<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 16, 1999
REGISTRATION NO. 333-64731
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 5
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
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NORTEK, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3634 05-0314991
(State or other jurisdiction (Primary standard industrial (I.R.S. Employer
of classification code number) Identification Number)
incorporation or organization)
</TABLE>
50 KENNEDY PLAZA, PROVIDENCE, RHODE ISLAND 02903
(401) 751-1600
(Address, including zip code and telephone number
including area code of registrant's principal executive offices)
KEVIN W. DONNELLY
VICE PRESIDENT AND GENERAL COUNSEL
NORTEK, INC.
50 KENNEDY PLAZA
PROVIDENCE, RHODE ISLAND 02903
(401) 751-1600
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
------------------------------------
Please send copies of all communications to:
David C. Chapin, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
(617) 951-7000
------------------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effectiveness of the Registration Statement.
If the only securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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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 JUNE 16, 1999
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 , 1999, 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).
Proceeds from the offering of Original Notes (the "Offering") were used to
finance the acquisition of NuTone, Inc., on July 31, 1998 (the "Acquisition").
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 April 3, 1999, the
Exchange Notes would have been effectively subordinated to approximately $469.9
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 August 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 17 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 June , 1999
<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 Exchange Act of 1934, as amended (the "Exchange
Act"), the Company will furnish to all holders of the Notes (i) all quarterly
and annual financial information that would be required to be contained in a
filing with the Commission on Forms 10-Q and 10-K if the Company were required
to file such Forms, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" 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, 1998;
(2) Nortek's Proxy Statement for the Company's Annual Meeting of
Stockholders filed on April 26, 1999;
(3) Nortek's Current Report on Form 8-K, filed with the Commission on
January 11, 1999;
(4) Nortek's Current Report on Form 8-K, filed with the Commission on
March 10, 1999;
(5) Nortek's Current Report on Form 8-K, filed with the Commission on
April 8, 1999;
(6) Nortek's Current Report on Form 8-K, filed with the Commission on
April 23, 1999;
(7) Nortek's Current Report on Form 8-K, filed with the Commission on
April 26, 1999.
(8) Nortek's Quarterly Report on Form 10-Q for the three months ended
April 3, 1999.
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 THAT CONTAIN IMPORTANT
BUSINESS AND FINANCIAL INFORMATION ABOUT THE COMPANY AND 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 OBTAIN TIMELY DELIVERY OF SUCH DOCUMENTS, ANY REQUEST MUST BE MADE
NO LATER THAN , 1999.
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 Room of the Commission at 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. The public may obtain information on the operation of
the Public Reference Room by calling the Commission at 1-800-SEC-0330. 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, including its exhibits and the financial statements,
notes and schedules filed as part of the Registration Statement or incorporated
by reference to it. 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, references herein to "Nortek" or to the "Company," are to Nortek,
Inc., a Delaware corporation, and its subsidiaries, or, in connection with the
Notes, to Nortek, Inc. as offeror or obligor.
THE COMPANY
The Company is a diversified manufacturer of residential and commercial
building products, operating within three principal segments: the Residential
Building Products Segment; the Air Conditioning and Heating Products Segment;
and the Windows, Doors and Siding Segment. Through these segments, 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 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, Inc.
("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. In addition, on October 9, 1998, the Company acquired Napco, Inc.
("Napco").
During 1998, the Company sold several of its businesses as well as several
non-core businesses acquired as part of the Ply Gem Acquisition. 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 three principal segments is provided
below. Pro forma 1998 net sales totals set forth below give effect to the
acquisition of NuTone as if it had occurred on January 1, 1998 and do not give
effect to the dispositions of businesses that occurred in 1998, the acquisition
of Napco or the acquisitions made in 1999. See "Recent Developments."
Residential Building Products Segment (31.7% of pro forma 1998 net
sales). This Segment manufactures and distributes built-in products primarily
for the residential new construction, DIY and professional remodeling and
renovation markets. This Segment also is the largest supplier in North America
of range hoods, bath fans and combination units (fan, heater and light
combinations), indoor air quality products (such as continuous-ventilation
systems and energy-recovery ventilators) and 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),
Rangaire(R), Flair(R), Nautilus(R) and NuTone(R) brand names.
Air Conditioning and Heating Products Segment (25.2% of pro forma 1998 net
sales). This Segment manufactures and sells air conditioning and heating
("HVAC") systems for custom-designed commercial applications and for
manufactured and site-built residential housing. This Segment'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), Temtrol(R), Aston and
Venmar(R). This Segment also designs and sells a broad line of central air
conditioners, heat pumps, furnaces
5
<PAGE> 7
and a wide range of accessories for the manufactured and site built residential
housing market. This Segment 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), Kelvinator(R) and Gibson(R)
consumer brand names. See "Recent Developments."
Windows, Doors and Siding Segment (29.0% of pro forma 1998 net
sales). This Segment is a leading manufacturer and distributor of vinyl and
wood windows and doors, vinyl siding, soffit, skirting and shutters 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 Segment
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. See "Recent Developments."
For the three year period ended December 31, 1998, Nortek's net sales,
operating earnings, earnings from continuing operations before provision for
income taxes and EBITDA from continuing operations grew at a compounded annual
rate of approximately 38.3%, 45.8%, 29.7% and 44.5%, respectively, due to a
combination of internal growth and complementary acquisitions. See "Selected
Historical Consolidated Financial Data." For the year ended December 31, 1998
and after giving effect to the Acquisition, the Company's pro forma net sales,
operating earnings, earnings from continuing operations before provision for
income taxes and EBITDA from continuing operations were approximately $1.8
billion, $142.5 million, $59.0 million and $189.9 million, respectively. These
pro forma results do not include the pro forma effect of any portion of the
approximately $15.0 million in estimated annualized cost reductions, except for
cost reductions actually achieved since the date of acquisition, from year ended
December 31, 1997 levels, related to the Acquisition, that the Company expects
to achieve within 12 to 18 months following the Acquisition. The cost reductions
as a result of the Acquisition are estimates and actual savings achieved could
differ materially. See "Unaudited Pro Forma 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.
RECENT DEVELOPMENTS
On March 8, 1999, the Company acquired Webco, Inc. ("Webco"), a designer
and manufacturer of custom air handling equipment. For the year ended October
31, 1998, Webco had net sales of approximately $13.9 million.
On April 23, 1999, the Company acquired Caradon Doors and Windows, Inc. and
purchased certain assets of the Caradon Windows and Doors Division of Caradon
Limited (combined "Caradon Acquired Companies") from Caradon America Inc. and
Caradon Limited, which are wholly-owned subsidiaries of Caradon plc, a United
Kingdom company. The Caradon Acquired Companies manufacture and sell premium
residential windows, entry doors and patio doors to both the new construction
and replacement markets under the Peachtree, CWD and Thermal-Gard names. For the
year ended December 31, 1998, the Caradon Acquired Companies had combined net
sales of approximately $169.7 million.
On May 28, 1999, the Company acquired Multiplex Technology, Inc.
("Multiplex"), a manufacturer and designer of high performance, multi-room video
distribution equipment for home automation/home entertainment. For the year
ended December 31, 1998, Multiplex had net sales of approximately $10.3 million.
The three acquisitions discussed above were principally funded through the
use of unrestricted cash, cash equivalents and marketable securities.
6
<PAGE> 8
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). In accordance with the Registration Rights Agreement, the
accrual of Liquidated Damages on the Original Notes will terminate upon
consummation of the Exchange Offer with respect to Original Notes that are
exchanged for Exchange Notes. In the event that Original Notes remain
outstanding after consummation of the Exchange Offer, the Company intends to
file a shelf registration statement to register such Original Notes. Upon
effectiveness of the shelf registration statement, the accrual of Liquidated
Damages on any remaining Original Notes will terminate.
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
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<PAGE> 9
Notes who transfer Exchange Notes in
violation of the prospectus delivery
provisions of the Securities Act and
without an exemption from registration
thereunder may incur liability under
the Securities Act. The Company does
not assume or indemnify Holders against
such liability.
