<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 30, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
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NORTEK, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3634 05-0314991
(State or other jurisdiction (Primary standard industrial (I.R.S. Employer
of classification code number) Identification Number)
incorporation or organization)
</TABLE>
50 KENNEDY PLAZA, PROVIDENCE, RHODE ISLAND 02903
(401) 751-1600
(Address, including zip code and telephone number
including area code of registrant's principal executive offices)
KEVIN W. DONNELLY
VICE PRESIDENT AND GENERAL COUNSEL
NORTEK, INC.
50 KENNEDY PLAZA
PROVIDENCE, RHODE ISLAND 02903
(401) 751-1600
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
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Please send copies of all communications to:
David C. Chapin, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
(617) 951-7000
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effectiveness of the Registration Statement.
If the only securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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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
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<S> <C> <C> <C> <C>
8 7/8% Series B Senior Notes due
2008............................ $210,000,000 99.641% $209,246,100 $61,728.00
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</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED SEPTEMBER 30, 1998
PROSPECTUS
NORTEK, INC.
OFFER TO EXCHANGE
8 7/8% SERIES B SENIOR NOTES DUE AUGUST 1, 2008 FOR AN EQUAL PRINCIPAL
AMOUNT OF 8 7/8% SERIES A SENIOR NOTES DUE AUGUST 1, 2008. THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON , 1998, 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 $210,000,000 of its 8 7/8% Series B Senior Notes due 2008 (the
"Exchange Notes") of the Company for a like principal amount of the issued and
outstanding 8 7/8% Series A Senior Notes due 2008 (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 Nortek and will rank pari passu in right of payment with all
existing and future senior unsecured indebtedness of Nortek and senior in right
of payment to all existing and future subordinated indebtedness of Nortek. The
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 secured and unsecured
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 July 4, 1998 after giving
effect to the acquisition of NuTone, Inc. (the "Acquisition") and the offering
of the Original Notes (the "Offering"), the Exchange Notes would have been
effectively subordinated to approximately $462.1 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 February 1
and August 1 of each year, commencing February 1, 1999. The Exchange Notes will
mature on August 1, 2008, unless earlier redeemed. 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 and after August 1, 2003, at the redemption prices set
forth herein, together with accrued and unpaid interest and Liquidated Damages
(as defined), 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 and Liquidated Damages, 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
July 31, 1998, among the Company and the other signatories 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 received 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 22 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN EVALUATING 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 September , 1998
<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 Perella Securities, Inc., Bear,
Stearns & Co. Inc., and PaineWebber Incorporated, 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 Change 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 following documents or portions thereof filed with the Commission are
incorporated into this Prospectus by reference:
(1) Nortek's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 as amended by the Company's Annual Report on Form
10-K/A, filed with the Commission on April 20, 1998 (the "Form
10-K");
(2) Each of Nortek's Quarterly Reports on Form 10-Q for the periods
ended April 4, 1998 and July 4, 1998;
(3) Nortek's Current Report on Form 8-K, filed with the Commission on
September 10, 1997, as amended by the Company's Current Report on
Form 8-K/A, filed with the Commission on September 12, 1997;
(4) Nortek's Current Report on Form 8-K, filed with the Commission on
March 12, 1998, as amended by the Company's Current Report on Form
8-K/A, filed with the Commission on March 18, 1998;
(5) Nortek's Current Report on Form 8-K, filed with the Commission on
May 7, 1998;
(6) Nortek's Current Report on Form 8-K, filed with the Commission on
June 15, 1998;
(7) Nortek's Current Report on Form 8-K, filed with the Commission on
July 15, 1998;
(8) Nortek's Current Report on Form 8-K, filed with the Commission on
July 28, 1998; and
(9) Nortek's Current Report on Form 8-K, filed with the Commission on
August 12, 1998.
All other documents filed by the Company with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), subsequent to the date of this Prospectus and
prior to the termination of the Exchange Offer shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of the filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated herein by reference, or contained in
this Prospectus, shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently dated or 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 , 1998.
3
<PAGE> 5
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 to therein.
4
<PAGE> 6
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, (i) references herein to "Nortek" or to the "Company," are to Nortek,
Inc., a Delaware corporation, and its subsidiaries, prior to giving effect to
the Acquisition (as defined below) or, in connection with the Notes, to Nortek
as offeror or obligor; (ii) references herein to "NuTone" are to NuTone Inc., a
Delaware corporation, and its subsidiary, prior to giving effect to the
Acquisition; and (iii) references to the "Company" in the "Summary Unaudited
Consolidated Pro Forma Adjusted Financial Data" and the "Unaudited Pro Forma and
Pro Forma Adjusted Condensed Consolidated Financial Data" are to Nortek and its
subsidiaries and NuTone and its subsidiary.
THE COMPANY
The Company is a diversified manufacturer of residential and commercial
building products, operating within four principal product groups: the
Residential Building Products Group; the Air Conditioning and Heating Products
Group; the Windows, Doors and Siding Group; and the Specialty Products and
Distribution 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 ("DIY") and professional remodeling and renovation
markets.
The Company's current management team, led by Chief Executive Officer
Richard L. Bready since the end of 1990, has successfully implemented a strategy
of internal growth and growth through acquisitions while selectively divesting
non-core and underperforming businesses. The focus of this strategy has been to
target higher growth, less cyclical segments of the building products industry,
including the general repair and renovation market, the manufactured housing
market and the vinyl windows and siding market. In August 1997, the Company
completed its largest acquisition when it acquired Ply Gem Industries, Inc. and
its subsidiaries ("Ply Gem"), a leading manufacturer of windows, doors and
siding products (the "Ply Gem Acquisition"). The acquisition of NuTone, a
leading manufacturer and supplier of built-in electrical appliances, on July 31,
1998 (the "Acquisition") constituted the second largest acquisition of the
Company and the fifth acquisition since the beginning of 1995.
Recently, the Company sold its plumbing products business as well as
several non-core businesses acquired as part of the Ply Gem Acquisition and is
continuing its program of divesting certain other non-core businesses. The
Company has evaluated and expects to continue to evaluate possible acquisition
transactions and the possible dispositions of certain of its businesses on an
ongoing basis and at any given time may be engaged in discussions or
negotiations with respect to possible acquisitions or dispositions. See "Recent
Developments."
A brief description of the Company's four principal product groups is
provided below. Pro forma 1997 net sales totals set forth below give effect to
the acquisitions of Ply Gem and NuTone as if they had occurred on January 1,
1997 and do not give effect to dispositions of businesses that have occurred in
1998 or may occur in the future. See "Recent Developments."
Residential Building Products Group (34.0% of pro forma 1997 net
sales). This Group primarily services the residential construction, DIY and
professional renovation markets and is the largest supplier in North America of
range hoods, bath fans, combination units (fan, heater and light combinations)
and indoor air quality products (such as continuous-ventilation systems and
energy-recovery ventilators). This Group also is one of the leading suppliers in
Western Europe, South America and the Middle East of luxury "Eurostyle" range
hoods. Products are marketed under the Broan(R), Best(R), vanEE(R), Venmar(R)
and Rangaire(R) brand names.
As a result of the Acquisition, the Company expects this Group to
significantly improve its market position. NuTone is a leading manufacturer and
supplier of built-in electrical appliances for use primarily in residential
construction and remodeling. NuTone has two principal product categories:
Ventilation Products and Bath/Electronics/Specialty ("BES") Products.
Ventilation Products offers home indoor air quality
5
<PAGE> 7
products, including a full line of exhaust fans, range hoods, paddle fans and
other ventilation products. BES Products offers a wide variety of primarily
electronic home improvement products, including intercoms, audio speakers, door
chimes, central vacuum cleaners and bath cabinets and accessories. See "Recent
Developments" and "The Acquisition."
Air Conditioning and Heating Products Group (22.7% of pro forma 1997 net
sales). This Group manufactures and sells air conditioning and heating ("HVAC")
systems for custom-designed commercial applications and for manufactured and
site-built residential housing. This Group's commercial HVAC systems are
designed to meet customer specifications and operate on the rooftops of or
individual floors within commercial offices, manufacturing and educational
facilities, hospitals, retail stores and governmental buildings. Brand names for
commercial products include Governair(R), Mammoth(R) and Temtrol(R). This Group
also designs and sells a broad line of central air conditioners, heat pumps,
furnaces and a wide range of accessories for the manufactured and site built
residential housing market. This Group markets its residential products under
the Intertherm(R) and Miller(R) brand names and recently licensed the use of the
well-known Frigidaire(R), Tappan(R), Philco(R) and Gibson(R) consumer brand
names.
Windows, Doors and Siding Group (26.9% of pro forma 1997 net sales). This
Group is a leading manufacturer and distributor of vinyl and wood windows and
doors and vinyl siding for use in the residential construction, DIY and
professional renovation markets. The Company believes it is among the largest
suppliers of vinyl windows serving the replacement market in the United States.
The Company also believes it has achieved significant penetration of the home
center distribution channel, within which it is a leading supplier of vinyl
siding and wood windows. This Group markets its windows under the Great
Lakes(R), Vetter(R), Crestline(R) and ProCraft(R) brand names and its vinyl
siding under the Varigrain(R) brand name and the Georgia Pacific label.
Specialty Products and Distribution Group (16.4% of pro forma 1997 net
sales). This Group manufactures and distributes treated wood products,
specialty lumber and decorative home products which are marketed to home
centers, cooperative buying groups, lumberyards and independent wholesale
distributors for use generally in residential decking, roofing, siding and
landscaping as well as various commercial construction applications. This Group
also distributes decorative products for the home, including pre-finished wood
paneling and imported ceramic, marble and porcelain tile. The Company has sold
two of the five businesses in this Group in 1998 and is evaluating the sale of
certain of the remaining businesses. See "Recent Developments."
For the three year period ended December 31, 1997, Nortek's net sales and
EBITDA from continuing operations grew at a compounded annual rate of
approximately 22.6% and 23.2%, respectively, due to a combination of internal
growth and complementary acquisitions. See "Selected Historical Consolidated
Financial Data." For the twelve months ended July 4, 1998 and after giving
effect to the Acquisition and the Ply Gem Acquisition, the Company's pro forma
adjusted net sales and EBITDA from continuing operations were approximately $1.9
billion and $189.5 million, respectively. See "Unaudited Pro Forma and Pro Forma
Adjusted Condensed Consolidated Financial Data."
The Company's principal executive offices are located at 50 Kennedy Plaza,
Providence, Rhode Island 02903-2630 and its telephone number is (401) 751-1600.
The Company also maintains an Internet web site at http://www.nortek-inc.com.
BUSINESS STRATEGY
The Company seeks to realize consistent, profitable growth principally by:
(i) developing and maintaining leadership positions in market segments which the
Company believes are growing at rates in excess of the overall building products
industry; (ii) opportunistically expanding its product portfolio to achieve
synergies in marketing, distribution and manufacturing; (iii) increasing its
presence in the less cyclical replacement and retrofit market; (iv) operating as
a low cost producer to maintain a competitive advantage; and (v) successfully
completing and integrating strategic acquisitions.
6
<PAGE> 8
Target High Growth Market Segments. The Company targets those segments of
the building products industry that it believes are experiencing more rapid
growth than the overall building products industry. These targeted segments
include: (i) the general repair and renovation market, which continues to
benefit from the increasing age and size of the U.S. housing stock and the
proliferation of home center chains; (ii) the manufactured housing market, which
has represented an increasing proportion of new housing starts over the past
five years; and (iii) the vinyl windows and siding market, which has cost and
performance characteristics that have resulted in substantially increased
penetration of such products within the new home and retrofit markets. By
increasing its presence in these market segments, the Company seeks to achieve
rates of growth in excess of the overall building products industry. For
example, net sales of the Company's Air Conditioning and Heating Products Group
have grown at an internal compounded annual growth rate of approximately 12.1%
for the five year period ended December 31, 1997, reflecting increasing demand
for replacement products as the installed base of HVAC systems in the United
States has grown.
Achieve Marketing, Distribution and Manufacturing Synergies. The Company
pursues increased penetration of distribution channels such as home centers and
manufactured home builders which it believes present cross-marketing
opportunities for the Company's expanding portfolio of products. For example,
the recent Ply Gem Acquisition provides the opportunity to market Ply Gem's
vinyl products to the manufactured housing market, in which the Company's HVAC
products maintain a leading position. Similarly, the Company is leveraging Ply
Gem's position as one of the largest suppliers of vinyl siding and wood windows
to home centers to increase the Company's sales of residential building
products. Most recently, the Company entered into agreements to license several
well-known consumer brand names, including Frigidaire(R), Tappan(R), Philco(R)
and Gibson(R), which the Company believes have been well-received by residential
HVAC distributors. The Company also seeks to achieve synergies in manufacturing
and logistics by rationalizing its production processes. For example, the
Company transferred the manufacture of certain "Eurostyle" range hood products
sold into the North American markets from the facilities of Best S.p.A. ("Best")
in Italy to Venmar Ventilation inc.'s ("Venmar") lower-cost Canadian facilities
and also centralized production of its indoor-air-quality products into the same
facilities.
Increase Presence in Less Cyclical Replacement and Retrofit Market. The
Company seeks to increase its presence in the replacement and retrofit market
and lessen its dependence on the new construction segment of the building
products industry, which is more sensitive to economic cycles. For example, the
acquisition of Ply Gem, which is a leading supplier of windows to the
replacement market, increased the Company's presence in the replacement and
retrofit market. Other businesses of the Company which maintain a significant
presence in the replacement and retrofit market include the Company's HVAC and
ventilation businesses.
Operate as a Low Cost Producer. The Company employs a combination of
rigorous production controls, advanced manufacturing systems, capital investment
and quality management systems to seek to achieve consistently low cost
operations. To promote cost efficient operations, the Company also centralizes
certain of its overhead functions, including its risk management, tax reporting
and legal functions, and coordinates certain activities of its subsidiaries'
operations, such as purchasing and transportation.
Complete and Integrate Strategic Acquisitions. The Company has
demonstrated an ability to integrate successfully acquired businesses. In 1995,
the Company acquired Best, Rangaire Company ("Rangaire") and Venmar. Since that
time, the Company has taken numerous actions to integrate these acquisitions
into its Residential Building Products Group, including elimination of corporate
redundancies, rationalization of multiple sales forces and a general
reorganization of product line responsibilities related to its "Eurostyle" range
hood and indoor-air-quality products as described above. Partially as a result
of these actions, operating earnings within the Residential Building Products
Group have increased as a percentage of net sales from 7.9% in 1995 to 10.5% in
1997.
Since acquiring Ply Gem in August 1997, the Company has eliminated expenses
associated with Ply Gem's corporate headquarters, consolidated certain corporate
functions such as accounting, legal, tax and risk management and eliminated
certain underperforming product lines. These actions have resulted in estimated
annualized cost reductions of approximately $24.0 million. In addition, the
Company continues to identify and
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<PAGE> 9
rationalize underperforming businesses. During 1998, the Company sold several
non-core businesses acquired through the Ply Gem Acquisition and is evaluating
the sale of certain other non-core businesses.
Furthering its strategy of building on the strengths of its core
businesses, Nortek acquired NuTone on July 31, 1998. Through the Acquisition,
Nortek expects to increase its sales in several of its core built-in home
ventilation product lines, including exhaust fans and range hoods. The Company
expects the integration of NuTone to create important synergies and cost
reductions in several areas, including distribution, sales, manufacturing,
purchasing and product development.
The Company currently estimates that it can achieve approximately $16.7
million in annualized cost reductions from year ended December 31, 1997 levels,
related to the Acquisition within 12 to 18 months following the consummation of
the Acquisition. The magnitude and timing of these cost reductions represent
estimates and actual savings could differ materially. See "Unaudited Pro Forma
and Pro Forma Adjusted Condensed Consolidated Financial Data."
THE ACQUISITION
On March 9, 1998, Nortek, through a wholly-owned subsidiary ("Acquisition
Sub"), entered into a Stock Purchase and Sale Agreement (the "NuTone Purchase
Agreement") with Williams Y&N Holdings, Inc. ("Williams Y&N"), a subsidiary of
Williams plc ("Williams" and together with Nortek, Acquisition Sub and Williams
Y&N, the "Acquisition Parties"), pursuant to which Nortek agreed to purchase
NuTone for an aggregate purchase price of $242.5 million, subject to certain
adjustments, plus the assumption of operating liabilities (other than
intercompany borrowings). Nortek used net proceeds from the offering of $210
million of the Original Notes (the "Offering"), together with a portion of the
cash proceeds from the sale in the second quarter of 1998 of 2,182,500 shares of
its common stock (the "Common Stock Offering"), to finance the purchase price of
the Acquisition which was consummated on July 31, 1998.
Consummation of the Acquisition was subject to expiration or termination of
the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"). On December 18, 1997, Nortek and NuTone
filed Premerger Notification and Report Forms pursuant to the HSR Act with the
Antitrust Division of the United States Department of Justice ("DOJ") and the
Federal Trade Commission ("FTC"). On January 16, 1998, Nortek and NuTone each
received a request for additional information from the FTC. On or about June 29,
1998, in response to the FTC's concerns about the potential adverse competitive
effects the Acquisition might have on the market for certain hard-wired intercom
systems, Nortek executed an Agreement Containing Consent Order ("Proposed FTC
Order") providing for the divestiture, as described below, of the Company's M&S
Systems LP ("M&S") subsidiary, which manufactures hard-wired intercom systems.
On July 27, 1998, the FTC voted to accept the Proposed FTC Order, thereby
terminating the HSR waiting period. The Proposed FTC Order has been placed on
the public record and will be subject to public comment until October 2, 1998.
Upon the expiration of the comment period, the FTC will decide whether to
withdraw, modify or make final its acceptance of the Proposed FTC Order.
Under the terms of the Proposed FTC Order, Nortek must divest, at no
minimum price, within six months of its execution of the Proposed FTC Order, all
of the assets, properties, business and goodwill of M&S (the "M&S Assets"). Any
acquiror must be approved by the FTC. If Nortek has not divested the M&S Assets
within the prescribed time, the FTC may appoint a trustee to divest the M&S
Assets. Nortek will be responsible for any costs and expenses incurred by the
trustee that are necessary to carry out the trustee's duties. For the year ended
December 31, 1997, M&S had net sales, operating earnings and EBITDA of
approximately $19.9 million, $2.8 million and $3.3 million, respectively. For
the six months ended July 4, 1998, M&S had net sales, operating earnings and
EBITDA of approximately $10.1 million, $1.2 million and $1.4 million,
respectively.
8
<PAGE> 10
The sources and uses of funds needed to complete the Acquisition and the
offering of the Original Notes were as follows:
<TABLE>
<CAPTION>
IN MILLIONS
-----------
<S> <C>
Sources of funds:
A portion of the cash proceeds from the Common Stock
Offering.............................................. $ 39.3
Gross proceeds from the offering of the Original
Notes................................................. 209.2
------
Total sources of funds............................ $248.5
======
Uses of funds:
Payment for shares of NuTone common stock.............. $242.5
Estimated post closing adjustments related to the
Acquisition........................................... (4.0)
Fees, expenses and other costs related to the
Acquisition and the offering of the Original Notes.... 10.0
------
Total uses of funds............................... $248.5
======
</TABLE>
As of July 31, 1998, NuTone had letters of credit and a Canadian credit
line supporting aggregate obligations of approximately $3.8 million. In
connection with the Acquisition, Nortek cancelled the Canadian credit line and
entered into a $10,000,000 standby and trade letter of credit facility of which
a portion is being used to back up aggregate obligations of NuTone of
approximately $3.2 million. The standby and trade letter of credit facility
contains customary terms and conditions.
NuTone is a leading manufacturer and supplier of built-in electrical
appliances for use primarily in residential construction and remodeling. NuTone
has two principal product categories: Ventilation Products and BES Products.
Ventilation Products offers home indoor air quality products, including a full
line of exhaust fans, range hoods, paddle fans and other ventilation products.
BES Products offers a wide variety of primarily electronic home improvement
products, including intercoms, audio speakers, door chimes, central vacuum
cleaners and bath cabinets and accessories. For the twelve months ended July 4,
1998, NuTone had net sales and EBITDA of approximately $199.1 million and $27.9
million, respectively.
For a more complete description of the Acquisition, see "The Acquisition."
RECENT DEVELOPMENTS
The Common Stock Offering
During the second quarter of 1998, the Company completed the Common Stock
Offering, receiving proceeds of approximately $64.3 million.
Dispositions of Businesses
Effective July 10, 1998, the Company sold Universal-Rundle Corporation
("URC"), a wholly owned subsidiary of the Company, as well as a product line
included in the Residential Building Projects Group to Mr. Reed Beidler, an
affiliate of Crane Plumbing, for approximately $33.7 million. URC, which
operated the Company's plumbing products business, had net sales of
approximately $104.5 million in 1997 and was accounted for as a discontinued
operation in the fourth quarter of 1997.
During the second and third quarters of 1998, the Company made several
dispositions of nonstrategic assets. On May 8, 1998, the Company sold Studley
Products, Inc. ("Studley") a subsidiary of Ply Gem. Studley had net sales of
approximately $22.0 million for the year ended December 31, 1997 and had been
treated as an operation held for sale since the Ply Gem Acquisition. In
addition, on May 22, 1998, the Company consummated the sale of another Ply Gem
subsidiary, Sagebrush Sales, Inc. ("Sagebrush") for approximately $9.0 million
in cash. Sagebrush had net sales and EBITDA of approximately $47.6 million and
$0.7 million, respectively, for the year ended December 31, 1997. On July 2,
1998, the Company completed the sale of another Ply Gem subsidiary, Goldenberg
Group, Inc. ("Goldenberg") for approximately $11.0 million, including
approximately $2.1 million in notes. Goldenberg had net sales and EBITDA of
approxi-
9
<PAGE> 11
mately $41.3 million and $1.4 million, respectively for the year ended December
31, 1997. On August 3, 1998, the Company completed the sale of another Ply Gem
business, Ply Gem Manufacturing, which had net sales and EBITDA of approximately
$49.7 million and $2.8 million, respectively for the year ended December 31,
1997.
The Company currently is negotiating to sell Moore-O-Matic, Inc. ("MOM")
and M&S. M&S manufactures and sells intercom systems, built-in music systems,
central vacuum systems and related products. The Company expects that the sale
of these businesses will be subject to the completion of satisfactory due
diligence by the purchaser and the negotiation of definitive documentation. In
addition, under the FTC Order, the disposition of the business of M&S is subject
to the prior approval of the FTC.
Other Developments
On June 16, 1998, the Company announced the formation of Ventrol Air
Handling Systems Inc. ("Ventrol"), a new corporation for the manufacture of HVAC
products in Montreal, Canada. Ventrol will be a part of the Company's Air
Conditioning and Heating Products Group. Ventrol will fabricate custom air
handling and heat recovery equipment to serve the commercial and industrial
markets in Canada and the eastern United States. A state-of-the-art plant is
planned, with completion expected by year end 1998. At full capacity, the plant
is expected to occupy 150,000 square feet and employ approximately 230 people.
On June 12, 1998, approximately 220 union employees of Mammoth, Inc.
("Mammoth"), a wholly owned subsidiary of the Company, went on strike at a
facility in Chaska, Minnesota. Mammoth produces commercial HVAC systems. The
strike ended on August 4, 1998, and the work stoppage and the terms of the new
labor contract did not have a material adverse impact on Nortek's financial
position or results of operations.
On September 2, 1998, the Company announced its plan to acquire, through a
wholly owned subsidiary, Napco, Inc., a privately held manufacturer of exterior
building products headquartered in Valencia, Pennsylvania. Consummation of the
transaction is subject to customary conditions and is expected to close in early
October of 1998. Napco manufactures four principal product lines: (a) vinyl
siding, soffit and accessories, marketed under the American Comfort(R), American
Herald(TM) and American '76(TM) collection labels; (b) vinyl window systems,
marketed under the Premium and American Comfort(R) labels; (c) accessory
products, including aluminum-trim coil, soffit, rainware and related specialty
products; and (d) coil coating. Napco's manufacturing operations are conducted
in three company-owned plants that are located within a few miles of each other
in western Pennsylvania, 25 miles north of Pittsburgh. For the year ended
December 31, 1997, Napco had net sales and EBITDA of approximately $91.1 million
and $10.8, respectively.
10
<PAGE> 12
THE EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to $210 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, $210 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
11
<PAGE> 13
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 may be used by a
Participating Broker-Dealer in
connection with resales of Exchange
Notes received in exchange for Original
Notes. The Company has agreed that, for
a period of 180 days, it will make this
Prospectus and any amendment or
supplement to this Prospectus available
to any Participating Broker-Dealer for
use in connection with any such
resales. See "Plan of Distribution."
The Exchange Offer is not being made
to, nor will the Company accept
surrenders for exchange from, Holders
of Original Notes in any jurisdiction
in which this Exchange Offer or the
acceptance thereof would not be in
compliance with the securities or blue
sky laws of such jurisdiction.
All resales must be made in compliance
with applicable state securities or
blue sky laws. Such compliance may
require that resales be made by or
through a licensed broker-dealer. The
Company assumes no responsibility with
regard to compliance with such
requirements.
EXPIRATION DATE..................... 5:00 p.m., New York City time, on
, 1998, 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 Date; 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
12
<PAGE> 14
set forth herein. Certain brokers,
dealers, commercial banks, trust
companies and other nominees may effect
tenders by book-entry transfer,
including an Agent's Message (as
defined) in lieu of a Letter of
Transmittal. By executing a Letter of
Transmittal or, in lieu thereof, by
transmitting an Agent's message, each
Holder will represent to the Company
that, among other things, (i) the
Exchange Notes acquired pursuant to the
Exchange Offer are being obtained in
the ordinary course of business of the
person receiving such Exchange Notes,
whether or not such person is the
Holder, (ii) neither the Holder nor any
such other person has any arrangement
or understanding with any person to
participate in the distribution of such
Exchange Notes and that such Holder is
not engaged in, and does not intend to
engage in, a distribution of Exchange
Notes, and (iii) that neither the
Holder nor any such other person is an
"affiliate," as defined in Rule 405
under the Securities Act, of the
Company. See "The Exchange
Offer -- Procedures for Tendering."
SPECIAL PROCEDURES FOR BENEFICIAL
HOLDERS............................. Any beneficial owner whose Original
Notes are registered in the name of a
broker, dealer, commercial bank, trust
company or other nominee and who wishes
to tender in the Exchange Offer should
contact such registered Holder promptly
and instruct such registered Holder to
tender on such beneficial owner's
behalf. A form of Instruction to
Registered Holder from Beneficial Owner
is included with the applicable Letter
of Transmittal enclosed with this
Prospectus for the convenience of such
beneficial owners. See "The Exchange
Offer -- Procedures for Tendering."
GUARANTEED DELIVERY PROCEDURES...... Holders of Original Notes who wish to
tender their Original Notes and whose
Original Notes are not immediately
available or who cannot deliver their
Original Notes, the Letter of
Transmittal, as the case may be, or any
other documents required by such Letter
of Transmittal to the Exchange Agent
(or comply with the procedures for
book-entry transfer) prior to the
Expiration Date must tender their
Original Notes according to the
guaranteed delivery procedures set
forth in "The Exchange
Offer -- Guaranteed Delivery
Procedures."
UNTENDERED NOTES.................... Following the consummation of the
Exchange Offer, Holders of Original
Notes eligible to participate but who
do not tender their Original Notes will
not have any further exchange rights,
and such Original Notes will continue
to be subject to certain restrictions
on transfer. Accordingly, the liquidity
of the market for such Original Notes
could be adversely affected by the
Exchange Offer.
13
<PAGE> 15
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 of
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 210
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."
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.
14
<PAGE> 16
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.................. $210,000,000 aggregate principal amount
of 8 7/8% Series B Senior Notes due
2008.
INTEREST RATE AND PAYMENT DATES..... Interest on the Exchange Notes will
accrue at the rate of 8 7/8% per annum,
payable semi-annually in arrears on
August 1 and February 1 of each year,
commencing February 1, 1999.
MATURITY............................ August 1, 2008.
REDEMPTION.......................... The Exchange Notes may be redeemed at
Nortek's option, in whole or in part,
at any time and from time to time, on
and after August 1, 2003, initially at
104.438% of principal amount and
thereafter at prices declining to 100%
from and after August 1, 2006, plus
accrued and unpaid interest and
Liquidated Damages, if any, to the date
of redemption. See "Description of
Notes -- Optional Redemption."
USE OF PROCEEDS..................... Nortek will not receive any proceeds
from the Exchange Offer.
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 and Liquidated
Damages, 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
agreements governing the indebtedness
of the Company and
15
<PAGE> 17
its subsidiaries. See "Description of
Notes -- Change of Control" and
"Description of Other Obligations."
RANKING............................. The Exchange Notes will be senior
unsecured obligation of the Company and
will rank pari passu in right of
payment with all existing and future
senior unsecured indebtedness of the
Company, including Nortek's outstanding
9 1/4% Senior Notes due 2007 (the
"9 1/4% Notes") and Nortek's
outstanding 9 1/8% Senior Notes due
2007 (the "9 1/8% Notes"), and senior
in right of payment to all existing and
future subordinated indebtedness of the
Company, including Nortek's outstanding
9 7/8% Senior Subordinated Notes due
2004 (the "9 7/8% Notes"). 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 secured and
unsecured 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 is then in effect).
Subject to certain restrictions, the
indenture pursuant to which the
Original Notes were issued and 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 July 4, 1998,
after giving effect to the Offering and
the Acquisition, the Exchange Notes
would have been effectively
subordinated to approximately $462.1
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
Holders 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."
16
<PAGE> 18
SUMMARY UNAUDITED CONSOLIDATED PRO FORMA ADJUSTED FINANCIAL DATA
The following table sets forth summary unaudited consolidated pro forma
adjusted financial data of the Company which give effect to the Ply Gem and
NuTone acquisitions. The pro forma adjusted 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 and Pro Forma Adjusted
Condensed Consolidated Financial Data" included elsewhere herein.
A more complete description of the information entitled "Pro Forma Adjusted
Nortek and Ply Gem" and "Pro Forma Adjusted Company," is contained in "Unaudited
Pro Forma and Pro Forma Adjusted Condensed Consolidated Financial Data."
Information entitled "NuTone Historical" is derived from the Consolidated
Financial Statements of NuTone contained elsewhere herein.
The unaudited pro forma adjusted consolidated balance sheet data as of July
4, 1998 has been prepared based upon the unaudited consolidated balance sheets
of Nortek and of NuTone as of July 4, 1998 and gives effect to the Acquisition
and the Offering as if such transactions had occurred on July 4, 1998.
Information entitled "Nortek Historical" is derived from the Consolidated
Financial Statements of Nortek contained elsewhere herein.
During the second and third quarters of 1998, the Company sold several
nonstrategic businesses of Ply Gem including Studley, Sagebrush, Goldenberg and
Ply Gem Manufacturing. In addition, Nortek is negotiating for the sale of MOM
and M&S. See "Recent Developments." Under the FTC Order, the disposition of M&S,
which is included in the Electronics Group, is subject to the prior approval of
the FTC. The following Summary Unaudited Consolidated Pro Forma Adjusted
Financial Data and other data does not give pro forma effect to the dispositions
of businesses that have occurred in 1998. See "Recent Developments."
The following unaudited pro forma adjusted consolidated financial data 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.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED JULY 4, 1998
-------------------------------------------------
PRO FORMA
ADJUSTED NORTEK PRO FORMA
AND PLY NUTONE ADJUSTED
GEM(4)(5) HISTORICAL COMPANY(5)(6)
---------------- ----------- --------------
(IN MILLIONS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales........................................... $1,692.4 $199.1 $1,891.5
Gross profit........................................ 419.5 74.9 488.7
Operating earnings.................................. 106.3 24.6 141.4
Interest expense, net............................... (69.1) (11.9) (88.6)
Earnings from continuing operations................. 21.0 7.7 27.6
Earnings per diluted share from continuing
operations........................................ $ 1.75 $ 2.31
OTHER CONSOLIDATED DATA:
Capital expenditures................................ $ 34.1 $ 3.7 $ 37.8
Depreciation and amortization including non-cash
interest.......................................... 42.1 3.3 51.7
EBITDA(1)........................................... 145.3 27.9 189.5
Ratio of earnings to fixed charges(2)............... 1.5
Ratio of EBITDA to interest expense, net............ 2.1x
Ratio of net debt to EBITDA(3)...................... 4.6x
</TABLE>
17
<PAGE> 19
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 SIX MONTHS ENDED JULY 4, 1998
---------------------------------------- ----------------------------------
PRO FORMA PRO FORMA PRO FORMA
ADJUSTED NORTEK ADJUSTED ADJUSTED
AND PLY GEM NUTONE COMPANY NORTEK AS NUTONE COMPANY
(4)(5) HISTORICAL (5)(6) ADJUSTED HISTORICAL (5)(6)
--------------- ---------- --------- --------- ---------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales........................ $1,650.1 $199.1 $1,849.2 $842.1 $95.2 $937.3
Gross profit..................... 394.1 76.2 464.6 208.3 34.5 240.0
Operating earnings............... 107.3 24.8 143.2 52.8 10.4 68.3
Interest expense, net............ (70.3) (11.8) (89.6) (34.8) (6.1) (44.7)
Earnings from continuing
operations..................... 20.9 7.9 28.0 9.8 2.6 11.5
Earnings per diluted share from
continuing operations.......... $ 1.73 $ 2.33 $ .82 $ .96
OTHER CONSOLIDATED DATA:
Capital expenditures............. $ 44.1 $ 3.7 $ 47.8 $ 15.5 $ 1.8 $ 17.3
Depreciation and amortization
including non-cash interest.... 41.7 3.4 51.3 21.5 1.7 26.3
EBITDA(1)........................ 146.1 28.2 191.1 72.7 12.1 92.7
Ratio of earnings to fixed
charges(2)..................... 1.4x 1.5x 1.4x 1.5x
</TABLE>
<TABLE>
<CAPTION>
JULY 4, 1998
---------------------------
PRO FORMA
NORTEK ADJUSTED
HISTORICAL COMPANY(5)(6)
---------- -------------
(IN MILLIONS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities(7)......... $ 220.1 $ 182.8
Working capital............................................. 410.8 400.6
Total assets................................................ 1,378.5 1,665.2
Total debt.................................................. 843.3 1,052.5
Stockholders' investment.................................... 195.7 195.7
</TABLE>
- ---------------
(1) "EBITDA" is operating earnings from continuing operations 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
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 total cash, cash equivalents and marketable securities.
(4) Gives effect to the Ply Gem Acquisition; estimated cost reductions directly
attributable to the Ply Gem Acquisition of approximately $.3 million and
$4.0 million for the twelve months ended July 4, 1998 and the year ended
December 31, 1997, respectively; estimated additional cost savings and
reductions related to the Ply Gem Acquisition of approximately $6.3 million
and $14.0 million for the twelve months ended July 4, 1998 and the year
ended December 31, 1997, respectively (the Ply Gem cost reductions are
estimates and actual savings achieved could differ materially); issuance of
the 9 1/4% Notes; issuance of
18
<PAGE> 20
the 9 1/8% Notes; and the Common Stock Offering, in each case as if such
events had occurred on January 1, 1997. The Ply Gem Acquisition occurred on
August 26, 1997. See "Unaudited Pro Forma and Pro Forma Adjusted Condensed
Consolidated Financial Data (for Ply Gem)."
(5) The Acquisition and the Ply Gem Acquisition are accounted for under the
purchase method of accounting. The summary unaudited pro forma adjusted
consolidated financial data have been prepared utilizing preliminary
purchase price allocations. The preliminary purchase price allocations are
subject to refinement until all pertinent information regarding the
Acquisition and the Ply Gem Acquisition is obtained and accordingly the
amounts presented herein are subject to change.
(6) Gives effect to the adjustments discussed in Note 4 above, as applicable,
the Offering and the Acquisition, in each case as if such events had
occurred on January 1, 1997 and reflects cost reductions directly
attributable to the Acquisition of approximately $1.3 million, $1.7 million
and $0.4 million for the twelve months ended July 4, 1998, the year ended
December 31, 1997 and the six months ended July 4, 1998, respectively and
estimated additional cost reductions Nortek expects to achieve as a result
of actions to be taken subsequent to the Acquisition of approximately $15.0
million for the twelve months ended July 4, 1998 and the year ended December
31, 1997 and approximately $7.5 million for the six months ended July 4,
1998. These cost reductions are estimates and actual savings achieved could
differ materially. No adjustments are required for the six months ended July
4, 1998 for the estimated cost reductions directly attributable to the Ply
Gem Acquisition and the additional cost savings and reductions related to
the Ply Gem Acquisition as discussed in Note 4.
(7) Includes approximately $6.4 million of restricted investments and marketable
securities at July 4, 1998 (as adjusted and pro forma adjusted). See
"Unaudited Pro Forma and Pro Forma Adjusted Condensed Consolidated Financial
Data."
19
<PAGE> 21
NORTEK, INC.
SUMMARY HISTORICAL FINANCIAL INFORMATION
The following summary consolidated historical financial data for each of
the five years in the period ended December 31, 1997 have been derived from the
consolidated financial statements of Nortek which were audited by Arthur
Andersen LLP, independent public accountants. The following summary consolidated
historical financial data at July 4, 1998 and for the six months ended June 28,
1997 and July 4, 1998 have been derived from the unaudited condensed
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 financial data
should be read in conjunction with the Company's audited and unaudited
Consolidated Financial Statements and 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 and Pro Forma
Adjusted Condensed Consolidated Financial Data" included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, ------------------
---------------------------------------------- JUNE 28, JULY 4,
1993(6) 1994(6) 1995 1996 1997 1997 1998
------- ------- ------ ------ -------- -------- -------
(IN MILLIONS EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1)(2):
Net sales.......................................... $627.5 $616.0 $656.8 $841.6 $1,134.1 $418.0 $842.1
Operating earnings................................. 31.7 44.4 43.0 61.0 83.0 32.3 52.8
Interest expense, net.............................. 19.4 18.5 14.9 22.4 40.3 13.0 34.8
Earnings (loss) from continuing operations......... (10.2) 15.4 17.5 23.7 26.4 12.4 9.8
Earnings (loss) per share from continuing
operations(2)(3):
Basic............................................ $(0.81) $ 1.23 $ 1.41 $ 2.26 $ 2.75 $ 1.28 $ .97
Diluted.......................................... (0.81) 1.21 1.39 2.23 2.68 1.25 .95
Weighted average number of shares (in thousands):
Basic............................................ 12,532 12,543 12,445 10,485 9,605 9,663 10,129
Diluted.......................................... 13,335 13,100 12,569 10,641 9,855 9,896 10,311
OTHER DATA(2):
Capital expenditures............................... $ 8.7 $ 14.4 $ 15.7 $ 19.8 $ 22.5 $ 7.7 $ 15.5
Depreciation and amortization including non-cash
interest......................................... 18.0 15.5 16.2 21.0 28.4 11.0 21.5
EBITDA(4).......................................... 49.2 58.6 58.1 80.8 109.7 42.7 72.7
Ratio of earnings to fixed charges(5).............. -- 1.9x 2.1x 2.3x 1.8x 1.9x 1.4x
</TABLE>
<TABLE>
<CAPTION>
JULY 4, 1998
------------
(IN MILLIONS)
<S> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities(7)......... $ 220.1
Working capital............................................. 410.8
Total assets................................................ 1,378.5
Total debt.................................................. 843.3
Stockholders' investment.................................... 195.7
</TABLE>
- ---------------
(1) Acquisitions have been accounted for under the purchase accounting method
and dispositions have been accounted for as described in Note 2 to the
Consolidated Financial Statements of Nortek included elsewhere herein.
(2) In the fourth quarter of 1997, the Company adopted a plan to discontinue its
plumbing products business. Accordingly, the results of the plumbing
products business have been excluded from earnings from continuing
operations and classified separately as discontinued operations for all
periods presented. See Note 9 of the Notes to Consolidated Financial
Statements of the Company included elsewhere herein.
(3) In 1997, the Company adopted the provisions of SFAS No. 128, Earnings Per
Share. This statement, issued by the FASB in February 1997, establishes
standards for computing and presenting earnings per share ("EPS") and
applies to entities with publicly held common stock. This statement replaces
the presentation of primary EPS with a presentation of basic EPS and
replaces the presentation of fully-diluted EPS with diluted EPS. All periods
presented have been restated to conform to SFAS No. 128.
20
<PAGE> 22
(4) "EBITDA" is operating earnings from continuing operations 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 operating, investing
and financing activities.
(5) For purposes of calculating this ratio, "earnings" consist of earnings from
continuing operations before provision for income taxes and fixed charges.
"Fixed charges" consist of interest expense and the estimated interest
portion of rental payments on operating leases. Such earnings were
insufficient to cover fixed charges by approximately $8.0 million for the
year ended December 31, 1993.
(6) In the third quarter of 1993, the Company provided a pre-tax valuation
reserve of approximately $20.3 million to reduce the Company's net
investment in Dixieline Products, Inc. ("Dixieline") to estimated net
realizable value. On March 31, 1994, the Company sold all of 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 the sale. In January 1995, the Company paid approximately
$1.8 million as a final purchase price adjustment related to the sale in
1992 of its wholly owned subsidiary Bend Millwork Systems, Inc. ("Bend") and
recorded a charge to pre-tax earnings in the fourth quarter of 1994.
(7) Includes restricted cash, investments and marketable securities in the
amount of approximately $6.4 million as of July 4, 1998.
21
<PAGE> 23
RISK FACTORS
Holders of the 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 a decision with respect to the Exchange Offer.
SUBSTANTIAL LEVERAGE
The Company has a substantial amount of debt. After giving effect to the
Offering, as of July 4, 1998, the Company would have had approximately $1,052.5
million of consolidated debt and a debt to equity ratio of 5.4 to 1.0. 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% Notes, the 9 1/4% Notes, the 9 1/8%
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
July 4, 1998 after giving effect to the Offering and the Acquisition, 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 terms of the Indenture permit the Company to make certain Restricted
Payments (as defined), including dividends, which could affect the Company's
leverage. The Indenture is the Company's most restrictive indenture with respect
to Restricted Payments, and at September 11, 1998 limits the Company's ability
to make Restricted Payments to approximately $53.4 million. See "Description of
the Notes -- Certain Covenants."
