITHOUT CHARGE UPON
WRITTEN OR ORAL REQUEST FROM ALMON C. HALL, VICE PRESIDENT, CONTROLLER AND CHIEF
ACCOUNTING OFFICER AT THE COMPANY'S PRINCIPAL EXECUTIVE OFFICES LOCATED AT 50
KENNEDY PLAZA, PROVIDENCE, RHODE ISLAND 02903; TELEPHONE NUMBER: (401) 751-1600.
IN ORDER TO ENSURE TIMELY DELIVERY OF SUCH DOCUMENTS, ANY REQUEST SHOULD BE MADE
BY .
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. All reports, proxy statements and other
information filed by the Company with the Commission can be inspected and copied
at the Public Reference Section of the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at 7 World Trade Center, 13th Floor, Suite 1300, New York,
New York 10048 and Citicorp Center, 500 West Madison Street, Suite 400, Chicago,
Illinois 60661. Copies of such material can also be obtained at prescribed rates
by writing to the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549. Such material may also be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov. In addition, such reports, proxy statements and other
information concerning the Company can be inspected at the office of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005.
A Registration Statement on Form S-4, including amendments thereto,
relating to the Exchange Notes offered hereby has been filed by the Company with
the Commission. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete and in each instance
reference is made to the copy of such contract or other documents filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. For further information with respect to the
Company and the Exchange Notes offered hereby, reference is made to such
Registration Statement, exhibits and schedules. A copy of the Registration
Statement and the exhibits and schedules thereto may be inspected or obtained in
the same manner set forth in the immediately preceding paragraph for the
reports, proxy statements and other information referred therein.
3
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the detailed information and financial data, including the
Consolidated Financial Statements and Notes thereto, appearing elsewhere in this
Prospectus and incorporated herein by reference. Unless the context otherwise
indicates, references herein to (i) "Nortek" are to Nortek, Inc., a Delaware
corporation, and its subsidiaries, prior to giving effect to the Acquisition (as
defined below); (ii) "Ply Gem" are to Ply Gem Industries, Inc., a Delaware
corporation, and its subsidiaries, prior to giving effect to the Acquisition;
(iii) the "Company" are to Nortek and its subsidiaries, including Ply Gem and
its subsidiaries following and after giving effect to the Acquisition, or to
Nortek as the offeree or obligor on the Notes (except as set forth in the
Consolidated Financial Statements included herein); and (iv) the "Acquisition"
are collectively to the Tender Offer (as defined), the Merger (as defined) and
the other transactions contemplated by the Merger Agreement (as defined). See
"The Acquisition."
THE COMPANY
GENERAL
The Company is a major manufacturer and distributor of building products
for the residential and commercial construction, manufactured housing,
do-it-yourself ("DIY") and professional remodeling and renovation markets. The
Company operates principally through two core businesses: (i) the Residential
Building Products Group which offers a broad range of products including
built-in and ventilation products, windows, doors and siding; and (ii) the Air
Conditioning and Heating ("HVAC") Products Group which manufactures and sells
custom-designed systems for commercial applications and standard products for
manufactured and site-built residential housing. For the twelve months ended
June 28, 1997, the Company had pro forma net sales of approximately $1.8 billion
and adjusted pro forma EBITDA of approximately $159.6 million. See "Unaudited
Pro Forma Condensed Consolidated Financial Data."
The Company is a Delaware corporation incorporated in 1986. The Company's
common stock is quoted on the New York Stock Exchange under the symbol "NTK."
Its executive offices are located at 50 Kennedy Plaza, Providence, Rhode Island
02903-2360, telephone number: (401) 751-1600.
NORTEK
Nortek is a diversified manufacturer of residential and commercial building
products, operating within two principal product groups: the Residential
Building Products Group and the HVAC Products Group. Through these two product
groups, Nortek manufactures and sells, primarily in the United States, Canada
and Europe, a wide variety of products for the residential and commercial
construction, manufactured housing, and the DIY and professional remodeling and
renovation markets. The Residential Building Products Group is a leading
manufacturer and distributor of built-in products primarily for the residential
new construction and the DIY and professional remodeling and renovation markets.
This Group is the largest supplier in the United States and Canada of range
hoods, bath fans and combination units, and indoor air quality products such as
continuous-ventilation systems and energy-recovery ventilators, and one of the
leading suppliers in Western Europe, South America and the Middle East of luxury
"Eurostyle" range hoods. Products are sold under recognized brand names,
including Broan(R), Nautilus(R), Venmar(R), Rangaire(R) and Best(R). The HVAC
Products Group manufactures and sells HVAC systems for custom-designed
commercial applications and for manufactured and site-built residential housing
markets. The Group's commercial products consist of HVAC systems which are
custom-designed to meet customer specifications for commercial offices,
manufacturing and educational facilities, hospitals, retail stores and
governmental buildings. For the manufactured and site-built residential housing
markets, the Group's products include central air conditioners, heat pumps,
furnaces and a wide range of accessories. This Group markets its commercial
products under the Governair(R), Mammoth(R) and Temtrol(R) brand names and its
residential products under the Intertherm(R), Miller(R) and Powermiser(R) brand
names. For the twelve months ended June 28, 1997, Nortek had net sales of
approxi-
4
<PAGE> 6
mately $957.8 million and EBITDA of approximately $87.4 million. See "Unaudited
Pro Forma Condensed Consolidated Financial Data."
PLY GEM
Ply Gem is a major manufacturer and distributor of vinyl and wood windows
and doors, vinyl siding and accessories and is a supplier of specialty wood and
other related products for use in the remodeling and new construction of
residential and light-commercial properties. Ply Gem operates principally
through two business groups: Windows, Doors and Siding; and Wood and Decorative
Products. Ply Gem targets the growing remodeling and DIY markets through the
home center channel by offering a line of branded products and strong customer
service capabilities. Ply Gem markets its windows, doors and siding under the
following brand names: Crestline(R), Great Lakes(R), Vetter(R), Kenergy(R) and
Varigrain(R). For the twelve months ended June 30, 1997, Ply Gem had net sales
of approximately $802.5 million and had EBITDA of approximately $46.4 million.
See "Unaudited Pro Forma Condensed Consolidated Financial Data."
ACQUISITION RATIONALE
The Acquisition reinforces Nortek's strategy of developing and maintaining
leading positions in selected strategic product lines within the building
products industry. The Company expects the Acquisition will provide a
significant opportunity to (i) expand in the growing and less cyclical
remodeling and renovation markets, (ii) increase its importance as a supplier to
home centers and national distributors and (iii) realize savings from the
elimination of duplicative administrative expenses and the implementation of
other operating efficiencies.
Expansion in growing, less cyclical markets. The Company believes the
Acquisition will accelerate its expansion into the growing remodeling and
renovation markets. Ply Gem's windows, doors and siding business offers a range
of products targeted towards the replacement and remodeling markets, including
through the home center distribution channel. The Company believes that the
frequency of renovating and remodeling activities increases with the age of a
home and that such activities also often occur shortly before and after an
existing home sale. According to the National Association of Homebuilders (the
"NAH"), the average age of a U.S. home has increased from 23 years in 1985 to 28
years in 1995. During the same period, according to the NAH annual sales of
existing homes increased 21%. Additionally, the rapid expansion of building
product retail chains have made building products more accessible to
"do-it-yourselfers," contributing to the overall growth in the renovation and
remodeling markets. Correspondingly, between 1985 and 1995, according to the NAH
expenditures on home improvements increased from $44.9 billion to $70.3 billion,
or 57%. The Company also believes that by focusing on the existing home market,
it reduces its exposure to cyclical fluctuations in its operations.
Increased importance to customers. The Acquisition will broaden the
Company's product offerings, which the Company believes will enhance its
position within currently served distribution channels. The Acquisition will add
windows, doors and siding to the Company's existing product portfolio.
Accordingly, the Company believes that home centers and national distributors,
two of the Company's most important customer channels, will view the Company as
a broader "one-stop shopping" supplier at a time when such customers are seeking
to consolidate their vendor bases. In addition, the Acquisition will permit the
sale of Ply Gem's product lines through Nortek's customers serving the
manufactured housing market.
Ability to realize substantial cost savings. The Company expects to realize
pre-tax annual cost savings of approximately $23.4 million, based on the last
twelve months ended June 28, 1997, as a result of the Acquisition. These savings
are expected to result from several actions, including: (i) the elimination of
expenses associated with Ply Gem's New York headquarters; (ii) the consolidation
into the Company of certain of Ply Gem's corporate functions such as legal,
accounting and risk management; and (iii) the identification and rationalization
of underperforming product lines. The Company believes that this annual rate of
cost savings can be achieved beginning in 1998.
5
<PAGE> 7
BUSINESS STRATEGY
The Company's objective is to achieve stable profitable growth in its core
building products businesses by (i) selectively expanding its portfolio of
complementary product lines, (ii) developing and maintaining leadership
positions in strategic products and markets, (iii) achieving a competitive
advantage as a low cost producer and (iv) realizing synergies in marketing and
distribution by offering a broader range of products.
The Company intends to continue to pursue synergistic acquisitions in its
core product lines in order to expand market share in its businesses. The
Company believes there will continue to be opportunities to make such
acquisitions that can contribute value through a combination of economies of
scale, market power and breadth of distribution. In the past several years,
Nortek has successfully integrated acquisitions into its existing businesses,
including the addition of Rangaire L.P., Best S.p.A. and Venmar Ventilation,
Inc. to its Residential Building Products Group.
A fundamental component of the Company's business strategy is to focus on
its core businesses. Accordingly, the Company takes a disciplined approach to
the divestiture or discontinuation of non-strategic assets that are not market
leaders and that fail to meet the Company's investment return expectations.
THE ACQUISITION
On July 24, 1997, Nortek, a wholly owned subsidiary of Nortek and Ply Gem
entered into an Agreement and Plan of Merger (the "Merger Agreement"). In
connection with the Merger Agreement, on July 29, 1997, such Nortek subsidiary
commenced a tender offer to purchase all outstanding shares of common stock,
$0.25 par value per share ("Common Stock" or the "Shares"), of Ply Gem, at a
price of $19.50 per share, net to the seller in cash, without interest thereon
(the "Tender Offer"), upon the terms and conditions set forth in the Offer to
Purchase dated July 29, 1997 (the "Offer to Purchase") and the related letter of
transmittal. On August 26, 1997, Nortek's subsidiary completed the Tender Offer.
Following completion of the Tender Offer, Nortek and its subsidiary collectively
owned approximately 92.3% of Ply Gem's then outstanding Common Stock.
Pursuant to the Merger Agreement, on September 4, 1997, Nortek's subsidiary
was merged with and into Ply Gem (the "Merger"), with Ply Gem surviving the
merger as a wholly owned subsidiary of the Company. All remaining shares of Ply
Gem's Common Stock not tendered and purchased in the Tender Offer were canceled
and those not owned by the Company or by shareholders exercising appraisal
rights were converted into the right to receive $19.50 cash per Share. Because
Nortek's subsidiary beneficially owned more than 90% of Ply Gem's outstanding
Common Stock, under Delaware General Corporation Law, no vote of Ply Gem's
shareholders was required to effect the Merger. See "The Acquisition."
In addition, on the date of consummation of the Tender Offer Ply Gem
refinanced a portion of its existing indebtedness through the extension of
credit by a syndicate of lenders and Fleet National Bank ("Fleet"), as sole
administrative agent for itself and the other lenders (the "Ply Gem Credit
Facility"). The aggregate amount of the refinancing was approximately $108.9
million. See "Description of Other Obligations -- Ply Gem Credit Facility."
6
<PAGE> 8
The sources and uses of the financing used to complete the Acquisition and
related transactions were as follows:
<TABLE>
<CAPTION>
IN
MILLIONS
------
<S> <C>
Sources of financing:
Nortek cash............................................................. $110.2
Gross proceeds from the offering of the Original Notes.................. 307.5
Extension of credit under the Ply Gem Credit Facility................... 108.9
-------
--
Total sources of funds............................................... $526.6
=========
Uses of financing:
Payment for shares of Ply Gem common stock and cancellation of Ply Gem
stock options........................................................ $310.1
Refinancing of existing Ply Gem indebtedness............................ 114.4
Termination of Ply Gem accounts receivable securitization program....... 45.0
Funding of termination fees under prior transaction agreement........... 12.0
Consideration paid for termination of management agreements............. 23.5
Fees, expenses and other costs related to the Transactions.............. 21.6
-------
--
Total uses of funds.................................................. $526.6
=========
</TABLE>
7
<PAGE> 9
THE EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to $310 million aggregate
principal amount of Exchange Notes for an equal aggregate principal amount of
Original Notes. The Exchange Notes will be obligations of the Company entitled
to the benefits of the Indenture relating to the Original Notes. The form and
terms of the Exchange Notes are substantially the same as the form and terms of
the Original Notes except that the Exchange Notes have been registered under the
Securities Act, and hence are not entitled to the benefits of certain
registration rights (the "Registration Rights") granted under the Registration
Rights Agreement and are not entitled to payment of Liquidated Damages (as
defined) (except in certain limited circumstances set forth in the Registration
Rights Agreement).
Registration Rights
Agreement.................. The Company and the Initial Purchasers entered into
the Registration Rights Agreement which grants the
Holders of the Original Notes certain exchange and
registration rights. The Exchange Offer made hereby
is intended to satisfy such exchange rights. See
"The Exchange Offer -- Registration Rights;
Liquidated Damages."
The Exchange Offer......... $1,000 principal amount of Exchange Notes will be
issued in exchange for each $1,000 principal amount
of Original Notes validly tendered pursuant to the
Exchange Offer. As of the date hereof, $310 million
in aggregate principal amount of Original Notes are
outstanding. The Company will issue the Exchange
Notes to tendering Holders of Original Notes on or
promptly after the Expiration Date (as defined).
Resale of the Exchange
Notes...................... Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in
exchange for Original Notes may be offered for
resale, resold and otherwise transferred by any
Holder thereof (other than (i) a broker-dealer who
purchased such Original Notes directly from the
Company or any of its "affiliates" within the
meaning of Rule 405 under the Securities Act for
resale pursuant to Rule 144A or any other available
exemption under the Securities Act or (ii) a person
that is such an "affiliate" of the Company) without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that the Holder is acquiring the Exchange Notes in
its ordinary course of business and is not
participating, and has no arrangement or
understanding with any person to participate, in
the distribution of the Exchange Notes. Holders of
Original Notes wishing to accept an Exchange Offer
must represent to the Company that such conditions
have been met. In the event that the Company's
belief is inaccurate, Holders of Exchange Notes who
transfer Exchange Notes in violation of the
prospectus delivery provisions of the Securities
Act and without an exemption from registration
thereunder may incur liability under the Securities
Act. The Company does not assume or indemnify
Holders against such liability.
A Participating Broker-Dealer that receives
Exchange Notes in exchange for Original Notes held
for its own account, as a result of market-making
activities or other trading activities, must
acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
Although such Participating Broker-Dealer may be an
"underwriter" within the meaning of the Securities
Act, the Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, such
Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus
8
<PAGE> 10
may be used by a Participating Broker-Dealer in
connection with resales of Exchange Notes received
in exchange for Original Notes. The Company has
agreed that, for a period of 180 days, it will make
this Prospectus and any amendment or supplement to
this Prospectus available to any Participating
Broker-Dealer for use in connection with any such
resales. See "Plan of Distribution."
The Exchange Offer is not being made to, nor will
the Company accept surrenders for exchange from,
Holders of Original Notes in any jurisdiction in
which this Exchange Offer or the acceptance thereof
would not be in compliance with the securities or
blue sky laws of such jurisdiction.
Expiration Date............ 5:00 p.m., New York City time, on [ ],
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 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."
9
<PAGE> 11
Guaranteed Delivery
Procedures............... Holders of Original Notes who wish to tender their
Original Notes and whose Original Notes are not
immediately available or who cannot deliver their
Original Notes, the Letter of Transmittal, as the
case may be, or any other documents required by
such Letter of Transmittal to the Exchange Agent
(or comply with the procedures for book-entry
transfer) prior to the Expiration Date must tender
their Original Notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures."
Untendered Notes........... Following the consummation of the Exchange Offer,
Holders of Original Notes eligible to participate
but who do not tender their Original Notes will not
have any further exchange rights, and such Original
Notes will continue to be subject to certain
restrictions on transfer. Accordingly, the
liquidity of the market for such Original Notes
could be adversely affected by the Exchange Offer.
Consequences of Failure to
Exchange................. The Original Notes that are not exchanged pursuant
to the Exchange Offer will remain restricted
securities. Accordingly, such Original Notes may be
resold only (i) to the Company, (ii) pursuant to
Rule 144A or Rule 144 under the Securities Act or
pursuant to some other exemption under the
Securities Act, (iii) outside the United States in
compliance with Regulation S of the Securities Act,
or (iv) pursuant to an effective registration
statement under the Securities Act. See "The
Exchange Offer -- Consequences of Failure to
Exchange."
Shelf Registration
Statement.................. In the event that any changes in law or the
applicable interpretations of the staff of the
Commission do not permit the Company to effect the
Exchange Offer, or upon the request of a Holder of
Transfer Restricted Securities (as defined) under
certain circumstances or if the Exchange Offer is
not for any other reason consummated within 180
days of the date on which the Original Notes were
issued, the Company has agreed pursuant to the
Registration Rights Agreement to register the
Original Notes issued by it on a shelf registration
statement (the "Shelf Registration Statement") and
use its best efforts to cause it to be declared
effective by the Commission. The Company has agreed
to use its reasonable best efforts to maintain the
effectiveness of the Shelf Registration Statement
for a period of two years or, if sooner, until the
date on which the securities covered by the Shelf
Registration Statement have been sold or cease to
be outstanding.
Withdrawal Rights.......... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
See "The Exchange Offer -- Withdrawal of Tenders."
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."
10
<PAGE> 12
Federal Tax
Consideration.............. The exchange pursuant to the Exchange Offer will
generally not be a taxable event for federal income
tax purposes. See "Certain Federal Tax
Considerations."
Use of Proceeds............ There will be no cash proceeds to the Company from
the exchange pursuant to the Exchange Offer.
Exchange Agent............. State Street Bank and Trust Company.
SUMMARY DESCRIPTION OF THE EXCHANGE NOTES
General.................... The form and terms of the Exchange Notes are
substantially the same as the form and terms of the
Original Notes except that (i) the Exchange Notes
bear a Series B designation, (ii) the Exchange
Notes have been registered under the Securities Act
and, therefore, will generally not bear legends
restricting the transfer thereof (other than those
that might be imposed by state securities laws) and
(iii) the Exchange Notes will not provide for the
payment of Liquidated Damages (except in certain
limited circumstances set forth in the Registration
Rights Agreement). See "The Exchange
Offer -- Registration Rights; Liquidated Damages."
The Exchange Notes will evidence the same debt as
the Original Notes and will be entitled to the
benefits of the Indenture. As used herein, the term
"Notes" refers collectively to the Exchange Notes
and the Original Notes.
Securities Offered......... $310,000,000 aggregate principal amount of 9 1/8%
Series B Senior Notes due 2007.
Interest Rate and
Payment Dates............ Interest on the Exchange Notes will accrue at the
rate of 9 1/8% per annum, payable semi-annually in
arrears on March 1 and September 1 of each year,
commencing March 1, 1998.
Maturity................... September 1, 2007.
Redemption................. The Exchange Notes may be redeemed at the Company's
option, in whole or in part, at any time and from
time to time, on and after September 1, 2002,
initially at 104.563% of principal amount and
thereafter at prices declining to 100% from and
after September 1, 2005, plus accrued and unpaid
interest, if any, to the date of redemption. See
"Description of Notes -- Optional Redemption."
Change of Control.......... Upon a Change of Control (as defined), holders of
the Exchange Notes will have the right, subject to
certain restrictions and conditions, to require the
Company to purchase all or any part of their
Exchange Notes at 101% of the principal amount
thereof, plus accrued and unpaid interest, if any
(the "Change of Control Payment"), to the date of
purchase. If a Change of Control were to occur,
there can be no 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
11
<PAGE> 13
future senior unsecured indebtedness of the Company
and senior in right of payment to all existing and
future subordinated indebtedness of the Company.
The Exchange Notes will be effectively subordinated
to all existing and future secured indebtedness of
the Company, to the extent of the value of the
assets securing such indebtedness, and to all
existing and future indebtedness and other
obligations of the Company's subsidiaries
(including Ply Gem and its subsidiaries), except in
the case of unsecured indebtedness and other
obligations to the extent any Subsidiary Guaranty
is then in force. Subject to certain restrictions,
the indenture pursuant to which the Exchange Notes
will be issued (the "Indenture") permits the
Company and its subsidiaries to incur additional
indebtedness, including senior indebtedness which
may be secured, and other liabilities. At June 28,
1997, after giving effect to the Transactions (as
defined), the Exchange Notes would have been
effectively subordinated to approximately $414.4
million of indebtedness for borrowed money, trade
payables and accrued liabilities of the Company's
subsidiaries. See "Description of
Notes -- General."
Certain Restrictive
Covenants.................. The Indenture contains certain covenants that limit
the ability of the Company and its Restricted
Subsidiaries (as defined) to, among other things,
pay dividends, repurchase capital stock or make
certain other Restricted Payments (as defined),
incur additional Indebtedness (as defined), issue
preferred stock of Restricted Subsidiaries, make
certain Investments (as defined) and consummate
certain mergers, consolidations or sales of assets.
Upon certain Asset Sales (as defined), the Company
will be required in certain circumstances to offer
to apply certain proceeds thereof to purchase the
Notes. However, all of these limitations and
prohibitions are subject to a number of important
qualifications and exceptions. See "Description of
Notes -- Certain Covenants."
RISK FACTORS
Prospective purchasers of the Notes should consider carefully all of the
information included in this Prospectus and, in particular, should evaluate the
specific factors set forth under "Risk Factors."
12
<PAGE> 14
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
The following table sets forth summary as adjusted consolidated financial
data of Nortek, historical consolidated financial data of Ply Gem and pro forma
and adjusted pro forma consolidated financial data of the Company. The as
adjusted, historical, pro forma and adjusted pro forma consolidated financial
data should be read in conjunction with the audited and unaudited Consolidated
Financial Statements and the Notes thereto, the information contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the information contained in "Unaudited Pro Forma Condensed
Consolidated Financial Data" included elsewhere herein.
The unaudited pro forma consolidated statement of operations data and other
consolidated data for the year ended December 31, 1996 and the six months and
twelve months ended June 28, 1997 give effect to (i) the Acquisition, the
issuance and sale of the Original Notes (the "Offering"), extension of credit
under the Ply Gem Credit Facility (as defined) to refinance certain existing
indebtedness of Ply Gem and the termination of Ply Gem's accounts receivable
securitization program (collectively, the "Transactions"), (ii) the issuance of
the 9 1/4% Senior Notes due 2007 (the "9 1/4% Notes") and (iii) a portion of the
Estimated Cost Reductions (as defined) which are directly attributable to the
Acquisition, as if all of the foregoing had occurred on January 1, 1996. The
unaudited adjusted pro forma consolidated statement of operations data and other
consolidated data for the year ended December 31, 1996 and the six and twelve
months ended June 28, 1997 give effect to (i) the Transactions, (ii) the
issuance of the 9 1/4% Notes and (iii) all of the Estimated Cost Reductions, as
if all of the foregoing had occurred on January 1, 1996. The summary unaudited
pro forma consolidated balance sheet data of the Company as of June 28, 1997
gives effect to the Transactions as if they occurred on that date.
The accompanying unaudited as adjusted, pro forma and adjusted pro forma
consolidated financial data are presented for illustrative purposes only and are
not necessarily indicative of the financial position or results of operations
which would actually have been reported had the above transactions been in
effect during the periods presented or which may be reported in the future. The
results of operations of the six months ended June 28, 1997 are not necessarily
indicative of the results of operations to be expected for the full year.
See "Unaudited Pro Forma Condensed Consolidated Financial Data" and "The
Acquisition."
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED JUNE 28, 1997
-----------------------------------------------------------
ADJUSTED
NORTEK PLY GEM PRO FORMA PRO FORMA
AS ADJUSTED(5) HISTORICAL COMPANY(6)(7) COMPANY(7)(8)
-------------- ---------- ------------- -------------
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales................... $957.8 $802.5 $ 1,760.3 $ 1,760.3
Gross profit................ 262.6 153.6 411.7 411.7
Operating earnings.......... 64.2 30.6 101.4 116.9
Interest expense, net....... (34.8) (6.6) (74.1) (74.1)
Net earnings................ 18.5 11.0 13.0 23.1
Net earnings per share...... 1.84 1.29 2.30
OTHER CONSOLIDATED DATA:
Capital expenditures........ $ 23.5 $ 26.8 $ 50.3 $ 50.3
Depreciation and
amortization.............. 24.3 15.8 46.2 45.4
EBITDA(1)................... 87.4 46.4 144.9 159.6
Ratio of earnings to fixed
charges(2)................ 1.7x 1.3x 1.5x
Ratio of EBITDA to interest
expense, net.............. 2.0 2.2
Ratio of net debt to
EBITDA(3)................. 5.0 4.6
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 SIX MONTHS ENDED JUNE 28, 1997
----------------------------------------------------- -----------------------------------------------------
NORTEK ADJUSTED NORTEK ADJUSTED
AS PLY GEM PRO FORMA PRO FORMA AS PLY GEM PRO FORMA PRO FORMA
ADJUSTED(5) HISTORICAL COMPANY(6) COMPANY(7)(8) ADJUSTED(5) HISTORICAL COMPANY(6) COMPANY(7)(8)
----------- ---------- ---------- ------------- ----------- ---------- ---------- -------------
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
STATEMENT OF
OPERATIONS DATA:
Net sales......... $ 969.8 77$4.9... $1,744.7 $ 1,744.7 $ 469.2 $381.7 $850.9 $ 850.9
Gross profit...... 259.9 148.5 403.9 403.9 126.7 68.3 192.7 192.7
Operating
income.......... 60.1 29.0 93.2 106.8 29.9 8.8 43.0 50.7
Interest expense,
net............. (37.0) (6.8) (74.6) (74.6) (16.6) (3.6) (37.1) (37.1)
Net earnings...... 13.9 10.5 6.6 15.4 8.7 2.0 3.2 8.2
Net earnings per
share........... 1.30 .62 1.44 .88 .32 .83
OTHER CONSOLIDATED
DATA:
Capital
expenditures.... $ 22.2 $ 17.6 $ 39.8 $ 39.8 $ 8.9 $ 17.8 $ 26.7 $ 26.7
Depreciation and
amortization.... 23.7 15.0 45.0 44.2 12.4 8.4 23.9 23.5
EBITDA(1)......... 82.6 44.0 135.2 148.0 41.7 17.2 65.5 72.8
Ratio of earnings
to fixed
charges(2)...... 1.5x 1.2x 1.4x 1.6x 1.1x 1.3x
</TABLE>
<TABLE>
<CAPTION>
JUNE 28, 1997
------------------
ACTUAL PRO FORMA
------ ---------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities(4)........ $231.1 $ 128.6
Working capital............................................ 309.5 353.2
Total assets............................................... 773.0 1,297.2
Total debt................................................. 426.8 856.0
Stockholders' investment................................... 121.1 121.1
</TABLE>
- ---------------
(1) "EBITDA" is operating earnings plus depreciation and amortization (other
than amortization of deferred debt expense and debt discount). EBITDA
differs from Consolidated Cash Flow as defined in the Indenture. See
"Description of Notes -- Certain Definitions." EBITDA should not be
considered as an alternative to net earnings as a measure of the Company's
operating results or to cash flows as a measure of liquidity. EBITDA
principally differs from net increase (decrease) in unrestricted cash and
cash equivalents shown on the Consolidated Statement of Cash Flows of the
Company, prepared in accordance with generally accepted accounting
principles, in that EBITDA does not reflect capital expenditures,
borrowings, principal and interest payments under debt and capital lease
obligations, income tax payments and cash flows from other operating,
investing and financing activities.
(2) For purposes of calculating this ratio, "earnings" consist of earnings from
continuing operations before provision for income taxes and fixed charges.
"Fixed charges" consist of interest expense and the estimated interest
portion of rental payments on operating leases.
(3) For purposes of calculating this ratio, "net debt" consists of total debt
less cash, cash equivalents and marketable securities.
(4) Includes approximately $5.7 million of restricted investments and marketable
securities at June 28, 1997 (actual and pro forma). See "Unaudited Pro Forma
Condensed Consolidated Financial Data."
(5) Adjusted to give effect to the issuance of the 9 1/4% Notes as if such
issuance had occurred on January 1, 1996. The actual issuance of the 9 1/4%
Notes took place in March 1997. See "Unaudited Pro Forma Condensed
Consolidated Financial Data."
(6) The pro forma Company consolidated statement of operations data and other
consolidated data give effect to a portion of the Estimated Cost Reductions
which are directly attributable to the Acquisition. See Note (o) of Notes to
the Unaudited Pro Forma Condensed Consolidated Financial Data. Such cost
reductions represent an estimate. Actual results could differ materially
from those presented.
14
<PAGE> 16
(7) The Acquisition is accounted for under the purchase method of accounting.
The summary unaudited pro forma and adjusted pro forma consolidated
financial data have been prepared utilizing a preliminary purchase price
allocation. The preliminary purchase price allocation is subject to
refinement until all pertinent information regarding the Acquisition is
obtained and accordingly the amounts presented herein are subject to change.
(8) The adjusted pro forma Company consolidated statement of operations data and
other consolidated data give effect to all of the Estimated Cost Reductions
(including those referred to in Note (6) above). See Note (t) of Notes to
the Unaudited Pro Forma Condensed Consolidated Financial Data. Such cost
reductions represent an estimate. Actual results could differ materially
from those presented.
15
<PAGE> 17
NORTEK, INC.
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data for each of the five
years in the period ended December 31, 1996 have been derived from the
consolidated financial statements of Nortek which were audited by Arthur
Andersen LLP, independent public accountants. The following summary consolidated
financial data at June 28, 1997 and for the six months ended June 29, 1996 and
June 28, 1997 have been derived from the unaudited consolidated financial
statements of Nortek, which reflect in the opinion of Nortek, all adjustments of
a normal recurring nature necessary for a fair statement of the interim periods
presented. The following summary consolidated financial data should be read in
conjunction with the audited and unaudited Consolidated Financial Statements and
Notes thereto and the information contained in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, -------------------
------------------------------------------ JUNE 29, JUNE 28,
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------ ------ -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA(1):
Net sales.............................. $800.0 $744.1 $737.2 $776.2 $969.8 $481.2 $469.2
Gross profit........................... 204.8 211.6 216.8 201.3 259.9 124.0 126.7
Operating earnings..................... 20.4.. 30.3 50.0 41.1 60.1 25.8 29.9
Interest expense, net.................. (24.8) (23.3) (20.9) (18.8) (24.8) (12.7) (14.1)
Net earnings (loss)(2)................. (24.2) (20.8) 17.8 15.0 22.0 8.2 10.4
Net earnings (loss) per share.......... (1.92) (1.66) 1.39 1.19 2.05 .73 1.05
OTHER CONSOLIDATED DATA:
Capital expenditures................... $ 8.8 $ 10.8 $ 19.4 $ 17.3 $ 22.2 $ 7.6 $ 8.9
Depreciation and amortization.......... 23.6 20.7 18.0 19.0 23.7 11.8 12.4
EBITDA from operations(3).............. 42.5 49.6 66.7 59.0 82.6 36.9 41.7
Ratio of earnings to fixed
charges(4)........................... -- -- 2.0x 1.9x 2.1x 1.8x 1.8x
Ratio of EBITDA from operations to
interest expense, net................ 1.7 2.1 3.2 3.1 3.3 2.9 3.0
</TABLE>
<TABLE>
<CAPTION>
JUNE 28, 1997
-------------
<S> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities(5)............. $ 231.1
Working capital................................................. 309.5
Total assets.................................................... 773.0
Total debt...................................................... 426.8
Stockholders' investment........................................ 121.1
</TABLE>
- ---------------
(1) Acquisitions have been accounted for under the purchase accounting method
and dispositions have been accounted for as described in Note 2 of the Notes
to Consolidated Financial Statements of Nortek included elsewhere herein.
(2) On January 2, 1992, a Nortek subsidiary, Dixieline Products, Inc.
("Dixieline"), sold the assets of L.J. Smith, Inc. and recognized a pre-tax
gain on the sale of approximately $8.0 million ($.34 per share, net of tax).
On October 2, 1992, Nortek sold its wholly-owned subsidiary Bend Millwork
Systems, Inc. ("Bend") and recognized a pre-tax loss in 1992 of
approximately $22.5 million ($1.60 per share, net of tax). In the third
quarter of 1993, Nortek provided a pre-tax valuation reserve of
approximately $20.3 million to reduce Nortek's net investment in Dixieline
to estimated net realizable value. On March 31,
16
<PAGE> 18
1994, Nortek sold all the capital stock of Dixieline for approximately $18.8
million in cash and $6.0 million in preferred stock of the purchaser. No
additional loss in 1994 was incurred in connection with this sale. In
January 1995, Nortek paid approximately $1.8 million ($.14 per share, net of
tax) as a final purchase price adjustment related to the sale of Bend and
recorded a charge to pre-tax earnings in the fourth quarter of 1994.
(3) "EBITDA" is operating earnings plus depreciation and amortization (other
than amortization of deferred debt expense and debt discount). EBITDA
differs from Consolidated Cash Flow as defined in the Indenture. See
"Description of Notes -- Certain Definitions." EBITDA should not be
considered as an alternative to net earnings as a measure of Nortek's
operating results or to cash flows as a measure of liquidity. EBITDA
principally differs from net increase (decrease) in unrestricted cash and
cash equivalents shown on the Consolidated Statement of Cash Flows of
Nortek, prepared in accordance with generally accepted accounting
principles, in that EBITDA does not reflect capital expenditures,
borrowings, principal and interest payments under debt and capital lease
obligations, income tax payments and cash flows from other operating,
investing and financing activities.
(4) For purposes of calculating this ratio, "earnings" consist of earnings
before provision for income taxes and fixed charges. "Fixed charges" consist
of interest expense and the estimated interest portion of rental payments on
operating leases. Such earnings were insufficient to cover fixed charges by
approximately $18.0 million and approximately $11.6 million for the years
ended December 31, 1992 and 1993, respectively.
(5) Includes approximately $5.7 million of restricted investments and marketable
securities at June 28, 1997. See Consolidated Financial Statements of Nortek
included elsewhere herein.
17
<PAGE> 19
PLY GEM INDUSTRIES, INC.
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data for each of the five
years in the period ended December 31, 1996 have been derived from the
consolidated financial statements of Ply Gem which were audited by Grant
Thornton LLP, independent public accountants. The following summary consolidated
financial data at June 30, 1997 and for the six months ended June 30, 1996 and
1997 have been derived from unaudited consolidated financial statements of Ply
Gem, which reflect in the opinion of Ply Gem, all adjustments of a normal
recurring nature necessary for a fair statement of the interim periods
presented. The following summary consolidated financial data should be read in
conjunction with the audited and unaudited Consolidated Financial Statements and
the Notes thereto and the information contained in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, --------------------
---------------------------------------------- JUNE 30, JUNE 30,
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------ ------ -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales.......................................... $632.6 $731.5 $808.9 $755.2 $774.9 $354.1 $381.7
Gross profit....................................... 130.1 139.5 155.6 124.6 148.5 63.2 68.3
Operating income (loss)(1)(2) ..................... 22.5 26.9 (4.1) (1.5) 29.0 7.2 8.8
Interest expense, net.............................. (9.6) (10.1) (7.5) (6.6) (6.8) (3.8) (3.6)
Net income (loss)(3)............................... 6.3 9.7 (8.5) (7.4) 10.5 1.5 2.0
Net income (loss) per share........................ .56 .75 (.62) (.51) .74 .11 .14
OTHER CONSOLIDATED DATA:
Capital expenditures............................... $ 17.1 $ 20.5 $ 23.0 $ 27.8 $ 17.6 $ 8.6 $ 17.8
Depreciation and amortization ..................... 11.8 12.2 13.4 14.2 15.0 7.6 8.4
EBITDA(4).......................................... 34.3 39.1 50.3 24.6 44.0 14.8 17.2
Ratio of EBITDA to interest expense................ 3.6x 3.9x 6.7x 3.7x 6.5x 3.9x 4.8x
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET DATA: JUNE 30, 1997
-------------
<S> <C>
Cash and cash equivalents.................................. $ 8.0
Working capital............................................ 117.9
Total assets............................................... 358.5
Total debt................................................. 121.7
Stockholders' equity....................................... 147.2
</TABLE>
- ---------------
(1) During the fourth quarter of 1995, Ply Gem adopted SFAS No. 121 "Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
of " and recorded a non-cash pre-tax charge of approximately $12 million
related to the write down of an information system and certain machinery and
equipment.
(2) During 1994, Ply Gem recorded non-recurring charges of approximately $41.0
million consisting of approximately $29.1 million related to a restructuring
program and approximately $11.9 million for unusual items consisting of the
write down of certain intangible assets and discontinued products. During
the first six months of 1997, Ply Gem recorded a nonrecurring charge of $2.9
million related to certain merger costs. Additionally, during 1996 and for
the six months of 1997, Ply Gem recorded merger expenses of $0.8 and $.05
million, respectively, which are recorded in selling, general and
administrative expenses.
(3) Ply Gem has a program which allows for the sale of undivided fractional
interests in a pool of eligible accounts receivable to a financial
institution with limited recourse. The program costs of approximately $3.5
million, approximately $3.2 million, approximately $1.9 million,
approximately $1.5 million and approximately $1.5 million for the years
ended December 31, 1996, 1995, 1994, 1993 and 1992, respectively, and
approximately $1.6 million and approximately $1.0 million for the six months
ended June 30, 1997 and 1996, respectively, have been classified as other
expense.
18
<PAGE> 20
(4) "EBITDA" is operating income (loss) plus depreciation and amortization and
excludes write down of long-lived assets and non-recurring charges. EBITDA
should not be considered as an alternative to net income as a measure of Ply
Gem's operating results or to cash flows as a measure of liquidity. EBITDA
principally differs from net increase (decrease) in cash and cash
equivalents shown on the Consolidated Statement of Cash Flows of Ply Gem,
prepared in accordance with generally accepted accounting principles, in
that EBITDA does not reflect capital expenditures, borrowings, principal and
interest payments under debt and capital lease obligations, income tax
payments and cash flows from other operating, investing and financing
activities.
19
<PAGE> 21
RISK FACTORS
Prospective purchasers of the Exchange Notes should carefully review and
consider, among other things, the factors set forth below, as well as the other
information included in this Prospectus, before making an investment in the
Exchange Notes.
SUBSTANTIAL LEVERAGE
The Company has a substantial amount of debt. After giving effect to the
Transactions, as of June 28, 1997, the Company would have had approximately
$856.0 million of consolidated debt and a debt to equity ratio of 7.1 to 1. See
"Capitalization" and "Description of Other Obligations."
The degree to which the Company is leveraged could have important
consequences to Holders of the Notes, including the following: (i) the Company's
ability to obtain additional financing in the future for refinancing
indebtedness, acquisitions, working capital, capital expenditures or other
purposes may be impaired, (ii) funds available to the Company for its operations
and general corporate purposes or for capital expenditures will be reduced as a
result of the dedication of a substantial portion of the Company's consolidated
cash flow from operations to the payment of the principal and interest on its
indebtedness, (iii) the Company may be more highly leveraged than certain of its
competitors, which may place it at a competitive disadvantage, (iv) the
agreements governing the Company's and its subsidiaries' long-term indebtedness
(including indebtedness under the 9 7/8% Senior Notes due 2004 (the "9 7/8%
Notes"), the 9 1/4% Notes, the Ply Gem Credit Facility (as defined) and the
Notes) and bank loans contain certain restrictive financial and operating
covenants, including, in the case of certain indebtedness of subsidiaries,
certain covenants that restrict the ability of the Company's subsidiaries to pay
dividends or make other distributions to the Company (see "Description of Other
Obligations"), (v) an event of default (not cured or waived) under financial and
operating covenants contained in the Company's or its subsidiaries' debt
instruments, including the Indenture, could occur and have a material adverse
effect on the Company, (vi) certain of the borrowings under debt agreements of
the Company's subsidiaries have floating rates of interest, which causes the
Company and its subsidiaries to be vulnerable to increases in interest rates and
(vii) the Company's substantial degree of leverage could make it more vulnerable
to a downturn in general economic conditions.
The terms of the Indenture allow for the incurrence of additional
Indebtedness (as defined). Except as set forth below, the incurrence of
additional Indebtedness is limited by certain conditions, including compliance
with a Consolidated Cash Flow Coverage Ratio (as defined) of 2.0 to 1.0, pro
forma for, among other things, the incurrence of additional Indebtedness. As of
June 28, 1997, after giving effect to the Transactions, the Company would have
been significantly limited in its ability to incur additional Indebtedness based
on compliance with the Consolidated Cash Flow Coverage Ratio. The Company and
its Restricted Subsidiaries (as defined) may incur specified levels of
additional Indebtedness without regard to compliance with the Consolidated Cash
Flow Coverage Ratio or any other financial ratio or covenant in the Indenture.
The Indenture places no restriction on the incurrence of Indebtedness by any of
the Company's Unrestricted Subsidiaries (as defined). As of the date of this
Prospectus, the Company does not have any Unrestricted Subsidiaries. See
"Description of Notes." In the event the Company or its subsidiaries were to
incur additional Indebtedness, whether for acquisitions, investment in its
business or other general corporate purposes, the Company's leverage could
increase, which in turn could make it more susceptible to the factors described
above.
The ability of the Company and its subsidiaries to make principal and
interest payments under long-term indebtedness (including the Notes) and bank
loans will be dependent upon their future performance, which is subject to
financial, economic and other factors affecting the Company and its
subsidiaries, some of which are beyond their control. There can be no assurance
that the current level of operating results of the Company and its subsidiaries
will continue or improve. The Company believes that it will need to access the
capital markets in the future in order to provide the funds necessary to repay a
significant portion of its indebtedness. There can be no assurance that any such
refinancing will be possible or that any additional financing can be obtained,
particularly in view of the Company's anticipated high levels of debt and the
debt incurrence restrictions under its existing debt agreements, including the
Indenture. If no such refinancing or additional financing were
20
<PAGE> 22
available, the Company and/or its subsidiaries could default on their respective
debt obligations. In such case, virtually all other debt of the Company and its
subsidiaries, including payments to be made under the Notes, could become
immediately due and payable.
SECURED INDEBTEDNESS
The Indenture permits the Company to incur certain indebtedness secured by
a lien on assets of the Company (including indebtedness which may be incurred
under the Company Credit Facility (as defined) and the Ply Gem Credit Facility).
The Notes are unsecured and will be effectively subordinated to all existing and
future secured indebtedness of the Company to the extent of the value of the
assets securing such indebtedness. Accordingly, if an event of default occurs
under any agreement or instrument governing secured indebtedness of the Company,
the lenders thereunder will have a prior right to the assets of the Company
securing such indebtedness and may foreclose upon such collateral to the
exclusion of the holders of the Notes. In such event, such assets would first be
used to repay in full outstanding amounts under indebtedness secured thereby,
resulting in all or a portion of the Company's assets being unavailable to
satisfy the claims of the Holders of Notes and holders of other unsecured
indebtedness. As of June 28, 1997, after giving effect to the Transactions, the
Company had outstanding, exclusively through its subsidiaries, on a pro forma
basis $148.2 million of secured indebtedness. See "Description of
Notes -- Certain Covenants" and "Description of Other Obligations -- Ply Gem
Credit Facility."
STRUCTURAL SUBORDINATION
The Notes will be obligations of the Company exclusively. Because the
operations of the Company are conducted entirely through subsidiaries, the
Company's cash flow and its ability to service debt, including the Notes, are
dependent upon the cash flow of its subsidiaries and the payment of funds by
those subsidiaries in the forms of loans, dividends or otherwise. The
subsidiaries, however, are legally distinct from the Company and have no
obligation, contingent or otherwise (except to the extent described below with
respect to the requirement to provide guaranties in certain circumstances), to
pay amounts due pursuant to the Notes or to make any funds available for such
payments.
Certain agreements governing the Company's subsidiaries restrict the
ability of the subsidiaries to pay dividends or make other distributions to the
Company. See "Description of Other Obligations."
In addition, while substantially all of the Company's subsidiaries are
currently wholly owned directly or indirectly by the Company, the ability of the
Company to cause any less than wholly owned subsidiary to pay dividends or make
other distributions to the Company may be limited by reason of contractual
restrictions or the need to consider the interests of the other owners of such
subsidiary. For example, a pro rata amount of any dividend distribution would in
most cases be required to be paid to the other owners of such subsidiary (and
thereby be subject to, and potentially prohibited by, the Limitations on
Restricted Payments covenant of the Indenture and similar covenants in other
agreements or instruments applicable to the Company, including without
limitation the indenture governing the 9 7/8% Notes and the indenture governing
the 9 1/4% Notes). In addition, the terms of any loan from any such less than
wholly owned subsidiary to the Company may only be able to be made, if at all,
on terms less favorable to the Company than in the case of a loan from a wholly
owned subsidiary.
Except to the extent that the Company may itself be a trade creditor with
recognized claims against its subsidiaries, claims of creditors of such
subsidiaries, including trade creditors, will have effective priority with
respect to the assets and earnings of such subsidiaries over the claims of
creditors of the Company, including holders of the Notes. At June 28, 1997,
after giving effect to the Transactions, the Notes would have been effectively
subordinated to approximately $414.4 million of indebtedness for borrowed money,
trade payables and accrued liabilities of the Company's subsidiaries. See
"Description of Notes -- General."
The Indenture provides that in the event any of the Company's subsidiaries
guarantees or otherwise becomes liable for the payment of any Indebtedness of
the Company (other than Indebtedness under the Company Credit Facility or the
Ply Gem Credit Facility) such subsidiary shall also guarantee the payment of the
Notes. This provision of the Indenture ceases to have effect in certain
circumstances. In the event any
21
<PAGE> 23
subsidiary provides such a guaranty, the guaranty may, under certain
circumstances, be subject to avoidance or subordination under fraudulent
conveyance laws or the preference provisions of federal or state bankruptcy law.
See "Description of Notes -- Certain Covenants -- Limitation on Guaranties by
Subsidiaries."
REPURCHASE OF NOTES UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required to
make an offer to repurchase the Notes at a price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest to the date of repurchase.
Certain events involving a Change of Control could result in acceleration of, or
similar repurchase obligations with respect to, indebtedness outstanding under
the Company Credit Facility, the Ply Gem Credit Facility, the 9 7/8% Notes, the
9 1/4% Notes or other indebtedness of the Company or its subsidiaries that may
be incurred in the future. There can be no assurance that the Company will have
sufficient resources to repurchase the Notes in the event it becomes obligated
to do so, particularly in the event of acceleration of, or the need to comply
with repurchase obligations with respect to, other indebtedness. The failure to
repurchase all of the tendered Notes in the event of a Change of Control
constitutes an event of default under the Indenture which may result in the
acceleration of the maturity of the Notes. The Change of Control repurchase
provisions may be deemed to have anti-takeover effects and may delay, defer or
prevent a merger, tender offer or other takeover attempt. See "Description of
Notes -- Change of Control", "-- Certain Covenants" and "-- Events of Default
and Remedies."
INTEGRATION OF THE BUSINESS OF PLY GEM
A significant element of the Company's business strategy is to pursue
strategic acquisitions that either expand or complement the Company's products
or markets. Although the management of the Company has had experience
integrating acquired businesses, the Acquisition represents a transaction
significantly larger than any acquisition previously completed by Nortek. The
task of integrating Ply Gem, which is of a comparable size to Nortek, will
require significant time and effort from management. In addition, the Company's
business plan assumes that significant synergies and cost savings can be
realized in connection with the Acquisition. If significant difficulty is
encountered during the integration process or if Ply Gem is not rapidly
integrated or if such synergies and cost savings are not realized, the results
of operations and financial condition of the Company likely will be adversely
affected. There can be no assurance that the Company will be able to
successfully manage and integrate Ply Gem following the Acquisition.
LABOR RELATIONS
As of December 31, 1996, approximately 43% of Ply Gem's workforce and 34%
of Nortek's workforce were subject to various collective bargaining agreements.
There can be no assurance as to the results of negotiations of future collective
bargaining agreements, whether future collective bargaining agreements will be
negotiated without production interruptions including labor stoppages or the
possible impact of future collective bargaining agreements, or the negotiations
thereof, on the Company's financial condition and results of operations.
FRAUDULENT CONVEYANCE CONSIDERATIONS
The incurrence by the Company of indebtedness such as the Notes to finance
the Acquisition and related transactions may be subject to review under federal
bankruptcy law or relevant state fraudulent conveyance laws if a bankruptcy case
or lawsuit is commenced by or on behalf of unpaid creditors of the Company.
Under these laws, if a court were to find that, after giving effect to the sale
of the Notes and the application of the net proceeds therefrom, either (a) the
Company incurred such indebtedness with the intent of hindering, delaying or
defrauding creditors or (b) the Company received less than reasonably equivalent
value or consideration for incurring such indebtedness and (i) was insolvent or
was rendered insolvent by reason of such transactions, (ii) was engaged in a
business or transaction for which the assets remaining with the Company
constituted unreasonably small capital or (iii) intended to incur, or believed
that it would incur, debts beyond its ability to pay as they matured, such court
might subordinate such indebtedness to presently existing and future
22
<PAGE> 24
indebtedness of the Company or void the issuance of such indebtedness and direct
the repayment of any amounts paid thereunder to the creditors of the Company, as
the case may be, or take other action detrimental to the holders of such
indebtedness.
The measure of insolvency for purposes of determining whether a transfer is
avoidable as a fraudulent transfer varies depending upon the law of the
jurisdiction that is being applied. Generally, however, a debtor would be
considered insolvent if the sum of all its debts, including contingent
liabilities, were greater than the value of all of its assets at a fair
valuation, or if the present fair saleable value of the debtor's assets were
less than the amount required to repay its probable liability on its debts,
including contingent liabilities, as they become absolute and mature.
The Company believes that it will receive equivalent value at the time
indebtedness under the Notes is incurred. In addition, after giving effect to
the consummation of the Transactions, the Company does not: (i) believe that it
will be insolvent or rendered insolvent; (ii) believe that it will be engaged in
a business or transaction for which its remaining assets constitute unreasonably
small capital; or (iii) intend to incur, or believe that it will incur, debts
beyond its ability to pay as they mature. These beliefs are based on the
Company's analysis of internal cash flow projections and estimated values of
assets and liabilities of the Company at the time of the Transactions. There can
be no assurance, however, that a court passing on these issues would make the
same determination.
SENSITIVITY TO ECONOMIC CYCLES; AVAILABILITY AND PRICING OF RAW MATERIALS
A significant percentage of the Company's sales of residential and
commercial building products is attributable to new residential and
nonresidential construction, which are affected by such cyclical factors as
interest rates, inflation, consumer spending habits and employment. This
exposure to cyclicality in the new construction market is partially mitigated by
the Company's increasing emphasis on the repair and replacement markets, which
are typically less cyclical. In addition, the Company is dependent upon raw
materials (including, among others, steel, copper, packaging material, plastics,
resins and aluminum) and components purchased from third parties. Accordingly,
the Company's results of operations and financial condition have in the past
been, and may again in the future be, adversely affected by increases in raw
material or component costs or their lack of availability.
COMPETITION
Substantially all of the markets in which the Company participates are
highly competitive with respect to product quality, price, design innovations,
distribution, service, warranties, reliability, efficiency and financing terms.
Certain of the Company's competitors have greater financial and marketing
resources and brand awareness than the Company. Competitive factors could
require price reductions or increased spending on product development, marketing
and sales that would adversely affect the Company's operating results.
LACK OF PUBLIC MARKET; RESTRICTIONS ON TRANSFER
There is no existing public market for the Original Notes or the Exchange
Notes and the Company does not intend to list the Exchange Notes on any national
securities exchange or seek the admission thereof to trading in the National
Association of Securities Dealers Automated Quotation System. The Initial
Purchasers have advised the Company that they currently intend to make a market
in the Notes but are not obligated to do so and may discontinue such market
making at any time without notice. In addition, such market making activity will
be subject to the limits imposed by the Securities Act and the Exchange Act and
may be limited during the Exchange Offer and the pendency of a Shelf
Registration Statement. Accordingly, no assurance can be given that an active
market will develop for any of the Exchange Notes or as to the liquidity of the
trading market for any of the Exchange Notes. If a trading market does not
develop or is not maintained, Holders of the Exchange Notes may experience
difficulty in reselling such Exchange Notes or may be unable to sell them at
all. If a market for the Exchange Notes develops, any such market may be
discontinued at any time. If a trading market develops for the Exchange Notes,
future trading prices of such Exchange Notes will depend on many factors,
including, among other things, prevailing interest rates, the
23
<PAGE> 25
Company's results of operations and the market for similar securities. Depending
on prevailing interest rates, the market for similar securities and other
factors, including the financial condition of the Company, the Exchange Notes
may trade at a discount from their principal amount.
------------------------
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical facts, including without
limitation, the statements made under "Summary", "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business"
constitute forward-looking statements. Such forward-looking statements are
subject to certain risks and uncertainties, over which the Company has no
control, which could cause actual results to differ materially from those
projected. Cautionary statements describing these risks and uncertainties
include those disclosed under the caption "Risk Factors" and elsewhere in this
Prospectus. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by such cautionary statements. Readers are cautioned
not to place undue reliance on forward-looking statements, including statements
made in this Prospectus, which speak only as of the date made (including the
date of any incorporated document in the case of any forward-looking statement
contained therein), and the Company undertakes no obligation to republish
revised forward-looking statements to reflect events or circumstances after the
date originally made or to reflect the occurrence of unanticipated events.
Readers are also urged to carefully review and consider the various disclosures
made by the Company in the Company's periodic reports filed with the Commission.
24
<PAGE> 26
THE ACQUISITION
On July 24, 1997, Nortek, a wholly owned subsidiary of Nortek and Ply Gem
entered into the Merger Agreement. In connection with the Merger Agreement, on
July 29, 1997, Nortek's subsidiary commenced a tender offer to purchase all
outstanding shares of Common Stock of Ply Gem, at a price of $19.50 per share,
net to the seller in cash, without interest thereon, upon the terms and
conditions set forth in the Offer to Purchase and the related letter of
transmittal. On August 26, 1997, Nortek's subsidiary completed the Tender Offer
and shortly thereafter purchased approximately 12,854,039 Shares, which when
added to Shares already owned by Nortek, constituted approximately 92.3% of Ply
Gem's then outstanding Common Stock. In addition, each outstanding option to
purchase Shares of Ply Gem was surrendered and canceled in exchange for a cash
payment equal to the number of Shares underlying such option, multiplied by
$19.50, less the aggregate exercise price of such option.
Pursuant to the Merger Agreement, on September 4, 1997, Nortek's subsidiary
was merged with and into Ply Gem with Ply Gem surviving the Merger as a wholly
owned subsidiary of the Company. Under Delaware General Corporation Law, because
Nortek's subsidiary beneficially acquired in excess of 90% of each class and
series of outstanding voting shares of Ply Gem in the Tender Offer and related
transactions, the Merger was effected without shareholder vote or approval. Upon
consummation of the Merger, each Share then outstanding (other than dissenting
Shares, Shares held in the treasury of Ply Gem or Shares held by Nortek or its
subsidiary) was converted into the right to receive $19.50 in cash.
The total amount of financing required to complete the Tender Offer and
Merger and related transactions was approximately $526.6 million. The sources
and uses of the financing were as follows:
<TABLE>
<CAPTION>
IN MILLIONS
-----------
<S> <C>
Sources of financing:
Nortek cash............................................................. $ 110.2
Gross proceeds from the offering of the Original Notes.................. 307.5
Extension of credit under Ply Gem Credit Facility....................... 108.9
------
Total sources of funds.......................................... $ 526.6
======
Use of financing:
Payment for Shares and cancellation of Options.......................... $ 310.1
Refinancing of existing Ply Gem indebtedness............................ 114.4
Termination of accounts receivables securitization program.............. 45.0
Funding of termination fees under prior acquisition agreement........... 12.0
Consideration paid for termination of management agreements............. 23.5
Fees, expenses and other costs related to the Transactions.............. 21.6
------
Total use of funds.............................................. $ 526.6
======
</TABLE>
Upon entering into the Merger Agreement, Nortek and Ply Gem simultaneously
entered into a Stock Purchase Agreement whereby, among other things, Nortek
agreed to purchase 640,000 Shares for an aggregate purchase price of $12
million. Ply Gem agreed to use the proceeds of such sale first to satisfy its
termination fee obligations to Atrium Acquisition Holdings Corp. under the terms
of the Agreement and Plan of Merger dated as of June 24, 1997 (the "Atrium
Agreement") among Atrium Acquisition Holdings Corp., Atrium/PG Acquisition
Corp., Ply Gem and, for limited purposes, Atrium Corporation, and then, if there
remained any proceeds after such obligations were fully satisfied, for general
corporate purposes.
In addition, contemporaneously with the execution and delivery of the
Merger Agreement, Nortek and Ply Gem entered into (i) a Non-Compete and
Termination Agreement with Jeffrey S. Silverman, Chairman of the Board and Chief
Executive Officer of Ply Gem (the "Non-Compete and Termination Agreement"), (ii)
a Termination and Release Agreement with Herbert P. Dooskin, Executive Vice
President of Ply Gem (the "Termination and Release Agreement") and (iii) an
Amended and Restated Stockholders Agreement (the "Amended and Restated
Stockholders Agreement") with Messrs. Jeffrey S. Silverman, Dana R. Snyder and
Herbert P. Dooskin, Atrium Acquisition Holdings Corp., Atrium/PG Acquisition
Corp (the two Atrium entities, collectively, "Atrium").
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<PAGE> 27
Pursuant to the Non-Compete and Termination Agreement, Mr. Silverman
resigned as an officer and director of Ply Gem and each of its subsidiaries, and
his employment agreement with Ply Gem was terminated in full as of the
consummation of the Tender Offer. Following his resignation, pursuant to the
terms of the Merger Agreement, Mr. Silverman was appointed an interim director
of Ply Gem until consummation of the Merger. In addition, Mr. Silverman agreed,
for a period of two years from the consummation of the Tender Offer, to not,
among other things, directly or indirectly compete with Ply Gem or its
subsidiaries in the United States, engage in certain activities that may
interfere with the operations of Ply Gem or its subsidiaries or aid competitors
of Ply Gem. Mr. Silverman also agreed to release and discharge Ply Gem and its
subsidiaries from all claims and damages, including those related to his
employment with, and membership on the Boards of Directors of, Ply Gem and its
subsidiaries and resignations therefrom, his employment agreement, and all other
acts or omissions related to any matter at any time prior to and including the
date of termination of his employment agreement; except that such release does
not include, among other things, Mr. Silverman's entitlement to certain
statutory rights to continued group medical coverage and vested accrued benefits
in certain of Ply Gem's qualified employee benefit plans.
As liquidated damages for the termination of Mr. Silverman's employment
agreement, upon consummation of the Tender Offer, Ply Gem paid Mr. Silverman
$21,335,176. In addition, Ply Gem forgave certain indebtedness of Mr. Silverman
to Ply Gem of an aggregate principal amount of $17,407,850 plus accrued
interest, if any, a portion of which represented liquidated damages for the
termination.
Pursuant to the Termination and Release Agreement, Mr. Dooskin resigned as
an officer and director of Ply Gem and each of its subsidiaries, and his
employment agreement with Ply Gem was terminated in full as of the consummation
of the Tender Offer. Following his resignation, pursuant to the terms of the
Merger Agreement, Mr. Dooskin was appointed an interim director of Ply Gem until
consummation of the Merger. In addition, Mr. Dooskin agreed, for a period of two
years from the consummation of the Tender Offer, to not, among other things,
directly or indirectly compete with Ply Gem or its subsidiaries in the United
States, engage in certain activities that may interfere with the operations of
Ply Gem or its subsidiaries or aid competitors of Ply Gem. Mr. Dooskin also
agreed to release and discharge Ply Gem and its subsidiaries from all claims and
damages, including those related to his employment with, and membership on the
Boards of Directors of, Ply Gem and its subsidiaries and resignations therefrom,
his employment agreement, and all other acts or omissions related to any matter
at any time prior to and including the date of termination of his employment
agreement; except that such release does not include, among other things, Mr.
Dooskin's entitlement to certain statutory rights to continued group medical
coverage and vested accrued benefits in certain of Ply Gem's qualified employee
benefit plans.
In consideration of the termination of Mr. Dooskin's employment agreement,
upon consummation of the Tender Offer, Ply Gem paid Mr. Dooskin $1,900,000. In
addition, effective as of the termination of Mr. Dooskin's employment agreement,
Ply Gem forgave certain indebtedness of Mr. Dooskin to Ply Gem in a aggregate
principal amount of $49,500.
In addition, contemporaneously with the execution of the Atrium Agreement,
Messrs. Jeffrey S. Silverman, Dana R. Snyder and Herbert P. Dooskin (each, a
"Relevant Shareholder") entered into a Stockholders Agreement with Atrium. Such
agreement was amended and restated as of July 24, 1997, with Nortek and a
subsidiary of Nortek becoming parties thereto. Pursuant to the Amended and
Restated Stockholders Agreement, among other things, each Relevant Stockholder
agreed to tender all shares owned by him in the Tender Offer, with 75% of the
price paid in the Tender Offer over $18.75 per Share (the price per Share
payable pursuant to the Atrium Agreement) to be paid to Atrium and the remainder
of the price paid in the Tender Offer to be paid to the Relevant Shareholder.
Nortek and Ply Gem also agreed to release, as of the consummation of the Tender
Offer, all claims they may have with respect to the $12 million payment made by
Ply Gem in connection with the termination of the Atrium Agreement as provided
therein. In addition, certain of the Relevant Shareholders each agreed to enter
into Option Surrender Agreements, Releases and Waivers whereby each such person
agreed to surrender Options held by him for cancellation. For each share of
Common Stock subject to such Option, such Relevant Shareholder received an
amount (subject to applicable withholding tax) in cash equal to the difference
between the per Share price paid in the Tender Offer and the per share exercise
price of such Option to the extent such difference is a positive number.
26
<PAGE> 28
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes. The Company is issuing the Exchange Notes in exchange for the
Original Notes in order to fulfill its obligations under the Registration Rights
Agreement. Properly tendered Original Notes will be retired and canceled.
For a description of the use of proceeds from the sale of the Original
Notes, see "The Acquisition."
27
<PAGE> 29
CAPITALIZATION
The following table sets forth at June 28, 1997 the short-term debt and
capitalization of Nortek, actual, and of the Company, as adjusted, to reflect
the Transactions:
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED
------ -----------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Short-term debt:
Short-term borrowings................................................... $ 12.9 $ 12.9
Current maturities of long-term debt.................................... 5.1 6.6
------ -------
Total short-term debt........................................... $ 18.0 $ 19.5
====== =======
Long-term debt:
Notes, mortgage notes and other......................................... $ 17.6 $ 137.8
9 1/8% Senior Notes due 2007............................................ -- 307.5
9 1/4% Senior Notes due 2007............................................ 174.0 174.0
9 7/8% Senior Subordinated Notes due 2004............................... 217.2 217.2
------ -------
Total long-term debt(1)......................................... $408.8 $ 836.5
====== =======
Stockholders' Investment(2):
Preference stock, $1.00 par value; 7,000,000 shares authorized, none
issued............................................................... -- --
Common stock, $1.00 par value; 40,000,000 shares authorized;
16,025,542 shares issued............................................. 16.0 16.0
Special common stock, $1.00 par value; 5,000,000 shares authorized;
774,339 shares issued................................................ .8 .8
Additional paid-in capital.............................................. 135.3 135.3
Retained earnings....................................................... 48.2 48.2
Cumulative translation, pension and other adjustments................... (4.0) (4.0)
Less: Treasury stock, at cost, 6,929,227 common shares and 285,233
special common shares................................................ (75.2) (75.2)
------ -------
Total stockholders' investment.................................. $121.1 $ 121.1
====== =======
Total capitalization............................................ $529.9 $ 957.6
====== =======
</TABLE>
- ---------------
(1) Long-term debt is net of $2.3 million (actual) and $4.8 million (as
adjusted) of unamortized debt discount.
(2) Excludes (i) 1,829,386 shares of common stock, $1.00 par value (the "Common
Stock") at June 28, 1997 which have been reserved for issuance pursuant to
options and the conversion of the Company's special common stock, $1.00 par
value (the "Special Common Stock"), (ii) 755,000 shares of Special Common
Stock at June 28, 1997 which have been reserved for issuance pursuant to
options and (iii) 95,855 shares of Series A Participating Preference Stock
(the "Preference Stock") which may be issuable upon exercise of rights under
the Rights Agreement, as amended and restated as of April 2, 1996, between
the Company and State Street Bank and Trust Company.
28
<PAGE> 30
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma condensed consolidated statement of
operations ("Pro Forma Company") for the year ended December 31, 1996 and the
six months and twelve months ended June 28, 1997 gives effect to (i) the
Transactions, (ii) the issuance of the 9 1/4% Notes and (iii) a portion of the
Estimated Cost Reductions which are directly attributable to the Acquisition as
if all of the foregoing had occurred on January 1, 1996. In addition, the
unaudited adjusted pro forma condensed consolidated statement of operations
("Adjusted Pro Forma Company") for the year ended December 31, 1996 and the six
months and twelve months ended June 28, 1997 give effect to all of the Estimated
Cost Reductions (as discussed below). The unaudited pro forma condensed
consolidated balance sheet of the Company as of June 28, 1997 gives effect to
the Transactions as if they occurred on that date.
The Company expects to realize pre-tax annual cost savings of approximately
$23.4 million, based on the twelve months ended June 28, 1997, as a result of
the Acquisition. These savings are expected to result from several actions,
including: (i) the elimination of expenses associated with Ply Gem's New York
headquarters; (ii) the consolidation into Nortek of certain of Ply Gem's
corporate functions such as legal, accounting and risk management; and (iii) the
identification and rationalization of underperforming product lines (all of the
foregoing referred to collectively as "Estimated Cost Reductions"). Of the $23.4
million of expected pre-tax savings, $7.9 million is included in footnote (o)
for the twelve months ended June 28, 1997 and represents estimated cost
reductions directly attributable to the Acquisition. The remaining $15.5 million
is included in footnote (t) for the twelve months ended June 28, 1997 and
relates to additional estimated cost savings and operating efficiencies which
management expects will result from the Acquisition.
The effect of the issuance of the 9 1/4% Notes is reflected in the
Company's June 28, 1997 unaudited condensed consolidated balance sheet because
such issuance occurred prior to the date of such balance sheet.
The Acquisition is accounted for under the purchase method of accounting.
The accompanying unaudited pro forma and adjusted pro forma condensed
consolidated financial data have been prepared utilizing a preliminary purchase
price allocation. The preliminary purchase price allocation is subject to
refinement until all pertinent information regarding the Acquisition is obtained
and, accordingly, the amounts presented herein are subject to change.
The results of operations of the six months ended June 28, 1997 are not
necessarily indicative of the results of operations to be expected for the full
year. The accompanying Pro Forma Company and Adjusted Pro Forma Company
information is presented for illustrative purposes only and is not necessarily
indicative of the financial position or results of operations which would
actually have been reported had the above transactions been in effect during the
periods presented or which may be reported in the future.
The accompanying unaudited pro forma and adjusted pro forma condensed
consolidated financial data should be read in conjunction with the audited and
unaudited Consolidated Financial Data and related Notes thereto for Nortek and
Ply Gem included elsewhere herein.
29
<PAGE> 31
THE COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 28, 1997
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
NORTEK PLY GEM FOR THE PRO FORMA
HISTORICAL HISTORICAL TRANSACTIONS COMPANY
---------- ---------- ------------ ---------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS
Unrestricted:
Cash and cash equivalents..................... $ 56.8 $ 8.0 $ --(a) $ 64.8
Marketable securities available for sale...... 168.6 -- (110.5)(b) 58.1
Restricted:
Cash and marketable securities................ 5.7 -- -- 5.7
Accounts receivable, net........................ 137.8 45.9 49.2(c) 232.9
Inventories, net................................ 107.7 110.5 -- 218.2
Prepaid expenses................................ 4.3 -- -- 4.3
Other current assets............................ 13.8 14.9 (3.8)(d) 24.9
Prepaid income taxes............................ 20.0 10.9 -- 30.9
------ ------ ------ --------
Total current assets....................... 514.7 190.2 (65.1) 639.8
Property, plant and equipment, net.............. 138.0 101.5 -- 239.5
Goodwill and other intangibles.................. 88.9 20.9 227.9(e) 337.7
Deferred debt expense........................... 11.0 1.2 10.1(f) 22.3
Other assets.................................... 20.4 44.7 (7.2)(g) 57.9
------ ------ ------ --------
Total assets.......................... $773.0 $358.5 $165.7 $1,297.2
====== ====== ====== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Notes payable and other short-term
obligations................................... $ 12.9 $ -- $ -- $ 12.9
Current maturities of long-term debt............ 5.1 1.5 -- 6.6
Accounts payable................................ 86.3 36.9 -- 123.2
Accrued expenses and taxes, net................. 101.0 33.9 9.0(h) 143.9
------ ------ ------ --------
Total current liabilities.................. 205.3 72.3 9.0 286.6
Deferred income taxes........................... 18.3 2.6 (3.6)(i) 17.3
Other long-term liabilities..................... 19.5 16.2 -- 35.7
Notes, mortgages, capital leases and obligations
payable less current maturities............... 408.8 120.2 307.5(j) 836.5
Preference stock................................ -- -- -- --
Common stock.................................... 16.0 4.4 (4.4) 16.0
Special common stock............................ 0.8 -- -- 0.8
Additional paid-in capital...................... 135.3 150.1 (150.1) 135.3
Retained earnings............................... 48.2 63.1 (63.1) 48.2
Cumulative translation, pension and other
adjustments................................... (4.0) (5.6) 5.6 (4.0)
Treasury stock -- common........................ (73.3) (64.8) 64.8 (73.3)
Treasury stock -- special common................ (1.9) -- -- (1.9)
------ ------ ------ --------
Total stockholders' investment............. 121.1 147.2 (147.2)(k) 121.1
------ ------ ------ --------
Total liabilities and stockholders'
investment.......................... $773.0 $358.5 $165.7 $1,297.2
====== ====== ====== ========
</TABLE>
See Notes to the Unaudited Pro Forma Condensed Consolidated Financial Data
30
<PAGE> 32
THE COMPANY
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
ADJUSTED
PRO PRO
NORTEK NORTEK PLY GEM FORMA FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED HISTORICAL ADJUSTMENTS COMPANY COMPANY
---------- ----------- ----------- ---------- ----------- ------- -------
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales..................... $969.8 $ -- $ 969.8 $774.9 $ -- $1,744.7 1,744.7
Cost of products sold......... 709.9 -- 709.9 626.4 4.5(n) 1,340.8 1,340.8
------ ------ ------ ------ ------ -------- --------
Gross profit.................. 259.9 -- 259.9 148.5 (4.5) 403.9 403.9
Selling, general and
administrative expense...... 199.8 -- 199.8 119.5 (8.6)(o) 310.7 297.1 (t)
------ ------ ------ ------ ------ -------- --------
Operating income.............. 60.1 -- 60.1 29.0 4.1 93.2 106.8
Interest expense.............. (30.1) (12.2)(l) (42.3) (6.8) (30.8)(p) (79.9) (79.9)
Other expense................. -- -- -- (2.6) 2.9(q) .3 .3
Interest income............... 5.3 -- 5.3 -- -- 5.3 5.3
Net gain on investment and
marketable securities....... 0.7 -- 0.7 -- -- .7 .7
------ ------ ------ ------ ------ -------- --------
Earnings before provision for
income taxes................ 36.0 (12.2) 23.8 19.6 (23.8) 19.6 33.2
Provision for income taxes.... 14.0 (4.1)(m) 9.9 9.1 (6.0)(s) 13.0 17.8 (u)
------ ------ ------ ------ ------ -------- --------
Net earnings................ $ 22.0 $ (8.1) $ 13.9 $ 10.5 $ (17.8) $ 6.6 $ 15.4
====== ====== ====== ====== ====== ======== ========
Net earnings per share........ $ 2.05 $ 1.30 $ .62 $ 1.44
Fully diluted weighted average
shares outstanding (in
thousands).................. 10,722 10,722 10,722 10,722
</TABLE>
31
<PAGE> 33
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 28, 1997
<TABLE>
<CAPTION>
PRO ADJUSTED
NORTEK NORTEK PLY GEM FORMA PRO FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED HISTORICAL ADJUSTMENTS COMPANY COMPANY
---------- ----------- ----------- ---------- ----------- ------- ---------
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.......................... $469.2 $ -- $ 469.2 $381.7 $ -- $850.9 $ 850.9
Cost of products sold.............. 342.5 -- 342.5 313.4 2.3(n) 658.2 658.2
------ ----- ------ ------ ------ ------ ------
Gross profit....................... 126.7 -- 126.7 68.3 (2.3) 192.7 192.7
Selling, general and administrative
expense.......................... 96.8 -- 96.8 59.5 (6.6)(o) 149.7 142.0(t)
------ ----- ------ ------ ------ ------ ------
Operating income................... 29.9 -- 29.9 8.8 4.3 43.0 50.7
Interest expense................... (18.5) (2.5)(l) (21.0) (3.6) (15.2)(p) (39.8) (39.8)
Other expense...................... -- -- -- (1.2) 1.4(q) .2 .2
Interest income.................... 4.4 -- 4.4 -- (1.7)(r) 2.7 2.7
Net gain on investment and
marketable securities............ 0.2 -- 0.2 -- -- .2 .2
------ ----- ------ ------ ------ ------ ------
Earnings before provision for
income taxes..................... 16.0 (2.5) 13.5 4.0 (11.2) 6.3 14.0
Provision for income taxes......... 5.6 (0.8)(m) 4.8 2.0 (3.7)(s) 3.1 5.8(u)
------ ----- ------ ------ ------ ------ ------
Net earnings..................... $ 10.4 $(1.7) $ 8.7 $ 2.0 $ (7.5) $ 3.2 $ 8.2
====== ===== ====== ====== ====== ====== ======
Net earnings per share............. $ 1.05 $ 0.88 $ .32 $ .83
Fully diluted weighted average
shares outstanding (in
thousands)....................... 9,923 9,923 9,923 9,923
</TABLE>
See Notes to the Unaudited Pro Forma Condensed Consolidated Financial Data
32
<PAGE> 34
THE COMPANY
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED JUNE 28, 1997
<TABLE>
<CAPTION>
ADJUSTED
NORTEK NORTEK PLY GEM PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED HISTORICAL ADJUSTMENTS COMPANY COMPANY
---------- ----------- ----------- ---------- ----------- --------- ---------
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................. $957.8 $ -- $ 957.8 $802.5 $ -- $1,760.3 $1,760.3
Cost of products sold..... 695.2 -- 695.2 648.9 4.5(n) 1,348.6 1,348.6
------ ------ ------ ------ ------ -------- --------
Gross profit.............. 262.6 -- 262.6 153.6 (4.5) 411.7 411.7
Selling, general and
administrative
expense................. 198.4 -- 198.4 123.0 (11.1)(o) 310.3 294.8(t)
------ ------ ------ ------ ------ -------- --------
Operating income.......... 64.2 -- 64.2 30.6 6 .6 101.4 116.9
Interest expense.......... (33.1) (8.6)(l) (41.7) (6.6) (31 .0)(p) (79.3) (79.3)
Other expense............. -- -- -- (3.2) 3.0(q) (0.2) (0.2)
Interest income........... 6.9 -- 6.9 -- (1.7)(r) 5.2 5.2
Net gain on investment and
marketable securities... 0.9 -- 0.9 -- -- 0.9 0.9
------ ------ ------ ------ ------ -------- --------
Earnings before provision
for income taxes........ 38.9 (8.6) 30.3 20.8 (23.1) 28.0 43.5
Provisions for income
taxes................... 14.7 (2.9)(m) 11.8 9.8 (6.6)(s) 15.0 20.4(u)
------ ------ ------ ------ ------ -------- --------
Net earnings.......... $ 24.2 $ (5.7) $ 18.5 $ 11.0 $ (16.5) $ 13.0 $ 23.1
====== ====== ====== ====== ====== ======== ========
Net earnings per share.... $ 2.40 $ 1.84 $ 1.29 $ 2.30
Fully diluted weighted
average shares
outstanding (in
thousands).............. 10,074 10,074 10,074 10,074
</TABLE>
See Notes to the Unaudited Pro Forma Condensed Consolidated Financial Data
33
<PAGE> 35
THE COMPANY
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL DATA
(IN MILLIONS)
<TABLE>
<CAPTION>
AS OF
JUNE 28, 1997
-------------
<S> <C> <C>
(a) Cash and cash equivalents:
Total sources of financing for the Acquisition and related
transactions:
Gross proceeds from the Offering............................ $ 307.5
Proceeds from the sale of Company marketable securities..... 110.5
Extension of credit under Ply Gem Credit Facility........... 101.9
$ 519.9
Total uses of financing for the Acquisition and related
transactions:
Consideration paid for Ply Gem common stock and cancellation
of options.................................................. 310.2
Funding of termination fees and costs under prior
acquisition agreement....................................... 12.0
Refinancing of existing Ply Gem indebtedness................ 101.9
Termination of accounts receivable securitization program... 50.0
Consideration paid for termination of management
agreements.................................................. 24.5
Fees, expenses and other costs related to the
Transactions................................................ 21.3
(519.9)
$ 0.0
(b) Marketable securities available for sale:
Sale of marketable securities to fund the Acquisition and
related transactions........................................ $(110.5)
(c) Accounts receivable:
Forgiveness of notes receivable in connection with the
termination of management agreements........................ $ (0.8)
Termination and repurchase of amounts outstanding under Ply
Gem's accounts receivable securitization program............ 50.0
$ 49.2
(d) Other current assets:
Forgiveness of notes receivable in connection with the
termination of management agreements........................ $ (3.8)
(e) Goodwill:
Additional cost in excess of net assets acquired, net....... $ 227.9
(f) Deferred debt expense:
Financing costs related to the Offering and extension of
credit under Ply Gem Credit Facility........................ $ 10.7
Write-off deferred debt expense related to refinanced
indebtedness................................................ (0.6)
$ 10.1
</TABLE>
34
<PAGE> 36
<TABLE>
<CAPTION>
AS OF
JUNE 28, 1997
-------------
<S> <C> <C>
(g) Other assets:
Forgiveness of notes receivable in connection with the
termination of management agreements........................ $ (7.2)
=======
(h) Accrued expenses and taxes:
Estimated liabilities incurred in connection with the
Acquisition................................................. $ 9.0
=======
(i) Deferred income taxes:
To record deferred taxes related to the Acquisition......... $ (3.6)
=======
(j) Notes, mortgages, capital leases and obligations payable
less current maturities:
Notes issued in the Offering................................ $ 307.5
Extension of credit under the Ply Gem Credit Facility....... 101.9
Refinancing of existing Ply Gem indebtedness ............... (101.9)
-------
$ 307.5
=======
(k) Stockholders' investment:
To eliminate equity in connection with the Acquisition...... $(152.2)
Forgiveness of notes receivable in connection with the
termination of management agreements........................ 5.0
-------
$(147.2)
=======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS TWELVE MONTHS
DECEMBER 31, ENDED ENDED
1996 JUNE 28, 1997 JUNE 28, 1997
------------ ------------- -------------
<S> <C> <C> <C> <C>
(l) Interest expense:
Interest expense related to the
9 1/4% Notes issued in March
1997............................ $(16.2) $ (3.3) $ (11.4)
Amortization of related debt
issuance costs.................. (.5) (.1) (.4)
Reduction of interest expense
related to debt refinanced with
a portion of the proceeds from
the 9 1/4% Notes issued in March
1997............................ 4.5 0.9 3.2
------ ------ -------
$(12.2) $ (2.5) $ (8.6)
====== ====== =======
(m) Tax provision:
Tax benefit on the interest
expense adjustments related to
the 9 1/4% Notes issued in March
1997 and the related
refinancing..................... $ (4.1) $ (0.8) $ (2.9)
====== ====== =======
(n) Reflects the following
adjustment to cost of sales:
Increased amortization of
goodwill over 40 years due to
the Acquisition................. $ 4.5 $ 2.3 $ 4.5
====== ====== =======
</TABLE>
35
<PAGE> 37
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS TWELVE MONTHS
DECEMBER 31, ENDED ENDED
1996 JUNE 28, 1997 JUNE 28, 1997
------------ ------------- -------------
<S> <C> <C> <C> <C>
(o) Reflects the following
adjustments to selling, general
and administrative expense:
Elimination of Ply Gem's
nonrecurring costs related to
the Acquisition................. $ (.8) $ (2.9) $ (3.2)
Estimated cost reductions
directly attributable to the
Acquisition..................... (7.8) (3.7) (7.9)
------ ------ -------
$ (8.6) $ (6.6) $ (11.1)
====== ====== =======
(p) Interest expense:
Interest expense at an assumed
rate of 9 1/8% on the Notes
issued in the Offering.......... $(28.3) $ (14.1) $ (28.3)
Amortization of related debt
issuance costs.................. (1.0) (.5) (1.0)
Amortization of debt discount... (.2) (.1) (.2)
Interest expense at an assumed
rate of 6 3/4% on indebtedness
assumed to be outstanding under
the Ply Gem Credit Facility..... (7.0) (3.5) (7.0)
Reduction in interest expense
related to the refinancing of
existing Ply Gem indebtedness... 5.7 3.0 5.5
------ ------ -------
$(30.8) $ (15.2) $ (31.0)
====== ====== =======
(q) Other expense:
Decrease in other expense, net
due to termination and
repurchase of amounts
outstanding under Ply Gem's
accounts receivable
securitization program.......... $ 2.9 $ 1.4 $ 3.0
====== ====== =======
(r) Interest income:
Reduction in interest income on
marketable securities sold to
fund the Acquisition and related
transactions ................... $ -- $ (1.7) $ (1.7)
====== ====== =======
</TABLE>
36
<PAGE> 38
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS TWELVE MONTHS
DECEMBER 31, ENDED ENDED
1996 JUNE 28, 1997 JUNE 28, 1997
------------ ------------- -------------
<S> <C> <C> <C> <C>
(s) Tax provision:
Tax benefit on the interest
expense adjustments related to
the Notes issued in the
Offering, the Ply Gem Credit
Facility and the refinancing of
existing Ply Gem indebtedness... $ (9.7) $ (4.9) $ (9.8)
Tax provision on the elimination
of Ply Gem's non-recurring costs
related to the Acquisition...... .3 .7 1.0
Tax provision on the estimated
cost reductions directly
attributable to the Acquisition
referred to in note (o) above... 3.4 1.1 2.8
Tax benefit on the reduction in
interest income related to the
sale of marketable securities
used to fund the Acquisition and
related transactions............ -- (0.6) (0.6)
------ ------ -------
$ (6.0) $ (3.7) $ (6.6)
====== ====== =======
(t) Additional estimated cost
savings and operating
efficiencies related to the
Acquisition including
depreciation and amortization
expense of approximately $0.8,
$0.4 and $0.8 for the year ended
December 31, 1996, six months
ended June 28, 1997 and the
twelve months ended June 28,
1997, respectively.............. $(13.6) $ (7.7) $ (15.5)
====== ====== =======
(u) Tax provision on the additional
estimated cost savings and
operating efficiencies related
to the Acquisition referred to
in note (t) above............... $ 4.8 $ 2.7 $ 5.4
====== ====== =======
</TABLE>
37
<PAGE> 39
SELECTED FINANCIAL DATA OF NORTEK
The selected consolidated operating and balance sheet data for each of the
five years in the period ended December 31, 1996 and as of the end of each such
period are derived from Nortek's consolidated financial statements which were
audited by Arthur Andersen LLP, independent public accountants. The selected
consolidated operating and balance sheet data for the six months ended June 29,
1996 and June 28, 1997 and as of the end of each such period have been derived
from Nortek's unaudited condensed consolidated financial statements, which
reflect, in the opinion of Nortek, all adjustments of a normal recurring nature
necessary for a fair statement of the interim periods presented. The results of
operations for the six months ended June 28, 1997 are not necessarily indicative
of the results of operations to be expected for the full year. The following
selected consolidated financial data should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto and the information
contained in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" of Nortek included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, --------------------
------------------------------------------ JUNE 29, JUNE 28,
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------ ------ -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA(1):
Net sales............................ $800.0 $744.1 $737.2 $776.2 $969.8 $481.2 $469.2
Cost of products sold................ 595.2 532.5 520.4 574.9 709.9 357.2 342.5
Selling, general and administrative
expense............................ 184.4 181.3 166.8 160.2 199.8 98.2 96.8
779.6 713.8 687.2 735.1 909.7 455.4 439.3
Operating earnings................... 20.4 30.3 50.0 41.1 60.1 25.8 29.9
Interest expense..................... (29.2) (26.5) (26.2) (24.9) (30.1) (15.5) (18.5)
Interest income...................... 4.4 3.2 5.3 6.1 5.3 2.8 4.4
Net gain on sale of investments and
marketable securities.............. .9 1.7 -- 2.0 .7 -- .2
Loss on businesses sold.............. (14.5) (20.3) (1.7) -- -- -- --
------ ------ ------ ------ ------ -------- --------
Earnings (loss) from continuing
operations before income taxes..... (18.0) (11.6) 27.4 24.3 36.0 13.1 16.0
Provision for income taxes........... 3.0 1.0 10.2 9.3 14.0 4.9 5.6
Earnings (loss) from continuing
operations(2)...................... (21.0) (12.6) 17.2 15.0 22.0 8.2 10.4
Earnings (loss) from discontinued
operations......................... (3.3) -- -- -- -- -- --
Extraordinary gain (loss) from debt
retirements........................ .1 (6.1) .2 -- -- -- --
Cumulative effect of accounting
changes............................ -- (2.1) .4 -- -- -- --
------ ------ ------ ------ ------ -------- --------
Net earnings (loss).................. (24.2) (20.8) 17.8 15.0 22.0 8.2 10.4
====== ====== ====== ====== ====== ====== ======
Net earnings (loss) per share........ (1.92) (1.66) 1.34 1.19 2.05 .73 1.05
OTHER CONSOLIDATED DATA:
Capital expenditures................. $ 8.8 $ 10.8 $ 19.4 $ 17.3 $ 22.2 $ 7.6 $ 8.9
Depreciation and amortization........ 23.6 20.7 18.0 19.0 23.7 11.8 12.4
EBITDA from operations(3)............ 42.5 49.6 66.7 59.0 82.6 36.9 41.7
Ratio of earnings to fixed
charges(4)......................... -- -- 2.0 1.9 2.1 1.8 1.8
Ratio of EBITDA from operations to
interest expense, net.............. 1.7x 2.1x 3.2x 3.1x 3.3x 2.9x 3.0x
</TABLE>
38
<PAGE> 40
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, --------------------
------------------------------------------ JUNE 29, JUNE 28,
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------ ------ -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities(5)...................... $ 83.5 $ 89.2 $114.4 $112.7 $ 97.8 $ 89.0 $ 231.1
Working capital...................... 132.6 117.9 173.5 160.7 143.5 138.0 309.5
Total assets......................... 515.4 509.2 519.2 625.5 609.1 626.7 773.0
Total debt........................... 208.7 215.7 224.6 282.4 280.5 285.5 426.8
Stockholders' investment............. 126.9 104.0 117.8 131.3 118.8 107.7 121.1
</TABLE>
- ---------------
(1) Acquisitions have been accounted for under the purchase accounting method
and dispositions have been accounted for as described in Note 2 of Notes to
Consolidated Financial Statements of Nortek included elsewhere herein.
(2) On January 2, 1992, Nortek's subsidiary, Dixieline, sold the assets of L.J.
Smith, Inc. and recognized a pre-tax gain on the sale of approximately $8.0
million ($.34 per share, net of tax). On October 2, 1992, Nortek sold its
wholly owned subsidiary, Bend and recognized a pre-tax loss in 1992 of $22.5
million ($1.60 per share, net of tax). In the third quarter of 1993, Nortek
provided a pre-tax valuation reserve of approximately $20.3 million to
reduce Nortek's net investment in Dixieline to estimated net realizable
value. On March 31, 1994, Nortek sold all the capital stock of Dixieline for
approximately $18.8 million in cash and $6.0 million in preferred stock of
the purchaser. No additional loss in 1994 was incurred in connection with
this sale. In January 1995, Nortek paid approximately $1.8 million ($.14 per
share, net of tax) as a final purchase price adjustment related to the sale
of Bend and recorded a charge to pre-tax earnings in the fourth quarter of
1994.
(3) "EBITDA" is operating earnings plus depreciation and amortization (other
than amortization of deferred debt expense and debt discount). EBITDA
differs from Consolidated Cash Flow as defined in the Indenture. See
"Description of Notes -- Certain Definitions." EBITDA should not be
considered as an alternative to net earnings as a measure of Nortek's
operating results or to cash flows as a measure of liquidity. EBITDA
principally differs from net increase (decrease) in unrestricted cash and
cash equivalents shown on the Consolidated Statement of Cash Flows of
Nortek, prepared in accordance with generally accepted accounting
principles, in that EBITDA does not reflect capital expenditures,
borrowings, principal and interest payments under debt and capital lease
obligations, income tax payments and cash flows from other operating,
investing and financing activities.
(4) For purposes of calculating this ratio, "earnings" consist of earnings
before provision for income taxes and fixed charges. "Fixed charges" consist
of interest expense and the estimated interest portion of rental payments on
operating leases. Such earnings were insufficient to cover fixed charges by
approximately $18.0 million and approximately $11.6 million for the years
ended December 31, 1992 and 1993, respectively.
(5) Includes restricted cash, investments and marketable securities in the
amounts of approximately $8.2 million, $6.7 million, $9.3 million, $9.4
million, $5.7 million, $9.5 million and $5.7 million at December 31, 1992,
1993, 1994, 1995, 1996, June 29, 1996 and June 28, 1997, respectively.
39
<PAGE> 41
SELECTED FINANCIAL DATA OF PLY GEM
The selected consolidated operating and balance sheet data for each of the
five years in the period ended December 31, 1996 and as of the end of each such
period are derived from Ply Gem's consolidated financial statements which were
audited by Grant Thornton LLP, independent public accountants. The selected
consolidated operating and balance sheet data for the six months ended June 30,
1996 and 1997 and as of the end of each such period have been derived from
unaudited consolidated financial statements of Ply Gem, which reflect, in the
opinion of Ply Gem, all adjustments of a normal recurring nature necessary for a
fair statement of the interim periods presented. The results of operations for
the six months ended June 30, 1997 are not necessarily indicative of the results
of operations to be expected for the full year. The following selected
consolidated financial data should be read in conjunction with the audited and
unaudited Consolidated Financial Statements and the Notes thereto and the
information contained in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of Ply Gem included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, ---------------------
-------------------------------------------------- JUNE 30, JUNE 30,
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------ ------ -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales..................................... $632.6 $731.5 $808.9 $755.2 $774.9 $354.1 $381.7
Costs and expenses:
Cost of products sold......................... 502.5 592.0 653.3 630.6 626.4 290.9 313.4
Selling, general and administrative........... 107.6 112.6 118.7 114.2 119.5 56.0 56.6
Write-down of long-lived assets(1)............ -- -- -- 12.0 -- -- --
Non-recurring charges(2) ..................... -- -- 41.0 -- -- -- --
Merger expenses(3)............................ -- -- -- -- -- -- 2.9
------ ------ ------ ------ ------ ------ ------
610.1 704.6 813.0 756.8 745.9 346.9 372.9
------ ------ ------ ------ ------ ------ ------
Income (loss) from operations................. 22.5 26.9 (4.1) (1.6) 29.0 7.2 8.8
Interest expense.............................. (9.6) (10.1) (7.5) (6.6) (6.8) (3.8) (3.6)
Other income (expense), net(4)................ (1.5) .7 (.3) (2.1) (2.6) (.6) (1.2)
------ ------ ------ ------ ------ ------ ------
Income (loss) before income taxes............. 11.4 17.5 (11.9) (10.3) 19.6 2.8 4.0
Tax provision (benefit)....................... 5.1 7.8 (3.4) (2.9) 9.1 1.3 2.0
------ ------ ------ ------ ------ ------ ------
Net income (loss)............................. $ 6.3 $ 9.7 $ (8.5) $ (7.4) $ 10.5 $ 1.5 $ 2.0
====== ====== ====== ====== ====== ====== ======
Net income (loss) per share................... $ .56 $ .75 $ (.62) $ (.51) $ .74 $ .11 $ .14
OTHER DATA:
Capital expenditures.......................... 17.1 20.5 23.0 27.8 17.6 8.6 17.8
Depreciation and amortization................. 11.8 12.2 13.4 14.2 15.0 7.6 8.4
EBITDA(5)..................................... 34.3 39.1 50.3 24.7 44.0 14.8 17.2
Ratio of EBITDA to interest expense........... 3.6x 3.9x 6.7x 3.7x 6.5x 3.9x 4.8x
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents..................... $ 12.5 $ 12.5 $ 14.4 $ 8.1 $ 9.9 $ 4.0 $ 8.0
Working capital............................... 93.7 137.4 110.5 104.7 86.6 112.3 117.9
Total assets.................................. 314.0 344.9 345.6 325.0 313.4 335.8 358.5
Total debt.................................... 131.7 152.9 87.1 100.7 83.8 110.5 121.7
Stockholders' equity.......................... 118.4 128.9 161.6 144.5 145.8 141.7 147.2
</TABLE>
- ---------------
(1) During the fourth quarter of 1995, Ply Gem adopted SFAS No. 121 "Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
of" and recorded a non-cash pre-tax charge of approximately $12.0 million
related to the write down of an information system and certain machinery and
equipment.
40
<PAGE> 42
(2) During 1994, Ply Gem recorded non-recurring charges of approximately $41.0
million consisting of approximately $29.1 million related to a restructuring
program and approximately $11.9 million for unusual items consisting of the
write down of certain intangible assets and discontinued products.
(3) During the first six months of 1997, Ply Gem recorded expenses of $2.9
million related to certain merger costs. Additionally during 1996 and for
the first six months of 1996, Ply Gem recorded merger expenses of $0.8 and
$0.5 million, respectively, which are included in selling, general and
administrative expenses.
(4) Ply Gem had a program which allows for the sale of undivided fractional
interests in a pool of eligible accounts receivable to a financial
institution with limited recourse. The program costs of approximately $3.5
million, approximately $3.2 million, approximately $1.9 million,
approximately $1.5 million and approximately $1.5 million for the years
ended December 31, 1996, 1995, 1994, 1993 and 1992, respectively, and
approximately $1.6 million and approximately $1.0 million for the six months
ended June 30, 1997 and 1996, respectively, have been classified as other
expense.
(5) "EBITDA" is operating income (loss) plus depreciation and amortization and
excludes write down of long-lived assets and non-recurring charges. EBITDA
should not be considered as an alternative to net income as a measure of Ply
Gem's operating results or to cash flows as a measure of liquidity. EBITDA
principally differs from net increase (decrease) in cash and cash
equivalents shown on the Consolidated Statement of Cash Flows of Ply Gem,
prepared in accordance with generally accepted accounting principles, in
that EBITDA does not reflect capital expenditures, borrowings, principal and
interest payments under debt and capital lease obligations, income tax
payments and cash flows from other operating, investing and financing
activities.
41
<PAGE> 43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
NORTEK
Results of Operations
The following tables set forth, for the periods presented (a) certain
consolidated operating results, (b) the percentage change of such results as
compared to the prior period, (c) the percentage which such results bears to net
sales and (d) the change of such percentages as compared to the prior period:
<TABLE>
<CAPTION>
PERCENTAGE CHANGE
-----------------
YEAR ENDED DECEMBER 31, 1995 1994
---------------------------- TO TO
1996 1995 1994 1996 1995
------ ------ ------ ------ ------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales..................................... $969.8 $776.2 $737.2 24.9% 5.3%
Cost of products sold......................... 709.9 574.9 520.4 (23.5) (10.5)
Selling, general and administrative expense... 199.8 160.2 166.8 (24.7) 4.0
Operating earnings............................ 60.1 41.1 50.0 46.2 (17.8)
Interest expense.............................. (30.1) (24.9) (26.2) (20.9) 5.0
Interest income............................... 5.3 6.1 5.3 (13.1) 15.1
Net gain on investment and marketable
securities.................................. .7 2.0 -- (65.0) --
Loss on business sold......................... -- -- (1.7) -- 100.0
Earnings before provision for income taxes.... 36.0 24.3 27.4 48.1 (11.3)
Provision for income taxes.................... 14.0 9.3 10.2 (50.5) 8.8
Earnings before extraordinary gain............ 22.0 15.0 17.2 46.7 (12.8)
Extraordinary gain from debt retirements...... -- -- .2 -- (100.0)
Cumulative effect of an accounting change..... -- -- .4 -- (100.0)
Net earnings.................................. $ 22.0 $ 15.0 $ 17.8 46.7% (15.7)%
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE CHANGE
PERCENTAGE OF NET SALES -----------------
YEAR ENDED DECEMBER 31, 1995 1994
---------------------------- TO TO
1996 1995 1994 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net sales................................... 100.0% 100.0% 100.0% --% --%
Cost of products sold....................... 73.2 74.1 70.6 .9 (3.5)
Selling, general and administrative
expense................................... 20.6 20.6 22.6 -- 2.0
Operating earnings.......................... 6.2 5.3 6.8 .9 (1.5)
Interest expense............................ (3.1) (3.2) (3.6) .1 .4
Interest income............................. .6 .8 .7 (.2) .1
Net gain on investment and marketable
securities................................ -- .2 -- (.2) .2
Loss on business sold....................... -- -- (.2) -- .2
Earnings before provision for income
taxes..................................... 3.7 3.1 3.7 .6 (.6)
Provision for income taxes.................. 1.4 1.2 1.4 (.2) .2
Earnings before extraordinary gain.......... 2.3 1.9 2.3 .4 (.4)
Extraordinary gain from debt retirements.... -- -- -- -- --
Cumulative effect of an accounting change... -- -- .1 -- (.1)
Net earnings................................ 2.3% 1.9% 2.4% .4% (.5)%
</TABLE>
42
<PAGE> 44
<TABLE>
<CAPTION>
PERCENTAGE CHANGE
IN SIX MONTHS
SIX MONTHS ENDED 1997
--------------------- AS COMPARED TO
JUNE 28, JUNE 29, SIX MONTHS
1997 1996 1996
-------- -------- -----------------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C>
Net sales............................................... $469.2 $481.2 (2.5)%
Cost of products sold................................... 342.5 357.2 4.1
Selling, general and administrative expense............. 96.8 98.2 1.4
Operating earnings...................................... 29.9 25.8 15.9
Interest expense........................................ (18.5) (15.5) (19.4)
Interest income......................................... 4.4 2.8 57.1
Net gain on investments and marketable securities....... .2 -- --
Earnings before provision for income taxes.............. 16.0 13.1 22.1
Provision for income taxes.............................. 5.6 4.9 (14.3)
------ ------ ------
Net earnings............................................ $ 10.4 $ 8.2 26.8%
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE CHANGE
NET SALES FOR SIX MONTHS
SIX MONTHS ENDED 1997
--------------------- AS COMPARED TO
JUNE 28, JUNE 29, SIX MONTHS
1997 1996 1996
-------- -------- -----------------
<S> <C> <C> <C>
Net sales............................................... 100.0% 100.0% --%
Cost of products sold................................... 73.0 74.2 1.2
Selling, general and administrative expense............. 20.6 20.4 (.2)
Operating earnings...................................... 6.4 5.4 1.0
Interest expense........................................ (3.9) (3.2) (.7)
Interest income......................................... .9 .5 .4
Net gain on investments and marketable securities....... -- -- --
Earnings before provision for income taxes.............. 3.4 2.7 .7
Provision for income taxes.............................. 1.2 1.0 (.2)
------- ------ - --- --- -
Net earnings............................................ 2.2% 1.7% .5%
======= ======= =======
</TABLE>
The following table presents the net sales for Nortek's product groups for
the periods presented, and the percentage change of such results as compared to
the prior year.
<TABLE>
<CAPTION>
PERCENTAGE CHANGE
--------------------------------
SIX MONTHS ENDED SIX MONTHS
YEAR ENDED DECEMBER 31, --------------------- 1995 1994 1997 TO
---------------------------- JUNE 28, JUNE 29, TO TO SIX MONTHS
1996 1995 1994 1997 1996 1996 1995 1996
------ ------ ------ -------- -------- ------ ------ ----------
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales:
Residential Building
Products................... $418.6 $281.2 $265.2 $205.6 $203.1 48.9% 6.0% 1.2%
Air Conditioning and Heating
Products................... 411.9 363.4 338.0 206.6 207.8 13.4 7.5 (.6)
Plumbing Products............ 139.3 131.6 134.0 57.0 70.3 5.9 (1.8) (18.9)
------ ------ ------ ------ ------ ------- ------- -------
Total.................. $969.8 $776.2 $737.2 $469.2 $481.2 24.9% 5.3% (2.5)%
====== ====== ====== ====== ====== ======= ======= =======
</TABLE>
43
<PAGE> 45
Second Quarter and Six Months Ended June 28, 1997 Compared to Second Quarter and
Six Months Ended June 28, 1996
Net sales decreased approximately $10,600,000, or approximately 4.1% (or
decreased approximately $8,800,000 or approximately 3.4% excluding the effect of
foreign exchange), and decreased approximately $12,000,000, or approximately
2.5%, (or decreased approximately $9,800,000 or approximately 2.0% excluding the
effect of foreign exchange) for the second quarter and the first six months of
1997, respectively, as compared to 1996. These decreases in both periods are
principally as a result of lower sales volume, including the reduction of
certain product line offerings (approximately $2,300,000 and $3,900,000 of the
decrease for the second quarter and first six months, respectively), within the
Plumbing Products Group and a decrease in sales volume by the Residential
Building Products Group's European subsidiary primarily due to weakness in the
German and French markets. These decreases were partially offset by increased
sales volume in residential building products in the United States and Canada
and residential HVAC products in the United States in the first half.
Cost of products sold as a percentage of net sales decreased from
approximately 73.6% in the second quarter of 1996 to approximately 73.0% in the
second quarter of 1997, and decreased from approximately 74.2% in the first six
months of 1996 to approximately 73.0% in the first six months of 1997. These
decreases in the percentages principally resulted from a reduction in cost in
the second quarter and first six months of 1997 of certain raw materials and
components compared to the second quarter and first six months of 1996 and
decreased labor as a percentage of net sales in the Residential Building
Products and HVAC Products Groups due to the increased volume of higher margin
products and improved manufacturing efficiency. These decreases were partially
offset by increased overhead costs in the Plumbing Products Group and Nortek's
European subsidiaries, in part, reflecting lower sales levels of lower margin
products. Overall, changes in the cost of products sold as a percentage of net
sales for one period as compared to another period may reflect a number of
factors, including changes in the relative mix of products sold, the effect of
changes in sales prices, the unit cost of products sold and changes in
productivity levels.
Selling, general and administrative expense as a percentage of net sales
decreased from approximately 20.3% in the second quarter of 1996 to
approximately 19.9% in the second quarter of 1997 and increased slightly from
approximately 20.4% in the first six months of 1996 to approximately 20.6% in
the first six months of 1997. The decrease in the percentage for the second
quarter was primarily the result of higher sales levels of residential building
products without a proportionate increase in expense and lower expense in
residential HVAC products resulting from new sales initiatives. The increase in
the percentage in the first six months was primarily due to a one-week shorter
shipping period in the first quarter. Lower sales in Nortek's Plumbing Products
Group, without a proportionate decrease in expense in both periods, was also a
factor.
Segment earnings were approximately $21,100,000 for the second quarter of
1997, as compared to approximately $20,500,000 for the second quarter of 1996,
and approximately $36,600,000 for the first six months of 1997 as compared to
approximately $32,900,000 for the first six months of 1996. The increase in
segment earnings was due principally to the factors noted above.
Foreign segment earnings, consisting primarily of the results of operations
of Nortek's Canadian and European subsidiaries, which manufacture built-in
ventilating products, decreased to approximately 9.3% of segment earnings in the
second quarter of 1997 from approximately 15.4% of such earnings in the second
quarter of 1996 and to approximately 9.8% of segment earnings in the first six
months of 1997 from approximately 13.9% of such earnings in the first six months
of 1996. Sales and earnings derived from the international market are subject to
the risks of currency fluctuations.
Operating earnings in the second quarter of 1997 increased approximately
$1,800,000, or approximately 11.4%, as compared to the second quarter of 1996
and increased approximately $4,100,000, or approximately 15.9%, for the first
six months of 1997 as compared to 1996, primarily due to the factors previously
discussed.
Interest expense in the second quarter of 1997 increased approximately
$3,000,000, or approximately 39.0%, as compared to the second quarter of 1996,
and increased approximately $3,000,000, or approximately 19.4% for the first six
months of 1997, as compared to the first six months of 1996, primarily as a
result of the
44
<PAGE> 46
sale of $175,000,000 principal amount of 9.25% Notes in March 1997. This
increase was partially offset by the refinancing of certain outstanding
indebtedness of Nortek's subsidiaries primarily in the second quarter of 1997.
(See Note 14B of the Notes to the Consolidated Financial Statements of Nortek
included elsewhere herein.)
Interest income in the second quarter of 1997 increased approximately
$2,200,000, or approximately 244.4%, as compared to the second quarter of 1996,
and increased approximately $1,600,000 or approximately 57.1% for the first six
months of 1997, as compared to the first six months of 1996, principally due to
higher average invested balances of short-term investments and marketable
securities, principally as a result of the investment of the proceeds from the
sale in March 1997 of the 9.25% Notes.
The provision for income taxes was approximately $3,300,000 for the second
quarter of 1997, as compared to approximately $3,200,000 for the second quarter
of 1996 and was approximately $5,600,000 for the first six months of 1997, as
compared to approximately $4,900,000 for the first six months of 1996. The
income tax rates principally differed from the United States Federal statutory
rate of 35%, as a result of state income tax provisions, nondeductible
amortization expense (for tax purposes), the change in tax valuation reserves,
the effect of foreign income tax on foreign source income and the effect of
product development tax credits from foreign operations in both periods. (See
Note 14D of the Notes to the Consolidated Financial of Statements of Nortek
included elsewhere herein.)
Year Ended December 31, 1996 as Compared to the Year Ended December 31, 1995
Net sales increased approximately $193,600,000, or approximately 24.9%, as
compared to 1995. The Residential Building Products Group net sales increased
principally as a result of fourth quarter 1995 acquisitions, which contributed
approximately $140,400,000 in 1996 as compared to approximately $24,600,000 in
1995. Shipments of new and replacement HVAC products to manufactured housing
customers and increased sales levels of commercial and industrial HVAC products
were the primary reasons for increased sales in the HVAC Products Group. Modest
sales price increases in certain product lines of the Residential Building
Products Group were also a factor, and were partially offset by lower sales
prices of certain products in the Plumbing Products Group and certain
residential HVAC products in the HVAC Products Group.