A Participating Broker-Dealer that
receives Exchange Notes in exchange for
Original Notes held for its own
account, as a result of market-making
activities or other trading activities,
must acknowledge that it will deliver a
prospectus in connection with any
resale of such Exchange Notes. Although
such Participating Broker-Dealer may be
an "underwriter" within the meaning of
the Securities Act, the Letter of
Transmittal states that by so
acknowledging and by delivering a
prospectus, such Participating
Broker-Dealer will not be deemed to
admit that it is an "underwriter"
within the meaning of the Securities
Act. This Prospectus 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
, 1999, 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
8
<PAGE> 10
Letter of Transmittal, or such
facsimile, together with the Original
Notes and any other required
documentation to the Exchange Agent (as
defined) at the address set forth
herein. Certain brokers, dealers,
commercial banks, trust companies and
other nominees may effect tenders by
book-entry transfer, including an
Agent's Message (as defined) in lieu of
a Letter of Transmittal. By executing a
Letter of Transmittal or, in lieu
thereof, by transmitting an Agent's
message, each Holder will represent to
the Company that, among other things,
(i) the Exchange Notes acquired
pursuant to the Exchange Offer are
being obtained in the ordinary course
of business of the person receiving
such Exchange Notes, whether or not
such person is the Holder, (ii) neither
the Holder nor any such other person
has any arrangement or understanding
with any person to participate in the
distribution of such Exchange Notes and
that such Holder is not engaged in, and
does not intend to engage in, a
distribution of Exchange Notes, and
(iii) that neither the Holder nor any
such other person is an "affiliate," as
defined in Rule 405 under the
Securities Act, of the Company. See
"The Exchange Offer -- Procedures for
Tendering."
SPECIAL PROCEDURES FOR BENEFICIAL
HOLDERS............................. Any beneficial owner whose Original
Notes are registered in the name of a
broker, dealer, commercial bank, trust
company or other nominee and who wishes
to tender in the Exchange Offer should
contact such 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
9
<PAGE> 11
such Original Notes could be adversely
affected by the Exchange Offer.
CONSEQUENCES OF FAILURE TO
EXCHANGE............................ The Original Notes that are not
exchanged pursuant to the Exchange
Offer will remain restricted
securities. Accordingly, such Original
Notes may be resold only (i) to the
Company, (ii) pursuant to Rule 144A or
Rule 144 under the Securities Act or
pursuant to some other exemption under
the Securities Act, (iii) outside the
United States in compliance with
Regulation S of the Securities Act, or
(iv) pursuant to an effective
registration statement under the
Securities Act. See "The Exchange
Offer -- Consequences of Failure to
Exchange."
SHELF REGISTRATION STATEMENT........ In the event that any changes in law or
the applicable interpretations of the
staff of the Commission do not permit
the Company to effect the Exchange
Offer, or upon the request of a Holder
of Transfer Restricted Securities (as
defined) under certain circumstances or
if the Exchange Offer is not for any
other reason consummated within 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.
10
<PAGE> 12
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 August 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
11
<PAGE> 13
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 April 3, 1999,
the Exchange Notes would have been
effectively subordinated to
approximately $469.9 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."
12
<PAGE> 14
SUMMARY UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL DATA
The following table sets forth summary unaudited consolidated pro forma
financial data of the Company which give effect to the NuTone acquisition. The
pro forma consolidated financial data should be read in conjunction with the
audited Consolidated Financial Statements and the Notes thereto and the
information contained in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1998 and the Unaudited Condensed
Consolidated Financial Statements and the Notes thereto and the information
contained in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in the Company's Quarterly Report on Form 10-Q
for the three months ended April 3, 1999 incorporated by reference into this
Registration Statement and the information contained in "Unaudited Pro Forma
Condensed Consolidated Financial Data" included elsewhere herein.
Information entitled "Nortek Historical" is derived from the Consolidated
Financial Statements of Nortek included in the Company's Annual Report on Form
10-K for the year ended December 31, 1998 and from the Unaudited Condensed
Consolidated Financial Statements of Nortek included in the Company's Quarterly
Report on Form 10-Q for the three months ended April 3, 1999 incorporated by
reference into this Registration Statement and includes the results of NuTone
from the date of acquisition by Nortek. Information entitled "NuTone Historical"
is derived from the unaudited Consolidated Financial Statements of NuTone for
the periods from January 1, 1998 to July 31, 1998 and from January 1, 1998 to
April 4, 1998.
During 1998, the Company sold several nonstrategic businesses and acquired
Napco, Inc. ("Napco"). The following Summary Unaudited Consolidated Pro Forma
Financial Data and other data does not give pro forma effect to the dispositions
of businesses that occurred in 1998, the acquisition of Napco or the
acquisitions made in 1999. See "Recent Developments" and Note 2 of the Notes to
Consolidated Financial Statements included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1998 and Notes (B), (D), (H), (J) and
(K) of the Notes to Unaudited Condensed Consolidated Financial Statements
included in the Company's Quarterly Report on Form 10-Q for the three months
ended April 3, 1999 incorporated by reference into this Registration Statement.
The following unaudited pro forma consolidated financial data is presented
for illustrative purposes only and is not necessarily indicative of the results
of operations which would actually have been reported had the above transactions
been in effect during the period presented or which may be reported in the
future. No pro forma consolidated financial data is presented for the three
months ended April 3, 1999 as all of the transactions requiring pro forma
treatment were included in the historical results of operations of Nortek for
the period from January 1, 1999 to April 3, 1999.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, 1998 THREE MONTHS ENDED APRIL 4, 1998 APRIL 3, 1999
----------------------------------- ----------------------------------- -------------
PRO FORMA PRO FORMA
NORTEK NUTONE COMPANY NORTEK NUTONE COMPANY NORTEK
HISTORICAL HISTORICAL (3)(4) HISTORICAL HISTORICAL (3)(4) HISTORICAL
---------- ---------- --------- ---------- ---------- --------- -------------
(IN MILLIONS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Net sales........................... $1,738.3 $110.7 $1,849.0 $392.5 $ 49.5 $442.0 $406.7
Gross profit........................ 463.0 40.8 504.7 98.2 17.8 116.3 109.8
Operating earnings.................. 133.1 12.3 142.5 19.7 4.2 23.0 27.6
Interest expense, net............... (75.8) (7.1) (87.5) (17.2) (3.0) (22.0) (21.1)
Earnings from continuing
operations........................ 34.0 3.2 31.4 1.3 0.7 0.5 3.5
Earnings per diluted share from
continuing operations............. $ 3.06 $ 2.63 $ .13 $ .04 $ .29
OTHER CONSOLIDATED DATA:
Capital expenditures................ $ 41.4 $ 2.1 $ 43.5 $ 6.0 $ 0.7 $ 6.7 11.8
Depreciation and amortization
including non-cash interest....... 45.3 2.0 51.0 10.8 0.8 13.2 13.9
EBITDA(1)........................... 175.2 14.3 189.9 29.7 5.0 35.2 40.7
Ratio of earnings to fixed
charges(2)........................ 1.7x 1.6x 1.1x 1.0x 1.3x
Ratio of EBITDA to interest expense,
net............................... 2.3x 2.2x 1.7x 1.6x 1.9x
</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
13
<PAGE> 15
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. The Company believes that EBITDA may be
useful to investors in evaluating the Company's ability to service debt and
to finance growth including acquisitions, capital expenditures and working
capital. The Company believes that during periods of increasing EBITDA the
Company may be able to finance its growth including acquisitions, capital
expenditures and working capital through increased borrowings and the sale
of equity. In periods of declining EBITDA, the Company may be required to
limit or defer growth, including acquisitions and capital expenditures, and
may be required to adopt measures to reduce the level of its expenses and
working capital. EBITDA as calculated by the Company may differ from EBITDA
as calculated by other companies.
(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) The Acquisition is accounted for under the purchase method of accounting.
The summary unaudited pro forma consolidated financial data have been
prepared utilizing a preliminary purchase price allocation. The preliminary
purchase price allocation is subject to refinement until all pertinent
information regarding the Acquisition is obtained and accordingly the
amounts presented herein are subject to change.