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
22
<PAGE> 24
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 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
(as defined)). 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 July 4, 1998, after giving effect to the Offering and the
Acquisition, the Company had outstanding, exclusively through its subsidiaries,
on a pro forma basis $139.8 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 indentures governing the 9 7/8% Notes, the 9 1/4% Notes and the
9 1/8% Notes). In addition, the terms of any loan from any such less than wholly
owned subsidiary to the Company may only be able to be made, if at all, on terms
less favorable to the Company than in the case of a loan from a wholly owned
subsidiary.
Except to the extent that the Company may itself be a trade creditor with
recognized claims against its subsidiaries, claims of creditors of such
subsidiaries, including trade creditors, will have effective priority with
respect to the assets and earnings of such subsidiaries over the claims of
creditors of the Company, including holders of the Notes. At July 4, 1998, after
giving effect to the Offering and the Acquisition, the Notes would have been
effectively subordinated to approximately $462.1 million of indebtedness for
borrowed money, trade payables and accrued liabilities of the Company's
subsidiaries. See "Description of Notes -- General."
23
<PAGE> 25
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 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, and Liquidated Damages, if
any, to the date of repurchase. Certain events involving a Change of Control
could result in acceleration of, or similar repurchase obligations with respect
to, indebtedness outstanding under the Company Credit Facility, the Ply Gem
Credit Facility, the 9 7/8% Notes, the 9 1/4% Notes, the 9 1/8% Notes or other
indebtedness of the Company or its subsidiaries that may be incurred in the
future. There can be no assurance that the Company will have sufficient
resources to repurchase the Notes 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 NUTONE
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. 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, if NuTone 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 NuTone following the Acquisition.
PROPOSED FTC ORDER
The Proposed FTC Order will be subject to public comment until October 2,
1998 upon the expiration of the comment period, the FTC will decide whether to
withdraw, modify or make its final acceptance of the Proposed FTC Order. Any
withdrawal or modification of the Proposed FTC Order could have a material
adverse effect on the Company. The Proposed FTC Order also provides that Nortek
must divest, at no minimum price, within six months of its execution of the
Agreement Containing Consent Order, all of the M&S Assets. Any acquiror must be
approved by the FTC. If Nortek has not divested the M&S Assets within the
prescribed time, the FTC may appoint a trustee to divest the M&S Assets. Nortek
will be responsible for any costs and expenses incurred by the trustee that are
necessary to carry out the trustee's duties. If the Proposed FTC Order becomes
final, Nortek will be required to file one or more compliance reports showing
that it has fully complied with the order. Violations of the final consent order
may result in substantial monetary penalties, which could have a material
adverse effect on Nortek's business. Notwithstanding the Proposed FTC Order, at
any time after the consummation of the Acquisition the FTC or DOJ could take
such actions under the antitrust laws as it deems necessary or desirable in the
public interest, including seeking divestiture of certain assets acquired
pursuant to the Acquisition. Furthermore, at any time after the consummation of
the Acquisition, any state could take such action under the antitrust laws as it
deems necessary or desirable to the public interest. While the Company does not
expect the FTC, the DOJ or any state to take any action to challenge the
Acquisition on antitrust grounds, there is no assurance that such a
24
<PAGE> 26
challenge will not be made or, if made and successful, would not have a material
adverse effect on the Company.
LABOR RELATIONS
As of December 31, 1997, after giving effect to dispositions since that
date, approximately 24% of Nortek's workforce was subject to various collective
bargaining agreements. Six collective bargaining agreements, covering
approximately 19% of Nortek's workforce, expire in the last two quarters of 1998
and 1999. As of December 31, 1997, approximately 47% of NuTone's workforce was
subject to a collective bargaining agreement that expires in 1999. There can be
no assurance as to the results of future negotiations of these or other
collective bargaining agreements, whether these or any other collective
bargaining agreements will be negotiated without production interruptions
including labor stoppages or the possible impact of these or any other
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
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 received equivalent value at the time
indebtedness under the Notes was incurred. In addition, after giving effect to
the Offering and the Acquisition, the Company does not: (i) believe that it will
be insolvent or rendered insolvent; (ii) believe that it was 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 Offering. 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
25
<PAGE> 27
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.
RISKS ASSOCIATED WITH ACQUISITIONS
The Company has made a number of acquisitions, including five since 1995,
and will continue to review future acquisition opportunities. No assurances can
be given that acquisition candidates will continue to be available on terms and
conditions acceptable to the Company. Acquisitions, including the Acquisition,
involve numerous risks, including among other things, difficulties and expenses
incurred in connection with the acquisition and the subsequent assimilation of
the operations of the acquired companies, adverse consequences of conforming the
acquired company's accounting policies to those of the Company, the difficulty
in operating acquired businesses, the diversion of management's attention from
other business concerns and the potential loss of key employees of acquired
companies. There can be no assurance that any acquisition, including the
Acquisition, will be successfully integrated into the Company's on-going
operations or that estimated cost savings will be achieved. In addition, in the
event that the operations of an acquired business do not meet expectations, the
Company may be required to restructure the acquired business or write-off the
value of some or all of the assets of the acquired business.
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 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.
EFFECTS OF YEAR 2000 ISSUE
The Company is in the process of updating its computer and information
systems to ensure that they are Year 2000 compliant and to improve such systems.
The Company has made and will continue to make investments in its computer
systems and applications to ensure that the Company is Year 2000 compliant.
Although the Company does not believe it will suffer any major effects from the
Year 2000 issue, there can be no assurance that the Company, or any business
acquired by the Company, including NuTone, or any of the Company's customers or
vendors will not experience interruptions of operations because of Year 2000
problems. Year 2000 problems might require the Company to incur unanticipated
expenses and such expenses
26
<PAGE> 28
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
------------------------
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.
27
<PAGE> 29
THE ACQUISITION
On March 9, 1998, Acquisition Sub and Williams Y&N entered into the NuTone
Purchase Agreement. Pursuant to the NuTone Purchase Agreement, Acquisition Sub
agreed to purchase all of the issued and outstanding capital stock of NuTone for
an aggregate purchase price of $242.5 million. In connection with the
Acquisition, Acquisition Sub assumed NuTone's operating liabilities (other than
intercompany borrowings), including certain liabilities of NuTone concerning
post retirement and other benefit obligations. The purchase price is subject to
adjustment based on NuTone's net asset value determined as of the closing of the
Acquisition. If the final closing net asset value, as determined in accordance
with the NuTone Purchase Agreement, is within the range of $65.1 million
(inclusive) to $67.1 million (inclusive), then there will be no adjustment to
the purchase price. If the final closing net asset value, as determined in
accordance with the NuTone Purchase Agreement, exceeds $67.1 million, then
Acquisition Sub is obligated to pay Williams Y&N an amount equal to the
difference between the final closing net asset value and $67.1 million. If the
final closing net asset value is less than $65.1 million, then Williams Y&N is
obligated to pay Acquisition Sub an amount equal to the difference between $65.1
million and the final closing net asset value.
Consummation of the Acquisition was subject to expiration or termination of
the applicable waiting period under the HSR Act. On December 18, 1997, Nortek
and NuTone filed Premerger Notification and Report Forms pursuant to the HSR Act
with the DOJ and the FTC. On January 16, 1998 Nortek and NuTone each received a
request for additional information from the FTC. On or about June 29, 1998, in
response to the FTC's concerns about the potential adverse competitive effects
the Acquisition might have on the market for certain hard-wired intercom
systems, Nortek executed the Proposed FTC Order, providing for the divestiture,
as described below, of M&S. On July 27, 1998, the FTC voted to accept the
Proposed FTC Order, thereby terminating the HSR waiting period. The Company
consummated the Acquisition on July 31, 1998. The Proposed FTC Order has been
placed on the public record and is subject to public comment until October 2,
1998. Upon the expiration of the comment period, the FTC will decide whether to
withdraw, modify or make final the Proposed FTC Order.
Under the terms of the Proposed FTC Order, Nortek must divest, at no
minimum price, within six months of its execution of the Proposed FTC Order, all
of the assets, properties, business and goodwill of M&S. Any acquiror must be
approved by the FTC. If Nortek has not divested the M&S Assets within the
prescribed time, the FTC may appoint a trustee to divest the M&S Assets. Nortek
will be responsible for any costs and expenses incurred by the trustee that are
necessary to carry out the trustee's duties. For the year ended December 31,
1997, M&S had net sales, operating earnings and EBITDA of approximately $19.9
million, $2.8 million and $3.3 million, respectively. If the Proposed FTC Order
becomes final, Nortek will be required to file one or more compliance reports
showing that it has fully complied with the order. Violations of the final
consent order may result in substantial monetary penalties, which could have a
material adverse effect on Nortek's business. Notwithstanding the Proposed FTC
Order, at any time after the consummation of the Acquisition, the FTC or DOJ
could take such actions under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking divestiture of certain
assets of the Acquisition. Furthermore, at any time after the consummation of
the Acquisition, any state could take such action under the antitrust laws as it
deems necessary or desirable to the public interest. While the Company does not
expect the FTC, the DOJ or any state to challenge the Acquisition on antitrust
grounds, there is no assurance that such a challenge will not be made or, if
made and successful, would not have a material adverse affect on the Company.
In addition, in connection with the execution of the Proposed FTC Order,
the Company has agreed to hold the M&S Assets separate and apart from the
Company's on-going business operations during the period commencing on the date
that the Acquisition was consummated and ending on the earlier of (i) ten (10)
business days after the FTC withdraws its acceptance of the Proposed FTC Order
or (ii) the day after the divestiture of the M&S Assets is consummated (the
foregoing is herein referred to as the "Hold Separate Period"). An independent
manager has been designated to manage and supervise the M&S Assets during the
Hold Separate Period. The Company shall not exercise control or influence over
either the M&S Assets or the independent manager during the Hold Separate
Period, except to the extent to assure compliance with the Hold Separate
Agreement.
28
<PAGE> 30
The sources and uses of funds needed to complete the Acquisition and the
offering of the Original Notes were as follows:
<TABLE>
<CAPTION>
IN MILLIONS
-----------
<S> <C>
Sources of funds:
A portion of the cash proceeds from the Common Stock
Offering.............................................. $ 39.3
Gross proceeds from the offering of the Original
Notes................................................. 209.2
------
Total sources of funds............................ $248.5
======
Uses of funds:
Payment for shares of NuTone common stock.............. $242.5
Estimated post closing adjustments related to the
Acquisition........................................... (4.0)
Fees, expenses and other costs related to the
Acquisition and the offering of the Original Notes.... 10.0
------
Total use of funds................................ $248.5
======
</TABLE>
As of July 31, 1998, NuTone had letters of credit and a Canadian credit
line supporting aggregate obligations of approximately $3.8 million. In
connection with the Acquisition, Nortek cancelled the Canadian credit line and
entered into a $10,000,000 standby and trade letter of credit facility of which
a portion is being used to back up aggregate obligations of NuTone of
approximately $3.2 million. The standby and trade letter of credit facility
contains customary terms and conditions.
RECENT DEVELOPMENTS
The Common Stock Offering
During the second quarter of 1998, the Company completed the Common Stock
Offering, receiving net proceeds of approximately $64.3 million.
Dispositions of Businesses
Effective July 10, 1998, the Company sold URC as well as a product line
included in the Residential Building Products Group to Mr. Reed Beidler, an
affiliate of Crane Plumbing, for approximately $33.7 million. URC, which
operated the Company's plumbing products business, had net sales of
approximately $104.5 million in 1997 and was accounted for as a discontinued
operation in the fourth quarter of 1997.
During the second and third quarters of 1998, the Company made several
dispositions of nonstrategic assets. On May 8, 1998, the Company sold Studley.
Studley had net sales of approximately $22.0 million for the year ended December
31, 1997 and had been treated as an operation held for sale since the Ply Gem
Acquisition. In addition, on May 22, 1998, the Company consummated the sale of
Sagebrush for approximately $9.0 million in cash. Sagebrush had net sales and
EBITDA of approximately $47.6 million and $0.7 million, respectively, for the
year ended December 31, 1997. On July 2, 1998, the Company completed the sale of
Goldenberg for approximately $11.0 million, including approximately $2.1 million
in notes. Goldenberg had net sales and EBITDA of approximately $41.3 million and
$1.4 million, respectively for the year ended December 31, 1997. On August 3,
1998, the Company completed the sale of another Ply Gem business, Ply Gem
Manufacturing, which had net sales and EBITDA of approximately $49.7 million and
$2.8, respectively for the year ended December 31, 1997.
The Company is negotiating for the sale of MOM and M&S. M&S manufactures
and sells intercom systems, built-in music systems, central vacuum systems and
related products. The Company expects that the sale of these businesses will be
subject to the completion of satisfactory due diligence by the purchaser and the
negotiation of definitive documentation. In addition, under the FTC Order, the
disposition of the business of M&S is subject to the prior approval of the FTC.
On June 16, 1998, the Company announced the formation of Ventrol, a new
corporation for the manufacture of HVAC products in Montreal, Canada. Ventrol
will be a part of the Company's Air Conditioning and Heating Products Group.
Ventrol will fabricate custom air handling and heat recovery
29
<PAGE> 31
equipment to serve the commercial and industrial markets in Canada and the
eastern United States. A state-of-the-art plant is planned, with completion
expected by year end 1998. At full capacity, the plant is expected to occupy
150,000 square feet and employ approximately 230 people.
On June 12, 1998, approximately 220 union employees of Mammoth went on
strike at a facility in Chaska, Minnesota. Mammoth produces commercial HVAC
systems. The strike ended on August 4, 1998, and the work stoppage and the terms
of the new labor contract did not have a material adverse impact on Nortek's
financial position or results of operations.
On September 2, 1998, the Company announced its plan to acquire, through a
wholly owned subsidiary, Napco, Inc., a privately held manufacturer of exterior
building products headquartered in Valencia, Pennsylvania. Consummation of the
transaction is subject to customary conditions and is expected to close in early
October of 1998. Napco manufactures four principal product lines: (a) vinyl
siding, soffit and accessories, marketed under the American Comfort(R), American
Herald(TM) and American '76(TM) collection labels; (b) vinyl window systems,
marketed under the Premium and American Comfort(R) labels; (c) accessory
products, including aluminum-trim coil, soffit, rainware and related specialty
products; and (d) coil coating. Napco's manufacturing operations are conducted
in three company-owned plants that are located within a few miles of each other
in western Pennsylvania, 25 miles north of Pittsburgh. For the year ended
December 31, 1997, Napco had net sales and EBITDA of approximately $91.1 million
and $10.8, respectively.
30
<PAGE> 32
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."
CAPITALIZATION
The following table sets forth at July 4, 1998 the short-term debt and
capitalization of the Company on a historical and pro forma basis. The pro forma
basis gives effect to the Offering and the application of the net proceeds
therefrom as described in "Use of Proceeds." The information presented below
should be read in conjunction with the Consolidated Financial Statements of the
Company and Notes thereto and the Consolidated Financial Statements of NuTone
and Notes thereto appearing elsewhere herein and the "Unaudited Pro Forma and
Pro Forma Adjusted Condensed Consolidated Financial Data."
<TABLE>
<CAPTION>
JULY 4, 1998
---------------------
PRO
HISTORICAL FORMA
---------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Short-term debt:
Short-term borrowings.................................. $ 11.2 $ 11.2
Current maturities of long-term debt................... 5.7 5.7
-------- --------
Total short-term debt............................. $ 16.9 $ 16.9
-------- --------
Long-term debt:
Notes, mortgage notes and other........................ $ 127.4 $ 127.4
9 1/4% Senior Notes due 2007........................... 174.1 174.1
9 1/8% Senior Notes due 2007........................... 307.6 307.6
8 7/8% Senior Notes due 2008........................... -- 209.2
9 7/8% Senior Subordinated Notes due 2004.............. 217.3 217.3
-------- --------
Total long-term debt(1)........................... $ 826.4 $1,035.6
-------- --------
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; 18,409,378 shares issued.................. 18.4 18.4
Special common stock, $1.00 par value; 5,000,000 shares
authorized; 860,122 shares issued..................... .9 .9
Additional paid-in capital............................. 198.8 198.8
Retained earnings...................................... 68.8 68.8
Cumulative translation, pension and other
adjustments........................................... (6.9) (6.9)
Less: Treasury stock, at cost, 7,237,237 common shares
and 285,987 special common shares..................... (84.3) (84.3)
-------- --------
Total stockholders' investment.................... $ 195.7 $ 195.7
-------- --------
Total capitalization.............................. $1,022.1 $1,231.3
======== ========
</TABLE>
- ---------------
(1) Long-term debt is net of $4.5 million (Historical) and $5.2 million (Pro
Forma) of unamortized debt discount.
(2) Excludes (i) 1,935,686 shares of common stock, $1.00 par value (the "Common
Stock") at July 4, 1998 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) 371,349 shares of Special Common
stock at July 4, 1998 which have been reserved for issuance pursuant to
options and (iii) 117,373 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.
31
<PAGE> 33
UNAUDITED PRO FORMA AND PRO FORMA ADJUSTED
CONDENSED CONSOLIDATED FINANCIAL DATA
OVERVIEW
The Unaudited Pro Forma and Pro Forma Adjusted Condensed Consolidated
Financial Data for the year ended December 31, 1997 and the six and twelve
months ended July 4, 1998 presented herein gives pro forma effect to certain
transactions. Transactions for which pro forma information is provided include
the 9 1/4% Notes, the 9 1/8% Notes, the Ply Gem Acquisition, the Common Stock
Offering, the Offering and the Acquisition.
The Ply Gem Acquisition and the Acquisition are accounted for under the
purchase method of accounting. With respect to these acquisitions, the
information contained herein has been prepared utilizing preliminary purchase
price allocations which are subject to refinement until all pertinent
information regarding the acquisitions has been obtained. In addition, any cost
reductions reflected herein are estimates. The ability to implement such cost
reductions could be beyond the control of Nortek, and no assurance can be given
that such cost reductions will be achieved. Consequently, actual results could
differ materially from those presented. Accordingly, the financial information
presented herein is subject to change.
The financial information entitled "Unaudited Pro Forma" and "Unaudited Pro
Forma Adjusted" is not necessarily indicative of the actual results of
operations that would have been reported if the events described above had
occurred during the applicable period, nor does such information purport to be
indicative of the results of future operations. Furthermore, such information
may not give effect to all cost savings or incremental costs that may occur as a
result of the integration and consolidation of the acquisitions of Ply Gem and
NuTone. In the opinion of management, all adjustments necessary to present
fairly, in all material respects, such "Unaudited Pro Forma" and "Unaudited Pro
Forma Adjusted" financial information have been made.
During the second and third quarters of 1998, the Company sold several
nonstrategic assets of Ply Gem including Studley, Sagebrush, Goldenberg and Ply
Gem Manufacturing. In addition, Nortek is currently negotiating to sell M&S and
MOM. See "Recent Developments." Under the Proposed FTC Order, the disposition of
M&S is subject to the prior approval of the FTC. The following Pro Forma and Pro
Forma Adjusted Condensed Consolidated Financial Data does not give pro forma
effect to the dispositions of businesses that have occurred in 1998. See "Recent
Developments."
The Unaudited Pro Forma and Pro Forma Adjusted Condensed Consolidated
Financial Data should be read in conjunction with "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the audited and unaudited Nortek Consolidated Financial Statements
and the Notes thereto, the audited Ply Gem Consolidated Financial Statements and
the Notes thereto and the audited and unaudited NuTone Consolidated Financial
Statements and the Notes thereto included elsewhere herein.
UNAUDITED HISTORICAL AND PRO FORMA ADJUSTED CONSOLIDATED BALANCE SHEET
The Unaudited Historical Consolidated Balance Sheet as of July 4, 1998 has
been prepared based upon the unaudited Consolidated Balance Sheet of Nortek as
of July 4, 1998.
The Unaudited Pro Forma Adjusted Consolidated Balance Sheet as of July 4,
1998 has been prepared based upon the unaudited Consolidated Balance Sheets of
Nortek and of NuTone as of July 4, 1998 and gives pro forma effect to the
Offering and the Acquisition, in each case as if such transactions had occurred
on July 4, 1998.
UNAUDITED PRO FORMA AND PRO FORMA ADJUSTED CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE PLY GEM ACQUISITION
The Unaudited Pro Forma (for Ply Gem) Condensed Consolidated Statement of
Operations for the year ended December 31, 1997 and twelve months ended July 4,
1998 have been prepared using Nortek's Audited
32
<PAGE> 34
Consolidated Statement of Operations for the year ended December 31, 1997 (which
includes the operations of Ply Gem since August 26, 1997), and Nortek's
Unaudited Condensed Consolidated Statements of Operations for the six months
ended July 4, 1998 and June 28, 1997, as applicable, and Ply Gem's unaudited
results of operations for the period from January 1, 1997 through August 25,
1997, as applicable.
The Unaudited Pro Forma (for Ply Gem) Condensed Consolidated Statement of
Operations for the year ended December 31, 1997 and the twelve months ended July
4, 1998 give pro forma effect to, as applicable: (i) the 9 1/4% Notes; (ii) the
9 1/8% Notes; (iii) the Ply Gem Acquisition; (iv) cost savings that are directly
attributable to the Ply Gem Acquisition (the "Ply Gem Acquisition Related Cost
Savings"); (v) the Common Stock Offering; and (vi) approximately $22.2 million
of charges recorded by Ply Gem prior to the Ply Gem Acquisition, to provide
certain valuation reserves and to conform accounting policies to Nortek's, in
each case as if such events occurred on January 1, 1997 (collectively, the "Pro
Forma Ply Gem Adjustments").
The information entitled "Pro Forma Adjusted Nortek and Ply Gem" gives pro
forma effect to the Pro Forma Ply Gem Adjustments and additional estimated cost
savings related to the Ply Gem Acquisition which were achieved through actions
taken by Nortek since the completion of the Ply Gem Acquisition (the "Ply Gem
Acquisition Additional Cost Savings") and excludes the effect of approximately
$22.2 million of charges recorded by Ply Gem prior to the Ply Gem Acquisition as
described above.
UNAUDITED PRO FORMA AND PRO FORMA ADJUSTED STATEMENT OF OPERATIONS FOR THE PLY
GEM ACQUISITION AND THE ACQUISITION
The Unaudited Pro Forma (for Ply Gem and NuTone) Condensed Consolidated
Statement of Operations for the year ended December 31, 1997 and the six and
twelve months ended July 4, 1998 have been prepared using, as applicable: (i)
Nortek's Audited Consolidated Statement of Operations for the year ended
December 31, 1997 (which includes the operations of Ply Gem from August 26, 1997
to December 31, 1997); (ii) Ply Gem's Unaudited Results of Operations for the
period January 1, 1997 through August 25, 1997; (iii) NuTone's Audited
Consolidated Statement of Operations for the year ended December 31, 1997; (iv)
Nortek's Unaudited Condensed Consolidated Statements of Operations for the six
months ended July 4, 1998 and June 28, 1997; and (v) NuTone's Unaudited
Condensed Consolidated Statements of Operations for the six months ended July 4,
1998 and June 28, 1997.
The information entitled "Pro Forma Company" gives effect to: (i) the Pro
Forma Ply Gem Adjustments; (ii) the Acquisition; (iii) net savings expected to
be achieved from the elimination of fees and charges paid by NuTone to Williams
plc and related entities; and (iv) the Offering.
The information entitled "Pro Forma Adjusted Company" for the year ended
December 31, 1997 and twelve months ended July 4, 1998 gives pro forma effect to
items (i) through (iv) of the immediately preceding paragraph, the Ply Gem
Acquisition Additional Cost Savings and approximately $15.0 million in annual
cost reductions that Nortek estimates can be achieved as a result of the
Acquisition and excludes the effect of approximately $22.2 million of charges
recorded by Ply Gem prior to the Ply Gem Acquisition as described above.
The information entitled "Pro Forma Adjusted Company" for the six months
ended July 4, 1998 gives pro forma effect to items (ii) through (iv) described
in the second preceding paragraph above and approximately $7.5 million in cost
reductions that Nortek estimates can be achieved as a result of the Acquisition.
33
<PAGE> 35
UNAUDITED HISTORICAL AND PRO FORMA
ADJUSTED CONSOLIDATED BALANCE SHEET
JULY 4, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
NORTEK NUTONE PRO FORMA ADJUSTED
HISTORICAL HISTORICAL ADJUSTMENTS COMPANY
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents................. $ 201,619 $ 1,972 $ (39,258)(a) $ 164,333
---------- --------- --------- ----------
Marketable securities available for
sale.................................... 12,055 -- -- 12,055
Restricted cash and marketable
securities.............................. 6,389 -- -- 6,389
Accounts receivable, net.................. 209,527 29,271 -- 238,798
Inventories, net.......................... 172,064 4,681 23,655(b) 200,400
Prepaid expenses.......................... 11,779 5,313 -- 17,092
Other current assets...................... 9,982 -- -- 9,982
Net assets of discounted operations....... 32,256 -- -- 32,256
Prepaid income taxes...................... 46,800 5,100 (9,462)(c) 42,438
---------- --------- --------- ----------
Total current assets............ 702,471 46,337 (25,065) 723,743
Property, plant and equipment, net........ 236,175 18,318 -- 254,493
Goodwill.................................. 372,718 -- 226,922(d) 599,640
Intangible assets......................... 8,246 -- -- 8,246
Notes receivable and other investments.... 8,949 -- -- 8,949
Deferred income taxes..................... 8,473 13,676 -- 22,149
Deferred debt expense..................... 19,952 -- 6,504(e) 26,456
Other assets.............................. 21,480 -- -- 21,480
---------- --------- --------- ----------
Total assets.................... $1,378,464 $ 78,331 $ 208,361 $1,665,156
========== ========= ========= ==========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Notes payable and other short term
obligations............................. $ 11,156 $ -- $ -- $ 11,156
Intercompany borrowings................... -- 15,004 (15,004)(f) --
Current maturities of long-term debt and
capital leases.......................... 5,746 -- -- 5,746
Accounts payable.......................... 122,567 17,547 -- 140,114
Accrued expenses and taxes, net........... 152,218 13,957 -- 166,175
---------- --------- --------- ----------
Total current liabilities....... 291,687 46,508 (15,004) 323,191
Other long term liabilities............... 64,697 45,942 -- 110,639
Notes, mortgages, capital leases and
obligations payable less current
maturities.............................. 826,350 -- 209,246(g) 1,035,596
Long-term intercompany borrowings......... -- 131,000 (131,000)(h) --
Preferred stock........................... -- -- -- --
Common stock.............................. 18,409 -- -- 18,409
Special common stock...................... 860 -- -- 860
Additional paid in capital................ 198,886 -- -- 198,886
Retained earnings (deficit)............... 68,766 -- -- 68,766
Cumulative translation, pension and
other................................... (6,903) -- -- (6,903)
Treasury stock-common..................... (82,331) -- -- (82,331)
Treasury stock-special common............. (1,957) -- -- (1,957)
---------- --------- --------- ----------
Total stockholders'
investment.................... 195,730 (145,119) 145,119(i) 195,730
---------- --------- --------- ----------
Total liabilities and
stockholders'
investment............... $1,378,464 $ 78,331 $ 208,361 $1,665,156
========== ========= ========= ==========
</TABLE>
See Notes to the Unaudited Historical and Pro Forma Adjusted Consolidated
Balance Sheet
34
<PAGE> 36
NOTES TO THE UNAUDITED HISTORICAL AND
PRO FORMA ADJUSTED CONSOLIDATED BALANCE SHEET
JULY 4, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
-----------
<S> <C>
(A) CASH AND CASH EQUIVALENTS
Cash payment related to the Acquisition..................... $(238,500)
Fees, expenses and other costs related to the Acquisition
and the Offering.......................................... (10,004)
---------
(248,504)
---------
Less gross proceeds from the Offering....................... 209,246
---------
A portion of the cash proceeds from the Common Stock
Offering, used to partially fund the Acquisition.......... $ (39,258)
=========
(B) INVENTORIES, NET
Increase in inventories to estimated fair market value in
connection with the Acquisition........................... $ 23,655
=========
(C) DEFERRED INCOME TAXES
Deferred income taxes related to the Acquisition............ $ (9,462)
=========
(D) GOODWILL
Additional costs in excess of net assets acquired in
connection with the Acquisition........................... $ 226,922
=========
(E) DEFERRED DEBT EXPENSE
Financing costs related to the Offering..................... $ 6,504
=========
(F) INTERCOMPANY BORROWINGS
Eliminate intercompany borrowings not assumed in connection
with the Acquisition...................................... $ (15,004)
=========
(G) NOTES, MORTGAGES, CAPITAL LEASES AND OBLIGATIONS PAYABLE
LESS CURRENT MATURITIES
Notes issued in the Offering................................ $ 209,246
=========
(H) LONG-TERM INTERCOMPANY BORROWINGS
Eliminate intercompany borrowings not assumed in connection
with the Acquisition...................................... $(131,000)
=========
(I) TOTAL STOCKHOLDERS' INVESTMENT
Eliminate NuTone's stockholders' deficit in connection with
the Acquisition........................................... $ 145,119
=========
</TABLE>
35
<PAGE> 37
UNAUDITED PRO FORMA AND PRO FORMA ADJUSTED(FOR PLY GEM AND NUTONE)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
NORTEK PRO FORMA
AND NUTONE PRO FORMA PRO FORMA ADDITIONAL ADJUSTED
PLY GEM HISTORICAL ADJUSTMENTS COMPANY ADJUSTMENTS COMPANY
--------- ---------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales........................ $1,650,052 $199,072 $ -- $1,849,124 $ -- $1,849,124
Cost and expenses:
Cost of products sold........ 1,256,349 122,897 -- 1,379,246 (11,500)(f) 1,367,746
Amortization of acquired
goodwill................... 11,090 -- 5,673(a) 16,763 -- 16,763
Selling, general and
administrative expense..... 311,542 51,387 (1,746)(b) 361,183 (39,761)(g) 321,422
---------- -------- ------- ---------- -------- ----------
1,578,981 174,284 3,927 1,757,192 (51,261) 1,705,931
---------- -------- ------- ---------- -------- ----------
Operating earnings (loss)........ 71,071 24,788 (3,927) 91,932 51,261 143,193
Interest expense................. (77,793) (11,852) (7,483)(c) (97,128) -- (97,128)
Investment income................ 7,489 42 -- 7,531 -- 7,531
---------- -------- ------- ---------- -------- ----------
Earnings (loss) from continuing
operations before provision
(benefit) for income taxes..... 767 12,978 (11,410) 2,335 51,261 53,596
Provision (benefit) for income
taxes.......................... 2,271 5,043 (1,470)(e) 5,844 19,720(h) 25,564
---------- -------- ------- ---------- -------- ----------
Earnings (loss) from continuing
operations..................... $ (1,504) $ 7,935 $(9,940) $ (3,509) $ 31,541 $ 28,032
========== ======== ======= ========== ======== ==========
EARNINGS (LOSS) PER SHARE AS
ADJUSTED FOR THE COMMON STOCK
OFFERING:
Earnings (loss) from continuing
operations:
Basic........................ $ (.13) $ (.30) $ 2.38
Diluted...................... (.13) (.30) 2.33
Weighted average number of
shares:
Basic........................ 11,788 11,788 11,788
Diluted...................... 12,038 12,038 12,038
</TABLE>
See Notes to the Unaudited Pro Forma and Pro Forma Adjusted (For Ply Gem and
NuTone)
Condensed Consolidated Statement of Operations
36
<PAGE> 38
UNAUDITED PRO FORMA AND PRO FORMA ADJUSTED (FOR PLY GEM AND NUTONE)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR SIX MONTHS ENDED JULY 4, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
NORTEK PRO FORMA
AND NUTONE PRO FORMA PRO FORMA ADDITIONAL ADJUSTED
PLY GEM HISTORICAL ADJUSTMENTS COMPANY ADJUSTMENTS COMPANY
--------- ---------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales...................... $842,115 $95,223 $ -- $937,338 $ -- $937,338
Cost and expenses:
Cost of products sold........ 628,595 60,772 -- 689,367 -- 689,367
Amortization of acquired
goodwill.................. 5,174 -- 2,837(a) 8,011 -- 8,011
Selling, general and
administrative expense.... 155,499 24,075 (384)(b) 179,190 (7,500)(g) 171,690
-------- ------- ------- -------- ------- --------
789,268 84,847 2,453 876,568 (7,500) 869,068
-------- ------- ------- -------- ------- --------
Operating earnings (loss)...... 52,847 10,376 (2,453) 60,770 7,500 68,270
Interest expense............. (39,198) (6,113) (3,555)(c) (48,866) -- (48,866)
Investment income............ 4,351 23 (245)(d) 4,129 -- 4,129
-------- ------- ------- -------- ------- --------
Earnings (loss) from continuing
operations before provision
for income taxes............. 18,000 4,286 (6,253) 16,033 7,500 23,533
Provision for income taxes..... 8,200 1,714 (877)(e) 9,037 3,000(h) 12,037
-------- ------- ------- -------- ------- --------
Earnings (loss) from continuing
operations................... $ 9,800 $ 2,572 $(5,376) $ 6,996 $ 4,500 $ 11,496
======== ======= ======= ======== ======= ========
EARNINGS PER SHARE AS ADJUSTED
FOR THE COMMON STOCK
OFFERING:
Earnings from continuing
operations:
Basic........................ $ 0.84 $ .60 $ .98
Diluted...................... 0.82 .59 .96
Weighted average number of
shares:
Basic........................ 11,733 11,733 11,733
Diluted...................... 11,915 11,915 11,915
</TABLE>
See Notes to the Unaudited Pro Forma and Pro Forma Adjusted (For Ply Gem and
NuTone)
Condensed Consolidated Statement of Operations
37
<PAGE> 39
UNAUDITED PRO FORMA AND PRO FORMA ADJUSTED (FOR PLY GEM AND NUTONE)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED JULY 4, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
NORTEK PRO FORMA
AND NUTONE PRO FORMA PRO FORMA ADDITIONAL ADJUSTED
PLY GEM HISTORICAL ADJUSTMENTS COMPANY ADJUSTMENTS COMPANY
---------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales................. $1,692,406 $199,118 $ -- $1,891,524 $ -- $1,891,524
Cost and expenses:
Cost of products sold... 1,273,980 124,253 -- 1,398,233 (11,500)(f) 1,386,733
Amortization of acquired
goodwill............. 10,437 -- 5,673(a) 16,110 -- 16,110
Selling, general and
administrative
expense.............. 330,284 50,278 (1,255)(b) 379,307 (32,047)(g) 347,260
---------- -------- -------- ---------- -------- ----------
1,614,701 174,531 4,418 1,793,650 (43,547) 1,750,103
---------- -------- -------- ---------- -------- ----------
Operating earnings
(loss).................. 77,705 24,587 (4,418) 97,874 43,547 141,421
Interest expense.......... (77,807) (11,994) (7,341)(c) (97,142) -- (97,142)
Investment income......... 8,704 48 (245)(d) 8,507 -- 8,507
---------- -------- -------- ---------- -------- ----------
Earnings (loss) from
continuing operations
before provision
(benefit) for income
taxes................... 8,602 12,641 (12,004) 9,239 43,547 52,786
Provision (benefit) for
income taxes............ 4,981 4,908 (1,699)(e) 8,190 17,020(h) 25,210
---------- -------- -------- ---------- -------- ----------
Earnings (loss) from
continuing operations... $ 3,621 $ 7,733 $(10,305) $ 1,049 $ 26,527 $ 27,576
========== ======== ======== ========== ======== ==========
EARNINGS PER SHARE AS
ADJUSTED FOR THE COMMON
STOCK OFFERING:
Earnings from continuing
operations:
Basic................... $ .31 $ .09 $ 2.35
Diluted................. .30 .09 2.31
Weighted average number of
shares:
Basic................... 11,731 11,731 11,731
Diluted................. 11,955 11,955 11,955
</TABLE>
See Notes to the Unaudited Pro Forma and Pro Forma Adjusted (For Ply Gem and
NuTone)
Condensed Consolidated Statement of Operations
38
<PAGE> 40
NOTES TO THE UNAUDITED PRO FORMA AND
PRO FORMA ADJUSTED (FOR PLY GEM AND NUTONE)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED TWELVE MONTHS
YEAR ENDED JULY 4, ENDED
DECEMBER 31, 1997 1998 JULY 4, 1998
----------------- ---------- -------------
<S> <C> <C> <C>
(A) AMORTIZATION OF ACQUIRED GOODWILL
Amortization of goodwill over 40 years related to the
Acquisition............................................... $ 5,673 $ 2,837 $ 5,673
======== ======= ========
(B) SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Elimination of management fees and other charges paid by
NuTone to Williams plc and related entities, net of
estimated incremental Nortek management costs............. $ (1,746) $ (384) $ (1,255)
======== ======= ========
(C) INTEREST EXPENSE
Interest expense related to the Offering.................... $(18,637) $(9,319) $(18,637)
Amortization of debt issuance costs related to the
Offering.................................................. (649) (325) (649)
Amortization of debt discount related to the Offering....... (49) (24) (49)
Reduction of interest expense related to intercompany
borrowings not assumed in the Acquisition................. 11,852 6,113 11,994
-------- ------- --------
$ (7,483) $(3,555) $ (7,341)
======== ======= ========
(D) INVESTMENT INCOME
Reduction in interest income on cash and cash equivalents
used to fund the Acquisition.............................. $ -- $ (245) $ (245)
======== ======= ========
(E) PROVISION (BENEFIT) FOR INCOME TAXES
Net provision (benefit) for income taxes related to notes
(b) and (c) above......................................... $ (1,470) $ (877) $ (1,699)
======== ======= ========
(F) COST OF PRODUCTS SOLD
Elimination of charges recorded by Ply Gem prior to the Ply
Gem Acquisition, to provide certain valuation reserves and
to conform accounting policies to Nortek's................ $(11,500) $ -- $(11,500)
======== ======= ========
(G) SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Estimated Ply Gem Acquisition Additional Cost Savings....... $(14,061) $ -- $ (6,347)
Elimination of charges recorded by Ply Gem prior to the Ply
Gem Acquisition, to provide certain valuation reserves and
to conform accounting policies to Nortek's................ (10,700) -- (10,700)
Estimated cost reductions related to the Acquisition........ (15,000) (7,500) (15,000)
-------- ------- --------
$(39,761) $(7,500) $(32,047)
======== ======= ========
(H) PROVISION FOR INCOME TAXES
Tax provisions on the Ply Gem additional cost savings and
reductions and eliminations of charges recorded by Ply Gem
referred to in notes (f) and (g) above.................... $ 13,891 $ -- $ 11,191
Tax provision related to the estimated cost reductions as
referred to in note (g) above............................. 5,829 3,000 5,829
-------- ------- --------
$ 19,720 $ 3,000 $ 17,020
======== ======= ========
</TABLE>
39
<PAGE> 41
UNAUDITED PRO FORMA AND PRO FORMA ADJUSTED (FOR PLY GEM)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA ADJUSTED
NORTEK PLY GEM PRO FORMA NORTEK AND ADDITIONAL NORTEK AND
HISTORICAL HISTORICAL(A) ADJUSTMENTS PLY GEM ADJUSTMENTS PLY GEM
---------- ------------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales................... $1,134,129 $515,923 $ -- $1,650,052 $ -- $1,650,052
Cost and expenses:
Cost of products sold... 826,453 431,196 (1,300)(b) 1,256,349 (11,500)(h) 1,244,849
Amortization of acquired
goodwill.............. 5,319 976 4,795(c) 11,090 -- 11,090
Selling, general and
administrative
expense............... 219,376 99,912 (7,746)(d) 311,542 (24,761)(i) 286,781
---------- -------- -------- ---------- -------- ----------
1,051,148 532,084 (4,251) 1,578,981 (36,261) 1,542,720
---------- -------- -------- ---------- -------- ----------
Operating earnings (loss)... 82,981 (16,161) 4,251 71,071 36,261 107,332
Interest expense............ (50,210) (5,696) (21,887)(e) (77,793) -- (77,793)
Investment income......... 9,929 302 (2,742)(f) 7,489 -- 7,489
---------- -------- -------- ---------- -------- ----------
Earnings (loss) from
continuing operations
before provision (benefit)
for income taxes.......... 42,700 (21,555) (20,378) 767 36,261 37,028
Provision (benefit) for
income taxes.............. 16,300 (8,484) (5,545)(g) 2,271 13,891(j) 16,162
---------- -------- -------- ---------- -------- ----------
Earnings (loss) from
continuing operations..... $ 26,400 $(13,071) $(14,833) $ (1,504) $ 22,370 $ 20,866
========== ======== ======== ========== ======== ==========
EARNINGS (LOSS) PER SHARE AS
ADJUSTED FOR THE COMMON
STOCK OFFERING:
Earnings (loss) from
continuing operations:
Basic................... $ 2.24 $ (.13) $ 1.77
Diluted................. 2.19 (.13) 1.73
Weighted average number of
shares:
Basic................... 11,788 11,788 11,788
Diluted................. 12,038 12,038 12,038
</TABLE>
See Notes to the Unaudited Pro Forma and Pro Forma Adjusted (For Ply Gem)
Condensed Consolidated Statement of Operations
40
<PAGE> 42
UNAUDITED PRO FORMA AND PRO FORMA ADJUSTED (FOR PLY GEM)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED JULY 4, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA ADJUSTED
NORTEK PLY GEM PRO FORMA NORTEK AND ADDITIONAL NORTEK AND
HISTORICAL HISTORICAL(A) ADJUSTMENTS PLY GEM ADJUSTMENTS PLY GEM
---------- ------------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales................... $1,558,211 $134,195 $ -- $1,692,406 $ -- $1,692,406
Cost and expenses:
Cost of products sold... 1,159,337 114,943 (300)(b) 1,273,980 (11,500)(h) 1,262,480
Amortization of acquired
goodwill.............. 9,064 245 1,128(c) 10,437 -- 10,437
Selling, general and
administrative
expense............... 286,276 45,317 (1,309)(d) 330,284 (17,047)(i) 313,237
---------- -------- -------- ---------- -------- ----------
1,454,677 160,505 (481) 1,614,701 (28,547) 1,586,154
---------- -------- -------- ---------- -------- ----------
Operating earnings (loss)... 103,534 (26,310) 481 77,705 28,547 106,252
Interest expense............ (71,840) (2,047) (3,920)(e) (77,807) -- (77,807)
Investment income........... 9,706 (9) (993)(f) 8,704 -- 8,704
---------- -------- -------- ---------- -------- ----------
Earnings (loss) from
continuing operations
before provision (benefit)
for income taxes.......... 41,400 (28,366) (4,432) 8,602 28,547 37,149
Provision (benefit) for
income taxes.............. 17,600 (11,463) (1,156)(g) 4,981 11,191(j) 16,172
---------- -------- -------- ---------- -------- ----------
Earnings (loss) from
continuing operations..... $ 23,800 $(16,903) $ (3,276) $ 3,621 $ 17,356 $ 20,977
========== ======== ======== ========== ======== ==========
EARNINGS PER SHARE AS
ADJUSTED FOR THE COMMON
STOCK OFFERING:
Earnings from continuing
operations:
Basic................... $ 2.03 $ .31 $ 1.79
Diluted................. 1.99 .30 1.75
Weighted average number of
shares:
Basic................... 11,731 11,731 11,731
Diluted................. 11,955 11,955 11,955
</TABLE>
See Notes to the Unaudited Pro Forma and Pro Forma Adjusted (For Ply Gem)
Condensed Consolidated Statement of Operations
41
<PAGE> 43
NOTES TO THE UNAUDITED PRO FORMA AND
PRO FORMA ADJUSTED (FOR PLY GEM)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED TWELVE MONTHS
DECEMBER 31, ENDED
1997 JULY 4, 1998
------------ -------------
<S> <C> <C>
(A) PLY GEM HISTORICAL
Amounts for the year ended December 31, 1997 include the
unaudited results of Ply Gem for the period from January
1, 1997 to August 25, 1997. Amounts for the twelve months
ended July 4, 1998 include the unaudited results of Ply
Gem for the period from June 29, 1997 to August 25, 1997.