Cost of products sold as a percentage of net sales decreased from
approximately 74.1% in 1995 to approximately 73.2% in 1996. The decrease in the
percentage principally resulted from a reduction in cost in 1996 of certain raw
materials and components compared to 1995 and decreased overhead costs as a
percentage of sales in the Residential Building Products and HVAC Products
Groups due to increased volume and improved efficiency. These decreases were
partially offset by the 1995 acquisitions, which have a higher level of cost of
sales to net sales than the overall group of businesses owned prior to the
acquisitions, the effect of the development and introduction of new products and
the effect of an extended shutdown period in the third quarter in Europe and by
increased direct labor costs in the Plumbing Products Group. Had all year-end
inventory values been stated on a FIFO basis, year-end inventory would have been
approximately $8,482,000 higher in 1996, approximately $10,550,000 higher in
1995 and approximately $6,710,000 higher in 1994. Overall, changes in cost of
products sold as a percentage of net sales for one period as compared to another
period may reflect the effect of a number of factors, including among others,
changes in the relative mix of products sold, the effect of changes in sales
prices, the unit cost of products sold and changes in productivity levels.
Selling, general and administrative expense as a percentage of net sales
was approximately 20.6% in 1995 and 1996. The fourth quarter 1995 acquisitions,
which have a lower level of selling, general and administrative expense to net
sales than the overall group of businesses owned prior to the acquisitions, and
increased sales levels without a proportionate increase in expense in Nortek's
Plumbing Products Group in 1996 contributed to a decrease in the percentage
which was offset by the effect of limited sales activity during an extended
shutdown period in the third quarter by Nortek's European subsidiaries without a
proportionate reduction in expense and higher net unallocated expense.
45
<PAGE> 47
Segment earnings were approximately $73,900,000 for 1996, as compared to
approximately $48,700,000 for 1995. Segment earnings are operating earnings
before corporate and other expenses that are not directly attributable to
Nortek's product groups. Fourth quarter 1995 acquisitions, included in the
Residential Building Products Group, contributed approximately $8,400,000 to
segment earnings in 1996 as compared to $1,050,000 in 1995. Segment earnings
have been reduced by depreciation and amortization expense of approximately
$22,200,000 and approximately $17,600,000 for 1996 and 1995, respectively.
Acquisitions accounted for approximately $5,100,000 of the depreciation and
amortization expense in 1996 as compared to $750,000 in 1995. The overall
increase in segment earnings was due principally to increased sales volume in
each of Nortek's operating groups, particularly increased sales volume of
residential and commercial HVAC products and residential building products, the
effect of increased sales from the fourth quarter 1995 acquisitions, and a
reduction in the price paid for certain materials in each of Nortek's operating
groups and was affected by the factors noted above.
Foreign segment earnings, consisting primarily of the results of operations
of Nortek's Canadian and European subsidiaries, which manufacture built-in
ventilating products, increased to approximately 11.4% of segment earnings in
1996 from approximately 6.1% of such earnings in 1995. The increase in 1996 was
primarily attributable to an approximate 184.2% increase in foreign segment
earnings in 1996, as compared to a 43.2% increase in domestic earnings. The
increase in 1996 was primarily attributable to earnings of Nortek's 1995
Canadian and European acquisitions. Sales and earnings derived from the
international market are subject to the risks of currency fluctuations.
Operating earnings in 1996 increased approximately $19,000,000, or
approximately 46.2%, as compared to 1995, primarily due to the factors
previously discussed.
Interest expense in 1996 increased approximately $5,200,000, or
approximately 20.9%, as compared to 1995, primarily as a result of higher
borrowings resulting from the 1995 acquisitions including existing short-term
working capital borrowings of the acquired subsidiaries.
Interest income in 1996 decreased approximately $800,000, or approximately
13.1%, as compared to 1995, principally due to lower average invested balances
of short-term investments and marketable securities, principally resulting from
the 1995 acquisitions and from purchases of Nortek's capital stock, partially
offset by increased cash from operating results.
The provision for income taxes was approximately $14,000,000 for 1996, as
compared to approximately $9,300,000 for 1995. The provision for income taxes
has been reduced by approximately $481,000 in 1996 and approximately $1,100,000
in 1995, respectively, reflecting the reversal of tax valuation reserves no
longer required, of which approximately $263,000 in 1996 and $670,000 in 1995
are as a result of the gain on the sale of certain investments and marketable
securities. The income tax rates principally differed from the United States
Federal statutory rate of 35%, as a result of state income tax provisions,
nondeductible amortization expense (for tax purposes), the changes in tax
valuation reserves, the effect of foreign income tax on foreign source income,
and in 1996 from the effect of product development tax credits from foreign
operations. (See Note 4 of the Notes to the Consolidated Financial Statements of
Nortek included elsewhere herein.)
Year Ended December 31, 1995 as Compared to the Year Ended December 31, 1994
Net sales increased approximately $39,000,000, or approximately 5.3%, as
compared to 1994 principally as a result of increased shipments of new and
replacement HVAC products to manufactured housing customers, increased sales
levels of commercial and industrial HVAC products by the HVAC Products Group and
acquisitions which contributed approximately $24,600,000 to net sales in 1995.
These increases were partially offset by lower sales volume and prices of
vitreous china products in the Plumbing Products Group.
Cost of products sold as a percentage of net sales increased from
approximately 70.6% in 1994 to approximately 74.1% in 1995, primarily as a
result of higher material costs in each of Nortek's operating groups. Had all
year end inventory values been stated on a FIFO basis, year end inventory would
have been approximately $10,550,000 higher in 1995, approximately $6,710,000
higher in 1994, and approximately $4,982,000 higher in 1993. Increased direct
labor and overhead costs in the HVAC Products Group also
46
<PAGE> 48
contributed to the increased percentage. To a lesser extent, decreased sales
levels without a proportionate decrease in overhead costs in Plumbing Products
were also a factor. The increase in the percentage was partially offset by lower
direct labor and overhead costs in the Residential Building Products Group.
Selling, general and administrative expense as a percentage of net sales
decreased from approximately 22.6% in 1994 to approximately 20.6% in 1995,
principally due to lower expense on increased HVAC product net sales, primarily
to residential and manufactured housing customers and lower non-segment expense
both as a result of Nortek's cost containment measures. To a lesser extent,
decreased expenses in the Plumbing Products Group was also a factor. The
decrease in the percentage was partially offset by the effect of approximately
$3,200,000 of income in 1994 from the settlement of insurance claims and
disputes.
Segment earnings were approximately $48,700,000 for 1995, as compared to
approximately $61,300,000 for 1994, as a result of the effect of the factors
discussed below. Acquisitions in 1995, included in the Residential Building
Products Group, contributed approximately $1,050,000 to segment earnings in
1995. Segment earnings have been reduced by depreciation and amortization
expense of approximately $17,600,000 and $15,700,000 for 1995 and 1994,
respectively. Acquisitions contributed approximately $750,000 of the increase in
depreciation and amortization expense in 1995. The overall decline in segment
earnings was due principally to increased material costs in each of Nortek's
operating groups, partially offset by higher earnings from increased sales
volume of HVAC products, without a proportionate increase in expense, and lower
selling, general and administrative expense (as a percentage of net sales) in
the HVAC Products and Plumbing Products Groups. Approximately $1,600,000 of the
decline in segment earnings resulted from the effect of income in the second
quarter of 1994 from the settlement of insurance claims and disputes.
Foreign segment earnings in 1995, consisting primarily of the results of
operations of Nortek's Canadian and European subsidiaries, which manufacture
built-in ventilating products, decreased to approximately 6.1% of segment
earnings in 1995 from approximately 6.2% of such earnings in 1994. This decrease
was primarily due to a decline in earnings in Canada due to the weakness in
residential construction, partially offset by acquisitions and the effect of an
approximate 21% decline in domestic segment earnings in 1995.
Operating earnings in 1995 decreased approximately $8,900,000, or
approximately 17.8%, as compared to 1994, primarily as a result of the factors
discussed above, including the effect of lower non-segment expense, net and
approximately $3,200,000 (including $1,600,000 relating to Nortek's operating
segments) of income in the second quarter of 1994 from the settlement of
insurance claims and disputes.
Interest expense decreased approximately $1,300,000, or approximately 5.0%
in 1995, as compared to 1994. In February 1994, Nortek sold in a public offering
$218,500,000 of its 9 7/8% Notes and used a portion of the proceeds to redeem,
on March 24, 1994, approximately $153,000,000 of certain of Nortek's outstanding
indebtedness. Interest expense (net of interest income) for 1994 was
approximately $1,300,000 greater than it would have been had the debt redemption
occurred on the same day as the financing. The effect of the redemption of
certain other outstanding indebtedness in 1994 was also a factor. The decrease
in interest expense was partially offset by increased interest expense as a
result of acquisitions.
Interest income increased approximately $800,000, or approximately 15.1% in
1995, as compared to 1994, principally due to higher yields earned on short-term
investments and marketable securities, partially offset by lower average
invested balances of short-term investments and marketable securities.
In the third quarter of 1995, Nortek sold its investment in the preferred
stock of a business previously sold, which resulted in a pre-tax gain of
$2,200,000. (See Note 2 of the Notes to Consolidated Financial Statements of
Nortek included elsewhere herein.)
The provision for income taxes was approximately $9,300,000 in 1995, as
compared to approximately $10,200,000 in 1994. The provision for income taxes as
a percentage of pre-tax earnings was approximately 38.3% in 1995 and 37.2% in
1994. The provision for income taxes in 1995 has been reduced by approximately
$1,100,000, reflecting the reversal of tax valuation reserves no longer
required, of which $670,000 is as a result of the sale of certain investments
and marketable securities. The provision for income taxes in 1994 has been
reduced by approximately $1,600,000, principally reflecting the reversal of tax
valuation reserves as a result of the realization of certain tax assets. The
income tax rates also differ from the United States federal statutory
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rate of 35% as a result of state income tax provisions, nondeductible
amortization expense (for tax purposes) and the effect of foreign income tax on
foreign source income. (See Note 4 of the Notes to Consolidated Financial
Statements of Nortek included elsewhere herein.)
Inflation, Trends and General Considerations
Nortek's performance is dependent to a significant extent upon the levels
of new residential construction, residential replacement and remodeling and
non-residential construction, all of which are affected by such factors as
interest rates, inflation and unemployment. In recent periods, Nortek's product
groups have operated in an environment of increasing levels of construction and
remodeling activity, including new housing starts which increased approximately
20% between 1990 and 1994, declined approximately 8.5% in 1995, and increased
approximately 8.8% in 1996. New residential construction housing starts,
however, remain below the levels experienced in the mid-1980s. Nortek's
operations have been affected by past difficult economic conditions in the
northeastern United States, California and Canada. However, the actions taken to
reduce production costs and overhead levels and improve the efficiency and
profitability of Nortek's operations have enabled it to significantly increase
operating earnings, as well as to position Nortek for growth. In the near term,
Nortek expects to operate in an environment of relatively stable levels of
construction and remodeling activity. However, increases in interest rates could
have a negative impact on the level of housing construction and remodeling
activity.
Inflation did not have a material effect on Nortek's results of operations
and financial condition until mid-1994, when Nortek experienced increases in
certain costs and expenses including raw material costs. In 1995, material costs
as a percentage of net sales increased by approximately 3.0%, as compared to
1994. In 1996, cost increases subsided and Nortek experienced decreases in
certain costs and expenses, including raw materials, as compared to prices in
effect in 1995.
PLY GEM
Results of Operations for First Six Months of 1997 Compared with First Six
Months of 1996
Net sales for the second quarter of 1997 totaled $218.9 million, an
increase of 3.2% over the same period in 1996. For the six months ended June 30,
1997, net sales increased 7.8% from $354.1 million in 1996 to $381.7 million in
1997. Three out of four of Ply Gem's business groups reported increased sales in
1997 when compared to 1996. Approximately three quarters of the consolidated
sales growth for the periods was attributed to unit volume increases and the
remainder to increases in average selling prices.
Gross margins were 19.0% in the second quarter of 1997 compared with 20.1%
for the same period in 1996. Gross margins for the first half of 1997 and 1996
were 17.9%. Gross margins for the quarter were affected by higher raw material
costs, particularly PVC resin and costs associated with the introduction of a
new window product line.
Selling, general and administrative expenses, as a percentage of sales, for
the 1997 second quarter declined to 13.7% from 15.4% for the corresponding
period in 1996. For the six month comparison periods selling, general and
administrative expenses declined to 14.8% from 15.8%. The improvement primarily
relates to Ply Gem's ongoing effort to reduce selling, general and
administrative costs.
Income from operations for the second quarter of 1997, excluding merger
costs of $2.9 million, was $11.5 million compared with $10.1 million recorded in
the second quarter of 1996. Excluding merger costs income from operations for
the first six months of 1997 advanced 62% to $11.7 million compared with $7.2
million for the 1996 comparison period. The improvement resulted primarily from
improved operating results as discussed in the preceding paragraphs.
Ply Gem's effective tax rate in the second quarter of 1997 was 48.4%, which
compares with 45.0% in the second quarter of 1996. The effective tax rate for
the first six months of 1997 was 50% compared with 45.9% recorded in the
comparison period. The higher effective tax rates are due primarily to certain
non-deductible merger costs.
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Results of Operations for 1996 Compared with 1995 and 1995 Compared with 1994
Net Sales
Net sales for 1996 totaled $774.9 million, a 3% increase over 1995 sales of
$755.2 million. The sales growth was driven primarily by Ply Gem's Windows,
Doors and Siding and Specialty Woods businesses. Nine out of eleven of Ply Gem's
business units reported increased sales in 1996 when compared to 1995.
Approximately two-thirds of the consolidated sales growth was attributed to unit
volume increases and the remainder to increases in average selling prices.
Net sales for 1995 totaled $755.2 million, a decrease of 7% from 1994 net
sales of $808.9 million. The primary cause of the decline in sales was Ply Gem's
planned discontinuance or de-emphasis of certain low margin products. Excluding
these products, net sales declined 2% for the comparison period. The 1995 sales
growth in Ply Gem's Windows, Doors and Siding businesses was offset by both
lower sales volume at Ply Gem's Specialty Wood businesses, which were impacted
by low framing lumber prices, and lower volume at Ply Gem's Distribution
businesses.
Gross Profit
Gross margins increased to 19.2% in 1996 from 16.5% in 1995. Gross profit
for 1996 increased 19.1% to $148.5 million, as compared to prior year's gross
profit of $124.6 million. The significant improvement resulted from actions
taken to reduce costs, including aggressive procurement initiatives,
particularly with regard to vinyl profiles and glass, improved productivity and
process improvements and ongoing cost containment measures. In addition, lower
raw material costs, particularly PVC resin and glass (which are used to
manufacture siding and windows), product mix and lower unit freight costs
contributed to the improvement in gross margins.
Gross margins were 16.5% in 1995 as compared to 19.2% in 1994. The 1995
gross margins were impacted by higher conversion costs, including costs related
to the restructuring program such as training and moving costs but not
classified as such, product mix, and new product manufacturing start-up costs.
In addition, higher raw material costs, particularly PVC resin and glass had a
negative impact on gross margins in Ply Gem's Windows, Doors and Siding
businesses, as did declining framing lumber prices in Ply Gem's Specialty Wood
businesses and lower absorption of fixed manufacturing costs in Ply Gem's
Distribution business.
Ply Gem's results of operations are affected by fluctuations in the market
prices of wood products and PVC resin which are used as raw materials in its
various manufacturing operations. Over the years, Ply Gem has experienced
significant fluctuations in the cost of these commodities from primary
suppliers. A variety of factors over which Ply Gem has no control, including
supply and demand, environmental regulations, weather and economic conditions,
impact the cost of these materials. Ply Gem anticipates that these fluctuations
will continue in the future. Although Ply Gem attempts to increase sales prices
of its products in response to higher material costs, such increases may lag
behind the escalation of the cost of raw materials in question. While Ply Gem
intends to increase prices in a timely manner to cover possible increases in the
cost of its raw materials, its ability to do so may be limited by competitive or
other factors.
Selling, General and Administrative Expenses
Selling, general and administrative expenses, as a percentage of net sales,
were 15.4% in 1996 as compared to 15.1% in 1995 and 14.7% in 1994. The modest
percentage and absolute dollar increase of $5.3 million for the 1996 comparison
period to 1995 is primarily due to higher employment costs and higher incentive
compensation expenses. In absolute dollars, selling, general and administrative
expenses declined by $4.6 million in 1995 compared to 1994 primarily due to
lower amortization of intangibles, lower employment costs related in part to the
reduction in workforce and lower incentive compensation expense.
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Write-Down of Long-Lived Assets and Nonrecurring Charges
As described in Notes 4 and 11 of Notes to Consolidated Financial
Statements of Ply Gem included elsewhere herein, Ply Gem recorded a pretax
charge of $12.0 million ($7.6 million after tax) in 1995 related to the
write-down of certain long-lived assets.
During 1994, Ply Gem recorded nonrecurring charges of $41 million ($25.7
million after tax), relating to a restructuring program and for unusual items
primarily consisting of the write-down of certain intangible assets and
discontinued products.
The 1994 restructuring program was designed by prior operating management
to improve Ply Gem's cost structure primarily through facilities consolidations
and closures, abandonment of certain information systems and workforce
reductions. Implementation of several initiatives associated with the
restructuring program have been postponed indefinitely or have resulted in
higher costs than originally anticipated. As a result Ply Gem has not realized
the savings from the restructuring it had expected.
The cash outlays with respect to the 1994 restructuring program during 1996
of approximately $6 million relate primarily to severance costs, lease
termination expenses and costs associated with the abandonment of certain
information systems. Noncash writedowns relate primarily to fixed asset and
inventory write-offs in connection with the closing or consolidation of
facilities. Remaining cash outlays primarily to work-force related activities
and are expected to total approximately $1.9 million of which approximately $1.1
million are expected to be expended in 1997.
Income from Operations
Income from operations, advanced to $29 million in 1996 compared to $10.5
million in 1995 and $36.9 million in 1994. The significant improvement in income
from operations in 1996 resulted primarily from improved operating results at
Ply Gem's Windows, Doors and Siding and Specialty Woods businesses slightly
offset by lower operating results at Ply Gem's Distribution and Home Products
businesses both of which faced very competitive market conditions during 1996.
As discussed above, income from operations for 1995 and 1994 excludes the
write-down of long-lived assets and nonrecurring charges, respectively.
Interest Expense
Interest expense was $6.8 million in 1996 compared to $6.6 million in 1995
and $7.5 million in 1994. The decline in interest expense in 1995 resulted from
the conversion of Ply Gem's 10% Convertible Subordinated Debentures into common
stock during March 1994, partially offset by higher average debt balances and
higher interest rates experienced in 1995.
Ply Gem uses various financial instruments to mitigate Ply Gem's exposure
to changes in floating interest rates. The impact of these instruments on Ply
Gem's results of operations and on its financial position is explained further
in Note 8 to the consolidated financial statements.
Other Expense
The increase in other expense of $1.8 million for the 1995 to 1994
comparison period, primarily relates to higher accounts receivable program costs
due to an increase in the average amount of receivables sold under this program
during 1995 as compared to 1994. Other expense in 1996 primarily includes the
costs associated with the sale of accounts receivables program.
Income Taxes
The effective income tax rate (benefit in 1995 and 1994) was 46.6% in 1996,
27.9% in 1995 and 28.6% in 1994. The difference between these rates and the
statutory rate was primarily due to non-deductible goodwill amortization and
certain state tax benefits relating to the write-down of long-lived assets in
1995 and nonrecurring charges in 1994 which, in accordance with the criteria set
forth in SFAS No. 109, were not recognized.
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Net Income
Net income, before the write-down of long-lived assets, advanced to $10.5
million in 1996 from $.2 million in 1995. Net income before nonrecurring charges
was $17.2 million in 1994. The factors cited above were responsible for the
improvement in the operating results of Ply Gem.
PRO FORMA LIQUIDITY AND CAPITAL RESOURCES
As a result of the Transactions, the Company will be highly leveraged and
expects to continue to be highly leveraged for the foreseeable future. As of
June 28, 1997 after giving pro forma effect to the Transactions, the Company had
consolidated debt of $856.0 million consisting of (i) $19.5 million of short
term borrowings and current maturities of long term debt, (ii) $137.8 million of
notes, mortgage notes and other indebtedness, (iii) $307.5 million of the Notes,
(iv) $174.0 million of 9 1/4% Notes and (v) $217.2 million of 9 7/8% Notes. See
"Capitalization." As of such date, after giving pro forma effect to the
Transactions, the Company's ratio of debt to equity was 7.1 to 1. The Company
intends to explore actions to reduce its leverage, including, among others, the
possible sale of non-core assets, the establishment of an accounts receivable
securitization program and the issuance of equity securities in one or more
public or private placements.
The Company's total unrestricted cash, cash equivalents and marketable
securities were $122.9 million as of June 28, 1997 after giving pro forma effect
to the Transactions. The Company's primary capital requirements following
completion of the Transactions will be for working capital, capital expenditures
and payments of interest on its indebtedness. The Company expects approximately
$75 million in annual net interest expense in fiscal 1998. Through the end of
fiscal 1998, the Company also expects to require between $30.0 million and $40.0
million for capital expenditures. The Company expects that the funds necessary
to meet its capital requirements through the end of fiscal 1998 will be
generated from cash on hand, the operating cash flow of its subsidiaries, the
sale of assets and investments and marketable securities, and borrowings under
new or existing credit facilities (including subsidiary borrowing arrangements)
and, with respect to a portion of its capital expenditure requirements, may be
generated from mortgage or capital lease financings.
After giving pro forma effect to the Transactions, the Company had working
capital (exclusive of cash, cash equivalents and marketable securities) of
approximately $224.6 million at June 28, 1997 compared to approximately $153.5
million at December 31, 1996. Historically, the Company's level of working
capital has been seasonal in nature, with peak levels occurring during the
second and third fiscal quarters. Therefore, the Company does not anticipate
significant additional working capital requirements during the balance of fiscal
1997.
The indentures and other agreements governing the Company's and its
subsidiaries indebtedness (including the Indenture, the indentures for the
9 7/8% Notes and the 9 1/4% Notes and the credit agreement for the Ply Gem
Credit Facility) contain restrictive financial and operating covenants,
including covenants that restrict the ability of the Company and its
subsidiaries to complete acquisitions, pay dividends, incur indebtedness, make
investments, sell assets and take certain other corporate actions. See
"Description of Notes" and "Description of Other Obligations."
The Company's ability to pay interest on or to refinance its indebtedness
(including indebtedness under the Notes) depends on the successful integration
of Ply Gem's operations and the Company's future performance, which, in part, is
subject to general economic, financial, competitive, legislative, regulatory and
other factors beyond its control. There can be no assurance that the Company
will generate sufficient cash flow from the operation of its subsidiaries or
that future financings will be available on acceptable terms in an amount
sufficient to enable the Company to service or refinance its indebtedness,
including the Notes, or to make necessary capital expenditures. See "Risk
Factors -- Substantial Leverage."
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BUSINESS
GENERAL
The Company is a major manufacturer and distributor of building products
for the residential and commercial construction, manufactured housing, DIY and
professional remodeling and renovation markets. The Company operates principally
through two core businesses: (i) the Residential Building Products Group which
offers a broad range of products including built-in and ventilation products,
windows, doors and siding; and (ii) HVAC Products Group which manufactures and
sells custom-designed systems for commercial applications and standard products
for manufactured and site-built residential housing. For the twelve months ended
June 28, 1997, the Company had pro forma net sales of approximately $1.8 billion
and adjusted pro forma EBITDA of approximately $159.6 million. See "Unaudited
Pro Forma Condensed Consolidated Financial Data."
ACQUISITION RATIONALE
The Acquisition reinforces Nortek's strategy of developing and maintaining
leading positions in selected strategic product lines within the building
products industry. The Company expects the Acquisition will provide a
significant opportunity to (i) expand in the growing and less cyclical
remodeling and renovation markets, (ii) increase its importance as a supplier to
home centers and national distributors and (iii) realize savings from the
elimination of duplicative administrative expenses and the implementation of
other operating efficiencies.
Expansion in growing, less cyclical markets. The Company believes the
Acquisition will accelerate its expansion into the growing remodeling and
renovation markets. Ply Gem's windows, doors and siding business offers a range
of products targeted towards the replacement and remodeling markets, including
through the home center distribution channel.
Increased importance to customers. The Acquisition will broaden the
Company's product offerings, which the Company believes will enhance its
position within currently served distribution channels. The Acquisition will add
windows, doors and siding to the Company's existing product portfolio.
Accordingly, the Company believes that home centers and national distributors,
two of the Company's most important customer channels, will view the Company as
a broader "one-stop shopping" supplier at a time when such customers are seeking
to consolidate their vendor bases. In addition, the Acquisition will permit the
sale of Ply Gem's product lines through Nortek's customers serving the
manufactured housing market.
Ability to realize substantial cost savings. The Company expects to
realize pre-tax annual cost savings of approximately $23.4 million, based on the
last twelve months ended June 28, 1997, as a result of the Acquisition. These
savings are expected to result from several actions, including: (i) the
elimination of expenses associated with Ply Gem's New York headquarters; (ii)
the consolidation into the Company of certain of Ply Gem's corporate functions
such as legal, accounting and risk management; and (iii) the identification and
rationalization of underperforming product lines. The Company believes that this
annual rate of cost savings can be achieved beginning in 1998.
BUSINESS STRATEGY
The Company's objective is to achieve stable profitable growth in its core
building products businesses by (i) selectively expanding its portfolio of
complementary product lines, (ii) developing and maintaining leadership
positions in strategic products and markets, (iii) achieving a competitive
advantage as a low cost producer and (iv) realizing synergies in marketing and
distribution by offering a broader range of products.
The Company intends to continue to pursue synergistic acquisitions in its
core product lines in order to expand market share in its businesses. The
Company believes there will continue to be opportunities to make such
acquisitions that can contribute value through a combination of economies of
scale, market power and breadth of distribution. In the past several years,
Nortek has successfully integrated acquisitions into its existing businesses,
including the addition of Rangaire L.P., Best S.p.A. and Venmar Ventilation,
Inc. to its Residential Building Products Group.
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A fundamental component of the Company's business strategy is to focus on
its core businesses. Accordingly, the Company takes a disciplined approach to
the divestiture or discontinuation of non-strategic assets that are not market
leaders and that fail to meet the Company's investment return expectations.
Recent Developments. The Company currently has under consideration the
possible sale or other disposition of all or part of its Plumbing Products Group
in one or more transactions. The Company has received proposals from prospective
buyers but has no binding commitment or understanding with respect to any sale.
The Company does not expect that disposition of all or a part of the Group based
upon the terms being discussed would have a material impact on the results of
operations or financial condition of the Company.
THE MARKET FOR BUILDING PRODUCTS
The Industry Overview. The building products industry consists of a large
number of companies that manufacture materials and equipment used primarily in
two end markets: (i) the repair, renovation and remodeling market and (ii) the
new construction market. Both of these end markets are further subdivided into
residential and non-residential categories. According to the United States
Department of Commerce, private construction of residential and non-residential
buildings totaled approximately $397 billion in 1996.
The most important factors influencing demand for building products include
both the levels of residential and commercial new construction activity as well
as the levels of repair and remodeling activity. Demand for residential building
products is principally affected by the number of housing starts, the rate of
existing home sales and the age and size of the U.S. housing stock. The level of
remodeling activity tends to be closely related to the rate of existing home
sales and the age and size of such homes. Nortek and Ply Gem each have strong
relationships with large retail home centers which are expected to benefit from
continuing growth of the DIY and home improvement markets.
Renovation and Remodeling. The Company's strategy is to increase sales
derived from spending associated with renovation and remodeling activities for
both residential and non-residential buildings and structures. The Company
believes that the frequency of renovating and remodeling activities increases
with the age of a home and that such activities also often occur shortly before
and after an existing home sale. According to the NAH, the average age of a U.S.
home has increased from 23 years in 1985 to 28 years in 1995. During the same
period, according to the NAH annual sales of existing homes increased 21%.
Additionally, the rapid expansion of building product retail chains have made
building products more accessible to "do-it-yourselfers," contributing to the
overall growth in the renovation and remodeling markets. Correspondingly,
between 1985 and 1995, according to the NAH expenditures on home improvements
increased from $44.9 billion to $70.3 billion, or 57%. The Company also believes
that the existing home market experiences less cyclicality than the new home
market.
Residential New Construction. This category includes spending associated
with the construction of both single-family and multi-family residences.
Building activity in the residential construction market is often measured in
terms of housing starts, which vary with job growth, population growth and other
demographic trends, as well as the state of the economy and interest rates.
According to the NAH, housing starts in 1996 totaled 1.48 million units,
consisting of 1.16 million single family units and 0.32 million multi-family
units. Since 1985, single family housing starts have exceeded one million units
in all but two years (1990 and 1991), while multi-family housing starts have
averaged 350,000 units per year during the same period. Manufactured housing
shipments have increased from approximately 170,000 in 1991 to over 360,000 in
1996, representing an increase in excess of 50%. The sector is growing
consistently faster than the overall market for new housing, representing 24% in
the total single family housing starts in 1996 over 17% in 1991. Another factor
driving increased demand for building products has been an increase in the
average size of homes built in the United States. In 1996, the average
single-family home contained 1,950 square feet of space, compared to 1,385
square feet in 1970 and 1,595 square feet in 1980. According to the USDC, total
spending in the United States for new housing units in 1996 totaled
approximately $176 billion, representing an 8% increase over 1995 levels.
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Non-Residential Construction. This category includes spending associated
with the construction of new buildings and structures for the commercial,
industrial, government and infrastructure markets. Activity in commercial
construction has increased as evidenced by expenditures for new office space,
which grew from $20.3 billion in 1992 to $27.6 billion in 1996.
NORTEK
Nortek is a diversified manufacturer of residential and commercial building
products, operating within two principal product groups: the Residential
Building Products Group and the HVAC Products Group. Nortek also operates the
Plumbing Products Group. Through these product groups, Nortek manufactures and
sells, primarily in the United States, Canada and Europe, a wide variety of
products for the residential and commercial construction, manufactured housing,
and the DIY and professional remodeling and renovation markets.
Residential Building Products Group
The Residential Building Products Group is a leading manufacturer and
distributor of built-in products primarily for the residential new construction,
DIY and professional remodeling and renovation markets. The principal products
sold by the Group are kitchen range hoods, bath fans, combination units (fan,
heater and light combinations) and bath cabinets. This Group is the largest
supplier in the United States and Canada of range hoods, bath fans and
combination units, indoor air quality products such as continuous-ventilation
systems and energy-recovery ventilators and one of the leading suppliers in
Western Europe, South America and the Middle East of luxury "Eurostyle" range
hoods. Products are sold under the Broan(R), Nautilus(R), Venmar(R), Flair,
vanEE(R), Rangaire(R) and Best(R) brand names, among others, to distributors and
dealers of electrical and lighting products, kitchen and bath dealers, retail
home centers and OEMs (original equipment manufacturers). Customers for the
Group's products include residential and electrical contractors, professional
remodelers and DIY homeowners. Other products sold by this Group include, among
others, wireless security products, garage door openers, built-in home intercoms
and entertainment systems, home automation systems, door chimes, paddle fans,
central vacuum systems and fluorescent lighting fixtures. Nortek's sales of
kitchen range hoods accounted for approximately 16.4% of Nortek's consolidated
net sales in 1996.
A key component of the Group's operating strategy is the introduction of
new products which capitalize on the strong Broan(R), Nautilus(R), Venmar(R),
Flair, vanEE(R), Rangaire(R) and Best(R) brand names and the extensive
distribution system of the Group's businesses. Product introductions under these
brand names include the Finesse(TM) contoured style range hood, Sensaire and
Solitare Ultra Silent fans and fan lights, the Flair and vanEE(R) Super Compact
Line of heat recovery cores and the Broan(R) stainless steel trash compactor.
With respect to certain product lines, several private label customers
account for a substantial portion of revenues. In 1996, approximately 24% of the
total sales of the Group were made to private label customers.
The Group offers a broad array of products with various features and styles
across a range of price points. Nortek believes that the Group's variety of
product offerings helps the Group maintain and improve its market position for
its principal products. At the same time, Nortek believes that the Group's
status as a low-cost producer, in large part as a result of cost reduction
initiatives, provides the Group with a competitive advantage.
With respect to range hoods, bath fans, combination units and radio
intercoms, Nortek believes that the Group's primary competitor is NuTone, a
subsidiary of Williams Holdings PLC. The market for bath cabinets is highly
fragmented with no single dominant suppliers. The Group's other products compete
with many domestic and international suppliers in their various markets. The
Group competes with suppliers of competitive products primarily on the basis of
quality, distribution, delivery and price. Although the Group believes it
competes favorably with respect to each of these factors, competition among
suppliers of the Group's products is intense and certain of these suppliers have
greater financial and marketing resources than the Group.
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Air Conditioning and Heating Products Group
The HVAC Products Group manufactures and sells HVAC systems for
custom-designed commercial applications and for manufactured and site-built
residential housing. The Group's commercial products consist of HVAC systems
which are custom-designed to meet customer specifications for commercial
offices, manufacturing and educational facilities, hospitals, retail stores and
governmental buildings. Such systems are primarily designed to operating on
building rooftops (including large self-contained walk-in-units) or on
individual floors within a building, and range from 40 to 600 tons of cooling
capacity. This Group markets its commercial products under the Governair(R),
Mammoth(R) and Temtrol(R) brand names. For manufactured and site-built
residential housing, the Group's products include central air conditioners, heat
pumps, furnaces and a wide range of accessories marketed under the
Intertherm(R), Miller(R), Elect-Air(R) and Powermiser(R) brand names.
Commercial Products. The Group's commercial products include packaged
rooftop units and air handlers, custom walk-in mechanical equipment rooms,
individual floor by floor units and heat pumps. The market for commercial HVAC
equipment is segmented between standard and custom-designed equipment.
Nortek believes there are many applications for which custom-designed
equipment is required or is more cost effective over the life of the building.
Unlike standard equipment, the Group's commercial HVAC equipment can be designed
to match the exact space, capacity and performance requirements of the customer.
The Group sells its commercial products primarily to contractors, owners and
developers of commercial office buildings, manufacturing and educational
facilities, hospitals, retail stores and governmental buildings. The Group seeks
to maintain strong relationships nationwide with design engineers, owners and
developers, and the persons who are most likely to value the benefits and
long-term cost efficiencies of the Group's custom-designed equipment.
Nortek estimates that slightly less than half of the Group's commercial
sales in 1996 were attributable to replacement and retrofit activity, which
typically is less cyclical than new construction activity and generally commands
higher margins. The Group continues to develop product and marketing programs to
increase penetration in the growing replacement and retrofit market.
Nortek believes that the Group is among the largest suppliers of
custom-designed commercial HVAC products in the United States. The Group's four
largest competitors in the commercial HVAC market are Brod & McClung, Inc.
(which sells under the "Pace" trade name), McQuay (a division of Snyder-General
Corporation), Miller-Picking (a division of York International Corporation) and
The Trane Company (a subsidiary of American Standard Inc.). The Group competes
primarily on the basis of engineering support, quality, flexibility in design
and construction and total installed system cost.
Residential Products. The Group is one of the largest suppliers of air
conditioners, heat pumps and furnaces to the manufactured housing market in the
United States. In addition, the Group manufactures and markets HVAC products for
site-built homes, a business it entered in 1987.
The principal factors affecting the market for the Group's residential HVAC
products are the levels of manufactured housing shipments and housing starts and
the demand for replacement and modernization of existing equipment. Nortek
anticipates that the replacement market will continue to expand as a large
number of previously installed heating and cooling products become outdated or
reach the end of their useful lives during the 1990s. This growth may be
accelerated by a tendency among consumers to replace older heating and cooling
products with higher efficiency models prior to the end of such equipment's
useful life. Nortek estimates that more than half of the Group's residential
site-built sales of HVAC products in 1996 were attributable to the replacement
market, which tends to be less cyclical than the new construction market. The
market for residential cooling products, including those sold by the Group, is
affected by spring and summer temperatures. Nortek believes that the Group's
ability to offer both heating and cooling products helps offset the effects of
seasonality of the Group's sales.
A substantial portion of site-built residential products have been
introduced in the past several years, including a new line of furnaces and a
reengineered line of high efficiency air conditioners and heat pumps.
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Plumbing Products Group
The Plumbing Products Group manufactures and sells vitreous china bathroom
fixtures (including lavatories, toilet bowls, flush tanks, bidets and urinals),
gelcoat and acrylic bathtubs, shower stalls and whirlpools, brass and die cast
faucets and shower doors, and also markets stainless steel and enameled steel
tubs and sinks. The Group also sells designer bathroom fixtures, 1.6 gallon
water-efficient toilets, pressure balance tub-shower fittings and a variety of
products that are accessible to physically challenged individuals. Products are
sold under the URC(TM) and Universal-Rundle(R) brand names principally to
wholesale plumbing r distributors and retail home centers. End customers of the
Group's products are generally home builders, do-it-yourself or buy-it-yourself
homeowners, remodeling contractors and commercial builders.
The Group competes with many suppliers of plumbing and related products,
several of which have greater financial and marketing resources than the Group
and greater brand awareness. The Group's competitors include American Standard
Inc., Eljer Industries, a subsidiary of Zurn Industries, Kohler Company and
Mansfield Plumbing Products, Inc., a subsidiary of Falcon Building Products,
Inc. The Group competes primarily on the basis of service, quality, price, and
breadth of product line offerings.
PLY GEM
Ply Gem conducts the majority of its business through its Windows, Doors
and Siding Group. Additionally, Ply Gem operates a Wood and Decorative Products
business and a Home Products business.
Windows, Doors and Siding
Ply Gem is a major manufacturer and distributor of vinyl and wood windows
and doors for use in the replacement/remodeling and new construction segments of
the building products market. Ply Gem believes it is among the largest suppliers
of vinyl windows serving the replacement market in the United States.
Additionally, Ply Gem believes it is a leading supplier of wood windows to major
home centers. Ply Gem seeks to differentiate its windows and doors business from
its competition with a multiple brand strategy, a multi-channel distribution
strategy (with an emphasis on the home center market), an established
distribution network utilizing custom design and manufacturing capabilities and
a superior field sales and services support network.
Ply Gem is a major manufacturer and distributor of vinyl siding, soffit,
skirting, injected molded components and accessories, which are available in a
wide variety of woodgrains and colors. Its products are used in both remodeling
and new construction applications for exterior siding materials (which includes
wood, aluminum and masonry) due to its ease of installation, high performance,
durability, low maintenance requirements and price stability as compared to
alternative siding materials. These products are marketed principally to
building materials distributors, who in turn sell primarily to home centers and
lumber yards.
Net sales of Ply Gem's Windows, Doors and Siding Group were approximately
$476.7 million for the year ended December 31, 1996 and $222.2 million for the
six months ended June 30, 1997.
Wood and Decorative Products
Specialty Wood Products Group. Ply Gem's Specialty Wood Products Group
manufactures and distributes pressure treated wood products, specialty lumber,
and decorative home products. The group offers a full range of preservative and
fire retardant treated lumber and plywood products which are marketed to home
centers, cooperative buying groups, lumber yards and independent wholesale
distributors for use generally in residential decking, roofing, siding and
landscaping as well as various commercial construction applications. The group
also products and distributes a full line of decorative wall coverings,
including pre-finished wood paneling, shelving, solid wood planking and tile
board. Additional decorative home products include imported ceramic, porcelain
and marble tile and melamine coated kitchens and bath panels. These products are
marketed both direct to home centers and lumber yards as well as to independent
wholesale distributors.
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Distribution Group. Ply Gem's Distribution Group markets specialty wood and
wood related products, including hardwood plywood, melamine and other laminated
board products, hardwood lumber, and cabinet and furniture hardware. The group
is also an importer of specialty wood panels. In addition, the group is a west
coast distributor of furniture components, laminates and board products.
Customers include cabinet and furniture manufacturers, architectural mill
workers and manufacturers of store fixtures and signs. The group has also begun
to penetrate the home center and lumber yard market with a variety of its
products.
Net sales of Ply Gem's Wood and Decorative Products Group were
approximately $274.2 million for the year ended December 31, 1996 and $147.4
million for the six months ended June 30, 1997.
Home Products
Ply Gem's Home Products Group manufactures disposable paper vacuum cleaner
bags through its Studley subsidiary. Products are sold to manufacturers of
vacuum cleaners, mass merchandisers and other retailers and to the retail home
center market. The Group had net sales of approximately $24.0 million for the
year ended December 31, 1996 and $12.1 million for the six months ended June 30,
1997.
Legal Proceedings
The Company is subject to numerous federal, state and local laws and
regulations, including environmental laws and regulations that impose
limitations on the discharge of pollutants into the air and water and establish
standards for the treatment, storage and disposal of solid and hazardous wastes.
The Company believes that it is in substantial compliance with the material laws
and regulations applicable to it. The Company is involved in current, and may
become involved in future, remedial actions under federal and state
environmental laws and regulations which impose liability on companies to clean
up, or contribute to the cost of cleaning up, sites at which their hazardous
wastes or materials were disposed of or released. Such claims may relate to
properties or business lines acquired by the Company after a release has
occurred. In other instances, the Company may be partially liable under law or
contract to other parties that have acquired businesses or assets from the
Company for past practices relating to hazardous substances management. The
Company believes that all such claims asserted against it, or such obligations
incurred by it, will not have a material adverse effect upon the Company's
financial condition or results of operations. Expenditures in 1995 and 1996 to
evaluate and remediate such sites were not material. However, the Company is
presently unable to estimate accurately its ultimate financial exposure in
connection with identified or yet to be identified remedial actions due among
other reasons to: (i) uncertainties surrounding the nature and application of
environmental regulations, (ii) the Company's lack of information about
additional sites at which it may be listed as a potentially responsible party
("PRP"), (iii) the level of clean-up that may be required at specific sites and
choices concerning the technologies to be applied in corrective actions and (iv)
the time periods over which remediation may occur. Furthermore, since liability
for site remediation is joint and several, each PRP is potentially wholly liable
for other PRPs that become insolvent or bankrupt. Thus, the solvency of other
PRPs could directly affect the Company's ultimate aggregate clean-up costs. In
certain circumstances, the Company's liability for clean-up costs may be covered
in whole or in part by insurance or indemnification obligations of third
parties.
Hoover Treated Wood Products, Inc. ("Hoover"), a wholly-owned subsidiary of
Ply Gem, is a defendant in a number of lawsuits alleging damage caused by
alleged defects in certain pressure treated interior wood products. Hoover has
not manufactured or sold these products since August 1988. Sales of these
products constituted less than 3% of total sales of Ply Gem and its subsidiaries
on a consolidated basis during the period January 1, 1984 through December 31,
1990. The number of lawsuits pending has declined significantly from earlier
periods. Most of the suits have been resolved by dismissal or settlement with
settlements being paid out of insurance proceeds or other third party
recoveries. Hoover and Ply Gem are vigorously defending the suits which remain
pending and defense and indemnity costs are being paid out of insurance proceeds
and proceeds from the settlement by Hoover with suppliers of material used in
the production of interior treated wood products. Hoover and Ply Gem have
engaged in coverage litigation with their insurers and have settled their
coverage claims with a majority of the insurers. Hoover and Ply Gem believe that
the remaining coverage disputes will be resolved on a satisfactory basis and a
substantial amount of additional coverage will be
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available. In reaching this belief, Hoover and Ply Gem have has analyzed
Hoover's insurance coverage and the status of the coverage litigation,
considered the history of settlements with primary and excess insurers and
consulted with counsel. In evaluating the effect of these lawsuits, a number of
factors have been considered, including: the litigation history, the significant
decline in the number of cases, the availability of various legal defenses and
the likely availability of proceeds from additional insurance.
Andrew Klotz, a purported shareholder of Ply Gem, has filed a complaint in
Delaware Chancery Court against Ply Gem, Ply Gem's Chairman and each of the
other members of Ply Gem's Board of Directors (the Chairman and such other
directors collectively, the "Individual Defendants"). The complaint purports to
be brought on behalf of a class consisting of all public stockholders of Ply
Gem, and claims that the Individual Defendants breached their fiduciary duties
and subordinated the interests of Ply Gem's public stockholders to the
individual interests of Ply Gem's Chairman with respect to amounts to be
received by him in connection with the proposed termination of his existing
employment agreement with Ply Gem in connection with an acquisition of Ply Gem,
and that, as a result, the public stockholders have not and will not receive
their fair proportion of the value of Ply Gem's assets and business and/or have
been and will be prevented from obtaining a fair and adequate price for their
shares. The complaint seeks monetary relief based on the defendants' purported
wrongful acts and seeks to have the Court impose a constructive trust upon all
monies paid by the Company and Ply Gem to any Individual Defendant as a result
of such person's purported breach of his fiduciary duties. The defendants
believe the complaint to be without merit.
In addition, two other purported shareholders of Ply Gem, Herman Smilow and
Adele Brody, have filed a complaint against Ply Gem and the Individual
Defendants in Delaware Chancery Court. The complaint purports to be on behalf of
a class consisting of all public shareholders of Ply Gem, and alleges that the
Ply Gem Board members breached their fiduciary duties by recommending and
approving the Atrium Agreement and the transactions contemplated thereby. At the
time of filing, the complaint sought an injunction enjoining the transactions
contemplated by the Atrium Agreement, as well as plaintiffs' costs and legal
fees. The defendants expect this action to be consolidated with the suit brought
by Mr. Klotz. The defendants believe this complaint to be equally without merit.
Finally, Andrew Klotz also filed a complaint against Furman Selz LLC
("Furman Selz") in the New York Supreme Court. On June 20, 1997, Furman Selz and
Ply Gem entered into a letter of engagement (the "Engagement Letter") pursuant
to which Furman Selz agreed to render financial advisory and investment banking
services to Ply Gem in connection with the proposed acquisition of Ply Gem by a
third party. The complaint purports to be on behalf of a class consisting of all
public shareholders of Ply Gem, and alleges, among other things, that Furman
Selz was negligent in failing to take into consideration certain factors and
render advice that would maximize shareholder value. The complaint alleges that
the shareholders have suffered damages in an amount in excess of $100,000,000 as
a result of such negligence and seeks such damages and the return of fees paid
to Furman Selz. Under the Engagement Letter, Ply Gem is required to indemnify
Furman Selz against losses and costs incurred as a result of third party
lawsuits arising out of the services rendered by it under the Engagement Letter
(except in the case that such losses and costs are finally judicially determined
to be primarily attributable to the bad faith or gross negligence on the part of
Furman Selz).
The Company and its subsidiaries are parties to various legal proceedings
and claims incident to the conduct of their businesses, including the matters
described above. None of these proceedings and claims is expected to have a
material adverse effect, either individually or in the aggregate, on the
Company's financial position or results of operations. See Note 8 of Notes to
Consolidated Financial Statements of Nortek included elsewhere herein.
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<PAGE> 60
MANAGEMENT
DIRECTORS OF THE COMPANY
The following table sets forth the name, age as of the date hereof and
current principal occupation or employment and five-year employment history for
the five members currently serving on the Company's Board of Directors. Unless
otherwise noted, each director has maintained the same principal occupation
during the past five years.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME AGE FIVE-YEAR EMPLOYMENT HISTORY
------------------------- --- ---------------------------------------------------------
<S> <C> <C>
Richard L. Bready........ 53 Mr. Bready has been Chairman and Chief Executive Officer
of Nortek for more than the past five years.
Phillip L. Cohen......... 65 Mr. Cohen was a partner with the professional service
firm Arthur Andersen LLP from 1965 until his retirement
in June 1994 and has been a financial consultant since
that date.
Richard J. Harris........ 61 Mr. Harris has been employed by Nortek as Vice President
and Treasurer for more than the past five years.
William I. Kelly......... 54 Mr. Kelly has been Director of the Graduate School of
Professional Accounting of Northeastern University for
more than the past five years.
J. Peter Lyons........... 63 Mr. Lyons, for more than the past five years, has been
President of The J. Peter Lyons Companies, an insurance
and employee benefit consulting company.
</TABLE>
OTHER EXECUTIVE OFFICERS
The following table sets forth the name, age as of the date hereof and
position and office held with the Company for the following persons who may be
deemed executive officers of the Company and who are not also serving on the
Company's Board of Directors. Unless otherwise noted, each executive officer has
maintained the same position and office with the Company during the past five
years.
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION AND OFFICE WITH THE COMPANY
------------------------- --- ---------------------------------------------------------
<S> <C> <C>
Almon C. Hall............ 50 Vice President, Controller and Chief Accounting Officer
Kenneth J. Ortman........ 62 Senior Vice President, Group Operations
Siegfried Molnar......... 57 Senior Vice President, Group Operations
Kevin W. Donnelly........ 43 Vice President, General Counsel and Secretary
</TABLE>
PLY GEM OFFICERS
Upon the consummation of the Tender Offer, Jeffrey S. Silverman, Ply Gem's
former Chief Executive Officer and Chairman of the Board, and Herbert P.
Dooskin, Ply Gem's former Executive Vice President, terminated their employment
with Ply Gem. In addition, both Mr. Silverman and Mr. Dooskin have each agreed,
for a period of two years from the consummation of the Tender Offer, not to
directly or indirectly
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compete with Ply Gem or its subsidiaries in the United States, engage in certain
activities that may interfere with the operations of Ply Gem or its subsidiaries
or aid competitors of Ply Gem. See "The Acquisition." Consummation of the Tender
Offer permitted Dana R. Snyder, Ply Gem's former President, to leave Ply Gem's
employ and receive certain severance benefits under his employment agreement.
Shortly following consummation of the Acquisition, Mr. Snyder's employment with
Ply Gem terminated. In addition, Mr. Snyder's employment agreement provides
that, for a period of two years following the termination of his employment, he
will not directly or indirectly compete with Ply Gem or its subsidiaries.
On September 16, 1997, the Company announced the appointment of Robert E.G.
Ratcliffe as the new President and Chief Executive Officer of Ply Gem. Since
1989, Mr. Ratcliffe has served as Chief Executive Officer of Nordyne Inc., a
wholly owned subsidiary of the Company and part of the Company's Air
Conditioning and Heating Products Group. Prior to joining Nordyne Inc., Mr.
Ratcliffe was President, North American Operations, Carrier Corporation.
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DESCRIPTION OF NOTES
GENERAL
The Original Notes were issued and the Exchange Notes will be issued
pursuant to an indenture (the "Indenture") dated as of August 26, 1997 between
the Company and State Street Bank and Trust Company, a Massachusetts banking
corporation, as trustee (the "Trustee"). The terms of the Exchange Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), as
in effect on the date of the Indenture. The Notes are subject to all such terms,
and holders of the Notes are referred to the Indenture and the Trust Indenture
Act for a statement thereof. The following summary of certain provisions of the
Indenture and the Notes does not purport to be complete and is qualified in its
entirety by reference to the Indenture, including the definitions included in
the Indenture of certain terms used below. A copy of the Indenture is an exhibit
to the Registration Statement of which this Prospectus is a part and is publicly
available as set forth above under "-- Available Information." The definitions
of certain terms used in the following summary are set forth below under
"-- Certain Definitions."
The form and terms of the Exchange Notes are the same as the form and terms
of the Original Notes (which they replace) except that (i) the Exchange Notes
bear a Series B designation, (ii) the Exchange Notes have been registered under
the Securities Act and, therefore, will generally not bear legends restricting
the transfer thereof (except as may be required under the state securities laws)
and (iii) the Exchange Notes will not provide for the payment of Liquidated
Damages (except in certain limited circumstances set forth in the Registration
Rights Agreement). See "The Exchange Offer -- Registration Rights; Liquidated
Damages."
The Notes will be unsecured senior obligations of the Company limited to
$310 million aggregate principal amount. The Notes will rank senior in right of
payment to all existing and future subordinated Indebtedness of the Company,
including the 9 7/8% Notes, and pari passu in right of payment with all existing
and future senior unsecured Indebtedness of the Company, including the 9 1/4%
Notes. The Notes will be effectively subordinated to all existing and future
secured Indebtedness of the Company and the Subsidiary Guarantors, if any,
including secured Indebtedness pursuant to the Company Credit Facility or the
Ply Gem Credit Facility to the extent of the value of the assets securing such
Indebtedness, and the Notes will be structurally subordinated to all
Indebtedness and other obligations (including trade payables) of the Company's
Subsidiaries (including Ply Gem and its Subsidiaries). At June 28, 1997, after
giving effect to the Transactions, the Notes would have been effectively
subordinated to approximately $414.4 million of indebtedness for borrowed money,
trade payables and accrued liabilities of the Company's Subsidiaries.
Although the Indenture contains certain covenants and provisions that
afford certain protections to holders of the Notes, such covenants and
provisions would not necessarily afford the holders of the Notes protection in
the event of a highly leveraged transaction involving the Company, including a
leveraged transaction initiated or supported by the Company, the management of
the Company or any affiliate of either party. See "-- Certain Covenants" below.
PRINCIPAL, MATURITY AND INTEREST
The Notes will mature on September 1, 2007. Interest on the Notes will
accrue at the rate of 9 1/8% per annum and will be payable semi-annually on each
September 1 and March 1 commencing on March 1, 1998, to Holders on the
immediately preceding August 15 or February 15, whether or not a business day.
Interest on the Notes will accrue from the most recent date to which interest
has been paid or, if no interest has been paid, from the date of issuance of the
Notes. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months.
Principal of, premium, if any, interest on, and Liquidated Damages, if any,
with respect to the Notes will be payable by wire transfer of immediately
available funds to the holder of the Global Notes; provided, that payments of
interest and Liquidated Damages, if any, may be made at the office or agency of
the Company
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maintained for such purpose or, at the option of the Company, by check mailed to
the Holders at their respective addresses set forth in the register of Holders.
Unless otherwise designated by the Company, the Company's office or agency in
New York will be the office of the Trustee maintained for such purpose. The
Notes will be issued only in registered form, without coupons, in denominations
of $1,000 and integral multiples thereof. The Trustee is Paying Agent and
Registrar under the Indenture. The Company may act as Paying Agent or Registrar
under the Indenture, and the Company may change the Paying Agent or Registrar
without notice to the Holders.
OPTIONAL REDEMPTION
The Notes will be redeemable by the Company, in whole or in part, on or
after September 1, 2002 at the following redemption prices (expressed as a
percentage of the principal amount) if redeemed during the 12-month period
beginning September 1 of the years indicated below, in each case, together with
accrued and unpaid interest and Liquidated Damages, if any, to the redemption
date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
------------------------------------------------- ----------
<S> <C>
2002............................................. 104.563%
2003............................................. 103.042%
2004............................................. 101.521%
2005 and thereafter.............................. 100.000%
</TABLE>
Notice of the redemption must be mailed by first class mail at least 30 but
not more than 60 days before the redemption date to each Holder to be redeemed
at such Holder's registered address. If any Note is to be redeemed in part only,
the notice of redemption relating to that Note will state the principal amount
thereof to be redeemed and a new Note in principal amount equal to the
unredeemed portion will be issued in the name of the Holder upon cancellation of
the original Note. On and after the redemption date, interest ceases to accrue
on Notes or portions of Notes called for redemption, unless the Company shall
default in the payment of the redemption price. If less than all the outstanding
Notes are to be redeemed at any time, selection of the Notes for redemption will
be made by the Trustee by lot or, if such method is prohibited by the rules of
any stock exchange on which the Notes are then listed, any other method the
Trustee considers reasonable, provided that Notes shall be redeemed in principal
amounts of $1,000 or integral multiples thereof.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes. However, as described below, the Company may
be obligated, under certain circumstances, to make an offer to purchase (i) all
outstanding Notes at a redemption price of 101% of the principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages, if any, to the date of
purchase, upon a Change of Control; and (ii) outstanding Notes with a portion of
the Excess Proceeds of Asset Sales at a redemption price of 100% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of purchase. See "-- Change of Control" and
"-- Certain Covenants -- Limitation on Use of Proceeds from Asset Sales."
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder will have the right
to require the repurchase of all or any part of such Holder's Notes pursuant to
the offer described below (the "Change of Control Offer") at a purchase price
equal to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages, if any, to the date of purchase (the "Change of
Control Payment").
Immediately following any Change of Control, the Company is required to
mail a notice to the Trustee and to each Holder stating: (i) that the Change of
Control Offer is being made pursuant to the Repurchase Upon Change of Control
covenant of the Indenture and that all Notes tendered will be accepted for
payment; (ii) the amount of the Change of Control Payment and the purchase date
(the "Change of Control Payment
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<PAGE> 64
Date"), which may not be earlier than 30 days nor later than 60 days from the
date such notice is mailed; (iii) that any Note not tendered will continue to
accrue interest; (iv) that, unless the Company defaults in the payment thereof,
all Notes accepted for payment pursuant to the Change of Control Offer will
cease to accrue interest on and after the Change of Control Payment Date; (v)
that Holders electing to have any Notes purchased pursuant to a Change of
Control Offer will be required to surrender the Notes to be purchased to the
Paying Agent at the address specified in the notice prior to the close of
business on the third business day preceding the Change of Control Payment Date;
(vi) that Holders will be entitled to withdraw Notes they have tendered on the
terms and conditions set forth in such notice; and (vii) that Holders whose
Notes are being purchased only in part will be issued new Notes (or book-entry
notation made with respect thereto) equal in principal amount to the unpurchased
portion of the Notes tendered; provided that the portion of each Note purchased
and each such new Note issued (or book-entry notation, if applicable) shall be
in a principal amount of $1,000 or an integral multiple thereof.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Notes or portions thereof tendered pursuant
to the Change of Control Offer and not withdrawn, (ii) deposit with the Paying
Agent an amount sufficient to pay the Change of Control Payment in respect of
all Notes or portions thereof so tendered and not withdrawn, and (iii) deliver
or cause to be delivered to the Trustee all Notes so tendered and not withdrawn
together with an Officers' Certificate specifying the Notes or portions thereof
tendered to the Company. The Paying Agent will promptly mail to each Holder of
Notes so tendered and not withdrawn the Change of Control Payment in respect of
such Notes, and the Trustee will promptly authenticate and mail to such Holder a
new Note (or cause to be transferred by book entry) equal in principal amount to
any unpurchased portion of the Notes surrendered; provided that each such new
Note shall be in a principal amount of $1,000 or an integral multiple thereof.
The Company will publicly announce the results of the Change of Control Offer on
or as soon as practicable after the Change of Control Payment Date.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act, and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes triggered by a Change of Control.
A "Change of Control" will be deemed to have occurred at such time as any
of the following events occur: (i) there is consummated any consolidation or
merger of the Company with or into another corporation, or all or substantially
all of the assets of the Company are sold, leased or otherwise transferred or
conveyed to another Person (other than pursuant to a bona fide pledge of assets
to secure Indebtedness made in accordance with the Indenture), and the holders
of the Company's common stock outstanding immediately prior to such
consolidation, merger, sale, lease or other transfer or conveyance or one or
more Exempt Persons do not hold, directly or indirectly, at least a majority of
the common stock of the continuing or surviving corporation immediately after
such consolidation or merger or at least a majority of the Equity Interests of
such Person; (ii) there is filed a report on Schedule 13D or 14D-1 (or any
successor schedule, form or report) pursuant to the Exchange Act disclosing that
any person (defined, solely for the purposes of the Change of Control provision,
as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act or any successor provision to either of the foregoing) has become
the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3
or any successor rule or regulation promulgated under the Exchange Act) of 50%
or more of the combined voting power of all the Company's then outstanding
securities entitled to vote generally for the election of directors; provided,
however, that a person shall not be deemed to be the beneficial owner of, or to
own beneficially, (A) any securities tendered pursuant to a tender or exchange
offer made by or on behalf of such person or any of such person's Affiliates or
associates until such tendered securities are accepted for purchase or exchange
thereunder, or (B) any securities if such beneficial ownership (1) arises solely
as a result of a revocable proxy delivered in response to a proxy or consent
solicitation made pursuant to the applicable rules and regulations under the
Exchange Act, and (2) is not also then reportable on Schedule 13D (or any
successor schedule) under the Exchange Act; or (iii) during any consecutive
two-year period, individuals who at the beginning of such period constituted the
Board of Directors of the Company (together with any new directors whose
election by such Board of Directors or whose nomination for election by the
stockholders of the Company was approved by a vote of 66 2/3% of the directors
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was
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previously so approved) cease for any reason to constitute a majority of the
Board of Directors of the Company then in office.
Notwithstanding the foregoing, a Change of Control shall not be deemed to
have occurred under clause (ii) of the immediately preceding paragraph solely by
virtue of the Company, any Subsidiary of the Company, any employee stock
ownership plan or any other employee benefit plan of the Company or any such
Subsidiary, any other person holding securities of the Company for or pursuant
to the terms of any such employee benefit plan, or any Exempt Person, filing or
becoming obligated to file a report on Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report) under the Exchange Act disclosing beneficial
ownership by it of securities of the Company, whether equal to or greater than
50% of the combined voting power of the Company's then outstanding securities
entitled to vote generally for the election of directors or otherwise.
The Change of Control purchase feature may in certain circumstances make
more difficult or discourage a takeover of the Company and, thus, the removal of
the incumbent management. Although the Company has from time to time received
and considered proposals which might involve a Change of Control, the Change of
Control purchase feature was not adopted as a result of management's knowledge
of any specific effort to accumulate shares of Common Stock or to obtain control
of the Company by means of a merger, tender offer, solicitation or otherwise, or
part of a plan by management to adopt a series of antitakeover provisions.
Instead, the Change of Control purchase feature is a standard term contained in
other similar debt offerings and the terms of such feature result from
negotiations between the Company and the Initial Purchasers. Subject to the
limitations discussed below, the Company could, in the future, enter into
certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of indebtedness outstanding at
such time or otherwise affect the Company's capital structure or credit ratings.
The occurrence of a Change of Control would require the Company to offer to
acquire the 9 7/8% Notes and the 9 1/4% Notes at 101% of the principal amount
thereof and likely would result in an event of default under the Company Credit
Facility and the Ply Gem Credit Facility permitting the lenders thereunder to
accelerate the repayment of the Indebtedness thereunder. If a Change of Control
were to occur, there can be no assurance that the Company would have sufficient
funds to satisfy all of such obligations. In addition, the Company's ability to
make such payment may be limited by the terms of its then-existing borrowings
and other agreements applicable to the Company or its Subsidiaries. Certain
existing agreements applicable to certain of the Company's Subsidiaries restrict
the ability of these Subsidiaries to make distributions to the Company. See
"Description of Other Obligations."
Neither the Board of Directors of the Company nor the Trustee may waive the
Change of Control repurchase feature of the Indenture.
One of the events that constitutes a Change of Control under the Indenture
is a sale, lease or other transfer or conveyance of all or substantially all of
the assets of the Company. There is no precise established definition under
applicable law of the term "substantially all" and, accordingly, if the Company
were to engage in transactions in which it disposed of less than all of its
assets, a question could arise as to whether such disposition was of
"substantially all" of its assets and whether because of such disposition the
Company was required to repurchase the Notes as a result of a Change of Control.
CERTAIN COVENANTS
Limitation on Restricted Payments. The Company shall not, and shall not
permit any of its Restricted Subsidiaries to, directly or indirectly: (i)
declare or pay any dividend on, or make any distribution in respect of the
Company's or any such Restricted Subsidiary's Capital Stock or other Equity
Interests, except to the extent any such dividend or other distribution is (a)
actually received by the Company or a Restricted Subsidiary thereof or (b)
payable solely in shares of Capital Stock or other Equity Interests (other than
Redeemable Stock or Capital Stock convertible into any security other than such
Capital Stock) of the Company or such Restricted Subsidiary, as the case may be;
(ii) purchase, redeem or otherwise acquire or retire for value any Capital Stock
or other Equity Interests of the Company or any of its Restricted
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Subsidiaries (other than Capital Stock or other Equity Interests held by the
Company or any Wholly-Owned Subsidiary of the Company that is a Restricted
Subsidiary); (iii) prepay, repay, purchase, repurchase, redeem, defease or
otherwise acquire or retire for value, prior to a scheduled repayment date,
scheduled mandatory sinking fund payment date or maturity date any Indebtedness
of the Company that is subordinate in right of payment to the Notes (other than
in connection with any refinancing of such Indebtedness permitted by the
Indenture); or (iv) make any Investment other than Permitted Investments (each
such action described in any of clauses (i) through (iv) above being referred to
as a "Restricted Payment"), if, at the time of such Restricted Payment, (1) a
Default or Event of Default shall have occurred and be continuing or shall occur
as a consequence thereof; (2) such Restricted Payment, together with the
aggregate amount of all other Restricted Payments declared or made on or after
the issue date of the Notes (including, without duplication, Restricted Payments
described in the next succeeding paragraph), exceeds the sum of (A) 50% of the
cumulative Consolidated Net Income of the Company for the period commencing on
January 1, 1997 through the last day of the fiscal quarter immediately preceding
the date of such proposed Restricted Payment (provided that if the amount of
such cumulative Consolidated Net Income divided by the number of full fiscal
quarters of the Company in the applicable period exceeds $5,250,000, then such
amount shall equal (i) 50% of the product of $5,250,000 multiplied by the number
of full fiscal quarters in such period plus (ii) 75% of the amount in excess of
the product of $5,250,000 multiplied by the number of full fiscal quarters in
such period) (or, if the cumulative Consolidated Net Income of the Company shall
be a deficit, minus 100% of such deficit); (B) the aggregate net cash proceeds,
and the Fair Market Value of any property other than cash, if any, received by
the Company (other than from a Restricted Subsidiary of the Company) from the
issuance and sale of either Capital Stock of the Company (other than Redeemable
Stock or any Capital Stock convertible into any security other than such Capital
Stock) or Indebtedness that is convertible into Capital Stock of the Company
(other than Redeemable Stock or any Capital Stock convertible into any security
other than such Capital Stock), to the extent such Indebtedness is actually
converted into such Capital Stock; (C) an amount equal to any cash and the Fair
Market Value (at the time of receipt) of other assets received by the Company or
any of its Restricted Subsidiaries after the date of the issuance of the Notes
as a dividend or other distribution from any Unrestricted Subsidiary; (D) the
Fair Market Value of any Investment held by either the Company or any Restricted
Subsidiary of the Company in any Unrestricted Subsidiary at the time such
Unrestricted Subsidiary is redesignated as a Restricted Subsidiary in accordance
with the provisions of the Indenture; and (E) $35,000,000; or (3) the Company
could not incur at least $1.00 of additional Indebtedness pursuant to the first
paragraph of the Limitation on Additional Indebtedness covenant.
The foregoing provisions shall not prohibit, so long as no Default or Event
of Default shall have occurred and be continuing or shall occur as a consequence
thereof, (i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment would have
complied with the provisions of the Indenture; (ii) the declaration and payment
by a Restricted Subsidiary of the Company which is required to file periodic
reports under Section 13 or 15(d) of the Exchange Act (a "Reporting Subsidiary")
of dividends on its common stock to all holders of such common stock on a pro
rata basis out of funds legally available for the payment of dividends, provided
that the amount of such dividends in any fiscal year of such Reporting
Subsidiary shall not exceed 25% of the Consolidated Net Income of such Reporting
Subsidiary for the immediately preceding fiscal year; (iii) the purchase,
redemption, acquisition, cancellation or other retirement for value of shares of
Capital Stock of the Company, options to purchase such shares or related stock
appreciation rights or similar securities held by current or former officers,
employees or directors (or their estates or beneficiaries under their estates)
of the Company or any Restricted Subsidiary; provided that the aggregate
consideration paid for such purchase, redemption, cancellation or other
retirement after the date hereof does not exceed $2,500,000 in the aggregate in
any fiscal year of the Company; (iv) the prepayment, repayment, purchase,
repurchase, redemption, defeasance or other acquisition or retirement for value
of any or all of the 9 7/8% Notes at any time within one year of the scheduled
maturity date thereof; and (v) the redemption, repurchase, defeasance or other
acquisition or retirement for value of Indebtedness of the Company that is
subordinated in right of payment to the Notes in exchange for, or out of the
proceeds of a substantially concurrent offering of, shares of Capital Stock of
the Company (other than Redeemable Stock or any Capital Stock convertible into
any security other than such Capital Stock).
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Limitation on Additional Indebtedness. The Company shall not, and shall
not permit any of its Restricted Subsidiaries to, directly or indirectly,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable with respect to (each, an "incurrence") any Indebtedness,
including, without limitation, Acquired Indebtedness; provided, however, that
the Company may incur Indebtedness if (i) no Default or Event of Default shall
have occurred and be continuing at the time or after giving effect to the
incurrence of such Indebtedness and (ii) the Consolidated Cash Flow Coverage
Ratio of the Company for the four full fiscal quarters ending immediately prior
to the date of the incurrence of such additional Indebtedness is at least 2.0 to
1.0.
The foregoing limitations shall not apply, without duplication, to:
(i) Existing Indebtedness;
(ii) Indebtedness of (a) the Company represented by the Notes and the
Indenture or (b) any Subsidiary Guarantor under any Subsidiary Guaranty;
(iii) Indebtedness of the Company and its Restricted Subsidiaries
under the Company Credit Facility; provided, that the aggregate principal
amount of Indebtedness (including the available undrawn amount of any
letters of credit issued thereunder) so incurred on any date, together with
all other Indebtedness incurred pursuant to this clause (iii) and
outstanding on such date, shall not exceed the greater of (a) $75,000,000
and (b) the sum of 85% of Eligible Receivables of the Company and its
Subsidiaries, plus 65% of Eligible Inventory of the Company and its
Subsidiaries;
(iv) Indebtedness of (a) Broan Limited and any Canadian Subsidiaries
which are Restricted Subsidiaries under the Broan Limited Credit Facility;
provided that (1) the aggregate outstanding principal amount (including the
available undrawn amount of any letters of credit issued thereunder) so
incurred on any date, together with all other Indebtedness incurred
pursuant to this clause (iv) and outstanding on such date, shall not exceed
the greater of (x) $30,000,000 (Canadian) and (y) the sum of 85% of
Eligible Receivables of Broan Limited and the Canadian Subsidiaries which
are Restricted Subsidiaries plus 65% of Eligible Inventory of Broan Limited
and the Canadian Subsidiaries which are Restricted Subsidiaries (but
without duplication of any such Eligible Receivables or Eligible Inventory
of Broan Limited and the Canadian Subsidiaries used as a basis to incur
Indebtedness pursuant to clause (iii) above) and (2) such Indebtedness
shall be secured only by Liens on assets of Broan Limited and the Canadian
Subsidiaries which are Restricted Subsidiaries, and (b) the Company under
its limited guaranty of not more than $20,000,000 (Canadian) of the
Indebtedness of Broan Limited and the Canadian Subsidiaries which are
Restricted Subsidiaries under the Broan Limited Credit Facility;
(v) Indebtedness of Universal-Rundle Corporation for facility
expansion or improvement or joint venture investment purposes not exceeding
at any time $6,000,000 in aggregate outstanding principal amount and, if
secured, secured only by Liens on assets of Universal-Rundle Corporation or
the applicable joint venture;
(vi) Indebtedness of the Company to any of its Wholly-Owned
Subsidiaries that is a Restricted Subsidiary, provided that such
Indebtedness is contractually subordinated in right of payment to the
Notes, or Indebtedness of any Subsidiary of the Company that is a
Restricted Subsidiary to the Company or to any other Wholly-Owned
Subsidiary of the Company that is a Restricted Subsidiary, provided that
any such Indebtedness incurred by a Subsidiary Guarantor is contractually
subordinated in right of payment to its guarantee of the Notes; provided
further that if the Company or any of its Restricted Subsidiaries incurs
Indebtedness to a Wholly-Owned Subsidiary of the Company that is a
Restricted Subsidiary which, at any time after such incurrence, ceases to
be a Wholly-Owned Subsidiary or ceases to be a Restricted Subsidiary, then
all such Indebtedness in excess of the amount of Allowable Subsidiary Loans
shall be deemed to have been incurred at the time such former Wholly-Owned
Subsidiary ceases to be a Wholly-Owned Subsidiary of the Company or ceases
to be a Restricted Subsidiary;
(vii) Indebtedness of a Restricted Subsidiary under a guaranty of
Indebtedness of the Company (other than the Notes) which causes such
Restricted Subsidiary to become a Subsidiary Guarantor pursuant to the
provisions of the Limitation on Guaranties by Subsidiaries covenant;
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(viii) Indebtedness of the Company and its Restricted Subsidiaries
under Interest Rate Agreements, Currency Agreements and Commodity
Agreements, provided that (a) in the case of Interest Rate Agreements, such
Interest Rate Agreements relate to Indebtedness permitted to be incurred
under the Indenture and the notional principal amount of the obligations of
the Company and its Restricted Subsidiaries under such Interest Rate
Agreements does not exceed the principal amount of such Indebtedness, and
(b) in the case of Currency Agreements that relate to other Indebtedness,
such Currency Agreements do not increase the Indebtedness of the Company
and its Restricted Subsidiaries outstanding at any time other than as a
result of fluctuations in foreign currency exchange rates or by reason of
fees, indemnities and compensation payable thereunder;
(ix) Indebtedness of the Company and its Restricted Subsidiaries
incurred in the ordinary course of business under guaranties of
Indebtedness of suppliers, licensees, franchisees or customers;
(x) Indebtedness incurred by the Company and its Restricted
Subsidiaries consisting of Purchase Money Obligations and Capital Lease
Obligations not exceeding at any time $30,000,000 in aggregate outstanding
principal amount;
(xi) Acquired Indebtedness incurred by a Restricted Subsidiary of the
Company to the extent such Indebtedness could have been incurred by the
Company under the limitations set forth in the preceding paragraph of this
Limitation on Additional Indebtedness covenant, after giving pro forma
effect to the acquisition of such Restricted Subsidiary by the Company;
(xii) Indebtedness of any Restricted Subsidiary existing at the time
of the designation of such Subsidiary as a Restricted Subsidiary in
accordance with the terms of the Indenture if immediately prior to such
designation such Subsidiary was an Unrestricted Subsidiary, provided that,
after giving pro forma effect to such designation, such Indebtedness could
have been incurred by the Company under the limitations set forth in the
preceding paragraph of this Limitation on Additional Indebtedness covenant
(assuming for purposes of this clause (xii) only that the Consolidated Cash
Flow Coverage Ratio set forth in such paragraph were 2.25 to 1.0); and
provided further that, none of the Company or any of its other Restricted
Subsidiaries shall provide credit support of any kind (including any
undertaking, agreement or instrument that would constitute Indebtedness),
or otherwise be at any time, directly or indirectly liable (as a guarantor
or otherwise), for such existing Indebtedness, except to the extent the
Company or any of its Restricted Subsidiaries could become so liable in
accordance with the provisions of this Limitation on Additional
Indebtedness covenant (other than solely in accordance with clause (vi)
above or this clause (xii));
(xiii) Indebtedness of the Company and its Restricted Subsidiaries in
respect of performance bonds, bankers' acceptances, letters of credit,
short-term overdraft facilities and surety or appeal bonds incurred or
provided in the ordinary course of business;
(xiv) Indebtedness of (a) Nortek (UK) Limited and its Subsidiaries
arising out of advances on exports, advances on imports, advances on trade
receivables, factoring of receivables and similar transactions in the
ordinary course of business and, if secured, secured only by Liens on
assets of Nortek (UK) Limited and its Subsidiaries and (b) the Company
under its limited guaranty of not more than $10,000,000 of any such
Indebtedness of Nortek (UK) Limited and its Subsidiaries;
(xv) other Indebtedness of the Company and its Restricted Subsidiaries
not to exceed at any time $25,000,000 in aggregate outstanding principal
amount;
(xvi) Liens permitted under the Limitation on Liens covenant; and
(xvii) Indebtedness ("Refinancing Indebtedness") created, incurred,
issued, assumed or guaranteed in exchange for, or the proceeds of which are
used to extend, refinance, renew, replace, substitute or refund
("refinance"), Indebtedness described in the preceding paragraph or
referred to in clauses (i) through (xv) above; provided, however, that (a)
the principal amount of such Refinancing Indebtedness (or if such
Refinancing Indebtedness is issued at a price less than the principal
amount thereof, the original issue amount of such Refinancing
Indebtedness), together with the principal amount of any
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remaining Indebtedness under the agreement or instrument governing the
Indebtedness being refinanced, (1) in the case of Refinancing Indebtedness
incurred to refinance Indebtedness permitted to be incurred under any of
clauses (iii) through (v) and (xv) above, shall not, when added to all
other Indebtedness outstanding under such clause, exceed the aggregate
amount of Indebtedness permitted to be incurred under such clause, and (2)
in the case of Refinancing Indebtedness incurred to refinance Indebtedness
permitted to be incurred under any of clauses (i), (ii) and (vi) through
(xiv) above, shall not exceed the aggregate amount of such Indebtedness
outstanding at the time of such refinancing, in each case, after giving
effect to any mandatory reductions in principal or other repayments
required under the agreement or instrument governing such Indebtedness; (b)
such Refinancing Indebtedness shall be subordinated in right of payment to
the Notes or the Subsidiary Guaranties at least to the same extent as the
Indebtedness to be refinanced; (c) such Refinancing Indebtedness shall have
an Average Life and Stated Maturity equal to, or greater than, the Average
Life and Stated Maturity of the Indebtedness to be refinanced at the time
of such incurrence; (d) the proceeds of such Refinancing Indebtedness, if
incurred by a Restricted Subsidiary of the Company, shall not be used to
refinance Indebtedness of the Company or another Subsidiary of the Company;
and (e) the incurrence of any such Refinancing Indebtedness is
substantially simultaneous with the refinancing of the Indebtedness to be
refinanced.
For purposes of this Limitation on Additional Indebtedness covenant, the
accretion of original issue discount on Indebtedness shall not be deemed to be
an incurrence of Indebtedness.
The Company will not, directly or indirectly, incur any Indebtedness that
is expressly subordinated to any other Indebtedness of the Company or any
Restricted Subsidiary unless such Indebtedness is also expressly subordinated to
the Notes (and any Subsidiary Guaranty, as applicable) to the same extent and in
the same manner as such Indebtedness is subordinated to such other Indebtedness
of the Company or such Restricted Subsidiary.
Limitation on Sale or Issuance of Preferred Stock of Restricted
Subsidiaries. The Company shall not (i) permit any of its Restricted
Subsidiaries to issue or sell to any Person except the Company or a Wholly-Owned
Subsidiary of the Company that is a Restricted Subsidiary any preferred stock of
any Restricted Subsidiary, or (ii) sell or otherwise convey or dispose of, or
permit any of its Wholly-Owned Subsidiaries that is a Restricted Subsidiary to
sell or otherwise convey or dispose of, any such preferred stock so issued or
sold to the Company or any of its Wholly-Owned Subsidiaries that is a Restricted
Subsidiary (except to the issuer thereof, the Company or any of its other
Wholly-Owned Subsidiaries that is a Restricted Subsidiary).
Limitation on Liens. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, create, incur, assume or
suffer to exist any Lien on any Principal Property or on any shares of Capital
Stock of any Restricted Subsidiary of the Company held by the Company or any
other Restricted Subsidiary of the Company or on any Indebtedness owed by any
Restricted Subsidiary to the Company or any other Restricted Subsidiary of the
Company. The foregoing limitation does not apply to (i) Liens securing
obligations under the Notes, (ii) Liens securing obligations under the Company
Credit Facility or the Ply Gem Credit Facility (but such Liens shall not secure
Indebtedness in excess of the amount of Indebtedness then permitted to be
incurred under clause (iii) of the second paragraph of the Limitation on
Additional Indebtedness covenant plus the amount of any Indebtedness then
outstanding pursuant to such clause (iii)); (iii) other Liens existing on the
Closing Date; (iv) Liens with respect to the assets of a Restricted Subsidiary
granted by such Restricted Subsidiary to the Company or a Restricted Subsidiary
that is a Wholly-Owned Subsidiary of the Company to secure Indebtedness owing to
the Company or such Wholly-Owned Subsidiary by such Restricted Subsidiary; (v)
Liens permitted by clauses (iv), (v), (x) and (xiv) of the Limitation on
Additional Indebtedness covenant; (vi) Liens in respect of Indebtedness
permitted by clause (xiii) of the Limitation on Additional Indebtedness
covenant; (vii) Liens granted in connection with the extension, renewal or
refinancing, in whole or in part, of any Indebtedness under the Notes or
described in clause (iii) above; provided that (1) such new Indebtedness is
permitted to be incurred under the Limitation on Additional Indebtedness
covenant and (2) the amount of Indebtedness secured by such Lien is not
increased thereby; and provided, further, that the extension, renewal or
refinancing of Indebtedness of the Company may not be secured by Liens on assets
of any Restricted Subsidiary other than to the extent the Indebtedness being
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extended, renewed or refinanced was at any time previously secured by Liens on
assets of such Restricted Subsidiary; and (viii) Permitted Liens.
Limitation on Certain Restrictions Affecting Subsidiaries. The Company
shall not, and shall not permit any of its Restricted Subsidiaries to, directly
or indirectly, create or enter into or otherwise cause or permit to exist or
become effective any agreement with any Person that would cause any consensual
encumbrance or restriction on the ability of any such Restricted Subsidiary to
(i) pay dividends or make any other distributions on its Capital Stock or any
other interest or participation in, or measured by, its profits, owned by the
Company or any of its Restricted Subsidiaries, (ii) pay or repay any
Indebtedness owed to the Company or any of its Restricted Subsidiaries which
owns Equity Interests in such Restricted Subsidiary, (iii) make loans or
advances to the Company or any of its Restricted Subsidiaries which owns Equity
Interests in such Restricted Subsidiary, (iv) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries which owns Equity
Interests in such Restricted Subsidiary or (v) guarantee any Indebtedness of the
Company or any other Restricted Subsidiary of the Company except, in each case,
for such encumbrances or restrictions existing under or by reason of (a)
applicable law, (b) the Indenture, (c) customary nonassignment provisions of any
lease governing a leasehold interest of the Company or any of its Restricted
Subsidiaries, (d) any instrument governing Indebtedness of a Person acquired by
the Company or any of its Restricted Subsidiaries at the time of such
acquisition, which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person so acquired,
(e) agreements existing as of the issue date of the Notes, (f) the Company
Credit Facility, (g) the Ply Gem Credit Facility, (h) the Broan Limited Credit
Facility, (i) any other agreement pursuant to which any Restricted Subsidiary of
the Company incurs Indebtedness in accordance with the Limitation on Additional
Indebtedness covenant and (j) any agreement effecting a refinancing of
Indebtedness issued pursuant to any agreement or instrument referred to in
clause (d), (e), (f), (g), (h) or (i) above, provided that the terms and
conditions of any such encumbrances and restrictions are not materially less
favorable to the Holders than those under the agreement or instrument evidencing
the Indebtedness being refinanced.
The foregoing shall not restrict the ability of any Restricted Subsidiary
of the Company to grant any Lien to the extent otherwise permitted in the
Indenture.
Repurchase upon Change of Control. See "-- Change of Control" above.
Limitation on Use of Proceeds from Asset Sales. The Company shall not, and
shall not permit any of its Restricted Subsidiaries to, directly or indirectly,
consummate any Asset Sale unless (i) the Company or such Restricted Subsidiary,
as the case may be, receives consideration at the time of any such Asset Sale
having a value (including the Fair Market Value of any non-cash consideration)
at least equal to the Fair Market Value of the securities or assets being sold
or otherwise disposed of, and (ii) at least 75% of the consideration from such
Asset Sale is received in the form of cash, Cash Equivalents (together with
cash, "Cash Proceeds") or indebtedness for borrowed money of the Company or such
Restricted Subsidiary that is assumed by the transferee of any such assets or
any such indebtedness of any Restricted Subsidiary of the Company whose stock is
purchased by the transferee. Any Net Cash Proceeds (a) in excess of the amount
of cash applied by the Company or any Restricted Subsidiary of the Company
during the period beginning 12 months prior to the date of the Asset Sale (but
not prior to the issue date of the Notes) and ending 12 months after the date of
such Asset Sale to purchase any business that is, or any properties and assets
used primarily in, the same or a related business as those owned and operated by
the Company and its Subsidiaries as of the issue date of the Notes or at the
date of such Asset Sale and (b) not applied within 12 months after the date of
the Asset Sale to reduce Indebtedness of the Company (other than Indebtedness
which is subordinated by its terms to the Notes) or any Restricted Subsidiary
shall be deemed to be "Excess Proceeds." When the aggregate amount of Excess
Proceeds exceeds $15,000,000, the Company shall make an offer (the "Excess
Proceeds Offer") to apply the Excess Proceeds to purchase the Notes. The Excess
Proceeds Offer must be in cash in an amount equal to 100% of the principal
amount plus accrued and unpaid interest, if any, thereon and Liquidated Damages,
if any, to the date fixed for the closing of such offer, substantially in
accordance with the procedures for a Change of Control Offer described in the
Repurchase upon Change of Control covenant. To the extent that the aggregate
amount of Notes tendered pursuant to the Excess Proceeds Offer is less than the
Excess Proceeds, the Company may use the remaining Excess Proceeds for general
corporate purposes and such
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amounts shall no longer be deemed Excess Proceeds. If the aggregate principal
amount of Notes surrendered by Holders exceeds the amount of Excess Proceeds,
the Trustee shall select the Notes to be purchased on a pro rata basis, subject
to the limitation on the authorized denominations of the Notes.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws are applicable in connection with the repurchase of Notes
pursuant to an Excess Proceeds Offer.
Limitation on Transactions with Affiliates. Except as otherwise permitted
by the Indenture, neither the Company nor any of its Restricted Subsidiaries
shall make any Investment, loan, advance, guaranty or capital contribution to,
or for the benefit of, or sell, lease or otherwise transfer or dispose of any of
its properties or assets to, or for the benefit of, or purchase or lease any
property or assets from, or enter into or amend any contract, agreement or
understanding with, or for the benefit of, any Affiliate of the Company or any
of its Restricted Subsidiaries, unless (i) such transaction or series of
transactions is in the best interests of the Company or such Restricted
Subsidiary based on all relevant facts and circumstances; (ii) such transaction
or series of transactions is fair to the Company or such Restricted Subsidiary
and on terms that are no less favorable to the Company or such Restricted
Subsidiary, as the case may be, than those that could have been obtained in a
comparable transaction on an arms' length basis from a Person that is not an
Affiliate of the Company or any of its Restricted Subsidiaries; and (iii) (a)
with respect to a transaction or series of related transactions involving
aggregate payments in excess of $2,500,000, the Board of Directors and a
majority of the Disinterested Directors shall approve such transaction or series
of transactions by a Board Resolution evidencing their determination that such
transaction or series of transactions complies with clauses (i) and (ii) above,
and (b) with respect to a transaction or series of transactions involving
aggregate payments equal to or greater than $10,000,000, the Company receives a
written opinion from a nationally recognized investment bank or valuation firm
or, with respect to a transaction requiring the valuation of real property, a
nationally recognized real estate appraisal firm, that such transaction or
series of transactions is fair to the Company from a financial point of view.
Certain transactions subject to this covenant, such as the repurchase of Capital
Stock from, or an Investment in, an Affiliate of the Company or any of its
Restricted Subsidiaries may also be subject to the Limitation on Restricted
Payments covenant.
The foregoing limitation shall not apply to: (i) any payment of money or
issuance of securities by the Company or any Restricted Subsidiary of the
Company pursuant to employment agreements or arrangements and employee benefit
plans, including reimbursement or advancement of out-of-pocket expenses and
directors' and officers' liability insurance; (ii) reasonable and customary
payments and other benefits (including indemnification) provided to directors
for service on the Board of Directors of the Company or any of its Restricted
Subsidiaries and reimbursement of expenses related thereto; or (iii)
transactions between the Company and any Restricted Subsidiary of the Company,
or between one Restricted Subsidiary of the Company and another Restricted
Subsidiary of the Company, provided that not more than 20% of such Restricted
Subsidiary is owned by any Affiliate of the Company or any of Restricted
Subsidiaries (other than the Company or a Wholly-Owned Subsidiary of the
Company).
Limitation on Guaranties by Subsidiaries. The Company shall not permit any
Restricted Subsidiary of the Company, directly or indirectly, to assume,
guarantee or in any other manner become liable with respect to any Indebtedness
of the Company (excluding for this purpose, any Indebtedness deemed to arise
from a guarantee by the Company of Indebtedness of any Restricted Subsidiary of
the Company) or any Subsidiary Guarantor (other than the Notes), unless (a) such
liability is in respect of the Company Credit Facility or the Ply Gem Credit
Facility or (b) such Restricted Subsidiary is a Subsidiary Guarantor or
simultaneously executes and delivers (i) to the Company and the Trustee a
supplemental indenture to the Indenture providing for a Subsidiary Guaranty of
the Notes by such Restricted Subsidiary and any other Subsidiary Guarantors
having such terms as are set forth in an exhibit to the Indenture and (ii) to
the Trustee a Subsidiary Guaranty. Notwithstanding the foregoing, in the event
that a Subsidiary Guarantor is released from all obligations which pursuant to
the first sentence of this paragraph would obligate it to become a Subsidiary
Guarantor (if it was not already a Subsidiary Guarantor), such Subsidiary
Guarantor shall be automatically and unconditionally released from all
obligations under its Subsidiary Guaranty without any further action required on
the part of the Trustee or any Holder. In addition, (i) upon the designation of
any Subsidiary
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Guarantor as an Unrestricted Subsidiary in compliance with the terms of the
Indenture or (ii) upon any sale or disposition (by merger or otherwise) of any
Subsidiary Guarantor by the Company or a Restricted Subsidiary of the Company to
any Person that is not an Affiliate of the Company or any of its Restricted
Subsidiaries which is otherwise in compliance with the terms of the Indenture,
such Subsidiary Guarantor shall be automatically and unconditionally released
from all obligations under its Subsidiary Guaranty without any such further
action.
No Lien on the properties or assets of any Restricted Subsidiary of the
Company permitted by the Limitation on Liens covenant shall constitute a
guaranty of the payment of any Indebtedness of the Company for purposes of this
Limitation on Guaranties by Subsidiaries covenant.
The provisions of this Limitation on Guaranties by Subsidiaries covenant
shall cease to have further force and effect (and if there then exists any
Subsidiary Guarantor, such Subsidiary Guarantor will be deemed to be released
from all obligations under its Subsidiary Guaranty) at such time as the similar
covenant in the indenture governing the Company's 9 7/8% Notes and the
indenture governing the Company's 9 1/4% Notes shall cease to have further
force and effect (whether by reason of amendment, redemption or repayment of
such Indebtedness or otherwise), provided, however, that if the instrument or
other agreement governing any Indebtedness incurred to refinance the 9 7/8%
Notes or the 9 1/4% Notes includes such a similar covenant, the provisions of
this Limitation on Guaranties by Subsidiaries covenant shall continue in full
force and effect for so long as such similar covenant remains in force and
effect.
Payments for Consents. Neither the Company nor any of its Subsidiaries
shall, directly or indirectly, pay or cause to be paid any consideration whether
by way of interest, fee or otherwise, to any Holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Indenture or the Notes unless such consideration is offered to be paid or
agreed to be paid to all Holders of the Notes which so consent, waive or agree
to amend in the time frame set forth in solicitation documents relating to such
consent, waiver or agreement.
Rule 144A Information Requirement. The Company has agreed that, if it is
not subject to and in compliance with the informational requirements of Sections
13 or 15(d) of the Exchange Act at any time while the Notes constitute
"restricted securities" within the meaning of the Securities Act, it will
furnish to the holders or beneficial holders of the Notes and prospective
purchasers of the Notes designated by holders of the Notes, upon their request,
the information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act until such time as the Company either exchanges all of the Notes
for the Exchange Notes or has registered under the Securities Act and continues
to maintain a registration statement with respect to the resale of all of the
Notes pursuant to the Registration Rights Agreement.
Provision of Reports. The Indenture will provide that whether or not
required by the rules and regulations of the Commission, so long as any Notes
are outstanding, the Company will furnish to the Holders of Notes (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
were required to file such Forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" that describes the
financial condition and results of operations of the Company and its
Subsidiaries and, with respect to the annual information only, a report thereon
by the Company's independent certified public accountants and (ii) all reports
that would be required to be filed with the Commission on Form 8-K if the
Company were required to file such reports. In addition, whether or not required
by the rules and regulations of the Commission, the Company will file a copy of
all such information with the Commission for public availability (unless the
Commission will not accept such a filing) and make such information available to
investors or prospective investors who request it in writing.
MERGER, CONSOLIDATION OR TRANSFER OF ASSETS
The Company shall not consolidate with, merge with or into, or transfer all
or substantially all of its assets (as an entirety or substantially as an
entirety in one transaction or a series of related transactions) to, any Person
or permit any Person to merge with or into it, or permit any of its Subsidiaries
to enter into any such transaction or transactions if such transaction or
transactions in the aggregate would result in a transfer of all
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or substantially all of the assets of the Company and its Subsidiaries on a
consolidated basis, unless: (1) the Company shall be the continuing Person, or
the Person, if other than the Company, formed by such consolidation or into
which the Company is merged or to which the properties and assets of the Company
or of the Company and its Subsidiaries on a consolidated basis, substantially as
an entirety, are transferred shall be a corporation organized and existing under
the laws of the United States or any state thereof or the District of Columbia
and shall expressly assume, by an indenture supplemental to the Indenture,
executed and delivered to the Trustee, in form satisfactory to the Trustee, all
the obligations of the Company under the Notes and the Indenture, and the
Indenture remains in full force and effect; (2) immediately before and
immediately after giving effect to such transaction, no Event of Default and no
Default shall have occurred and be continuing; (3) the Person which is formed by
or survives such consolidation or merger or to which such assets are transferred
(the "surviving entity"), after giving pro forma effect to such transaction,
could incur $1.00 of additional Indebtedness under the first paragraph of the
Limitation on Additional Indebtedness covenant; (4) immediately after giving
effect to such transaction on a pro forma basis the Consolidated Net Worth of
the surviving entity shall be equal to or greater than the Consolidated Net
Worth of the Company immediately before such transaction; and (5) each
Subsidiary Guarantor, if any, unless it is the other party to the applicable
transaction described above or its Subsidiary Guaranty, after giving effect to
such transaction, is to be released in accordance with the terms hereof and of
such Subsidiary Guaranty, shall have confirmed by supplemental indenture that
its Subsidiary Guaranty shall apply to the obligations of the Company or the
surviving entity under the Indenture.
In connection with any such consolidation, merger or transfer, the Company
shall deliver, or cause to be delivered, to the Trustee, in form and substance
reasonably satisfactory to the Trustee, an Officers' Certificate and an opinion
of counsel, each stating that such consolidation, merger or transfer and the
supplemental indenture in respect thereto comply with the Indenture and that all
conditions precedent therein provided for relating to such transactions have
been complied with.
Upon any consolidation or merger, or any transfer of all or substantially
all of the assets of the Company and its Subsidiaries on a consolidated basis,
in accordance with the second preceding paragraph, the successor Person formed
by such consolidation or into which the Company is merged or the successor
Person to which such transfer is made shall succeed to, and be substituted for,
and may exercise every right and power of, the Company under the Indenture with
the same effect as if such successor Person had been named as the Company in the
Indenture, and when a successor Person assumes all the obligations of its
predecessor under the Indenture or the Notes, the predecessor shall be released
from those obligations; provided, however, that in the case of a transfer by
lease, the predecessor shall not be released from the payment of principal of,
premium, if any, interest and Liquidated Damages, if any, on the Notes.
With respect to the transfer of all or substantially all of the assets of
the Company or of the assets of the Company and its Subsidiaries on a
consolidated basis, there is no precise established definition of the term
"substantially all" under applicable law. Accordingly, if the Company were to
engage in transactions in which it disposed of less than all of its assets or
the Company or a Subsidiary of the Company were to engage in transactions in
which less than all of the assets of the Company and its Subsidiaries on a
consolidated basis were disposed of, a question could arise as to whether such
disposition was of "substantially all" of the assets of the Company or of the
Company and its Subsidiaries on a consolidated basis, as the case may be, and,
therefore, whether the transaction was subject to the foregoing provisions of
the Indenture.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an "Event of
Default": (1) the Company defaults in the payment, when due and payable, of (i)
interest on or Liquidated Damages, if any, with respect to any Note and the
default continues for a period of 30 days, or (ii) principal of or premium, if
any, on any Notes when the same becomes due and payable at maturity, by
acceleration, on the Redemption Date, on the Change of Control Payment Date, on
any payment date respecting an Excess Proceeds Offer or otherwise; (2) the
Company fails to comply with any of the provisions set forth under "Merger,
Consolidation or Transfer of Assets" above; (3) the Company fails to comply with
any of its covenants or agreements in the Notes or the Indenture (other than
those referred to in clause (1) or (2) above), or any Subsidiary Guarantor
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fails to comply with any of its covenants or agreements in the Indenture or its
Subsidiary Guaranty, and in either case such failure continues for the period
and after receipt by the Company of the notice specified below; (4) default
under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or evidenced any indebtedness for money borrowed
by the Company or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries), whether such
indebtedness or guaranty is now existing or hereafter created, if such default
shall constitute a failure to pay any portion of the principal of such
indebtedness when due and payable or if as a result of such default the maturity
of such indebtedness has been accelerated prior to its stated maturity and, in
either case, the principal amount of such indebtedness, together with the
principal amount of any other such indebtedness for money borrowed which has not
been paid when due and payable or the maturity of which has been accelerated as
a result of such default, aggregates $15,000,000 or more; (5) the Company or any
of its Significant Subsidiaries that is a Restricted Subsidiary (or any group of
Restricted Subsidiaries that, taken together, would constitute a Significant
Subsidiary) pursuant to or within the meaning of any bankruptcy law: (A)
commences a voluntary case or proceeding; (B) consents to the entry of an order
for relief against it in an involuntary case or proceeding; (C) consents to the
appointment of a custodian of it or for all or substantially all of its
property; (D) makes a general assignment for the benefit of its creditors; or
(E) admits in writing its inability to pay its debts generally as they become
due; (6) a court of competent jurisdiction enters an order or decree under any
bankruptcy law that: (A) is for relief against the Company or any of its
Significant Subsidiaries that is a Restricted Subsidiary (or any group of
Restricted Subsidiaries that, taken together, would constitute a Significant
Subsidiary) in an involuntary case or proceeding; (B) appoints a custodian of
the Company or any of its Significant Subsidiaries that is a Restricted
Subsidiary (or any group of Restricted Subsidiaries that, taken together, would
constitute a Significant Subsidiary) for all or substantially all of its
properties; (C) orders the liquidation of the Company or any of its Significant
Subsidiaries that is a Restricted Subsidiary (or any group of Restricted
Subsidiaries that, taken together, would constitute a Significant Subsidiary)
and (D) remains unstayed and in effect for 60 days; (7) final judgments for the
payment of money which in the aggregate exceed $15,000,000 shall be rendered
against the Company or any of its Restricted Subsidiaries by a court and shall
remain unstayed or undischarged for a period of 60 days; or (8) any Subsidiary
Guaranty ceases to be in full force and effect or is declared null and void, or
any Subsidiary Guarantor denies that it has any further liability under any
Subsidiary Guaranty or gives notice to such effect (in each case other than by
reason of the termination of the Indenture or the release of such Subsidiary
Guaranty in accordance with the terms of the Indenture and such Subsidiary
Guaranty) and such condition shall have continued for the period and after
receipt by the Company of the notice specified below.
A Default under clause (3) or (8) above is not an Event of Default until
the Trustee notifies the Company, or the Holders of at least 25% in aggregate
principal amount of the Notes at the time outstanding notify the Company and the
Trustee, of the Default and the Company does not cure such Default within 30
days after receipt of such notice. Any such notice must specify the Default,
demand that it be remedied and state that such notice is a "Notice of Default."
In the case of any Event of Default (other than as a result of the failure
to comply with the Repurchase upon Change of Control covenant) occurring by
reason of any willful action (or inaction) taken (or not taken) by or on behalf
of the Company with the intention of avoiding payment of the premium which the
Company would have to pay if the Company then had elected to redeem the Notes,
an equivalent premium shall also become and be immediately due and payable to
the extent permitted by law, anything in the Indenture or in the Notes contained
to the contrary notwithstanding.
In the case of an Event of Default as a result of a failure to comply with
the Repurchase upon Change of Control covenant occurring by reason of any
willful action (or inaction) taken (or not taken) by or on behalf of the Company
with the intention of avoiding payment of the premium which the Company would
have to pay pursuant to the Repurchase upon Change of Control covenant, such
premium shall also become and be immediately due and payable at such time as the
principal and interest on the Notes become due and payable pursuant to the
acceleration provisions of the Indenture to the extent permitted by law,
anything in the Indenture or in the Notes contained to the contrary
notwithstanding.
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If any Event of Default (other than an Event of Default specified in clause
(5) or (6) above) occurs and is continuing, the Trustee or the Holders of at
least 25% of the principal amount of the Notes then outstanding, by written
notice to the Company (and to the Trustee if such notice is given by such
Holders), may, and such Trustee at the request of such Holders shall, declare
all unpaid principal of, premium, if any, and accrued interest on and Liquidated
Damages, if any, with respect to the Notes to be due and payable immediately. If
an Event of Default specified in clause (5) or (6) above occurs, all unpaid
principal of, premium, if any, and accrued interest on and Liquidated Damages,
if any, with respect to the Notes then outstanding shall ipso facto become and
be immediately due and payable without declaration or other act on the part of
the Trustee or any Holder. The Holders of at least a majority in principal
amount of the Notes then outstanding by written notice to the Trustee may
rescind an acceleration and its consequences (except an acceleration due to
default in payment of principal of, premium, if any, and accrued interest on and
Liquidated Damages, if any, with respect to, the Notes) if all existing Events
of Default have been cured or waived except non-payment of principal of,
premium, if any, and accrued interest on and Liquidated Damages, if any, with
respect to, the Notes that have become due solely because of the acceleration.
Subject to certain restrictions set forth in the Indenture, the Holders of at
least a majority in principal amount of the outstanding Notes by notice to the
Trustee may waive an existing Default or Event of Default and its consequences,
except a default in the payment of principal of, premium, if any, or interest
on, or Liquidated Damages, if any, with respect to any Note or a Default under a
provision which requires consent of all Holders to amend. When a Default or
Event of Default is waived, it is cured and ceases. A Holder of Notes may not
pursue any remedy with respect to the Indenture or the Notes unless: (i) the
Holder gives to the Trustee written notice that an Event of Default is
continuing; (ii) the Holders of at least 25% in aggregate principal amount of
any Notes outstanding make a written request to the Trustee to pursue the
remedy; (iii) such Holder or Holders offer to the Trustee reasonable indemnity
or security against any loss, liability or expense satisfactory to the Trustee;
(iv) the Trustee does not comply with the request within 30 days after receipt
of the request and the offer of indemnity or security; and (v) during such
30-day period the Holders of a majority in aggregate principal amount of the
outstanding Notes do not give the Trustee a direction which is inconsistent with
the request.
DISCHARGE OF THE INDENTURE AND THE NOTES
If, at any time prior to the Stated Maturity of the Notes or the date of
redemption of all outstanding Notes, the Company irrevocably deposits with the
Trustee money and/or direct non-callable obligations of, or non-callable
obligations guaranteed by, the United States of America for the payment of which
guarantee or obligation the full faith and credit of the United States is
pledged, maturing as to principal and interest in such amounts and at such times
as are sufficient, without consideration of any reinvestment of such interest,
to pay principal of, premium, if any, and accrued interest on and Liquidated
Damages, if any, with respect to, the outstanding Notes (other than replaced
Notes) to maturity or redemption, as the case may be, in accordance with the
terms of the Indenture and the Notes, the Indenture and each Subsidiary
Guaranty, if any, shall cease to be of further effect as to all outstanding
Notes (except, among other things, as to (i) remaining rights of registration of
transfer and substitution and exchange of the Notes, (ii) rights of Holders to
receive payment of principal of, premium, if any, and accrued interest on and
Liquidated Damages, if any, with respect to the Notes, and (iii) the rights,
obligation and immunities of the Trustee); provided, however, that the Company
will only be entitled to make such a deposit if the Company has delivered to the
Trustee, among other things, (x)(1) a ruling directed to the Trustee from the
Internal Revenue Service to the effect that the holders of the Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit and defeasance of this Indenture and will be subject to federal
income tax on the same amount and in the same manner and at the same times, as
would have been the case if such deposit and defeasance had not occurred, or (2)
an opinion of counsel, reasonably satisfactory to the Trustee to the same effect
as clause (x)(1) above and (y) a report from a nationally recognized firm of
independent public accountants stating that the amount of such deposit is
sufficient to pay and discharge the amounts described above with respect to the
Notes.
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TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents, and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar is not required to transfer or
exchange any Note selected for redemption. Also, the Registrar is not required
to transfer or exchange any Note for a period of 15 days before a selection of
Notes is to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, with the written consent of the Holders of
at least a majority in aggregate principal amount of the Notes then outstanding,
the Company and the Trustee may amend the Indenture or the Notes, or may waive
compliance by the Company or any Subsidiary Guarantor with any provision of the
Indenture, the Notes or such Subsidiary Guarantor's Subsidiary Guaranty.
However, without the consent of each Holder affected, a waiver or an amendment
to the Indenture or the Notes may not: (i) reduce the percentage of principal
amount of the Notes whose Holders must consent to an amendment or waiver; (ii)
make any change to the Stated Maturity of the principal of, premium, if any, or
any interest on or Liquidated Damages, if any, with respect to, the Notes or any
Redemption Price thereof, or impair the right to institute suit for the
enforcement of any such payment or make any Note payable in money or securities
other than that stated in the Note; (iii) waive a default in the payment of the
principal of, premium, if any, or interest on, or Liquidated Damages, if any,
with respect to, any Note; (iv) make any change in the provisions of the
Repurchase upon Change of Control covenant or the Limitation on Use of Proceeds
of Asset Sales covenant; (v) release any Subsidiary Guarantor from any of its
obligations under its Subsidiary Guaranty or the Indenture other than in
compliance with the terms of the Indenture and such Subsidiary Guaranty; or (vi)
make any change in the amendment provisions of the Indenture.
Notwithstanding the foregoing, without the consent of any Holder, the
Company and the Trustee may amend or supplement the Indenture or the Notes (i)
to cure any ambiguity, defect or inconsistency; (ii) to comply with the
provisions described under "Merger, Consolidation or Transfer of Assets"; (iii)
to provide for uncertificated Notes in addition to or in place of certificated
Notes so long as such uncertificated Notes are in registered form for purposes
of the Internal Revenue Code of 1986, as amended; (iv) to make any other change
that does not adversely affect the rights of any Holder; (v) to comply with any
requirement of the Commission in connection with the qualification of the
Indenture under the Trust Indenture Act; or (vi) to add any Subsidiary of the
Company as a Subsidiary Guarantor.
CONCERNING THE TRUSTEE
State Street Bank and Trust Company is the Trustee under the Indenture and
has been appointed by the Company as Registrar and Paying Agent with respect to
the Notes.
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, or apply to the Commission for permission to
continue or resign.
The Holders of not less than a majority in principal amount of the then
outstanding Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur and be continuing (and shall not be cured), the Trustee will
be required, in the exercise of its power, to use the degree of care and skill
of a prudent person in the conduct of his own affairs. Subject to such
provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any Holders of Notes,
unless they shall have offered to the Trustee reasonable security or indemnity
satisfactory to it against any loss, liability or expense.