(4) Gives effect to the sale in the second quarter of 1998 of 2,182,500 shares
of the Company's common stock (the "Common Stock Offering"), the Offering
and the Acquisition, in each case as if such events had occurred on January
1, 1998 and reflects cost reductions directly attributable to the
Acquisition of approximately $0.4 million and $0.5 million for the year
ended December 31, 1998 and the three months ended April 4, 1998,
respectively. Does not give pro forma effect to any portion of the
approximately $15.0 million in annualized estimated additional cost savings
and reductions from year ended December 31, 1997 levels, Nortek expects to
achieve, within 12 to 18 months as a result of actions to be taken
subsequent to the Acquisition. These cost savings and reductions are
estimates and actual savings achieved could differ materially.
14
<PAGE> 16
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, 1998 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 April 3, 1999 and for the three months ended April
4, 1998 and April 3, 1999 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 results of operations for the
three months ended April 3, 1999 are not necessarily indicative of the results
of operations to be expected for the full year. The following summary financial
data should be read in conjunction with the Company's audited Consolidated
Financial Statements and Notes thereto and the information contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998 and the Unaudited Condensed Consolidated Financial
Statements and the Notes thereto and the information contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in the Company's Quarterly Report on Form 10-Q for the three months
ended April 3, 1999 incorporated by reference into this Registration Statement
and the information contained in "Unaudited Pro Forma Condensed Consolidated
Financial Data" included elsewhere herein.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, -------------------
----------------------------------------------- APRIL 4, APRIL 3,
1994(6) 1995 1996 1997 1998(6) 1998 1999
------- ------ ------ -------- -------- -------- --------
(IN MILLIONS EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1)(2):
Net sales............................................... $616.0 $656.8 $841.6 $1,134.1 $1,738.3 $392.5 $ 406.7
Operating earnings...................................... 44.4 43.0 61.0 83.0 133.1 19.7 27.6
Interest expense, net................................... 18.5 14.9 22.4 40.3 75.8 17.2 21.1
Earnings from continuing operations..................... 15.4 17.5 23.7 26.4 34.0 1.3 3.5
Earnings per share from continuing operations(2)(3):
Basic................................................. $ 1.23 $ 1.41 $ 2.26 $ 2.75 $ 3.11 $ .14 $ .30
Diluted............................................... 1.21 1.39 2.23 2.68 3.06 .13 .29
Weighted average number of shares (in thousands):
Basic................................................. 12,543 12,445 10,485 9,605 10,923 9,540 11,747
Diluted............................................... 13,100 12,569 10,641 9,855 11,113 9,710 11,925
OTHER DATA(2):
Capital expenditures.................................... $ 14.4 $ 15.7 $ 19.8 $ 22.5 $ 41.4 $ 6.0 $ 11.8
Depreciation and amortization including non-cash
interest.............................................. 15.5 16.2 21.0 28.4 45.3 10.8 13.9
EBITDA(4)............................................... 58.6 58.1 80.8 109.7 175.2 29.7 40.7
Ratio of earnings to fixed charges(5)................... 1.9x 2.1x 2.3x 1.8x 1.7x 1.1x 1.3x
CASH FLOW STATEMENT DATA:
Net cash provided by (used in) operating activities..... 26.2 33.3 47.4 85.1 101.2 (43.7) (38.0)
Net cash provided by (used in) investing activities..... (56.6) (35.1) (5.2) (423.4) (351.4) 4.6 13.2
Net cash provided by (used in) financing activities..... 8.6 4.1 (38.3) 423.1 212.2 (5.6) (5.3)
</TABLE>
<TABLE>
<CAPTION>
APRIL 3, 1999
-------------
(IN MILLIONS)
<S> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities(7)......... $ 156.8
Working capital............................................. 335.1
Total assets................................................ 1,657.9
Total debt.................................................. 1,021.6
Stockholders' investment.................................... 224.1
</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 in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998 and in Notes (B),
(D), (H), (J) and (K) of the Notes to Unaudited Condensed Consolidated
Financial Statements included in the Company's Quarterly Report on Form 10-Q
for the three months ended April 3, 1999 incorporated by reference into this
Registration Statement.
(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
15
<PAGE> 17
- --------------------------------------------------------------------------------
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 in the Company's Annual Report on Form
10-K for the year ended December 31, 1998 incorporated by reference into
this Registration Statement.
(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.
(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. The Company believes that EBITDA may be useful to
investors in evaluating the Company's ability to service debt and to finance
growth including acquisitions, capital expenditures and working capital. The
Company believes that during periods of increasing EBITDA the Company may be
able to finance its growth including acquisitions, capital expenditures and
working capital through increased borrowings and the sale of equity. In
periods of declining EBITDA, the Company may be required to limit or defer
growth, including acquisitions and capital expenditures, and may be required
to adopt measures to reduce the level of its expenses and working capital.
EBITDA as calculated by the Company may differ from EBITDA as calculated by
other companies.
(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.
(6) 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. In 1998, the Company
recorded a pretax gain of approximately $4 million (approximately $.11 per
share, net of tax) related to the sale of certain businesses. See Note 2 of
the Notes to Consolidated Financial Statements included in the Company's
Annual Report on Form 10-K incorporated by reference into this Registration
Statement.
(7) Includes restricted cash, investments and marketable securities in the
amount of approximately $8.0 million as of April 3, 1999.
- --------------------------------------------------------------------------------
16
<PAGE> 18
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 is highly leveraged and expects to continue to be highly
leveraged for the foreseeable future. At April 3, 1999, the Company had
consolidated debt of approximately $1,021.6 million and a debt-to-equity ratio
of 4.6 to 1.0. 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. To the extent that the Company pursues any acquisitions, such
acquisitions may be financed through the sale of additional equity or debt
securities. To the extent that such acquisitions are financed through the sale
of additional debt securities, the Company's leverage may increase, which could
have a negative impact on existing debt holders. See "Capitalization" included
elsewhere herein and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" included
in the Company's Quarterly Report on Form 10-Q for the three months ended April
3, 1999 and in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 incorporated by reference into this Registration Statement.
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, (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
April 3, 1999, the Company is 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
17
<PAGE> 19
restrictive indenture with respect to Restricted Payments, and at April 30, 1999
limits the Company's ability to make Restricted Payments to approximately $68.2
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 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. The Company expects to meet its cash flow
requirements through fiscal 1999 from cash generated from operations, existing
cash, cash equivalents and marketable securities, the sale of assets and
possible financings, which may include securitization of accounts receivables
and mortgage or capital lease financings.
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,
which was entered into in connection with the acquisition of Ply Gem to
refinance a portion of Ply Gem's existing indebtedness). 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 April 3,
1999, the Company had outstanding, exclusively through its subsidiaries,
approximately $123.9 million of secured indebtedness. See "Description of
Notes -- Certain Covenants."
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.
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
18
<PAGE> 20
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 April 3, 1999, the
Notes would have been effectively subordinated to approximately $469.9 million
of indebtedness for borrowed money, trade payables and accrued liabilities of
the Company's subsidiaries. See "Description of Notes -- General."
The Indenture provides that in the event any of the Company's subsidiaries
guarantees or otherwise becomes liable for the payment of any Indebtedness of
the Company (other than Indebtedness under the Company Credit Facility or the
Ply Gem Credit Facility) such subsidiary shall also guarantee the payment of the
Notes. This provision of the Indenture ceases to have effect in certain
circumstances. In the event any 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."
FTC ORDER
The FTC Order required Nortek to divest, at no minimum price, prior to
December 31, 1998, all of the M&S Assets. On December 30, 1998, Nortek sold M&S
after obtaining the required FTC approval. At any time after the consummation of
the Acquisition, the FTC, the Department of Justice ("DOJ") or 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 challenge will not be made or, if made and
successful, would not have a material adverse effect on the Company.