(B) COST OF PRODUCTS SOLD
Change in estimated lives of property, plant and equipment
offset by increased depreciation over 10 years due to
increase in Property, Plant and Equipment to estimated
fair value................................................ $ (1,300) $ (300)
======== ========
(C) AMORTIZATION OF ACQUIRED GOODWILL
Increase amortization of goodwill over 40 years due to the
Ply Gem Acquisition....................................... $ 4,795 $ 1,128
======== ========
(D) SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Estimated Ply Gem Acquisition Related Cost Savings.......... $ (3,983) $ (262)
Reduction of goodwill and intangible amortization included
in Ply Gem's selling, general and administrative
expense................................................... (1,733) (377)
Decrease due to termination and repurchase of amounts
outstanding under Ply Gem's accounts receivable
securitization program.................................... (2,030) (670)
-------- --------
$ (7,746) $ (1,309)
======== ========
(E) INTEREST EXPENSE
Interest expense related to the 9 1/4% Notes................ $ (3,438) $ --
Amortization of related debt issuance costs of the 9 1/4%
Notes..................................................... (106) --
Reduction of interest expense related to debt refinanced
with a portion of the proceeds from the 9 1/4% Notes...... 1,143 80
Interest expense related to the 9 1/8% Notes................ (18,495) (4,351)
Amortization of related debt discount and issuance costs of
the 9 1/8% Notes.......................................... (771) (181)
Interest expense at an assumed average rate of 6.85% on
indebtedness outstanding under the Ply Gem Credit
Facility.................................................. (4,971) (1,170)
Reduction in interest expense related to the refinancing of
Ply Gem indebtedness at the date of the Ply Gem
Acquisition............................................... 4,751 1,702
-------- --------
$(21,887) $ (3,920)
======== ========
(F) INVESTMENT INCOME
Reduction in interest income on marketable securities sold
to fund the Ply Gem Acquisition and related
transactions.............................................. $ (2,742) $ (993)
======== ========
(G) PROVISION (BENEFIT) FOR INCOME TAXES
Net benefit for income taxes related to notes (b), (d), (e)
and (f) above............................................. $ (5,545) $ (1,156)
======== ========
(H) COST OF PRODUCTS SOLD
Elimination of charges recorded by Ply Gem prior to the Ply
Gem Acquisition, to provide certain valuation reserves and
to conform accounting policies to Nortek's................ $(11,500) $(11,500)
======== ========
</TABLE>
42
<PAGE> 44
<TABLE>
<CAPTION>
YEAR ENDED TWELVE MONTHS
DECEMBER 31, ENDED
1997 JULY 4, 1998
------------ -------------
<S> <C> <C>
(I) SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Estimated Ply Gem Acquisition Additional Cost Savings....... $(14,061) $ (6,347)
Elimination of charges recorded by Ply Gem prior to the Ply
Gem Acquisition, to provide certain valuation reserves and
to conform accounting policies to Nortek's................ (10,700) (10,700)
-------- --------
$(24,761) $(17,047)
======== ========
(J) PROVISION FOR INCOME TAXES
Net provision for income taxes related to notes (h) and (i)
above..................................................... $ 13,891 $ 11,191
======== ========
</TABLE>
43
<PAGE> 45
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected consolidated operating and balance sheet data for each of the
five years in the period ended December 31, 1997 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 28,
1997 and July 4, 1998 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 July 4, 1998 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 and the information contained in "Unaudited Pro
Forma and Pro Forma Adjusted Condensed Consolidated Financial Data" included
elsewhere herein. Certain amounts in the prior period's financial statements
have been reclassified to conform to the presentation at July 4, 1998.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, -------------------
------------------------------------------------ JUNE 28, JULY 4,
1993(3) 1994(3) 1995 1996 1997 1997 1998
------- ------- ---- ---- ---- -------- -------
(IN MILLIONS EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1)(2):
Net sales................................................ $ 627.5 $ 616.0 $ 656.8 $ 841.6 $1,134.1 $418.0 $ 842.1
Cost of products sold.................................... 433.4 421.9 469.8 597.4 826.4 295.7 628.6
Amortization of acquired goodwill........................ 2.4 2.4 2.5 2.9 5.3 1.4 5.2
Selling, general and administrative expense.............. 160.0 147.3 141.5 180.3 219.4 88.6 155.5
------- ------- ------- ------- -------- ------ --------
Operating earnings....................................... 31.7 44.4 43.0 61.0 83.0 32.3 52.8
Interest expense......................................... (24.2) (23.8) (23.0) (28.4) (50.2) (17.6) (39.2)
Investment income........................................ 4.8 5.3 8.1 6.0 9.9 4.6 4.4
Loss on businesses sold(3)............................... (20.3) (1.8) -- -- -- -- --
------- ------- ------- ------- -------- ------ --------
Earnings (loss) from continuing operations before
provision for income taxes............................. (8.0) 24.1 28.1 38.6 42.7 19.3 18.0
Provision for income taxes............................... 2.2 8.7 10.6 14.9 16.3 6.9 8.2
------- ------- ------- ------- -------- ------ --------
Earnings (loss) from continuing operations............... (10.2) 15.4 17.5 23.7 26.4 12.4 9.8
Earnings (loss) from discontinued operations............. (4.0) 1.8 (2.5) (1.7) (5.2) (2.0) --
Extraordinary gain (loss) from debt retirements.......... (6.1) 0.2 -- -- -- -- --
Cumulative effect of accounting changes.................. (0.5) 0.4 -- -- -- -- --
------- ------- ------- ------- -------- ------ --------
Net earnings (loss)...................................... $ (20.8) $ 17.8 $ 15.0 $ 22.0 $ 21.2 $ 10.4 $ 9.8
======= ======= ======= ======= ======== ====== ========
Earnings (loss) per share from continuing operations(4):
Basic................................................ $ (0.81) $ 1.23 $ 1.41 $ 2.26 $ 2.75 $ 1.28 $ .97
Diluted.............................................. (0.81) 1.21 1.39 2.23 2.68 1.25 .95
Net earnings (loss) per share(4):
Basic................................................ $ (1.66) $ 1.42 $ 1.21 $ 2.10 $ 2.21 $ 1.08 $ .97
Diluted.............................................. (1.66) 1.39 1.19 2.07 2.15 1.05 .95
Weighted average number of shares(4) (in thousands):
Basic................................................ 12,532 12,543 12,445 10,485 9,605 9,663 10,129
Diluted.............................................. 13,335 13,100 12,569 10,641 9,855 9,896 10,311
OTHER DATA(2):
Capital expenditures..................................... $ 8.7 $ 14.4 $ 15.7 $ 19.8 $ 22.5 $ 7.7 $ 15.5
Depreciation and amortization including non-cash
interest............................................... 18.0 15.5 16.2 21.0 28.4 11.0 21.5
EBITDA(5)................................................ 49.2 58.6 58.1 80.8 109.7 42.7 72.7
Ratio of earnings to fixed charges(6).................... -- 1.9x 2.1x 2.3x 1.8x 1.9x 1.4x
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------ JUNE 28, JULY 4,
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- -------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities(7)...... $ 89.2 $ 114.4 $ 112.7 $ 97.8 $ 168.2 $231.1 $ 220.1
Working capital.......................................... 133.8 194.3 180.2 163.1 341.8 309.5 410.8
Total assets............................................. 486.1 494.6 605.0 590.2 1,304.5 773.0 1,378.5
Total debt............................................... 214.6 223.7 282.1 280.3 853.6 426.8 843.3
Stockholders' investment................................. 104.0 117.8 131.3 118.8 128.1 121.1 195.7
</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 the Company included elsewhere
herein.
(2) In the fourth quarter of 1997, the Company adopted a plan to discontinue its
plumbing products business. Accordingly, the results of the plumbing
products business have been excluded from earnings from continuing
operations and are classified separately as
44
<PAGE> 46
discontinued operations for all periods presented. See Note 9 of the Notes
to Consolidated Financial Statements of the Company included elsewhere
herein.
(3) In the third quarter of 1993, the Company provided a pre-tax valuation
reserve of approximately $20.3 million to reduce the Company's net
investment in Dixieline to estimated net realizable value. On March 31,
1994, the Company sold all of 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
the sale. In January 1995, the Company paid approximately $1.8 million as a
final purchase price adjustment related to the sale in 1992 of its wholly
owned subsidiary Bend and recorded a charge to pre-tax earnings in the
fourth quarter of 1994.
(4) In 1997, the Company adopted the provisions of SFAS No. 128, Earnings Per
Share. This statement, issued by the FASB in February 1997, establishes
standards for computing and presenting EPS and applies to entities with
publicly held common stock. This statement replaces the presentation of
primary EPS with a presentation of basic EPS and replaces the presentation
of fully-diluted EPS with diluted EPS. All periods presented have been
restated to conform to SFAS No. 128.
(5) "EBITDA" is operating earnings from continuing operations 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 operating, investing
and financing activities.
(6) For purposes of calculating this ratio, "earnings" consist of earnings from
continuing operations before provision for income taxes and fixed charges.
"Fixed charges' consist of interest expense and the estimated interest
portion of rental payments on operating leases. Such earnings were
insufficient to cover fixed charges by approximately $8.0 million for the
year ended December 31, 1993.
(7) Includes restricted cash, investments and marketable securities in the
amounts of approximately $6.7 million, $9.3 million, $9.4 million, $5.7
million and $6.3 million at December 31, 1993, 1994, 1995, 1996 and 1997,
respectively, and $5.7 million and $6.4 million at June 28, 1997 and July 4,
1998, respectively.
45
<PAGE> 47
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company is a diversified manufacturer of residential and commercial
building products, operating within four principal product groups: the
Residential Building Products Group; the Air Conditioning and Heating Products
Group; the Windows, Doors and Siding Group; and the Specialty Products and
Distribution 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 DIY and professional remodeling and renovation markets.
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, all the capital stock of Best and related entities and
all the capital stock of Venmar.
On August 26, 1997, the Company acquired Ply Gem, which has been accounted
for under the purchase method of accounting. Accordingly, the results of Ply Gem
are included in the Company's consolidated results since that date. See
"Liquidity and Capital Resources" and Notes 1 and 2 of the Notes to Consolidated
Financial Statements of the Company included elsewhere herein.
In the fourth quarter of 1997, the Company adopted a plan to discontinue
its Plumbing Products Group. Accordingly, the results of the Plumbing Products
Group has been excluded from earnings from continuing operations and are
classified separately as discontinued operations for all periods presented. (See
Note 9 of the Notes to Consolidated Financial Statements of the Company included
elsewhere herein.)
On July 10, 1998, the Company sold its Plumbing Products Group, including a
product line included in the Residential Building Products Group, for
approximately $33,700,000. Additionally, in the second and third quarters of
1998 the Company sold several businesses acquired with the Ply Gem acquisition,
is currently negotiating to sell M&S separately or combined with one or more
other Nortek businesses and is continuing its program of divesting certain other
businesses. See "Recent Developments."
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 comparable period, (c) the percentage which such results
bears to net sales and (d) the change of such percentages as compared to the
prior comparable period. The results of operations for the three and six months
ended July 4, 1998 are not necessarily indicative of the results of operations
to be expected for any other interim period or the full year.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERCENTAGE CHANGE
---------------------------- ----------------------------
1997 1996 1995 1996 TO 1997 1995 TO 1996
-------- ------ ------ ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales............................. $1,134.1 $841.6 $656.8 34.8% 28.1%
Cost of products sold................. 826.4 597.4 469.8 (38.3) (27.2)
Amortization of acquired goodwill..... 5.3 2.9 2.5 (82.8) (16.0)
Selling, general and administrative
expense............................. 219.4 180.3 141.5 (21.7) (27.4)
Operating earnings.................... 83.0 61.0 43.0 36.1 41.9
Interest expense...................... (50.2) (28.4) (23.0) (76.8) (23.5)
Investment income..................... 9.9 6.0 8.1 65.0 (25.9)
Earnings from continuing operations
before provision for income taxes... 42.7 38.6 28.1 10.6 37.4
Provision for income taxes............ 16.3 14.9 10.6 (9.4) (40.6)
Earnings from continuing operations... 26.4 23.7 17.5 11.4 35.4
Loss from discontinued operations..... (5.2) (1.7) (2.5) (205.9) 32.0
Net earnings.......................... 21.2 22.0 15.0 (3.6) 46.7
</TABLE>
46
<PAGE> 48
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
YEAR ENDED DECEMBER 31, CHANGE IN PERCENTAGE
----------------------- ----------------------------
1997 1996 1995 1996 TO 1997 1995 TO 1996
----- ----- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales................................. 100.0% 100.0% 100.0% -- --
Cost of products sold..................... 72.9 71.0 71.5 (1.9) 0.5
Amortization of acquired goodwill......... 0.5 0.3 0.4 (0.2) 0.1
Selling, general and administrative
expense................................. 19.3 21.4 21.5 2.1 0.1
Operating earnings........................ 7.3 7.3 6.6 -- 0.7
Interest expense.......................... (4.4) (3.4) (3.5) (1.0) 0.1
Investment income......................... 0.9 0.7 1.2 0.2 (0.5)
Earnings from continuing operations before
provisions for income taxes............. 3.8 4.6 4.3 (0.8) 0.3
Provision for income taxes................ 1.4 1.8 1.6 0.4 (0.2)
Earnings from continuing operations....... 2.4 2.8 2.7 (0.4) 0.1
Loss from discontinued operations......... (0.5) (0.2) (0.4) (0.3) 0.2
Net earnings.............................. 1.9 2.6 2.3 (0.7) 0.3
</TABLE>
<TABLE>
<CAPTION>
CHANGE IN
SECOND QUARTER ENDED SECOND QUARTER 1998
--------------------- AS COMPARED TO 1997
JULY 4, JUNE 28, --------------------
1998 1997 $ %
------- -------- ------- -------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C>
Net sales...................................... $449.6 $223.8 $ 225.8 100.9%
Cost of products sold.......................... 334.0 158.7 (175.3) (110.5)
Selling, general and administrative expense.... 79.9 45.6 (34.3) (75.2)
Amortization of acquired goodwill.............. 2.6 .7 (1.9) NM
------ ------ ------- -------
Operating earnings............................. 33.1 18.8 14.3 76.1
Interest expense............................... (19.7) (10.3) (9.4) (91.3)
Investment income.............................. 2.1 3.2 (1.1) (34.4)
------ ------ ------- -------
Earnings from continuing operations before
provision for income taxes................... 15.5 11.7 3.8 32.5
Provision for income taxes..................... 7.0 4.0 (3.0) (75.0)
------ ------ ------- -------
Earnings from continuing operations............ 8.5 7.7 .8 10.4
Loss from discontinued operations.............. -- (1.0) 1.0 NM
------ ------ ------- -------
Net earnings................................... $ 8.5 $ 6.7 $ 1.8 26.9%
====== ====== ======= =======
</TABLE>
- ---------------
NM = not meaningful
47
<PAGE> 49
<TABLE>
<CAPTION>
PERCENTAGE OF NET
SALES SECOND QUARTER
ENDED CHANGE IN PERCENTAGE
--------------------- FOR THE SECOND
JULY 4, JUNE 28, QUARTER 1998 AS
1998 1997 COMPARED TO 1997
------- -------- --------------------
<S> <C> <C> <C>
Net sales.............................................. 100.0% 100.0% --
Cost of products sold.................................. 74.3 70.9 (3.4)
Selling, general and administrative expense............ 17.7 20.4 2.7
Amortization of acquired goodwill...................... .6 .3 (.3)
----- ----- ----
Operating earnings..................................... 7.4 8.4 (1.0)
Interest expense....................................... (4.4) (4.6) .2
Investment income...................................... .5 1.4 (.9)
----- ----- ----
Earnings from continuing operations before provision
for income taxes..................................... 3.5 5.2 (1.7)
Provision for income taxes............................. 1.6 1.8 .2
----- ----- ----
Earnings from continuing operations.................... 1.9 3.4 (1.5)
Loss from discontinued operations...................... -- (.4) .4
Net earnings........................................... 1.9% 3.0% (1.1)
===== ===== ====
</TABLE>
<TABLE>
<CAPTION>
CHANGE IN
SIX MONTHS ENDED FIRST SIX MONTHS 1998
------------------- AS COMPARED TO 1997
JULY 4, JUNE 28, ----------------------
1998 1997 $ %
------- -------- --------- ---------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C>
Net sales............................................ $842.1 $418.0 $ 424.1 101.5%
Cost of products sold................................ 628.6 295.7 (332.9) (112.6)
Selling, general and administrative expense.......... 155.5 88.6 (66.9) (75.5)
Amortization of acquired goodwill.................... 5.2 1.4 (3.8) NM
------ ------ ------- -------
Operating earnings................................... 52.8 32.3 20.5 63.5
Interest expense..................................... (39.2) (17.6) (21.6) (122.7)
Investment income.................................... 4.4 4.6 (.2) (4.3)
------ ------ ------- -------
Earnings from continuing operations before provision
for income taxes................................... 18.0 19.3 (1.3) (6.7)
Provision for income taxes........................... 8.2 6.9 (1.3) (18.8)
------ ------ ------- -------
Earnings from continuing operations.................. 9.8 12.4 (2.6) (21.0)
Loss from discontinued operations.................... -- (2.0) 2.0 NM
------ ------ ------- -------
Net earnings......................................... $ 9.8 $ 10.4 $ (.6) (5.8)%
====== ====== ======= =======
</TABLE>
- ---------------
NM = not meaningful
48
<PAGE> 50
<TABLE>
<CAPTION>
PERCENTAGE OF NET
SALES FIRST SIX
MONTHS ENDED CHANGE IN PERCENTAGE
------------------- FOR THE FIRST SIX
JULY 4, JUNE 28, MONTHS 1998 AS
1998 1997 COMPARED TO 1997
------- -------- --------------------
<S> <C> <C> <C>
Net sales................................................ 100.0% 100.0% --
Cost of products sold.................................... 74.7 70.7 (4.0)
Selling, general and administrative expense.............. 18.4 21.2 2.8
Amortization of acquired goodwill........................ .6 .4 (.2)
----- ----- ----
Operating earnings....................................... 6.3 7.7 (1.4)
Interest expense......................................... (4.7) (4.2) (.5)
Investment income........................................ .5 1.1 (.6)
----- ----- ----
Earnings from continuing operations before provision for
income taxes........................................... 2.1 4.6 (2.5)
Provision for income taxes............................... .9 1.6 .7
----- ----- ----
Earnings from continuing operations...................... 1.2 3.0 (1.8)
Loss from discontinued operations........................ -- (.5) .5
Net earnings............................................. $ 1.2% 2.5% (1.3)
===== ===== ====
</TABLE>
The following tables present the net sales for Nortek's principal product
groups for the three years ended December 31, 1997, and for the periods ended
June 28, 1997 and July 4, 1998 and the percentage change of such results as
compared to the prior comparable period. Certain amounts in the table for prior
periods have been reclassified to conform to the presentation for 1998.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, CHANGE IN PERCENTAGE
---------------------------- ----------------------------
1997 1996 1995 1996 TO 1997 1995 TO 1996
-------- ------ ------ ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales
Residential Building Products....... $ 430.5 $418.5 $293.4 2.9% 42.6%
Air Conditioning and Heating
Products......................... 419.4 423.1 363.4 (0.9) 16.4
Windows, Doors and Siding........... 189.0 -- -- -- --
Specialty Products and
Distribution..................... 95.2 -- -- -- --
-------- ------ ------
$1,134.1 $841.6 $656.8 34.8 28.1
======== ====== ======
</TABLE>
<TABLE>
<CAPTION>
SECOND QUARTER ENDED
--------------------------------------
INCREASE
JULY 4, JUNE 28, ---------------
1998 1997 $ %
------- -------- ------ -----
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net sales
Residential Building Products........................ $108.8 $108.3 $ .5 .5%
Air Conditioning and Heating Products................ 133.8 115.5 18.3 15.8
Windows, Doors and Siding............................ 141.1 -- 141.1 --
Specialty Products and Distribution.................. 65.9 -- 65.9 --
------ ------ ------ -----
Total.................................................. $449.6 $223.8 $225.8 100.9%
====== ====== ====== =====
</TABLE>
49
<PAGE> 51
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------------------
INCREASE
JULY 4, JUNE 28, ---------------
1998 1997 $ %
------- -------- ------ -----
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net sales
Residential Building Products......................... $227.7 $211.4 $ 16.3 7.7%
Air Conditioning and Heating Products................. 234.7 206.6 28.1 13.6
Windows, Doors and Siding............................. 240.4 -- 240.4 --
Specialty Products and Distribution................... 139.3 -- 139.3 --
------ ------ ------ -----
Total................................................... $842.1 $418.0 $424.1 101.5%
====== ====== ====== =====
</TABLE>
SECOND QUARTER AND SIX MONTHS ENDED JULY 4, 1998 COMPARED TO SECOND QUARTER AND
SIX MONTHS ENDED JUNE 28, 1997
Net sales increased approximately $225,800,000 or approximately 100.9%, (or
increased approximately $227,400,000 or approximately 101.6% excluding the
effect of foreign exchange) in the second quarter of 1998 as compared to the
second quarter of 1997 and increased approximately $424,100,000, or
approximately 101.5%, (or increased approximately $428,700,000 or approximately
102.6% excluding the effect of foreign exchange) for the first six months of
1998 as compared to 1997. Net sales increased principally as a result of the
acquisition of Ply Gem, which contributed approximately $207,100,000 and
approximately $379,700,000 to net sales in the second quarter and first six
months of 1998, respectively. Excluding sales from the Ply Gem acquisition, net
sales increased approximately $18,700,000 or approximately 8.4% (or increased
approximately $20,300,000, or approximately 9.1% excluding the effect of foreign
exchange), and increased approximately $44,400,000 or approximately 10.6%, (or
increased approximately $49,000,000 or approximately 11.7% excluding the effect
of foreign exchange) for the second quarter and the first six months of 1998,
respectively as compared to 1997. The increase in the second quarter and first
six months, is a result of higher sales volume in the Air Conditioning and
Heating Products Group, principally related to the residential and manufactured
housing markets, in both periods and increased sales volume in the Residential
Building Products Group in the first six months, with the majority of the
increase occurring in the first quarter.
In the second quarter of 1998, the Company sold three Ply Gem businesses,
one of which was treated as an asset held for sale as of the date of the Ply Gem
acquisition. Subsequent to July 4, 1998, the Company sold its Plumbing Products
Group which was discontinued in the fourth quarter of 1997, together with a
product line which was included in the Residential Building Products Group and
sold another Ply Gem business. The Company's sales for the first half of 1998,
include approximately $66,900,000 of sales related to businesses sold in 1998
through July 31, 1998 of which approximately $5,800,000 of such sales are
included in the Residential Building Products Group and approximately
$61,100,000 are included in the Specialty Products and Distribution Group.
Cost of products sold as a percentage of net sales increased from
approximately 70.9% in the second quarter of 1997 to approximately 74.3% in the
second quarter of 1998, and increased from approximately 70.7% in the first six
months of 1997 to approximately 74.7% in the first six months of 1998. These
increases in the percentage were in large part due to the Ply Gem businesses,
which have a higher level of cost of sales than the overall group of businesses
owned prior to the Ply Gem acquisition, combined with the effect of low sales
levels (seasonality) related to Ply Gem in the first quarter, but with fairly
constant quarterly levels of fixed costs throughout the year. Ply Gem's Windows,
Doors and Siding Group's net sales levels, with their heavy concentration in the
upper mid-west and northeast regions of the country, tend to be significantly
lower in the first quarter than the other three quarters of the year, while
fixed labor, overhead and depreciation remain constant among the four quarters
of each year. Excluding the Ply Gem businesses, cost of products sold as a
percentage of net sales decreased from approximately 70.9% in the second quarter
of 1997 to approximately 69.6% in the second quarter of 1998, and decreased from
approximately 70.7% in the first six
50
<PAGE> 52
months of 1997 to approximately 69.4% in the first six months of 1998. The
decrease in the percentage principally resulted from increased sales without a
proportionate increase in fixed costs, combined with a decrease in material
costs in both periods in the Air Conditioning and Heating Products Group and to
a lesser extent increased sales without a proportionate increase in fixed costs
in the second quarter and the first six months in the Residential Building
Products Group. 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 material cost of products sold and changes in
productivity levels.
Selling, general and administrative expense as a percentage of net sales
decreased from approximately 20.4% in the second quarter of 1997 to
approximately 17.7% in the second quarter of 1998 and decreased from
approximately 21.2% in the first six months of 1997 to approximately 18.4% in
the first six months of 1998. These decreases in the percentages were
principally the result of the acquisition of Ply Gem, which has a lower level of
selling, general and administrative expense to net sales than the overall group
of businesses owned prior to the acquisition, partially offset by the effect of
certain constant fixed expense levels throughout the year at Ply Gem on
relatively low first quarter and first half sales levels due to the seasonality
of the Windows, Doors and Siding Products Group. Excluding the Ply Gem
businesses, selling, general and administrative expense as a percentage of net
sales increased slightly from approximately 20.4% in the second quarter of 1997
to approximately 21.1% in the second quarter of 1998, and increased slightly
from approximately 21.2% in the first six months of 1997 to approximately 21.3%
in the first six months of 1998 principally in the Air Conditioning Heating
Products Group.
Amortization of acquired goodwill as a percentage of net sales increased
from approximately .3% of net sales in the second quarter of 1997 to
approximately .6% of net sales in the second quarter of 1998, and increased from
approximately .4% of net sales in the first six months of 1997 to approximately
.6% in the first six months of 1998, principally as a result of the acquisition
of Ply Gem.
Segment earnings were approximately $37,400,000 for the second quarter of
1998 as compared to approximately $22,400,000 for the second quarter of 1997,
and approximately $60,200,000 for the first six months of 1998 as compared to
approximately $39,000,000 for the first six months of 1997. Segment earnings are
operating earnings from continuing operations before corporate and other
expenses that are not directly attributable to the Company's product groups. The
Ply Gem acquisition contributed approximately $11,300,000 to segment earnings in
the second quarter of 1998, and approximately $11,200,000 in the first six
months of 1998. Ply Gem's segment earnings, due to the seasonal nature of the
Windows, Doors and Siding Group with their heavy concentration in the upper
mid-west and northeast regions of the country are proportionately lower in the
first quarter than the results expected in other quarters. The Company's segment
earnings for the first half of 1998 include approximately $2,000,000 of
operating earnings related to businesses sold in 1998 through July 31, 1998, of
which approximately $600,000 are included in the Residential Building Products
Group and approximately $1,400,000 are included in the Specialty Products and
Distribution Group. Segment earnings have been reduced by depreciation and
amortization expense of approximately $9,800,000 and approximately $5,700,000
for second quarter 1998 and 1997, respectively, and approximately $19,800,000
and $10,500,000 for the first six months of 1998 and 1997 respectively. The
acquisition of Ply Gem contributed approximately $4,600,000 of the increase in
depreciation and amortization expense in the second quarter of 1998, and
approximately $9,400,000 for the first six months of 1998. The overall increase
in segment earnings related to businesses owned prior to the acquisition of Ply
Gem was due principally to increased sales volume without a proportionate
increase in expense particularly in the Air Conditioning and Heating Products
Group.
Earnings of foreign operations, consisting primarily of the results of
operations of the Company's Canadian and European subsidiaries which manufacture
built-in ventilating products were approximately 5.5% and 7.1% of segment
earnings in the second quarter and first six months of 1998, respectively. Sales
and earnings derived from the international market are subject to the risks of
currency fluctuations.
51
<PAGE> 53
Operating earnings in the second quarter of 1998 increased approximately
$14,300,000 or approximately 76.1% as compared to the second quarter of 1997,
and increased approximately $20,500,000 or approximately 63.5% as compared to
the first six months of 1997 primarily due to the factors previously discussed.
Interest expense in the second quarter of 1998 increased approximately
$9,400,000 or approximately 91.3% as compared to the second quarter of 1997, and
increased approximately $21,600,000 or approximately 122.7% as compared to the
first six months of 1997, primarily as a result of the sale of the 9 1/4% Notes
on March 17, 1997, the sale of the 9 1/8% Notes in August 1997 and indebtedness
of Ply Gem existing at the date of acquisition. This increase was partially
offset by the refinancing of certain outstanding indebtedness of the Company's
subsidiaries in 1997. (See Notes B and E of the Notes to the Unaudited Financial
Statements included elsewhere herein.)
Investment income in the second quarter of 1998 decreased approximately
$1,100,000 or approximately 34.4% as compared to the second quarter 1997, and
decreased approximately $200,000 or approximately 4.3% as compared to the first
six months of 1997, principally due to lower average invested balances of
short-term investments and marketable securities.
The provision for income taxes was approximately $7,000,000 for the second
quarter of 1998, as compared to approximately $4,000,000 for the second quarter
of 1997, and approximately $8,200,000 for the first six months of 1998 as
compared to approximately $6,900,000 for the first six months 1997.
The income tax rates differed from the United States Federal statutory rate
of 35% principally as a result of applying an estimated annual effective tax
rate, which rates include the effects of state income tax provisions,
nondeductible amortization expense (for tax purposes), changes in tax reserves,
the effect of foreign income tax on foreign source income and the effect of
product development tax credits from foreign operations.
In the fourth quarter of 1997, the Company adopted a plan to discontinue
its Plumbing Products Group and provided a pre-tax reserve of $2,500,000 for
future expenses including interest expense. On July 10, 1998, the Plumbing
Products Group, together with a product line included in the Residential
Building Products Group, was sold for approximately $33,700,000. In the second
quarter of 1998, approximately $525,000 and for the first six months of 1998
approximately $1,000,000 of corporate interest expense was allocated against
this reserve. The loss from discontinued operations related to the Plumbing
Products Group was approximately $1,700,000 and $3,300,000 net of income tax
benefits of approximately $700,000 and $1,300,000 for the second quarter and
first six months of 1997, respectively and reflect an allocation of corporate
interest expense of approximately $475,000 and $950,000 for the second quarter
and the first six months of 1997 respectively. (See Note H of the Notes to the
Unaudited Financial Statements included elsewhere herein.)
YEAR ENDED DECEMBER 31, 1997 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
Net sales increased approximately $292,500,000, or approximately 34.8%, as
compared to 1996 (or increased approximately $300,500,000, or approximately
35.7%, excluding the effect of foreign exchange). Net sales increased
principally as a result of the Ply Gem Acquisition on August 26, 1997, which
contributed approximately $284,200,000 to net sales. Excluding sales from the
Ply Gem Acquisition, net sales increased approximately $8,300,000, or 1.0%, as
compared to 1996 (or increased approximately $16,400,000, or approximately 2.0%
excluding the effect of foreign exchange). This increase was principally as a
result of slightly higher sales volume in the Residential Building Products
Group (partially offset by the effects of foreign exchange) and residential
products of the Air Conditioning and Heating Products Group partially offset by
lower sales levels of commercial HVAC products and approximately $3,600,000
lower sales from the sale of a residential HVAC product line in 1997.
Cost of products sold as a percentage of net sales increased from
approximately 71.0% in 1996 to approximately 72.9% in 1997. Excluding the Ply
Gem businesses, (which have a higher level of cost of sales than the overall
group of businesses owned prior to the Ply Gem Acquisition), cost of products
sold as a percentage of net sales decreased from approximately 71.0% to
approximately 70.0% in 1997, as compared to 1996. This decrease in the
percentage principally resulted from a reduction in the cost of certain raw
materials
52
<PAGE> 54
and components compared to 1996 and decreased labor as a percentage of net sales
in the Residential Building Products and Air Conditioning and Heating Products
Groups due to the increased volume of higher margin products and improved
efficiency. Had all year-end inventory values been stated on a FIFO basis,
year-end inventory would have been approximately $5,041,000 higher in 1997,
approximately $6,015,000 higher in 1996 and approximately $7,873,000 higher in
1995. 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 material cost of products sold and changes in productivity
levels.
Amortization of acquired goodwill as a percentage of net sales increased
from approximately 0.3% of net sales for the year ended December 31, 1996 to
approximately 0.5% for the year ended December 31, 1997, principally as a result
of the acquisition of Ply Gem.
Selling, general and administrative expense as a percentage of net sales
decreased from approximately 21.4% in 1996 to approximately 19.3% in 1997.
Excluding the Ply Gem businesses (which have a lower level of selling, general
and administrative expense to net sales than the overall group of businesses
owned prior to the acquisition), selling, general and administrative expense as
a percentage of net sales decreased from approximately 21.4% in 1996 to
approximately 21.2% in 1997. This decrease in the percentage was due principally
to higher sales levels in the Residential Building Products Group without a
proportionate increase in expense and the effect of the sale of a residential
HVAC product line noted above, partially offset by lower sales levels of
commercial products by the Air Conditioning and Heating Products Group without a
proportionate decrease in expense.
Segment earnings were approximately $97,000,000 for 1997, as compared to
approximately $74,900,000 for 1996. Segment earnings are operating earnings from
continuing operations before corporate and other expenses that are not directly
attributable to Nortek's product groups. The Ply Gem Acquisition contributed
approximately $11,300,000 to segment earnings. Segment earnings have been
reduced by depreciation and amortization expense of approximately $26,600,000
and approximately $19,500,000 for 1997 and 1996, respectively. The Ply Gem
Acquisition contributed approximately $6,300,000 of the increase in depreciation
and amortization expense in 1997. The overall increase in segment earnings was
due principally, in addition to the effect of the Ply Gem Acquisition, to
increased sales volume without a proportionate increase in expense, particularly
in the Residential Building Products Group and, to a lesser extent, the
residential sector of the Air Conditioning and Heating Products Group and was
affected by the factors previously noted.
Earnings of foreign operations, consisting primarily of the results of
operations of Nortek's Canadian and European subsidiaries, which manufacture
built-in ventilating products, decreased to approximately 10.8% of segment
earnings in 1997 from approximately 11.2% of such earnings in 1996. The decrease
in the percentage is due to an increase in domestic earnings in 1997, in part as
a result of $11,300,000 contributed by Ply Gem, which has primarily domestic
operations. Sales and earnings derived from the international market are subject
to the risks of currency fluctuations.
Operating earnings in 1997 increased approximately $22,000,000, or
approximately 36.1%, as compared to 1996, primarily due to the factors
previously discussed.
Interest expense in 1997 increased approximately $21,800,000 or
approximately 76.8%, as compared to 1996, primarily as a result of the sale of
the 9 1/4% Notes in March 1997, the sale of the 9 1/8% Notes in August 1997 and
the existing indebtedness of Ply Gem. This increase was partially offset by the
refinancing of certain outstanding indebtedness of the Company's subsidiaries
primarily in the second quarter of 1997. (See Notes 2 and 5 of the Notes to
Consolidated Financial Statements of the Company included elsewhere herein.)
Investment income in 1997 increased approximately $3,900,000, or
approximately 65.0%, as compared to 1996, principally due to higher average
invested balances of short-term investments and marketable securities.
The provision for income taxes was approximately $16,300,000 for 1997, as
compared to approximately $14,900,000 for 1996. The provision for income taxes
was reduced by approximately $1,540,000 in 1997 and $481,000 in 1996 reflecting
the reversal of tax reserves no longer required. The income tax rates differed
from the United States Federal statutory rate of 35% principally as a result of
state income tax provisions,
53
<PAGE> 55
nondeductible amortization expense (for tax purposes), changes in tax reserves,
the effect of foreign income tax on foreign source income and the effect of
product development tax credits from foreign operations. (See Note 4 of the
Notes to Consolidated Financial Statements of the Company included elsewhere
herein.)
In the fourth quarter of 1997, Nortek adopted a plan to discontinue its
plumbing products business. Loss from discontinued operations related to the
plumbing products business increased approximately $3,500,000 from a loss of
$1,700,000 in 1996 to a loss of $5,200,000 in 1997. Loss from discontinued
operations in 1997 includes a net after tax loss of $1,600,000 for operating
losses expected to occur during the disposal period and is net of an income tax
benefit of $900,000. Loss from discontinued operations includes net after tax
operating losses of $3,600,000 in 1997 and $1,700,000 in 1996 and are net of
income tax benefits of $2,100,000 and $900,000 for 1997 and 1996, respectively.
Operating results of discontinued operations reflect an allocation of corporate
interest expense of approximately $1,900,000 and $1,700,000 in 1997 and 1996,
respectively and are net of income tax benefits of $670,000 and $600,000 in 1997
and 1996, respectively. (See Note 9 of the Notes to Consolidated Financial
Statements of the Company included elsewhere herein.)
YEAR ENDED DECEMBER 31, 1996 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
Net sales increased approximately $184,800,000, or approximately 28.1%, 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 Air Conditioning and Heating
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 residential HVAC products in the Air
Conditioning and Heating Products Group.
Cost of products sold as a percentage of net sales decreased from
approximately 71.5% in 1995 to approximately 71.0% 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 Air Conditioning
and Heating Products Groups due to increased volume and improved efficiency.
These decreases were partially offset by the 1995 acquisitions of Rangaire, Best
and Venmar, 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
shut-down period in the third quarter in Europe. Had all year-end inventory
values been stated on a FIFO basis, year-end inventory would have been
approximately $6,015,000 higher in 1996, approximately $7,873,000 higher in 1995
and approximately $4,254,000 higher in 1994.
Amortization of acquired goodwill as a percentage of net sales decreased
from approximately 0.4% of net sales for the year ended December 31, 1995 to
approximately 0.3% for the year ended December 31, 1996, primarily due to the
28.1% increase in net sales in 1996.
Selling, general and administrative expenses as a percentage of net sales
were consistent between years at approximately 21.5% in 1995 and 21.4% in 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, resulted in a decrease in the
percentage which was primarily offset by the effect of limited sales activity
during an extended shut-down period in the third quarter of 1996 by the
Company's European subsidiaries without a proportionate reduction in expense and
higher net unallocated expense.
Segment earnings were approximately $74,900,000 for 1996, as compared to
approximately $50,600,000 for 1995. 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
$19,500,000 and approximately $14,800,000 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
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products, the effect of increased sales from the fourth quarter 1995
acquisitions of Rangaire, Best and Venmar, and a reduction in the price paid for
certain materials in each of Nortek's operating groups and was affected by the
factors previously noted.
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 11.2% of segment earnings in
1996 from approximately 5.8% 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 39.1% increase in domestic earnings. The
increase in 1996 was primarily attributable to earnings of Nortek's 1995
Canadian and European acquisitions.
Operating earnings in 1996 increased approximately $18,000,000, or
approximately 41.9%, as compared to 1995, primarily due to the factors
previously discussed.
Interest expense in 1996 increased approximately $5,400,000, or
approximately 23.5%, as compared to 1995, primarily as a result of higher
borrowings resulting from the 1995 acquisitions of Rangaire, Best and Venmar,
including existing short-term working capital borrowings of the acquired
subsidiaries.
Investment income in 1996 decreased approximately $2,100,000, or
approximately 25.9%, as compared to 1995, principally due to lower average
invested balances of short-term investments and marketable securities,
principally resulting from the 1995 acquisitions of Rangaire, Best and Venmar
and from purchases of Nortek's capital stock, partially offset by increased cash
from operating results.
The provision for income taxes was approximately $14,900,000 for 1996, as
compared to approximately $10,600,000 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 differed from the United States Federal
statutory rate of 35% principally as a result of state income tax provisions,
nondeductible amortization expense (for tax purposes), the changes in tax
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 Consolidated Financial Statements of the Company included
elsewhere herein.)
Loss from discontinued operations related to the plumbing products business
decreased approximately $800,000 from a loss of $2,500,000 in 1995 to a loss of
$1,700,000 in 1996. Loss from discontinued operations includes a net after tax
operating loss of $1,700,000 in 1996 and $2,500,000 in 1995 and is net of tax
benefits of $900,000 and $1,300,000 for 1996 and 1995, respectively. Operating
results of discontinued operations reflect an allocation of corporate interest
expense of approximately $1,700,000 and $1,900,000 in 1996 and 1995,
respectively, and are net of a tax benefit of $600,000 and $670,000 in 1996 and
1995, respectively. See Note 9 of the Notes to Consolidated Financial Statements
of the Company included elsewhere herein.