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CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means, with respect to any Person, Indebtedness of
such Person (i) assumed in connection with an acquisition of assets or
properties from such Person or (ii) existing at the time such Person becomes a
Restricted Subsidiary of any other Person provided such Person was not
immediately prior thereto an Unrestricted Subsidiary (in each case other than
any Indebtedness incurred in connection with, or in contemplation of, such
acquisition or such Person becoming such a Restricted Subsidiary).
"Affiliate" means, with respect to any Person, any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. A Person shall be deemed to "control"
(including the correlative meanings, the terms "controlling", "controlled by"
and "under common control with") another Person if the controlling Person
possesses, directly or indirectly, the power to direct or cause the direction of
the management or policies of the controlled Person, whether through ownership
of voting securities, by agreement or otherwise.
"Allowable Subsidiary Loans" means Indebtedness of the Company to a
Restricted Subsidiary not to exceed the Net Cash Proceeds received by the
Company as a result of such Restricted Subsidiary becoming less than a
Wholly-Owned Subsidiary through the sale of Equity Interests in compliance with
the terms of the Indenture, provided that (i) all such Allowable Subsidiary
Loans are contractually subordinated in right of payments to the Notes and (ii)
the total amount of all Allowable Subsidiary Loans at any time outstanding does
not exceed $35,000,000.
"Asset Sale" means, with respect to any Person, the sale, lease, conveyance
or other transfer or disposition by such Person of any of its assets or
properties (including by way of a sale-and-leaseback and including the sale,
issuance or other transfer of any of the Capital Stock of any Subsidiary of such
Person), in a single transaction or through a series of related transactions,
for aggregate consideration received by such Person or a Subsidiary of such
Person (but if such Person is the Company or any Restricted Subsidiary, only if
such Subsidiary is a Restricted Subsidiary), net of out-of-pocket costs relating
thereto (including, without limitation, legal, accounting and investment banking
fees and sales commissions), in excess of $5,000,000. For purposes of this
definition, consideration shall include, without limitation, any indebtedness
for borrowed money of such Person or such Subsidiary that is assumed by the
transferee of any assets or any such indebtedness of any Subsidiary of such
Person whose stock is purchased by the transferee. Notwithstanding anything to
the contrary in the foregoing provisions of this definition, the term "Asset
Sale", with respect to any Person, shall not include (i) the sale, lease or
other transfer or disposition of assets acquired and held for resale in the
ordinary course of business; (ii) the sale, lease or other transfer or
disposition of assets in accordance with the provisions described under "Merger,
Consolidation or Transfer of Assets"; (iii) the sale, lease or other transfer or
disposition of damaged, worn out or obsolete property in the ordinary course of
business or other property no longer necessary for the proper conduct of the
business of such Person or its Subsidiaries; (iv) the abandonment of assets or
properties which are no longer useful in the business of such Person or its
Subsidiaries and are not readily saleable; (v) the granting of any Lien
permitted under the Limitation on Liens covenant (and any foreclosure or other
sale under any such Lien, except to the extent there are surplus proceeds from
such foreclosure); (vi) any sale, lease, assignment or other disposition by such
Person or its Subsidiaries if such Person has outstanding senior debt securities
all of which are rated BBB- or higher by S&P and have not been placed on credit
watch by S&P for a possible downgrade or are rated Baa3 or higher by Moody's and
have not been placed on credit watch by Moody's for a possible downgrade; or
(vii) the sale or other transfer or disposition of receivables in connection
with an asset securitization transaction by such Person or its Subsidiaries.
"Average Life" means, as of the date of determination, with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products of
the number of years from the date of determination to the date of each
successive scheduled principal payment (assuming the exercise by the obligor of
such debt security of all unconditional (other than as to the giving of notice)
extension options of each such scheduled
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payment date) of such debt security multiplied by the amount of such principal
payment by (ii) the sum of all such principal payments.
"Broan Limited Credit Facility" means a credit facility between Broan
Limited or any of the Canadian Subsidiaries, and one or more banks or other
institutional lenders, as the same may be amended, extended, amended and
restated, supplemented or otherwise modified or replaced from time to time.
"Canadian Subsidiary" means any Subsidiary of Broan Limited and any
Subsidiary of the Company whose headquarters is located in Canada.
"Capital Lease Obligations" means, with respect to any Person, all
obligations under leases of property by such Person as lessee which would be
capitalized on a balance sheet of such Person prepared in accordance with GAAP,
and for purposes of the Indenture the amount of such obligations at any time
shall be the aggregate capitalized amount thereof at such time, as determined in
accordance with GAAP.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights or other equivalents (however designated) of
capital stock (including common or preferred stock), partnership interests or
any other participation right or other interest in the nature of an equity
interest in such Person.
"Cash Equivalents" means (i) any evidence of Indebtedness, maturing not
more than 365 days after the date of acquisition, issued or fully guaranteed or
insured by the United States of America, or an instrumentality or agency thereof
(provided that the full faith and credit of the United States of America is
pledged in support thereof), (ii) any certificate of deposit, overnight bank
deposit or bankers' acceptance, maturing not more than 365 days after the date
of acquisition, issued by, or time deposit of, a commercial banking institution
having unsecured long-term debt (or whose holding company has unsecured
long-term debt) rated, at the time as of which any Investment therein is made,
BBB- or better by S&P or Moody's or the equivalent of such rating by a successor
rating agency, (iii) commercial paper, maturing not more than 90 days after the
date of acquisition, issued by a corporation (other than an Affiliate or
Subsidiary of the Company) organized and existing under the laws of the United
States of America or any State thereof or the District of Columbia which is
rated, at the time as of which any Investment therein is made, P-1 or better by
Moody's or A-1 or better by S&P, or the equivalent of such rating by a successor
rating agency, (iv) Investments in mutual funds, money market funds, investment
pools and other savings vehicles, substantially all of the assets of which are
invested in Investments described in clause (i), (ii) or (iii) above, and (v) in
the case of Broan Limited and the Canadian Subsidiaries, (a) any evidence of
Indebtedness, maturing not more than 365 days after the date of acquisition,
issued or fully guaranteed or insured by Canada or any instrumentality or agency
thereof (provided that the full faith and credit of Canada is pledged in support
thereof), (b) any certificate of deposit, overnight bank deposit or bankers'
acceptance, maturing not more than 365 days after the date of acquisition,
issued by, or time deposit of, a commercial banking institution having unsecured
long-term debt (or whose holding company has unsecured long-term debt) rated, at
the time as of which any Investment therein is made, A or better by Dominion
Bond Rating Services or the equivalent of such rating by a successor rating
agency and (c) commercial paper, maturing not more than 90 days after the date
of acquisition, issued by a corporation (other than an Affiliate or Subsidiary
of the Company) organized and existing under the laws of Canada or any province
thereof which is rated, at the time as of which any Investment therein is made,
R-1 or better by Dominion Bond Rating Services or the equivalent of such rating
by a successor rating agency.
"Commodity Agreement" means any agreement or arrangement designed to
protect the Company or any of its Restricted Subsidiaries against fluctuations
in the prices of commodities used by the Company or any of its Subsidiaries in
the ordinary course of business.
"Company Credit Facility" means one or more credit facilities (other than
the Ply Gem Credit Facility) between the Company or any of its Subsidiaries and
one or more banks or other institutional lenders, as the same may be amended,
extended, amended and restated, supplemented or otherwise modified or replaced
from time to time, specifically designated in each such credit facility as a
"Company Credit Facility." All Company Credit Facilities are referred to
collectively in the Indenture as the "Company Credit Facility."
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"Consolidated Amortization Expense" means, with respect to any Person for
any period, the amortization expense of such Person and its Subsidiaries (or if
such Person is the Company, the amortization expense of the Company and its
Restricted Subsidiaries), determined on a consolidated basis for such period in
accordance with GAAP, excluding any amortization expense included in
Consolidated Interest Expense.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the sum of, without duplication, (i) Consolidated Net Income of such Person for
such period, (ii) Consolidated Interest Expense of such Person for such period,
(iii) Consolidated Income Tax Expense of such Person for such period, (iv)
Consolidated Depreciation Expense of such Person for such period, (v)
Consolidated Amortization Expense of such Person for such period , and (vi) the
amount, not to exceed 10% of Consolidated Cash Flow of such Person for such
period (which amount shall be excluded in determining such Consolidated Cash
Flow), by which (A) other non-cash items of expense that reduce Consolidated Net
Income of such Person for such period exceed (B) other non-cash items of expense
that increase Consolidated Net Income of such Person for such period.
"Consolidated Cash Flow Coverage Ratio" means, with respect to any Person
for any period, the ratio of Consolidated Cash Flow of such Person for such
period to Consolidated Interest Expense of such Person for such period;
provided, however, that, Consolidated Cash Flow and Consolidated Interest
Expense shall be calculated on a pro forma basis after giving effect, as if
occurring at the beginning of such period, to (i) the incurrence of Indebtedness
giving rise to the need to calculate the Consolidated Cash Flow Coverage Ratio
and the retirement of any Indebtedness refinanced with the proceeds of such
Indebtedness, (ii) the incurrence, during such period or since the last day of
such period, of any Indebtedness (other than Indebtedness incurred for working
capital purposes), and the retirement of any Indebtedness refinanced with the
proceeds of such Indebtedness, (iii) the acquisition by such Person (directly or
through a Restricted Subsidiary of such Person if such Person is the Company and
directly or through a Subsidiary of such Person if such Person is not the
Company) of any company or business during such period or since the last day of
such period and (iv) the sale or other disposition of assets or properties
outside the ordinary course of business by such Person (directly or through a
Restricted Subsidiary of such Person if such Person is the Company and directly
or through a Subsidiary of such Person if such Person is not the Company) and
the actual application of the proceeds therefrom during such period or since the
last day of such period.
"Consolidated Depreciation Expense" means, with respect to any Person for
any period, the depreciation and depletion expense of such Person and its
Subsidiaries (or if such Person is the Company, the depreciation and depletion
expense of the Company and its Restricted Subsidiaries), determined on a
consolidated basis for such period in accordance with GAAP.
"Consolidated Income Tax Expense" means, with respect to any Person for any
period, the provision for federal, state, local and foreign income taxes
(including franchise, net worth or similar taxes) of such Person and its
Subsidiaries (or if such Person is the Company, the provision for such taxes of
the Company and its Restricted Subsidiaries) for such period, determined on a
consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any Person for any
period, without duplication, the sum of (i) the interest expense of such Person
and its Subsidiaries (or if such Person is the Company, the interest expense of
the Company and its Restricted Subsidiaries) for such period, determined on a
consolidated basis in accordance with GAAP, including, without limitation, all
original issue discount and other interest portion of any deferred payment
Indebtedness and all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing less any interest
income included in Consolidated Net Income for such period, but excluding any
deferred financing fees otherwise includible in Consolidated Interest Expense
for such period; (ii) the interest component of Capital Lease Obligations paid,
accrued and/or scheduled to be paid or accrued by such Person and its
Subsidiaries (or if such Person is the Company, such interest expense paid,
accrued and/or scheduled to be paid or accrued by the Company and its Restricted
Subsidiaries) during such period as determined on a consolidated basis in
accordance with GAAP; and (iii) all cash dividends or other distributions
declared or paid on any Capital Stock (other than common stock or preferred
stock that is not Redeemable Stock or, with respect to the Company, Special
Common Stock) of such Person and its Subsidiaries (or if such Person is the
Company, all
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such dividends or other distributions declared or paid on any such Capital Stock
of the Company and its Restricted Subsidiaries) for such period as determined on
a consolidated basis in accordance with GAAP; provided, however, that any
Indebtedness bearing a floating rate of interest shall be computed as if the
rate in effect on the date of computation had been the applicable rate for the
entire period.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate net income (or loss) of such Person and its Subsidiaries (or if
such Person is the Company, the aggregate net income (or loss) of the Company
and its Restricted Subsidiaries) for such period, before discontinued
operations, extraordinary items and the cumulative effect of a change in
accounting principles, determined on a consolidated basis in accordance with
GAAP, provided that there shall also be excluded from Consolidated Net Income
(but only to the extent included in calculating such Consolidated Net Income):
(i) any net gains or losses in respect of dispositions of assets other than in
the ordinary course of business; (ii) any gains from currency exchange
transactions not in the ordinary course of business consistent with past
practice; (iii) any gains or losses realized from the termination of any
employee pension benefit plan; (iv) any gains or losses realized upon the
refinancing of any Indebtedness of such Person or any of its Subsidiaries (or if
such Person is the Company, any gains or losses realized upon the refinancing of
any Indebtedness of Company and its Restricted Subsidiaries); (v) any gains or
losses arising from the destruction of property or assets due to fire or other
casualty; (vi) any gains or losses from the revaluation of property or assets;
(vii) the net income (or loss) of any Person that is not a Subsidiary of such
first Person (or that is not a Restricted Subsidiary if such first Person is the
Company) except to the extent of cash dividends or distributions paid to such
first Person by such other Person in such period; (viii) the net income (or
loss) of any Subsidiary of such first Person except to the extent of the
interest of such Person in such Subsidiary; (ix) the net income of any
Subsidiary of such Person (or if such Person is the Company, of any Restricted
Subsidiary) that is subject to any restriction or limitation on the payment of
dividends and other distributions (including loans or advances) by operation of
the terms of its charter or by agreement, instrument, judgment, decree, order or
governmental regulation applicable to such Subsidiary (or such Restricted
Subsidiary, if applicable) to the extent of such restriction or limitation in
such period; (x) the net income of any Person acquired in a pooling transaction
for any period prior to the date of such acquisition; and (xi) the excess of (a)
the consolidated compensation expense recorded by the Company in the computation
of net earnings of the Company in respect of shares of Capital Stock (other than
Redeemable Stock) or other Equity Interests awarded, pursuant to a plan or other
arrangement approved by the Board of Directors of the Company (or of a Reporting
Subsidiary, if applicable), to or for the benefit of any employee, officer or
director of the Company or any of its Subsidiaries or to or by any employee
stock ownership plan or similar trust for the benefit of any such employee,
officer or director, over (b) the amount of consolidated income tax benefit
recorded by the Company in connection with such consolidated compensation
expense of the Company.
"Consolidated Net Worth" means, with respect to any Person at any date of
determination, the sum of the Capital Stock, additional paid-in capital and
cumulative translation, pension and other adjustment account plus retained
earnings (or minus accumulated deficit), excluding amounts attributable to
Redeemable Stock, any Capital Stock convertible into Indebtedness, or Treasury
Stock, of such Person and its Restricted Subsidiaries, determined on a
consolidated basis in accordance with GAAP.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement entered into in the ordinary
course of business and designed to protect the Company or any of its Restricted
Subsidiaries against fluctuations in currency values to or under which the
Company or any of its Restricted Subsidiaries is a party or a beneficiary on the
issue date of the Notes or becomes a party or a beneficiary thereafter.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series
of transactions in respect of which the Board of Directors of the Company is
required to deliver a Board Resolution under the Indenture, a member of such
Board of Directors who does not have any material direct or indirect financial
interest in or with respect to such transaction or series of transactions.
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"Eligible Inventory" means, with respect to any Person, the finished goods,
raw materials and work-in-process of such Person less any applicable reserves,
each of the foregoing determined on the FIFO method of accounting in accordance
with GAAP.
"Eligible Receivables" means, with respect to any Person, the trade
receivables of such Person less the allowance for doubtful accounts, each of the
foregoing determined in accordance with GAAP.
"Equity Interests" means Capital Stock, warrants, options or other rights
to acquire Capital Stock (but excluding any debt security which is convertible
into, or exchangeable for, Capital Stock).
"Exempt Person" means (i) Richard L. Bready, (ii) any Person which is an
Affiliate of Richard L. Bready, and (iii) any other Affiliate of such Person so
long as such Person is an Affiliate of Richard L. Bready.
"Existing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries, in existence on the issue date of the Notes, including
without limitation all Indebtedness outstanding under the Ply Gem Credit
Facility on such date.
"Existing Investments" means (i) Investments of the Company and its
Restricted Subsidiaries, in existence on the issue date of the Notes and (ii)
Investments to be made pursuant to commitments authorized by the Board of
Directors of the Company prior to the issue date of the Notes (a) in Ecological
Engineering Associates, L.P. in an amount not to exceed $3.0 million (including
such Investments made prior to the issue date of the Notes) and (b) in or
related to a joint venture involving Universal-Rundle Corporation in an amount
not to exceed $10.0 million.
"Fair Market Value" means, with respect to any asset, the price which could
be negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing buyer, neither of which is under pressure or
compulsion to complete the transaction; provided, however, that the Fair Market
Value of any asset or assets of the Company or any of its Subsidiaries shall be
determined by the Board of Directors of the Company or, if such subsidiary is a
Reporting Subsidiary, of such Reporting Subsidiary, acting in good faith, and
evidenced by a Board Resolution of the Company or such Reporting Subsidiary, as
the case may be, delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
from time to time; provided, however, that with respect to the obligations of
the Company described under "Certain Covenants" and "Merger, Consolidation or
Transfer of Assets" and the definitions used therein, GAAP shall be determined
on the basis of such principles as in effect on the issue date of the Notes.
"Indebtedness" means, with respect to any Person, without duplication, any
indebtedness, contingent or otherwise, (i) with respect to borrowed money
(whether or not the recourse of the lender is to the whole of the assets of such
Person or only to a portion thereof), or evidenced by bonds, notes, debentures
or similar instruments or consisting of reimbursement obligations with respect
to letters of credit, or (ii) representing the deferred and unpaid balance of
the purchase price of any property excluding any such balance that constitutes a
trade payable or an accrued liability, in each case arising in the ordinary
course of business, if and to the extent any of the foregoing indebtedness would
appear as a liability upon a balance sheet of such Person prepared on a
consolidated basis in accordance with GAAP, and shall also include, to the
extent not otherwise included, (a) any Capital Lease Obligations, (b) the
maximum fixed repurchase price of any Redeemable Stock, (c) indebtedness secured
by a Lien to which the property or assets owned or held by such Person is
subject, whether or not the obligations secured thereby shall have been assumed,
(d) guaranties of items that would be included within this definition to the
extent of such guaranties, and (e) net liabilities in respect of Commodity
Agreements, Currency Agreements and Interest Rate Agreements. For purposes of
the immediately preceding sentence, the maximum fixed repurchase price of any
Redeemable Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Redeemable Stock as if such
Redeemable Stock were repurchased on any date on which Indebtedness shall be
required to be determined
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pursuant to the Indenture, provided that if such Redeemable Stock is not then
permitted to be repurchased, the repurchase price shall be the book value of
such Redeemable Stock. The amount of Indebtedness of any Person at any date
shall be without duplication (y) the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability of any
such contingent obligations at such date and (z) in the case of Indebtedness of
others secured by a Lien to which the property or assets owned or held by such
Person is subject, the lesser of the Fair Market Value at such date of any
property or asset subject to a Lien securing the Indebtedness of others or the
amount of the Indebtedness secured. The amount of any Indebtedness issued at a
discount shall be equal to the gross proceeds of such issuance (and not the face
amount of any bond, note, debenture or similar instrument representing such
Indebtedness).
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, or other similar agreement or arrangement entered
into in the ordinary course of business and designed to protect the Company or
any of its Restricted Subsidiaries against fluctuations in interest rates to or
under which the Company or any of its Restricted Subsidiaries is a party or a
beneficiary thereof.
"Investment" means, with respect to any Person, (i) any direct or indirect
loan or other extension of credit (other than extensions of trade credit by such
Person on commercially reasonable terms and relating to the sale of property or
services in the ordinary course of business) or capital contribution (by means
of any transfer of cash or other property to others or any payment for property
or services for the account or use of others) to any other Person, or (ii) any
purchase or acquisition by such Person of any Capital Stock, bonds, notes,
debentures or other securities or evidences of Indebtedness issued by any other
Person.
"Lien" means any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind, whether or not filed, recorded or otherwise perfected
under applicable law (including any conditional sale or other title retention
agreement, any lease intended as security, any option or other agreement to sell
or give any security interest and any filing of or other agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction other than a financing statement covering leased goods under
a lease not intended as security).
"Liquidated Damages" means all liquidated damages then owing pursuant to
the Registration Rights Agreement.
"Net Cash Proceeds" means the aggregate Cash Proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale, net
of the out-of-pocket costs relating to such Asset Sale (including, without
limitation, legal, accounting and investment banking fees and sales commissions)
and any relocation expenses and severance and shutdown costs incurred as a
result thereof, and all federal, state, provincial, foreign and local taxes
required to be accrued as a liability under GAAP as a consequence of such Asset
Sale, amounts required to be applied to the repayment of Indebtedness secured by
a Lien on the asset or assets which are the subject of such Asset Sale and any
reasonable reserve in accordance with GAAP for adjustments in respect of the
sale price of such asset or assets.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; (ii) no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against an Unrestricted Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness of the Company or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its stated maturity;
and (iii) as to which the lenders have been notified in writing that they will
not have any recourse to the stock or assets of the Company or any of its
Restricted Subsidiaries.
"Notes" means any of the Company's 9 1/8% Senior Notes due September 1,
2007 issued under the Indenture.
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"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chief Executive Officer or President and the Chief Financial
Officer or chief accounting officer of such Person.
"Permitted Investments" means any of the following: (i) Cash Equivalents;
(ii) Existing Investments; (iii) Investments by the Company or a Restricted
Subsidiary of the Company in any Subsidiary of the Company that is a Restricted
Subsidiary or any other Person that concurrently with the making of such
Investment becomes a Subsidiary of the Company that is a Restricted Subsidiary;
(iv) guaranties by Restricted Subsidiaries of the Company permitted under the
Limitation on Additional Indebtedness covenant and the Limitation on Guaranties
by Subsidiaries covenant; (v) Indebtedness of the Company to any Restricted
Subsidiary of the Company, provided that such Indebtedness is contractually
subordinated in right of payment to the Notes; (vi) Investments by the Company
or any of its Restricted Subsidiaries in debt securities or debt instruments
having maturities of 10 years or less and (A) issued or fully guaranteed or
insured by the United States of America, or an instrumentality or agency thereof
(provided that the full faith and credit of the United States of America is
pledged in support thereof) or (B) with a rating of BBB- or better by S&P or
Baa-3 or better by Moody's or the equivalent of such rating by a successor
rating agency; (vii) any Investment by Broan Limited and or any Canadian
Subsidiary in debt securities or debt instruments having maturities of 10 years
or less and issued or fully guaranteed or insured by Canada or an
instrumentality or agency thereof or rated, at the time of such Investment, BBB-
or better by Dominion Bond Rating Services or the equivalent of such rating by a
successor rating agency, so long as the aggregate amount of all such Investments
by Broan Limited and any Canadian Subsidiaries that are Restricted Subsidiaries
does not exceed $15,000,000 at any one time outstanding; (viii) loans and
advances to officers and directors of the Company or any Restricted Subsidiary
of the Company made in the ordinary course of business or pursuant to any
employee benefit plan, up to $5,000,000 in the aggregate at any one time
outstanding; (ix) loans and advances to vendors, suppliers and contractors of
the Company or any Restricted Subsidiary of the Company and made in the ordinary
course of business; (x) the receipt by the Company or its Restricted
Subsidiaries of consideration other than Cash Proceeds in any Asset Sale made in
compliance with the terms of the Indenture; (xi) so long as no Default or Event
of Default shall have occurred and be continuing, other Investments made after
the issue date of the Notes not exceeding in the aggregate at any time
outstanding (A) $40,000,000, if at the time of the making of such Investment the
Notes are not rated BB+ or better by S&P or Bal or better by Moody's, or (B)
$50,000,000, if at the time of the making of such Investment the Notes are rated
BB+ or better by S&P or Bal or better by Moody's; (xii) any Lien permitted under
the Limitation on Liens covenant; and (xiii) Investments by Restricted
Subsidiaries of the Company not exceeding in the aggregate $10,000,000 at any
one time outstanding in Cash Equivalents described in clause (ii) of the
definition of such term in the Indenture, provided that for purposes of this
clause (xiii) an instrument referred to in such clause (ii) may be issued by any
commercial banking institution having capital and surplus of not less than
$100,000,000.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims that are not yet due or are being contested in good faith by
appropriate legal proceedings, provided that any reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made therefor; (ii) statutory Liens of landlords and carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen or other similar Liens arising in
the ordinary course of business and with respect to amounts not yet delinquent
or being contested in good faith by appropriate legal proceedings, provided that
any reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made therefor; (iii) Liens incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance or other types of social security; (iv)
Liens incurred or deposits made to secure the performance of tenders, bids,
leases, statutory or regulatory obligations, bankers' acceptances, surety and
appeal bonds, government contracts, performance and return-of-money bonds and
other obligations of a similar nature incurred in the ordinary course of
business (exclusive of obligations for the payment of borrowed money); (v)
easements, rights-of-way, municipal and zoning ordinances and similar charges,
encumbrances, title defects or other irregularities that do not materially
interfere with the ordinary course of business of the Company or any of its
Subsidiaries, taken as a whole; (vi) Liens securing Purchase Money Obligations
permitted to be incurred by the provisions of the Indenture; (vii) leases or
subleases or licenses or sublicenses granted to others in the ordinary course of
business of the Company or any of its Restricted
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Subsidiaries, taken as a whole; (viii) Liens encumbering property or assets
under construction arising from progress or partial payments by a customer of
the Company or any of its Restricted Subsidiaries relating to such property or
assets; (ix) any interest or title of a lessor in the property subject to any
Capital Lease Obligation; (x) Liens arising from filing Uniform Commercial Code
financing statements regarding leases; (xi) Liens on property of, or on shares
of stock or Indebtedness of, any corporation existing at the time such
corporation becomes, or becomes a part of, any Restricted Subsidiary; (xii)
Liens in favor of the Company or any Subsidiary; (xiii) Liens securing any real
property or other assets of the Company or any Restricted Subsidiary of the
Company in favor of the United States of America or any State, or any
department, agency, instrumentality or political subdivision thereof, in
connection with the financing of industrial revenue bond facilities or of any
equipment or other property designed primarily for the purpose of air or water
pollution control; provided that any such Lien on such facilities, equipment or
other property shall not apply to any other assets of the Company or such
Restricted Subsidiary of the Company; (xiv) Liens arising from the rendering of
a final judgment or order against the Company or any Restricted Subsidiary of
the Company that does not give rise to an Event of Default; (xv) Liens securing
reimbursement obligations with respect to letters of credit that encumber
documents and other property relating to such letters of credit and the products
and proceeds thereof; (xvi) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of customs duties in connection
with the importation of goods; (xvii) Liens encumbering customary initial
deposits and margin deposits, and other Liens that are either within the general
parameters customary in the industry and incurred in the ordinary course of
business or otherwise permitted under the terms of the Company Credit Facility,
in each case securing Indebtedness under Commodity Agreements, Interest Rate
Agreements and Currency Agreements; and (xviii) Liens arising out of conditional
sale, title retention, consignment or similar arrangements for the sale of goods
entered into by the Company or any of its Restricted Subsidiaries in the
ordinary course of business in accordance with the past practices of the Company
and its Restricted Subsidiaries prior to the Closing Date.
"Person" means any individual, corporation, partnership, joint venture,
incorporated or unincorporated association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof or other entity of any kind.
"Ply Gem Credit Facility" means one or more credit facilities between Ply
Gem or any of its Subsidiaries and one or more banks or other institutional
lenders, as the same may be amended, extended, amended and restated,
supplemented or otherwise modified or replaced from time to time, specifically
designated in each such credit facility as a "Ply Gem Credit Facility." All Ply
Gem Credit Facilities are referred to collectively in the Indenture as the "Ply
Gem Credit Facility."
"Principal Property" means any manufacturing or processing plant, warehouse
or other building used by the Company or any Restricted Subsidiary, other than a
plant, warehouse or other building that, in the good faith opinion of the Board
of Directors as reflected in a Board Resolution, is not of material importance
as of the date such Board Resolution is adopted to the businesses conducted by
the Company and its Subsidiaries, on a consolidated basis, or conducted by any
Significant Subsidiary of the Company.
"Purchase Money Obligations" means any Indebtedness of the Company or any
of its Restricted Subsidiaries incurred to finance the acquisition or
construction of any property or business (including Indebtedness incurred within
one year following such acquisition or construction), including Indebtedness of
a Person existing at the time such Person becomes a Restricted Subsidiary of the
Company or assumed by the Company or a Restricted Subsidiary of the Company in
connection with the acquisition of assets from such Person; provided, however,
that (i) any Lien on such Indebtedness shall not extend to any property other
than the property so acquired or constructed and (ii) at no time shall the
aggregate principal amount of outstanding Indebtedness secured thereby be
increased.
"Redeemable Stock" means any Equity Interest which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable before the Stated Maturity of the Notes), or upon the happening of
any event, matures or is mandatorily redeemable or is redeemable at the sole
option of the holder thereof, in whole or in part, prior to the Stated Maturity
of the Notes.
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"Restricted Subsidiary" means (i) any Subsidiary of the Company in
existence on the date of the Indenture, unless such Subsidiary shall have been
designated as an Unrestricted Subsidiary by resolution of the Board of Directors
of the Company as provided in and in compliance with the definition of
"Unrestricted Subsidiary", (ii) any Subsidiary of the Company (other than a
Subsidiary that is also a Subsidiary of an Unrestricted Subsidiary) organized or
acquired after the date of the Indenture, unless such Subsidiary shall have been
designated as an Unrestricted Subsidiary by resolution of the Board of Directors
of the Company as provided in and in compliance with the definition of
"Unrestricted Subsidiary" and (iii) any Unrestricted Subsidiary which is
designated as a Restricted Subsidiary by the Board of Directors of the Company;
provided that, immediately after giving effect to the designation referred to in
clause (iii), no Default or Event of Default shall have occurred and be
continuing and the Company could incur at least $1.00 of additional Indebtedness
under the first paragraph under the Limitation on Additional Indebtedness
covenant. The Company shall evidence any such designation to the Trustee by
promptly filing with the Trustee an Officers' Certificate certifying that such
designation has been made and stating that such designation complies with the
requirements of the immediately preceding sentence.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Rule 1-02 of Regulation S-X promulgated by the
Commission, as such regulation is in effect on the date of the Indenture.
"Stated Maturity" means, with respect to any security or Indebtedness, the
date specified therein as the fixed date on which the principal of such security
or Indebtedness is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
of such security or Indebtedness at the option of the holder thereof upon the
happening of any contingency).
"Subsidiary" of any Person means any corporation, partnership, association
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors or, in the case of a Person
which is not a corporation, the members of the appropriate governing board or
other group is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of such Person or a combination
thereof.
"Subsidiary Guarantor" means, with respect to any Subsidiary Guaranty, the
issuer of such Subsidiary Guaranty, so long as such Subsidiary Guaranty remains
outstanding.
"Subsidiary Guaranty" means any guaranty of the Notes pursuant to a
supplemental indenture executed and delivered pursuant to the Limitation on
Guaranties by Subsidiaries covenant, including as the context may require either
or both of the guaranty of the Notes set forth as an exhibit to the Indenture
upon the execution and delivery by a Subsidiary Guarantor of such supplemental
indenture and any separate guaranty of the Notes or confirmation of guaranty
executed and delivered by such Subsidiary Guarantor pursuant to such
supplemental indenture.
"Trustee" means the party named as the "Trustee" in the first paragraph of
the Indenture until a successor replaces it pursuant to the applicable
provisions of the Indenture and, thereafter, shall mean such successor.
"Unrestricted Subsidiary" means, until such time as any of the following
shall be designated as a Restricted Subsidiary of the Company by the Board of
Directors of the Company as provided in and in compliance with the definition of
"Restricted Subsidiary," (i) any Subsidiary of the Company or of a Restricted
Subsidiary organized or acquired after the date of the Indenture that is
designated concurrently with its organization or acquisition as an Unrestricted
Subsidiary by resolution of the Board of Directors of the Company, (ii) any
Subsidiary of any Unrestricted Subsidiary, and (iii) any Restricted Subsidiary
of the Company that is designated as an Unrestricted Subsidiary by resolution of
the Board of Directors of the Company, provided that, (a) immediately after
giving effect to such designation, no Default or Event of Default shall have
occurred and be continuing, (b) any such designation shall be deemed the making
of a Restricted Payment at the time of such designation in an amount equal to
the Fair Market Value of the Investment in such Subsidiary and shall be subject
to the restrictions contained in the "Limitation on
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Restricted Payments" covenant, and (c) such Subsidiary or any of its
Subsidiaries does not own any Capital Stock or Indebtedness of, or own or hold
any Lien on any property of, the Company or any other Restricted Subsidiary of
the Company that is not a Subsidiary of the Subsidiary to be so designated. A
Person may be designated as an Unrestricted Subsidiary only if and for so long
as such Person (i) has no Indebtedness other than Non-Recourse Debt; (ii) is a
Person with respect to which neither the Company nor any of its Restricted
Subsidiaries has any direct or indirect obligation (a) to subscribe for
additional Equity Interests or (b) to make any payment to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results, except to the extent any such direct or
indirect obligation would then be permitted in accordance with the Limitation on
Restricted Payments covenant; and (iii) has not guaranteed or otherwise directly
or indirectly provided credit support for any Indebtedness of the Company or any
of its Restricted Subsidiaries. The Company shall evidence any designation
pursuant to clause (i) or (iii) of the first sentence hereof to the Trustee by
filing with the Trustee within 45 days of such designation an Officers'
Certificate certifying that such designation has been made and that such
designation complies with the requirements of the Indenture and all conditions
thereto have been satisfied.
"Wholly-Owned Subsidiary" of any Person means any Subsidiary of such Person
to the extent the entire voting share capital of such Subsidiary (other than
directors' qualifying shares) is owned by such Person (either directly or
indirectly through Wholly-Owned Subsidiaries).
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the Exchange Notes will
initially be issued in the form of one or more Global Notes (the "Global
Notes"). The Global Notes will be deposited with, or on behalf of, the
Depositary and registered in the name of Cede & Co., as nominee of the
Depositary or will remain in the custody of the Trustee pursuant to the FAST
Balance Certificate Agreement between the Depositary and the Trustee (such
nominee or the Trustee, in such capacity being referred to herein as the "Global
Note Holder").
Exchange Notes that are issued as described below under "-- Certificated
Securities" will be issued in registered form (the "Certificated Securities").
Upon the transfer of Certificated Securities, such Certificated Securities may,
unless the Global Notes have previously been exchanged for Certificated
Securities, be exchanged for an interest in a Global Note representing the
principal amount of Notes being transferred.
The Depositary is a limited-purpose trust company which was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants, thereby
eliminating the need for physical transfer and delivery of certificates. The
Depositary's Participants include securities brokers and dealers (including the
Initial Purchasers), banks and trust companies, clearing corporations and
certain other organizations. Access to the Depositary's system is also available
to other entities such as banks, brokers, dealers and trust companies
(collectively, the "Indirect Participants" or the "Depositary's Indirect
Participants") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. Persons who are not Participants may
beneficially own securities held by or on behalf of the Depositary only through
the Depositary's Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Notes with the Global Note Holder, the
Depositary will credit the accounts of Participants designated by the Initial
Purchasers with portions of the principal amount of the Global Notes and (ii)
ownership of the Exchange Notes evidenced by the Global Notes will be shown on,
and the transfer of ownership thereof will be effected only through, records
maintained by the Depositary (with respect to the interests of the Depositary's
Participants), the Depositary's Participants and the Depositary's Indirect
Participants.
So long as the Global Note Holder is the registered owner of any Exchange
Notes, the Global Note Holder will be considered the sole owner or holder of
such Notes outstanding under the Indenture. Beneficial
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owners of Notes evidenced by the Global Note will not be entitled to receive
physical delivery of Certified Securities, and will not be considered the owners
or Holders thereof under the Indenture for any purpose, including with respect
to the giving of any directions, instructions or approvals to the Trustee
thereunder. The ability of a person having a beneficial interest in Exchange
Notes represented by a Global Note to pledge such interest to Persons or
entities that do not participate in the Depositary's system or to otherwise take
actions in respect of such interest may be affected by the lack of physical
certificates evidencing such interest.
Accordingly, each holder owning a beneficial interest in a Global Note must
rely on the procedures of the Depository and, if such holder is not a
Participant or an Indirect Participant, on the procedures of the Participant
through which such holder owns its interest, to exercise any rights of a Holder
of Notes under the Indenture or such Global Note. The Company understands that
under existing industry practice, in the event the Company requests any action
of Holders of Notes or a Holder that is an owner of a beneficial interest in a
Global Note desires to take any action that the Global Note Holder as the Holder
of such Global Note, is entitled to take, the Depositor would authorize the
Participants to take such action and the Participant would authorize Holders
owning through such Participants to take such action or would otherwise act upon
the instruction of such Holders. Neither the Company nor the Trustee will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of Notes by the Depositary, or for maintaining,
supervising or reviewing any records of the Depositary relating to such Notes.
Payments in respect of the principal of, and premium, if any, with respect
to, any Notes registered in the name of a Global Note Holder on the applicable
record date will be payable by the Trustee to or at the direction of such Global
Note Holder in its capacity as the registered holder under the Indenture. Under
the terms of the Indenture, the Company and the Trustee may treat the Persons in
whose names the Notes, including the Global Notes, are registered as the owners
thereof for the purpose of receiving such payments and for any and all other
purposes whatsoever. Consequently, neither the Company nor the Trustee has or
will have any responsibility or liability for the payment of such amounts to
beneficial owners of Notes (including principal, premium, if any, and interest).
The Company believes, however, that it is currently the policy of the
Depositary to immediately credit the accounts of the relevant Participants with
such payment, in amounts proportionate to their respective holdings in principal
amount of beneficial interests in the relevant security as shown on the records
of the Depositary. Payments by the Depositary's Participants and the
Depositary's Indirect Participants to the beneficial owners of Exchange Notes
will be governed by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants or the Depositary's Indirect
Participants.
CERTIFICATED SECURITIES
Subject to certain conditions, any Person having a beneficial interest in a
Global Note may, upon request to the Company or the Trustee, exchange such
beneficial interest for Exchange Notes in the form of Certificated Securities.
Upon any such issuance, the Trustee is required to register such Exchange Notes
in the name of, and cause the same to be delivered to, such Person or Persons.
In addition, if (i) the Company notifies the Trustee in writing that the
Depositary is no longer willing or able to act as a depositary and the Company
is unable to appoint a qualified successor within 90 days or (ii) the Company,
at its option, notifies the Trustee in writing that it elects to cause the
issuance of Notes in the form of Certificated Securities under the Indenture,
then, upon surrender by the relevant Global Note Holder of its Global Note,
Exchange Notes in such form will be issued to each Person that the Depositary
identifies as the beneficial owner of the related Exchange Notes.
Neither the Company nor the Trustee shall be liable for any delay by the
Depositary in identifying the beneficial owners of the related Exchange Notes
and each such Person may conclusively rely on, and shall be protected in relying
on, instructions from the Depositary for all purposes (including with respect to
the registration and delivery, and the respective principal amounts, of the
Exchange Notes to be issued).
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SAME-DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Exchange Notes
(including principal, premium, if any and interest) be made by wire transfer of
immediately available funds to the accounts specified by the Global Note Holder.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing-house or next-day funds. In contrast, the Notes
have been designated as eligible for trading in the PORTAL market and are
expected to trade in the Depositary's Next-Day Funds Settlement System, and any
permitted secondary market trading activity in the Notes will therefore be
required by the Depositary to be settled in immediately available funds. The
Company expects that secondary trading in the Certificated Notes also will be
settled in immediately available funds.
THE EXCHANGE OFFER
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company and the Initial Purchasers entered into the Registration Rights
Agreement on August 26, 1997 (the "Closing Date"). Pursuant to the Registration
Rights Agreement, the Company agreed to use its best efforts to cause to be
filed with the Commission the Exchange Offer Registration Statement, of which
this Prospectus forms a part, on the appropriate form under the Securities Act
with respect to an offer to exchange the Original Notes for Exchange Notes. In
the event that (i) the Company is not permitted to commence or accept tenders
pursuant to the Exchange Offer because the Exchange Offer is not permitted by
applicable law or Commission policy, (ii) any Holder of Transfer Restricted
Securities notifies the Company within 20 business days after the consummation
of the Exchange Offer that (a) it is prohibited by law or Commission policy from
participating in the Exchange Offer or (b) that it may not resell the Exchange
Notes acquired by it in the Exchange Offer to the public without delivering a
prospectus and the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales or (c) that it is a
broker-dealer and owns Original Notes acquired directly from the Company or an
Affiliate of the Company, or (iii) the Exchange Offer is not for any other
reason consummated within 180 days of the Closing Date, the Company will file
with the Commission a shelf registration statement to cover resales of the Notes
by the Holders thereof who satisfy certain conditions relating to the provision
of information in connection with such registration statement (the "Shelf
Registration Statement"). The Company will use its best efforts to cause the
applicable registration statement to be declared effective as promptly as
possible by the Commission. The Company will keep the Exchange Offer open for
not less than 30 days (or longer, if required by applicable law) after the date
notice of the Exchange Offer is mailed to the holders of the Notes. For purposes
of the foregoing, "Transfer Restricted Securities" means each Original Note
until (i) the date on which such Original Note has been exchanged by a Person
other than a broker-dealer for an Exchange Note in the Exchange Offer, (ii)
following the exchange by a broker-dealer in the Exchange Offer of a Note for an
Exchange Note, the date on which such Exchange Note is sold to a purchaser who
receives from such broker-dealer on or prior to the date of such sale a copy of
the prospectus contained in the Exchange Offer Registration Statement, (iii) the
date on which such Original Note has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement or (iv) the date on which such Note is distributed to the public
pursuant to Rule 144 under the Securities Act.
This Prospectus covers the offer and sale of the Exchange Notes pursuant to
the Exchange Offer made hereby and the resale of the Exchange Notes received in
the Exchange Offer by any Participating Broker-Dealer who holds Original Notes
(other than Original Notes acquired directly from the Company or one of its
affiliates).
Under existing interpretations by the staff of the Commission, the Exchange
Notes would, in general, be freely transferable after the Exchange Offer without
further registration under the Securities Act; provided, that broker-dealers
receiving Exchange Notes in the Exchange Offer will have a prospectus delivery
requirement with respect to the resales of Exchange Notes. The Commission has
taken the position that such broker-dealers may fulfill their prospectus
delivery requirements with respect to the Exchange Notes (other than a resale of
an unsold allotment from the original sale of Original Notes) with the
prospectus contained in the Exchange Offer Registration Statement. The Company
has agreed, for a period of 180 days, to make
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this Prospectus or any supplement or amendment to this Prospectus available to
any Participating Broker-Dealer for use in connection with any resale of any
Exchange Notes acquired.
Each Holder (other than certain specified holders) who wishes to exchange
such Original Notes for Exchange Notes in the Exchange Offer will be required to
make certain representations, including representations that (i) any Exchange
Notes to be received by it will be acquired in the ordinary course of its
business, (ii) at the time of the commencement of the Exchange Offer, it had no
arrangement with any Person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes and (iii) is not an
"affiliate," as defined in Rule 405 of the Securities Act, of the Company.
The Registration Rights Agreement provides that, to the extent not
prohibited by any applicable law or applicable interpretation of the staff of
the Commission, (i) the Company will use its best efforts to cause to be filed
with the Commission an Exchange Offer Registration Statement on or prior to 60
days after the Closing Date, (ii) the Company will use its best efforts to have
such Exchange Offer Registration Statement declared effective under the
Securities Act by the Commission on or prior to 135 days after the Closing Date,
(iii) the Company will use its best efforts to cause the Exchange Offer to be
consummated on or prior to 45 days after the date on which the Exchange Offer
Registration Statement was declared effective under the Securities Act by the
Commission and (iv) if obligated to cause to be filed with the Commission the
Shelf Registration Statement, the Company will cause to be filed with the
Commission a Shelf Registration Statement on or prior to 45 days after such
filing obligation arises and use its best efforts to cause the Shelf
Registration Statement to be declared effective by the Commission on or prior to
90 days after such obligation arises. The Company shall use its reasonable best
efforts to keep such Shelf Registration Statement continuously effective,
supplemented and amended until the second anniversary of the Closing Date or
such shorter period that will terminate when all the securities covered by the
Shelf Registration Statement have been sold pursuant to the Shelf Registration
Statement. If (a) the Company fails to file any Registration Statement required
by the Registration Rights Agreement on or prior to the date specified for such
filing, (b) any such Registration Statement is not declared effective by the
Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"), (c) the Company fails to consummate the Exchange
Offer on or prior to 45 days after the Effectiveness Target Date with respect to
the Exchange Offer Registration Statement, or (d) the Shelf Registration
Statement or the Exchange Offer Registration Statement is declared effective but
thereafter ceases to be effective or usable during the periods specified in the
Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a "Registration Default"), then the Company will be required
to pay Liquidated Damages in an amount equal to $.05 per week per $1,000
principal amount held by such Holder to each Holder affected by such
Registration Default on each interest payment date. For any portion of a week
that the Registration Default continues such Liquidated Damages shall be
calculated on a pro-rata basis. The amount of Liquidated Damages will increase
by an additional $.05 per week per $1,000 principal amount of Notes with respect
to each subsequent 90-day period until all Registration Defaults have been
cured, up to a maximum amount of Liquidated Damages of $.25 per week per $1,000
principal amount of Notes.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is filed as an exhibit to this Exchange Offer
Registration Statement. See "Available Information."
Except as set forth above, after consummation of the Exchange Offer,
Holders of Original Notes have no registration or exchange rights under the
Registration Rights Agreement. See "-- Consequences of Failure to Exchange," and
"-- Resales of Exchange Notes; Plan of Distribution."
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
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any predecessor thereto) (the "Resale Restriction Termination Date") only (a) to
the Company (b) pursuant to a registration statement which has been declared
effective under the Securities Act, (c) for so long as the Original Notes are
eligible for resale pursuant to Rule 144A, to a person the owner reasonably
believes is a qualified institutional buyer that purchases for its own account
or for the account of a qualified institutional buyer to whom notice is given
that the transfer is being made in reliance on Rule 144A, (d) to an "accredited
investor" within the meaning of subparagraph (1), (2), (3) or (7) of paragraph
(a) of Rule 501 under the Securities Act that is purchasing for his own account
or for the account of such an "accredited investor" in each case in a minimum of
Original Notes with a purchase price of $100,000 or (e) pursuant to any other
available exemption from the registration requirements of the Securities Act,
subject in each of the foregoing cases to any requirement of law that the
disposition of its property or the property of such investor account or accounts
be at all times within its or their control. The foregoing restrictions on
resale will not apply subsequent to the Resale Restriction Termination Date. If
any resale or other transfer of the Original Notes is proposed to be made
pursuant to clause (d) above prior to the Resale Restriction Termination Date,
the transferor shall deliver a letter from the transferee to the Company and the
Trustee, which shall provide, among other things, that the transferee is an
"accredited investor" within the meaning of subparagraph (1), (2), (3) or (7) of
paragraph (a) of Rule 501 under the Securities Act and that it is acquiring such
Securities for investment purposes and not for distribution in violation of the
Securities Act. Prior to any offer, sale or other transfer of Original Notes
prior to the Resale Restriction Termination Date pursuant to clauses (d) or (e)
above, the issuer and the Trustee may require the delivery of an opinion of
counsel, certifications and/or other information satisfactory to each of them.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept all
Original Notes properly tendered and not withdrawn prior to the applicable
Expiration Date. The Company will issue $1,000 principal amount of Exchange
Notes in exchange for each $1,000 principal amount of outstanding Original Notes
accepted in the Exchange Offer. Holders may tender some or all of their Original
Notes pursuant to the Exchange Offer. However, Original Notes may be tendered
only in integral multiples of $1,000 principal amount at final maturity.
The forms and terms of the Exchange Notes are the same as the form and
terms of the Original Notes, except that (i) the Exchange Notes bear a Series B
designation, (ii) the Exchange Notes have been registered under the Securities
Act and therefore will generally not bear legends restricting their transfer
(except as may be required under state securities laws) pursuant to the
Securities Act, and (iii) the Exchange Notes will not provide for the payment of
Liquidated Damages (except in certain limited circumstances set forth in the
Registration Rights Agreement). The Exchange Notes will evidence the same debt
as the Original Notes (which they replace), and will be issued under, and be
entitled to the benefits of, the Indenture.
Solely for reasons of administration (and for no other purpose) the Company
has fixed the close of business on , 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.
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If any tendered Original Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Original Notes will be returned,
without expenses, to the tendering Holder, thereof, as promptly as practicable
after the Expiration Date.
Holders of Original Notes who tender in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of
Original Notes pursuant to the Exchange Offer. The Company will pay all charges
and expenses, other than certain applicable taxes, in connection with the
Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATES; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m. New York City time on
, 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.
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The tender by a Holder of Original Notes will constitute an agreement
between such holder and the Company in accordance with the terms and subject to
the conditions set forth herein and in the Letter of Transmittal.
THE METHOD OF DELIVERY OF THE ORIGINAL NOTES AND THE APPLICABLE LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE
ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED
THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
APPLICABLE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR ORIGINAL NOTES SHOULD BE
SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
Any beneficial owner whose Original Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered Holder to tender on his behalf. If such beneficial owner wishes to
tender on his own behalf, such beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering his Original Notes, either
make appropriate arrangements to register ownership of the Original Notes in
such owner's name or obtain a properly completed bond power from the registered
holder. The transfer of record ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined) unless
the Original Notes tendered pursuant thereto are tendered (i) by a registered
owner who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantee must be by a participant in a recognized signature
guarantee medallion program within the meaning of Rule 17Ad-15 under the
Exchange Act (an "Eligible Institution").
If a Letter of Transmittal is signed by a person other than the registered
owner of any Original Notes listed therein, such Original Notes must be endorsed
or accompanied by properly completed bond powers, signed by such registered
owner as such registered owner's name appears on the Original Notes, with
signature guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Original Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and evidence
satisfactory to the Company, as applicable, of their authority to so act must be
submitted with the Letter of Transmittal designated for such Original Notes.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Original Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Original Notes not 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
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Exchange Agent to the tendering holder of such Original Notes (or, in the case
of Original Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described below, such unaccepted or non-exchanged Original Notes will
be credited to an account maintained with such Book-Entry Transfer Facility),
unless otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
By tendering Original Notes in the Exchange Offer, each registered Holder
will represent to the issuer of such Original Notes that, among other things,
(i) the Exchange Notes to be acquired by the Holder and any beneficial owner(s)
of such Original Notes ("Beneficial Owner(s)") in connection with the Exchange
Offer are being acquired by the Holder and any Beneficial Owner(s) in the
ordinary course of business of the Holder and any Beneficial Owner(s), (ii) the
Holder and each Beneficial Owner are not participating, do not intend to
participate, and have no arrangement or understanding with any person to
participate, in a distribution of the Exchange Notes, (iii) the Holder and each
Beneficial Owner acknowledge and agree that (x) any person participating in an
Exchange Offer for the purpose of distributing the Exchange Notes must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction with respect to the Exchange
Notes acquired by such person and cannot rely on the position of the Staff of
the Commission set forth in no-action letters that are discussed herein under
"-- Resales of the Exchange Notes", and (y) any Participating Broker-Dealer that
receives Exchange Notes for its own account in exchange for Original Notes
pursuant to an Exchange Offer must deliver a prospectus in connection with any
resale of such Exchange Notes, but by so acknowledging, the holder shall not be
deemed to admit that, by delivering a prospectus, it is an "underwriter" within
the meaning of the Securities Act, (iv) neither the holder nor any Beneficial
Owner is an "affiliate," as defined under Rule 405 of the Securities Act, of the
Company except as otherwise disclosed to the Company in writing, and (v) the
Holder and each Beneficial Owner understands that a secondary resale transaction
described in clause (iii) above should be covered by an effective registration
statement containing the selling securityholder information required by Item 507
of Regulation S-K of the Commission.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Original Notes at the Book-Entry Transfer Facility, for purposes of the
Exchange Offer, within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Original Notes by causing the
Book-Entry Transfer Facility to transfer such Original Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Original Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the applicable Letter of Transmittal, with any
required signature guarantees and any other documents, 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
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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 delivered electronically) and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within five
business days after the applicable Expiration Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Original Notes pursuant to
an Exchange Offer, unless theretofore accepted for exchange as provided in the
Exchange Offer, may be withdrawn at any time prior to 5:00 p.m., New York City
time, on the business day prior to the Expiration Date.
To be effective, a written or facsimile transmission notice of withdrawal
must be received by the Exchange Agent at its address set forth herein by 5:00
p.m., New York City time, on the business day prior to the Expiration Date. Any
such notice of withdrawal must (i) specify the name of the person having
deposited the Original Notes to be withdrawn (the "Depositor"), (ii) identify
the Original Notes to be withdrawn (including the certificate number or numbers
and aggregate principal amount of such Original Notes), and (iii) be signed by
the holder in the same manner as the original signature on the applicable Letter
of Transmittal (including any required signature guarantees). All questions as
to the validity, form and eligibility (including time of receipt) for such
withdrawal notices will be determined by the Company, whose determination shall
be final and binding on all parties.
Any Original Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no Exchange Notes will be issued
with respect thereto unless the Original Notes so withdrawn are validly
retendered. Properly withdrawn Original Notes may be retendered by following one
of the procedures described above under "-- Procedures for Tendering" at any
time prior to the applicable Expiration Date.
Any Original Notes which have been tendered but which are not accepted for
exchange due to the rejection of the tender due to uncured defects or the prior
termination of the applicable Exchange Offer, or which have been validly
withdrawn, will be returned to the holder thereof (unless otherwise provided in
the Letter of Transmittal), as soon as practicable following the applicable
Expiration Date or, if so requested in the notice of withdrawal, promptly after
receipt by the issuer of the Original Notes of notice of withdrawal without cost
to such holder.
CONDITIONS OF THE EXCHANGE OFFER
The Exchange Offer is subject to the condition that the Exchange Offer, or
the making of any exchange by a holder, does not violate applicable law or any
applicable interpretation of the staff of the Commission. If there has been a
change in commission policy such that in the reasonable opinion of Counsel to
the Company there is a substantial question whether the Exchange Offer is
permitted by applicable federal law, the Company has agreed to seek a no-action
letter or other favorable decision from the Commission allowing the Company to
consummate the Exchange Offer.
If the Exchange Offer is not permitted by applicable federal law, the
Company may terminate the Exchange Offer. In connection therewith, the Company
may (i) refuse to accept any Original Notes and return any Original Notes that
have been tendered by the holders thereof, (ii) extend the Exchange Offer and
retain all Original Notes tendered prior to the Expiration of the Exchange
Offer, subject to the rights of such holders of tendered Original Notes to
withdraw their tendered Original Notes, or (iii) waive such termination event
with respect to the Exchange Offer and accept all properly tendered Original
Notes that have not been withdrawn. If such waiver constitutes a material change
in the Exchange Offer, the Company will disclose such change by means of a
supplement to this Prospectus that will be distributed to each registered holder
of Original Notes, and the Company will extend the Exchange Offer for a period
of five to ten business days,
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depending upon the significance of the waiver and the manner of disclosure to
the registered holders of the Original Notes, if the Exchange Offer would
otherwise expire during such period.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as "Exchange Agent"
for the Exchange Offer. Questions and requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal and other
documents should be directed to the Exchange Agent addressed as follows:
<TABLE>
<S> <C> <C>
BY EXPRESS: BY MAIL: BY HAND:
(insured or registered
recommended)
State Street Bank & Trust State Street Bank & Trust State Street Bank & Trust
Company Company Company
Corporate Trust Department Corporate Trust Department Corporate Trust Department
Two International Place Two International Place Two International Place
Boston, MA 02210 Boston, MA 02210 Boston, MA 02210
Attn: Lena Altomare Attn: Lena Altomare Attn: Lena Altomare
FACSIMILE:
(617) 664-5371
FOR INFORMATION:
(617) 664-5607
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation is being made by mail.
Additional solicitations may be made by officers and regular employees of the
Company and its affiliates in person, by telegraph or telephone.
The Company will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
the Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith. The Company may also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them
in forwarding copies of this Prospectus, Letters of Transmittal and related
documents to the beneficial owners of the Original Notes and in handling or
forwarding tenders for exchange.
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
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exemption under the Securities Act or (ii) a person that is such an affiliate )
without compliance with the registration and prospectus delivery requirements of
the Securities Act, provided that the holder is acquiring the Exchange Notes in
its ordinary course of business and is not participating, and has no arrangement
or understanding with any person to participate, in the distribution of the
Exchange Notes. Holders of Original Notes wishing to accept the Exchange Offer
must represent to the Company that such conditions have been met. In the event
that the Company's belief is inaccurate, holders of Exchange Notes who transfer
Exchange Notes in violation of the prospectus delivery provisions of the
Securities Act and without an exemption from registration thereunder may incur
liability under the Securities Act. The Company does not assume or indemnify
holders against such liability.
Each affiliate of the Company must acknowledge that such person will comply
with the registration and prospectus delivery requirements of the Securities Act
to the extent applicable. Each Participating Broker-Dealer that receives
Exchange Notes in exchange for Original Notes held for its own account, as a
result of market-making or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
Although a Participating Broker-Dealer may be an "underwriter" within the
meaning of the Securities Act, the Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, such Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by such Participating Broker-Dealer in connection with
resales of Exchange Notes received in exchange for Original Notes. The Company
has agreed that, for a period of 180 days, it will make this Prospectus and any
amendment or supplement to this Prospectus available to any such Participating
Broker-Dealer for use in connection with any such resale.
DESCRIPTION OF OTHER OBLIGATIONS
PLY GEM CREDIT FACILITY
On August 26, 1997, Nortek, a syndicate of lenders and Fleet, as sole
administrative and collateral agent for itself and the other lenders, entered
into the Ply Gem Credit Facility. The aggregate amount of the extension of
credit under the Ply Gem Credit Facility was approximately $121.7 million.
The Ply Gem Credit Facility provides Ply Gem with a term loan and letters
of credit. Under the Ply Gem Credit Facility, the term loan and the letters of
credit were issued contemporaneously with the closing of the Tender Offer (the
"Ply Gem Credit Facility Closing Date") and will mature on the fifth anniversary
of the Ply Gem Credit Facility Closing Date.
Term loans under the Ply Gem Credit Facility may, at the option of Ply Gem,
bear interest at a rate equal to (i) a fluctuating interest rate per annum in
effect from time to time, equal to the higher of (A) the prime rate publicly
announced by Fleet and (B) 1/2 of one percent per annum above the federal funds
rate; or (ii) the London InterBank Offer Rate plus a spread, which spread will
fluctuate between 30 and 95 basis points based on certain financial ratios of
Ply Gem; provided, however, that the applicable interest rate will increase by
200 basis points during the continuance of any monetary default or event of
default. Interest on the term loans under the Ply Gem Credit Facility is payable
quarterly in arrears. In addition, Ply Gem will pay a facility fee on the
aggregate principal amount available under the Ply Gem Credit Facility, which
facility fee will fluctuate between 20 and 30 basis points based on certain
financial ratios of Ply Gem. The facility fee will be payable quarterly in
arrears.
The Ply Gem Credit Facility is secured by a first-priority lien on (i) all
shares of capital stock of substantially all of Ply Gem's present operating
subsidiaries, (ii) all of the present and future accounts receivable and
inventory of Ply Gem and its operating Subsidiaries and (iii) all proceeds and
products of the foregoing. In addition, Ply Gem and substantially all of its
present operating subsidiaries have guaranteed the Ply Gem Credit Facility.
During the period commencing on March 31, 1998 and ending on June 30, 2002,
the aggregate principal amount of the Ply Gem Credit Facility will be subject to
quarterly principal payments in an aggregate amount of $25.0 million beginning
with annual amounts of $4.0 million in 1998 and increasing to $6.0 million per
year
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in 2001 and thereafter. Ply Gem also will be required to make mandatory
prepayments of a portion of the net proceeds of asset sales. Ply Gem may prepay
borrowings under the Ply Gem Credit Facility, in whole or in part without
premium or penalty. Borrowings outstanding under the Ply Gem Credit Facility
will be due and payable no later than the fifth anniversary of the Ply Gem
Credit Facility Closing Date.
The Ply Gem Credit Facility contains representation and warranties,
covenants (including, without limitation, the financial covenants described
below) and events of default customary for credit facilities of such type,
except that there are no restrictions on the payment of dividends by Ply Gem
unless a default exists, or would result from the payment of such dividend,
under the Ply Gem Credit Facility.
The Ply Gem Credit Facility requires Ply Gem at all times to have
consolidated net worth of at least $375 million, less up to $25 million in
losses on the sale by Ply Gem of certain unprofitable subsidiaries. Under the
Ply Gem Credit Facility, Ply Gem also needs to maintain (i) a ratio of
consolidated current assets to consolidated current liabilities that equals or
exceeds 2 to 1 and (ii) a ratio of consolidated EBITDA to consolidated interest
expense of at least 3.5 to 1. Furthermore, Ply Gem must not permit its
consolidated funded debt to consolidated EBITDA for the four most recent
consecutive full fiscal quarters to exceed the following amounts: 3.25 to 1 on
September 30, 1997; 3.0 to 1 on December 31, 1997; 2.75 to 1 on December 31,
1998; 2.5 to 1 on June 30, 1999; and 2 to 1 on June 30, 2000 and thereafter.
OTHER OBLIGATIONS
In February 1994, the Company issued $218,500,000 of the 9 7/8% Notes. The
indenture governing the 9 7/8% Notes (the "9 7/8% Indenture") restricts, among
other things, the payment of cash dividends, repurchase of the Company's capital
stock and the making of certain other restricted payments, the incurrence of
additional indebtedness, the making of certain investments, mergers,
consolidations and sale of assets (all as defined in the 9 7/8% Indenture). Upon
certain asset sales (as defined in the 9 7/8% Indenture), the Company will be
required to offer to purchase, at 100% principal amount plus accrued interest to
the date of purchase, the 9 7/8% Notes in a principal amount equal to any net
cash proceeds (as defined in the 9 7/8% Indenture) that are not invested in
properties and assets used primarily in the same or related business to those
owned and operated by the Company at the issue date of the 9 7/8% Notes or at
the date of such asset sale and such net cash proceeds were not applied to
permanently reduce Senior Indebtedness (as defined in the 9 7/8% Indenture). The
9 7/8% Notes are redeemable at the option of the Company, in whole or in part,
at any time and from time to time, at 104.214% on March 1, 1999, declining to
100% on March 1, 2002 and thereafter. The payment of the principal of, premium,
if any, and interest on the 9 7/8% Notes is subordinated in right of payment to
the prior payment of all Senior Indebtedness (as defined in the 9 7/8%
Indenture).
In March 1997, the Company issued $175,000,000 of the 9 1/4% Notes. The
indenture governing the 9 1/4% Notes (the "9 1/4% Indenture") restricts, among
other things, the payment of cash dividends, repurchase of the Company's capital
stock and the making of certain other restricted payments, the incurrence of
additional indebtedness, the making of certain investments, mergers,
consolidations and sale of assets (all as defined in the 9 1/4% Indenture). Upon
certain asset sales (as defined in the 9 1/4% Indenture), the Company will be
required to offer to purchase, at 100% principal amount plus accrued interest to
the date of purchase, the 9 1/4% Notes in a principal amount equal to any net
cash proceeds (as defined in the 9 1/4% Indenture) that are not invested in
properties and assets used primarily in the same or related business to those
owned and operated by the Company at the issued date of the 9 1/4% Notes or at
the date of such asset sale and such net cash proceeds were not applied to
permanently reduce other indebtedness of the Company (other than the
indebtedness which is subordinated by its terms to the 9 1/4% Notes). The 9 1/4%
Notes are redeemable at the option of the Company, in whole or in part, at any
time and from time to time, at 104.625% on March 15, 2002, declining to 100% on
March 15, 2005 and thereafter.
At June 28, 1997, the Company's Canadian subsidiary, Broan Limited, has
$8.6 million in secured borrowings (based on exchange rates in effect on June
28, 1997). The line of credit contains a covenant prohibiting net aggregate
dividends or other distributions to the Company from Broan Limited in excess of
$10.8 million. As of June 28, 1997, $7.3 million in dividends or other
distributions could have been made to the Company by Broan Limited under this
covenant.
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For additional information regarding the obligations described above, see
Note 5 of Notes to Consolidated Financial Statements of the Company included
elsewhere herein.
CERTAIN FEDERAL TAX CONSIDERATIONS
The following is a general discussion of the material United States federal
income tax consequences of the receipt, ownership and disposition of the
Exchange Notes to United States Holders (as defined below) and Foreign Holders
(as defined below). This discussion is based on currently existing provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), existing and
proposed Treasury regulations promulgated thereunder, and administrative and
judicial interpretations thereof, all as in effect or proposed on the date
hereof and all of which are subject to change, possibly with retroactive effect,
or to different interpretations. This discussion does not address the tax
consequences to subsequent purchasers of Exchange Notes and is limited to
Holders who hold the Exchange Notes as capital assets, within the meaning of
Section 1221 of the Code. This discussion also does not address the tax
consequences to nonresident aliens or foreign corporations that are subject to
United States federal income tax on a net basis on income realized with respect
to an Exchange Note because such income is effectively connected with the
conduct of a U.S. trade or business. Such Holders are generally taxed in a
similar manner to United States Holders; however, certain special rules apply.
Moreover, this discussion is for general information only and does not address
all of the tax consequences that may be relevant to particular Holders in light
of their personal circumstances or to certain types of Holders (such as certain
financial institutions, insurance companies, tax-exempt entities, dealers in
securities or persons who have hedged a risk of ownership of a Note).
No ruling from the Internal Revenue Service ("IRS") will be requested with
respect to any of the matters discussed herein. There can be no assurance that
the IRS will not take a different position concerning the tax consequences of
the receipt, ownership, or disposition of the Notes, or that any such position
would be sustained. BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH
PROSPECTIVE HOLDER OF EXCHANGE NOTES IS STRONGLY URGED TO CONSULT HIS OR HER OWN
TAX ADVISOR WITH RESPECT TO HIS OR HER PARTICULAR SITUATION, AND AS TO ANY
FEDERAL, FOREIGN, STATE, LOCAL OR OTHER TAX CONSIDERATIONS (INCLUDING ANY
POSSIBLE CHANGES IN TAX LAW OR INTERPRETATIONS THEREOF) AFFECTING THE RECEIPT,
HOLDING, AND DISPOSITION OF THE EXCHANGE NOTES.
TAX CONSEQUENCES TO UNITED STATES HOLDERS
As used herein, the term "United States Holder" means a holder of Exchange
Notes, that is, for United States federal income tax purposes, (a) a citizen or
resident of the United States, (b) treated as a domestic corporation or domestic
partnership, or (c) an estate or trust other than a "foreign estate" or "foreign
trust" as defined in section 7701(a)(31) of the Code.
Exchange of Original Notes for Exchange Notes. The exchange by a United
States Holder of an Original Note for an Exchange Note pursuant to the Exchange
Offer will not constitute a taxable exchange of the Original Note if the
economic terms of the Exchange Note (including the interest rate) are identical
to the economic terms of the Original Note. Under recently promulgated Treasury
regulations relating to modifications and exchanges of debt instruments (the
"Section 1001 Regulations"), even if Liquidated Damages were payable with
respect to the Original Notes but not with respect to the Exchange Notes as a
result of a Registration Default as described under "The Exchange
Offer--Registration Rights; Liquidated Damages", the exchange of an Original
Note for an Exchange Note would not be treated as a taxable exchange, as such
Liquidated Damages payments would occur pursuant to the original terms of the
Original Note. Accordingly, the Company intends to take the position that in the
circumstances described in the preceding sentence, the exchange will not
constitute a taxable exchange of the Original Notes.
Interest on Exchange Notes. Interest on the Exchange Notes generally will
be includible in the income of a United States Holder as ordinary income at the
time such interest is received or accrued, in accordance with such Holder's
method of accounting for United States federal income tax purposes. Since the
Original Notes were issued with original issue discount ("OID") that was less
than 1/4 of 1 percent of the stated
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redemption price at maturity, multiplied by the number of complete years to
maturity, the Original Notes qualified for the de minimis exception from the
imputed OID interest rules and, therefore, so will the Exchange Notes.
Sale, Exchange, Redemption or Retirement. Upon the sale, exchange,
redemption, retirement or other disposition of an Exchange Note, a United States
Holder will generally recognize taxable gain or loss equal to the difference
between the amount realized on the sale, exchange, redemption or retirement and
such Holder's adjusted tax basis in the Exchange Note. A United States Holder's
adjusted tax basis in an Exchange Note generally will equal the cost of the
Original Note to such Holder. Gain or loss recognized on the disposition of an
Exchange Note generally will be capital gain or loss and will be long-term
capital gain or loss if, at the time of such disposition, the Exchange Note has
been held for more than one year.
Backup Withholding. Certain Holders of Exchange Notes may be subject to
backup withholding at the rate of 31% with respect to interest and cash received
in certain circumstances upon the disposition of such Exchange Notes. Generally,
backup withholding will be applied only if the Holder fails to furnish to the
Company its taxpayer identification number (social security or employer
identification number) in the prescribed manner, to certify that such Holder is
not subject to backup withholding, or to otherwise comply with the applicable
requirements of the backup withholding rules. Any amounts withheld under the
backup withholding rules will be allowed as a credit or refund against a United
States Holder's United States federal income tax liability, provided that such
United States Holder furnished the required information to the IRS. Certain
Holders (including, among others, corporations) are not subject to the backup
withholding requirements.
UNITED STATES FEDERAL TAXATION OF FOREIGN HOLDERS
This section discusses special rules to a Holder of Exchange Notes that is
a Foreign Holder. For purposes of this discussion, a "Foreign Holder" means a
Holder that is not a United States Holder.
Interest on Exchange Notes. In general, interest received by any Foreign
Holder will not be subject to United States federal withholding tax, provided
that (a) such interest is effectively connected with the conduct by the Holder
of a trade or business within the United States and the Company or its paying
agent receives a properly completed Form 4224 in advance of the payments, (b)(i)
the Holder does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company 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
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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 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.
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PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of Exchange Notes
received in exchange for Original Notes where such Original Notes were acquired
as a result of market-making activities or other trading activities. The Company
has agreed that for a period of 180 days it will make this Prospectus, as
amended or supplemented, available to any Participating Broker-Dealer for use in
connection with any such resales.
The Company will not receive any proceeds from any sale of Exchange Notes
by Participating Broker-Dealers. Exchange Notes received by Participating
Broker-Dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such Participating Broker-Dealer and/or the purchasers of
any such Exchange Notes. Any Participating Broker-Dealer that resells Exchange
Notes that were received by it for its own account pursuant to the Exchange
Offer and any broker or dealer that participates in a distribution of such
Exchange Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of Exchange Notes and any
commission or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver, and by delivering a
prospectus, a Participating Broker-Dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of 180 days from the date of the consummation of the Exchange
Offer, the Company will promptly send additional copies of this Prospectus and
any amendment or supplement to this Prospectus to any Participating
Broker-Dealer that requests such documents in the Letter of Transmittal.
LEGAL MATTERS
The legality of the Exchange Notes being offered hereby will be passed upon
for the Company by Ropes & Gray, Boston, Massachusetts.
INDEPENDENT AUDITORS
The audited consolidated financial statements and schedule of Nortek, Inc.
and subsidiaries as of December 31, 1995 and 1996 and for each of the three
years in the period ended December 31, 1996 set forth or incorporated by
reference in this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto.
The audited consolidated financial statements of Ply Gem set forth in this
Prospectus have been audited by Grant Thornton LLP, independent public
accountants, as indicated in their report with respect thereto.
100
<PAGE> 102
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
NORTEK, INC. AND SUBSIDIARIES:
Report of Independent Public Accountants............................................. F-2
Consolidated Statement of Operations for each of the Three Years in the Period Ended
December 31, 1996, and the Six Months Ended June 29, 1996 (unaudited) and June 28,
1997 (unaudited)................................................................... F-3
Consolidated Balance Sheet as of December 31, 1995 and 1996, and June 28, 1997
(unaudited)........................................................................ F-4
Consolidated Statement of Cash Flows for each of the Three Years in the Period Ended
December 31, 1996, and the Six Months Ended June 29, 1996 (unaudited) and June 28,
1997 (unaudited)................................................................... F-5
Consolidated Statement of Stockholders' Investment for each of the Three Years in the
Period Ended December 31, 1996, and the Six Months Ended June 28, 1997
(unaudited)........................................................................ F-6
Notes to Consolidated Financial Statements........................................... F-7
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES:
Report of Independent Public Accountants............................................. F-25
Consolidated Statement of Operations for each of the Three Years in the Period Ended
December 31, 1996, and the Six Months Ended June 30, 1996 and 1997 (unaudited)..... F-26
Consolidated Balance Sheet as of December 31, 1995 and 1996, and June 30, 1997
(unaudited)........................................................................ F-27
Consolidated Statement of Stockholders' Investment for each of the Three Years in the
Period Ended December 31, 1996, and the Six Months Ended June 30, 1997
(unaudited)........................................................................ F-28
Consolidated Statement of Cash Flows for each of the Three Years in the Period Ended
December 31, 1996, and the Six Months Ended June 30, 1996 and 1997 (unaudited)..... F-29
Notes to Consolidated Financial Statements........................................... F-30
</TABLE>
F-1
<PAGE> 103
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO NORTEK, INC.:
We have audited the accompanying consolidated balance sheets of Nortek,
Inc. (a Delaware corporation) and subsidiaries (the "Company") as of December
31, 1995 and 1996, and the related statements of operations, shareholders'
investment and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Nortek, Inc. and
subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 12, 1997
F-2
<PAGE> 104
NORTEK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, -------------------
------------------------------ JUNE 29, JUNE 28,
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C>
Net Sales................................... $737,160 $776,210 $969,798 $481,220 $469,218
COSTS AND EXPENSES:
Cost of products sold....................... 520,328 574,929 709,875 357,210 342,444
Selling, general and administrative
expense................................... 166,815 160,197 199,871 98,243 96,830
-------- -------- -------- -------- --------
687,143 735,126 909,746 455,453 439,274
-------- -------- -------- -------- --------
Operating earnings.......................... 50,017 41,084 60,052 25,767 29,944
Interest expense............................ (26,162) (24,918) (30,113) (15,486) (18,523)
Interest and dividend income................ 5,295 6,134 5,311 2,819 4,404
Net gain on investment and marketable
securities................................ -- 2,000 750 -- 175
Loss on businesses sold..................... (1,750) -- -- -- --
-------- -------- -------- -------- --------
Earnings from continuing operations before
provision for income taxes................ 27,400 24,300 36,000 13,100 16,000
Provision for income taxes.................. 10,200 9,300 14,000 4,900 5,600
-------- -------- -------- -------- --------
Earnings before extraordinary gain.......... 17,200 15,000 22,000 8,200 10,400
Extraordinary gain from retirements......... 200 -- -- -- --
Earnings before the cumulative effect of an
accounting change......................... 17,400 15,000 22,000 -- --
Cumulative effect of an accounting change... 400 -- -- -- --
-------- -------- -------- -------- --------
Net Earnings.............................. $ 17,800 $ 15,000 $ 22,000 $ 8,200 $ 10,400
======== ======== ======== ======== ========
NET EARNINGS PER SHARE:
EARNINGS BEFORE EXTRAORDINARY GAIN--
Primary................................... $ 1.35 $ 1.19 $ 2.07
-------- -------- --------
Fully diluted............................. $ 1.34 $ 1.19 $ 2.05
-------- -------- --------
EXTRAORDINARY GAIN--
Primary................................... .02 -- --
-------- -------- --------
Fully diluted............................. .02 -- --
-------- -------- --------
CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE--
Primary................................... .03 -- --
-------- -------- --------
Fully diluted............................. .03 -- --
-------- -------- --------
NET EARNINGS--
Primary................................... $ 1.40 $ 1.19 $ 2.07 $ .73 $ 1.05
======== ======== ======== ======== ========
Fully diluted............................. $ 1.39 $ 1.19 $ 2.05 $ .73 $ 1.05
======== ======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES:
Primary................................... 12,707 12,569 10,641 11,186 9,898
======== ======== ======== ======== ========
Fully diluted............................. 13,144 12,620 10,722 11,199 9,923
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 105
NORTEK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 28,
1995 1996 1997
-------- -------- -----------
ASSETS (UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Unrestricted
Cash and cash equivalents.................................... $ 37,211 $ 41,042 $ 56,769
Marketable securities available for sale..................... 66,102 51,051 168,630
Restricted--
Investment and marketable securities at cost, which
approximates market....................................... 9,411 5,681 5,688
Accounts receivable, less allowances of $4,546, $4,356 and
$4,825....................................................... 118,017 122,176 137,833
Inventories--
Raw materials................................................ 42,601 36,765 35,945
Work in process.............................................. 14,319 12,717 12,346
Finished goods............................................... 53,132 48,176 59,422
--------- --------- ---------
110,052 97,658 107,713
--------- --------- ---------
Prepaid expenses and other current assets...................... 16,927 14,940 18,114
Prepaid income taxes........................................... 19,100 20,000 20,000
--------- --------- ---------
Total current assets...................................... 376,820 352,548 514,747
--------- --------- ---------
PROPERTY AND EQUIPMENT, AT COST:
Land......................................................... 6,508 7,046 6,867
Buildings and improvements................................... 69,125 72,954 71,566
Machinery and equipment...................................... 157,884 174,064 175,807
--------- --------- ---------
233,517 254,064 254,240
Less accumulated depreciation................................ 97,255 112,645 116,202
--------- --------- ---------
Total property and equipment, net......................... 136,262 141,419 138,038
--------- --------- ---------
OTHER ASSETS:
Goodwill, less accumulated amortization of $23,978, $26,948
and $28,357............................................... 91,347 91,578 88,857
Deferred debt expense........................................ 7,574 6,647 10,959
Other........................................................ 13,476 16,924 20,362
--------- --------- ---------
112,397 115,149 120,178
--------- --------- ---------
$625,479 $609,116 $ 772,963
========= ========= =========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Notes payable and other short-term obligations................. $ 30,226 $ 25,334 $ 12,929
Current maturities of long-term debt........................... 11,824 11,230 5,125
Accounts payable............................................... 73,047 74,945 86,293
Accrued expenses and taxes, net................................ 100,970 97,565 100,913
-------- -------- -----------
Total current liabilities.................................... 216,067 209,074 205,260
-------- -------- -----------
OTHER LIABILITIES:
Deferred income taxes.......................................... 27,780 22,588 18,300
Other.......................................................... 9,945 14,698 19,535
-------- -------- -----------
37,725 37,286 37,835
Notes, Mortgage Notes and Obligations Payable, Less Current
Maturities................................................... 240,396 243,961 408,771
STOCKHOLDERS' INVESTMENT:
Preference stock, $1 par value; authorized 7,000,000 shares,
none issued.................................................. -- -- --
Common stock, $1 par value; authorized 40,000,000 shares;
15,883,447, 15,965,585 and 16,025,542 issued................. 15,883 15,966 16,026
Special common stock, $1 par value; authorized 5,000,000
shares; 774,366, 784,169 and 774,339 shares issued........... 774 784 774
Additional paid-in capital..................................... 134,690 135,028 135,311
Retained earnings.............................................. 15,766 37,766 48,166
Cumulative translation, pension and other adjustments.......... (2,742) (3,212) (3,948)
Less -- treasury common stock at cost, 4,306,706, 6,599,645 and
6,929,227 shares ...................................... (31,351) (65,805) (73,299)
-- treasury special common stock at cost, 276,784, 276,910
and 285,233 shares .................................... (1,729) (1,732) (1,933)
-------- -------- -----------
Total stockholders' investment............................... 131,291 118,795 121,097
-------- -------- -----------
$625,479 $609,116 $ 772,963
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 106
NORTEK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, ---------------------
---------------------------------- JUNE 29, JUNE 28,
1994 1995 1996 1996 1997
--------- --------- -------- -------- ---------
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.................................. $ 17,800 $ 15,000 $ 22,000 $ 8,200 $ 10,400
-------- -------- ------- ------- --------
Adjustments to reconcile net earnings to cash:
Depreciation and amortization................. 17,960 18,977 23,726 11,138 11,769
Non-cash interest expense, net................ -- -- -- 682 583
Net gain on investments and marketable
securities.................................. -- (2,000) (750) -- (175)
Extraordinary gain from debt retirements...... (250) -- -- -- --
Loss on business sold......................... 1,750 -- -- -- --
Cumulative effect of an accounting change..... (400) -- -- -- --
Deferred federal income tax (benefit)
provision before extraordinary items........ 300 1,300 (1,800) 450 200
Deferred federal income tax provision on
discontinued operations..................... 2,200 -- -- -- --
Deferred federal income tax provision on
extraordinary items......................... 1,350 -- -- -- --
CHANGES IN CERTAIN ASSETS AND LIABILITIES, NET
OF EFFECTS FROM ACQUISITIONS AND
DISPOSITIONS:
Accounts receivable........................... (5,501) 4,496 (3,626) (26,712) (16,450)
Prepaids and other current assets............. (4,361) (289) 4,620 577 (2,385)
Inventories................................... (12,593) 5,820 12,196 3,528 (11,322)
Accounts payable.............................. 6,364 (5,614) 2,090 16,919 12,317
Accrued expenses and taxes.................... 4,242 (4,894) (8,840) 1,149 4,358
Long-term assets, liabilities and other,
net......................................... (2,682) 1,051 (312) (1,215) (1,041)
-------- -------- ------- ------- --------
Total adjustments to net earnings........... 8,379 18,847 27,304 6,516 (2,146)
-------- -------- ------- ------- --------
Net cash provided by operating activities... 26,179 33,847 49,304 14,716 8,254
-------- -------- ------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................... (19,424) (16,091) (21,683) (7,611) (8,883)
Net cash paid for businesses acquired......... -- (27,543) -- -- --
Proceeds from the sale of property and
equipment................................... 114 1,831 1,325 -- --
Purchase of investments and marketable
securities.................................. (110,231) (104,762) (66,901) (20,140) (157,037)
Proceeds from the sale of investments and
marketable securities....................... 62,929 112,173 82,435 22,677 37,220
Net cash proceeds relating to businesses sold
or discontinued............................. 12,465 1,129 -- -- --
Change in restricted investments and
marketable securities....................... (2,475) (331) -- -- --
Other, net.................................... 51 (1,499) (2,214) (66) (204)
-------- -------- ------- ------- --------
Net cash used in investing activities....... (56,571) (35,093) (7,038) (5,140) (128,904)
-------- -------- ------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of Notes, net............................ 209,195 -- -- -- 169,395
Purchase of debentures and notes payable...... (191,582) -- -- -- --
Increase (decrease) in borrowings, net of
payments.................................... (8,962) 9,107 (4,092) 1,278 (26,071)
Purchase of Nortek Common and Special Common
Stock....................................... -- (4,664) (34,822) (31,738) (7,626)
Other, net.................................. (29) (822) 479 74 679
-------- -------- ------- ------- --------
Net cash (used in) provided by financing
activities................................ 8,622 3,621 (38,435) (30,386) 136,377
-------- -------- ------- ------- --------
Net increase (decrease) in unrestricted cash
and cash equivalents........................ (21,770) 2,375 3,831 (20,810) 15,727
Unrestricted cash and cash equivalents at the
beginning of the year....................... 56,606 34,836 37,211 60,079 41,042
-------- -------- ------- ------- --------
Unrestricted cash and cash equivalents at the
end of the year............................. $ 34,836 $ 37,211 $ 41,042 $ 39,269 $ 56,769
======== ======== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 107
NORTEK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' INVESTMENT
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 AND THE SIX MONTHS ENDED JUNE 28,
1997
<TABLE>
<CAPTION>
CUMULATIVE
RETAINED TRANSLATION,
SPECIAL ADDITIONAL EARNINGS PENSION
COMMON COMMON PAID-IN (ACCUMULATED AND OTHER TREASURY
STOCK STOCK CAPITAL DEFICIT) ADJUSTMENTS STOCK
------- ------ ---------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994............. $15,814 $802 $ 134,627 $ 766 $(6,168) $(28,051)
27,731 shares of special common stock
converted into 27,731 shares of
common stock......................... 28 (28) -- -- -- --
41,450 shares of common stock issued
upon exercise of stock options ...... 41 -- 63 -- -- --
511,671 shares of treasury stock
acquired............................. -- -- -- -- -- (5,029)
Translation adjustment................. -- -- -- -- 701 --
Pension adjustment..................... -- -- -- -- (244) --
Unrealized appreciation in marketable
securities........................... -- -- -- -- 2,969 --
Net earnings........................... -- -- -- 15,000 -- --
-------- ---- --------- ------- ------- --------
Balance, December 31, 1995............. 15,883 774 134,690 15,766 (2,742) (33,080)
27,697 shares of special common stock
converted into 27,697 shares of
common stock......................... 28 (28) -- -- -- --
54,461 shares of common stock and
37,500 shares of special common stock
issued upon exercise of stock
options.............................. 55 38 338 -- -- --
2,293,065 shares of treasury stock
acquired............................. -- -- -- -- -- (34,457)
Translation adjustment................. -- -- -- -- 138 --
Pension adjustments.................... -- -- -- -- (127) --
Unrealized decline in marketable
securities........................... -- -- -- -- (481) --
Net earnings........................... -- -- -- 22,000 -- --
-------- ---- --------- ------- ------- --------
Balance, December 31, 1996............. 15,966 784 135,028 37,766 (3,212) (67,537)
15,638 shares of special common stock
converted into 15,638 shares of
common stock......................... 16 (16) -- -- -- --
44,319 shares of common stock and 5,808
shares of special common stock issued
upon exercise of stock options ...... 44 6 283 -- -- --
337,905 shares of treasury stock
acquired............................. -- -- -- -- -- (7,695)
Translation adjustment................. -- -- -- -- (1,105) --
Unrealized increase in the value of
marketable securities................ -- -- -- -- 369 --
Net earnings........................... -- -- -- 10,400 -- --
-------- ---- --------- ------- ------- --------
Balance, July 28, 1997................. $16,026 $774 $ 135,311 $ 48,166 $(3,948) $(75,232)
======== ==== ========= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 108
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company is a diversified manufacturer of residential and commercial
building products, operating within three principal product groups: the
Residential Building Products Group; the Air Conditioning and Heating Products
Group; and the Plumbing Products Group. Through these product groups, the
Company manufactures and sells, primarily in the United States, Canada and
Europe, a wide variety of products for the residential and commercial
construction, manufactured housing, and the do-it-yourself and professional
remodeling and renovation markets.
Principles of Consolidation
The consolidated financial statements include the accounts of Nortek, Inc.
and all of its significant wholly-owned subsidiaries (the "Company" or "Nortek")
after elimination of intercompany accounts and transactions. Certain amounts in
the prior years' financial statements have been reclassified to conform to the
presentation at December 31, 1996.
Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles involves estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities as of the date of the financial statements and the
reported amounts of income and expense during the reporting periods. Operating
results in the future could vary from the amounts derived from such estimates
and assumptions.
Cash, Investments and Marketable Securities
Cash equivalents consist of short-term highly liquid investments with
original maturities of three months or less which are readily convertible into
cash.
The Company has classified as restricted (in current assets in the
accompanying consolidated balance sheet) certain investments and marketable
securities that are not fully available for use in its operations. At December
31, 1996, approximately $5,681,000 of investments and marketable securities has
been pledged as collateral for insurance and other requirements.
Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate fair value of
each class of financial instruments for which it is practicable to estimate that
value:
CASH AND CASH EQUIVALENTS -- The carrying amount approximates fair
value because of the short maturity of those instruments.
MARKETABLE SECURITIES -- The fair value of marketable securities is
based on quoted market prices. At December 31, 1996, the fair value of
marketable securities approximated the amount on the Company's consolidated
balance sheet.
LONG-TERM DEBT -- At December 31, 1996, the fair value of long-term
indebtedness approximated the amount, before original issue discount, on
the Company's consolidated balance sheet (See Note 5.)
Inventories
Inventories in the accompanying consolidated balance sheet are valued at
the lower of cost or market. At December 31, 1995 and 1996, approximately
$69,967,000 and $61,641,000 of total inventories, respectively, were valued on
the last-in, first-out method (LIFO). Under the first-in, first-out method
(FIFO) of
F-7
<PAGE> 109
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accounting, such inventories would have been approximately $10,550,000 and
$8,482,000 greater at December 31, 1995 and 1996, respectively. All other
inventories were valued under the FIFO method.
Sales Recognition
The Company recognizes sales upon the shipment of its products net of
applicable provisions for discounts and allowances. The Company also provides
for its estimate of warranty and bad debts at the time of shipment as selling,
general and administrative expense.
Foreign Currency Translation
The financial statements of subsidiaries outside the United States are
generally measured using the local currency as the functional currency. The
Company translates the assets and liabilities of its foreign subsidiaries at the
exchange rates in effect at year-end. Net sales and expenses are translated
using average exchange rates in effect during the year. Gains and losses from
foreign currency translation are credited or charged to cumulative translation
adjustment included in stockholders' investment in the accompanying consolidated
balance sheet. Transaction gains or losses are recorded in selling, general and
administrative expense and have not been material.
Depreciation and Amortization
Depreciation and amortization of property and equipment are provided on a
straight-line basis over the estimated useful lives, which are generally as
follows:
<TABLE>
<S> <C>
Buildings and improvements..................................... 10-35 years
Machinery and equipment, including leases...................... 3-15 years
Leasehold improvements......................................... term of lease
</TABLE>
Expenditures for maintenance and repairs are expensed when incurred.
Expenditures for renewals and betterments are capitalized. When assets are sold,
or otherwise disposed of, the cost and accumulated depreciation are eliminated
and the resulting gain or loss is recognized.
Goodwill
The Company has classified as goodwill the cost in excess of fair value of
the net assets (including tax attributes) of companies acquired in purchase
transactions. Goodwill is being amortized on a straight-line method over 40
years. Amortization charged to operations amounted to $2,407,000, $2,519,000 and
$2,970,000, for 1994, 1995 and 1996, respectively. At each balance sheet date,
the Company evaluates the realizability of goodwill based on expectations of
non-discounted cash flows and operating income for each subsidiary having a
material goodwill balance. Based on its most recent analysis, the Company
believes that no material impairment of goodwill exists at December 31, 1996.
Recent Accounting Pronouncements
On January 1, 1996, the Company adopted the accounting requirements of
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The statement also requires that certain long-lived assets and
identifiable intangibles that are to be disposed, be reported at the lower of
the carrying amount or fair value less cost to sell. The application of SFAS No.
121 did not have a significant impact on the Company's results of operations or
financial condition.
F-8
<PAGE> 110
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On January 1, 1996, the Company adopted the accounting requirements of SFAS
No. 123, "Stock-Based Compensation." SFAS No. 123 requires that employee
stock-based compensation be either recorded or disclosed at its fair value. The
Company will continue to account for stock-based compensation under Accounting
Principles Board ("APB") No. 25 and will not adopt the new accounting provisions
for stock-based compensation under SFAS No. 123, but will include the additional
required disclosures. (See Note 6.)
Net Earnings Per Share
Net earnings per share amounts have been computed using the weighted
average number of common and
common equivalent shares outstanding during each year. Special Common Stock is
treated as the equivalent of Common Stock in determining earnings per share
results.
2. ACQUISITIONS AND BUSINESSES SOLD
Acquisitions are accounted for as purchases and, accordingly, have been
included in the Company's
consolidated results of operations since the acquisition date. Purchase price
allocations are subject to refinement until all pertinent information regarding
the acquisitions is obtained.
In the fourth quarter of 1995, several of the Company's wholly owned
subsidiaries completed the acquisition of the assets, subject to certain
liabilities, of Rangaire Company ("Rangaire"), all the capital stock of Best
S.p.A. and related entities ("Best") and all the capital stock of Venmar
Ventilation inc. ("Venmar"). The aggregate purchase price for these acquisitions
was approximately $36,500,000, consisting of cash of approximately $33,400,000
and future payments of approximately $3,100,000. The selling shareholders of
certain of these acquisitions are entitled to additional purchase price payments
of up to approximately $2,000,000, depending on subsequent operating results of
such acquisitions.
On March 31, 1994, the Company sold all the capital stock of one of its
businesses for approximately $18,800,000 in cash and $6,000,000 in preferred
stock of the purchaser. In the third quarter of 1995, the Company sold its
investment in the preferred stock, which resulted in a pre-tax gain of
approximately $2,200,000 ($.17 per share, net of tax), and is included in net
gain on investment and marketable securities in the Company's accompanying
consolidated statement of operations.
In January 1995, the Company paid approximately $1,750,000 ($.14 per share,
net of tax) as a final purchase price adjustment related to one of its
businesses sold and recorded a charge to earnings in the fourth quarter of 1994.
The approximate unaudited pro forma net sales, operating earnings, earnings
before extraordinary gain, and fully diluted earnings per share of the Company
for the year ended December 31, 1995, as adjusted for the pro forma effect of
acquisitions discussed above, assuming that these transactions occurred on
January 1, 1995, was approximately $886,210,000, $47,355,000, $15,100,000, and
$1.20, respectively.
In computing the pro forma earnings before extraordinary gain, earnings
have been reduced by net interest income on the aggregate cash portion of the
purchase price of such acquisitions at the historical rates earned by the
Company and by interest expense on indebtedness incurred in connection with the
acquisitions, net of the tax effect. Earnings before extraordinary gain have
also been reduced by amortization of goodwill and reflect net adjustments to
depreciation expense, as a result of an increase to estimated fair market value
of property and equipment.
The pro forma information presented does not purport to be indicative of
the results which would have been reported if these transactions had occurred on
January 1, 1995, or which may be reported in the future.
F-9
<PAGE> 111
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. CASH FLOWS
Interest paid was $22,119,000, $23,228,000 and $30,581,000 in 1994, 1995
and 1996, respectively.
The following table summarizes the activity of businesses acquired in
purchase transactions included in the accompanying consolidated statement of
cash flows for the year ended December 31, 1995:
<TABLE>
<CAPTION>
1995
-----------
(AMOUNTS IN
THOUSANDS)
<S> <C>
Fair value of assets acquired.................................... $ 129,652
Liabilities assumed or created................................... (96,224)
--------
Cash paid for acquisitions....................................... 33,428
Less cash acquired............................................... (5,885)
--------
Net cash paid for acquisitions................................... $ 27,543
========
</TABLE>
The following table summarizes the activity of businesses sold or
discontinued included in the accompanying consolidated statement of cash flows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1994 1995
-------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Fair value of assets sold............................. $ 39,439 --
Liabilities assumed by the purchaser.................. (16,143) --
Notes receivable and other non-cash proceeds received
as part of the proceeds............................. (6,000) --
Cash proceeds from the sale of preferred stock........ -- 2,874
Cash payments relating to businesses sold or
discontinued, net................................... (4,831) (1,745)
-------- -------
Net cash proceeds relating to businesses sold or
discontinued........................................ $ 12,465 $ 1,129
======== =======
</TABLE>
Significant non-cash financing and investing activities excluded from the
accompanying consolidated statement of cash flows include capitalized lease
additions of approximately $500,000 in 1996 and a decline of approximately
$2,979,000, an increase of approximately $2,969,000 and a decline of
approximately $481,000 in the fair market value of marketable securities
available for sale for 1994, 1995 and 1996, respectively.
4. INCOME TAXES
The following is a summary of the components of earnings before provision
for income taxes and extraordinary gain:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
------- ------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Domestic...................................... $23,100 $21,600 $32,500
Foreign....................................... 4,300 2,700 3,500
------- ------- -------
$27,400 $24,300 $36,000
======= ======= =======
</TABLE>
F-10
<PAGE> 112
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of the provision (benefit) for income taxes
before extraordinary gain included in the accompanying consolidated statement of
operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1996
------- ------ -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Federal income taxes--
Current...................................... $ 7,125 $5,700 $12,950
Deferred..................................... 300 1,300 (1,800)
------- ------ -------
7,425 7,000 11,150
Foreign...................................... 1,500 1,300 1,300
State........................................ 1,275 1,000 1,550
------- ------ -------
$10,200 $9,300 $14,000
======= ====== =======
</TABLE>
Income tax payments, net of refunds, were approximately $10,895,000,
$3,739,000 and $18,611,000 in 1994, 1995 and 1996, respectively.
The following reconciles the federal statutory income tax rate to the
effective tax rate for earnings before extraordinary gain of approximately
37.2%, 38.3% and 38.9% in 1994, 1995 and 1996, respectively.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
------- ------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Income tax provision before extraordinary gain at the
Federal statutory rate............................. $ 9,590 $ 8,505 $12,600
NET CHANGE FROM STATUTORY RATE:
Change in valuation reserve, net..................... (1,625) (1,100) (481)
State taxes, net of federal tax effect............... 829 650 1,008
Amortization not deductible for tax purposes......... 737 868 1,040
Business sold........................................ 613 -- --
Product development tax credit from foreign
operations......................................... -- -- (478)
Tax effect on foreign income......................... 164 79 56
Other, net........................................... (108) 298 255
------- ------- -------
$10,200 $ 9,300 $14,000
======= ======= =======
</TABLE>
F-11
<PAGE> 113
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effect of temporary differences which gave rise to significant
portions of deferred income tax assets and liabilities as of December 31, 1995
and December 31, 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
PREPAID (DEFERRED) INCOME TAX ASSETS ARISING FROM:
Accounts receivable............................................ $ 1,425 $ 1,246
Inventory...................................................... (577) (610)
Insurance reserves............................................. 6,036 2,972
Other reserves, liabilities and assets, net.................... 12,216 16,392
------- -------
$19,100 $20,000
======= =======
DEFERRED (PREPAID) INCOME TAX LIABILITIES ARISING FROM:
Property and equipment, net.................................... $15,233 $15,400
Prepaid pension assets......................................... 1,323 (593)
Insurance reserves............................................. (273) (10)
Other reserves, liabilities and assets, net.................... 8,797 5,787
Capital loss carryforward...................................... (7,260) (6,462)
Other tax assets............................................... (1,658) (1,772)
Valuation allowances........................................... 11,618 10,238
------- -------
$27,780 $22,588
======= =======
</TABLE>
At December 31, 1996, the Company has U.S. Federal capital loss
carryforwards of approximately $18,500,000, of which approximately $16,600,000
expires in the year 1997. The Company has provided a valuation allowance equal
to the tax effect of capital loss carryforwards and certain other tax assets,
since realization of these tax assets cannot be reasonably assured.
5. NOTES, MORTGAGE NOTES AND OBLIGATIONS PAYABLE
Short-term obligations at December 31, 1995 and 1996 consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Secured revolving lines of credit of a Canadian subsidiary....... $ 4,173 $ 2,472
Secured lines of credit and bank advances of the Company's
European subsidiaries.......................................... 21,972 22,118
Other secured revolving lines of credit of one of the Company's
U.S. subsidiaries.............................................. 3,830 742
Other obligations................................................ 251 2
------- -------
$30,226 $25,334
======= =======
</TABLE>
These short-term obligations principally relate to subsidiaries acquired in
1995 and at December 31, 1996 are secured by approximately $56,900,000 of
accounts receivable and inventory. These borrowings have an average weighted
interest rate of approximately 10.925%.
F-12
<PAGE> 114
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Notes, mortgage notes and obligations payable in the accompanying
consolidated balance sheet at December 31, 1995 and 1996 consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
-------- --------
(AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Mortgage notes payable, net of $316,000 of unamortized discount
in 1996...................................................... $ 17,055 $ 20,878
Other, net of $548,000 and $750,000 of unamortized discount.... 18,185 17,209
9 7/8% Senior Subordinated Notes due 2004 ("9 7/8% Notes"),
net of unamortized original issue discount of $1,396,000 and
$1,520,000................................................... 216,980 217,104
-------- --------
252,220 255,191
Less amounts included in current liabilities................... 11,824 11,230
-------- --------
$240,396 $243,961
======== ========
</TABLE>
The indenture governing the 9 7/8% Notes restricts, among other things,
the payment of cash dividends, repurchase of the Company's capital stock and the
making of certain other restricted payments, the incurrence of additional
indebtedness, the making of certain investments, mergers, consolidations and
sale of assets (all as defined in the indenture). Upon certain asset sales (as
defined in the indenture), the Company will be required to offer to purchase, at
100% principal amount plus accrued interest to the date of purchase, 9 7/8%
Notes in a principal amount equal to any net cash proceeds (as defined in the
indenture) that are not invested in properties and assets used primarily in the
same or related business to those owned and operated by the Company at the issue
date of the 9 7/8% Notes or at the date of such asset sale and such net cash
proceeds were not applied to permanently reduce Senior Indebtedness (as defined
in the indenture). The 9 7/8% Notes are redeemable at the option of the
Company, in whole or in part, at any time and from time to time, at 104.214% on
March 1, 1999, declining to 100% on March 1, 2002 and thereafter. At February 7,
1997, approximately $683,607 was available for the payment of cash dividends or
stock payments under the terms of the Company's Indenture governing the 9 7/8%
Notes. (See Note 6.)
Mortgage notes payable of approximately $20,879,000 outstanding at December
31, 1996 include various mortgage notes and other related indebtedness payable
in installments through 2006 and bearing interest at rates ranging from 6.25% to
11.5% and is collateralized by property and equipment with an aggregate net book
value of approximately $42,900,000 at December 31, 1996.
Other obligations of approximately $17,209,000 outstanding at December 31,
1996 include borrowings relating to equipment purchases and other borrowings
bearing interest at rates primarily ranging between 5.6% to 14% and maturing at
various dates through 2002. Approximately $12,599,000 of such indebtedness is
collateralized by property and equipment with an aggregate net book value of
approximately $29,072,000 at December 31, 1996.
The following is a summary of maturities of all of the Company's debt
obligations, excluding unamortized debt discount, due after December 31, 1997:
<TABLE>
<CAPTION>
(AMOUNTS IN
THOUSANDS)
<S> <C>
1998...................................................... $ 7,277
1999...................................................... 5,056
2000...................................................... 4,789
2001...................................................... 3,245
Thereafter................................................ 225,854
--------
$246,221
========
</TABLE>
F-13
<PAGE> 115
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Amortization of discount and deferred costs, net of amortization of
discount on marketable securities was approximately $1,400,000, $1,100,000 and
$1,200,000 in 1994, 1995 and 1996, respectively.
6. COMMON STOCK, SPECIAL COMMON STOCK, STOCK OPTIONS
Each share of Special Common Stock has 10 votes on all matters submitted to
a stockholder vote, except that the holders of Common Stock, voting separately
as a class, have the right to elect 25% of the directors to be elected at a
meeting, with the remaining 75% being elected by the combined vote of both
classes. Shares of Special Common Stock are generally non-transferable, but are
freely convertible on a share-for-share basis into shares of Common Stock.
On April 1, 1996, the Company extended and amended its shareholder rights
plan to March 31, 2006. Under the amended plan, each right previously issued
under the plan in effect to date, or subsequently issued under the amended and
restated plan, entitles shareholders to buy 1/100 of a share of a new series of
preference stock of Nortek at an exercise price of $72 per share, subject to
adjustments for stock dividends, splits and similar events.
The rights, that are not currently exercisable, are attached to each share
of Common Stock and may be redeemed by the Directors at $.01 per share at any
time. After a shareholder acquires beneficial ownership of 17% or more of the
Company's Common Stock and Special Common Stock, the rights will trade
separately and become exercisable entitling a rights holder to acquire
additional shares of the Company's Common Stock having a market value equal to
twice the amount of the exercise price of the right. In addition, after a person
or group ("Acquiring Company") commences a tender offer or announces an
intention to acquire 30% or more of the Company's Common Stock and Special
Common Stock, the rights will trade separately and, under certain circumstances,
will permit each rights holder to acquire common stock of the Acquiring Company,
having a market value equal to twice the amount of the exercise price of the
right.
At December 31, 1996, a total of 1,428,869 shares of Common Stock was
reserved as follows:
<TABLE>
<S> <C>
Stock option plans................................................ 644,700
Conversion of Special Common Stock................................ 784,169
--------
1,428,869
========
</TABLE>
At December 31, 1996, 281,000 shares of Special Common Stock were reserved
for stock option plans.
The Company has several stock option plans which provide for the granting
of options to certain officers, employees and non-employee directors of the
Company. Options granted under the plans vest over periods ranging up to five
years and expire ten years from the date of grant. At December 31, 1996, 15,900
additional options are available for grant under these plans. Options for
200,100 and 27,500 shares of Common and Special Common Stock became exercisable
during 1995 and 1996, respectively.
F-14
<PAGE> 116
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes the Common and Special Common Stock option
transactions for the three years ended December 31, 1996:
<TABLE>
<CAPTION>
NUMBER OPTION PRICE WEIGHTED AVERAGE
OF SHARES PER SHARE EXERCISE PRICE
--------- --------------- ----------------
<S> <C> <C> <C>
Options outstanding at December 31,
1993.................................... 503,900 $2.25 - $15.69 $ 6.89
Exercised............................... (9,800) 2.875 2.88
------- --------------- ------
Options outstanding at December 31,
1994.................................... 494,100 $2.25 - $15.69 $ 6.97
Exercised............................... (42,600) 2.25 - 2.875 2.81
------- --------------- ------
Options outstanding at December 31,
1995.................................... 451,500 $2.25 - $15.69 $ 7.36
Granted................................. 275,000 14.75 14.75
Exercised............................... (95,200) $2.25 - $7.9375 5.07
Canceled................................ (2,500) 8.75 8.75
------- --------------- ------
Options outstanding at December 31,
1996.................................... 628,800 $2.875 - $15.69 $10.93
======= =============== ======
</TABLE>
51,800 of the 628,800 options outstanding at December 31, 1996 have an
exercise price of $2.875, with a weighted average contractual life of 2.8 years.
All of these options are exercisable. 296,000 options have exercise prices
between $6.125 and $9.38 with a weighted average exercise price of $8.69 and a
weighted average remaining contractual life of 6.5 years. All of these options
are exercisable. The remaining 281,000 options, 6,000 of which are exercisable,
have exercise prices between $14.75 and $15.69, with a weighted average exercise
price of $14.77 and a remaining contractual life of 9.8 years.
The Company accounts for stock option plans under APB Opinion No. 25, under
which no compensation cost has been recognized since options are granted with
exercise prices equal to the fair market value of the Common Stock at the date
of grant. Had compensation cost for these plans been determined consistent with
SFAS No. 123, the Company's unaudited pro forma net earnings and fully diluted
earnings per share for the year ended December 31, 1996 would have been
approximately $21,634,000 and $2.02, respectively. The fair value of each option
grant is estimated on the date of the grant using the Black-Scholes option
pricing model with the following assumptions used for grants in 1996: risk-free
interest rate of 7%; expected life of 5 years; expected volatility of 33%;
dividend yield of 0%.
During 1995 and 1996, the Company's Board of Directors authorized a number
of programs to purchase shares of the Company's Common and Special Common Stock,
subject to market conditions and cash availability. The programs included the
purchase of 1,189,809 shares of its common stock, or approximately 10.6% of its
outstanding shares on April 26, 1996 for approximately $20,200,000 from three of
its directors who also resigned from the Company's Board of Directors and the
most recent program which was announced on October 28, 1996, to purchase up to
500,000 shares of the Company's Common and Special Common Stock in open-market
or negotiated transactions subject to market conditions and cash availability.