LABOR RELATIONS
As of March 31, 1999, approximately 12% of Nortek's workforce is subject to
various collective bargaining agreements. Collective bargaining agreements
covering approximately 6% of Nortek's workforce expire 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
19
<PAGE> 21
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 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 eight 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
20
<PAGE> 22
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 Year 2000 ("Y2K") issue refers to and arises from deficient computer
programs and related products, such as embedded chips, which do not properly
recognize or process a year that begins with "20" instead of "19." If not
corrected, many business and other processes could fail or create erroneous
results. The extent of the potential impact of the Y2K issue is not yet known,
and if not timely corrected, it could affect the global economy. Although the
Company believes that all information technology ("IT") and non-IT systems
material to the Company's business will be Y2K compliant on or before December
31, 1999, it cannot predict the outcome or the success of its Y2K initiative, or
that third party systems are or will be Y2K compliant, or that the costs
required to address the Y2K issue, or that the impact of a failure to achieve
substantial Y2K compliance, will not have a material adverse effect on the
company's business, financial condition or results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in the Company's Quarterly Report on Form 10-Q for the
three months ended April 3, 1999 and in the Company's Annual Report on Form 10-K
for the year ended December 31, 1998 incorporated by reference into this
Registration Statement.
------------------------
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
21
<PAGE> 23
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.
22
<PAGE> 24
RECENT DEVELOPMENTS
On March 8, 1999, the Company acquired Webco, Inc. ("Webco"), a designer
and manufacturer of custom air handling equipment. For the year ended October
31, 1998, Webco had net sales of approximately $13.9 million.
On April 23, 1999, the Company acquired Caradon Doors and Windows, Inc. and
purchased certain assets of the Caradon Windows and Doors Division of Caradon
Limited (combined "Caradon Acquired Companies") from Caradon America Inc. and
Caradon Limited, which are wholly-owned subsidiaries of Caradon plc, a United
Kingdom company. The Caradon Acquired Companies manufacture and sell premium
residential windows, entry doors and patio doors to both the new construction
and replacement markets under the Peachtree, CWD and Thermal-Gard names. For the
year ended December 31, 1998, the Caradon Acquired Companies had combined net
sales of approximately $169.7 million.
On May 28, 1999, the Company acquired Multiplex Technology, Inc.
("Multiplex"), a manufacturer and designer of high performance, multi-room video
distribution equipment for home automation/home entertainment. For the year
ended December 31, 1998, Multiplex had net sales of approximately $10.3 million.
The three acquisitions discussed above were principally funded through the
use of unrestricted cash, cash equivalents and marketable securities.
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.
23
<PAGE> 25
CAPITALIZATION
The following table sets forth at April 3, 1999 the short-term debt and
capitalization of the Company. The information presented below should be read in
conjunction with the Consolidated Financial Statements of the Company and Notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 and the Unaudited Condensed Consolidated Financial Statements
and the Notes thereto included in the Company's Quarterly Report on Form 10-Q
for the three months ended April 3, 1999 incorporated by reference into this
Registration Statement.
<TABLE>
<CAPTION>
APRIL 3, 1999
---------------------
HISTORICAL
---------------------
(DOLLARS IN
MILLIONS)
<S> <C>
Short-term debt:
Short-term borrowings.................................. $ 10.3
Current maturities of long-term debt................... 5.8
--------
Total short-term debt............................. $ 16.1
========
Long-term debt:
Notes, mortgage notes and other........................ $ 110.5
9 1/4% Senior Notes due 2007........................... 174.1
9 1/8% Senior Notes due 2007........................... 307.8
8 7/8% Senior Notes due 2008........................... 209.3
9 7/8% Senior Subordinated Notes due 2004.............. 203.8
--------
Total long-term debt(1)........................... $1,005.5
--------
Stockholders' investment(2):
Preference stock, $1.00 par value; 7,000,000 shares
authorized, none issued............................... $ --
Common stock, $1.00 par value; 40,000,000 shares
authorized; 18,679,742 shares issued.................. 18.7
Special common stock, $1.00 par value; 5,000,000 shares
authorized; 848,653 shares issued..................... 0.8
Additional paid-in capital............................. 207.8
Retained earnings...................................... 97.5
Accumulated other comprehensive loss................... (12.6)
Less: Treasury stock, at cost, 7,375,993 common shares
and 289,859 special common shares..................... (88.1)
--------
Total stockholders' investment.................... $ 224.1
--------
Total capitalization.............................. $1,229.6
========
</TABLE>
- ---------------
(1) Long-term debt is net of $4.8 million of unamortized debt discount.
(2) Excludes (i) 1,895,075 shares of common stock, $1.00 par value (the "Common
Stock") at April 3, 1999 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) 1,120,516 shares of Special Common
stock at April 3, 1999 which have been reserved for issuance pursuant to
options and (iii) 118,625 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.
24
<PAGE> 26
UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL DATA
OVERVIEW
The Unaudited Pro Forma Condensed Consolidated Financial Data for the year
ended December 31, 1998 and the three months ended April 4, 1998 presented
herein gives pro forma effect to certain transactions. Transactions for which
pro forma information is provided include the Common Stock Offering, the
Offering and the Acquisition.
The Acquisition is accounted for under the purchase method of accounting.
With respect to the Acquisition, the information contained herein has been
prepared utilizing a preliminary purchase price allocation which is subject to
refinement until all pertinent information regarding the Acquisition has been
obtained. This pertinent information to be received includes, among other items,
the Company's final integration plan for the Acquisition. The Company does not
expect that the final purchase price allocation of the Acquisition will have a
material effect on its consolidated results of operations or financial position.
The Company's plans for eliminating certain activities of the 1998 and 1999
acquisitions were not finalized as of April 3, 1999. The Company expects to
finalize its plans with respect to the 1998 and 1999 acquisitions within one
year of the respective acquisition dates and, accordingly, additional
liabilities will be recorded as adjustments to the purchase price allocation for
certain of the acquired businesses. The Company estimates additional liabilities
associated with plans for the 1998 and 1999 acquisitions are in the range of
$17,000,000 to $24,000,000 for acquisitions prior to April 3, 1999 and relate
principally to additional employee terminations and other exit costs related to
the elimination or consolidation of certain functions and operations at certain
of the acquired businesses.
The financial information entitled "Unaudited Pro Forma" 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 acquisition of NuTone. In the opinion of management, all
adjustments necessary to present fairly, in all material respects, such
"Unaudited Pro Forma" financial information have been made.
During 1998, the Company sold several nonstrategic businesses. On October
9, 1998 the Company acquired Napco. The following Pro Forma Condensed
Consolidated Financial Data does not give pro forma effect to the dispositions
of businesses that occurred in 1998, the acquisition of Napco or the
acquisitions made in 1999. See "Recent Developments."
The Unaudited Pro Forma Condensed Consolidated Financial Data should be
read in conjunction with "Capitalization" and the audited and unaudited NuTone
Consolidated Financial Statements and the Notes thereto included elsewhere
herein, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the audited Nortek Consolidated Financial Statements
and the Notes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998 and the Unaudited Condensed Consolidated
Financial Statements and the Notes thereto and the information contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in the Company's Quarterly Report on Form 10-Q for the
three months ended April 3, 1999 incorporated by reference into this
Registration Statement.
The Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the year ended December 31, 1998 has been prepared using: (i) Nortek's Audited
Consolidated Statement of Operations for the year ended December 31, 1998 (which
includes the operations of NuTone from August 1, 1998 to December 31, 1998); and
(ii) NuTone's Unaudited Results of Operations for the period from January 1,
1998 to July 31, 1998.
The Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the three months ended April 4, 1998 has been prepared using: (i) Nortek's
Unaudited Consolidated Statement of Operations for the
25
<PAGE> 27
three months ended April 4, 1998; and (ii) NuTone's Unaudited Results of
Operations for the three months ended April 4, 1998.
No Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the three months ended April 3, 1999 has been presented as all of the
transactions requiring pro forma treatment were included in the historical
results of operations of Nortek for the period from January 1, 1999 to April 3,
1999.