PRO FORMA LIQUIDITY AND CAPITAL RESOURCES
As a result of the Acquisition and the Offering, the Company will continue
to be highly leveraged and expects to continue to be highly leveraged for the
foreseeable future. As of July 4, 1998, after giving pro forma effect to the
Acquisition and the Offering, the Company had consolidated debt of $1,052.5
million consisting of (i) $16.9 million of short-term borrowings and current
maturities of long-term debt, (ii) $127.4 million of notes, mortgage notes and
other indebtedness, (iii) $209.2 million of the Notes, (iv) $174.1 million of
the 9 1/4% Notes, (v) $217.3 million of the 9 7/8% Notes and (vi) $307.6 million
of the 9 1/8% Notes. See "Capitalization." As of such date, after giving pro
forma effect to the Offering, the Acquisition and the Common Stock Offering, the
Company's ratio of debt to equity was 5.4 to 1.0.
The Company expects to fund its planned acquisition of Napco, Inc. through
the use of unrestricted cash, cash equivalents and marketable securities.
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Pro Forma Liquidity and Capital Resources does not include a complete
discussion of all items of cash flow that have occurred since July 4, 1998 such
as capital expenditures, borrowings and debt payments, income tax payments and
other cash flows from operating, investing and financing activities.
The Company took several actions in 1998 that improved its liquidity and
reduced its leverage. These included completion of the Common Stock Offering
during the second quarter of 1998 for net proceeds to Nortek of approximately
$64.3 million and the sale of certain non-core businesses. See "Recent
Developments." The Company continues to explore additional sources of liquidity,
including the sale of certain other 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 $176.4 million as of July 4, 1998 after giving pro forma effect
to the Acquisition, the Offering and the Common Stock Offering. Such amount does
not give effect to approximately $33.7 million of cash proceeds received from
the sale of URC effective July 10, 1998. See "Recent Developments." The
Company's primary capital requirements following completion of the Acquisition
and the Offering will be for working capital, capital expenditures and payments
of interest on its indebtedness. The Company expects approximately $86.2 million
in annual net interest expense in fiscal 1999. The Company also expects to
require approximately $40.0 million for capital expenditures for each of the
full years 1998 and 1999. The Company expects that the funds necessary to meet
its capital requirements through the end of fiscal 1999 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 Acquisition, the Company had working
capital (exclusive of cash, cash equivalents and marketable securities) of
approximately $217.8 million at July 4, 1998. While historically, the Company's
level of working capital has been seasonal in nature, with peak levels occurring
during the second and third quarters, the Company anticipates that it will have
sufficient working capital during the balance of 1998.
The indentures and other agreements governing the Company's and its
subsidiaries indebtedness (including the Indenture, the indentures for the
9 7/8% Notes, the 9 1/4% Notes and the 9 1/8% 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 NuTone'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."
INFLATION, TRENDS AND GENERAL CONSIDERATIONS
The Company has evaluated and expects to continue to evaluate possible
acquisition transactions and the possible dispositions of certain of its
businesses on an ongoing basis and at any given time may be engaged in
discussions or negotiations with respect to possible acquisitions or
dispositions. See "Recent Developments."
The Company's performance is dependent to a significant extent upon the
levels of new residential construction, residential replacement and remodeling
and non-residential construction, all of which are affected by such factors as
interest rates, inflation and unemployment. In the near term, the Company
expects to operate in an environment of relatively stable levels of construction
and remodeling activity. However,
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increases in interest rates could have a negative impact on the level of housing
construction and remodeling activity.
The demand for the Company's products is seasonal, particularly in the
Northeast and Midwest regions of the United States where inclement weather
during the winter months usually reduces the level of building and remodeling
activity in both the home improvement and new construction markets. The
Company's lower sales levels usually occur during the first and fourth quarters.
Since a high percentage of the Company's manufacturing overhead and operating
expenses are relatively fixed throughout the year, operating income and net
earnings tend to be lower in quarters with lower sales levels. The Ply Gem
businesses, acquired in August 1997, have in the past been more seasonal in
nature than the Company's businesses owned prior to the Ply Gem Acquisition. In
addition, the demand for cash to fund the working capital of the Company's
subsidiaries is greater from late in the first quarter until early in the fourth
quarter.
The Company is in the process of updating its computer systems to ensure
that its systems are Year 2000 compliant and to improve such systems. The
Company has and will continue to make investments in its computer systems and
applications to ensure that the Company is Year 2000 compliant. The financial
impact to the Company of its Year 2000 compliance programs has not been and is
not anticipated to be material to its financial position or results of
operations in any given year. While the Company does not believe it will suffer
any major effect from the Year 2000 issue, it is possible that such effects
could materially impact future financial results.
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BUSINESS
GENERAL
The Company is a diversified manufacturer of residential and commercial
building products, operating within four principal product groups: the
Residential Building Products Group; the Air Conditioning and Heating Products
Group; the Windows, Doors and Siding Group; and the Specialty Products and
Distribution 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 DIY and professional remodeling and renovation markets.
The Company's current management team, led by Chief Executive Officer
Richard L. Bready since the end of 1990, has successfully implemented a strategy
of internal growth and growth through acquisitions while selectively divesting
non-core and underperforming businesses. The focus of this strategy has been to
target higher growth, less cyclical segments of the building products industry,
including the general repair and renovation market, the manufactured housing
market and the vinyl windows and siding market. In August 1997, the Company
completed its largest acquisition when it acquired Ply Gem. The acquisition of
NuTone, a leading manufacturer and supplier of built-in electrical appliances,
constitutes the second largest acquisition of the Company and the fifth
acquisition since the beginning of 1995.
Recently, the Company sold its plumbing products business as well as
several non-core businesses acquired as part of the Ply Gem Acquisition and is
continuing its program of divesting certain other non-core businesses. The
Company has evaluated and expects to continue to evaluate possible acquisition
transactions and the possible dispositions of certain of its businesses on an
ongoing basis and at any given time may be engaged in discussions or
negotiations with respect to possible acquisitions or dispositions. See "Recent
Developments."
ACQUISITION RATIONALE
Furthering its strategy of building on the strengths of its core
businesses, Nortek acquired NuTone in July 1998. Through the Acquisition, Nortek
expects to increase its sales of several of its core built-in home ventilation
product lines including exhaust fans and range hoods. The Company expects the
integration of NuTone to create important synergies and cost reductions in
several areas, including distribution, sales, manufacturing, purchasing and
product development.
The Company currently estimates that it can achieve approximately $16.7
million in annualized cost reductions from year ended December 31, 1997 levels
related to the Acquisition within 12 to 18 months following the consummation of
the Acquisition. The magnitude and timing of these cost reductions represent
estimates and actual savings could differ materially. See "Unaudited Pro Forma
and Pro Forma Adjusted Condensed Consolidated Financial Data."
BUSINESS STRATEGY
The Company seeks to realize consistent, profitable growth principally by:
(i) developing and maintaining leadership positions in market segments which the
Company believes are growing at rates in excess of the overall building products
industry; (ii) opportunistically expanding its product portfolio to achieve
synergies in marketing, distribution and manufacturing; (iii) increasing its
presence in the less cyclical replacement and retrofit market; (iv) operating as
a low cost producer to maintain a competitive advantage; and (v) successfully
completing and integrating strategic acquisitions.
Target High Growth Market Segments. The Company targets those segments of
the building products industry that it believes are experiencing more rapid
growth than the overall building products industry. These targeted segments
include: (i) the general repair and renovation market, which continues to
benefit from the increasing age and size of the U.S. housing stock and the
proliferation of home center chains; (ii) the manufactured housing market, which
has represented an increasing proportion of new housing starts over the past
five years; and (iii) the vinyl windows and siding market, which has cost and
performance characteristics that have resulted in substantially increased
penetration of such products within the new home and retrofit markets. By
increasing its presence in these market segments, the Company seeks to achieve
rates of growth in
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excess of the overall building products industry. For example, net sales of the
Company's Air Conditioning and Heating Products Group have grown at an internal
compounded annual growth rate of approximately 12.1% for the five year period
ended December 31, 1997, reflecting increasing demand for replacement products
as the installed base of HVAC systems in the United States has grown.
Achieve Marketing, Distribution and Manufacturing Synergies. The Company
pursues increased penetration of distribution channels such as home centers and
manufactured home builders which it believes present cross-marketing
opportunities for the Company's expanding portfolio of products. For example,
the recent Ply Gem Acquisition provides the opportunity to market Ply Gem's
vinyl products to the manufactured housing market, in which the Company's HVAC
products maintain a leading position. Similarly, the Company is leveraging Ply
Gem's position as one of the largest suppliers of vinyl siding and wood windows
to home centers to increase the Company's sales of residential building
products. Most recently, the Company entered into agreements to license several
well-known consumer brand names, including Frigidaire(R), Tappan(R), Philco(R)
and Gibson(R), which the Company believes have been well-received by HVAC
residential distributors. The Company also seeks to achieve synergies in
manufacturing and logistics by rationalizing its production processes. For
example, the Company transferred the manufacture of certain "Eurostyle" range
hood products sold into the North American markets from the facilities of Best
in Italy to Venmar's lower-cost Canadian facilities and also centralized
production of its indoor-air-quality products into the same facilities.
Increase Presence in Less Cyclical Replacement and Retrofit Market. The
Company seeks to increase its presence in the replacement and retrofit market
and lessen its dependence on the new construction segment of the building
products industry, which is more sensitive to economic cycles. For example, the
acquisition of Ply Gem, which is a leading supplier of windows to the
replacement market, increased the Company's presence in the replacement and
retrofit market. Other businesses of the Company which maintain a significant
presence in the replacement and retrofit market include the Company's HVAC and
ventilation businesses.
Operate as a Low Cost Producer. The Company employs a combination of
rigorous production controls, advanced manufacturing systems, capital investment
and quality management systems to seek to achieve consistently low cost
operations. To promote cost efficient operations, the Company also centralizes
certain of its overhead functions, including its risk management, tax reporting
and legal functions, and coordinates certain activities of its subsidiaries'
operations, such as purchasing and transportation.
Complete and Integrate Strategic Acquisitions. The Company has
demonstrated an ability to integrate successfully acquired businesses. In 1995,
the Company acquired Best, Rangaire and Venmar. Since that time, the Company has
taken numerous actions to integrate these acquisitions into its Residential
Building Products Group, including elimination of corporate redundancies,
rationalization of multiple sales forces and a general reorganization of product
line responsibilities related to its "Eurostyle" range hood and indoor-air-
quality products as described above. Partially as a result of these actions,
operating earnings within the Residential Building Products Group have increased
as a percentage of net sales from 7.9% in 1995 to 10.5% in 1997.
Since acquiring Ply Gem in August 1997, the Company has eliminated expenses
associated with Ply Gem's corporate headquarters, consolidated certain corporate
functions such as accounting, legal, tax, risk management and eliminated certain
underperforming product lines. These actions have resulted in estimated
annualized cost reductions of approximately $24.0 million. In addition, the
Company continues to identify and rationalize underperforming businesses. During
1998 the Company sold several non-core businesses acquired through the PlyGem
Acquisition and is evaluating the sale of certain other non-core businesses.
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
Bureau of the Census (the "US Census Bureau"), private construction of
residential and non-residential buildings totaled approximately $422.0 billion
in 1997.
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The most important factors influencing demand for building products include
both the levels of residential and commercial new construction activity and 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. The Company has 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 consumer 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. Between 1987 and 1997, according
to the National Association of Realtors, sales of existing homes increased by
24%, from 3.4 million to 4.2 million. 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. Another factor driving increased demand for
building products has been an increase in the average size of homes built in the
United States. In 1997, according to the NAH, the average single-family home
contained 1,975 square feet of space, as compared to 1,385 square feet in 1970
and 1,595 square feet in 1980. 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 1987 and 1997, according to the US
Census Bureau, expenditures on home improvements increased from $55.9 billion to
$79.9 billion, or 43%. 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 US Census Bureau, housing starts in 1997 totaled 1,474,000
units, consisting of 1,133,700 single family units and 340,300 multi-family
units. Since 1985, single family housing starts have exceeded one million units
in all but two years (1990 and 1991). Manufactured housing shipments have
increased from approximately 170,000 in 1991 to over 354,000 in 1997. The sector
generally is growing faster than the overall market for new housing,
representing 24% of the total single family housing starts in 1997, as compared
to 17% in 1991. According to the US Census Bureau, total spending for new single
family housing units in 1997 totaled approximately $162.7 billion, representing
a 42% increase over 1987 levels.
Non-Residential Construction. This category includes spending associated
with the construction of new buildings and structures for the commercial,
industrial, government and infrastructure markets. According to the US Census
Bureau, expenditures for non-residential building construction between 1987 and
1997 increased from $123.2 billion to $161.2 billion, or approximately 31%.
NORTEK
Residential Building Products Group
The Residential Building Products Group manufactures and distributes
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), shower doors and bath cabinets. The Group is the largest
supplier in North America 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 original
equipment manufacturers ("OEMs"). Customers for the Group's products include
residential and electrical contractors, professional remodelers and
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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. The Company's sales of
kitchen range hoods accounted for approximately 14.8% of the Company's
consolidated net sales in 1997.
The Company expects the Acquisition to strengthen the Group's market
position. See "The Acquisition." NuTone has two principal product groups:
Ventilation Products, and Bath/Electronics/Specialty Products. Ventilation
Products consists of products that improve home indoor air quality, including
intercoms, audio speakers, door chimes, central vacuum cleaners and bath
cabinets and accessories. All of NuTone's products are marketed under the widely
recognized NuTone brand name.
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. Products sold under these brand
names include the Broan Rangemaster and Finesse(TM) rangehood, Solitaire and
Solitare Ultra Silent fans and fan lights, the Best by Broan(R), "Eurostyle"
luxury rangehoods, the Venmar(R), Flair and vanEE(R) Super Compact line of
indoor air quality systems and the Broan(R) 12" wide trash compactor. As a
result of the Acquisition, the Company also will market under the NuTone(R)
brand name.
With respect to certain product lines, several private label customers
account for a substantial portion of net sales. In 1997, approximately 20.2% of
the total sales of the Group were made to private label customers.
Production generally consists of fabrication from coil and sheet steel and
formed metal utilizing stamping, pressing and welding methods, assembly with
components and subassemblies purchased from outside sources (motors, fan blades,
heating elements, wiring harnesses, controlling devices, glass, mirrors,
lighting fixtures, lumber, wood and polyethylene components, speakers, grilles
and similar electronic components, and compact disc and tape player mechanisms)
and painting, finishing and packaging.
The Group offers a broad array of products with various features and styles
across a range of price points. The Company believes that the Group's variety of
product offerings helps the Group maintain and improve its market position for
its principal products. At the same time, the Company believes that the Group's
status as a low-cost producer, in large part as a result of advanced
manufacturing processes, provides the Group with a competitive advantage.
The Group's primary 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. The market for bath cabinets is highly fragmented with no single
dominant supplier. Although the Group believes it competes favorably among
suppliers of the Group's products, certain of these suppliers have greater
financial and marketing resources than the Group.
The Group has 17 manufacturing plants and had 2,791 full-time employees as
of December 31, 1997, 306 of whom were covered by collective bargaining
agreements which expire in 1999, 2000 and 2001.
Air Conditioning and Heating Products Group
The Air Conditioning and Heating Products Group manufactures and sells HVAC
systems for custom-designed commercial applications and for manufactured and
site-built residential housing. The Group's commercial products consist of HVAC
systems that are custom-designed to meet customer specifications for commercial
offices, manufacturing and educational facilities, hospitals, retail stores and
governmental buildings. Such systems are primarily designed to operate on
building rooftops (including large self-contained walk-in units) or on
individual floors within a building, and range from 40 to 600 tons of cooling
capacity. The Group markets its commercial products under the Governair(R),
Mammoth(R), Temtrol(R), Aston and Venmar(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), and POWERmiser(R) brand names for certain of
its products. The Group has recently licensed the use of the Frigidaire(R),
Tappan(R), Philco(R) and Gibson(R) brand names. Residential central air
conditioning products range from 1.5 to 5 tons of cooling capacity and furnaces
range from 45,000 BTUs to 144,000 BTUs of heating capacity.
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Commercial HVAC Products. The Group's commercial products include packaged
rooftop units and air handlers, custom walk-in mechanical equipment rooms,
individual floor by floor units, heat pumps and heat recovery equipment. The
market for commercial HVAC equipment is segmented between standard and
custom-designed equipment. Standard equipment can be manufactured at a lower
cost and therefore offered at substantially lower initial prices than
custom-designed equipment. As a result, suppliers of standard equipment
generally have a larger share of the overall commercial HVAC market than
suppliers of custom-designed equipment, including the Group. However, because of
certain building designs, shapes or other characteristics, the Company believes
there are many applications for which custom-designed equipment is required or
is more cost effective over the life of the building. Unlike standard equipment,
the Group's commercial HVAC equipment can be designed to match the exact space,
capacity and performance requirements of the customer. The Group sells its
commercial products primarily to contractors, owners and developers of
commercial office buildings, manufacturing and educational facilities,
hospitals, retail stores and governmental buildings. The Group seeks to maintain
strong relationships nationwide with design engineers, owners and developers,
the persons who are most likely to value the benefits and long-term cost
efficiencies of the Group's custom-designed equipment.
The Company estimates that about half of the Group's commercial sales in
1997 were attributable to replacement and retrofit activity, which typically is
less cyclical than new construction activity and generally commands higher
margins. The Group continues to develop product and marketing programs to
increase penetration in the growing replacement and retrofit market.
For many commercial applications, the ability to provide a custom-designed
system is the principal concern of the customer. The Group's packaged rooftop
and self-contained walk-in equipment rooms maximize a building's rentable floor
space because they are located outside the building. In addition, factors
relating to the manner of construction and timing of installation of commercial
HVAC equipment can often favor custom-designed rather than standard systems. As
compared with site-built and standard HVAC systems, the Group's systems are
factory assembled and then installed, rather than assembled on site, permitting
extensive testing prior to shipment. As a result, the Group's commercial systems
can be installed later in the construction process than site-built systems,
thereby saving the owner or developer construction and labor costs. The Group's
individual floor units offer flexibility in metering and billing, a substantial
advantage if a building is to be occupied in stages or where HVAC usage varies
significantly from floor to floor.
The Group's commercial products are marketed through independently-owned
manufacturers' representatives and an in-house sales, marketing and engineering
group of 110 persons as of December 31, 1997. The independent representatives
are typically HVAC engineers, a factor which is significant in marketing the
Group's commercial products because of the design-intensive nature of the market
segment in which the Group competes.
The Company believes that the Group is among the largest suppliers of
custom-designed commercial HVAC products in the United States. The Group's three
largest competitors in the commercial HVAC market are York International
Corporation (which sells under the "Pace" trade name) and its Miller-Picking
division, McQuay International (a subsidiary of OYL Corporation), and The Trane
Company (a subsidiary of American Standard Inc.). The Group competes primarily
on the basis of engineering support, quality, flexibility in design and
construction and total installed system cost. Although the Company believes that
the Group competes favorably with respect to certain of these factors, most of
the Group's competitors have greater financial and marketing resources than the
Group and enjoy greater brand awareness. However, the Company believes that the
Group's ability to produce equipment that meets the performance characteristics
required by the particular product application provides it with advantages not
enjoyed by certain of these competitors.
Residential HVAC 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 and
light commercial products for site-built homes and light commercial structures.
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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 replacements and modernization of existing equipment. The Company
anticipates that the replacement market will continue to expand as a large
number of previously installed heating and cooling products become outdated or
reach the end of their useful lives. This growth may be accelerated by a
tendency among consumers to replace older heating and cooling products with
higher efficiency models prior to the end of such equipment's useful life. The
market for residential cooling products, including those sold by the Group, is
affected by spring and summer temperatures. The Group does not sell window air
conditioners, a segment of the market which is highly seasonal and especially
affected by spring and summer temperatures. The Company believes that the
Group's ability to offer both heating and cooling products helps offset the
effects of seasonality of the Group's sales.
The Group sells its manufactured housing products to builders of
manufactured housing and, through distributors, to manufactured housing
retailers and owners of such housing. The majority of sales to builders of
manufactured housing consists of furnaces designed and engineered to meet or
exceed certain standards mandated by federal agencies, including the United
States Department of Housing and Urban Development. These standards differ in
several important respects from the standards for furnaces used in site-built
residential homes. The aftermarket channel of distribution includes sales of
both new and replacement air conditioning units and heat pumps and replacement
furnaces. The Company believes that the Group has one major competitor in the
furnace segment of this market, Evcon Industries, a subsidiary of York
International Corporation, which markets its products under the "Evcon/Coleman"
name.
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.
Residential HVAC products for use in site-built homes are sold through
independently-owned distributors who sell to HVAC contractors. New products for
commercial application up to 10 tons have also been recently introduced.
Competition in the site-built residential HVAC market is intense, and many
suppliers of such equipment have substantially greater financial and marketing
resources than the Group and enjoy greater brand awareness. In these markets,
the Group competes with, among others, Carrier Corporation, Rheem Manufacturing
Company, Lennox Industries, The Trane Company and York International
Corporation. The Group competes in both the manufactured housing and site-built
markets on the basis of breadth and quality of its product line, distribution,
product availability and price. The Company believes that the Group competes
favorably with respect to these factors. To provide greater consumer acceptance
and pull through for its products, the Company has recently licensed from White
Consolidated Industries, Inc. the use of the Frigidaire(R), Tappan(R), Gibson(R)
and Philco(R) brand names for certain of its products.
The Company estimates that more than half of the Group's sales of
residential HVAC products in 1997 were attributable to the replacement market,
which tends to be less cyclical than the new construction market.
The Group has nine manufacturing plants and had 2,288 full-time employees
as of December 31, 1997, 212 of whom were covered by a collective bargaining
agreement which expired in 1998. Notwithstanding the strike at the Mammoth
facility in Chaska, Minnesota, the Company believes that the Group's
relationships with its employees are generally satisfactory.
Windows, Doors and Siding Group
The Windows, Doors and Siding Group, which was acquired by the Company as
part of the Ply Gem Acquisition in August, 1997, is a manufacturer and
distributor of vinyl and wood windows, doors, vinyl siding, soffit, skirting and
shutters for use in the residential construction, DIY and professional
renovation market. The Company believes it is among the largest suppliers of
vinyl windows serving the replacement market in the United States. Additionally,
the Company believes it is a leading supplier of wood windows to major home
centers and a leading supplier of vinyl siding in the United States. The
Company's sales of windows, since the Ply Gem Acquisition, accounted for
approximately 10.1% of the Company's consolidated net sales in 1997.
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Windows and Doors. The Group manufactures and sells a full line of wood,
clad, composition (wood and vinyl) and vinyl windows and patio doors, glass and
polycarbonate skylights, and wooden interior bifold doors sold under the
Crestline(R), Vetter(R), Kenergy(R) and AWC(R) brand names. In addition, the
Group manufactures energy efficient and maintenance free vinyl windows and patio
doors, under the Great Lakes(R) Gold, PLY GEM(R) Premium, Uniframe(R), MC+(TM)
and Garden Windows(TM) brand names. The products are marketed to both the home
improvement and new construction markets through wholesale and specialty
distributors, large contractors, home centers and lumber yards. The Company
believes that it is the fourth largest producer of wood windows in the United
States.
Through the Crestline(R) and Vetter(R) brands, wood windows are available
with primed or clad exteriors, and offer innovative product features with a wide
selection of options. A complete range of window styles include double hung,
single hung, casement, awning, sliding, garden, angle bay and bow windows.
Specialty and custom windows are available in a wide variety of shapes and
sizes. Patio doors are offered in traditional hinged, French hinged, sliding and
French sliding designs. The CrestWood(TM) series of premium wood windows and
patio doors combine the performance of an energy efficient, maintenance-free
solid vinyl exterior with the warmth and beauty of a natural pine, oak, walnut
or cherry interior that can be painted or stained. Most of the products are
available with insulated divided light glass, a patented energy efficient
replica of historically correct narrow muntin bar divided light wood windows and
patio doors. VinylCrest(TM) and ProCraft(TM) comprise a complete line of solid
vinyl windows, which are available for replacement and new construction
applications, in a full range of styles. These product offerings are an
important component of the Group's strategy to offer windows in all price points
and market segments. In addition to a broad line of standard windows and doors,
its custom window factory can build nearly any shape and size window.
The Group manufactures a series of vinyl windows and patio doors for new
construction in both standard and custom sizes. Replacement units are
manufactured to customer specifications. These products include single hung,
double hung, bow and bay, casement, garden, sliding and awning windows, as well
as hinged and sliding patio doors in a variety of vinyl colors and interior
woodgrains, several different grille styles and patterns and a wide assortment
of glass options. Product lines feature fusion welded sash and frame corners
which are guaranteed not to separate, leak air or water, or require maintenance.
The Intercept(TM) warm edge glass spacer system is manufactured in one
continuous piece, resulting in a stronger, more energy efficient insulated glass
unit. The Group is the only vinyl window manufacturer to offer EasyClean(TM)
glass, which works like Teflon(TM) on cookware, providing an owner with a window
which requires less cleaning. These products incorporate other innovations which
differentiate the product line from other window manufacturers, including wood
grain vinyl interiors available in three finishes, multi-point locking hardware,
and sliding patio doors which utilize a proprietary tank type roller system.
Replacement products are sold through specialty distributors and directly to
large contractors. The new construction series of vinyl windows and patio doors
is currently being sold under private label programs and to a select number of
dealer distributors. This multiple brand approach has allowed the Group to
achieve increased penetration in a given geographic area, by offering dealer
distributors individual brands on an exclusive basis.
The Group differentiates itself from its competition with a multiple brand
strategy, multi-channels of distribution (with an emphasis on the home center
market), an established distribution network utilizing custom design and
manufacturing capabilities, and a trained field sales and service support
network. Its ability to sell in full truckload and less than truckload
quantities is tailored to the desires of large home center chains which prefer
to purchase windows direct from the manufacturer. The Group's ability to offer a
broad product line that includes primed, clad, composition (wood and vinyl) and
vinyl windows and patio doors, along with skylights under a single brand is also
important to the Group's sales and marketing strategy, together with the Group's
focus on one of the fastest growing segments in the industry -- home centers and
lumberyards.
Siding. The Group is a manufacturer of vinyl siding, soffit, skirting and
accessories, which are available in a variety of woodgrains and colors. Its
products are used in both remodeling and new construction applications,
including manufactured housing. Vinyl siding has captured an increasing share of
the overall market for exterior siding materials due to its ease of
installation, high performance, durability, low maintenance requirements and
price stability as compared to alternative siding materials (including wood,
aluminum and masonry). These products are marketed under Cedar Lane(R),
Varigrain(R), Duragrain(R), Timber
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Oak(R), and ProLoc(R), brands and the Georgia Pacific label. The Company
believes it is the leading supplier to home centers and lumberyards, and the
fourth largest producer of vinyl siding in the United States. In addition, the
Group is a supplier to the Eastern European market.
Vinyl siding is sold to either specialty distributors who, in turn, sell
directly to remodeling contractors or builders, or to building materials
wholesale distributors who sell to home centers and lumberyards who, in turn,
sell to remodeling contractors and consumers (two-step distribution). The
Company believes that it is able to compete on favorable terms as a result of
its distribution coverage, high quality and innovative products, and production
efficiency. Additionally, the Company has a strong presence in the retail
segment of the market, which continues to grow at a rate faster than the overall
market.
The Group also manufactures a line of injection molded siding components
for the remodeling and new construction markets. Siding components include
blocks, which allow for the flush mounting of items like light fixtures to the
exterior of a home, and gable vents that provide attic ventilation. The products
are sold to home centers, lumberyards and wholesale distributors of building
materials. It is the only manufacturer of siding components to offer a color
selection to match or complement the colors offered by most major manufacturers
of vinyl siding. The Group has also recently introduced a line of fixed and
variable dimension shutters.
The Group operates ten manufacturing plants in the United States and had
3,436 full-time employees as of December 31, 1997, 1,578 of whom are covered by
collective bargaining agreements which expire in 1998 and 1999. The Company
believes that the Group's relationships with its employees are satisfactory.
Specialty Products and Distribution Group
The Specialty Products and Distribution Group, which was acquired by the
Company as part of the Ply Gem Acquisition in August 1997, 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, lumberyards and independent wholesale distributors
for use generally in residential decking, roofing, siding and landscaping as
well as various commercial construction applications. The Group's products
include fire retardant treated wood products which are used nationwide for
commercial and noncombustible construction. These products, PYRO-GUARD(R) and
EXTERIOR FIRE-X(R) are the Group's major brands in the United States. They are
available from Company plants east of the Rockies and from licensees west of the
Rockies. Other treated wood products include CCA/KDAT preservative treated wood
for commercial and residential construction that is kiln dried after treatment,
COP-8(R) food-safe preservative treated wood and PLYWALL preservative treated
wood highway noise barriers.
The Group distributes decorative products for the home including
prefinished wood paneling and imported ceramic, marble and porcelain tile.
Finished and unfinished wood as well as other products are sold to home centers
and lumberyards.
While the specialty wood products industry is very competitive, the Company
believes it is able to compete effectively by providing superior customer
service and quality, and wherever possible, proprietary products. The companies
within the Group focus on high margin, niche markets within the broader defined
wood products industry which tends to be commodity driven. Its products are sold
through home center retailers and wholesalers of building materials. The Company
believes that growth of this segment of its business will result from continued
expansion of its share of the home center market.
After giving effect to the sale of Goldenberg and Sagebrush, the Specialty
Products and Distribution Group operates six production facilities and eleven
distribution centers in the United States and had 472 full-time employees as of
December 31, 1997, 67 of whom were covered by collective bargaining agreements
which expire in 1998 and 1999. The Company believes that the Group's
relationships with its employees are satisfactory.
The Company has sold two of the five businesses in this Group in 1998, and
is evaluating the sale of certain of the remaining businesses. See "Recent
Developments".
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NUTONE
NuTone is a leading manufacturer and supplier of built-in electrical
appliances for use primarily in residential construction and remodeling. NuTone
has two principal product groups: Ventilation Products and BES Products.
Ventilation Products consist of products that improve home indoor air quality,
including a full line of exhaust fans, heaters, range hoods, paddle fans and
other ventilation products. BES Products offers a wide variety of primarily
electronic home improvement products, including intercoms, audio speakers, door
chimes, central vacuum cleaners and bath cabinets and accessories. All of
NuTone's products are marketed under the NuTone(R) brand name.
Ventilation Products
Exhaust Fans and Heaters. Exhaust fans and heaters have been core product
categories for NuTone, a leading supplier in this segment, for approximately 50
years. Products include a complete line of exhaust fans for residential use in
bath, utility and recreation rooms that increase air quality by removing odors
and airborne pollutants.
Range Hoods. NuTone is a leading supplier of kitchen range hoods. Range
hoods are marketed in several configurations, including under-cabinet models,
power units (used with custom cabinetry) and exterior mounted kitchen exhaust
fans (used with hood shells).
Attic Fans. Attic fans reduce attic temperatures and can thereby decrease
air conditioning costs. Products include power roof and gable exhaust fans,
whole house ventilators and attic accessories, including thermostats,
replacement motors and louvers.
Paddle Fans. Paddle fans are an ancillary product line sold as part of a
builder upgrade package targeted for electrical distributors.
BES Products
Intercoms and Radios. Intercoms offer room-to-room communication and add
security and monitoring convenience. The Radio Intercom line includes a complete
family of products, including a builder series for the entry level home market
and intercoms with compact disc players for the upscale home buyer. Products are
marketed to the new construction and remodeling market through electrical
distributors and professional installers.
Door Chimes. NuTone introduced the first door chime more than 60 years ago
and is an industry leader in decorative chimes for the home construction market.
Product offerings include wired and wireless chimes in a broad selection of
styles.
Central Cleaning Systems. NuTone's central cleaning systems provide
cleaning power, efficiency and convenience by utilizing a central power unit,
located away from daily living areas and connected by a network of tubing to
inlets in walls, floors and ceilings.
Bathroom Cabinets. NuTone's offering of bathroom cabinets includes swing
door and three-door triview styles as well as specialty cabinets. The cabinets
have styles ranging from standard to decorative beveled and framed mirrors and
are constructed from various materials including metal, plastic and wood.
Specialty Products. NuTone markets several specialty products including
food storage centers, lighting products and ironing centers.
GENERAL CONSIDERATIONS
Employees. The Company employed approximately 9,262 persons at December
31, 1997, of which 2,259 were employed under collective bargaining agreements.
NuTone employed approximately 965 persons at December 31, 1997, of which 458
were employed under collective bargaining agreements.
Backlog. Backlog expected to be filled during 1998 was approximately
$127,137,000 at December 31, 1997 ($107,907,000 at December 31, 1996). Backlog
is not regarded as a significant factor for most of the
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Company's operations for which orders are generally for prompt delivery. While
backlog stated for December 31, 1997 is believed to be firm, the possibility of
cancellations makes it difficult to assess the firmness of backlog with
certainty.
Research and Development. The Company's research and development
activities are principally related to new product development and such
expenditures represent approximately 1% of net sales.
Patents and Trademarks. The Company holds numerous design and process
patents that it considers important, but no single patent is material to the
overall conduct of its business. It is the Company's policy to obtain and
protect patents whenever such action would be beneficial to the Company. The
Company owns several trademarks that it considers material to the marketing of
its products, including Broan(R), Nautilus(R), Venmar(R), vanEE(R), Rangaire(R),
Best(R), Crestline(R), Vetter(R), AWC(R), Kenergy(R), CrestWood(TM),
VinylCrest(TM), ProCraft(TM), Cedar Lane(R), Varigrain(R), Duragrain(R), Timber
Oak(R), ProLoc(R), Great Lakes(R) Gold, PLY GEM(R)Premium, Uniframe(R), MC+(TM)
, Intercept(TM) , Easy-Clean(TM) , PYRO-GUARD(R), EXTERIOR FIRE-X(R), COP-8(R),
Governair(R), Mammoth(R), Temtrol(TM), Miller(R), Intertherm(R) and
POWERmiser(R). The Company believes that its rights in these trademarks are
adequately protected.
Raw Materials. The Company purchases raw materials and most components
used in its various manufacturing processes. The principal raw materials
purchased by the Company are rolled sheet, formed and galvanized steel, copper,
aluminum, plate mirror glass, PVC, polypropylene, glass, vinyl extrusions,
particle board, fiberboard, lumber, plywood, various chemicals, paints, resins
and plastics.
The materials, molds and dyes, subassemblies and components purchased from
other manufacturers, and other materials and supplies used in the Company's
manufacturing processes have generally been available from a variety of sources.
Whenever practical, the Company establishes multiple sources for the purchase of
raw materials and components to achieve competitive pricing, ensure flexibility
and protect against supply disruption. From time to time, increases in raw
material costs can affect future supply availability due in part to raw material
demands by other industries.
Working Capital. The carrying of inventories to support customers and to
permit prompt delivery of finished goods requires substantial working capital.
Substantial working capital is also required to carry receivables. The demand
for the Company's products is seasonal, particularly in the Northeast and
Midwest regions of the United States and in Canada where inclement weather
during the winter months usually reduces the level of building and remodeling
activity in both the home improvement and new construction markets. The Ply Gem
businesses, acquired in August 1997, have in the past been more seasonal in
nature than the Company's subsidiaries owned prior to the acquisition. As a
result, the demand for working capital of the Company's subsidiaries is greater
from late in the first quarter until early in the fourth quarter. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
LEGAL PROCEEDINGS
The Company and its subsidiaries are subject to numerous federal, state and
local laws and regulations, including environmental laws and regulations that
impose limitations on the discharge of pollutants into the air and water and
establish standards for the treatment, storage and disposal of solid and
hazardous wastes. The Company believes that it is in substantial compliance with
the material laws and regulations applicable to it. The Company 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 1996 and 1997 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
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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 with respect to which it may be listed as a
potentially responsible party ("PRP"), (iii) the level of clean-up that may be
required at specific sites and choices concerning the technologies to be applied
in corrective actions and (iv) the time periods over which remediation may
occur. Furthermore, since liability for site remediation is joint and several,
each PRP is potentially wholly liable for other PRPs that become insolvent or
bankrupt. Thus, the solvency of other PRPs could directly affect the Company's
ultimate aggregate clean-up costs. In certain circumstances, the Company's
liability for clean-up costs may be covered in whole or in part by insurance or
indemnification obligations of third parties.
In addition to the legal matters described above, the Company and its
subsidiaries are parties to various legal proceedings incident to the conduct of
their businesses. None of these proceedings is expected to have a material
adverse effect, either individually or in the aggregate, on the Company's
financial position or results of operations. See Note 8 of Notes to the
Company's Consolidated Financial Statements included elsewhere herein.
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MANAGEMENT
DIRECTORS OF THE COMPANY
The following table sets forth the name, age as of the date hereof and
current principal occupation or employment and five-year employment history for
the five members currently serving on the Company's Board of Directors. Unless
otherwise noted, each director has maintained the same principal occupation
during the past five years.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME AGE FIVE-YEAR EMPLOYMENT HISTORY
- ---- --- ----------------------------------------------
<S> <C> <C>
Richard L. Bready............................... 54 Chairman and Chief Executive Officer of the
Company.
Phillip L. Cohen................................ 66 Partner with the professional service firm
Arthur Andersen LLP from 1965 until his
retirement in June 1994 and a financial
consultant since that date.
Richard J. Harris............................... 62 Vice President and Treasurer of the Company.
William I. Kelly................................ 55 Director of the Graduate School of
Professional Accounting of Northeastern
University.
J. Peter Lyons.................................. 64 President of The Lyons Companies, an insurance
and employee benefits consulting company.
</TABLE>
EXECUTIVE OFFICERS OF THE COMPANY
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. Each executive officer has maintained
the same position and office with the Company during the past five years.
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION WITH THE COMPANY
- ---- --- ---------------------------------
<S> <C> <C>
Richard L. Bready............................... 54 Chairman and Chief Executive Officer
Almon C. Hall................................... 51 Vice President, Controller and Chief
Accounting Officer
Richard J. Harris............................... 62 Vice President and Treasurer
Kenneth J. Ortman............................... 62 Senior Vice President, Group Operations
Kevin W. Donnelly............................... 44 Vice President, General Counsel and
Secretary
</TABLE>
Executive officers are elected annually by the Board of Directors of the
Company and serve until their successors are chosen and qualified. Mr. Bready
has an employment agreement with the Company providing for his employment as
Chief Executive Officer through 2002, which term is extended at the end of each
year for an additional year until either party gives notice that it will not be
further extended. Mr. Bready has been Chief Executive Officer of the Company
since October 31, 1990.
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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 July 31, 1998 between the
Company and State Street Bank and Trust Company, a Massachusetts banking
corporation, as trustee (the "Trustee"). The terms of the Exchange Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), as
in effect on the date of the Indenture. The Notes are subject to all such terms,
and holders of the Notes are referred to the Indenture and the Trust Indenture
Act for a statement thereof. The following summary of certain provisions of the
Indenture, the Notes and the Registration Rights Agreement does not purport to
be complete and is qualified in its entirety by reference to the Indenture and
the Registration Rights Agreement, including the definitions included in the
Indenture of certain terms used below. Copies of the Indenture and Registration
Rights Agreement will be made available to holders of Notes as set forth below
under "-- Additional 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 Exchange Notes will be unsecured senior obligations of the Company
limited to $210 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 and the 9 1/8% 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 July 4, 1998, after giving effect to the Acquisition, the
Notes would have been effectively subordinated to approximately $462.1 million
of indebtedness for borrowed money, trade payables and accrued liabilities of
the Company's Subsidiaries.
Although the Indenture contains certain covenants and provisions that
afford certain protections to holders of the Notes (the "Holders"), such
covenants and provisions would not necessarily afford the Holders of the Notes
protection in the event of a highly leveraged transaction involving the Company,
including a leveraged transaction initiated or supported by the Company, the
management of the Company or any affiliate of either party. See "-- Certain
Covenants" below.
PRINCIPAL, MATURITY AND INTEREST
The Notes will mature on August 1, 2008. Interest on the Notes will accrue
at the rate of 8 7/8% per annum and will be payable semi-annually on each
February 1 and August 1 commencing on February 1, 1999, to Holders on the
immediately preceding January 15 or July 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
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payments of interest and Liquidated Damages, if any, may be made at the office
or agency of the Company maintained for such purpose or, at the option of the
Company, by check mailed to the Holders at their respective addresses set forth
in the register of Holders. Unless otherwise designated by the Company, the
Company's office or agency in New York will be the office of the Trustee
maintained for such purpose. The Notes will be issued only in registered form,
without coupons, in denominations of $1,000 and integral multiples thereof. The
Trustee is Paying Agent and Registrar under the Indenture. The Company may act
as Paying Agent or Registrar under the Indenture, and the Company may change the
Paying Agent or Registrar without notice to the Holders.
OPTIONAL REDEMPTION
The Notes will be redeemable by the Company, in whole or in part, on or
after August 1, 2003 at the following redemption prices (expressed as a
percentage of the principal amount) if redeemed during the 12-month period
beginning August 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>
2003........................................................ 104.438%
2004........................................................ 102.958%
2005........................................................ 101.479%
2006 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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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, the 9 1/4% Notes and the 9 1/8% 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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<PAGE> 75
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
July 5, 1998 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 at any time after May 1, 1998 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; and (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;
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 NuTone and any NuTone Subsidiary not exceeding at any
time $6,000,000 in aggregate outstanding principal amount and, if secured,
secured only by Liens on assets of NuTone and any NuTone Subsidiary;
(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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<PAGE> 77
(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 remaining
Indebtedness under the agreement or instrument governing the Indebtedness being
refinanced, (1) in the case of Refinancing
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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
extended, renewed or refinanced was at any time previously secured by Liens on
assets of such Restricted Subsidiary; and (viii) Permitted Liens.
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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 amounts shall no longer be deemed Excess Proceeds.
If the aggregate principal amount of Notes surrendered
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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 Guarantor as an Unrestricted Subsidiary in compliance with the
terms of the Indenture or (ii) upon any sale
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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 indentures governing the Company's 9 7/8% Notes, 9 1/4% Notes
and 9 1/8% Notes shall cease to have further force and effect (whether by reason
of amendment, redemption or repayment of such Indebtedness or otherwise),
provided, however, that if the instrument or other agreement governing any
Indebtedness incurred to refinance the 9 7/8% Notes, the 9 1/4% Notes or the
9 1/8% Notes includes such a similar covenant, the provisions of this Limitation
on Guaranties by Subsidiaries covenant shall continue in full force and effect
for so long as such similar covenant remains in force and effect.