From November 16, 1995 to December 31, 1996, the Company purchased 2,476,719
shares of its Common and Special Common Stock for approximately $36,319,000 and
accounted for such share purchases as Treasury
F-15
<PAGE> 117
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock. Had these shares been purchased as of January 1, 1995, unaudited pro
forma net earnings and fully diluted net earnings per share would have been:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DEC. 31, 1995 DEC. 31, 1996
------------- -------------
(AMOUNTS IN THOUSANDS
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Net Earnings....................................... $13,800 $21,600
======= =======
Fully diluted net earnings per share............... $ 1.37 $ 2.14
======= =======
</TABLE>
As of February 7, 1997, the Company purchased during the first quarter,
approximately 280,700 shares of its Common and Special Common Stock for
approximately $6,530,000 in cash, in negotiated and open market transactions.
7. PENSION, RETIREMENT AND PROFIT SHARING PLANS
The Company and its subsidiaries have various pension, retirement and
profit sharing plans requiring contributions to qualified trusts and union
administered funds. Pension and profit sharing expense charged to operations
aggregated approximately $2,883,000 in 1994, $1,377,000 in 1995 and $4,420,000
in 1996. The Company's policy is to fund currently the actuarially determined
annual contribution. In the fourth quarter of 1995, benefits related to the
Company's existing defined benefit plans were frozen. On January 1, 1996, the
Company adopted a supplemental retirement plan for certain officers. The
actuarial present value of the unfunded accumulated benefit obligation and the
pension costs of this plan have been included in the tables below.
The Company's net expense for its defined benefit plans for 1994, 1995 and
1996 consists of the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
------- ------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Service costs......................................... $ 1,647 $ 1,273 $ 453
Interest cost......................................... 2,261 2,364 2,543
Actual net income on plan assets...................... (2,155) (3,204) (4,345)
Net amortization and deferred items................... 10 790 2,341
Net gain from freezing plan benefits.................. -- (581) --
----- ------- -------
Total expense......................................... $ 1,763 $ 642 $ 992
===== ======= =======
</TABLE>
The following sets forth the funded status of the Company's defined benefit
plans and amounts recognized in the Company's consolidated balance sheet at
December 31, 1995 and 1996:
<TABLE>
<CAPTION>
PLAN ASSETS EXCEEDING
BENEFIT OBLIGATIONS
---------------------
1995 1996
------- -------
(AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations at September 30:
Vested benefits and accumulated benefit obligation............. $22,259 $23,945
Plan assets at fair value at September 30...................... 25,673 28,040
Plan assets in excess of the accumulated benefit obligation.... 3,414 4,095
Unrecognized net gain.......................................... -- (452)
------- -------
$ 3,414 $ 3,643
======= =======
</TABLE>
F-16
<PAGE> 118
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
BENEFIT OBLIGATIONS
EXCEEDING PLAN
ASSETS
-------------------
1995 1996
------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations at September 30:
Vested benefits.................................................. $ 5,069 $ 9,707
Non-vested benefits.............................................. -- 520
------- --------
Accumulated benefit obligation................................... 5,069 10,227
Effect of projected future compensation levels................... -- 2,439
------- --------
Projected benefit obligation..................................... 5,069 12,666
------- --------
Plan assets at fair value at September 30........................ 4,407 4,813
Projected obligation in excess of plan assets.................... (662) (7,853)
Unrecognized net loss............................................ 916 1,043
Unrecognized prior service costs................................. -- 6,335
Additional minimum liability..................................... (916) (4,939)
------- --------
$ (662) $(5,414)
======= ========
</TABLE>
Plan assets include commingled funds, marketable securities, insurance
contracts and cash and short-term investments. The weighted average discount
rate and rate of increase in future compensation levels used in determining the
actuarial present value of benefit obligations were 8 percent and 5 1/2
percent, respectively, in 1994, 7 1/2 percent and 5 percent, respectively, in
1995 and 1996. The expected long-term rate of return on assets was 8 1/2
percent in 1994, 1995 and 1996.
Recognition of a minimum pension liability and an intangible asset for
certain plans resulted in a reduction in the Company's stockholders' investment
of approximately $672,000, $916,000 and $1,043,000 in 1994, 1995 and 1996,
respectively.
8. COMMITMENTS AND CONTINGENCIES
The Company provides accruals for all direct and indirect costs associated
with the estimated resolution of contingencies at the earliest date at which the
incurrence of a liability is deemed probable and the amount of such liability
can be reasonably estimated.
At December 31, 1996, the Company and its subsidiaries are obligated under
lease agreements for the rental of certain real estate and machinery and
equipment used in its operations. Minimum annual rental expense aggregates
approximately $26,761,000 at December 31, 1996. The obligations are payable as
follows:
<TABLE>
<S> <C>
1997............................................................... $ 4,916
1998............................................................... 4,173
1999............................................................... 3,104
2000............................................................... 1,953
2001............................................................... 1,319
Thereafter......................................................... 11,296
</TABLE>
Certain of these lease agreements provide for increased payments based on
changes in the consumer price index. Rental expense charged to operations in the
accompanying consolidated statement of operations was approximately $7,000,000,
$6,900,000 and $6,725,000 for the years ended December 31, 1994, 1995 and 1996,
respectively. Under certain of these lease agreements, the Company and its
subsidiaries are also obligated to pay insurance and taxes.
F-17
<PAGE> 119
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is subject to other contingencies, including legal proceedings
and claims arising out of its businesses that cover a wide range of matters,
including, among others, environmental matters, contract and employment claims,
product liability, warranty and modification, adjustment or replacement of
component parts of units sold, which may include product recalls. The Company
has used various substances in its products and manufacturing operations which
have been or may be deemed to be hazardous or dangerous, and the extent of its
potential liability, if any, under environmental, product liability and workers'
compensation statutes, rules, regulations and case law is unclear. Further, due
to the lack of adequate information and the potential impact of present
regulations and any future regulations, there are certain circumstances in which
no range of potential exposure may be reasonably estimated.
While it is impossible to ascertain the ultimate legal and financial
liability with respect to contingent liabilities, including lawsuits, the
Company believes that the aggregate amount of such liabilities, if any, in
excess of amounts provided, will not have a material adverse effect on the
consolidated financial position or results of operations of the Company.
9. OPERATING AND GEOGRAPHIC SEGMENT INFORMATION AND CONCENTRATION OF CREDIT
RISK
The Company operates in one industry segment, Residential and Commercial
Building Products. No single customer accounts for 10% or more of consolidated
net sales. Prior to 1995, more than 90% of net sales and identifiable assets
were related to the Company's domestic operations. As a result of acquisitions
in 1995, the following information by geographic area is presented for 1995 and
1996:
<TABLE>
<CAPTION>
NET PRE-TAX IDENTIFIABLE
SALES EARNINGS ASSETS
-------- -------- ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1995:
Geographic areas:
Domestic operations.................................. $733,264 $ 45,742 $341,555
European operations.................................. 13,298 769 71,180
Other foreign operations............................. 42,432 2,189 68,056
Eliminations......................................... (12,784) -- (8,258)
-------- -------- --------
776,210 48,700 472,533
Unallocated....................................... -- (7,616) 152,946
Interest expense.................................. -- (24,918) --
Interest income................................... -- 6,134 --
Net gain on investment and marketable
securities...................................... -- 2,000 --
-------- -------- --------
Consolidated Totals.................................. $776,210 $ 24,300 $625,479
======== ======== ========
</TABLE>
F-18
<PAGE> 120
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
NET PRE-TAX IDENTIFIABLE
SALES EARNINGS ASSETS
-------- -------- ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1996:
Geographic areas:
Domestic operations.................................. $834,789 $ 65,538 $334,927
European operations.................................. 82,363 3,520 73,285
Other foreign operations............................. 67,503 4,886 64,609
Eliminations......................................... (14,857) -- (5,663)
-------- -------- --------
969,798 73,944 467,158
Unallocated....................................... -- (13,892) 141,958
Interest expense.................................. -- (30,113) --
Interest income................................... -- 5,311 --
Net gain on investment and marketable
securities...................................... 750 --
-------- -------- --------
Consolidated Totals.................................. $969,798 $ 36,000 $609,116
======== ======== ========
</TABLE>
Unallocated assets consist primarily of cash, investments and marketable
securities and U. S. Federal prepaid income taxes.
The Company operates internationally and is exposed to market risks from
changes in foreign exchange rates. Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of
temporary cash investments and trade receivables. The Company places its
temporary cash investments with high credit quality financial institutions and
limits the amount of credit exposure to any one financial institution.
Concentrations of credit risk with respect to trade receivables are limited due
to the large number of customers comprising the Company's customer base and
their dispersion across many different geographical regions. At December 31,
1996, the Company had no significant concentrations of credit risk.
10. NET GAIN (LOSS) ON MARKETABLE SECURITIES
On January 1, 1994, the Company adopted the accounting requirements of SFAS
No. 115 "Accounting for Certain Investments in Debt and Equity Securities", and
recorded as income the accumulated unrealized marketable security reserve
recorded at December 31, 1993 of approximately $400,000 ($.03 per share) as the
cumulative effect of an accounting change. Under the new accounting method, the
Company records unrealized gains or losses on such investment securities as
adjustments to stockholders' investment. Previously, such gains or losses were
recorded in the Company's consolidated statement of operations.
At December 31, 1995 and 1996, the reduction in the Company's stockholders'
investment under the new accounting method for gross unrealized losses was
approximately $410,000 and $891,000, respectively. At December 31, 1996, there
were no gross unrealized gains on the Company's marketable securities.
F-19
<PAGE> 121
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's marketable securities at December 31, 1996 consist primarily
of U. S. Government Treasury Notes and bank issued money market instruments due
as follows:
<TABLE>
<CAPTION>
FAIR
PRINCIPAL AMORTIZED MARKET
AMOUNT COST VALUE
--------- --------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
U. S. GOVERNMENT NOTES:
Due in 1-5 years.......................................... $ 11,000 $11,207 $10,806
Due in 5-10 years......................................... 4,000 4,123 3,880
------- ------- -------
15,000 15,330 14,686
------- ------- -------
BANK ISSUED MONEY MARKET INSTRUMENTS:
Due within 1 year......................................... 35,900 36,612 36,365
------- ------- -------
$ 50,900 $51,942 $51,051
======= ======= =======
</TABLE>
11. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
In the second quarter of 1994, the Company recorded net pre-tax income of
approximately $3,200,000 ($.14 per share, net of tax) resulting from the
settlement of certain insurance claims and disputes.
12. ACCRUED EXPENSES AND TAXES, NET
Accrued expenses and taxes, net, consist of the following at December 31,
1995 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
-------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Insurance..................................................... $ 22,496 $12,084
Payroll, management incentive and accrued employee benefits... 17,463 25,939
Interest...................................................... 8,077 7,749
Accrued product warranty expense.............................. 6,850 8,134
Other, net.................................................... 46,084 43,659
-------- -------
$100,970 $97,565
======== =======
</TABLE>
13. SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following summarizes unaudited quarterly financial data for the years
ended December 31, 1995 and December 31, 1996:
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
-----------------------------------------------
APRIL 1 JULY 1 SEPT. 30 DEC. 31
-------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1995
Net sales............................... $184,809 $194,206 $193,567 $203,628
Gross profit............................ 49,369 49,505 49,676 52,731
Net earnings............................ 2,500 3,200 5,200 4,100
Net earnings per share:
Primary............................... .20 .25 .41 .33
Fully diluted......................... .20 .25 .41 .33
</TABLE>
F-20
<PAGE> 122
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
-----------------------------------------------
MARCH 30 JUNE 29 SEPT. 28 DEC. 31
-------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1996
Net sales............................... $220,985 $260,235 $248,227 $240,351
Gross profit............................ 55,398 68,612 66,419 69,494
Net earnings............................ 2,400 5,800 6,500 7,300
Net earnings per share:
Primary............................... .20 .55 .64 .72
Fully diluted......................... .20 .55 .64 .72
</TABLE>
See Notes 2 and 11 regarding certain other quarterly transactions included
in the operating results in the above table.
Increased net sales in 1996 as compared to 1995 reflect the effect of
businesses acquired in the fourth quarter of 1995. Operating results in the
third quarter of 1996 were adversely affected by an extended shutdown period and
other factors by the Company's European subsidiaries. Net sales and gross profit
margins increased in the fourth quarter of 1996 from the fourth quarter of 1995.
Overall, these increases are due in part to the effect of continued strong
shipments (on a seasonal basis) in several of the Company's businesses,
especially ventilation and HVAC products and the positive effect of the relative
mix of products sold and changes in productivity levels. (See Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Note 2).
14. INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(A) The unaudited condensed consolidated financial statements presented
("Unaudited Financial Statements") have been prepared by Nortek, Inc. and
include all of its wholly-owned subsidiaries (the "Company") after elimination
of intercompany accounts and transactions, without audit and, in the opinion of
management, reflect all adjustments of a normal recurring nature necessary for a
fair statement of the interim periods presented. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted,
although, the Company believes that the disclosures included are adequate to
make the information presented not misleading. Certain amounts in the Unaudited
Financial Statements for the prior periods have been reclassified to conform to
the presentation at June 28, 1997. It is suggested that these Unaudited
Financial Statements be read in conjunction with the financial statements and
the notes included in the Company's latest Annual Report on Form 10-K.
(B) In March 1997, the Company sold $175,000,000 principal amount of
9 1/4% Senior Notes due March 2007 ("9 1/4% Notes") at a slight discount. The
net proceeds will be used to refinance certain outstanding indebtedness of the
Company's subsidiaries and for acquisitions and other general corporate
purposes, including investment in plant and equipment.
The Company's Board of Directors has authorized a number of programs to
purchase shares of the Company's Common and Special Common Stock since November
16, 1995. The most recent of these programs was announced on April 30, 1997, to
purchase up to 500,000 shares of the Company's Common and Special Common Stock
in open market or negotiated transactions, subject to market conditions, cash
availability and provisions of the Company's outstanding debt instruments. As of
July 25, 1997, the Company has purchased approximately 14,179 shares of its
Common and Special Common Stock for approximately $336,700 under this latest
program. For the period from November 16, 1995 to July 25, 1997, the Company
purchased approximately 2,800,000 shares of its Common and Special Common Stock
for approximately $44,160,000 and accounted for such share purchases as Treasury
Stock.
F-21
<PAGE> 123
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At July 25, 1997, approximately $4,800,000 was available for the payment of
cash dividends or stock purchases under the terms of the Company's most
restrictive Indenture.
(C) At December 31, 1996 and June 28, 1997, the reduction in the Company's
stockholders' investment for gross unrealized losses on marketable securities
was approximately $891,000 and $522,000, respectively.
(D) The tax effect of temporary differences which gave rise to significant
portions of deferred income tax assets and liabilities as of December 31, 1996
and June 28, 1997 is as follows:
<TABLE>
<CAPTION>
DEC. 31, JUNE 28,
1996 1997
-------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
U. S. Federal Prepaid (Deferred) Income Tax Assets Arising From:
Accounts receivable............................................ $ 1,246 $ 1,442
Inventory...................................................... (610) (376)
Insurance reserves............................................. 4,985 5,366
Other reserves, liabilities and assets, net.................... 14,379 13,568
------- -------
$ 20,000 $ 20,000
======= =======
Deferred (Prepaid) Income Tax Liabilities Arising From:
Property and equipment, net.................................... $ 15,400 $ 15,558
Prepaid pension assets......................................... 841 586
Other reserves, liabilities and assets, net.................... (608) 147
Capital loss carryforward...................................... (6,462) (6,400)
Other, net..................................................... (1,772) (1,828)
Valuation allowances........................................... 10,238 10,237
------- -------
$ 17,637 $ 18,300
======= =======
</TABLE>
At June 28, 1997, the Company has a capital loss carryforward of
approximately $18,300,000, of which approximately $16,400,000 expires in 1997.
The Company has provided a valuation allowance equal to the tax effect of
capital loss carryforwards and certain other tax assets, since realization of
these tax assets cannot be reasonably assured.
F-22
<PAGE> 124
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following reconciles the federal statutory income tax rate to the
effective tax rate from continuing operations of approximately 35.6% and 33.0%
in the second quarter of 1996 and 1997, respectively, and 35.0% and 37.4% in the
first six months of 1996 and 1997, respectively.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- ---------------------
JUNE 29, JUNE 28, JUNE 29, JUNE 28,
1996 1997 1996 1997
-------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Income tax provision at the Federal statutory
rate......................................... $3,150 $3,500 $4,585 $5,600
Net Change from Statutory Rate:
Change in valuation reserve, net............... (577) (701) (748) (827)
State taxes, net of federal tax effect......... 325 391 487 455
Amortization not deductible for tax purposes... 277 267 523 535
Other nondeductible items...................... 50 48 118 183
Product development tax credit from foreign
operations................................... (109) (125) (224) (207)
Tax effect on foreign income................... 84 (80) 159 (139)
------ ------ ------ ------
$3,200 $3,300 $4,900 $5,600
====== ====== ====== ======
</TABLE>
(E) Net earnings per share ("EPS") amounts have been computed using the
weighted average number of common and common equivalent shares outstanding
during each year. Special common stock is treated as the equivalent of common
stock in determining earnings per share.
In March 1997, the FASB released SFAS No. 128, "Earnings Per Share," which
will become effective December 31, 1997. As a result, the Company's reported
earnings per share for 1996 and 1997 will be restated in the Company's annual
report on Form 10-K for the year ending December 31, 1997. The unaudited pro
forma effect of this accounting change on reported earnings per share is as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- --------------------- YEAR ENDED
JUNE 29, JUNE 28, JUNE 29, JUNE 28, DEC. 31,
1996 1997 1996 1997 1996
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Amounts Primary EPS as
reported........................ $.55 $.68 $.73 $ 1.05 $ 2.07
Effect of SFAS No. 128............ .01 .02 .02 .03 .03
---- ---- ---- ----- -----
Basic EPS as restated............. $.56 .70 $.75 $ 1.08 $ 2.10
==== ==== ==== ===== =====
Fully diluted EPS as reported..... $.55 .68 $.73 $ 1.05 $ 2.05
Effect of SFAS No. 128............ -- -- -- -- .02
---- ---- ---- ----- -----
Diluted EPS as restated........... $.55 .68 $.73 $ 1.05 $ 2.07
==== ==== ==== ===== =====
</TABLE>
On July 24, 1997, Nortek, a wholly owned subsidiary of Nortek and Ply Gem
entered into an Agreement and Plan of Merger (the "Merger Agreement"). In
connection with the Merger Agreement, on July 29, 1997, such Nortek subsidiary
commenced a tender offer to purchase all outstanding shares of common stock,
$0.25 par value per share ("Common Stock" or the "Shares"), of Ply Gem, at a
price of $19.50 per share, net to the seller in cash, without interest thereon
(the "Tender Offer"), upon such terms and conditions as are set forth in the
Offer to Purchase dated July 29, 1997 (the "Offer to Purchase") and the related
Letter of Transmittal.
As promptly as practicable after the acceptance of and payment for the
Shares tendered pursuant to the Tender Offer, the Merger Agreement provides that
Nortek's subsidiary will be merged with and into Ply Gem (the "Merger"), which
shall be the surviving corporation and shall become a wholly owned subsidiary of
F-23
<PAGE> 125
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Nortek. The obligation of Nortek to consummate the Tender Offer and Merger is
subject to the satisfaction of certain conditions.
The sources and uses of the financing needed to complete the Acquisition
and related transactions are expected to be as follows:
<TABLE>
<CAPTION>
IN MILLIONS
-----------
<S> <C>
SOURCES OF FINANCING:
Nortek cash..................................................... $ 110.5
Gross proceeds from the Offering................................ 307.5
Extension of credit under the Ply Gem Credit Facility........... 101.9
-----
Total sources of funds....................................... $ 519.9
=====
USES OF FINANCING:
Payment for shares of Ply Gem common stock and cancellation of
Ply Gem stock options........................................ $ 310.2
Refinancing of existing Ply Gem indebtedness.................... 101.9
Termination of Ply Gem accounts receivable securitization
program...................................................... 50.0
Funding of termination fees under prior transaction agreement... 12.0
Consideration paid for termination of management agreements..... 24.5
Fees, expenses and other costs related to the Transactions...... 21.3
-----
Total uses of funds.......................................... $ 519.9
=====
</TABLE>
On July 29, 1997, the Company commenced a cash tender offer and expects to
complete the acquisition of Ply Gem in the third quarter of 1997.
F-24
<PAGE> 126
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Ply Gem Industries, Inc.
We have audited the accompanying consolidated balance sheets of Ply Gem
Industries, Inc. and Subsidiaries (the "Company") as of December 31, 1996 and
1995 and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conduct our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Ply Gem
Industries, Inc. and Subsidiaries as of December 31, 1996 and 1995 and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
GRANT THORNTON LLP
New York, New York
February 25, 1997
F-25
<PAGE> 127
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, -------------------
------------------------------ JUNE 30, JUNE 30,
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales................................. $808,874 $755,198 $774,928 $354,097 $381,728
Cost of goods sold........................ 653,270 630,552 626,424 290,889 313,403
-------- -------- -------- -------- --------
Gross profit............................ 155,604 124,646 148,504 63,208 68,325
Selling, general and administrative
expenses................................ 118,726 114,171 119,494 55,988 56,626
Write-down of long-lived assets........... -- 11,950 -- -- --
Merger expenses........................... -- -- -- -- 2,850
Nonrecurring charges...................... 40,962 -- -- -- --
-------- -------- -------- -------- --------
Income (net loss) from operations....... (4,084) (1,475) 29,010 7,220 8,849
Interest expense.......................... (7,479) (6,649) (6,773) (3,757) (3,649)
Other expense, net........................ (386) (2,138) (2,658) (657) (1,239)
-------- -------- -------- -------- --------
Income (loss) before income taxes....... (11,949) (10,262) 19,579 2,806 3,961
Income tax provision (benefit)............ (3,418) (2,860) 9,125 1,287 1,981
-------- -------- -------- -------- --------
NET INCOME (LOSS)......................... $ (8,531) $ (7,402) $ 10,454 $ 1,519 $ 1,980
======== ======== ======== ======== ========
Earnings (loss) per share................. $ (.62) $ (.51) $ .74 $ .11 $ .14
-------- -------- -------- -------- --------
Weighted average number of shares
outstanding............................. 13,870 14,445 14,065 14,251 13,842
-------- -------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
F-26
<PAGE> 128
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............................. $ 8,107 $ 9,924 $ 7,952
Accounts receivable, net of allowance of $4,511,
$3,039 and $2,713................................... 31,736 28,003 45,937
Inventories........................................... 96,228 92,983 110,450
Prepaid and deferred income taxes..................... 15,714 10,905 10,905
Other current assets.................................. 10,478 12,975 14,931
-------- -------- --------
Total current assets................................ 162,263 154,790 190,175
Property, plant and equipment -- at cost, net......... 81,832 90,681 101,543
Patents and trademarks, net of accumulated
amortization of $8,971, $9,776 and $10,331.......... 15,334 13,793 13,255
Intangible assets, net................................ 15,507 14,794 14,380
Cost in excess of net assets acquired, net............ 23,081 21,618 20,887
Other assets.......................................... 26,973 17,771 18,220
-------- -------- --------
Total assets........................................ $324,990 $313,447 $ 358,460
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses................. $ 40,455 $ 50,937 $ 56,654
Accrued restructuring................................. 4,480 1,138 646
Accrued payroll and commissions....................... 7,790 10,408 8,782
Accrued insurance..................................... 4,400 4,285 4,673
Current maturities of long-term debt and capital
leases.............................................. 458 1,380 1,528
-------- -------- --------
Total current liabilities........................... 57,583 68,148 72,283
Long-term debt........................................ 93,135 73,166 111,496
Capital leases........................................ 7,106 9,231 8,656
Other liabilities..................................... 22,681 17,119 18,819
Stockholders' equity Preferred stock, $.01 par value;
authorized 5,000,000 shares; none issued............ -- -- --
Common stock, $.25 par value; authorized 60,000,000
shares; issued 17,463,072, 17,676,540 and
17,747,957 shares................................ 4,366 4,419 4,437
Additional paid-in capital.......................... 148,618 149,226 150,059
Retained earnings................................... 53,246 61,993 63,129
-------- -------- --------
206,230 215,638 217,625
Less
Treasury stock -- at cost (3,015,311, 3,687,954 and
3,764,278 shares)................................ 55,676 63,936 64,766
Unamortized restricted stock and note receivable.... 6,069 5,919 5,653
-------- -------- --------
Total stockholders' equity....................... 144,485 145,783 147,206
-------- -------- --------
Total liabilities and stockholders' equity....... $324,990.. $313,447 $ 358,460
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-27
<PAGE> 129
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
THREE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
-----------------------------------------------------------------
COMMON STOCK TREASURY STOCK
------------------- -------------------
NUMBER ADDITIONAL NUMBER
OF PAID-IN RETAINED OF
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT
---------- ------ ---------- -------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994.................... 11,872,509 $2,968 $ 64,006 $ 72,601 910,073 $ 9,362
Cash dividends on common stock ($.12 per
share)...................................... (1,673)
Exercise of employee stock options............ 2,672,318 668 23,423 1,197,241 29,465
Tax benefit arising from exercise of stock
options..................................... 9,962
Conversion of debentures...................... 2,751,328 688 48,379
Purchase of stock for treasury................ 640,700 12,175
Other......................................... 40 -- 1,197 (2,695) (48)
Net loss...................................... (8,531)
---------- ------ -------- ------- --------- -------
Balance at December 31, 1994.................. 17,296,195 4,324 146,967 62,397 2,745,319 50,954
Cash dividends on common stock ($.12 per
share)...................................... (1,749)
Exercise of employee stock options............ 166,872 42 1,494 30,580 573
Tax benefit arising from exercise of stock
options..................................... 174
Shares held for distribution to employee
profit sharing trust........................ (52,500) (819)
Purchase of stock for treasury................ 292,000 4,955
Other......................................... 5 -- (17) (88) 13
Net loss...................................... (7,402)
---------- ------ -------- ------- --------- -------
Balance at December 31, 1995.................. 17,463,072 4,366 148,618 53,246 3,015,311 55,676
Cash dividends on common stock ($.12 per
share)...................................... (1,707)
Exercise of employee stock options............ 213,468 53 1,916 63,612 915
Tax benefit arising from exercise of stock
options..................................... 367
Contribution of treasury stock to employee
profit sharing trusts....................... (1,039) (140,700) (2,608)
Purchase of stock for treasury................ 752,200 9,998
Other......................................... (636) (2,469) (45)
Net income.................................... 10,454
---------- ------ -------- ------- --------- -------
Balance at December 31, 1996.................. 17,676,540 $4,419 $ 149,226 $ 61,993 3,687,954 $63,936
---------- ------ -------- ------- --------- -------
Cash dividends on common stock ($.06 per
share)...................................... (844)
Exercise of employee stock options............ 71,417 18 703 7,153 117
Contribution of treasury stock to employee
profit sharing trusts....................... (232) (50,000) (863)
Purchase of stock for treasury................ 132,953 1,808
Other......................................... 362 (13,782) (232)
Net income.................................... 1,980
---------- ------ -------- ------- --------- -------
Balance at June 30, 1997...................... 17,747,957 $4,437 $ 150,059 $ 63,129 3,764,278 $64,766
========== ====== ======== ======= ========= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-28
<PAGE> 130
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, ---------------------
---------------------------------- JUNE 30, JUNE 30,
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................... $ (8,531) $ (7,402) $ 10,454 $ 1,519 $ 1,980
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation........................... 8,733 10,521 11,359 5,758 6,667
Amortization........................... 4,652 3,650 3,594 1,811 1,700
Non-cash profit sharing expense........ -- -- 2,243 -- --
Write-down of long-lived assets........ -- 11,950 -- -- --
Nonrecurring charges net of cash
payments of $5,223,000 in 1994....... 35,739 -- -- -- --
Deferred taxes......................... (8,067) 3,644 3,339 -- --
Provision for doubtful accounts........ 874 1,505 1,982 1,526 460
Changes in assets and liabilities
Accounts receivable.................. 10,515 9,617 1,751 (13,830) (18,394)
Inventories.......................... 5,575 6,861 3,245 (4,494) (17,467)
Prepaid expenses and other current
assets............................ 1,459 (5,129) 2,135 (969) (1,956)
Accounts payable and accrued
expenses.......................... 3,860 (8,195) 12,985 8,873 4,479
Income taxes payable................. (4,902) -- -- -- --
Accrued restructuring................ -- (10,608) (5,574) (4,294) (492)
Other assets......................... (1,061) (5,305) 3,141 3,550 1,251
-------- -------- -------- -------- --------
Net cash provided by (used in)
operating activities............ 48,846 11,109 50,654 (550) (21,772)
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment.............................. (23,046) (27,827) (17,583) (8,623) (17,789)
Funds used for construction............... 1,327 -- -- -- --
Proceeds from property, plant and
equipment disposals.................... 1,681 799 473 49 180
Proceeds from sales of marketable
securities, net........................ -- 788 -- -- --
Other..................................... 129 25 (17) 68 63
-------- -------- -------- -------- --------
Net cash used in investing
activities...................... (19,909) (26,215) (17,127) (8,506) (17,546)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings.................. -- -- -- -- 2,725
Repayment of long-term debt............... (881) (481) (533) 36 722
Net increase (decrease) in revolving note
borrowings with original maturity of 90
days or less........................... (14,884) 14,040 (19,540) 9,424 35,900
Purchase of stock for treasury............ (12,175) (4,955) (9,998) (4,630) (1,808)
Cash dividends............................ (1,673) (1,749) (1,707) (868) (844)
Proceeds from exercise of employee stock
options................................ 6,491 1,499 1,500 -- 676
Other..................................... (3,911) 456 (1,432) 992 (25)
-------- -------- -------- -------- --------
Net cash provided by (used in) financing
activities................................ (27,033) 8,810 (31,710) 4,954 37,346
-------- -------- -------- -------- --------
Net increase (decrease) in cash and
cash equivalents..................... 1,904 (6,296) 1,817 (4,102) (1,972)
Cash and cash equivalents at beginning of
year...................................... 12,499 14,403 8,107 8,107 9,924
-------- -------- -------- -------- --------
Cash and cash equivalents at end of year.... $ 14,403 $ 8,107 $ 9,924 $ 4,005 $ 7,952
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-29
<PAGE> 131
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Ply Gem Industries, Inc. ("Ply Gem") through its subsidiaries (the
"Company") operates predominantly in one industry segment, which consists of the
manufacture and sale of vinyl siding, wood and vinyl-framed windows, doors,
skylights, prefinished decorative plywood and decorator wall and floor
coverings, furniture components, pressure-treated wood products and the
distribution of other products for the building products and home improvement
markets.
Principles of Consolidation
The consolidated financial statements include the accounts of Ply Gem
Industries, Inc. and its wholly-owned subsidiaries after eliminating all
significant intercompany accounts and transactions. Certain prior year items
have been reclassified to conform to 1996 presentation.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and temporary investments
having an original maturity of three months or less.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
on the first-in, first-out (FIFO) method.
Long-Lived Assets
(a) Property, Plant and Equipment
Owned property, plant and equipment are depreciated over the estimated
useful lives of the assets using the straight-line method for financial
reporting purposes and accelerated methods for income tax purposes. Service
lives for principal assets are 5 to 35 years for buildings and improvements and
3 to 12 years for machinery and equipment.
Leasehold improvements are amortized on a straight-line basis over their
respective lives or the terms of the applicable leases, including expected
renewal options, whichever is shorter. Capitalized leases are amortized on a
straight-line basis over the terms of the leases or their economic useful lives.
(b) Patents and Trademarks
Purchased patents and trademarks are recorded at appraised value at the
time of the business acquisition and are being amortized on a straight-line
basis over their estimated remaining economic lives; thirteen to seventeen years
for patents and thirty years for trademarks.
(c) Cost in Excess of Net Assets Acquired and Other Intangibles
Cost in excess of net assets acquired is being amortized from twenty to
thirty years on a straight-line basis. Other intangibles, which arose primarily
from the allocation of purchase prices of businesses acquired, are being
amortized on a straight-line basis over thirty-nine years.
The Company annually evaluates the carrying value of its long-lived assets
to evaluate whether changes have occurred that would suggest that the carrying
amount of such assets may not be recoverable based on the estimated future
undiscounted cash flows of the businesses to which the assets relate. Any
impairment loss would be equal to the amount by which the carrying value of the
assets exceed its fair value.
F-30
<PAGE> 132
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
Deferred income tax liabilities and assets reflect the tax effects of
temporary differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes and
net operating loss and credit carryforwards. These differences are classified as
current or noncurrent based upon the classification of the related asset or
liability. Deferred income tax assets, such as benefits related to net operating
loss and credit carryforwards, are recognized to the extent that such benefits
are more likely than not to be realized.
Financial Instruments
The Company utilizes various financial instruments to manage interest rate
risk associated with its borrowings. Interest rate swap agreements modify the
interest characteristics of a portion of the Company's debt. Amounts to be paid
or received under interest rate swap agreements are accrued as interest rates
change and are recognized over the life of the swap agreements as an adjustment
to interest expense. Interest rate caps are used to lock in a maximum interest
rate if rates rise, but enables the Company to otherwise pay lower market rates.
The cost of interest rate cap agreements are amortized to interest expense over
the life of the cap. Payments received as a result of the cap agreements reduce
interest expense. The unamortized costs of the cap agreements are included in
other assets.
The fair value for cash, receivables, accounts payable, and accrued
liabilities approximate carrying amount because of the short maturity of these
instruments. The fair value of long-term debt approximates its carrying amount,
as the debt carries variable interest rates.
Earnings (Loss) Per Share
Earnings (loss) per share of common stock is computed by dividing net
income (loss) by the weighted average number of common shares outstanding. Stock
options have been excluded from the calculations as their effect would be
anti-dilutive.
Stock Based Compensation
The Company grants stock options for a fixed number of shares to employees
and directors with an exercise price equal to or greater than the fair value of
the shares at the date of grant. The Company accounts for stock option grants in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees."
Accordingly, the Company recognizes no compensation expense for the stock option
grants.
Customers
The Company's products are distributed through an extensive network that
includes major retail home center chains, specialty home remodeling
distributors, lumber and building products wholesalers, professional contractors
and Company operated distribution centers. The products are marketed
predominately in the United States through Company sales personnel and
independent representatives. One customer accounted for approximately 19% of the
Company's net sales for the years ended December 31, 1996 and 1995 and
approximately 14% in 1994.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-31
<PAGE> 133
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 ACCOUNTS RECEIVABLE
The Company has a program which currently allows for the sale of up to $50
million of undivided fractional interests in a designated pool of eligible
accounts receivable to a financial institution with limited recourse. The
program expires in April 1998. At December 31, 1996 and 1995 respectively, the
Company sold $45 and $42 million of receivables under this program. Program
costs of $3,540,000, $3,205,000, and $1,892,000 are included in "other expense"
for 1996, 1995 and 1994, respectively. $5,000,000, due from officer, was repaid
subsequent to year end.
NOTE 3 INVENTORIES
The classification of inventories at the end of each year was as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Finished goods.................................. $ 53,833,000 $ 54,530,000
Work in progress................................ 9,724,000 12,508,000
Raw materials................................... 29,426,000 29,190,000
------------ ------------
$ 92,983,000 $ 96,228,000
============ ============
</TABLE>
NOTE 4 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at the end of each year consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Land............................................ $ 2,668,000 $ 2,704,000
Buildings and improvements...................... 27,044,000 24,853,000
Machinery and equipment......................... 94,912,000 78,830,000
Transportation equipment........................ 2,156,000 2,428,000
Furniture and fixtures.......................... 10,378,000 11,312,000
Capital leases.................................. 10,705,000 7,501,000
Construction in progress........................ 5,575,000 5,777,000
------------ ------------
153,438,000 133,405,000
Accumulated depreciation and amortization....... (62,757,000) (51,573,000)
------------ ------------
$ 90,681,000 $ 81,832,000
============ ============
</TABLE>
During the fourth quarter of 1995, the Company adopted SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" and recorded a non cash pretax charge of $12.0 million ($7.6
million after tax) related to the write-down of certain long-lived assets. The
charge consisted of a write-down of approximately $9.5 million related to the
Company's information system and $2.5 million related primarily to certain
machinery and equipment.
NOTE 5 INTANGIBLE AND OTHER ASSETS
Accumulated amortization of cost in excess of net assets acquired and other
intangible assets is $22,357,000 at December 31, 1996 and $19,917,000 at
December 31, 1995.
The balance sheet at December 31, 1996 includes notes receivable from an
officer. The 1992 Note ($5,400,000 principal amount at December 31, 1996
including current maturities), has an average interest rate of 7.1% and is due
in approximately equal annual installments through 2003. Under the terms of the
note, principal and interest are forgiven upon the attainment of at least a 20%
improvement in net income, as defined, compared to the prior year or at the
discretion of the Board of Directors. Accordingly, the annual
F-32
<PAGE> 134
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
installments for 1996 and 1994 were forgiven. The 1994 Note ($3,000,000
principal amount at December 31, 1996 including current maturities) and the 1995
Note ($5,000,000 principal amount at December 31, 1996) have interest rates
which are the higher of the Company's average bank borrowing rate or the
applicable Federal rate in effect for such period. They are payable in annual
installments of $250,000 each with the final payments due December 31, 1998 and
April 30, 2001, respectively. Furthermore, under the terms of the officer's
employment agreement, the notes are forgiven upon the occurrence of a change in
control of the Company or the permanent disability of the officer. The long-term
portion of the 1992 and 1994 Notes are included in other assets. The 1995 Note
has been reflected as a reduction of stockholders' equity since the officer may
reduce the indebtedness through the Company's redemption of its shares which are
owned by the officer.
NOTE 6 STOCKHOLDERS' EQUITY
In addition to treasury stock, deductions from stockholders' equity
consists of unamortized restricted stock of $919,000 and $1,069,000 at December
31, 1996 and 1995, respectively and notes receivable due from officer of
$5,000,000 at December 31, 1996 and 1995. See Note 5.
NOTE 7 SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information for the years ended December 31 is as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Interest paid (net of $453,000 capitalized in
1996, $746,000 in 1995 and $323,000 in
1994)........................................ $ 6,609,000 $ 5,887,000 $ 5,546,000
---------- ---------- ----------
Income taxes paid.............................. $ 6,939,000 $ 872,000 $ 2,819,000
========== ========== ==========
</TABLE>
Noncash financing activities involve the issuance of common stock upon
conversion of $49,963,000 of the Company's Debentures in 1994 and in 1996 the
Company acquired approximately $3.2 million of equipment under capital leases.
NOTE 8 LONG-TERM DEBT
The composition of long-term debt at the end of each year was as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Revolving credit facility expiring in 1999................ $ 66,000,000 $ 85,540,000
Industrial Development Revenue Bonds maturing at various
dates to 2012, generally at floating interest rates
which are reset periodically (6.0% weighted average
interest rate for 1996)................................. 7,561,000 7,955,000
Other..................................................... 34,000 45,000
----------- -----------
73,595,000 93,540,000
Less current maturities................................... 429,000 405,000
----------- -----------
$ 73,166,000 $ 93,135,000
=========== ===========
</TABLE>
The Company has a revolving credit facility with a syndicate of banks,
which provides financing of up to $200 million through February 1999. Interest
on borrowings are at varying rates based, at the Company's option, on the London
Interbank Offered Rate (LIBOR) plus a spread or the bank's prime rate. The
Company pays a facility fee quarterly which, based on a formula, averaged .42%
of the committed amount during 1996. The average weighted interest rate on the
credit facility for the year 1996 and 1995 was 6.7% and 6.9%, respectively (6.3%
and 7.0% at December 31, 1996 and 1995, respectively). The credit facility
includes customary covenants, including covenants limiting the Company's ability
to pledge assets or incur liens on assets and financial covenants requiring
among other things, the Company to maintain a specified leverage
F-33
<PAGE> 135
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ratio, fixed charge ratio and tangible net worth levels. In addition, the amount
of annual dividends the Company can pay is limited based on a formula. At
December 31, 1996 $2,800,000 was available for payments of dividends in 1997.
Borrowings under this credit facility are collateralized by the common stock of
the Company's principal subsidiaries.
The Company periodically enters into interest rate swap and cap agreements
as a hedge against interest rate exposure of its floating rate bank debt. In
1996, the Company entered into $75 million of interest rate swap agreements,
whereby the Company will pay the counterparties interest at a fixed rate of
5.53% and the counterparties will pay the Company interest at a floating rate
equal to one month LIBOR for a two year period ending December 3, 1998. At the
option of the counterparties, the termination date may be extended to December
3, 1999 upon notice to the Company. The Company also entered into $75 million of
interest rate cap agreements which entitles the Company to receive from the
counterparties on a monthly basis an amount by which the Company's interest
payments on $75 million of its floating rate debt exceed 7% during the period
December 5, 1998 to December 5, 1999.
Future maturities of long-term debt, for the years 1997 through 2001, are:
1997 -- $429,000; 1998 -- $446,000; 1999 -- $66,476,000; 2000 -- $495,000 and
2001 -- $525,000. The net book value of property, plant and equipment pledged as
collateral under industrial revenue bonds was approximately $6,751,000 at
December 31, 1996.
NOTE 9 INCOME TAXES
The income tax provision (benefit) for the years ended December 31
consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
Federal
Current........................... $ 4,163,000 $(7,485,000) $ (6,195,000)
Deferred.......................... 3,075,000 4,172,000 (7,353,000)
Foreign............................. 13,000 7,000 (21,000)
State and local
Current........................... 1,243,000 800,000 903,000
Deferred.......................... 264,000 (528,000) (714,000)
---------- ----------- ------------
8,758,000 (3,034,000) (13,380,000)
Tax benefit from exercise of stock
options........................ 367,000 174,000 9,962,000
---------- ----------- ------------
Actual tax provision (benefit).... $ 9,125,000 $(2,860,000) $ (3,418,000)
---------- ----------- ------------
</TABLE>
F-34
<PAGE> 136
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The significant components of the Company's deferred tax assets and
liabilities as of December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Net deferred tax assets (liabilities) -- current:
Nonrecurring charge..................................... $ 397,000 $ 1,917,000
Allowance for bad debts................................. 1,765,000 1,567,000
Accrued expenses deductible for tax purposes when
paid................................................. 3,682,000 2,775,000
State and local net operating loss and tax credit
carryforwards........................................ 2,465,000 1,747,000
Other................................................... (227,000) 47,000
----------- -----------
Total deferred tax assets............................ 8,082,000 8,053,000
Valuation allowance for deferred tax assets.......... (1,104,000) (897,000)
----------- -----------
Net deferred tax current assets...................... $ 6,978,000 $ 7,156,000
----------- -----------
Net deferred tax liabilities (assets) -- noncurrent:
Write-down of long-lived assets......................... $(2,242,000) (4,107,000)
Nonrecurring charge..................................... (395,000) (1,073,000)
Accelerated depreciation................................ 7,500,000 6,557,000
State net operating loss and credit carryforwards....... (916,000) --
Accrued expenses deductible for tax purposes when
paid................................................. (2,254,000) (2,318,000)
Income not recognized for book purposes................. (595,000) (671,000)
Other................................................... 1,522,000 1,070,000
----------- -----------
Net deferred tax noncurrent liabilities (assets)..... $ 2,620,000 $ (542,000)
=========== ===========
</TABLE>
As of December 31, 1996, the Company has deferred tax assets largely
attributable to the 1995 write-down of long-lived assets (see Note 4) and
various state net operating loss and tax credit carryforwards. Deferred tax
assets, net of the valuation reserve, are expected to be realized through future
taxable income and from the reversal of temporary differences.
The actual income tax provision (benefit) varies from the Federal statutory
rate applied to consolidated pretax income (loss) as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ----------- -----------
<S> <C> <C> <C>
Income taxes at Federal statutory rate of
35%........................................ $6,853,000 $(3,592,000) $(4,182,000)
Increases resulting from State and local
income taxes net of Federal income tax
benefit.................................... 1,080,000 177,000 123,000
Amortization of cost in excess of net
assets acquired......................... 534,000 478,000 509,000
Other -- net............................... 658,000 77,000 132,000
---------- ----------- -----------
Actual tax provision (benefit)............. $9,125,000 $(2,860,000) $(3,418,000)
========== =========== ===========
</TABLE>
NOTE 10 RETIREMENT PLANS
The Company provides retirement benefits to certain of its salaried and
hourly employees through non-contributory defined benefit pension plans. The
benefits provided are primarily based upon length of service and compensation,
as defined. The Company funds the plans in amounts as actuarially determined and
to the extent deductible for federal income tax purposes. The pension plan
assets are invested in a diversified portfolio of common stock and fixed income
securities.
F-35
<PAGE> 137
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of pension expense are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ----------- ----------
<S> <C> <C> <C>
Service cost -- benefits earned in current year... $1,032,000 $ 1,013,000 $1,044,000
Interest cost on projected benefit obligation..... 983,000 923,000 782,000
Income earned on plan assets...................... (643,000) (1,053,000) (866,000)
Net amortization and deferral..................... (317,000) 200,000 28,000
---------- ----------- ----------
$1,055,000 $ 1,083,000 $ 988,000
========== =========== ==========
</TABLE>
Assumptions used in the computation of net pension expense are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate for plan obligations............. 8.0% 8.0% 8.0%
Rate of future compensation increases........................... 5.0 5.0 5.0
Weighted average rate of return on plan assets.................. 8.8 8.8 8.8
</TABLE>
The reconciliation of the funded status of the plans at year end follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Accumulated benefit obligation:
Vested.................................................. $11,200,000 $10,595,000
Nonvested............................................... 572,000 676,000
----------- -----------
Total..................................................... 11,772,000 11,271,000
Projected salary increases................................ 2,050,000 1,793,000
----------- -----------
Projected benefit obligation.............................. 13,822,000 13,064,000
Plan assets at fair value................................. 12,883,000 12,088,000
----------- -----------
Assets less than projected benefit obligation............. (939,000) (976,000)
Unrecognized net (gain) loss.............................. (1,053,000) (1,111,000)
Unrecognized prior service cost........................... 1,656,000 1,742,000
Unrecognized transition cost.............................. 120,000 158,000
Additional liability...................................... (1,403,000) (1,623,000)
----------- -----------
Accrued pension........................................... $(1,619,000) $(1,810,000)
=========== ===========
</TABLE>
The Company maintains a discretionary profit sharing plan with a voluntary
401(k) option for certain of its salaried and hourly employees who vest after
meeting certain minimum age and service requirements. Profit sharing plan
expense, including the Company's 401(k) match was $2,243,000, $1,371,000 and
$2,636,000 for 1996, 1995 and 1994, respectively. The contributions consisted of
the Company's common stock.
NOTE 11 NONRECURRING CHARGES
During 1994, the Company recorded nonrecurring charges of $41.0 million
($25.7 million after tax), consisting of approximately $29.1 million related to
a restructuring program and $11.9 million for unusual items primarily consisting
of the write down of certain intangible assets and discontinued products.
F-36
<PAGE> 138
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The status of the components of the restructuring provision at the end of
the year was:
<TABLE>
<CAPTION>
BALANCE AT 1996 BALANCE AT
DECEMBER 31, 1995 ACTIVITY DECEMBER 31, 1996
----------------- ---------- -----------------
<S> <C> <C> <C>
Consolidation and closure of
facilities, including severance and
related costs....................... $ 7,779,000 $5,663,000 $ 2,116,000
Other, including lease termination
expenses and costs to execute the
restructuring program............... 235,000 235,000 --
---------- ---------- ----------
$ 8,014,000* $5,898,000 $ 2,116,000*
========== ========== ==========
</TABLE>
- ---------------
* The following amounts are included in the consolidated balance sheet at
December 31, 1996 and 1995, respectively under the captions: "accrued
restructuring" ($1.1 and $4.5 million), "other liabilities" ($.8 and $3.1
million), property, plant and equipment" (reduction of $.1 and $.2 million),
and "various other asset accounts" (reduction of $.1 and $.2 million).
NOTE 12 STOCK PLANS
The Company's stock plans authorize the granting of incentive and
non-qualified stock options and restricted stock to executives, key employees
and directors of the Company. Stock options are granted at prices not less than
the fair market value on the date of grant. Option terms, vesting and exercise
periods vary except that the term of an option may not exceed ten years. Certain
options provide, among other things, that in the event of a change in control,
as defined, such options will become immediately exercisable. At December 31,
1996, approximately 531,000 shares were available for future grants under the
Company's plans.
In 1991, the Company granted 250,000 shares of restricted stock to an
executive officer of the Company. The restrictions on these shares will be
released at the rate of 25,000 shares per year upon the attainment of certain
performance goals and the continued employment of the officer. These goals were
attained in 1994 and 1996. The restrictions will be released in the event of a
change in control of the Company. The unamortized restricted stock resulting
from this stock award has been deducted from stockholders' equity and is being
amortized over the periods earned.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock Based Compensation". Accordingly, no compensation cost has
been recognized for the stock option plans. Had compensation cost been
determined based on the fair value at the grant date for stock option awards in
1995 and 1996 consistent with the provision of SFAS No. 123, the Company's net
loss and loss per share for 1995 would have been increased by approximately
$2,100,000 or $.15 per share, respectively and net income and earnings per share
for 1996 would have been decreased by approximately $3,800,000 or $.27 per
share, respectively. During the initial phase-in period of SFAS No. 123, such
compensation may not be representative of the future effects of applying this
statement.
The weighted average fair value at date of grant for options granted during
1996 and 1995 was $4.11 and $4.99 per option, respectively. The fair value of
each option at date of grant was estimated using the Black-Scholes option
pricing model with the following weighted average assumptions for grants in 1996
and 1995, respectively: expected stock price volatility 35% and 39%; expected
lives of options of six and three years; expected dividend rate of $.12 per year
and risk free interest rate of 6.26% and 5.81%. The pro forma effect for
F-37
<PAGE> 139
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1995 does not take into account grants made prior to 1995. Information regarding
these option plans for 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995
------------------ ------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE 1994
EXERCISE EXERCISE ------
SHARES PRICE SHARES PRICE SHARES
------ --------- ------ --------- ------
(SHARES IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Options outstanding beginning of year........ 4,926 $ 14.10 4,479 $ 11.77 5,604
Exercised.................................... (216) 9.34 (167) 9.21 (2,672)
Granted...................................... 1,436 13.10 776 16.18 1,589
Cancelled or forfeited....................... (489) 17.64 (162) 20.13 (42)
----- ------ ----- ------ ------
Options outstanding end of year.............. 5,657 $ 13.72 4,926 $ 14.10 4,479
===== ====== ===== ====== ======
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- -----------------------
AVERAGE WEIGHTED- WEIGHTED-
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 12/31/96 LIFE PRICE AT 12/31/96 PRICE
----------------------------------- ----------- ----------- --------- ----------- ---------
(SHARES IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$ 6.63 to $ 9.75.................. 258 4 years $ 8.62 258 $ 8.62
$10.25 to $13.75.................. 3,407 6 years 11.73 3,097 11.66
$14.25 to $18.875................. 926 7 years 16.21 926 16.21
$19.125 to $20.125................. 1,066 8 years 19.14 1,066 19.14
----- -----
5,657 5,347
===== =====
</TABLE>
NOTE 13 COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain of its manufacturing, distribution and office
facilities as well as some transportation and manufacturing equipment under
noncancellable leases expiring at various dates through the year 2017. Certain
real estate leases contain escalation clauses and generally provide for payment
of various occupancy costs.
Minimum future lease obligations on noncancellable leases in effect at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- -----------
<S> <C> <C>
Year ending December 31,
1997.................................................... $ 1,115,000 $11,912,000
1998.................................................... 1,161,000 10,889,000
1999.................................................... 1,143,000 9,819,000
2000.................................................... 138,000 8,013,000
2001.................................................... 32,000 7,139,000
Subsequent years through 2017........................... 7,000,000 43,816,000
----------- -----------
Net minimum lease payments................................ 10,589,000 $91,588,000
Amount representing interest.............................. 407,000
-----------
Present value of net minimum lease payments (including
$951,000 payable within one year)....................... $10,182,000
===========
</TABLE>
F-38
<PAGE> 140
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Rental expense for operating leases amounted to approximately $19,645,000
in 1996, $19,883,000 in 1995 and $19,993,000 in 1994.
Hoover Treated Wood Products, Inc.
Hoover Treated Wood Products, Inc. ("Hoover"), a wholly-owned subsidiary of
Ply Gem, is a defendant in a number of lawsuits alleging damage caused by
alleged defects in certain pressure treated interior wood products. Hoover has
not manufactured or sold these products since August, 1988. The number of
lawsuits pending has declined significantly from earlier periods. Most of the
suits have been resolved by dismissal or settlement with settlements being paid
out of insurance proceeds or other third party recoveries. Hoover and Ply Gem
are vigorously defending the suits which remain pending and defense and
indemnity costs are being paid out of insurance proceeds and proceeds from a
settlement by Hoover with suppliers of material used in the production of
interior treated wood products.
Hoover and Ply Gem have engaged in coverage litigation with their insurers
and have settled their coverage claims with a majority of the insurers. Ply Gem
believes that the remaining coverage disputes will be resolved on a satisfactory
basis and a substantial amount of additional coverage will be available to
Hoover. In reaching this belief, it has analyzed Hoover's insurance coverage and
the status of the coverage litigation, considered its history of settlements
with primary and excess insurers and consulted with counsel.
Hoover has recorded a receivable at December 31, 1996 for approximately
$8.9 million for the estimated proceeds and recoveries related to insurance
matters discussed above and recorded an accrual for the same amount for its
estimated cost to resolve those matters not presently covered by existing
settlements with insurance carriers and suppliers.
In evaluating the effect of the lawsuits, a number of factors have been
considered, including: the litigation history, the significant decline in the
number of cases, the availability of various legal defenses and the likely
availability of proceeds from additional insurance. Based on its evaluation, the
Company believes that the ultimate resolution of the lawsuits and the insurance
claims will not have a material effect upon the financial position of the
Company.
LETTERS OF CREDIT
At December 31, 1996 approximately $20 million of letters of credit issued
by the Company's banks were outstanding, principally in connection with certain
financing transactions.
Other
Ply Gem and its subsidiaries are subject to legal actions from time to time
which have arisen in the ordinary course of its business. In the opinion of
management, the resolution of these claims will not materially affect the
financial position of the Company. The Company has various commitments for the
purchase of materials arising in the ordinary course of business.
F-39
<PAGE> 141
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Year Ended December 31, 1996:
Net Sales.......................... $ 142,018 $ 212,079 $ 230,143 $ 190,688
Gross Profit....................... 20,514 42,694 49,423 35,873
Income (loss) Before Taxes......... (4,753) 7,559 12,924 3,849
Net Income (Loss).................. (2,638) 4,157 6,915 2,020
Per Share:
Primary......................... (.18) .28 .45 .15
Fully Diluted................... (.18) .28 .45 .15
Year Ended December 31, 1995:
Net Sales.......................... $ 162,934 $ 203,265 $ 210,973 $ 178,026
Gross Profit....................... 24,862 34,149 37,444 28,191
Income (loss) Before Taxes(1) (4,594) 1,618 4,365 (11,651)
Net Income (Loss).................. (2,665) 1,028 2,276 (8,041)
Per Share:
Primary......................... (.18) .07 .16 (.56)
Fully Diluted................... (.18) .07 .16 (.56)
</TABLE>
- ---------------
(1) After charge of $12.0 million for the impairment of assets in the fourth
quarter. See Note 4 to the consolidated financial statements.
Earnings (loss) per share calculations for each of the quarters presented
are based on the weighted average number of shares and common equivalent shares
outstanding during such periods. The sum of the quarters may not necessarily be
equal to the full year earnings per share amounts.
NOTE 15 INTERIM FINANCIAL STATEMENTS (UNAUDITED)
A. The unaudited financial statements presented for the six months ended
June 30, 1997 and 1996 have been prepared without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations.
These statements include all adjustments, consisting only of normal
recurring accruals, considered necessary for a fair presentation of financial
position and results of operations. The financial statements included herein
should be read in conjunction with the financial statements and notes thereto
included in the latest annual report on Form 10-K.
B. On July 24, 1997, Ply Gem Industries, Inc. (the "Company") entered into
an Agreement and Plan of Merger ("Agreement") with Nortek, Inc. ("Nortek") and
its subsidiary, NTK SUB, Inc. (the "Purchaser") pursuant to which Nortek
commenced on July 29, 1997, a tender offer to purchase all of the outstanding
shares of the Company for cash consideration of $19.50 per share. The Agreement
is subject to customary conditions, including the tender of a majority of the
outstanding shares, regulatory approvals and the receipt of financing. Also on
July 24, 1997, the Company has terminated its merger agreement with Atrium
Acquisition Holdings Corp. (Atrium), an affiliate of Hicks, Muse, Tate & Furst
Incorporated. As a result, the Company paid $12 million to Atrium which was
funded by the issuance of 640,000 shares of the Company's stock to Nortek for
the same amount.
F-40
<PAGE> 142
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
C. The major classes of inventories were as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
Finished goods....................................... $ 61,696 $ 53,833
Work in process...................................... 13,837 9,724
Raw materials........................................ 34,917 29,426
-------- -------
$110,450 $ 92,983
======== =======
</TABLE>
D. Earnings per share of common stock is computed by dividing net income by
the weighted average number of common shares outstanding. Earnings per share for
the second quarter of 1997 and 1996 is calculated using the modified treasury
stock method, which limits the assumed purchase of treasury shares to 20% of the
outstanding common shares.
In February 1997, the Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share", which
is effective for financial statements for both interim and annual periods ending
after December 15, 1997. Early adoption of the new standard is not permitted.
The new standard eliminates primary and fully diluted earnings per share and
requires presentation of basic and diluted earnings per share together with
disclosure of how the per share amounts were computed. Adoption of the new
standard would not have had a material effect on earnings per share for the
three and six month periods ended June 30, 1997.
E. Supplemental cash flow information for the six month periods are as
follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Interest paid............................................. $3,300 $3,156
Income taxes paid......................................... 1,098 387
</TABLE>
F. The accumulated amortization of cost in excess of net assets acquired
and other intangible assets are $23,502,000 at June 30, 1997 and $22,357,000 at
December 31, 1996.
G. The Company's loan agreements with its banks require the Company to
maintain a specified leverage ratio, fixed charge ratio and tangible net worth
levels and maintain certain financial ratios, among its provisions. Under the
most restrictive of these covenants, at June 30, 1997 approximately $1,900,000
of retained earnings was available for the payment of dividends in 1997.
H. During the second quarter of 1997, the Board of Directors adopted
resolutions providing for severance payments in the event of a change in control
and subsequent termination, as defined, to certain designated employees of the
Company. At June 30, 1997, the maximum amount payable would be approximately $5
million.
I. Hoover Treated Wood Products, Inc. ("Hoover"), a wholly-owned subsidiary
of Ply Gem Industries, Inc. ("Ply Gem"), is a defendant in a number of lawsuits
alleging damage caused by alleged defects in certain pressure treated interior
wood products. Hoover has not manufactured or sold these products since August,
1988. The number of lawsuits pending has declined significantly from earlier
periods. Most of the suits have been resolved by dismissal or settlement with
settlements being paid out of insurance proceeds or other third party
recoveries. Hoover and Ply Gem are vigorously defending the suits which remain
pending and defense and indemnity costs are being paid out of insurance proceeds
and proceeds from a settlement by Hoover with suppliers of material used in the
production of interior treated wood products. Hoover and Ply Gem have engaged in
coverage litigation with their insurers and have settled their coverage claims
with a majority of the insurers. Ply Gem believes that the remaining coverage
disputes will be resolved on a satisfactory basis and a
F-41
<PAGE> 143
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
substantial amount of additional coverage will be available to Hoover. In
reaching this belief, it has analyzed Hoover's insurance coverage and the status
of the coverage litigation, considered its history of settlements with primary
and excess insurers and consulted with counsel.
Hoover has recorded a receivable at June 30, 1997 for approximately $7.5
million for the estimated proceeds and recoveries related to insurance matters
discussed above and recorded an accrual for the same amount for its estimated
cost to resolve those matters not presently covered by existing settlements with
insurance carriers and suppliers.
In evaluating the effect of the lawsuits, a number of factors have been
considered, including, the litigation history, the significant decline in the
number of cases, the availability of various legal defenses and the likely
availability of proceeds from additional insurance. Based on its evaluation, the
Company believes that the ultimate resolution of the lawsuits and the insurance
claims will not have a material effect upon the financial position of the
Company.
Two purported stockholders of the Company, filed a complaint in Delaware
Chancery Court against the Company and its Board of Directors ("Board"). The
complaint purports to be brought on behalf of a class consisting (with certain
exceptions) of all stockholders of the Company, and challenges as inadequate to
such stockholders the consideration to be paid in connection with the merger
agreement with Atrium (that has subsequently been terminated in connection with
the execution of the July 24, 1997 agreement with Nortek referred to in Note 2).
The complaint alleges, among other things, that the proposed price to be paid
pursuant to the merger agreement with Atrium is inadequate, and that the Board
breached their fiduciary duties in agreeing to it. The Company and its Board
believe the complaint to be without merit.
F-42
<PAGE> 144
======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE INITIAL PURCHASERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE
NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY OF THE NOTES TO ANYONE OR BY ANYONE IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO WHOM, IT WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN A CHANGE IN THE INFORMATION SET FORTH IN THIS PROSPECTUS OR IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by
Reference........................... 3
Available Information................. 3
Prospectus Summary.................... 4
Risk Factors.......................... 20
The Acquisition....................... 25
Use of Proceeds....................... 27
Capitalization........................ 28
Unaudited Pro Forma Condensed
Consolidated Financial Data......... 29
Selected Financial Data of Nortek..... 38
Selected Financial Data of Ply Gem.... 40
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 42
Business.............................. 52
Management............................ 59
Description of Notes.................. 61
The Exchange Offer.................... 87
Description of Other Obligations...... 95
Certain Federal Tax Considerations.... 97
Plan of Distribution.................. 100
Legal Matters......................... 100
Independent Auditors.................. 100
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
NORTEK, INC.
EXCHANGE OFFER
$310,000,000
9 1/8% SERIES B SENIOR NOTES DUE 2007
------------------------------------
PROSPECTUS
------------------------------------
, 1997
======================================================
<PAGE> 145
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law ("DGCL") provides that
a corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding whether civil, criminal or investigative (other than an action by or
in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Section 145 further
provides that a corporation similarly may indemnify any such person serving in
any such capacity who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor, against expenses actually and
reasonably incurred in connection with the defense or settlement of such action
or suit if he acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or such other
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 102(b)(7) of the DGCL permits a corporation to include in its
certificate of incorporation a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such provision
shall not eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (relating to
unlawful payment of dividends and unlawful stock purchase and redemption) or
(iv) for any transaction from which the director derived an improper personal
benefit.
The Company's Certificate of Incorporation provides that its Directors
shall not be liable to the Registrant or its stockholders for monetary damages
for breach of fiduciary duty as a director except to the extent that exculpation
from liabilities is not permitted under the DGCL as in effect at the time such
liability is determined. The Company's By-Laws further provide that Registrant
shall indemnify its directors and officers to the fullest extent permitted by
the DGCL.
The directors and officers of the Company are covered under directors' and
officers' liability insurance policies maintained by the Company.
II-1
<PAGE> 146
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------
<C> <S>
1 Purchase Agreement dated August 21, 1997 regarding the issuance and sale
of the Notes between Nortek, Inc., Wasserstein Perella Securities, Inc.
and Bear, Stearns & Co. Inc.
2.1 Agreement and Plan of Merger dated July 24, 1997 among Nortek, NTK Sub,
Inc. and Ply Gem Industries, Inc. (Exhibit 2.1 to Form 8-K filed on July
29, 1997, File No. 1-6112.)
2.2 Amendment No. 1 dated as of September 2, 1997 to Agreement and Plan of
Merger dated July 24, 1997 among Nortek, Inc., NTK Sub, Inc. and Ply Gem
Industries, Inc. (Exhibit 2.2 to Form 8-K filed September 10, 1997, File
No. 1-6112.)
2.3 Stock Purchase Agreement dated July 24, 1997 between Nortek, Inc. and Ply
Gem Industries, Inc. (Exhibit 2.3 to Form 8-K filed July 29, 1997, File
No. 1-6112)
4.1 Indenture dated as of August 26, 1997 between Nortek, Inc. and State
Street Bank and Trust Company, as Trustee.
4.2 Registration Rights Agreement dated as of August 26, 1997 between Nortek,
Inc. and the Initial Purchasers.
5 Opinion of Ropes & Gray regarding the validity of the Series B Senior
Notes due 2007.
12 Schedule regarding computation of ratio of earnings to fixed charges.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Grant Thornton LLP.
23.3 Consent of Ropes & Gray (included in Exhibit 5).
24 Powers of Attorney (included on signature page hereto).
25 Statement of Eligibility of Trustee.
99.1 Form of Letter of Transmittal used in connection with the Exchange Offer.
99.2 Form of Notice of Guaranteed Delivery used in connection with The Exchange
Offer.
</TABLE>
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
II-2
<PAGE> 147
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent
no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
<PAGE> 148
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Providence, State of
Rhode Island, on the 30th day of September, 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
registration statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
hereby authorizes Richard L. Bready, Almon C. Hall and Kevin W. Donnelly or any
of them, severally, with full power of substitution, to execute in the name and
on behalf of such person any amendment (including any post-effective amendment)
to this Registration Statement and to file the same, with exhibits thereto, and
other documents in connection therewith, making such changes in this
Registration Statement as the person(s) so acting deems appropriate, and
appoints each of such persons, each with full power of substitution,
attorney-in-fact to sign any amendment (including any post-effective amendment
to this Registration Statement and to file the same, with exhibits thereto, and
other documents in connection therein.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------- ---------------------
<S> <C> <C>
/s/ RICHARD L. BREADY Chairman, President and Chief September 30, 1997
- ------------------------------------------ Executive Officer (Principal
Richard L. Bready Executive Officer)
/s/ ALMON C. HALL Vice President, Controller September 30, 1997
- ------------------------------------------ and Chief Accounting Officer
Almon C. Hall (Principal Accounting
Officer)
/s/ RICHARD J. HARRIS Vice President, Treasurer and September 30, 1997
- ------------------------------------------ Director (Principal Financial
Richard J. Harris Officer)
Director
- ------------------------------------------
Phillip L. Cohen
/s/ WILLIAM I. KELLY Director September 30, 1997
- ------------------------------------------
William I. Kelly
/s/ J. PETER LYONS Director September 30, 1997
- ------------------------------------------
J. Peter Lyons
</TABLE>
<PAGE> 149
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
- ------ ------------------------------------------------------------------------ ------------
<C> <S> <C>
1 Purchase Agreement dated August 21, 1997 regarding the issuance and sale
of the Notes between Nortek, Inc. and the Initial Purchasers.
2.1 Agreement and Plan of Merger dated July 24, 1997 among Nortek, NTK Sub,
Inc. and Ply Gem Industries, Inc. (Exhibit 2.1 to Form 8-K filed on July
29, 1997, File No. 1-6112.)
2.2 Amendment No. 1 dated as of September 2, 1997 to Agreement and Plan of
Merger dated July 24, 1997 among Nortek, Inc., NTK Sub, Inc. and Ply Gem
Industries, Inc. (Exhibit 2.2 to Form 8-K filed September 10, 1997, File
No. 1-6112.)
2.3 Stock Purchase Agreement dated July 24, 1997 between Nortek, Inc. and
Ply Gem Industries, Inc. (Exhibit 2.3 to Form 8-K filed July 29, 1997,
File No. 1-6112)
4.1 Indenture dated as of August 26, 1997 between Nortek, Inc. and State
Street Bank and Trust Company, as Trustee.
4.2 Registration Rights Agreement dated as of August 26, 1997 between the
Company and the Initial Purchasers.
5 Opinion of Ropes & Gray regarding the validity of the Series B Senior
Notes due 2007.
12 Schedule regarding computation of ratio of earnings to fixed charges.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Grant Thornton LLP.
23.3 Consent of Ropes & Gray (included in Exhibit 5).
24 Powers of Attorney (included on signature page hereto).
25 Statement of Eligibility of Trustee.
99.1 Form of Letter of Transmittal used in connection with the Exchange
Offer.
99.2 Form of Notice of Guaranteed Delivery used in connection with The
Exchange Offer.
</TABLE>
<PAGE> 1
Exhibit 1
================================================================================
NORTEK, INC.
$310,000,000
9 1/8% Senior Notes due 2007
Purchase Agreement
August 21, 1997
WASSERSTEIN PERELLA SECURITIES, INC.
BEAR, STEARNS & CO. INC.
================================================================================
<PAGE> 2
NORTEK, INC.
$310,000,000
9 1/8% Senior Notes due 2007
PURCHASE AGREEMENT
August 21, 1997
New York, New York
WASSERSTEIN PERELLA SECURITIES, INC.
31 West 52nd Street
New York, New York 10019
BEAR, STEARNS & CO. INC.
245 Park Avenue
New York, New York 10167
Ladies & Gentlemen:
Nortek, Inc., a Delaware corporation ("NORTEK"), proposes to issue and
sell to Wasserstein Perella Securities, Inc. and Bear, Stearns & Co. Inc. (each,
an "INITIAL PURCHASER", and collectively, the "INITIAL PURCHASERS") $310,000,000
aggregate principal amount of its 9 1/8% Senior Notes due 2007 (the "NOTES") in
connection with the Acquisition (as defined below) by Nortek of Ply Gem
Industries, Inc., a Delaware corporation ("PLY GEM"), subject to the terms and
conditions set forth herein. The Notes will be issued pursuant to the provisions
of an indenture dated August 26, 1997 (the "INDENTURE"), between Nortek and
State Street Bank and Trust Company, as trustee (the "TRUSTEE"). The terms
"NORTEK" and "PLY GEM" refer to Nortek and its subsidiaries and Ply Gem and its
subsidiaries, respectively, prior to giving effect to the Acquisition. The term
"COMPANY" refers, collectively, to Nortek and Ply Gem.
On July 24, 1997, Nortek, a wholly-owned subsidiary of Nortek and Ply Gem
entered into an Agreement and Plan of Merger (the "MERGER AGREEMENT"). In
connection with the Merger Agreement, on July 29, 1997, such Nortek subsidiary
commenced a tender offer to purchase all outstanding shares of common stock,
$0.25 par value per share ("COMMON STOCK" or "SHARES"), of Ply Gem at a price of
$19.50 per share, net to the seller in cash, without interest thereon (the
"TENDER OFFER"), upon such terms and conditions as are set forth in the offer to
purchase dated July 29, 1997 (the "OFFER TO PURCHASE") and the related letter of
transmittal. The obligation of Nortek's subsidiary to accept for payment or pay
for any tendered shares in the Tender Offer is conditioned on the conditions
specified in the Offer to Purchase (such
<PAGE> 3
2
conditions collectively, the "ACQUISITION CONDITIONS"). As promptly as
practicable after satisfaction or waiver of the Acquisition Conditions and the
acceptance of and payment for the Shares tendered pursuant to the Tender Offer,
the Merger Agreement provides that Nortek's subsidiary will be merged with and
into Ply Gem (the "MERGER"), which shall be the surviving corporation and shall
thereby become a wholly owned subsidiary of Nortek. In the Merger, each issued
and outstanding Share (other than Shares owned directly or indirectly by Ply
Gem, Shares held in the treasury of Ply Gem and Shares owned by Ply Gem
stockholders who perfect appraisal rights under the General Corporation Law of
the State of Delaware) will be converted into the right to receive $19.50 in
cash or such higher price that may be paid in the Tender Offer, without
interest. As part of the transactions contemplated by the Merger Agreement, each
outstanding stock option to acquire Shares (an "OPTION") will be cancelled for
the excess, if any, of the price paid in the Tender Offer over the exercise
price of the Option. The transactions contemplated by the Merger Agreement are
referred to herein as the "ACQUISITION." The Acquisition, this Offering and the
use of proceeds therefrom, issuance of the Bridge Notes (as defined in the
Offering Memorandum referred to below) or extensions of credit under the Ply Gem
Credit Facility (as defined in the Offering Memorandum)(as the case may be) and
the other transactions contemplated by the Operative Documents (as defined
below) are referred to herein collectively as the "TRANSACTIONS."
The Notes will be offered and sold to the Initial Purchasers without
registration under the Securities Act of 1933, as amended (the "ACT"), in
reliance on an exemption from the registration requirements of the Act. In
connection with the sale of the Notes, the Company prepared a preliminary
offering memorandum dated August 8, 1997 (including all documents incorporated
therein by reference, the "PRELIMINARY OFFERING MEMORANDUM"), and a final
offering memorandum dated August 21, 1997 (including all documents incorporated
therein by reference, the "OFFERING MEMORANDUM"), each setting forth certain
information concerning the Company and the Notes. The Company hereby confirms
that it has authorized the use of the Preliminary Offering Memorandum and the
Offering Memorandum in connection with the offer and resale of the Notes by the
Initial Purchasers. Unless stated to the contrary, all references herein to the
Offering Memorandum are to the Offering Memorandum at the date hereof (including
any supplements or amendments). Capitalized terms used herein and not otherwise
defined shall have the meanings assigned to such terms in the Offering
Memorandum.
The Company understands that each of the Initial Purchasers proposes to
make offerings of the Notes only on the terms and in the manner set forth in the
Offering Memorandum and Sections 2 and 3 hereof, as soon as each such Initial
Purchaser deems advisable after this Agreement has been executed and delivered,
(i) to persons in the United States whom such Initial Purchaser reasonably
believes to be qualified institutional buyers ("QIBS") as defined in Rule 144A
under the Act, as such rule may be amended from time to time ("RULE 144A"), in
transactions meeting the requirements of Rule 144A, (ii) to a limited number of
other persons such Initial Purchaser reasonably believes to be institutional
"accredited investors" ("ACCREDITED INVESTORS") as defined in Rule 501(a)(1),
(2), (3) or (7) under Regulation D of the
<PAGE> 4
3
Act, in private sales exempt from registration under the Act or (iii) to
non-U.S. persons such Initial Purchaser reasonably believes are permitted to
purchase the Notes in offshore transactions in reliance upon Regulation S under
the Act (each, a "REGULATION S PURCHASER") (such persons specified in clauses
(i), (ii) and (iii) being referred to herein as the "ELIGIBLE PURCHASERS").
1. ISSUANCE OF SECURITIES. The Company proposes, upon the
terms and subject to the conditions set forth herein, to issue and sell to the
Initial Purchasers an aggregate of $310,000,000 principal amount of Notes. The
Notes and the Series B Notes (as defined below) issuable in exchange therefor
are collectively referred to herein as the "NOTES."
Upon original issuance thereof, and until such time as the same is
no longer required under the applicable requirements of the Act, the Notes (and
all securities issued in exchange therefor or in substitution thereof) shall
bear the following legend:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY PERSON EXCEPT AS SET FORTH
IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT), (B) IT IS AN "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT) WHO IS AN INSTITUTION (AN "INSTITUTIONAL ACCREDITED
INVESTOR"), OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE
OUTSIDE THE UNITED STATES IN COMPLIANCE WITH REGULATION S UNDER THE
SECURITIES ACT, (2) AGREES THAT IT WILL NOT PRIOR TO THE DATE WHICH IS
TWO YEARS AFTER THE LATER OF THE DATE OF ORIGINAL ISSUANCE OF THIS NOTE
AND THE LAST DATE ON WHICH THE ISSUER OR ANY AFFILIATE OF THE ISSUER WAS
THE OWNER OF THIS NOTE (THE "RESALE RESTRICTION TERMINATION DATE") OFFER,
SELL OR OTHERWISE TRANSFER THIS NOTE, EXCEPT (A) TO THE ISSUER, (B) TO A
PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL
BUYER PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ANOTHER
QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH THE RESALE PROVISIONS OF
RULE 144A UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL ACCREDITED
INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A WRITTEN
CERTIFICATION CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING
TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER
CAN BE OBTAINED FROM THE TRUSTEE), (D) PURSUANT TO THE RESALE LIMITA-
<PAGE> 5
4
TIONS PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (E)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT,
(F) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION
MEETING THE REQUIREMENTS OF REGULATION S UNDER THE SECURITIES ACT OR (G)
PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (BASED, IN THE CASE OF CLAUSES (C),
(D), (F) AND (G) ABOVE, UPON AN OPINION OF COUNSEL REASONABLY ACCEPTABLE
TO THE ISSUER IF THE ISSUER SO REQUESTS), SUBJECT IN EACH OF THE
FOREGOING CASES TO ANY REQUIREMENT OF LAW THAT THE DISPOSITION OF ITS
PROPERTY OR THE PROPERTY OF SUCH ACCOUNT BE AT ALL TIMES WITHIN ITS
CONTROL AND TO COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS AND (3)
AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IF THE
PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER
MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE ISSUER SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT
TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE FOREGOING
RESTRICTIONS ON RESALE WILL NOT APPLY SUBSEQUENT TO THE RESALE
RESTRICTION TERMINATION DATE.
2. OFFERING. The Notes will be offered and sold to the Initial
Purchasers pursuant to an exemption from the registration requirements under the
Act.
Each of the Initial Purchasers has advised the Company that it
proposes to offer the Notes for resale (the "EXEMPT RESALES") on the terms and
conditions set forth in this Agreement and in the Offering Memorandum, as
amended or supplemented, solely to (i) persons whom such Initial Purchaser
reasonably believes to be QIBs, (ii) a limited number of other institutional
investors whom such Initial Purchaser reasonably believes to be Accredited
Investors that are purchasing for their own accounts or for the account of an
Accredited Investor, for investment purposes only and not with a view to, or for
offer or sale in connection with, any distribution of the Notes in violation of
the Act and (iii) persons such Initial Purchaser reasonably believes to be
Regulation S Purchasers, PROVIDED, HOWEVER, that with respect to clause (ii)
each such Accredited Investor shall be required to complete and deliver a
purchaser letter, substantially in the form of Annex A to the Offering
Memorandum, to such Initial Purchaser prior to the confirmation of any order.
The Initial Purchasers will offer the Notes to such Eligible Purchasers
initially at a price equal to
<PAGE> 6
5
99.192% of the principal amount thereof. Such price may be changed at any time
without notice.
The Initial Purchasers and other holders (including subsequent
transferees) of the Notes will have the registration rights set forth in a
registration rights agreement relating thereto (the "REGISTRATION RIGHTS
AGREEMENT"), to be dated the Closing Date and substantially in the form of
EXHIBIT A hereto, for so long as such Notes constitute "REGISTRABLE SECURITIES"
(as defined in the Registration Rights Agreement). Pursuant to the Registration
Rights Agreement, the Company will agree to file with the Securities and
Exchange Commission (the "COMMISSION"), under the circumstances set forth
therein, (i) a registration statement under the Act (the "EXCHANGE OFFER
REGISTRATION STATEMENT") relating to the 9 1/8% Senior Notes due 2007 (the
"SERIES B NOTES") to be offered in exchange for the Notes (the "EXCHANGE OFFER")
and (ii) a shelf registration statement pursuant to Rule 415 under the Act (the
"SHELF REGISTRATION STATEMENT") relating to resales by certain holders of the
Notes, and, if applicable, the Private Exchange Notes (as defined in the
Registration Rights Agreement) and to use its best efforts to cause such
Registration Statements to be declared effective and to consummate the Exchange
Offer.
This Agreement, the Notes, the Series B Notes, the Private
Exchange Notes, the Indenture and the Registration Rights Agreement are
hereinafter sometimes referred to collectively as the "OPERATIVE DOCUMENTS."
3. PURCHASE, SALE AND DELIVERY. (a) On the basis of the
representations, warranties and covenants contained in this Agreement, and
subject to the terms and conditions set forth herein, the Company agrees to
issue and sell to the Initial Purchasers, and the Initial Purchasers agree to
purchase from the Company, $310,000,000 aggregate principal amount of Notes. The
purchase price for the Notes will be $962.16 per $1,000 principal amount of
Notes.
(b) Delivery of the Notes shall be made, against payment
of the purchase price therefor, at the offices of Paul, Weiss, Rifkind, Wharton
& Garrison, 1285 Avenue of the Americas, New York, New York 10019 on Tuesday,
August 26, 1997, at 10:00 a.m., New York City time, or such other location, date
and time as the Initial Purchasers and the Company shall agree (such date and
time of delivery and payment, the "CLOSING DATE").
(c) One or more of the Notes in definitive form,
registered in the name of Cede & Co., as nominee of The Depository Trust Company
("DTC"), having an aggregate amount corresponding to the aggregate amount of the
Notes sold pursuant to Exempt Resales to QIBs, Accredited Investors and
Regulation S Purchasers (the "GLOBAL NOTE") shall be delivered by the Company to
the Initial Purchasers (or as the Initial Purchasers direct), in each case with
any transfer taxes thereon duly paid by the Company, against payment by the
Initial Purchasers of the purchase price therefor, by wire transfer of same day
funds, to an account designated by the Company, provided that the Company shall
give at least two business days' prior written notice to the Initial Purchasers
of the information required to effect such
<PAGE> 7
6
wire transfer. The Global Note shall be made available to the Initial Purchasers
for inspection not later than 9:00 a.m., New York City time, on the business day
immediately preceding the Closing Date.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees
with each of the Initial Purchasers as follows:
(a) To advise the Initial Purchasers promptly and, if
requested by the Initial Purchasers, confirm such advice in writing, (i) of the
issuance by any state securities commission of any stop order or order
preventing or suspending the use of the Preliminary Offering Memorandum or the
Offering Memorandum, of any suspension of the qualification or exemption from
qualification of any Notes for offering or sale in any jurisdiction, or the
initiation or threatening of any proceeding for such purpose by any state
securities commission or other regulatory authority and (ii) of the occurrence
of any event that makes any statement of a material fact made in the Offering
Memorandum untrue or that requires the making of any additions to or changes in
the Offering Memorandum (as amended or supplemented from time to time) in order
to make the statements therein, in the light of the circumstances under which
they are made, not misleading. The Company shall use its best efforts to prevent
the issuance of any stop order or order preventing or suspending the use of the
Preliminary Offering Memorandum or the Offering Memorandum or suspending the
qualification or exemption of any Notes under any state securities or Blue Sky
laws and, if any such order is issued, to obtain the withdrawal or lifting of
such order at the earliest possible time.
(b) The Company will furnish to the Initial Purchasers,
counsel for the Initial Purchasers and those persons identified by the Initial
Purchasers to the Company, without charge, as many copies of the Preliminary
Offering Memorandum and the Offering Memorandum, and any amendments or
supplements thereto, as the Initial Purchasers and counsel for the Initial
Purchasers may reasonably request. The Company consents to the use of the
Preliminary Offering Memorandum and the Offering Memorandum, and any amendments
and supplements thereto by the Initial Purchasers in connection with Exempt
Resales.
(c) Before amending or supplementing the Preliminary
Offering Memorandum or the Offering Memorandum, to furnish to the Initial
Purchasers a copy of each such proposed amendment or supplement and not to make
any such proposed amendment or supplement to which the Initial Purchasers
reasonably object. The Company shall promptly prepare, upon the reasonable
request of the Initial Purchasers, any amendment or supplement to the
Preliminary Offering Memorandum or the Offering Memorandum that may be necessary
or advisable in connection with Exempt Resales.
(d) If, after the date hereof and prior to completion of
any Exempt Resale by the Initial Purchasers to purchasers who are not affiliated
with the Initial Purchasers, any event shall occur or condition shall exist as a
result of which, in the judgment of the Company or counsel for the Company, it
becomes necessary or
<PAGE> 8
7
advisable to amend or supplement the Preliminary Offering Memorandum or Offering
Memorandum so that it does not include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances existing at the time such Preliminary Offering
Memorandum or Offering Memorandum is delivered to a purchaser, not misleading,
or if in the opinion of the Company or counsel for the Company or counsel to the
Initial Purchasers it is necessary or advisable to amend or supplement the
Preliminary Offering Memorandum or Offering Memorandum to comply with applicable
law, the Company will (i) notify the Initial Purchasers, in writing, to suspend
use of the Preliminary Offering Memorandum or Offering Memorandum as promptly as
practicable, and (ii) promptly prepare, at its own expense, an appropriate
amendment or supplement to such Preliminary Offering Memorandum or Offering
Memorandum in accordance with Section 4(c) above, so that the statements therein
as so amended or supplemented will not include an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances existing at the time it is so
delivered to a purchaser, not misleading, or so that such Preliminary Offering
Memorandum or Offering Memorandum will comply with applicable law.
(e) To cooperate with the Initial Purchasers and counsel
for the Initial Purchasers in connection with the qualification or registration
of the Notes for the offering and sale under the securities or Blue Sky laws of
such states and other jurisdictions as the Initial Purchasers may reasonably
request and to continue such qualification in effect so long as required for the
Exempt Resales; PROVIDED, HOWEVER, that the Company shall not be required in
connection therewith to register or qualify as a foreign corporation where it is
not now so qualified or to take any action that would subject it to service of
process in suits or taxation, in each case, other than as to matters and
transactions relating to the Preliminary Offering Memorandum, the Offering
Memorandum or Exempt Resales, in any jurisdiction where it is not now so
subject. The Company shall promptly advise the Initial Purchasers of the receipt
of any notification with respect to the suspension of the qualification or
exemption from qualification of the Notes for offering or sale in any
jurisdiction or the institution, or to the Company's knowledge the threat or
contemplation of any proceeding for such purpose.
(f) Whether or not the transactions contemplated by this
Agreement are consummated or this Agreement becomes effective or is terminated,
the Company will pay all costs, expenses, fees and taxes incident to the
performance of the obligations of the Company hereunder, including in connection
with: (i) the preparation, printing, filing and distribution of the Preliminary
Offering Memorandum and the Offering Memorandum (including, without limitation,
financial statements) and all amendments and supplements thereto required
pursuant hereto, (ii) the issuance, transfer and delivery by the Company of the
Notes to the Initial Purchasers, (iii) the qualification or registration of the
Notes for offer and sale under the securities or Blue Sky laws of the several
states (including, without limitation, the cost of preparing, printing and
mailing a preliminary and final Blue Sky Memorandum and the reasonable fees and
disbursements of counsel for the Initial Purchasers relating
<PAGE> 9
8
thereto) and the expenses related to all other agreements, memoranda,
correspondence and all other documents prepared and delivered in connection
herewith and with the Exempt Resales, (iv) furnishing such copies of the
Preliminary Offering Memorandum and the Offering Memorandum, and all amendments
and supplements thereto, as may be requested for use in connection with Exempt
Resales, (v) the preparation of certificates for the Notes (including, without
limitation, printing and engraving thereof), (vi) the fees, disbursements and
expenses of the Company's counsel and accountants, (vii) all expenses and
listing fees in connection with the application for quotation of the Notes in
the Private Offerings, Resales and Trading Through Automated Linkages ("PORTAL")
market of the National Association of Securities Dealers, Inc. ("NASD"), (viii)
all fees and expenses (including fees and expenses of counsel) of the Company in
connection with the approval of the Notes by DTC for "book-entry" transfer, (ix)
rating the Notes by rating agencies, (x) the fees and expenses of the Trustee
and its counsel, (xi) the performance by the Company of its other obligations
under this Agreement and the other Operative Documents, and (xii) "roadshow"
travel and other expenses incurred in connection with the marketing and sale of
the Notes. Except as provided in this Section 4(f) and Sections 4(s), 6, 7 and
12(d) hereof, the Initial Purchasers shall pay all of their own costs and
expenses, including the fees of counsel for the Initial Purchasers.
(g) The Company will use the proceeds from the sale of
the Notes in the manner specified in the Offering Memorandum under the caption
"Use of Proceeds;" PROVIDED THAT, no more than $155 million of such proceeds
shall be used, directly or indirectly, to acquire the Shares in the Tender
Offer.
(h) The Company will not voluntarily claim, and will
resist actively any attempts to claim, the benefit of any usury laws against the
holders of any Notes.
(i) None of the Company, its subsidiaries or affiliates
(as defined in Rule 501(b) under the Act) will sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
the Act) that could be integrated with the sale of the Notes in a manner that
would require the registration of the Notes under the Act or take any other
action that would result in the Exempt Resales not being exempt from
registration under the Act.
(j) The Company will for so long as any of the Notes
remain outstanding and during any period in which the Company is not subject to
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), and any holder of the Notes is still relying on Rule 144A or
another exemption from the registration requirements of the Act, make available
to any holder or beneficial owner of Notes in connection with any sale thereof
and any prospective purchaser of such Notes from such holder or beneficial
owner, the information required by Rule 144A(d)(4) under the Act.
(k) The Company will cause the Exchange Offer to be made
in the appropriate form to permit registered Series B Notes to be offered in
exchange
<PAGE> 10
9
for the Notes and to comply with all applicable federal and state securities
laws in connection with the Exchange Offer.
(l) The Company will comply with all of the agreements
set forth herein and in the other Operative Documents and all agreements set
forth in the representation letters of the Company to DTC relating to the
approval of the Notes by DTC for "book-entry" transfer.
(m) The Company will use its best efforts to effect the
inclusion of the Notes in PORTAL, maintain the listing of the Notes on PORTAL
for so long as the Notes are outstanding and obtain approval of the Notes by DTC
for "book-entry" transfer.
(n) During a period of three years following the Closing
Date, the Company will deliver without charge to each Initial Purchaser,
promptly upon their becoming available, copies of (i) all reports or other
publicly available information that the Company shall mail or otherwise make
available to its stockholders, the Trustee or to holders of the Notes or the
Series B Notes and (ii) all reports, financial statements and proxy or
information statements filed by the Company with the Commission or any national
securities exchange and such other publicly available information concerning the
Company or any of its subsidiaries, including without limitation, press
releases.
(o) Prior to the Closing Date, the Company will furnish
to the Initial Purchasers, as soon as they have been prepared in the ordinary
course by the Company, copies of any unaudited interim financial statements for
any period subsequent to the periods covered by the financial statements
appearing in the Offering Memorandum.
(p) Neither the Company nor any of its subsidiaries will
take, directly or indirectly, any action designed to, or that might reasonably
be expected to, cause or result in stabilization or manipulation of the price of
any security of the Company in order to facilitate the sale or resale of the
Notes. Except as permitted by the Act, the Company will not distribute any (i)
preliminary offering memorandum, including, without limitation, the Preliminary
Offering Memorandum, (ii) offering memorandum, including, without limitation,
the Offering Memorandum or (iii) other offering material in connection with the
offering and sale of the Notes.
(q) Neither the Company, its affiliates (as defined in
Rule 501(b) under the Act) nor any person acting on behalf of either will
solicit any offer to buy or offer or sell the Notes or the Series B Notes by
means of any form of general solicitation or general advertising (as such terms
are used in Regulation D under the Act), or in any manner involving a public
offering within the meaning of Section 4(2) of the Act prior to the
effectiveness of a registration statement with respect to the Notes or the
Series B Notes, as applicable, except that the Company makes no undertaking in
this Section 4(q) regarding the Initial Purchasers or any person acting on
behalf of either of them.
<PAGE> 11
10
(r) Prior to the Closing Date, the Company will not
amend or modify the Merger Agreement or the terms or conditions of the Tender
Offer in any manner or respect which would be adverse to the holder of any Note
without the prior written consent of the Initial Purchasers.
(s) If (i) the Closing Date occurs after the Expected
Closing Date (as defined below), interest on the Notes when issued shall accrue
from the Expected Closing Date or (ii) this Agreement is terminated and the
Notes are not issued as contemplated hereby and by the Offering Memorandum, a
fee shall be payable by Nortek to the Initial Purchasers in an amount equal to
the amount of interest that would have accrued on the Notes (under the terms
thereof as described in the Offering Memorandum) had the Notes been issued, from
the Expected Closing Date to the date of termination of this Agreement. The term
"EXPECTED CLOSING DATE" means August 26, 1997.
5. REPRESENTATIONS AND WARRANTIES.
(a) The Company represents and warrants to, and agrees
with, the Initial Purchasers that:
(i) The Preliminary Offering Memorandum did not
as of its date, and the Offering Memorandum does not, and any supplement
or amendment to the Offering Memorandum will not, contain an untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading. No representation and warranty is made in this
subsection (i), however, with respect to any information contained in or
omitted from the Preliminary Offering Memorandum or the Offering
Memorandum, or any amendment thereof or supplement thereto, in reliance
upon and in conformity with information furnished in writing to the
Company by any Initial Purchaser relating to such Initial Purchaser
expressly for use in connection with the preparation thereof. The
statistical and market-related data included in the Preliminary Offering
Memorandum and the Offering Memorandum are based on or derived from
sources which the Company believes to be reliable and accurate. No
forward looking statements within the meaning of Section 27A of the Act
and Section 21E of the Exchange Act contained in the Preliminary Offering
Memorandum and the Offering Memorandum have been made or reaffirmed
without a reasonable basis or have been disclosed other than in good
faith.
(ii) The Company has complied with any and all
requests by any securities authority in any jurisdiction for additional
information to be included in the Preliminary Offering Memorandum and the
Offering Memorandum. No action has been taken or, to the knowledge of the
Company, threatened, and no statute, rule, regulation or order has been
enacted, adopted or issued by any governmental agency or body, including
any federal or state court of competent jurisdiction, which (A) prevents
the
<PAGE> 12
11
execution, delivery and performance of any of the Operative Documents or
the Merger Agreement, (B) prevents or suspends the issuance or sale of
the Notes or the use of the Preliminary Offering Memorandum or the
Offering Memorandum, or any amendment or supplement thereto, in any
jurisdiction or (C) asserts that any of the transactions contemplated by
this Agreement are subject to the registration requirements of the Act.
(iii) Arthur Andersen LLP, which has certified the
financial statements and supporting schedules included in the Offering
Memorandum in respect of Nortek and its subsidiaries, is an independent
certified public accounting firm with regard to Nortek and its
subsidiaries as required by the Act if the Offering were required to be
registered under the Act. Grant Thornton LLP, which has certified the
financial statements and supporting schedules included in the Offering
Memorandum in respect of Ply Gem and its subsidiaries, is an independent
certified public accounting firm with regard to Ply Gem and its
subsidiaries as required by the Act if the Offering were required to be
registered under the Act.
(iv) Subsequent to the respective dates as of
which information is given in the Offering Memorandum, except as set
forth in the Offering Memorandum (exclusive of any amendments or
supplements thereto subsequent to the date of this Agreement), there has
been no material adverse change in or effect on the business, prospects,
properties, assets, liabilities (contingent or otherwise), earnings,
operations, condition (financial or otherwise) or results of operations
of the Company and its subsidiaries taken as a whole (a "MATERIAL ADVERSE
EFFECT"), whether or not arising from transactions in the ordinary course
of business, no fact has become known to the Company which could
reasonably be expected to have a Material Adverse Effect, and no loss of,
or damage to, properties (whether or not insured) has occurred which
could reasonably be expected to have a Material Adverse Effect. Since
June 28, 1997, except as expressly disclosed in the Offering Memorandum
or in any reports filed by the Company with the Commission pursuant to
the Exchange Act or in accordance with any plan contained in any such
report, neither the Company nor any of its subsidiaries has (A) incurred
or undertaken any liabilities or obligations, direct or contingent, that
are material to the Company and its subsidiaries taken as a whole, (B)
entered into any material transaction not in the ordinary course of
business and consistent with past practice or (C) declared or paid any
dividend or made any distribution on any shares of its capital stock or,
other than the purchase of not more than 200,000 shares of the Company's
common stock, redeemed, purchased or otherwise acquired or agreed to
redeem, purchase or otherwise acquire any shares of its capital stock.
Since the date of the latest balance sheet presented in the Offering
Memorandum, except as expressly disclosed in the Offering Memorandum or
in any reports filed by the Company with the Commission pursuant to the
Exchange Act or in accordance with any plan contained in any such report,
there has not been any change in the long-term
<PAGE> 13
12
debt of the Company or any material change in the capital stock of the
Company.
(v) The Company has the requisite corporate power
and the authority to (A) enter into this Agreement, each of the other
Operative Documents to which it is a party and the Merger Agreement, (B)
perform each of its obligations hereunder and thereunder and (C)
consummate the Transactions including, without limitation, to issue, sell
and deliver the Notes to be sold by it hereunder and to consummate the
Acquisition. This Agreement, each of the other Operative Documents to
which the Company is a party, the Merger Agreement and the Transactions
contemplated herein and therein have been duly and validly authorized by
the Company and each of such agreements has been duly and validly
executed and delivered by the Company and is a valid and binding
obligation of the Company, enforceable against the Company in accordance
with its terms, except (A) as the enforceability thereof may be limited
by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other similar laws affecting the enforcement of creditors
rights generally and by general equitable principles and (B) to the
extent that rights to indemnity and contribution hereunder may be limited
by federal or state securities laws or the public policy underlying such
laws.
(vi) The execution, delivery and performance of
this Agreement, each of the other Operative Documents and the Merger
Agreement by the Company and the consummation by the Company of the
Transactions (including, but not limited to, (A) the issuance, sale and
delivery of the Notes by the Company and compliance by the Company with
the terms thereof and (B) consummation of the Acquisition) do not and
will not (1) conflict with or result in a breach or violation of any of
the terms and provisions of, or constitute a default (or an event which
with notice or lapse of time, or both, would constitute a default),
result in a material modification of the effect of, give rise to any
right to accelerate the maturity or require the prepayment of any
obligation of the Company or any of its subsidiaries or require any
consent, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or its
subsidiaries, pursuant to, the terms of any contract, lease, indenture,
mortgage, deed of trust, loan agreement, instrument, franchise, license,
permit or other agreement or document to which the Company or any of its
subsidiaries is a party or by which the Company or any of its
subsidiaries or their respective properties or assets may be bound,
except for such conflicts, breaches, defaults, modifications,
accelerations, prepayments, liens, charges or encumbrances which would
not individually or in the aggregate have a Material Adverse Effect or
prohibit or restrict the consummation of the transactions contemplated
hereby and thereby; (2) violate or conflict with any provision of the
certificate of incorporation or by-laws (or equivalent instruments) of
the Company or any of its subsidiaries; (3) violate or conflict with any
judgment, decree, order, statute, rule or regulation of any court or
<PAGE> 14
13
arbitrator or any public, governmental or regulatory agency or body
having jurisdiction over the Company or any of its subsidiaries or any of
their respective properties or assets except for such violations or
conflicts which would not individually or in the aggregate have a
Material Adverse Effect or restrict the consummation of the transactions
contemplated hereby and thereby; or (4) result in the termination or
revocation of the Company's or any of its subsidiaries' consents,
approvals, authorizations, orders, registrations, qualifications,
licenses or permits of or from any public, regulatory or governmental
agency or body to own, lease or operate its properties or conduct its
business as now being conducted or as described in the Offering
Memorandum, except where such termination or revocation would not have a
Material Adverse Effect.
(vii) No consent, approval, authorization, order,
registration, filing, qualification, license or permit of or with any
court or any public, governmental or regulatory agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
respective properties or assets is required for (A) the valid execution,
delivery and performance of this Agreement, any of the other Operative
Documents or the Merger Agreement, (B) the consummation by the Company of
the Transactions, including, but not limited to, (1) the issuance, sale
and delivery of the Notes to be issued, sold and delivered by the Company
hereunder and (2) the consummation of the Acquisition or (C) compliance
by the Company with the terms hereof or thereof, except, in the case of
those required to be made prior to the date hereof, such as have been
obtained and made or, in the case of those permitted to be made
hereafter, as will be timely obtained or made.
(viii) All of the outstanding shares of capital
stock of the Company are duly and validly authorized and issued, fully
paid and nonassessable, were issued in compliance with all applicable
federal and state securities laws and were not issued in violation of any
preemptive rights nor do any such shares of capital stock have the
benefit of any preemptive rights. The Company had, at June 28, 1997, a
duly authorized and outstanding capitalization as set forth in the
"Actual" column under the caption "Capitalization" in the Offering
Memorandum. On June 28, 1997, after giving pro forma effect to the
Transactions (assuming extensions of credit under the Ply Gem Credit
Facility but not issuance of the Bridge Notes), the Company would have
had an authorized and outstanding capitalization as set forth in the
Offering Memorandum in the "As Adjusted" column under the caption
"Capitalization." No holder of any securities of the Company is entitled
to have such securities (other than the Notes, the Exchange Notes and the
Private Exchange Notes, if any) registered under any registration rights
or similar agreement. Except as described in the Offering Memorandum
(including the documents incorporated by reference therein), there are no
outstanding subscriptions, rights, warrants, calls or options to acquire,
or instruments convertible into or exchangeable for, or agreements or
understandings with respect to the issuance of, any shares of capital
stock of or other equity or
<PAGE> 15
14
other ownership interest in the Company's subsidiaries other than those
owned or held by the Company or another subsidiary of the Company.
(ix) The Company and each of its subsidiaries has
been duly organized and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation. The Company
and each of its subsidiaries is duly qualified and in good standing as a
foreign corporation in each jurisdiction in which the character or
location of its properties (owned, leased or licensed) or the nature or
conduct of its business makes such qualification necessary, except for
those failures to be so qualified or in good standing which could not,
individually or the aggregate, have a Material Adverse Effect, and
neither the Company nor any of its subsidiaries has received any claim or
notice from any official in any jurisdiction that it is required to be
qualified or licensed to do business in any jurisdiction in which it is
not so qualified or licensed. The Company and each of its subsidiaries
has, and after giving effect to the Transactions will have, all requisite
power and authority, and all necessary consents, approvals,
authorizations, orders, registrations, qualifications, licenses and
permits of and from, and has made all appropriate declarations and
filings with, all public, regulatory or governmental agencies and bodies,
to own, lease and operate its properties and conduct its business as now
being conducted and as described in the Offering Memorandum except for
consents, approvals, authorizations, orders, registrations,
qualifications, licenses and permits the failure to obtain which,
individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect. Neither the Company nor any of its
subsidiaries has received any notice of any proceedings relating to the
revocation or modification of any thereof, nor is the Company or any of
its subsidiaries aware of any basis therefor, and no such consent,
approval, authorization, order, registration, qualification, franchise,
license or permit contains a restriction that is materially burdensome to
the Company or any of its subsidiaries that is not adequately and
accurately disclosed in the Offering Memorandum.
(x) As of June 28, 1997 and as of the date
hereof, all of the outstanding shares of capital stock of each
Significant Subsidiary (as defined in Rule 1-02 of Regulation S-X
promulgated by the Commission) of the Company have been duly authorized
and validly issued, are fully paid and non-assessable and were not issued
in violation of preemptive rights, repurchase rights or rights of first
refusal and, except as described in the Offering Memorandum, are owned
directly or indirectly by the Company, free and clear of any lien,
pledge, encumbrance, claim, security interest, restriction on voting or
transfer, stockholders' agreement, voting trust or other defect of title
whatsoever. The Company does not directly or indirectly own any shares of
stock or any other securities of any corporation or have any equity
interest in any firm, partnership, association or other entity, other
than (A) investments in subsidiaries of the Company, (B) minority
investments in marketable securities that may be made in the ordinary
course of business as a part of its
<PAGE> 16
15
investment of excess cash assets and (C) a 40% interest held by the
Company in Spalding Composites, Inc.
(xi) Except as described in the Offering
Memorandum there is no action, suit, investigation or proceeding,
governmental or otherwise, to which the Company or any of its
subsidiaries is a party or to which any property of the Company or any of
its subsidiaries is subject or which is pending or, to the best knowledge
of the Company, threatened against the Company or any of its subsidiaries
which (A) could reasonably be expected to have a Material Adverse Effect
or (B) seeks to restrain, enjoin, prevent the consummation of, or
otherwise challenge the execution and delivery of this Agreement, or the
other Operative Documents to which it is a party or the issuance of the
Notes or questions the legality or validity of any such actions; (C)
seeks to recover damages or obtain other relief in connection with any of
such actions or (D) seeks to restrain, enjoin, prevent the consummation
of, or otherwise challenges, or seeks to recover damages or obtain other
relief in connection with the Acquisition and has a reasonable
probability of success on the merits.
(xii) Except as provided for in this Agreement, the
Company has not taken and will not take, directly or indirectly, any
action designed to cause or result in, or which constitutes or which
might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company in order to
facilitate the sale or resale of the Notes or since the date of the
Preliminary Offering Memorandum (A) sold, bid for, purchased or paid any
person any compensation for soliciting purchases of the Notes (other than
the Initial Purchasers), (B) paid or agreed to pay to any person any
compensation for soliciting another to purchase any other securities of
the Company or (C) taken any action prohibited under Regulation M under
the Exchange Act in connection with the offering of the Notes.
(xiii) The consolidated audited and unaudited
financial statements of Nortek and its subsidiaries and Ply Gem and its
subsidiaries, including the notes thereto, and supporting schedules
included or incorporated by reference in the Offering Memorandum comply
as to form in all material respects with the requirements applicable to a
Report on Form 10-K or a Report on Form 10-Q, as applicable, under the
Exchange Act and present fairly the financial condition, results of
operations, stockholders' investment and cash flows and other information
purported to be shown therein of Nortek and its subsidiaries or Ply Gem
and its subsidiaries, as the case may be, at the dates and for the
periods indicated and the supporting schedules included or incorporated
by reference in the Offering Memorandum present fairly the information
required to be stated therein. Except as disclosed in such audited and
unaudited financial statements, such consolidated financial statements,
including the notes thereto, (A) have been prepared in accordance with
generally accepted accounting principles consistently applied throughout
the periods involved and (B) are in accordance in all material respects
with the
<PAGE> 17
16
books and records of Nortek and its subsidiaries and Ply Gem and its
subsidiaries, as applicable. If the Offering Memorandum were a prospectus
included in a registration statement filed with the Commission, no other
financial statements would be required to be included in the Offering
Memorandum. The financial data set forth in the Offering Memorandum under
the captions "Summary--Nortek, Inc., Summary Consolidated Financial
Data", "Summary--Ply Gem Industries, Inc., Summary Consolidated Financial
Data", "Capitalization", "Selected Financial Data of Nortek", "Selected
Financial Data of Ply Gem" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" are (A) in accordance with
the books and records of the Company and its subsidiaries in all material
respects, (B) fairly present, on the basis stated in the Offering
Memorandum, the information set forth therein and (C) have been compiled
on a basis consistent with that of the audited financial statements
included or incorporated by reference in the Offering Memorandum. All
other financial information and statistical data set forth in the
Offering Memorandum are, in all material respects, accurately presented
and have been prepared on an accounting basis consistent with the
financial statements included or incorporated by reference into the
Offering Memorandum.
(xiv) The unaudited pro forma and adjusted pro
forma financial data included in the Offering Memorandum (A) has been
prepared on a basis consistent with the historical financial statements
of Nortek and its subsidiaries and Ply Gem and its subsidiaries (except
for the pro forma and adjusted pro forma adjustments set forth therein),
(B) gives effect to assumptions used in the preparation thereof that are
reasonable and made in good faith, (C) presents fairly the information
set forth using adjustments which are appropriate to give effect to the
proposed transactions referred to therein, (D) has been correctly
compiled based on the proper application of the pro forma and adjusted
pro forma adjustments to the historical financial information set forth
therein and (E) except for the adjusted pro forma financial data,
complies as to form in all material respects with the applicable
accounting requirements of Rule 11-02 of Regulation S-X. The adjusted pro
forma consolidated financial data reflect adjustments that give effect to
events that are factually supportable.