The information entitled "Pro Forma Company" gives effect to: (i) the
Acquisition; (ii) net savings expected to be achieved from the elimination of
fees and charges paid by NuTone to Williams plc and related entities; (iii) the
Common Stock Offering; (iv) the Offering and (v) Pro Forma Adjustments related
to the Offering and the Acquisition. The Company believes that the historical
net sales and expenses of NuTone would not have materially changed without the
management services provided by Williams.
The Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the year ended December 31, 1998 and the three months ended April 4, 1998 do not
give pro forma effect to any portion of the approximately $15.0 million in
annualized estimated cost reductions from year ended December 31, 1997 levels,
related to the Acquisition, that the Company expects to achieve within 12 to 18
months following the Acquisition. The cost savings and reductions as a result of
the Acquisition are estimates and actual savings achieved could differ
materially.
26
<PAGE> 28
UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NORTEK NUTONE PRO FORMA PRO FORMA
HISTORICAL HISTORICAL(A) ADJUSTMENTS COMPANY
---------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales............................................ $1,738,343 $110,661 $ -- $1,849,004
Cost and expenses:
Cost of products sold.............................. 1,275,350 69,899 (919)(b) 1,344,330
Amortization of goodwill and intangible assets..... 14,416 -- 4,217(c) 18,633
Selling, general and administrative expense........ 315,449 28,430 (355)(d) 343,524
---------- -------- ------- ----------
1,605,215 98,329 2,943 1,706,487
---------- -------- ------- ----------
Operating earnings (loss)............................ 133,128 12,332 (2,943) 142,517
Gain on Businesses sold............................ 4,000 -- -- 4,000
Interest expense................................... (86,298) (7,081) (4,198)(e) (97,577)
Investment income.................................. 10,470 16 (450)(f) 10,036
---------- -------- ------- ----------
Earnings (loss) from continuing operations before
provision for income taxes......................... 61,300 5,267 (7,591) 58,976
Provision (benefit) for income taxes................. 27,300 2,107 (1,794)(g) 27,613
---------- -------- ------- ----------
Earnings (loss) from continuing operations........... $ 34,000 $ 3,160 $(5,797) $ 31,363
========== ======== ======= ==========
HISTORICAL EARNINGS PER SHARE:
Earnings from continuing operations:
Basic.............................................. $ 3.11
Diluted............................................ 3.06
Weighted average number of shares:
Basic.............................................. 10,923
Diluted............................................ 11,113
EARNINGS PER SHARE AS ADJUSTED FOR THE COMMON STOCK OFFERING:
Earnings from continuing operations:
Basic.............................................. $ 2.90 $ 2.67
Diluted............................................ 2.85 2.63
Weighted average number of shares:
Basic.............................................. 11,725 11,725
Diluted............................................ 11,912 11,912
</TABLE>
See Notes to the Unaudited Pro Forma
Condensed Consolidated Statement of Operations
27
<PAGE> 29
UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED APRIL 4, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NORTEK NUTONE PRO FORMA PRO FORMA
HISTORICAL HISTORICAL(A) ADJUSTMENTS COMPANY
---------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales............................................... $392,468 $49,564 $ -- $442,032
Cost and expenses:
Cost of products sold................................. 294,320 31,811 (380)(b) 325,751
Amortization of goodwill and intangible assets........ 2,894 -- 1,754 (c) 4,648
Selling, general and administrative expense........... 75,561 13,561 (482)(d) 88,640
-------- ------- ------- --------
372,775 45,372 892 419,039
-------- ------- ------- --------
Operating earnings (loss)............................... 19,693 4,192 (892) 22,993
Interest expense...................................... (19,458) (3,060) (1,774)(e) (24,292)
Investment income..................................... 2,265 18 -- (f) 2,283
-------- ------- ------- --------
Earnings (loss) from continuing operations before
provision for income taxes............................ 2,500 1,150 (2,666) 984
Provision (benefit) for income taxes.................... 1,200 460 (1,199)(g) 461
-------- ------- ------- --------
Earnings (loss) from continuing operations.............. $ 1,300 $ 690 $(1,467) $ 523
======== ======= ======= ========
HISTORICAL EARNINGS PER SHARE:
Earnings from continuing operations:
Basic................................................. $ .14
Diluted............................................... .13
Weighted average number of shares:
Basic................................................. 9,540
Diluted............................................... 9,710
EARNINGS PER SHARE AS ADJUSTED FOR THE COMMON STOCK OFFERING:
Earnings from continuing operations:
Basic................................................. $ .11 $ .04
Diluted............................................... $ .11 .04
Weighted average number of shares:
Basic................................................. 11,723 11,723
Diluted............................................... 11,893 11,893
</TABLE>
See Notes to the Unaudited Pro Forma
Condensed Consolidated Statement of Operations
28
<PAGE> 30
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE
YEAR MONTHS
ENDED ENDED
DECEMBER 31, APRIL 4,
1998 1998
------------ --------
<S> <C> <C>
(a) NUTONE HISTORICAL
The Company acquired NuTone on July 31, 1998. The Pro Forma
results for the year ended December 31, 1998 include the
actual historical results of NuTone for the period from
January 1, 1998 to July 31, 1998. The Pro Forma results
for the three months ended April 4, 1998 include the
actual historical results of NuTone for such period.
(b) COST OF PRODUCTS SOLD
The effect on depreciation expense of changing the estimated
future lives and increasing the estimated fair value of
property, plant and equipment:
Depreciation expense based on NuTone's historical estimated
lives of property, plant and equipment.................... $ (2,366) $(1,014)
Depreciation expense based on revised estimated lives of
property, plant and equipment............................. 1,062 455
-------- -------
The net effect of changing estimated lives of property,
plant and equipment.................................... (1,304) (559)
The effect on depreciation expense of increasing the
estimated fair value of property, plant and
equipment.............................................. 385 179
-------- -------
$ (919) $ (380)
======== =======
(c) AMORTIZATION OF GOODWILL AND INTANGIBLE ASSETS
Amortization of goodwill and intangible assets related to
the Acquisition........................................... $ 4,217 $ 1,754
======== =======
(d) 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 including
approximately $150 of annual estimated general corporate
overhead expenses. The Company believes that net sales and
expenses of NuTone would not have materially changed
without Williams' management services..................... $ (355) $ (482)
======== =======
(e) INTEREST EXPENSE
Interest expense related to the Offering.................... $(10,872) $(4,659)
Amortization of debt issuance costs related to the
Offering.................................................. (379) (162)
Amortization of debt discount related to the Offering....... (28) (13)
Reduction of interest expense related to intercompany
borrowings not assumed in the Acquisition................. 7,081 3,060
-------- -------
$ (4,198) $(1,774)
======== =======
(f) INVESTMENT INCOME
Reduction in interest income on cash and cash equivalents
used to fund the Acquisition.............................. $ (450) $ --
======== =======
(g) PROVISION (BENEFIT) FOR INCOME TAXES
Income tax benefit related to notes (b) through (f) above
excluding amortization of goodwill........................ $ (1,794) $(1,199)
======== =======
</TABLE>
29
<PAGE> 31
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, 1998 have been derived from the
consolidated financial statements of Nortek which were audited by Arthur
Andersen LLP, independent public accountants. The selected consolidated
operating and balance sheet data for the three months ended April 4, 1998 and
April 3, 1999 and as of the end of each such period 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 results of operations
for the three months ended April 3, 1999 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" included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998 and the Unaudited Condensed Consolidated Financial
Statements and the Notes thereto and the information contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in the Company's Quarterly Report on Form 10-Q for the three months
ended April 3, 1999 incorporated by reference into this Registration Statement
and the information contained in "Unaudited Pro Forma 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
December 31, 1998 and April 3, 1999, respectively.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, -------------------
------------------------------------------------- APRIL 4, APRIL 3,
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- -------- --------
(IN MILLIONS EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1)(2):
Net sales.......................................... $ 616.0 $ 656.8 $ 841.6 $1,134.1 $1,738.3 $ 392.5 $ 406.7
Cost of products sold.............................. 421.9 469.8 596.8 825.8 1,275.4 294.3 296.9
Amortization of goodwill and intangible assets..... 2.4 2.5 3.5 5.9 14.4 2.9 4.8
Selling, general and administrative expense........ 147.3 141.5 180.3 219.4 315.4 75.6 77.4
------- ------- ------- -------- -------- ------- -------
Operating earnings................................. 44.4 43.0 61.0 83.0 133.1 19.7 27.6
Interest expense................................... (23.8) (23.0) (28.4) (50.2) (86.3) (19.5) (23.9)
Investment income.................................. 5.3 8.1 6.0 9.9 10.5 2.3 2.8