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 provides that whether or not required
by the rules and regulations of the Commission, so long as any Notes are
outstanding, the Company will furnish to the Holders of Notes (i) all quarterly
and annual financial information that would be required to be contained in a
filing with the Commission on Forms 10-Q and 10-K if the Company were required
to file such Forms, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" that describes the financial
condition and results of operations of the Company and its Subsidiaries and,
with respect to the annual information only, a report thereon by the Company's
independent certified public accountants and (ii) all reports that would be
required to be filed with the Commission on Form 8-K if the Company were
required to file such reports. In addition, whether or not required by the rules
and regulations of the Commission, the Company will file a copy of all such
information with the Commission for public availability (unless the Commission
will not accept such a filing) and make such information available to investors
or prospective investors who request it in writing.
MERGER, CONSOLIDATION OR TRANSFER OF ASSETS
The Company shall not consolidate with, merge with or into, or transfer all
or substantially all of its assets (as an entirety or substantially as an
entirety in one transaction or a series of related transactions) to, any Person
or permit any Person to merge with or into it, or permit any of its Subsidiaries
to enter into any such transaction or transactions if such transaction or
transactions in the aggregate would result in a transfer of all or substantially
all of the assets of the Company and its Subsidiaries on a consolidated basis,
unless: (1) the
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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 fails
to comply with any of its covenants or agreements in the Indenture or its
Subsidiary Guaranty, and in
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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.
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
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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.
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
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any Note selected for redemption. Also, the Registrar is not required to
transfer or exchange any Note for a period of 15 days before a selection of
Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, with the written consent of the Holders of
at least a majority in aggregate principal amount of the Notes then outstanding,
the Company and the Trustee may amend the Indenture or the Notes, or may waive
compliance by the Company or any Subsidiary Guarantor with any provision of the
Indenture, the Notes or such Subsidiary Guarantor's Subsidiary Guaranty.
However, without the consent of each Holder affected, a waiver or an amendment
to the Indenture or the Notes may not: (i) reduce the percentage of principal
amount of the Notes whose Holders must consent to an amendment or waiver; (ii)
make any change to the Stated Maturity of the principal of, premium, if any, or
any interest on or Liquidated Damages, if any, with respect to, the Notes or any
Redemption Price thereof, or impair the right to institute suit for the
enforcement of any such payment or make any Note payable in money or securities
other than that stated in the Note; (iii) waive a default in the payment of the
principal of, premium, if any, or interest on, 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 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).
"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 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
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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
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 any of the Company's 8 7/8% Senior Notes due August 1, 2008
issued under the Indenture.
"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.
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"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 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
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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.
"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
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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 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
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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 on the Closing Date 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 Notes evidenced by the Global Notes will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by the Depositary (with respect to the interests of the Depositary's
Participants), the Depositary's Participants and the Depositary's Indirect
Participants. Prospective purchasers are advised that the laws of some states
require that certain Persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer Notes evidenced
by the Global Notes will be limited to such extent. For certain other
restrictions on the transferability of the Notes, see "Notice to Investors."
Accordingly, each holder owning a beneficial interest in a Global Note must
rely on the procedures of the Depositary 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
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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 Depositary 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 or relating to such
Notes.
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 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 laws of
some states require that certain persons take physical delivery in definitive
form of securities that they own and that security interests in negotiable
instruments can only be perfected by delivery of certificates representing the
instruments. Consequently, the ability to transfer Notes or to pledge the Notes
as collateral will be limited to such extent.
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, premium, if any, and Liquidated
Damages, if any, with respect to, any Notes registered in the name of a Global
Note Holder on the applicable record date will be payable by the Trustee to or
at the direction of such Global Note Holder in its capacity as the registered
holder under the Indenture. Under the terms of the Indenture, the Company and
the Trustee may treat the Persons in whose names the Notes, including the Global
Notes, are registered as the owners thereof for the purpose of receiving such
payments and for any and all other purposes whatsoever. Consequently, neither
the Company nor the Trustee has or will have any responsibility or liability for
the payment of such amounts to beneficial owners of Notes (including principal,
premium, if any, interest and Liquidated Damages, if any).
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 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 Notes in the form of Certificated Securities. Upon any
such issuance, the Trustee is required to register such Notes in the name of,
and cause the same to be delivered to, such Person or Persons. All such
Certificated Securities would be subject to the legend requirements described
herein under "Notice to Investors." 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, Notes in such form will be issued to each Person that the
Depositary identifies as the beneficial owner of the related Notes.
Neither the Company nor the Trustee shall be liable for any delay by the
Depositary in identifying the beneficial owners of the related Notes and each
such Person may conclusively rely on, and shall be protected in relying on,
instructions from the Depositary for all purposes (including with respect to the
registration and delivery, and the respective principal amounts, of the Notes to
be issued).
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SAME-DAY SETTLEMENT AND PAYMENT
The Indenture will require that payments in respect of the Exchange Notes
(including principal, premium, if any, interest and Liquidated Damages, if any)
be made by wire transfer of immediately available funds to the accounts
specified by the Global Note Holder. Secondary trading in long-term notes and
debentures of corporate issuers is generally settled in clearing-house or
next-day funds. In contrast, the Notes have been designated as eligible for
trading in the PORTAL market and are expected to trade in the Depositary's
Next-Day Funds Settlement System, and any permitted secondary market trading
activity in the Notes will therefore be required by the Depositary to be settled
in immediately available funds. The Company expects that secondary trading in
the Certificated Notes also will be settled in immediately available funds.
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THE EXCHANGE OFFER
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company and the Initial Purchasers entered into the Registration Rights
Agreement on July 31, 1998 (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 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 210 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 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.
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 Notes) with the prospectus
contained in the Exchange Offer Registration Statement. The Company has agreed,
for a period of 180 days after consummation of the Exchange Offer, to make
available a prospectus meeting the requirements of the Securities Act to any
broker-dealer for use in connection with any resale of any Exchange Notes
acquired.
All resales must be made in compliance with applicable state securities or
blue sky laws. Such compliance may require that resales be made by or through a
licensed broker-dealer. The Company assumes no responsibility with regard to
compliance with such requirements.
Each Holder (other than certain specified holders) who wishes to exchange
such 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
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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 90
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 165 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.
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 any predecessor thereto)
(the "Resale Restricted 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
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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 form 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 , 1998 as the record date for the
Exchange Offer for the 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, and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering Holders
of Original Notes for the purpose of receiving Exchange Notes.
If any tendered Original Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Original Notes will be returned,
without expenses, to the tendering Holder, thereof, as promptly as practicable
after the Expiration Date.
Holders of Original Notes who tender in the Exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of
Original Notes pursuant to the Exchange Offer. The Company will pay all charges
and expenses, other than certain applicable taxes, in connection with the
Exchange Offer. See "-- Fees and Expenses."
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EXPIRATION DATES; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m. New York City time on
[ ], 1998 unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date to which the Exchange Offer is extended.
In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by oral or written notice and will make a public
announcement thereof, prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.
The Company reserves the right in its sole discretion (i) to delay
acceptance of any Original Notes, (ii) to extend the Exchange Offer, (iii) if
the condition set forth below under "-- Conditions of the Exchange Offer" shall
not have been satisfied, to terminate the Exchange Offer by giving oral or
written notice of such delay, extension or termination to the Exchange Agent, or
(iv) to amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by a public announcement thereof. If the Exchange Offer is amended
in a manner determined by the Company to constitute a material change, the
Company will promptly disclose such amendment by means of a prospectus
supplement that will be distributed to the registered holders of the Original
Notes and the Exchange Offer will be extended for a period of five to ten
business days, as required by law, depending upon the significance of the
amendment and the manner of disclosure to the registered holders, if the
Exchange Offer would otherwise expire during such five to ten business day
period.
Without limiting the manner in which the Company may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the Exchange Offer, the Company shall have no obligation to publish, advertise,
or otherwise communicate any such public announcement, other than by making a
timely release to the Dow Jones News Service.
PROCEDURES FOR TENDERING
Only a registered Holder of Original Notes may tender such Original Notes
in the Exchange Offer. To tender in the Exchange Offer, a Holder must complete,
sign and date the Letter of Transmittal, have the signatures thereon guaranteed
if required by the Letter of Transmittal, and mail or otherwise deliver such
Letter of Transmittal, or (in the case of a book-entry transfer) transmit an
Agent's Message in lieu of the Letter of Transmittal, to the Exchange Agent at
the address set forth below prior to 5:00 p.m., New York City time, on the
Expiration Date. In addition, either (i) certificates for such Original Notes
must be received by the Exchange Agent along with the letter of Transmittal, or
(ii) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Original Notes, if such procedure is available, into the
Exchange Agent's account at The Depository Trust Company (the "Book-Entry
Transfer Facility") pursuant to the procedure for book-entry transfer described
below, including an Agent's Message, must be received by the Exchange Agent
prior to the applicable Expiration Date, or (iii) the Holder must comply with
the guaranteed delivery procedures described below. To be tendered effectively,
the Letter of Transmittal, or Agent's Message in lieu thereof, and all other
required documents must be received by the Exchange Agent at the address set
forth below under "-- Exchange Agent" prior to the applicable Expiration Date.
The term "Agent's Message" means a message transmitted by DTC to and
received by the Exchange Agent and forming part of the book-entry confirmation,
which states that DTC has received an express acknowledgment from the tendering
Holder, which acknowledgment states that such Holder has received and agrees to
be bound by the Letter of Transmittal and that the Company may enforce the
Letter of Transmittal against such Holder. The term "book-entry confirmation"
means a timely confirmation of book-entry transfer of Original Notes to the
Exchange Agent's account at DTC.
The tender by a Holder of Original Notes will constitute an agreement
between such holder and the Company in accordance with the terms and subject to
the conditions set forth herein and in the Letter of Transmittal.
THE METHOD OF DELIVERY OF THE ORIGINAL NOTES AND THE APPLICABLE LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EX-
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CHANGE 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 consider 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 a 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 a 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 power are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company, as applicable, of their authority to so act must be submitted with the
Letter of Transmittal designated for such Original Notes.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Original Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Original Notes not properly tendered or any Original Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the absolute right to waive any defects,
irregularities or conditions of tender as to particular Original Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Original Notes must be cured within such time as the
Company shall determine. Neither the Company, the Exchange Agent nor any other
person shall be under any duty to give notification of defects or irregularities
with respect to tenders of Original Notes nor shall any of them incur any
liability for failure to give such notification. Tenders of Original Notes will
not be deemed to have been made until such irregularities have been cured or
waived. Any Original Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned without cost by the Exchange Agent to the tendering
holder of such Original Notes (or, in the case of Original Notes tendered by
book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility pursuant to the book-entry transfer procedures described below, such
unaccepted or non-exchanged Original Notes will be credited to an account
maintained with such Book-Entry Transfer Facility), unless otherwise provided in
the Letter of Transmittal, as soon as practicable following the Expiration Date.
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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 arrangements 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 transaction with respect to the Exchange Notes acquired by such person
and cannot rely on the position of the Staff of the Commission set forth in
no-action letters that are discussed herein under "-- Resales of the Exchange
Notes", and (y) any Participating Broker-Dealer that receives Exchange Notes for
its own account in exchange for Original Notes pursuant to an Exchange Offer
must deliver a prospectus in connection with any resale of such Exchange Notes,
but by so acknowledging, the holder shall not be deemed to admit that, by
delivering a prospectus, it is an "underwriter" within the meaning of the
Securities Act, (iv) neither the holder nor any Beneficial Owner is an
"affiliate," as defined under Rule 405 of the Securities Act, of the Company
except as otherwise disclosed to the Company in writing, and (v) the Holder and
each Beneficial Owner understands that a secondary resale transaction described
in clause (iii) above should be covered by an effective registration statement
containing the selling securityholder information required by Item 507 of
Regulation S-K of the Commission.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Original Notes at the Book-Entry Transfer Facility, for purposes of the
Exchange Offer, within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Original Notes by causing the
Book-Entry Transfer Facility to transfer such Original Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Original Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the applicable Letter of Transmittal, with any
required signature guarantees and any other documents, or an Agent's Message in
lieu of the Letter of Transmittal must be transmitted to and received by the
Exchange Agent at the address set forth below under "-- Exchange Agent" on or
prior to the applicable Expiration Date or the guaranteed delivery procedures
described below must be complied with.
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), of Agent's Message in lieu thereof,
together with the certificate(s) representing the Original Notes to be
tendered in proper form for transfer (or confirmation of a book-entry
transfer into the Exchange Agent's account at DTC of the Original Notes
delivered electronically) and any other documents required by the
applicable Letter of Transmittal, will be deposited by the Eligible
Institution with the Exchange Agent; and
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(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), or Agent's Message in lieu thereof, together with the
certificate(s) representing all tendered Original Notes in proper form for
transfer (or confirmation of a book-entry transfer into the Exchange
Agent's account at DTC of Original Notes delivered electronically) and all
other documents required by the Letter of Transmittal are received by the
Exchange Agent within five business days after the applicable Expiration
Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Original Notes pursuant to
an Exchange Offer, unless theretofore accepted for exchange as provided in the
Exchange Offer, may be withdrawn at any time prior to 5:00 p.m., New York City
time, on the business day prior to the Expiration Date.
To be effective, a written or facsimile transmission notice of withdrawal
must be received by the Exchange Agent at its address set forth herein by 5:00
p.m., New York City time, on the business day prior to the Expiration Date. Any
such notice of withdrawal must (i) specify the name of the person having
deposited the Original Notes to be withdrawn (the "Depositor"), (ii) identify
the Original Notes to be withdrawn (including the certificate number or numbers
and aggregate principal amount of such Original Notes), and (iii) to 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, depending upon the significance of the waiver and
the manner of disclosure to the registered holders of the Original Notes, if the
Exchange Offer would otherwise expire during such period.
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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>
<CAPTION>
BY EXPRESS: BY MAIL: BY HAND:
(insured or registered recommended)
<S> <C> <C>
State Street Bank and State Street Bank and Trust State Street Bank and
Trust Company Trust
Company Corporate Trust Department Company
Corporate Trust Department Two International Place Corporate Trust Department
Two International Place Boston, MA 02210 Two International Place
Boston, MA 02210 Attn: Lena Altomare Boston, MA 02210
Attn: Lena Altomare Attn: Lena Altomare
</TABLE>
FACSIMILE:
(617) 664-5371
FOR INFORMATION:
(617) 664-5607
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation is being made by mail.
Additional solicitations may be made by officers and regular employees of the
Company and its affiliates in person, by telegraph or telephone.
The Company will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
the Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith. The Company may also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them
in forwarding copies of this Prospectus, Letters of Transmittal and related
documents to the beneficial owners of the Original Notes and in handling or
forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee, accounting and
legal fees and printing costs, will be paid by the Company and are estimated to
be approximately $100,000.
The tendering Holder will pay all transfer taxes, if any, applicable to the
exchange of Original Notes pursuant to the Exchange Offer.
ACCOUNTING TREATMENT
The terms of the Original Notes are not expected to be materially different
from those of the Exchange Notes. Accordingly, no gain or loss for accounting
purposes will be recognized. The expenses of the Exchange Offer will be
amortized over the term of the Exchange Notes.
RESALE OF THE EXCHANGE NOTES; PLAN OF DISTRIBUTION
Based on no-action letters issued by the staff of the Commission to third
parties, the Company believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Original Notes may be offered for resale, resold
and otherwise transferred by any holder thereof (other than (i) a broker-dealer
who purchased such Original Notes directly from the Company or an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act to resell
pursuant to Rule 144A or any other available exemption under the Securities Act
or (ii) a person that is such an affiliate) without compliance with the
registration and prospectus delivery requirements of the Securities Act,
provided that the holder is acquiring
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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.
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DESCRIPTION OF OTHER OBLIGATIONS
CREDIT FACILITY
On August 26, 1997, in connection with the Ply Gem Acquisition, a syndicate
of lenders and Fleet National Bank, as sole administrative and collateral agent
for itself and the other lenders, entered into a credit facility (as amended,
the "Ply Gem Credit Facility") to refinance a portion of Ply Gem's existing
indebtedness. At July 4, 1998, the aggregate amount of the credit outstanding
under the Ply Gem Credit Facility was approximately $97.9 million. Ply Gem has
made mandatory prepayments of approximately $14.0 million with proceeds from
asset sales since July 4, 1998.
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 acquisition of Ply
Gem (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, 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
fluctuates 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 pays a facility fee on the aggregate
principal amount available under the Ply Gem Credit Facility, which fluctuates
between 20 and 30 basis points based on certain financial ratios of Ply Gem. The
facility fee is 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.
After mandatory prepayments through September 17, 1998 the Ply Gem Credit
Facility requires Ply Gem to make a principal payment of $83.9 million on August
26, 2002. Ply Gem is also 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 are due and payable no later than
the fifth anniversary of the Ply Gem Credit Facility Closing Date.
The Ply Gem Credit Facility contains representations 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 is required to maintain (i) a ratio of
consolidated current assets to consolidated current liabilities that equals or
exceeds 2.0 to 1.0 and (ii) a ratio of consolidated EBITDA to consolidated
interest expense of at least 3.5 to 1.0 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: 3.5 to 1.0
until September 30, 1998; 3.0 to 1.0 on December 31, 1998; 2.75 to 1.0 on March
31, 1999; 2.5 to 1.0 on June 30, 1999; and 2.0 to 1.0 on June 30, 2000 and
thereafter.
OTHER OBLIGATIONS
In February 1994, the Company issued $218,500,000 principal amount 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
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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 principal amount 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 sales 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 issue 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.
In August 1997, the Company issued $310,000,000 principal amount of the
9 1/8% Notes. The indenture governing the 9 1/8% Notes (the "9 1/8% 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 sales of assets (all as defined in the 9 1/8%
Indenture). Upon certain asset sales (as defined in the 9 1/8% Indenture), the
Company will be required to offer to purchase, at 100% principal amount plus
accrued interest to the date of purchase, the 9 1/8% Notes in a principal amount
equal to any net cash proceeds (as defined in the 9 1/8% 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 1/8% 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 1/8% Notes). The 9 1/8%
Notes are redeemable at the option of the Company, in whole or in part, at any
time and from time to time, at 104.563% on September 1, 2002, declining to 100%
on September 1, 2005 and thereafter.
As of July 4, 1998, the Company's Canadian subsidiary, Broan Limited, had
$6.1 million in secured borrowings (based on exchange rates in effect on July 4,
1998). 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 July 4, 1998, $6.8 million in dividends or other
distributions could have been made to the Company by Broan Limited under this
covenant.
NUTONE
As of July 31, 1998, NuTone had letters of credit and a Canadian credit
line supporting aggregate obligations of approximately $3.8 million. In
connection with the Acquisition, Nortek cancelled the Canadian credit line and
entered into a $10,000,000 standby and trade letter of credit facility which a
portion is being used to back up aggregate obligations of NuTone of
approximately $3.2 million. The standby and trade letter of credit facility
contains customary terms and conditions.
107
<PAGE> 109
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 of 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 Stated 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 Note.
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
108
<PAGE> 110
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 amount 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 or successor form) or (y) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "financial
institution") holds the Exchange Note and certifies to the Company or its agent
under penalties of perjury that such a Form W-8 (or a suitable substitute or
successor form) has been received by it from the beneficial owner of the
Exchange Note or qualifying intermediary and furnishes the payor a copy thereof
or (c) the foreign Holder is entitled to the benefits of an income tax treaty
under which the interest on the Exchange Notes is exempt from United States
withholding tax and the Foreign Holder or such Holder's agent provides a
properly executed IRS Form 1001 or successor form in the name of the beneficial
owner claiming the exemption. Payments of interest not exempt from U.S. federal
withholding tax as described above will be subject to such withholding tax at a
rate of 30% (subject to reduction under an applicable income tax treaty).
Interest payments made to a Foreign Holder that are effectively connected with a
United States trade or business conducted by such Foreign Holder are subject to
U.S. tax at the graduated rates applicable to U.S. citizens, resident aliens and
domestic corporations (an additional branch profits tax may also apply to
corporate 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
109
<PAGE> 111
States for 183 or more days in the taxable year of the disposition and certain
other requirements are met, (ii) the Foreign Holder is an individual who is a
former citizen of the United States who lost such citizenship within the
preceding ten-year period (or former long-term permanent resident of the United
States who relinquished residency on or after February 6, 1995) whose loss of
citizenship or permanent residency had as one of its principal purposes the
avoidance of United States tax or (iii) such gain is effectively connected with
the conduct in the United States of a trade or business of the Foreign Holder,
or, if a treaty applies, the gain is attributable to a permanent establishment
in the United States (in either case, the branch profits tax also may apply if
the Foreign Holder is a corporation). If a Foreign Holder falls under (i) above,
the Holder generally will be subject to United States federal income tax at a
rate of 30% on the gain derived from the sale (or reduced treaty rate) and may
be subject to withholding in certain circumstances. If a Foreign Holder falls
within clause (ii) or (iii) above, the Holder will be taxed on the net gain
derived from the sale under the graduated United States federal income tax rates
that are applicable to U.S. citizens, resident aliens and domestic corporations,
as the case may be, and may be subject to withholding under certain
circumstances.
Information Reporting and Backup Withholding. Under current Treasury
regulations, backup withholding and information reporting on Form 1099 do not
apply to payments made by the Company or a paying agent to Foreign Holders if
the certification described in part (iv) of the first sentence under "Interest
on Exchange Notes" is received, provided that the payor does not have actual
knowledge that the Holder is a United States Holder. If any payments of
principal and interest are made to the beneficial owner of an Exchange Note
outside the United States by or through the foreign office of a foreign
custodian, foreign nominee or other foreign agent of such beneficial owner, or
if the foreign office of a foreign "broker" (as defined in applicable United
States Treasury Department regulations) pays the proceeds of the sale of an
Exchange Note to the seller thereof, backup withholding and information
reporting will not apply. Information reporting requirements (but not backup
withholding) will apply, however, to payments by a foreign office of a broker or
custodian that is (a) a United States person, (b) derives 50% or more of its
gross income for certain periods from the conduct of a trade or business in the
United States, or (c) that is a "controlled foreign corporation" (generally, a
foreign corporation controlled by certain United States shareholders) with
respect to the United States, unless the broker or custodian has documentary
evidence in its records that the Holder is a Foreign Holder and certain other
conditions are met, or the Holder otherwise establishes an exemption. Payment by
a United States office of a broker or custodian is subject to both backup
withholding at a rate of 31% and information reporting unless the Holder
certifies under penalties of perjury that it is a Foreign Holder, or otherwise
establishes an exemption. A Foreign Holder may obtain a refund of, or a credit
against such Holder's U.S. federal income tax liability for, any amounts
withheld under the backup withholding rules, provided the required information
is furnished to the IRS.
Prospective Final Regulations. On October 6, 1997 the Internal Revenue
Service released regulations that revise the procedures for withholding tax on
interest and the associated backup withholding and information reporting rules
described above for payments of interest and gross proceeds made after December
31, 1998. The regulations modify the requirements imposed on a Foreign Holder or
certain intermediaries for establishing the recipient's status as a Foreign
Holder eligible for exemption from withholding tax and backup withholding. In
particular, the final regulations impose more stringent conditions on the
ability of financial intermediaries acting for a Foreign Holder to provide
certifications on behalf of the Foreign Holder, which may include entering into
an agreement with the Internal Revenue Service to audit certain documentation
with respect to such certifications. Foreign Holders should consult their tax
advisors to determine the effects of the application on these regulations to
their particular circumstances.
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
110
<PAGE> 112
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.
EXPERTS
The audited consolidated financial statements and schedules of Nortek, Inc.
and subsidiaries as of December 31, 1996 and 1997 and for each of the three
years in the period ended December 31, 1997 set forth or incorporated by
reference in this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
The audited consolidated financial statements and schedule of Ply Gem as of
December 31, 1995 and 1996 and for each of the three years in the period ended
December 31, 1996 incorporated by reference in this Prospectus have been audited
by Grant Thornton LLP, independent public accountants, as indicated in their
report with respect thereto.
The audited consolidated financial statements of NuTone Inc. and its
subsidiary as of December 31, 1997 and for the year then ended set forth in this
Prospectus have been audited by PricewaterhouseCoopers LLP, independent public
accountants, as indicated in their report with respect thereto.
111
<PAGE> 113
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
NORTEK, INC. AND SUBSIDIARIES --------
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Statement of Operations for each of the three
years in the period ended December 31, 1997, and the six
months ended June 28, 1997 (unaudited) and July 4, 1998
(unaudited)............................................... F-3
Consolidated Balance Sheet as of December 31, 1996 and 1997,
and July 4, 1998
(unaudited)............................................... F-4
Consolidated Statement of Cash Flows for each of the three
years in the period ended December 31, 1997, and the six
months ended June 28, 1997 (unaudited) and July 4, 1998
(unaudited)............................................... F-6
Consolidated Statement of Stockholders' Investment for each
of the three years in the period ended December 31, 1997,
and the six months ended July 4, 1998 (unaudited)......... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
NUTONE INC. AND SUBSIDIARY
<TABLE>
<S> <C>
Report of Independent Public Accountants.................... F-29
Consolidated Balance Sheet as of December 31, 1997 and July
4, 1998 (unaudited)....................................... F-30
Consolidated Statement of Operations for the year ended
December 31, 1997 and the six months ended June 28, 1997
and July 4, 1998.......................................... F-31
Consolidated Statement of Shareholder's Net Investment for
the year ended December 31, 1997 and the six months ended
June 28, 1997 and July 4, 1998............................ F-32
Consolidated Statement of Cash Flows for the year ended
December 31, 1997 and the six months ended June 28, 1997
and July 4, 1998.......................................... F-33
Notes to Consolidated Financial Statements.................. F-34
</TABLE>
F-1
<PAGE> 114
NORTEK, INC. AND SUBSIDIARIES
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, 1997 and 1996, and the related statements of operations, stockholders'
investment and cash flows for each of the three years in the period ended
December 31, 1997. 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 about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Nortek, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts,
March 9, 1998
F-2
<PAGE> 115
NORTEK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, --------------------
---------------------------------- JUNE 28, JULY 4,
1995 1996 1997 1997 1998
---- ---- ---- -------- -------
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net Sales............................. $656,800 $841,557 $1,134,129 $418,033 $842,115
Costs and Expenses:
Cost of products sold................. 469,828 597,394 826,453 295,711 628,595
Amortization of acquired goodwill..... 2,458 2,904 5,319 1,429 5,174
Selling, general and administrative
expense............................. 141,541 180,308 219,376 88,599 155,499
-------- -------- ---------- -------- --------
613,827 780,606 1,051,148 385,739 789,268
-------- -------- ---------- -------- --------
Operating earnings.................... 42,973 60,951 82,981 32,294 52,847
Interest expense...................... (22,993) (28,400) (50,210) (17,568) (39,198)
Investment income..................... 8,120 6,049 9,929 4,574 4,351
-------- -------- ---------- -------- --------
Earnings from continuing operations
before provision for income taxes... 28,100 38,600 42,700 19,300 18,000
Provision for income taxes............ 10,600 14,900 16,300 6,900 8,200
-------- -------- ---------- -------- --------
Earnings from continuing operations... 17,500 23,700 26,400 12,400 9,800
Loss from discontinued operations..... (2,500) (1,700) (5,200) (2,000) --
-------- -------- ---------- -------- --------
Net Earnings.......................... $ 15,000 $ 22,000 $ 21,200 $ 10,400 $ 9,800
======== ======== ========== ======== ========
EARNINGS PER SHARE:
Earnings from continuing operations:
Basic............................ $ 1.41 $ 2.26 $ 2.75 $ 1.28 $ .97
Diluted.......................... $ 1.39 $ 2.23 $ 2.68 $ 1.25 $ .95
Loss from discontinued operations:
Basic............................ $ (.20) $ (.16) $ (.54) $ (.20) $ --
-------- -------- ---------- -------- --------
Diluted.......................... $ (.20) $ (.16) $ (.53) $ (.20) $ --
-------- -------- ---------- -------- --------
NET EARNINGS:
Basic............................ $ 1.21 $ 2.10 $ 2.21 $ 1.08 $ .97
======== ======== ========== ======== ========
Diluted.......................... $ 1.19 $ 2.07 $ 2.15 $ 1.05 $ .95
======== ======== ========== ======== ========
Weighted Average Number of Shares:
Basic............................ 12,445 10,485 9,605 9,663 $ 10,129
======== ======== ========== ======== ========
Diluted.......................... 12,569 10,641 9,855 9,896 10,311
======== ======== ========== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE> 116
NORTEK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JULY 4,
1996 1997 1998
---- ---- -------
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Unrestricted
Cash and cash equivalents.......................... $ 41,042 $ 125,842 $ 201,619
Marketable securities available for sale........... 51,051 35,988 12,055
Restricted
Investments and marketable securities at cost,
which approximates market........................ 5,681 6,348 6,389
Accounts receivable, less allowances of $3,656, $11,047
and
$13,239............................................... 108,202 180,414 209,527
Inventories
Raw materials...................................... 35,160 72,693 54,436
Work in process.................................... 11,688 18,399 18,437
Finished goods..................................... 43,141 85,161 99,191
-------- ---------- ----------
89,989 176,253 172,064
-------- ---------- ----------
Prepaid expenses........................................ 4,736 8,391 11,779
Other current assets.................................... 9,209 12,627 9,982
Net assets of a discontinued operations................. 24,789 22,386 32,256
Prepaid income taxes.................................... 20,000 46,800 46,800
-------- ---------- ----------
Total current assets.......................... 354,699 615,049 702,471
-------- ---------- ----------
PROPERTY AND EQUIPMENT, AT COST:
Land.................................................... 6,461 12,081 11,420
Buildings and improvements.............................. 62,756 96,606 94,281
Machinery and equipment................................. 152,454 250,677 253,473
-------- ---------- ----------
221,671 359,364 359,174
Less accumulated depreciation........................... 100,124 116,841 122,999
-------- ---------- ----------
Total property and equipment, net............. 121,547 242,523 236,175
-------- ---------- ----------
OTHER ASSETS:
Goodwill, less accumulated amortization of $26,615,
$31,773 and $36,661................................... 90,679 378,232 372,718
Intangible assets....................................... 4,263 8,752 8,246
Notes receivable and other investments.................. 1,379 9,339 8,949
Deferred income taxes................................... -- 10,022 8,473
Deferred debt expense................................... 6,647 21,066 19,952
Other................................................... 11,019 19,563 21,480
-------- ---------- ----------
113,987 446,974 439,818
-------- ---------- ----------
$590,233 $1,304,546 $1,378,464
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE> 117
NORTEK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JULY 4,
1996 1997 1998
---- ---- -------
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Notes payable and other short-term obligations.............. $ 25,334 $ 11,770 $ 11,156
Current maturities of long-term debt........................ 11,152 5,969 5,746
Accounts payable............................................ 66,828 91,488 122,567
Accrued expenses and taxes, net............................. 88,252 164,001 152,218
-------- ---------- ----------
Total current liabilities......................... 191,566 273,228 291,687
-------- ---------- ----------
OTHER LIABILITIES:
Deferred income taxes....................................... 17,637 -- --
Other....................................................... 18,466 67,390 64,697
-------- ---------- ----------
36,103 67,390 64,697
-------- ---------- ----------
Notes, Mortgage Notes and Obligations Payable, Less Current
Maturities................................................ 243,769 835,840 826,350
-------- ---------- ----------
Commitments and Contingencies (Note 8)
STOCKHOLDERS' INVESTMENT:
Preference stock, $1 par value; authorized 7,000,000 shares,
none issued............................................... -- -- --
Common stock, $1 par value; authorized 40,000,000 shares;
15,965,585, 16,050,794 and 18,409,378 shares issued....... 15,966 16,051 18,409
Special common stock, $1 par value; authorized 5,000,000
shares; 784,169, 767,287 and 860,122 shares issued........ 784 767 860
Additional paid-in capital.................................. 135,028 135,345 198,886
Retained earnings........................................... 37,766 58,966 68,766
Cumulative translation, pension and other adjustments....... (3,212) (5,327) (6,903)
Less -- treasury common stock at cost, 6,599,645, 7,032,497
and 7,237,237 shares...................................... (65,805) (75,779) (82,331)
-- treasury special common stock at cost, 276,910,
285,304 and 285,987 shares........................... (1,732) (1,935) (1,957)
-------- ---------- ----------
Total stockholders' investment.................... 118,795 128,088 195,730
-------- ---------- ----------
$590,233 $1,304,546 $1,378,464
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE> 118
NORTEK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER SIX MONTHS ENDED
31, --------------------
-------------------------------- JUNE 28, JULY 4,
1995 1996 1997 1997 1998
---- ---- ---- -------- -------
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings from continuing operations......... $ 17,500 $ 23,700 $ 26,400 $ 12,400 $ 9,800
Net loss from discontinued operations........... (2,500) (1,700) (5,200) (2,000) --
--------- -------- --------- --------- --------
Net earnings.................................... 15,000 22,000 21,200 10,400 9,800
--------- -------- --------- --------- --------
ADJUSTMENTS TO RECONCILE NET EARNINGS TO CASH:
Depreciation and amortization................... 15,155 19,831 26,696 10,439 19,876
Non-cash interest expense....................... 1,070 1,164 1,711 583 1,611
Net gain on investments and marketable
securities.................................... (2,000) (750) (200) (175) --
Deferred federal income tax provision
(benefit)..................................... 1,200 (3,000) 4,000 200 4,400
Deferred federal income tax (benefit) provision
on discontinued operations.................... 100 1,200 (1,000) -- --
CHANGES IN CERTAIN ASSETS AND LIABILITIES, NET
OF EFFECTS FROM ACQUISITIONS AND DISPOSITIONS:
Accounts receivable, net.................... 2,302 (3,729) 10,259 (15,973) (40,952)
Prepaids and other current assets........... (781) 3,280 5,699 (2,286) (2,501)
Inventories................................. 5,405 11,828 6,524 (6,919) (11,761)
Net assets of discontinued operations....... 1,666 817 4,934 (4,630) (6,659)
Accounts payable............................ (5,299) 1,699 (16,359) 12,555 32,618
Accrued expenses and taxes.................. (2,698) (7,550) 25,968 5,180 (4,281)
Long-term assets, liabilities and other,
net....................................... 2,219 583 (4,317) (900) (3,640)
--------- -------- --------- --------- --------
Total adjustments to net earnings...... 18,339 25,373 63,915 (1,926) (11,289)
--------- -------- --------- --------- --------
Net cash provided by (used in)
operating activities................. 33,339 47,373 85,115 8,474 (1,489)
--------- -------- --------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................ (14,859) (19,267) (22,464) (7,748) (15,507)
Net cash paid for businesses acquired........... (27,543) -- (407,419) -- --
Purchase of investments and marketable
securities.................................... (104,762) (66,901) (283,918) (157,037) --
Proceeds from the sale of investments and
marketable securities......................... 112,173 82,435 298,158 37,220 23,978
Proceeds from businesses sold, net.............. -- -- -- -- 24,937
Other, net...................................... (108) (1,477) (7,738) (1,407) (5,048)
--------- -------- --------- --------- --------
Net cash provided by (used in) investing
activities............................. (35,099) (5,210) (423,381) (128,972) 28,360
--------- -------- --------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of notes, net.............................. -- -- 466,214 l69,395 --
Increase in borrowings.......................... 10,763 9,609 612 -- --
Payment of borrowings........................... (1,142) (13,598) (33,966) (26,223) (10,312)
Net proceeds from the sale of Nortek Common
Stock......................................... -- -- -- -- 64,300
Purchase of Nortek Common and Special Common
Stock......................................... (4,664) (34,822) (10,177) (7,626) (6,574)
Other, net...................................... (822) 479 383 679 1,492
--------- -------- --------- --------- --------
Net cash provided by (used in) financing
activities............................. 4,135 (38,332) 423,066 136,225 48,906
--------- -------- --------- --------- --------
Net increase in unrestricted cash and cash
equivalents................................... 2,375 3,831 84,800 15,727 75,777
Unrestricted cash and cash equivalents at the
beginning of the year......................... 34,836 37,211 41,042 41,042 125,842
--------- -------- --------- --------- --------
Unrestricted cash and cash equivalents at the
end of the year............................... $ 37,211 $ 41,042 $ 125,842 $ 56,769 $201,619
========= ======== ========= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE> 119
NORTEK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
AND THE SIX MONTHS ENDED JULY 4, 1998
--------------------------------------------------------------------------------------
ACCUMULATED
SPECIAL ADDITIONAL OTHER
COMMON COMMON PAID-IN RETAINED TREASURY COMPREHENSIVE COMPREHENSIVE
STOCK STOCK CAPITAL EARNINGS STOCK INCOME INCOME
------ ------- ---------- -------- -------- ------------- -------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995......... $15,883 $774 $134,690 $15,766 $(33,080) $(2,742) $ --
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 common stock
issued upon exercise of stock
options.......................... 55 38 338 -- -- -- --
2,293,065 shares of treasury stock
acquired......................... -- -- -- -- (34,457) -- --
Translation adjustment............. -- -- -- -- -- 138 138
Pension adjustment................. -- -- -- -- -- (127) (127)
Unrealized decline in marketable
securities....................... -- -- -- -- -- (481) (481)
Net earnings....................... -- -- -- 22,000 -- -- 22,000
------- ---- -------- ------- -------- ------- -------
Comprehensive income............... $21,530
=======
BALANCE, DECEMBER 31, 1996......... $15,966 $784 $135,028 $37,766 $(67,537) $(3,212) $ --
22,690 shares of special common
stock converted into 22,690
shares of common stock........... 23 (23) -- -- -- -- --
62,519 shares of common stock and
5,808 shares of special common
stock issued upon exercise of
stock options.................... 62 6 317 -- -- -- --
441,246 shares of treasury stock
acquired......................... -- -- -- -- (10,177) -- --
Translation adjustment............. -- -- -- -- -- (3,815) (3,815)
Pension adjustment................. -- -- -- -- -- 919 919
Unrealized appreciation in the
value of marketable securities... -- -- -- -- -- 781 781
Net earnings....................... -- -- -- 21,200 -- -- 21,200
------- ---- -------- ------- -------- ------- -------
Comprehensive income............... $19,085
=======
BALANCE, DECEMBER 31, 1997......... $16,051 $767 $135,345 $58,966 $(77,714) $(5,327) $ --
Sale of 2,182,500 shares of common
stock............................ 2,182 -- 62,207 -- -- --
8,156 shares of special common
stock converted into 8,156 shares
of common stock.................. 8 (8) -- -- -- -- --
167,982 shares of common stock and
100,991 shares of special common
stock issued upon exercise of
stock options.................... 168 101 1,334 -- -- -- --
205,423 shares of treasury stock
acquired......................... -- -- -- -- (6,574) -- --
Translation adjustment............. -- -- -- -- -- (1,597) (1,597)
Minimum pension liability, net of
$65 tax benefit.................. -- -- -- -- -- (100) (100)
Unrealized appreciation in the
value of marketable securities... -- -- -- -- -- 121 121
Net earnings....................... -- -- -- 9,800 -- -- 9,800
------- ---- -------- ------- -------- ------- -------
Comprehensive income............... $ 8,224
=======
BALANCE, JULY 4, 1998.............. $18,409 $860 $ 98,886 $68,766 $(84,288) $(6,903)
======= ==== ======== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements
F-7
<PAGE> 120
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 four principal product groups: the
Residential Building Products Group; the Air Conditioning and Heating Products
Group; the Windows, Doors and Siding Group and the Specialty Products and
Distribution 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, 1997.
USE OF ESTIMATES
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. Actual
results 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, 1997, approximately $6,348,000 of cash, 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 the 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, 1997, the fair value of marketable securities approximated the
amount on the Company's consolidated balance sheet.
Long-Term Debt --
At December 31, 1997, the fair value of long-term indebtedness was
approximately $14,000,000 higher than the amount, before original issue
discount, on the Company's consolidated balance sheet. (See Note 5.)
F-8
<PAGE> 121
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVENTORIES
Inventories in the accompanying consolidated balance sheet are valued at
the lower of cost or market. At December 31, 1996 and 1997, approximately
$53,933,000 and $53,817,000 of total inventories, respectively, were valued on
the last-in, first-out method (LIFO). Under the first-in, first-out method
(FIFO) of accounting, such inventories would have been approximately $6,015,000
and $5,041,000 greater at December 31, 1996 and 1997, 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 sale 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, 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 $2,458,000, $2,904,000 and
$5,319,000 for 1995, 1996 and 1997, 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, 1997.
EARNINGS PER SHARE
In 1997, the Company adopted the provisions of SFAS No. 128, Earnings Per
Share. This statement, which was issued by the FASB in February 1997,
establishes standards for computing and presenting earnings per share (EPS) and
applies to entities with publicly held common stock or potential common stock.
This statement replaces the presentation of primary EPS with a presentation of
basic EPS. It requires dual presentation of basic and diluted EPS on the face of
the statement of operations for all entities with complex
F-9
<PAGE> 122
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
capital structures and requires a reconciliation of the numerators and
denominators of the basic and diluted EPS computations. This statement also
requires a restatement of all prior-period EPS data presented.
Basic 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. Diluted earnings per share amounts have
been computed using the weighted average number of common and common equivalent
shares and the dilutive potential common shares outstanding during each year.
A reconciliation between basic and diluted earnings per share is as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, --------------------
-------------------------------- JUNE 28, JULY 4,
1995 1996 1997 1997 1998
-------- -------- -------- --------- -------
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Earnings from continuing operations....... $17,500 $23,700 $26,400 $12,400 $ 9,800
Basic EPS:
Basic common shares.................. 12,445 10,485 9,605 9,663 10,129
======= ======= ======= ======= =======
Basic EPS............................ $ 1.41 $ 2.26 $ 2.75 $ 1.28 $ .97
======= ======= ======= ======= =======
Diluted EPS:
Basic common shares.................. 12,445 10,485 9,605 9,663 10,129
Plus: Impact of stock options (Note
6)................................. 124 156 250 233 182
------- ------- ------- ------- -------
Diluted common shares................ 12,569 10,641 9,855 9,896 10,311
======= ======= ======= ======= =======
Diluted EPS.......................... $ 1.39 $ 2.23 $ 2.68 $ 1.25 $ .95
======= ======= ======= ======= =======
</TABLE>
COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income
which will be effective for the Company's financial statements issued for the
fiscal year ending December 31, 1998. This statement establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses). Components of comprehensive income are net earnings
and all other changes that are currently reflected in Stockholders' Investment.