(xv) Each of the Company and its subsidiaries has,
and upon completion of the Transactions will have, good and marketable
title to all real property and personal property and assets owned by them
which is material to the business of the Company and its subsidiaries, in
each case subject to no lien, mortgage, pledge, charge or encumbrance of
any kind except (A) those set forth in the Offering Memorandum or (B)
those which are not material in amount and do not adversely affect the
use made and proposed to be made of such property by the Company and its
subsidiaries except for such uses the failure of which to be made would
not reasonably be expected to have a Material Adverse Effect. Each of the
Company and its subsidiaries holds, and upon completion of the
Transactions will hold, its leased properties under
<PAGE> 18
17
valid, subsisting and enforceable leases, with such exceptions as are
not, individually or in the aggregate, material and do not, individually
or in the aggregate, interfere with the use made or proposed to be made
of such properties by the Company or any of its subsidiaries (except for
such uses the failure of which to be made would not reasonably be
expected to have a Material Adverse Effect. Except as disclosed in the
Offering Memorandum, the Company and each of its subsidiaries owns or
leases, and upon completion of the Transactions will own or lease, all
such properties as are necessary to its operations as now conducted or as
proposed to be conducted (except for such properties the failure to own
or lease which would not reasonably be expected to have a Material
Adverse Effect.
(xvi) Neither the Company nor any of its
subsidiaries is, and upon consummation of the Transactions none of such
persons will be, subject to registration as an "investment company" or an
entity "controlled by" an "investment company" within the meaning of
Investment Company Act of 1940, as amended, and the rules and regulations
promulgated thereunder. Each such person will conduct its business and
financial affairs in such a manner as to ensure that it will not become
an "investment company" or an entity "controlled" by an "investment
company". Neither the Company nor any of its subsidiaries is, and upon
consummation of the Transactions none of such persons will be, subject to
registration as a "holding company" or a "subsidiary company" of a
holding company or an "affiliate" thereof within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
(xvii) The Company and each of its subsidiaries have
(A) filed all federal, state and local and foreign tax returns which are
required to be filed through the date hereof, and all such tax returns
are true, complete and accurate in all material respects, or (B) received
valid extensions thereof and have paid all taxes shown on such returns
and all assessments received by them except where, in the case of state
and local and foreign tax returns, the failure to file in clause (A), or
extend the due date of or pay the same in clause (B), in the aggregate,
could not reasonably be expected to have a Material Adverse Effect; the
Company has no knowledge of any tax deficiency which has been or might be
asserted against the Company or any of its subsidiaries which could have
a Material Adverse Effect; to the Company's best knowledge, all tax
liabilities of Nortek and its subsidiaries are adequately provided for on
the consolidated books of Nortek and all tax liabilities of Ply Gem and
its subsidiaries are adequately provided for on the consolidated books of
Ply Gem.
(xviii) The Company and each of its subsidiaries own
or possess, and after completion of the Transactions will own or possess,
adequate licenses or other rights to use all patents, trademarks, service
marks, trade names, copyrights, technology and know-how necessary to
conduct the business now or proposed to be conducted by the Company and
each of its subsidiaries as described in the Offering Memorandum except
for those
<PAGE> 19
18
patents, trademarks, service marks, trade names, copyrights, technology
and know-how the failure to own or have the right to use would not have a
Material Adverse Effect, and, except as disclosed in the Offering
Memorandum, neither the Company nor any of its subsidiaries has received
any notice of infringement of or conflict with (or knows of such
infringement of or conflict with) rights of others with respect to any
patents, trademarks, service marks, trade names, copyrights, technology
or know-how except for conflicts which would not reasonably be expected
to have a Material Adverse Effect; and to the best knowledge of the
Company, the Company and each of its subsidiaries do not in the conduct
of their business as now conducted or proposed to be conducted, infringe
or conflict with any such rights of any third party.
(xix) There are no contracts, indentures,
mortgages, loan agreements, notes, leases or other agreements or
instruments or other documents (other than the Operative Documents,
collectively, "DOCUMENTS") required to be described or referred to in the
Offering Memorandum other than those described or referred to therein or
in the Report on Form 10-K of Nortek for the year ended December 31, 1996
or in the subsequent Reports on Form 10-Q of Nortek incorporated in the
Offering Memorandum by reference; all such descriptions are accurate in
all material respects and present fairly the information described
therein. All such Documents to which the Company or any of its
subsidiaries is a party have been duly authorized, executed and delivered
by such person a party thereto, constitute valid and binding agreements
of such person and are enforceable against such person in accordance with
the terms thereof, except as the enforceability thereof may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
or other similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles.
(xx) There are no outstanding loans, advances
(except normal advances for business expenses in the ordinary course of
business), or guarantees of indebtedness by the Company or any of its
subsidiaries to or for the benefit of any of the officers or directors of
the Company or any of its subsidiaries or any of the members of the
families of any of them, except as adequately disclosed in the Offering
Memorandum; all such descriptions are accurate in all material respects
and present fairly the information required to be described in, or
incorporated by reference in, a Registration Statement on Form S-3.
(xxi) Each of the Company and its subsidiaries
maintains a system of internal accounting controls sufficient to provide
reasonable assurances that (A) transactions are executed in accordance
with management's general or specific authorizations; (B) transactions
are recorded as necessary to permit preparation of financial statements
in conformity with generally accepted accounting principles and to
maintain accountability for assets; (C) access to assets is permitted
only in accordance with management's general
<PAGE> 20
19
or specific authorization; and (D) the recorded accountability for assets
is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(xxii) Neither the Company nor any of its
subsidiaries is, and upon completion of the Transactions neither the
Company nor any of its subsidiaries will be, in violation or breach of,
or in default (nor has any event occurred which with notice, or lapse of
time, or both, would constitute a default) in the due performance or
observance of any term, covenant or condition contained in any contract,
agreement, indenture, loan or other agreement, instrument, mortgage, deed
of trust, note, permit, lease, license, arrangement or understanding to
which the Company or any of its subsidiaries is a party or by which the
Company, any of its subsidiaries or any of their respective properties or
assets may be bound where such default, either individually or together
with all such other defaults, could reasonably be expected to have a
Material Adverse Effect. Each such contract, agreement, indenture,
instrument, mortgage, note, permit, lease, license, arrangement and
understanding is in full force and effect and is the legal, valid, and
binding obligation of the Company or its subsidiaries, as the case may
be, and, to the Company's knowledge, the other parties thereto and is
enforceable against the Company or its subsidiaries, as the case may be,
and, to the Company's knowledge, against the other parties thereto in
accordance with its terms except for such failures of enforceability
which would not reasonably be expected to have a Material Adverse Effect.
Each of the Company and each of its subsidiaries enjoys, and upon
completion of the Transactions will enjoy, peaceful and undisturbed
possession under all material leases and material licenses under which
the Company and its subsidiaries are operating except for disturbances
which would not, individually or in the aggregate reasonably be expected
to have a Material Adverse Effect. Neither the Company nor any of its
subsidiaries is, and upon completion of the Transactions will be, in
violation or breach of, or in default with respect to, any term of its
respective articles or certificate of incorporation or bylaws. Neither
the Company nor any of its subsidiaries is, and upon completion of the
Transactions neither the Company nor any of its subsidiaries will be, in
violation of, or in default with respect to, any law, ordinance, rule,
regulation, order, judgment or decree to which it or its property or
assets may be subject, except such as are described in the Offering
Memorandum or such as, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
(xxiii) Except as described in the Offering
Memorandum, (A) no labor disturbance by or dispute with the employees of
the Company and any of its subsidiaries exists or, to the best knowledge
of the Company, is threatened and (B) the Company is not aware of any
labor disturbance by the employees of any of its significant
manufacturers, suppliers, customers or contractors, that could reasonably
be expected in the case of both (A) and (B) to have a Material Adverse
Effect.
<PAGE> 21
20
(xxiv) Except as described in the Offering
Memorandum, (A) the Company is not a party to or bound by any
stockholders agreements or voting trusts with respect to any securities
of the Company and (B) there are no contracts, agreements or
understandings between the Company or any of its subsidiaries and any
person or entity granting such person or entity the right to require the
Company to file a registration statement under the Act with respect to
any securities of the Company owned or to be owned by such person or
entity or to require the Company to include such securities in the
securities to be registered in the Exchange Offer.
(xxv) Except as disclosed in the Offering
Memorandum, there has been no storage, generation, transportation,
handling, treatment, disposal, discharge, emission or other release of
any kind of toxic or other wastes or other hazardous substances by, due
to or caused by the Company or any of its subsidiaries (or, to the
knowledge of the Company, any other entity (including any predecessor)
for whose acts or omissions the Company or any of its subsidiaries is or
could reasonably be expected to be liable) upon any of the property now
or previously owned or leased by the Company or any of its subsidiaries,
or upon any other property, which would, under any statute or any
ordinance, rule (including rule of common law), regulation, order,
judgment, decree or permit, give rise to any liability, except for any
violation or liability that could not reasonably be expected to have,
singularly or in the aggregate with all such violations and liabilities,
a Material Adverse Effect. Except as disclosed in the Offering
Memorandum, there has been no disposal, discharge, emission or other
release of any kind onto such property or into the environment
surrounding such property of any toxic or other wastes or other hazardous
substances with respect to which the Company has knowledge, except for
any such disposal, discharge, emission or other release of any kind which
could not reasonably be expected to have, singularly or in the aggregate
with all such discharges and other releases, a Material Adverse Effect.
Except as disclosed in the Offering Memorandum, neither the Company nor
any of its subsidiaries is in violation of any federal, state,
provincial, foreign or local law, rule, regulation, code or ordinance
relating to pollution, protection of the environment, the storage,
handling, transportation or disposal of hazardous or toxic wastes or
substances or health and safety, except such violations which would not
reasonably be expected to have, a Material Adverse Effect.
(xxvi) Neither the Company nor, to its knowledge,
any director, officer, agent, employee or other person associated with or
acting on behalf of the Company has used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating
to political activity, made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political
parties or campaigns from corporate funds, made any bribe, rebate,
payoff, influence payment, kickback, or other unlawful payment or
violated any provision of the Foreign Corrupt Practices Act of 1977.
<PAGE> 22
21
(xxvii) Neither the Company nor any of its
subsidiaries has incurred any liability for any fee, commission or other
compensation on account of the employment of a broker or finder (other
than the Initial Purchasers) in connection with the transactions
contemplated by the Operating Documents. None of the Company, its
subsidiaries or any of the directors, officers or controlling persons of
the Company or its subsidiaries has since the date of the Preliminary
Offering Memorandum (a) sold, bid for, purchased or paid to any person
other than the Initial Purchasers any compensation for soliciting
purchases of, the Notes, the Exchange Notes, or the Private Exchange
Notes, if any, or (b) paid or agreed to pay to any person other than the
Initial Purchasers any compensation for soliciting another person to
purchase any other securities of the Company.
(xxviii) The Company and each of its subsidiaries
have, and upon completion of the Transactions will have, insurance
covering their respective properties, operations, personnel and
businesses, which insures against such losses and risks and in such
amounts as are prudent and customary in the businesses in which they are
engaged and, in the opinion of the Company, are adequate to protect their
respective businesses.
(xxix) The Company has complied and will comply with
all provisions of Florida Statutes Section 517.075 (Chapter 92-198, Laws
of Florida).
(xxx) When the Notes are issued and delivered
pursuant to this Agreement, no Note will be of the same class (within the
meaning of Rule 144A under the Act) as securities of the Company or that
are listed on a national securities exchange registered under Section 6
of the Exchange Act or that are quoted in a United States automated
inter-dealer quotation system. The Company has been advised that the
Notes have been designated PORTAL eligible securities in accordance with
the rules and regulations of the NASD.
(xxxi) Each of the Operative Documents (other than
the Notes, the Exchange Notes and the Private Exchange Notes) and the
Merger Agreement has been duly and validly authorized by the Company and,
when duly executed and delivered by the Company, will be the legal, valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as (A) the enforceability thereof may
be limited by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization or similar laws affecting the rights of creditors
generally and (B) rights of acceleration and the availability of
equitable remedies may be limited by general principles of equity. The
Offering Memorandum contains an accurate summary in all material respects
of the terms of each of the Operative Documents.
(xxxii) The Notes have been duly and validly
authorized by the Company for issuance and sale to the Initial Purchasers
pursuant to this
<PAGE> 23
22
Agreement and, when issued and authenticated in accordance with the terms
of the Indenture and delivered against payment therefor in accordance
with the terms hereof and thereof, will be the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance
with their terms and entitled to the benefits of the Indenture, except as
(A) the enforceability thereof may be limited by applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization or similar laws
affecting the rights of creditors generally and (B) rights of
acceleration and the availability of equitable remedies may be limited by
general principles of equity.
(xxxiii) The Series B Notes and the Private Exchange
Notes, if any, have been duly and validly authorized for issuance by the
Company and, when issued and authenticated in accordance with the terms
of the Exchange Offer and the Indenture, will be the legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms and entitled to the benefits of the
Indenture, except as (A) the enforceability thereof may be limited by
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization
or similar laws affecting the rights of creditors generally and (B)
rights of acceleration and the availability of equitable remedies may be
limited by general principles of equity.
(xxxiv) No registration under the Act of the Notes
is required for the sale of the Notes to the Initial Purchasers as
contemplated hereby or for the Exempt Resales and the Indenture is not
required to be qualified under the Trust Indenture Act of 1939, as
amended, assuming (A) that the purchasers who buy the Notes in the Exempt
Resales are either QIBs, Accredited Investors or Regulation S Purchasers
and (B) the accuracy of the representations of the Initial Purchasers
regarding the absence of general solicitation in connection with the sale
of Notes to the Initial Purchasers and Exempt Resales contained herein.
No form of general solicitation or general advertising (as those terms
are used in Regulation D under the Act) was used by the Company or any of
its affiliates or any representatives acting on its or their behalf
(other than the Initial Purchasers, as to which the Company makes no
representation or warranty) in connection with the offer and sale of any
of the Notes in connection with Exempt Resales, including, but not
limited to, articles, notices or other communications published in any
newspaper, magazine, or similar medium or broadcast over television or
radio, or any seminar or meeting whose attendees have been invited by any
general solicitation or general advertising. None of the Company, its
subsidiaries or affiliates (as defined in Rule 501(b) under the Act) has,
directly or through any agent, sold, offered for sale, solicited offers
to buy or otherwise negotiated in respect of any security that is or will
be integrated with the sale of the Notes in a manner that would require
the registration of the Notes under the Act.
(xxxv) Set forth on EXHIBIT B hereto is a list of
each funded employee pension or benefit plan, as defined in Article 3,
Section 2(A) of the Employee Retirement Income Security Act of 1974, as
amended, including the
<PAGE> 24
23
regulations and published interpretations thereunder ("ERISA"), and
qualified under Section 401(a) of the Internal Revenue Code, with respect
to which the Company or any of its subsidiaries, or any corporation
considered an affiliate of any of them within the meaning of Section
407(d)(7) of ERISA, is a party in interest or disqualified person (a
"COMPANY PLAN"). No event or condition exists, or upon completion of the
Transactions would exist, with respect to any Company Plan which is
reasonably likely to result in a Material Adverse Effect.
(xxxvi) None of the execution, delivery and
performance of this Agreement, the issuance and sale of the Notes, the
application of the proceeds from the issuance and sale of the Notes and
the consummation of the transactions contemplated thereby as set forth in
the Offering Memorandum, will violate Regulations G, T, U or X
promulgated by the Board of Governors of the Federal Reserve System (the
"FEDERAL RESERVE BOARD") or analogous foreign laws and regulations.
(xxxvii) On the Closing Date, the Indenture will
conform in all material respects to the requirements of the Trust
Indenture Act and the rules and regulations of the Commission applicable
to an indenture which is qualified thereunder.
(xxxviii) On and immediately after the completion of
the Transactions, the Company together with its subsidiaries on a
consolidated basis will be Solvent. As used in this paragraph, the term
"SOLVENT" means, with respect to a particular date, that on such date (A)
the present fair saleable value of the assets of the Company together
with its subsidiaries on a consolidated basis is not less than the total
amount required to pay the probable liabilities of the Company together
with its subsidiaries on a consolidated basis on its total existing debts
and liabilities (including contingent liabilities) as they become
absolute and matured, (B) the Company together with its subsidiaries on a
consolidated basis is able to realize upon its assets and pay its debts
and other liabilities, contingent obligations and commitments as they
mature and become due in the normal course of business, (C) assuming the
sale of the Notes as contemplated by this Agreement and the Offering
Memorandum, the Company together with its subsidiaries on a consolidated
basis is not incurring debts or liabilities beyond its ability to pay as
such debts and liabilities mature and (D) the Company together with its
subsidiaries on a consolidated basis is not engaged in any business or
transaction, and is not about to engage in any business or transaction,
for which its property would constitute unreasonably small capital after
giving due consideration to the prevailing practice in the industry in
which the Company is engaged. In computing the amount of such contingent
liabilities at any time, it is intended that such liabilities will be
computed at the amount that, in light of all the facts and circumstances
existing at such time, represents the amount that can reasonably be
expected to become an actual or matured liability.
<PAGE> 25
24
(xxxix) None of the Company, any of its respective
affiliates or any person acting on its or their behalf (other than the
Initial Purchasers, as to whom the Company makes no representation) has
engaged or will engage in any directed selling efforts within the meaning
of Regulation S under the Act ("REGULATION S") with respect to the Notes.
The sale of the Notes pursuant to Regulation S is not part of a plan or
scheme to evade the registration provisions of the Act. The Company, its
respective affiliates and all persons acting on its or their behalf
(other than the Initial Purchasers, as to whom the Company makes no
representation) have complied with and will comply with the offering
restrictions requirements of Regulation S in connection with the offering
of the Notes outside the United States and, in connection therewith, the
Offering Memorandum will contain the disclosure required by Rule 902(h).
The Company acknowledges that the Initial Purchasers and, for
purposes of the opinions to be delivered to the Initial Purchasers pursuant to
Section 8 hereof, counsel for the Company and counsel for the Initial
Purchasers, will rely upon the accuracy and truth of the foregoing
representations and hereby consent to such reliance.
(b) Each Initial Purchaser, severally and not jointly,
represents, warrants and covenants to the Company and agrees that:
(i) Such Initial Purchaser is a QIB, with such
knowledge and experience in financial and business matters as are
necessary in order to evaluate the merits and risks of an investment in
the Notes.
(ii) Such Initial Purchaser (A) is not acquiring
the Notes with a view to any distribution thereof that would violate the
Act or the securities laws of any state of the United States or any other
applicable jurisdiction and (B) will be reoffering and reselling the
Notes only to (x) persons it reasonably believes to be QIBs in reliance
on the exemption from the registration requirements of the Act provided
by Rule 144A, (y) a limited number of Accredited Investors that execute
and deliver a letter containing certain representations and agreements in
the form attached as ANNEX A to the Offering Memorandum and (z) non-U.S.
persons outside the United States to whom it reasonably believes offers
and sales of the Notes may be made in reliance upon Regulation S.
(iii) No form of general solicitation or general
advertising has been or will be used by such Initial Purchaser or any of
its representatives in connection with the offer and sale of any of the
Notes, including, but not limited to, articles, notices or other
communications published in any newspaper, magazine, or similar medium or
broadcast over television or radio, or any seminar or meeting whose
attendees have been invited by any general solicitation or general
advertising.
<PAGE> 26
25
(iv) Such Initial Purchaser agrees that, in
connection with the Exempt Resales, it will solicit offers to buy the
Notes only from, and will offer to sell the Notes only to, QIBs,
Accredited Investors and Regulation S Purchasers. Such Initial Purchaser
further agrees (A) that it will offer to sell the Notes only to, and will
solicit offers to buy the Notes only from (1) QIBs who in purchasing such
Notes will be deemed to have represented and agreed that they are
purchasing the Notes for their own accounts or accounts with respect to
which they exercise sole investment discretion and that they or such
accounts are QIBs, (2) Accredited Investors who make the representations
contained in, and execute and return to such Initial Purchaser, a
certificate in the form of ANNEX A attached to the Offering Memorandum
and (3) Regulation S Purchasers and (B) that, in the case of such QIBs,
Accredited Investors and Regulation S Purchaser, acknowledges and agrees
that such Notes will not have been registered under the Act and may be
resold, pledged or otherwise transferred only (1) to the Company, (2) to
a person whom the seller reasonably believes is a QIB purchasing for its
own account or for the account of another QIB in compliance with the
resale provisions of Rule 144A under the Act, (3) to an institutional
Accredited Investor that, prior to such transfer, furnishes to the
Trustee a written certification containing certain representations and
agreements relating to the restrictions on transfer of such Notes, (4)
pursuant to the resale limitations provided by Rule 144 under the Act, if
available, (5) pursuant to and effective registration statement under the
Act, (6) outside the United States to a foreign person in a transaction
meeting the requirements of Regulation S under the Act or (7) pursuant to
any other available exemption from the registration requirements of the
Act, and, in each case, in accordance with any applicable securities laws
of any state of the United States or any other applicable jurisdiction
and (C) that the holder will, and each subsequent holder is required to,
notify any purchaser of the security evidenced thereby of the resale
restrictions set forth in (B) above.
(v) None of such Initial Purchaser nor any of its
affiliates or any person acting on its or their behalf has engaged or
will engage in any directed selling efforts within the meaning of
Regulation S with respect to the Notes.
(vi) The Notes offered and sold by such Initial
Purchaser pursuant hereto in reliance on Regulation S have been and will
be offered and sold only in offshore transactions.
(vii) The sale of the Notes offered and sold by
such Initial Purchaser pursuant hereto in reliance on Regulation S is not
part of a plan or scheme to evade the registration provisions of the Act.
(viii) Such Initial Purchaser agrees that it has
offered the Notes and will offer and sell the Notes (A) as part of its
distribution at any time and (B) otherwise until 40 days after the later
of the commencement of the offering of the Notes pursuant hereto and the
Closing Date, only in
<PAGE> 27
26
accordance with Rule 903 of Regulation S or another exemption from the
registration requirements of the Act. Such Initial Purchaser agrees that,
during such 40-day restricted period, it will not cause any advertisement
with respect to the Notes (including any "tombstone" advertisement) to be
published in any newspaper or periodical or posted in any public place
and will not issue any circular relating to the Notes, except such
advertisements as permitted by and including the statement required by
Regulation S.
(ix) Such Initial Purchaser agrees that it has not
offered or sold and will not offer or sell the Notes sold pursuant hereto
in reliance on Regulation S (A) as part of its distribution at any time
and (B) otherwise until 40 days after the later of the commencement of
the offering of the Notes pursuant hereto and the Closing Date, to a U.S.
person (as defined in Rule 902 of the Act) or for the account or benefit
of a U.S. person (other than a distributor as defined in Rule 902 of the
Act).
(x) Such Initial Purchaser agrees that, at or
prior to confirmation of a sale of Notes by it to any distributor, dealer
or person receiving a selling concession, fee or other remuneration
during the 40-day restricted period referred to in Rule 903(c)(3) under
the Act, it will send to such distributor, dealer or person receiving a
selling concession, fee or other remuneration a confirmation or notice to
substantially the following effect:
"The Notes covered hereby have not been registered under the U.S.
Securities Act of 1933, as amended (the "Securities Act"), and may
not be offered and sold within the United States or to, or for the
account or benefit of U.S. persons (i) as part of your
distribution at any time or (ii) otherwise until 40 days after the
later of the commencement of the Offering and the closing Date,
except in either case in accordance with Regulation S under the
Securities Act (or Rule 144A or to Accredited Institutions in
transactions that are exempt from the registration requirements of
the Securities Act), and in connection with any subsequent sale by
you of the Notes covered hereby in reliance on Regulation S during
the period referred to above to any distributor, dealer or person
receiving a selling concession, fee or other remuneration, you
must deliver a notice to substantially the foregoing effect. Terms
used above have the meanings assigned to them in Regulation S."
Each Initial Purchaser understands that the Company and, for
purposes of the opinions to be delivered to the Initial Purchasers pursuant to
Section 8 hereof, counsel for the Company and counsel for the Initial
Purchasers, will rely upon the accuracy and truth of the foregoing
representations, and hereby consents to such reliance.
<PAGE> 28
27
6. INDEMNIFICATION. (a) The Company agrees to indemnify and
hold harmless each Initial Purchaser, its officers, directors, partners,
employees, agents and counsel, and each person, if any, who controls such
Initial Purchaser within the meaning of Section 15 of the Act or Section 20(a)
of the Exchange Act, against any and all losses, liabilities, claims, damages
and expenses whatsoever (including but not limited to attorneys' fees and any
and all expenses whatsoever reasonably incurred and as incurred in
investigating, preparing or defending against, or appearing as a third party
witness in connection with, any litigation, commenced or threatened, or any
claim whatsoever, and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which they or any of them may become subject
under the Act, the Exchange Act, any state securities or Blue Sky law or
otherwise, insofar as such losses, liabilities, claims, damages, obligations,
penalties, judgments, awards, costs, disbursements or expenses (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the Preliminary Offering
Memorandum or the Offering Memorandum, or in any supplement thereto or amendment
thereof, or arise out of or are based upon the omission or alleged omission to
state therein any material fact required to be stated therein or necessary to
make the statements therein not misleading; PROVIDED, HOWEVER, that (x) the
Company will not be liable to an Initial Purchaser in any such case to the
extent, but only to the extent, that any such loss, liability, claim, damage,
obligation, penalty, judgment, award, cost, disbursement or expense arises out
of or is based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in conformity
with written information furnished to the Company by or on behalf of such
Initial Purchaser expressly for use therein and (y) the indemnity agreement
contained in this Section 6(a) with respect to any Preliminary Offering
Memorandum (or the Offering Memorandum) shall not inure to the benefit of an
Initial Purchaser (or to the benefit of any person controlling such Initial
Purchaser) from whom the person asserting any such losses, liabilities, claims,
damages or expenses purchased the Notes which is the subject thereof if at or
prior to the written confirmation of the sale of such Notes a copy of the
Offering Memorandum (or the Offering Memorandum as amended or supplemented) was
not sent or delivered to such person and the untrue statement or omission of a
material fact contained in such Preliminary Offering Memorandum (or the Offering
Memorandum) was corrected in the Offering Memorandum (or the Offering Memorandum
as amended or supplemented) and delivery of such Offering Memorandum (or the
Offering Memorandum as amended or supplemented) would have eliminated any such
loss, liability, claim, damage or expense unless the failure is the result of
non-compliance by the Company with Section 4(b) hereof; PROVIDED, HOWEVER, the
indemnity agreement in this Section 6(a) shall not apply to any portion of any
such loss, liability, claim, damage, obligation, penalty, judgment, award, cost,
disbursement or expense to the extent it is found in a final judgment by a court
of competent jurisdiction (not subject to further appeal) to have resulted
primarily and directly from the gross negligence or willful misconduct of such
Initial Purchaser. This indemnity agreement will be in addition to any liability
which the Company may otherwise have including, without limitation, under this
Agreement.
<PAGE> 29
28
(b) Each Initial Purchaser agrees, severally and not
jointly, to indemnify and hold harmless the Company, each of the directors of
the Company, and each other person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against
any losses, liabilities, claims, damages and expenses whatsoever as incurred
(including but not limited to attorneys' fees and any and all expenses
whatsoever reasonably incurred and as incurred in investigating, preparing or
defending or appearing as a third party witness in connection with against any
litigation, commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation), joint or several, to
which they or any of them may become subject under the Act, the Exchange Act or
otherwise, insofar as such losses, liabilities, claims, damages or expenses (or
actions in respect thereof) are based upon any untrue statement or alleged
untrue statement of a material fact contained in the Preliminary Offering
Memorandum or the Offering Memorandum, or in any amendment thereof or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that any such loss, liability, claim, damage or expense arises out
of or is based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in conformity
with written information furnished to the Company by or on behalf of such
Initial Purchaser expressly for use therein; PROVIDED, HOWEVER, that in no case
shall any Initial Purchaser be liable or responsible for any amount in excess of
the discounts and commissions applicable to the Notes purchased by such Initial
Purchaser hereunder. This indemnity will be in addition to any liability which
the Initial Purchasers may otherwise have including, without limitation, under
this Agreement.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure to so notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 6 except to the extent the
indemnifying party is materially prejudiced by such failure). In case any such
action is brought against any indemnified party, and it notifies an indemnifying
party of the commencement thereof, the indemnifying party will be entitled to
participate therein, and to the extent it may elect by written notice delivered
to the indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by one of the indemnifying
parties in connection with the defense of such action, (ii) the indemnifying
parties shall not have employed counsel to have charge of the defense of such
action within a reasonable time after notice of commencement of the action, or
(iii) such indemnified
<PAGE> 30
29
party or parties shall have reasonably concluded that there may be defenses
available to it or them which are different from or additional to those
available to one or all of the indemnifying parties (in which case all
indemnified parties having consistent interests, and such different or
additional defenses, shall be entitled to engage one additional counsel in each
jurisdiction to direct such different or additional defenses), in any of which
events such fees and expenses shall be borne by the indemnifying parties. In no
event will the indemnifying parties hereunder be responsible for the fees and
expenses of more than one such counsel (together with appropriate local
counsel). Anything in this subsection to the contrary notwithstanding, an
indemnifying party shall not be liable for any settlement of any claim or action
effected without its written consent; PROVIDED, HOWEVER, that such consent was
not unreasonably withheld. No indemnifying party shall, without the prior
written consent of the indemnified party (which consent shall not be
unreasonably withheld), effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could reasonably have
been a party and indemnity reasonably could have been sought hereunder by such
indemnified party unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.
7. CONTRIBUTION. In order to provide for contribution in
circumstances in which the indemnification provided for in Section 6 hereof is
for any reason unavailable from any indemnifying party or is insufficient to
hold harmless a party indemnified thereunder, then each indemnifying party shall
contribute to the aggregate losses, claims, damages, liabilities and expenses of
the nature contemplated by such indemnification provision (including without
limitation any investigation, legal and other expenses reasonably incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claims asserted, but after deducting in the case of losses,
claims, damages, liabilities and expenses suffered by the Company, any
contribution received by the Company from persons, other than the Initial
Purchasers, who may also be liable for contribution, including persons who
control the Company within the meaning of Section 15 of the Act or Section 20(a)
of the Exchange Act, and directors of the Company) as incurred to which the
Company and the Initial Purchasers may be subject, in such proportions as is
appropriate to reflect the relative benefits received by the Company, on the one
hand, and the Initial Purchasers, on the other hand, from the offering of the
Notes or, if such allocation is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to above but also the relative fault of the Company, on the one hand, and the
Initial Purchasers, on the other hand, in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Company, on the one hand, and the Initial Purchasers,
on the other hand, shall be deemed to be in the same proportion as (x) the total
proceeds from the offering (net of discounts and commissions but before
deducting expenses) received by the Company, and (y) the discounts and
commissions received by the Initial Purchasers, in each case as set forth in the
table on the cover page of the Offering Memorandum, bear to the aggregate
offering price of the Notes. The relative fault of the Company, on the one hand,
and the Initial Purchasers, on the other hand, shall be
<PAGE> 31
30
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or an Initial
Purchaser and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
the Initial Purchasers agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this Section 7, (i) in no case shall an Initial Purchaser be liable or
responsible for any contribution obligation in excess its proportional share,
based upon the proportion of the aggregate principal amount of Notes purchased
by it set forth opposite its name on Schedule I hereto, of the total discounts
and commissions set forth in the table on the cover page of the Offering
Memorandum, and (ii) no person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For purposes
of this Section 7, each person, if any, who controls an Initial Purchaser within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act shall
have the same rights to contribution as such Initial Purchaser controlled by it,
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, and each director of the
Company shall have the same rights to contribution as the Company, subject in
each case to clauses (i) and (ii) of the immediately preceding sentence. Any
party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against another party or parties,
notify each party or parties from whom contribution may be sought, but the
omission to so notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have under this Section 7 (except to the extent such party or parties from whom
contribution may be sought is materially prejudiced by such failure) or
otherwise. No party shall be liable for contribution with respect to any action
or claim settled without consent; PROVIDED, HOWEVER, that such consent was not
unreasonably withheld.
8. CONDITIONS TO THE OBLIGATIONS OF THE INITIAL PURCHASERS.
The obligations of the Initial Purchasers to purchase and pay for the Notes, as
provided herein, shall be subject to the satisfaction of the following
conditions precedent:
(a) All of the representations and warranties of the
Company contained in this Agreement and all of the statements of the Company and
its officers made in any certificate delivered pursuant to this Agreement shall
be true and correct in all material respects on the date hereof and on the
Closing Date with the same force and effect as if made on and as of the date
hereof and the Closing Date, respectively. The Company shall have performed or
complied in all material respects with all of the agreements herein contained
and required to be performed or complied with by it at or prior to the Closing
Date.
<PAGE> 32
31
(b) The Offering Memorandum shall have been printed and
copies distributed to the Initial Purchasers on the day following the date of
this Agreement or at such later date and time as to which the Initial Purchasers
may agree, and no stop order suspending the qualification or exemption from
qualification of the Notes in any jurisdiction shall have been issued and no
proceeding for that purpose shall have been commenced or shall be pending or
threatened.
(c) The Tender Offer shall have been consummated in all
material respects in accordance with the Merger Agreement as in effect on the
date hereof and none of the conditions to closing the Tender Offer set forth in
Exhibit A to the Merger Agreement shall have been amended or waived in any
material respect by the Company without the prior written consent of the Initial
Purchasers.
(d) The Company shall not have sustained, (i) since the
date of the latest audited financial statements included in the Offering
Memorandum, any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree otherwise than as set
forth or expressly contemplated in the Offering Memorandum which loss or
interference has had, or would reasonably be expected to have, a Material
Adverse Effect, and (ii) since the respective dates as of which information is
given in the Offering Memorandum, there shall not have been any change in the
capital stock (other than as disclosed in the Offering Memorandum or in any
reports filed by the Company with the Commission pursuant to the Exchange Act or
in accordance with any plan contained in any such report), or in the long-term
or short-term debt of the Company or any material adverse change, or any
development involving a prospective material adverse change, in or affecting the
general affairs, management, financial position, stockholders' equity or results
of operations of the Company, otherwise than as set forth or expressly
contemplated in the Offering Memorandum, the effect of which, in any such case
described in clause (i) or (ii) of this Section 8(d), in the reasonable judgment
of the Initial Purchasers, makes it impracticable or inadvisable to proceed with
the Offering or the delivery of the Notes being delivered on the Closing Date on
the terms and in the manner contemplated in the Offering Memorandum.
(e) The Company shall have received either (i)
extensions of credit under the Ply Gem Credit Facility or (ii) net proceeds from
the issuance and sale of the Bridge Notes, in either case as described in the
Offering Memorandum.
(f) The Initial Purchasers shall have received a
certificate, dated the Closing Date, signed by the Chief Executive Officer and
the Chief Financial Officer or Chief Accounting Officer on behalf of the
Company, in form and substance satisfactory to the Initial Purchasers, (i)
stating that (A) to such officers' knowledge, the Offering Memorandum, as of its
date, did not include any untrue statement of a material fact and did not omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, and since the date of the Offering Memorandum, no
event has occurred which should have been set forth in a
<PAGE> 33
32
supplement or amendment to the Offering Memorandum so that the Offering
Memorandum (as so amended or supplemented) would not include any untrue
statement of a material fact and would not omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading and (B) subsequent to the date of the most recent financial
statements contained in the Offering Memorandum, there has been no event or
development that could reasonably be expected to result in a Material Adverse
Effect, except in each case as described in or expressly contemplated by the
Offering Memorandum and (ii) confirming the matters set forth in paragraph (a)
of this Section 8 as of the Closing Date.
(g) The Initial Purchasers shall have received a
certificate, dated the Closing Date, signed by the Company, in form and
substance satisfactory to the Initial Purchasers, stating that the Chief
Executive Officer and the Chief Financial Officer or Chief Accounting Officer of
the Company have carefully examined the Offering Memorandum.
(h) The Initial Purchasers shall have received on the
Closing Date an opinion dated the Closing Date, in form and substance
satisfactory to the Initial Purchasers and counsel for the Initial Purchasers,
of (i) Ropes & Gray, counsel for the Company, to the effect set forth in EXHIBIT
C-1 hereto, and (ii) the General Counsel of the Company, to the effect set forth
in EXHIBIT C-2 hereto.
(i) The purchase of and payment for the Notes by the
Initial Purchasers hereunder (i) shall not be prohibited or enjoined
(temporarily or permanently) by any applicable law or governmental regulation
(including, without limitation, Regulation G, T, U or X of the Federal Reserve
Board, (ii) shall not subject the Initial Purchasers to any material penalty or,
in their reasonable judgment, other onerous conditions, which onerous conditions
arise as a result of or in connection with the Acquisition, the Ply Gem Credit
Facility, the issuance of the Bridge Notes (including the use of proceeds from
such facility or notes) or the use of proceeds of the Offering, under or
pursuant to any applicable law or governmental regulation (provided, however,
that such regulation or law was not in effect on the date of this Agreement),
and (iii) shall be permitted by the laws and regulations of the United States
jurisdictions to which they are subject.
(j) At the time this Agreement is executed and at the
Closing Date, the Initial Purchasers shall have received from each of Arthur
Andersen LLP and Grant Thornton LLP, each of which are independent certified
public accountants, (i) customary comfort letters, dated as of the date of this
Agreement and as of the Closing Date, addressed to the Initial Purchasers and in
form and substance satisfactory to the Initial Purchasers and counsel for the
Initial Purchasers with respect to the financial statements and certain
financial information of Nortek and its subsidiaries (in the case of Arthur
Andersen LLP) and of Ply Gem and its subsidiaries (in the case of Grant Thornton
LLP) contained or incorporated by reference in the Offering Memorandum and (ii)
a signed copy of each independent accountants' report included in the Offering
Memorandum.
<PAGE> 34
33
(k) The Initial Purchasers shall have received an
opinion, dated the Closing Date, in form and substance reasonably satisfactory
to the Initial Purchasers, of Paul, Weiss, Rifkind, Wharton & Garrison, counsel
for the Initial Purchasers, covering such matters as are customarily covered in
such opinions.
(l) Paul, Weiss, Rifkind, Wharton & Garrison, shall have
been furnished with such documents, in addition to those set forth above, as
they may reasonably require for the purpose of enabling them to review or pass
upon the matters referred to in this Section 8 and in order to evidence the
accuracy, completeness or satisfaction in all material respects of any of the
representations, warranties or conditions herein contained.
(m) Prior to the Closing Date, the Company shall have
furnished to the Initial Purchasers such further information, certificates and
documents as the Initial Purchasers may reasonably request.
(n) The Company and the Trustee shall have entered into
and delivered the Indenture and the Initial Purchasers shall have received a
counterpart, conformed as executed, thereof. The Indenture shall be in full
force and effect.
(o) The Company shall have entered into the Registration
Rights Agreement and the Initial Purchasers shall have received a counterpart,
conformed as executed, thereof. The Registration Rights Agreement shall be in
full force and effect.
(p) After the execution and delivery of this Agreement,
there shall not have been (i) any downgrading by Standard & Poor's Ratings Group
("S&P") in the rating of the 9 7/8% Notes below B- or the 9 1/4% Notes or the
Notes below B+; (ii) any downgrading by Moody's Investors Service Inc.
("MOODY'S") in the rating of the 9 7/8% Notes below B3 or the 9 1/4% Notes or
the Notes below B1; or (iii) any notice given by S&P or Moody's of any intention
or potential to effect such a downgrading.
(q) The Notes shall have been duly executed and
delivered by the Company and duly authenticated by the Trustee.
(r) The Notes shall have been approved by the NASD for
trading in the PORTAL Market.
All opinions, certificates, letters and other documents required
by this Section 8 to be delivered by the Company will be in compliance with the
provisions hereof only if they are reasonably satisfactory in form and substance
to the Initial Purchasers. The Company will furnish the Initial Purchasers with
such conformed copies of such opinions, certificates, letters and other
documents as it shall reasonably request.
<PAGE> 35
34
9. CONDITIONS TO THE OBLIGATIONS OF NORTEK. The obligations of
Nortek to issue and deliver the Notes, as provided herein, shall be subject to
the satisfaction of the following condition precedent:
(a) The Tender Offer shall have been consummated in all
material respects in accordance with the Merger Agreement as in effect on the
date hereof and none of the conditions to closing the Tender Offer set forth in
Exhibit A to the Merger Agreement shall have been amended or waived in any
material respect by the Company without the prior written consent of the Initial
Purchasers.
10. INFORMATION FURNISHED BY THE INITIAL PURCHASER. The Company
acknowledges that the statements with respect to the offering of the Notes set
forth in the first sentence of the last paragraph of the cover page and the
fourth paragraph under the caption "Plan of Distribution" in such Offering
Memorandum constitute the only information furnished in writing by the Initial
Purchasers expressly for use in the Offering Memorandum.
11. SURVIVAL OF REPRESENTATIONS AND AGREEMENTS. All
representations and warranties, covenants and agreements of the Initial
Purchasers and the Company contained in this Agreement, including, without
limitation, the agreements contained in Sections 4(f) and 12(d), the indemnity
agreements contained in Section 6 and the contribution agreements contained in
Section 7, shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Initial Purchasers or any controlling
person thereof or by or on behalf of the Company, any of its officers and
directors or any controlling person thereof, and shall survive delivery of and
payment for the Notes to and by the Initial Purchasers. The representations
contained in Section 5 and the agreements contained in Sections 4(f), 4(s), 6, 7
and 12(d) shall survive the termination of this Agreement, including any
termination pursuant to Section 12.
12. EFFECTIVE DATE OF AGREEMENT; TERMINATION. (a) This
Agreement shall become effective upon execution and delivery of a counterpart
hereof by each of the parties hereto.
(b) The Initial Purchasers shall have the right to
terminate this Agreement at any time prior to the Closing Date by notice to the
Company from the Initial Purchasers, without liability (other than with respect
to Sections 4(f), 6, 7 and 18, which shall remain in effect) to the Company on
the part of the Initial Purchasers if, on or prior to such date, (i) the Company
shall have failed, refused or been unable to perform in any material respect any
agreement on its part to be performed hereunder, (ii) any other condition to the
obligations of the Initial Purchasers hereunder as provided in Section 8 is not
fulfilled when and as required in any material respect, (iii) any Material
Adverse Effect shall have occurred since the respective dates as of which
information is given in the Offering Memorandum, whether or not arising in the
ordinary course of business other than as set forth in the Offering Memorandum,
such as, in the judgment of the Initial Purchasers, makes it inadvisable or
impracticable to proceed with the Offering or delivery of the Notes as
<PAGE> 36
35
contemplated hereby and by the Offering Memorandum, or (iv)(A) any domestic or
international event or act or occurrence has materially disrupted, or in the
opinion of the Initial Purchasers will in the immediate future materially
disrupt, the market for the Company's securities or for securities in general;
or (B) trading in securities on the New York or American Stock Exchanges or
over-the-counter market shall have been generally suspended or materially
limited, or minimum or maximum prices shall have been generally established, or
maximum price ranges for prices for securities shall have been generally
required, on the New York or American Stock Exchanges or in the over-the-counter
market by the Commission, or by such exchange or other regulatory body or
governmental authority having jurisdiction; or (C) a general banking moratorium
shall have been declared by a federal or state authority; or (D) there is an
outbreak or escalation of armed hostilities involving the United States on or
after the date hereof, or there has been a declaration by the United States of a
national emergency or war, the effect of which shall be, in the judgment of the
Initial Purchasers, to make it inadvisable or impracticable to proceed with the
offering or delivery of the Notes on the terms and in the manner contemplated in
the Offering Memorandum; or (E) there shall have occurred such a material
adverse change in general economic, political or financial conditions or the
effect of international conditions on the financial markets in the United States
shall be such as, in the judgment of the Initial Purchasers, makes it
inadvisable or impracticable to proceed with the offering or delivery of the
Notes as contemplated hereby and by the Offering Memorandum.
(c) Any notice of termination pursuant to this Section
12 shall be by telephone, telex, telephonic facsimile, or telegraph, confirmed
in writing by letter.
(d) If this Agreement shall be terminated pursuant to
any of the provisions hereof (other than pursuant to Section 12(b) (except
clauses (i) and (ii) thereof)), or if the sale of the Notes provided for herein
is not consummated because any condition to the obligations of the Initial
Purchasers set forth herein is not satisfied or because of any refusal,
inability or failure on the part of the Company to perform any agreement herein
or comply with any provision hereof, the Company will reimburse the Initial
Purchasers for all out-of-pocket expenses (including the reasonable fees and
expenses of counsel to the Initial Purchasers), incurred by the Initial
Purchasers in connection herewith.
13. DEFAULT BY AN INITIAL PURCHASER. If one of the Initial
Purchasers shall fail at the Closing Date to purchase the Notes that it is
obligated to purchase under the terms of this Agreement, the other Initial
Purchasers shall have the right, but not the obligation, within 24 hours
thereafter, to make arrangements to purchase all, but not less than all, of such
Notes upon the terms herein set forth; if, however, the other Initial
Purchaser(s) shall not have completed such arrangements within such 24-hour
period, then this Agreement shall terminate without liability on the part of any
nondefaulting Initial Purchaser. No action pursuant to this Section shall
relieve any defaulting Initial Purchaser from liability in respect of its
default. In the event of any such default that does not result in a termination
of this Agreement, either a
<PAGE> 37
36
nondefaulting Initial Purchaser or the Company shall have the right to postpone
the Closing Date for a period not exceeding seven days to effect any required
changes in the Offering Memorandum or in any other documents or arrangement.
14. NOTICE. All communications hereunder, except as may be
otherwise specifically provided herein, shall be in writing and, if sent to the
Initial Purchaser shall be mailed, delivered, or telexed, telegraphed or
telecopied and confirmed in writing to the Initial Purchasers c/o Wasserstein
Perella Securities, Inc., 31 West 52nd Street, New York, New York 10019-6118,
Attention: Peter H. Rothschild, telecopier number: (212) 969-7802, with a copy
to Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the Americas, New
York, New York 10019-6064, Attention: Paul D. Ginsberg, telecopier number (212)
757-3990; and if sent to the Company, shall be mailed, delivered or telexed,
telegraphed or telecopied and confirmed in writing to 50 Kennedy Plaza,
Providence, Rhode Island 02903-2603, Attention: Almon C. Hall, telecopier
number: (401) 751-4610, with a copy to Ropes & Gray, One International Place,
Boston, Massachusetts 02110-2624, Attention: Douglass N. Ellis, Jr., telecopier
number: (617) 951-7050.
15. PARTIES. Except as provided by Section 4(j), this Agreement
shall inure solely to the benefit of, and shall be binding upon, the Initial
Purchasers and the Company and the controlling persons and agents referred to in
Sections 6 and 7, and their respective successors and assigns, and no other
person shall have or be construed to have any legal or equitable right, remedy
or claim under or in respect of or by virtue of this Agreement or any provision
herein contained. The term "SUCCESSORS AND ASSIGNS" shall not include a
purchaser, in its capacity as such, of Notes from an Initial Purchaser.
16. CAPTIONS. The captions included in this Agreement are
included solely for convenience of reference and are not to be considered a part
of this Agreement.
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts which together shall constitute one and the same instrument.
18. GOVERNING LAW; CONSTRUCTION. This Agreement shall be
governed by and construed in accordance with the internal laws of the State of
New York, without giving effect to any provisions relating to conflicts of laws.
TIME IS OF THE ESSENCE IN THIS AGREEMENT.
19. PARTIAL INVALIDITY. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
<PAGE> 38
37
If the foregoing correctly sets forth the understanding among the
Initial Purchasers and the Company please so indicate in the space provided
below for that purpose, whereupon this letter shall constitute a binding
agreement among us.
Very truly yours,
NORTEK, INC.
By: /s/ Kevin W. Donnelly
-------------------------------
Name: Kevin W. Donnelly
Title: Vice President and
General Counsel
Accepted and agreed as of
the date first above written:
WASSERSTEIN PERELLA SECURITIES, INC.
By:
-------------------------------------
Name:
Title:
BEAR, STEARNS & CO. INC.
By:
-------------------------------------
Name:
Title:
<PAGE> 39
37
If the foregoing correctly sets forth the understanding among the
Initial Purchasers and the Company please so indicate in the space provided
below for that purpose, whereupon this letter shall constitute a binding
agreement among us.
Very truly yours,
NORTEK, INC.
By:
-------------------------------
Name:
Title:
Accepted and agreed as of
the date first above written:
WASSERSTEIN PERELLA SECURITIES, INC.
By:
-------------------------------------
Name:
Title:
BEAR, STEARNS & CO. INC.
By: /s/ J. Andrew Bugas
-------------------------------------
Name: J. Andrew Bugas
Title: Senior Managing Director
<PAGE> 40
37
If the foregoing correctly sets forth the understanding among the
Initial Purchasers and the Company please so indicate in the space provided
below for that purpose, whereupon this letter shall constitute a binding
agreement among us.
Very truly yours,
NORTEK, INC.
By:
-------------------------------
Name:
Title:
Accepted and agreed as of
the date first above written:
WASSERSTEIN PERELLA SECURITIES, INC.
By: /s/ James C. Kingsbery
-------------------------------------
Name: JAMES C. KINGSBERY
Title: VICE PRESIDENT
BEAR, STEARNS & CO. INC.
By:
-------------------------------------
Name:
Title:
<PAGE> 41
SCHEDULE I
<TABLE>
<CAPTION>
Principal
Amount of
Initial Purchaser Notes
----------------- -----
<S> <C>
Wasserstein Perella Securities, Inc. ................... $217,000,000
Bear, Stearns & Co. Inc. ............................... $ 93,000,000
------------
TOTAL ............................................. $310,000,000
============
</TABLE>
<PAGE> 42
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "AGREEMENT") is made and entered
into as of August 26, 1997 among Nortek, Inc., a Delaware corporation (the
"COMPANY"), Wasserstein Perella Securities, Inc. and Bear, Stearns & Co. Inc.
(collectively, the "INITIAL PURCHASERS").
This Agreement is made pursuant to the Purchase Agreement dated as of
August 21, 1997 (the "PURCHASE AGREEMENT"), between the Company and the Initial
Purchasers, which provides for the sale by the Company to the Initial Purchasers
of an aggregate of $310,000,000 aggregate principal amount of the Company's 9
1/8% Senior Notes due 2007 (the "NOTES"). In order to induce the Initial
Purchasers to enter into the Purchase Agreement and to purchase the Notes, the
Company has agreed to provide to the Initial Purchasers and their direct and
indirect transferees the registration rights for the Notes set forth in this
Agreement. The execution and delivery of this Agreement is a condition precedent
to the obligations of the Initial Purchasers under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as follows:
1. DEFINITIONS. As used in this Agreement, the following capitalized
defined terms shall have the following meanings (and, unless otherwise
indicated, capitalized terms used herein without definition shall have the
meanings ascribed to them in the Purchase Agreement):
"ACT" shall mean the Securities Act of 1933, as amended.
"AGREEMENT" shall have the meaning set forth in the preamble to this
Agreement.
"APPLICABLE PERIOD" shall have the meaning set forth in Section 3(t)
hereof.
"CLOSING DATE" shall mean the Closing Date as defined in the Purchase
Agreement.
"COMMISSION" shall mean the Securities and Exchange Commission, or such
other federal agency administering the Act or the Exchange Act.
"COMPANY" shall have the meaning set forth in the preamble to this
Agreement, and shall also include the Company's successors.
"DEPOSITARY" shall mean The Depository Trust Company, or any successor
depositary appointed by the Company; PROVIDED, HOWEVER, that such depositary
must have an address in the Borough of Manhattan, The City of New York.
<PAGE> 43
2
"EFFECTIVENESS PERIOD" shall have the meaning set forth in Section 2(b)
hereof.
"EVENT DATE" shall have the meaning set forth in Section 2(e) hereof.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"EXCHANGE NOTES" shall mean the 9 1/8% Series B Senior Notes due 2007, to
be issued by the Company under the Indenture and containing terms identical to
the Notes (except that (i) interest thereon shall accrue from the last date on
which interest was paid on the Notes or, if no such interest has been paid, from
August 26, 1997, and (ii) the transfer restrictions thereon shall be eliminated)
to be offered to Holders of Notes in exchange for Notes pursuant to the Exchange
Offer.
"EXCHANGE OFFER" shall mean the exchange offer by the Company of Exchange
Notes for Notes pursuant to Section 2(a) hereof.
"EXCHANGE OFFER REGISTRATION" shall mean a registration under the Act
effected pursuant to Section 2(a) hereof.
"EXCHANGE OFFER REGISTRATION STATEMENT" shall mean the registration
statement (on Form S-4 or, if applicable, on any other appropriate form)
relating to the Exchange Offer, and all amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"EXCHANGE PERIOD" shall have the meaning set forth in Section 2(a) hereof.
"HOLDER" shall mean each Initial Purchaser, for so long as it owns any
Registrable Securities, and each of its respective successors, assigns and
direct and indirect transferees who become registered owners of Registrable
Securities under the Indenture.
"INDENTURE" shall mean the Indenture dated as of August 26, 1997 by and
between the Company and Sate Street Bank and Trust Company, as trustee, as the
same may be amended or supplemented from time to time in accordance with the
terms thereof.
"INITIAL PURCHASERS" shall have the meaning set forth in the preamble to
this Agreement.
"INSPECTORS" shall have the meaning set forth in Section 3(n) hereof.
<PAGE> 44
3
"LIQUIDATED DAMAGES" shall have the meaning set forth in Section 2(e)
hereof.
"MAJORITY HOLDERS" shall mean the Holders of a majority of the aggregate
principal amount of outstanding (as determined under the Indenture) Registrable
Securities.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NOTES" shall have the meaning set forth in the preamble to this Agreement.
"PARTICIPATING BROKER-DEALER" shall have the meaning set forth in Section
3(t) hereof.
"PERSON" shall mean any individual, corporation, limited liability company,
general or limited partnership, limited liability partnership, joint venture,
association, joint-stock company, trust, charitable foundation, unincorporated
organization, government or agency or political subdivision thereof or any other
entity.
"PRIVATE EXCHANGE" shall have the meaning set forth in Section 2(a) hereof.
"PRIVATE EXCHANGE NOTES" shall have the meaning set forth in Section 2(a)
hereof.
"PROSPECTUS" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including a prospectus
supplement with respect to the terms of the offering of any portion of the
Registrable Securities covered by a Shelf Registration Statement, including
post-effective amendments, and in each case including all material incorporated
by reference therein.
"PURCHASE AGREEMENT" shall have the meaning set forth in the preamble to
this Agreement.
"RECORDS" shall have the meaning set forth in Section 3(n) hereof.
"REGISTRABLE SECURITIES" shall mean the Notes and, if issued, the Private
Exchange Notes; PROVIDED, HOWEVER, that Notes or Private Exchange Notes, as the
case may be, shall cease to be Registrable Securities when (i) a Registration
Statement with respect to such Notes or Private Exchange Notes or the resale
thereof shall have been declared effective under the Act and such Notes or
Private Exchange Notes, as the case may be, shall have been disposed of pursuant
to such Registration Statement, (ii) such Notes or Private Exchange Notes, as
the case may be, shall have become
<PAGE> 45
4
eligible to be sold to the public pursuant to Rule 144(k) (or any similar
provision then in force, but not Rule 144A) under the Act, (iii) such Notes or
Private Exchange Notes, as the case may be, shall have ceased to be outstanding
or (iv) with respect to the Notes, such Notes have been exchanged for Exchange
Notes upon consummation of the Exchange Offer.
"REGISTRATION EXPENSES" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement, including,
without limitation: (i) Commission, stock exchange and NASD registration and
filing fees, including, if applicable, the fees and expenses of any "qualified
independent underwriter" and its counsel that is required to be retained by any
Holder of Registrable Securities in accordance with the rules and regulations of
the NASD, (ii) fees and expenses incurred in connection with compliance with
state securities or blue sky laws (including reasonable fees and disbursements
of counsel for any underwriters or Holders in connection with the blue sky
qualification of any of the Exchange Notes or Registrable Securities) and
compliance with the rules of the NASD, (iii) expenses of any Persons in
preparing or assisting in preparing, printing and distributing any Registration
Statement, any Prospectus and any amendments or supplements thereto, and in
preparing or assisting in preparing, printing and distributing any underwriting
agreements, securities sales agreements and other documents relating to the
performance of and compliance with the obligations under this Agreement, (iv)
rating agency fees, (v) fees and disbursements of counsel for and independent
certified public accountants of the Company, including the expenses of any "cold
comfort" letters required by or incident to such performance and compliance,
(vi) fees and expenses of the Trustee, and any exchange agent or custodian,
(vii) fees and expenses incurred in connection with the listing, if any, of any
of the Registrable Securities on any securities exchange or exchanges, and
(viii) the reasonable fees and expenses of any special experts retained by the
Company in connection with any Registration Statement.
"REGISTRATION STATEMENT" shall mean any registration statement of the
Company relating to the Exchange Notes or Registrable Securities pursuant to the
provisions of this Agreement, and all amendments and supplements to any such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"SHELF REGISTRATION" shall mean a registration effected pursuant to Section
2(b) hereof.
"SHELF REGISTRATION STATEMENT" shall mean a "shelf" registration statement
of the Company pursuant to the provisions of Section 2(b) of this Agreement
which covers all of the Registrable Securities, on an appropriate form under
Rule 415 under the Act, or any similar rule that may be adopted by the
Commission, and all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
<PAGE> 46
5
"TIA" shall mean the Trust Indenture Act of 1939, as amended.
"TRANSFER RESTRICTED SECURITIES" shall mean each Note until (i) the date on
which such Note has been exchanged by a Person other than a broker-dealer for an
Exchange Note in the Exchange Offer, (ii) following the exchange by a
broker-dealer in the Exchange Offer of a Note for an Exchange Note, the date on
which such Exchange Note is sold to a purchaser who receives from such
broker-dealer on or prior to the date of such sale a copy of the prospectus
contained in the Exchange Offer Registration Statement, (iii) the date on which
such Note has been effectively registered under the Securities Act and disposed
of in accordance with the Shelf Registration Statement or (iv) the date on which
such Note is distributed to the public pursuant to Rule 144 under the Securities
Act.
"TRUSTEE" shall mean the trustee under the Indenture.
2. REGISTRATION UNDER THE ACT.
(a) Exchange Offer. To the extent not prohibited by any applicable law
or applicable interpretation of the staff of the Commission, the Company shall,
for the benefit of the Holders, at the Company's cost, use its best efforts to
cause to be filed with the Commission an Exchange Offer Registration Statement
on or prior to 60 days after the Closing Date on an appropriate form under the
Act covering the offer by the Company to the Holders to exchange all of the
Registrable Securities (other than Private Exchange Notes) for a like aggregate
principal amount of Exchange Notes, to cause such Exchange Offer Registration
Statement to be declared effective under the Act by the Commission on or prior
to 135 days after the Closing Date, to cause such Registration Statement to
remain effective until the closing of the Exchange Offer and 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 Act
by the Commission. The Exchange Notes will be issued under the Indenture. Upon
the effectiveness of the Exchange Offer Registration Statement, the Company
shall promptly commence the Exchange Offer, it being the objective of such
Exchange Offer to enable each Holder (other than Participating Broker-Dealers
(as defined in Section 3(t) hereof)) eligible and electing to exchange
Registrable Securities for Exchange Notes (assuming that such Holder is not an
affiliate of the Company within the meaning of Rule 405 under the Act, acquires
the Exchange Notes in the ordinary course of such Holder's business and has no
arrangements or understandings with any Person to participate in the Exchange
Offer for the purpose of distributing the Exchange Notes) to transfer such
Exchange Notes from and after their receipt without any limitations or
restrictions under the Act or under state securities or blue sky laws.
In connection with the Exchange Offer, the Company shall:
(i) mail to each Holder a copy of the Prospectus forming part of
the Exchange Offer Registration Statement together with an appropriate
letter of transmittal and related documents;
<PAGE> 47
6
(ii) keep the Exchange Offer open for acceptance for a period of
not less than 30 days after the date notice thereof is mailed to the
Holders, or longer if required by applicable law (such period being
referred to herein as the "EXCHANGE PERIOD");
(iii) utilize the services of the Depositary for the Exchange
Offer;
(iv) permit Holders to withdraw tendered Notes at any time prior
to the close of business, New York City time, on the last business day
of the Exchange Period, by sending to the institution specified in the
notice a telegram, telex, facsimile transmission or letter setting
forth the name of such Holder, the principal amount of Notes delivered
for exchange, and a statement that such Holder is withdrawing its
election to have such Notes exchanged;
(v) notify each Holder that any Note not tendered will remain
outstanding and continue to accrue interest, but will not retain any
rights under this Agreement (except in the case of the Initial
Purchasers and Participating Broker-Dealers as provided herein); and
(vi) otherwise comply in all respects with all applicable laws
relating to the Exchange Offer.
If, prior to consummation of the Exchange Offer, any Initial Purchaser
holds any Notes acquired by it and having the status of an unsold allotment in
the initial distribution, the Company upon the request of such Initial Purchaser
shall, simultaneously with the delivery of the Exchange Notes in the Exchange
Offer, issue and deliver to such Initial Purchaser in exchange (the "PRIVATE
EXCHANGE") for Notes held by the Initial Purchasers a like principal amount of
debt securities of the Company that are identical (except that such securities
shall bear appropriate transfer restrictions) to the Exchange Notes (the
"PRIVATE EXCHANGE NOTES") and which are issued pursuant to the Indenture (which
will provide that the Exchange Notes will not be subject to the transfer
restrictions set forth in the Indenture and that the Exchange Notes, the Private
Exchange Notes and the Notes will vote and consent together on all matters as
one class and that none of the Exchange Notes, the Private Exchange Notes or the
Notes will have the right to vote or consent as a separate class on any matter).
The Private Exchange Notes shall be of the same series as and shall bear the
same CUSIP number as the Exchange Notes.
As soon as practicable after the close of the Exchange Offer or the Private
Exchange, as the case may be, the Company shall:
(i) accept for exchange all Notes or portions thereof duly
tendered and not validly withdrawn pursuant to the Exchange Offer;
(ii) accept for exchange all Notes or portions thereof duly
tendered pursuant to the Private Exchange; and
<PAGE> 48
7
(iii) deliver, or cause to be delivered, to the Trustee for
cancellation all Notes or portions thereof so accepted for exchange by
the Company, and issue, and cause the Trustee to promptly authenticate
and deliver to each Holder, a new Exchange Note or Private Exchange
Note, as the case may be, equal in principal amount to the principal
amount of the Notes surrendered by such Holder.
To the extent not prohibited by applicable law or any applicable
interpretation of the staff of the Commission, the Company shall use its best
efforts to complete the Exchange Offer as provided above, and shall comply with
all applicable requirements of the Act, the Exchange Act and other applicable
laws in connection with the Exchange Offer. The Exchange Offer shall not be
subject to any condition, other than that (i) the Exchange Offer does not
violate any applicable law or interpretation of the staff of the Commission,
(ii) no action or proceeding has been instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer which,
in the reasonable judgment of the Company, might impair the ability of the
Company to proceed with the Exchange Offer, (iii) there has not been any
material change, or development involving a prospective material change, in the
business or financial affairs of the Company or any of its subsidiaries which,
in the reasonable judgment of the Company, would materially impair the Company's
ability to consummate the Exchange Offer or have a material adverse effect on
the Company if the Exchange Offer is consummated, (iv) there has not been
proposed, adopted, or enacted any law, statute, rule or regulation which, in the
reasonable judgment of the Company, might materially impair the ability of the
Company to proceed with the Exchange Offer or have a material adverse effect on
the Company if the Exchange Offer is consummated or (v) all governmental
approvals which the Company shall reasonably deem necessary for the consummation
of the Exchange Offer as contemplated shall have been obtained. Each Holder of
Registrable Securities who wishes to exchange such Registrable Securities for
Exchange Notes in the Exchange Offer will be required to make certain customary
representations in connection therewith, including representations that such
Holder is not an affiliate of the Company within the meaning of Rule 405 under
the Act, that any Exchange Notes to be received by it will be acquired in the
ordinary course of business and that at the time of the commencement of the
Exchange Offer it had no arrangement with any Person to participate in the
distribution (within the meaning of the Act) of the Exchange Notes and will be
required to make such other representations as may be necessary under applicable
Commission rules, regulations or interpretations to render available the use of
Form S-4 or any other appropriate form under the Act. The Company shall inform
the Initial Purchasers, after consultation with the Trustee and the Initial
Purchasers, of the names and addresses of the Holders to whom the Exchange Offer
is made, and the Initial Purchasers shall have the right to contact such Holders
and otherwise facilitate the tender of Registrable Securities in the Exchange
Offer.
In the event that the Company is unable to consummate the Exchange Offer
due to any event listed in clauses (i) through (v) in the paragraph immediately
<PAGE> 49
8
above, the Company shall not be deemed to have breached any covenant under this
Section 2(a).
Upon consummation of the Exchange Offer in accordance with this Section
2(a), the provisions of this Agreement shall continue to apply, mutatis
mutandis, solely with respect to Registrable Securities that are Private
Exchange Notes and Exchange Notes held by Participating Broker-Dealers, and the
Company shall have no further obligation to register Registrable Securities
(other than Private Exchange Notes) pursuant to Section 2(b) of this Agreement.
(b) Shelf Registration. 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,
(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 Notes acquired directly
from the Company or an affiliate of the Company, or (iii) the Exchange Offer is
not for any other reason consummated within 180 days of the Closing Date, the
Company shall, at its cost, cause to be filed with the Commission as promptly as
practicable after such determination or date, as the case may be, and, in any
event, on or prior to 45 days thereafter, a Shelf Registration Statement
providing for the sale by the Holders of all of the Registrable Securities, and
shall use its best efforts to cause such Shelf Registration Statement declared
effective by the Commission on or prior to 90 days after such determination or
date. No Holder of Registrable Securities may include any of its Registrable
Securities in any Shelf Registration pursuant to this Agreement unless and until
such Holder furnishes to the Company in writing, within 15 days after receipt of
a request therefor, such information as the Company may, after conferring with
counsel with regard to information relating to Holders that would be required by
the Commission to be included in such Shelf Registration Statement or Prospectus
included therein, reasonably request for inclusion in any Shelf Registration
Statement or Prospectus included therein. Each Holder as to which any Shelf
Registration is being effected agrees to furnish promptly to the Company all
information required to be disclosed in the applicable Shelf Registration
Statement or Prospectus included therein by the rules and regulations of the
Commission applicable to the Shelf Registration Statement in order to make the
information previously furnished to the Company by such Holder not materially
misleading.
The Company agrees, subject to applicable law or applicable interpretation
of the staff of the Commission, to use its reasonable best efforts to keep the
Shelf Registration Statement continuously effective, supplemented and amended
under the Act for a period ending on the earlier of the date which is two years
from the Closing Date (subject to extension pursuant to the last paragraph of
Section 3) or the date on which all of the Registrable Securities covered by the
Shelf Registration
<PAGE> 50
9
Statement have been sold pursuant to the Shelf Registration Statement or cease
to be outstanding (the "EFFECTIVENESS PERIOD"). The Company shall not permit any
securities other than Registrable Securities to be included in the Shelf
Registration. The Company will, in the event a Shelf Registration Statement is
declared effective, provide to each Holder copies of the prospectus which is a
part of the Shelf Registration Statement, notify each such Holder when the Shelf
Registration Statement has become effective and take certain other actions as
are customary to permit unrestricted resales of the Registrable Securities
covered by the Shelf Registration Statement. The Company further agrees, if
necessary, to use its reasonable best efforts to supplement or amend the Shelf
Registration Statement, if required by the Act or the rules, regulations or
instructions applicable to the registration form used by the Company for such
Shelf Registration Statement or by any other rules and regulations thereunder
for shelf registrations, or if reasonably requested by the holders of a majority
of the of Registrable Securities covered by such Shelf Registration Statement,
and the Company agrees to furnish to the Holders copies of any such supplement
or amendment promptly after its being used or filed with the Commission.
(c) Expenses. The Company shall pay all Registration Expenses in
connection with registrations pursuant to Section 2(a) or 2(b). Each Holder
shall pay all expenses of its counsel (other than the fees described in clauses
(i) and (ii) of the definition of "Registration Expenses"), underwriting
discounts and commissions and transfer taxes, if any, relating to the sale or
disposition of such Holder's Registrable Securities pursuant to the Exchange
Offer Registration Statement and the Shelf Registration Statement.
(d) Effective Registration Statement. An Exchange Offer Registration
Statement pursuant to Section 2(a) hereof or a Shelf Registration Statement
pursuant to Section 2(b) hereof will not be deemed to have become effective
unless it has been declared effective by the Commission; PROVIDED, HOWEVER, that
if, after it has been declared effective, the offering of Registrable Securities
pursuant to a Shelf Registration Statement is interfered with by any stop order,
injunction or other order or requirement of the Commission or any other
governmental agency or court, such Registration Statement will be deemed not to
have been effective during the period of such interference, until the offering
of Registrable Securities pursuant to such Registration Statement may legally
resume.
(e) Liquidated Damages. In the event that an Exchange Offer
Registration Statement has not been filed with the Commission on or prior to 60
days after the Closing Date, additional interest payable by the Company as
liquidated damages ("LIQUIDATED DAMAGES") will accrue on the Notes from and
including the 61st day after the Closing Date until but excluding the date such
Exchange Offer Registration Statement is filed. In addition, if on or prior to
135 days after the Closing Date, such Exchange Offer Registration Statement is
not declared effective under the Act by the Commission, Liquidated Damages will
accrue on the Notes from and including the 136th day after the Closing Date
until but excluding the date such Exchange Offer Registration Statement is
declared effective. Further, if on or prior to 45 days after the date specified
for effectiveness of the Exchange Offer Registration
<PAGE> 51
10
Statement the Exchange Offer is not consummated, Liquidated Damages will accrue
on the Notes from and including the 46th day after the date specified for
effectiveness of the Exchange Offer Registration Statement until but excluding
the date of the Exchange Offer is consummated. If a Shelf Registration Statement
is required to be filed pursuant to Section 2(b) and such Shelf Registration
Statement is not filed or declared effective within the time periods provided by
Section 2(b) hereof for such filing or declaration, Liquidated Damages will
accrue on the Notes (other than those exchanged in the Exchange Offer) or the
Private Exchange Notes, as the case may be, from and including the day
immediately following such default until but excluding the effective date of the
Shelf Registration Statement. Further, if the Shelf Registration Statement or
the Exchange Offer Registration Statement is declared effective but thereafter
ceases to be effective or usable during the time periods specified in this
Agreement, Liquidated Damages will accrue on the Notes (other than those
exchanged in the Exchange Offer) or the Private Exchange Notes, as the case may
be, from and including the day immediately following such default until but
excluding the date such Registration Statement becomes effective or usable. In
each case, such Liquidated Damages will be payable in cash semiannually in
arrears, with the first semiannual payment due on the first interest payment
date in respect of the Notes (or the Private Exchange Notes) following the date
from which Liquidated Damages begin to accrue, and will accrue, under each
circumstance set forth above in an amount equal to $0.05 per week per $1,000
principal amount of Notes (or Private Exchange Notes) held by such Holder to
each Holder affected by such circumstance, which amount will increase by $0.05
per week per $1,000 principal amount of Notes (or Private Exchange Notes) for
each 90-day period that such Liquidated Damages continue to accrue under any
circumstance, up to a maximum amount of Liquidated Damages of $0.25 per week per
$1,000 principal amount of Notes (or Private Exchange Notes). For any portion of
a week that Liquidated Damages are payable hereunder, such Liquidated Damages
shall be calculated on a pro rata basis.
Upon the filing of the Exchange Offer Registration Statement, the
effectiveness of the Exchange Offer Registration Statement, or the consummation
of the Exchange Offer, as the case may be, the Liquidated Damages assessed in
respect of the Notes shall cease to accrue to the extent that such Liquidated
Damages related to the failure of any such event to have occurred. Upon the
effectiveness of a Shelf Registration Statement, the Liquidated Damages assessed
in respect of the Notes (and the Private Exchange Notes) shall cease to accrue,
from and as of the date of such effectiveness, unless and until reassessed as
described above. Notwithstanding anything to the contrary contained herein, the
Company (i) shall not be required to amend or supplement the Shelf Registration
Statement, any related prospectus or any document incorporated therein by
reference and (ii) may suspend the effectiveness of any such Shelf Registration
Statement in the event that, and for a period not to exceed, for so long as this
Agreement is in effect, an aggregate of 90 days in any one calendar year if (A)
an event occurs and is continuing as a result of which the Shelf Registration
Statement, any related prospectus or any document incorporated therein by
reference as then amended or supplemented would, in the Company's good faith
judgment, contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein not misleading,
and (B) the
<PAGE> 52
11
Company determines in its good faith judgment that the disclosure of such event
at such time would have a material adverse effect on the business, operations or
prospects of the Company; provided that any such suspension shall not relieve
the Company from its obligation to pay Liquidated Damages.
The Company shall notify the Trustee within three business days after each
and every date on which an event occurs in respect of which Liquidated Damages
is required to be paid (an "EVENT DATE"). Liquidated Damages shall be paid by
depositing with the Trustee, in trust, for the benefit of the Holders of Notes,
Exchange Notes or Private Exchange Notes, as the case may be, on or before the
applicable semiannual interest payment date, immediately available funds in sums
sufficient to pay the Liquidated Damages then due. The Liquidated Damages due
shall be payable on each interest payment date to the record Holder of Notes
entitled to receive the interest payment to be paid on such date as set forth in
the Indenture. Each obligation to pay Liquidated Damages shall be deemed to
accrue from and including the day following the applicable Event Date.
(f) Specific Enforcement. Without limiting the remedies available to
the Initial Purchasers and the Holders, the Company acknowledges that any
failure by the Company to comply with its obligations under Section 2(a) and
Section 2(b) hereof would result in material irreparable injury to the Initial
Purchasers or the Holders for which there is no adequate remedy at law, that it
would not be possible to measure damages for such injuries precisely and that,
in the event of any such failure, the Initial Purchasers or any Holder may
obtain such relief as may be required to specifically enforce the Company's
obligations under Section 2(a) and Section 2(b) hereof.
3. REGISTRATION PROCEDURES. In connection with the obligations of the
Company with respect to the Registration Statements pursuant to Sections 2(a)
and 2(b) hereof, the Company shall:
(a) prepare and file with the Commission a Registration Statement or
Registration Statements as prescribed by Sections 2(a) and 2(b) within the
relevant time periods specified in Section 2 hereof on the appropriate form
under the Act, which form (i) shall be selected by the Company, (ii) shall, in
the case of a Shelf Registration, be available for the sale of the Registrable
Securities by the selling Holders and (iii) shall comply as to form in all
material respects with the requirements of the applicable form and include or
incorporate by reference all financial statements required by the Commission to
be filed therewith, and the Company shall use its best efforts to cause such
Registration Statement to become effective and remain effective in accordance
with Section 2; PROVIDED, HOWEVER, that if (1) such filing is pursuant to
Section 2(b), or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2(a) is required to be delivered under the
Act by any Participating Broker-Dealer who seeks to sell Exchange Notes, before
filing any Registration Statement or Prospectus or any amendments or supplements
thereto, the Company, if requested, shall furnish to and afford the Holders and
each such Participating Broker-Dealer, as the case may be,
<PAGE> 53
12
covered by such Registration Statement, their counsel and the managing
underwriters, if any, a reasonable opportunity to review copies of all such
documents (including copies of any documents to be incorporated by reference
therein and all exhibits thereto) proposed to be filed at least five business
days prior to such filing. The Company shall not file any Registration Statement
or Prospectus or any amendments or supplements thereto in respect of which the
Holders, pursuant to this Agreement, must be afforded an opportunity to review
prior to the filing of such document, if the holders of a majority of the
Registrable Securities covered by such Registration Statement or such
Participating Broker-Dealer, as the case may be, their counsel or the managing
underwriters, if any, shall reasonably object;
(b) subject to Section 3(a) hereof, prepare and file with the
Commission such amendments and post-effective amendments to each Registration
Statement as may be necessary to keep such Registration Statement effective for
the Effectiveness Period or the Applicable Period, as the case may be, and cause
each Prospectus to be supplemented by any required prospectus supplement and as
so supplemented to be filed pursuant to Rule 424 (or any similar provision then
in force) under the Act, and comply with the provisions of the Act, the Exchange
Act and the rules and regulations promulgated thereunder applicable to it with
respect to the disposition of all securities covered by each Registration
Statement during the Effectiveness Period or the Applicable Period, as the case
may be, in accordance with the intended method or methods of distribution by the
selling Holders thereof described in this Agreement (including sales by any
Participating Broker-Dealer);
(c) in the case of a Shelf Registration, (i) notify each Holder, at
least five business days prior to filing, that a Shelf Registration Statement
with respect to the Registrable Securities is being filed and advising such
Holder that the distribution of Registrable Securities will be made in
accordance with the method selected by the Majority Holders, (ii) furnish to
each Holder and to each underwriter of an underwritten offering of Registrable
Securities, if any, without charge, as many copies of each Prospectus, including
each preliminary Prospectus, and any amendment or supplement thereto and such
other documents as such Holder or underwriter may reasonably request, in order
to facilitate the public sale or other disposition of the Registrable
Securities, and (iii) subject to the last paragraph of this Section 3, consent
to the use of the Prospectus or any amendment or supplement thereto by each of
the selling Holders in connection with the offering and sale of the Registrable
Securities covered by the Prospectus or any amendment or supplement thereto,
provided that such use complies with all applicable laws and regulations;
(d) use its best efforts to register or qualify the Registrable
Securities under all applicable state securities or "blue sky" laws of such
jurisdictions as any Holder of Registrable Securities covered by a Registration
Statement and each underwriter of an underwritten offering of Registrable
Securities shall reasonably request by the time the applicable Registration
Statement is declared effective by the Commission, and do any and all other acts
and things which may be reasonably necessary or advisable to enable such Holder
and underwriter to consummate the disposition in each such jurisdiction of such
Registrable Securities owned by such
<PAGE> 54
13
Holder; PROVIDED, HOWEVER, that the Company shall not be required to (i) qualify
as a foreign partnership or foreign corporation or as a dealer in securities in
any jurisdiction where it would not otherwise be required to qualify but for
this Section 3(d), (ii) file any general consent to service of process in any
jurisdiction where it would not otherwise be subject to such service of process
or (iii) subject itself to taxation in any such jurisdiction if it is not then
so subject;
(e) in the case of (A) a Shelf Registration or (B) Participating
Broker-Dealers who have notified the Company that they will be utilizing the
Prospectus contained in the Exchange Offer Registration Statement as provided in
Section 3(t) hereof, are seeking to sell Exchange Notes and are required to
deliver Prospectuses, notify each Holder, or such Participating Broker-Dealers,
as the case may be, their counsel and the managing underwriters, if any,
promptly and, if requested by such Holder or Participating Broker-Dealer,
confirm such notice in writing (i) when a Registration Statement has become
effective and when any post-effective amendments and supplements thereto become
effective, (ii) of any request by the Commission or any state securities
authority for amendments and supplements to a Registration Statement or
Prospectus or for additional information after the Registration Statement has
become effective, (iii) of the issuance by the Commission or any state
securities authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that purpose,
(iv) in the case of a Shelf Registration, if, between the effective date of a
Registration Statement and the closing of any sale of Registrable Securities
covered thereby, the representations and warranties of the Company contained in
any underwriting agreement, securities sales agreement or other similar
agreement, if any, relating to such offering cease to be true and correct in all
material respects, (v) if the Company receives any notification with respect to
the suspension of the qualification of the Registrable Securities or the
Exchange Notes to be sold by any Participating Broker-Dealer for offer or sale
in any jurisdiction or the initiation of any proceeding for such purpose, (vi)
of the happening of any event or the failure of any event to occur or the
discovery of any facts or otherwise, during the period a Shelf Registration
Statement is effective or the Applicable Period, as the case may be, which makes
any statement made in the Shelf Registration Statement, the Exchange Offer
Registration Statement or any related Prospectus untrue in any material respect
or which causes such Registration Statement or Prospectus, as the case may be,
to omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading and
(vii) of the Company's reasonable determination that a post-effective amendment
to the Registration Statement would be appropriate;
(f) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement at the earliest
possible moment;
(g) in the case of a Shelf Registration, furnish to each Holder, upon
request and without charge, at least one conformed copy of each
<PAGE> 55
14
Registration Statement and any post-effective amendment thereto (without
documents incorporated therein by reference or exhibits thereto, unless
requested);
(h) in the case of a Shelf Registration, cooperate with the selling
Holders to facilitate the timely preparation and delivery of certificates, if
any, representing Registrable Securities to be sold, which certificates shall
not bear any restrictive legends and shall be in a form eligible for deposit
with the Depositary; and cause such Registrable Securities to be in such
denominations (consistent with the provisions of the Indenture) and registered
in such names as the selling Holders or the managing underwriters may reasonably
request at least two business days prior to the closing of any sale of
Registrable Securities;
(i) subject to Section 3(a) hereof and the second paragraph of Section
2(e) hereof, in the case of a Shelf Registration or an Exchange Offer
Registration, upon the occurrence of any circumstance contemplated by Section
3(e)(ii), 3(e)(iii), 3(e)(iv), 3(e)(v), 3(e)(vi) or 3(e)(vii) hereof, use its
best efforts to prepare a supplement or post-effective amendment to the
Registration Statement and the related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities, such Prospectus will
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The Company agrees to notify each
Holder to suspend use of the Prospectus as promptly as practicable after the
occurrence of any such circumstance, and each Holder hereby agrees to suspend
use of the Prospectus until the Company has amended or supplemented the
Prospectus to correct such misstatement or omission;
(j) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, upon request and without charge, a reasonable number of
copies of any document which is incorporated by reference into or is an exhibit
to a Registration Statement or a Prospectus after the initial filing of a
Registration Statement;
(k) obtain a CUSIP number for all Exchange Notes or Registrable
Securities, as the case may be, not later than the effective date of a
Registration Statement, and provide the Trustee with printed certificates for
the Exchange Notes or the Registrable Securities, as the case may be, in a form
eligible for deposit with the Depositary;
(l) cause the Indenture to be qualified under the TIA in connection
with the registration of the Exchange Notes or Registrable Securities, as the
case may be, cooperate with the Trustee and the Holders to effect such changes
to the Indenture as may be required for the Indenture to be so qualified in
accordance with the terms of the TIA and execute, and use its best efforts to
cause the Trustee to execute, all documents as may be required to effect such
changes, and all other forms
<PAGE> 56
15
and documents required to be filed with the Commission to enable the Indenture
to be so qualified in a timely manner;
(m) in the case of a Shelf Registration, enter into such agreements
(including underwriting agreements) as are customary in underwritten public
offerings and take all such other appropriate actions as are reasonably
requested in order to expedite or facilitate the registration or the disposition
of such Registrable Securities, and in such connection, whether or not an
underwriting agreement is entered into and whether or not the registration is an
underwritten registration: (i) make such representations and warranties to
Holders of such Registrable Securities and the underwriters (if any), with
respect to the business of the Company and its subsidiaries and the Registration
Statement, the Prospectus and all documents, if any, incorporated or deemed to
be incorporated by reference therein, in each case, as are customarily made by
issuers to underwriters in underwritten public offerings, and confirm the same
if and when reasonably requested; (ii) obtain customary opinions of counsel to
the Company and updates thereof in form and substance reasonably satisfactory to
the managing underwriters (if any) and the Holders of a majority in principal
amount of the Registrable Securities being sold, addressed to each selling
Holder and the underwriters (if any) covering the matters customarily covered in
opinions requested in underwritten public offerings and such other matters as
may be reasonably requested by such Holders and underwriters; (iii) obtain "cold
comfort" letters and updates thereof in form and substance reasonably
satisfactory to the managing underwriters from the independent certified public
accountants of the Company (and, if necessary, any other independent certified
public accountants of any subsidiary of the Company or of any business acquired
or to be acquired by the Company for which financial statements and financial
data are, or are required to be, included in the Registration Statement),
addressed to the selling Holders of Registrable Securities and to each of the
underwriters, such letters to be in customary form and covering matters of the
type customarily covered in "cold comfort" letters in connection with
underwritten public offerings; and (iv) if an underwriting agreement is entered
into, cause the same to contain indemnification provisions and procedures no
less favorable than those set forth in Section 4 hereof (or such other
provisions and procedures acceptable to Holders of a majority in aggregate
principal amount of Registrable Securities covered by such Registration
Statement and the managing underwriters or agents) with respect to all parties
to be indemnified pursuant to said Section. The above shall be done at each
closing under such underwriting agreement, or as and to the extent required
thereunder;
(n) if (A) a Shelf Registration is filed pursuant to Section 2(b) or
(B) a Prospectus contained in an Exchange Offer Registration Statement filed
pursuant to Section 2(a) is required to be delivered under the Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, make available for inspection by any selling Holder of such
Registrable Securities being sold, or each such Participating Broker-Dealer, as
the case may be, any underwriter participating in any such disposition of
Registrable Securities, if any, and any attorney, accountant or other agent
retained by any such selling Holder or each such Participating Broker-Dealer, as
the case may be, or
<PAGE> 57
16
underwriter (collectively, the "INSPECTORS"), at the offices where normally
kept, during reasonable business hours, all financial and other records,
pertinent corporate documents and properties of the Company and its subsidiaries
(collectively, the "RECORDS") as shall be reasonably necessary to enable them to
exercise any applicable due diligence responsibilities, and cause the officers,
directors and employees of the Company and its subsidiaries to supply all
information in each case reasonably requested by any such Inspector in
connection with such Registration Statement. Records which the Company
determines, in good faith, to be confidential and as to which they notify the
Inspectors are confidential shall not be disclosed by the Inspectors unless,
after prior consultation with the Company, (i) the disclosure of such Records is
necessary to avoid or correct a material misstatement or omission in such
Registration Statement, (ii) the release of such Records is ordered pursuant to
an effective subpoena or other order from a court of competent jurisdiction or
(iii) the information in such Records has been made generally available to the
public, other than as a result of a breach of confidentiality or secrecy to the
Company. Each selling Holder of such Registrable Securities and each such
Participating Broker-Dealer will be required to agree that information obtained
by it as a result of such inspections shall be deemed confidential and shall not
be used by it as the basis for any market transactions in the securities of the
Company unless and until such is made generally available to the public, other
than as a result of a breach of confidentiality or secrecy to the Company. Each
selling Holder of such Registrable Securities and each such Participating
Broker-Dealer will be required to further agree that it will, upon learning that
disclosure of such Records is sought in a court of competent jurisdiction or is
otherwise required upon the written advice of counsel to such Participating
Broker-Dealer, give notice to the Company and allow the Company at its expense
to undertake appropriate action to prevent disclosure of the Records deemed
confidential;
(o) comply with all applicable rules and regulations of the Commission
and, as soon as reasonably practicable, make generally available to the Holders
earnings statements of the Company covering at least 12 months satisfying the
provisions of Section 11(a) of the Act and Rule 158 thereunder (or any similar
rule promulgated under the Act);
(p) upon consummation of an Exchange Offer or a Private Exchange,
obtain an opinion of counsel to the Company addressed to the Trustee for the
benefit of all Holders of Registrable Securities participating in the Exchange
Offer or the Private Exchange, as the case may be, and which includes an opinion
that (i) the Company has duly authorized, executed and delivered the Exchange
Notes and Private Exchange Notes and the Indenture, as the case may be, and (ii)
each of the Exchange Notes or the Private Exchange Notes and the Indenture, as
the case may be, constitute a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its respective terms
(in each case, with customary exceptions);
(q) if an Exchange Offer or a Private Exchange is to be consummated,
upon delivery of the Registrable Securities by Holders to the Company
<PAGE> 58
17
(or to such other Person as directed by the Company) in exchange for the
Exchange Notes or the Private Exchange Notes, as the case may be, the Company
shall mark, or cause to be marked, on such Registrable Securities delivered by
such Holders that such Registrable Securities are being cancelled in exchange
for the Exchange Notes or the Private Exchange Notes, as the case may be; in no
event shall such Registrable Securities be marked as paid or otherwise
satisfied;
(r) cooperate with each seller of Registrable Securities covered by
any Registration Statement and each underwriter, if any, participating in the
disposition of such Registrable Securities and their respective counsel in
connection with any filings required to be made with the NASD;
(s) use its best efforts to take all other steps necessary to effect
the registration of the Registrable Securities covered by a Registration
Statement contemplated hereby;
(t) (A) in the case of the Exchange Offer Registration Statement (i)
include in the Exchange Offer Registration Statement a section entitled "PLAN OF
DISTRIBUTION," which section shall be reasonably acceptable to the Initial
Purchasers or another representative of the Participating Broker-Dealers, and
which shall contain a summary statement of the positions taken or policies made
by the staff of the Commission with respect to the potential "underwriter"
status of any broker-dealer (a "PARTICIPATING BROKER-DEALER") that holds
Registrable Securities acquired for its own account as a result of market-making
activities or other trading activities and that will be the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act) of Exchange Notes to be received
by such broker-dealer in the Exchange Offer, whether such positions or policies
have been publicly disseminated by the staff of the Commission or such positions
or policies, in the reasonable judgment of the Initial Purchasers or such other
representative, represent the prevailing views of the staff of the Commission,
including a statement that any such broker-dealer who receives Exchange Notes
for Registrable Securities pursuant to the Exchange Offer may be deemed a
statutory underwriter and must deliver a prospectus meeting the requirements of
the Act in connection with any resale of such Exchange Notes, (ii) furnish to
each Participating Broker-Dealer who has delivered to the Company the notice
referred to in Section 3(e), without charge, as many copies of each Prospectus
included in the Exchange Offer Registration Statement, including any preliminary
prospectus, and any amendment or supplement thereto, as such Participating
Broker-Dealer may reasonably request, (iii) subject to the last paragraph of
this Section 3, hereby consent to the use of the Prospectus forming part of the
Exchange Offer Registration Statement or any amendment or supplement thereto, by
any Person subject to the prospectus delivery requirements of the Commission,
including all Participating Broker-Dealers, in connection with the sale or
transfer of the Exchange Notes covered by the Prospectus or any amendment or
supplement thereto, (iv) use its best efforts to keep the Exchange Offer
Registration Statement effective and to amend and supplement the Prospectus
contained therein, in order to permit such Prospectus to be lawfully delivered
by all Persons subject to the prospectus delivery requirements of the Act for
such period of time as such Persons
<PAGE> 59
18
must comply with such requirements in order to resell the Exchange Notes
(PROVIDED, HOWEVER, that such period shall not be required to exceed 180 days,
or such longer period if extended pursuant to the last sentence of this Section
3 (the "APPLICABLE PERIOD")), and (v) include in the transmittal letter or
similar documentation to be executed by an exchange offeree all necessary
information for such offeree to participate in the Exchange Offer;
(B) in the case of any Exchange Offer Registration Statement, the
Company agrees to deliver to the Initial Purchasers or to another representative
of the Participating Broker-Dealers on behalf of the Participating
Broker-Dealers upon consummation of the Exchange Offer (i) an opinion of counsel
substantially in the form attached hereto as EXHIBIT A, (ii) an Officer's
Certificate containing certifications substantially similar to those set forth
in Section 8(d) of the Purchase Agreement and such additional certifications as
are customarily delivered in a public offering of debt securities, and (iii) a
comfort letter in customary form permitted by Statement of Auditing Standards
No. 72 of the American Institute of Certified Public Accountants.
The Company may require each seller of Registrable Securities as to which
any registration is being effected to furnish to the Company such information
regarding such seller and the proposed distribution of such Registrable
Securities as the Company may from time to time reasonably request in writing.
The Company may exclude from such registration the Registrable Securities of any
seller who unreasonably fails to furnish such information within a reasonable
time after receiving such request.
In the case of (i) a Shelf Registration Statement or (ii) Participating
Broker-Dealers who have notified the Company that they will be utilizing the
Prospectus contained in the Exchange Offer Registration Statement as provided in
Section 3(t) hereof, are seeking to sell Exchange Notes and are required to
deliver copies of such Prospectus, each Holder agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 3(e)(ii), 3(e)(iii), 3(e)(iv), 3(e)(v), 3(e)(vi) or 3(e)(vii) hereof,
such Holder will forthwith discontinue disposition of Registrable Securities
pursuant to a Registration Statement until such Holder's receipt of the copies
of the supplemented or amended Prospectus contemplated by Section 3(i) hereof or
until it is advised in writing by the Company that the use of the applicable
Prospectus may be resumed, and, if so directed by the Company, such Holder will
deliver to the Company (at the Company's expense) all copies in such Holder's
possession, other than permanent file copies then in such Holder's possession,
of the Prospectus covering such Registrable Securities or Exchange Notes, as the
case may be, current at the time of receipt of such notice. If the Company shall
give any such notice to suspend the disposition of Registrable Securities or
Exchange Notes, as the case may be, pursuant to a Registration Statement, the
Company shall use its best efforts to file and have declared effective (if an
amendment) as soon as practicable an amendment or supplement to the Registration
Statement and shall extend the period during which such Registration Statement
shall be maintained effective pursuant to this Agreement by the number of
<PAGE> 60
19
days in the period from and including the date of the giving of such notice to
and including the date when the Company shall have made available to the Holders
copies of the supplemented or amended Prospectus necessary to resume such
dispositions or shall have advised the Holders in writing that the use of the
applicable Prospectus may be resumed.
4. INDEMNIFICATION AND CONTRIBUTION. (a) The Company shall indemnify and
hold harmless the Initial Purchasers, each Holder, each Participating
Broker-Dealer, each underwriter who participates in an offering of Registrable
Securities, each of their respective affiliates, each Person, if any, who
controls any of such parties within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, and each of their respective directors,
officers, partners, employees, representatives and agents, to the fullest extent
lawful as follows:
(i) from and against any and all loss, liability, claim, damage
and expense whatsoever, joint or several, as incurred, arising out of
any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement or any amendment thereto
pursuant to which the offer and sale of the Registrable Securities or
Exchange Notes were registered under the Act including all documents
incorporated therein by reference, or the omission or alleged omission
therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading, or arising
out of any untrue statement or alleged untrue statement of a material
fact contained in any Prospectus or any amendment or supplement
thereto, or the omission or alleged omission therefrom of a material
fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading;
(ii) from and against any and all loss, liability, claim, damage
and expense whatsoever, joint or several, to the extent of the
aggregate amount paid in settlement of any litigation, or any
investigation or proceeding by any court or governmental agency or
body, whether commenced or threatened, or any claim whatsoever based
upon any such untrue statement or omission, or any such alleged untrue
statement or omission, if and only if such settlement is effected with
the prior written consent of the Company; and
(iii) from and against any and all expenses whatsoever (including
reasonable fees and disbursements of counsel chosen by the Initial
Purchasers, Holder, Participating Broker-Dealer or underwriter (except
to the extent otherwise expressly provided in Section 4(c) hereof)),
as incurred, reasonably incurred in investigating, preparing for or
defending against any litigation, or any investigation or proceeding
by any court or governmental agency or body, whether commenced or
threatened, or any other claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under
subparagraph (i) or (ii) of this Section 4(a);
<PAGE> 61
20
PROVIDED, HOWEVER, that this indemnity does not apply to any loss, liability,
claim, damage or expense to the extent arising out of an untrue statement or
omission or alleged untrue statement or omission (i) made solely in reliance
upon and in conformity with written information furnished to the Company by the
Initial Purchasers, such Holder, such Participating Broker-Dealer or any
underwriter in writing expressly for use in the Registration Statement (or any
amendment thereto) or any Prospectus (or any amendment or supplement thereto) or
(ii) contained in any preliminary prospectus or any Prospectus if the Initial
Purchasers, such Holder, such Participating Broker-Dealer or such underwriter
failed to send or deliver a copy of the Prospectus (as then amended or
supplemented if the Company shall have timely furnished any amendments or
supplements thereto) to the Person asserting such losses, liabilities, claims or
damages on or prior to the delivery of written confirmation of any sale of
securities covered thereby to such Person in any case where such delivery is
required by the Act and such Prospectus (as so amended or supplemented) would
have corrected such untrue statement or omission and the delivery thereof would
have eliminated such losses, claims, damages or liabilities. Any amounts
advanced by the Company to an indemnified party pursuant to this Section 4 as a
result of such losses shall be returned to the Company if it shall be finally,
judicially determined by a court of competent jurisdiction that such indemnified
party was not entitled to indemnification by the Company pursuant to this
Section 4.
(b) Each Holder agrees, severally and not jointly, to indemnify and
hold harmless the Company, the Initial Purchasers, each underwriter who
participates in an offering of Registrable Securities and the other selling
Holders and each of their respective directors, officers (including each officer
of the Company who signed the Registration Statement), employees,
representatives and agents, and each Person, if any, who controls the Company,
the Initial Purchasers, any underwriter or any other selling Holder within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and
against any and all loss, liability, claim, damage and expense whatsoever
described in the indemnity contained in Section 4(a) hereof, as reasonably
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto) or any Prospectus (or any amendment or supplement thereto)
solely in reliance upon and in conformity with written information furnished to
the Company by such selling Holder expressly for use in the Registration
Statement (or any amendment thereto) or any such Prospectus (or any amendment or
supplement thereto); PROVIDED, HOWEVER, that, in the case of a Shelf
Registration Statement, no such Holder shall be liable for any claims hereunder
in excess of the amount of net proceeds received by such Holder from the sale of
Registrable Securities pursuant to such Shelf Registration Statement.
(c) Each indemnified party shall give prompt notice to each
indemnifying party of any action in respect of which indemnity may be sought
hereunder, enclosing a copy of all papers properly served on such indemnified
party (but failure to notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have other
<PAGE> 62
21
than on account of this indemnity agreement). An indemnifying party may
participate, at its own expense, in the defense of any such action. If an
indemnifying party so elects within a reasonable time after receipt of such
notice, such indemnifying party, jointly with any other indemnifying party, may
assume the defense of such action with counsel chosen by it and reasonably
satisfactory to the indemnified parties defendant in such action; PROVIDED,
HOWEVER, that if any such indemnified party reasonably determines, upon written
advice of counsel, that there may be legal defenses available to such
indemnified party which are different from or in addition to those available to
such indemnifying party or that representation of such indemnifying party and
any indemnified party by the same counsel would present a conflict of interest,
then one additional counsel in each jurisdiction for all indemnified parties
having consistent interests and such different or additional defenses or subject
to such conflict shall be entitled to conduct the defense of such indemnified
parties with the fees and expenses of such counsel to be borne by the
indemnifying party or parties. If an indemnifying party assumes the defense of
an action in accordance with and as permitted by the provisions of this Section
4(c), such indemnifying party shall not be liable for any fees and expenses of
counsel for the indemnified parties incurred thereafter in connection with such
action (except to the extent set forth in the proviso contained in the
immediately preceding sentence). In no event shall the indemnifying party or
parties be liable for the fees and expenses of more than one counsel for all
indemnified parties in connection with any one action, or separate but similar
or related actions in the same jurisdiction arising out of the same general
allegations or circumstances. No indemnifying party shall, without the prior
written consent of the indemnified parties, which consent shall not be
unreasonably withheld, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 4, unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and does not include a
statement as to or an admission of fault, culpability or a failure to act by or
on behalf of any indemnified party.
(d) Notwithstanding any payment or payments made by the Company
hereunder, the Company hereby expressly waives subrogation to, and agrees that
it shall not be entitled to be subrogated to, any of the rights of any
indemnified party against the Company or any other right of offset held by any
indemnified party for the payment of any amounts owed to any indemnified party
pursuant to this Section 4; PROVIDED, HOWEVER, that if any of the foregoing
provisions of this paragraph are held to be contrary to applicable law or
unenforceable by a court of competent jurisdiction, the Company hereby expressly
agrees that any right of subrogation or contribution that the Company may have
as a result of such applicable law or unenforceability, as the case may be,
shall be subordinate in right of payment to the payment in full in cash of all
amounts owed to any indemnified party pursuant to this Section 4.
<PAGE> 63
22
(e) If the indemnification provided for in this Section 4 is for any
reason unavailable to or insufficient to hold harmless an indemnified party in
respect of any losses, liabilities, claims, damages or expenses referred to
herein, then each indemnifying party shall contribute to the aggregate amount of
such losses, liabilities, claims, damages and expenses incurred by such
indemnified party, as incurred, (i) in such proportion as is appropriate to
reflect the relative benefits received by the indemnifying party or parties on
the one hand and the indemnified party or parties on the other hand from the
offering of the Notes pursuant to the Purchase Agreement, or (ii) if the
allocation provided by clause (i) is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the indemnifying party or
parties on the one hand and of the indemnified party or parties on the other
hand in connection with the statements or omissions which resulted in such
losses, liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
The relative benefits received by the Company on the one hand and the
Initial Purchasers on the other hand in connection with the offering of the
Notes pursuant to the Purchase Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the Notes
pursuant to the Purchase Agreement (before deducting expenses) received by the
Company and the total discount received by the Initial Purchasers bear to the
aggregate initial offering price of the Notes.
The relative fault of the Company on the one hand and the Holders on the
other hand shall be determined by reference to, among other things, whether any
such untrue or alleged untrue statement of a material fact or omission or
alleged omission to sate a material fact relates to information supplied by the
Company or by the Holders, and the respective parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Holders agree that it would not be just and equitable
if contribution pursuant to this Section 4 were determined by pro rata
allocation (even if the Holders were treated as one entity for such purpose) or
by any other method of allocation which does not take account of the equitable
considerations referred to above in this Section 4(e). The aggregate amount of
losses, liabilities, claims, damages and expenses incurred by an indemnified
party and referred to above in this Section 4(e) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
investigating, preparing for or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any untrue or alleged untrue
statement or omission or alleged omission referred to in Section 4(a)(i).
Notwithstanding the provisions of this Section 4(e), no Initial Purchaser
shall be required to contribute any amount in excess of the amount by which the
total discount received by such Initial Purchaser in respect of the purchase
price of the Notes purchased by it from the Company exceeds the amount of any
damages which
<PAGE> 64
23
the Initial Purchasers have otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation.
For purposes of this Section 4(c), each person, if any, who controls an
Initial Purchaser, a Holder, a Participating Broker-Dealer, an underwriter who
participates in an offering of Registrable Securities, or the affiliates of any
of them, within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act shall have the same rights to contribution as the Initial
Purchasers, and each director, officer (including each officer of the Company
who signed the Registration Statement), partner, employee, representative and
agent of the Company, the Initial Purchasers, each Holder, each Participating
Broker-Dealer, and each underwriter who participates in an offering of
Registrable Securities and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act shall
have the same rights to contribution as the Company.
5. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Holder may participate
in any underwritten registration hereunder unless such Holder (a) agrees to sell
such Holder's Registrable Securities on the basis provided in any customary
underwriting arrangements approved by the Holders of a majority in aggregate
principal amount of the Registrable Securities included in such offering and (b)
completes and executes all reasonable questionnaires, powers of attorney,
indemnities, underwriting agreements, lock-up letters and other documents
reasonably required in connection with such underwriting arrangements.
6. SELECTION OF UNDERWRITERS. In any underwritten offering, the
underwriter or underwriters and manager or managers that will administer the
offering will be selected by the Holders of a majority in aggregate principal
amount of the Registrable Securities included in such offering; PROVIDED,
HOWEVER, that such underwriters and managers must be reasonably satisfactory to
the Company.
7. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. The Company has not entered into nor
will the Company on or after the date of this Agreement enter into any agreement
that is inconsistent with the rights granted to the Holders of Registrable
Securities in this Agreement or otherwise conflicts with the provisions hereof.
(b) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of the
Majority Holders; provided, however, that no amendment, modification or
<PAGE> 65
24
supplement or waiver or consent to the departure with respect to the provisions
of Section 4 hereof shall be effective as against any Holder of Registrable
Securities unless consented to in writing by such Holder of Registrable
Securities.
(c) NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given if sent by registered or
certified mail, postage prepaid, sent by any national courier service
guaranteeing overnight delivery or transmitted by any standard form of
telecommunication, as follows: (i) if to a Holder, at the most current address
given by such Holder to the Company in accordance with the provisions of this
Section 7(c), which address, with respect to an Initial Purchaser, shall
initially be the address provided for such Initial Purchaser in the Purchase
Agreement; and (ii) if to the Company, at its address as set forth in the
Purchase Agreement, or at such other address provided in accordance with the
provisions of this Section 7(c).
All such notices and communications shall be deemed to have been duly given
at the earlier of: (i) the time of actual receipt by the addressee; or (ii) the
time delivered, if personally delivered, or five business days after being sent
by registered or certified mail, postage prepaid, if mailed, or when answered
back, if telexed, or when transmission is confirmed, if telecopied, or on the
next business day, if timely delivered to a national courier service
guaranteeing overnight delivery.
Copies of all notices, demands, or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at its
address specified in the Indenture.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the successors, assigns and transferees of the Initial
Purchasers, including, without limitation and without the need for an express
assignment, subsequent Holders; PROVIDED, HOWEVER, that nothing herein shall be
deemed to permit any assignment, transfer or other disposition of Registrable
Securities in violation of the terms of the Purchase Agreement or the Indenture.
If any transferee of any Holder shall acquire Registrable Securities, in any
manner, whether by operation of law or otherwise, such Registrable Securities
shall be held subject to all of the terms of this Agreement, and by taking and
holding such Registrable Securities, such Person shall be conclusively deemed to
have agreed to be bound by and to perform all of the terms and provisions of
this Agreement and such Person shall be entitled to receive the benefits hereof.
(e) THIRD PARTY BENEFICIARY. The Holders shall be third party
beneficiaries of the agreements made hereunder between the Company, on the one
hand, and the Initial Purchasers, on the other hand, and the Holders shall have
the right to enforce such agreements directly to the extent they deem such
enforcement necessary or advisable to protect their rights or the rights of any
of the other Holders.
<PAGE> 66
25
(f) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAWS.
(h) SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(i) NOTES HELD BY THE COMPANY OR ITS AFFILIATES. Whenever the consent
or approval of Holders of a specified percentage of Registrable Securities is
required hereunder, Registrable Securities held by the Company or any affiliate
of the Company (as such term is defined in Rule 405 under the Act) shall not be
counted in determining whether such consent or approval was given by the Holders
of such required percentage.
(j) COUNTERPARTS. This Agreement may be executed in one or more
counterparts and, when so executed, all such counterparts taken together shall
constitute one and the same agreement.
<PAGE> 67
26
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement as of the date first written above.
NORTEK, INC.
By:
------------------------------------
Name:
Title:
Accepted as of the date first above written:
WASSERSTEIN PERELLA SECURITIES, INC.
By:
-----------------------------------
Name:
Title:
BEAR, STEARNS & CO. INC.
By:
-----------------------------------
Name:
Title:
<PAGE> 68
27
EXHIBIT A
FORM OF OPINION OF COUNSEL
1. Each of the Exchange Offer Registration Statement and the
Prospectus (other than the financial statements, notes or schedules thereto and
other financial and statistical data and supplemental schedules included or
referred to therein or omitted therefrom and the Form T-1, as to which such
counsel need express no opinion), complies as to form in all material respects
with the applicable requirements of the Act and the applicable rules and
regulations promulgated under the Act.