(Loss) gain on businesses sold(3).................. (1.8) -- -- -- 4.0 -- --
------- ------- ------- -------- -------- ------- -------
Earnings from continuing operations before
provision for income taxes....................... 24.1 28.1 38.6 42.7 61.3 2.5 6.5
Provision for income taxes......................... 8.7 10.6 14.9 16.3 27.3 1.2 3.0
------- ------- ------- -------- -------- ------- -------
Earnings from continuing operations................ 15.4 17.5 23.7 26.4 34.0 1.3 3.5
Earnings (loss) from discontinued operations....... 1.8 (2.5) (1.7) (5.2) 1.2 -- --
Extraordinary gain (loss) from debt retirements.... 0.2 -- -- -- (.2) -- --
Cumulative effect of accounting changes............ 0.4 -- -- -- -- -- --
------- ------- ------- -------- -------- ------- -------
Net earnings....................................... $ 17.8 $ 15.0 $ 22.0 $ 21.2 $ 35.0 $ 1.3 $ 3.5
======= ======= ======= ======== ======== ======= =======
Earnings per share from continuing operations(4):
Basic.......................................... $ 1.23 $ 1.41 $ 2.26 $ 2.75 $ 3.11 $ .14 $ .30
Diluted........................................ 1.21 1.39 2.23 2.68 3.06 .13 .29
Net earnings per share(4):
Basic.......................................... $ 1.42 $ 1.21 $ 2.10 $ 2.21 3.20 $ .14 $ .30
Diluted........................................ 1.39 1.19 2.07 2.15 3.15 .13 .29
Weighted average number of shares(4) (in
thousands):
Basic.......................................... 12,543 12,445 10,485 9,605 10,923 9,540 11,747
Diluted........................................ 13,100 12,569 10,641 9,855 11,113 9,710 11,925
OTHER DATA(2):
Capital expenditures............................... $ 14.4 $ 15.7 $ 19.8 $ 22.5 $ 41.4 $ 6.0 $ 11.8
Depreciation and amortization including non-cash
interest......................................... 15.5 16.2 21.0 28.4 45.3 10.8 13.9
EBITDA(5).......................................... 58.6 58.1 80.8 109.7 175.2 29.7 40.7
Ratio of earnings to fixed charges(6).............. 1.9x 2.1x 2.3x 1.8x 1.7x 1.1x 1.3x
CASH FLOW STATEMENT DATA:
Net cash provided by (used in) operating
activities....................................... 26.2 33.3 47.4 85.1 101.2 (43.7) (38.0)
Net cash provided by (used in) investing
activities....................................... (56.6) (35.1) (5.2) (423.4) (351.4) 4.6 13.2
Net cash provided by (used in) financing
activities....................................... 8.6 4.1 (38.3) 423.1 212.2 (5.6) (5.3)
</TABLE>
30
<PAGE> 32
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31, -------------------
---------------------------------------------------- APRIL 4, APRIL 3,
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities(7)............................. $ 114.4 $ 112.7 $ 97.8 $ 168.2 $ 223.5 $ 109.7 $ 156.8
Working capital............................. 194.3 180.2 163.1 341.8 337.2 336.3 335.1
Total assets................................ 494.6 605.0 590.2 1,304.5 1,690.0 1,282.5 1,657.9
Total debt.................................. 223.7 282.1 280.3 853.6 1,024.9 852.8 1,021.6
Stockholders' investment.................... 117.8 131.3 118.8 128.1 217.6 123.7 224.1
</TABLE>
- ---------------
(1) Acquisitions have been accounted for under the purchase accounting method
and dispositions have been accounted for as described in Note 2 of the Notes
to Consolidated Financial Statements included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1998 and in Notes (B), (D),
(H), (J) and (K) of the Notes to Unaudited Condensed Consolidated Financial
Statements included in the Company's Quarterly Report on Form 10-Q for the
three months ended April 3, 1999 incorporated by reference into this
Registration Statement.
(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 discontinued operations for all
periods presented. See Note 9 of the Notes to Consolidated Financial
Statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998 incorporated by reference into this Registration
Statement.
(3) 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. In 1998, the Company recorded a pre-tax gain of
approximately $4 million (approximately $.11 per share, net of tax) related
to the sale of certain businesses. See Note 2 of the Notes to Consolidated
Financial Statements included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1998 incorporated by reference into this
Registration Statement.
(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. The Company believes that EBITDA may be useful to
investors in evaluating the Company's ability to service debt and to finance
growth including acquisitions, capital expenditures and working capital. The
Company believes that during periods of increasing EBITDA the Company may be
able to finance its growth including acquisitions, capital expenditures and
working capital through increased borrowings and the sale of equity. In
periods of declining EBITDA, the Company may be required to limit or defer
growth, including acquisitions and capital expenditures, and may be required
to adopt measures to reduce the level of its expenses and working capital.
EBITDA as calculated by the Company may differ from EBITDA as calculated by
other companies.
(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.
(7) Includes restricted cash, investments and marketable securities in the
amounts of approximately $9.3 million, $9.4 million, $5.7 million, $6.3
million and $13.8 million at December 31, 1994, 1995, 1996, 1997 and 1998,
respectively, and $6.4 million and $8.0 million at April 4, 1998 and April
3, 1999, respectively.
31
<PAGE> 33
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 FIVE-YEAR
NAME AGE EMPLOYMENT HISTORY
- ---- --- --------------------------------------------------------
<S> <C> <C>
Richard L. Bready................. 54 Chairman and Chief Executive Officer of the Company.
Phillip L. Cohen.................. 67 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..................... 52 Vice President, Controller and Chief Accounting
Officer
Richard J. Harris................. 62 Vice President and Treasurer
Kenneth J. Ortman................. 63 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.
32
<PAGE> 34
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 April 3, 1999, the Notes would have been effectively
subordinated to approximately $469.9 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 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
33
<PAGE> 35
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 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
34
<PAGE> 36
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 previously so approved) cease
for any reason to constitute a majority of the Board of Directors of the Company
then in office.
35
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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 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,
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<PAGE> 38
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).
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
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<PAGE> 39
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;
(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
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<PAGE> 40
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 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
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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. In accordance with the Registration Rights Agreement,
the accrual of Liquidated Damages on the Original Notes will terminate upon
consummation of the Exchange Offer with respect to Original Notes that are
exchanged for Exchange Notes. In the event that Original Notes remain
outstanding after consummation of the Exchange Offer, the Company intends to
file a shelf registration statement to register such Original Notes. Upon
effectiveness of the shelf registration statement, the accrual of Liquidated
Damages on any remaining Original Notes will terminate.
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
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Securities Act that is purchasing for his own account or for the account of such
an "accredited investor" in each case in a minimum of Original Notes with a
purchase price of $100,000 or (e) pursuant to any other available exemption from
the registration requirements of the Securities Act, subject in each of the
foregoing cases to any requirement of law that the disposition of its property
or the property of such investor account or accounts be at all times within its
or their control. The foregoing restrictions on resale will not apply subsequent
to the Resale Restriction Termination Date. If any resale or other transfer of
the Original Notes is proposed to be made pursuant to clause (d) above prior to
the Resale Restriction Termination Date, the transferor shall deliver a letter
from the transferee to the Company and the Trustee, which shall provide, among
other things, that the transferee is an "accredited investor" within the meaning
of subparagraph (1), (2), (3) or (7) of paragraph (a) of Rule 501 under the
Securities Act and that it is acquiring such Securities for investment purposes
and not for distribution in violation of the Securities Act. Prior to any offer,
sale or other transfer of Original Notes prior to the Resale Restriction
Termination Date pursuant to clauses (d) or (e) above, the issuer and the
Trustee may require the delivery of an opinion of counsel, certifications and/or
other information satisfactory to each of them.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept all
Original Notes properly tendered and not withdrawn prior to the applicable
Expiration Date. The Company will issue $1,000 principal amount of Exchange
Notes in exchange for each $1,000 principal amount of outstanding Original Notes
accepted in the Exchange Offer. Holders may tender some or all of their Original
Notes pursuant to the Exchange Offer. However, Original Notes may be tendered
only in integral multiples of $1,000 principal amount at final maturity.