This statement requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position.
SEGMENT INFORMATION
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information, which will be effective for the Company's
financial statements for the fiscal year ending December 31, 1998. This
statement establishes standards for reporting information about segments in
annual and interim financial statements. This statement introduces a new model
for segment reporting, called the "management approach." The management approach
is based on the way the chief operating decision-maker organizes segments within
a Company for making operating decisions and assessing performance. Reportable
segments are based on products and services, geography, legal structure and
management structure.
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.
F-10
<PAGE> 123
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On August 26, 1997, a wholly owned subsidiary of the Company completed the
acquisition of Ply Gem Industries, Inc. ("Ply Gem") in a tender offer for a cash
price of $19.50 per outstanding share of common stock. The aggregate purchase
price, including expenses and settlement of stock options, was approximately
$444,300,000. Prior to accepting for payment the tendered shares of Ply Gem on
August 26, 1997, the Company sold $310,000,000 principal amount of 9 1/8% Senior
Notes due September, 2007 (the "9 1/8% Notes") at a slight discount (see Note
5). The Company used a portion of these net proceeds, together with available
cash, to purchase the shares of Ply Gem, fund an approximate $45,000,000 payment
to terminate Ply Gem's existing accounts receivable securitization program and
pay certain fees and expenses.
Since the acquisition date, the Company has realized, and expects to
continue to realize, cost savings as a result of the acquisition. These savings
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 accounting, legal and
risk management; and (iii) the identification and rationalization of
under-performing product lines. Pro Forma earnings (see below) have been
adjusted for the pro forma effect of those estimated cost reductions directly
attributable to the acquisition. These expected pre-tax savings total
approximately $4,000,000 for the period from January 1, 1997 to the date of
acquisition for the year ended December 31, 1997 and approximately $7,800,000
for the year ended December 31, 1996. As Adjusted earnings (see below) have been
adjusted to include cost reductions directly attributable to the acquisition and
additional estimated cost savings and operating efficiencies which management
expects will result from the acquisition. These additional pre-tax cost savings
total approximately $14,100,000 and approximately $13,500,000 for the periods
January 1, 1997 to the date of acquisition for the year ended December 31, 1997
and the year ended December 31, 1996, respectively. The actual cost savings
achieved since the acquisition of Ply Gem are reflected in the Company's
historical consolidated operating results for the period from the acquisition
date to December 31, 1997. Pro forma earnings also include approximately
$13,300,000 of net after-tax charges (approximately $22,200,000 before income
taxes), recorded by Ply Gem during the period from January 1, 1997 through
August 25, 1997, to provide certain valuation reserves and to conform accounting
policies to the Company's. These charges have been excluded from the As Adjusted
results.
The following presents the approximate unaudited Pro Forma and As Adjusted
net sales, operating earnings, earnings from continuing operations and diluted
earnings per share of the Company for all periods presented and gives pro forma
effect to the acquisition of Ply Gem, the sale of $310,000,000 principal amount
of 9 1/8% Notes, the extension of credit under the Ply Gem credit facility to
refinance certain existing indebtedness and the termination of Ply Gem's
accounts receivable securitization program, the sale of $175,000,000 principal
amount of 9 1/4% Notes, the refinancing of certain subsidiary indebtedness, and
reflects the estimated cost reductions as described above as if such
transactions and adjustments had occurred on January 1, 1996 to the date of
acquisition. The Pro Forma and As Adjusted results below include the actual
results of Ply Gem since August 26, 1997 in accordance with the purchase method
of accounting for an acquisition.
F-11
<PAGE> 124
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------
1996 1997
---------- ----------
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C>
PRO FORMA
Net sales................................................ $1,616,485 $1,650,052
Operating earnings....................................... 94,400 71,100
Earnings (loss) from continuing operations............... 7,700 (1,500)
Diluted earnings (loss) from continuing operations per
share.................................................. $ .72 $ (.16)
AS ADJUSTED
Net sales................................................ $1,616,485 $1,650,052
Operating earnings....................................... 107,900 107,300
Earnings from continuing operations...................... 16,400 20,900
Diluted earnings from continuing operations per share.... $ 1.54 $ 2.12
</TABLE>
In computing the pro forma earnings, earnings have been reduced by the net
interest income on the aggregate cash portion of the purchase price of the
acquisition at the historical rate earned by the Company and interest expense on
indebtedness incurred in connection with the acquisition, the refinancing and
repayment of certain indebtedness of Ply Gem. Earnings have been reduced by
amortization of goodwill and reflect net adjustments to depreciation expense as
a result of an increase in the estimated fair market value of property and
equipment and changes in depreciable lives. Interest expense on the subsidiary
indebtedness refinanced with funds from the 9 1/4% Notes offering was excluded
at an average interest rate consistent with the indebtedness outstanding which
was refinanced for all periods presented, net of the tax effect. Interest
expense was included on the 9 1/4% Notes at a rate of approximately 9 1/4%, plus
amortization of deferred debt expense and debt discount net of tax effect, and
on the 9 1/8% Notes at a rate of approximately 9 1/8%, plus amortization of
deferred debt expense and debt discount for the periods presented, net of tax
effect.
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, 1996, or which may be reported in the future.
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.
3. CASH FLOWS
Interest paid was $23,203,000, $30,568,000 and $35,921,000 in 1995, 1996
and 1997, respectively.
Fair value of assets acquired was $129,652,000 and $672,311,000 in 1995 and
1997, respectively. Liabilities assumed or created of businesses acquired was
$96,224,000 and $264,892,000 in 1995 and 1997, respectively. Cash paid for
acquisitions net of cash acquired was $27,543,000 and $407,419,000 in 1995 and
1997, respectively.
Cash proceeds from businesses sold totaled $1,129,000 in 1995 and included
$2,874,000 of proceeds from the sale of preferred stock net of $1,745,000 for
payments made in relation to businesses sold.
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 approximately $800,000 in 1995
and an increase of approximately $2,969,000, a decline of approximately $481,000
F-12
<PAGE> 125
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and an increase of approximately $781,000 in the fair market value of marketable
securities available for sale for 1995, 1996 and 1997, respectively.
4. INCOME TAXES
The following is a summary of the components of earnings from continuing
operations before provision for income taxes:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Domestic.............................................. $25,400 $35,100 $37,000
Foreign............................................... 2,700 3,500 5,700
------- ------- -------
$28,100 $38,600 $42,700
======= ======= =======
</TABLE>
The following is a summary of the provision (benefit) for income taxes from
continuing operations included in the accompanying consolidated statement of
operations:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Federal income taxes --
Current.......................................... $ 7,100 $15,050 $ 9,000
Deferred......................................... 1,200 (3,000) 4,000
------- ------- -------
8,300 12,050 13,000
Foreign.......................................... 1,300 1,300 1,000
State............................................ 1,000 1,550 2,300
------- ------- -------
$10,600 $14,900 $16,300
======= ======= =======
</TABLE>
Income tax payments, net of refunds, were approximately $3,739,000,
$18,611,000 and $7,977,000 in 1995, 1996 and 1997, respectively.
The following reconciles the federal statutory income tax rate of
continuing operations to the effective tax rate of such earnings of
approximately 37.7%, 38.6% and 38.2% in 1995, 1996 and 1997, respectively.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Income tax provision from continuing operations at
the Federal statutory rate........................ $ 9,835 $13,510 $14,945
Net change from statutory rate:
Change in tax reserves, net.................... (1,100) (481) (1,540)
State income taxes, net of federal tax
effect....................................... 650 1,008 1,520
Amortization not deductible for income tax
purposes..................................... 868 1,040 1,827
Product development income tax credit from
foreign operations........................... -- (478) (264)
Tax effect on foreign income................... 79 56 (86)
Effect of change in foreign tax law............ -- -- (766)
Other, net..................................... 268 245 664
------- ------- -------
$10,600 $14,900 $16,300
======= ======= =======
</TABLE>
F-13
<PAGE> 126
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, 1996
and December 31, 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
-------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
PREPAID INCOME TAX ASSETS ARISING FROM:
Net operating losses of Ply Gem........................ $ -- $ 6,000
Accounts receivable.................................... 1,246 4,038
Inventory.............................................. (610) 7,201
Insurance reserves..................................... 4,985 9,624
Other reserves, liabilities and assets, net............ 14,379 19,937
------- --------
$20,000 $ 46,800
======= ========
DEFERRED (PREPAID) INCOME TAX (ASSETS) LIABILITIES ARISING
FROM:
Property and equipment, net............................ $15,400 $ 30,032
Other reserves, liabilities and (assets), net.......... (608) (19,547)
Capital loss carryforward.............................. (6,462) (655)
Net operating losses of Ply Gem........................ -- (21,580)
Valuation allowances................................... 10,238 7,771
Other tax assets....................................... (931) (6,043)
------- --------
$17,637 $(10,022)
======= ========
</TABLE>
At December 31, 1997, the Company had approximately $60,800,000 of net U.S.
federal prepaid income tax assets which are expected to be realized through
future operating earnings. At December 31, 1997, the Company's wholly owned
subsidiary, Ply Gem, had a net operating loss carry-forward of approximately
$78,800,000 that expires in 2011 and is subject to certain limitations imposed
by the Internal Revenue Code. These losses may only be utilized against future
income of the Ply Gem Group and the utilization of these losses is limited to
approximately $17,500,000 per year.
5. NOTES, MORTGAGE NOTES AND OBLIGATIONS PAYABLE
Short-term bank obligations at December 31, 1996 and 1997 consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
-------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Secured revolving lines of credit of a Canadian
subsidiary................................................ $ 2,472 $ --
Secured lines of credit and bank advances of the Company's
European subsidiaries..................................... 22,118 11,318
Other obligations........................................... 744 452
------- -------
Short-term Bank Obligations................................. $25,334 $11,770
======= =======
</TABLE>
These short term bank obligations are secured by approximately $29,600,000
of accounts receivable and inventory. These borrowings have an average weighted
interest rate of approximately 9.475%.
F-14
<PAGE> 127
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, 1996 and 1997 consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
-------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
9 1/4% Senior Notes due 2007 ("9 1/4 Notes"), net of
unamortized original issue discount of $961,000........... $ -- $174,039
9 1/8% Senior Notes due 2007 ("9 1/8% Notes"), net of
unamortized original issue discount of $2,451,000......... -- 307,549
9 7/8% Senior Subordinated Notes due 2004 ("9 7/8% Notes"),
net of unamortized original issue discount of $1,396,000
and $1,259,000............................................ 217,104 217,241
Ply Gem term loan........................................... -- 103,940
Mortgage notes payable...................................... 20,878 16,882
Other....................................................... 16,939 22,158
-------- --------
254,921 841,809
Less amounts included in current liabilities................ 11,152 5,969
-------- --------
$243,769 $835,840
======== ========
</TABLE>
On March 17, 1997, the Company sold $175,000,000 of its 9 1/4% Senior Notes
due March 15, 2007 ("9 1/4% Notes") at a discount of approximately $1,011,500,
which is being amortized over the life of the issue. Net proceeds from the sale
of the 9 1/4% Notes, after deducting underwriting commissions and expenses,
amounted to approximately $168,945,000, a portion of which was used to refinance
certain outstanding indebtedness of the Company's subsidiaries. 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, on or after March 15, 2002 at 104.625%, declining to 100%
on March 15, 2005 and thereafter. On August 26, 1997, the Company sold
$310,000,000 of its 9 1/8% Senior Notes due September 1, 2007 ("9 1/8% Notes")
at a discount of approximately $2,505,000, which is being amortized over the
life of the issue. Net proceeds from the sale of the 9 1/8% Notes, after
deducting underwriting commissions and expenses, amounted to approximately
$297,269,000. The 9 1/8% Notes are 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 104.563%, declining to 100% on September 1, 2005 and thereafter. The
Company used a portion of these net proceeds, together with available cash, to
purchase the shares of Ply Gem. (See Note 2.)
The indenture governing the 9 7/8% Notes, the Company's most restrictive
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 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 March 1, 1998 approximately $6,872,000 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.)
The Company's Ply Gem subsidiary has a credit facility with a syndicate of
banks, which provides Ply Gem with a term loan and a letter of credit facility.
Interest on borrowings is at varying rates based, at Ply Gem's option, on (a)
the London Interbank Offered Rate (LIBOR) plus a spread or (b) the higher of (i)
.5% above the federal funds rate or (ii) the bank's prime rate. Ply Gem pays a
facility fee quarterly which
F-15
<PAGE> 128
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
fluctuates between .20% and .30% of the aggregate principal amount available
under the facility. The average weighted interest rate on the credit facility
for the period from inception (August 26, 1997) to December 31, 1997 was 6.75%.
The credit facility includes customary covenants, including covenants limiting
Ply Gem's ability to pledge assets or incur liens on assets and maintain certain
financial covenants. Borrowings under this credit facility are collateralized by
the common stock, inventory and accounts receivable of Ply Gem's principal
subsidiaries.
The Company's Ply Gem subsidiary has $75 million of interest rate swap
agreements, whereby Ply Gem 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 Ply Gem. 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. The
Company's Ply Gem subsidiary also has $75 million of interest rate cap
agreements which entitles Ply Gem to receive from the counterparties on a
monthly basis an amount by which the LIBOR interest rate on $75 million of its
floating rate debt exceeds 7% during the period December 5, 1998 to December 5,
1999. 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 impact of these arrangements has not been material
to the Company's consolidated operating results.
Mortgage notes payable of approximately $16,882,000 outstanding at December
31, 1997 include various mortgage notes and other related indebtedness payable
in installments through 2012 and bearing interest at rates ranging from 3.875%
to 9.3% and are collateralized by property and equipment with an aggregate net
book value of approximately $36,700,000 at December 31, 1997.
Other obligations of approximately $22,158,000 outstanding at December 31,
1997 include borrowings relating to equipment purchases and other borrowings
bearing interest at rates primarily ranging between 3.5% to 13.0% and maturing
at various dates through 2017. Approximately $18,400,000 of such indebtedness is
collateralized by property and equipment with an aggregate net book value of
approximately $21,400,000 at December 31, 1997.
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>
1999.................................................... $ 8,923
2000.................................................... 9,315
2001.................................................... 9,512
2002.................................................... 92,755
Thereafter.............................................. 720,006
--------
$840,511
========
</TABLE>
6. COMMON STOCK, SPECIAL COMMON STOCK, STOCK OPTIONS AND DEFERRED COMPENSATION
Each share of Special Common Stock has 10 votes on all matters submitted to
a stockholder vote, except that the holders of Common Stock, voting separately
as a class, have the right to elect 25% of the directors to be elected at a
meeting, 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.
F-16
<PAGE> 129
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 1997, a total of 1,804,134 shares of Common Stock was
reserved as follows:
<TABLE>
<S> <C>
Stock option plans.......................................... 1,036,847
Conversion of Special Common Stock.......................... 767,287
---------
1,804,134
=========
</TABLE>
At December 31, 1997, 755,000 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, 1997, 51,067
additional options are available for grant under these plans. Options for 27,500
and 427,915 shares of Common and Special Common Stock became exercisable during
1996 and 1997, respectively.
The following summarizes the Common and Special Common Stock option
transactions for the three years ended December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OPTION PRICE EXERCISE
OF SHARES PER SHARE PRICE
--------- --------------- --------
<S> <C> <C> <C>
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
Granted..................................... 435,600 19.5-- 27.00 22.98
Exercised................................... (71,953) 2.875-- 15.69 6.66
Canceled.................................... (6,667) 22.69 22.69
------- --------------- ------
Options outstanding at December 31, 1997......... 985,780 $2.875-- 27.00 $16.48
======= =============== ======
</TABLE>
22,100 of the 985,780 options outstanding at December 31, 1997 have an
exercise price of $2.875, with a weighted average contractual life of 2.8 years.
All of these options are exercisable. 259,747 options have exercise prices
between $7.69 and $9.38 with a weighted average exercise price of $8.75 and a
weighted average remaining contractual life of 6.0 years. All of these options
are exercisable. 275,000 options, all of
F-17
<PAGE> 130
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
which are exercisable, have an exercise price of $14.75 and a remaining
contractual life of 9.0 years. The remaining 428,933 options, 152,915 of which
are exercisable, have exercise prices between $19.50 and $27.00, with a weighted
average exercise price of $22.976 and a remaining contractual life of 10 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 earnings from continuing operations and diluted
earnings per share from continuing operations would have been approximately
$23,300,000 and $2.19 for 1996 and approximately $24,100,000 and $2.45 for 1997,
respectively, and net earnings and diluted net earnings per share would have
been approximately $21,600,000 and $2.03 for 1996 and approximately $19,000,000
and $1.92 for 1997, respectively.
The weighted average grant date fair value of options granted was $6.15 and
$9.82 in 1996 and 1997, 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:
<TABLE>
<CAPTION>
1996 1997
---- -----------------------
<S> <C> <C>
Risk-free interest rate.................... 7% Between 5.75% and 6.73%
Expected life.............................. 5 years 5 years
Expected volatility........................ 33% 37%
Expected dividend yield.................... 0% 0%
</TABLE>
The Company's Board of Directors has authorized a program 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 February 28,
1998, the Company has purchased approximately 316,500 shares of its Common and
Special Common Stock for approximately $9,314,000 under this program and
accounted for such share purchases as treasury stock.
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 $828,000 in 1995, approximately $4,310,000 in 1996 and
approximately $6,624,000 in 1997. 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 1995, 1996 and
1997 consists of the following components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1995 1996 1997
------- ------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Service costs..................................... $ 1,156 $ 358 $ 485
Interest cost..................................... 2,069 2,226 2,655
Actual net income on plan assets.................. (2,640) (3,944) (9,157)
Net amortization and deferred items............... 434 2,218 7,361
Net gain from freezing plan benefits.............. (581) -- --
------- ------- -------
Total expense........................... $ 438 $ 858 $ 1,344
======= ======= =======
</TABLE>
F-18
<PAGE> 131
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 1996 and 1997:
<TABLE>
<CAPTION>
PLAN ASSETS EXCEEDING
BENEFIT OBLIGATIONS
----------------------
1996 1997
-------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations at September
30:
Vested benefits........................................ $23,945 $33,958
Non-Vested benefits.................................... -- 585
------- -------
Accumulated benefit obligation......................... 23,945 34,543
Effect of projected future compensation levels......... -- 2,394
------- -------
Projected benefit obligation................................ 23,945 36,937
Plan assets at fair value at September 30................... 28,040 48,673
------- -------
Plan assets in excess of the projected benefit obligation... 4,095 11,736
Unrecognized net gain....................................... (452) (6,026)
------- -------
$ 3,643 $ 5,710
======= =======
</TABLE>
<TABLE>
<CAPTION>
BENEFIT OBLIGATIONS
EXCEEDING PLAN ASSETS
----------------------
1996 1997
-------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations at September
30:
Vested benefits............................................. $ 5,359 $11,027
Non-vested benefits......................................... 520 810
------- -------
Accumulated benefit obligation.............................. 5,879 11,837
Effect of projected future compensation levels.............. 2,439 3,662
------- -------
Projected benefit obligation................................ 8,318 15,499
Plan assets at fair value at September 30................... 804 3,639
------- -------
Projected benefit obligation in excess of plan assets....... (7,514) (11,860)
Unrecognized net loss....................................... 212 1,707
Unrecognized prior service costs............................ 6,335 7,125
Additional minimum liability................................ (4,108) (5,341)
------- -------
$(5,075) $(8,369)
======= =======
</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 7 1/2 percent and 5 percent,
respectively, in 1995, 1996 and 1997. The expected long-term rate of return on
assets was 8 1/2 percent in 1995, 1996 and 1997.
Recognition of a minimum pension liability and an intangible asset for
certain plans resulted in a cumulative reduction in the Company's stockholders'
investment of approximately $916,000, $1,043,000 and $124,000 in 1995, 1996, and
1997, 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.
F-19
<PAGE> 132
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1997, 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 $110,427,000 at December 31, 1997. The obligations are payable as
follows:
<TABLE>
<S> <C>
1998........................................................ $18,203,000
1999........................................................ 15,094,000
2000........................................................ 11,250,000
2001........................................................ 8,026,000
2002........................................................ 6,933,000
Thereafter.................................................. 50,921,000
</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 $6,900,000,
$6,725,000, and $8,700,000, for the years ended December 31, 1995, 1996 and
1997, respectively. Under certain of these lease agreements, the Company and its
subsidiaries are also obligated to pay insurance and taxes.
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. DISCONTINUED OPERATIONS
In the fourth quarter of 1997, the Company adopted a plan of disposition
for its Plumbing Products Group. The following is an unaudited summary of the
results of discontinued operations for the three years ended December 31, 1997:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1995 1996 1997
-------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Net sales............................................... $119,410 $128,241 $104,467
-------- -------- --------
Loss before income taxes................................ $ (3,800) $ (2,600) $ (5,700)
Income tax benefit...................................... 1,300 900 2,100
-------- -------- --------
Loss from discontinued operations....................... (2,500) (1,700) (3,600)
Reserve for future operating expenses, net of income tax
benefit of $900,000................................... -- -- (1,600)
-------- -------- --------
Loss from discontinued operations....................... $ (2,500) $ (1,700) $ (5,200)
======== ======== ========
</TABLE>
Loss from discontinued operations before income taxes includes an
allocation of corporate interest expense of approximately $1,900,000, $1,700,000
and $1,900,000 in 1995, 1996 and 1997, respectively.
F-20
<PAGE> 133
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. 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.
The following information by geographic area is presented for 1996 and 1997
for the Company's continuing operations:
<TABLE>
<CAPTION>
PRE-TAX EARNINGS
NET FROM CONTINUING IDENTIFIABLE
FOR THE YEAR ENDED DECEMBER 31, 1996: SALES OPERATIONS ASSETS
------------------------------------- ---------- ---------------- ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Geographic areas:
Domestic operations....................... $706,548 $66,514 $303,273
European operations....................... 82,363 3,520 73,285
Other foreign operations.................. 67,503 4,886 64,609
Eliminations.............................. (14,857) -- (5,663)
---------- ------- ----------
841,557 74,920 435,504
Unallocated.......................... -- (13,969) 154,729
Interest expense..................... -- (28,400)
Investment income.................... -- 6,049 --
---------- ------- ----------
Consolidated Totals............. $841,557 $38,600 $590,233
========== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
PRE-TAX EARNINGS
NET FROM CONTINUING IDENTIFIABLE
FOR THE YEAR ENDED DECEMBER 31, 1997: SALES OPERATIONS ASSETS
------------------------------------- ---------- ---------------- ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Geographic areas:
Domestic operations....................... $ 998,049 $86,491 $ 976,891
European operations....................... 76,564 3,467 60,743
Other foreign operations.................. 75,700 7,046 57,527
Eliminations.............................. (16,184) -- (7,986)
---------- ------- ----------
1,134,129 97,004 1,087,175
Unallocated.......................... -- (14,023) 217,371
Interest expense..................... -- (50,210) --
Investment income.................... -- 9,929 --
---------- ------- ----------
Consolidated Totals............. $1,134,129 $42,700 $1,304,546
========== ======= ==========
</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,
1997, the Company had no significant concentrations of credit risk.
11. NET GAIN (LOSS) ON MARKETABLE SECURITIES
At December 31, 1996 and 1997, the reduction in the Company's stockholders'
investment for gross unrealized losses was approximately $891,000 and $110,000,
respectively. At December 31, 1997, there were no gross unrealized gains on the
Company's marketable securities.
F-21
<PAGE> 134
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's unrestricted marketable securities at December 31, 1997
consist primarily of U.S. Government Treasury Notes, certificates of deposit,
and bank issued money market instruments of which approximately $26,006,000
mature within one year; approximately $5,978,000 mature within one to five years
and approximately $4,004,000 mature within five to ten years.
12. ACCRUED EXPENSES AND TAXES, NET
Accrued expenses and taxes, net, consist of the following at December 31,
1996 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
--------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Insurance 1$2,205.. $ 23,880
Payroll, management incentive and accrued employee benefits 23,136.. 37,600
Interest 7,749... 22,049
Accrued product warranty expense 7,770... 9,471
Other, net 37,392.. 71,001
------- --------
$88,252 $164,001
======= ========
</TABLE>
13. SUBSEQUENT EVENTS
On March 9, 1998, the Company through a wholly-owned subsidiary, entered
into an agreement to purchase NuTone, Inc., a wholly-owned subsidiary of
Williams plc, for approximately $242,500,000 in cash. The acquisition is subject
to the requirements of the Hart-Scott-Rodino Antitrust Improvements Act. In
connection with its review of the transaction under the Act, the Federal Trade
Commission ("FTC") has issued a "second request" for certain additional
information. The FTC has taken no position with respect to the transaction and
there can be no assurance that the transaction, as proposed, will be
consummated. If the acquisition is not consummated, the Company expects that it
would incur an approximately $3,000,000 ($0.31 per diluted share) net after tax
charge to its earnings as a result of fees, expenses and other acquisition
related costs.
14. SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following summarizes unaudited quarterly financial data for the years
ended December 31, 1996 and December 31, 1997:
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
---------------------------------------------------
1996 MARCH 30 JUNE 29 SEPTEMBER 28 DECEMBER 31
---- -------- -------- ------------ -----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales........................... $189,762 $226,737 $215,624 $209,434
Gross profit........................ 51,225 63,892 61,687 64,455
Earnings from continuing
operations........................ 3,200 6,000 6,700 7,800
Earnings per share from continuing
operations:
Basic.......................... $ .27 $ .58 $ .67 $ .78
Diluted........................ .27 .57 .66 .77
Net earnings........................ 2,400 5,800 6,500 7,300
Net earnings per share:
Basic.......................... $ .20 $ .56 $ .65 $ .73
Diluted........................ .20 .55 .64 .72
</TABLE>
F-22
<PAGE> 135
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
---------------------------------------------------
1997 MARCH 29 JUNE 28 SEPTEMBER 27 DECEMBER 31
---- -------- -------- ------------ -----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales........................... $194,238 $223,795 $300,380 $415,716
Gross profit........................ 56,540 64,353 78,872 102,592
Earnings from continuing
operations........................ 4,700 7,700 8,400 5,600
Earnings per share from continuing
operations:
Basic.......................... .48 .80 .88 .59
Diluted........................ .47 .78 .86 .57
Net earnings........................ 3,700 6,700 7,700 3,100
Net earnings per share:
Basic.......................... .38 .70 .80 .33
Diluted........................ .37 .68 .78 .32
</TABLE>
See Notes 2 and 9 regarding certain other quarterly transactions included
in the operating results in the above table.
Increased net sales in the third and fourth quarters of 1997, as compared
to 1996, reflect, primarily, the effect of the Ply Gem acquisition (see Note 2).
15. INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(A) The unaudited condensed consolidated financial statements (the
"Unaudited Financial Statements") presented 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 period have
been reclassified to conform to the presentation at July 4, 1998, and
for all periods presented, reflect the operations of the Plumbing
Products Group as discontinued operations (See Note H). 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 15, 2007 ("9 1/4% Notes") at a slight
discount. The net proceeds were 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.
(C) During the second quarter of 1998, the Company sold, in a public
offering, 2,182,500 shares of its common stock for net proceeds of
approximately $64,300,000 (the "Common Stock Sale").
(D) 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.
(E) On July 31, 1998, the Company, through a wholly-owned subsidiary,
purchased all of the issued and outstanding capital stock of NuTone
Inc. ("NuTone"), a wholly owned subsidiary of Williams plc ("Williams")
for an aggregate purchase price of $242,500,000. In connection with the
acquisition, the Company assumed NuTone's operating liabilities (other
than intercompany borrowings), including certain liabilities of NuTone
concerning post-retirement and other benefit obligations. The
F-23
<PAGE> 136
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
purchase price is subject to adjustment based on NuTone's net asset
value determined as of August 1, 1998. If the final closing net asset
value, as determined in accordance with the NuTone purchase agreement,
is within the range of $65,100,000 to $67,100,000 (inclusive), then
there will be no adjustment to the purchase price. If the final closing
net asset value, as determined in accordance with the NuTone purchase
agreement, exceeds $67,100,000, then the Company is obligated to pay
Williams an amount equal to the difference between the final closing
net asset value and $67,100,000. If the final closing net asset value
is less than $65,100,000, then Williams is obligated to pay the Company
an amount equal to the difference between $65,100,000 and the final
closing net asset value. The purchase price was funded, and any
adjustments will be funded, through the use of the net proceeds from
the sale of $210,000,000 principal amount of 8 7/8% Senior Notes due
August 1, 2008 (the "8 7/8% Notes") at a slight discount, which
occurred on July 31, 1998, in a private offering (under an exemption
pursuant to Securities and Exchange Commission ("SEC") Rule 144A) to
qualified investors together with a portion of the cash proceeds from
the Common Stock Sale.
Consummation of the acquisition was subject to the expiration or
termination of the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended (the
"HSR Act"). On or about June 29, 1998, after a review of the
acquisition by the Federal Trade Commission ("FTC"), and in response
to the FTC's concerns about the potential adverse competitive effects
the acquisition might have on the market for certain hard-wired
intercom systems, Nortek executed an Agreement Containing Consent
Order ("FTC Order") providing for the divestiture of the Company's M&S
System LP ("M&S") subsidiary, which manufactures hard-wired intercom
systems and other products. The FTC Order was provisionally accepted
by the FTC commissioners on July 27, 1998. The FTC Order was placed on
public record on or about July 27, 1998, and is subject to public
comment for a period of 60 days. Upon the expiration of the comment
period, the FTC will decide whether to withdraw, modify or make final
its acceptance of the FTC Order.
Under the terms of the FTC Order, the Company must divest, at no
minimum price, prior to December 31, 1998, all of the assets,
properties, business and goodwill of M&S. Any acquirer must be
approved by the FTC. If the Company has not divested the M&S assets
within the prescribed time, the FTC may appoint a trustee to divest
the M&S assets. The Company will be responsible for any costs and
expenses incurred by the trustee that are necessary to carry out the
trustee's duties. The Company is required to file compliance reports
showing that it has fully complied with the order. Violations of the
final consent order may result in substantial monetary penalties,
which could have a material adverse effect on the Company's business.
Notwithstanding the FTC Order, at any time after the consummation of
the acquisition, the FTC or the Department of Justice ("DOJ") could
take such actions under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin the
consummation of the acquisition or seeking divestiture of certain
assets of the acquisition. Furthermore, at any time after the
consummation of the acquisition, any state could take such action
under the antitrust laws as it deems necessary or desirable to the
public interest. While the Company does not expect the FTC, the DOJ or
any state to challenge the acquisition on antitrust grounds, there is
no assurance that such a challenge will not be made or, if made and
successful, would not have a material adverse affect on the Company.
On August 26, 1997, a wholly-owned subsidiary of the Company completed
the acquisition of Ply Gem Industries, Inc. ("Ply Gem") in a tender
offer for a cash price of $19.50 per outstanding share of common
stock. Prior to accepting for payment the tendered shares of Ply Gem
on August 26, 1997, the Company sold $310,000,000 principal amount of
9 1/8% Senior Notes due September, 2007 (the "9 1/8% Notes") at a
slight discount. The Company used a portion of these net proceeds,
together with available cash, to purchase the shares of Ply Gem, fund
an approximate
F-24
<PAGE> 137
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$45,000,000 payment to terminate Ply Gem's existing accounts
receivable securitization program and pay certain fees and expenses.
The following presents the unaudited Pro Forma and As Adjusted net
sales, operating earnings, earnings from continuing operations and
diluted earnings per share from continuing operations of the Company
for the three months and six months ended June 28, 1997 and July 4,
1998 and the year ended December 31, 1997 and gives pro forma effect
to the sale of the 8 7/8% Notes, the acquisition of Nutone, the Common
Stock Sale, the acquisition of Ply Gem, the sale of the 9 1/8% Notes,
the extension of credit under the Ply Gem Credit Facility to refinance
certain existing indebtedness and the termination of Ply Gem's
accounts receivable securitization program, the sale of the 9 1/4%
Notes in March 1997, the refinancing of certain subsidiary
indebtedness, and reflects estimated cost reductions as described
below as if such transactions and adjustments had occurred on January
1, 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED YEAR ENDED
------------------- ------------------- ----------
JULY 4, JUNE 28, JULY 4, JUNE 28, DEC. 31,
1998 1997 1998 1997 1997
-------- -------- -------- -------- ----------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
PRO FORMA
Net sales................. $495,306 $491,327 $937,338 $894,938 $1,849,124
Operating earnings........ 37,822 37,724 60,770 54,828 91,932
Earnings (loss) from
continuing operations... 7,900 7,700 7,000 2,400 (3,500)
Diluted earnings (loss)
per share from
continuing operations... $.66 $.64 $.59 $.20 $(.30)
AS ADJUSTED
Net sales................. $495,306 $491,327 $937,338 $894,938 $1,849,124
Operating earnings........ 41,572 45,510 68,270 70,042 143,193
Earnings (loss) from
continuing operations... 10,200 12,500 11,500 12,000 28,000
Diluted earnings (loss)
per share from
continuing operations... $.85 $1.04 $.96 $.99 $2.33
</TABLE>
In computing pro forma earnings, earnings have been reduced by the net
interest income on the aggregate cash portion of the purchase price of
the acquisitions at the historical rate earned by the Company and
interest expense on indebtedness incurred in connection with the
acquisitions and the refinancing and repayment of certain indebtedness
of Ply Gem. Earnings have been reduced by amortization of goodwill
and, in relation to the Ply Gem acquisition, reflect net adjustments
to depreciation expense as a result of an increase in the estimated
fair market value of property and equipment and changes in depreciable
lives. Interest expense on the subsidiary indebtedness refinanced with
funds from the sale of the 9 1/4% Notes was excluded at an average
interest rate consistent with the indebtedness outstanding which was
refinanced, net of tax effect. Interest expense was included on the
9 1/4% Notes at a rate of approximately 9 1/4%, plus amortization of
deferred debt expense and debt discount, net of tax effect, on the
9 1/8% Notes at a rate of approximately 9 1/8%, plus amortization of
deferred debt expense and debt discount, net of tax effect and on the
8 7/8% Notes, at a rate of approximately 8 7/8% plus amortization of
deferred debt expense and debt discount, net of tax effect. Pro forma
results reflect investment income earned on the cash proceeds from the
actual date of the Common Stock Sale to July 4, 1998.
Subsequent to the Nutone acquisition, the Company expects to realize
net savings from the elimination of fees and charges paid by NuTone to
Williams and related entities. Pro Forma
F-25
<PAGE> 138
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
operating earnings for the three and six months ended June 28, 1997
have been adjusted by approximately $474,000 and approximately
$875,000, respectively, for the three and six months, ended July 4,
1998 have been adjusted by approximately $482,000 and approximately
$384,000, respectively, and for the year ended December 31, 1997 have
also been adjusted by approximately $1,746,000 for the pro forma
effect of estimated cost reductions directly attributable to the
acquisition. Subsequent to the NuTone acquisition, the Company expects
to realize approximately $15,000,000 in annual cost reductions
("NuTone Cost Adjustments") that can be achieved as a result of the
NuTone acquisition. As Adjusted earnings have been adjusted for the
NuTone Cost Adjustments by $3,750,000 and $7,500,000 for the three and
six months ended July 4, 1998 and June 28, 1997, respectively, and by
$15,000,000 for the year ended December 31, 1997.
In addition, since the Ply Gem acquisition date, the Company has
realized, and expects to continue to realize, cost savings as a result
of the acquisition. These savings result from several actions,
including: (i) the elimination of expenses associated with Ply Gem's
New York headquarters; (ii) the consolidation of Ply Gem's corporate
functions such as accounting, legal and risk management into Nortek;
and (iii) the elimination of certain under-performing product lines.
Pro Forma operating earnings for the three and six months ended June
28, 1997 and the year ended December 31, 1997, have been adjusted for
the pro forma effect of estimated cost reductions directly
attributable to the Ply Gem acquisition totaling approximately
$2,054,000, approximately $3,721,000 and approximately $4,000,000
respectively. As Adjusted operating earnings for the three and six
months ended June 28, 1997 and the year ended December 31, 1997,
include cost reductions directly attributable to the Ply Gem
acquisition and additional estimated cost savings related to expenses
associated with the elimination of Ply Gem's New York headquarters,
the consolidation of Ply Gem's corporate functions and the elimination
of certain under-performing product lines which total approximately
$4,036,000, $7,714,000, and $14,100,000, respectively.
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, 1997, or which may be reported in the
future.
(F) The Company's Board of Directors has authorized a number of programs to
purchase shares of the Company's Common and Special Common Stock. 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 August 7, 1998, the Company has
purchased approximately 317,250 shares of its Common and Special Common
Stock under this program for approximately $9,300,000 and accounted for
such share purchases as Treasury Stock.
At August 7, 1998, approximately $64,289,000 was available for the
payment of cash dividends or stock purchases under the terms of the
Company's most restrictive Indenture.
(G) In the fourth quarter of 1997, the Company adopted the provisions of
SFAS No. 128, "Earnings Per Share." This statement requires a
restatement of all prior-period earnings per share ("EPS") data
presented. Accordingly, EPS for the second quarter and first six months
of 1997 has been restated.
Basic earnings per share amounts have been computed using the weighted
average number of common and common equivalent shares outstanding
during each period. Special Common Stock is treated as the equivalent
of Common Stock in determining earnings per share results. Diluted
earnings per share amounts have been computed using the weighted
average number of common and common equivalent shares and the dilutive
potential common shares outstanding during each period.
F-26
<PAGE> 139
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation between basic and diluted earnings per share from
continuing operations is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------- -------------------
JULY 4, JUNE 28, JULY 4, JUNE 28,
1998 1997 1998 1997
------- -------- ------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Earnings from continuing $ 8,500 $7,700 $ 9,800 $12,400
operations........................
Basic EPS:
Basic common shares............ 10,718 9,602 10,129 9,663
======= ====== ======= =======
Basic EPS...................... $ .79 $ .80 $ .97 $ 1.28
======= ====== ======= =======
Diluted EPS:
Basic common shares............ 10,718 9,602 10,129 9,663
Plus: Impact of stock 187 226 182 233
options......................
------- ------ ------- -------
Diluted common shares.......... 10,905 9,828 10,311 9,896
======= ====== ======= =======
Diluted EPS.................... $ .78 $ .78 $ .95 $ 1.25
======= ====== ======= =======
</TABLE>
(H) In the fourth quarter of 1997, the Company adopted a plan of
disposition for its Plumbing Products Group and provided a pre-tax
reserve of $2,500,000 for future expenses including interest expense.
On July 10, 1998, the Company sold its Plumbing Products Group,
including a product line included in the Company's Residential Building
Products Group, for approximately $33,700,000. In the three months and
six months ended July 4, 1998, approximately $525,000 and $1,000,000,
respectively, of corporate interest expense was allocated against this
reserve. In the three months and six months ended June 28, 1997, the
loss for discontinued operations included an allocation of corporate
interest expense of approximately $425,000 and $950,000 respectively.
The following is an unaudited summary of the results of discontinued
operations for the three months and six months ended June 28, 1997;
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 28, 1997 JUNE 28, 1997
------------- -------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Net sales................................ $25,796 $51,185
======= =======
Loss before income taxes................. $(1,700) $(3,300)
Income tax benefit....................... 700 1,300
------- -------
Loss from discontinued operations........ $(1,000) $(2,000)
======= =======
</TABLE>
(I) In the first quarter of 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," ("SFAS No. 130") which requires the display of comprehensive
income and its components in the financial statements. Comprehensive
income includes net earnings and unrealized gains and losses from
currency translation, marketable securities and pension liability
adjustments. The components of the Company's comprehensive income and
the effect on earnings, for the second quarter and first six months of
1997 and 1998, are detailed in the Statements of Stockholders'
Investment.
(J) In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities. The Statement establishes
accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. The Statement requires that
changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria
F-27
<PAGE> 140
NORTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
are met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the income
statement, and requires that a company must formally document, designate,
and assess the effectiveness of transactions that receive hedge
accounting.
Statement 133 is effective for fiscal years beginning after June 15,
1999. A company may also implement the Statement as of the beginning
of any fiscal quarter after issuance (that is, fiscal quarters
beginning June 16, 1998 and thereafter). Statement 133 cannot be
applied retroactively. Statement 133 must be applied to (a) derivative
instruments and (b) certain derivative instruments embedded in hybrid
contracts that were issued, acquired, or substantively modified after
December 31, 1997 (and, at the Company's election, before January 1,
1998).
The Company is in the process of quantifying the impacts of adopting
Statement 133 on its financial statements and has not determined the
timing of or method of adoption of Statement 133.
(K) During the second quarter of 1998, the Company made several
dispositions of nonstrategic assets. On May 8, 1998, the Company sold
Studley Products, Inc. ("Studley"). Studley had net sales of
approximately $22,000,000 for the year ended December 31, 1997 and had
been treated as an operation held for sale since the Ply Gem
acquisition. On May 22, 1998, the Company consummated the sale of
another Ply Gem subsidiary, Sagebrush Sales, Inc. ("Sagebrush") for
approximately $9,800,000 in cash. Sagebrush had net sales of
approximately $47,600,000, for the year ended December 31, 1997. On
July 2, 1998, the Company completed the sale of another Ply Gem
subsidiary, Goldenberg Group, Inc. ("Goldenberg") for approximately
$11,000,000, including approximately $2,100,000 in notes. Goldenberg
had net sales of approximately $41,300,000 for the year ended December
31, 1997.
The Company is currently negotiating for the sale of all of the
outstanding equity interests of MOM and M&S. The sale of M&S is
subject to the completion of satisfactory due diligence by the
purchaser and the negotiation of definitive documentation. In
addition, under the FTC Order, the disposition of M&S is subject to
the prior approval of the FTC. For the year ended December 31, 1997,
M&S had net sales, operating earnings and earnings before interest,
taxes and depreciation and amortization expense ("EBITDA") of
approximately $19.9 million, $2.8 million and $3.3 million,
respectively. For the six months ended July 4, 1998, M&S had net
sales, operating earnings and earnings before interest, taxes and
depreciation and amortization ("EBITDA"), of approximately $10.1
million, $1.2 million and $1.4 million, respectively.