2. In the course of such counsel's review and discussion of the
contents of the Exchange Offer Registration Statement and the Prospectus with
certain officers and other representatives of the Company and representatives of
the independent certified public accountants of the Company, but without
independent check or verification or responsibility for the accuracy,
completeness or fairness of the statements contained therein, on the basis of
the foregoing (relying as to materiality to a large extent upon representations
and opinions of officers and other representatives of the Company), no facts
have come to such counsel's attention which cause such counsel to believe that
the Exchange Offer Registration Statement (other than the financial statements,
notes and schedules thereto and other financial and statistical information
contained or referred to therein and the Form T-1, as to which such counsel need
express no belief), at the time the Exchange Offer Registration Statement became
effective, contained an untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements contained therein not misleading, or that the Prospectus (other than
the financial statements, notes and schedules thereto and other financial and
statistical information contained or referred to therein, as to which such
counsel need express no belief) contains any untrue statement of a material fact
or omits to state a material fact necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading.
<PAGE> 69
EXHIBIT B
LIST OF FUNDED EMPLOYEE PENSION AND BENEFIT PLANS OF THE COMPANY
DEFINED BENEFIT PLANS
1. Nortek, Inc. Retirement Plan
a. Broan Mfg. Co., Inc. Pension Plan "A"
Appendix II to the Nortek, Inc. Retirement Plan
b. Broan Mfg. Co., Inc. Pension Plan "B"
Appendix III to the Nortek, Inc. Retirement Plan
c. Pension Plan for Employees of Nordyne, Inc.
Appendix VI to the Nortek, Inc. Retirement Plan
d. Music & Sound, Inc. Pension Plan for Non-Production Employees
Appendix VIII to the Nortek, Inc. Retirement Plan
e. Nortek, Inc. Pension Plan for Certain Employees of Providence, RI
Appendix IX to the Nortek, Inc. Retirement Plan
f. SMB Corporation Employees Pension Plan--Governair
Appendix XII of the Nortek, Inc. Retirement Plan
g. SMB Corporation Employees Pension Plan--Temtrol
Appendix XII of the Nortek, Inc. Retirement Plan
h. Mohawk Flush Doors Pension Plan for Salaried Employees
Appendix XIV, III
i. Mohawk Flush Doors Pension Plan for Hourly-Rated Employees of
Northumberland
Appendix XV
2. Universal-Rundle Corporation Retirement Plan "A"
3. Milwaukee Faucets Retirement Income Plan
4. Northway Products Retirement Income Plan
<PAGE> 70
5. Mammoth Negotiated Hourly Pension Plan
6. Hoover Treated Wood Products, Inc. Retirement Income Plan
7. Ply Gem Group Pension Plan
8. SNE Enterprises, Inc. Pension Plan
DEFINED CONTRIBUTION PLANS
1. CES Group Flexible Savings Plan (401(k))
2. Northway Products Savings Plan
3. Mammoth Negotiated Hourly 401(k) Plan
4. Universal-Rundle Profit Sharing and Thrift Plan
5. Universal-Rundle Savings Plan for Union Employees
6. M & S Systems, Inc. 401(k) Savings Plan
7. Nordyne, Inc. 401(k) Savings Plan
8. Broan Mfg. Co., Inc. 401(k) Savings Plan
9. Linear Corporation 401(k) Plan
10. Moore-O-Matic, Inc. 401(k) Plan
11. Nortek, Inc. 401(k) Savings Plan
12. The Broan Group 401(k) Plan for Employees of Jensen Industries, Inc. and
Aubrey Manufacturing, Inc.
13. Rangaire, Inc. 401(k) Plan
14. Ply Gem Industries, Inc. Group Profit Sharing/401(k) Plan
15. SNE Enterprises, Inc. 401(k) Plan
16. SNE Enterprises, Inc. 401(k) Savings Plan
-2-
<PAGE> 71
17. Ply Gem Manufacturing Division of Ply Gem Industries, Inc. 401(k) Plan
MULTIEMPLOYER PLANS
1. Labor Agreement between Allied Plywood Corporation and Teamsters Union
Local No. 25, for the term from February 1, 1995 to January 31, 1998.
2. Labor Agreement, dated April 1, 1995, between The Goldenberg Group, Inc.
Goldenhill Unit and Cabinet Makers, Millmen and Industrial Carpenters
Local 721 affiliated with the United Brotherhood of Carpenters and
Joiners of America, AFL-CIO, for the term from 1995 to 1998.
3. Labor Agreement, dated April 1, 1995, between The Goldenberg Group, Inc.
Goldenberg Unit and Cabinet Makers, Millmen and Industrial Carpenters
Local 721 affiliated with the United Brotherhood of Carpenters and
Joiners of America, AFL-CIO, for the term from 1995 to 1998.
4. Agreement, dated August 12, 1996, between Goldenberg Plywood & Lumber
Company, Inc. and Teamsters Building Material and Dump Truck Local Union
No. 420, for the term from August 12, 1996 to August 11, 1999.
5. Agreement, dated May 28, 1996, between Continental Wood Preservers, Inc.
and Teamsters Local Union No. 247, an affiliate of the International
Brotherhood of Teamsters, for the term from May 28, 1996 to November 15,
1999.
6. Agreement between Studley Products, Inc. and Productions, Service and
Sales District Council, I.U.C. Local 222, AFL-CIO, for the term from
February 1, 1997 to January 31, 1999.
7. Agreement between Goldenhill and Graphic Communications Union District
Council No. 2, AFL-CIO, for the term from July 15, 1994 to July 14, 1997.
-3-
<PAGE> 72
Exhibit C-1
[ROPES & GRAY LETTERHEAD]
August __, 1997
Wasserstein Perella Securities, Inc.
31 West 52nd Street
New York, New York 10019
Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
Re: $275,000,000 PRINCIPAL AMOUNT % SENIOR NOTES DUE 2007 OF
NORTEK, INC.
Ladies and Gentlemen:
We have acted as counsel for Nortek, Inc., a Delaware corporation (the
"Company"), in connection with the issuance and sale by the Company of
$275,000,000 principal amount of % Senior Notes due 2007 (the "Notes"). This
opinion is furnished to you pursuant to Section 8(g) of the Purchase Agreement
dated August __, 1997 (the "Purchase Agreement") among the Company and each of
you relating to the issue and sale of the Notes. Terms defined in the Purchase
Agreement and not otherwise defined herein are used herein with the meanings so
defined.
We have attended the closing of the sale of the Notes held today. We
have examined a copy of the final Offering Memorandum of the Company dated
August __, 1997 relating to the offering of the Notes, together with all
exhibits thereto (the "Offering Memorandum"); the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996 (the "Form 10-K"); the
Company's Quarterly Reports on Form 10-Q for the quarterly periods ended March
29, 1997 and June 28, 1997 (together with the Form 10-K, the "Incorporated
Documents"); an executed copy of the Indenture dated as of August __, 1997
between the Company and State Street Bank and Trust Company, as Trustee,
relating to the Notes (the "Indenture"); three global Notes executed by the
Company in the aggregate principal amount of $275,000,000; an executed copy of
the Purchase Agreement; an executed copy of the Registration Rights Agreement
dated as of August __, 1997 (the "Registration Rights Agreement") among the
Company and each of you; an executed copy of the Agreement and
<PAGE> 73
Wasserstein Perella Securities, Inc.
Bear, Stearns & Co. Inc. -2- August __, 1997
Plan of Merger dated as of July 24, 1997 among the Company, NTK Sub, Inc. and
Ply Gem Industries, Inc. (the "Merger Agreement"); and such other documents as
we have deemed necessary as a basis for the opinions expressed herein. Except as
otherwise specified herein, all references to the Offering Memorandum include
the Incorporated Documents.
We express no opinion as to the laws of any jurisdiction other than those
of The Commonwealth of Massachusetts, the General Corporation Law of the State
of Delaware and the federal laws of the United States of America. We call your
attention to the fact that (i) each of the Indenture, the Notes, the Purchase
Agreement and the Registration Rights Agreement provides that it is to be
governed by the laws of the State of New York and (ii) the Merger Agreement
provides that it is to be governed by the laws of the State of Delaware. For
purposes of the opinions in numbered paragraphs 3, 4, 5 and 6 below, we have
assumed with your permission that the Indenture, the Registration Rights
Agreement, the Notes, the Series B Notes, the Private Exchange Notes, if any,
and the Merger Agreement would be governed by and construed in accordance with
the domestic substantive laws of The Commonwealth of Massachusetts without
giving effect to any choice or conflict of laws rule or provision that would
cause the application of the domestic substantive laws of any other
jurisdiction.
We call your attention to the fact that certain of the contracts,
agreements or documents referred to in paragraph 9(i) below require compliance
by the Company with certain financial ratios in order to incur the indebtedness
represented by the Notes. We express no opinion in numbered paragraph 9(i) below
with respect to any conflict, breach, default, right of acceleration,
requirement of prepayment, consent, lien, charge or encumbrance referred to
therein to the extent any of the foregoing relate to the requirement by the
Company to comply with any such financial ratio.
We note that you have also been delivered today the opinion of Kevin W.
Donnelly, Vice President, General Counsel and Secretary of the Company, as to
certain matters addressed herein and as to certain additional matters.
Insofar as this opinion relates to factual matters, information with
respect to which is in the possession of the Company, we have made inquiries to
the extent we believe reasonable with respect to such matters and have relied
upon representations made by the Company in the Purchase Agreement and the other
Operative Documents and representations made to us by one or more officers of
the Company. Although we have not independently verified the accuracy of such
representations, we do not know of the existence or absence of any fact
contradicting such representations. Any reference herein to "our knowledge,"
"known to us" or any variation thereof shall mean the actual knowledge of
lawyers in this firm who have
<PAGE> 74
Wasserstein Perella Securities, Inc.
Bear, Stearns & Co. Inc. -3- August __, 1997
participated in our representation of the Company in connection with the
preparation of the Offering Memorandum.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company is duly incorporated and is validly existing as a corporation
in good standing under the laws of the State of Delaware, with corporate
power to own its properties and conduct its business as described the
Offering Memorandum. The Company has all requisite corporate authority to
execute, deliver and perform its obligations under the Purchase
Agreement, each of the other Operative Documents and the Merger
Agreement, to the extent it is a party thereto, and to consummate the
Transactions, including, without limitation, the corporate power and
authority to issue, sell and deliver the Notes and to consummate the
Acquisition, as applicable.
2. The Purchase Agreement has been duly authorized, executed and delivered
by the Company.
3. The Indenture has been duly authorized, executed and delivered by the
Company and, assuming the due authorization, execution and delivery
thereof by the Trustee, is a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms,
except to the extent that (i) the enforceability thereof may be limited
by bankruptcy, insolvency, fraudulent conveyance, reorganization or other
similar laws relating to or affecting enforcement of creditors' rights
generally and (ii) rights of acceleration and the availability of
equitable remedies may be limited by general principles of equity.
4. The Registration Rights Agreement has been duly authorized, executed and
delivered by the Company and, assuming the due authorization, execution
and delivery thereof by the other parties named therein, is a legal,
valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except to the extent that (i) the
enforceability thereof may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization or other similar laws relating to
or affecting enforcement of creditors' rights generally and (ii) rights
of acceleration and the availability of equitable remedies may be limited
by general principles of equity; provided, however, that we express no
opinion in this numbered paragraph 4 with respect to any provisions of
the Registration Rights Agreement relating to rights of indemnity or
contribution.
5. The Notes have been duly authorized, executed and delivered by the
Company for issuance and sale to you pursuant to the Purchase Agreement
and, when issued and
<PAGE> 75
Wasserstein Perella Securities, Inc.
Bear, Stearns & Co. Inc. -4- August __, 1997
authenticated in accordance with the terms of the Indenture and delivered
against payment therefor in accordance with the terms of the Purchase
Agreement, will be legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms and
entitled to the benefits of the Indenture, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization or similar
laws relating to or affecting the rights of creditors generally, and
subject to limitations on rights of acceleration and the availability of
equitable remedies under general principles of equity.
6. The Series B Notes and the Private Exchange Note, if any, have been duly
authorized by the Company for issuance and, when executed, delivered,
issued and authenticated in accordance with the terms of the Registration
Rights Agreement and the Indenture, will be legal, valid and binding
obligations of the Company, enforceable against the Company in accordance
with their terms and entitled to the benefits of the Indenture, subject
to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization or similar laws relating to or affecting the rights of
creditors generally, and subject to limitations on rights of acceleration
and the availability of equitable remedies under general principles of
equity.
7. The Merger Agreement has been duly authorized, executed and delivered by
the Company and, assuming the due authorization, execution and delivery
thereof by the other parties named therein, is a legal, valid and binding
obligation of the Company, enforceable against the Company in accordance
with its terms, except to the extent that (i) the enforceability thereof
may be limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization or other similar laws relating to or affecting enforcement
of creditors' rights generally and (ii) rights of acceleration and the
availability of equitable remedies may be limited by general principles
of equity.
8. When the Notes are issued and delivered pursuant to the Purchase
Agreement at the closing held today, no Note will be of the same class
(within the meaning of Rule 144A under the Act) as securities of the
Company that are listed on a national securities exchange registered
under Section 6 of the Exchange Act or that are quoted in a United States
automated inter-dealer quotation system.
9. The execution and delivery by the Company of the Purchase Agreement, the
other Operative Documents and the Merger Agreement, the performance by
the Company of its agreements contained therein and the consummation of
the Transactions (including, without limitation, the issuance, sale and
delivery of the Notes by the Company and the consummation of the
Acquisition), as applicable, do not (i) conflict with or result in a
breach or violation of, or constitute a default (or an event which, with
notice or lapse
<PAGE> 76
Wasserstein Perella Securities, Inc.
Bear, Stearns & Co. Inc. -5- August __, 1997
of time or both, would constitute a default) under, result in a material
modification of, or give rise to any right to accelerate the maturity of
or require the prepayment of any obligation of the Company pursuant to,
or require any consent under, or result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of the
Company pursuant to, the terms of any contract, agreement or document
identified as an exhibit to the Form 10-K, (ii) violate or conflict with
any provisions of the certificate of incorporation or bylaws of the
Company or (iii) to our knowledge (assuming for purposes of this numbered
paragraph 8, compliance with state securities or Blue Sky laws and the
antifraud provisions of federal and state securities laws as to which we
express no opinion), violate or conflict with any judgment, decree,
order, statute, rule or regulation of any court or arbitrator or any
public, governmental or regulatory agency or body having jurisdiction
over the Company or any of its properties or assets, except for such
breaches, violations or conflicts which, individually or in the
aggregate, do not and would not reasonably be expected to have a Material
Adverse Effect. Assuming compliance with applicable state securities and
Blue Sky laws, as to which we express no opinion, and except in
connection with the filing of a registration statement under the Act and
qualification of the Indenture under the Trust Indenture Act, in each
case as contemplated by the Registration Rights Agreement, no consent,
approval, authorization or order of, or filing, registration,
qualification, license or permit of or with any court or governmental
agency, body or administrative agency is or was required for (1) the
execution, delivery and performance by the Company of the Purchase
Agreement; any of the other Operative Documents to which it is a party or
the Merger Agreement; (2) the issuance and sale of the Notes; or (3) the
consummation of any of the other Transactions, as applicable, except such
as have been obtained and made or have been disclosed in the Offering
Memorandum.
10. The Company is not, and upon consummation of the Transactions will not
be, subject to registration as an "investment company" within the meaning
of the Investment Company Act of 1940 and the rules and regulations
promulgated thereunder. Neither the Company nor any of its subsidiaries
is a "holding company" or a "subsidiary company" of a holding company, or
an "affiliate" thereof within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
11. Assuming (i) the accuracy of, and compliance with, the representations,
warranties, covenants and agreements of the Company and you contained in
the Purchase Agreement, (ii) the accuracy of, and compliance with, the
representations, warranties, covenants and agreements of each of the
persons to whom you initially resell or otherwise transfer the Notes, as
specified in the Offering Memorandum, and (iii) the compliance by you
with the offering and transfer procedures and restrictions described
<PAGE> 77
Wasserstein Perella Securities, Inc.
Bear, Stearns & Co. Inc. -6- August __, 1997
in the Offering Memorandum, it is not necessary in connection with the
offer, sale and delivery of the Notes to you or in connection with the
initial resale of the Notes by you in the manner contemplated by the
Purchase Agreement and the Offering Memorandum to register the sale of
the Notes to you or the Exempt Resales under the 1933 Act (it being
understood that we do not express any opinion as to any subsequent
reoffers, resales or other transfers of any Notes) or to qualify the
Indenture under the Trust Indenture Act of 1939, as amended.
12. None of the execution, delivery and performance of the Purchase
Agreement, the issuance and sale of the Notes, the application of the
proceeds from the issuance and sale of the Notes and the consummation of
the transactions contemplated thereby as set forth in the Offering
Memorandum will violate Regulation G, T, U or X promulgated by the Board
of Governors of the Federal Reserve System.
13. The Purchase Agreement, the Indenture, the Notes and the Registration
Rights Agreement conform in all material respects as to the descriptions
thereof contained in the Offering Memorandum.
14. To our knowledge, no stop order preventing the use of the Preliminary
Offering Memorandum or the Offering Memorandum, or any amendment or
supplement thereto, or any order asserting that any of the transactions
contemplated by the Purchase Agreement are subject to the registration
requirements of the Act, has been issued.
We have not independently verified the accuracy, completeness or fairness
of the statements made or the information contained in the Offering Memorandum,
and, except with respect to the descriptions referred to in paragraph 13 above,
we are not passing upon and do not assume any responsibility therefor. In the
course of the preparation by the Company of the Offering Memorandum, we have
participated in discussions with your representatives and those of the Company
and its independent accountants, in which the business and affairs of the
Company and the contents of the Offering Memorandum were discussed. We have not
reviewed individual litigation files of the Company or consulted with counsel
directly involved in handling particular legal or governmental proceedings for
the Company, our investigation of pending or threatened legal or governmental
proceedings having consisted solely of our participation in the foregoing
discussions. On the basis of information that we have gained in the course of
our representation of the Company in connection with its preparation of the
Offering Memorandum and our participation in the discussions referred to above,
we have no reason to believe that as of the date of the Offering Memorandum or
as of the date hereof, the Offering Memorandum contained or contains any untrue
statement of a material fact or omitted or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading. We express no opinion, however, as to the financial
<PAGE> 78
Wasserstein Perella Securities, Inc.
Bear, Stearns & Co. Inc. -7- August __, 1997
statements, including the notes and schedules thereto, or any other financial,
statistical or accounting information set forth or referred to in the Offering
Memorandum, or as to any statements or omissions made by the Company in reliance
upon information furnished in writing to the Company by you in connection with
the Offering Memorandum that is referred to in Section 10 of the Purchase
Agreement, or as to statements in or omissions from the Offering Memorandum
which relate to Ply Gem Industries, Inc. or any of its subsidiaries.
Except as otherwise expressly consented to by us in writing, this opinion
is solely for your benefit.
Very truly yours,
/s/ Ropes & Gray
<PAGE> 79
[NORTEK, INC. LETTERHEAD]
Exhibit C-2
August __, 1997
Wasserstein Perella Securities, Inc.
31 West 52nd Street
New York, New York 10019
Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
Re: $275,000,000 PRINCIPAL AMOUNT % SENIOR NOTES DUE 2007
OF NORTEK, INC.
Ladies and Gentlemen:
I am Vice President, General Counsel and Secretary of Nortek, Inc., a
Delaware corporation (the "Company"), and have acted, in a limited capacity, as
counsel to the Company in connection with the issuance and sale by the Company
of $275,000,000 principal amount of % Senior Notes due 2007 (the "Notes").
This opinion is furnished to you pursuant to Section 8(h) of the Purchase
Agreement dated August __, 1997 (the "Purchase Agreement") among the Company and
each of you relating to the issue and sale of the Notes. Terms defined in the
Purchase Agreement and not otherwise defined herein are used herein with the
meanings so defined.
I have examined a copy of the Offering Memorandum of the Company dated
August __, 1997 relating to the offering of the Notes (the "Offering
Memorandum"); the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (the "Form 10-K"); the Company's Quarterly Reports on Form
10-Q for the quarterly periods ended March 29, 1997 and June 28, 1997 (together
with the Form 10-K, the "Incorporated Documents"); an executed copy of the
Indenture dated as of August __, 1997 between the Company and State Street Bank
and Trust Company, as Trustee, relating to the Notes (the "Indenture"); three
global Notes executed by the Company in the aggregate principal amount of
$275,000,000; an executed copy of the Purchase Agreement; an executed copy of
the Registration Rights Agreement dated as of August __, 1997 (the "Registration
Rights Agreement") among the Company and each of you; an executed copy of the
Agreement and Plan of Merger dated as of
<PAGE> 80
Wasserstein Perella Securities, Inc.
Bear, Stearns & Co. Inc. -2- August __, 1997
July 24, 1997 among the Company, NTK Sub, Inc. and Ply Gem Industries, Inc. (the
"Merger Agreement"); and such other documents as I have deemed necessary as a
basis for the opinions expressed herein. Except as otherwise specified herein,
all references to the Offering Memorandum include the Incorporated Documents.
I express no opinion as to the laws of any jurisdiction other than those
of The Commonwealth of Massachusetts, the General Corporation Law of the State
of Delaware and the federal laws of the United States of America. I call your
attention to the fact that (i) each of the Indenture, the Notes, the Purchase
Agreement and the Registration Rights Agreement provides that it is to be
governed by the laws of the State of New York and (ii) the Merger Agreement
provides that it is to be governed by the laws of the State of Delaware. For
purposes of the opinions in numbered paragraphs 5, 6, 7 and 8 below, I have
assumed with your permission that the Indenture, the Registration Rights
Agreement, the Notes, the Series B Notes, the Private Exchange Notes, if any,
and the Merger Agreement would be governed by and construed in accordance with
the domestic substantive laws of The Commonwealth of Massachusetts without
giving effect to any choice or conflict of laws rule or provision that would
cause the application of the domestic substantive laws of any other
jurisdiction.
I call your attention to the fact that certain of the contracts,
agreements or documents referred to in paragraph 10(i) below require compliance
by the Company with certain financial ratios in order to incur the indebtedness
represented by the Notes. I express no opinion in numbered paragraph 10(i) below
with respect to any conflict, breach, default, right of acceleration,
requirement of prepayment, consent, lien, charge or encumbrance referred to
therein to the extent any of the foregoing relate to the requirement by the
Company to comply with any such financial ratio.
I note that you have also been delivered today the opinion of Ropes &
Gray, counsel for the Company, as to certain matters addressed herein.
Insofar as this opinion relates to factual matters, information with
respect to which is in the possession of the Company, I have made inquiries to
the extent I believe reasonable with respect to such matters and have relied
upon representations made by the Company in the Purchase Agreement and the other
Operative Documents and representations made to me by one or more officers of
the Company. Although I have not independently verified the accuracy of such
representations, I do not know of the existence or absence of any fact
contradicting such representations. Any reference herein to "my knowledge,"
"known to me" or any variation thereof shall mean my actual knowledge on the
basis of the inquiries and representations referred to above in this paragraph.
Based upon and subject to the foregoing, I am of the opinion that:
<PAGE> 81
Wasserstein Perella Securities, Inc.
Bear, Stearns & Co. Inc. -3- August __, 1997
1. The Company is duly incorporated and is validly existing as a corporation
in good standing under the laws of the State of Delaware and is duly
qualified and in good standing as a foreign corporation authorized to do
business in each jurisdiction in which the nature of its business or its
ownership or leasing of property requires such qualification, except
where the failure to be so qualified or in good standing would not have a
Material Adverse Effect thereto. The Company has all requisite corporate
authority to carry on its business as it is currently being conducted and
to own, lease and operate its properties as described in the Offering
Memorandum. The Company has all requisite corporate authority to execute,
deliver and perform its obligations under the Purchase Agreement, each of
the other Operative Documents and the Merger Agreement, to the extent it
is a party thereto, and to consummate the Transactions, as applicable,
including, without limitation, the corporate power and authority to
issue, sell and deliver the Notes and to consummate the Acquisition, as
applicable.
2. Each Significant Subsidiary of the Company is duly incorporated and is
validly existing as a corporation in good standing under the laws of the
state of its incorporation and is duly qualified and in good standing as
a foreign corporation authorized to do business in each jurisdiction in
which the nature of its business or its ownership or leasing of property
requires such qualification, except where the failure to be so qualified
or in good standing would not have a Material Adverse Effect. Each
Significant Subsidiary of the Company has all requisite corporate
authority to carry on its business as it is currently being conducted and
to own, lease and operate its properties as described in the Offering
Memorandum.
3. All of the outstanding capital stock of the Company has been duly
authorized, validly issued, and is fully paid and nonassessable and, to
my knowledge, was not issued in violation of any preemptive or similar
rights.
4. The Purchase Agreement has been duly authorized, executed and delivered
by the Company.
5. The Indenture has been duly authorized, executed and delivered by the
Company and, assuming the due authorization, execution and delivery
thereof by the Trustee, is a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms,
except to the extent that (i) the enforceability thereof may be limited
by bankruptcy, insolvency, fraudulent conveyance, reorganization or other
similar laws relating to or affecting enforcement of creditors' rights
generally and (ii) rights of acceleration and the availability of
equitable remedies may be limited by general principles of equity.
<PAGE> 82
Wasserstein Perella Securities, Inc.
Bear, Stearns & Co. Inc. -4- August __, 1997
6. The Registration Rights Agreement has been duly authorized, executed and
delivered by the Company and, assuming the due authorization, execution
and delivery thereof by the other parties named therein, is a legal,
valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except to the extent that (i) the
enforceability thereof may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization or other similar laws relating to
or affecting enforcement of creditors' rights generally and (ii) rights
of acceleration and the availability of equitable remedies may be limited
by general principles of equity; PROVIDED, HOWEVER, that I express no
opinion in this numbered paragraph 6 with respect to any provisions of
the Registration Rights Agreement relating to rights of indemnity or
contribution.
7. The Notes have been duly authorized, executed and delivered by the
Company for issuance and sale to you pursuant to the Purchase Agreement
and, when issued and authenticated in accordance with the terms of the
Indenture and delivered against payment therefor in accordance with the
terms of the Purchase Agreement, will be legal, valid and binding
obligations of the Company, enforceable against the Company in accordance
with their terms and entitled to the benefits of the Indenture, subject
to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization or similar laws relating to or affecting the rights of
creditors generally, and subject to limitations on rights of acceleration
and the availability of equitable remedies under general principles of
equity.
8. The Series B Notes and the Private Exchange Note, if any, have been duly
authorized by the Company for issuance and, when executed, delivered,
issued and authenticated in accordance with the terms of the Registration
Rights Agreement and the Indenture, will be legal, valid and binding
obligations of the Company, enforceable against the Company in accordance
with their terms and entitled to the benefits of the Indenture, subject
to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization or similar laws relating to or affecting the rights of
creditors generally, and subject to limitations on rights of acceleration
and the availability of equitable remedies under general principles of
equity.
9. The Merger Agreement has been duly authorized, executed and delivered by
the Company, and, assuming the due authorization, execution and delivery
thereof by the other parties named therein, is a legal, valid and binding
obligation of the Company, enforceable against the Company in accordance
with its terms, except to the extent that (i) the enforceability thereof
may be limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization or other similar laws relating to or affecting enforcement
of
<PAGE> 83
Wasserstein Perella Securities, Inc.
Bear, Stearns & Co. Inc. -5- August __, 1997
creditors' rights generally and (ii) rights of acceleration and the
availability of equitable remedies may be limited by general principles
of equity.
10. The execution and delivery by the Company of the Purchase Agreement, the
other Operative Documents and the Merger Agreement, to the extent it is a
party thereto, the performance by the Company of its agreements contained
therein, to such extent, and the consummation of the Transactions
(including, without limitation, the issuance, sale and delivery of the
Notes by the Company and the consummation of the Acquisition), as
applicable, do not (i) conflict with or result in a breach or violation
of, or constitute a default (or an event which, with notice or lapse of
time or both, would constitute a default) under, result in a material
modification of, or give rise to any right to accelerate the maturity of
or require the prepayment of any obligation of the Company or any
Significant Subsidiary pursuant to, or require any consent under, or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any Significant Subsidiary
pursuant to, the terms of any contract, agreement or document identified
as an exhibit to the Form 10-K, (ii) violate or conflict with any
provisions of the certificate of incorporation or bylaws of the Company
or any Significant Subsidiary or (iii) to my knowledge (assuming for
purposes of this numbered paragraph 9, compliance with state securities
or Blue Sky laws and the anti-fraud provisions of federal and state
securities laws as to which I express no opinion), violate or conflict
with any judgment, decree, order, statute, rule or regulation of any
court or arbitrator or any public, governmental or regulatory agency or
body having jurisdiction over the Company or any Significant Subsidiary
or any of their respective properties or assets, except for such
breaches, violations or conflicts which, individually or in the
aggregate, do not and would not reasonably be expected to have a Material
Adverse Effect. Assuming compliance with applicable state securities and
Blue Sky laws, as to which I express no opinion, and except in connection
with the filing of a registration statement under the Act and
qualification of the Indenture under the Trust Indenture Act, in each
case as contemplated by the Registration Rights Agreement, no consent,
approval, authorization or order of, or filing, registration,
qualification, license or permit of or with any court or governmental
agency, body or administrative agency is or was required for (1) the
execution, delivery and performance by the Company of the Purchase
Agreement, any of the other Operative Documents or the Merger Agreement
to the extent it is a party; (2) the issuance and sale of the Notes; or
(3) consummation of any of the other Transactions, as applicable, except
such as have been obtained and made or have been disclosed in the
Offering Memorandum.
11. To my knowledge, there is no litigation, action, suit, investigation or
proceeding, governmental or otherwise, before any court or before or by
any public, regulatory or
<PAGE> 84
Wasserstein Perella Securities, Inc.
Bear, Stearns & Co. Inc. -6- August __, 1997
governmental agency or body pending or threatened against, or involving
the properties or business of, the Company or relating to the issuance or
sale of the Notes, which would have a material adverse effect on the
ability of the Company to perform its obligations under any Operative
Document or to consummate the Transactions.
12. Except as set forth in the Registration Rights Agreement, to my
knowledge, there are no holders of securities of the Company or any of
its subsidiaries who, by reason of the execution by the Company of the
Purchase Agreement or any other Operative Document or the consummation by
the Company of the Transactions, have the right to request or demand that
the Company or any of its subsidiaries register under the Act or
analogous foreign laws and regulations any such securities held by such
holders.
13. The Purchase Agreement, the Merger Agreement, the Indenture, the Notes
and the Registration Rights Agreement conform in all material respects as
to the descriptions thereof contained in the Offering Memorandum.
14. To my knowledge, no stop order preventing the use of the Preliminary
Offering Memorandum or the Offering Memorandum, or any amendment or
supplement thereto, or any order asserting that any of the transactions
contemplated by the Purchase Agreement are subject to the registration
requirements of the Act, has been issued.
I have not independently verified the accuracy, completeness or fairness
of the statements made or the information contained in the Offering Memorandum,
and, except with respect to the descriptions referred to in paragraph 12 above,
I am not passing upon and do not assume any responsibility therefor. In the
course of the preparation by the Company of the Offering Memorandum, I have
participated in discussions with your representatives and those of the Company
and its independent accountants, in which the business and affairs of the
Company and the contents of the Offering Memorandum were discussed. While I have
responsibility for the legal affairs of the Company, the Company is represented
by separate litigation counsel with respect to litigation matters and I have not
reviewed the files of each such litigation, although, where I have deemed it
appropriate, I have consulted with such counsel in respect of the status of such
litigation. My investigation of pending or threatened legal or governmental
proceedings has consisted of the regular conduct of my duties as the Company's
general counsel and correspondence with litigation counsel and representatives
of the Company. On the basis of information that I have gained in the course of
my representation of the Company in connection with its preparation of the
Offering Memorandum and my participation in the discussions referred to above, I
have no reason to believe that as of the date of the Offering Memorandum or as
of the date hereof, the Offering Memorandum contained or contains any untrue
statement of a material fact or omitted or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading. I express no opinion, however, as to the financial statements,
including the notes and schedules thereto, or any other financial, statistical
or accounting information set forth or referred to in the Offering Memorandum,
or as to any statements or omissions made by the Company in reliance upon the
information furnished in writing to the Company by you in connection with the
Offering Memorandum referred to in Section 10 of the Purchase Agreement, or as
to statements in or omissions from the Offering Memorandum which relate to Ply
Gem Industries, Inc. or any of its subsidiaries.
Except as otherwise expressly consented to by me in writing, this
opinion is solely for your benefit.
Very truly yours,
Kevin W. Donnelly
<PAGE> 85
Wasserstein Perella Securities, Inc.
Bear, Stearns & Co. Inc. -7- August __, 1997
misleading. I express no opinion, however, as to the financial statements,
including the notes and schedules thereto, or any other financial, statistical
or accounting information set forth or referred to in the Offering Memorandum,
or as to any statements or omissions made by the Company in reliance upon the
information furnished in writing to the Company by you in connection with the
Offering Memorandum referred to in Section 10 of the Purchase Agreement, or as
to statements in or omissions from the Offering Memorandum which relate to Ply
Gem Industries, Inc. or any of its subsidiaries.
Except as otherwise expressly consented to by me in writing, this opinion
is solely for your benefit.
Very truly yours,
/s/ Kevin W. Donnelly
<PAGE> 1
EXHIBIT 4.1
NORTEK, INC.,
Company,
and
STATE STREET BANK AND TRUST COMPANY,
Trustee
-------------------------------------
INDENTURE
Dated as of August 26, 1997
-------------------------------------
$310,000,000
Series A and Series B
9 1/8 % Senior Notes due September 1, 2007
<PAGE> 2
TABLE OF CONTENTS(1)
--------------------
Page
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE ........................ 1
SECTION 1.01 Definitions ..................................... 1
SECTION 1.02 OTHER DEFINITIONS ............................... 17
SECTION 1.03 INCORPORATION BY REFERENCE
OF TRUST INDENTURE ACT .......................... 17
SECTION 1.04 RULES OF CONSTRUCTION ........................... 18
SECTION 1.05 ACTS OF HOLDERS ................................. 18
SECTION 1.06 EXCHANGE RATES .................................. 19
ARTICLE 2
THE NOTES ......................................................... 19
SECTION 2.01 FORM AND DATING ................................. 19
SECTION 2.02 EXECUTION AND AUTHENTICATION .................... 21
SECTION 2.03 REGISTRAR AND PAYING AGENT ...................... 22
SECTION 2.04 PAYING AGENT TO HOLD MONEY IN TRUST ............. 23
SECTION 2.05 HOLDER LISTS .................................... 23
SECTION 2.06 TRANSFER AND EXCHANGE ........................... 23
SECTION 2.07 REPLACEMENT NOTES ............................... 33
SECTION 2.08 OUTSTANDING NOTES; DETERMINATIONS OF
HOLDERS' ACTION ................................. 34
SECTION 2.09 TEMPORARY NOTES ................................. 35
SECTION 2.10 CANCELLATION .................................... 35
SECTION 2.11 CUSIP NUMBER .................................... 35
SECTION 2.12 DEFAULTED INTEREST .............................. 35
SECTION 2.13 LIQUIDATED DAMAGES UNDER REGISTRATION
RIGHTS AGREEMENT ................................ 36
ARTICLE 3
REDEMPTION ........................................................ 36
SECTION 3.01 RIGHT TO REDEEM; NOTICES TO TRUSTEE ............. 36
SECTION 3.02 SELECTION OF NOTES TO BE REDEEMED ............... 36
SECTION 3.03 NOTICE OF REDEMPTION ............................ 36
SECTION 3.04 EFFECT OF NOTICE OF REDEMPTION .................. 37
SECTION 3.05 DEPOSIT OF REDEMPTION PRICE ..................... 37
- ----------------------
(1) This Table of Contents shall not, for any purpose, be deemed to be part
of this Indenture.
i
<PAGE> 3
SECTION 3.06 NOTES REDEEMED IN PART .......................... 38
ARTICLE 4
COVENANTS ......................................................... 38
SECTION 4.01 PAYMENT OF NOTES ................................ 38
SECTION 4.02 REPORTS ......................................... 38
SECTION 4.03 COMPLIANCE CERTIFICATES ......................... 39
SECTION 4.04 FURTHER INSTRUMENTS AND ACTS .................... 40
SECTION 4.05 MAINTENANCE OF OFFICE OR AGENCY ................. 40
SECTION 4.06 LIMITATION ON RESTRICTED PAYMENTS ............... 41
SECTION 4.07 LIMITATION ON ADDITIONAL INDEBTEDNESS ........... 42
SECTION 4.08 LIMITATION ON SALE OR ISSUANCE OF
PREFERRED STOCK OF RESTRICTED SUBSIDIARIES ...... 46
SECTION 4.09 LIMITATION ON LIENS ............................. 47
SECTION 4.10 LIMITATION ON CERTAIN RESTRICTIONS
AFFECTING SUBSIDIARIES .......................... 48
SECTION 4.11 REPURCHASE UPON CHANGE OF CONTROL ............... 48
SECTION 4.12 LIMITATION ON USE OF PROCEEDS FROM
ASSET SALES ..................................... 51
SECTION 4.13 LIMITATION ON TRANSACTIONS WITH
AFFILIATES ...................................... 51
SECTION 4.14 LIMITATION ON GUARANTIES BY SUBSIDIARIES ........ 52
SECTION 4.15 PAYMENT OF TAXES AND OTHER CLAIMS ............... 53
SECTION 4.16 CORPORATE EXISTENCE ............................. 53
SECTION 4.17 MAINTENANCE OF PROPERTIES AND INSURANCE ......... 53
SECTION 4.18 STAY, EXTENSION AND USURY LAWS .................. 54
SECTION 4.19 INVESTMENT COMPANY ACT .......................... 54
SECTION 4.20 PAYMENTS FOR CONSENTS ........................... 54
SECTION 4.21 COVENANT TO COMPLY WITH SECURITIES
LAWS UPON PURCHASE OF NOTES ..................... 54
ARTICLE 5
SUCCESSOR CORPORATION ............................................. 55
SECTION 5.01 WHEN THE COMPANY MAY MERGE OR
TRANSFER ASSETS ................................. 55
SECTION 5.02 SUCCESSOR CORPORATION SUBSTITUTED ............... 56
ARTICLE 6
DEFAULTS AND REMEDIES ............................................. 57
SECTION 6.01 EVENTS OF DEFAULT ............................... 57
SECTION 6.02 ACCELERATION .................................... 59
SECTION 6.03 OTHER REMEDIES .................................. 59
SECTION 6.04 WAIVER OF PAST DEFAULTS ......................... 60
SECTION 6.05 CONTROL BY MAJORITY ............................. 60
SECTION 6.06 LIMITATION ON SUITS ............................. 60
ii
<PAGE> 4
SECTION 6.07 RIGHTS OF HOLDERS TO RECEIVE PAYMENT ............ 61
SECTION 6.08 COLLECTION SUIT BY TRUSTEE ...................... 61
SECTION 6.09 TRUSTEE MAY FILE PROOFS OF CLAIM ................ 61
SECTION 6.10 PRIORITIES ...................................... 62
SECTION 6.11 UNDERTAKING FOR COSTS ........................... 62
SECTION 6.12 RESTORATION OF RIGHTS AND REMEDIES .............. 62
ARTICLE 7
TRUSTEE .......................................................... 63
SECTION 7.01 DUTIES OF TRUSTEE ............................... 63
SECTION 7.02 RIGHTS OF TRUSTEE ............................... 64
SECTION 7.03 INDIVIDUAL RIGHTS OF TRUSTEE .................... 65
SECTION 7.04 TRUSTEE'S DISCLAIMER ............................ 65
SECTION 7.05 NOTICE OF DEFAULTS .............................. 65
SECTION 7.06 REPORTS BY TRUSTEE TO HOLDERS ................... 65
SECTION 7.07 COMPENSATION AND INDEMNITY ...................... 65
SECTION 7.08 REPLACEMENT OF TRUSTEE .......................... 66
SECTION 7.09 SUCCESSOR TRUSTEE BY MERGER ..................... 67
SECTION 7.10 ELIGIBILITY; DISQUALIFICATION ................... 67
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS
AGAINST THE COMPANY ............................. 67
ARTICLE 8
DISCHARGE OF INDENTURE ............................................ 68
SECTION 8.01 DISCHARGE OF LIABILITY ON NOTES ................. 68
SECTION 8.02 REPAYMENT TO THE COMPANY OR
SUBSIDIARY GUARANTORS ........................... 69
ARTICLE 9
AMENDMENTS ........................................................ 69
SECTION 9.01 WITHOUT CONSENT OF HOLDERS ...................... 69
SECTION 9.02 WITH CONSENT OF HOLDERS ......................... 70
SECTION 9.03 COMPLIANCE WITH TRUST INDENTURE ACT ............. 71
SECTION 9.04 REVOCATION AND EFFECT OF CONSENTS,
WAIVERS AND ACTIONS ............................ 71
SECTION 9.05 NOTATION ON OR EXCHANGE OF NOTES ................ 71
SECTION 9.06 TRUSTEE TO SIGN SUPPLEMENTAL
INDENTURES ..................................... 71
SECTION 9.07 EFFECT OF SUPPLEMENTAL INDENTURES ............... 71
ARTICLE 10
MISCELLANEOUS ..................................................... 72
SECTION 10.01 TRUST INDENTURE ACT CONTROLS ................... 72
SECTION 10.02 NOTICES ........................................ 72
SECTION 10.03 COMMUNICATION BY HOLDERS WITH OTHER HOLDERS .... 73
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SECTION 10.04 CERTIFICATE AND OPINION AS TO
CONDITIONS PRECEDENT .......................... 73
SECTION 10.05 STATEMENTS REQUIRED IN CERTIFICATE
OR OPINION ..................................... 73
SECTION 10.06 SEPARABILITY CLAUSE ............................ 74
SECTION 10.07 RULES BY TRUSTEE, PAYING AGENT AND REGISTRAR ... 74
SECTION 10.08 LEGAL HOLIDAYS ................................. 74
SECTION 10.09 GOVERNING LAW .................................. 74
SECTION 10.10 NO RECOURSE AGAINST OTHERS ..................... 74
SECTION 10.11 SUCCESSORS ..................................... 75
SECTION 10.12 MULTIPLE ORIGINALS ............................. 75
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INDENTURE, dated as of August 26, 1997, between Nortek, Inc., a Delaware
corporation (the "Company"), and State Street Bank and Trust Company, a
Massachusetts banking corporation (the "Trustee").
Each party agrees as follows for the benefit of the other party and for the
equal and ratable benefit of the Holders of the Company's 9 % Series A Senior
Notes due September 1, 2007 (the "Series A Notes") and the 9 % Series B Senior
Notes due September 1, 2007 (the "Series B Notes"):
ARTICLE 1
DEFINITION AND INCORPORATION BY REFERENCE
SECTION 1.01 Definitions.
"Acquired Indebtedness" means, with respect to any Person, Indebtedness of
such Person (i) assumed in connection with an acquisition of assets or
properties from such Person or (ii) existing at the time such Person becomes a
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.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Allowable Subsidiary Loans" means Indebtedness of the Company to a
Restricted Subsidiary not to exceed the Net Cash Proceeds received by the
Company as a result of such Restricted Subsidiary becoming less than a
Wholly-Owned Subsidiary through the sale of Equity Interests in compliance with
the terms of the Indenture, provided that (i) all such Allowable Subsidiary
Loans are contractually subordinated in right of payments to the Notes and (ii)
the total amount of all Allowable Subsidiary Loans at any time outstanding does
not exceed $35,000,000.
"Asset Sale" means, with respect to any Person, the sale, lease, conveyance
or other transfer or disposition by such Person of any of its assets or
properties (including by way of a sale-and-leaseback and including the sale,
issuance or other transfer of any of the Capital Stock of any Subsidiary of such
Person), in a single transaction or through a series of related
<PAGE> 7
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 of
Article 5 hereof; (iii) the sale, lease or other transfer or disposition of
damaged, worn out or obsolete property in the ordinary course of business or
other property no longer necessary for the proper conduct of the business of
such Person or its Subsidiaries; (iv) the abandonment of assets or properties
which are no longer useful in the business of such Person or its Subsidiaries
and are not readily saleable; (v) the granting of any Lien permitted under
Section 4.09 hereof (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.
"Board of Directors" of any corporation means the Board of Directors of
such corporation, or any duly authorized committee of such Board of Directors.
"Board Resolution" means, with respect to any Person, a copy of a
resolutions certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, as filed with the
corporate records of such Person.
"Broan Limited Credit Facility" means a credit facility between Broan
Limited 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.
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<PAGE> 8
"Business Day" means any day that is not a Saturday, a Sunday or a day on
which banking institutions in the Commonwealth of Massachusetts are authorized
or required to close.
"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 this Indenture the amount of such obligations at any time
shall be the aggregate capitalized amount thereof at such time, as determined in
accordance with GAAP.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights or other equivalents (however designated) of
capital stock (including common or preferred stock), partnership interests or
any other participation right or other interest in the nature of any equity
interest in such Person.
"Cash Equivalents" means (i) any evidence of Indebtedness, maturing not
more than 365 days after the date of acquisition, issued or fully guaranteed or
insured by the United States of America, or an instrumentality or agency thereof
(provided that the full faith and credit of the United States of America is
pledged in support thereof), (ii) any certificate of deposit, overnight bank
deposit or bankers' acceptance, maturing not more than 365 days after the date
of acquisition, issued by, or time deposit of, a commercial banking institution
having unsecured long-term debt (or whose holding company has unsecured
long-term debt) rated, at the time as of which any Investment therein is made,
BBB-- or better by S&P or Moody's or the equivalent of such rating by a
successor rating agency, (iii) commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than an Affiliate
or Subsidiary of the Company) organized and existing under the laws of the
United States of America or any State thereof or the District of Columbia which
is rated, at the time as of which any Investment therein is made, P-1 or better
by Moody's or A-1 or better by S&P, or the equivalent of such rating by a
successor rating agency, (iv) Investments in mutual funds, money market funds,
investment pools and other savings vehicles, substantially all of the assets of
which are invested in Investments described in clause (i), (ii) or (iii) above,
and (v) in the case of Broan Limited and the Canadian Subsidiaries, (a) any
evidence of Indebtedness, maturing not more than 365 days after the date of
acquisition, issued or fully guaranteed or insured by Canada or any
instrumentality or agency thereof (provided that the full faith and credit of
Canada is pledged in support thereof), (b) any certificate of deposit, overnight
bank deposit or bankers' acceptance, maturing not more than 365 days after the
date of acquisition, issued by, or time deposit of, a commercial banking
institution having unsecured long-term debt (or whose holding company has
unsecured long-term debt) rated, at the time as of which any Investment therein
is made, A or better by Dominion Bond Rating Services or the equivalent of such
rating by a successor rating agency and (c) commercial paper, maturing not more
than 90 days after the date of acquisition, issued by a corporation (other than
an Affiliate or Subsidiary of the Company) organized and
3
<PAGE> 9
existing under the laws of Canada or any province thereof which is rated, at the
time as of which any Investment therein is made, R-1 or better by Dominion Bond
Rating Services or the equivalent of such rating by a successor rating agency.
"Commodity Agreement" means any agreement or arrangement designed to
protect the Company or any of its Restricted Subsidiaries against fluctuations
in the prices of commodities used by the Company or any of its Subsidiaries in
the ordinary course of business.
"Company Credit Facility" means one or more credit facilities (other than
the Ply Gem Credit Facility) between the Company or any of its Subsidiaries and
one or more banks or other institutional lenders, as the same may be amended,
extended, amended and restated, supplemented or otherwise modified or replaced
from time to time, specifically designated in each such credit facility as a
"Company Credit Facility." All Company Credit Facilities are referred to
collectively in the Indenture as the "Company Credit Facility."
"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
4
<PAGE> 10
or since the last day of such period and (iv) the sale or other disposition of
assets or properties outside the ordinary course of business by such Person
(directly or through a Restricted Subsidiary of such Person if such Person is
the Company and directly or through a Subsidiary of such Person if such Person
is not the Company) and the actual application of the proceeds therefrom during
such period or since the last day of such period.
"Consolidated Depreciation Expense" means, with respect to any Person for
any period, the depreciation and depletion expense of such Person and its
Subsidiaries (or if such Person is the Company, the depreciation and depletion
expense of the Company and its Restricted Subsidiaries), determined on a
consolidated basis for such period in accordance with GAAP.
"Consolidated Income Tax Expense" means, with respect to any Person for any
period, the provision for federal, state, local and foreign income taxes
(including franchise, net worth or similar taxes) of such Person and its
Subsidiaries (or if such Person is the Company, the provision for such taxes of
the Company and its Restricted Subsidiaries) for such period, determined on a
consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any Person for any
period, without duplication, the sum of (i) the interest expense of such Person
and its Subsidiaries (or if such Person is the Company, the interest expense of
the Company and its Restricted Subsidiaries) for such period, determined on a
consolidated basis in accordance with GAAP, including, without limitation, all
original issue discount and other interest portion of any deferred payment
Indebtedness and all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing less any interest
income included in Consolidated Net Income for such period, but excluding any
deferred financing fees otherwise includible in Consolidated Interest Expense
for such period; (ii) the interest component of Capital Lease Obligations paid,
accrued and/or scheduled to be paid or accrued by such Person and its
Subsidiaries (or if such Person is the Company, such interest expense paid,
accrued and/or scheduled to be paid or accrued by the Company and its Restricted
Subsidiaries) during such period as determined on a consolidated basis in
accordance with GAAP; and (iii) all cash dividends or other distributions
declared or paid on any Capital Stock (other than common stock or preferred
stock that is not Redeemable Stock or, with respect to the Company, special
common stock) of such Person and its Subsidiaries (or if such Person is the
Company, all such dividends or other distributions declared or paid on any such
Capital Stock of the Company and its Restricted Subsidiaries) for such period as
determined on a consolidated basis in accordance with GAAP; provided, however,
that any Indebtedness bearing a floating rate of interest shall be computed as
if the rate in effect on the date of computation had been the applicable rate
for the entire period.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate net income (or loss) of such Person and its Subsidiaries (or if
such Person is the Company, the aggregate net income (or loss) of the Company
and its Restricted Subsidiaries) for such period, before discontinued
operations, extraordinary items and the cumulative effect of a
5
<PAGE> 11
change in accounting principles, determined on a consolidated basis in
accordance with GAAP, provided that there shall also be excluded from
Consolidated Net Income (but only to the extent included in calculating such
Consolidated Net Income): (i) any net gains or losses in respect of dispositions
of assets other than in the ordinary course of business; (ii) any gains from
currency exchange transactions not in the ordinary course of business consistent
with past practice; (iii) any gains or losses realized from the termination of
any employee pension benefit plan; (iv) any gains or losses realized upon the
refinancing of any Indebtedness of such Person or any of its Subsidiaries (or if
such Person is the Company, any gains or losses realized upon the refinancing of
any Indebtedness of Company and its Restricted Subsidiaries); (v) any gains or
losses arising from the destruction of property or assets due to fire or other
casualty; (vi) any gains or losses from the revaluation of property or assets;
(vii) the net income (or loss) of any Person that is not a Subsidiary of such
first Person (or that is not a Restricted Subsidiary if such first Person is the
Company) except to the extent of cash dividends or distributions paid to such
first Person by such other Person in such period; (viii) the net income (or
loss) of any Subsidiary of such first Person except to the extent of the
interest of such Person in such Subsidiary; (ix) the net income of any
Subsidiary of such Person (or if such Person is the Company, of any Restricted
Subsidiary) that is subject to any restriction or limitation on the payment of
dividends and other distributions (including loans or advances) by operation of
the terms of its charter or by agreement, instrument, judgment, decree, order or
governmental regulation applicable to such Subsidiary (or such Restricted
Subsidiary, if applicable) to the extent of such restriction or limitation in
such period; (x) the net income of any Person acquired in a pooling transaction
for any period prior to the date of such acquisition; and (xi) the excess of (a)
the consolidated compensation expense recorded by the Company in the computation
of net earnings of the Company in respect of shares of Capital Stock (other than
Redeemable Stock) or other Equity Interests awarded, pursuant to a plan or other
arrangement approved by the Board of Directors of the Company (or of a Reporting
Subsidiary, if applicable), to or for the benefit of any employee, officer or
director of the Company or any of its Subsidiaries or to or by any employee
stock ownership plan or similar trust for the benefit of any such employee,
officer or director, over (b) the amount of consolidated income tax benefit
recorded by the Company in connection with such consolidated compensation
expense of the Company.
"Consolidated Net Worth" means, with respect to any Person at any date of
determination, the sum of the Capital Stock, additional paid-in capital and
cumulative translation, pension and other adjustment account plus retained
earnings (or minus accumulated deficit), excluding amounts attributable to
Redeemable Stock, any Capital Stock convertible into Indebtedness, or Treasury
Stock, of such Person and its Restricted Subsidiaries, determined on a
consolidated basis in accordance with GAAP.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement entered into in the ordinary
course of business and designed to protect the Company or any of its Restricted
Subsidiaries against fluctuations in currency values to or under which the
Company or any of its Restricted Subsidiaries is a party or a beneficiary on the
issue date of the Notes or becomes a party or a beneficiary thereafter.
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<PAGE> 12
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Definitive Notes" means Notes that are in the form of Exhibit A attached
hereto (but without including the text referred to in footnote 1 thereto and the
additional schedule referred to therein).
"Depository" means, with respect to the Notes issuable or issued in whole
or in part in global form, the Person specified in Section 2.03 hereof as the
Depository with respect to the Notes, until a successor shall have been
appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter "Depository" shall mean or include such successor.
"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 Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Note" means any Series B Note issued in exchange for an Original
Note pursuant to the Exchange Offer or the Private Exchange.
"Exchange Offer" means the offer by the Company to the Holders of all
outstanding Transfer Restricted Securities to exchange all such outstanding
Transfer Restricted Securities held by such Holders for Series B Notes, 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.
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"Exempt Person" means (i) Richard L. Bready, (ii) any Person which is an
Affiliate of Richard L. Bready, and (iii) any other Affiliate of such Person so
long as such Person is an Affiliate of Richard L. Bready.
"Existing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries, in existence on the issue date of the Notes, including
without limitation all Indebtedness outstanding under the Ply Gem Credit
Facility on such date.
"Existing Investments" means (i) Investments of the Company and its
Restricted Subsidiaries, in existence on the issue date of the Notes and (ii)
Investments to be made pursuant to commitments authorized by the Board of
Directors of the Company prior to the issue date of the Notes (a) in Ecological
Engineering Associates, L.P. in an amount not to exceed $3.0 million (including
such Investments made prior to the issue date of the Notes) and (b) in or
related to a joint venture involving Universal-Rundle Corporation in an amount
not to exceed $10.0 million.
"Fair Market Value" means, with respect to any asset, the price which could
be negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing buyer, neither of which is under pressure or
compulsion to complete the transaction; provided, however, that the Fair Market
Value of any asset or assets of the Company or any of its Subsidiaries shall be
determined by the Board of Directors of the Company or, if such Subsidiary is a
Reporting Subsidiary, of such Reporting Subsidiary, acting in good faith, and
evidenced by a Board Resolution of the Company or such Reporting Subsidiary, as
the case may be, delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
from time to time; provided, however, that for purposes of Articles 4 and 5
hereof and the definitions used therein, GAAP shall be determined on the basis
of such principles as in effect on the issue date of the Notes.
"Global Note" means a Note registered in the name of the Depository or its
nominee that contains the paragraph referred to in footnote 1 and the additional
schedule referred to in the form of Note attached hereto as Exhibit A.
"Guaranty" means, with respect to any obligation, (i) a guaranty (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, of all or any part of such obligation
and (ii) an agreement, direct or indirect, contingent or otherwise, the
practical effect of which is to assure the payment or performance of (or payment
of damages in the event of non-performance) of all or any part of such
obligation.
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"Holder" means a Person in whose name a Note is registered on the
Registrar's books.
"Indebtedness" means, with respect to any Person, without duplication, any
indebtedness, contingent or otherwise, (i) with respect to borrowed money
(whether or not the recourse of the lender is to the whole of the assets of such
Person or only to a portion thereof), or evidenced by bonds, notes, debentures
or similar instruments or consisting of reimbursement obligations with respect
to letters of credit, or (ii) representing the deferred and unpaid balance of
the purchase price of any property excluding any such balance that constitutes a
trade payable or an accrued liability, in each case arising in the ordinary
course of business, if and to the extent any of the foregoing indebtedness would
appear as a liability upon a balance sheet of such Person prepared on a
consolidated basis in accordance with GAAP, and shall also include, to the
extent not otherwise included, (a) any Capital Lease Obligations, (b) the
maximum fixed repurchase price of any Redeemable Stock, (c) indebtedness secured
by a Lien to which the property or assets owned or held by such Person is
subject, whether or not the obligations secured thereby shall have been assumed,
(d) guaranties of items that would be included within this definition to the
extent of such guaranties, and (e) net liabilities in respect of Commodity
Agreements, Currency Agreements and Interest Rate Agreements. For purposes of
the immediately preceding sentence, the maximum fixed repurchase price of any
Redeemable Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Redeemable Stock as if such
Redeemable Stock were repurchased on any date on which Indebtedness shall be
required to be determined pursuant to 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).
"Indenture" means this Indenture, as amended or supplemented from time to
time in accordance with the terms hereof, including the provisions of the TIA
that are deemed to be a part hereof.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, or other similar agreement or arrangement entered
into in the ordinary course of business and designed to protect the Company or
any of its 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.
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"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.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means the aggregate Cash Proceeds received by the
Company or any of its 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.
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"9 1/4% Notes" means the Company's 9 1/4% Senior Notes due March 15, 2007.
"9 7/8% Notes" means the Company's 9 7/8% Senior Subordinated Notes due
2004.
"Note Custodian" means the Trustee, as custodian for the Depository with
respect to the Notes in global form, or any successor entity thereto.
"Officer" means, with respect to any corporation, the Chairman of the
Board, any Vice Chairman, the President, any Vice President, any Assistant Vice
President, the Treasurer, the Secretary, any Assistant Treasurer or any
Assistant Secretary of such corporation.
"Officers' Certificate" means, with respect to any Person, a certificate
containing the information specified in Sections 10.04 and 10.05 hereof signed
by the Chief Executive Officer or President and the Chief Financial Officer or
chief accounting officer of such Person.
"Opinion of Counsel" means a written opinion containing the information
specified in Sections 10.04 and 10.05 hereof, rendered by legal counsel (who may
be counsel to the Company) acceptable to the Trustee.
"Original Notes" means the Series A Notes initially issued under this
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
Section 4.07 or 4.14 hereof; (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
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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 Series A Notes not exceeding in the aggregate at any time
outstanding (A) $40,000,000, if at the time of the making of such Investment the
Notes are not rated BB+ or better by S&P or Bal or better by Moody's, or (B)
$50,000,000, if at the time of the making of such Investment the Notes are rated
BB+ or better by S&P or Bal or better by Moody's; (xii) any Lien permitted under
Section 4.09 hereof; 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
this Indenture, provided that for purposes of this clause (xiii) an instrument
referred to in such clause (ii) may be issued by any commercial banking
institution having capital and surplus of not less than $100,000,000.
"Permitted Liens" means (i) Liens 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, a 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
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or any State, or any department, agency, instrumentality or political
subdivision thereof, in connection with the financing of industrial revenue bond
facilities or of any equipment or other property designed primarily for the
purpose of air or water pollution control; provided that any such Lien on such
facilities, equipment or other property shall not apply to any other assets of
the Company or such Restricted Subsidiary of the Company; (xiv) Liens arising
from the rendering of a final judgment or order against the Company or any
Restricted Subsidiary of the Company that does not give rise to an Event of
Default; (xv) Liens securing reimbursement obligations with respect to letters
of credit that encumber documents and other property relating to such letters of
credit and the products and proceeds thereof; (xvi) Liens in favor of customs
and revenue authorities arising as a matter of law to secure payment of customs
duties in connection with the importation of goods; (xvii) Liens encumbering
customary initial deposits and margin deposits, and other Liens that are either
within the general parameters customary in the industry and incurred in the
ordinary course of business or otherwise permitted under the terms of the
Company Credit Facility, in each case securing Indebtedness under Commodity
Agreements, Interest Rate Agreements and Currency Agreements; and (xviii) Liens
arising out of conditional sale, title retention, consignment or similar
arrangements for the sale of goods entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business in accordance with
the past practices of the Company and its Restricted Subsidiaries prior to the
Closing Date.
"Person" means any individual, corporation, partnership, joint venture,
incorporated or unincorporated association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof or other entity of any kind.
"Ply Gem Credit Facility" means one or more credit facilities between Ply
Gem or any of its Subsidiaries and one or more banks or other institutional
lenders, as the same may be amended, extended, amended and restated,
supplemented or otherwise modified or replaced from time to time, specifically
designated in each such credit facility as a "Ply Gem Credit Facility." All Ply
Gem Credit Facilities are referred to collectively herein as the "Ply Gem Credit
Facility."
"Principal Property" means any manufacturing or processing plant, warehouse
or other building used by the Company or any Restricted Subsidiary, other than a
plant, warehouse or other building that, in the good faith opinion of the Board
of Directors as reflected in a Board Resolution, is not of material importance
as of the date such Board Resolution is adopted to the businesses conducted by
the Company and its Subsidiaries, on a consolidated basis, or conducted by any
Significant Subsidiary of the Company.
"Private Exchange" means a private exchange pursuant to Section 2(a) of the
Registration Rights Agreement.
"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
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Restricted Subsidiary of the Company or assumed by the Company or a Restricted
Subsidiary of the Company in connection with the acquisition of assets from such
Person; provided, however, that (i) any Lien on such Indebtedness shall not
extend to any property other than the property so acquired or constructed and
(ii) at no time shall the aggregate principal amount of outstanding Indebtedness
secured thereby be increased.
"Redeemable Stock" means any Equity Interest which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable before the Stated Maturity of the Notes), or upon the happening of
any event, matures or is mandatorily redeemable or is redeemable at the sole
option of the holder thereof, in whole or in part, prior to the Stated Maturity
of the Notes.
"Redemption Date" or "redemption date" means the date specified for
redemption of the Notes in accordance with the terms of the Notes and this
Indenture.
"Redemption Price" or "redemption price" shall have the meaning set forth
in paragraph 6 of the Notes.
"Registration Rights Agreement" means the Registration Rights Agreement
dated the date hereof between the Company and the Initial Purchasers named
therein.
"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 Section 4.07 hereof. 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.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Series A Notes" means the Company's 9 1/8% Series A Senior Notes due
September 1, 2007 to be issued pursuant to this Indenture.
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"Series B Notes" means the Company's 9 1/8% Series B Senior Notes due
September 1, 2007 to be issued pursuant to this Indenture in the Exchange Offer
and the Private Exchange.
"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 the 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 SEC, as
such regulation is in effect on the date of the Indenture.
"Stated Maturity" means, with respect to any security or Indebtedness, the
date specified therein as the fixed date on which the principal of such security
or Indebtedness is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
of such security or Indebtedness at the option of the holder thereof upon the
happening of any contingency).
"Subsidiary" of any Person means any corporation, partnership, association
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors or, in the case of a Person
which is not a corporation, the members of the appropriate governing board or
other group is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of such Person or a combination
thereof.
"Subsidiary Guarantor" means, with respect to any Subsidiary Guaranty, the
issuer of such Subsidiary Guaranty, so long as such Subsidiary Guaranty remains
outstanding.
"Subsidiary Guaranty" means any guaranty of the Notes pursuant to a
supplemental indenture executed and delivered pursuant to Section 4.14 hereof,
including as the context may require either or both of the guaranty of the Notes
set forth in Article 11 hereof attached hereto as Exhibit E, upon the execution
and delivery by a Subsidiary Guarantor of such supplemental indenture and any
separate guaranty of the Notes, substantially in the form of Exhibit F hereto,
or confirmation of guaranty executed and delivered by such Subsidiary Guarantor
pursuant to such supplemental indenture.
"TIA" means the Trust Indenture Act of 1939 as amended and as in effect on
the date of this Indenture; provided, however, that in the event the TIA is
amended after such date, TIA means, to the extent required by any such
amendment, the TIA as so amended.
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"Transfer Restricted Securities" means each Note until (i) the date on
which such Note has been exchanged by a Person other than a broker-dealer for an
Exchange Note in the Exchange Offer, (ii) following the exchange by a
broker-dealer in the Exchange Offer of a Note for an Exchange Note, the date on
which such Exchange Note is sold to a purchaser who receives from such
broker-dealer on or prior to the date of such sale a copy of the prospectus
contained in the Exchange Offer Registration Statement, (iii) the date on which
such Note has been effectively registered under the Securities Act and disposed
of in accordance with the Shelf Registration Statement or (iv) the date on which
such Note is distributed to the public pursuant to Rule 144 under the Securities
Act.
"Trust Officer," when used with respect to the Trustee, means any officer
assigned to and working in the corporate trust department of the Trustee or any
other officer of the Trustee customarily performing functions similar to those
performed by any of the above officers and also means, with respect to a
particular corporate trust matter, any other officer to whom such matter is
referred because of his knowledge of and familiarity with the particular
subject.
"Trustee" means the party named as the "Trustee" in the first paragraph of
this Indenture until a successor replaces it pursuant to the applicable
provisions of this Indenture and, thereafter, shall mean such successor.
"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 Section 4.06, 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 Section 4.06; 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.
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The Company shall evidence any designation pursuant to clause (i) or (iii) of
the first sentence hereof to the Trustee by filing with the Trustee within 45
days of such designation an Officers' Certificate certifying that such
designation has been made and that such designation complies with the
requirements of the Indenture and all conditions thereto have been satisfied.
"Wholly-Owned Subsidiary" of any Person means any Subsidiary of such Person
to the extent the entire voting share capital of such Subsidiary (other than
directors' qualifying shares) is owned by such Person (either directly or
indirectly through Wholly-Owned Subsidiaries).
SECTION 1.02 OTHER DEFINITIONS.
Term Defined
---- in
Section
-------
"Act" .................................................... 1.05
"Bankruptcy Law" ......................................... 6.01
"Cash Proceeds" .......................................... 4.12
"Change of Control" ...................................... 4.11
"Change of Control Offer" ................................ 4.11
"Change of Control Payment Date" ......................... 4.11
"Custodian" .............................................. 6.01
"Event of Default" ....................................... 6.01
"Excess Proceeds Offer" .................................. 4.12
"IAI Global Note" ........................................ 2.01
"incurrence" ............................................. 4.07
"Legal Holiday" .......................................... 10.08
"Offshore Notes Exchange Date" ........................... 2.01
"Paying Agent" ........................................... 2.03
"QIB Global Note" ........................................ 2.01
"refinance" .............................................. 4.07
"Refinancing Indebtedness" ............................... 4.07
"Registrar" .............................................. 2.03
"Regulation S Purchasers" ................................ 2.01
"Reporting Subsidiary" ................................... 4.06
"Restricted Payment" ..................................... 4.06
"Securities Act" ......................................... 7.04
"surviving entity" ....................................... 5.01
"Temporary Regulation S Global Note" ..................... 2.01
"U.S. Government Obligations" ............................ 8.01
SECTION 1.03 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. Whenever
this Indenture refers to a provision of the TIA, such provision is incorporated
by reference in and
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made a part of this Indenture. The following TIA terms used in this Indenture
have the following meanings:
"Commission" means the SEC.
"Indenture to be qualified" means this Indenture.
"Indenture trustee" or "institutional trustee" means the Trustee.
"Obligor" on the Notes means the Company and each Subsidiary Guarantor, if
any, and each other obligor on the Notes or any Subsidiary Guaranty.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them by such definitions.
SECTION 1.04 RULES OF CONSTRUCTION. Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including, without limitation;
(5) words in the singular include the plural, and words in the plural
include the singular.
SECTION 1.05 ACTS OF HOLDERS.
(1) any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent
duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or
instruments are delivered to the Trustee and, where it is hereby expressly
required, to the Company. Such instrument or instruments (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as
the "Act" of Holders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such agent
shall be sufficient for any purpose of this Indenture and conclusive in
favor of the Trustee and the Company, if made in the manner provided in
this Section.
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(2) The fact and date of the execution by any Person of any such
instrument or writing may be proved in any manner which the Trustee deems
sufficient.
(3) The ownership of Notes shall be proved by the Registrar.
(4) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Note shall bind every future
Holder of the same Note as the holder of every Note issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof
in respect of anything done, omitted or suffered to be done by the Trustee
or the Company in reliance thereon, whether or not notation of such action
is made upon such Note.
(5) If the Company shall solicit from the Holders any request, demand,
authorization, direction, notice, consent, waiver or other Act, the Company
may, at its option, by or pursuant to a Board Resolution, fix in advance a
record date for the determination of Holders entitled to give such request,
demand, authorization, direction, notice, consent, waiver or other Act, but
the Company shall have no obligation to do so. If such a record date is
fixed, such request, demand, authorization, direction, notice, consent,
waiver or other Act may be given before or after such record date, but only
the Holders of record at the close of business on such record date shall be
deemed to be Holders for the purposes of determining whether Holders of the
requisite proportion of outstanding Notes have authorized or agreed or
consented to such request, demand, authorization, directions, notice,
consent, waiver or other Act, and for that purpose the outstanding Notes
shall be computed as of such record date, PROVIDED that no such
authorization, agreement or consent by the Holders on such record date
shall be deemed effective unless it shall become effective pursuant to the
provisions of this Indenture not later than six months after the record
date.
SECTION 1.06 EXCHANGE RATES. Except as otherwise required under GAAP or in
connection with the preparation of any financial statements, any computation of
the U.S. dollar equivalent of any foreign currency required for any calculation
or computation under this Indenture (including, without limitation, in
connection with the limitations under the definition of "Consolidated Net
Income" and Section 4.03 hereof) shall be made at the exchange rate published in
THE WALL STREET JOURNAL which is in effect as of the close of business on the
first Business Day in the month in which such computation is required to be made
hereunder.
ARTICLE 2
THE NOTES
---------
SECTION 2.01 FORM AND DATING. The Original Notes and the Trustee's
certificate of authentication relating thereto shall be substantially in the
form of Exhibit A hereto, with such
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<PAGE> 25
appropriate insertions, substitutions and other variations as are required or
permitted by this Indenture. The Exchange Notes and the Trustee's certificate of
authentication relating thereto shall be substantially in the form of Exhibit A
hereto, with such appropriate insertions, substitutions and other variations as
are required or permitted by this Indenture; PROVIDED, that Exchange Notes
issued in the Exchange Offer shall not bear the legend set forth in Exhibit A
hereto as indicated by footnote 2; PROVIDED, FURTHER, that Exchange Notes issued
in either the Exchange Offer or the Private Exchange shall not contain any
reference to Liquidated Damages and shall not include paragraph 19 of Exhibit A
hereto. The Notes may have notations, legends or endorsements required by this
Indenture, law, stock exchange rule, depository rule or usage. Any such
notation, legend or endorsement shall be delivered in writing to the Trustee by
the Company. Each Note shall be dated the date of its issuance and show the date
of its authentication.
The terms and provisions contained in the Notes, annexed hereto as Exhibit
A, shall constitute, and are hereby expressly made, a part of this Indenture. To
the extent applicable, the Company, by its execution and delivery of this
Indenture, expressly agrees to such terms and provisions and to be bound
thereby.
Original Notes offered and sold to "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act) ("QIBs") and institutional
"Accredited Investors" (within the meaning of Rule 501(a)(1), (2), (3) or (7)
under the Securities Act ("IAIs"), in each case in accordance with Rule 144A
under the Securities Act ("Rule 144A") as provided in the Purchase Agreement,
shall be issued initially in the form of two permanent Global Notes (with
separate CUSIP numbers) substantially in the form set forth in Exhibit A
(including the text set forth in footnote 1 thereto and the additional schedule
referred to therein, but excluding the text set forth in footnote 3 thereto),
deposited with the Trustee, as custodian for the Depositor, duly executed by the
Company and authenticated by the Trustee for the Depository, duly executed by
the Company and authenticated by the Trustee as hereinafter provided. One Global
Note (which may be represented by more than one certificate, if so required by
the Depository's rules regarding the maximum principal amount to be represented
by a single certificate) will represent Original Notes sold to QIBs (the "QIB
Global Note"), and the other will represent Original Notes sold to IAIs (the
"IAI Global Note").
Original Notes offered and sold in reliance on Regulation S, if any, shall
be issued initially in the form of one Global Note (the "Temporary Regulation S
Global Note") having a different CUSIP number than that of the QIB Global Note
or the IAI Global Note substantially in the form set forth in Exhibit A
(including the text set forth in footnotes 1 and 3 thereto and the additional
schedule referred to therein), deposited with the Trustee, as custodian for the
Depository, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The Temporary Regulation S Global Note may not be issued
in definitive form until the later of the completion of the distribution of the
Original Notes and the termination of the "restricted period" (as defined in
Regulation S) with respect to the offer and sale of the Original Notes (the
"Offshore Notes Exchange Date"). The Company shall promptly notify the Trustee
in writing of the
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<PAGE> 26
occurrence of the Offshore Notes Exchange Date and, at any time following the
Offshore Notes Exchange Date, upon receipt by the Trustee and the Company of a
certificate substantially in the form set forth in Exhibit G, the Company shall
execute, and the Trustee shall authenticate and deliver, one or more permanent
certificated Definitive Notes in registered form pursuant to Section 2.06(4).
The aggregate principal amount of each Global Note may from time to time be
increased or decreased by adjustments made on the records of the Trustee, as
custodian for the Depository or its nominee, as hereinafter provided. Transfers
of Original Notes from QIBs to IAIs or persons who acquire an interest in the
Original Notes pursuant to Regulation S (the "Regulation S Purchasers"), from
IAIs to QIBs or Regulation S Purchasers or from Regulation S Purchasers to QIBs
or IAIs, will be represented by appropriate increases and decreases to the
respective amounts of the appropriate Global Notes; provided, however, that such
increases or decreases in the amount of Global Notes shall be made by the
Trustee, as Note Custodian, in accordance with the instructions given by the
Holder thereof as required by Section 2.06 hereof.
To the extent permitted by the terms of the 9-7/8% Notes and the indenture
governing the 9-7/8% Notes (the "9-7/8% Indenture"), all obligations owing under
this Indenture and the Notes, including interest accruing after the occurrence
of an event described in clause (5) or (6) of Section 6.01 of the Indenture,
shall constitute "Specified Senior Indebtedness" or similarly-designated
indebtedness under the 9-7/8% Notes and the 9-7/8% Indenture and under any other
existing or future subordinated indebtedness of the Company.
SECTION 2.02 EXECUTION AND AUTHENTICATION. The Notes shall be executed on
behalf of the Company by its Chairman of the Board, one of its Vice Chairmen,
its President or one of its Vice Presidents, under its corporate seal reproduced
thereon attested by its Secretary or one of its Assistant Secretaries. The
signature of any such officer on the Notes may be manual or facsimile.
If an Officer of the Company whose signature is on a Note no longer holds
that office at the time the Note is authenticated, the Note shall nevertheless
be valid.
Only such Notes as shall bear thereon a certificate of authentication
substantially in the form set forth in Exhibit A hereto, manually executed by
the Trustee, shall be entitled to the benefits of this Indenture or be valid or
obligatory for any purpose. Such certificate of authentication executed by the
Trustee upon any Note executed by the Company shall be conclusive evidence that
the Note so authenticated has been duly authenticated and made available for
delivery hereunder.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Notes executed by the Company to the Trustee
for authentication, together with a request for the authentication and delivery
of such Notes signed by an Officer of the Company accompanied by any certificate
and opinions required by the TIA and the following
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paragraph, and the Trustee, in accordance with such request, shall authenticate
and deliver such Notes as provided in this Indenture.
The Trustee shall authenticate (i) Original Notes for original issue in the
aggregate principal amount not to exceed $310,000,000, and (ii) Exchange Notes
issued, either (x) in the Exchange Offer for the Original Notes pursuant to the
Exchange Offer Registration Statement filed with the Commission from time to
time, for issue only in exchange for a like principal amount of Original Notes
or (y) in the Private Exchange, for issue only in exchange for a like principal
amount of Original Notes, in each case, upon written order of the Company in the
form of an Officers' Certificate. Such Officers' Certificate shall specify the
amount of Notes to be authenticated and the date on which the Notes are to be
authenticated, whether the Notes are to be Original Notes or Exchange Notes and
whether the Notes are to be Definitive Notes or Global Notes. Except as
contemplated by Section 2.07 hereof, the aggregate principal amount of Notes
outstanding at any time may not exceed $310,000,000. Notwithstanding the
foregoing, all Notes issued under this Indenture shall vote and consent together
on all matter as one class and no series of Notes will have the right to vote or
consent as a separate class on any matter.
The Notes shall be issuable in fully registered form only, without coupons,
in denominations of $1,000 and any integral multiple thereof.
The Trustee shall act as the initial authenticating agent. Thereafter, the
Trustee may appoint an authenticating agent reasonably acceptable to the Company
to authenticate the Notes. An authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company or
an Affiliate of the Company. The Trustee shall not be liable for any act or
failure to act of the authenticating agent to perform any duty either required
herein or authorized herein to be performed by such person in accordance with
this Indenture. Each authenticating agent shall be acceptable to the Company and
otherwise comply in all respects with the eligibility requirements of the
Trustee contained in this Indenture.
SECTION 2.03 REGISTRAR ANS PAYING AGENT. The Company shall maintain or
cause to be maintained an office or agency where (a) Notes may be presented for
registration of transfer or for exchange ("Registrar"), (b) Notes may be
presented or surrendered for purchase or payment ("Paying Agent") and (c)
notices and demands to or upon the Company in respect of the Notes may be
served. The Registrar shall keep a register of the Notes and of their transfer
and exchange. The Company may appoint one or more co-registrars and one or more
additional paying agents. The term "Registrar" includes any co-registrar and the
term "Paying Agent" includes any additional paying agents. The Company may
change any Paying Agent or Registrar without notice to any Holder. The Company
shall notify the Trustee of the name and address of any Agent not a party to
this Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such and shall be entitled
to appropriate
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compensation in accordance with Section 7.07 hereof. The Company or any of its
Subsidiaries may act as Paying Agent or Registrar.
The Company shall enter into an appropriate agency agreement with any Agent
not a party to this Indenture, which shall incorporate the provisions of the
TIA. The agreement shall implement the provisions of this Indenture that relate
to such Agent. The Company initially appoints The Depository Trust Company
("DTC") to act as Depository with respect to the Global Notes.
The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and agent for service of notices and demands in connection with the
Notes.
SECTION 2.04 PAYING AGENT TO HOLD MONEY IN TRUST. Except as otherwise
provided herein, prior to each due date of the principal, premium, if any, and
interest on any Note, the Company shall deposit with the Paying Agent a sum of
money sufficient to pay such principal, premium, if any, and interest or
Liquidated Damages so becoming due. The Company shall require each Paying Agent
(other than the Trustee or the Company) to agree in writing that such Paying
Agent shall hold in trust for the benefit of the Holders or the Trustee all
money held by the Paying Agent for the payment of principal, premium, if any,
and interest on the Notes (whether such money has been paid to it by the Company
or any other obligor on the Notes) and shall notify the Trustee of any default
by the Company (or any other obligor on the Notes) in making any such payment.
At any time during the continuance of any such default, the Paying Agent shall,
upon the request of the Trustee, forthwith pay to the Trustee all money so held
in trust and account for any money disbursed to it. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee and to account
for any money disbursed by it. Upon doing so, the Paying Agent shall have no
further liability for the money so paid over to the Trustee. If the Company, a
Subsidiary or an Affiliate of either of them acts as Paying Agent, it shall
segregate the money held by it as Paying Agent and hold it as a separate trust
fund.
SECTION 2.05 HOLDER LIST The Trustee shall preserve in as current a form
as is reasonably practicable the most recent list available to it of the names
and addresses of Holders. If the Trustee is not the Registrar, the Company shall
cause to be furnished to the Trustee on or before each interest payment date and
at such other times as the Trustee may request in writing, within five Business
Days of such request, a list in such form as the Trustee may reasonably require
of the names and addresses of Holders.
SECTION 2.06 TRANSFER AND EXCHANGE
(1) TRANSFER AND EXCHANGE OF DEFINITIVE NOTES. When Definitive Notes
are presented to the Registrar with the request to register the transfer of
the Definitive Notes, or to exchange such Definitive Notes for an equal
principal amount of Definitive Notes of other authorized denominations, the
Registrar shall register the transfer or make the
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exchange as requested if its requirements for such transactions are met;
PROVIDED, HOWEVER, that the Definitive Notes presented or surrendered for
registration of transfer or exchange:
(a) shall be duly endorsed or accompanied by a written instrument
of transfer in form satisfactory to the Trustee and the Registrar duly
executed by the Holder thereof or by an attorney who is duly
authorized in writing to act on behalf of the Holder; and
(b) shall, in the case of a Transfer Restricted Security, be
accompanied by the following additional information and documents, as
applicable:
(i) if such Transfer Restricted Securities are being
delivered to the Registrar by a Holder for registration in the
name of such Holder, without transfer, a certification from such
Holder to that effect (in substantially the form of Exhibit B
hereto); or
(ii) if such Transfer Restricted Securities are being
transferred (1) to a "qualified institutional buyer" (as defined
in Rule 144A under the Securities Act) in a transaction meeting
the requirements of Rule 144A under the Securities Act or (2)
pursuant to an exemption from registration in a transaction
meeting the requirements of Rule 144 under the Securities Act
(based upon an Opinion of Counsel if the Company so requests) or
(3) pursuant to an effective registration statement under the
Securities Act, a certification to that effect from such Holder
(in substantially the form of Exhibit B hereto); or
(iii) if such Transfer Restricted Securities are being
transferred to an institutional "accredited investor," within the
meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities
Act pursuant to a private placement exemption from the
registration requirements of the Securities Act (based upon an
Opinion of Counsel if the Company so requests), a certification
to that effect from such Holder (in substantially the form of
Exhibit B hereto) and a certification from the applicable
transferee (in substantially the form of Exhibit C hereto);
(iv) if such Transfer Restricted Securities are being
transferred outside the U.S. to a foreign person pursuant to an
exemption from registration in a transaction meeting the
requirements of Regulation S under the Securities Act (based on
an Opinion of Counsel if the Company so requests), certification
to that effect from such Holder (in substantially the form of
Exhibits B and D hereto); or
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(v) if such Transfer Restricted Securities are being
transferred in reliance on another exemption from the
registration requirements of the Securities Act (based upon an
Opinion of Counsel if the Company so requests), a certification
to that effect from such Holder (in substantially the form of
Exhibit B hereto).
(2) TRANSFER OF A DEFINITIVE NOTE FOR A BENEFICIAL INTEREST IN A
GLOBAL NOTE. A Definitive Note may not be exchanged for a beneficial
interest in a Global Note except upon satisfaction of the requirements set
forth below. Upon receipt by the Trustee of a Definitive Note, duly
endorsed or accompanied by a written instrument of transfer in form
satisfactory to the Trustee duly executed by the Holder thereof or by an
attorney who is duly authorized in writing to act on behalf of the Holder,
together with:
(a) if such Definitive Note is being delivered to the Trustee by
a Holder, without transfer, to enable such Holder to obtain a
beneficial interest in a Global Note, a certification from such Holder
to that effect (in substantially the form of Exhibit B hereto);
PROVIDED that such Holder provides a certification that such Holder is
otherwise permitted to hold a beneficial interest in a Global Note;
(b) if such Definitive Note is a Transfer Restricted Security and
is being transferred, certification, substantially in the form of
Exhibit B hereto, that either (A) such Definitive Note is being
transferred to a "qualified institutional buyer" (as defined in Rule
144A under the Securities Act) in a transaction meeting the
requirements of Rule 144A under the Securities Act, (B) to an
institutional "accredited investor," within the meaning of Rule
501(a)(1), (2), (3) or (7) under the Securities Act pursuant to a
private placement exemption from the registration requirements of the
Securities Act (based upon an Opinion of Counsel if the Company so
requests), PROVIDED that the Trustee receives a certification from
such transferee (in substantially the form of Exhibit C hereto), or
(C) to a foreign person outside the U.S. pursuant to an exemption from
registration in a transaction meeting the requirements of Regulation S
under the Securities Act (based upon an Opinion of Counsel if the
Company so requests), PROVIDED, that the Trustee receives a
certification from such transferor (in substantially the form of
Exhibit D hereto); and
(c) whether or not such Definitive Note is a Transfer Restricted
Security, written instructions directing the Trustee to cause, or
directing the Note Custodian to cause in accordance with the standing
instructions and procedures existing between the Depository and the
Note Custodian, the aggregate principal amount of Notes represented by
the Global Note to be increased;
then the Trustee shall cancel such Definitive Note in accordance with Section
2.01 hereof and cause, or direct the Note Custodian to cause, in accordance with
the standing instructions and
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procedures existing between the Depository and the Note Custodian, the aggregate
principal amount of Notes represented by the Global Note to be increased
accordingly. If no Global Notes are then outstanding, the Company shall issue
and, upon receipt of an authentication order in accordance with Section 2.02
hereof, and an agreement with the Depository in customary form and substance
acceptable to the Trustee, the Trustee shall authenticate a new Global Note in
the appropriate principal amount.
(3) TRANSFER AND EXCHANGE OF GLOBAL NOTES. The transfer and exchange
of Global Notes or beneficial interests therein shall be effected through
the Depository, in accordance with this Indenture and the procedures of the
Depository therefor, which shall include restrictions on transfer
comparable to those set forth herein to the extent required by the
Securities Act; provided, however, that neither the Trustee nor the
Registrar shall have any obligation to monitor or restrict the transfer of
any beneficial interest in the Notes transferable through the book-entry
facilities of the Depository.
(4) TRANSFER OF A BENEFICIAL INTEREST IN A GLOBAL NOTE FOR A
DEFINITIVE NOTE.
(a) Any Person having a beneficial interest in a Global Note may
upon request exchange such beneficial interest for a Definitive Note.
Upon receipt by the Trustee of written instructions or such other form
of instructions as is customary for the Depository from the Depository
or its nominee on behalf of any Person having a beneficial interest in
a Global Note, and, in the case of a Transfer Restricted Security, the
following additional information and documents (all of which may be
submitted by facsimile):
(i) if such beneficial interest is being transferred to the
Person designated by the Depository as being the beneficial
owner, a certification from such Person to that effect (in
substantially the form of Exhibit B hereto); or
(ii) if such beneficial interest is being transferred (1) to
a "qualified institutional buyer" (as defined in Rule 144A under
the Securities Act) in a transaction meeting the requirements of
Rule 144A under the Securities Act or (2) pursuant to an
exemption from registration in a transaction meeting the
requirements of Rule 144 under the Securities Act (based upon an
Opinion of Counsel if the Company so requests) or (3) pursuant to
an effective registration statement under the Securities Act, a
certification to that effect from the transferor (in
substantially the form of Exhibit B hereto); or
(iii) if such beneficial interest is being transferred to an
institutional "accredited investor," within the meaning of Rule
501(a)(1), (2), (3) or (7) under the Securities Act pursuant to a
private placement exemption from
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the registration requirements of the Securities Act (based upon
an Opinion of Counsel if the Company so requests), a
certification to that effect from such transferor (in
substantially the form of Exhibit B hereto) and a certification
from the applicable transferee (in substantially the form of
Exhibit C hereto); or
(iv) if such beneficial interest is being transferred
outside the U.S. to a foreign person pursuant to an exemption
from registration in a transaction meeting the requirements of
Regulation S under the Securities Act (based upon an Opinion of
Counsel if the Company so requests), certifications to that
effect from such transferor (in substantially the form of
Exhibits B and D hereto); and
(v) if such beneficial interest is being transferred in
reliance on another exemption from the registration requirements
of the Securities Act (based upon an Opinion of Counsel if the
Company so requests), a certification to that effect from such
transferor (in substantially the form of Exhibits B and D
hereto);
then the Trustee or the Note Custodian, at the direction of the Trustee, shall,
in accordance with the standing instructions and procedures existing between the
Depository and the Note Custodian, cause the aggregate principal amount of
Global Notes to be reduced accordingly and, following such reduction, the
Company shall execute and, upon receipt of an authentication order in accordance
with Section 2.02 hereof, the Trustee shall authenticate and deliver to the
transferee a Definitive Note in the appropriate principal amount.
(b) Definitive Notes issued in exchange for a beneficial interest
in a Global Note pursuant to this Section 2.06(4) shall be registered
in such names and in such authorized denominations as the Depository,
pursuant to instructions from its direct or indirect participants or
otherwise, shall instruct the Trustee. The Trustee shall deliver such
Definitive Notes to or as directed by the Persons in whose names such
Notes are so registered.
(5) RESTRICTIONS ON TRANSFER AND EXCHANGE OF GLOBAL NOTES.
Notwithstanding any other provisions of this Indenture (other than the
provisions set forth in subsection (6) of this Section 2.06), a Global Note
may not be transferred except as a whole by the Depository to a nominee of
the Depository or by a nominee of the Depository to the Depository or
another nominee of the Depository or by the Depository or any such nominee
to a successor Depository or a nominee of such successor Depository.
(6) AUTHENTICATION OF DEFINITIVE NOTES. If at any time:
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(a) the Company notifies the Trustee in writing that the
Depository for the Notes is no longer willing or able to act as
Depository for the Global Notes and a successor Depository for the
Global Notes is not appointed by the Company within 90 days after
delivery of such notice; or
(b) the Company, at its option, notifies the Trustee in writing
that it elects to cause the issuance of Definitive Notes under this
Indenture;
then the Company will execute, and the Trustee, upon receipt of an Officers'
Certificate requesting the authentication and delivery of Definitive Notes, will
authenticate and deliver Definitive Notes, in an aggregate principal amount
equal to the principal amount of the Global Notes, in exchange for such Global
Notes and registered in such names as the Depository shall instruct the Trustee
or the Company in writing.
(7) LEGENDS.
(a) Except as permitted by the following paragraphs (c) and (d),
each Note certificate evidencing the Global Notes and the Definitive
Notes (and all Notes issued in exchange therefor or substitution
thereof) shall bear a legend in substantially the following form until
after the second anniversary of the later of the date of original
issuance of the Note and the last day on which the Company or any
Affiliate of the Company was the owner of such Note (or any
predecessor Note or any beneficial interest therein):
"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY
NOT BE OFFERED OR SOLD TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY
PERSON EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS
ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT), (B) IT IS AN "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES
ACT) WHO IS AN INSTITUTION (AN "INSTITUTIONAL ACCREDITED
INVESTOR"), OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS
NOTE OUTSIDE THE UNITED STATES IN COMPLIANCE WITH REGULATION S
UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT PRIOR TO
THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE DATE OF
ORIGINAL ISSUANCE OF THIS NOTE AND THE LAST DATE ON WHICH THE
ISSUER OR ANY AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS NOTE
(THE "RESALE RESTRICTION TERMINATION DATE") OFFER,
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SELL OR OTHERWISE TRANSFER THIS NOTE, EXCEPT (A) TO THE ISSUER,
(B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER PURCHASING FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF ANOTHER QUALIFIED INSTITUTIONAL BUYER IN
COMPLIANCE WITH THE RESALE PROVISIONS OF RULE 144A UNDER THE
SECURITIES ACT, OR TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT,
PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A WRITTEN
CERTIFICATION CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM
OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), (D) PURSUANT
TO THE RESALE LIMITATIONS PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE), (E) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (F) OUTSIDE THE
U.S. TO A FOREIGN PERSON IN A TRANSACTION MEETING THE
REQUIREMENTS OF REGULATION S UNDER THE SECURITIES ACT OR (G)
PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (BASED, IN THE CASE OF CLAUSES
(C), (D), (F) AND (G) ABOVE, UPON AN OPINION OF COUNSEL
REASONABLY ACCEPTABLE TO THE ISSUER IF THE ISSUER SO REQUESTS),
SUBJECT IN EACH OF THE FOREGOING CASES TO ANY REQUIREMENT OF LAW
THAT THE DISPOSITION OF ITS PROPERTY OR THE PROPERTY OF SUCH
ACCOUNT BE AT ALL TIMES WITHIN ITS CONTROL AND TO COMPLIANCE WITH
APPLICABLE STATE SECURITIES LAWS AND (3) AGREES THAT IT WILL
DELIVER TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IF THE PROPOSED
TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER
MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE
ISSUER SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION
AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. THE FOREGOING RESTRICTIONS ON RESALE WILL NOT
APPLY SUBSEQUENT TO THE RESALE RESTRICTION TERMINATION DATE."
(b) Each Global Note shall also bear the following legend:
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"UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN
DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY
TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY OR BY THE DEPOSITORY
OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH
SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK,
NEW YORK) ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME
OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER
ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS
AN INTEREST HEREIN. THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE
INDENTURE REFERRED TO HEREINAFTER. THIS GLOBAL NOTE MAY NOT BE EXCHANGED,
IN WHOLE OR IN PART, FOR A NOTE REGISTERED IN THE NAME OF ANY PERSON OTHER
THAN THE DEPOSITORY TRUST COMPANY OR A NOMINEE THEREOF EXCEPT IN THE
CIRCUMSTANCES SET FORTH IN SECTION 2.06 OF THE INDENTURE, AND MAY NOT BE
TRANSFERRED, IN WHOLE OR IN PART, EXCEPT IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN SECTION 2.06 OF THE INDENTURE. BENEFICIAL
INTEREST IN THIS GLOBAL NOTE MAY NOT BE TRANSFERRED EXCEPT IN ACCORDANCE
WITH SECTION 2.06 OF THE INDENTURE."
(c) Each Temporary Regulation S Global Note shall also bear the
following legend:
"THIS SECURITY MAY NOT BE OFFERED OR SOLD TO A U.S. PERSON (AS SUCH
TERM IS DEFINED IN REGULATION S UNDER THE SECURITIES ACT) OR FOR THE
ACCOUNT OR BENEFIT OF A U.S. PERSON PRIOR TO THE EXPIRATION OF THE OFFSHORE
NOTES EXCHANGE DATE (AS DEFINED IN THE INDENTURE), AND NO TRANSFER OR
EXCHANGE OF THIS SECURITY MAY BE MADE FOR AN INTEREST IN A CERTIFICATED
SECURITY UNTIL AFTER THE LATER OF THE DATE OF EXPIRATION OF THE OFFSHORE
NOTES
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EXCHANGE DATE AND THE DATE ON WHICH THE PROPER REQUIRED CERTIFICATION
RELATING TO SUCH INTEREST HAS BEEN PROVIDED IN ACCORDANCE WITH THE TERMS OF
THE INDENTURE, TO THE EFFECT THAT THE BENEFICIAL OWNER OR OWNERS OF SUCH
INTEREST ARE NOT U.S. PERSONS."
(d) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by a Global
Note) pursuant to Rule 144 under the Securities Act or an effective
registration statement under the Securities Act:
(i) in the case of any Transfer Restricted Security that is
a Definitive Note, the Registrar shall permit the Holder thereof
to exchange such Transfer Restricted Security for a Definitive
Note that does not bear the legend set forth in clause (a) above
and rescind any restriction on the transfer of such Transfer
Restricted Security; and
(ii) in the case of any Transfer Restricted Security
represented by a Global Note, such Transfer Restricted Security
shall not be required to bear the legend set forth in clause (a)
above if all other interests in such Global Note have been or are
concurrently being sold or transferred pursuant to Rule 144 under
the Securities Act or pursuant to an effective registration
statement under the Securities Act, but such Transfer Restricted
Securities shall continue to be subject to the provisions of
Section 2.06(3) hereof; PROVIDED, HOWEVER, that with respect to
any request for an exchange of a Transfer Restricted Security
that is represented by a Global Note for a Definitive Note that
does not bear a legend set forth in clause (a) above, which
request is made in reliance upon Rule 144, the Holder thereof
shall certify in writing to the Registrar that such request is
being made pursuant to Rule 144 (such certification to be
substantially in the form of Exhibit B hereto).
(e) Notwithstanding the foregoing, upon consummation of the
Exchange Offer, the Company shall issue and, upon receipt of an
authentication order in accordance with Section 2.02 hereof, the
Trustee shall authenticate Series B Notes in exchange for Series A
Notes accepted for exchange in the Exchange Offer, which Series B
Notes shall not bear the legend set forth in clause (a) above, and the
Registrar shall rescind any restriction on the transfer of such Notes,
in each case unless the Holder of such Series A Notes is either (A) a
broker-dealer, (B) a Person participating in the distribution (within
the meaning of the Securities Act) of the Series A Notes or (C) a
Person who is an affiliate (as defined in Rule 501 under the
Securities Act) of the Company. The Company shall identify to the
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Trustee such Holders of the Notes in a written certification signed by
an Officer of the Company and, absent certification from the Company
to such effect, the Trustee shall assume that there are no such
Holders.
(f) By its acceptance of any Note bearing the legend set forth in
Section 2.06(7)(a) hereof, each Holder of such a Note acknowledges the
restrictions on transfer of such Note set forth in this Indenture and
in such legend and agrees that it will transfer such Note only as
provided in this Indenture.
(8) CANCELLATION AND/OR ADJUSTMENT OF GLOBAL NOTE. At such time as all
beneficial interests in a Global Note have either been exchanged for
Definitive Notes, redeemed, repurchased or canceled, such Global Note shall
be returned to or retained and canceled by the Trustee. At any time prior
to such cancellation, if any beneficial interest in a Global Note is
exchanged for Definitive Notes, redeemed, repurchased or canceled, the
principal amount of Notes represented by such Global Note shall be reduced
and an endorsement shall be made on such Global Note, by the Trustee or the
Note Custodian, at the direction of the Trustee to reflect such reduction.
(9) GENERAL PROVISIONS WITH RESPECT TO TRANSFER AND EXCHANGE.
(a) To permit registration of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate, pursuant to
the terms of this Indenture, Definitive Notes and Global Notes at the
Registrar's request.
(b) No service charge shall be made to a Holder for any
registration of transfer or exchange, but the Company may require
payment of a sum sufficient to cover any transfer tax or similar
governmental charge payable in connection therewith (other than any
such transfer taxes or similar governmental charges payable upon
exchange or transfer pursuant to Section 2.09, 3.01, 4.11, 4.12, and
9.05 hereof).
(c) Neither the Company nor the Registrar shall be required to
register the transfer or exchange of any Note selected for redemption
in whole or in part, except the unredeemed portion of any Note being
redeemed in part.
(d) All Definitive Notes and Global Notes issued upon any
registration of transfer or exchange of Definitive Notes or Global
Notes shall be the valid obligations of the Company, evidencing the
same debt, and entitled to the same benefit under this Indenture as
the Definitive Notes or Global Notes surrendered upon such
registration of transfer or exchange.
(e) The Company shall not be required to issue or register the
transfer or exchange of Notes during a period beginning at the opening
of 15 days before the
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day of any selection of Notes for redemption under Section 3.02 and
ending at the close of business on the day of selection.
(f) Prior to due presentment for registration of transfer of any
Note, the Trustee, any Agent and the Company may deem and treat the
Person in whose name any Note is registered as the absolute owner of
such Note for the purpose of receiving payment of principal of, and
premium, interest and Liquidated Damages, if any, on such Note, and
neither the Trustee, any Agent nor the company shall be affected by
notice to the contrary.
(g) The Trustee shall authenticate Definitive Notes and Global
Notes in accordance with the provisions of Section 2.02 hereof.
(h) Neither the Company nor the Trustee shall be liable for any
delay by the Depository in identifying the beneficial owners of the
Notes and each such Person may conclusively rely on, and shall be
protected in relying on, instructions from the Depository for all
purposes (including with respect to the registration and delivery, and
the respective principal amounts, of any Notes to be issued).
(i) Members of, or participants in, the Depository shall have no
rights under this Indenture with respect to any Global Note held on
their behalf by the Depository, or the Trustee as the Note Custodian,
or under the Global Note, and the Depository may be treated by the
Company, the Trustee and any agent of the Company or the Trustee as
the absolute owner of the Global Note for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall (x) prevent the
Company, the Trustee or any agent of the Company or the Trustee from
giving effect to any written certification, proxy or other
authorization furnished by the Depository or (y) impair, as between
the Depository and members of, or participants in, the Depository, the
operation of customary practices governing the exercise of the rights
of a Holder of any Note.
SECTION 2.07 REPLACEMENT NOTES. If any mutilated Note is surrendered to the
Company or the Trustee, or the Company and the Trustee receive evidence to their
satisfaction of the destruction, loss or theft of any Note, and there is
delivered to the Company and the Trustee such security or indemnity as may be
required by them to save each of them harmless, then, in the absence of notice
to the Company or the Trustee that such Note has been acquired by a bona fide
purchaser, the Company shall execute, and upon its written request, the Trustee
shall authenticate and make available for delivery, in exchange for any such
mutilated Note or in lieu of any such destroyed, lost or stolen Note, a new Note
of like tenor and principal amount, bearing a number not contemporaneously
outstanding.
In case any such mutilated, destroyed, lost or stolen Note has become or is
about to become due and payable, or is about to be purchased by the Company
pursuant to Article 3
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hereof, the Company in its discretion may, instead of issuing a new Note, pay or
purchase such Note, as the case may be.
Upon the issuance of new Notes under this Section 2.07, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) in connection therewith.
Every new Note issued pursuant to this Section 2.07 in lieu of any
mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Note shall be at any time enforceable by anyone, and
shall be entitled to all benefit of this Indenture equally and proportionately
with any and all other Notes duly issued hereunder.
The provisions of this Section 2.07 are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.08 OUTSTANDING NOTES; DETERMINATIONS OF HOLDERS' ACTION. Notes
outstanding at any time are all the Notes authenticated by the Trustee except
for those canceled by it, those delivered to it for cancellation, those referred
to in Section 2.07 hereof, or purchased by the Company pursuant to Article 3
hereof and those described in this Section 2.08 as not outstanding. A Note does
not cease to be outstanding because the Company or an Affiliate thereof holds
the Note; PROVIDED, HOWEVER, that in determining whether the holders of the
requisite principal amount of Notes have given or concurred in any request,
demand, authorization, direction, notice, consent or waiver hereunder, Notes
owned by the Company, any other obligor upon the Notes or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
outstanding, except that, in determining whether the Trustee shall be protected
in relying upon such request, demand, authorization, direction, notice, consent
or waiver, only Notes which a Trust Officer of the Trustee knows based upon an
examination of the Register to be so owned shall be so disregarded. Subject to
the foregoing, only Notes outstanding at the time of such determination shall be
considered in any such determination (including determinations pursuant to
Articles 6 and 9).
If a Note is replaced pursuant to Section 2.07, it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Note is
held by a bona fide purchaser.
If the Paying Agent (other than the Company) holds, in accordance with this
Indenture, at maturity or on a Redemption Date, money sufficient to pay the
Notes payable on that date, then immediately on the date of maturity or such
Redemption Date, as the case may be, such Notes shall cease to be outstanding
and interest, if any, on such Notes shall cease to accrue.
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SECTION 2.09 TEMPORARY NOTES. Pending the preparation of Definitive Notes,
the Company may execute, and upon receipt of an Officers' Certificate from the
Company, the Trustee shall authenticate and make available for delivery,
temporary Notes which are printed, lithographed, typewritten, mimeographed or
otherwise produced, in any authorized denomination, substantially of the tenor
of the Definitive Notes in lieu of which they are issued and with such
appropriate insertions, omissions, substitutions and other variations as the
Officers of the Company executing such Notes may determine, as conclusively
evidenced by their execution of such Notes.
If temporary Notes are issued, the Company will cause Definitive Notes to
be prepared without unreasonable delay. After the preparation of Definitive
Notes, the temporary Notes shall be exchangeable for Definitive Notes upon
surrender of the temporary Notes at the office or agency of the Company
designated for such purpose pursuant to Section 2.03 hereof, without charge to
the Holder. Upon surrender for cancellation of any one or more temporary Notes,
the Company shall execute and the Trustee, upon receipt of an Officers'
Certificate from the Company, shall authenticate and make available for delivery
in exchange therefor a like principal amount of Definitive Notes of authorized
denominations. Until so exchanged, the temporary Notes shall in all respects be
entitled to the same benefits under this Indenture as Definitive Notes.
SECTION 2.10 CANCELLATION. All Notes surrendered for payment, purchase by
the Company, redemption by the Company pursuant to Article 3 hereof, or
registration of transfer or exchange shall, if surrendered to any Person other
than the Trustee, be delivered to the Trustee and shall be promptly canceled by
it. The Company may at any time deliver to the Trustee for cancellation any
Notes previously authenticated and made available for delivery hereunder which
the Company may have acquired in any manner whatsoever, and all Notes so
delivered shall be promptly canceled by the Trustee. The Company may not
reissue, or issue new Notes to replace Notes it has paid or delivered to the
Trustee for cancellation. No Notes shall be authenticated in lieu of or in
exchange for any Notes canceled as provided in this Section 2.10, except as
expressly permitted by this Indenture. All canceled Notes held by the Trustee
shall be destroyed by the Trustee.
SECTION 2.11 CUSIP NUMBER. The Company, in issuing the Notes may use
"CUSIP" numbers (if then generally in use), and the Trustee shall use CUSIP
numbers in notices of redemption or exchange as a convenience to Holders;
provided that any such notice shall state that no representation is made as to
the correctness of such numbers either as printed on the Notes or as contained
in any notice of redemption or exchange and that reliance may be placed only on
the other identification number printed on the Notes and any redemption shall
not be affected by any defect in or omission of such numbers.
SECTION 2.12 DEFAULTED INTEREST. If the Company defaults on a payment of
interest on the Notes, it shall pay the defaulted interest, plus (to the extent
lawful) any interest payable on the defaulted interest (as provided in Section
4.01), to the Persons who are Holders on a subsequent special record date, and
such special record date, as used in this Section 2.12 with respect to the
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payment of any defaulted interest, shall mean the 15th day next preceding the
date fixed by the Company for the payment of defaulted interest, whether or not
such day is a Business Day. At least 15 days before the subsequent special
record date, the Company shall mail to each Holder and to the Trustee a notice
that states the subsequent special record date, the payment date and the amount
of defaulted interest to be paid. The Company may also pay defaulted interest in
any other lawful manner.
SECTION 2.13 LIQUIDATED DAMAGES UNDER REGISTRATION RIGHTS AGREEMENT. Under
certain circumstances, the Company shall be obligated to pay certain Liquidated
Damages to the Holders, all as set forth in Section 2 of the Registration Rights
Agreement. In any such case, and for all purposes hereunder, the Trustee shall
rely conclusively upon the Company's certification as to the existence and
amount of any obligation to pay any such Liquidated Damages, and as to any other
matters pertaining thereto.
ARTICLE 3
REDEMPTION
----------
SECTION 3.01 RIGHT TO REDEEM; NOTICES TO TRUSTEE. At any time on and after
September 1, 2002, the Company, at its option, may redeem the Notes for cash in
accordance with this Article 3 and the provisions of paragraph 6 of the Notes.
If the Company elects to redeem Notes pursuant to paragraph 6 of the Notes, it
shall notify the Trustee in writing of the Redemption Date, the principal amount
of Notes to be redeemed and the Redemption Price.
The Company shall give the notice to the Trustee provided for in this
Section 3.01 at least 45 days before the Redemption Date (unless a shorter
notice shall be satisfactory to the Trustee).