The 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 , 1999 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
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expenses, other than certain applicable taxes, in connection with the Exchange
Offer. See "-- Fees and Expenses."
EXPIRATION DATES; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m. New York City time on
[ ], 1999 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.
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THE METHOD OF DELIVERY OF THE ORIGINAL NOTES AND THE APPLICABLE LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE
ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED
THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
APPLICABLE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR ORIGINAL NOTES SHOULD BE
SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
Any beneficial owner whose Original Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should 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 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
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credited to an account maintained with such Book-Entry Transfer Facility),
unless otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
By tendering Original Notes in the Exchange Offer, each registered Holder
will represent to the issuer of such Original Notes that, among other things,
(i) the Exchange Notes to be acquired by the Holder and any beneficial owner(s)
of such Original Notes ("Beneficial Owner(s)") in connection with the Exchange
Offer are being acquired by the Holder and any Beneficial Owner(s) in the
ordinary course of business of the Holder and any Beneficial Owner(s), (ii) the
Holder and each Beneficial Owner are not participating, do not intend to
participate, and have no 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) 664-5150
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 $750,000.
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.
MATERIAL FEDERAL TAX CONSIDERATIONS
The following summarizes the material United States federal income tax
consequences of the receipt, ownership and disposition of the Exchange Notes to
United States Holders (as defined below) and Foreign Holders (as defined below).
This discussion is based on currently existing provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), existing and proposed Treasury
regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all as in effect or proposed on the date hereof and all
of which are subject to change, possibly with retroactive effect, or to
different interpretations. This discussion does not address the tax consequences
to subsequent purchasers of Exchange Notes and is limited to Holders who hold
the Exchange Notes as capital assets, within the meaning of Section 1221 of the
Code. This discussion also does not address the tax consequences to nonresident
aliens or foreign corporations that are subject to United States federal income
tax on a net basis on income realized with respect to an Exchange Note because
such income is effectively connected with the conduct of a U.S. trade or
business. Such Holders are generally taxed in a similar manner to United States
Holders; however, certain special rules apply. Moreover, this discussion is for
general information only and does not address all of the tax consequences that
may be relevant to particular Holders in light of their personal circumstances
or to certain types of Holders (such as certain financial institutions,
insurance companies, tax-exempt entities, dealers in securities or persons who
have hedged a risk of ownership of a Note).
No ruling from the Internal Revenue Service ("IRS") will be requested with
respect to any of the matters discussed herein. There can be no assurance that
the IRS will not take a different position concerning the tax consequences of
the receipt, ownership, or disposition of the Notes, or that any such position
would be sustained. BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH
PROSPECTIVE HOLDER OF EXCHANGE NOTES IS STRONGLY URGED TO CONSULT HIS OR HER OWN
TAX ADVISOR WITH RESPECT TO HIS OR HER PARTICULAR SITUATION, AND AS TO ANY
FEDERAL, FOREIGN, STATE, LOCAL OR OTHER TAX CONSIDERATIONS (INCLUDING ANY
POSSIBLE CHANGES IN TAX LAW OR INTERPRETATIONS THEREOF) AFFECTING THE RECEIPT,
HOLDING AND DISPOSITION OF THE EXCHANGE NOTES.
TAX CONSEQUENCES TO UNITED STATES HOLDERS
As used herein, the term "United States Holder" means a holder of Exchange
Notes, that is, for United Stated federal income tax purposes, (a) a citizen or
resident of the United States, (b) treated as a domestic
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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 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 taxable 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 ("TIN") (social security or employer
identification number) in the prescribed manner, the IRS notifies the Company
that the TIN furnished by the Holder is incorrect, the Holder fails to certify
under the penalty of perjury that such Holder is not subject to backup
withholding, or the Holder fails 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 applicable 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) (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 provides
the Company or its agent a properly executed certification on IRS Form W-8 (or a
suitable substitute or successor form) signed under the penalties of perjury
providing the beneficial owner's name and address and certifying that it is not
a United States Holder or (y) a
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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 the IRS Form W-8 (or a suitable
substitute or successor form) has been received by it from the beneficial owner
of the Exchange Note or a qualifying intermediary and furnishes the payor a copy
thereof or (b) 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 if a
properly executed Form 1001 is provided).
Gain on Disposition of Exchange Notes. A Foreign Holder generally will not
be subject to United States federal income tax or withholding tax with respect
to gain recognized on a disposition of the Exchange Notes, unless (i) in the
case of a Foreign Holder that is an individual, such Foreign Holder is present
in the United States for 183 or more days in the taxable year of the disposition
and certain other requirements are met, or (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. 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) 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 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) 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 (including that the broker has no actual knowledge that the holder is a
United States Holder), or the Holder otherwise establishes an exemption. Payment
by a United States office of a broker, nominee agent 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, 1999. 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
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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 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 and Paul, Hastings,
Janofsky & Walker LLP, New York, New York.
EXPERTS
The audited consolidated financial statements and schedules of Nortek, Inc.
and subsidiaries as of December 31, 1997 and 1998 and for each of the three
years in the period ended December 31, 1998 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 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, which includes an explanatory
paragraph disclosing the Company has not utilized "push down" accounting in
accordance with generally accepted accounting principles, as established by the
Securities and Exchange Commission for public companies, with respect thereto.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
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NUTONE INC. AND SUBSIDIARY PAGE NO.
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<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheet as of December 31, 1997 and July
4, 1998 (unaudited)....................................... F-3
Consolidated Statement of Operations for the year ended
December 31, 1997 and the six months ended June 28, 1997
and July 4, 1998.......................................... F-4
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-5
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-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 74
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.
As described in Note 3 to the consolidated financial statements, the
Company has not "pushed down" certain purchase accounting adjustments related to
its acquisition by the parent company, Williams plc, in 1991. In our opinion,
generally accepted accounting principles, as established by the Securities and
Exchange Commission for public companies, require that such adjustments be
reflected in the financial statements.
In our opinion, except for the effects of not pushing down certain purchase
accounting adjustments as described in the preceding paragraph, 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-2
<PAGE> 75
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-3
<PAGE> 76
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-4
<PAGE> 77
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-5
<PAGE> 78
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-6
<PAGE> 79
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. For all fiscal periods
presented, the Company was owned by Williams who acquired the Company in 1991
and utilized the purchase method of accounting. Pursuant to regulations
established by the Securities and Exchange Commission for public companies,
generally accepted accounting principles require that the new purchase
accounting basis in an acquired company's assets be "pushed down" to a
subsidiary's stand-alone financial statements. The Company's financial
statements do not reflect the effects of applying "push down accounting". Had
push down accounting been applied to the Company's financial statements, the
balance sheets and statements of operations of the Company would have been
adjusted to reflect the effects of push down accounting on inventory and
property, plant and equipment and to record a new asset and related amortization
for goodwill. (See Note 14.)
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.
F-7
<PAGE> 80
NUTONE INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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-8
<PAGE> 81
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-9
<PAGE> 82
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-10
<PAGE> 83
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-11
<PAGE> 84
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-12
<PAGE> 85
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. "PUSH-DOWN" ACCOUNTING INFORMATION
In March 1991, Williams acquired Yale & Valor plc (a U.K. holding company),
which owned several operating subsidiaries, including NuTone. Although a
separate purchase price was not established for NuTone, an allocation of the
total purchase price to the NuTone business, based on Williams' estimate of the
respective fair values of all of the acquired businesses, resulted in an
estimated purchase price of approximately $111,000,000 for NuTone.