F-28
<PAGE> 141
COOPERS & LYBRAND LETTERHEAD
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Williams Y&N Holdings, Inc.
Parent of NuTone Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of NuTone Inc.
and Subsidiary (the "Company") as of December 31, 1997, and the related
consolidated statements of operations, shareholder's net investment and cash
flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides 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 NuTone Inc. and
Subsidiary as of December 31, 1997 and the consolidated results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Cincinnati, Ohio
February 20, 1998
F-29
<PAGE> 142
NUTONE INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, JULY 4,
1997 1998
------------ -----------
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash................................................... $ 840 $ 1,972
Accounts receivable, less allowance for doubtful
accounts of $1,373 and $1,372......................... 30,304 29,271
Inventories............................................ 4,804 4,681
Deferred tax asset, current............................ 4,880 5,100
Prepaid expenses and other current assets.............. 4,688 5,313
--------- ---------
Total current assets.............................. 45,516 46,337
Property, plant and equipment, net.......................... 18,212 18,318
Deferred tax asset, noncurrent.............................. 14,123 13,676
Other noncurrent assets..................................... 289 --
--------- ---------
Total assets...................................... $ 78,140 $ 78,331
========= =========
LIABILITIES
Current liabilities:
Accounts payable....................................... $ 23,134 $ 17,547
Payable to Parent and related entities................. 11,508 15,004
Accrued expenses and other............................. 15,635 13,957
--------- ---------
Total current liabilities......................... 50,277 46,508
Pension liability........................................... 12,883 13,033
Post-retirement medical benefits liability.................. 27,820 27,427
Accrued warranty............................................ 4,990 5,482
Long-term debt to Parent and related entities............... 131,000 131,000
--------- ---------
Total liabilities................................. 226,970 223,450
--------- ---------
Contingencies
SHAREHOLDER'S NET INVESTMENT (DEFICIT)
Shareholder's net investment (deficit)...................... (148,830) (145,119)
--------- ---------
Total liabilities and shareholder's net investment
(deficit)....................................... $ 78,140 $ 78,331
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-30
<PAGE> 143
NUTONE INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, JUNE 28, JULY 4,
1997 1997 1998
------------ ---------- ----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales................................................... $ 199,072 $ 95,177 $ 95,223
Cost of goods sold.......................................... (122,897) (59,416) (60,772)
--------- -------- --------
Gross profit...................................... 76,175 35,761 34,451
Selling, general and administrative expenses................ (51,387) (25,184) (24,075)
--------- -------- --------
Income from operations............................ 24,788 10,577 10,376
Other income (expense):
Interest expense....................................... (11,852) (5,971) (6,113)
Other income, net...................................... 42 17 23
--------- -------- --------
Income before income taxes........................ 12,978 4,623 4,286
Provision for income taxes.................................. (5,043) (1,849) (1,714)
--------- -------- --------
Net income................................... $ 7,935 $ 2,774 $ 2,572
========= ======== ========
Other comprehensive income, net of tax:
Pension liability adjustment........................... 503 505 --
Foreign currency translation adjustment................ (49) -- --
--------- -------- --------
Total other comprehensive income.................. 454 505 --
--------- -------- --------
Comprehensive Income.............................. $ 8,389 $ 3,279 $ 2,572
========= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-31
<PAGE> 144
NUTONE INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDER'S NET INVESTMENT
FOR THE YEAR ENDED DECEMBER 31, 1997
AND THE SIX MONTHS ENDED JUNE 28, 1997 AND JULY 4, 1998
<TABLE>
<CAPTION>
SHAREHOLDER'S
NET INVESTMENT
(DEFICIT)
--------------
(IN THOUSANDS)
<S> <C>
Balance, December 31, 1996.................................. $(147,062)
Net Income (unaudited)...................................... 2,774
Pension liability adjustment (unaudited).................... 505
Capital contribution from Parent (unaudited)................ 1,417
---------
Balance, June 28, 1997 (unaudited).......................... $(142,366)
=========
Balance, December 31, 1996.................................. $(147,062)
Net income.................................................. 7,935
Foreign currency translation adjustment..................... (49)
Pension liability adjustment................................ 503
Capital contribution from Parent............................ 2,243
Dividend to Parent.......................................... (12,400)
---------
Balance, December 31, 1997.................................. $(148,830)
Net Income (unaudited)...................................... 2,572
Capital Contribution from Parent (unaudited)................ 1,139
---------
Balance, July 4, 1998 (unaudited)........................... $(145,119)
=========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-32
<PAGE> 145
NUTONE INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, JUNE 28, JULY 4,
1997 1997 1998
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 7,935 $ 2,774 $ 2,572
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation expense............................... 3,416 1,786 1,676
Deferred tax provision............................. (555) (515) 227
Loss on sale of fixed assets....................... 16 27 (1)
(Increase) Decrease in accounts receivable......... 3,604 5,985 1,033
(Increase) Decrease in inventories................. (1,065) (2,417) 123
(Increase) Decrease in prepaid expenses and other
current assets................................... 339 (316) (625)
Increase (Decrease) in accounts payable............ 3,784 (2,787) (5,587)
Increase in accrued expenses....................... 583 (789) (1,186)
Increase (Decrease) in pension liability........... (1,119) 156 439
Increase (Decrease) in post-retirement medical
benefit liability................................ 1,018 (197) (393)
-------- -------- --------
Net cash provided by operating activities..... 17,956 3,707 (1,722)
-------- -------- --------
Cash flows from investment activities:
Proceeds from sale of fixed assets................. 11 7 10
Capital expenditures............................... (3,663) (1,721) (1,791)
-------- -------- --------
Net cash used in investing activities......... (3,652) (1,714) (1,781)
-------- -------- --------
Cash flows from financing activities:
Dividends paid to Parent........................... (12,400) -- --
Contributions from Parent and related entities..... 2,243 1,417 1,139
Change in amount due to/from Parent and related
entities......................................... (4,250) (3,577) 3,496
Foreign currency translation adjustment............ (49) -- --
-------- -------- --------
Net cash used in financing activities......... (14,456) (2,160) 4,635
-------- -------- --------
Net increase (decrease) in cash......................... (152) (167) 1,132
Cash at beginning of year............................... 992 992 840
-------- -------- --------
Cash at end of year..................................... $ 840 $ 825 $ 1,972
======== ======== ========
Supplemental cash flow information:
Cash paid for interest............................. $ 12,141 $ 559 $ 5,916
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-33
<PAGE> 146
NUTONE INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PURPOSE OF FINANCIAL STATEMENTS:
The financial statements of NuTone Inc. and Subsidiary (the "Company") have
been prepared in connection with the proposed sale of the capital stock of the
Company by its ultimate parent company, Williams plc ("Williams" or the
"Parent"), a U.K. Company, to Nortek, Inc., pursuant to an agreement dated March
9, 1998.
The consolidated financial statements include the accounts of NuTone Inc.
(U.S.) and its wholly owned subsidiary, NuTone Canada Inc.
Certain properties, while historically part of the Company, have been
excluded from these financial statements, as the related assets, liabilities and
costs will not be a part of the proposed transaction. These properties, at
December 31, 1997, are non-operating and are not material to the Company's
financial position or 1997 results of operations.
2. NATURE OF BUSINESS:
The Company is principally engaged in the manufacturing and sale of
household fixtures, such as ventilation fans and heaters, range hoods, door
chimes, bathroom cabinets, and intercom systems. The Company's primary
manufacturing operations are located in Cincinnati, Ohio and the Company also
has a manufacturing facility in Coppell, Texas. Approximately 99% of its 1997
sales were to customers in the United States and Canada.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of the significant accounting policies followed
in the preparation of these consolidated financial statements.
a. Basis of Presentation: The Company's consolidated financial
statements, which have been prepared on the basis of U.S. generally accepted
accounting principles, reflect the actual results of operations, financial
position, changes in shareholder's net investment, and cash flows as if it were
a separate stand-alone entity for all periods presented. The financial
statements do not reflect the goodwill resulting from the acquisition of the
Company by Williams in 1991, as "push down accounting" has not been utilized.
General corporate overhead expenses related to Williams' corporate
headquarters and common support functions have been allocated to the Company, to
the extent such amounts are applicable to the Company, based on the ratio of the
Company's budgeted sales to budgeted sales of all companies within the Williams
U.S. consolidated group. Management believes these allocations are reasonable.
However, the costs of these services charged to the Company are not necessarily
indicative of the costs that would have been incurred if the Company had
performed these functions as a stand-alone entity. As a result of the proposed
sale described in Note 1, the Company, or the acquirer, will be required to
perform certain of these functions using its own resources, or purchased
services, and will be responsible for the costs and expenses associated with the
management of the Company.
The financial information included herein may not necessarily reflect the
consolidated results of operations, financial position and cash flows of the
Company which would have resulted had the Company been a separate, stand-alone
entity during the period presented.
b. Basis of Consolidation: The consolidated financial statements include
the accounts of NuTone Inc. and its wholly-owned subsidiary, NuTone Canada Inc.
All significant intercompany transactions and accounts have been eliminated.
c. Foreign Currency Translation: For international operations, assets and
liabilities are translated into U.S. dollars at year-end exchange rates, and
revenues and expenses are translated at average exchange rates
F-34
<PAGE> 147
NUTONE INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
prevailing during the year. Translation adjustments, resulting from fluctuations
in exchange rates, are included in shareholder's net investment.
d. Use of Estimates: The preparation of consolidated 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 and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
e. Research and Development Expenses: Research and development expenses
are charged to operations as incurred. Research and development expense was
approximately $1,377,000 for the year ended December 31, 1997.
f. Inventories: Inventories are stated at the lower of cost or market,
with cost being determined on the last in, first out (LIFO) method.
g. Property, Plant and Equipment: Property, plant and equipment,
including the cost of certain tooling, is recorded at cost and depreciated on
the straight-line basis over the following useful lives:
<TABLE>
<S> <C>
Buildings................................................... 40 years
Building improvements....................................... 10 years
Machinery and equipment..................................... 4 to 10 years
Furniture, fixtures and computer equipment.................. 5 to 10 years
Tools and dies.............................................. 5 years
</TABLE>
Repairs and maintenance expenditures are charged to income as incurred,
whereas replacements, betterments and improvements are capitalized. Upon sale or
retirement, the cost and related accumulated depreciation are eliminated from
the respective accounts and the resulting gain or loss is included in
operations.
h. Product Warranty Expense: The estimated amount of product warranty
costs is accrued in the period in which the related sale is made.
i. Advertising Costs: The Company expenses advertising costs the first
time the advertising takes place. Advertising expense was $4,942,000 for the
year ended December 31, 1997.
j. Income Taxes: The Company's operations have historically been included
in the income tax returns filed by a subsidiary of Williams. However, income tax
expense in the Company's consolidated financial statements has been calculated
as if the Company had filed separate tax returns for all periods presented.
The Company is a member of a consolidated U.S. tax group. Under a tax
sharing agreement with intermediate and ultimate parent companies, the Company
is not charged for taxes on its operations. The Company's current tax provision
has been accounted for as a capital contribution.
k. Statement of Cash Flows: The Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
F-35
<PAGE> 148
NUTONE INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INVENTORIES:
At December 31, 1997, inventories were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Raw materials and work-in-process........................... $13,738
Finished goods.............................................. 14,665
-------
28,403
Less reserve for LIFO valuation............................. 23,599
-------
Total inventories................................. $ 4,804
=======
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT:
At December 31, 1997, property, plant and equipment consisted of:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Land, building and improvements............................. $13,828
Machinery and equipment..................................... 20,697
Furniture, fixtures and computer equipment.................. 5,997
Tools and dies.............................................. 13,999
Construction in progress.................................... 3,150
-------
57,671
Less accumulated depreciation............................... 39,459
-------
$18,212
=======
</TABLE>
6. LONG-TERM DEBT TO SUBSIDIARY OF PARENT COMPANY:
The Company has a promissory note payable to a wholly-owned subsidiary of
the Parent of $131,000,000, due on September 7, 2001. Interest is paid in
semi-annual installments in June and December at a rate of 8.5%.
7. EMPLOYEE BENEFIT PLANS:
The Company has a defined contribution plan covering predominantly
non-union employees of NuTone Inc. (U.S.). Under the Plan, participants can
elect to defer up to 10% of their eligible earnings on a pre-tax basis, with the
Company matching 50% of the first 5% of deferred earnings. During 1997, the
Company's contribution to the plan was $347,000.
The Company has six noncontributory defined benefit pension plans (the
"Plans") covering substantially all employees, with benefits for salaried
employees based on years of service and the employee's career compensation, and
benefits for hourly paid employees based on years of service. The Company
accrues expense for the Plans in accordance with generally accepted accounting
principles and makes contributions to the Plans in accordance with an agreed
funding policy, which are deductible for federal income tax purposes.
At December 31, 1997, substantially all of the assets of the defined
benefit plans were included with those of other Williams subsidiaries in the
United States and held as part of a master trust. Plan assets, as stated below,
represent the Company's proportionate share of the net assets of the master
trust.
F-36
<PAGE> 149
NUTONE INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the principal Plans' funded status and
amounts recognized in the Company's balance sheet, utilizing information from
the latest actuarial valuation date, December 31, 1997:
<TABLE>
<CAPTION>
NUTONE NUTONE
(U.S.) (U.S.)
SALARIED HOURLY
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, primarily vested....... $42,851 $25,383
======= =======
Projected benefit obligation for services rendered to
date...................................................... $46,816 $25,383
Plan assets at fair value, primarily cash equivalents and
marketable securities..................................... 37,350 23,086
------- -------
Projected benefit obligation in excess of plan assets....... 9,466 2,297
Unrecognized net gain (loss) from past experience different
from that assumed and effects of changes in assumptions... 3,920 723
Unrecognized prior service cost............................. -- (1,012)
Additional minimum liability................................ -- 289
------- -------
Accrued pension liability................................... $13,386 $ 2,297
======= =======
</TABLE>
The deferred tax asset associated with employee pensions and other benefits
is disclosed in Note 9.
Net pension expense, reflected in both cost of sales and general and
administrative expenses, for the year ended December 31, 1997, included the
following components:
<TABLE>
<CAPTION>
NUTONE NUTONE
(U.S.) (U.S.)
SALARIED HOURLY
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Service cost................................................ $ 910 $ 363
Interest cost............................................... 3,335 1,851
Actual return on plan assets................................ (4,424) (2,637)
Net amortization and deferral............................... 1,374 906
------- -------
Net pension expense......................................... $ 1,195 $ 483
======= =======
</TABLE>
For 1997, the discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligation was 7.5% and 4.5%, respectively. The expected long-term rate of
return on assets was 9%.
8. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
The Company provides certain medical and life insurance benefits to
eligible retired employees. Hourly employees at the Cincinnati, Ohio location
covered by a collective bargaining agreement, hired before June 12, 1992, and
non-union employees, hired before January 1, 1994, generally become eligible for
retiree medical and life insurance benefits on retirement. Pre-age 65 retirees
are paid covered medical expenses, including drugs, less deductibles or
co-payments. Post-age 65 retiree medical expenses are offset by Medicare
benefits.
F-37
<PAGE> 150
NUTONE INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the funded status and amounts recognized in
the Company's balance sheet at December 31, 1997:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................. $17,234
Fully eligible active participants........................ 5,347
Other active participants................................. 5,084
-------
Total unfunded accumulated postretirement benefit
obligation...................................... 27,665
Unrecognized net gain....................................... 1,555
-------
Accrued postretirement benefit obligation................. $29,220
=======
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 8% in 1997, declining by 1% in 1998 and
declining by 0.5% thereafter through 2004 to an ultimate rate of 4.0%. If the
health care cost trend rate assumptions were increased by 1%, the accumulated
postretirement benefit obligation, as of December 31, 1997, would have increased
by $3,570,000. The effect of this change on the sum of the service cost and
interest cost components of net periodic postretirement benefit cost for 1997
would have been an increase of $381,000.
The deferred tax asset associated with employee pensions and other benefits
is disclosed in Note 9.
The components of net periodic postretirement benefit cost for the year
ended December 31, 1997 were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Service cost................................................ $ 431
Interest cost on accumulated post retirement benefit
obligation................................................ 2,064
Net amortization............................................ (26)
------
Total expense..................................... $2,469
======
</TABLE>
The discount rate used in determining the accumulated postretirement
benefit obligation and net periodic postretirement benefit cost was 7.5% as of
December 31, 1997.
9. INCOME TAXES:
The following table presents the principal components of the difference
between the U.S. federal statutory income tax rate and the effective tax rate
for the year ended December 31, 1997:
<TABLE>
<S> <C>
Federal income tax rate..................................... 35%
Tax effect of foreign losses................................ (1)%
Effect of state and local taxes, net of federal tax......... 5%
---
Effective tax rate.......................................... 39%
===
</TABLE>
The Company's tax provision includes a provision for income taxes in foreign tax
jurisdictions.
F-38
<PAGE> 151
NUTONE INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents the U.S. and foreign components of income tax
expense for the year ended December 31, 1997:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Income tax expense (benefit):
Current:
Federal........................................... $ 4,327
State and local................................... 1,256
Foreign........................................... 15
Deferred:
Federal........................................... (443)
State and local................................... (112)
-------
Total income tax expense..................... $ 5,043
=======
</TABLE>
Deferred income tax liabilities are taxes that the Company expects to pay
in future periods. Conversely, deferred income tax assets are tax benefits
recognized for expected reductions in future taxes payable. Deferred income
taxes arise because of differences in the financial reporting and tax bases of
certain assets and liabilities. Deferred income tax assets and liabilities
included in the balance sheet at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Deferred income tax assets:
Employee pensions and other benefits................... $17,804
Accrued warranty....................................... 2,996
Balance sheet reserves and allowances..................... 3,258
-------
Total deferred income tax assets.................. 24,058
-------
Deferred income tax liabilities:
Property, plant, and equipment......................... 3,997
Accounts receivable.................................... 1,058
-------
Total deferred income tax liabilities............. 5,055
-------
Total net deferred income tax assets.............. $19,003
=======
</TABLE>
10. LEASES:
The Company leases manufacturing and warehouse facilities and other
equipment under various operating leases. Total rent expense for the year ended
December 31, 1997 was approximately $1,309,000.
Future minimum rental payments required under all leases that have
remaining noncancelable lease terms in excess of one year, as of December 31,
1997, are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1998........................................................ $ 995
1999........................................................ 1,053
2000........................................................ 616
2001........................................................ 424
Thereafter.................................................. --
-------
Total minimum payments required........................ $ 3,088
=======
</TABLE>
F-39
<PAGE> 152
NUTONE INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. RELATED PARTY TRANSACTIONS:
Management fees charged to the Company by its Parent in 1997 were
$1,676,000.
The Company maintains a revolving loan with a fellow wholly-owned
subsidiary of the Parent. The loan has no stated due date and is due and payable
upon demand by this subsidiary. The Company is charged interest on outstanding
balances, based on the prime rate (8.5% at December 31, 1997), which is payable
monthly. In situations where the Company has advanced funds to this subsidiary,
it receives interest at the prime rate less 1%. Interest expense, net of
interest income, on this revolving loan and on the long-term debt discussed in
Note 6, was $11,852,000 in 1997.
12. MAJOR CUSTOMER:
The Company derived approximately 22% of its consolidated net sales from
one customer in 1997.
13. CONTINGENCIES:
The Company is subject to various investigations, claims and legal
proceedings covering a wide range of matters that arise in the ordinary course
of its business activities. Each of these matters is subject to various
uncertainties, and it is possible that some of these matters may be resolved
unfavorably to the Company. The Company has established accruals for matters
that are probable and reasonably estimable. Management believes that any
liability that may ultimately result from the resolution of these matters in
excess of amounts provided will not have a material adverse effect on the
financial position or results of operations of the Company.
14. INTERIM FINANCIAL STATEMENTS (UNAUDITED):
1. BASIS OF PRESENTATION
The financial statements of NuTone Inc. and Subsidiary ("the Company")
have been prepared in connection with the proposed sale of the capital
stock of the Company by its ultimate parent company, Williams plc
("Williams" or the "Parent"), a U.K. Company, to Nortek, Inc., pursuant to
an agreement dated March 9, 1998.
The consolidated financial statements include the accounts of NuTone
Inc. (U.S.) and its wholly owned subsidiary, NuTone Canada Inc. All
information in the accompanying footnotes is presented in thousands.
Certain properties, while historically part of the Company, have been
excluded from these financial statements, as the related assets,
liabilities and costs will not be a part of the proposed transaction. These
properties, at July 4, 1998, are non-operating and are not material to the
Company's financial position or 1998 results of operations.
The consolidated financial statements of NuTone Inc. and Subsidiary
have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission (SEC) and, in the opinion of Management, include
all adjustments necessary for a fair presentation of the results of
operations, financial position and cash flows for each period shown. All
adjustments are of a normal and recurring nature. 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 SEC rules and regulations. It is suggested
that these financial statements be read in conjunction with the
consolidated year end financial statements and notes thereto included in
the Company's Report on Audit of Consolidated Financial Statements as of
December 31, 1997 and for the year then ended.
F-40
<PAGE> 153
NUTONE INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. RECENTLY ISSUED ACCOUNTING STANDARDS
The Company has adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (SFAS 130), in the first quarter
of 1998. SFAS 130 establishes standards for reporting and displaying
comprehensive income and its components in a full set of financial
statements. The objective of SFAS 130 is to report a measure of all changes
in the equity of an enterprise that result from transactions and other
economic events of the period other than transactions with shareowners.
The Financial Accounting Standards Board issued Statements of
Financial Standards No. 131, "Disclosure about Segments of an Enterprise
and Related Information", and No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits". The Company has not yet
determined what effect, if any, these statements will have.
F-41
<PAGE> 154
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>
Available Information............... 4
Summary............................. 5
Risk Factors........................ 22
The Acquisition..................... 28
Recent Developments................. 29
Use of Proceeds..................... 31
Capitalization...................... 31
Unaudited Pro Forma and Pro Forma
Adjusted Condensed Consolidated
Financial Data.................... 32
Selected Historical Consolidated
Financial Data.................... 44
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 46
Business............................ 58
Management.......................... 69
Description of Notes................ 70
The Exchange Offer.................. 97
Description of Other Obligations.... 106
Plan of Distribution................ 110
Legal Matters....................... 111
Experts............................. 111
Index to Financial Statements....... F-1
</TABLE>
NORTEK, INC.
EXCHANGE OFFER
$210,000,000
8 7/8% SERIES B SENIOR NOTES
DUE 2008
--------------------
PROSPECTUS
--------------------
SEPTEMBER [ ], 1998
<PAGE> 155
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> 156
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1 Purchase Agreement dated July 27, 1998 regarding the
issuance and sale of the Notes among Nortek, Inc.,
Wasserstein Perella Securities, Inc., Bear Stearns & Co.
Inc. and PaineWebber Incorporated.
2.2 Stock Purchase and Sale Agreement dated March 9, 1998,
between Williams Y&N Holdings, Inc. and NTK Sub, Inc.
(incorporated by reference to Exhibit 2 to Form 8-K/A filed
March 18, 1998, File No. 1-6112).
2.3 Amendments No. 1 through No. 9 to Stock Purchase and Sale
Agreement dated March 9, 1998, between Williams Y&N
Holdings, Inc. and NTK Sub, Inc. (Exhibit 2.2 to Form 8-K
filed on July 31, 1998, File No. 1-6112).
3.1 Restated Certificate of Incorporation of Nortek, Inc.
(Exhibit 2 to Form 8-K filed April 23, 1987, File
No. 1-6112).
3.2 Amendment to Restated Certificate of Incorporation of
Nortek, Inc. effective May 10, 1989 (Exhibit 3.2 to Form
10-K filed March 30, 1990, File No. 1-6112).
3.3 By-laws of Nortek, Inc. (as amended through September 19,
1996) (Exhibit 3.3 to Form 10-Q filed November 5, 1996, File
No. 1-6112).
4.1 Indenture dated as of July 31, 1998 between Nortek, Inc. and
State Street Bank and Trust Company, as Trustee.
4.2 Registration Rights Agreement dated as of July 31, 1998
between Nortek, Inc. and the Initial Purchasers.
5 Opinion of Ropes & Gray regarding the validity of the Series
B Senior Notes due 2008.
12 Schedule regarding computation of ratio of earnings to fixed
charges.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of Grant Thornton LLP.
23.4 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.
II-2
<PAGE> 157
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, (10)(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
<PAGE> 158
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 29th day of September, 1998.
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 (or any other registration statement for the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act) 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 (or any
other registration statement for the same offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act) and to file the same,
with exhibits thereto, and other documents in connection therein.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RICHARD L. BREADY (Principal Executive Officer) September 29, 1998
........................................ Chairman, President and Chief
RICHARD L. BREADY Executive Officer
/s/ ALMON C. HALL (Principal Accounting Officer) September 29, 1998
........................................ Vice President, Controller and
ALMON C. HALL Chief Accounting Officer
/s/ RICHARD J. HARRIS Vice President, Treasurer and September 29, 1998
........................................ Director (Principal Financial
RICHARD J. HARRIS Officer)
/s/ PHILLIP L. COHEN Director September 29, 1998
........................................
PHILLIP L. COHEN
Director
........................................
WILLIAM I. KELLY
Director
........................................
J. PETER LYONS
</TABLE>
II-4
<PAGE> 159
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
- ------- ----------- ------------
<S> <C> <C>
1 Purchase Agreement dated July 27, 1998 regarding the
issuance and sale of the Notes among Nortek, Inc.,
Wasserstein Perella Securities, Inc., Bear Stearns & Co.
Inc. and PaineWebber Incorporated.
2.2 Stock Purchase and Sale Agreement dated March 9, 1998,
between Williams Y&N Holdings, Inc., and NTK Sub, Inc.
(incorporated by reference to Exhibit 2 to Form 8-K/A filed
March 18, 1998, File No. 1-6112).
2.3 Amendments No. 1 through No. 9 to Stock Purchase and Sale
Agreement dated March 9, 1998, between Williams Y&N
Holdings, Inc., and NTK Sub, Inc. (Exhibit 2.2 to Form 8-K
filed on July 31, 1998, File No. 1-6112).
3.1 Restated Certificate of Incorporation of Nortek, Inc.
(Exhibit 2 to Form 8-K filed April 23, 1987, File No.
1-6112).
3.2 Amendment to Restated Certificate of Incorporation of
Nortek, Inc. effective May 10, 1989 (Exhibit 3.2 to Form
10-K filed March 30, 1990, File No. 1-6112).
3.3 By-laws of Nortek, Inc. (as amended through September 19,
1996) (Exhibit 3.3 to Form 10-Q filed November 5, 1996, File
No. 1-6112).
4.1 Indenture dated as of July 31, 1998 between Nortek, Inc. and
State Street Bank and Trust Company, as Trustee.
4.2 Registration Rights Agreement dated as of July 31, 1998
between Nortek, Inc. and the Initial Purchasers.
5 Opinion of Ropes & Gray regarding the validity of the Series
B Senior Notes due 2008.
12 Schedule regarding computation of ratio of earnings to fixed
charges.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of Grant Thornton LLP.
23.4 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
Execution Copy
================================================================================
NORTEK, INC.
$210,000,000
8-7/8% Senior Notes due 2008
Purchase Agreement
July 27, 1998
WASSERSTEIN PERELLA SECURITIES, INC.
BEAR, STEARNS & CO. INC.
PAINEWEBBER INCORPORATED
================================================================================
<PAGE> 2
NORTEK, INC.
$210,000,000
8-7/8% SENIOR NOTES DUE 2008
PURCHASE AGREEMENT
July 27, 1998
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
PAINEWEBBER INCORPORATED
1285 Avenue of the Americas
New York, New York 10019
Ladies & Gentlemen:
Nortek, Inc., a Delaware corporation ("NORTEK" or the "COMPANY"), proposes
to issue and sell to Wasserstein Perella Securities, Inc., Bear, Stearns & Co.
Inc. and PaineWebber Incorporated (each, an "INITIAL PURCHASER", and
collectively, the "INITIAL PURCHASERS") $210,000,000 aggregate principal amount
of its 8-7/8% Senior Notes due 2008 (the "NOTES") in connection with the
Acquisition (as defined below) by Nortek of NuTone Inc., a Delaware corporation
("NUTONE"), subject to the terms and conditions set forth herein. The Notes will
be issued pursuant to the provisions of an indenture dated as of July 31, 1998
(the "INDENTURE"), between Nortek and State Street Bank and Trust Company, as
trustee (the "TRUSTEE").
On March 9, 1998, the Company, through a wholly-owned subsidiary (the
"ACQUISITION SUB"), entered into a Stock Purchase and Sale Agreement (the
"NUTONE PURCHASE AGREEMENT") with Williams Y&N Holdings, Inc. ("WILLIAMS Y&N"),
a subsidiary of Williams plc ("WILLIAMS" and together with the Company,
Acquisition Sub and Williams Y&N, the "ACQUISITION PARTIES"), pursuant to which
the Acquisition Sub agreed to purchase NuTone for an aggregate purchase price of
$242.5 million, subject to certain adjustments, plus the assumption of operating
liabilities (the "ACQUISITION"). The
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<PAGE> 3
Acquisition, this Offering and the use of proceeds therefrom, 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 July 15, 1998 (including all documents incorporated
therein by reference, the "PRELIMINARY OFFERING MEMORANDUM"), and a final
offering memorandum dated July 27, 1998 (including all documents incorporated
therein by reference, the "OFFERING MEMORANDUM"), each setting forth certain
information concerning NTK Sub, Inc. 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, and (ii) 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), and (ii) 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 $210,000,000 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:
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<PAGE> 4
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), OR (B) 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) PURSUANT TO THE RESALE LIMITATIONS
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (D)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT, (E) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A
TRANSACTION MEETING THE REQUIREMENTS OF REGULATION S UNDER THE
SECURITIES ACT OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (BASED, IN THE
CASE OF CLAUSES (C), (E) AND (F) 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. THE FOREGOING RESTRICTIONS ON RESALE WILL NOT APPLY
-4-
<PAGE> 5
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 and (ii) persons such Initial Purchaser reasonably believes
to be Regulation S Purchasers. The Initial Purchasers will offer the Notes to
such Eligible Purchasers initially at a price equal to 99.641% 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 8-7/8% Senior Notes due 2008 (the "SERIES B NOTE") 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, $210,000,000 aggregate principal amount of Notes. The purchase price
for the Notes will be $969.01 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 Ropes & Gray in Boston on July 31, 1998, at
-5-
<PAGE> 6
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 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 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
-6-
<PAGE> 7
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 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
-7-
<PAGE> 8
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 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 maybe 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) "road-show"
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."
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<PAGE> 9
(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
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.
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<PAGE> 10
(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, neither the Company nor any of its
subsidiaries will 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.
(r) Prior to the Closing Date, the Company will not amend or modify,
or permit Acquisition Sub to amend or modify, the NuTone Purchase Agreement or
the terms or conditions of the NuTone Purchase Agreement 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
the Company 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 July 31, 1998.
5. REPRESENTATIONS AND WARRANTIES.
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<PAGE> 11
(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 execution,
delivery and performance of any of the Operative Documents or the NuTone
Purchase 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 the Company and its subsidiaries, is an independent certified
public accounting firm with regard to the Company 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 subsidiary, is
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<PAGE> 12
an independent certified public accounting firm with regard to Ply-Gem and
its subsidiary as required by the Act if the Offering were required to be
registered under the Act. PriceWaterhouse Coopers, LLP, which has certified
the financial statements and supporting schedules included in the Offering
Memorandum in respect of NuTone and its subsidiary, is an independent
certified public accounting firm with regard to NuTone and its subsidiary
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 April 4, 1998, 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 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 debt of the Company or any
material change in the capital stock of the Company.
(v) The Company, and Acquisition Sub in the case of the NuTone
Purchase Agreement, 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 NuTone Purchase 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
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<PAGE> 13
Operative Documents to which the Company is a party, the NuTone Purchase
Agreement and the Transactions contemplated herein and therein have been
duly and validly authorized by the Company and, in the case of the NuTone
Purchase Agreement, Acquisition Sub, and each of such agreements has been
duly and validly executed and delivered by the Company, or Acquisition Sub,
as applicable, and is a valid and binding obligation of the Company or
Acquisition Sub, as the case may be, enforceable against the Company or
Acquisition Sub, as applicable, 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 NuTone Purchase Agreement by the
Company or Acquisition Sub, as applicable, and the consummation by the
Company or Acquisition Sub, as applicable, 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,
including without limitation NuTone and its subsidiaries (the
"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 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
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<PAGE> 14
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
NuTone Purchase Agreement, (B) the consummation by the Company or
Acquisition Sub, as applicable, 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, or compliance by Acquisition Sub with the terms of the NuTone
Purchase Agreement, 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 April 4, 1998 and after giving effect to the Common Stock
Offering (as defined in the Offering Memorandum), a duly authorized and
outstanding capitalization as set forth in the "As Adjusted" column under
the caption "Capitalization" in the Offering Memorandum. On April 4, 1998,
after giving pro forma effect to the Transactions and the Common Stock
Offering, the Company would have had an authorized and outstanding
capitalization as set forth in the Offering Memorandum in the "Pro Forma
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
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<PAGE> 15
respect to the issuance of, any shares of capital stock of or other equity
or 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 April 4, 1998 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,
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<PAGE> 16
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 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, neither the Company
nor any of its subsidiaries has taken, nor will 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
the Company and its subsidiaries, Ply Gem and its subsidiaries, NuTone and
its subsidiary, 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 the Company and its subsidiaries, Ply Gem
and its subsidiaries or NuTone and its subsidiary, 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
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<PAGE> 17
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 books and records of the
Company and its subsidiaries, Ply Gem and its subsidiaries and NuTone and
its subsidiary, 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 Unaudited Consolidated Pro Forma Adjusted Financial
Data", "Nortek, Inc. Summary Historical Financial Information", "Unaudited
Pro Forma and Pro Forma Adjusted Condensed Consolidated Financial Data",
"Selected Historical Consolidated Financial Data", "Capitalization" 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 pro forma adjusted financial data
included in the Offering Memorandum (A) have been prepared on a basis
consistent with the historical financial statements of the Company and its
subsidiaries, Ply Gem and its subsidiaries and NuTone and its subsidiary
(except for the pro forma and pro forma adjusted adjustments set forth
therein), (B) give effect to assumptions used in the preparation thereof
that are reasonable and made in good faith, (C) present fairly the
information set forth using adjustments which are appropriate to give
effect to the proposed transactions referred to therein, (D) have been
correctly compiled based on the proper application of the pro forma and pro
forma adjusted adjustments to the historical financial information set
forth therein and (E) except for the pro forma adjusted financial data,
comply as to form in all material respects with the applicable accounting
requirements of Rule 11-02 of Regulation S-X. The pro forma adjusted
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
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<PAGE> 18
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 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 the
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<PAGE> 19
Company and its Subsidiaries are adequately provided for on the
consolidated books of the Company, all tax liabilities of Ply Gem and its
subsidiary are adequately provided for on the consolidated books of Ply Gem
and all tax liabilities of NuTone and its subsidiary are adequately
provided for on the consolidated books of NuTone.
(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 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/A of the
Company for the year ended December 31, 1997 or in the subsequent Reports
on Form 10-Q and Form 8-K of the Company 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
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<PAGE> 20
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 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
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<PAGE> 21
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 or 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.
(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
such 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
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<PAGE> 22
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.
(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 Operative 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).
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(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 NuTone Purchase
Agreement has been duly and validly authorized by the Company (or, in the
case of the NuTone Purchase Agreement, Acquisition Sub) and, when duly
executed and delivered by the Company or Acquisition Sub, as applicable,
will be the legal, valid and binding obligation of the Company or
Acquisition Sub, as applicable, enforceable against the Company or
Acquisition Sub, as applicable, 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 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)
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<PAGE> 24
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 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
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 which
would be considered an affiliate of any of them within the meaning of
Section 407(d)(7) of ERISA after consummation of the Acquisition, 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
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<PAGE> 25
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.
(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
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<PAGE> 26
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 and (y) 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.
(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 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 and
(2) Regulation S Purchasers and (B) that, in the case of such QIBs and
Regulation S Purchasers, 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,
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<PAGE> 27
(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)
pursuant to the resale limitations provided by Rule 144 under the Act,
if available, (4) pursuant to and effective registration statement
under the Act, (5) outside the United States to a foreign person in a
transaction meeting the requirements of Regulation S under the Act or
(6) 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 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).
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<PAGE> 28
(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 or
Rule 144A under 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.
6. INDEMNIFICATION. (a) The Company agrees to indemnify and hold
harmless each Initial Purchaser, its affiliates, their respective 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
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<PAGE> 29
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.
(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,
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<PAGE> 30
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 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
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<PAGE> 31
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 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
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<PAGE> 32
contribution obligation in excess of 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 its
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.
(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.
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<PAGE> 33
(c) Contemporaneously with the purchase of and payment for the
Notes, the Acquisition shall be consummated in all material respects in
accordance with the NuTone Purchase Agreement as in effect on the date hereof
and none of the conditions to closing the Acquisition set forth in the NuTone
Purchase Agreement shall have been amended or waived in any material respect by
the Company or Acquisition Sub 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) [Intentionally Left Blank]
(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 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
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<PAGE> 34
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 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, PriceWaterhouse Coopers 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 the Company and its subsidiaries
(in the case of Arthur Andersen LLP), NuTone and its subsidiary (in the case of
PriceWaterhouse Coopers 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.
(k) The Initial Purchasers shall have received an opinion, dated
the Closing Date, in form and substance reasonably satisfactory to the Initial
Purchasers,
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<PAGE> 35
of Paul, Hastings, Janofsky & Walker LLP, counsel for the Initial Purchasers,
covering such matters as are customarily covered in such opinions.
(l) Paul, Hastings, Janofsky & Walker LLP, 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, the
9-1/8% 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, the 9-1/8% Notes or the Notes below B 1; 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.
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<PAGE> 36
9. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligations of
the Company to issue and deliver the Notes, as provided herein, shall be subject
to the satisfaction of the following condition precedent:
(a) Contemporaneously with the purchase of and payment for the
Notes, the Acquisition shall have been consummated in all material respects in
accordance with the NuTone Purchase Agreement as in effect on the date hereof
and none of the conditions to closing the Acquisition set forth in the NuTone
Purchase Agreement shall have been amended or waived in any material respect by
the Company or Acquisition Sub 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
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<PAGE> 37
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 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
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<PAGE> 38
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 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,
Hastings, Janofsky & Walker LLP, 399 Park Avenue, New York, New York 10022,
Attention: William Schwitter, telecopier number (212) 319-4090; 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.
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<PAGE> 39
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.
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<PAGE> 40
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:_______________________________________
Name:
Title:
PAINEWEBBER INCORPORATED
By:_______________________________________
Name:
Title:
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<PAGE> 41
SCHEDULE I
Principal
Amount of
Initial Purchaser Notes
----------------- -----
Wasserstein Perella Securities, Inc........................... $147,000,000
Bear, Stearns & Co. Inc....................................... $ 42,000,000
PaineWebber Incorporated $ 21,000,000
TOTAL.............................................. $210,000,000
============
<PAGE> 42
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "AGREEMENT") is made and
entered into as of July 31, 1998 among Nortek, Inc., a Delaware corporation (the
"COMPANY"), Wasserstein Perella Securities, Inc., Bear, Stearns & Co. Inc. and
PaineWebber Incorporated (collectively, the "INITIAL PURCHASERS").
This Agreement is made pursuant to the Purchase Agreement dated as of
July 27, 1998 (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 $210,000,000 aggregate principal amount of the Company's
8-7/8% Senior Notes due 2008 (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.
<PAGE> 43
"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.
"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 8-7/8% Series B Senior Notes due 2008,
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 July 31, 1998, 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 July 31, 1998 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.
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<PAGE> 44
"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.
"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.
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<PAGE> 45
"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 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.
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<PAGE> 46
"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.
"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 90 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 165 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
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<PAGE> 47
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;
(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
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<PAGE> 48
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
(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
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<PAGE> 49
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 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 210 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
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<PAGE> 50
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 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
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<PAGE> 51
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 90
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 91st day after the Closing Date until but excluding the date such
Exchange Offer Registration Statement is filed. In addition, if on or prior to
165 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 166th 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 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
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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 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
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<PAGE> 53
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, 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;
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(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 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;
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<PAGE> 55
(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
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
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<PAGE> 56
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 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
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<PAGE> 57
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 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
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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 (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
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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
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
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Act for such period of time as such Persons 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
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Registration Statement and shall extend the period during which such
Registration Statement shall be maintained effective pursuant to this Agreement
by the number of 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, such Holder, such
Participating Broker-Dealer or such 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
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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);
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.
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(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 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
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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.
(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 state 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
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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 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.
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(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 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,
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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.
(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.
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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.
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<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. Milwaukee Faucets Retirement Income Plan
3. Northway Products Retirement Income Plan
4. Mammoth Negotiated Hourly Pension Plan
<PAGE> 70
5. Hoover Treated Wood Products, Inc. Retirement Income Plan
6. NuTone Group Pension Plan
7. 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. M & S Systems, Inc. 401(k) Savings Plan
5. Nordyne, Inc. 401(k) Savings Plan
6. Broan Mfg. Co., Inc. 401(k) Savings Plan
7. Linear Corporation 401(k) Plan
8. Moore-O-Matic, Inc. 401(k) Plan
9. Nortek, Inc. 401(k) Savings Plan
10. The Broan Group 401(k) Plan for Employees of Jensen Industries, Inc. and
Aubrey Manufacturing, Inc.
11. Rangaire, Inc. 401(k) Plan
12. NuTone Industries, Inc. Group Profit Sharing/401(k) Plan
13. SNE Enterprises, Inc. 401(k) Plan
14. SNE Enterprises, Inc. 401(k) Savings Plan
15. NuTone Manufacturing Division of NuTone Industries, Inc. 401(k) Plan
MULTIEMPLOYER PLANS
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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. 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.