SECTION 3.02 SELECTION OF NOTES TO BE REDEEMED. If less than all the
outstanding Notes are to be redeemed at any time, the Trustee shall select the
Notes to be redeemed 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. The Trustee shall make the selection at least 30 but not
more than 60 days before the Redemption Date from outstanding Notes not
previously called for redemption. Notes and portions of them the Trustee selects
shall be in principal amount of $1,000 or an integral multiple of $1,000.
Provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption. The Trustee shall notify the
Company promptly of the Notes or portions of Notes to be redeemed.
SECTION 3.03 NOTICE OF REDEMPTION. At least 30 days but not more than 60
day before a Redemption Date, the Company shall mail or cause to be mailed a
notice of redemption by first-class mail, postage prepaid, to each Holder of
Notes to be redeemed at the Holder's last address as it shall appear on the
registry book. A copy of such notice shall be mailed to the Trustee on the same
day the notice is mailed to Holders of Notes.
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The notice shall identify the Notes to be redeemed and shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) the CUSIP number (subject to the provisions of Section 2.11
hereof);
(4) the name and address of the Paying Agent;
(5) that Notes called for redemption must be surrendered to the Paying
Agent to collect the Redemption Price;
(6) if fewer than all the outstanding Notes are to be redeemed, the
identification and principal amounts of the particular Notes to be
redeemed; and
(7) that, unless the Company defaults in making such redemption
payment together with accrued and unpaid interest and Liquidated Damages,
if any, to the Redemption Date, interest will cease to accrue on Notes
called for redemption on and after the Redemption Date.
At the Company's written request, made at least 45 days prior to the
Redemption Date, the Trustee shall give the notice of redemption in the
Company's name and at the Company's expense; PROVIDED, HOWEVER, that in all
cases, the text of such notice of redemption shall be prepared or approved by
the Company and the Trustee shall have no responsibility whatsoever with regard
to such notice being accurate or correct.
SECTION 3.04 EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption is
given, Notes called for redemption become due and payable on the Redemption Date
and at the Redemption Price. Upon the later of the Redemption Date and the date
such Notes are surrendered to the Paying Agent, such Notes called for redemption
shall be paid at the Redemption Price if money sufficient for that purpose has
been deposited as provided in Section 3.05 hereof.
Notice of redemption shall be deemed to be given when mailed in the manner
provided in Section 3.03, whether or not the Holder receives the notice. In any
event, failure to give such notice, or any defect therein, shall not affect the
validity of the proceedings for the redemption of the Notes.
SECTION 3.05 DEPOSIT OF REDEMPTION PRICE. Prior to the Redemption Date, the
Company shall deposit with the Paying Agent (or if the Company or a Subsidiary
or an Affiliate of either of them is the Paying Agent, shall segregate and hold
in trust) money sufficient to pay the Redemption Price of all Notes to be
redeemed on that date other than Notes or portions of
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Notes called for redemption which prior thereto have been delivered by the
Company to the Trustee for cancellation.
SECTION 3.06 NOTES REDEEMED IN PART . Upon surrender of a Note that is
redeemed in part, the Company shall execute, and the Trustee shall authenticate
at the expense of the Company and make available for delivery to the Holder, a
new Note in an authorized denomination equal in principal amount to the
unredeemed portion of the Note surrendered.
ARTICLE 4
COVENANTS
---------
SECTION 4.01 PAYMENT OF NOTES . The Company shall pay the principal of,
premium, if any, and interest (including interest accruing on or after the
filing of a petition in bankruptcy or reorganization relating to the Company,
whether or not a claim for post-filing interest is allowed in such proceeding)
on the Notes on (or prior to) the dates and in the manner provided in the Notes
or pursuant to this Indenture. An installment of principal, premium, if any, or
interest shall be considered paid on the applicable date due if on such date the
Trustee or the Paying Agent shall have received before 12:00 noon on such date
and shall then hold, in accordance with this Indenture, money sufficient to pay
all of such installment then due. The Company shall pay all Liquidated Damages,
if any, in the same manner on the dates and in the amounts set forth in the
Registration Rights Agreement. If any Liquidated Damages become payable, the
Company shall not later than three Business Days prior to the date that any
payment of Liquidated Damages is due (i) deliver an Officers' Certificate to the
Trustee setting forth the amount of Liquidated Damages payable to Holders and
(ii) instruct the Paying Agent to pay such amount of Liquidated Damages to
Holders entitled to receive such Liquidated Damages. The Company shall pay
interest on overdue principal and premium, if any, and interest on overdue
installments of interest and Liquidated Damages, if any (including interest
accruing on or after the filing of a petition in bankruptcy or reorganization
relating to the Company whether or not a claim for post-filing interest is
allowed in such proceeding), to the extent lawful, at 2% above the rate per
annum borne by the Notes, which interest on overdue interest shall accrue from
the date such amounts became overdue.
SECTION 4.02 REPORTS.
(1) Whether or not required by the rules and regulations of the SEC,
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 SEC 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
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reports that would be required to be filed with the SEC 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 SEC, the Company will file a
copy of all such information with the SEC for public availability (unless
the SEC will not accept such filing) and make such information available to
investors or prospective investors who request it in writing.
(2) If the Company is not subject to and in compliance with the
informational requirements of Sections 13 or 15(d) of the Exchange Act at
any time while the Notes constitute "restricted securities" within the
meaning of the Securities Act, it will furnish to the Holders of the Notes
and prospective purchasers of the Notes designated by Holders of the Notes,
upon their request, the information required to be delivered pursuant to
Rule 144A(d)(4) under the Securities Act until such time as the Company
either exchanges all of the Notes for the Exchange Notes or has registered
under the Securities Act and continues to maintain a registration statement
with respect to the resale of all of the Notes pursuant to the Registration
Rights Agreement.
(3) Upon qualification of this Indenture under the TIA, the Company
shall also comply with the provisions of TIA [section].314(a).
(4) For so long as any Transfer Restricted Securities remain
outstanding, the Company shall, if it is not subject to and in compliance
with the informational requirements of Section 13 or 15(d) of the Exchange
Act, furnish to all Holders or beneficial owners of Notes and prospective
purchasers of the Notes designated by the Holders of Transfer Restricted
Securities, upon their request, the information required to be delivered
pursuant to Rule 144A(d)(4) under the Securities Act.
(5) The Company shall deliver directly, or shall at its own expense
provide the Trustee with a sufficient number of copies thereof for delivery
at the Company's expense by the Trustee, all reports and other documents
and information that the Company may be required to deliver to the Holders
under this Section 4.02.
SECTION 4.03 COMPLIANCE CERTIFICATES.
(1) The Company shall deliver to the Trustee within 90 days after the
end of each of the Company's fiscal years an Officers' Certificate executed
by Officers of the Company, stating whether or not the signers know of any
Default or Event of Default. Such certificate shall contain a certification
from the principal executive officer, principal financial officer or
principal accounting officer of the Company as to his or her knowledge of
the Company's compliance with all conditions and covenants under this
Indenture. For purposes of this Section 4.03(1), such compliance shall be
determined without regard to any period of grace or requirement of notice
provided under this Indenture. If they do know of such a Default or Event
of Default, the certificate shall describe any such Default or Event of
Default, and its status.
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(2) So long as not contrary to the then current recommendation of the
American Institute of Certified Public Accountants as certified by the
Company to the Trustee in an Officer's Certificate, the Company shall
deliver to the Trustee within 125 days after the end of each fiscal year a
written statement by the Company's independent certified public accountants
stating (a) that their audit examination has included a review of the terms
of this Indenture and the Notes as they relate to accounting matters, and
(b) whether, in connection with their audit examination, any Default has
come to their attention and, if such a Default has come to their attention,
specifying the nature and period of the existence thereof; PROVIDED,
HOWEVER, that the independent certified public accountants delivering such
statement shall not be liable in respect of such statement by reason of any
failure to obtain knowledge of any such Default or Event of Default that
would not be disclosed in the course of an audit examination conducted in
accordance with GAAP.
(3) The Company shall deliver to the Trustee as soon as possible and
in any event within 15 days after the Company becomes aware of the
occurrence of each Default or Event of Default, which is continuing, an
Officers' Certificate setting forth the details of such Default or Event of
Default, and the action which the Company proposes to take with respect
thereto.
SECTION 4.04 FURTHER INSTRUMENTS AND ACTS. Upon request of the Trustee, the
Company shall execute and deliver such further instruments and do such further
acts as may be reasonably necessary or proper to carry out more effectively the
purposes of this Indenture.
SECTION 4.05 MAINTENANCE OF OFFICE OR AGENCY. The Company will maintain or
cause to be maintained an office or agency of the Trustee, Registrar and Paying
Agent where Notes may be presented or surrendered for payment, where Notes may
be surrendered for registration of transfer, exchange or redemption and where
notices and demands to or upon the Company in respect of the Notes and this
Indenture may be served. The corporate trust office of the Trustee at the
address specified in Section 10.02 hereof shall initially be such office or
agency for all of the aforesaid purposes. The Company shall give prompt written
notice to the Trustee of any change of location of such office or agency. If at
any time the Company shall fail to maintain or cause to be maintained any such
required office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the address of the Trustee set forth in Section 10.02 hereof.
The Company may also from time to time designate one or more other offices
or agencies where the Notes may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations. The Company will
give prompt written notice to the Trustee of any such designation or rescission
and of any change in location of any such other office or agency.
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SECTION 4.06 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 this Indenture); or (iv) make
any Investment other than Permitted Investments (each such action described in
any of clauses (i) through (iv) above being referred to as a "Restricted
Payment"), if, at the time of such Restricted Payment,
(1) a Default or Event of Default shall have occurred and be
continuing or shall occur as a consequence thereof;
(2) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments declared or made on or after the issue date of
the Notes (including, without duplication, Restricted Payments described in
the next succeeding paragraph), exceeds the sum of (A) 50% of the
cumulative Consolidated Net Income of the Company for the period commencing
on January 1, 1997 through the last day of the fiscal quarter immediately
preceding the date of such proposed Restricted Payment (provided that if
the amount of such cumulative Consolidated Net Income divided by the number
of full fiscal quarters of the Company in the applicable period exceeds
$5,250,000, then such amount shall equal (i) 50% of the product of
$5,250,000 multiplied by the number of full fiscal quarters in such period
plus (ii) 75% of the amount in excess of the product of $5,250,000
multiplied by the number of full fiscal quarters in such period) (or, if
the cumulative Consolidated Net Income of the Company shall be a deficit,
minus 100% of such deficit); (B) the aggregate net cash proceeds, and the
Fair Market Value of any property other than cash, if any, received by the
Company (other than from a Restricted Subsidiary of the Company) from the
issuance and sale of either Capital Stock of the Company (other than
Redeemable Stock or any Capital Stock convertible into any security other
than such Capital Stock) or Indebtedness that is convertible into Capital
Stock of the Company (other than Redeemable Stock or any Capital Stock
convertible into any security other than such Capital Stock), to the extent
such Indebtedness is actually converted into such Capital Stock; (C) an
amount equal to any cash and the Fair Market Value (at the time of receipt)
of other assets received by the Company or any of its Restricted
Subsidiaries after the date of the issuance of the Notes as a dividend or
other distribution from any Unrestricted Subsidiary; (D) the Fair
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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 this 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 Section 4.07 hereof.
The foregoing provisions shall not prohibit, so long as no Default or Event
of Default shall have occurred and be continuing or shall occur as a consequence
thereof, (i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment would have
complied with the provisions of this Indenture; (ii) the declaration and payment
by a Restricted Subsidiary of the Company which is required to file periodic
reports under Section 13 or 15(d) of the Exchange Act (a "Reporting Subsidiary")
of dividends on its common stock to all holders of such common stock on a pro
rata basis out of funds legally available for the payment of dividends, provided
that the amount of such dividends in any fiscal year of such Reporting
Subsidiary shall not exceed 25% of the Consolidated Net Income of such Reporting
Subsidiary for the immediately preceding fiscal year; (iii) the purchase,
redemption, acquisition, cancellation or other retirement for value of shares of
Capital Stock of the Company, options to purchase such shares or related stock
appreciation rights or similar securities held by current or former officers,
employees or directors (or their estates or beneficiaries under their estates)
of the Company or any Restricted Subsidiary; provided that the aggregate
consideration paid for such purchase, redemption, cancellation or other
retirement after the date hereof does not exceed $2,500,000 in the aggregate in
any fiscal year of the Company; (iv) the prepayment, repayment, purchase,
repurchase, redemption, defeasance or other acquisition or retirement for value
of any or all of the 9 7/8% Notes at any time within one year of the scheduled
maturity date thereof; and (v) the redemption, repurchase, defeasance or other
acquisition or retirement for value of Indebtedness of the Company that is
subordinated in right of payment to the Notes in exchange for, or out of the
proceeds of a substantially concurrent offering of, shares of Capital Stock of
the Company (other than Redeemable Stock or any Capital Stock convertible into
any security other than such Capital Stock).
SECTION 4.07 LIMITATION ON ADDITIONAL INDEBTEDNESS. The Company shall not,
and shall not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, issue, assume, guarantee or otherwise become directly
or indirectly liable with respect to (each, an "incurrence") any Indebtedness,
including, without limitation, Acquired Indebtedness; provided, however, that
the Company may incur Indebtedness if (i) no Default or Event of Default shall
have occurred and be continuing at the time or after giving effect to the
incurrence of such Indebtedness and (ii) the Consolidated Cash Flow Coverage
Ratio of the Company for the four full fiscal quarters ending immediately prior
to the date of the incurrence of such additional Indebtedness is at least 2.0 to
1.0.
The foregoing limitations set forth in this Section 4.07 shall not apply,
without duplication, to:
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(i) Existing Indebtedness;
(ii) Indebtedness of (a) the Company represented by the Notes and
this 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
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is contractually subordinated in right of payment to the Notes, or
Indebtedness of any Subsidiary of the Company that is a Restricted
Subsidiary to the Company or to any other Wholly-Owned Subsidiary of
the Company that is a Restricted Subsidiary, PROVIDED that any such
Indebtedness incurred by a Subsidiary Guarantor is contractually
subordinated in right of payment to its guarantee of the Notes;
PROVIDED further that if the Company or any of its Restricted
Subsidiaries incurs Indebtedness to a Wholly-Owned Subsidiary of the
Company that is a Restricted Subsidiary which, at any time after such
incurrence, ceases to be a Wholly-Owned Subsidiary or ceases to be a
Restricted Subsidiary, then all such Indebtedness in excess of the
amount of Allowable Subsidiary Loans shall be deemed to have been
incurred at the time such former Wholly-Owned Subsidiary ceases to be
a Wholly-Owned Subsidiary of the Company or ceases to be a Restricted
Subsidiary;
(vii) Indebtedness of a Restricted Subsidiary under a guaranty of
Indebtedness of the Company (other than the Notes) which causes such
Restricted Subsidiary to become a Subsidiary Guarantor pursuant to the
provisions of Section 4.14 hereof;
(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 this Indenture and the notional
principal amount of the obligations of the Company and its Restricted
Subsidiaries under such Interest Rate Agreements does not exceed the
principal amount of such Indebtedness, and (b) in the case of Currency
Agreements that relate to other Indebtedness, such Currency Agreements
do not increase the Indebtedness of the Company and its Restricted
Subsidiaries outstanding at any time other than as a result of
fluctuations in foreign currency exchange rates or by reason of fees,
indemnities and compensation payable thereunder;
(ix) Indebtedness of the Company and its Restricted Subsidiaries
incurred in the ordinary course of business under guaranties of
Indebtedness of suppliers, licensees, franchisees or customers;
(x) Indebtedness incurred by the Company and its Restricted
Subsidiaries consisting of Purchase Money Obligations and Capital
Lease Obligations not exceeding at any time $30,000,000 in aggregate
outstanding principal amount;
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(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 Section 4.07, 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 this 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 Section 4.07
(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 Section 4.07 (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 Section 4.09; and
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(xvii) Indebtedness ("Refinancing Indebtedness") created,
incurred, issued, assumed or guaranteed in exchange for, or the
proceeds of which are used to extend, refinance, renew, replace,
substitute or refund ("refinance"), Indebtedness described in the
preceding paragraph or referred to in clauses (i) through (xv) above;
PROVIDED, HOWEVER, that (a) the principal amount of such Refinancing
Indebtedness (or if such Refinancing Indebtedness is issued at a price
less than the principal amount thereof, the original issue amount of
such Refinancing Indebtedness), together with the principal amount of
any remaining Indebtedness under the agreement or instrument governing
the Indebtedness being refinanced, (1) in the case of Refinancing
Indebtedness incurred to refinance Indebtedness permitted to be
incurred under any of clauses (iii) through (v) and (xv) above, shall
not, when added to all other Indebtedness outstanding under such
clause, exceed the aggregate amount of Indebtedness permitted to be
incurred under such clause, and (2) in the case of Refinancing
Indebtedness incurred to refinance Indebtedness permitted to be
incurred under any of clauses (i), (ii) and (vi) through (xiv) above,
shall not exceed the aggregate amount of such Indebtedness outstanding
at the time of such refinancing, in each case, after giving effect to
any mandatory reductions in principal or other repayments required
under the agreement or instrument governing such Indebtedness; (b)
such Refinancing Indebtedness shall be subordinated in right of
payment to the Notes or the Subsidiary Guaranties at least to the same
extent as the Indebtedness to be refinanced; (c) such Refinancing
Indebtedness shall have an Average Life and Stated Maturity equal to,
or greater than, the Average Life and Stated Maturity of the
Indebtedness to be refinanced at the time of such incurrence; (d) the
proceeds of such Refinancing Indebtedness, if incurred by a Restricted
Subsidiary of the Company, shall not be used to refinance Indebtedness
of the Company or another Subsidiary of the Company; and (e) the
incurrence of any such Refinancing Indebtedness is substantially
simultaneous with the refinancing of the Indebtedness to be
refinanced.
For purposes of this Section 4.07, the accretion of original issue discount
on Indebtedness shall not be deemed to be an incurrence of Indebtedness.
The Company will not, directly or indirectly, incur any Indebtedness that
is expressly subordinated to any other Indebtedness of the Company or any
Restricted Subsidiary unless such Indebtedness is also expressly subordinated to
the Notes (and any Subsidiary Guaranty, as applicable) to the same extent and in
the same manner as such Indebtedness is subordinated to such other Indebtedness
of the Company or such Restricted Subsidiary.
SECTION 4.08 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
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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 (other
than to the issuer of such preferred stock, the Company or another Wholly-Owned
Subsidiary of the Company that is a Restricted Subsidiary).
SECTION 4.09 LIMITATION ON LIENS. The Company shall not, and shall not
permit any Restricted Subsidiary to, directly or indirectly, create, incur,
assume or suffer to exist any Lien on any Principal Property or on any shares of
Capital Stock of any Restricted Subsidiary of the Company held by the Company or
any other Restricted Subsidiary of the Company or on any Indebtedness owed by
any Restricted Subsidiary to the Company or any other Restricted Subsidiary of
the Company.
The foregoing limitation does not apply to:
(i) Liens securing obligations under the Notes;
(ii) Liens securing obligations under the Company Credit Facility
or the Ply Gem Credit Facility (but such Liens shall not secure
Indebtedness in excess of the amount of Indebtedness then permitted to
be incurred under clause (iii) of the second paragraph of Section 4.07
plus the amount of any Indebtedness then outstanding pursuant to such
clause (iii));
(iii) other Liens existing on the Closing Date;
(iv) Liens with respect to the assets of a Restricted Subsidiary
granted by such Restricted Subsidiary to the Company or a Restricted
Subsidiary that is a Wholly-Owned Subsidiary of the Company to secure
Indebtedness owing to the Company or such Wholly-Owned Subsidiary by
such Restricted Subsidiary;
(v) Liens permitted by clauses (iv), (v), (x) and (xiv) of
Section 4.07;
(vi) Liens in respect of Indebtedness permitted by clause (xiii)
of Section 4.07;
(vii) Liens granted in connection with the extension, renewal or
refinancing, in whole or in part, of any Indebtedness under the Notes
or described in clause (iii) above; provided that (1) such new
Indebtedness is permitted to be incurred under Section 4.07 and (2)
the amount of
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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
(viii) Permitted Liens.
SECTION 4.10 LIMITATION ON CERTAIN RESTRICTIONS AFFECTING SUBSIDIARIES. The
Company shall not, and shall not permit any of its Restricted Subsidiaries to,
directly or indirectly, create or enter into or otherwise cause or permit to
exist or become effective any agreement with any Person that would cause any
consensual encumbrance or restriction on the ability of any such Restricted
Subsidiary to (i) pay dividends or make any other distributions on its Capital
Stock or any other interest or participation in, or measured by, its profits,
owned by the Company or any of its Restricted Subsidiaries, (ii) pay or repay
any Indebtedness owed to the Company or any of its Restricted Subsidiaries which
owns Equity Interests in such Restricted Subsidiary, (iii) make loans or
advances to the Company or any of its Restricted Subsidiaries which owns Equity
Interests in such Restricted Subsidiary, (iv) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries which owns Equity
Interests in such Restricted Subsidiary or (v) guarantee any Indebtedness of the
Company or any other Restricted Subsidiary of the Company except, in each case,
for such encumbrances or restrictions existing under or by reason of (a)
applicable law, (b) the Indenture, (c) customary nonassignment provisions of any
lease governing a leasehold interest of the Company or any of its Restricted
Subsidiaries, (d) any instrument governing Indebtedness of a Person acquired by
the Company or any of its Restricted Subsidiaries at the time of such
acquisition, which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person so acquired,
(e) agreements existing as of the issue date of the Notes, (f) the Company
Credit Facility, (g) the Ply Gem Credit Facility, (h) the Broan Limited Credit
Facility, (i) any other agreement pursuant to which any Restricted Subsidiary of
the Company incurs Indebtedness in accordance with Section 4.07 and (j) any
agreement effecting a refinancing of Indebtedness issued pursuant to any
agreement or instrument referred to in clause (d), (e), (f), (g), (h) or (i)
above, PROVIDED that the terms and conditions of any such encumbrances and
restrictions are not materially less favorable to the Holders than those under
the agreement or instrument evidencing the Indebtedness being refinanced.
The foregoing shall not restrict the ability of any Restricted Subsidiary
of the Company to grant any Lien to the extent otherwise permitted in this
Indenture.
SECTION 4.11 REPURCHASE UPON 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
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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 this Section 4.11 of this 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
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.
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 this Indenture), and
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the holders of the Company's common stock outstanding immediately
prior to such consolidation, merger, sale, lease or other
transfer or conveyance or one or more Exempt Persons do not hold,
directly or indirectly, at least a majority of the common stock
of the continuing or surviving corporation immediately after such
consolidation or merger or at least a majority of the Equity
Interests of such Person;
(ii) there is filed a report on Schedule 13D or 14D-1 (or
any successor schedule, form or report) pursuant to the Exchange
Act disclosing that any person (defined, solely for the purposes
of the Change of Control provision, as the term "person" is used
in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act or
any successor provision to either of the foregoing) has become
the beneficial owner (as the term "beneficial owner" is defined
under Rule 13d-3 or any successor rule or regulation promulgated
under the Exchange Act) of 50% or more of the combined voting
power of all the Company's then outstanding securities entitled
to vote generally for the election of directors; PROVIDED,
HOWEVER, that a person shall not be deemed to be the beneficial
owner of, or to own beneficially, (A) any securities tendered
pursuant to a tender or exchange offer made by or on behalf of
such person or any of such person's Affiliates or associates
until such tendered securities are accepted for purchase or
exchange thereunder, or (B) any securities if such beneficial
ownership (1) arises solely as a result of a revocable proxy
delivered in response to a proxy or consent solicitation made
pursuant to the applicable rules and regulations under the
Exchange Act, and (2) is not also then reportable on Schedule 13D
(or any successor schedule) under the Exchange Act; or
(iii) during any consecutive two-year period, individuals
who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose
election by such Board of Directors or whose nomination for
election by the stockholders of the Company was approved by a
vote of 66 2/3% of the directors then still in office who were
either directors at the beginning of such period or whose
election or nomination for election was previously so approved)
cease for any reason to constitute a majority of the Board of
Directors of the Company then in office.
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
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becoming obligated to file a report on Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report) under the Exchange Act disclosing beneficial
ownership by it of securities of the Company, whether equal to or greater than
50% of the combined voting power of the Company's then outstanding securities
entitled to vote generally for the election of directors or otherwise.
SECTION 4.12 LIMITATION ON USE OF PROCEEDS FROM ASSET SALES . The Company
shall not, and shall not permit any of its Restricted Subsidiaries to, directly
or indirectly, consummate any Asset Sale unless (i) the Company or such
Restricted Subsidiary, as the case may be, receives consideration at the time of
any such Asset Sale having a value (including the Fair Market Value of any
non-cash consideration) at least equal to the Fair Market Value of the
securities or assets being sold or otherwise disposed of, and (ii) at least 75%
of the consideration from such Asset Sale is received in the form of cash, Cash
Equivalents (together with cash, "Cash Proceeds") or indebtedness for borrowed
money of the Company or such Restricted Subsidiary that is assumed by the
transferee of any such assets or any such indebtedness of any Restricted
Subsidiary of the Company whose stock is purchased by the transferee. Any Net
Cash Proceeds (a) in excess of the amount of cash applied by the Company or any
Restricted Subsidiary of the Company during the period beginning 12 months prior
to the date of the Asset Sale (but not prior to the issue date of the Notes) and
ending 12 months after the date of such Asset Sale to purchase any business that
is, or any properties and assets used primarily in, the same or a related
business as those owned and operated by the Company and its Subsidiaries as of
the issue date of the Notes or at the date of such Asset Sale and (b) not
applied within 12 months after the date of the Asset Sale to reduce Indebtedness
of the Company (other than Indebtedness which is subordinated by its terms to
the Notes) or any Restricted Subsidiary shall be deemed to be "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $15,000,000, the Company
shall make an offer (the "Excess Proceeds Offer") to apply the Excess Proceeds
to purchase the Notes. The Excess Proceeds Offer must be in cash in an amount
equal to 100% of the principal amount plus accrued and unpaid interest, if any,
thereon and Liquidated Damages, if any, to the date fixed for the closing of
such offer, substantially in accordance with the procedures for a Change of
Control Offer described in Section 4.11. 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.
SECTION 4.13 LIMITATION ON TRANSACTIONS WITH AFFILIATES . Except as
otherwise permitted by this 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
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Company or such Restricted Subsidiary based on all relevant facts and
circumstances; (ii) such transaction or series of transactions is fair to the
Company or such Restricted Subsidiary and on terms that are no less favorable to
the Company or such Restricted Subsidiary, as the case may be, than those that
could have been obtained in a comparable transaction on an arms' length basis
from a Person that is not an Affiliate of the Company or any of its Restricted
Subsidiaries; and (iii) (a) with respect to a transaction or series of related
transactions involving aggregate payments in excess of $2,500,000, the Board of
Directors and a majority of the Disinterested Directors shall approve such
transaction or series of transactions by a Board Resolution evidencing their
determination that such transaction or series of transactions complies with
clauses (i) and (ii) above, and (b) with respect to a transaction or series of
transactions involving aggregate payments equal to or greater than $10,000,000,
the Company receives a written opinion from a nationally recognized investment
bank or valuation firm or, with respect to a transaction requiring the valuation
of real property, a nationally recognized real estate appraisal firm, that such
transaction or series of transactions is fair to the Company from a financial
point of view.
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 its Restricted
Subsidiaries (other than the Company or a Wholly-Owned Subsidiary of the
Company).
SECTION 4.14 LIMITATION ON GUARANTIES BY SUBSIDIARIES. The Company shall
not permit any Restricted Subsidiary of the Company, directly or indirectly, to
assume, guarantee or in any other manner become liable with respect to any
Indebtedness of the Company (excluding for this purpose, any Indebtedness deemed
to arise from a guarantee by the Company of Indebtedness of any Restricted
Subsidiary of the Company) or any Subsidiary Guarantor (other than the Notes),
unless (a) such liability is in respect of the Company Credit Facility or the
Ply Gem Credit Facility or (b) such Restricted Subsidiary is a Subsidiary
Guarantor or simultaneously executes and delivers (i) to the Company and the
Trustee a supplemental indenture to this Indenture providing for a Subsidiary
Guaranty of the Notes by such Restricted Subsidiary and any other Subsidiary
Guarantors by adding an Article 11 to this Indenture, in the form of Exhibit E
hereto and (ii) to the Trustee a Subsidiary Guaranty substantially in the form
of Exhibit F hereto.
No Lien on the properties or assets of any Restricted Subsidiary of the
Company permitted by Section 4.09 shall constitute a guaranty of the payment of
any Indebtedness of the Company for purposes of this Section 4.14.
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The provisions of this Section 4.14 and any supplemental indenture referred
to in this Section 4.14 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 Section 4.15 in the indenture governing the Company's 9 7/8% Notes
and Section 4.14 in the indenture governing the Company's 9 1/4% Notes shall
cease to have further force and effect (whether by reason of amendment,
redemption or repayment of such Indebtedness or otherwise), PROVIDED, HOWEVER,
that if the instrument or other agreement governing any Indebtedness incurred to
refinance the 9 7/8% Notes or the 9 1/4% Notes includes such a covenant similar
to Section 4.15 of the indenture governing the 9 7/8% Notes or Section 4.14 in
the indenture governing the 9 1/4% Notes, the provisions of this Section 4.14
and any supplemental indenture referred to in this Section 4.14 shall continue
in full force and effect for so long as such similar covenant remains in force
and effect.
SECTION 4.15 PAYMENT OF TAXES AND OTHER CLAIMS. The Company shall pay or
discharge or cause to be paid or discharged, before any penalty accrues thereon,
(i) all material taxes, assessments and governmental charges levied or imposed
upon the Company or any of its Subsidiaries upon the income, profits or property
of the Company or any of its Subsidiaries and (ii) all material lawful claims
for labor, materials and supplies which, if unpaid, would by law become a Lien
upon the property of the Company or any of its Subsidiaries; provided that none
of the Company or any of its Subsidiaries shall be required to pay or discharge
or cause to be paid or discharged any such tax, assessment, charge or claims the
amount, applicability or validity of which is being contested in good faith by
appropriate proceedings and for which adequate provision has been made or where
the failure to effect such payment or discharge is not adverse in any material
respect to the Holders.
SECTION 4.16 CORPORATE EXISTENCE. Subject to Article 5 hereof, the Company
will do or cause to be done all things necessary to preserve and keep in full
force and effect its corporate existence and the corporate, partnership or other
existence of any of its Subsidiaries in accordance with the respective
organizational documents of such Subsidiary and the rights (charter and
statutory), licenses and franchises of the Company and its Subsidiaries;
PROVIDED, HOWEVER, that the Company shall not be required to preserve any such
right, license or franchise, or the corporate, partnership or other existence of
any such Subsidiary, if the Board of Directors of the Company shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and its Subsidiaries taken as a whole and that the loss
thereof is not adverse in any material respect to the Holders.
SECTION 4.17 MAINTENANCE OF PROPERTIES AND INSURANCE. The Company shall
cause all material properties owned by or leased to it or any of its
Subsidiaries and used or useful in the conduct of its business or the business
of such Subsidiary to be maintained and kept in normal condition, repair and
working order and supplied with all necessary equipment and shall cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided,
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however, that nothing in this Section 4.17 shall prevent the Company or any of
its Subsidiaries from discontinuing the maintenance of any such properties, if
such discontinuance is desirable in the conduct of its business or the business
of such Subsidiary
The Company shall provide or cause to be provided, for itself and any of
its Subsidiaries, insurance (including appropriate self-insurance) against loss
or damage of the kinds customarily insured against by corporations similarly
situated and owning like properties, including, but not limited to, public
liability insurance, with reputable insurers in such amounts with such
deductibles and by such methods as shall be customary for corporations similarly
situated in the industry.
SECTION 4.18 STAY, EXTENSION AND USURY LAWS. The Company covenants (to the
extent it may lawfully do so) that it will not at any time insist upon, plead,
or in any manner whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law wherever enacted, now or at any time hereafter in force,
which may affect the covenants or the performance of this Indenture; and the
Company (to the extent it may lawfully do so) hereby expressly waives all
benefit or advantage of any such law, and covenants that it will not resort to
any such law that would hinder, delay or impede the execution of any power
herein granted to the Trustee, but will suffer and permit the execution of every
such power as though no such law has been enacted.
SECTION 4.19 INVESTMENT COMPANY ACT. The Company shall not become an
investment company subject to registration under the Investment Company Act of
1940, as amended.
SECTION 4.20 PAYMENTS FOR CONSENTS. The Company shall not, and shall not
permit any of its Subsidiaries to, directly or indirectly, pay or cause to be
paid any consideration whether by way of interest, fee or otherwise, to any
Holder of any Notes for or as an inducement to any consent, waiver or amendment
of any of the terms or provisions of this 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.
SECTION 4.21 COVENANT TO COMPLY WITH SECURITIES LAWS UPON PURCHASE OF
NOTES. In connection with any offer to purchase or purchase of Notes under
Section 4.11 or 4.12 hereof, the Company shall (i) comply with Rule 14e-1 under
the Exchange Act, and (ii) otherwise comply with all Federal and state
securities laws so as to permit the rights and obligations under Sections 4.11
and 4.12 hereof to be exercised in the time and in the manner specified in
Sections 4.11 and 4.12 hereof.
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ARTICLE 5
SUCCESSOR CORPORATION
---------------------
SECTION 5.01 WHEN THE COMPANY MAY MERGE OR TRANSFER ASSETS, ETC.
(a) The Company shall not consolidate with, merge with or into, or
transfer all or substantially all of its assets (as an entirety or
substantially as an entirety in one transaction or a series of related
transactions) to, any Person or permit any Person to merge with or into it,
or permit any of its Subsidiaries to enter into any such transaction or
transactions if such transaction or transactions in the aggregate would
result in a transfer of all or substantially all of the assets of the
Company and its Subsidiaries on a consolidated basis, unless:
(1) the Company shall be the continuing Person, or the Person, if
other than the Company, formed by such consolidation or into which the
Company is merged or to which the properties and assets of the Company or
of the Company and its Subsidiaries on a consolidated basis, substantially
as an entirety, are transferred shall be a corporation organized and
existing under the laws of the United States or any state thereof or the
District of Columbia and shall expressly assume, by an indenture
supplemental to this Indenture, executed and delivered to the Trustee, in
form satisfactory to the Trustee, all the obligations of the Company under
the Notes and this Indenture, and this Indenture remains in full force and
effect;
(2) immediately before and immediately after giving effect to such
transaction, no Event of Default and no Default shall have occurred and be
continuing;
(3) the Person which is formed by or survives such consolidation or
merger or to which such assets are transferred (the "surviving entity"),
after giving pro forma effect to such transaction, could incur $1.00 of
additional Indebtedness under the first paragraph of Section 4.07 hereof;
(4) immediately after giving effect to such transaction on a pro forma
basis the Consolidated Net Worth of the surviving entity shall be equal to
or greater than the Consolidated Net Worth of the Company immediately
before such transaction; and
(5) each Subsidiary Guarantor, if any, unless it is the other party to
the applicable transaction described above or its Subsidiary Guaranty,
after giving effect to such transaction, is to be released in accordance
with the terms hereof and of such Subsidiary Guaranty, shall have confirmed
by supplemental indenture that its Subsidiary Guaranty shall apply to the
obligations of the Company or the surviving entity under this Indenture.
In connection with any such consolidation, merger or transfer, the Company
shall deliver, or cause to be delivered, to the Trustee, in form and substance
reasonably satisfactory to the
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Trustee, an Officers' Certificate and an Opinion of Counsel, each stating that
such consolidation, merger or transfer and the supplemental indenture in respect
thereto comply with this Section 5.01(a) and that all conditions precedent
provided for relating to such transactions have been complied with.
(b) A Subsidiary Guarantor shall not, and the Company shall not permit
a Subsidiary Guarantor to, consolidate with, or merge with or into, any
Person unless its Subsidiary Guaranty, after giving effect to such merger
or consolidation, is to be released in accordance with the terms hereof and
of such Subsidiary Guaranty or:
(1) such Subsidiary Guarantor or the Company shall be the
continuing person or the resulting or surviving person in such
transaction ("the surviving entity") or the surviving entity shall be
a corporation organized and existing under the laws of the United
States or any state thereof or the District of Columbia and shall
expressly assume, by a supplemental indenture executed and delivered
to the Trustee, in form and substance reasonably satisfactory to the
Trustee, all of the obligations of such Subsidiary Guarantor under
this Indenture, as modified by such supplemental indenture, and its
Subsidiary Guaranty; and
(2) immediately before and immediately after giving effect to
such merger or consolidation, no Event of Default and no Default shall
have occurred and be continuing.
In connection with any such consolidation or merger, the Company
shall deliver, or caused to be delivered, to the Trustee, in form and
substance reasonably satisfactory to the Trustee, an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation or merger, and if a supplemental indenture is required
in connection with such transaction, such supplemental indenture
comply with this Section 5.01(b) and that all conditions precedent
provided for in this Indenture relating to such transaction have been
complied with.
SECTION 5.02 SUCCESSOR CORPORATION SUBSTITUTED. Upon any consolidation or
merger, or any transfer of all or substantially all of the assets of the Company
and its Subsidiaries on a consolidated basis, in accordance with Section 5.01
hereof, the successor Person formed by such consolidation or into which the
Company or any Subsidiary Guarantor, as the case may be, is merged or the
successor Person to which such transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company or such
Subsidiary Guarantor, as the case may be, under this Indenture and, in the case
of such Subsidiary Guarantor, under such Subsidiary Guaranty, with the same
effect as if such successor Person had been named as the Company in this
Indenture or as such Subsidiary Guarantor in this Indenture and such Subsidiary
Guaranty, as the case may be, and when a successor Person assumes all the
obligations of its predecessor under this Indenture, the Notes or a Subsidiary
Guaranty, the predecessor shall be released from those obligations; provided,
however, that in the case of a transfer by lease, the
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predecessor shall not be released from the payment of principal of, premium, if
any, interest and Liquidated Damages, if any, on the Notes.
ARTICLE 6
DEFAULTS AND REMEDIES
---------------------
SECTION 6.01 EVENTS OF DEFAULT. An "Event of Default" occurs if one of the
following shall have occurred and be continuing:
(1) the Company defaults in the payment, when due and payable, of (i)
interest on or Liquidated Damages, if any, with respect to any Note and the
default continues for a period of 30 days, or (ii) principal of or premium,
if any, on any Notes when the same becomes due and payable at maturity, by
acceleration, on the Redemption Date, on the Change of Control Payment
Date, on any payment date respecting an Excess Proceeds Offer or otherwise;
(2) the Company fails to comply with any of its covenants or
agreements under Article 5 hereof.
(3) the Company fails to comply with any of its covenants or
agreements in the Notes or this Indenture (other than those referred to in
clause (1) or (2) above), or any Subsidiary Guarantor fails to comply with
any of its covenants or agreements in this Indenture or its Subsidiary
Guaranty, and 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;
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(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) in each case the order or decree remains unstayed and in
effect for 60 days;
(7) final judgments for the payment of money which in the aggregate
exceed $15,000,000 shall be rendered against the Company or any of its
Restricted Subsidiaries by a court and shall remain unstayed or
undischarged for a period of 60 days; or
(8) any Subsidiary Guaranty ceases to be in full force and effect or
is declared null and void, or any Subsidiary Guarantor denies that it has
any further liability under any Subsidiary Guaranty or gives notice to such
effect (in each case other than by reason of the termination of this
Indenture or the release of such Subsidiary Guaranty in accordance with the
terms of this Indenture and such Subsidiary Guaranty) and such condition
shall have continued for the period and after receipt by the Company of the
notice specified below.
"Bankruptcy Law" means Title 11, United States Code, or any similar Federal
or state law for the relief of debtors. "Custodian" means any receiver, trustee,
assignee, liquidator, sequestrator, custodian or similar official under any
Bankruptcy Law.
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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 Section 4.11) 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 this 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
Section 4.11 hereof occurring by reason of any willful action (or inaction)
taken (or not taken) by or on behalf of the Company with the intention of
avoiding payment of the premium which the Company would have to pay pursuant to
Section 4.11, 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 Section 6.02 hereof to the extent permitted by law, anything in this
Indenture or in the Notes contained to the contrary notwithstanding.
SECTION 6.02 ACCELERATION. If any Event of Default (other than an Event of
Default specified in clause (5) or (6) of Section 6.01 hereof) occurs and is
continuing, the Trustee may, by Notice to the Company, or the Holders of at
least 25% in aggregate principal amount of the Notes then outstanding, by notice
to the Company and the Trustee, and the Trustee shall, upon the request of such
Holders, declare the unpaid principal, premium, if any, and accrued interest on
and Liquidated Damages, if any, with respect to, the Notes to be due and payable
immediately. If any Event or Default under clause (5) or (6) of Section 6.01
hereof occurs, all unpaid principal, premium, if any, 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 aggregate principal amount of the Notes then outstanding by written
notice to the Trustee and to the Company may rescind an acceleration and its
consequences (except an acceleration due to a default in payment of 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, that has become due solely because of the
acceleration.
SECTION 6.03 OTHER REMEDIES. If any Event of Default occurs and is
continuing, the Trustee may pursue any available remedy by proceeding at law or
in equity to collect the payment of principal of, premium, if any, or interest
on the Notes or to enforce the performance of any provision of the Notes or this
Indenture.
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The Trustee may maintain a proceeding even if the Trustee does not possess
any of the Notes or does not produce any of the Notes in the proceeding. A delay
or omission by the Trustee or any Holder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of, or acquiescence in, the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
SECTION 6.04 WAIVER OF PAST DEFAULTS. The Holders of not less than a
majority in aggregate principal amount of the Notes at the time outstanding, by
notice to the Trustee (and without notice to any other Holder), may waive an
existing Default or Event of Default and its consequences except (i) an Event of
Default described in Section 6.01(1) hereof, or (ii) a Default in respect of a
provision that under Section 9.02 hereof cannot be amended without the consent
of each Holder affected. When a Default or Event of Default is waived, it is
deemed cured and shall cease to exist, but no such wavier shall extend to any
subsequent or other Default or Event of Default or impair any consequent right.
SECTION 6.05 CONTROL BY MAJORITY. The Holders of not less than a majority
in aggregate principal amount of the Notes at the time outstanding may direct,
by an instrument or concurrent instruments in writing delivered to the Trustee,
the time, method and place of conducting any proceeding for any remedy available
to the Trustee or of exercising any trust or power conferred on the Trustee.
However, the Trustee may refuse to follow any direction that conflicts with law
or this Indenture or that the Trustee determines in good faith is unduly
prejudicial to the rights of other Holders or would involve the Trustee in
personal liability. Subject to the provisions of Section 315 of the TIA, the
Trustee may take any other action deemed proper by the Trustee which is not
inconsistent with such direction.
SECTION 6.06 LIMITATION ON SUITS. Except as provided in Section 6.07
hereof, a Holder may not pursue any remedy with respect to this Indenture or the
Notes unless:
(1) the Holder gives to the Trustee written notice stating that an
Event of Default is continuing;
(2) the Holders of at least 25% in aggregate principal amount of the
Notes at the time outstanding make a written request to the Trustee to
pursue the remedy;
(3) such Holder or Holders offer to the Trustee reasonable security or
indemnity against any loss, liability or expense satisfactory to the
Trustee;
(4) the Trustee does not comply with the request within 30 days after
receipt of the notice, the request and the offer of security or indemnity;
and
(5) the Holders of a majority in aggregate principal amount of the
Notes at the time outstanding do not give the Trustee a direction
inconsistent with the request during such 30-day period.
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A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over any other Holder.
SECTION 6.07 RIGHTS OF HOLDERS TO RECEIVE PAYMENT. Notwithstanding any
other provision of this Indenture, the right of any Holder to receive payment of
the principal amount, premium, if any, or interest, or Liquidated Damages, if
any, in respect of the Notes held by such Holder, on or after the respective due
dates expressed in the Notes, any Redemption Date, any Change in Control Payment
Date or any payment date respecting an Excess Proceeds Offer, or to bring suit
for the enforcement of any such payment on or after such respective dates shall
not be impaired or affected adversely without the consent of each such Holder.
SECTION 6.08 COLLECTION SUIT BY TRUSTEE. If an Event of Default described
in Section 6.01(1) hereof occurs and is continuing, the Trustee may recover
judgment in its own name and as trustee of an express trust against the Company
or any other obligor on the Notes for the whole amount owing with respect to the
Notes and the amounts provided for in Section 7.07 hereof.
SECTION 6.09 TRUSTEE MAY FILE PROOFS OF CLAIM. In case of the pendency of
any receivership, insolvency, liquidation, bankruptcy, reorganization,
arrangement, adjustment, composition or other judicial proceeding relative to
the Company or the property of the Company or to any other obligor on the Notes
or the property of such obligor, the Trustee shall be entitled and empowered, by
intervention in such proceeding or otherwise:
(1) to file and prove a claim for the whole amount of the principal
amount, premium, if any, and interest on the Notes and to file such other
papers or documents and to take other actions, including participating as a
member of any committee of creditors, as it may deem necessary or advisable
in order to have the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) and of the Holders allowed in such
judicial proceeding; and
(2) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian or other official in any such judicial proceeding is hereby
authorized by each Holder to make such payments to the Trustee and, in the event
that the Trustee shall consent to the making of such payments directly to the
Holders, to pay the Trustee any amount due it for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.07 hereof.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment
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or composition affecting the Notes or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 6.10 PRIORITIES. If the Trustee collects any money pursuant to this
Article 6, it shall pay out the money in the following order:
FIRST: to the Trustee for amounts due under Section 7.07 hereof;
SECOND: to Holders for amounts due and unpaid on the Notes for the
principal amount, premium, if any, interest, if any, and Liquidated Damages, if
any, as the case may be, ratably, without preference or priority of any kind,
according to such amounts due and payable on the Notes; and
THIRD: the balance, if any, to the Company or to the Person or Persons
otherwise entitled thereto.
The Trustee may fix a record date and payment date for any payment to
Holders pursuant to this Section 6.10.
SECTION 6.11 UNDERTAKING FOR COSTS. In any suit for the enforcement of any
right or remedy under this Indenture or in any suit against the Trustee for any
action taken or omitted by it as Trustee, a court in its discretion may require
the filing by any party litigant (other than the Trustee) in the suit of an
undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys' fees and expenses,
against any party litigant in the suit, having due regard to the merit and good
faith of the claims or defense made by the party litigant. This Section 6.11
does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section
6.07 hereof or a suit by Holder of more than 10% in aggregate principal amount
of the Notes at the time outstanding.
SECTION 6.12 RESTORATION OF RIGHTS AND REMEDIES. If the Trustee or any
Holder has instituted any proceeding to enforce any right or remedy under this
Indenture, any Note or any Subsidiary Guaranty and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case the Company, each
Subsidiary Guarantor, if any, the Trustee and the Holders shall, subject to any
determination in such proceeding, be restored severally and respectively to
their former positions hereunder, and thereafter all rights and remedies of the
Trustee and the Holders shall continue as though no such proceeding had been
instituted.
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ARTICLE 7
TRUSTEE
-------
SECTION 7.01 DUTIES OF TRUSTEE.
(1) If an Event of Default has occurred and is continuing (and is not
cured), the Trustee shall exercise the rights and powers vested in it by
this Indenture and use the same degree of care and skill in its exercise as
a prudent person would exercise or use under the circumstances in the
conduct of his own affairs.
(2) Except during the continuance of an Event of Default:
(a) the Trustee need perform only those duties that are
specifically set forth in this Indenture and not others and no implied
covenants or obligations shall be read into this Indenture against the
Trustee and the duties of the Trustee shall be determined solely by
the express provisions of this Indenture; and
(b) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture. However, in the case of any such certificate or
opinion which by any provision hereof is specifically required to be
furnished to the Trustee, the Trustee shall examine the certificates
and opinions to determine whether or not they conform to the
requirement of this Indenture.
The Trustee shall not be liable for any interest on any money received by
it.
(3) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its willful
misconduct, except that:
(a) this paragraph (3) does not limit the effect of paragraph (2)
of this Section 7.01;
(b) the Trustee shall not be liable for any error of judgment
made in good faith by any Trust Officer unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(c) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.04 or 6.05 hereof.
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(4) Whether or not expressly so provided, every provision of this
Indenture that in any way relates to the Trustee is subject to paragraphs
(1), (2), (3), (5) and (7) of this Section 7.01 and Section 7.02.
(5) The Trustee may refuse to perform any duty or exercise any right
or power or extend or risk its own funds or otherwise incur any financial
liability unless it receives reasonable security or indemnity satisfactory
to it against any loss, liability or expense.
(6) Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. The
Trustee shall be under no liability for interest on any money held by it
hereunder.
(7) The Trustee shall not be deemed to have knowledge of the existence
of any fact or matter unless such fact or matter is actually known to one
of its Trust Officers.
(8) The Trustee shall not be required to examine any reports or
financial information filed with it by the Company pursuant to Section 4.02
to determine whether the limitations set forth in Sections 4.06 through
4.13 have been exceeded.
SECTION 7.02 RIGHTS OF TRUSTEE.
(1) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper Person. The Trustee need
not investigate any fact or matter stated in any such document but the
Trustee may, in its discretion, make such further inquiry or investigation
into such facts or matters stated in any such document as it sees fit.
(2) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate and an Opinion of Counsel. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance
on such Officers' Certificate and Opinion of Counsel.
(3) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care.
(4) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its
rights or powers.
(5) The Trustee may consult with counsel of its selection and the
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon.
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(6) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee reasonable security and indemnity satisfactory
to it against the costs, expenses and liabilities which might be incurred
by it in compliance with such request or direction.
SECTION 7.03 INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or
any other capacity may become the owner or pledgee of Notes and may otherwise
deal with the Company or its Affiliates with the same rights it would have if it
were not Trustee. Any Paying Agent, Registrar or co-registrar may do the same
with like rights. However, the Trustee must comply with Section 7.10 and 7.11
hereof.
SECTION 7.04 TRUSTEE'S DISCLAIMER. The Trustee makes no representation as
to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes, and it shall
not be responsible for any statement in the registration statement for the Notes
under the Securities Act of 1933, as amended (the "Securities Act") (other than
statements contained in the Form T-1 filed with the SEC under the TIA) or in
this Indenture or the Notes (other than its certificate of authentication), or
the determination as to which beneficial owners are entitled to receive any
notices hereunder.
SECTION 7.05 NOTICE OF DEFAULTS. If a Default occurs and is continuing and
if it is known to the Trustee, the Trustee shall mail to each Holder as their
names and addresses appear on the Note Register, notice of the Default within 90
days after it becomes known to the Trustee unless such Default shall have been
cured or waived. Except in the case of a Default described in Section 6.01(1)
hereof, the Trustee may withhold such notice if and so long as a committee of
Trust Officers in good faith determines that the withholding of such notice is
in the interests of Holders.
SECTION 7.06 REPORTS BY TRUSTEE TO HOLDERS. Within 60 days after each May
15th beginning with May 15, 1997, the Trustee shall mail to each Holder a brief
report dated as of such May 15th in accordance with and to the extent required
under Section 313 of the TIA.
A copy of each report at the time of its mailing to Holders shall be filed
with the Company, the SEC and each stock exchange on which the Notes are listed.
The Company agrees to promptly notify the Trustee whenever the Notes become
listed on any stock exchange and of any delisting thereof.
SECTION 7.07 COMPENSATION AND INDEMNITY. The Company agrees:
(1) To pay to the Trustee from time to time such compensation as shall
be agreed in writing between the Company and the Trustee for all services
rendered by it hereunder (which compensation shall not be limited by any
provision of law in regard to the compensation of a trustee of an express
trust);
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(2) To reimburse the Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the reasonable
compensation and the expenses, disbursements and advances of its agents and
counsel and other persons not regularly in its employ), including all
reasonable expenses, disbursements and advances incurred or made by the
Trustee in connection with any membership on any creditor's committee,
except any such expense, disbursement or advance as may be attributable to
its negligence or bad faith; and
(3) To indemnify the Trustee, its officers, directors and
shareholders, for, and to hold it harmless against, any and all loss,
liability or expense, incurred without negligence or bad faith on its part,
arising out of or in connection with the acceptance or administration of
this trust, including the costs and expenses of defending itself against
any claim or liability in connection with the exercise or performance of
any of its powers or duties hereunder.
The Trustee shall have a claim and lien prior to the Notes as to all
property and funds held by it hereunder for any amount owing it or any
predecessor Trustee pursuant to this Section 7.07, except with respect to funds
held in trust for the payment of principal of, premium, if any, or interest on
particular Notes.
The Company's payment obligations pursuant to this Section 7.07 shall
survive the discharge of this Indenture. When the Trustee renders services or
incurs expenses after the occurrence of a Default specified in Section 6.01(5)
or (6) hereof, the compensation for services and expenses are intended to
constitute expenses of administration under any Bankruptcy Law, provided that,
if not paid as such expenses, such compensation and expenses shall remain
payable as provided under Section 6.10.
SECTION 7.08 REPLACEMENT OF TRUSTEE. The Trustee may resign by so notifying
the Company in writing at least 30 days prior to the date of the proposed
resignation; PROVIDED, HOWEVER, no such resignation shall be effective until a
successor Trustee has accepted its appointment pursuant to this Section 7.08.
The Holders of a majority in aggregate principal amount of the Notes at the time
outstanding may remove the Trustee by so notifying the Trustee in writing and
may appoint a successor Trustee subject to the consent of the Company. The
Trustee shall resign if:
(1) the Trustee fails to comply with Section 7.10 hereof;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or public officer takes charge of the Trustee or its
property; or
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(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company shall promptly appoint, by a Board
Resolution, a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Thereupon the resignation or removal
of the retiring Trustee shall become effective, and the successor Trustee shall
have all the rights, powers and duties of the Trustee under this Indenture. The
successor Trustee shall mail a notice of its succession to Holders. Subject to
payment of all amounts owing to the Trustee under Section 7.07 hereof and
subject further to its lien under Section 7.07, the retiring Trustee shall
promptly transfer all property held by it as Trustee to successor Trustee.
If a successor Trustee does not take office within 30 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of a majority in aggregate principal amount of the Notes at the time
outstanding may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee fails to comply with Section 7.10 hereof, any Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
SECTION 7.09 SUCCESSOR TRUSTEE BY MERGER. If the Trustee consolidates with,
merges or converts into, or transfers all or substantially all its corporate
trust business or assets (including this Trusteeship) to, another corporation,
the resulting, surviving or transferee corporation without any further act shall
be the successor Trustee.
SECTION 7.10 ELIGIBILITY; DISQUALIFICATION. The Trustee shall at all times
satisfy the requirements of TIA Section 310(a)(1) and (5). The Trustee shall
have a combined capital and surplus of at least $50,000,000 as set forth in its
most recently published annual report of condition. The Trustee shall comply
with TIA Section 310(b). In determining whether the Trustee has conflicting
interests as defined in TIA Section 310(b)(1), the provisions contained in the
proviso to TIA Section 310(b)(1) shall be deemed incorporated herein.
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY. If and
when the Trustee shall be or become a creditor of the Company (or any other
obligor under the Notes), the Trustee shall be subject to the provisions of the
TIA regarding the collection of claims against the Company (or any such other
obligor).
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ARTICLE 8
DISCHARGE OF INDENTURE
----------------------
SECTION 8.01 DISCHARGE OF LIABILITY ON NOTES. When (i) the Company delivers
to the Trustee all outstanding Notes (other than Notes replaced pursuant to
Section 2.07 hereof or Notes which are purchased pursuant to Section 4.11 or
4.12 hereof or Notes for whose payment money has theretofore been held in trust
and thereafter repaid to the Company, as provided in Section 8.02 hereof) for
cancellation or (ii) the Company irrevocably deposits with the Trustee money
and/or direct non-callable obligations of, or non-callable obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligation the full faith and credit of the United States is pledged ("U.S.
Government Obligations"), maturing as to principal and interest in such amounts
and at such times as are sufficient, without consideration of any reinvestment
of such interest, to pay principal of, premium, if any, interest on, or
Liquidated Damages with respect to the outstanding Notes (other than Notes
replaced pursuant to Section 2.07 hereof) to maturity or redemption, as the case
may be, in accordance with the terms of this Indenture and the Notes issued
hereunder, and if in either case the Company pays all other sums payable
hereunder by the Company, then this Indenture shall, subject to Sections 2.06
and 7.07 hereof, and each Subsidiary Guaranty, if any, shall except as to the
obligations of the Subsidiary Guarantor thereunder in respect of such Sections,
cease to be of further effect. The Trustee shall join in the execution of any
documents prepared by the Company acknowledging satisfaction and discharge of
this Indenture and each such Subsidiary Guaranty on written demand of the
Company accompanied by an Officers' Certificate and Opinion of Counsel and at
the cost and expense of the Company. In the case of any such deposit pursuant to
clause (ii) above, the obligation to pay the principal of and any interest on
such Notes and the obligations under Section 7.07 hereof shall continue until
the Notes are paid in full (provided that the provisions of Section 7.07 hereof
shall survive the payment of the Notes and discharge of the Indenture). The
Company will be entitled to make such a deposit if the Company has delivered to
the Trustee (i)(A) a ruling directed to the Trustee from the Internal Revenue
Service to the effect that the holders of the Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such deposit and
defeasance of this Indenture and will be subject to federal income tax on the
same amount and in the same manner and at the same times, as would have been the
case if such deposit and defeasance had not occurred, or (B) an opinion of
counsel, reasonably satisfactory to the Trustee, to the same effect as clause
(i)(A) above, (ii) an Opinion of Counsel (who may be an employee of or counsel
for the Company), and an Officers' Certificate in accordance with this Indenture
and (iii) a report from a nationally recognized firm of independent public
accountants stating that the amount of such deposit is sufficient to pay and
discharge the amounts described in clause (ii) above with respect to the Notes.
If the Trustee or Paying Agent is unable to apply any money in accordance
with this Section 8.01 by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the obligations of the Company and each Subsidiary Guarantor
under this Indenture and the Notes shall be revived and reinstated as though no
deposit had occurred pursuant to this Section 8.01 until such time as the
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Trustee or Paying Agent is permitted to apply all such money in accordance with
this Section 8.01; PROVIDED, HOWEVER, that if the Company or any Subsidiary
Guarantor, as the case may be, makes any payment of interest on or principal of
any Note following the reinstatement of its obligations, the Company or any
Subsidiary Guarantor, as the case may be, shall be subrogated to the right of
the Holders of such Notes to receive such payment from the money held by the
Trustee or Paying Agent.
SECTION 8.02 REPAYMENT TO THE COMPANY OR SUBSIDIARY GUARANTORS. Subject to
Section 7.07 hereof, the Trustee and the Paying Agent shall promptly pay to the
Company, or if deposited with the Trustee by any Subsidiary Guarantor, to such
Subsidiary Guarantor, upon written request, set forth in an Officer's
Certificate accompanied by an Opinion of Counsel, any excess money or U.S.
Government Obligations held by them at any time. The Trustee and the Paying
Agent shall adhere to applicable law and appropriate regulations in the
disposition of any unclaimed funds. After return to the Company or any
Subsidiary Guarantor, Holders entitled to the money must look to the Company for
payment as general creditors unless an applicable abandoned property law
designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
ARTICLE 9
AMENDMENTS
----------
SECTION 9.01 WITHOUT CONSENT OF HOLDERS. From time to time, when authorized
by Board Resolutions of each of them, the Company and the Trustee, without
notice to or the consent of the Holders of the Notes issued hereunder, may amend
or supplement this Indenture or the Notes as follows:
(1) to cure any ambiguity, defect or inconsistency;
(2) to comply with Article 5 hereof;
(3) 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;
(4) to make any other change that does not adversely affect the rights
of any Holder;
(5) to comply with any requirement of the SEC in connection with the
qualification of this Indenture under the TIA; or
(6) to add any Subsidiary of the Company as a Subsidiary Guarantor.
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<PAGE> 75
SECTION 9.02 WITH CONSENT OF HOLDERS. With the consent of the Holders of at
least a majority in aggregate principal amount of the Notes at the time
outstanding, the Company and the Trustee may amend this Indenture or the Notes
or may waive future compliance by the Company or any Subsidiary Guarantor with
any provisions of this Indenture, the Notes or such Subsidiary Guarantor's
Subsidiary Guaranty. However, without the consent of each Holder affected, a
waiver or an amendment to this Indenture or the Notes may not:
(1) reduce the percentage of principal amount of the Notes whose
Holders must consent to an amendment or waiver; or
(2) make any change to the Stated Maturity of the principal of,
premium, if any, or any interest on 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; or
(3) waive a default in the payment of the principal of, premium, if
any, interest on, or Liquidated Damages with respect to any Note;
(4) 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
(5) make any change in the provisions of Sections 4.11, 4.12, 6.04 or
6.07 hereof;
or
(6) make any change to Section 9.01 or 9.02 hereof.
It shall not be necessary for the consent of the Holders under this Section
9.02 to approve the particular form of any proposed amendment, but it shall be
sufficient if such consent approves the substance thereof.
In the event that certain Holders are willing to defer or waive certain
obligations of the Company hereunder with respect to Notes held by them, such
deferral or waiver shall not be deemed to affect any other Holder who receives
the subject payment or performance in a timely manner.
After an amendment or waiver under this Section 9.02 becomes effective, the
Company shall mail to each Holder a notice briefly describing the amendment or
waiver. Any failure of the Company to mail such notice, or any defect therein,
shall not, however, in any way impair or affect the validity of any such
amendment or waiver.
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SECTION 9.03 COMPLIANCE WITH TRUST INDENTURE ACT. Every supplemental
indenture executed pursuant to this Article 9 shall comply with the TIA.
SECTION 9.04 REVOCATION AND EFFECT OF CONSENTS, WAIVERS AND ACTIONS. Until
an amendment, waiver or other action by Holders becomes effective, a consent to
it or any other action by a Holder of a Note hereunder is a continuing consent
by the Holder and every subsequent Holder of that Note or portion of the Note
that evidences the same obligation as the consenting Holder's Note, even if
notation of the consent, waiver or action is not made on the Note. However, any
such Holder or subsequent Holder may revoke the consent, waiver or action as to
such Holder's Note or portion of the Note if the Trustee receives the notice of
revocation before the consent of the requisite aggregate principal amount of the
Notes then outstanding has been obtained and not revoked. After an amendment,
waiver or action becomes effective, it shall bind every Holder, except as
provided in Section 9.02 hereof.
The Company may, but shall not be obligated to, fix a record date for the
purpose of determining the Holders entitled to consent to any amendment or
waiver. If a record date is fixed, then, notwithstanding the first two sentences
of the immediately preceding paragraph, those Persons who were Holders at such
record date (or their duly designated proxies), and only those Persons, shall be
entitled to consent to such amendment, supplement or waiver or to revoke any
consent previously given, whether or not such Persons continue to be Holders
after such record date. No such consent shall be valid or effective for more
than 90 days after such record date.
SECTION 9.05 NOTATION ON OR EXCHANGE OF NOTES. Notes authenticated and made
available for delivery after the execution of any supplemental indenture
pursuant to this Article 9 may, and shall, if required by the Trustee, bear a
notation in form approved by the Trustee as to any matter provided for in such
supplemental indenture. If the Company shall so determine, new Notes so modified
as to conform, in the opinion of the Trustee and the Board of Directors of the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and made available for delivery by the Trustee in
exchange for outstanding Notes.
SECTION 9.06 TRUSTEE TO SIGN SUPPLEMENTAL INDENTURES. The Trustee shall
sign any supplemental indenture authorized pursuant to this Article 9 if the
supplemental indenture does not adversely affect the rights, duties, liabilities
or immunities of the Trustee. If it does, the Trustee may, but need not, sign
it. In signing such amendment the Trustee shall be entitled to receive, and
shall be fully protected in relying upon, an Officers' Certificate and Opinion
of Counsel stating that such supplemental indenture is authorized or permitted
by this Indenture.
SECTION 9.07 EFFECT OF SUPPLEMENTAL INDENTURES. Upon the execution of any
supplemental indenture under this Article 9, this Indenture shall be modified in
accordance therewith, and such supplemental indenture shall form a part of this
Indenture for all purposes; and every Holder of Notes theretofore or thereafter
authenticated and made available for delivery hereunder shall be bound thereby.
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ARTICLE 10
MISCELLANEOUS
-------------
SECTION 10.01 TRUST INDENTURE ACT CONTROLS. If any provision of this
Indenture limits, qualifies or conflicts with the duties imposed by operation of
subsection (c) of Section 318 of the TIA, the imposed duties shall control. The
provisions of Sections 310 to 317, inclusive, of the TIA that impose duties on
any Person (including provisions automatically deemed included in an indenture
unless the indenture provides that such provisions are excluded) are a part of
and govern this Indenture, except as, and to the extent, expressly excluded from
this Indenture, as permitted by the TIA.
SECTION 10.02 NOTICES. Any notice or communication shall be in writing and
delivered in Person or mailed by first-class mail, postage prepaid, addressed as
follows:
if to the Company:
Nortek, Inc.
50 Kennedy Plaza
Providence, RI 02903-2360
Attention: Mr. Richard L. Bready
if to any Subsidiary Guarantor:
[Name of Guarantor]
c/o Nortek Inc.
50 Kennedy Plaza
Providence, RI 02903-2360
Attention: President
if to the Trustee:
State Street Bank and Trust Company
61 Broadway
Concourse Level
New York, NY 10006
72
<PAGE> 78
-with a copy to-
State Street Bank and Trust Company
Two International Place - 4th Floor
Boston, MA 02110
Attention: Corporate Trust Department - Nortek Notes
The Company or the Trustee by notice to the other may designate additional
or different addresses for subsequent notices or communications.
Any notice or communication given to a Holder shall be mailed to the Holder
at the Holder's address as it appears on the registration books of the Registrar
and shall be sufficiently given if so mailed within the time prescribed.
Failure to mail a notice or communication to a Holder or any defect in it
shall not affect its sufficiency with respect to other Holders. If a notice or
communication is mailed in the manner provided above, it is duly given, whether
or not received by the addressee.
If the Company mails a notice or communication to the Holders, it shall
mail a copy to the Trustee and each Registrar, Paying Agent or co-registrar.
SECTION 10.03 COMMUNICATION BY HOLDERS WITH OTHER HOLDERS. Holders may
communicate pursuant to TIA Section 312(b) with other Holders with respect to
their rights under this Indenture or the Notes. The Company, the Trustee, the
Registrar, the Paying Agent and anyone else shall have the protection of TIA
Section 312(c).
SECTION 10.04 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any
request or application by the Company to the Trustee to take any action under
this Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
SECTION 10.05 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION . Each
Officers' Certificate and Opinion of Counsel with respect to compliance with a
covenant or condition provided for in this Indenture shall include:
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<PAGE> 79
(1) a statement that each Person making such Officers' Certificate or
Opinion of Counsel has read such covenant or condition;
(2) a brief statement as to the nature and scope of examination or
investigation upon which the statements or opinions contained in such
Officers' Certificate or Opinion of Counsel are based;
(3) a statement that, in the opinion of each such Person, he has made
such examination or investigation as is necessary to enable such Person to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement that, in the opinion of such Person, such covenant or
condition has been complied with; provided, however, that with respect to
matters of fact, an Opinion of Counsel may rely on an Officers' Certificate
or certificates of public officials.
SECTION 10.06 SEPARABILITY CLAUSE. In case any provision in this Indenture,
the Notes or any Subsidiary Guaranty shall be invalid, illegal or unenforceable,
the validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.
SECTION 10.07 RULES BY TRUSTEE, PAYING AGENT AND REGISTRAR. The Trustee may
make reasonable rules for action by or a meeting of Holders. The Registrar and
Paying Agent may make reasonable rules for their functions.
SECTION 10.08 LEGAL HOLIDAYS. A "Legal Holiday" is any day other than a
Business Day. If any specified date (including a date for giving notice) is a
Legal Holiday, the action shall be taken on the next succeeding day that is not
a Legal Holiday, and, if the action to be taken on such date is a payment in
respect of the Notes, no principal, premium, if any, interest installment or
Liquidated Damages, if any, shall accrue for the intervening period.
SECTION 10.09 GOVERNING LAW. THIS INDENTURE, THE NOTES AND EACH SUBSIDIARY
GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE
OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. EACH OF THE
PARTIES AGREES TO SUBMIT TO THE JURISDICTION OF THE FEDERAL AND STATE COURTS OF
THE STATE OF NEW YORK IN NEW YORK CITY IN ANY ACTION OR PROCEEDING ARISING OUT
OF OR RELATING TO THIS INDENTURE.
SECTION 10.10 NO RECOURSE AGAINST OTHERS. A director, officer, employee or
stockholder, as such, of the Company or any Subsidiary Guarantor shall not have
any liability for any obligations of the Company under the Notes or this
Indenture or for any obligations of such Subsidiary Guarantor under its
Subsidiary Guaranty or for any claim based on, in respect of or by reason of
such obligations or their creation. By accepting a Note, each Holder shall waive
and
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<PAGE> 80
release all such liability. The waiver and release shall be part of the
consideration for the issue of the Notes.
SECTION 10.11 SUCCESSORS. All agreements of the Company and any Subsidiary
Guarantor in this Indenture, the Notes and any Subsidiary Guaranties shall bind
their successors. All agreements of the Trustee in this Indenture shall bind its
successor.
SECTION 10.12 MULTIPLE ORIGINALS. The parties may sign any number of copies
of this Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement. One signed copy is enough to prove this
Indenture.
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<PAGE> 81
SIGNATURES
IN WITNESS WHEREOF, the undersigned, being duly authorized, have executed
this Indenture on behalf of the respective parties hereto as of the date first
above written.
NORTEK, INC.
By: /s/ Kevin W. Donnelly
-----------------------------------------
Name: Kevin W. Donnelly
-----------------------------------
Title: Vice President and General Counsel
-----------------------------------
STATE STREET BANK AND TRUST
COMPANY
By: /s/ Gerald R. Wheeler
-----------------------------------------
Name: Gerald R. Wheeler
-----------------------------------
Title: Vice President
-----------------------------------
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<PAGE> 82
EXHIBIT A
[FORM OF FACE OF NOTE]
NORTEK, INC.
9 1/8% [Series A/B] Senior Note due September 1, 2007
No. ___ CUSIP No. _______
$____________
Nortek, Inc., a Delaware corporation ("the Company", which term includes
any successor corporation under the Indenture hereinafter referred to), promises
to pay to _________________ or its registered assigns, the principal amount of
________________ Dollars on September 1, 2007.
Interest Payment Dates: September 1 and March 1, commencing March 1, 1998.
Record Dates: August 15 and February 15.
Reference is hereby made to the further provisions of this Note set forth
on the following pages which further provisions shall for all purposes have the
same effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this Note to be signed manually
or by facsimile by its duly authorized officers and a facsimile of its corporate
seal to be affixed hereto or imprinted hereon.
NORTEK, INC.
By:______________________
Name:
Title:
ATTESTED:
By:______________________
Name:
Title:
A-1
<PAGE> 83
[SEAL]
Dated:________________________
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes referred to in
the within-mentioned Indenture.
STATE STREET BANK AND TRUST COMPANY, as Trustee
By:__________________________
Authorized Officer
A-2
<PAGE> 84
[UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN
DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO
THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY OR BY THE DEPOSITORY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"),
TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT
IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THIS NOTE IS A GLOBAL NOTE WITHIN
THE MEANING OF THE INDENTURE REFERRED TO HEREINAFTER. THIS GLOBAL NOTE MAY NOT
BE EXCHANGED, IN WHOLE OR IN PART, FOR A NOTE REGISTERED IN THE NAME OF ANY
PERSON OTHER THAN THE DEPOSITORY TRUST COMPANY OR A NOMINEE THEREOF EXCEPT IN
THE CIRCUMSTANCES SET FORTH IN SECTION 2.06 OF THE INDENTURE, AND MAY NOT BE
TRANSFERRED, IN WHOLE OR IN PART, EXCEPT IN ACCORDANCE WITH THE RESTRICTIONS SET
FORTH IN SECTION 2.06 OF THE INDENTURE. BENEFICIAL INTEREST IN THIS GLOBAL NOTE
MAY NOT BE TRANSFERRED EXCEPT IN ACCORDANCE WITH SECTION 2.06 OF THE
INDENTURE.(1)]
["THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD TO, OR FOR
THE ACCOUNT OR BENEFIT OF, ANY PERSON EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (a) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT), (B) IT IS AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3)
OR (7) UNDER THE SECURITIES ACT) WHO IS AN INSTITUTION (AN "INSTITUTIONAL
ACCREDITED INVESTOR"), OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE
OUTSIDE THE UNITED STATES IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES
ACT, (2) AGREES THAT IT WILL NOT PRIOR TO THE DATE WHICH IS TWO YEARS
- -------------------
(1) This paragraph should be included only if the Note is issued in global
form.
A-3
<PAGE> 85
AFTER THE LATER OF THE DATE OF ORIGINAL ISSUANCE OF THIS NOTE AND THE LAST DATE
ON WHICH THE ISSUER OR ANY AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS NOTE
(THE "RESALE RESTRICTION TERMINATION DATE") OFFER, SELL OR OTHERWISE TRANSFER
THIS NOTE, EXCEPT (A) TO THE ISSUER, (B) TO A PERSON WHOM THE SELLER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER PURCHASING FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF ANOTHER QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH THE
RESALE PROVISIONS OF RULE 144A UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A
WRITTEN CERTIFICATION CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING
TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM THE TRUSTEE), (D) PURSUANT TO THE RESALE LIMITATIONS PROVIDED BY
RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (F) OUTSIDE THE U.S. TO A
FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF REGULATION S UNDER
THE SECURITIES ACT OR (G) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (BASED, IN THE CASE OF CLAUSES
(C), (D), (F) AND (G) ABOVE, UPON AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO
THE ISSUER IF THE ISSUER SO REQUESTS), SUBJECT IN EACH OF THE FOREGOING CASES TO
ANY REQUIREMENT OF LAW THAT THE DISPOSITION OF ITS PROPERTY OR THE PROPERTY OF
SUCH ACCOUNT BE AT ALL TIMES WITHIN ITS CONTROL AND TO COMPLIANCE WITH
APPLICABLE STATE SECURITIES LAWS AND (3) AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF
THIS LEGEND. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR,
THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE ISSUER
SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THE FOREGOING RESTRICTIONS ON RESALE WILL
NOT APPLY SUBSEQUENT TO THE RESALE RESTRICTION TERMINATION DATE."](2)
- ---------------------
(2) This paragraph should not be included on Exchange Notes received in an
Exchange Offer.
A-4
<PAGE> 86
["THIS SECURITY MAY NOT BE OFFERED OR SOLD TO A U.S. PERSON (AS SUCH TERM IS
DEFINED IN REGULATION S UNDER THE SECURITIES ACT) OR FOR THE ACCOUNT OR BENEFIT
OF A U.S. PERSON PRIOR TO THE EXPIRATION OF THE OFFSHORE NOTES EXCHANGE DATE (AS
DEFINED IN THE INDENTURE), AND NO TRANSFER OR EXCHANGE OF THIS SECURITY MAY BE
MADE FOR AN INTEREST IN A CERTIFICATED SECURITY UNTIL AFTER THE LATER OF THE
DATE OF EXPIRATION OF THE OFFSHORE NOTES EXCHANGE DATE AND THE DATE ON WHICH THE
PROPER REQUIRED CERTIFICATION RELATING TO SUCH INTEREST HAS BEEN PROVIDED IN
ACCORDANCE WITH THE TERMS OF THE INDENTURE, TO THE EFFECT THAT THE BENEFICIAL
OWNER OR OWNERS OF SUCH INTEREST ARE NOT U.S. PERSONS."](3)
- ---------------------------------------
(3) This paragraph should only be included on the Temporary Regulation S
Global Note.
A-5
<PAGE> 87
[FORM OF REVERSE SIDE OF NOTE]
9 1/8% [Series A/B] Senior Note due September 1, 2007
(1) INTEREST.
Nortek, Inc., a Delaware corporation ("the Company") promises to pay
interest on the principal amount of this Note at the rate per annum shown above
and to pay Liquidated Damages, if any, payable pursuant to Section 2 of the
Registration Rights Agreement referred to below. Interest will be payable
semi-annually on each interest payment date, commencing March 1, 1998. Interest
and Liquidated Damages, if any, on the Notes will accrue from the most recent
date to which interest has been paid, or if no interest has been paid, from
August 26, 1997; provided that, if there is no existing Event of Default in the
payment of interest and if this Note is authenticated between a record date
referred to on the face hereof and the next succeeding interest payment date,
interest shall accrue from such interest payment date. Interest will be computed
on the basis of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal and interest on overdue
installments of interest and Liquidated Damages, to the extent lawful, at 2%
above the rate per annum borne by the Notes.
(2) METHOD OF PAYMENT
The Company will pay interest on the Notes (except defaulted interest) and
Liquidated Damages to the persons who are registered Holders at the close of
business on March 1, and September 1, as the case may be, immediately preceding
the interest payment date even if the Note is canceled on registration of
transfer or registration of exchange (other than with respect to the purchase of
Notes pursuant to an offer to purchase Notes made in connection with Section
4.11 or 4.12 of the Indenture after such record date). Holders must surrender
Notes to a Paying Agent to collect principal payments. The Company will pay
principal, premium, if any, interest and Liquidated Damages, if any, in money of
the United States that at the time of payment is legal tender for payment of
public and private debts. However, the Company may pay principal, premium, if
any, interest and Liquidated Damages, if any, by its check payable in such
money; provided, that payment by wire transfer of immediately available/same day
funds will be required with respect to principal, premium, if any, interest and
Liquidated Damages, if any, on all Global Notes. It may mail an interest payment
to a Holder's address as it appears on the Register.
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(3) PAYING AGENT AND REGISTRAR
Initially, the Trustee will act as Paying Agent and Registrar. The Company
may appoint and change any Paying Agent or Registrar without notice, other than
notice to the Trustee. The Company or any Subsidiary or an Affiliate of either
of them may act as Paying Agent, Registrar or co-registrar.
(4) INDENTURE
The Company issued the Notes under an Indenture, dated as of August 26,
1997 (the "Indenture"), between the Company and the Trustee. The terms of the
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 and as in effect on
the date of the Indenture (the "TIA") and as provided in the Indenture.
Capitalized terms used herein and not defined herein have the meaning ascribed
thereto in the Indenture. The Notes are subject to all such terms, and Holders
are referred to the Indenture and the TIA for a statement of those terms.
The Notes are unsecured obligations of the Company limited to $310,000,000
aggregate principal amount.
To the extent permitted by the terms of the Company's 9 7/8% Senior
Subordinated Notes due 2004 (the "9 7/8% Notes") and the indenture governing the
9 7/8% Notes (the "9 7/8% Indenture"), all obligations owing under the Indenture
and the Notes, including interest accruing after the occurrence of an event
described in clause (5) or (6) of Section 6.01 of the Indenture, shall
constitute "Specified Senior Indebtedness" or similarly-designated indebtedness
under the 9 7/8% Notes and the 9 7/8% Indenture and under any other existing or
future subordinated indebtedness of the Company.
(5) GUARANTIES
This Note may be entitled after the date hereof to certain senior
Subsidiary Guaranties made for the benefit of the Holders. Reference is hereby
made to Section 4.14 of the Indenture and to Exhibits E and F to the Indenture
for the terms of any such Subsidiary Guaranty.
(6) OPTIONAL REDEMPTION
The Notes are redeemable as a whole, or from time to time in part, at any
time on and after September 1, 2002 at the option of the Company at the
following redemption prices (expressed as a percentage of principal) together
with accrued and unpaid interest and Liquidated Damages, if any, thereon to the
Redemption Date (the "Redemption Price") if redeemed in the twelve-month period
commencing:
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September 15, REDEMPTION PRICE
2002 104.563%
2003 103.042%
2004 101.521%
2005 and thereafter 100.000%
(7) NOTICE OF REDEMPTION
Notice of redemption will be mailed at least 30 days but not more than 60
days before the Redemption Date to each Holder of Notes to be redeemed at the
Holder's registered address. Notes in denominations larger than $1,000 of
principal amount may be redeemed in part but only in integral multiples of
$1,000 of principal amount.
(8) REQUIREMENT THAT THE COMPANY OFFER TO PURCHASE NOTES UNDER CERTAIN
CIRCUMSTANCES
Subject to the terms and conditions of the Indenture, the Company shall
become immediately obligated to offer to purchase the Notes pursuant to Section
4.11 of the Indenture after the occurrence of a Change in Control of the Company
at a price equal to 101% of aggregate principal amount plus accrued and unpaid
interest and Liquidated Damages, if any, to the date of purchase. In addition,
to the extent that there are Net Cash Proceeds from Asset Sales which are not
reinvested, the Company will be obliged to offer to purchase Securities at 100%
of principal amount plus accrued and unpaid interest and Liquidated Damages, if
any, in accordance with Section 4.12 of the Indenture.
(9) DENOMINATIONS: TRANSFER: EXCHANGE
The Notes are in registered form, without coupons, in denominations of
$1,000 of principal amount and integral multiples of $1,000. A Holder may
transfer or exchange 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 need not transfer or exchange any Notes selected
for redemption (except, in the case of a Note to be redeemed in part, the
portion of the Note not to be redeemed) or any Notes for a period of 15 days
before selection of Notes to be redeemed.
(10) PERSONS DEEMED OWNERS
The registered Holder of this Note may be treated as the owner of this Note
for all purposes.
(11) AMENDMENT: WAIVER
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Subject to certain exceptions set forth in the Indenture, (i) the Indenture
or the Notes may be amended with the written consent of the Holders of at least
a majority in aggregate principal amount of the Notes at the time outstanding
and (ii) certain defaults or noncompliance with certain provisions may be waived
with the written consent of the Holders of a majority in aggregate principal
amount of the Notes at the time outstanding. Subject to certain exceptions set
forth in the Indenture, without the consent of any Holder, the Company and the
Trustee may amend the Indenture or the Notes to cure any ambiguity, defect or
inconsistency, or to comply with Article 5 of the Indenture, or to provide for
uncertificated Notes in addition to certificated Notes, or to comply with any
requirements of the Securities and Exchange Commission in connection with the
qualification of the Indenture under the TIA, or to make any change that does
not adversely affect the rights of any Holder.
(12) DEFAULTS AND REMEDIES
Under the Indenture, Events of Default include (i) default in payment of
the principal amount, premium, if any, interest or Liquidated Damages, if any,
in respect of the Notes when the same becomes due and payable subject, in the
case of interest and Liquidated Damages, to the grace period contained in the
Indenture; (ii) failure by the Company to comply with other agreements in the
Indenture or the Notes, subject to notice and lapse of time; (iii) certain
events of acceleration prior to maturity of certain indebtedness; (iv) certain
final judgments which remain undischarged; (v) certain events of bankruptcy or
insolvency; or (vi) certain failures of Subsidiary Guaranties. If an Event of
Default occurs and is continuing, the Trustee or the Holders of at least 25% in
aggregate principal amount of the Notes at the time outstanding, may declare all
the Notes to be due and payable immediately. Certain events of bankruptcy or
insolvency are Events of Default which will result in the Notes becoming due and
payable immediately upon the occurrence of such Events of Default.
Holders may not enforce the Indenture or the Notes except as provided in
the Indenture. The Trustee may refuse to enforce the Indenture or the Notes
unless it receives reasonable indemnity or security. Subject to certain
limitations, Holders of a majority in aggregate principal amount of the Notes at
the time outstanding may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders notice of any continuing Default
(except a Default in payment of amounts specified in clause (i) above) if it
determines that withholding notice is in their interests.
(13) TRUSTEE DEALINGS WITH THE COMPANY
Subject to certain limitations imposed by the TIA, the Trustee under the
Indenture, in its individual or any other capacity, may become the owner or
pledgee of Notes and may otherwise deal with and collect obligations owed to it
by the Company or its Affiliates and may otherwise deal with the Company or its
Affiliates with the same rights it would have if it were not Trustee.
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(14) NO RECOURSE AGAINST OTHERS
A director, officer, employee or stockholder, as such, of the Company or
any Subsidiary Guarantor shall not have any liability for any obligations of the
Company under the Notes or the Indenture or for any obligations of a Subsidiary
Guarantor under its Subsidiary Guaranty or for any claim based on, in respect of
or by reason of such obligations or their creation. By accepting a Note, each
Holder waives and releases all such liability. The waiver and release are part
of the consideration for the issue of the Notes.
(15) AUTHENTICATION
This Note shall not be valid until an authorized officer of the Trustee
manually signs the Trustee's Certificate of Authentication on the other side of
this Note.
(16) ABBREVIATIONS
Customary abbreviations may be used in the name of a Holder or an assignee,
such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT
TEN (=joint tenants with right of survivorship and not as tenants in common),
CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act).
(17) UNCLAIMED MONEY
If money for the payment of principal or interest remains unclaimed for two
years, the Trustee or Paying Agent will pay the money back to the Company or, if
applicable, a Subsidiary Guarantor upon request. After that, Holders entitled to
money must look to the Company or such Subsidiary Guarantor for payment.
(18) DISCHARGE PRIOR TO MATURITY
If the Company or any Subsidiary Guarantor deposits with the Trustee or
Paying Agent money or U.S. Government Obligations sufficient to pay the
principal of, premium, if any, interest and Liquidated Damages, if any, on the
Notes to maturity, the Company and the Subsidiary Guarantors will be discharged
from the Indenture except for certain Sections thereof.
(19) REGISTRATION RIGHTS AGREEMENT.
In addition to the rights provided to and the obligations of Holders of
Notes under the Indenture, Holders of Transfer Restricted Securities shall have
all the rights and shall be subject to all the obligations set forth in the
Registration Rights Agreement, dated as of the date of the Indenture.
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(20) CUSIP NUMBERS.
Pursuant to a recommendation promulgated by the Committee on Uniform Note
Identification Procedures, the Company will cause CUSIP numbers to be printed on
the Notes as a convenience to Holders of the Notes. No representation is made as
to the accuracy of such numbers as printed on the Notes and reliance may be
placed only on the other identification numbers printed hereon.
(21) SUCCESSOR.
When a successor Person to the Company or a Subsidiary Guarantor assumes
all the obligations of its predecessor under the Notes, a Subsidiary Guaranty
and the Indenture such predecessor shall be released from those obligations.
(22) GOVERNING LAW
THE INDENTURE, THIS NOTE AND ANY SUBSIDIARY GUARANTY SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED
TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.
(23) INDENTURE.
Each Holder, by accepting a Note, agrees to be bound by all of the terms
and provisions of the Indenture, as the same may be amended from time to time.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture or Registration Rights Agreement.
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<PAGE> 93
ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to:
- --------------------------------------------------------------------------------
(INSERT ASSIGNEE'S SOCIAL SECURITY OR TAX I.D. NUMBER))
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PRINT OR TYPE ASSIGNEE'S NAME, ADDRESS AND ZIP CODE)
and irrevocably appoint_________________________________________________________
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
Dated:_________________________ Signature:_________________________________
(SIGN EXACTLY AS YOUR NAME APPEARS
ON THE OTHER SIDE OF THIS NOTE)
Signature
Guarantee:______________________________________________________________________
(PARTICIPANT IN RECOGNIZED SIGNATURE GUARANTEE MEDALLION PROGRAM)
NOTICE: Your Signature must be guaranteed by an Institution which is a member of
one of the following recognized signature Guarantee Programs: (i) the Securities
Transfer Agent Medallion Program; (ii) The New York Stock Exchange Medallion
Program; (iii) The Stock Exchange Medallion Program; or (iv) any other guarantee
program acceptable to the Trustee.
In connection with any transfer of this Note the Holder hereof may be required
by the Indenture to deliver to the Trustee and the Registrar a certification
substantially in the form of Exhibit B to the Indenture.
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<PAGE> 94
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to elect to have all or any portion of this Note purchased by
the Company pursuant to Section 4.11 ("Change of Control Offer") or Section 4.12
("Excess Proceeds Offer") of the Indenture, check the applicable boxes:
[ ] Change of Control Offer: [ ] Excess Proceeds
Offer:
in whole [ ] in whole [ ]
in part [ ] in part [ ]
Amount to be Amount to be
purchased: $__________ purchased: $____________
Dated:_________________________ Signature:_________________________________
(SIGN EXACTLY AS YOUR NAME APPEARS
ON THE OTHER SIDE OF THIS NOTE)
Signature
Guarantee:______________________________________________________________________
(PARTICIPANT IN RECOGNIZED SIGNATURE GUARANTEE MEDALLION PROGRAM)
Social Security Number/
or Taxpayer Identification Number:
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<PAGE> 95
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTES
The following increases or decreases in this Global Note have been made:
DATE OF AMOUNT OF AMOUNT OF PRINCIPAL SIGNATURE
EXCHANGE DECREASE IN INCREASE IN AMOUNT OF OF
PRINCIPAL PRINCIPAL THIS GLOBAL AUTHORIZED
AMOUNT OF AMOUNT OF NOTE OFFICER OF
THIS GLOBAL THIS GLOBAL FOLLOWING TRUSTEE OR
NOTE NOTE SUCH DECREASE NOTE
(OR INCREASE) CUSTODIAN
- --------- ------------- ------------ -------------- -------------
<PAGE> 96
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF NOTES
Re: 9 1/8% [Series [A/B] Senior Notes due 2007 of Nortek, Inc.
This Certificate relates to $______ principal amount of Notes held in **
_____________ book-entry or * / _________ definitive form by ___________________
__________ (the "Transferor").
The Transferor:*/
[ ] has requested the Registrar by
written order to exchange or register the transfer of a
Note or Notes; or
[ ] has requested the Trustee by written order to exchange its Note or
Notes in definitive, registered form for a beneficial interest in a
Global Note held by the Depository equal to the principal amount of
Notes it holds (or the portion thereof indicated above); or
[ ] has requested the Trustee by
written order to deliver in exchange for its beneficial interest in a
Global Note held by the Depository a Note or Notes in definitive,
registered form equal to its beneficial interest in such Global Note
(or the portion thereof indicated above).
In connection with such request and in respect of each such Note, the
Transferor does hereby certify that the Transferor is familiar with the
Indenture relative to the above captioned Notes and that the transfer
of this Note does not require registration under the Securities Act (as
defined below) because:*/
[ ] Such Note is being acquired for the Transferor's own account without
transfer (in satisfaction of Section 2.06(1)(b)(i), Section 2.06(2)(a)
or Section 2.06(4)(a)(i) of the Indenture).
- -----------------------------------
**/ Check applicable box.
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<PAGE> 97
[ ] Such Note is being transferred to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act")), in a transaction meeting the requirements of Rule
144A under the Securities Act.
[ ] Such Note is being transferred outside the U.S. to a foreign person
pursuant to an exemption from registration in a transaction meeting the
requirements of Regulation S under the Securities Act (based on an
opinion of counsel if the Company so requests and together with a
certification in substantially the form of Exhibit D to the Indenture).
[ ] Such Note is being transferred in a transaction meeting the
requirements of Rule 144 under the Securities Act (based on an opinion
of counsel if the Company so requests).
[ ] Such Note is being transferred pursuant to an effective registration
statement under the Securities Act.
[ ] Such Note is being transferred to an institutional "accredited
investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under
the Securities Act pursuant to a private placement exemption from the
registration requirements of the Securities Act (based on an opinion of
counsel if the Company so requests together with a certification in
substantially the form of Exhibit C to the Indenture).
[ ] Such Note is being transferred in reliance on and in compliance with
another exemption from the registration requirements of the Securities
Act (based on an opinion of counsel if the Company so requests).
--------------------------------
[INSERT NAME OF TRANSFEROR]
By:_____________________________
Name:
Title:
Address:
Date:__________________
TO BE COMPLETED BY TRANSFEREE IF SECOND BOX ABOVE IS CHECKED
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<PAGE> 98
The undersigned represents and warrants that it is purchasing this Note for
its own account or an account with respect to which it exercises sole investment
discretion and that it and any such account is a "qualified institutional buyer"
within the meaning of Rule 144A under the Securities Act and is aware that the
sale to it is being made in reliance on Rule 144A and acknowledges that it has
received such information regarding the Company as the undersigned has requested
pursuant to Rule 144A or has determined not to request such information and that
it is aware that the transferor is relying upon the undersigned's foregoing
representations in order to claim the exemption from registration provided by
Rule 144A.
Date:_______________________ Signed:________________________________
NOTICE: To be executed by an
executive officer
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<PAGE> 99
EXHIBIT C
FORM OF CERTIFICATE TO BE DELIVERED BY
ACCREDITED INSTITUTIONS
----------------- --, ----
State Street Bank and Trust Company,
as Registrar
Attn: Corporate Trust Department
Dear Sirs:
In connection with our proposed purchases of $________ aggregate principal
amount of 9 1/8% Series [A/B] Senior Notes due 2007 (the "Notes") of Nortek,
Inc. (the "Issuer"), a Delaware corporation, we confirm that:
1. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended (the
"Securities Act")) purchasing for our own account or for the account of such an
institutional "accredited investor," and we are acquiring the Notes for
investment purposes and not with a view to, or for offer or sale in connection
with, any distribution in violation of the Securities Act or the laws of any
state or other jurisdiction, and we have such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of our investment in the Notes, and we and any accounts for which we are
acting are each able to bear the economic risk of our or its investment.
2. We understand that any subsequent transfer of the Notes is subject to
certain restrictions and conditions set forth in the Indenture relating to the
Notes (the "Indenture") and the undersigned agrees to be bound by, and not to
resell, pledge or otherwise transfer the Notes except in compliance with, such
restrictions and conditions of the Securities Act.
3. We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes may not be offered or
sold except as described below. We agree, on our own behalf and on behalf of any
account for which we are purchasing the Notes, and each subsequent holder of the
Notes by its acceptance thereof will agree, not to offer, sell or otherwise
transfer such Notes prior to the date which is two years after the later of the
date of original issue of such Notes and the last date on which the Issuer or
any affiliate of the Issuer was the owner of such Notes (the "Resale Restriction
Termination Date"), except (A) to the Issuer, (B) in accordance with Rule 144A
under the Securities Act to
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<PAGE> 100
a "qualified institution buyer" (as defined therein) in a transaction meeting
the requirements of Rule 144A, (C) to an institutional "accredited investor" (as
defined above) that is purchasing for his own account or for the account of such
an "accredited investor" and that, prior to such transfer, furnishes to the
Trustee (as defined in the Indenture) a signed letter, substantially identical
to this letter, containing certain representations and agreements relating to
the restrictions on transfer of the Notes (the form of which letter can be
obtained from the Trustee), (D) pursuant to the exemption from registration
provided by Rule 144 under the Securities Act, if available, (E) pursuant to an
effective registration statement under the Securities Act, (F) outside the U.S.
to a foreign person in a transaction meeting the requirements of Regulation S
under the Securities Act, or (G) pursuant to any other available exemption from
the registration requirements of the Securities Act (based, in the cases of
clauses (C), (D), (F) and (G), upon an opinion of counsel reasonably acceptable
to the Issuer if the Issuer so requests), subject in each of the foregoing
cases, to any requirement of law that the disposition of our property or the
property of such investor account or accounts be at all times within our or
their control and to compliance with applicable securities laws of any state of
other jurisdiction. The foregoing restrictions on resale will not apply
subsequent to the Resale Restriction Termination Date, and we further agree to
provide to any person purchasing any of the Notes from us a notice advising such
purchaser that resales of the Notes are restricted as stated herein.
4. We understand that, on any proposed offer, sale or other transfer of any
Notes prior to the Resale Restriction Termination Date, we will be required to
furnish to the Trustee and the Issuer such certifications, legal opinions, and
other information as either of them may reasonably require to confirm that the
proposed transaction complies with the foregoing restrictions. We further
understand that the Notes purchased by us will bear a legend reflecting the
substance of this and the preceding paragraph.
5. We are acquiring the Notes purchased by us for our own account or for
one or more accounts (each of which is an institutional "accredited investor")
as to each of which we exercise sole investment discretion.
We acknowledge that you, the Trustee and others are entitled to rely upon
this letter and are irrevocably authorized to produce this letter or a copy
thereof to any interested party in any administrative or legal proceedings or
official inquiry with respect to the matters covered hereby. We agree to notify
you promptly in writing if any of our representations or warranties ceases to be
accurate and complete.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK.
-----------------------------------
(Name of Purchaser)
By:_____________________________
Name:
Title:
Address:
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<PAGE> 101
EXHIBIT D
FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION
WITH TRANSFERS PURSUANT TO REGULATION S
------------------ --, ----
State Street Bank and Trust Company,
as Registrar
Attention: Corporate Trust Department
Ladies and Gentlemen:
In connection with our proposed sale of $___________ aggregate principal
amount of 9 1/8% Series [A/B] Senior Notes due 2007 (the "Notes") of Nortek,
Inc., a Delaware corporation (the "Company"), we represent that:
(i) the offer of the Notes was not made to a person in the United
States;
(ii) at the time the buy order was originated, the transferee was
outside the United States or we and any person acting on our behalf
reasonably believed that the transferee was outside the United States;
(iii) no directed selling efforts have been made by us, any of our
affiliates or any person acting on our or their behalf in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable; and
(iv) the transaction is not part of a plan or scheme to evade the
registration requirements of the U.S. Securities Act of 1933.
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<PAGE> 102
You and the Company are entitled to rely upon this letter and you are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
---------------------------
[Name of Transferor]
By:________________________
Name:
Date:
Title:
D-2
<PAGE> 103
EXHIBIT E
ARTICLE 11
GUARANTY OF NOTES
-----------------
SECTION 11.01. SUBSIDIARY GUARANTY. Subject to the provisions of this
Article 11, each Subsidiary Guarantor hereby unconditionally guarantees to each
Holder of a Note authenticated and delivered by the Trustee and to the Trustee
that: (i) the principal of, premium, if any, interest on and Liquidated Damages,
if any, with respect to the Notes will be duly and punctually paid in full when
due, whether at maturity, by acceleration or otherwise, and interest on the
overdue principal and (to the extent permitted by law) interest, if any, on the
Notes and all other obligations of the Company or the Subsidiary Guarantors to
the Holders or the Trustee hereunder or thereunder (including fees and expenses)
will be promptly paid in full or performed, all in accordance with the terms
hereof and thereof; and (ii) in case of any extension of time of payment or
renewal of any Notes or any such obligations with respect to the Notes, the same
will be promptly paid in full when due or performed in accordance with the terms
of the extension or renewal, whether at Stated Maturity, by acceleration or
otherwise. This Subsidiary Guaranty is a present and continuing guaranty of
payment and performance, and not of collectibility. Accordingly, failing payment
when due of any amount so guaranteed, or failing performance of any other
obligation of the Company to the Holders under this Indenture or the Notes, for
whatever reason, each Subsidiary Guarantor shall be obligated to pay, or to
perform or cause the performance of, the same immediately.
Each Subsidiary Guarantor hereby agrees that its obligations under its
Subsidiary Guaranty shall be absolute and unconditional, irrespective of any
invalidity, irregularity or unenforceability of the Notes or this Indenture, the
absence of any action to enforce the same, any waiver or consent by any Holder
of the Notes with respect to any provisions hereof or thereof, any release of
any other Subsidiary Guarantor or any other obligor under the Notes, the
recovery of any judgment against the Company, any action to enforce the same,
whether or not a Subsidiary Guaranty is affixed to any particular Note, or any
other circumstance which might otherwise constitute a legal or equitable
discharge or defense of a guarantor. Each Subsidiary Guarantor hereby waives the
benefit of diligence, presentment, demand of payment, filing of claims with a
court in the event of insolvency or bankruptcy of the Company or any other
obligor under the Notes, any right to require a proceeding first against the
Company or any such obligor, protest, notice and all demands whatsoever and
covenants that its Subsidiary Guaranty will not be discharged except by complete
performance the obligations contained in the Notes, this Indenture and its
Subsidiary Guaranty. If any Holder or the Trustee is required by any court or
otherwise to return to the Company or to any Subsidiary Guarantor, or any
custodian, trustee, liquidator or other similar official acting in relation to
the Company or such Subsidiary Guarantor, any amount paid by the Company or such
Subsidiary Guarantor to the Trustee or such Holder, each Subsidiary Guaranty, to
the extent theretofore discharged, shall be reinstated in full force and effect.
Each Subsidiary
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<PAGE> 104
Guarantor further agrees that, as between it, on the one hand, and the Holders
of Notes and the Trustee, on the other hand, (i) subject to this Article 11, the
maturity of the obligations guaranteed hereby may be accelerated as provided in
Article 6 hereof for the purposes of each Subsidiary Guaranty, notwithstanding
any stay, injunction or other prohibition preventing such acceleration in
respect of the obligations guaranteed by this Subsidiary Guaranty, and (ii) in
the event of any acceleration of such obligations as provided in Article 6
hereof, such obligations (whether or not due and payable) shall forthwith become
due and payable by each Subsidiary Guarantor for the purpose of its Subsidiary
Guaranty. Upon the effectiveness of any acceleration of the obligations
guaranteed by this Subsidiary Guaranty the Trustee shall promptly make a demand
for payment of such obligations by each Subsidiary Guarantor under this
subsidiary Guaranty. The obligations of the Subsidiary Guarantors under this
Subsidiary Guaranty shall be joint and several.
Each Subsidiary Guaranty shall remain in full force and effect and continue
to be effective should any petition be filed by or against the Company for
liquidation or reorganization, should the Company become insolvent or make an
assignment for the benefit of creditors or should a receiver or trustee be
appointed for all or any significant part of the Company's assets, and shall, to
the fullest extent permitted by law, continue to be effective or be reinstated,
as the case may be, if at any time payment and performance of the Notes are,
pursuant to applicable law, rescinded, or reduced in amount, or must otherwise
be restored or returned by any obligee on the Notes, whether as a "voidable
preference," "fraudulent transfer" or otherwise, all as though such payment or
performance had not been made. In the event that any payment, or any part
thereof, is rescinded, reduced, restored or returned, the Notes shall, to the
fullest extent permitted by law, be reinstated and deemed reduced only by such
amount paid and not so rescinded, reduced, restored or returned.
No stockholder, officer, director, employer or incorporator, past, present
or future, of any Subsidiary Guarantor, as such, shall have any personal
liability under such Subsidiary Guarantor's Subsidiary Guaranty by reason of
his, her or its status as such stockholder, officer, director, employer or
incorporator.
The Subsidiary Guarantors shall have the right to seek contribution from
any non-paying Subsidiary Guarantor so long as the exercise of such right does
not impair the rights of the Holders under any Subsidiary Guaranty.
Each Subsidiary Guaranty may be modified from time to time, without the
consent of the Holders, to reflect such fraudulent conveyance savings
provisions, net worth or maximum amount limitations as to recourse or similar
provisions as are set forth in, and after giving effect to, any guaranty by any
Subsidiary Guarantor of any Senior Indebtedness with respect to the Company
Credit Facility as such guaranty may be amended or otherwise modified from time
to time, PROVIDED that no such modification of this Subsidiary Guaranty shall
adversely affect the Holders in any respect or shall disadvantage the Holders
relative to the holders of Indebtedness of such Subsidiary Guarantor with
respect to the Company Credit Facility.
E-2
<PAGE> 105
SECTION 11.02. EXECUTION DELIVERY OF SUBSIDIARY GUARANTY. The validity and
enforceability of this Subsidiary Guaranty shall not be affected by the fact
that it is not affixed to any particular Note, and each Subsidiary Guarantor
hereby agrees that its Subsidiary Guaranty shall remain in full force and effect
notwithstanding any failure to endorse on each Note a notation of such
Subsidiary Guaranty.
If an Officer of a Subsidiary Guarantor whose signature is on the Indenture
or a Subsidiary Guaranty no longer holds that office at the time the Trustee
authenticates any Note or at any time thereafter, such Subsidiary Guarantor's
Subsidiary Guaranty of such Note shall be valid nevertheless.
The delivery by any Subsidiary Guarantor to the Trustee of any Subsidiary
Guaranty as required by Section 4.14 shall constitute due delivery of such
Subsidiary Guaranty on behalf of such Subsidiary Guarantor to and for the
benefit of all Holders of the Notes.
SECTION 11.03. ADDITIONAL GUARANTORS. Any person may become a guarantor of
the Notes by executing and delivering to the Trustee (i) a supplemental
indenture in form and substance satisfactory to the Trustee, which subjects such
person to the provisions of this Indenture as a guarantor of the Notes, and (ii)
an Opinion of Counsel to the effect that such supplemental indenture has been
duly authorized and executed by such person and constitutes the legal, valid,
binding and enforceable obligation of such person (subject to such customary
exceptions concerning fraudulent conveyance laws, creditors' rights and
equitable principles as may be acceptable to the Trustee in its discretion).
SECTION 11.04. RELEASE OF SUBSIDIARY GUARANTOR. Notwithstanding anything to
the contrary contained in this Indenture in the event that Section 4.14 of the
Indenture ceases to have further force or effect each Subsidiary Guarantor shall
be, and in the event a Subsidiary Guarantor is released from all obligations
which pursuant to Section 4.14 hereof would obligate it to become a Subsidiary
Guarantor (if it was not already a Subsidiary Guarantor) such Subsidiary
Guarantor shall be, automatically and unconditionally released from all
obligations under its Subsidiary Guaranty without any further action required on
the part of the Trustee or any Holder, PROVIDED that, to the extent the
provisions of Section 4.14 remain in force and effect, the provisions of Section
4.14 hereof shall apply anew in the event that such Subsidiary Guarantor
subsequent to being released incurs any obligations that pursuant to Section
4.14 hereof obligate it to become a Subsidiary Guarantor. In addition, upon (i)
the designation of any Subsidiary Guarantor as an Unrestricted Subsidiary in
compliance with the terms of this Indenture or (ii) the sale or other
disposition (by merger or otherwise) of a 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 this Indenture, such Subsidiary Guarantor shall be
automatically and unconditionally released from all obligations under its
Subsidiary Guaranty without any further action required on the part of the
Trustee or any Holder, PROVIDED that such sale or other disposition, or
consolidation or merger is made in
E-3
<PAGE> 106
accordance with the terms of this Indenture, including Sections 4.12 and 5.01
hereof; PROVIDED, HOWEVER, that the foregoing proviso shall not apply to the
sale or disposition of a Subsidiary Guarantor or of the Capital Stock thereof in
a foreclosure proceeding (whether or not judicial) to the extent that such
proviso would be inconsistent with the requirements of the Uniform Commercial
Code. Notwithstanding the immediately preceding sentence, upon receipt of a
request of the Company accompanied by an Officers' Certificate certifying as to
the compliance with this Section 11.04, the Trustee shall deliver an appropriate
instrument evidencing the release of such Subsidiary Guarantor. Any Subsidiary
Guarantor not so released or the entity surviving such Subsidiary Guarantor, as
applicable, shall remain or be liable under its Subsidiary Guaranty as provided
in this Article 11.