At the acquisition date, Williams estimated that the fair value of NuTone's
liabilities exceeded the estimated fair value of its tangible assets by
approximately $227,000,000, on a U.S. GAAP basis, which would have resulted in
estimated goodwill to Williams of approximately $338,000,000, which was
determined to have an estimated life of 40 years. Had "push-down" accounting
been used in the NuTone financial statements, the goodwill resulting from
Williams' acquisition of NuTone would have resulted in amortization expense of
approximately $8,450,000 for the year ended December 31, 1997 and $4,225,000 for
each of the six month periods ended June 28, 1997 and July 4, 1998,
respectively.
15. 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
F-13
<PAGE> 86
NUTONE INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
properties, at July 4, 1998 and December 31, 1997, are non-operating and
are not material to the Company's financial position or 1998 and 1997
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 except
for the effects of not utilizing push down accounting related to the
Company's acquisition by the parent company in 1991. (See Note 14.)
Following the proposed acquisition of the Company by Nortek, Inc., a new
basis of accounting will be established for the Company and any such
pushdown adjustments with respect to goodwill, inventory and property,
plant and equipment will be eliminated. 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.
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-14
<PAGE> 87
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE INITIAL PURCHASERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE
NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY OF THE NOTES TO ANYONE OR BY ANYONE IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO WHOM, IT WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN A CHANGE IN THE INFORMATION SET FORTH IN THIS PROSPECTUS OR IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents
By Reference...................... 3
Available Information............... 4
Summary............................. 5
Risk Factors........................ 17
Recent Developments................. 23
Use of Proceeds..................... 23
Capitalization...................... 24
Unaudited Pro Forma Condensed
Consolidated Financial Data....... 25
Selected Historical Consolidated
Financial Data.................... 30
Management.......................... 32
Description of Notes................ 33
The Exchange Offer.................. 60
Material Federal Tax
Considerations.................... 68
Plan of Distribution................ 71
Legal Matters....................... 71
Experts............................. 71
Index to Consolidated Financial
Statements........................ F-1
</TABLE>
NORTEK, INC.
EXCHANGE OFFER
$210,000,000
8 7/8% SERIES B SENIOR NOTES
DUE 2008
--------------------
PROSPECTUS
--------------------
JUNE [ ], 1999
<PAGE> 88
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> 89
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).
3.4 Amendment to By-laws of Nortek, Inc. (Exhibit 3.1 to Form
8-K filed April 23, 1999, 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.
5.1* Opinion of Ropes & Gray regarding the validity of the Series
B Senior Notes due 2008.
5.2* Opinion of Paul, Hastings, Janofsky & Walker LLP 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.
23.4 Consent of Ropes & Gray (included in Exhibit 5.1).
23.5 Consent of Paul, Hastings, Janofsky & Walker LLP (included
in Exhibit 5.2).
24 Powers of Attorney (included on signature page hereto).
25* Statement of Eligibility of Trustee.
99.1* Form of Letter of Transmittal used in connection with the
Exchange Offer.
99.2* Form of Notice of Guaranteed Delivery used in connection
with the Exchange Offer.
</TABLE>
- ---------------
* Previously Filed.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant, pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer of controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by any such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether or not
such indemnification is against public policy as expressed in the Securities Act
of 1933 and will be governed by the final adjudication of such issue.
II-2
<PAGE> 90
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> 91
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 16th day of June, 1999.
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>
*By: /s/ RICHARD L. BREADY (Principal Executive Officer) June 16, 1999
..................................... Chairman, President and Chief
RICHARD L. BREADY Executive Officer
ATTORNEY-IN-FACT
* (Principal Accounting Officer) Vice
..................................... President, Controller and Chief
ALMON C. HALL Accounting Officer
* Vice President, Treasurer and
..................................... Director (Principal Financial
RICHARD J. HARRIS Officer)
* Director
.....................................
PHILLIP L. COHEN
* Director
.....................................
WILLIAM I. KELLY
* Director
.....................................
J. PETER LYONS
</TABLE>
II-4
<PAGE> 92
EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
- ------- ----------- ------------
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).
3.4 Amendment to By-laws of Nortek, Inc. (Exhibit 3.1 to Form
8-K filed April 23, 1999, 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.
5.1* Opinion of Ropes & Gray regarding the validity of the Series
B Senior Notes due 2008.
5.2* Opinion of Paul, Hastings, Janofsky & Walker LLP 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.
23.4 Consent of Ropes & Gray (included in Exhibit 5.1).
23.5 Consent of Paul, Hastings, Janofsky & Walker LLP (included
in Exhibit 5.2).
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.
- ---------------
* Previously Filed.
<PAGE> 1
EXHIBIT 12
Nortek, Inc.
Calculation of Earnings to Fixed Charges
(Amounts in Millions)
<TABLE>
<CAPTION>
Year Ended December 31, Three Months Ended
------------------------------------------ ------------------
April 4, April 3,
1994 1995 1996 1997 1998 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings (Loss) from Continuing
Operations 15.4 17.5 23.7 26.4 34.0 1.3 3.5
Provision for Income Taxes 8.7 10.6 14.9 16.3 27.3 1.2 3.0
---------------------------------------------------------------
"Earnings" 24.1 28.1 38.6 42.7 61.3 2.5 6.5
===============================================================
Fixed Charges:
Interest Expense including
amortization of Debt Expense
and Discount 23.8 23.0 28.4 50.2 86.3 19.5 24.0
Interest portion of Rental
Expense 1.9 1.9 1.8 2.5 4.5 1.1 1.0
---- ---- ---- ---- ----- ---- ----
"Fixed Charges" 25.7 24.9 30.2 52.7 90.8 20.6 25.0
==== ==== ==== ==== ===== ==== ====
Earnings Available for
Fixed Charges 49.8 53.0 68.8 95.4 152.1 23.1 31.5
Ratio of Earnings to
Fixed Charges 1.9 2.1 2.3 1.8 1.7 1.1 1.3
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1998
----------------------------------------
Nortek NuTone Pro Forma
Historical Historical Company
<S> <C> <C> <C>
Earnings from Continuing Operations 34.0 3.2 31.4
Provision for Income Taxes 27.3 2.1 27.6
---- ---- ----
"Earnings" 61.3 5.3 59.0
==== ==== ====
Fixed Charges:
Interest Expense including amortization of
Debt Expense and Discount 86.3 7.1 97.6
Interest portion of Rental Expense 4.5 .3 4.8
---- ---- ----
"Fixed Charges" 90.8 7.4 102.4
===== ===== =====
Earnings Available for Fixed Charges 152.1 12.7 161.4
Ratio of Earnings to Fixed Charges 1.7 1.7 1.6
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended April 4, 1998
----------------------------------------
Nortek NuTone Pro Forma
Historical Historical Company
<S> <C> <C> <C>
Earnings from Continuing Operations 1.3 0.7 0.5
Provision for Income Taxes 1.2 0.5 0.5
---- ---- ----
"Earnings" 2.5 1.2 1.0
==== ==== ====
Fixed Charges:
Interest Expense including amortization of
Debt Expense and Discount 19.5 3.1 24.3
Interest portion of Rental Expense 1.1 0.1 1.2
---- ---- ----
"Fixed Charges" 20.6 3.2 25.5
===== ===== =====
Earnings Available for Fixed Charges 23.1 4.4 26.5
Ratio of Earnings to Fixed Charges 1.1 1.4 1.0
</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 22, 1999 incorporated by reference in this Registration
Statement and to all references to our Firm included in this Registration
Statement.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
June 15, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 5 to the registration
statement on Form S-4 (File No. 333-64731), of our report, which includes an
explanatory paragraph disclosing the Company has not utilized "push down"
accounting in accordance with generally accepted accounting principles, as
established by the Securities and Exchange Commission for public companies,
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
June 16, 1999