3. Agreement between Goldenhill and Graphic Communications Union District
Council No. 2, AFL-CIO, for the term from July 15, 1994 to July 14, 1997.
4. Studley Products, Inc. Multiemployer Pension Plan.
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EXHIBIT C-1
July __, 1998
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
PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Re: $210,000,000 PRINCIPAL AMOUNT 8-7/8% SENIOR NOTES DUE 2008 OF NORTEK,
INC.
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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
$210,000,000 principal amount of 8-7/8% Senior Notes due 2008 (the "Notes").
This opinion is furnished to you pursuant to Section 8(g) of the Purchase
Agreement dated July 27, 1998 (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 July 27,
1998 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, 1997, as amended by the Company's Annual Report
on Form 10-K/A, filed with the Securities and Exchange Commission (the
"Commission") on April 20, 1998 (the "Form 10-K"); the Company's Quarterly
Report on Form 10-Q for the quarterly period ended April 4, 1998; the Company's
Current Report on Form 8-K filed with the Commission on September 10, 1997, as
amended by the Company's Current Report on Form 8-K/A, filed with the Commission
on September 12, 1997; the Company's Current Report on Form 8-K filed with the
Commission on March 12, 1998, as amended by the Company's Current Report on Form
8-K/A, filed with the Commission on March 18, 1998; the Company's Current Report
on Form 8-K filed with the Commission on May 7, 1998; the Company's Current
Report on Form 8-K filed with the Commission on June
<PAGE> 73
15, 1998; the Company's Current Report on Form 8-K filed with the Commission on
July 15, 1998 and the Company's Current Report on Form 8-K filed with the
Commission on July 28, 1998 (the "Incorporated Documents"); an executed copy of
the Indenture dated as of July 31, 1998 between the Company and State Street
Bank and Trust Company, as Trustee, relating to the Notes (the "Indenture"); two
global Notes executed by the Company in the aggregate principal amount of
$210,000,000; an executed copy of the Purchase Agreement; an executed copy of
the Registration Rights Agreement dated as of July 31, 1998 (the "Registration
Rights Agreement") among the Company and each of you; an executed copy of the
Stock Purchase and Sale Agreement dated March 9, 1998 (the "NuTone Acquisition
Agreement"), between Williams Y&N Holdings, Inc. and NTK Sub, Inc.; 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 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. 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 and the Private Exchange Notes, if any 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
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<PAGE> 74
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 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 NuTone Acquisition 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.
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<PAGE> 75
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 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 NuTone Acquisition Agreement has been duly authorized, executed and
delivered by NTK Sub, Inc. and, assuming the due authorization, execution
and delivery thereof by the other parties named therein, is a legal, valid
and binding obligation of NTK Sub, Inc., enforceable against NTK Sub, Inc.
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 and the
other Operative Documents, and by NTK Sub, Inc. of the NuTone Acquisition
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
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<PAGE> 76
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
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 or any of the other Operative Documents to which it
is a party or by NTK Sub, Inc. of the NuTone Acquisition 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
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<PAGE> 77
Offering Memorandum, and (iii) the compliance by you with the offering and
transfer procedures and restrictions described 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 NuTone Acquisition 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
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<PAGE> 78
make the statements therein not misleading. We 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 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 NuTone Inc. or its subsidiary.
Except as otherwise expressly consented to by us in writing, this opinion
is solely for your benefit.
Very truly yours,
Ropes & Gray
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<PAGE> 79
EXHIBIT C-2
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
PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Re: $210,000,000 PRINCIPAL AMOUNT 8-7/8% SENIOR NOTES DUE 2008 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 $210,000,000 principal amount of 8-7/8% Senior Notes due 2008 (the "Notes").
This opinion is furnished to you pursuant to Section 8(g) of the Purchase
Agreement dated July 27, 1998 (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 July
27, 1998 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,
1997, as amended by the Company's Annual Report on Form 10-K/A, filed with the
Securities and Exchange Commission (the "Commission") (the "Form 10K"); the
Company's Quarterly Report on Form 10-Q for the quarterly period ended April 4,
1998; the Company's Current Report on Form 8-K filed with the Commission on
September 10, 1997, as amended by the Company's Current Report on Form 8-K/A,
filed with the Commission on September 12, 1997; the Company's Current Report on
Form 8-K filed with the Commission on March 12, 1998, as amended by the
Company's Current Report on Form 8-K/A, filed with the Commission on March 18,
1998, the Company's Current Report on Form 8-K filed with the Commission on May
7, 1998; the Company's Current Report on Form 8-K filed with the Commission on
June 15, 1998; the Company's Current Report on Form 8-K filed with the
Commission on July 15, 1998 and the Company's Current Report on Form 8-K filed
with the Commission
<PAGE> 80
on July 28, 1998 (collectively the "Incorporated Documents"); an executed copy
of the Indenture dated as of July 31, 1998 between the Company and State Street
Bank and Trust Company, as Trustee, relating to the Notes (the "Indenture"); two
global Notes executed by the Company in the aggregate principal amount of
$210,000,000; an executed copy of the Purchase Agreement; an executed copy of
the Registration Rights Agreement dated as of July 31, 1998 (the "Registration
Rights Agreement") among the Company and each of you; Stock Purchase and Sale
Agreement dated March 9, 1998 (the "NuTone Acquisition Agreement"), between
Williams Y&N Holdings, Inc. and NTK Sub, Inc.; 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 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. 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 and the Private Exchange Notes, if any 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"
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<PAGE> 81
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:
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 NuTone Purchase 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 maybe limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization or other similar laws
relating to or affecting the enforcement of creditors' rights
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<PAGE> 82
generally and (ii) rights of acceleration and the availability of equitable
remedies may be limited by general principles of equity.
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 NuTone Acquisition Agreement has been duly authorized, executed and
delivered by NTK Sub, Inc., and, assuming the due authorization, execution
and delivery thereof by the other parties named therein, is a legal, valid
and binding obligation of NTK Sub, Inc., enforceable against NTK Sub, Inc.
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
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<PAGE> 83
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 and the
other Operative Documents, and by NTK Sub, Inc. of the NuTone Acquisition
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 10, 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 or any of the other Operative Documents or by NTK
Sub, Inc. of the NuTone Acquisition Agreement to the extent it is a party;
(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.
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 governmental agency or body pending or threatened
against, or involving the
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<PAGE> 84
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 NuTone Acquisition 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
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<PAGE> 85
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 NuTone Inc. or its subsidiary.
Except as otherwise expressly consented to by me in writing, this opinion
is solely for your benefit.
Very truly yours,
Kevin W. Donnelly
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<PAGE> 1
EXHIBIT 4.1
NORTEK, INC.,
Company,
and
STATE STREET BANK AND TRUST COMPANY,
Trustee
_____________________________
INDENTURE
Dated as of July 31, 1998
_____________________________
$210,000,000
Series A and Series B
8-7/8% Senior Notes due August 1, 2008
<PAGE> 2
TABLE OF CONTENTS(1)
<TABLE>
<CAPTION>
Page
<S> <C>
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.....18
SECTION 1.04 Rules of Construction.................................18
SECTION 1.05 Acts of Holders.......................................18
SECTION 1.06 Exchange Rates........................................19
ARTICLE 2
THE NOTES..............................................................20
SECTION 2.01 Form and Dating.......................................20
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..................................... 34
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.............................................35
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
</TABLE>
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(1) This Table of Contents shall not, for any purpose, be deemed to be part of
this Indenture.
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<TABLE>
<CAPTION>
<S> <C>
SECTION 3.06 Notes Redeemed in Part............................37
ARTICLE 4
COVENANTS..........................................................37
SECTION 4.01 Payment of Notes..................................37
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.................40
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...............................46
SECTION 4.10 Limitation on Certain Restrictions Affecting
Subsidiaries......................................47
SECTION 4.11 Repurchase Upon Change of Control.................48
SECTION 4.12 Limitation On Use of Proceeds from Asset Sales....50
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..............................................54
SECTION 5.01 When the Company May Merge or Transfer Assets.....54
SECTION 5.02 Successor Corporation Substituted.................56
ARTICLE 6
DEFAULTS AND REMEDIES..............................................56
SECTION 6.01 Events of Default.................................56
SECTION 6.02 Acceleration......................................59
SECTION 6.03 Other Remedies....................................59
SECTION 6.04 Waiver of Past Defaults...........................59
SECTION 6.05 Control by Majority...............................60
SECTION 6.06 Limitation on Suits...............................60
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
SECTION 6.07 Rights of Holders to Receive Payment..............60
SECTION 6.08 Collection Suit by Trustee........................61
SECTION 6.09 Trustee May File Proofs of Claim..................61
SECTION 6.10 Priorities........................................61
SECTION 6.11 Undertaking for Costs.............................62
SECTION 6.12 Restoration of Rights and Remedies................62
ARTICLE 7
TRUSTEE............................................................62
SECTION 7.01 Duties of Trustee.................................62
SECTION 7.02 Rights of Trustee.................................64
SECTION 7.03 Individual Rights of Trustee......................64
SECTION 7.04 Trustee's Disclaimer..............................64
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.............................................67
SECTION 8.01 Discharge of Liability on Notes...................67
SECTION 8.02 Repayment to the Company or Subsidiary
Guarantors........................................68
ARTICLE 9
AMENDMENTS.........................................................68
SECTION 9.01 Without Consent of Holders........................69
SECTION 9.02 With Consent of Holders...........................69
SECTION 9.03 Compliance with Trust Indenture Act...............70
SECTION 9.04 Revocation and Effect of Consents,
Waivers and Actions...............................70
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......................................................71
SECTION 10.01 Trust Indenture Act Controls.....................71
SECTION 10.02 Notices..........................................72
SECTION 10.03 Communication by Holders with Other Holders......73
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
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............................................74
SECTION 10.12 Multiple Originals....................................74
</TABLE>
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<PAGE> 6
INDENTURE, dated as of July 31, 1998, 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 8-7/8% Series A Senior
Notes due August 1, 2008 (the "Series A Notes") and the 8-7/8% Series B Senior
Notes due August 1, 2008 (the "Series B Notes"):
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01 Definitions.
"Acquired Indebtedness" means, with respect to any Person, Indebtedness of
such Person (i) assumed in connection with an acquisition of assets or
properties by 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 transactions,
for aggregate consideration received by such Person or a Subsidiary of such
Person (but if such
<PAGE> 7
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.
2
<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 existing under the laws
of Canada
3
<PAGE> 9
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 this Indenture as the "Company Credit Facility."
"Consolidated Amortization Expense" means, with respect to any Person for
any period, the amortization expense of such Person and its Subsidiaries (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 change in
accounting principles, determined on a consolidated basis in accordance with
GAAP,
5
<PAGE> 11
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 the 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.
6
<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).
"Depositary" 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
Depositary 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 "Depositary" 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 this Indenture, a member of such
Board of Directors who does not have any material direct or indirect financial
interest in or with respect to such transaction or series of transactions.
"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.
7
<PAGE> 13
"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 Depositary or its
nominee that contains the paragraph referred to in footnote 1 thereto 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.
8
<PAGE> 14
"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.
9
<PAGE> 15
"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
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 the Original Notes and the Exchange Notes.
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<PAGE> 16
"9 1/8% Notes" means the Company's 9 1/8% Senior Notes due September 1,
2007.
"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 Depositary 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 Chief Executive Officer, the President, any Vice
President, any Assistant Vice President, the Treasurer, the Chief Financial
officer, the Chief Accounting Officer, 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
11
<PAGE> 17
$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 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 this 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
12
<PAGE> 18
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 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 any 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.
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<PAGE> 19
"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.
"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 this 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 this 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.
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<PAGE> 20
"Securities Act" means the Securities Act of 1933, as amended.
"Series A Notes" means the Company's 87/8% Series A Senior Notes due August
1, 2008 to be issued pursuant to this Indenture.
"Series B Notes" means the Company's 87/8% Series B Senior Notes due August
1, 2008 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 this Indenture.
"Special Common Stock" means the special common stock of the Company, $1.00
par value per share.
"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
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<PAGE> 21
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.
"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 this 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
16
<PAGE> 22
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. 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 this 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.
<TABLE>
<CAPTION>
Defined
in
Term Section
---- -------
<S> <C>
"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
</TABLE>
17
<PAGE> 23
<TABLE>
<CAPTION>
<S> <C>
"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
</TABLE>
SECTION 1.03 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. Whenever
this Indenture refers to a provision of the TIA, such provision is incorporated
by reference in and made a part of this Indenture. The following TIA terms used
in this Indenture have the following meanings:
"Commission" means the SEC.
"Indenture 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
18
<PAGE> 24
evidenced by one or more instruments of substantially similar tenor signed
by such Holders in person or by an agent duly appointed in writing; and,
except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee
and, where it is hereby expressly required, to the Company. Such instrument
or instruments (and the action embodied therein and evidenced thereby) are
herein sometimes referred to as the "Act" of Holders signing such
instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of
this Indenture and conclusive in favor of the Trustee and the Company, if
made in the manner provided in this Section.
(2) The fact and date of the execution by any Person of any such
instrument or writing may be proved in any manner which the Trustee deems
sufficient.
(3) The ownership of Notes shall be proved by the Register.
(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
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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 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
thereto; 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") 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 a permanent Global Note
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 Depositary, duly executed by the Company and authenticated
by the Trustee for the Depositary, as hereinafter provided. The Global Note
(which may be represented by more than one certificate, if so required by the
Depositary'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").
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
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 Depositary, duly executed by
the
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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 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 Depositary or its nominee, as hereinafter provided. Transfers
of Original Notes from QIBs to institutional "Accredited Investors" (within the
meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act ("IAIs"), or
persons who acquire an interest in the Original Notes pursuant to Regulation S
(the "Regulation S Purchasers"), or from Regulation S Purchasers to QIBs, 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.
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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 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 $210,000,000, 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. The aggregate
principal amount of Notes outstanding at any time may not exceed $210,000,000.
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 AND 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
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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 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 Depositary 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 LISTS. The Trustee shall preserve in as current a form
as is reasonably practicable the most recent list available to it of the names
and addresses of 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,
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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 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 Depositary 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 Depositary 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 Depositary 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 Depositary, in accordance with this Indenture and the procedures of the
Depositary 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 Depositary.
(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 Depositary from the Depositary
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 Depositary 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 the
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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
Depositary 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 Depositary,
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 Depositary to a nominee of
the Depositary or by a nominee of the Depositary to the Depositary or
another nominee of the Depositary or by the Depositary or any such nominee
to a successor Depositary or a nominee of such successor Depositary.
(6) AUTHENTICATION OF DEFINITIVE NOTES. If at any time:
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<PAGE> 33
(a) the Company notifies the Trustee in writing that the
Depositary for the Notes is no longer willing or able to act as
Depositary for the Global Notes and a successor Depositary 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 Depositary 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, as of such date
shall be certified to the Trustee by the Company):
"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), OR (B) 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,
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(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) PURSUANT TO THE RESALE LIMITATIONS PROVIDED
BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (D) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT,
(E) OUTSIDE THE U.S. TO A FOREIGN PERSON IN A TRANSACTION MEETING
THE REQUIREMENTS OF REGULATION S UNDER THE SECURITIES ACT OR (F)
PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (BASED, IN THE CASE OF CLAUSES
(C), (E) AND (F) 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. 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:
"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
DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY
TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY
OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH
SUCCESSOR DEPOSITARY. 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
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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 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
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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
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.
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(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 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 Depositary 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 Depositary for all
purposes (including with respect to the registration and delivery, and
the respective principal amounts, of any Notes to be issued).
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(i) Members of, or participants in, the Depositary shall
have no rights under this Indenture with respect to any Global
Note held on their behalf by the Depositary, or the Trustee as
the Note Custodian, or under the Global Note, and the Depositary
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 Depositary or (y) impair, as between the Depositary and
members of, or participants in, the Depositary, 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 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.
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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.
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.
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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
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.
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ARTICLE 3
REDEMPTION
SECTION 3.01 RIGHT TO REDEEM; NOTICES TO TRUSTEE. At any time on and after
August 1, 2003, 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
days before a Redemption Date, the Company shall mail or cause to be mailed a
notice of redemption by first-class mail, postage prepaid, to each Holder of
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.
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
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(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 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
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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 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.
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(3) Upon qualification of this Indenture under the TIA, the Company
shall also comply with the provisions of TIA ss.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.
(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 Officers' 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
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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.
(4) Delivery of reports, and other documents and information to the
Trustee hereunder is for informational purposes only and the Trustee's
receipt of such documents and information shall not constitute constructive
notice of any information contained therein or determinable from
information contained therein, including the Company's compliance with any
of its covenants under the Indenture (as to which the Trustee is entitled
to rely conclusively on Officers' Certificates delivered to it).
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.
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
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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 July 5, 1998 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 at any time after May 1, 1998 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; and (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 this Indenture; 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
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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:
(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
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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 NuTone or any of its Subsidiaries not
exceeding at any time $6,000,000 in aggregate outstanding principal
amount and, if secured, secured only by Liens on assets of NuTone or
its Subsidiaries;
(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
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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;
(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
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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
(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,
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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 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
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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 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
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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) this 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 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
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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 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
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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
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
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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 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
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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.
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,
Section 4.14 in the indenture governing the Company's 9 1/4% , and Section 4.14
in the indenture governing the Company's 9 1/8% Notes shall cease to have
further force and effect (whether by reason of amendment, redemption or
repayment of such Indebtedness or otherwise), provided, however, that if the
instrument or other agreement governing any Indebtedness incurred to refinance
the 9 7/8% Notes, the 9 1/4% Notes, or the 9 1/8% Notes includes such a covenant
similar to Section 4.15 of the indenture governing the 9 7/8% Notes, Section
4.14 in the indenture governing the 9 1/4% Notes, or Section 4.14 in the
indenture governing the Company's 9 1/8% Notes, the provisions of this Section
4.14 and any supplemental
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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, 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.
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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.
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
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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 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
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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 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
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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;
(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:
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(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.
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.
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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 aggre gate 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.
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
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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.
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.
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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 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
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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.
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
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(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.
(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.
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SECTION 7.02 RIGHTS OF TRUSTEE.
(1) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper Person. The Trustee need
not investigate any fact or matter stated in any such document but the
Trustee may, in its discretion, make such further inquiry or investigation
into such facts or matters stated in any such document as it sees fit.
(2) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate and an Opinion of Counsel. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance
on such Officers' Certificate and Opinion of Counsel.
(3) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care.
(4) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its
rights or powers.
(5) The Trustee may consult with counsel of its selection and the
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon.
(6) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee reasonable security and indemnity satisfactory
to it against the costs, expenses and liabilities which might be incurred
by it in compliance with such request or direction.
SECTION 7.03 INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or
any other capacity may become the owner or pledgee of 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.
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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, 1999, 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);
(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,
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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
(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.
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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).
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
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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
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
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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.
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
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(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.
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.
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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.
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.
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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, N.A.
61 Broadway, 15th Floor
Corporate Trust Window
New York, NY 10006
-with a copy to-
State Street Bank and Trust Company
Two International Place - 4th Floor
Boston, MA 02110
Attention: Corporate Trust Division - 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.
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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:
(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.
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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 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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SIGNATURES
IN WITNESS WHEREOF, the undersigned, being duly authorized, have executed
this Indenture on behalf of the respective parties hereto as of the date first
above written.
NORTEK, INC.
By: ____________________________
Name: ______________________
Title: _____________________
STATE STREET BANK AND TRUST
COMPANY
By: ____________________________
Name: ______________________
Title: _____________________
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EXHIBIT A
[FORM OF FACE OF NOTE]
NORTEK, INC.
8-7/8% [Series A/B] Senior Note due August 1, 2008
No. ___ CUSIP No. _______
$210,000,000
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 August 1, 2008.
Interest Payment Dates: February 1 and August 1, commencing February 1,
1999.
Record Dates: January 15, and July 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> 82
[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> 83
[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
DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO
THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY. 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), OR (B) 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
- -------------
(1) This paragraph should be included only if the Note is issued in global form.
A-3
<PAGE> 84
"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) PURSUANT TO THE
RESALE LIMITATIONS PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE),
(D) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT,
(E) OUTSIDE THE U.S. TO A FOREIGN PERSON IN A TRANSACTION MEETING THE
REQUIREMENTS OF REGULATION S UNDER THE SECURITIES ACT OR (F) PURSUANT TO ANY
OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT (BASED, IN THE CASE OF CLAUSES (C), (E) AND (F) 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. 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.
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<PAGE> 85
["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> 86
[FORM OF REVERSE SIDE OF NOTE]
8-7/8% [Series A/B] Senior Note due August 1, 2008
(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 February 1, 1999.
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 July 31, 1998; 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 January 15 and July 15, 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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<PAGE> 87
(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 July 31, 1998
(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 $210,000,000
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 August 1, 2003 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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<PAGE> 88
August 1, Redemption Price
----------------
2003 104.438%
2004 102.958%
2005 101.479%
2006 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
A-8
<PAGE> 89
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.
A-9
<PAGE> 90
(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.
A-10
<PAGE> 91
(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.
A-11
<PAGE> 92
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.
A-12
<PAGE> 93
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: _____________________________________________
A-13
<PAGE> 94
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTES
The following increases or decreases in this Global Note have been made:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF SIGNATURE OF
AMOUNT OF DECREASE AMOUNT OF INCREASE THIS GLOBAL NOTE AUTHORIZED OFFICER OF
DATE OF IN PRINCIPAL AMOUNT IN PRINCIPAL AMOUNT FOLLOWING SUCH TRUSTEE OR NOTE
EXCHANGE OF THIS GLOBAL NOTE OF THIS GLOBAL NOTE DECREASE (OR INCREASE) CUSTODIAN
-------- ------------------- -------------------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 95
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF NOTES
Re: 8-7/8% [Series A/B] Senior Notes due 2008 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 Depositary 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 Depositary 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.
B-1
<PAGE> 96
[ ] 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
B-2
<PAGE> 97
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
B-3
<PAGE> 98
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 8-7/8% [Series A/B] Senior Notes due 2008 (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
C-1
<PAGE> 99
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:
C-2
<PAGE> 100
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 8-7/8% [Series A/B] Senior Notes due 2008 (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.
D-1
<PAGE> 101
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> 102
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 Guarantor further agrees that, as
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<PAGE> 103
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.
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<PAGE> 104
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 accordance with the terms
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<PAGE> 105
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.
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<PAGE> 106
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
July 31, 1998 (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:
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<PAGE> 107
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 July 31, 1998 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> 108
CROSS REFERENCE TABLE(5)
<TABLE>
<CAPTION>
TIA Indenture
Section Section
- ------- ---------
<S> <C>
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.
</TABLE>
- -------------
(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> 109
<TABLE>
<CAPTION>
<S> <C>
(b)....................................................... 6.07
(c)....................................................... N.A.
317(a)(1)....................................................... 6.08
(a)(2).................................................... 6.09
(b)....................................................... 2.04
318(a).......................................................... 10.01
</TABLE>
G-ii
<PAGE> 1
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "AGREEMENT") is made and entered
into as of July 31, 1998 among Nortek, Inc., a Delaware corporation (the
"COMPANY"), Wasserstein Perella Securities, Inc., Bear, Stearns & Co. Inc. and
PaineWebber Incorporated (collectively, the "INITIAL PURCHASERS").
This Agreement is made pursuant to the Purchase Agreement dated as of July
27, 1998 (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 $210,000,000 aggregate principal amount of the Company's
8-7/8% Senior Notes due 2008 (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.
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<PAGE> 2
"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.
"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 8-7/8% Series B Senior Notes due 2008, 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
July 31, 1998, 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.
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<PAGE> 3
"INDENTURE" shall mean the Indenture dated as of July 31, 1998 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.
"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
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<PAGE> 4
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 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
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<PAGE> 5
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.
"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
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<PAGE> 6
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 90 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 165 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;
(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
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<PAGE> 7
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
(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,
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<PAGE> 8
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
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<PAGE> 9
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 210 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.
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<PAGE> 10
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 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
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<PAGE> 11
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 90
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 91st day after the Closing Date until but excluding the date such
Exchange Offer Registration Statement is filed. In addition, if on or prior to
165 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 166th 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 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
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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 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
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<PAGE> 13
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, 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
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<PAGE> 14
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 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;
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<PAGE> 15
(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
Registration Statement and any post-effective amendment thereto (without
documents incorporated therein by reference or exhibits thereto, unless
requested);
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<PAGE> 16
(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
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<PAGE> 17
documents as may be required to effect such changes, and all other forms 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
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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 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);
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<PAGE> 19
(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 (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
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<PAGE> 20
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 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
-20-
<PAGE> 21
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 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
-21-
<PAGE> 22
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, such Holder, such Participating
Broker-Dealer or such 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);
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
-22-
<PAGE> 23
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 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
-23-
<PAGE> 24
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.
(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
-24-
<PAGE> 25
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 state 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
-25-
<PAGE> 26
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 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
-26-
<PAGE> 27
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
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
-27-
<PAGE> 28
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.
(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.
-28-
<PAGE> 29
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.
-1-
<PAGE> 30
IN WITNESS WHEREOF, the parties hereto have executed this
Registration Rights Agreement as of the date first written above.
NORTEK, INC.
By: __________________________________
Name:
Title:
WASSERSTEIN PERELLA SECURITIES, INC.
By: __________________________________
Name:
Title:
BEAR, STEARNS & CO. INC.
By: __________________________________
Name:
Title:
PAINEWEBBER INCORPORATED
By: __________________________________
Name:
Title:
<PAGE> 1
October __, 1998
State Street Bank and Trust Company,
as Trustee under the Indenture referenced below
Two International Place
Boston, MA 02110
Attention: Corporate Trust Department
Ladies and Gentlemen:
This opinion is rendered to you in connection with the exchange offer
(the "Exchange Offer") by Nortek, Inc. ("Nortek") to exchange its $210,000,000
8 7/8% Series B Notes due 2008 (the "Exchange Notes") for its outstanding
$210,000,000 8 7/8% Series A Notes due 2008 (the "Original Notes"). The Exchange
Notes were issued pursuant to the provisions of an indenture dated July 27, 1998
(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. For purposes of this opinion, we have examined and relied upon
the information set forth in Amendment No. 1 to the registration statement (the
"Registration Statement") on Form S-4 filed September __, 1998 with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Act"), relating to the Exchange Offer, the registration rights agreement
(the "Registration Rights Agreement") entered into between the Company and
Wasserstein Perella Securities, Inc. and Bear, Stearns & Co., Inc.
(collectively, the "Initial Purchasers") 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, the Registration Rights Agreement 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. We have also assumed that Nortek is a
corporation duly organized, validly existing and in good standing under The
General Corporation Law of the State of Delaware.
<PAGE> 2
State Street Bank and Trust Company -2- October __,1998
Based upon the foregoing, we are of the opinion that, Nortek has duly
authorized, executed and delivered the Exchange Notes 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 constitute legal, valid and 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.
Very truly yours,
Ropes & Gray
<PAGE> 1
EXHIBIT 12
Nortek, Inc.
Calculation of Earnings to Fixed Charges
(Amounts in Millions)
<TABLE>
<CAPTION>
Six Months Ended
----------------
June 28, July 4,
1993 1994 1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings (Loss) from Continuing Operations (11.6) 17.2 15.0 22.0 26.4 12.4 9.8
Provision (Credit) for Income Taxes 1.0 10.0 9.3 14.0 16.3 6.9 8.2
----------------------------------------------------------------
"Earnings" (10.6) 27.4 24.3 36.0 42.7 19.3 18.0
================================================================
Fixed Charges:
Interest Expense including amortization of
Debt Expense and Discount 26.5 26.3 24.9 30.1 50.2 17.6 39.2
Interest portion of Rental Expense 2.0 2.1 2.1 2.0 2.5 3.2 1.4
Interest on Indebtedness of a Former Sub.
Guaranteed by Company -- -- -- -- -- -- --
---- ---- ---- ---- ---- ---- ----
"Fixed Charges" 28.5 28.3 27.0 32.1 52.7 20.8 40.6
==== ==== ==== ==== ==== ==== ====
Earnings Available for Fixed Charges 17.9 55.7 51.3 68.1 95.4 40.1 58.6
Ratio of Earnings to Fixed Charges N/A 1.97 1.90 2.12 1.8 1.9 1.4
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1997 Six Months Ended July 4, 1998
-------------------------------------- ----------------------------------------
Pro Forma Pro Forma
Adjusted Nortek Pro Forma Adjusted Nortek Pro Forma
And Ply NuTone Adjusted And Ply NuTone Adjusted
Gem Pro Forma Company Gem Pro Forma Company
<S> <C> <C> <C> <C> <C> <C>
Earnings (Loss) from Continuing Operations 20.8 (3.5) 28.0 9.8 7.0 11.5
Provision (Credit) for Income Taxes 16.2 5.8 25.6 8.2 9.0 12.0
----- ----- ----- ---- ---- ----
"Earnings" 37.0 2.3 53.6 18.0 16.0 23.5
===== ===== ===== ==== ==== ====
Fixed Charges:
Interest Expense including amortization of
Debt Expense and Discount 77.8 97.1 97.1 39.2 48.9 48.9
Interest portion of Rental Expense 5.0 5.4 5.4 1.4 1.6 1.6
Interest on Indebtedness of a Former Sub.
Guaranteed by Company -- -- -- -- -- --
----- ----- ----- ---- ---- ----
"Fixed Charges" 82.8 102.5 102.5 40.6 50.5 50.5
===== ===== ===== ==== ==== ====
Earnings Available for Fixed Charges 119.8 104.8 156.1 58.6 66.5 74.0
Ratio of Earnings to Fixed Charges 1.4 1.0 1.5 1.4 1.3 1.5
</TABLE>
<TABLE>
<CAPTION>
Twelve Months Ended July 4, 1998
----------------------------------------
Pro Forma
Adjusted Nortek Pro Forma
And Ply NuTone Adjusted
Gem Pro Forma Company
<S> <C> <C> <C>
Earnings (Loss) from Continuing Operations 21.0 1.0 27.6
Provision (Credit) for Income Taxes 16.1 8.2 25.2
----- ----- -----
"Earnings" 37.1 9.2 52.8
===== ===== =====
Fixed Charges:
Interest Expense including amortization of
Debt Expense and Discount 77.8 97.2 97.2
Interest portion of Rental Expense 3.3 3.6 3.6
Interest on Indebtedness of a Former Sub.
Guaranteed by Company -- -- --
----- ----- -----
"Fixed Charges" 81.1 100.8 100.8
===== ===== =====
Earnings Available for Fixed Charges 118.2 110.0 153.6
Ratio of Earnings to Fixed Charges 1.5 1.1 1.5
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Nortek, Inc.:
As independent public accountants, we hereby consent to the use of our
report dated March 9, 1998 included in or made part of this Registration
Statement and to all references to our Firm included in this Registration
Statement.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
September 29, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated February 20, 1998, on our audit of the consolidated financial
statements of NuTone Inc. and Subsidiary. We also consent to the reference to
our Firm under the caption "Experts".
/s/ PRICEWATERHOUSECOOPERS LLP
Cincinnati, Ohio
September 29, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our 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 incorporated by reference
to this Registration Statement. We hereby consent to the incorporation of our
report to this Form S-4 and to the use of our name as it appears under the
caption "Experts."
/s/ GRANT THORNTON LLP
New York, New York
September 29, 1998
<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)
Maureen Scannell Bateman, 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)
DELAWARE 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)
8 7/8% SERIES B SENIOR NOTES DUE 2008
(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 17, 1998.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Arthur J. MacDonald
--------------------------------
NAME ARTHUR J. MACDONALD
TITLE 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 8 7/8% SERIES B NOTES DUE 2007, 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/ Arthur J. MacDonald
--------------------------------
NAME ARTHUR J. MACDONALD
TITLE VICE PRESIDENT
DATED: SEPTEMBER 17, 1998
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, 1998, 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>
Thousands of
ASSETS Dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin .............. 1,553,703
Interest-bearing balances ....................................... 12,440,716
Securities ................................................................. 9,436,138
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary ............................. 8,785,353
Loans and lease financing receivables:
Loans and leases, net of unearned income ........................ 6,633,608
Allowance for loan and lease losses ............................. 92,999
Allocated transfer risk reserve ................................. 0
Loans and leases, net of unearned income and allowances ......... 6,540,609
Assets held in trading accounts ............................................ 1, 267,679
Premises and fixed assets .................................................. 491,928
Other real estate owned .................................................... 100
Investments in unconsolidated subsidiaries ................................. 1,278
Customers' liability to this bank on acceptances outstanding ............... 68,312
Intangible assets .......................................................... 231,294
Other assets ............................................................... 1,667,282
-----------
Total assets ............................................................... 42,484,392
===========
LIABILITIES
Deposits:
In domestic offices ............................................. 12,553,371
Noninterest-bearing ................................... 10,204,405
Interest-bearing ...................................... 2,348,966
In foreign offices and Edge subsidiary .......................... 16,961,571
Noninterest-bearing ................................... 154,792
Interest-bearing ...................................... 16,806,779
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary ............................. 8,182,794
Demand notes issued to the U.S. Treasury and Trading Liabilities ........... 0
Trading liabilities ........................................................ 883,096
Other borrowed money ....................................................... 361,141
Subordinated notes and debentures .......................................... 0
Bank's liability on acceptances executed and outstanding ................... 68,289
Other liabilities .......................................................... 1,017,284
Total liabilities .......................................................... 40,027,546
-----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus .............................. 0
Common stock ............................................................... 29,931
Surplus .................................................................... 455,288
Undivided profits and capital reserves/Net unrealized holding gains (losses) 1,964,924
Net unrealized holding gains (losses) on available-for-sale securities ..... 15,557
Cumulative foreign currency translation adjustments ........................ (8,854)
Total equity capital ....................................................... 2,456,846
-----------
Total liabilities and equity capital ....................................... 42,484,392
-----------
</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
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.
<PAGE> 7
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 of
the obligor, the trustee has relied upon the 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 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 duly
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 17, 1998.
STATE STREET BANK AND TRUST COMPANY
By: /s/ ARTHUR J. MACDONALD
--------------------------
NAME ARTHUR J. MACDONALD
TITLE VICE PRESIDENT
2
<PAGE> 8
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 8 7/8% SERIES B SENIOR NOTES DUE 2008}, 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/ ARTHUR J. MACDONALD
--------------------------
NAME ARTHUR J. MACDONALD
TITLE VICE PRESIDENT
DATED: SEPTEMBER 17, 1998
3
<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.
$210,000,000 8 7/8% NOTES DUE 2008
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:
<TABLE>
<CAPTION>
STATE STREET BANK & TRUST COMPANY, EXCHANGE AGENT
<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.
________________________________________________________________________________
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 |
_____________________________________________________________|__________________
* 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.
________________________________________________________________________________
________________________________________________________________________________
<PAGE> 2
By execution hereof, the undersigned acknowledges receipt of the prospectus
dated __________, 1998 (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 8 7/8% Series
B Notes due 2008 (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 8 7/8% Series A Notes due 2008 (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 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.
-2-
<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.
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.
-3-
<PAGE> 4
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.
<TABLE>
<CAPTION>
<S> <C>
____________________________________________________________________________________________________
BENEFICIAL OWNER(S)
____________________________________________________________________________________________________
|
STATE OF PRINCIPAL RESIDENCE OF EACH BENEFICIAL OWNER | PRINCIPAL AMOUNT OF TENDERED ORIGINAL
OF TENDERED ORIGINAL NOTES | NOTES HELD FOR ACCOUNT OF BENEFICIAL OWNER
_______________________________________________________|____________________________________________
|
_______________________________________________________|____________________________________________
|
_______________________________________________________|____________________________________________
|
_______________________________________________________|____________________________________________
|
_______________________________________________________|____________________________________________
|
_______________________________________________________|____________________________________________
|
_______________________________________________________|____________________________________________
</TABLE>
-4-
<PAGE> 5
- --------------------------------------------------------------------------------
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 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: _____________________________________________________________
______________________________________________________________________
- --------------------------------------------------------------------------------
-5-
<PAGE> 6
- --------------------------------------------------------------------------------
FOR USE BY AFFILIATES
[ ] CHECK HERE IF YOU OR ANY BENEFICIAL OWNER FOR WHOM YOU ARE TENDERING
SECURITIES IS AN AFFILIATE OF NORTEK.
- --------------------------------------------------------------------------------
-6-
<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.
X ________________________________ Date: ____________________
X ________________________________ Date: ____________________
Signature(s) of Holder(s) or
Authorized Signatory
Name(s): _________________________ Address: ________________________________
__________________________________ _________________________________________
(Please Print) (Including Zip Code)
Capacity: ________________________ Area Code and Telephone No.: ____________
Social Security No.:______________
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: ____________________
- --------------------------------------------------------------------------------
-7-
<PAGE> 8
- --------------------------------------- --------------------------------------
SPECIAL DELIVERY INSTRUCTIONS SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTION 4 HEREIN) (SEE INSTRUCTION 4 HEREIN)
To be completed ONLY if certificates To be completed ONLY if certificates
for Original Notes in a principal for Original Notes in a principal
amount not tendered are to be issued amount not tendered or not accepted
in the name of, or the Exchange for purchase or the Exchange Notes
Notes issued pursuant to the issued pursuant to the Exchange
Exchange Offer are to be issued to Offer are to be sent to someone
the order of, someone other than the other than the person or persons
person or persons whose signature(s) whose signature(s) appear(s) within
appear(s) within this Letter of this Letter of Transmittal or issued
Transmittal or issued to an address to an address different from that
different from that shown in the box shown in the box entitled
entitled "Description of Original "Description of Original Notes
Notes Tendered" within this Letter Tendered" within this Letter of
of Transmittal, or if Original Notes Transmittal.
tendered by book-entry transfer that
are not accepted for purchase are to
be credited to an account maintained
at DTC.
Name: _____________________________ Name: _____________________________
(Please Print) (Please Print)
Address: __________________________ Address: __________________________
(Please Print) (Please Print)
___________________________________ ___________________________________
Zip Code Zip Code
___________________________________ ___________________________________
Taxpayer Identification or Taxpayer Identification or
Social Security Number Social Security Number
(See Substitute Form W-9 herein) (See Substitute Form W-9 herein)
- --------------------------------------- --------------------------------------
-8-
<PAGE> 9
<TABLE>
<CAPTION>
<S> <C> <C>
PAYER'S NAME: _________________________
______________________________________________________________________________________________________________
| |
SUBSTITUTE | PART 1--PLEASE PROVIDE YOUR TIN IN |
| THE BOX AT RIGHT AND CERTIFY BY |
FORM W-9 | SIGNING AND DATING BELOW | ___________________________
| | Social Security Number
| |
| |
DEPARTMENT OF THE TREASURY | | OR ________________________
INTERNAL REVENUE SERVICE | | Employer Identification
| | Number
| |
| |
| |
PAYER'S REQUEST FOR TAXPAYER | |
IDENTIFICATION NUMBER (TIN) | |
|_________________________________________________|_____________________________
| |
| PART 2--Certification--Under Penalties | PART 3-
| of Perjury, I certify that: |
| | Awaiting TIN [ ]
| (1) The number shown on this form is my 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______________________________
______________________________________________________________________________________________________________
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.
</TABLE>
-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.
__________________________________________ ______________________
Signature Date
- --------------------------------------------------------------------------------
-10-
<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
-11-
<PAGE> 12
Original Note is tendered, the tendering Holder should fill in the principal
amount tendered in the third column of the chart entitled "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. Nortek will pay all transfer taxes, if any, applicable
to the exchange of Original Notes pursuant to the Exchange Offer. If, however,
certificates representing Exchange Notes or Original Notes for principal amounts
not tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered Holder
of the Original Notes tendered hereby, or if tendered Original Notes are
registered in the name of any person other than the person signing this Letter
of Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of Original Notes pursuant to the Exchange Offer, then the amount of
any such transfer taxes (whether imposed on the registered Holder or any other
person) will be payable by the tendering Holder. If satisfactory evidence of
payment of such 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.
-12-
<PAGE> 13
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.
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)
================================================================================
Certificate Surrendered | Original Notes Tendered | Original Notes Accepted
__________________________|__________________________|__________________________
| |
__________________________|__________________________|__________________________
| |
__________________________|__________________________|__________________________
| |
__________________________|__________________________|__________________________
| |
__________________________|__________________________|__________________________
Delivery Prepared by______________ Checked by______________ Date______________
================================================================================
-13-
<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
-14-
<PAGE> 15
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional guidance on which number to report.
-15-
<PAGE> 16
<TABLE>
<CAPTION>
<S> <C> <C>
The Exchange Agent for the Exchange Offer is:
STATE STREET BANK AND TRUST COMPANY
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
FACSIMILE
(617) 664-5371
TELEPHONE
(617) 664-5607
</TABLE>
-16-
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
for
$210,000,000 8-7/8% Senior Note due 2008
of
NORTEK, INC.
As set forth in the Prospectus, dated _________, 1998 (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 8-7/8% Series A Senior Notes due 2008 ("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>
<CAPTION>
<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
<TABLE>
<CAPTION>
<S> <C>
Signature(s) of Registered Owner(s) or Authorized Name(s) of Registered Holder(s): ___________________
____________________________________________________
____________________________________________________
Signatory: _________________________________________
____________________________________________________
____________________________________________________ Address: ___________________________________________
____________________________________________________
Principal Amount of Original Notes tendered:
____________________________________________________ Area Code and Telephone No.: _______________________
Certificate No(s). of Original Notes (if available):
____________________________________________________ If Original Notes will be delivered by book-entry
____________________________________________________ transfer at The Depository Trust Company, insert
Depository Account No.:
Date: ______________________________________________ ____________________________________________________
</TABLE>
- --------------------------------------------------------------------------------
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)
Name(s): _____________________________________________________________
_____________________________________________________________
Capacity: _____________________________________________________________
Address(es): _____________________________________________________________
_____________________________________________________________
_____________________________________________________________
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.
Name of Firm: _________________________ _______________________________________
Authorized Signature
Address: ______________________________ Name: _________________________________
_______________________________________ Title: ________________________________
Area Code and Telephone No.: __________ Date: _________________________________
- --------------------------------------------------------------------------------