E-4
<PAGE> 107
EXHIBIT F
SENIOR GUARANTY
---------------
For value received. the undersigned hereby unconditionally guarantees to
the holder of a Note (as that term is defined in the Indenture dated as of
August 26, 1997 (the "Indenture"), between Nortek, Inc. (the "Company") and
State Street Bank and Trust Company, as trustee (the "Trustee") and the Trustee,
the payments of principal of, premium, if any, interest on and Liquidated
Damages, if any, with respect to such Note in the amounts and at the time when
due and interest on the overdue principal, premium, if any, interest and
Liquidated Damages, if any, of such Note, if lawful, and the payments or
performance of all other obligations of the Company under the Indenture or the
Notes, all in accordance with and subject to the terms and limitations of such
Note, Article 11 of the Indenture and this Guaranty. This Guaranty shall become
effective in accordance with Article 11 of the Indenture. The validity and
enforceability of this Guaranty shall not be affected by the fact that it is not
affixed to any particular Note.
The obligations of the undersigned to the holders of Notes and to the
Trustee pursuant to this Guaranty and the Indenture are expressly set forth in
Article 11 of the Indenture and reference is hereby made to the Indenture for
the precise terms of this Guaranty and all of the other provisions of the
Indenture to which this Guaranty relates. Each holder of a Note, by accepting
the same, agrees to and shall be bound by such provisions.
This Guaranty is subject to release upon the terms set forth in the
Indenture.
[NAME OF SUBSIDIARY GUARANTOR]
By:_______________________
Name:
Title:
F-1
<PAGE> 108
EXHIBIT G
FORM OF CERTIFICATE TO BE DELIVERED
-----------------------------------
UPON TERMINATION OF RESTRICTED PERIOD
-------------------------------------
State Street Bank and Trust Company,
as Registrar
Attention: Corporate Trust Department
Ladies and Gentlemen:
This letter relates to Notes represented by the Temporary Regulation S
Global Note certificate (the "Temporary Certificate"). Pursuant to Section 2.01
of the Indenture dated as of August 26, 1997 relating to the Notes (the
"Indenture"), we hereby certify that (1) we are the beneficial owner of
$[__________] principal amount of Original Notes represented by the Temporary
Certificate and (2) we are a person outside the United States to whom the
Original Notes could be transferred in accordance with Rule 904 of Regulation S
promulgated under the Securities Act of 1933, as amended. Accordingly, you are
hereby requested to issue a Definitive Note representing the undersigned's
interest in the principal amount of Original Notes represented by the Temporary
Certificate, all in the manner provided by the Indenture.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
----------------------------
[Name of Holder]
By: ________________________
Name:
Date:
Title:
G-1
<PAGE> 109
CROSS REFERENCE TABLE(5)
TIA INDENTURE
SECTION SECTION
310(a)(1)............................................... 7.10
(a)(2)............................................ 7.10
(a)(3)............................................ N.A.(6)
(a)(4)............................................ N.A.
(a)(5)............................................ 7.10
(b)............................................... 7.08; 7.10
(c)............................................... N.A.
311(a) 7.11
(b)............................................... 7.11
(c)............................................... N.A.
312(a) 2.05
(b)............................................... 10.03
(c)............................................... 10.03
313(a) 7.06
(b)(1)............................................ N.A.
(b)(2)............................................ 7.06
(c)............................................... 10.02
(d)............................................... 7.06
314(a) 4.02; 10.02
(b)............................................... N.A.
(c)(1)............................................ 10.04
(c)(2)............................................ 10.04
(c)(3)............................................ N.A.
(d)............................................... N.A.
(e)............................................... 10.05
(f)............................................... 4.03
315(a) 7.01
(b)............................................... 7.05; 10.02
(c)............................................... 7.01
(d)............................................... 7.07
(e)............................................... 6.11
316(a) (last sentence).................................. 2.08
(a)(1)(A)......................................... 6.05
(a)(1)(B)......................................... 6.04
(a)(2)............................................ N.A.
- ---------------------------------
(5) Note: This Cross Reference Table shall not, for any purpose, be deemed
to be part of this Indenture.
(6) N.A. means Not Applicable.
G-i
<PAGE> 110
(b)............................................... 6.07
(c)............................................... N.A.
317(a)(1)............................................... 6.08
(a)(2)............................................ 6.09
(b)............................................... 2.04
318(a).................................................. 10.01
<PAGE> 1
Exhibit 4.2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "AGREEMENT") is made and
entered into as of August 26, 1997 among Nortek, Inc., a Delaware corporation
(the "COMPANY"), Wasserstein Perella Securities, Inc. and Bear, Stearns & Co.
Inc. (collectively, the "INITIAL PURCHASERS").
This Agreement is made pursuant to the Purchase Agreement dated as
of August 21, 1997 (the "PURCHASE AGREEMENT"), between the Company and the
Initial Purchasers, which provides for the sale by the Company to the Initial
Purchasers of an aggregate of $310,000,000 aggregate principal amount of the
Company's 9 1/8% Senior Notes due 2007 (the "NOTES"). In order to induce the
Initial Purchasers to enter into the Purchase Agreement and to purchase the
Notes, the Company has agreed to provide to the Initial Purchasers and their
direct and indirect transferees the registration rights for the Notes set forth
in this Agreement. The execution and delivery of this Agreement is a condition
precedent to the obligations of the Initial Purchasers under the Purchase
Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. DEFINITIONS. As used in this Agreement, the following
capitalized defined terms shall have the following meanings (and, unless
otherwise indicated, capitalized terms used herein without definition shall have
the meanings ascribed to them in the Purchase Agreement):
"ACT" shall mean the Securities Act of 1933, as amended.
"AGREEMENT" shall have the meaning set forth in the preamble to
this Agreement.
"APPLICABLE PERIOD" shall have the meaning set forth in Section
3(t) hereof.
"CLOSING DATE" shall mean the Closing Date as defined in the
Purchase Agreement.
"COMMISSION" shall mean the Securities and Exchange Commission, or
such other federal agency administering the Act or the Exchange Act.
"COMPANY" shall have the meaning set forth in the preamble to this
Agreement, and shall also include the Company's successors.
"DEPOSITARY" shall mean The Depository Trust Company, or any
successor depositary appointed by the Company; PROVIDED, HOWEVER, that such
depositary must have an address in the Borough of Manhattan, The City of New
York.
<PAGE> 2
2
"EFFECTIVENESS PERIOD" shall have the meaning set forth in Section
2(b) hereof.
"EVENT DATE" shall have the meaning set forth in Section 2(e)
hereof.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"EXCHANGE NOTES" shall mean the 9 1/8% Series B Senior Notes due
2007, to be issued by the Company under the Indenture and containing terms
identical to the Notes (except that (i) interest thereon shall accrue from the
last date on which interest was paid on the Notes or, if no such interest has
been paid, from August 26, 1997, and (ii) the transfer restrictions thereon
shall be eliminated) to be offered to Holders of Notes in exchange for Notes
pursuant to the Exchange Offer.
"EXCHANGE OFFER" shall mean the exchange offer by the Company of
Exchange Notes for Notes pursuant to Section 2(a) hereof.
"EXCHANGE OFFER REGISTRATION" shall mean a registration under the
Act effected pursuant to Section 2(a) hereof.
"EXCHANGE OFFER REGISTRATION STATEMENT" shall mean the
registration statement (on Form S-4 or, if applicable, on any other appropriate
form) relating to the Exchange Offer, and all amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"EXCHANGE PERIOD" shall have the meaning set forth in Section 2(a)
hereof.
"HOLDER" shall mean each Initial Purchaser, for so long as it owns
any Registrable Securities, and each of its respective successors, assigns and
direct and indirect transferees who become registered owners of Registrable
Securities under the Indenture.
"INDENTURE" shall mean the Indenture dated as of August 26, 1997
by and between the Company and Sate Street Bank and Trust Company, as trustee,
as the same may be amended or supplemented from time to time in accordance with
the terms thereof.
"INITIAL PURCHASERS" shall have the meaning set forth in the
preamble to this Agreement.
"INSPECTORS" shall have the meaning set forth in Section 3(n)
hereof.
<PAGE> 3
3
"LIQUIDATED DAMAGES" shall have the meaning set forth in Section
2(e) hereof.
"MAJORITY HOLDERS" shall mean the Holders of a majority of the
aggregate principal amount of outstanding (as determined under the Indenture)
Registrable Securities.
"NASD" shall mean the National Association of Securities Dealers,
Inc.
"NOTES" shall have the meaning set forth in the preamble to this
Agreement.
"PARTICIPATING BROKER-DEALER" shall have the meaning set forth in
Section 3(t) hereof.
"PERSON" shall mean any individual, corporation, limited liability
company, general or limited partnership, limited liability partnership, joint
venture, association, joint-stock company, trust, charitable foundation,
unincorporated organization, government or agency or political subdivision
thereof or any other entity.
"PRIVATE EXCHANGE" shall have the meaning set forth in Section
2(a) hereof.
"PRIVATE EXCHANGE NOTES" shall have the meaning set forth in
Section 2(a) hereof.
"PROSPECTUS" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including a prospectus
supplement with respect to the terms of the offering of any portion of the
Registrable Securities covered by a Shelf Registration Statement, including
post-effective amendments, and in each case including all material incorporated
by reference therein.
"PURCHASE AGREEMENT" shall have the meaning set forth in the
preamble to this Agreement.
"RECORDS" shall have the meaning set forth in Section 3(n) hereof.
"REGISTRABLE SECURITIES" shall mean the Notes and, if issued, the
Private Exchange Notes; PROVIDED, HOWEVER, that Notes or Private Exchange Notes,
as the case may be, shall cease to be Registrable Securities when (i) a
Registration Statement with respect to such Notes or Private Exchange Notes or
the resale thereof shall have been declared effective under the Act and such
Notes or Private Exchange Notes, as the case may be, shall have been disposed of
pursuant to such Registration Statement, (ii) such Notes or Private Exchange
Notes, as the case may be, shall have become
<PAGE> 4
4
eligible to be sold to the public pursuant to Rule 144(k) (or any similar
provision then in force, but not Rule 144A) under the Act, (iii) such Notes or
Private Exchange Notes, as the case may be, shall have ceased to be outstanding
or (iv) with respect to the Notes, such Notes have been exchanged for Exchange
Notes upon consummation of the Exchange Offer.
"REGISTRATION EXPENSES" shall mean any and all expenses incident
to performance of or compliance by the Company with this Agreement, including,
without limitation: (i) Commission, stock exchange and NASD registration and
filing fees, including, if applicable, the fees and expenses of any "qualified
independent underwriter" and its counsel that is required to be retained by any
Holder of Registrable Securities in accordance with the rules and regulations of
the NASD, (ii) fees and expenses incurred in connection with compliance with
state securities or blue sky laws (including reasonable fees and disbursements
of counsel for any underwriters or Holders in connection with the blue sky
qualification of any of the Exchange Notes or Registrable Securities) and
compliance with the rules of the NASD, (iii) expenses of any Persons in
preparing or assisting in preparing, printing and distributing any Registration
Statement, any Prospectus and any amendments or supplements thereto, and in
preparing or assisting in preparing, printing and distributing any underwriting
agreements, securities sales agreements and other documents relating to the
performance of and compliance with the obligations under this Agreement, (iv)
rating agency fees, (v) fees and disbursements of counsel for and independent
certified public accountants of the Company, including the expenses of any "cold
comfort" letters required by or incident to such performance and compliance,
(vi) fees and expenses of the Trustee, and any exchange agent or custodian,
(vii) fees and expenses incurred in connection with the listing, if any, of any
of the Registrable Securities on any securities exchange or exchanges, and
(viii) the reasonable fees and expenses of any special experts retained by the
Company in connection with any Registration Statement.
"REGISTRATION STATEMENT" shall mean any registration statement of
the Company relating to the Exchange Notes or Registrable Securities pursuant to
the provisions of this Agreement, and all amendments and supplements to any such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"SHELF REGISTRATION" shall mean a registration effected pursuant
to Section 2(b) hereof.
"SHELF REGISTRATION STATEMENT" shall mean a "shelf" registration
statement of the Company pursuant to the provisions of Section 2(b) of this
Agreement which covers all of the Registrable Securities, on an appropriate form
under Rule 415 under the Act, or any similar rule that may be adopted by the
Commission, and all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
<PAGE> 5
5
"TIA" shall mean the Trust Indenture Act of 1939, as amended.
"TRANSFER RESTRICTED SECURITIES" shall mean each Note until (i)
the date on which such Note has been exchanged by a Person other than a
broker-dealer for an Exchange Note in the Exchange Offer, (ii) following the
exchange by a broker-dealer in the Exchange Offer of a Note for an Exchange
Note, the date on which such Exchange Note is sold to a purchaser who receives
from such broker-dealer on or prior to the date of such sale a copy of the
prospectus contained in the Exchange Offer Registration Statement, (iii) the
date on which such Note has been effectively registered under the Securities Act
and disposed of in accordance with the Shelf Registration Statement or (iv) the
date on which such Note is distributed to the public pursuant to Rule 144 under
the Securities Act.
"TRUSTEE" shall mean the trustee under the Indenture.
2. REGISTRATION UNDER THE ACT.
(a) Exchange Offer. To the extent not prohibited by any
applicable law or applicable interpretation of the staff of the Commission, the
Company shall, for the benefit of the Holders, at the Company's cost, use its
best efforts to cause to be filed with the Commission an Exchange Offer
Registration Statement on or prior to 60 days after the Closing Date on an
appropriate form under the Act covering the offer by the Company to the Holders
to exchange all of the Registrable Securities (other than Private Exchange
Notes) for a like aggregate principal amount of Exchange Notes, to cause such
Exchange Offer Registration Statement to be declared effective under the Act by
the Commission on or prior to 135 days after the Closing Date, to cause such
Registration Statement to remain effective until the closing of the Exchange
Offer and 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 Act by the Commission. The Exchange Notes will be issued
under the Indenture. Upon the effectiveness of the Exchange Offer Registration
Statement, the Company shall promptly commence the Exchange Offer, it being the
objective of such Exchange Offer to enable each Holder (other than Participating
Broker-Dealers (as defined in Section 3(t) hereof)) eligible and electing to
exchange Registrable Securities for Exchange Notes (assuming that such Holder is
not an affiliate of the Company within the meaning of Rule 405 under the Act,
acquires the Exchange Notes in the ordinary course of such Holder's business and
has no arrangements or understandings with any Person to participate in the
Exchange Offer for the purpose of distributing the Exchange Notes) to transfer
such Exchange Notes from and after their receipt without any limitations or
restrictions under the Act or under state securities or blue sky laws.
In connection with the Exchange Offer, the Company shall:
(i) mail to each Holder a copy of the Prospectus forming
part of the Exchange Offer Registration Statement together with an
appropriate letter of transmittal and related documents;
<PAGE> 6
6
(ii) keep the Exchange Offer open for acceptance for a
period of not less than 30 days after the date notice thereof is mailed
to the Holders, or longer if required by applicable law (such period
being referred to herein as the "EXCHANGE PERIOD");
(iii) utilize the services of the Depositary for the
Exchange Offer;
(iv) permit Holders to withdraw tendered Notes at any
time prior to the close of business, New York City time, on the last
business day of the Exchange Period, by sending to the institution
specified in the notice a telegram, telex, facsimile transmission or
letter setting forth the name of such Holder, the principal amount of
Notes delivered for exchange, and a statement that such Holder is
withdrawing its election to have such Notes exchanged;
(v) notify each Holder that any Note not tendered will
remain outstanding and continue to accrue interest, but will not retain
any rights under this Agreement (except in the case of the Initial
Purchasers and Participating Broker-Dealers as provided herein); and
(vi) otherwise comply in all respects with all applicable
laws relating to the Exchange Offer.
If, prior to consummation of the Exchange Offer, any Initial
Purchaser holds any Notes acquired by it and having the status of an unsold
allotment in the initial distribution, the Company upon the request of such
Initial Purchaser shall, simultaneously with the delivery of the Exchange Notes
in the Exchange Offer, issue and deliver to such Initial Purchaser in exchange
(the "PRIVATE EXCHANGE") for Notes held by the Initial Purchasers a like
principal amount of debt securities of the Company that are identical (except
that such securities shall bear appropriate transfer restrictions) to the
Exchange Notes (the "PRIVATE EXCHANGE NOTES") and which are issued pursuant to
the Indenture (which will provide that the Exchange Notes will not be subject to
the transfer restrictions set forth in the Indenture and that the Exchange
Notes, the Private Exchange Notes and the Notes will vote and consent together
on all matters as one class and that none of the Exchange Notes, the Private
Exchange Notes or the Notes will have the right to vote or consent as a separate
class on any matter). The Private Exchange Notes shall be of the same series as
and shall bear the same CUSIP number as the Exchange Notes.
As soon as practicable after the close of the Exchange Offer or
the Private Exchange, as the case may be, the Company shall:
(i) accept for exchange all Notes or portions thereof
duly tendered and not validly withdrawn pursuant to the Exchange Offer;
(ii) accept for exchange all Notes or portions thereof
duly tendered pursuant to the Private Exchange; and
<PAGE> 7
7
(iii) deliver, or cause to be delivered, to the Trustee
for cancellation all Notes or portions thereof so accepted for exchange
by the Company, and issue, and cause the Trustee to promptly authenticate
and deliver to each Holder, a new Exchange Note or Private Exchange Note,
as the case may be, equal in principal amount to the principal amount of
the Notes surrendered by such Holder.
To the extent not prohibited by applicable law or any applicable
interpretation of the staff of the Commission, the Company shall use its best
efforts to complete the Exchange Offer as provided above, and shall comply with
all applicable requirements of the Act, the Exchange Act and other applicable
laws in connection with the Exchange Offer. The Exchange Offer shall not be
subject to any condition, other than that (i) the Exchange Offer does not
violate any applicable law or interpretation of the staff of the Commission,
(ii) no action or proceeding has been instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer which,
in the reasonable judgment of the Company, might impair the ability of the
Company to proceed with the Exchange Offer, (iii) there has not been any
material change, or development involving a prospective material change, in the
business or financial affairs of the Company or any of its subsidiaries which,
in the reasonable judgment of the Company, would materially impair the Company's
ability to consummate the Exchange Offer or have a material adverse effect on
the Company if the Exchange Offer is consummated, (iv) there has not been
proposed, adopted, or enacted any law, statute, rule or regulation which, in the
reasonable judgment of the Company, might materially impair the ability of the
Company to proceed with the Exchange Offer or have a material adverse effect on
the Company if the Exchange Offer is consummated or (v) all governmental
approvals which the Company shall reasonably deem necessary for the consummation
of the Exchange Offer as contemplated shall have been obtained. Each Holder of
Registrable Securities who wishes to exchange such Registrable Securities for
Exchange Notes in the Exchange Offer will be required to make certain customary
representations in connection therewith, including representations that such
Holder is not an affiliate of the Company within the meaning of Rule 405 under
the Act, that any Exchange Notes to be received by it will be acquired in the
ordinary course of business and that at the time of the commencement of the
Exchange Offer it had no arrangement with any Person to participate in the
distribution (within the meaning of the Act) of the Exchange Notes and will be
required to make such other representations as may be necessary under applicable
Commission rules, regulations or interpretations to render available the use of
Form S-4 or any other appropriate form under the Act. The Company shall inform
the Initial Purchasers, after consultation with the Trustee and the Initial
Purchasers, of the names and addresses of the Holders to whom the Exchange Offer
is made, and the Initial Purchasers shall have the right to contact such Holders
and otherwise facilitate the tender of Registrable Securities in the Exchange
Offer.
In the event that the Company is unable to consummate the Exchange
Offer due to any event listed in clauses (i) through (v) in the paragraph
immediately
<PAGE> 8
8
above, the Company shall not be deemed to have breached any covenant under this
Section 2(a).
Upon consummation of the Exchange Offer in accordance with this
Section 2(a), the provisions of this Agreement shall continue to apply, mutatis
mutandis, solely with respect to Registrable Securities that are Private
Exchange Notes and Exchange Notes held by Participating Broker-Dealers, and the
Company shall have no further obligation to register Registrable Securities
(other than Private Exchange Notes) pursuant to Section 2(b) of this Agreement.
(b) Shelf Registration. 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, (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 Notes acquired directly from the Company or an affiliate of the Company, or
(iii) the Exchange Offer is not for any other reason consummated within 180 days
of the Closing Date, the Company shall, at its cost, cause to be filed with the
Commission as promptly as practicable after such determination or date, as the
case may be, and, in any event, on or prior to 45 days thereafter, a Shelf
Registration Statement providing for the sale by the Holders of all of the
Registrable Securities, and shall use its best efforts to cause such Shelf
Registration Statement declared effective by the Commission on or prior to 90
days after such determination or date. No Holder of Registrable Securities may
include any of its Registrable Securities in any Shelf Registration pursuant to
this Agreement unless and until such Holder furnishes to the Company in writing,
within 15 days after receipt of a request therefor, such information as the
Company may, after conferring with counsel with regard to information relating
to Holders that would be required by the Commission to be included in such Shelf
Registration Statement or Prospectus included therein, reasonably request for
inclusion in any Shelf Registration Statement or Prospectus included therein.
Each Holder as to which any Shelf Registration is being effected agrees to
furnish promptly to the Company all information required to be disclosed in the
applicable Shelf Registration Statement or Prospectus included therein by the
rules and regulations of the Commission applicable to the Shelf Registration
Statement in order to make the information previously furnished to the Company
by such Holder not materially misleading.
The Company agrees, subject to applicable law or applicable
interpretation of the staff of the Commission, to use its reasonable best
efforts to keep the Shelf Registration Statement continuously effective,
supplemented and amended under the Act for a period ending on the earlier of the
date which is two years from the Closing Date (subject to extension pursuant to
the last paragraph of Section 3) or the date on which all of the Registrable
Securities covered by the Shelf Registration
<PAGE> 9
9
Statement have been sold pursuant to the Shelf Registration Statement or cease
to be outstanding (the "EFFECTIVENESS PERIOD"). The Company shall not permit any
securities other than Registrable Securities to be included in the Shelf
Registration. The Company will, in the event a Shelf Registration Statement is
declared effective, provide to each Holder copies of the prospectus which is a
part of the Shelf Registration Statement, notify each such Holder when the Shelf
Registration Statement has become effective and take certain other actions as
are customary to permit unrestricted resales of the Registrable Securities
covered by the Shelf Registration Statement. The Company further agrees, if
necessary, to use its reasonable best efforts to supplement or amend the Shelf
Registration Statement, if required by the Act or the rules, regulations or
instructions applicable to the registration form used by the Company for such
Shelf Registration Statement or by any other rules and regulations thereunder
for shelf registrations, or if reasonably requested by the holders of a majority
of the of Registrable Securities covered by such Shelf Registration Statement,
and the Company agrees to furnish to the Holders copies of any such supplement
or amendment promptly after its being used or filed with the Commission.
(c) Expenses. The Company shall pay all Registration
Expenses in connection with registrations pursuant to Section 2(a) or 2(b). Each
Holder shall pay all expenses of its counsel (other than the fees described in
clauses (i) and (ii) of the definition of "Registration Expenses"), underwriting
discounts and commissions and transfer taxes, if any, relating to the sale or
disposition of such Holder's Registrable Securities pursuant to the Exchange
Offer Registration Statement and the Shelf Registration Statement.
(d) Effective Registration Statement. An Exchange Offer
Registration Statement pursuant to Section 2(a) hereof or a Shelf Registration
Statement pursuant to Section 2(b) hereof will not be deemed to have become
effective unless it has been declared effective by the Commission; PROVIDED,
HOWEVER, that if, after it has been declared effective, the offering of
Registrable Securities pursuant to a Shelf Registration Statement is interfered
with by any stop order, injunction or other order or requirement of the
Commission or any other governmental agency or court, such Registration
Statement will be deemed not to have been effective during the period of such
interference, until the offering of Registrable Securities pursuant to such
Registration Statement may legally resume.
(e) Liquidated Damages. In the event that an Exchange
Offer Registration Statement has not been filed with the Commission on or prior
to 60 days after the Closing Date, additional interest payable by the Company as
liquidated damages ("LIQUIDATED DAMAGES") will accrue on the Notes from and
including the 61st day after the Closing Date until but excluding the date such
Exchange Offer Registration Statement is filed. In addition, if on or prior to
135 days after the Closing Date, such Exchange Offer Registration Statement is
not declared effective under the Act by the Commission, Liquidated Damages will
accrue on the Notes from and including the 136th day after the Closing Date
until but excluding the date such Exchange Offer Registration Statement is
declared effective. Further, if on or prior to 45 days after the date specified
for effectiveness of the Exchange Offer Registration
<PAGE> 10
10
Statement the Exchange Offer is not consummated, Liquidated Damages will accrue
on the Notes from and including the 46th day after the date specified for
effectiveness of the Exchange Offer Registration Statement until but excluding
the date of the Exchange Offer is consummated. If a Shelf Registration Statement
is required to be filed pursuant to Section 2(b) and such Shelf Registration
Statement is not filed or declared effective within the time periods provided by
Section 2(b) hereof for such filing or declaration, Liquidated Damages will
accrue on the Notes (other than those exchanged in the Exchange Offer) or the
Private Exchange Notes, as the case may be, from and including the day
immediately following such default until but excluding the effective date of the
Shelf Registration Statement. Further, if the Shelf Registration Statement or
the Exchange Offer Registration Statement is declared effective but thereafter
ceases to be effective or usable during the time periods specified in this
Agreement, Liquidated Damages will accrue on the Notes (other than those
exchanged in the Exchange Offer) or the Private Exchange Notes, as the case may
be, from and including the day immediately following such default until but
excluding the date such Registration Statement becomes effective or usable. In
each case, such Liquidated Damages will be payable in cash semiannually in
arrears, with the first semiannual payment due on the first interest payment
date in respect of the Notes (or the Private Exchange Notes) following the date
from which Liquidated Damages begin to accrue, and will accrue, under each
circumstance set forth above in an amount equal to $0.05 per week per $1,000
principal amount of Notes (or Private Exchange Notes) held by such Holder to
each Holder affected by such circumstance, which amount will increase by $0.05
per week per $1,000 principal amount of Notes (or Private Exchange Notes) for
each 90-day period that such Liquidated Damages continue to accrue under any
circumstance, up to a maximum amount of Liquidated Damages of $0.25 per week per
$1,000 principal amount of Notes (or Private Exchange Notes). For any portion of
a week that Liquidated Damages are payable hereunder, such Liquidated Damages
shall be calculated on a pro rata basis.
Upon the filing of the Exchange Offer Registration Statement, the
effectiveness of the Exchange Offer Registration Statement, or the consummation
of the Exchange Offer, as the case may be, the Liquidated Damages assessed in
respect of the Notes shall cease to accrue to the extent that such Liquidated
Damages related to the failure of any such event to have occurred. Upon the
effectiveness of a Shelf Registration Statement, the Liquidated Damages assessed
in respect of the Notes (and the Private Exchange Notes) shall cease to accrue,
from and as of the date of such effectiveness, unless and until reassessed as
described above. Notwithstanding anything to the contrary contained herein, the
Company (i) shall not be required to amend or supplement the Shelf Registration
Statement, any related prospectus or any document incorporated therein by
reference and (ii) may suspend the effectiveness of any such Shelf Registration
Statement in the event that, and for a period not to exceed, for so long as this
Agreement is in effect, an aggregate of 90 days in any one calendar year if (A)
an event occurs and is continuing as a result of which the Shelf Registration
Statement, any related prospectus or any document incorporated therein by
reference as then amended or supplemented would, in the Company's good faith
judgment, contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein not misleading,
and (B) the
<PAGE> 11
11
Company determines in its good faith judgment that the disclosure of such event
at such time would have a material adverse effect on the business, operations or
prospects of the Company; provided that any such suspension shall not relieve
the Company from its obligation to pay Liquidated Damages.
The Company shall notify the Trustee within three business days
after each and every date on which an event occurs in respect of which
Liquidated Damages is required to be paid (an "EVENT DATE"). Liquidated Damages
shall be paid by depositing with the Trustee, in trust, for the benefit of the
Holders of Notes, Exchange Notes or Private Exchange Notes, as the case may be,
on or before the applicable semiannual interest payment date, immediately
available funds in sums sufficient to pay the Liquidated Damages then due. The
Liquidated Damages due shall be payable on each interest payment date to the
record Holder of Notes entitled to receive the interest payment to be paid on
such date as set forth in the Indenture. Each obligation to pay Liquidated
Damages shall be deemed to accrue from and including the day following the
applicable Event Date.
(f) Specific Enforcement. Without limiting the remedies
available to the Initial Purchasers and the Holders, the Company acknowledges
that any failure by the Company to comply with its obligations under Section
2(a) and Section 2(b) hereof would result in material irreparable injury to the
Initial Purchasers or the Holders for which there is no adequate remedy at law,
that it would not be possible to measure damages for such injuries precisely and
that, in the event of any such failure, the Initial Purchasers or any Holder may
obtain such relief as may be required to specifically enforce the Company's
obligations under Section 2(a) and Section 2(b) hereof.
3. REGISTRATION PROCEDURES. In connection with the obligations
of the Company with respect to the Registration Statements pursuant to Sections
2(a) and 2(b) hereof, the Company shall:
(a) prepare and file with the Commission a Registration
Statement or Registration Statements as prescribed by Sections 2(a) and 2(b)
within the relevant time periods specified in Section 2 hereof on the
appropriate form under the Act, which form (i) shall be selected by the Company,
(ii) shall, in the case of a Shelf Registration, be available for the sale of
the Registrable Securities by the selling Holders and (iii) shall comply as to
form in all material respects with the requirements of the applicable form and
include or incorporate by reference all financial statements required by the
Commission to be filed therewith, and the Company shall use its best efforts to
cause such Registration Statement to become effective and remain effective in
accordance with Section 2; PROVIDED, HOWEVER, that if (1) such filing is
pursuant to Section 2(b), or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2(a) is required to be
delivered under the Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes, before filing any Registration Statement or Prospectus or any
amendments or supplements thereto, the Company, if requested, shall furnish to
and afford the Holders and each such Participating Broker-Dealer, as the case
may be,
<PAGE> 12
12
covered by such Registration Statement, their counsel and the managing
underwriters, if any, a reasonable opportunity to review copies of all such
documents (including copies of any documents to be incorporated by reference
therein and all exhibits thereto) proposed to be filed at least five business
days prior to such filing. The Company shall not file any Registration Statement
or Prospectus or any amendments or supplements thereto in respect of which the
Holders, pursuant to this Agreement, must be afforded an opportunity to review
prior to the filing of such document, if the holders of a majority of the
Registrable Securities covered by such Registration Statement or such
Participating Broker-Dealer, as the case may be, their counsel or the managing
underwriters, if any, shall reasonably object;
(b) subject to Section 3(a) hereof, prepare and file
with the Commission such amendments and post-effective amendments to each
Registration Statement as may be necessary to keep such Registration Statement
effective for the Effectiveness Period or the Applicable Period, as the case may
be, and cause each Prospectus to be supplemented by any required prospectus
supplement and as so supplemented to be filed pursuant to Rule 424 (or any
similar provision then in force) under the Act, and comply with the provisions
of the Act, the Exchange Act and the rules and regulations promulgated
thereunder applicable to it with respect to the disposition of all securities
covered by each Registration Statement during the Effectiveness Period or the
Applicable Period, as the case may be, in accordance with the intended method or
methods of distribution by the selling Holders thereof described in this
Agreement (including sales by any Participating Broker-Dealer);
(c) in the case of a Shelf Registration, (i) notify each
Holder, at least five business days prior to filing, that a Shelf Registration
Statement with respect to the Registrable Securities is being filed and advising
such Holder that the distribution of Registrable Securities will be made in
accordance with the method selected by the Majority Holders, (ii) furnish to
each Holder and to each underwriter of an underwritten offering of Registrable
Securities, if any, without charge, as many copies of each Prospectus, including
each preliminary Prospectus, and any amendment or supplement thereto and such
other documents as such Holder or underwriter may reasonably request, in order
to facilitate the public sale or other disposition of the Registrable
Securities, and (iii) subject to the last paragraph of this Section 3, consent
to the use of the Prospectus or any amendment or supplement thereto by each of
the selling Holders in connection with the offering and sale of the Registrable
Securities covered by the Prospectus or any amendment or supplement thereto,
provided that such use complies with all applicable laws and regulations;
(d) use its best efforts to register or qualify the
Registrable Securities under all applicable state securities or "blue sky" laws
of such jurisdictions as any Holder of Registrable Securities covered by a
Registration Statement and each underwriter of an underwritten offering of
Registrable Securities shall reasonably request by the time the applicable
Registration Statement is declared effective by the Commission, and do any and
all other acts and things which may be reasonably necessary or advisable to
enable such Holder and underwriter to consummate the disposition in each such
jurisdiction of such Registrable Securities owned by such
<PAGE> 13
13
Holder; PROVIDED, HOWEVER, that the Company shall not be required to (i) qualify
as a foreign partnership or foreign corporation or as a dealer in securities in
any jurisdiction where it would not otherwise be required to qualify but for
this Section 3(d), (ii) file any general consent to service of process in any
jurisdiction where it would not otherwise be subject to such service of process
or (iii) subject itself to taxation in any such jurisdiction if it is not then
so subject;
(e) in the case of (A) a Shelf Registration or (B)
Participating Broker-Dealers who have notified the Company that they will be
utilizing the Prospectus contained in the Exchange Offer Registration Statement
as provided in Section 3(t) hereof, are seeking to sell Exchange Notes and are
required to deliver Prospectuses, notify each Holder, or such Participating
Broker-Dealers, as the case may be, their counsel and the managing underwriters,
if any, promptly and, if requested by such Holder or Participating
Broker-Dealer, confirm such notice in writing (i) when a Registration Statement
has become effective and when any post-effective amendments and supplements
thereto become effective, (ii) of any request by the Commission or any state
securities authority for amendments and supplements to a Registration Statement
or Prospectus or for additional information after the Registration Statement has
become effective, (iii) of the issuance by the Commission or any state
securities authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that purpose,
(iv) in the case of a Shelf Registration, if, between the effective date of a
Registration Statement and the closing of any sale of Registrable Securities
covered thereby, the representations and warranties of the Company contained in
any underwriting agreement, securities sales agreement or other similar
agreement, if any, relating to such offering cease to be true and correct in all
material respects, (v) if the Company receives any notification with respect to
the suspension of the qualification of the Registrable Securities or the
Exchange Notes to be sold by any Participating Broker-Dealer for offer or sale
in any jurisdiction or the initiation of any proceeding for such purpose, (vi)
of the happening of any event or the failure of any event to occur or the
discovery of any facts or otherwise, during the period a Shelf Registration
Statement is effective or the Applicable Period, as the case may be, which makes
any statement made in the Shelf Registration Statement, the Exchange Offer
Registration Statement or any related Prospectus untrue in any material respect
or which causes such Registration Statement or Prospectus, as the case may be,
to omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading and
(vii) of the Company's reasonable determination that a post-effective amendment
to the Registration Statement would be appropriate;
(f) use its best efforts to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement at the earliest
possible moment;
(g) in the case of a Shelf Registration, furnish to each
Holder, upon request and without charge, at least one conformed copy of each
<PAGE> 14
14
Registration Statement and any post-effective amendment thereto (without
documents incorporated therein by reference or exhibits thereto, unless
requested);
(h) in the case of a Shelf Registration, cooperate with
the selling Holders to facilitate the timely preparation and delivery of
certificates, if any, representing Registrable Securities to be sold, which
certificates shall not bear any restrictive legends and shall be in a form
eligible for deposit with the Depositary; and cause such Registrable Securities
to be in such denominations (consistent with the provisions of the Indenture)
and registered in such names as the selling Holders or the managing underwriters
may reasonably request at least two business days prior to the closing of any
sale of Registrable Securities;
(i) subject to Section 3(a) hereof and the second
paragraph of Section 2(e) hereof, in the case of a Shelf Registration or an
Exchange Offer Registration, upon the occurrence of any circumstance
contemplated by Section 3(e)(ii), 3(e)(iii), 3(e)(iv), 3(e)(v), 3(e)(vi) or
3(e)(vii) hereof, use its best efforts to prepare a supplement or post-effective
amendment to the Registration Statement and the related Prospectus or any
document incorporated therein by reference or file any other required document
so that, as thereafter delivered to the purchasers of the Registrable
Securities, such Prospectus will not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
The Company agrees to notify each Holder to suspend use of the Prospectus as
promptly as practicable after the occurrence of any such circumstance, and each
Holder hereby agrees to suspend use of the Prospectus until the Company has
amended or supplemented the Prospectus to correct such misstatement or omission;
(j) in the case of a Shelf Registration, furnish to each
Holder of Registrable Securities, upon request and without charge, a reasonable
number of copies of any document which is incorporated by reference into or is
an exhibit to a Registration Statement or a Prospectus after the initial filing
of a Registration Statement;
(k) obtain a CUSIP number for all Exchange Notes or
Registrable Securities, as the case may be, not later than the effective date of
a Registration Statement, and provide the Trustee with printed certificates for
the Exchange Notes or the Registrable Securities, as the case may be, in a form
eligible for deposit with the Depositary;
(l) cause the Indenture to be qualified under the TIA in
connection with the registration of the Exchange Notes or Registrable
Securities, as the case may be, cooperate with the Trustee and the Holders to
effect such changes to the Indenture as may be required for the Indenture to be
so qualified in accordance with the terms of the TIA and execute, and use its
best efforts to cause the Trustee to execute, all documents as may be required
to effect such changes, and all other forms
<PAGE> 15
15
and documents required to be filed with the Commission to enable the Indenture
to be so qualified in a timely manner;
(m) in the case of a Shelf Registration, enter into such
agreements (including underwriting agreements) as are customary in underwritten
public offerings and take all such other appropriate actions as are reasonably
requested in order to expedite or facilitate the registration or the disposition
of such Registrable Securities, and in such connection, whether or not an
underwriting agreement is entered into and whether or not the registration is an
underwritten registration: (i) make such representations and warranties to
Holders of such Registrable Securities and the underwriters (if any), with
respect to the business of the Company and its subsidiaries and the Registration
Statement, the Prospectus and all documents, if any, incorporated or deemed to
be incorporated by reference therein, in each case, as are customarily made by
issuers to underwriters in underwritten public offerings, and confirm the same
if and when reasonably requested; (ii) obtain customary opinions of counsel to
the Company and updates thereof in form and substance reasonably satisfactory to
the managing underwriters (if any) and the Holders of a majority in principal
amount of the Registrable Securities being sold, addressed to each selling
Holder and the underwriters (if any) covering the matters customarily covered in
opinions requested in underwritten public offerings and such other matters as
may be reasonably requested by such Holders and underwriters; (iii) obtain "cold
comfort" letters and updates thereof in form and substance reasonably
satisfactory to the managing underwriters from the independent certified public
accountants of the Company (and, if necessary, any other independent certified
public accountants of any subsidiary of the Company or of any business acquired
or to be acquired by the Company for which financial statements and financial
data are, or are required to be, included in the Registration Statement),
addressed to the selling Holders of Registrable Securities and to each of the
underwriters, such letters to be in customary form and covering matters of the
type customarily covered in "cold comfort" letters in connection with
underwritten public offerings; and (iv) if an underwriting agreement is entered
into, cause the same to contain indemnification provisions and procedures no
less favorable than those set forth in Section 4 hereof (or such other
provisions and procedures acceptable to Holders of a majority in aggregate
principal amount of Registrable Securities covered by such Registration
Statement and the managing underwriters or agents) with respect to all parties
to be indemnified pursuant to said Section. The above shall be done at each
closing under such underwriting agreement, or as and to the extent required
thereunder;
(n) if (A) a Shelf Registration is filed pursuant to
Section 2(b) or (B) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2(a) is required to be delivered under the
Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during
the Applicable Period, make available for inspection by any selling Holder of
such Registrable Securities being sold, or each such Participating
Broker-Dealer, as the case may be, any underwriter participating in any such
disposition of Registrable Securities, if any, and any attorney, accountant or
other agent retained by any such selling Holder or each such Participating
Broker-Dealer, as the case may be, or
<PAGE> 16
16
underwriter (collectively, the "INSPECTORS"), at the offices where normally
kept, during reasonable business hours, all financial and other records,
pertinent corporate documents and properties of the Company and its subsidiaries
(collectively, the "RECORDS") as shall be reasonably necessary to enable them to
exercise any applicable due diligence responsibilities, and cause the officers,
directors and employees of the Company and its subsidiaries to supply all
information in each case reasonably requested by any such Inspector in
connection with such Registration Statement. Records which the Company
determines, in good faith, to be confidential and as to which they notify the
Inspectors are confidential shall not be disclosed by the Inspectors unless,
after prior consultation with the Company, (i) the disclosure of such Records is
necessary to avoid or correct a material misstatement or omission in such
Registration Statement, (ii) the release of such Records is ordered pursuant to
an effective subpoena or other order from a court of competent jurisdiction or
(iii) the information in such Records has been made generally available to the
public, other than as a result of a breach of confidentiality or secrecy to the
Company. Each selling Holder of such Registrable Securities and each such
Participating Broker-Dealer will be required to agree that information obtained
by it as a result of such inspections shall be deemed confidential and shall not
be used by it as the basis for any market transactions in the securities of the
Company unless and until such is made generally available to the public, other
than as a result of a breach of confidentiality or secrecy to the Company. Each
selling Holder of such Registrable Securities and each such Participating
Broker-Dealer will be required to further agree that it will, upon learning that
disclosure of such Records is sought in a court of competent jurisdiction or is
otherwise required upon the written advice of counsel to such Participating
Broker-Dealer, give notice to the Company and allow the Company at its expense
to undertake appropriate action to prevent disclosure of the Records deemed
confidential;
(o) comply with all applicable rules and regulations of
the Commission and, as soon as reasonably practicable, make generally available
to the Holders earnings statements of the Company covering at least 12 months
satisfying the provisions of Section 11(a) of the Act and Rule 158 thereunder
(or any similar rule promulgated under the Act);
(p) upon consummation of an Exchange Offer or a Private
Exchange, obtain an opinion of counsel to the Company addressed to the Trustee
for the benefit of all Holders of Registrable Securities participating in the
Exchange Offer or the Private Exchange, as the case may be, and which includes
an opinion that (i) the Company has duly authorized, executed and delivered the
Exchange Notes and Private Exchange Notes and the Indenture, as the case may be,
and (ii) each of the Exchange Notes or the Private Exchange Notes and the
Indenture, as the case may be, constitute a legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with its
respective terms (in each case, with customary exceptions);
(q) if an Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Registrable Securities by Holders to the
Company
<PAGE> 17
17
(or to such other Person as directed by the Company) in exchange for the
Exchange Notes or the Private Exchange Notes, as the case may be, the Company
shall mark, or cause to be marked, on such Registrable Securities delivered by
such Holders that such Registrable Securities are being cancelled in exchange
for the Exchange Notes or the Private Exchange Notes, as the case may be; in no
event shall such Registrable Securities be marked as paid or otherwise
satisfied;
(r) cooperate with each seller of Registrable Securities
covered by any Registration Statement and each underwriter, if any,
participating in the disposition of such Registrable Securities and their
respective counsel in connection with any filings required to be made with the
NASD;
(s) use its best efforts to take all other steps
necessary to effect the registration of the Registrable Securities covered by a
Registration Statement contemplated hereby;
(t) (A) in the case of the Exchange Offer Registration
Statement (i) include in the Exchange Offer Registration Statement a section
entitled "PLAN OF DISTRIBUTION," which section shall be reasonably acceptable to
the Initial Purchasers or another representative of the Participating
Broker-Dealers, and which shall contain a summary statement of the positions
taken or policies made by the staff of the Commission with respect to the
potential "underwriter" status of any broker-dealer (a "PARTICIPATING
BROKER-DEALER") that holds Registrable Securities acquired for its own account
as a result of market-making activities or other trading activities and that
will be the beneficial owner (as defined in Rule 13d-3 under the Exchange Act)
of Exchange Notes to be received by such broker-dealer in the Exchange Offer,
whether such positions or policies have been publicly disseminated by the staff
of the Commission or such positions or policies, in the reasonable judgment of
the Initial Purchasers or such other representative, represent the prevailing
views of the staff of the Commission, including a statement that any such
broker-dealer who receives Exchange Notes for Registrable Securities pursuant to
the Exchange Offer may be deemed a statutory underwriter and must deliver a
prospectus meeting the requirements of the Act in connection with any resale of
such Exchange Notes, (ii) furnish to each Participating Broker-Dealer who has
delivered to the Company the notice referred to in Section 3(e), without charge,
as many copies of each Prospectus included in the Exchange Offer Registration
Statement, including any preliminary prospectus, and any amendment or supplement
thereto, as such Participating Broker-Dealer may reasonably request, (iii)
subject to the last paragraph of this Section 3, hereby consent to the use of
the Prospectus forming part of the Exchange Offer Registration Statement or any
amendment or supplement thereto, by any Person subject to the prospectus
delivery requirements of the Commission, including all Participating
Broker-Dealers, in connection with the sale or transfer of the Exchange Notes
covered by the Prospectus or any amendment or supplement thereto, (iv) use its
best efforts to keep the Exchange Offer Registration Statement effective and to
amend and supplement the Prospectus contained therein, in order to permit such
Prospectus to be lawfully delivered by all Persons subject to the prospectus
delivery requirements of the Act for such period of time as such Persons
<PAGE> 18
18
must comply with such requirements in order to resell the Exchange Notes
(PROVIDED, HOWEVER, that such period shall not be required to exceed 180 days,
or such longer period if extended pursuant to the last sentence of this Section
3 (the "APPLICABLE PERIOD")), and (v) include in the transmittal letter or
similar documentation to be executed by an exchange offeree all necessary
information for such offeree to participate in the Exchange Offer;
(B) in the case of any Exchange Offer
Registration Statement, the Company agrees to deliver to the Initial Purchasers
or to another representative of the Participating Broker-Dealers on behalf of
the Participating Broker-Dealers upon consummation of the Exchange Offer (i) an
opinion of counsel substantially in the form attached hereto as EXHIBIT A, (ii)
an Officer's Certificate containing certifications substantially similar to
those set forth in Section 8(d) of the Purchase Agreement and such additional
certifications as are customarily delivered in a public offering of debt
securities, and (iii) a comfort letter in customary form permitted by Statement
of Auditing Standards No. 72 of the American Institute of Certified Public
Accountants.
The Company may require each seller of Registrable Securities as
to which any registration is being effected to furnish to the Company such
information regarding such seller and the proposed distribution of such
Registrable Securities as the Company may from time to time reasonably request
in writing. The Company may exclude from such registration the Registrable
Securities of any seller who unreasonably fails to furnish such information
within a reasonable time after receiving such request.
In the case of (i) a Shelf Registration Statement or (ii)
Participating Broker-Dealers who have notified the Company that they will be
utilizing the Prospectus contained in the Exchange Offer Registration Statement
as provided in Section 3(t) hereof, are seeking to sell Exchange Notes and are
required to deliver copies of such Prospectus, each Holder agrees that, upon
receipt of any notice from the Company of the happening of any event of the kind
described in Section 3(e)(ii), 3(e)(iii), 3(e)(iv), 3(e)(v), 3(e)(vi) or
3(e)(vii) hereof, such Holder will forthwith discontinue disposition of
Registrable Securities pursuant to a Registration Statement until such Holder's
receipt of the copies of the supplemented or amended Prospectus contemplated by
Section 3(i) hereof or until it is advised in writing by the Company that the
use of the applicable Prospectus may be resumed, and, if so directed by the
Company, such Holder will deliver to the Company (at the Company's expense) all
copies in such Holder's possession, other than permanent file copies then in
such Holder's possession, of the Prospectus covering such Registrable Securities
or Exchange Notes, as the case may be, current at the time of receipt of such
notice. If the Company shall give any such notice to suspend the disposition of
Registrable Securities or Exchange Notes, as the case may be, pursuant to a
Registration Statement, the Company shall use its best efforts to file and have
declared effective (if an amendment) as soon as practicable an amendment or
supplement to the Registration Statement and shall extend the period during
which such Registration Statement shall be maintained effective pursuant to this
Agreement by the number of
<PAGE> 19
19
days in the period from and including the date of the giving of such notice to
and including the date when the Company shall have made available to the Holders
copies of the supplemented or amended Prospectus necessary to resume such
dispositions or shall have advised the Holders in writing that the use of the
applicable Prospectus may be resumed.
4. INDEMNIFICATION AND CONTRIBUTION. (a) The Company shall
indemnify and hold harmless the Initial Purchasers, each Holder, each
Participating Broker-Dealer, each underwriter who participates in an offering of
Registrable Securities, each of their respective affiliates, each Person, if
any, who controls any of such parties within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act, and each of their respective directors,
officers, partners, employees, representatives and agents, to the fullest extent
lawful as follows:
(i) from and against any and all loss, liability,
claim, damage and expense whatsoever, joint or several, as incurred, arising out
of any untrue statement or alleged untrue statement of a material fact contained
in any Registration Statement or any amendment thereto pursuant to which the
offer and sale of the Registrable Securities or Exchange Notes were registered
under the Act including all documents incorporated therein by reference, or the
omission or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading, or arising
out of any untrue statement or alleged untrue statement of a material fact
contained in any Prospectus or any amendment or supplement thereto, or the
omission or alleged omission therefrom of a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading;
(ii) from and against any and all loss, liability,
claim, damage and expense whatsoever, joint or several, to the extent of the
aggregate amount paid in settlement of any litigation, or any investigation or
proceeding by any court or governmental agency or body, whether commenced or
threatened, or any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, if and only if such
settlement is effected with the prior written consent of the Company; and
(iii) from and against any and all expenses
whatsoever (including reasonable fees and disbursements of counsel chosen by the
Initial Purchasers, Holder, Participating Broker-Dealer or underwriter (except
to the extent otherwise expressly provided in Section 4(c) hereof)), as
incurred, reasonably incurred in investigating, preparing for or defending
against any litigation, or any investigation or proceeding by any court or
governmental agency or body, whether commenced or threatened, or any other claim
whatsoever based upon any such untrue statement or omission, or any such alleged
untrue statement or omission, to the extent that any such expense is not paid
under subparagraph (i) or (ii) of this Section 4(a);
<PAGE> 20
20
PROVIDED, HOWEVER, that this indemnity does not apply to any loss, liability,
claim, damage or expense to the extent arising out of an untrue statement or
omission or alleged untrue statement or omission (i) made solely in reliance
upon and in conformity with written information furnished to the Company by the
Initial Purchasers, such Holder, such Participating Broker-Dealer or any
underwriter in writing expressly for use in the Registration Statement (or any
amendment thereto) or any Prospectus (or any amendment or supplement thereto) or
(ii) contained in any preliminary prospectus or any Prospectus if the Initial
Purchasers, such Holder, such Participating Broker-Dealer or such underwriter
failed to send or deliver a copy of the Prospectus (as then amended or
supplemented if the Company shall have timely furnished any amendments or
supplements thereto) to the Person asserting such losses, liabilities, claims or
damages on or prior to the delivery of written confirmation of any sale of
securities covered thereby to such Person in any case where such delivery is
required by the Act and such Prospectus (as so amended or supplemented) would
have corrected such untrue statement or omission and the delivery thereof would
have eliminated such losses, claims, damages or liabilities. Any amounts
advanced by the Company to an indemnified party pursuant to this Section 4 as a
result of such losses shall be returned to the Company if it shall be finally,
judicially determined by a court of competent jurisdiction that such indemnified
party was not entitled to indemnification by the Company pursuant to this
Section 4.
(b) Each Holder agrees, severally and not jointly, to
indemnify and hold harmless the Company, the Initial Purchasers, each
underwriter who participates in an offering of Registrable Securities and the
other selling Holders and each of their respective directors, officers
(including each officer of the Company who signed the Registration Statement),
employees, representatives and agents, and each Person, if any, who controls the
Company, the Initial Purchasers, any underwriter or any other selling Holder
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act,
from and against any and all loss, liability, claim, damage and expense
whatsoever described in the indemnity contained in Section 4(a) hereof, as
reasonably incurred, but only with respect to untrue statements or omissions, or
alleged untrue statements or omissions, made in the Registration Statement (or
any amendment thereto) or any Prospectus (or any amendment or supplement
thereto) solely in reliance upon and in conformity with written information
furnished to the Company by such selling Holder expressly for use in the
Registration Statement (or any amendment thereto) or any such Prospectus (or any
amendment or supplement thereto); PROVIDED, HOWEVER, that, in the case of a
Shelf Registration Statement, no such Holder shall be liable for any claims
hereunder in excess of the amount of net proceeds received by such Holder from
the sale of Registrable Securities pursuant to such Shelf Registration
Statement.
(c) Each indemnified party shall give prompt notice to
each indemnifying party of any action in respect of which indemnity may be
sought hereunder, enclosing a copy of all papers properly served on such
indemnified party (but failure to notify an indemnifying party shall not relieve
such indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have other
<PAGE> 21
21
than on account of this indemnity agreement). An indemnifying party may
participate, at its own expense, in the defense of any such action. If an
indemnifying party so elects within a reasonable time after receipt of such
notice, such indemnifying party, jointly with any other indemnifying party, may
assume the defense of such action with counsel chosen by it and reasonably
satisfactory to the indemnified parties defendant in such action; PROVIDED,
HOWEVER, that if any such indemnified party reasonably determines, upon written
advice of counsel, that there may be legal defenses available to such
indemnified party which are different from or in addition to those available to
such indemnifying party or that representation of such indemnifying party and
any indemnified party by the same counsel would present a conflict of interest,
then one additional counsel in each jurisdiction for all indemnified parties
having consistent interests and such different or additional defenses or subject
to such conflict shall be entitled to conduct the defense of such indemnified
parties with the fees and expenses of such counsel to be borne by the
indemnifying party or parties. If an indemnifying party assumes the defense of
an action in accordance with and as permitted by the provisions of this Section
4(c), such indemnifying party shall not be liable for any fees and expenses of
counsel for the indemnified parties incurred thereafter in connection with such
action (except to the extent set forth in the proviso contained in the
immediately preceding sentence). In no event shall the indemnifying party or
parties be liable for the fees and expenses of more than one counsel for all
indemnified parties in connection with any one action, or separate but similar
or related actions in the same jurisdiction arising out of the same general
allegations or circumstances. No indemnifying party shall, without the prior
written consent of the indemnified parties, which consent shall not be
unreasonably withheld, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 4, unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and does not include a
statement as to or an admission of fault, culpability or a failure to act by or
on behalf of any indemnified party.
(d) Notwithstanding any payment or payments made by the
Company hereunder, the Company hereby expressly waives subrogation to, and
agrees that it shall not be entitled to be subrogated to, any of the rights of
any indemnified party against the Company or any other right of offset held by
any indemnified party for the payment of any amounts owed to any indemnified
party pursuant to this Section 4; PROVIDED, HOWEVER, that if any of the
foregoing provisions of this paragraph are held to be contrary to applicable law
or unenforceable by a court of competent jurisdiction, the Company hereby
expressly agrees that any right of subrogation or contribution that the Company
may have as a result of such applicable law or unenforceability, as the case may
be, shall be subordinate in right of payment to the payment in full in cash of
all amounts owed to any indemnified party pursuant to this Section 4.
<PAGE> 22
22
(e) If the indemnification provided for in this Section
4 is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to herein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the indemnifying party
or parties on the one hand and the indemnified party or parties on the other
hand from the offering of the Notes pursuant to the Purchase Agreement, or (ii)
if the allocation provided by clause (i) is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the indemnifying
party or parties on the one hand and of the indemnified party or parties on the
other hand in connection with the statements or omissions which resulted in such
losses, liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
The relative benefits received by the Company on the one hand and
the Initial Purchasers on the other hand in connection with the offering of the
Notes pursuant to the Purchase Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the Notes
pursuant to the Purchase Agreement (before deducting expenses) received by the
Company and the total discount received by the Initial Purchasers bear to the
aggregate initial offering price of the Notes.
The relative fault of the Company on the one hand and the Holders
on the other hand shall be determined by reference to, among other things,
whether any such untrue or alleged untrue statement of a material fact or
omission or alleged omission to sate a material fact relates to information
supplied by the Company or by the Holders, and the respective parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the Holders agree that it would not be just and
equitable if contribution pursuant to this Section 4 were determined by pro rata
allocation (even if the Holders were treated as one entity for such purpose) or
by any other method of allocation which does not take account of the equitable
considerations referred to above in this Section 4(e). The aggregate amount of
losses, liabilities, claims, damages and expenses incurred by an indemnified
party and referred to above in this Section 4(e) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
investigating, preparing for or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any untrue or alleged untrue
statement or omission or alleged omission referred to in Section 4(a)(i).
Notwithstanding the provisions of this Section 4(e), no Initial
Purchaser shall be required to contribute any amount in excess of the amount by
which the total discount received by such Initial Purchaser in respect of the
purchase price of the Notes purchased by it from the Company exceeds the amount
of any damages which
<PAGE> 23
23
the Initial Purchasers have otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 4(c), each person, if any, who
controls an Initial Purchaser, a Holder, a Participating Broker-Dealer, an
underwriter who participates in an offering of Registrable Securities, or the
affiliates of any of them, within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act shall have the same rights to contribution as the
Initial Purchasers, and each director, officer (including each officer of the
Company who signed the Registration Statement), partner, employee,
representative and agent of the Company, the Initial Purchasers, each Holder,
each Participating Broker-Dealer, and each underwriter who participates in an
offering of Registrable Securities and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act shall have the same rights to contribution as the Company.
5. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Holder may
participate in any underwritten registration hereunder unless such Holder (a)
agrees to sell such Holder's Registrable Securities on the basis provided in any
customary underwriting arrangements approved by the Holders of a majority in
aggregate principal amount of the Registrable Securities included in such
offering and (b) completes and executes all reasonable questionnaires, powers of
attorney, indemnities, underwriting agreements, lock-up letters and other
documents reasonably required in connection with such underwriting arrangements.
6. SELECTION OF UNDERWRITERS. In any underwritten offering,
the underwriter or underwriters and manager or managers that will administer the
offering will be selected by the Holders of a majority in aggregate principal
amount of the Registrable Securities included in such offering; PROVIDED,
HOWEVER, that such underwriters and managers must be reasonably satisfactory to
the Company.
7. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. The Company has not
entered into nor will the Company on or after the date of this Agreement enter
into any agreement that is inconsistent with the rights granted to the Holders
of Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof.
(b) AMENDMENTS AND WAIVERS. The provisions of this
Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the Company has obtained the written
consent of the Majority Holders; provided, however, that no amendment,
modification or
<PAGE> 24
24
supplement or waiver or consent to the departure with respect to the provisions
of Section 4 hereof shall be effective as against any Holder of Registrable
Securities unless consented to in writing by such Holder of Registrable
Securities.
(c) NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
sent by registered or certified mail, postage prepaid, sent by any national
courier service guaranteeing overnight delivery or transmitted by any standard
form of telecommunication, as follows: (i) if to a Holder, at the most current
address given by such Holder to the Company in accordance with the provisions of
this Section 7(c), which address, with respect to an Initial Purchaser, shall
initially be the address provided for such Initial Purchaser in the Purchase
Agreement; and (ii) if to the Company, at its address as set forth in the
Purchase Agreement, or at such other address provided in accordance with the
provisions of this Section 7(c).
All such notices and communications shall be deemed to have been
duly given at the earlier of: (i) the time of actual receipt by the addressee;
or (ii) the time delivered, if personally delivered, or five business days after
being sent by registered or certified mail, postage prepaid, if mailed, or when
answered back, if telexed, or when transmission is confirmed, if telecopied, or
on the next business day, if timely delivered to a national courier service
guaranteeing overnight delivery.
Copies of all notices, demands, or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at its
address specified in the Indenture.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall inure
to the benefit of and be binding upon the successors, assigns and transferees of
the Initial Purchasers, including, without limitation and without the need for
an express assignment, subsequent Holders; PROVIDED, HOWEVER, that nothing
herein shall be deemed to permit any assignment, transfer or other disposition
of Registrable Securities in violation of the terms of the Purchase Agreement or
the Indenture. If any transferee of any Holder shall acquire Registrable
Securities, in any manner, whether by operation of law or otherwise, such
Registrable Securities shall be held subject to all of the terms of this
Agreement, and by taking and holding such Registrable Securities, such Person
shall be conclusively deemed to have agreed to be bound by and to perform all of
the terms and provisions of this Agreement and such Person shall be entitled to
receive the benefits hereof.
(e) THIRD PARTY BENEFICIARY. The Holders shall be third
party beneficiaries of the agreements made hereunder between the Company, on the
one hand, and the Initial Purchasers, on the other hand, and the Holders shall
have the right to enforce such agreements directly to the extent they deem such
enforcement necessary or advisable to protect their rights or the rights of any
of the other Holders.
<PAGE> 25
25
(f) HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(g) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK,
WITHOUT GIVING EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAWS.
(h) SEVERABILITY. In the event that any one or more of
the provisions contained herein, or the application thereof in any circumstance,
is held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(i) NOTES HELD BY THE COMPANY OR ITS AFFILIATES.
Whenever the consent or approval of Holders of a specified percentage of
Registrable Securities is required hereunder, Registrable Securities held by the
Company or any affiliate of the Company (as such term is defined in Rule 405
under the Act) shall not be counted in determining whether such consent or
approval was given by the Holders of such required percentage.
(j) COUNTERPARTS. This Agreement may be executed in one
or more counterparts and, when so executed, all such counterparts taken together
shall constitute one and the same agreement.
<PAGE> 26
26
IN WITNESS WHEREOF, the parties hereto have executed this
Registration Rights Agreement as of the date first written above.
NORTEK, INC.
By: /s/ Kevin W. Donnelly
----------------------------------
Name: Kevin W. Donnelly
Title: Vice President
Accepted as of the date first above written:
WASSERSTEIN PERELLA SECURITIES, INC.
By:
---------------------------------------
Name:
Title:
BEAR, STEARNS & CO. INC.
By:
---------------------------------------
Name:
Title:
<PAGE> 27
26
IN WITNESS WHEREOF, the parties hereto have executed this
Registration Rights Agreement as of the date first written above.
NORTEK, INC.
By:
----------------------------------
Name:
Title:
Accepted as of the date first above written:
WASSERSTEIN PERELLA SECURITIES, INC.
By: /s/ illegible
---------------------------------------
Name:
Title:
BEAR, STEARNS & CO. INC.
By:
---------------------------------------
Name:
Title:
<PAGE> 28
26
IN WITNESS WHEREOF, the parties hereto have executed this
Registration Rights Agreement as of the date first written above.
NORTEK, INC.
By:
----------------------------------
Name:
Title:
Accepted as of the date first above written:
WASSERSTEIN PERELLA SECURITIES, INC.
By:
---------------------------------------
Name:
Title:
BEAR, STEARNS & CO. INC.
By: /s/ Michael L. Offen
---------------------------------------
Name: Michael L. Offen
Title: Senior Managing Director
<PAGE> 29
27
EXHIBIT A
FORM OF OPINION OF COUNSEL
1. Each of the Exchange Offer Registration Statement and the
Prospectus (other than the financial statements, notes or schedules thereto and
other financial and statistical data and supplemental schedules included or
referred to therein or omitted therefrom and the Form T-1, as to which such
counsel need express no opinion), complies as to form in all material respects
with the applicable requirements of the Act and the applicable rules and
regulations promulgated under the Act.
2. In the course of such counsel's review and discussion of
the contents of the Exchange Offer Registration Statement and the Prospectus
with certain officers and other representatives of the Company and
representatives of the independent certified public accountants of the Company,
but without independent check or verification or responsibility for the
accuracy, completeness or fairness of the statements contained therein, on the
basis of the foregoing (relying as to materiality to a large extent upon
representations and opinions of officers and other representatives of the
Company), no facts have come to such counsel's attention which cause such
counsel to believe that the Exchange Offer Registration Statement (other than
the financial statements, notes and schedules thereto and other financial and
statistical information contained or referred to therein and the Form T-1, as to
which such counsel need express no belief), at the time the Exchange Offer
Registration Statement became effective, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements contained therein not misleading, or that
the Prospectus (other than the financial statements, notes and schedules thereto
and other financial and statistical information contained or referred to
therein, as to which such counsel need express no belief) contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained therein, in light of the circumstances under which they
were made, not misleading.
<PAGE> 1
[Ropes & Gray Letterhead]
EXHIBIT 5
September 26, 1997
Nortek, Inc.
50 Kennedy Plaza
Providence, Rhode Island 02903
Ladies and Gentlemen:
This opinion is rendered to you in connection with a registration
statement (the "Registration Statement") on Form S-4 filed today with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Act"), relating to the exchange offer (the "Exchange Offer") by Nortek,
Inc. ("Nortek") to exchange its $310,000,000 9 1/8% Series B Notes due 2007 (the
"Exchange Notes") for its outstanding $310,000,000 9 1/8% Series A Notes due
2007 (the "Original Notes"). The Original Notes were, and the Exchange Notes are
to be, issued pursuant to the provisions of an indenture (the "Indenture")
entered into between Nortek and State Street Bank and Trust Company, a national
banking association, as Trustee (the "Trustee").
We have acted as special counsel for Nortek in connection with the
Exchange Offer and the preparation of the Registration Statement. For purposes
of this opinion, we have examined and relied upon the information set forth in
the Registration Statement and such other documents and records as we have
deemed necessary. We express no opinion as to the laws of any jurisdiction other
than those of The Commonwealth of Massachusetts, the General Corporation Law of
the State of Delaware and the federal laws of the United States of America. We
call your attention to the fact that each of the Indenture and the Exchange
Notes provides that it is to be governed by the laws of the State of New York.
For purposes of the opinion provided herein, we have assumed with your
permission that the Indenture and the Exchange Notes would be governed by and
construed in accordance with the domestic substantive laws of The Commonwealth
of Massachusetts without giving effect to any choice of law or conflict of laws
rule or provision that would cause the application of the domestic substantive
laws of any other jurisdiction.
Based upon the foregoing, we are of the opinion that, when the Exchange
Notes have been duly authorized, executed, issued and delivered as provided in
the Indenture, and delivered in exchange for the Original Notes, as described in
the Registration Statement, and assuming due authentication by the Trustee, the
Exchange Notes will constitute valid and
<PAGE> 2
Nortek, Inc. -2- September 26, 1997
binding obligations of Nortek, enforceable against Nortek, in accordance with
their terms, except as enforceability (i) may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting creditors' rights
generally (including, without limitation, Section 548 of Title 11 of The United
States Code and fraudulent conveyance or similar provisions of state law) and
(ii) is subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law), and will be
entitled to the benefits of the Indenture.
We hereby consent to the filing of this opinion as part of the
Registration Statement and to the use of our name therein and in the related
prospectus under the caption "Legal Matters."
It is understood that this opinion is to be used only in connection with
the Exchange Offer while the Registration Statement is in effect.
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
<PAGE> 1
Exhibit 12
Nortek, Inc.
Calculation of Earnings to Fixed Charges
(Amounts in Millions)
<TABLE>
<CAPTION>
Six Months Ended
June 29, June 25,
1992 1993 1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings (Loss) from Continuing Operations (21.0) (12.6) 17.2 15.0 22.0 8.2 10.4
Provision (Credit) for Income Taxes 3.0 1.0 10.2 9.3 14.0 4.9 5.6
---------------------------------------------------------------
"Earnings" (18.0) (11.6) 27.4 24.3 36.0 13.1 16.0
===============================================================
Fixed Charges:
Interest Expense including amortization of 29.2 26.5 26.2 24.9 30.1 15.5 18.5
Debt Expense and Discount
Interest portion of Rental Expense 2.6 2.0 2.1 2.1 2.0 1.0 1.0
Interest on Indebtedness of a Former Sub.
Guaranteed by Company 0.8 0.0 0.0 0.0 0.0 0.0 0.0
---------------------------------------------------------------
"Fixed Charges" 32.6 28.5 28.3 27.0 32.1 16.5 19.5
===============================================================
Earnings Available for Fixed Charges 14.6 16.9 55.7 51.3 68.1 29.6 35.5
===============================================================
Ratio of Earnings to Fixed Charges N/A N/A 1.97 1.90 2.12 1.79 1.82
===============================================================
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1996 Six Months Ended June 28, 1997
Adjusted Adjusted
Nortek Pro Forma Pro Forma Nortek Pro Forma Pro Forma
As Adjusted Company Company As Adjusted Company Company
<S> <C> <C> <C> <C> <C> <C>
Earnings (Loss) from Continuing Operations 13.9 6.6 15.4 8.7 3.2 8.2
Provision (Credit) for Income Taxes 9.9 13.0 17.8 4.8 3.1 5.8
------------ -------- --------- ---------- -------- -------
"Earnings" 23.8 19.6 33.2 13.5 6.3 14.0
============ ======== ========= ========== ======== =======
Fixed Charges:
Interest Expense including amortization of 42.3 79.9 79.9 21.0 39.8 39.8
Debt Expense and Discount
Interest portion of Rental Expense 2.0 7.9 7.9 1.0 3.7 3.7
Interest on Indebtedness of a Former Sub.
Guaranteed by Company 0.0 0.0 0.0 0.0 0.0 0.0
----------- -------- --------- ---------- -------- --------
"Fixed Charges" 44.3 87.8 87.8 22.0 43.5 43.5
============ ======== ========= ========== ======== =======
Earnings Available for Fixed Charges 68.1 107.4 121.0 35.5 49.8 57.5
============ ======== ========= ========== ======== =======
Ratio of Earnings to Fixed Charges 1.54 1.22 1.38 1.61 1.14 1.32
============ ======== ========= ========== ======== =======
</TABLE>
<TABLE>
<CAPTION>
Twelve Months Ended June 28, 1997
Adjusted
Nortek Pro Forma Pro Forma
As Adjusted Company Company
<S> <C> <C> <C>
Earnings (Loss) from Continuing Operations 18.5 13.0 23.1
Provision (Credit) for Income Taxes 11.8 15.0 20.4
------------ -------- ---------
"Earnings" 30.3 28.0 43.5
============ ======== =========
Fixed Charges:
Interest Expense including amortization of 41.7 79.3 79.3
Debt Expense and Discount
Interest portion of Rental Expense 2.0 7.5 7.5
Interest on Indebtedness of a Former Sub.
Guaranteed by Company 0.0 0.0 0.0
----------- -------- ---------
"Fixed Charges" 43.7 86.8 86.8
============ ======== =========
Earnings Available for Fixed Charges 74.0 114.8 130.3
============ ======== =========
Ratio of Earnings to Fixed Charges 1.69 1.32 1.50
============ ======== =========
</TABLE>
N/A Not applicable as ratio is less than 1.0:1
<PAGE> 1
Exhibit 23.1
[ARTHUR ANDERSEN LLP LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Nortek, Inc.:
As independent public accountants, we hereby consent to the
incorporation by reference in this Registration Statement of our report dated
February 12, 1997 included in Nortek, Inc.'s Form 10-K for the year ended
December 31, 1996 and to all references to our Firm included in this
Registration Statement.
/s/ Arthur Andersen LLP
------------------------
ARTHUR ANDERSEN LLP
Boston, Massachusetts
September 26, 1997
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued one report dated February 25, 1997 accompanying the consolidated
financial statements of Ply Gem Industries, Inc. (the "Company") and
subsidiaries for the year ended December 31, 1996 appearing in this
Registration Statement. We hereby consent to the incorporation of our report
included in this Form S-4.
/s/ Grant Thornton LLP
- ----------------------------
Grant Thornton LLP
New York, New York
September 25, 1997
<PAGE> 1
EXHIBIT 25
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
---------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) __
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
John R. Towers, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
NORTEK, INC.
(Exact name of obligor as specified in its charter)
MASSACHUSETTS (05-0314991)
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 KENNEDY PLAZA
PROVIDENCE, RHODE ISLAND 02903
(Address of principal executive offices) (Zip Code)
SENIOR NOTES
(Title of indenture securities)
<PAGE> 2
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO
WHICH IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System,
Washington, D.C., Federal Deposit Insurance Corporation,
Washington, D.C.
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its
parent, State Street Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF
ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN
EFFECT.
A copy of the Articles of Association of the trustee, as now
in effect, is on file with the Securities and Exchange
Commission as Exhibit 1 to Amendment No. 1 to the Statement
of Eligibility and Qualification of Trustee (Form T-1) filed
with the Registration Statement of Morse Shoe, Inc. (File
No. 22-17940) and is incorporated herein by reference
thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the
trustee to commence business was necessary or issued is on
file with the Securities and Exchange Commission as Exhibit
2 to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE
TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE
DOCUMENTS SPECIFIED IN PARAGRAPH (1) OR (2), ABOVE.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities and
Exchange Commission as Exhibit 3 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee (Form
T-1) filed with the Registration Statement of Morse Shoe,
Inc. (File No. 22-17940) and is incorporated herein by
reference thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is
on file with the Securities and Exchange Commission as
Exhibit 4 to the Statement of Eligibility and Qualification
of Trustee (Form T-1) filed with the Registration Statement
of Eastern Edison Company (File No. 33-37823) and is
incorporated herein by reference thereto.
1
<PAGE> 3
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS
IN DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(b) OF THE ACT.
The consent of the trustee required by Section 321(b) of the
Act is annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR
EXAMINING AUTHORITY.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority is annexed hereto as
Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the SEPTEMBER 8, 1997.
STATE STREET BANK AND TRUST COMPANY
By: /s/ JILL OLSON
--------------------------------
NAME JILL OLSON
TITLE ASSISTANT VICE PRESIDENT
2
<PAGE> 4
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, as amended, in connection with the proposed issuance by Nortek, Inc..
of its SENIOR NOTES, we hereby consent that reports of examination by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ JILL OLSON
--------------------------------
NAME JILL OLSON
TITLE ASSISTANT VICE PRESIDENT
DATED: SEPTEMBER 8, 1997
3
<PAGE> 5
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business JUNE 30, 1997, published
in accordance with a call made by the Federal Reserve Bank of this District
pursuant to the provisions of the Federal Reserve Act and in accordance with a
call made by the Commissioner of Banks under General Laws, Chapter 172, Section
22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin .................... 1,842,337
Interest-bearing balances ............................................. 8,771,397
Securities ................................................................. 10,596,119
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary ................................... 5,953,036
Loans and lease financing receivables:
Loans and leases, net of unearned income ........... 5,769,090
Allowance for loan and lease losses ................ 74,031
Allocated transfer risk reserve .................... 0
Loans and leases, net of unearned income and allowances ............... 5,695,059
Assets held in trading accounts ............................................ 916,608
Premises and fixed assets .................................................. 374,999
Other real estate owned .................................................... 755
Investments in unconsolidated subsidiaries ................................. 28,992
Customers' liability to this bank on acceptances outstanding ............... 99,209
Intangible assets .......................................................... 229,412
Other assets ............................................................... 1,589,526
-----------
Total assets ............................................................... 36,097,449
===========
LIABILITIES
Deposits:
In domestic offices ................................................... 11,082,135
Noninterest-bearing ........................... 8,932,019
Interest-bearing .............................. 2,150,116
In foreign offices and Edge subsidiary ................................ 13,811,677
Noninterest-bearing ........................... 112,281
Interest-bearing ..............................13,699,396
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary ................................... 6,785,263
Demand notes issued to the U S Treasury and Trading Liabilities ............ 755,676
Other borrowed money ....................................................... 716,013
Subordinated notes and debentures .......................................... 0
Bank's liability on acceptances executed and outstanding ................... 99,605
Other liabilities .......................................................... 841,566
Total liabilities .......................................................... 34,091,935
EQUITY CAPITAL
Perpetual preferred stock and related surplus .............................. 0
Common stock ............................................................... 29,931
Surplus .................................................................... 437,183
Undivided profits and capital reserves/Net unrealized holding gains (losses) 1,542,695
Cumulative foreign currency translation adjustments ........................ (4,295)
Total equity capital ....................................................... 2,005,514
-----------
Total liabilities and equity capital ....................................... 36,097,449
</TABLE>
4
<PAGE> 6
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
5
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1997 UNLESS EXTENDED BY NORTEK IN ITS SOLE DISCRETION (THE
"EXPIRATION DATE"). TENDERS OF ORIGINAL NOTES
MAY BE WITHDRAWN AT ANY TIME PRIOR TO
5:00 P.M. ON THE EXPIRATION DATE.
NORTEK, INC.
$310,000,000 9 1/8% NOTES DUE 2007
PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS
If you desire to accept the Exchange Offer, this Letter of Transmittal
should be completed, signed, and submitted to the Exchange Agent, by registered
or certified mail, overnight carrier, hand delivery or facsimile transmission at
the following address, for receipt no later than the Expiration Date:
STATE STREET BANK & TRUST COMPANY, EXCHANGE AGENT
<TABLE>
<S> <C> <C>
By Express: By Mail or Facsimile: By Hand:
(insured or registered recommended)
State Street Bank & Trust Company State Street Bank & Trust Company State Street Bank & Trust Company
Corporate Trust Department Corporate Trust Department Corporate Trust Department
Two International Place Two International Place Two International Place
Boston, MA 02110 Boston, MA 02110 Boston, MA 02110
Attn: Lena Altomare Attn: Lena Altomare Attn: Lena Altomare
</TABLE>
Facsimile
(617) 664-5371
Telephone
(617) 664-5607
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OR A TRANSMISSION,
OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
By execution hereof, the undersigned acknowledges receipt of the prospectus
dated , 1997 (the "Prospectus"), of Nortek, Inc., a Delaware
corporation ("Nortek"), which, together with this Letter of Transmittal and the
instructions hereto (the "Letter of Transmittal"), constitute Nortek's offer
(the "Exchange Offer") to exchange $1,000 principal amount of its 9 1/8% Series
B Notes due 2007 (the "Exchange Notes") that have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
registration statement of which the Prospectus constitutes a part, for each
$1,000 principal amount of its outstanding 9 1/8% Series A Notes due 2007 (the
"Original Notes"), upon the terms and subject to the conditions set forth in the
Prospectus.
This Letter of Transmittal is to be used by Holders (as defined below) if:
(i) certificates representing Original Notes are to be physically delivered to
the Exchange Agent herewith by Holders; (ii) tender of Original Notes is to be
made by book-entry transfer to the Exchange Agent's account at The Depository
Trust Company (the "Depository") pursuant to the procedures set forth in the
Prospectus under "The Exchange Offer -- Procedures for Tendering" by any
financial institution that is a participant in the Depository and whose name
appears on a security position listing as the owner of Original Notes; or (iii)
tender of Original Notes is to be made according to the
<PAGE> 2
guaranteed delivery procedures set forth in the Prospectus under "The Exchange
Offer -- Guaranteed Delivery Procedures." DELIVERY OF DOCUMENTS TO THE
DEPOSITORY DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The term "Holder" with respect to the Exchange Offer means any person: (i)
in whose name Original Notes are registered on the books of Nortek or any other
person who has obtained a properly completed bond power from the registered
Holder; or (ii) whose Original Notes are held of record by the Depository who
desires to deliver such Original Notes by book-entry transfer at the Depository.
The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Original Notes must
complete this letter in its entirety.
All capitalized terms used herein and not defined shall have the meaning
ascribed to them in the Prospectus.
The instructions included with this Letter of Transmittal must be followed.
Questions and requests for assistance or for additional copies of the
Prospectus, this Letter of Transmittal and the Notice of Guaranteed Delivery may
be directed to the Exchange Agent. See Instruction 8 herein.
HOLDERS WHO WISH TO ACCEPT THE EXCHANGE OFFER AND TENDER THEIR ORIGINAL
NOTES MUST COMPLETE THIS LETTER OF TRANSMITTAL IN ITS ENTIRETY.
<PAGE> 3
Ladies and Gentlemen:
Subject to the terms of the Exchange Offer, the undersigned hereby tenders
to Nortek the principal amount of Original Notes indicated below. Subject to and
effective upon the acceptance for exchange of the principal amount of Original
Notes tendered in accordance with this Letter of Transmittal, the undersigned
sells, assigns and transfers to, or upon the order of, Nortek all right, title
and interest in and to the Original Notes tendered hereby. The undersigned
hereby irrevocably constitutes and appoints the Exchange Agent as its agent and
attorney-in-fact (with full knowledge that the Exchange Agent also acts as the
agent of Nortek and as Trustee under the Indenture for the Original Notes and
the Exchange Notes) with respect to the tendered Original Notes with full power
of substitution to (i) deliver certificates for such Original Notes to Nortek,
or transfer ownership of such Original Notes on the account books maintained by
The Depository Trust Company ("DTC") together, in either such case, with all
accompanying evidences of transfer and authenticity to, or upon the order of,
Nortek and (ii) present such Original Notes for transfer on the books of Nortek
and receive all benefits and otherwise exercise all rights of beneficial
ownership of such Original Notes, all in accordance with the terms of the
Exchange Offer. The power of attorney granted in this paragraph shall be deemed
irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that he or she has full
power and authority to tender, sell, assign and transfer the Original Notes
tendered hereby and that Nortek will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim, when the same are acquired by Nortek. The
undersigned also acknowledges that this Exchange Offer is being made in reliance
upon an interpretation by the staff of the Securities and Exchange Commission
that the Exchange Notes issued in exchange for the Original Notes pursuant to
the Exchange Offer 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 Nortek or any of its "affiliates" within the
meaning of Rule 405 under the Securities Act for resell pursuant to Rule 144A or
any other available exemption under the Securities Act or (ii) a person that is
such an "affiliate" of Nortek) 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.
The undersigned represents that (i) the Exchange Notes acquired pursuant to
the Exchange Offer are being acquired by the undersigned and any beneficial
owner thereof in the ordinary course of business of the undersigned and any such
beneficial owner, (ii) neither the undersigned nor any such beneficial owner has
any arrangement or understanding with any person to participate in the
distribution of such Exchange Notes and (iii) except as indicated below, neither
the undersigned nor any such beneficial owner is an "affiliate," as defined
under Rule 405 of the Securities Act, of Nortek. If the undersigned or any
beneficial owner for whom the undersigned is tendering securities is an
affiliate of Nortek, then such person will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable.
If the undersigned or any beneficial owner for whom the undersigned is tendering
securities is a broker-dealer that will receive Exchange Notes for its own
account in exchange for Original Notes that were acquired as a result of
market-making or other trading activities, it acknowledges that it will deliver
a prospectus in connection with any resale of such Exchange Notes; however, by
so acknowledging and by delivering a prospectus, the undersigned or such
beneficial owner will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or Nortek to be necessary or desirable to
complete the assignment and transfer of the Original Notes tendered hereby.
For purposes of the Exchange Offer, Nortek shall be deemed to have accepted
validly tendered Original Notes when Nortek has given oral or written notice
thereof to the Exchange Agent. If any tendered Original Notes are not accepted
for exchange pursuant to the Exchange Offer for any reason, certificates for any
such unaccepted Original Notes will be returned (except as noted below with
respect to tenders through DTC), without expense, to the undersigned at the
address shown below or at a different address as may be indicated under "Special
Issuance Instructions" as promptly as practicable after the Expiration Date.
<PAGE> 4
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned and every obligation under this Letter of Transmittal shall be
binding upon the undersigned's heirs, personal representatives, successors and
assigns.
The undersigned understands that tenders of Original Notes pursuant to the
procedures described under the caption "The Exchange Offer -- Procedures for
Tendering" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and Nortek upon the terms and subject
to the conditions of the Exchange Offer.
Unless otherwise indicated under "Special Issuance Instructions," please
issue the certificates representing the Exchange Notes issued in exchange for
the Original Notes accepted for exchange and return any Original Notes not
tendered or not exchanged, in the name(s) of the undersigned (or in either such
event in the case of Original Notes tendered by DTC, by credit to the account at
DTC). Similarly, unless otherwise indicated under "Special Delivery
Instructions," please send the certificates representing the Exchange Notes
issued in exchange for the Original Notes accepted for exchange and any
certificates for Original Notes not tendered or not exchanged (and accompanying
documents, as appropriate) to the undersigned at the address shown below the
undersigned's signatures, unless, in either event, tender is being made through
DTC. In the event that both "Special Issuance Instructions" and "Special
Delivery Instructions" are completed, please issue the certificates representing
the Exchange Notes issued in exchange for the Original Notes accepted for
exchange and return any Original Notes not tendered or not exchanged in the
name(s) of, and send said certificates to, the person(s) so indicated. The
undersigned recognizes that Nortek has no obligation pursuant to the "Special
Issuance Instructions" and "Special Delivery Instructions" to transfer any
Original Notes from the name of the registered holder(s) thereof if Nortek does
not accept for exchange any of the Original Notes so tendered.
<PAGE> 5
<TABLE>
<S> <C> <C>
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DESCRIPTION OF ORIGINAL NOTES TENDERED
- --------------------------------------------------------------------------------------------------
CERTIFICATE AGGREGATE
NUMBER(S)*(ATTACH PRINCIPAL AMOUNT
NAME(S) AND ADDRESS(ES) OF HOLDER(S) SIGNED LIST IF TENDERED (IF LESS
(PLEASE FILL IN, IF BLANK) NECESSARY) THAN ALL)**
- --------------------------------------------------------------------------------------------------
-------------------------
-------------------------
-------------------------
-------------------------
-------------------------
-------------------------
-------------------------
-------------------------
-------------------------
-------------------------
-------------------------
-------------------------
- --------------------------------------------------------------------------------------------------
TOTAL PRINCIPAL AMOUNT OF ORIGINAL
NOTES TENDERED
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* Need not be completed by Holders tendering by book-entry transfer.
** Need not be completed by Holders who wish to tender with respect to all Original Notes listed.
See Instruction 2.
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
BENEFICIAL OWNER(S)
- ------------------------------------------------------------------------------------------------
STATE OF PRINCIPAL RESIDENCE OF EACH BENEFICIAL PRINCIPAL AMOUNT OF TENDERED ORIGINAL
OWNER NOTES HELD FOR ACCOUNT OF BENEFICIAL OWNER
OF TENDERED ORIGINAL NOTES
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- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
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================================================================================================
</TABLE>
<PAGE> 6
USE OF BOOK ENTRY TRANSFER
[ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED BY DTC TO THE
EXCHANGE AGENT'S ACCOUNT AT DTC AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
DTC Book-Entry Account No.:
Transaction Code No.:
USE OF GUARANTEED DELIVERY
If Holders desire to tender Original Notes pursuant to the Exchange Offer and
(i) certificates representing such Original Notes are not immediately available,
(ii) time will not permit this Letter of Transmittal, certificates representing
such Original Notes or other required documents to reach the Exchange Agent
prior to the Expiration Date or (iii) the procedures for book-entry transfer
cannot be completed prior to the Expiration Date, such Holders may effect a
tender of such Original Notes in accordance with the guaranteed delivery
procedures set forth in the Prospectus under "The Exchange Offer -- Guaranteed
Delivery Procedures."
[ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED PURSUANT TO THE
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT
AND COMPLETE THE FOLLOWING:
Name(s) of Holder(s) of Original Notes:
Window Ticket No. (if any):
Date of Execution of
Notice of Guaranteed Delivery:
Name of Eligible Institution that Guaranteed Delivery:
If Delivered by Book-Entry Transfer:
Name of Tendering Institution:
DTC Book-Entry Account No.:
Transaction Code No.:
BROKER-DEALER COPIES OF PROSPECTUS
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
Address:
FOR USE BY AFFILIATES
[ ] CHECK HERE IF YOU OR ANY BENEFICIAL OWNER FOR WHOM YOU ARE TENDERING
SECURITIES IS AN AFFILIATE OF NORTEK.
<PAGE> 7
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS OF ORIGINAL NOTES REGARDLESS
OF WHETHER ORIGINAL NOTES ARE BEING PHYSICALLY DELIVERED HEREWITH)
This Letter of Transmittal must be signed by the Holder(s) of Original
Notes exactly as their name(s) appear(s) on certificate(s) for Original Notes
or, if tendered by a participant in DTC, exactly as such participant's name
appears on a security position listing as the owner of Original Notes, or by
person(s) authorized to become registered Holder(s) by endorsements and
documents transmitted with this Letter of Transmittal. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must set
forth his or her full title below under "Capacity" and submit evidence
satisfactory to Nortek of such person's authority to so act. See Instruction 3
herein.
If the signature appearing below is not of the registered Holder(s) of the
Original Notes, then the registered Holder(s) must sign a valid proxy.
<TABLE>
<S> <C>
X Date: ------------------
X Date: ------------------
SIGNATURE(S) OF HOLDER(S) OR AUTHORIZED
SIGNATORY Address:
Name(s): ---------------------------------------------
- ------------------------------------------- (INCLUDING ZIP CODE)
(PLEASE PRINT) Area Code and Telephone No.:
Capacity:
Social Security No.:
</TABLE>
PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN
SIGNATURE GUARANTEE (SEE INSTRUCTION 3 HEREIN)
CERTAIN SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION
- --------------------------------------------------------------------------------
(NAME OF ELIGIBLE INSTITUTION GUARANTEEING SIGNATURES)
- --------------------------------------------------------------------------------
(ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NUMBER (INCLUDING AREA CODE) OF
FIRM)
- --------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
- --------------------------------------------------------------------------------
(PRINTED NAME)
- --------------------------------------------------------------------------------
(TITLE)
Date:
- ------------------------
<PAGE> 8
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTION 4 HEREIN)
To be completed ONLY if certificates for Original Notes in a principal amount
not tendered are to be issued in the name of, or the Exchange Notes issued
pursuant to the Exchange Offer are to be issued to the order of, someone other
than the person or persons whose signature(s) appear(s) within this Letter of
Transmittal or issued to an address different from that shown in the box
entitled "Description of Original Notes Tendered" within this Letter of
Transmittal, or if Original Notes tendered by book-entry transfer that are not
accepted for purchase are to be credited to an account maintained at DTC.
Name:
(PLEASE PRINT)
Address:
(PLEASE PRINT)
ZIP CODE
TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER
(SEE SUBSTITUTE FORM W-9 HEREIN)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTION 4 HEREIN)
To be completed ONLY if certificates for Original Notes in a principal amount
not tendered or not accepted for purchase or the Exchange Notes issued pursuant
to the Exchange Offer are to be sent to someone other than the person or persons
whose signature(s) appear(s) within this Letter of Transmittal or issued to an
address different from that shown in the box entitled "Description of Original
Notes Tendered" within this Letter of Transmittal.
Name:
(PLEASE PRINT)
Address:
(PLEASE PRINT)
ZIP CODE
TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER
(SEE SUBSTITUTE FORM W-9 HEREIN)
<PAGE> 9
<TABLE>
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PAYER'S NAME: ________________
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SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE
FORM W-9 BOX AT RIGHT AND CERTIFY BY SIGNING AND ------------------------------
DEPARTMENT OF THE TREASURY DATING BELOW Social Security Number
INTERNAL REVENUE SERVICE or
------------------------------
Employer Identification Number
------------------------------------------------------------------------
PAYER'S REQUEST FOR PART 2 -- Certification -- Under PART 3 --
TAXPAYER IDENTIFICATION penalties of perjury, I certify that:
NUMBER ("TIN") (1) The number shown on this form is my Awaiting TIN [ ]
correct Taxpayer Identification Number
(or I am waiting for a number to be
issued to me) and
(2) I am not subject to backup
withholding either because I have not
been notified by the Internal Revenue
Services ("IRS") that I am subject to
backup withholding as a result of failure
to report all interest or dividends, or
the IRS has notified me that I am no
longer subject to backup withholding.
------------------------------------------------------------------------
CERTIFICATE INSTRUCTIONS -- You must cross out item (2) in Part 2 above
if you have been notified by the IRS that you are subject to backup
withholding because of underreporting interest or dividends on your tax
returns. However, if after being notified by the IRS that you were
subject to backup withholding, you received another notification from
the IRS stating that you are no longer subject to backup withholding,
do not cross out item (2).
Signature Date
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</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO HOLDERS OF EXCHANGE NOTES PURSUANT TO THE
EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART
3 OF SUBSTITUTE FORM W-9.
<PAGE> 10
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number within 60 days, 20 percent
of all reportable payments made to me thereafter will be withheld until I
provide a number.
<TABLE>
<S> <C>
- --------------------------------------------- ---------------------------------------------
SIGNATURE DATE
</TABLE>
<PAGE> 11
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER AND THE SOLICITATION
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND ORIGINAL NOTES. The
certificates for the tendered Original Notes (or a confirmation of a book-entry
transfer into the Exchange Agent's account at DTC of all Original Notes
delivered electronically), as well as a properly completed and duly executed
copy of this Letter of Transmittal or facsimile hereof and any other documents
required by this Letter of Transmittal must be received by the Exchange Agent at
its address set forth herein prior to 5:00 P.M., New York City time, on the
Expiration Date. The method of delivery of the tendered Original Notes, this
Letter of Transmittal and all other required documents to the Exchange Agent is
at the election and risk of the Holder and, except as otherwise provided below,
the delivery will be deemed made only when actually received by the Exchange
Agent. Instead of delivery by mail, it is recommended that the Holder use an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery. No Letter of Transmittal or Original Notes
should be sent to Nortek.
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, this Letter of Transmittal or any other documents required hereby to the
Exchange Agent prior to the Expiration Date must tender their Original Notes and
follow the guaranteed delivery procedures set forth in the Prospectus. Pursuant
to such procedures: (i) such tender must be made by or through an Eligible
Institution; (ii) prior to the Expiration Date, the Exchange Agent must have
received from the 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 Expiration Date, this
Letter of Transmittal (or facsimile hereof) together with the certificate(s)
representing the Original Notes (or a confirmation of electronic delivery of
book-entry delivery into the Exchange Agent's account at DTC) and any of the
required documents will be deposited by the Eligible Institution with the
Exchange Agent; and (iii) such properly completed and executed Letter of
Transmittal (or facsimile hereof), as well as all other documents required by
this Letter of Transmittal and the certificate(s) representing all tendered
Original Notes in proper form for transfer (or a confirmation of electronic mail
delivery of book-entry delivery into the Exchange Agent's account at DTC), must
be received by the Exchange Agent within five business days after the Expiration
Date, all as provided in the Prospectus under the caption "Exchange Offers --
Guaranteed Delivery Procedures." Any Holder of Original Notes who wishes to
tender his Original Notes pursuant to the guaranteed delivery procedures
described above must ensure that the Exchange Agent receives the Notice of
Guaranteed Delivery prior to 5:00 P.M., New York City time, on the Expiration
Date.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Original Notes will be
determined by Nortek in its sole discretion, which determination will be final
and binding. Nortek reserves the absolute right to reject any and all Original
Notes not properly tendered or any Original Notes Nortek's acceptance of which
would, in the opinion of counsel for Nortek, be unlawful. Nortek also reserves
the right to waive any irregularities or conditions of tender as to particular
Original Notes. Nortek's interpretation of the terms and conditions of the
Exchange Offer (including the instructions in this 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 Nortek shall determine. Neither Nortek, 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 defects or 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 Holders of Original Notes, unless otherwise provided in
this Letter of Transmittal, as soon as practicable following the Expiration
Date.
2. PARTIAL TENDERS. Tenders of Original Notes will be accepted in all
denominations of $1,000 principal amount and integral multiples in excess
thereof. If less than the entire principal amount of any Original Note is
tendered, the tendering Holder should fill in the principal amount tendered in
the third column of the chart entitled
<PAGE> 12
"Description of Original Notes Tendered." The entire principal amount of
Original Notes delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated. If the entire principal amount of all
Original Notes is not tendered, Original Notes for the principal amount of
Original Notes not tendered and a certificate or certificates representing
Exchange Notes issued in exchange for any Original Notes accepted will be sent
to the Holder at his or her registered address, unless a different address is
provided in the appropriate box on this Letter of Transmittal or unless tender
is made through DTC, promptly after the Original Notes are accepted for
exchange.
3. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this Letter of Transmittal (or facsimile hereof) is
signed by the registered Holder(s) of the Original Notes tendered hereby, the
signature must correspond with the name(s) as written on the face of the
Original Notes without alteration, enlargement or any change whatsoever.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder(s) of Original Notes tendered and the certificate(s) for
Exchange Notes issued in exchange therefor is to be issued (or any untendered
principal amount of Original Notes is to be reissued) to the registered Holder,
such Holder need not and should not endorse any tendered Original Note, nor
provide a separate bond power. In any other case, such Holder must either
properly endorse the Original Notes tendered or transmit a properly completed
separate bond power with this Letter of Transmittal, with the signatures on the
endorsement or bond power guaranteed by an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the registered Holder(s) of any Original Notes listed, such Original
Notes must be endorsed or accompanied by appropriate bond powers signed as the
name of the registered Holder(s) appears on the Original Notes.
If this Letter of Transmittal (or facsimile hereof) or any Original Notes
or bond powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, or officers of corporations or other acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
unless waived by Nortek, evidence satisfactory to of their authority so to act
must be submitted with this Letter of Transmittal.
Endorsements on Original Notes or signatures on bond powers required by
this Instruction 3 must be guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal (or facsimile hereof) must be
guaranteed by an Eligible Institution unless the Original Notes tendered
pursuant thereto are tendered (i) by a registered Holder (including any
participant in DTC whose name appears on a security position listing as the
owner of Original Notes) who has not completed the box set forth herein entitled
"Special Issuance Instructions" or the box entitled "Special Delivery
Instructions" or (ii) for the account of an Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering Holders should
indicate, in the applicable spaces, the name and address to which Exchange Notes
or substitute Original Notes for principal amounts not tendered or not accepted
for exchange are to be issued or sent, if different from the name and address of
the person signing this Letter of Transmittal (or in the case of tender of the
Original Notes through DTC, if different from DTC). In the case of issuance in a
different name, the taxpayer identification or social security number of the
person named must also be indicated.
5. TRANSFER TAXES. Each Holder is responsible for the payment of all
transfer taxes, if any, applicable to the exchange of Original Notes pursuant to
the Exchange Offer. If satisfactory evidence of payment of such transfer taxes
or exemption therefrom is not submitted with this Letter of Transmittal, the
amount of such transfer taxes will be billed directly to such tendering Holder.
Except as provided in this Instruction 5, it will not be necessary for
transfer tax stamps to be affixed to the Original Notes listed in this Letter of
Transmittal.
6. WAIVER OF CONDITIONS. Nortek reserves the absolute right to amend,
waive or modify specified conditions in the Exchange Offer in the case of any
Original Notes tendered.
<PAGE> 13
7. MUTILATED, LOST, STOLEN OR DESTROYED ORIGINAL SENIOR SUBORDINATED
NOTES. Any tendering Holder whose Original Notes have been mutilated, lost,
stolen or destroyed should contact the Exchange Agent at the address indicated
herein for further instruction.
8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance and requests for additional copies of the Prospectus or this
Letter of Transmittal may be directed to the Exchange Agent at the address
specified in the Prospectus and herein. Holders may also contact their broker,
dealer, commercial bank, trust company or other nominee for assistance
concerning the Exchange Offer.
(DO NOT WRITE IN SPACE BELOW)
================================================================================
<TABLE>
<CAPTION>
Certificate Surrendered Original Notes Tendered Original Notes Accepted
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
=====================================================================================================
=====================================================================================================
Delivery Prepared by ________________ Checked by ________________ Date ________________
- -----------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 14
IMPORTANT TAX INFORMATION
Under federal income tax laws, a Holder whose tendered Original Notes are
accepted for payment is required to provide the Exchange Agent (as payer) with
such Holder's correct TIN on Substitute Form W-9 below or otherwise establish a
basis for exemption from backup withholding. If such Holder is an individual,
the TIN is his social security number. If the Exchange Agent is not provided
with the correct TIN, a $50 penalty may be imposed by the Internal Revenue
Service, and payments made with respect to Original Notes purchased pursuant to
the Exchange Offer may be subject to backup withholding.
Certain Holders (including, among others, all corporations and certain
foreign persons) are not subject to these backup withholding and reporting
requirements. Exempt Holders should indicate their exempt status on Substitute
Form W-9. A foreign person may qualify as an exempt recipient by submitting to
the Exchange Agent a properly completed Internal Revenue Service Form W-8,
signed under penalties of perjury, attesting to that Holder's exempt status. A
Form W-8 can be obtained from the Exchange Agent. See the enclosed "Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional instructions.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any payments made to the Holder or other payee. Backup withholding is not
an additional federal income tax. Rather, the federal income tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments made with respect to the Exchange
Offer, the Holder is required to provide the Exchange Agent with either: (i) the
Holder's correct TIN by completing the form above, certifying that the TIN
provided on Substitute Form W-9 is correct (or that such Holder is awaiting a
TIN) and that (A) the Holder has not been notified by the Internal Revenue
Service that the Holder is subject to backup withholding as a result of failure
to report all interest or dividends or (B) the Internal Revenue Service has
notified the Holder that the Holder is no longer subject to backup withholding;
or (ii) an adequate basis for exemption.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The Holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered Holder of
the Original Notes. If the Original Notes are held in more than one name or are
held not in the name of the actual owner, consult the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional guidance on which number to report.
The Exchange Agent for the Exchange Offer is:
STATE STREET BANK AND TRUST COMPANY
<TABLE>
<S> <C> <C>
By Express: By Mail: By Hand:
(insured or registered recommended)
State Street Bank & Trust Company State Street Bank & Trust Company State Street Bank & Trust Company
Corporate Trust Department Corporate Trust Department Corporate Trust Department
Two International Place Two International Place Two International Place
Boston, MA 02110 Boston, MA 02110 Boston, MA 02110
Attn: Lena Altomare Attn: Lena Altomare Attn: Lena Altomare
</TABLE>
Facsimile
(617) 664-5371
Telephone
(617) 664-5607
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
$310,000,000 9 1/8% SENIOR NOTE DUE 2007
OF
NORTEK, INC.
As set forth in the Prospectus, dated , 1997 (the
"Prospectus"), of Nortek, Inc. ("Nortek") and in the accompanying Letter of
Transmittal and instructions thereto (the "Letter of Transmittal"), holders who
wish to tender their 9 1/8% Series A Senior Notes due 2007 ("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 Expiration Date (as hereinafter
defined), may effect a tender if: (1) the tender is made through an Eligible
Institution; (2) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution this properly completed and duly executed Notice of
Guaranteed Delivery (by mail, hand delivery or facsimile transmission) setting
forth the name and address of the holder, the certificate number(s) of such
Original Notes and the principal amount of the Original Notes being tendered,
stating that the tender is being made thereby and guaranteeing that, within five
business days after the Expiration Date, the Letter of Transmittal together with
the certificate(s) representing the Original Notes (or a Book-Entry
Confirmation) and any other documents required by the applicable Letter of
Transmittal will be delivered by the Eligible Institution to the Exchange Agent;
and (3) such properly completed and executed Letter of Transmittal, as well as
the certificate(s) representing all tendered Original Notes in proper form for
transfer (or a Book-Entry Confirmation) and all other documents required by the
applicable Letter of Transmittal are received by the Exchange Agent within five
business days after the Expiration Date. This form may be delivered by an
Eligible Institution by mail or hand delivery or transmitted, via facsimile, to
the Exchange Agent as set forth below. All capitalized terms used herein but not
defined herein shall have the meanings ascribed to them in the Prospectus.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1997 UNLESS THE OFFER IS EXTENDED BY NORTEK IN ITS SOLE
DISCRETION (THE "EXPIRATION DATE"). TENDERS OF ORIGINAL NOTES MAY BE WITHDRAWN
AT ANY TIME PRIOR TO 5:00 P.M. ON THE EXPIRATION DATE.
EXCHANGE AGENT: STATE STREET BANK & TRUST COMPANY
<TABLE>
<S> <C> <C>
By Express: By Mail: By Hand:
(insured or registered
recommended)
State Street Bank & Trust Company State Street Bank & Trust Company State Street Bank & Trust Company
Corporate Trust Department Corporate Trust Department Corporate Trust Department
Two International Place Two International Place Two International Place
Boston, MA 02110 Boston, MA 02110 Boston, MA 02110
Attn: Lena Altomare Attn: Lena Altomare Attn: Lena Altomare
</TABLE>
Facsimile
(617) 664-5371
Telephone
(617) 664-5607
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR A TRANSMISSION, OTHER THAN AS
SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal is required to be guaranteed by an "Eligible Institution"
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tender(s) to Nortek, upon the terms and subject to
the conditions set forth in the Exchange Offer and the Letter of Transmittal,
receipt of which is hereby acknowledged, the aggregate principal amount of
Original Notes set forth below pursuant to the guaranteed delivery procedures
set forth in the Prospectus.
The undersigned understands that tenders of Original Notes will be accepted
only in principal amounts equal to $1,000 or integral multiples thereof. The
undersigned understands that tenders of Original Notes pursuant to the Exchange
Offer may not be withdrawn after 5:00 p.m., New York City time, on the
Expiration Date. Tenders of Original Notes may be withdrawn if the Exchange
Offer is terminated without any such Original Notes being purchased thereunder
or as otherwise provided in the Prospectus.
All authority herein conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death or incapacity of the undersigned and
every obligation of the undersigned under this Notice of Guaranteed Delivery
shall be binding upon the heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives of the undersigned.
PLEASE COMPLETE AND SIGN
Signature(s) of Registered Owner(s) or Authorized
Signatory:
Principal Amount of Original Notes tendered:
Certificate No(s). of Original Notes (if available):
Date:
Name(s) of Registered Holder(s):
Address:
Area Code and Telephone No.:
If Original Notes will be delivered by book-entry transfer at The Depository
Trust Company, insert Depository Account No.:
This Notice of Guaranteed Delivery must be signed by the registered holder(s) of
Original Notes exactly as its (their) name(s) appear on certificates for
Original Notes or on a security position listing as the owner of Original Notes,
or by person(s) authorized to become registered holder(s) by endorsements and
documents transmitted with this Notice of Guaranteed Delivery. If signature is
by a trustee, executor, administrator, guardian, attorney-in-fact, officer or
other person acting in a fiduciary or representative capacity, such person must
provide the following information.
Please print name(s) and address(es)
<TABLE>
<S> <C>
Name(s): -------------------------------------------------------------------------
-------------------------------------------------------------------------
Capacity:
-------------------------------------------------------------------------
Address(es):
=========================================================================
-------------------------------------------------------------------------
</TABLE>
Do not send Original Notes with this form. Original Notes should be sent to the
Exchange Agent together with a properly completed and duly executed Letter of
Transmittal.
<PAGE> 3
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a participant in a recognized signature guarantee
medallion program within the meaning of Rule 17Ad-15 under the Exchange Act,
hereby (a) represents that each holder of Original Notes on whose behalf this
tender is being made "own(s)" the Original Notes covered hereby within the
meaning of Rule 14e-4 under the Securities Exchange Act of 1934, as amended, (b)
represents that such tender of Original Notes complies with such Rule 14e-4, and
(c) guarantees that, within five New York Stock Exchange trading days from the
date of this Notice of Guaranteed Delivery, a properly completed and duly
executed Nortek Letter of Transmittal (or a facsimile thereof), together with
certificates representing the Original Notes covered hereby in proper form for
transfer (or confirmation of the book-entry transfer of such Original Notes into
the Exchange Agent's account at The Depository Trust Company, pursuant to the
procedure for book-entry transfer set forth in the Prospectus) and required
documents will be deposited by the undersigned with the Exchange Agent.
The undersigned acknowledges that it must deliver the Letter of Transmittal
and Original Notes tendered hereby to the Exchange Agent within the time period
set forth above and that failure to do so could result in financial loss to the
undersigned.
<TABLE>
<S> <C>
Name of Firm:
---------------------------------------------
AUTHORIZED SIGNATURE
Address: Name:
Title:
---------------------------------------------
Area Code and Telephone No.: Date:
</TABLE>
